5 ways homebuyers are kept in the dark
Unfortunately, some real-estate pros profit at your expense. Here are 5 murky areas to be wary of when buying a home, and 21 tips for exposing them to light.
Buying a home is complicated. You can't possibly understand all the rules and procedures, so you depend on trusted professionals to guide you through decisions worth hundreds of thousands of dollars.
But as the subprime debacle vividly demonstrated, those professionals sometimes put their own interests ahead of homebuyers' needs. Flaws in the system — including hidden incentives, complicated rules and confusing disclosures — let opportunistic agents, lenders, inspectors and others profit at your expense.
Even worse, you may be completely unaware that you're being victimized. Here are five murky areas where you should pay close attention, along with 21 tips for protecting yourself.
1. Home inspections from agent-referred inspectors
Home inspectors typically get their work from real-estate agents, and homebuyers seldom consider the problems with using an inspector recommended by an agent. This relationship, however, is one of the darkest corners of the real-estate business.
Why you're in the dark
Some agents — by no means all — pressure home inspectors to turn in a "good" report, says Barry Stone, a home inspector in San Luis Obispo County, Calif. In his syndicated column, "The House Detective," he has called the agent-inspector relationship "a clear conflict of interest."
Here's why: Real-estate agents don't get paid unless a home sale goes through. A pre-sale home inspection that uncovers problems can be the kiss of death to a sale. At the least, the sale is slowed down.
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"Realtors constantly make these hints. They'll say, 'It really matters to me to close this deal,' " Stone says. "They won't come right out and tell you that they don't want you to disclose everything, but they'll hint at it."
Salespeople may complain that an inspector is "too nitpicky" and stop sending him business. "Or they just won't use you for a real long time and then you'll run into them and they'll say, 'I'd like to use you but you really scared the buyers,' " Stone says.
Although agents have told Stone he's a "deal killer," he says he ignores the pressure and discloses everything he finds, keeping in mind that the buyer — his client — has lots to lose by purchasing a home with hidden problems. And he keeps a sense of humor. His van's new license plate reads "DEALKLR."
- On our blog, 'Listed': Developer wants 70% down payments
How to turn on the lights:
- Look for someone who takes his time. A thorough inspection takes three hours or more. Stone does only two in a full day's work. One inspector, who didn't want his name used for fear of reprisals to his business, says he's heard a few colleagues at conferences say they do 30-minute inspections. They apparently expect to make enough additional money to more than cover the costs of fixing any problems that homeowners discover later and ask them to pay for, he says.
- Shop around. Stone suggests calling several agents' offices, asking each who the pickiest inspector in town is. Read "4 tips for finding the best home inspector."
- Speak up. Home inspection is not science; even great inspectors can miss defects. If you think your inspector made an error, call and ask him to re-evaluate. With smaller defects, "if the home inspector has integrity, he will take it on himself to offer to pay," Stone says. For major errors and omissions, licensed inspectors carry professional liability insurance.
It can be hard to legislate solutions to such systemic conflicts of interest. Similar concerns about appraisers — that lenders were pressuring them to inflate home-value estimates — recently led to rule changes. But these moves created an unanticipated new set of problems as appraisal-management companies sprang up to assign and broker appraisals. Now critics (many are appraisers) complain that the companies encourage slapdash appraisals. A consumer's best insurance, Stone says, is to find a competent, ethical inspector.
2. Dual agents
Most states allow a real-estate agency — sometimes even the agent herself — to represent both buyer and seller in the same transaction. This is known as dual agency.
Why you're in the dark
Many real-estate agents with great integrity insist they can give both sides their loyalty and confidentiality. Or, if a conflict arises, they’ll step aside and ask a colleague to assist you.
But critics call it a conflict of interest. What happens when a buyer instructs the agent to get the lowest possible price and the seller of the house tells the same agent to get the highest possible price?
Also, confidentiality is at risk. That risk exists even if real-estate agents simply work in the same agency, says John Sullivan, a Realtor and president of the National Association of Exclusive Buyer Agents: "You're using common fax machines and office equipment. There are just too many instances where your information is subject to being disclosed."
Traditionally, real-estate agents worked only for sellers. Today, state laws, which vary widely, govern agent-client relationships. (Find your state's real-estate commission and read the laws and rules at the Association of Real Estate License Law Professionals.)
The National Association of Realtors' code of ethics requires full disclosure from agents and informed consent from buyers when a member represents both sides. Also, states usually require agents to disclose that they are working for both sides and to get your consent in writing. Nevertheless, in a 1997 sting, investigators from the Massachusetts Office of Consumer Affairs found that every one of 45 offices they visited violated the state law requiring disclosure.
- MSN Money: Savvy sellers may be abandoning homes
How to turn on the lights:
- Watch your tongue. Don't discuss your financial position, negotiating strategy, moving timetable, reasons for buying or other confidential information unless the agent works for you alone.
- Ask questions. Before agreeing to be represented by a dual agent, ask, "How will you represent my interests if you also represent the seller of a house I want to buy?" Carefully interview agents before hiring. If you agree to dual agency, you're giving up your right to your agent's undivided loyalty. Learn about types of agents here and read "Find a superstar real-estate agent."
- Use an exclusive buyer's agent. There's a small but growing movement of agents who work only for buyers. One place to look is the National Association of Exclusive Buyer Agents, a trade group whose ethics code requires members to be loyal to buyer clients only.
- Consult a lawyer. If a problem arises, consult a real-estate attorney. Call your state or city bar association for a referral or use FindLaw's locator service.
- Negotiate a commission reduction. Since you're getting less service — dual agents, for example, are often prohibited from advising you on price — it makes sense to pay less.
- Switch agents. Many agents will release a truly unhappy client from a contract, but if your contract covers the possibility of dual agency, you may be stuck. You can, however, request to be assigned to another member of your agent's team, lessening (but not eliminating) the problem.
3. Agent incentives
With the flooded home market these days, some sellers are offering to give agents incentives — cash, cars, trips and other prizes. They figure that agents are more likely to show their property when there's something in it for them. Also, agents often can earn a bonus from their own agency for selling one of the agency's listings.
Why you're in the dark
The trouble here is not bonuses, but the lack of disclosure. You deserve to know your agent's motives in selecting properties to show you and giving guidance on what to buy. The NAR ethics code requires agents to put clients' needs ahead of their own. But agents aren't required to disclose bonuses and incentives until the last minute, on your HUD-1 statement. Noncash prizes and trips need not be disclosed.
How to turn on the lights:
- Demand disclosure. Ask your agent to agree to tell you if a property has incentives or bonuses attached.
- Craft an agreement that benefits you. Write a clause into your agent agreement that any bonuses or incentives attached to a property you buy go directly to you.
I think you hit the nail on the head on this. As a home inspector (an honest one), I can tell you that you are 100% correct on the agent referred home inspectors. This type of unethical behavior happens ALL the time, every day, everywhere! I can say this with certainty as I have personally seen it on more than one occasion.
It is important to understand that not EVERYONE in this industry is crooked, but it is fair to say that there are many who are. Given todays economy, even more unethical situations are starting to come to light as more and more people are becoming desperate to make a living.
The best thing that potential homebuyers can do is to practice due diligence when choosing a home inspector. Sometimes the agent is looking out for you by recommending one or two, and sometimes they aren't. Choose wisely, call around, check online. Is the home inspector licensed? How long have they been in business? Most importantly, are they a member of the Better Business Bureau or Angie's List? I can all but guarantee that the unscrupulous ones will not be affiliated with these types of organizations.
3. A lawyer ranting about unscrupulous real estate agents is laughable. In NY there is a special fund that is mandatory for lawyers to pay into to make reparations for all the lawyers who rip off their clients (it actually makes a dent in losses and cannot possibly cover for all misconduct). We all have horror stories about lawyers who have gotten disbarred after years of malpractice or who should be disbarred yet are still practicing. Just as most lawyers are hardworking and decent, there are the bad eggs. Same for doctors and same for realtors. It is ridiculous to paint whole professions with the same brush as for the small minority of bad practitioners. I sure wish it were easier to get any lousy realtors out of our profession. If you have any real ideas of how to do that, I'd be all ears. Saying we all stink shows me you have little credibility and are operating out of small mindedness.
4. I have seen here where people say what we do has no value. If that were true, no one would pay us. We provide a service and get many people back as repeat buyers or sellers because they were impressed with the value of that service. For buyers, I spend a lot of time previewing houses and keeping up with the current inventory. I notify buyers asap when a house lowers its price. I make sure their offer is presented accurately and in a timely manner. When representing a buyer or seller, I make sure the buyer's offer is qualified so as to not waste anyone's time. The sellers get the benefit of all my years of experience and my current knowledge of the local market. I am available to help out well beyond 9-5, Mon-Fri. We accompany keys when sellers are unavailable and let the sellers get on with their lives while we do the job of selling their homes. We spend many hours with people who we will never get compensated for since we work solely on commission. If we did not get paid well for the deals that do go through to closing, we could not feed our families and therefore could not stay in business and help those who need it. We can all tell you of people who had us spin our wheels only to decide not buy, bought with their mom's friend after we did all the legwork, or just looked at houses they had no intention of buying because it was "fun". Just as there are stories about "bad" realtors, we have stories about crazy buyers and sellers. Luckily, the vast majority are decent people, just as most agents are as well.
It is easy to come into an online discussion and spout negative things about a group (any group). It is a lot harder to come in and give a fair and accurate assessment.
1. It was said there is no training required to become a real estate agent, and that is completely false. Not only is there an initial state legislated training required before one is allowed to take the exam, but we have to document continuing ed classes every 2 years. In addition, when there is a big change to the law or procedures, such a agency disclose, lead paint disclosure, property condition disclosure, fair housing... to name a few, we are required by the state to take courses in how it affects our profession and how to incorporate the changes. I am licensed in NY State, so perhaps our rules are different than elsewhere, but I am guessing not.
2. I would run like heck from any home inspector who brags about being a deal killer or picky. Their job is to give a fair and accurate inspection, not to beat up a house for not being perfect. No agent I know complains about real conditions being disclosed, but we do have issue with how they are presented by certain inspectors. One can easily make a mountain out of a molehill in front of a nervous buyer and dissuade them from buying a house they want needlessly. In fact, a few inspection companies (not the majority, who are ethical) make a killing by killing a buyer's first deal and coming across as a hero. They then get the subsequent inspection fee on the next house the buyer has to find. By the 3rd house, the report by the inspector is lovely, and you guessed it, often ends up in court. Even the sleaziest of inspectors knows not to push it and kill a 3rd deal so they pass a house regardless of condition. The inspector has every incentive to "kill a deal" in order to get another payment and sadly, referrals when they buyer mistakenly thinks they were "saved" by a heroic inspector. One red flag is when they offer a repeat discount before stepping foot in the first home they inspect for the buyer.
BTW - home inspectors who give estimates for repair can be wildly off in their numbers, but there is no recourse for the seller who is stuck putting their house back on the market because the buyer was scared by inflated estimates.
The unethical inspector is not the one who loses out when a buyer needlessly turns down a house they wanted. The inspector had not walked through countless homes until they found the one that felt right, negotiated a price that they were willing to pay, brought back mom & dad to get their opinion and wrote the check to pay someone to trash a decent home. A unethical inspector will charge in the neighborhood of $500 and then nitpick to death to justify their fee and do what they can to kill a deal, which the buyer and seller both entered into seriously. This is not a game to the buyer or seller.
As I mentioned above, the vast majority of home inspectors are responsible. It is the few bad apples that this realtor objects about. Unfortunately, those are the ones that stick out in memory most because they are infuriating. So, when I refer a home inspection company, I make sure it is one that is thorough because it reflects on me and future referrals to have done right by the buyer and been fair to the seller as well. I usually give them several reputable company names just to make it clear that it is their choice and that I am not steering them to any one inspector. I'd never give a home inspector who would gloss over facts (where would one even find one of those?) because after carefully doing my job with a buyer for months to help them through the home buying process, the last thing I would want to do is lose the chance for their friends' and family' business through referrals. My best bet for a long profitable real estate career is by maintaining a good reputation. The dishonest or sleazy agents are the one who are fly by night and don't worry about creating bad will in the community.
rlf22755, I don't disagree that the role of the real estate professional is changing and educated buyers are doing more of the research themselves. We are in the process now and I keep an eye on the mls and FSBO sites, as well as drive around. However, I have found many other websites to be incorrect and outdated, at least for my market.
BTW, there ARE realtors who study this trade in school and there are several colleges that offer complete programs. I know there are plenty of others that take an online course and think that is all they need, but many others worked hard for their credentials.
In each of my transactions (nine, so far and hopefully that's it!), after the offer was accepted, the title companies prepared all of the paperwork related to transfer of title. The lender prepared all of the forms related to financing. The agent or broker was rarely present for the signings, let alone responsible for preparing those documents.
I would be curious to know what sort of training agents or brokers get that would qualify them to prepare legal documents of that nature (and please, I'm not trying to drum up business for any attorney!). I feel I have a right, as a consumer and a citizen, to know that such a person is truly qualified. I truly believe that it is not arrogant to want such important work in the hands of a qualified professional (qualfiied on Day One, not after ten years in the business doing, what?). And I am well sick-and-tired of people who downgrade the value of education. If someone has been through a trade school or college or university, their background is valuable and ought to be respected, not villified (as I have seen in some of these posts). It's well time for Americans to stop attacking educated professionals as if education were a criminal act.
Look, I've been through enough of these transactions, and since had conversations with enough agents, brokers, Realtors, lawyers and customers to have reached my conclusions. Some of the posts in this thread have backed my claims. I'm not seeing anything concrete to the contrary.
From here, it's up to the consumers. I'd just like to cut through the smoke and let people know that there's no law requiring an agent or broker, and a lot of satisfactory transactions handled entirely by the people who bought and sold the properties. There are far too many handled by a "Realtor" that were badly handled.
If you plan to buy or sell, you make the choice. I hope it's an informed one.
I beg to differ on the point that agents pressure home inspectors to give a good report. In speaking for myself as a Real Estate agent, I want an honest report that will reduce the Buyer’s risk for unknown liabilities. Yes, I get paid when a deal closes, but there is no deal worth getting sued over for an incomplete home inspection! Let alone having a dissatisfied client that will trash your good reputation.
Buyers need to be educated that just because they want a particular home and write an offer on that home doesn’t mean that it’s the right home until ALL inspections are done, the appraisal is in and the mortgage payment is in line with their budget. Too many people think that Real Estate agents find homes for people. That is true, but our job truly starts when a buyer finds the home they want to CONSIDER. There are many serious hurdles to overcome on the way to closing a deal. The Home inspection is a first line defense and needs to be thorough!
I think most real estate agents are unethical. Not to say that they all are, but none of them are going to tell you they are dishonest, so it's hard to tell with whom you are dealing. Also, in this market, many agents are literally starving, so even if they are usually ethical dealers in a good market, they may now feel the pressure to 'fudge' a little in order to make the sale and keep themselves afloat. Again, I am not saying this applies to all, just that it does apply to numerous agents and you had better be extremely careful, even if you hired them.
I am thinking about buying a house in the down market as a long-term investment. I have cash to spend, don't need a mortgage, but I am very scared of dealing with an agent. I don't like the pressure and the lies and the feeling that they aren't adding anything to the transaction that I could not do myself. For the money, a good real estate attorney on my side would be much more valuable in the transaction than any realtor. I honestly wish I could find a good deal in a by-owner, but where I live, it is hard to find them. Most FSBO's are asking peak prices in the down market rather than realistic prices and they aren't willing to negotiate even though they won't have to pay agents' commissions. Maybe since they don't have agents, they have not been schooled on the realities of the current market... Also, I am only thinking about buying a house. I may not buy one if I don't see what I want at a price I think is reasonable, so I will invest elsewhere. Really, what I want is to look, not be pushed or hoodwinked just so some dishonest agent can make a quick buck off me.
As for inspectors, I feel like you should go on your gut more than anything else. Don't get blinded by emotion. If you are worried, get two inspections, but remember, the best inspector, just like the best auto mechanic, cannot tell you with accuracy everything that will go wrong or how much repair costs will be. They are not psychics. If you buy a fixer-upper, it's anybody's guess. Any house is anybody's guess. Ask for a warranty. Look at condition. If the owners did not take care of the little things, they probably did not take care of the big ones either. If it's a foreclosure, do you really think the old owner would spring for a roof or septic system repair when they could not even afford to pay the mortgage? Do you think the bank gives a darn? The old owner is long gone and the bank probably knows nothing about the house except that they want to get rid of it ASAP and cut the losses from their books. Some sellers feel they are giving the houses away now, so if you encounter costly repairs later that were not disclosed, the sellers feel you got what you paid for. Beware and be smart.
Now, why do I want to buy a house again???
I've never been a real estate agent, but in the last 45 years, I have bought and sold more than 15 houses for my family and family members in large and small cities in several states. That is because of relocation related to jobs and change of my personal situations. I have successful transaction experiences with and without a real estate agent.
A real estate transaction involves with many people. There are good and bad lawyers, real estate agents, loan brokers, inspectors, etc. No matter how much knowledge you have about this business, you may not be able to be the "winner" over all these people at every transaction. Also, a transaction of a house or home in not simply a deal of property value, it is also an emotional or psychological transition.
For a buyer who is willing to spend time to do the research work, the service of a real estate agent may not be needed. If your profession is a lawyer, probably you have enough colleagues can help you. Otherwise, you have to make a wise decision on selecting the "professionals" to do the work for you. KNOWLEDGE IS POWER, educate yourself, and don't blame others.
The lawyer using the moniker rlf22755 seems to believe that anyone can do what a Realtor® does. There is some truth to that statement. Anyone can go buy a house and do the negotiations with the seller. Any seller can do the negotiations with a buyer. I doubt, however, that everyone can get "Sweet Deal" like rlf22755 says that his cousin got. It takes moxy, a lot of guile, and complete disregard for the needs of the seller to swing a deal like this. Who protected the seller from the shyster who was able to take 90,400 off the asking price? There either had to be a big defect in the house or the seller was in a desperate situation.
In my experience I have found that good lawyers know the law and that they can apply it well. However, most lawyers do not know too much about specific occupations or methods outside their practice of the law. They really on the expertise of their client, and they hire researchers or have Para-legals to dig up information and to give them at least a working knowledge of the case.
I doubt rlf22755 is a good lawyer. I also doubt that he gets much business from Realtors®. A good Realtor® will protect his/her seller from those who see a weakness and move in like vultures. A good Realtor® will give multiple references for Inspectors, Lawyers, Insurance Companies, Lenders and any other service that the client needs. A good Realtor® will look for defects in a house that might make it a bad buy for a buyer. A good Realtor® will keep up on the changes in technology.
A good lawyer usually realizes that to cast bad remarks at others reflects badly on his/her profession which has accumulated its share of detractors.
Realtors do too...At least most do...So be careful there also. If it's anything you can possibly do on your own...do it. It really isn't hard, and you should at least try. Trust yourself. Your the person who knows best, even if your not experienced in real estate. It isn't rocket science. You can figure it out. I agree to not trust a Dual agent. It's impossible for them to be fair to both sides. They're not going to tell the seller your only willing to pay 100k for their house, when they know it's worth 200k. They aren't going to tell the buyer they can get a house for 100k less than it's worth. They'll lose that extra commisssion on it if they do. THINK people !! Unless you don't give a hoot about getting a fair deal either way...go ahead & use a dual agent. Your sick if you do. Unfortunately, most agents in NJ these days are Dual agents. It's hard to get away from them...I don't know who decided to allow this. It' the dumbest thing I ever heard of. Do it yourself. Your much safer that way.
When I listed my last home with an agent, they blew a half dozen great offers on my house because they were plain stupid !! But I was stuck in a contract. ( I hate real estate contracts )They made me lose a lot of money in the process. They made me reduce my price several times, because they were Over-disclosing something they knew nothing about and wouldn't listen to what I told them about it. This to me, felt like they were calling me a outright liar, and I resented this to no end. The only thing they brought in to me, were lowball offers....Saying that's all I could get because of this "supposed" bad thing that was ready to go up across the street from me. ( BTW....it's now 3 years later & it is not there) Do NOT...I repeat...do NOT be afraid to turn down lowball offers. If the buyer really wants your house, they will pay your price, or close to it. Know your worth. Look online & compare yourself. That story about the listings online being mostly sold already....is crap. That's poor realtors crying the blues for your business. Don't fall for it. Buying & looking online at Realtor.com or any other site is fine & on the up & up. Also...do not hire inexperienced realty agents. If they are young or new...RUN !! They treated my home like it was a free for all giveaway. They expected me to feel sorry for this first time home buyer, who didn't have enough money to pay for my house, so I should sell it to them for $40,000 less than it was worth. NOT !!! Thankfully, my contract with them ran out in time for me to get another agent, who brought people in & got me a nice offer within 2 weeks. If I hadn't been in a hurry this round, & had time to show it myself... I never would've signed a contract with any realtor. I'd sold a previous house on my own, in 2 weeks & I did not pay anybody a commission. I also got within $3000 of my asking price. It was a breeze...My lawyer took care of all the important stuff, and I relaxed & collected my money. In the future, when I sell my current home, I will do it myself. I had no headaches, no lowball offers, no sob stories, and it all went through, easy as pie. I also did not have to pay anybody over $20,000 commission for putting an ad in the papers, or sitting in my house for 3 hours on a Sunday afternoon, signing names to sell them other properties in town. I'd do it myself, again & again & again...as long as I wasn't being pushed to sell it in a short time frame, like I was the last time. You can't predict how long it will take to sell a property in this market. I was lucky I sold fast. But I'm one of those people who makes sure my home is in tip top condition before I list it. I wouldn't live in it any other way, either. So my buyers are lucky too. Find yourself a trustworthy lawyer. He will take care of everything you need to sell your property, safely. Find your own inspector, or get one from someone you trust. You will save umteens of dollars and a lot of aggravation to boot.
Good luck to all you buyers & sellers out there. Just be fair to the seller...Don't insult them with lowball offers you know don't come near what their home is worth. If they're like me...they're going to turn you down anyway. If they're desperate, you might get lucky...But how will you feel, when it happens to you, when you decide to sell ? Put yourself in the sellers shoes and be fair. Then all will come out happy from the deal. Don't be afraid to try doing it yourself. It really isn't hard at all. Just make sure you use a good lawyer to help you do the contracts. All's done !!
Ok- I feel like I have just read a bunch of mess.
#1) I WOULD NEVER RECCOMEND AN APPRAISER, , SURVEY CO, HOME INSPECTOR, TERMITE INSPECTOR OR LOAN OFFICER.
#2) IN TEXAS-DUAL AGENCY IS ILLEGAL AND IN AN "INTERMEDIARY" SITUATION, THE BROKER REPRESENTS THE SELLER AND THE AGENT REPRESENTS THE BUYER IF A PROBLEM ARRISES.
#3) I HAVE NEVER BEEN RESPONSIBLE FOR ORDERING AN APPRAISIAL-THE LOAN OFFICER DOES. I INFORM MY CLIENTS TO HAVE A SURVEY AND ELEVATION DONE TO INSURE THEIR INTEREST AND TO PROVIDE TO THE LENDER IF NEEDED (THEY ARE NOW NON-TRANSFERRABLE IN SOUTH TEXAS)
#4) A BUYERS REP SHOULD BE PAID BUY THE SELLER AND ANY BONUS TO THAT AGENT IS JUST THAT! I WOULD NEVER LET THAT BE USED AS A BARGANING TOOL FOR MY BUYER-IF THEY WANT MONEY FROM THE SELLER-WE'LL TRY TO GET SELLER CONTRIBUTIONS. MY PROFIT IS NOT TO BE TAKEN INTO CONSIDERATION WHEN PROVIDING MY CLIENTS WITH THE BEST SERVICE-BUYER OR SELLER.
#5) HOW IN THE HECK WAS IT FIGURED THAT A BUYER WOULD GET LESS SERVICE IN AN INTERMEDIARY SITUATION AND WHAT AGENT (UNLESS IN A FOR SALE BY OWNER YOU MAY ASK FOR 3%) WOULD EXPECT A BUYER TO PAY FOR THEIR SERVICES? OH YEA-A GREEDY ONE!
#6) MY MOTIVE FOR SELLING A HOME TO A BUYER IS TO MAKE MONEY AND FEED MY FAMILY-MAYBE PUT THEM THROUGH SCHOOL-WHY DO YOU WORK? AND 99.9% OF THE LISTINGS I SEE DON'T INCLUDE ANY INCENTIVE AT ALL SO I REFER TO THE BEGINING OF THIS PARAGRAPH, THERE IS MY INCENTIVE.