Real estate Myths, Fact or Fiction?

Have you heard or been told things that you think "that doesn't seem right" in regards to Real Estate?

A home is likely the most expensive purchase you'll ever make. And the best way to protect yourself from costly mistakes is to go in with a solid understanding of all aspects of the home-buying process. Feel like you're swimming in misinformation?

Well lets look at a few of these "myths" and debunk them. Here is a list of the “Top Real Estate Myths.” There is no particular order. A typical consumer would not encounter all of these (and may not experience any of them) in a transaction. We could substitute many different “myths” for the list above. Some of these may surprise you, so there are general comments about each myth.

1. Experienced agents are always the best agents.

While longevity in this business can be an indicator the agent is competent, it is not necessarily so. What is essential for home buyers and sellers is honesty, initiative, listening and negotiating skills, availability and a clear understanding of the best and most efficient methods to serve up your expectations. This is one of the reasons the interview questions you learn to ask can help you to choose wisely. The quality of their responses, sincerity, and general attitude is far more valuable than the duration of their career. See our blog article on interviewing your realtor

2. "You should wait to list your home until the spring."

The real estate market is seasonal. In some cities this is more apparent than others, especially places with harsh winter weather. When real estate company Redfin crunched the numbers over the past five years, we found that 51 per cent of homes listed in the winter sold above asking price, compared with 50 per cent in the spring. If you want the best shot at selling your home quickly and for the most money, list in the first half of the year. The percentage of homes that sold over asking price dropped to 44 per cent and 43 per cent in the summer and fall respectively in our region. Ultimately, the difference between selling in the winter and spring is negligible. Pricing and marketing strategy is the most likely to sell.

There are other factors that can change this, as we can see now in the Kamloops Real Estate market inventory is low so that makes it a better time for selling, your Kamloops Realtor should be clear about the current market with you.

3. "You don't need an inspection for a new build or recent renovation."

Some buyers are under the impression that they can forgo the inspection for a property that is new or recently renovated. From an improperly installed dryer vent to faulty wiring, new developments can have minor and major problems that aren't apparent until you get a professional to do a review.

While there might be competitive reasons to waive the inspection contingency in the contract, the decision to do so should not be taken lightly and should be made with full knowledge of the risks.

4. When a bidding war breaks out, the seller must accept the highest offer.

The seller can choose to accept or reject any offer he or she wishes, regardless of the price. It often surprises buyers to know that price is not always the deciding factor for a seller. For example, a seller may accept a lower value offer if it comes with an earlier closing date or has no conditions, which could potentially delay the transaction. A bird in the hand, as they say…

5. You will automatically get your deposit back if your offer doesn’t pan out.

When you make an offer subject to certain conditions and it is accepted, you pay a deposit, which is held in a brokerage trust account. If the conditions are not met or not waived by you, the deal falls through. But don’t assume you automatically get your money back. At this point, both the buyer and seller must agree to a release of the deposit money. If the seller does not agree, you will have to obtain a court order to recoup your funds, this is a pretty rare occurrence.

6. A mortgage is a debt

This one will surprise a lot of people, but a mortgage technically isn't a debt; it's a security interest in a property, held by a lender as collateral for a debt. What that means is that a mortgage is an asset exchange; the buyer gives the bank an interest in the home in exchange for the money to finance its purchase. It is this transaction that makes real estate different from most other things we might buy on credit. Unlike a takeout lunch or a night out at a concert, real estate is not consumable; it's a hard asset like money, and often an appreciating one at that. So, while home buyers should aim to pay off their mortgage as quickly as possible to save on interest costs, don't get too dragged down by the notion of being in debt. Living expenses are a fact of life, and once your mortgage is paid off, you'll have a piece of land of your very own. That's a lot more tangible — and valuable — than anything you've ever bought with a credit card.

7. A mortgage's term and amortization are the same thing

If there's one thing that confuses people about mortgages, it's the difference between a mortgage's term and its amortization. Well, it's time to blow up this myth because if there's anything that's financially irresponsible, it's paying into a financial instrument you don't understand.

So here it goes...amortization is the rate at which a mortgage is paid off. If you have a 25-year amortization on your mortgage, it will take 25 years to be mortgage-free if you continue making the same payments. This is the calculation used to spread the price of the home out over a period that will make it affordable for the buyer.

A mortgage term, on the other hand, is just the length of the contract you have with the bank or lender, which determines your payment, interest rate and other factors. It is generally anywhere from six months to 5 years, regardless of whether your amortization is 10 years or 25. Once the mortgage term is up, you have to renew your mortgage, which may mean a new interest rate, a new payment amount or even a switch to a different type of mortgage altogether. Why can't you just be locked in for the full amortization period? Well, the term is designed to protect both the lender and the borrower by allowing them to renegotiate the loan agreement at a set point in time rather than sticking with the same product and interest rate for decades. In Canada, the end of the term also gives the homeowner the opportunity to pay off the mortgage balance without penalty.

8. Renovations are a great investment

Go ahead and remodel if you want to. Just don't tell yourself it's an investment. In fact, you'll be lucky to recoup your costs, much less make money. Don't believe us? Remodeling Magazine's 2011 Cost vs. Value Report looked at a number of common household renovations and found that rates of return peaked out at about 75 percent of the cost of the remodel. That said, when the real estate market is really hot and you pick the right kind of renovation, such as adding a bathroom, that number can go above 100 percent — but it isn't by much, and that isn't the norm. The bottom line: if you renovate, do it for you, not a future buyer.

9. Using a “Selling Agent Bonus” is a legitimate marketing tactic.

This one is a classic. It is certainly a great tactic for the agent. It is not an appropriate tactic for anyone else in the transaction. Why would an agent not bring a prospect to your home if it fit the requirements they are seeking? A motivated seller would find a far better strategy is to reduce the price of the home to sell the home quickly. Home buyers would prefer to see the “bonus” come to them in the form of a reduced price than paid to the agent for introducing them to the property.

10. Going “For Sale By Owner” saves you money.

A home buyer has choices on how to go about seeking a home. One choice is to find an agent who understands their requirements and takes them on a tour of the homes that are of most interest. They can also jump in their car, buy a newspaper or search sites on the internet and go out on their own. Why would a buyer do that? The most likely explanation is that they believe if they do the work, they can save the commission. A seller that chooses the “go it alone” route is trying to do the same thing. They both cannot save the commission.

If both parties could just split the fee, all would be acceptable, right? In theory, the seller can only gain if they retain the commission they are doing the work to save. The buyer can only gain if they obtain the home for less than market price. The great majority of us are not trained to engage in this negotiation and successfully close the transaction knowing we saved money. Both of these parties are missing the bulk of the market and the best selection. It is logical to reason home buyers and sellers utilizing agents have better odds of achieving their goals.

Consumers who consider the for sale by owner route may look hard at investing that same time commitment and instead learn how to evaluate a home, how to interview and choose a good agent and how to proceed through the real estate buying or selling process with a solid game plan. That way, they stand a better chance of protecting their hard earned capital.

11. Every home has a specific value.

The fact is no home has a specific value or price. When most homes go under contract, a contingency to allow the buyer to obtain financing is in place. When a transaction fails, these homes come back on the market weeks or months later. When the home sells again to a different buyer, it is extremely rare that the second sale price is the same price as the first sale price. It is always higher, or lower, and sometimes by significant amounts. Find more information on the subject of value by clicking here at How to establish an asking price for your home

12. Top producers are always the best agents.

The real estate industry is full of top producers. Agents battle to be a top producer for income, prestige, ego and recognition. There are many methods utilized to be able to claim one is a top producer. Some agents are top producers because they are highly skilled at picking buyers that are the most likely to act decisively. Some agents specialize in a very narrow market. The waterfront specialist, the luxury home specialist, the income property specialist, the acreage expert. Some agents are just extremely proficient at convincing prospective buyers to work with them. Some agents choose to only list homes. They do not work with buyers. Others will only work with buyers. There are agents that are so focused on being successful they will do, well, almost anything to get there. There are agents who are capable but like to take shortcuts. Agents who speak well, but are lazy. Or sometimes, just not able to make sound decisions regularly. These practices and nuances the agents possess may not be beneficial for you.

Every profession, industry, and business in Canada must contend with these same issues. You may even recognize someone described above where you work now. Your needs and circumstances are served best by investing time and energy in choosing the agent. We sometimes take this decision to lightly. There are many capable real estate agents practicing and working hard every day to perform at 100%. It is a tall order to do the entire job well. Experts agree the time and effort vetting agents properly from which to choose should pay dividends in meeting your real estate goals.

13. Submitting the first offer creates a negotiating priority.

The home seller is under no legal obligation to react first to the initial offer to reach them. The seller could set the initial offer aside and deal with the third offer to reach them. It is quite common for both buyers and seller not to be aware of this fact. Only in multiple offer transactions does this potential for misunderstanding arise, perhaps that is why agents may not typically think to discuss it. When a buyer believes they are “first in line” they feel they have been treated unfairly when the seller chooses to deal with a different proposal.

14. "Price your home above the amount you want to get, so you have room to negotiate."

Determining what your list price should be is an art and a science. Before you list your home, ask your real estate agent for a comparative market analysis, which will help you determine a reasonable price based on sales of similar homes in your area. A Redfin study showed that the first week a listing goes on the market it receives nearly four times more visits online than it does a month later. Even if you drop the price later, it won't get the same attention. When in doubt, start with a lower asking price.

15. All agents are trained to evaluate homes.

Do real estate brokers train their agents properly in establishing a home’s value? While most do, many are just let the agent go for it. The way most agents learn to evaluate homes is by watching other more established agents and mimicking those methods or using software or online choices that are often flawed and cannot be relied upon.

An experienced realtor with lots of local knowledge will always give you a better overview of the market and be clearer on your homes value.

16. Buyers should always use a “buyer agent”.

There is no independent source a potential buyer can utilize to determine whether or not the buyer is better served with a buyer agent. A buyer can determine the value of utilizing an exclusive buyer agent by taking a three-step approach.

Step 1. Listen to the agent”s presentation.

Step 2. Ask the agent the same questions presented in the “Choosing a Real Estate Agent” article you can review here on this website.

Step 3. Interview multiple vetted agents before making a decision on which one, if any, with whom to work.

A good real estate agent should be able to provide service to a buyer under buyer agency, dual agency and as a sub-agent of the seller.

17. “Open Houses” are a waste of time.

If you get this answer from an agent, it could have many meanings. It could mean they are not confident in your chances of selling, and they do not want to invest time in it. They may be unable to squeeze the home into open house rotation because of too much inventory. It may also just mean they do not work on weekends. The fact is an “open house” is another tactic to gain exposure for the home. It provides prospects a casual, non-obligatory chance to preview the home. While it is true your agent may pick up new prospects for homes besides your home, conversely, an open home somewhere else in the area may produce the ultimate buyer for your home in that same fashion. Good agents can be very creative and skilled in ensuring the open house is promoted and take steps to ensure prospects attend.

 

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