FAQs: Frequently Asked Questions
Originally appeared in Hills Publications, July 2, 2004 and ANG Newspapers, June 26, 2004
Over the years, whether in person or via my website, East Bay Realty Pro, people repeatedly have asked me certain questions. Here are some of the more common ones. You will make a more informed buying or selling decision by understanding these basics.
Q. How are Realtors different from agents?
All Realtors are agents, but not all agents are Realtors. A Realtor is a member of the National Association of Realtors. In fact, only about one-third of all licensees in California are Realtors.
The most significant difference between Realtors and others is that Realtors must adhere to a strict code of ethics or be accountable to a Professional Standards procedure. A Realtor’s top priority is to represent your best interests. Look for someone who is local and well respected for his or her integrity and knowledge.
Even if an agent is referred by a friend or relative, be sure to have a comprehensive interview before committing.
Q. When in competition to buy a home, what is a good rule of thumb for how much to offer above the asking price?
There is no rule of thumb. How much higher is always a guessing game. Buyers and inexperienced agents base offers solely on the list price. This can often be a mistake if the property is overpriced or, conversely, underpriced.
Offering more than a grossly inflated asking price could be folly. An overpriced property, however, may sit with no offers and later be primed for a substantially lower offer with no competition. On the other hand, a home that is listed under market may warrant a bid that is well over asking, but still sensible.
Numerous other variables come into play, such as location, condition, style, floor plan, etc. A Realtor who knows the territory can guide you through the morass.
Q. With all the competition, I feel pressured to waive inspections and loan contingencies. My agent says this is the only way I will have a chance in multiple offers situations. This makes me nervous. Is it a good idea?
No, this is dangerous and the risks are rarely fully explained to buyers (or sellers reviewing bids). Contingencies protect both the buyer and seller. Despite this, aggressive salespeople encourage their buyers to make non-contingent offers.
Some buyers, sellers and agents mistakenly rely on a “pre-approval” letter as a reason to not write a financing contingency. These letters are rarely a guarantee of a loan. Regarding condition, inspections provide valuable information about actual or possible problems that allow the buyer to decide if he should continue with the transaction. Inspections are also good for sellers. In a recent meeting of the California Association of Realtors, I heard an experienced real estate attorney warn Realtors to be careful about how they represent their clients.
This attorney predicted a flood of future lawsuits by buyers against sellers and their agents when the market turns, as it eventually will. He said he is now seeing the beginning of this trend.
If history is a guide, a majority of these cases will involve failure to disclose significant problems. If a buyer has his own inspections, most issues will be uncovered. If not, and the buyer relies on the seller’s reports, this could be ammunition for lawyers. Worse still will be cases where the buyer waived his inspections and, at the same time, had few, if any, reports from the seller.
The bottom line is that contract contingencies should not be waived lightly. This trend, although common, is a bad one. Consider carefully whether an agent who recommends making an offer that leaves you vulnerable is working in your best interests.
Q. Which systems in a house should I pay most attention to during inspections?
Foundation, drainage, roof and sewer lateral are potentially the most expensive items to repair or replace. Focus on them. Homeowners sometimes make the mistake of spending large amounts on kitchen and bathroom remodels before handling foundation and/or drainage problems.
Older homes that have not had upgrades to these systems are the most likely to need work. A roof more than ten years old requires a professional inspection. Properties built in the 50s and before commonly have drainage and sewer line issues. Pay particular attention to foundations in houses constructed before 1940.
Drainage is important as, over time, water may undermine a foundation. This is not to mention possible health troubles that can be caused by excessive moisture, e.g., breathing difficulties related to mold and mildew.
Foundation and/or drainage deficiencies are normally first pointed out by a general home inspector and then further evaluated by a licensed engineer. Telltale signs of sewer lateral failure can sometimes be observed from a cracked, sunken driveway. If there are any hints of sewer line problems, make sure to hire a specialist to “camera” the line.
In their frenzy to beat the crowd, some buyers too readily accept these four systems “As Is,” without understanding how expensive and troublesome they might be. In the best case scenario, it could cost only two or three thousand dollars to repair one of them. In the worst case where several of these areas have simultaneous failures, you may pay into the serious six figures.
Final Thoughts
A Realtor’s job is to answer questions you may not even know to ask. Some have the experience, knowledge and caring to do this. Others do not. Educate yourself and choose your real estate representative carefully.