Answers to 7 popular home buyer questions
What is a buyer’s agent?
Defined most simply, a buyer’s agent (also buyer’s rep, or buyer’s representative) is an advocate for the buyer—not the seller—in a real estate transaction. California real estate laws and regulations dictate that buyer’s agents owe full fiduciary (legal) duties, including loyalty and confidentiality, to their buyer-clients and work in their clients’ best interests throughout the entire transaction. We also have an obligation of “honest and fair dealing” with all parties in a transaction.
What services are provided by a buyer’s representative?
If you’ve established an agency relationship with one of us as your buyer’s agent, common services include:
- Helping you clarify your priorities.
- Suggesting sources of financing and other service professionals, such as inspectors and exterminators.
- Providing accurate information on neighborhoods, schools, and communities.
- Selecting and arranging property showings.
- Evaluating particular properties.
- Explaining forms and agreements.
- Suggesting contract contingencies to protect you, rather than the seller.
- Assisting in the negotiations for a favorable price and terms.
- Keeping all information confidential that could weaken your bargaining position.
- Monitoring the entire process, assisting with issues that arise through closing.
What is the standard compensation structure for real estate professionals?
For the most part, real estate agents are compensated by commission, based on a home’s selling price. Commission rates are not standardized, but vary, as does how the sales commission will be divided between the agents on the selling and buying side of the transaction. There is consistency, however, in how commissions are paid. When a seller signs a listing agreement, their contract is with a brokerage firm. All fees must pass through that brokerage firm. Typically, the seller’s representative—and your buyer’s agent—will be paid by the listing broker after the transaction closes. Said another way, buyers do not pay to work with a Realtor.
Should I get pre-approved for a mortgage?
YES! In this competitive market, a pre-approval is a must. Most sellers will not even consider an offer that is not accompanied by a pre-approval letter. The letter is a promise from the bank saying they will guarantee funding as long as certain conditions are met.
Can I buy a home directly from a seller?
Yes, this is an option that some buyers explore. However, it’s important to understand that nothing is truly free and this approach still carries a price. Unrepresented sellers (for-sale-by-owner properties) frequently lack adequate information about how to price their home, or attempt to inflate the price in lieu of paying a real estate commission.
As an unrepresented buyer, it will be much harder for you to know if you’re overpaying. Real estate professionals have developed keen pricing insights that go well beyond simply evaluating data through the Multiple Listing Service (MLS). And if you are overpaying, it will create further complications in securing financing.
For these, and many other reasons, a high majority of consumer-to-consumer housing transactions never reach closing. Real estate professionals play a valuable role in keeping your home purchase on track, starting with selecting and touring properties and continuing through negotiations, inspections, financing and closing. This is especially true in today’s market, where complex transactions such as foreclosures and short sales have added even more layers to some real estate transactions.
How much house can I afford?
When evaluating how much you can afford for your home and mortgage, lenders usually use two rules of thumb: Your maximum monthly mortgage payment should not exceed 28 percent of your gross income. Also, your maximum debt load, including your mortgage payment, should not exceed 30 percent of your gross income.
These ratios are typical of those required to secure a conventional mortgage. Lenders will be able to supply details about other types of mortgages, such as FHA or VA loans, which offer more flexible qualification standards. There are many types of mortgages and financial tools available that provide flexibility in interest rates, terms, and down payment requirements.
What’s the difference between pre-qualified and pre-approved for a mortgage?
Typically you will first pre-qualify for a mortgage, then be pre-approved before you have found the specific home you wish to purchase. What is the difference?
Pre-qualification: An informal determination by a lender or mortgage broker stating how much mortgage you can afford.
Pre-approval: A guarantee in writing by a lender to grant you a loan up to a specified amount.