Buying a house is probably the single most important investment you'll ever make, but there are some things your broker won't necessarily tell you. Here, then, with a nod to Smart Money consumer column, are a few tips to keep in mind when you're shopping for a house.
No.1 "I'm not looking out for your best interests."
Most real estate brokers are born to schmooze. So chances are that by the time you finish cruising a few neighborhoods together, you'll know your broker's life story, and your broker will know yours. It's only natural for you to believe that the broker is representing your interests. That's usually not the case. "The number one thing brokers won't tell you is that they represent the seller," says Anne Collins, deputy director for enforcement at the state's Division of Registration, which includes the state real estate board.
That's right. No matter how friendly the brokers, no matter how much they seem to be on your side, they really represent the seller. Many agencies now require their brokers to have you sign a form acknowledging that reality. But it's easy to write it off as a simple formality. The feeling remains: This broker is looking out for my best interests. "People make assumptions based on behavior," says Alison Schechter, senior vice president of Hammond-Landmark, in Wellesley. "You can't do that."
Schechter is among those brokers who clearly explain to buyers that they have an option. You probably didn't know this, but you can walk into many agencies and choose to have an agent represent you and not the seller. It shouldn't cost you any extra, either. The broker who's representing you collects a share of the commission just as he or she would if that broker was representing the seller.
"I can only represent one party, I can only serve one master," Schechter says with refreshing candor. "Buyers should be represented. They're bringing money to the table."
What happens if your broker is also representing a seller on a property you'd like to see? Schechter tells her clients she cannot be a buyer's broker on that house. Other brokers, though, may try to sell you on the concept of being a dual agent representing you and the seller. Sounds like a conflict, doesn't it? It is.
Advice: Choose a broker who will represent you. If you don't, never forget the fact that no one, except you, is looking out for your best interests.
No. 2 "That price is ridiculous."
So you've found the house of your dreams. As you pull up to the front door, you can barely contain yourself, and your broker can t help but notice. This being the twentieth house she's shown you in four weeks, she crosses her fingers and says a prayer.
Your question as you stroll starry-eyed down the driveway back to her car: Is $300,000 too much to pay for this house? Warning: Don't expect a straight answer. "I can't tell you if a house is too much money," says a Brookline real estate broker.
Why? If your broker represents the seller, he or she can't say anything that might lead you to offer less than the asking price. And don't forget, the more you pay for your house, the more the broker makes. So what you ll likely hear is, "All I can say is, make an offer and I'll present it." In other words, good luck. You're on your own. So how do you figure out how much to offer? Real estate analyst Karl Case has this advice: "Check out comparable sales in the neighborhood, then drive by each house to make sure you're comparing apples to apples."
The easiest way to get comps is to ask your realtor. Real estate broker Sandy Wheeler supplies them for any client who wants them. Other options: Check Banker and Tradesman, a weekly publication that lists every real estate transaction in the Boston area. Or hook up with a service that sells lists of comparable sales. Then make an educated offer based on facts, not feelings.
No. 3 "This is a lousy investment."
Wake up, the eighties are over. The days when you could buy a house and count on doubling your money in five years are history. So beware of brokers who tell you the house or condo you're looking at is a great investment.
"Most real estate agents don't explain the investment value of a house. They tend to be overly optimistic," warns Case. "A broker might tell you this is a great inflation hedge, but it's a leveraged investment, and a big investment. The average family is overinvested in a house."
Trying to figure out whether a house is a good investment is much trickier than coming up with a fair price. In fact, an honest broker will confess that pinpointing the exact future value of a house is no easier than doing so for a stock. And as they say on Wall Street, past performance is no predictor of future performance.
So what can you do? To begin with, lots of homework. There are real estate analysis firms, and experts like Case, that track prices. But remember, tracking looks primarily at past history and the short-term future. Long-term predictions are much harder to make. They require a detailed understanding of demographics, economic trends, population shifts, crime rates, school systems, and other factors affecting the city or town where you're shopping.
If all this is starting to boggle your mind, you're getting the point. If you're obsessed with knowing the long-term investment potential of your house, you can hire an expert to do the analysis. But even that analysis is the equivalent of an educated guess. Anything short of that should be seen for what it is simply a guess. Coming from a real estate agent who represents a seller, it's a biased guess at that. Concludes Case: "Consider the joy of living in a house as your most important yield."
No. 4 "The house next door has four Great Danes with a barking problem."
There are infinite variations on this theme, none of them pretty. If you're looking at a condo during the day, when the next-door neighbors are at work, for instance, don't expect your realtor to tell you that the guy in the adjacent unit is a screamer and the walls are paper thin. In fact, your broker might not even know it.
"The basic rule is the buyer needs to ask," says Anne Collins. "A seller or an agent can't affirmatively misrepresent anything. But if a seller or agent is silent about something they might know about, they're within the law."
That forces you, the buyer, to do some investigating on your own. A few suggestions from real estate agents: Walk around the neighborhood you're considering at various times of the day and night. Talk to neighbors. Check with the city or town to find out about any construction or development that might be in the works. Drop in at the local police department.
So what are the chances that a broker might tell you the whole story? "I have to be fair to the buyer. I'm going to do what's morally right," says Hamilton Heard, who has been selling real estate on Nantucket for years.
Honest brokers will tell you what they know, whether you ask them or not. But you shouldn't count on their candor. On the contrary, Collins suggests that you ask as many questions as you can think of and then get answers in writing. "If a broker won't sign to what he or she says is true, you can't count on it," she says.
No. 5 "You'll never get your deposit back."
When Noreen Solimine plopped down $5,000 for a townhouse in Norton, she never envisioned losing her money. But just before the closing, Solimine learned that the developer she was buying from didn't have clear title to the property. It was riddled with liens.
Listen to Solimine's story: "I went back to him and said: You can't sell this to me. You don't hold a clear title. Give me my money back.' He said: Too bad for you. What are you going to do about it?' I called the broker and begged her to make this man give me back my money. She said, 'Sorry, there's nothing I can do about it.'"
Solimine eventually bought the townhouse from the bank that foreclosed on the property. As for her $5,000 deposit, it was still in the hands of the developer. So Solimine had to file a complaint with the state real estate board. Almost 18 months later after a lot of sweat and aggravation she finally got her money back.
Every year the state board that oversees real estate agents handles about 400 complaints. Most of them involve alleged misrepresentations and failures to return deposits that you have to fork over when you sign the purchase-and-sale agreement. What you need to do is to make sure that agreement is written in a way that protects your deposit in case the deal falls apart.
"Brokers are trying to make it as expeditious as possible," says Anne Collins. "Buyers should make it as explicit as possible."
Your purchase-and-sale agreement should spell out exactly how much money you're putting down, the amount of time it can be held, who holds it, and what the dispute resolution process is. Keep in mind that you can negotiate every one of those items.
A final warning from the state real estate board: Don't sign any agreement or pay any money until you're completely comfortable with all the terms and believe the agreement protects your interests.
No. 6 "This house is falling apart."
If you've looked at a lot of houses, especially older ones, you know by now that there are several key things to keep an eye out for. Is the basement leaking? Does the wiring need updating? How's the plumbing? (Reminder: Don't forget to flush the toilet and run the water at the same time.) But here's one piece of advice you should never forget: Always get a professional home inspection before buying a house. And never sign a purchase-and-sale agreement that prevents you from getting an inspection before you close the deal.
Who should do the home inspection? Your broker will likely recommend one or two companies. But keep this in mind: Those home inspectors rely on your broker's referrals for business. Find a problem that kills a deal once too often, and their business will dry up. There's a conflict of interest here.
So what can you do? Rather than use a home inspector referred by your broker, check around for a company that doesn't accept broker referrals. There are some listed in the yellow pages. Interview a few in your area, and then choose one to do the job.
Once you have the report in hand, go over it line by line with the inspector. Go one step further, and ask the inspector to walk through the house with you and point out what needs fixing and how much it might cost to repair.
The more questions you ask the inspector and the owner the better. If, for example, the owner claims the heating system was updated five years ago or the roof repaired last year, ask for some receipts or the name of the company that did the work. Remember: Get everything in writing. That could save you tons of trouble and piles of money down the road.
No. 7 "My commission is negotiable."
Whether you're buying or selling, it's important to know that an agent's commission is not set in stone. The broker's customary cut is 6 percent. But like everything else in a real estate deal, the number is negotiable.
If you're selling a house, that knowledge can come in very handy especially if a broker brings you an offer that's less than palatable. By shaving a few percentage points off the commission, you can make up some of the difference between what you wanted and what you eventually get. For instance, let's say you're trying to buy a specific house, but you and the owner can't agree on the price. You can prod your agent to compromise on the commission as a way to sweeten the deal. Most agents would rather not lose a sale over a few thousand dollars, especially when it's a big one, and the commission even when trimmed will be substantial.
No. 8 "I don't know what I'm doing."
So you thought Massachusetts was the education state. Well, not when it comes to required training to work in real estate.
"Any smart seventh-grader could pass a salesperson's exam," says Alison Schechter. "The ease of entry into the real estate business is shocking, especially when you consider you're advising people on the single biggest investment they'll ever make."
Now brace yourself. Massachusetts has some of the loosest requirements in the country for would-be real estate agents. To become a salesperson in the commonwealth, you need only 24 hours of classroom training; to be a broker, 30 hours. Pass the state licensing exam, and you're in business. There's a bill pending on Beacon Hill that would stiffen the requirements. But you guessed it that legislation is going nowhere.
And keep this in mind the next time you hand your agent a $10,000 deposit: They only are required to take out a $1,000 bond. So, say your broker decides to fly off to the Bahamas with your cash, along with thousands more from a few other clients, you can kiss your money good-bye.
With all that in mind, how should you pick your real estate agent? Very carefully, Schechter suggests. "You don't hire a plumber without getting a few references," she says. "Some people wouldn't hire a grass cutter without first checking them out. Yet clients rarely ask me for even one reference."
Schechter advises prospective customers to spend time interviewing her, as well as talking to some of her current and former clients. "Consider it a serious job interview," she says.
A few other things to do: Call the state board that licenses real estate agents. Ask about any pending complaints or disciplinary action. (Warning: The board rarely suspends or revokes a license.) You can also check the county courts for civil suits. If you find any, talk with the party who is suing your broker to find out why.
What not to do: Walk into a real estate office and assume the first broker you find is the right one for you.
No. 9 "Don't tell me too much about yourself."
While you should try to learn as much about your prospective broker as possible, you don't want them to know everything about you. This is especially true if you're dealing with a seller's broker, as is most often the case. The reasons are obvious. You need to assume that everything you tell that broker, the broker will relay to the seller. If, for example, you have an urgent need to buy a house by a certain deadline, telling the agent could undermine your bargaining position. So could revealing your detailed financial information. Save all that for the mortgage application.
The problem is, once you get chatty with a broker, a lot of things start to slip out. That's exactly what a seller's broker is hoping will happen. You have to be on guard and never forget you're in the middle of one of the biggest financial deals of your life. As they say on those TV cop shows, anything you say can be used against you.
No. 10 "See these pipes? They don't come with the house."
There are enough closing-day horror stories to make the short hairs on the back of your neck stand on end. Take the one about the buyer who signed all the papers, handed over the money, and then dropped by his new house, only to discover that the owner had removed a huge chunk of copper piping.
Former New Hampshire broker Theresa D'Angelo recalls the case of a seller who dug up and hauled away all the shrubs around his house right before closing. "It's amazing how petty people will be," D'Angelo says.
A standard purchase-and-sale agreement should spell out exactly what you're getting for your money. But never take anything for granted. The state real estate board has this advice for buyers: Before the closing, take one final walk through the property to be sure it's in the agreed-upon condition. If you don't, you could be in for some very strange surprises.