Countdown To Chaos (episode 5): 🗞 Buying A Home In The New Normal (Part 1)
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What’s On My Mind: New Rules For Homebuyers
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As of the date of publication of this article, sweeping changes to the real estate industry, courtesy of the recent commission class action lawsuits are upon us. Are you ready? Is the industry ready?
Two of the biggest changes are (1) sellers can no longer offer buyer agent compensation in the MLS; and (2) all buyers must sign representation agreements with their agents assuming responsibility for payment of services.
In today’s edition of my Countdown To Chaos series, I'm looking at the process of buying a home in the new normal. I am speaking specifically to the Beach Cities of Los Angeles, but the content is definitely applicable to all of Los Angeles and Southern California. The content is also mostly applicable to the rest of California and beyond. Today’s edition outlines all the parts of the homebuying process up until making an offer, including the new practice changes mandated by the commission lawsuits.
I strongly believe many, if not most, buyers are going to be unpleasantly surprised when confronted with a formal legal relationship with buyer agents in the new paradigm. In my experience, buyers tend to think they are going to get the best deal by “keeping their options open.” This is a false narrative of course, but one I believe is strongly ingrained in home buyer culture.
I firmly believe most buyers in the New Normal will try to buy without representation or use the listing agent to represent them. Both scenarios are fraught with risks for buyers and frankly I see a lot of litigation in our collective futures from homebuyers with buyers’ remorse. Time will tell as we traverse this New Normal post-August 17th.
Overview Of The Homebuying Process
Today I'm talking about all the moving parts that go into buying real estate in the Beach Cities of Los Angeles “pre-offer” and hoping to help you understand each part well enough to maximize them to get the terms and timeline you want.
The process of buying a home might seem overwhelming, but it really does come down to nine simple steps and if you follow the steps I lay out here in the order presented, you have the best possible chance of buying real estate in the Beach Cities on the terms and timeline that suits you.
So let's dive in and take a peek at each step.
The Home Buying Process, Part 1
As I previously wrote, I tend to think of the home buying process as a two-part process: (1) finding “the one”; and (2) negotiating/closing on “the one.” Buyers have different needs in each stage and different agent skill sets are highlighted.
Picking Your Agent
Part 1 starts with picking the right agent at the outset to keep you on track and moving toward your ultimate goal. There are a lot of different personality types out there in the agent world
The truth of the matter is that it doesn't take much to become an agent. Sure, it's gotten a little harder in recent years with a few extra classes required, but it's just not that hard to become an agent and sadly, not everybody who achieves a license is going to be your best choice to represent you.
Take my two friends in the image above, for example. Jimmy will tell you anything to get you to sign on the dotted line and Debby is so timid, she just waits for things to happen and doesn't have the first clue how to make things happen for her clients.
And then there's Team Edge. We are highly educated in all things real estate and constantly learning new and innovative ways to help our clients. We are detail-oriented, systems- and analytics-driven, and we get things done, all while listening carefully to our clients and their stated needs.
It's important that you like and trust your agent, but there is so much more you need in a good agent beyond whether you “like” the person. We've prepared a checklist for you to use when interviewing potential buyer agents. Text the word INTERVIEW to 424.236.6586 to get our checklist.
Dual Agency … Again
On the topic of picking an agent, let me talk for a quick minute about dual agency. This is when you let the listing agent act as your buyer agent. There are so many points in the process where your interests conflict with the seller. Do you really think you're going to get the best deal for yourself by working with an agent who already has an existing relationship and allegiance to the seller?
If you really think that the listing agent is going to be motivated to maximize every opportunity for you over his or her listing client, then I'm really not the agent for you anyway. You want the lowest price and the seller wants the highest price. You want the longest inspection period and the seller wants shortest. You want a concession for big repairs and the seller claims they already baked that number into the list price.
There are so many points in the process where your interests as a buyer diverge from the seller. And don't fall into the trap of believing that you can work with another member of the listing agent's team and still get maximum protection. The agent assigned to you is usually junior and wants to curry favor with the "boss," i.e., the listing agent.
You can read more about my strong feelings about dual agency here and here (spoiler alert! — “[t]here is simply no universe where two competing parties (the buyer and the seller) can both maximize their outcome via one representative, no matter how noble the representative”).
Dual agency is bad news for buyers.
Show Me The Money
There are so many ways the money part of the equation can be massaged to your benefit, but it starts with understanding your money picture and sharing it with your agent so we can strategize together.
Are you buying your property with a mortgage or all cash? Are mom and dad helping? How much do you need for closing costs? How will you pay for your agent representation? These are just a few of the money questions that need to be answered before you even start looking at houses.
Why? because houses move fast in the Beach Cities, no matter what you might be reading about home sales in the national news. The national news is all about getting you to click on the article or staying tuned in through the commercials. Homes on the market for four weeks instead of two suddenly becomes a big "slowdown" according to mainstream media.
I'm telling you as explicitly as I can that you want to have most, if not all, your i's dotted and t's crossed when you find "the one." The odds are high that your "one" is going to be highly appealing to other buyers. Be ready!
Also, not all lenders are created equal, so some shopping around might be a big part of getting ready. Some lenders are good with short escrows and that allows clients to compete with cash buyers. Some lenders can make good loans with smaller down payments. My team works with you to define your goals and pick a lender who can support your goals. Lean on your agent for help finding a great lender. It is important that your agent and lender work well together to support your best outcome.
Talking to a lender will also help you crystallize your target price. you might think you know what you can afford. A lender will know for sure.
If you're using a mortgage to finance your purchase in the current lending environment, my article titled 4 Hacks for High Rates is a must read. For sure don't miss my article titled Do's & Don'ts After Applying For A Mortgage.
By now I'm sure you've heard that real estate rules have changed and sellers are no longer allowed to offer compensation for buyer agents in the MLS. Historically, a seller would sign a listing agreement specifying 5 or 6% (or more) to sell their property and the listing agent would offer part of that commission in the MLS to the broker representing the successful buyer.
Without that mechanism available, the new practice is for buyers to sign an agreement with their brokers assuming responsibility to pay for services, and then ask for a concession from the seller to pay for those fees.1 Although I hope smart sellers will continue to pay these concessions, there is no guarantee of payment and at the end of the day, it will come down to who you're competing with to buy the property.
You have to be ready to give up a property where your concession request is denied or figure out how to pay your agent yourself. You will not want to find yourself in escrow without a good agent once you are under contract.
Shopping Your Wants Versus Needs
So you've picked your agent and put your money strategies in play. Now it's time to start thinking about looking at houses, but first you need to dial in your search (features, price, location). You think you know what you're looking for in your next property, right?
But have you really, really, really thought it through and made a list of what you want versus what you need?
For instance what do you love about your current home that you want to replicate in your next? An easy commute, a favorite restaurant nearby, mom is close by? The things we take for granted are hard to remember in the heat of a bidding war. Conversely, what do you want to do better in your next home?
We designed a series of surveys for our clients to walk them through the different aspects of buying a property on the topics of life, the property, the neighborhood and how to work with an agent, to help them create a Wants Versus Needs Inventory. Make sure the agent you choose is asking similar questions and encouraging to your write some kind of inventory.
Before you start looking at homes, you will thank yourself if you go armed with your inventory. For instance, you might find a house that isn't perfect, but it's in the perfect neighborhood. If you can evaluate the property against a list of priorities, you might discover that you can make the house perfect next year with the addition of an ADU while simultaneously snagging the property in the right location for a price you can live with this year.
Ask me sometime about the story of my own home where I had 15 minutes to tour before deciding whether to make an offer. It was a blindingly fast 15 minutes, especially with me being 6 months pregnant, but we knew what we had to have. 20 years later, we're still happy with our choice.
By the way, it's ok if your wants and needs shift as you see more homes and neighborhoods, but you really want to revise your inventory and continue to use it with every home you tour.
Touring Homes
Touring homes is the fun part. It can be a lot of work, but you spend your time imagining your future life and that can be kind of cool. We can set up private tours for you or we can take you on a facetime tour from the comfort of your current home.
You will need a buyer representation agreement to tour homes both in person and virtually, so please know that we will be asking you to sign our agreement prior to touring, but don't worry about signing up to marry us before you even know us. Our agreement has an easy out for both of us if we don't click. In fact, we're happy to refer you to another agent if we're not for you.
We highly recommend against going to open houses without us unless you want to feel like fresh meat at a sharkfest. Agents usually aren't hosting an open house to sell the property. They are trolling for buyer clients and will put the full court press on you the minute you step through the front door. I've had agents press me to sign in when I've already identified myself as an agent. It can be brutal (and so ridiculous!).
We're happy to accompany you on an open house tour and point out the pros and cons of each property. We understand if you want to attend open houses without us, but call us if you want more information about the property or to see the house again. Definitely tell the agent hosting the open house you are working with another agent and don't let them tell you have to sign their agreement to tour the property.
The only agents who have to have a signed agreement with you are agents who are expecting to ultimately be paid for representing you in escrow. If an open house agent hassles you about an agreement, get me on the phone and I'll set them straight. 😁
Next week, we’ll look at Part 2 of the purchase process — the offer, escrow and closing portions.
Work With Us?
If you want to work with me and my team, we are happy to talk to you about signing our Buyer Representation Agreement. We use a very simple straightforward agreement with an easy out clause.
Not sure if you're ready to commit to our agreement? We're happy to share listings information and other educational content while you get to know us better, but please know that we share our best ninja tricks for clients who have committed to working with us via a representation agreement.
If you think you're ready to sign our agreement but still have questions, grab some time on my calendar and let's chat. Get a link to my calendar by texting the word COFFEE to 424.236.6586.
Are you already working with another agent? Are they your best choice to get you the lowest price on the terms you want? Have they explained all the moving pieces to you? Do they even understand all the moving pieces?
Use our agent interview checklist to decide if they are really your best choice. We are not soliciting you to leave your agent for us. We are telling you to ask yourself the hard questions to determine whether you have the right team assembled for your needs. You are not stuck with a bad agent just because you hastily signed an agreement.
In closing, find the follow on articles below in our Home Buyer Learning Library and message us with questions.
Disclaimer - you are not my client unless we have a written agreement in place. This article is offered for informational and/or entertainment purposes only. Neither I nor Silicon Beach Properties nor eXp Realty, Inc. is responsible for the consequences of how you implement the content of this publication and nothing herein is intended to address your specific situation. Additionally, the information contained herein may be outdated (legally and/or factually) by the time you consume this content, so consult a professional licensed in your jurisdiction for advice.
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Until Next Week…
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There is at least one other method available, but it is messy and subject to speculation whether it is compliant with the lawsuit settlement. Ask your professional for details.