Chapter 5

Conducting the Search

Finding Your Allies in the Real Estate Hunt

INSIDER TRADING—THE LEGAL WAY

While it is illegal to financially benefit from using inside information about a certain company’s stock, in real estate obtaining information hidden from the general public’s view is championed and celebrated, and many times it results in the most fantastic home deals.

As in building a house or fixing a fence, here too certain specific tools are best utilized to get the job done. In finding a home, information is the key to the real estate hunt. First, when looking for the best home within a predetermined price range, it is essential to have access to the widest array of homes for sale. Second, it is important to keep your ears attuned to the towns or cities in which potential homes are located in order to get important information about the community, schools, local events, and transportation systems, and to learn about the possibility of sanitation or nuclear plants coming to town, or that homes are being condemned as a result of defective construction.

MAKING FRIENDS IN STRANGE PLACES

Everyone and everything in the towns in which you’re searching has the ability to provide potential insight into the home search. It is always worth spending time and money in local coffee shops and restaurants, and participating in other forms of local entertainment, in order to learn more about the neighborhood. You can even use window shopping as a means of seeing what kinds of people, goods, and services would become part of your home environment. Carefully observe the social dynamics.

People love to talk and be listened to, and most people are very generous with advice about their hometowns. To make the most of these opportunities, becoming a good interviewer is essential. Focus on big questions about the best and worst things about the town, as well as those that allow you to learn about the expertise of the person questioned—starting with “how long have you lived in this town?,” should usually lead to a useful discussion.

Read the local newspapers and bulletin boards posted in stores to gain an understanding of the surroundings. If you are moving from a distant location, getting a hotel room for a weekend in the potential location will greatly aid in your attainment of information. Being friendly and dressing like the locals will make you seem approachable and breed respect, and these are therefore important considerations to factor into the search.

LOCATION, LOCATION, LOCATION

Traditionally, most people will narrow their home search according to location. In determining the best location, other factors besides price, proximity to work and to other family members, the beach, and the park should be considered in the selection criteria list. The following is a list of location-related factors that may or may not be important to your search but can too often be overlooked.

Keep in mind that what one person might consider an asset another might view as a shortcoming. For example, a nearby pool or park could be seen as either convenient entertainment or a source of disturbing noise, whereas quality schools could be alluring for couples with children—or an unnecessary tax expense for those without.

DETERMINING FIXED MONTHLY AND YEARLY HOUSING COSTS

Because very few of us can make a wish list and find an affordable home with the entire list fulfilled, figuring out the most important criteria, as well as determining the difference in cost of living between one home and the next, will assist you in making the best choice out of your options. You would have already determined your home spending budget at the very beginning of the home buying process. An important factor in choosing one potential home over another will be seeing how the fixed monthly and yearly housing costs of each home fit within your budget.

For most Americans, this budget includes paying mortgage and real estate taxes. If you choose a fixed interest rate mortgage, this payment should not change for the life of the loan. However, real estate taxes may change depending on local taxes and policies. Besides learning about the applicable taxes, it is essential to look into the history of increases or decreases in past years and the stories behind these changes. For example, there’s a law in New York City that limits the amount of increases in real estate taxes. In the early years of the new millennium, real estate taxes in New York City rose 18 percent. As a result, buyers could have known with relative certainty that any further increases in the short term would be unlikely or kept to a minimum. The sellers, real estate agents, the Internet, attorneys, and local tax collectors are all good sources for finding out about existing and past taxes paid on the home.

Another extremely important factor to consider with regard to taxes as well as numerous other quality of life issues is the presence or absence of one or a small number of large-scale employers. You will want to know whether any are supposed to come to town or are likely to be scaling back. There are many towns across the United States where land values have dropped as much as 80 percent in a single year due to the shutdown of a key employer. Your commute is another important pricing factor, since the cheaper home may be farther away from work or public transportation. The price of gas or the required use of a car and/or public transportation may then affect your budget. Check the cost of gas for the added mileage to one home versus other transportation costs for the home where you can walk to the train station or bus stop.

As your search continues and you explore all of these options, you should be able to narrow down potential home locations. Expect geographical areas to change based on pricing and other considerations, as well as the importance of your own individual housing needs.

MAKING A WISH LIST

You should make written lists that allow you to explore in detail your likes and dislikes over a period of time. These lists will assist you in making decisions; they will focus your search and save you valuable time. If there are going to be multiple persons residing in the home, no better means exists to get your spouse and family excited about moving than asking them to take part in the selection process. Encourage them to consider what must be included in your home and in its neighborhood, as well as what is desired and what would be terrific bonuses. The more time spent on narrowing down your location, desires, and price levels, the easier your search will be. This will save the real estate professional many hours of aimless exploration and will greatly shorten the process.

Of course, you may find your wish list constantly changing as you acquire information. Thus you will evolve from one simply jumping into the process to one who shops with a discerning eye.

REAL ESTATE BROKERS: THE GUARDIANS OF REAL ESTATE

For most of the nation, real estate brokers are the guardians of real estate sales. Many of the properties you visit will be represented by a real estate broker or an agent whom the seller has hired. A real estate agent whom you hire yourself to find a home for you is called a buyer’s broker.

Real estate brokers and agents are experts at placing people in homes. The best of these professionals not only understand the makeup of neighborhoods, school districts, and communities in general, they also comprehend their clients’ individual needs and concerns. This achieves the best match of home and buyer, and it saves buyers the hours it would otherwise take them to search for appropriate homes for sale. Instead, the professionals spend their own time searching and focusing their search on the buyer’s greatest interests. Not only can brokers recognize and hone in on appropriate listings, but they also can provide access to listings as soon as they hit the market. These real estate professionals understand the different types of properties, the characteristics of a town, the idiosyncratic requirements of cooperative corporation boards, and the reputations of the local schools.

Real estate agents are territorial. They usually live near the homes they are selling and their listings are often limited to a relatively small area; as such, they can be great experts on their given area. However, a huge disparity exists between the best and a merely average real estate agent. As with any other life calling, the best professionals in the field are generally to be found in the most lucrative markets. Therefore, you should keep up your guard and be on the lookout for agents simply trying to fit you to a deal instead of looking for a deal that will fit you, particularly in less lucrative markets.

Since a large portion of the homes for sale are sold by real estate brokers, hiring a buyer’s broker does not affect a home’s sale price. Unless contracted to do so, at no time would the buyer have to pay the buyer’s broker. In almost all cases, the seller pays the broker’s commission, customarily 5 or 6 percent, regardless of whether or not the commission has been divided between two brokers. Since the seller’s broker will be paid more money in a direct deal, where the seller’s broker does not have to share the commission with a buyer’s broker, with all other things being equal, an agent may try to favor a potential buyer without a buyer’s broker over one who has one, so that the agent does not have to split the commission. However, this strategy usually fails. The free market dictates and pushes prices, and this same broker has a duty and a priority to find the buyer with the highest price who can close on the deal. It is very rare that a bidding war will occur where the most financially capable buyer has the same prospects as another bidder who is not using a buyer’s broker.

In any case, the benefits of having a buyer’s broker generally outweigh the possibility that a bidding war will break out.

Attributes of the Best Buyer’s Broker

If you have access to a great real estate professional, working with him or her will significantly increase your ability to find the best home for your money. However, only you can determine your own needs and wants, and only then will your broker be able to find the perfect glove to fit your hand. Within hours of a new home matching your criteria coming onto the market, your agent should be sending you the listing with commentary on the positive and negative points—and asking you if you want to see it.

Despite all of the advantages of the Internet, the real estate brokerage industry has managed to keep its own private databases of homes—often called the Multiple Listing Service—to itself. Ergo, a buyer’s broker will usually have access to a listing before the public does.

A broker can track how long an older listing has been on the market and gauge whether the seller is being forced to sell quickly. The agent’s analysis may also reveal why the home is not selling, or why it may be priced low. Reasons might include mold problems, noise from the train station across the street, or an oil tank that recently leaked in the backyard. In some cases, there may be no reason at all; it may simply be that the price just dropped and no buyer has yet taken advantage of the opportunity.

The buyer’s broker also functions as your organizer and planner. He or she should be setting up appointments to see the properties and scheduling the greatest number of viewings within a limited amount of time to save the buyer countless hours of playing e-mail and telephone tag. Brokers should also use their expertise to discern those properties that may look worthy from the listing but do not actually fit your criteria.

The broker will also give you access to information on everything from taxes and local schools to pool club membership and even gossip. You can also look to this source for details on the history of any increases in a cooperative or condominium’s carrying charges, locations of bike paths, and details about social events and local traditions.

Finding the Best Buyer’s Broker

Just as the best looking person you see in a bar might not be your best choice in dating, the best broker for you is not necessarily the one who has smashed sales records. Someone who best understands and takes your needs into account will generally be both your best choice for a date and, as it turns out, your best choice for a broker as well.

A great place to start your search for a broker is to ask for referrals from others who have purchased in the neighborhoods you are considering.

Another approach to finding a buyer’s broker is to attend open houses or make appointments to see properties to determine if you connect with an agent. Many brokers will not work with you if you are using several different agents, since the broker only gets paid if you do the deal with that agent. A wonderful way to find a match is to see brokers in action selling a property. This will allow you to gauge their knowledge base, see how good they are at connecting a buyer’s needs to a property, and allow for a no-pressure interview to take place without the agent’s knowledge. This is also a way to see if the agent has experience with the type of property you are looking for. You may find that the best broker in the town or city mostly sells two-million-dollar homes—so, if you have a budget of $200,000, you can assume the agent will not be particularly motivated to work with you. Ask such agents for additional referrals, and look up their sales success on the Internet. Many brokerages list their agents’ sales history on their Web site.

You will frequently not be working with the referred agent but with one of his or her assistants. A remarkable number of these assistants or associate agents are hungrier than their bosses, and often they will have learned the best that their bosses have to offer. Still, you should be sure to interview any unknown broker before committing time and energy to the process. These mini-interviews provide you with a lot of free advice on homes in the area and the current market conditions.

Obviously, when home shopping, you do not want to risk being the agent’s first customer. That agent will likely not have the skills and knowledge required to lead you past the land mines and into the best home for your money.

Additional Broker Considerations

You want to make sure that you and your broker’s schedules coincide. If you can see properties only on certain days or during nights and weekends, you’ll need your broker to have this time available for your meetings,—and also to put in the necessary hours searching for new listings.

Pay attention to how fast your agent replies to e-mails and calls you back. Don’t hesitate to switch to someone else if you are not connecting to the agent or getting the attention you need. Just be aware that the broker that showed you the property first has a right to the commission, even if you see the home a second time with a different broker. You do not want a fight between brokers to kill your deal.

A Buyer’s Broker’s Kryptonite: FSBO (For Sale By Owner), and Searching Outside of Your Broker

A few listings exist that your broker will not have access to. Owners of For Sale By Owner (FSBO) homes may refuse to work with brokers to avoid having to pay their commission. Your broker certainly is not going to show you listings without being paid. So if you want to be extra diligent in your search, keep tabs of FSBO for sale signs and check out these listings on your own.

Both sellers and their brokers advertise their properties where they can attract the most attention. This usually includes advertisements in the local newspaper, listings on the broker’s Web site and, if applicable, a for sale sign on the property or in a window. If you want to extend your search outside of your broker’s range, it is essential for you to learn the places that local sellers advertise. This should never be your only means to find a suitable property, since you will lose out on access to many listings that are only in brokers’ hands or may not have been advertised properly. Limited access to listings may hinder your search for a bargain. At the same time, you may find a great bargain in a FSBO sale. Because these properties are not so easily accessible, the restrictions on the market put buyers who do find the property at an advantage.

Looking for listings on your own in addition to using a broker will allow you to check whether your broker has been performing well or has missed any listings that interested you. In addition, sending the listings you find to your agent will reveal more to him or her about your likes and dislikes. However, be aware that in response to learning of your independent searches your broker may become outraged or even to threaten to quit.

MAXIMIZING THE SUCCESS OF THE SEARCH

Unless the market is very hot, hold off making an offer on a property until you are an expert on the local market within a few blocks or miles from your desired location. This means viewing many different properties that are possible candidates within your price range before making a final decision. These visits should be educational as you will be noting your likes and dislikes along the way, educating yourself and your broker on your tastes and needs.

Keep a written list of the contenders for your home purchase. On this list, take note of the possible benefits and disadvantages of the various properties and include applicable considerations, such as distance to public transportation and schools, on this list.

Bringing a camera becomes very useful—not only to remember the property and its unique quirks, but also to give you ideas of how you may want to decorate or improve your new home. In addition to taking photographs of the property, also take a picture of the property’s address, even if just on a sheet of paper, so that you will remember which pictures relate to which property when you review them.

By taking your time to learn about different homes you may miss out on some potential homes, but it may be better to miss out on these opportunities than to take a chance and be stuck in a property that you regret buying for many years to come. Upon the first viewing, if you think you are really in love with a property, you will have to consider not only the obvious benefits but the definite risks of throwing caution to the wind. It is also a possibility that the properties you were interested in will still be on the market when you are ready to buy, and the prices may have even dropped by that time.

As soon as you have become educated on the market and narrowed down your choices, set up second showings. You will be amazed by how many new things you notice on a second visit. If you visited at night, conduct your second visit during the day, and vice versa. To garner extra insight, you may want to attempt to visit the home when the selling family is present. You may even be able to pick up on whether the seller would consider a reduced price for the home. I suggest bringing friends or relatives along for their different perspectives. Since this could be the biggest investment of your life, do not be afraid to ask questions and to make third and fourth appointments to see the home.

CHAPTER SUMMARY AND INSIDER TIPS

  • You should create a home wish list over a period of time that will allow you to explore your desires, likes, and dislikes in detail. The more time you spend narrowing down your location, desires, and price levels, the easier your search will be. This list will also provide your broker with the ability to shorten the search and save many hours that could be spent looking at the wrong properties.
  • In determining the best location, you should consider other factors in your criteria besides price, proximity to work, family, the beach, and the park. These elements may be local community crime rates, access to medical facilities, religious venues, and any other considerations that are applicable to your personal preferences.
  • When looking for a buyer’s broker, it is always good to start by asking for referrals from other people who have purchased in the neighborhoods you are considering. You may also want to inquire of those who know of a broker from someone else who recently purchased in the same area. Another approach to finding a buyer’s broker is to attend open houses or make appointments to see properties and see if you find an agent with whom you can establish a good rapport.
  • Many broker Web sites not only provide information about the real estate brokers but also list success stories, sometimes including each broker’s closed transactions. This will allow you not only to see how effective your potential broker is in closing deals, but also where the broker has been successful.
  • Everyone and everything in town can potentially provide you insight into the character of the town and neighborhood. It is always worth spending time and money in local coffee shops and restaurants, and participating in local events and entertainment to learn more about the area. Read the community newspapers and supermarket bulletin board postings to gain further understanding of the kind of place you are looking at.
  • If you are contemplating moving from a substantial distance, it’s worth booking a hotel room for a weekend in the area you are considering. This can serve both as a base of operations for your investigation and a source of information and informants in its own right. Hotel managers and desk clerks are usually only too happy to share insights and stories with you.
  • Bring a camera along when viewing homes—not only to remember each property and its unique quirks, but also to give you ideas of how you may want to decorate or improve the place if you buy it. In addition to taking photographs of each property you are considering, also take a picture of the property’s address so that you will remember which picture relates to which property when you review them.
  • As soon as you have gotten to know the market better and narrowed down your choices, set up second showings. You will be amazed by how many new things you notice on a second visit. If you visited at night, the second visit should be during the day, and vice versa. Also bring friends or relatives along for their perspectives.
  • An important factor in choosing one potential home over another will be seeing how the fixed monthly and yearly housing costs of each home fit within your budget. Real estate taxes may change depending on local taxes and policies. So besides learning about the applicable tax, it is essential to learn about the history of any increases or decreases in past years and the stories behind these changes.
  • If you are not connecting with your buyer’s broker or if you are not getting the attention you need, don’t hesitate to switch to someone else. Just be aware that the broker that showed you the property first has a right to the commission, even if later you see the home a second time with a different broker. You do not want a fight between brokers to kill your deal.
  • In addition to the properties you view with your broker, keep tabs of FSBO (For Sale By Owner) sale signs and check out these listings on your own. Look for advertisements in the local newspaper, listings on the broker’s Web site, and even for sale signs on properties or in windows.