Sometimes it is difficult telling what is true and what isn’t when dealing with real estate. Things are changing all the time, and something that was true just a few years ago when your friend bought a home, doesn’t mean it is true today. So here are just a few myths currently circulating around the real estate world and the truth behind them.
1. All agents/brokerages are the same.
This is one of the biggest myths in Real Estate, and one that can cause both buyers and sellers to make huge mistakes and mistakes typically cost money.
When selecting a listing agent: Many people will select the agent that gives them the highest listing price and/or charge the lowest commission, but that doesn’t always mean the most money back in your pocket. All listing agents should put a sign up and enter your property into the MLS. All licensed agents should be competent on getting your paperwork completed and on time. Ask potential listing agents how they are going to market your property. What is their marketing budget for your house? Do they have buyers in mind, or a list of potential buyers? Does this agent have any other certifications? Do they understand the market for YOUR property? They might be great at selling single family homes in town but wouldn’t be the best choice for selling your commercial property. What are your goals in selling (price, timeline, etc.) and how is this agent going to help you meet those goals?
When selecting a buyer’s agent: Again, all licensed agents should be competent on getting your paperwork completed and on time. Do they have any additional certifications? Do they know the market you are looking in? Do they understand your goals and are willing to work to meet them?
Another common mistake that some people make is selecting their agent because they feel obligated due to a family or friendship relationship. We all want to work with and do business with people we like but buying and selling real estate is the largest transaction most people do in their lives. Make sure your friend/family member is the right choice.
2. For Sale by Owner saves you money.
The main reason sellers list their home “For Sale by Owner” (FSBO) is they believe it will save them money. Commissions paid on the sale of a home can range between 5%-10% or even more depending on many factors. This would be great if selling homes was as simple as putting a sign in the yard and listing it online then sitting back and waiting for it to sell, but it isn’t that simple.
The fact is FSBO’s will often lose money by not hiring a professional. The average sale price on FSBO properties is 26% less than properties that are sold by agents! There are many reasons for this, including pricing the property incorrectly, inability/inexperience helping buyers get financing, having difficulty finding buyers, etc.
There is also a ton of paperwork and legalese to navigate through, which can be a huge liability if you are caught off-guard. If you don’t have good contract knowledge, its best to leave it to a professional.
3. Price your home high to leave room for negotiations/price reduction.
Price your property competitively if your goal is to make the most money possible. If your home is priced too high, it won’t show on many buyers’ radar as its above their price range. And in a competitive market where most houses are going for close to asking price to over asking price, buyers won’t waste their time on a property that is above their budget.
Buyers compare similarly priced properties, if your house is priced too high (even by a small margin) it will still be compared to the higher priced properties and if they are bigger, nicer, better built, etc. it will be very evident, and buyers will move on.
In a busy market, buyers will get suspicious of a house that sits on the market for too long. They’ll wonder what is wrong with it that no one has put in an offer/purchased it yet. They’ll come in with an already negative perception of it so if they do end up putting in an offer, it may be below what they would have been willing to pay had it been priced appropriately.
4. Submit a low offer and negotiate up.
Submitting a low offer can be insulting to sellers, which can cause them to be much more reluctant to negotiate and is a bad way to start a deal. Housing inventory is still low, and demand is high, many sellers are not willing to negotiate far off their listing price. But listing prices are not set in stone. Listen to your agent, ask them to run comps on a property and see what they would list at/what they think sales price should be. Don’t pay more than you are comfortable with just to get a home but filter your search to properties that fall within your budget.
Keep in mind, that many houses are listed low to generate interest and hopefully receive multiple competing offers so the sales price might be above asking price.
5. Start looking for houses before getting preapproved.
Buyers should be preapproved prior to looking at homes so they know how much they can afford. Unless you are a cash buyer, looking at homes without a preapproval is putting yourself at a significant disadvantage in today’s market. Even if you are certain financing won’t be an issue, when sellers receive multiple offers preapproval letters will be taken into consideration. Many buyers have lost out on their dream homes because they thought they should wait to get preapproved until after they are under contract.
6. The best time to buy is when prices are low.
This is a huge one. We’ve all heard, “I’ll just wait until the market crashes to buy.” But numbers don’t lie. Let’s look.
Median home price in Montana is roughly $360,000 currently. If we bought this home today, the average interest rate on 30yr conventional fixed rate mortgage is ~3%. With 20% down this would give payments of $1214/month. Interest paid $149,119. Total paid for the property $509,119.
If a huge correction occurred and you could now buy that property for $290,000, that would be a huge savings, right? Not necessarily. When housing prices drop, we see mortgage rates rise. Historically speaking average rates have been 6-8% with periods going as high as 19%! If you bought that house now for $290,000 with 20% down and interest rates only went up to 6%, your monthly payment would be ~$1391, interest paid $268,745 and total paid for the property $558,745!
The best time to buy is when interest rates are low like they are now.