Real Estate Questions Asked by Home Buyers and Sellers—Answered!

How much do I have to pay an agent to help me buy a house?

Home shoppers pay little or no fees to an agent to buy a home. Here’s why:

For most home sales, there are two real estate agents involved in the deal: one that represents the seller and another who represents the buyer.

Listing brokers represent sellers and charge a fee to represent them and market the property. Marketing may include advertising expenses such as radio spots, print ads, television and internet ads. The property will also be placed in the local multiple listing service (MLS), where other agents in the area (and nationally) will be able to search and find the home for sale.

Agents who represent buyers (a.k.a. buyer’s agent) are compensated by the listing broker for bringing home buyers to the table. When the home is sold, the listing broker splits the listing fee with the buyer’s agent. Thus, buyers don’t pay their agents.

What kind of credit score do I need to buy a home?

Most loan programs require a FICO score of 620 or better. Borrowers with higher credit scores represent less risk to the lender, often resulting in a lower the down payment requirement and better interest rate. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.

How much do I need for a down payment?

The national average for down payments is 11%. But that figure includes first time andrepeat buyers. Let’s take a closer look.

While the broad down payment average is 11%, first time homebuyers usually only put down 3 to 5% on a home. That’s because several first-time home buyer programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift.

Some programs require even less. VA loans and USDA loans can be made with zero down. However, these programs are more restrictive. VA loans are only made to former or current military servicemembers. USDA loans are only available to low to-middle income buyers in USDA-eligible rural areas.

For many years, conventional loans required a 20% down payment. These types of loans were typically taken out by repeat buyers who could use equity from their existing home as a source of down payment funds. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).

Should I sell my current home before buying a new one?

If the built-up equity in your current home will be applied to the down payment on the new home, naturally the former will need to be sold first.

Some home buyers decide to turn their current home into an investment property, renting it out. In that case, the current home will not need to be sold. However, your loan advisor will still need to evaluate your risk profile and credit history to determine whether making a loan on a new home is feasible while retaining title to the old home.

Buyers often have a short time frame to sell their current home when relocating to a new city because of a job transfer. If you are moving but taking a position with the same employer, check to see if they offer relocation assistance to help offset some of the costs.

How many homes should I view before buying one?

That’s up to you! For sure, home shopping today is easier today than ever before. The ability to search for homes online and see pictures, even before setting a foot outside the comfort of your living room, has completely changed the home buying game. Convenience is at an all-time high. But, nothing beats visiting a home to see how it looks and ‘feels’ in person.

What is earnest money?

When you make an offer on a home, your agent will ask for a check to accompany it (checks are the same as cash, and the deposit is typically 1% to 2% of the purchase price). Earnest money is made in good faith to demonstrate – to the seller – that the buyer’s offer is genuine. Earnest money essentially takes the home off the market to anyone else and reserves it for you.

The check (or sometimes cash) is deposited in a trust or escrow account for safekeeping. If a deal is struck, the earnest money is applied to the down payment and closing costs. If the deal falls through, the money is returned to the buyer.

Important: if the terms of a deal are agreed upon by both parties, but then the buyer backs out, the earnest money may not be returned to the buyer. Ask your agent about the ways to protect your earnest money deposit and the ways to protect it – such as offer contingencies.

 What if my offer is rejected?

Sellers can flat-out accept or reject an initial offer. But there a third path that is quite common, sellers can initiate a counteroffer. Remember this: a deal isn’t dead until it’s dead. So, if a counteroffer is proffered by the seller, you’re still in the game. You and your agent just need to review it determine whether the counteroffer is acceptable. If so, then approving it closes the deal immediately. Keep in mind, offers and counteroffers can go back-and-forth many times; this is not unusual. Each revision should bring both parties closer together on the terms of the deal.

Should I order a home inspection?

Yes! Home inspections are required if you plan on financing your home with an FHA or VA loan. For other mortgage programs, inspections are not required. However, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.

 Do I need to do a final walk-through?

It’s not required, but it’s a darn good idea! Final walk-throughs give buyers a chance to make sure nothing had changed since their first visit. If repairs were requested, as part of the offer, a follow-up visit ensures that everything is squared-away, as expected, per the terms of the contract.

What is a seller’s market?

In sellers’ markets, increasing demand for homes drives up prices. Here are some of the drivers of demand:

• Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built.
• Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower.
• A short-term spike in interest rates – may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) gets eroded.
• Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.

What is a buyer’s market?

A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like:
Economic disruption – a big employer shuts down operations, laying off their workforce.

• Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.
• Short-term drop in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
• High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)
• Natural disasters – a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.

What is a stratified market?

A stratified market happens where supply and demand characteristics differ by price point, in the same area (typically by city). For example, home sales for properties above $1.5M may be brisk (seller’s market) while homes under $750k may be sluggish (buyer’s market). This scenario comes along every so often in West Coast cities where international investors – looking to park their money in the United States – buy expensive real estate. At the same time, home sales activity in mid-priced homes could be entirely different.

Q: What home can I afford?
That depends, of course—on your income and other financial obligations

Q: Can I buy a home and sell my current one at the same time?
Yes, you can—but it's the real estate equivalent of walking a tightrope. 

Q: How many homes should I see before making an offer?
Up to you, sport! While home shoppers these days can look at hundreds of homes online, they only hoof it to check out 10 homes on averagebefore they put in an offer. But keep in mind, “This varies tremendously for each person

Q: What do you think the seller will accept as a fair price?
As a rule of thumb, knocking 5% off the list price won't ruffle any feathers. If it's been sitting on the market for months, you can venture below that, but the bottom line is, “You never know how low a seller will go, as they have different motivations for selling

Q: How quickly can I close?
“Typical escrow periods are 30 to 45 days

Q: Should I get a home inspection?
While buyers often wonder if a home inspection is truly necessary, most Realtors unequivocally say yes, yes, and yes. “A home inspector takes a weight off of your shoulders by looking into the condition of the roof, electricity, heating and air, plumbing

What are "title insurance" and "mortgage insurance", and are they necessary?

Owner's title insurance will cover you if a problem regarding legal ownership arises that was not discovered during the title search (for example, if an earlier deed was forged, or that side yard you thought you were buying belonged to someone else). The title insurance will pay attorney fees, as well as all other costs in defending the title. Although title problems are infrequent, they could result in the loss of the house, so it can be wise to protect yourself. The bank, or lender, will likely also insist on title insurance to protect its investment - at your expense. 

Mortgage insurance protects the lender (usually a bank) against the risk of nonpayment by the buyer. The only reason to buy this insurance is if your lender insists upon it; there is no benefit to anyone except the lender.

What is a "listing agreement"? 

The listing agreement is a contract between the seller and the listing broker. It sets out the conditions of the listing. While the details of the agreement should be negotiated, a listing agreement generally includes the following: 

1) the length of the listing period -- as the seller you'd want to be able to switch brokers if the sale does not happen as quickly as you like, while the broker wants to have the listing period as long as possible, recognizing that it often takes a fair amount of time and effort and expense to generate other broker interest and a sale, and that if the time is too short s/he loses the commission. 

(2) the desired sales price, as well as a price that might be accepted; 

(3) the amount of the commission -- while the commission rate is generally claimed to be "standard" within a community, don't believe it, and it is sometimes possible to negotiate different rates up front -- such as 3% to the listing broker and 3% to the selling broker. However, if the rates are too low, the listing broker may not want to do all that is necessary to "push" your house, such as advertising it heavily, while the selling broker may prefer to sell her prospects a home that carries a higher commission than she'd get on your home. 

(4) any exceptions to the commission. For example, would there be a reduced fee (or no fee at all) if you sell the house on your own, or you sell it to a friend who expressed interest? Generally the broker will insist on you naming any such persons in the listing agreement. 

The seller should pay very careful attention to the listing agreement, and probably should have it reviewed by a lawyer. It is a critically important document to the seller. Once a broker produces a willing and able buyer, assuming all conditions are met, the seller owes the broker his or her full commission unless the terms of the listing agreement provide otherwise (for example, "The commission is payable at close of escrow and is conditioned upon the close of escrow"). If for any reason the seller chooses not to sell (perhaps s/he wants to hold out for more money, or a proposed job transfer falls through), the commission must still be paid unless the terms of the listing agreement are negotiated otherwise.

What are some things a seller should look out for when dealing with the sale of a house?

You may want to find a real estate agent, or broker, to help you in either buying or selling a house. If you are a potential buyer, you can work with any number of brokers. 

(1) Whether or not to use a broker, and if so, the broker's commission. 

(2) What things (fixtures, equipment, built in furniture and the like) will be included in the sale? 

(3) Is there anything that I should do in advance to "dress up" the property, from needed repairs to a new coat of paint? 

(4) What is the asking price of the house? 

(5) What price are you willing to accept? 

(6) Are there any defects that you must by law disclose to the buyer? 

(7) Do you have any debts or liens that may affect the sale of your home?

It is MOST IMPORTANT to have full and open disclosure of all physical aspects of the property and clear terms of sale in the purchase agreement.

If you are a seller, you generally will responsible for paying the broker's commission, and generally list with only one broker. Although as seller you list with one broker you'll want to make sure the terms of your listing allow other brokers to show the house to potential buyers. 
In such a case, the commission is shared (often split) between the listing and selling brokers. If you are buying a house, you should be aware that the brokers (even "your broker") are almost always acting in the interests of the seller. Sometimes you may even be asked to sign a document indicating this.
If you are selling, you need to thoroughly discuss and disclose the history and physical condition of the house. If you are buying, you need to be certain of your financial ability to pay the price

26 First Time Home Buyer Tips 

Be Prepared to Act Quickly

Be Systematic in Your Approach

Buyer’s Representation is Free

Communicate Clearly with Your Agent

Get Pre-Approved Before You Start House Hunting

Do Your Homework

Sit Down with your Agent and Let Them Walk you Through the Process

Have Cash in Reserves

You Don’t Need 20% Saved for a Down Payment

Take the Time to Research The Market Before You Contact an Agent 

Shop around for home insurance

Your first home likely won’t be your last home

Keep an open mind while searching for homes

Make sure you know the process

Know Your Budget and Factor in All Housing Expenses

Narrow down, narrow down, narrow down

Buy the home you think you will need 3 to 5 years from now

Choose an agent that you connect with on a personal level

Don’t Skip the Home Inspection

Make a list

It’s ok to not know everything when you are buying your first home

Find a lender you can trust and who is responsive

Some Agents May Give You a Commission Rebate

Know Your Credit Score

I hope this answers some of your important questions 

I'd love to talk to you about any other questions you may have.