Real estate is not a subject taught in middle school or even high school... well I take that back, I did have a hybrid course called "Business/Taxes/Real Estate", but at that stage of my life it was so not applicable I probably just logged away the words "mortgage" and "real estate agent" and that was the bulk of the takeaway.
Some people specialize in real estate in college, and others simply take a Personal Finance class --- which is not a required core class surprisingly.
***On a side note, Colorado has an amazing non-profit called the Young Americans Center for Financial Education Fund (https://yacenter.org/) that is truly teaching children financial skills and literacy that will help them succeed in the future. Go Colorado!***
Beyond that, real estate education only comes from the people in the business, and that information can be easily misconstrued. Real estate agents, mortgage advisers, banks, builders, and title companies are vying for your attention on TV, the internet, magazines, and in person so you'll buy their product. Only a handful of us are actually here to help you make the best choice for yourself and not push you into a house that's too expensive or force you into a mortgage you can't afford just because we need the money.
--- and I realize the irony in stating this on my blog. You don't know me, so how can you trust me? My goal as a real estate broker is to increase my reputation so you will trust my advice so you will give me a call and I can sell more houses to make more money. So how can I do all this in one fell swoop and feel like I'm breaking the salesmen stigma in my industry?
BY BEING 100% TRANSPARENT
I am not here to jerk you around, and that's why I'm going to explain a few things about the business of real estate from both an industry insider perspective and from an outside consumer perspective. Let's start with...
THE REAL ESTATE AGENT
Think of your real estate agent like a waiter: anyone can wait tables, but only the best ones make the most in tips.
Myth #1
"I have to pay for Derek's commission when I buy a house."
Nope, you don't. When the Seller lists their home they agree to pay a certain level of commission before putting it on the open market. This commission gets split between two agents: the agent that represents the Buyer and the agent that represents the Seller. In the RAREST circumstance, you may come across a stubborn Seller that is unwilling to pay a commission. In those cases, you as the Buyer need to evaluate if the home is worth paying your agent's commission or if you'd rather move on.
***A good agent will tell you when this situation arises, and make sure you understand the cost before closing. A bad agent will not mention it and you'll get a surprise at the closing table.
Myth #2
"Derek, you're in real estate in Colorado, you must be doing well, huh?"
While I've made a living in real estate since going full-time in January 2016, just because I'm in the industry does not mean I'm doing well. There are a little over 35,000 agents in Colorado, and they range in activity level from 0 transactions to 300 transactions per year. Only about 10% of us are full-time agents, and only another 5% of that are the crem de la crem making over the $100,000 in take home per year.
Myth #3
"Derek is already doing well so he doesn't need my business."
Wrong, 1000% wrong! I am never too busy to take on new business, and this is my profession. My business and passion involves the buying and selling of property. The money itself is a by-product of that passion. I am here to help you make the best choice for yourself and your future, and that is the only way I get paid. If I don't make sales, I don't get to hang out with friends at dinners, happy hours, and Broncos/Rockies games in Denver.
The only way a new agent typically gets business is by selling to their friends and family. Without this, a real estate agent won't survive, period.
***This has happened to me several times. As a professional, I can take it, we gain and lose leads all the time and it likely means we didn't market ourselves heavily enough. As a friend, it REALLY hurts.
Myth #4
"I don't want Derek to see all my financials and judge me."
This one is interesting, and I've heard it a few times. It's very important to note that finance and real estate are TOTALLY separate. As a real estate agent, the only piece of financial knowledge I want to know is how big your down payment is. We use that as a tool to make the most competitive offer possible. The only reason I call your mortgage person is to make sure we are still on track for closing. The finance person deals with getting you the funds to buy a house. The real estate agent deals with everything associated with the house itself.
BUYING A HOME
Everything related to buying a house can seem scary, but so is asking someone on a date for the first time. If you really want to own a house just grin and bare it!
Myth #1
"I don't have enough in down payment to buy right now."
This is wrong a great deal of the time. I've actually had closings where people get a $900 check written BACK to them at the closing table rather than paying a cent. Your mortgage person can manipulate all sorts of numbers, and that's exactly why you use one. Until you've spoken with a mortgage adviser, how can you possibly know what you can or can't do? I've closed on a $350,000 home with a client that had less than $12,000 in closing costs in the end. Anything is possible, but (obviously) in order to put any sort of down payment you do need a little bit of cash. That said, down payments go down as low as 0% with certain programs and grants.
Myth #2
"I don't want to buy at the top of the market right now."
No matter when you buy a house, you always buy at the top of the market. You're either buying at the top in a RISING market or buying at the top of a FALLING market. The longer you wait, the more likely you are to get priced out of the market in the future. For my friends that I encouraged to buy a house in 2014, a $250,000 house would in 2019 likely be $450,000 or more. Waiting for "something to happen" in your real estate market is the WORST reason to not buy a home. Even when a recession hits, if you ride out the storm the market always comes back.
*** If you are considering buying a home as a short-term investment and leaving in under 3 years, real estate is very likely not your best investment. Owning a home should be a 5+ year investment. If you live in it for 2 years and rent it out indefinitely, that is a great reason to buy real estate also.
Myth #3
"I'm not ready to buy a house right now."
This is one of those statements like "Whether you think you can or you think you can't, you're right!" It all depends on your personal priorities. If you're living in a small apartment and paying $600/month in rent, you can definitely find a similar living situation and pay $600/month to OWN rather than rent in the same neighborhood. Even if you think you want a bigger house someday, buying that tiny studio apartment is a stepping stone to the bigger house because you can always sell the place you're in without consequence. There's no cost to breaking your lease when you own something!
*** All the actual reasons for NOT buying a house are financial ones. If you can't afford to live the way you want to live within your target budget, don't overexert yourself.
Myth #4
"I'll save money by using a discount brokerage."
In some cases yes, and in some cases no. Some discount brokerages will contribute a large portion of the earned Buyer Agency commission back to you at the closing table. I will not do this --- and there's a good reason why. Working with a discount brokerage is going to be like pulling teeth. Every call is going to be frustrating ordeal. You may miss out on a property because they didn't structure an offer properly or they didn't have an agent available to show you a house. They may have no knowledge of the circumstances of your deal because they have 100 other deals going on all at the same time. These firms get paid for VOLUME of deals, not for QUALITY. So yes, you can absolutely get a discount and save some money by going to a discount brokerage, but do not expect to get the same level of service simply by being a cheapskate.
*** The most egregious mistake of all is that you may OVERPAY for a home and lose out on costly home improvements/repairs when using a discount brokerage, simply because a discount brokerage doesn't have the same negotiating expertise.
Myth #5
"I want to buy an investment property."
Okay --- this one's not a myth, it's more of an aspiration. Make sure you do the math properly; that's the only reason I bring this up. Your monthly mortgage payment includes Principal + Interest + Homeowner's Insurance + Property Taxes. Interest on your mortgage can be deducted from your income tax return up to the $750,000 mark on your loan balance (as of 2019). Be sure to include your HOA dues in your expenses, as well. Also, the biggest expense is actually going to be the INCOME TAX expense on the monthly rent received. If you make $50,000 from your job and $25,000 from your rental income, as far as the government is concerned you make $75,000 in total income and have to pay taxes on all of it. Here is "the math" as I see it:
POTENTIAL CASHFLOW = Monthly Rent - Income Tax - Mortgage Payment - Homeowner's Association Dues + Mortgage Interest (on loan balance up to $750,000)
*** While I am a landlord and use this calculation for myself on an annual basis, I am not a tax accountant and am NOT giving you tax advice. Please seek actual advice from your tax professional when considering an investment property if you're unsure of anything!
SELLING A HOME
Selling a home is about achieving a larger goal and not always about the vanity of getting "top dollar for your home". Don't lose sight of the forest for the trees.
Myth #1
"I'll save money by using a discount brokerage."
Please see Myth #4 in the "BUYING A HOUSE" section. The same applies on the sell side. Your discount brokerage agent gets paid on VOLUME and not on QUALITY. They get pats on the back from their superiors for getting deals done, but they don't see any more money from doing a good job. If you use a discount brokerage and they suck at negotiations, you may leave $20,000 on the table because you didn't remain firm on your listing price --- mostly because of a lack of expertise on the agent's side. That $20,000 would've more than covered the cost of hiring a listing agent like myself.
*** When you choose to go with a discount brokerage, you choose to present your home as a discount property to the world.
Myth #2
"It doesn't matter what brokerage I list with."
It does, oh it does. Putting a Keller Williams sign vs. a TRELORA sign vs. a LIV Sotheby's International Realty sign makes a huge difference in how a property is perceived, both in quality of property and in quality of agent. Each brokerage has it's own standards when it comes to hiring new agents. The stricter the standards, the more the market expects a certain quality from the firm that is chosen.
*** A Seller -just as the individual selling the home- can also NOT meet the standards of a brokerage. For example, I have turned down listings because I knew the condition that the Seller kept their home in and their expectations on sales price would not be a good fit for the Sotheby's brand. Put lightly, you can't expect to command a brand new Lamborghini price when you're selling a used Honda.
(For more information about choosing the best offer when selling your home, read my other blog post: Damn Love Letters! – How to Choose the Best Offer & Not Get Screwed When Selling Your Home)
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There are plenty more myths to bust, but these are the major ones that my social media following have wanted me to bring up. Please send me some more myths you'd like to see busted! I'll continue to edit and grow this list as new myths arise in the real estate industry.
Just remember, YOU DON'T KNOW WHAT YOU DON'T KNOW. Don't make assumptions when it comes to real estate. Get professional advice, and always shop around. A first opinion is good, but three opinions is better. Interview both your realtor and your mortgage adviser, and ask lots and lots of questions. You'll be spending enough time with them over the transaction, why not pick someone you enjoy while also being the best person for the job?
-Derek Chisholm
720.446.8559
DChisholm@LIVSIR.com
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