Let's debunk some common real estate myths

Myth # 1: You get a better deal if you use the listing agent as your buyer’s agent. 

Each real estate agent owes a fiduciary duty to their client. If a listing agent “double ends” a transaction (called dual agency), they owe their first duty to the seller, and only a duty of fair dealing to you as a buyer, not the same fiduciary duty. That means the agent works with the sellers’ interests first and foremost. As a buyer, you have every right to have your own agent. An exclusive buyer’s agent owes a fiduciary duty to you and you alone. That means your interests are placed above all others, even that of the agent themselves. In the situation where you, as a buyer, are also represented by the listing agent, your interests come behind the seller and the listing agent. In California there is another type of dual agency, but only because of the way the broker/agent system is set up here. In California, a real estate agent must hang their license with a broker who is responsible for supervising that agent. When an agent secures a listing, that listing becomes the legal property of the supervising broker, so if another agent from the same brokerage ends up representing the buyer in the transaction, it is also considered dual agency, but only because the broker is responsible for supervising both agents, even if the two agents have never met, as is often the case with large brokerages. In this situation, neither agent is allowed to disclose information regarding terms, like how much a seller is willing to take or a buyer is willing to offer, without the expressed written consent from both buyer and seller. It would make more sense if there were different names for each of these “dual agency” types, so the duty to buyers and sellers were more clear. In the situation where both buyer and seller are represented by the same person (true dual agency) it is impossible for that same person to not know both buyer and seller positions, which may lend itself to some questionable behavior on some occasions. The dual agent may be more interested in pushing the buyer to offer more to serve the seller fiduciary duty than dealing fairly with a buyer’s interests. Sometimes the temptation is too great to bear, and the agent succumbs to using the knowledge to serve their own interests. There are many agents who have had their licenses revoked or suspended for just this behavior. But that’s not the norm. Most serious professional realtors will not offer to serve as a true dual agent representing both buyer and seller. The liability is just too great. The moral of the story is buyers and sellers need their own agents to represent their interests.

Myth #2: You need a 20% downpayment to buy a house.

There are many loan products available. Although with a conventional loan, you can avoid paying private mortgage insurance by putting as little as 10% down, there are ways to get around having to put so much down. FHA loans can be secured for as little as 3.5% down. You can use what’s called a piggyback loan where there’s a conventional loan to cover 80% of the purchase and 20% is covered by a HELOC. If you are a first time homebuyer, there are down payment assistance programs to help you via grants or what’s called silent second loans that don’t come due until you’ve paid off the first mortgage. Some employers offer down payment assistance programs and for some professions, like those in healthcare, teachers and first responders, banks have special programs. A good place to start your search for a program that fits your needs is https://www.calhfa.ca.gov/homebuyer/programs/index.htm. Reach out if you need a referral to some good local loan officers who can provide you with options for your particular situation. 

Myth #3: You should always list your house at a higher price to leave room for negotiation. 

Every market is different and in different markets there are different customary norms. It is imperative you understand what is expected in your market. Although pricing at or above the price you expect to get is normal in some parts of the country, that is not the case here, and if you list your property too high here, the end result is that buyers will move on to properties they think are a better deal. In our market, if you list your property too high, it will sit on the market and grow stale, and eventually you’ll actually get less than its true market value because of the common perception that there is something wrong with a house that sits on the market too long. In the East Bay, it is customary to set your list price a little below your expected sale price. The idea is to get buyers excited about getting a good deal, so as many possible buyers become interested, and the market factors of competition work to push the price up. 

In some markets sellers don’t bother with getting any pre-inspections, and rely on a buyer to hire inspectors, after which price negotiations start. In the East Bay market, it is customary for sellers to obtain reliable home and pest inspections, and any other inspections that may be called for - like roof and foundation. The idea is, if a buyer has all of the information available prior to making an offer, that offer more accurately reflects the true market value, and that offer is less likely to fall apart at the last minute. If a buyer has all of the information up front, they are much less likely to cancel, and far more likely to waive contingencies, which makes for a faster, smoother transaction for everyone. 

Myth #4: You should only buy in a buyers market.

So, the definition of buyers markets and sellers markets depend on who has the upper hand. A seller’s market is one with more buyers than sellers, so sellers typically have more leeway to select from several competing offers and can somewhat gain a bit more control. In a buyer’s market, there are more sellers than buyers, so buyers have their pick of homes and can typically pay a little less because sellers are competing. First of all, no one can predict a market, so how long do you wait? Are you willing to wait? Don’t you need somewhere to live today? And what happens in a market like ours where inventory is always scarce and there are more buyers than sellers for decades? That makes no sense at all. Buy a house because you want a home. Just as a side, if you buy in a market where there is always demand, the value of your property goes up faster and you gain equity and wealth much faster, so there is no logic at all to waiting for a buyer’s market.

Myth #5: You should wait until interest rates go down to buy. 

Again, no one can time the market, for pricing, availability or interest rates. Especially in a market like the East Bay, where property values continue to climb, like they have for the last 40 years (with the exception of the 8 months in 2008). If you wait for interest rates to go down, you will forever lose the equity gain you would have had if you had bought earlier, and you always have the opportunity to refinance, and even pull cash  out if you want, so what’s to lose? Buy what you want now, watch your investment grow and refinance later when rates go down. It’s like money in the bank.

If you are looking for expert real estate advice, hit us up. We’re always here to help.