Two great examples.

March 12, 2019

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Buying or selling a home?

Use a Realtor.

Two examples of why you should use a Realtor when buying or selling a home.

In full disclosure, these tales actually happened. Names are excluded to protect the guilty and innocent alike. Enjoy them and learn from their lesson rather than feeling your own pain.

Example 1: Client won’t take advice and make a serious offer on a home, bails to buy a house without an agent and pays too much.

Background: Part of this was my own fault. I had known this client for several years (in my previous employment), and I knew her to be somewhat dishonest, and as expected because of that she was also known to be distrustful. There were other signs early on that could have saved me the trouble of working for her (for free), but I hoped against hope that our previous history would disprove those signs.

What happened: So client K comes to me looking to buy a home. She had recently sold her house FSBO (first ignored hint of trouble), and had decided that she wanted assistance in locating a home as the housing market was turning homes over quickly.

We do the whole consultation thing, and begin the search. Like many clients, she has tastes that are about 20% over her desired price range. Accordingly, we waste two weekends looking at homes in her desired price range that she does not think are acceptable.

After the second weekend of showings, we sit down and go over the facts of the market. Client K comes to terms with the truth that the home she wants costs more than she had hoped (which should tell the reader that she left money on the table when selling her home, as she doesn’t know the market conditions and likely undersold).

We adjust her search price range and LO and behold, we find the home that she wants.

So we sit down to write an offer.

While discussing the home, I pull the tax information, comparable sold home data in the area, and some other market indicators I use to drill down on a homes price. The listing agent had done an excellent job and was within a couple hundred dollars of the price I determined was the homes market value. I advised Client K of this.

What I hadn’t known prior, was that Client K had a friend at work that had bought a house before. Client K’s friend was giving her advice as though he were an expert in the field of real estate. (I know him as well and he isn’t particularly good at the job he does, let alone the one he doesn’t do, but that may be me being catty) At any rate, when going over the houses we were going to see, Client K’s friend had advised her to offer less on this home because that was all it was worth.

This is one of the tough parts of this job. All I can do in this situation is give my best consul to the client, and then write and present the offer to purchase that they make.

Client K listened to her friend over a professional Realtor. A competing offer went in the same day. Her offer wasn’t even close enough that the home seller even asked for a highest and best offer (home auction). They declined Client K’s offer, and she didn’t get the home she wanted.

Guess who took the blame for it. That’s right, me, the Realtor.

She didn’t say it at the time, no she told me she had a serious health condition spring up and that she would be waiting a year to buy a home now. I accepted that answer, and told her I would reach out then.

Here is where it gets interesting.

If by interesting you mean duplicitous, foolhardy, and with a mildly tragic ending.

It turns out that whether there was even an illness or not, Client K was still buying a home. Her and the friend who previously gave her bad advice knew better and she was going to buy without my help.

To her credit: she found a house, submitted an offer, and closed the transaction.

To her chagrin: (If she even knows this) she over paid for the house by a minimum of $20,000.

And that number is being generous. She paid $200,000 for a home that the highest neighborhood comparable sold for $173,000. That would mean she overpaid by $27,000 for the home…but it did have some decent upgrades and one could stretch its value to $180,000 for an appraiser. If the appraiser was relaxed in his standards.

So for our purposes, she over paid by $20,000. A full 10% over market value.

Moral of the story: Use a Realtor and take their advice if you want an outcome that includes getting the house you want, and not over paying for it.

Example 2: Home selling client bought their home without a Realtor, doesn’t do due diligence and overpays taxes for 12 years. Costing roughly $18,000.

Background: I have known this client for several years, but not as far back as this purchase was made and I didn’t ask for a ton of details, but basically the home was purchased as a FSBO (for sale by owner) , and through a less than professional title company because the seller wanted to save money. They probably did, but it cost my client substantial amounts of money as a result.

What happened: The what happened is pretty straight forward. Client B purchased a home that was for sale by owner and without an agent on her end.

What is different in this story, is that the things that Client B did not do (or know about) are not even things that Realtors are professionally or legally required to do or counsel a client on. They are however things that any professional Realtor will advise their client on, as at our best we are fiduciaries beyond the base real estate transaction.

Basically, Client B was not aware of two important property tax deductions in Indiana. (there are several, more information available here.) The two that applied here are the Homestead Deduction and the Mortgage Deduction.

Homestead Deduction. This is the big one. For starters, this deduction starts your property tax computation off with a $35,000 deduction from the homes assessed value and a 20% decrease in the net tax amount.

But there is another piece to this puzzle. In Indiana, the primary residence is determined by where your homestead credit resides. Being that property taxes in Indiana are capped at 1% of the assessed value for homestead properties (vs. 2% or 3% other types of real property based on use), failing to file the homestead deduction can easily double your tax bill by itself.

Mortgage Deduction. The home mortgage deduction is $3000 deducted from your assessed value. Certainly a smaller concern than the Homestead Deduction, but it still cost her money.

Moral of this story: When buying a home, Realtors do a lot more than advise you, find your home, negotiate on your behalf, make sure all documents are in order, handle your due diligence period, connect you to contractors, and help you get the home you want closed. A professional Realtor will help you do all of that and make sure that all of the I’s are dotted and the T’s are crossed- they will save you money.

Summary: I cannot say this enough. You wouldn’t pull your own teeth. You don’t do hundreds of other things that are outside of your expertise. You hire a professional.

The buying or selling a home are the largest financial transactions you will likely make in your life.

The mistakes can be very expensive.

Avoid those mistakes by using a professional Realtor whenever you buy or sell a home.