Seven Sins of Selling & Buying
Originally appeared in Hills Publications, July 19, 2002 and ANG Newspapers, July 13, 2002
Buying and selling a home is complicated. Considering this is one of the most expensive purchases you will make, it pays to learn the worst pitfalls to avoid.
#1 Not understanding the market
Buyers and sellers need to comprehend whether it is a normal, buyer’s or seller’s market. In a normal market, it usually takes 30 to 90 days to generate an accepted contract on a listing. In a buyer’s market, listings linger even longer. Obviously, the more time properties take to sell, the more advantageous it is for buyers.
From 1991 through 1995, a number of buyers paid unnecessarily high sums for homes that had peaked in value and volume years before. When these folks became sellers before the market turned upward in 1997, they lost, not made, money.
#2 Underestimating the process
For buyers, especially first time ones, searching for a home may be like a part-time job. There are many steps to take and an abundance of information to be digested. If you are in the buying mode, learn as much as you can about the process. Do not take it for granted.
Many homeowners wish they had been more knowledgeable when they bought. This is especially true when people buy “As Is” without truly knowing what that means. Similarly, a lack of familiarity with different neighborhoods could lead to a buying blunder.
Some sellers believe that selling a home is just a matter of finding a buyer. In actuality, the process involves careful analysis of the property and location in light of current market conditions. Accurate pricing and effective marketing is an art requiring competence and years of relevant experience.
#3 Not having inspections
In today’s competitive atmosphere, some buyers erroneously waive their right to have inspections. Sometimes, this is because they have copies of the seller’s reports. Although this is better than none at all, every buyer should hire his own professionals to thoroughly evaluate the condition of the property. Not doing so is extremely risky.
If you are thinking about selling, how can you correctly price your home without an accurate picture of its condition? If this sounds logical, ponder the fact that at least 80 to 90 per cent of all listings come on the market without a pre-sale inspection by the seller. When the buyer asks you for large price adjustments or credits, it will become evident how beneficial it is to have inspections before marketing.
#4 Dismissing Disclosures
For buyers, the challenge is to pay attention to the clues resulting from a seller’s disclosures. For example, a seller may say: “sub-area sometimes gets wet during heavy rains.” Translated, this means there is probably a drainage issue that requires investigation by an engineer or drainage expert.
Sellers are obligated to disclose everything that is, or could be, a problem impacting the value or desirability of the house. This includes telling the buyer in writing about past problems that were repaired.
For instance, if you fixed a roof leak, it must be reported to all prospective buyers. If the fix was not effective or long-lasting, and you did not disclose it, you could have considerable liability. This includes repair or replacement of the roof, plus any subsequent damage caused by the leak.
Especially important is any work done without permit and/or not to code. Failure to disclose is one of the most common causes of action by buyers against sellers.
#5 Taking the contract lightly
Once ratified, a written contract is a legally binding agreement. The seller has a right to rely on your good faith and willingness to perform. As an example, after you have removed your inspection and financing contingencies you decide to switch lenders.
This will likely delay the close of escrow. The seller may have made financial commitments that he will not be able to keep if the escrow closes late. You, the buyer, could have heavy liability if the seller suffers because of your breach.
Sellers, likewise, need to take the contract seriously. I have seen situations where, while in escrow, the seller’s circumstances change and he no longer wishes to sell. Meanwhile, the buyer has fully performed and he has made plans based on the seller’s promise to sell. Although sellers are rarely forced by the courts to sell (specific performance), this failure to comply could cost a seller dearly.
Whether you are a buyer or seller, take the time to read and understand what you are signing.
#6 Being too tight with the buck
Over the years, I have seen numerous cases where buyers had an opportunity to purchase a good house at an amount within their budget, but they did not offer enough. When buyers push too hard on the price, they usually lose. This phenomenon occurs in every type of market. Had they bought at the time, they now would have substantial equity in the home.
Sellers often make the corresponding faux pas. A classic seller’s error is to price the home based on what he needs, rather than what the market dictates. This causes the property to sit, unsold, until the price is adjusted into a reasonable range.
Another seller miscalculation is to choose an offer based on price alone without considering the other variables. Competent agents counsel their sellers to pick the contract with the highest price and the best chance of closing escrow. Sellers who do not heed this advice often experience failed escrows and, ultimately, lower net proceeds.
#7 Choosing the wrong agent
Bearing in mind the long-term impact of your decision, take care in selecting a Realtor. Do not take the path of least resistance and decide on the first agent who is willing to work with you. This is a common mistake.
A soft, unthreatening voice or a friendly smile and agreeable nature are no substitute for the myriad of skills and the degree of caring required to do a good job for you.
Even if one salesperson has been recommended by several people you know and respect, still take the time to interview him before committing. You need an agent who will represent your best interests.
The worst sin is looking back and realizing you could have done a better job in handling your real estate transaction. An effective agent can help you avoid the traps and blind alleys. The difference between a positive and profitable experience and a negative and costly one is the choices you make.