Many agents work with buyers who fall in love with a home outside their price range. How you deal with their request to see the higher-priced home can impact your reputation as an agent. The same is true for lenders.
Both agents and loan officers want to keep their clients happy. They also know it's vital to promote responsible homeownership.
Should you show your buyer the house, knowing they aren't preapproved for that much? Should the loan officer attempt to boost the preapproval amount?
The answer really boils down to one question: Would either of these paths promote responsible homeownership?
Your physical presence is felt for a relatively short period of time as an agent. But what you communicate to your buyers has a lasting impact.
In the end, it's really up to the buyer to determine how much risk they are comfortable with. You can guide and advise them along the way.
Sitting down with the buyer to discuss how much they'll be paying out of pocket and comparing those figures to their current budget is just one way to promote buyer responsibility.
With more than 20 years of industry experience, Bill Gasset understands the importance of promoting responsible homeownership. Bill's a good friend and a top Ashland, Mass. real estate agent. We asked him to address a couple of key questions on this increasingly important topic.
Question: How do you address a buyer who wants to look at homes in the very top of or above their price range?
Bill: Knowing how much you can qualify for when setting out to purchase a house is an extremely important part of owning a home. Having been through two major real estate transactions in my real estate career, it's easy to see why this has become such an important topic. If there's anything about the recent foreclosure and short sale crisis we have been through, it's important to understand your financial wherewithal.
What I've seen as a Realtor on numerous occasions is buyers who spend to their absolute maximum without any consideration for life changes or even the additional expenses besides the mortgage when buying a home. This is especially the case with first-time homebuyers. It's actually not all that hard to understand as they have never owned a home before.
One of the things I like to do is make absolutely certain the buyer has thought things through before they ultimately sign on the dotted line. I remind them it's very easy to become house poor. The last thing you want to do is become a slave to your home and not be able to go out to dinner, take a vacation or enjoy other pleasures because you have buried yourself under a financial debt you didn't think through completely.
Reminding buyers it's not only the mortgage they have to think about but all the other expenses that go along with owning a home like utilities, general maintenance, yard work as well as things like appliances and furnishings if they are moving to a larger home.
Question: What about sellers? Do you provide any financial counseling to your sellers before they accept an offer?
Bill: One of the things a good real estate agent will do well in advance of getting a real estate offer is to discuss with their client the actual "net numbers" they'll be receiving. There are quite a few costs that can impact a seller's bottom line, so it's important they know what they are. You can never take for granted the fact that homeowners don't know what we know. They aren't in the business and selling homes every day. It's also quite possible that if the owner has moved around the country they may not understand that home-selling costs can vary from state to state.
For example, in Massachusetts there is a tax to sell a home. In most of Massachusetts the cost amounts to $4.56 per every $1,000 of sale price. The tax on a home that sells for $500,000 would be $2,280. Obviously not chump change, especially if you're not accounting for it.
Other expenses can also add up as well. They may include hiring an attorney for the contract review and attendance at closing. This could add another $1,000 to the cost of selling a home. There are always other smaller miscellaneous expenses that can add a few hundred here and there. If a real estate agent is not doing their job you can see where a seller could have a very surprised look on their face when finding out about these expenses somewhere down the road.
The other part of the equation is accurately predicting what their property will actually sell for, not some pie-in-the-sky value that makes no sense. Honestly, proper real estate pricing is where a lot of Realtors make mistakes. Property valuation is an art. A good agent should be able to get close to what they tell a seller at their initial interview to sell the home. An inaccurate value really makes it difficult for a seller to plan their future unless they are well off financially.
It's really important for a real estate agent to have responsible homeownership always on their mind. Part of our job is to counsel our clients well from the experience we have accumulated over the years. When we can do that well everyone wins!