I had a conversation with an Australian real estate agent over the weekend. OK, I didn’t actually converse with him (but it made me feel fancy and important to say it that way. ‘What? I regularly call my friends on other continents where they totally eat crumpets and Nutella. And I’m wearing pearls and drinking tea with my pinky up right now, booyah!’) but he reads my blog and commented on the last post I wrote. He had all these questions about how our commissions and advertising work and it made us both realize how completely different our systems of real estate are. He kept using the word ‘vendor’ and I had no idea who it referred to except that maybe in Australia they have a tradition where the agent who sells a house gives the new owner a hotdog in celebration. Because hotdogs are all I can think of when I hear the word ‘vendor’. But apparently in Australia they call the ‘seller’ the ‘vendor’. So no hotdogs are involved.
Anyway, I’d been meaning to write a post about questions people are afraid to ask their real estate agent. I know my buddy, Matthew, over there Down Under, isn’t afraid to ask any questions, but I thought these might help him get a better idea of how it works here in The States. Thus, for all the first time buyers, or even the buyers and sellers who just didn’t pay any attention the first time they did it, and for all the Aussie, Kiwi, Brit, Canuck (can you tell I just Googled ‘non-offensive slang terms based on country’?) real estate agents who are just curious how our systems differ, I present to you, 5 Questions You’ve Always Wanted to Ask a Real Estate Agent But Didn’t (and because while writing this I realized I could go on forever with questions, I’m going make this a series; this is Part I):
1. Question – Now just how are you going to be paid for all of this driving around of me and my family you are doing? Am I going to be expected to write a check when we’re done? Because I’m getting a little nervous about all the time and free waters and granola bars you’ve been devoting to us lately and what that’s going to look like on the back end…
Answer – Don’t worry, Man, the seller pays me! The gas and water and granola bars are totally just a freebie to you. Kinda like a toaster when you open a new bank account. I’m just trying to keep you happy, hydrated and your blood sugar at a respectable level so that you don’t stab me when we’re on house number 9 and you’re hot, exhausted and you just don’t even CARE about granite in the kitchen or walk-in closets in the master anymore. Unless you’re the seller, and then get ready to write a big check; you pay for the listing agent AND the buyer’s agent. When the seller hires the listing agent to sell the house, they will agree upon a commission the listing agent is awarded upon close of escrow. The listing agent then advertises part (not always half, sometimes less than half, sometimes more than half, it’s completely at their discretion) of that commission to a buyer’s agent who brings a buyer to successfully purchase the property. This is usually (but not always) a percentage of the purchase price. Then, at close of escrow when the deal is done, the title company will remove the agreed upon fees from the seller’s proceeds and dole out payment to the listing agent and buyer’s agent (and their brokers. OK, mostly their brokers. Sad, but true.).
2. Question – What on Earth do you mean when you say you’re ‘going to pull comps’?
Answer – ‘Comps’ is short for comparable properties. When I say I’m going to pull comps, I mean I’m going to refer to the multiple listing system to look up properties that have sold recently and are similar to the one you’re interested in making an offer on or selling. Because our market is always changing, the idea of ‘value’ is as well. Before we make an offer or list your house, I want a concrete idea of what comparable properties are going for. We don’t want surprises on the appraisal and this process is exactly what an appraiser will do.
3. Question – OK, I get ‘comps’ but what about ‘spuds’ ‘been sir’ and ‘smurckles’? What in the hell are you talking about?
Answer – Ah, yes, sorry. SPDS is the acronym for the Seller Property Disclosure Statement. It’s a document the seller fills out that describes the property to the best of his or her knowledge for the buyer’s information. Sometimes we call it ‘spuds’ because we’re real estate dorks and we forget most people don’t spend their lives (and their youth) dealing with real estate documents. You should probably carry a rubber band around in your pocket and get it out and flick me in the head every time I do that. It’s a good behavior-modification technique. BINSR (been sir) stands for the Buyer’s Inspection Notice and Seller’s Response document (not the most succinct name ever. Probably Charles Dickens made it up). SMRKL I just made up to screw with you. Because it’s funny to think about you frantically Googling at night because you can’t figure out what it means.
4. Question – I’m not trying to be a cheap-ass here, but can I offer less than the asking price on that house I really want?
Answer – (Prefaced with an acknowledgment that LOTS of buyers have no problem asking this question or demanding that we do this, even when it makes no sense. But I know there are some out there who are nervous to ask this because that’s how I felt when I bought my first house, before I was an agent.) The answer to this is completely dependent on a bunch of factors.
Number one: what is the market like? Are there a billion buyers out there competing for every house? Then the answer is ‘No.’ You aren’t going to get the house if you’re up against higher offers. If it’s a buyer’s market and you have no competition, then, in theory, yes.
Number two: how badly do you want the house? Are you going to throw yourself off the Tempe Town Lake Bridge (which actually probably wouldn’t kill you, but now that it’s pretty empty, it’s possible, and at the very least it would totally hurt a lot) if you don’t get this very house because it’s the most perfect ever? Well, then, no, I don’t think you should probably offer under. Negotiation is all about leverage. If you’re willing to walk away, then you have the leverage and you’re going to get the best deal. If you aren’t willing to walk away, then you need to do what the seller wants; they have the leverage.
Number three: what do the comps say (see question 2)?
The point of all of this is: Don’t be afraid to ask this question. Ask it and talk to your agent about the factors in this purchase. Also don’t ignore your agent’s advice. She’s not (usually) just screwing with you. She wants what you want.
5. Question – What is this whole ‘closing costs’ thing, what is it going to set me back and can’t I ask for someone else to pay them?
Answer – If you’re the buyer, most of your closing costs are determined by the lender. They are the loan origination fee (usually 1% of the loan), appraisal fee, title and escrow fees, tax prorations and stuff like that. As the real estate agent, we use 3% of the purchase price as sort of a big round guesstimate for what your closing costs are going to be, but the lender can give you what’s called a Good Faith Estimate (or GFE. But that’s not geeky Realtor-speak, that’s geeky lender-speak) that will give you a much closer estimate. We can ask the seller to pay for your closing costs, but this will weaken your offer. If you want to be out of pocket less (end up having more cash) at the end of the transaction, then we should make a slightly higher offer and ask for seller paid closing costs. If you don’t care either way, generally a cleaner offer is going to get you’re the better deal. If you are the seller, the biggest chunk of your closing costs will be the real estate commissions. But you will also have title fees and if you agree to pay the buyer’s closing costs, there are those too.
Well that went on a little long (who am I, Charles Dickens?). But I think there are lots more questions to be addressed, so I’ll definitely revisit this topic at a later date. Feel free to comment with questions you had but were afraid to ask (or if you’re really afraid to post them, you can email me anonymously. Or shove a little sheet of paper under my door. But if you do the latter, I might call the police because that’s some freakiness, there.)