by Greg Perry
Part 2 - The real estate market
Part 3 - Discover Buyer desires and needs
Part 4 - What to look for in an agent.
Part 5 - Buyer's expectations of thier agent.
Part 6 - My expectations of my clients
Part 7 - The real estate process
I've always enjoyed working with Buyers. Some of my most enjoyable moments in real estate have been assisting Buyers. Yet, many of my real estate colleagues at the best get extremely frustrated with Buyers, or don't like to work with Buyers at all (only list properties). As embarrassing as this is to admit, many agents sing the mantra, "Buyers are liars".
- I've witnessed agents get a Buyer lead, quickly run listing sheets off the computer, seat them in the car and run off to go show properties. After many miles driven and homes shown, the Buyer can't make a decision and agent and the Buyer are frustrated. Why? I believe the Buyer does not have enough information or knowledge to have the confidence to be able to make a decision.
Before starting to show homes to a Buyer I have them come in to the office for an initial consultation. I ask them to budget one to one and a half hours, without their children, for this meeting. I have a format that I've used for years, in a powerpoint program, to educate Buyers so they quickly move through the process and have confidence in their decisions. Here are the key areas I cover:
1. The Market
2. Their desires and needs.
3. What to look for in an agent.
4. Their expectation of their agent.
5. My expectations of my clients.
6. The Real Estate Process
7. The Consumer issues.
8. About Agency.
9. How I work.
I've been able to handle 6-8 Buyers at a time efficiently by front loading the relationship. I use this approach with first time Buyers, CEO's of companies and everyone in between. Sure, I've had agents wonder and criticize for the initial time I invest. I laugh all the way to the bank because my Buyers act, and do so quickly and confidently.
Over the next few days, I'll outline each of these 9 areas and some of the tried and true questions that help me get to the core of Buyer motivation and understanding.
While working with Buyers, I feel it's critical for them to understand basic market conditions. If they don't understand what is happening right now in the market, or if I don't understand their perspective of the market, when it is time to make an offer, everyone is frustrated. Here are the basic points I cover with brief explanations:
WHAT IS A BUYER'S MARKET?
I ask the Buyer," If I use the term, Buyer's Market, how would you define that?" I find most Buyers have a basic understanding, however I've had to teach this concept as well. Very simply, a Buyer's market is when the Buyer has an advantage in negotiation. (Too many Sellers, and few Buyers).
WHAT IS A SELLERS MARKET?
Of course, it's the opposite of a Buyer's market, where the Seller has an advantage in negotiation. (Too little inventory, plenty of Buyers)
WHAT DO YOU THINK IS HAPPENING IN TODAY'S MARKET?
I want their perspective.
WHAT'S HAPPENING IN TODAY'S MARKET?
Here I introduce the basics of what is currently happening from my perspective. We often have two or more markets in our Region depending on the price point. I use absorption rate charts to help them understand the current market conditions.
DOES YOUR HOME APPRECIATE IN VALUE ON A DAILY BASIS?
I believe it's important for the client to understand that real estate is a market. With time, the real estate market will go up, but in the short term, the market may flatten for a period or make a correction. Entry level homes in our region (Seattle's East King County) have gone up for the last 18 years straight, but that is not a guarentee that it will continue every year.
WHAT ABOUT SEASONAL TRENDS?
Again, I show charts to show the Buyer the yearly seasonal cycle of activity. I stress to the Buyer that the best time to buy is when they are ready! The charts show us the time of the year we have to work the hardest, and I assure them that no matter when they're ready, we can be successful!
I introduce the idea of "intelligent negotiation". What I mean by this is, sometimes it's wise to offer exactly what the Seller is asking for. Sometimes it's wise to negotiate for a steep discount. And, sometimes it's wise to offer the Seller substantially more than they're asking. Sometimes it takes ever bit of negotiating skill I have just to assist my clients to acquire a property they desire when it's in the middle of a bidding war!
After this discussion, both my Buyer and I are comfortable that they have a basic understanding of the market.
Question one is: "What does the image of home look like to you."
Questions two is: "Describe your perfect lifestyle."
You see, I believe that our product, houses are just a box with walls and a roof with complicated systems. Homes, however are created with love, experiences and memories. I want my Buyer to visualize these home ownership emotions.
I carefully listen to the answers to these questions and probe for as much of their home ownership dream that I can get. For some, these images of home and lifestyle answers include children, pets, a home on acreage, a no maintenance yard or care for a parent. Lifestyle includes the commute they're willing to accept. If I'm working with a couple, I make sure each person is heard. These questions often reveal information and desires the other partner did not know.
I use a check list when going through the Buyer's desires and needs. I generally ask questions from two different angles to confirm what I'm hearing. For instance, when going over house styles, if the Buyer indicates that they do not like split entry houses, I'll ask them "What if a perfect split entry home is available in your perfect neighborhood at the lower end of your price range, would you consider it?" With questions like these, I can determine how committed they are to that opinion.
Other questions are asked to determine square footage, bedrooms, bathrooms and do they need a dining room? How about the yard? Type of neighborhood, i.e., are they looking for sidewalks? View? Garage/parking? I'll ask about specific amenities, such as fireplace or family room. Some Buyers are picky about the directional exposure and natural lighting. For condo buyers, I ask them if they prefer a ground floor, top floor, townhouse, flat, a building with elevator, etc . After going through the entire checklist, my final question is, "Are there any other special considerations or amenities that we haven't discussed?"
Important! I write everything they say on a yellow legal pad. I am actively engaged, nodding, confirming and asking with good eye contact.
Next up: What to look for in an agent.
In this section I share an overview of "what to look for in an agent". The Buyer really needs to understand that their real estate purchase is their largest lifestyle and financial decision. Their choice not only affect them now, but far into the future. I don't dwell here long, however, I cover each category and hit the issues head on. Here is the basic outline and my approach:
FULL TIME VS. PART TIME
Here's the question I ask my client, "Would you believe that a full 80% of all real estate agents are part time?" Of course, I just introduced information to them that they did not know. Only 20% or less of all real agents have the "bread winner's mentality" when it comes to the real estate business. The industry is flooded with agents who hold jobs and hang a license and hope to make a sale or two each year for extra money. The industry also attracts well connected spouses who take advantage of referral connections generated from their partner. The agent should have a reasonable production level, closing 1-2 transactions a month at a minimum. Only then will they have a reasonable understanding of the market, the nuances of negotiation and develop the critical relationships needed to be effective with other agents. I tell them the most important criteria in my opinion is to work with a full time agent.
TRANSACTIONAL VS. RELATIONAL
Transactional vs. Relational represents more of a style of the way an agent works. Assuming now both agents are full time, a transactional agent is very number oriented and views his activities and clients as numbers. Transactional agents can be very good inside the confines of the transaction, but once they receive their commission check, that is likely the last you see or hear from him. Relational agents (like I am) not only do a great job within the transaction, but stay in touch to develop repeat and referral business. Here's what I tell them, "Because I am so active in the market place, I'm constantly coming across the best service providers. So, if you find you need a painter, a contractor, gardener or even a tax accountant, give me a call and I'll refer you to the best. I want to become your "trusted advisor"."
AFFILIATED WITH A REPUTABLE COMPANY -- ARE THE A REALTOR?
There are many real estate companies to choose from. I work for Windermere in Kirkland, Washington. It's important to note that I do not run down competing real estate company to my clients. I relate my point from my personal story in researching the real estate company that I chose to hang my license with. My story goes something like this: "As I was researching which company to affiliate with, I interviewed with several local real estate companies. In my research, I discovered that for the Eastside of King County, Windermere owned approximately one third of the the market share. Further research revealed that the #2 and #3 companies combined had another one third of the real estate market. When I added this up, I was amazed that the three market leading companies combined to control two thirds of the total market share. I wanted to understand why, and what I discovered is that these 3 companies work hard to promote a good image in the community, and had the best training and development programs. I decided to go with the market leader, Windermere and have been extremely happy with my decision."
I do share with them that there are local companies that allow hundreds of part time agents to hang their license for a very nominal fee (never actually naming company names), and that agents who are affiliated with them are, by and large, inadequately trained. I also point out there our small regional "boutique" companies that do a very good job with clients. My goals is to raise the opinion of my company without negatively blasting the other companies. In fact, I represent my main competition in a very positive light, raising them as an industry leaders, which in fact they are.
I also chat about the value of being a Realtor, subscribing to industry standards and the Realtor's code of ethics.
DEMONSTRATES GOOD CHARACTER AND COMPETENCE IN INITIAL MEETINGS
What a client is looking for is someone to trust. I actually teach them the two components that create a trust relationship with service providers. The two components are Character and Competence. When we find someone who we feel has outstanding character, and really knows what they are doing (Competence), we want to do business with that kind of person.
ASK FOR A REFERRAL
Most of my Buyers are referred to me. For those who aren't, I supply them with testimonials and a client list so they can call for references.
FULL SERVICE AGENTS VS LIMITED SERVICE AGENTS (Discount).I have learned to always refer to the discounter brokerages as "limited service brokerages/agents" and not discount agents. Here's the fact: clients always get less service for less money! This is an important point! Discounts are always talked about in the terms of "saving commissions". Often limited service means not making or capitalizing on other money or term issues in a contract that can actually cost a client more in the long run.
Typically there are two ways one can earn a discount when purchasing a home. The first is to do business with a Limited Service Broker. I share openly at this point that, not only do I not have a problem with limited service brokers, I feel they are good for our industry as they provide consumer choice. Heck, even the retail world has Wal-Mart and Nordstrom. It's all up to the consumer and their comfort and savvy.
The other way to receive a discount is from a full service agent that offers a discount. Here's the question that I ask, "Why would a full service agent offer to you a discount in commission to entice you to work with them?" Almost without fail, they respond, "They must need the sale", or, "They must need the money." This may be the most dangerous of all agents for a Buyer! I share with the client that agents work on commission. The agent needs food and has a monthly bill cycle. Desperation can set in, and the agent will offer discounts just to get clients. This agent may need the sale to close more than the client needs it to close, and is in the position to steer the client in a way that may not be in the client's best interest, particularly in the initial price negotiation and during the inspection. And besides, if they can't negotiate for their own income, how are they going to do defending your issues in the contract? Think about this!
Again, I try to be completely open and transparent about our industry and the different business models in the most positive way possible. I'm the toughest on part time agents and the "full service agent" that discounts. I believe in the consumer's right to choose. By being a good educator, it's my hope they'll choose me!
Next up: What is the Buyer's expectations of their agent?
"The SECRET" ......to working efficiently with Buyers. Part 5, What are the Buyer's expectations of an agent?
Here's where the rubber meets the road. Buyer's have a good experience when they're expectations are met. They can become raving fans when their expectations are exceeded. Healthy business relationships happen when both parties understand each other's expectations.
At this point of the initial consultation, I ask the Buyer(s), "What are your expectations of your agent?". What I've discovered over the years, is that most Buyers don't know what they should expect from an agent. In fact, most Buyers at this point focus on just one thing, and that is finding their home.
I actually help them by teaching them what they should expect in an agent. Here is my list:
- Communication I think the Buyer should expect good and consistent communication and teaching from their real estate agent.
- Honesty and integrity? I share with by clients that trust in a service industry relationship is a balance between character and competence. When we find someone who we feel has high character, and they know what they're doing, we want to do business with a person like that.
- Help you find your home? This is a very important function in what we do with a Buyer, but I stress to the Buyer, it's not all we do. As Buyers now have excellent access to listings and information, it's not uncommon that they will spot the house on the Internet before we do.
- Negotiate? One of my single biggest strengths is my ability to negotiate on behalf of my clients. This is one of the most important reasons of all to hire and use a good agent.
- Take care of the details? The Buyer will have earnest money committed to the purchase. Purchase and sale contracts are extremely complicated. Good agents must be able to take care of every detail of the contract, as well as managing the process.
- Keep your best interests at heart? A good agent will keep the interests of the client ahead of their personal interests.
- What has been your past experience with an Agent? This is a great question to find out if the Buyer has had a bad experience or a good experience in the past with a real estate agent.
Next up: My expectations of my client.
I think the most important concept here is that every agent should have some kind of expectation of their clients. An agent with no client expectations, (an agent who allows the client run the process) has actually demonstrated an inability to negotiate. The agent should be the leader in the relationship.
I have a few expectations that I share with every Buyer.
1. I'LL BE ON TIME FOR OUR APPOINTMENTS..... and I expect my Buyer to be on time! In other words, we need to respect each other's time. Sure traffic in our Region occasionally makes punctuality impossible, but my expectation is that my client makes every effort to meet on time. If traffic is impassable, the courteous thing for both parties to do is to call by cell.
2. GET A BABYSITTER FOR CHILDREN ....... I love children. I have 4 of my own, and 3 grandchildren. That being said, I want to put my client in the very best possible path to make a great decision. For that reason, I want the Buyer to be able to focus on the property. Does it have proper closet space? Where will the furniture and TV go? Is the amenity package what they are looking for? If junior is playing with the $1,000 vase in the corner, the client will be distracted and miss critical issues. Almost all clients with children actually appreciate this standard. Many clients don't think about or even realize that it's beneficial to get a baby sitter. I've had many clients thank me for giving them a "break" from their children.
3. OFFERS WRITTEN IN MY OFFICE...... Real estate contracts are incredibly complex. I write them and work with them every week. I am an agent that has studied and knows the important details of our contracts. When I am writing a contract for a Buyer, I never take the contract for granted! When I am in my office environment, I have access to the resources to research the listing my Buyers are making their on. How long has it been on the market? What is the absorption rate of inventory in the area in their price range? What did the comparables sell for? I also have the forms and the tools immediately on hand. But the most important thing of all is, I have my full business brain going in a place where I can focus all my energy in writing the right contract with the right terms and conditions for my client. My client will have their business brain on, too, and not be distracted by outside influences.
4. HOW I COMMUNICATE AND RETURN CALLS..... When I am in a meeting with a client, I don't answer my phone. Why? because I want to focus my attention and show my client that I respect them and their time with me. When someone calls me on the phone, I want to respect them with my attention and time, as well. I let my client know how I handle both telephone and email communication and find out from my client how they like to handle these communication methods, as well. If I am working on something highly sensitive (like a negotiation of a contract), I will seek situational permission from the client I'm with to handle a specific call.
5. RESPECT MY DAY OFF..... I work hard. Many days I work long hours. If I allowed it, I could work real estate 24/7. What I found is that I need a day to get away from real estate and clients to be able to re-charge. My clients are better for it! Can you imagine a sprinter getting close to the finish line, only to have it moved out another 100 yards? Then he makes it there and it gets moved again? He cannot keep the pace and then settles in for a long, boring run, never having the energy to ever sprint again. Sometimes this business requires a sprint, and I can do it......because I devote one day every week to recover. My clients get better service because I'm working and negotiating with agents who are tired. My clients know my day off and understand the importance of allowing me to re-charge. If I run across someone who does not respect this, I happily refer them to another agent. An important note here. If I am in a negotiation and there is a time sensitive contractual issue, I will occasionally do a specific task on my day off. I get it done.......and do no more real estate!
6. I EXPECT GOOD COMMUNICATION FROM MY CLIENT TO ME....... We have already talked about the importance of good communication from the agent to the client. Client communication back is as critically important in a good business relationship.
There you have it. Basic client expectations. Of course there are other situational expectations that get verbalized along the way. Have I ever compromised my expectations? YES! When there is a good common sense reason to. For instance, if a relo Buyer is referred by one of my very best clients who is hiring him to work in his department, they have children, and the only day they can see is the day I take off, I may make the decision to make an exception. If I know that this generally happens once or twice a year, I don't feel any inward resentment toward a client or my profession.
Coming up next: The Process
MORTGAGE APPLICATION - Before we can really start the process, you (Buyer) must go through the mortgage application and pre-approval process. Before considering our offer, the Seller needs to know that you have the financial ability to close the transaction and we need a target price before we go looking. We don't want to look at $500,000 properties when your top qualification number is $350,000. A pre-approval means that the lender has reviewed income statements, tax returns and debt. A credit check is run and the lender has a loan underwriter review all the information. Based on this information, the mortgage company will give you a "conditional" pre-approval. What they're saying is that you are approved for your loan, but typical conditions are 1. a suitable property must be under contract, 2. The property must appraise for value and 3. The information must remain the same (for example, you must remain employed).
LOOKING FOR A HOME - Here is where we organize the home search. What I find is that all Buyers at this point are looking for houses somewhere......most of them on the Internet. I find out how you are currently searching and give you pointers on the most efficient way to search on-line. Typically I do a computer search and pick the homes in the area that meets your basic criterea and send them to you via email. Then we set a date to go look at the homes. I don't like looking at more than 7 or 8 homes in one buying trip. Any more than that and everyone starts getting confused as to which houses have what. We use a check list to help the you keep everything straight. If we exhaust current inventory, I check every day--- many times each day, to find the NEW, REDUCED and BACK ON MARKET listings. We try to be ready at a moment's notice to check out the new hot listings.
WHEN YOU FIND A HOME - We may find the home in the first trip ----or your search may take months. The important thing is that when the house is identified, it is time to act! Many houses are lost because while a Buyer is thinking about the house, another Buyer may have already thought about the house and buys it.
OFFERS - All real estate offers must be in writing on a full contract. The contract includes all basic terms and conditions including price, closing date, inclusions, exclusions, financing, inspections, title reviews and other conditions. I will provide you with a blank copy of the basic contract so you can pre-read the contract language befre we make an offer.
EARNEST MONEY - The Buyer must bring their checkbook because the contract must be accompanied by EARNEST MONEY. Earnest money is a deposit that shows the Seller that you have more than a passing interest in the property. The concept of earnest money confuses some Buyers. Earnest money is not extra.....it's a portion of the your down payment or closing costs. If the earnest money exceeds the down payment or closing costs, it is refunded back to you at closing. The earnest money is protected by contract conditions, for instance the inspection. If the property does not inspect to your satisfaction, then the you may elect to rescind the transaction and the earnest money will be refunded to you. However, if the all of the contract conditions have been solved, and you elect at this point walk away, the earnest money may be claimed by the Seller as liquid damages. Earnest money deposits are cashed and held in an escrow account. The amount of earnest money is somewhat market and area dependant.
COUNTER OFFERS - If the Seller does not agree with any detail of a contract, then he may elect to counter offer. The Seller does this by changing the detail on the contract, (such as the price), and sending it back to you. At this point we still do not have a deal and could actually go look at another property. If you agree to the Seller modifications, we enter into a phase called "mutual acceptance". This means that both you (Buyer) and Seller agree on every term and condition on the contract.
INSPECTIONS - I recommend professional building inspections. This would be one of the "conditions" on the contract. In my mind it is critically important for you to know everything there is to know about the house you are purchasing, so you can make good decisions. Every house has things wrong with it. In fact, much of what will be found on the inspection will become a work list after you move in. However, if there are major issues in the house structural integrity, systems (heating, electrical, plumbing), or a safety issue, we may elect to ask the Seller to repair the item before closing. If we disapprove the inspection and ask the Seller to remedy a defect, and the Seller agrees, the inspection condition is waived and we move forward to closing. If the Seller declines to remedy a defect, then you have a choice, to proceed anyway (understand the property condition), or to rescind and get an earnest money refund. Negotiations can also include agreeing on a price reduction or a Seller credit for you at closing. You'll want to budget around $400 for this inspection to be paid at the time of inspection.
APPRAISAL - Your lender will wants to know a couple of critical things. First and most basic, does the property exist and in reasonable condition, and, second is it worth market value? The lender sends out an appraiser to make sure they are making a good investment by loaning you money on the house you selected. Most houses appraise just fine, however occasionally one does not. If a house does not appraise, there is language in your contract to protect you and your earnest money.
CLOSING - Closing is the day that the house becomes yours! In our state, the definition of closing is: The Seller has availability to the funds (the lender has released their funds, starting your loan) and the property is recorded in your name at the county courthouse.
POSSESSION- This is the day you actually take possession of your property. This date is negotiated between you and Seller, just like the closing date. Most often, possession is the same day as closing, but not always. The Buyer or Seller may have special needs that both parties agree to. For instance, the Seller may remain in the home after closing for a specified period. We would create a rental term agreement between both parties. Perhaps the Buyer moves in before closing (this is not encouraged and is rare). The possession date can be one of the toughest and most interesting negotiation in a real estate contract.
This is the basic flow of how the real estate process works. This article is an overview. We did not cover all contingencies and conditions. For instance a condo buyer would need to see a resale certificate or public offering statement. There is a lot more detail that I could write about each of these sections. We do cover each section in depth in our first Buyer interview and as we're out finding your home. By the time it's time to write your contract, you will have comfort in your knowledge and have confidence in your decisions.
Protecting the Buyer is one of the most important duties for a Buyer's Agent. Many Buyers, particularly first time Buyers, aren't aware of the many consumer issues involved in a house. Here is on outline of the important issues that I cover:
FORM 17, SELLER'S DISCLOSURE FORM: The Seller is required to fill out a Form 17 Seller's Disclosure statement. This is the form where the Seller disclose all know material defects about the property. I also point out as their Buyer's agent, I must disclose any defect that I am aware of, and the Listing Agent, even though he represents the Seller, must also disclose all known material defects. Our goal is that between the Buyer's professional inspection, and full disclosure from Seller and Agents, the Buyer will know everything there is to know about the property to be able to make good decisions. A recent Washington State Supreme Court decision has change our disclosure law. See my article "Buyer Beware".
LEAD PAINT DISCLOSURES: For houses built prior to 1978, the Federal Government requires us to give Buyers a pamphlet that outlines the risks of lead paint. A lead paint addendum also accompanies a purchase and sale for pre 1978 houses.
OIL TANKS: Many Puget Sound area homes were originally heated with oil and converted to natural gas. The oil tanks were buried underground. For safety, all underground tanks must be removed or decommissioned. Decommissioning consists of an environmentally safe rinse and then the tank is filled with foam or a slurry of cement. Surrounding ground should be checked for contamination that may be required to be removed.
ASBESTOS: Many building materials, particularly materials used before the late 1970's contain asbestos. Some of these materials include popcorn ceilings, floor tile, sheet flooring and drywall. Left undisturbed, these materials are safe in the home, but if disturbed will throw off asbestos fibers that are hazardous to lung health. The homeowner needs to know that before doing any remodeling, materials should be checked, and if they contain asbestos must be removed using proper abatement procedures.
SIDING ISSUES: Siding issues are huge in the Pacific Northwest. In the mid 1990's oriented strand board, touted as an environmentally friendly product found it's way on houses. The early OSB (oriented strand board) products were disastrous. The rain and dampness in this region caused the siding to swell and mold to the point it was not only unsightly, but not performing it's intended function of protecting the house. A typical 2 story can cost up to $20,000 give or take. This problem needs to belong to the Seller.......and it needs to be addressed before closing. EIFS, a synthetic stucco product has also proved to be problematic because of bad installations.
ROOFING ISSUES: We need to make sure that the roof has adequate life left in it and that it is clean and in good repair. There is also products that have proven to be defective that have been used to roof houses. We want to make sure that the roof over our Buyer's head is sound.
ELECTRIC WALL HEATERS: Some electric heaters, especially in-wall fan forced models, had design flaws that led to a national recall. The design allowed dust to accumulate that would ignite. When wall heaters are present, the serial numbers should be checked against the national recall list.
SEPTIC SYSTEMS: Septic systems need to be in good working order. All septic systems can fail if not cared for. The technology of older systems is not as good as today's standards and are subject to higher failure rates. During the closing process, we pull septic "as builts" to determine that the system was built for the proper bedroom count and it gives us a map of where the tank is and drain-field is located. We will ask for the tank to be pumped and inspected along with a system inspection. If new sewer lines are coming in to an area, we negotiate costs with the Seller to have the sewer hooked up to the house. See Septic Tank Care for Eastside Homes and Poop Happens! (or all you wanted to know about Kirkland's Emergency Sewer Program"
SEWER LINES: Older sewer lines are subject to failure by decayed pipes and tree roots. In older homes, it is wise to have a sewer line inspection to avoid costly replacement after closing.
OTHER ISSUES: There are dozens and dozens of property specific issues that regularly come up in the course of a real estate purchase. I've hired geo-tech companies, surveyors, structural engineers, architects, attorneys and other professionals to assist Buyers with making good decisions. I have the experience to help a Buyer ask the right questions.
If you are considering buying a home, please give us a call and let us help you out.
Greg Perry 206-852-0902
Brian Perry 206-852-0902
Oh, by the way we are never too busy for your referrals! If you know anybody thinking about buying or selling a home contact us and we'll take great care of them.