Very few things in life have a solely altruistic goal. So sometimes we need to be reminded that if something seems too good to be true, there is probably a catch or hook. In the real estate industry, there two areas we can think of quickly that have a hook.
The first is financing. We've all seen the online and national advertisements from lenders who will gladly pay your closing costs if you use them to purchase or refinance a home. The hook: They are offering this special and selective financing to save you money.
Who actually pays your closing costs? The lender? That's what appears to be so. But not really. You do, over the long haul. These lenders aren't being generous when they tout paying for your closing costs. They simply increase the interest they charge you. Here is an example of how you fund this "generous" gift.
For example, let's look at interest rates for a conventional 30-year loan of $300,000 with a 5 percent down payment. When you pay your own closing costs, the interest rate is approximately 4.65 percent. The monthly principal and interest payment would be $1,464. If the lender pays $4,275 in closing costs, the interest rate increases to 5 percent, and the monthly payment increases to about $1,530. This equates to an increase in your mortgage payment of $66 per month or $792 annually. In about 5.5 years, the lender is paid back for the favor.
However, the higher payment extends for another 24.5 years at the higher interest rate for an additional $19,004.16 over the life of the mortgage.
In this example, if you plan to be in the home for fewer than 5.5 years, then the lender paying your closing costs works in your favor. If you live in the home longer than this, you pay a premium each month after in exchange for the $4,275 in short-term savings.
A better option would be to consult a local lender who can give you more than one option, including financing your closing costs. This way you can see the pros and cons of each loan program. A local lender would also have access to Alaska Housing Financing loan programs, which might offer a lower interest rate than conventional financing programs.
A second hook is found in home-finding services. Advertisements abound for services that promote finding you a real estate agent, after you give them some basic information and register on their site, to help you buy or sell a home. The hook: The service will do the hard work of evaluating the market before offering you a short list of agents to consider, and it doesn't cost you anything. Actually, their revenue comes from real estate agents who pay these services finder fees if they successfully help you buy or sell a home.
So why would a real estate professional join these types of databases? The reason is simply to tap a pipeline of potential clients. With buyers and sellers becoming more comfortable with technology, the home-finding services are the easiest form of advertisement for real estate agents, who submit personal and professional data to numerous services to target a larger audience. The services, in turn, target you.
However, successful results don't always correspond to the number of online services a real estate agent belongs to. Ask yourself, do the best doctors have to pay to get patients? How good are they if they have to forfeit part of their fee to get your business?
When looking for a real estate professional to help with one of your most important life investments, do your homework to decide what is important to you. Experience, of course, but also understand the extent of services provided. Will you want to work with just one individual or a team? Would you prefer a national brand or a smaller, more intimate company?
To evaluate the real estate professional's experience, ask for a list of homes they have personally handled (from start to finish). If part of a team, be sure to understand the agent's level of involvement. Many team members specialize in a part of the process before your file is handed off to another. Since real estate transactions frequently have surprises, experience in solving the unexpected is important.
Services range from: market analysis; marketing; negotiating; on-site representation at the home inspection; repair issues; complying with local/state requirements; paperwork; and appraisal issues. Experience with the above is important. If something isn't offered (for example, your interest is not fully represented if your real estate professional doesn't physically attend the home inspection), then the missing service should be a red flag.
Whether buying or selling, start gathering basic marketing information. Some good information can be gleaned from the public Alaska Real Estate Multiple Listing Service (alaskarealestate.com). If you are buying, you will begin to see the ebb and flow of properties as they cycle through the marketplace.
If you are selling, look 10 percent above and below your property value to begin comparing photos and write ups. You will be able to see how effective the property is marketed. Is the written descriptive narrative appealing? Do the photos give you a good sense of the property and make you want to see it?
When working with a team, the advertisements focus is on the team leader. However you may be assigned to different team members throughout process, unless something goes wrong and the team leader needs to step back in. Take the extra step to vet the other team members to be comfortable with them as well.
So whether you are shopping for financing or a real estate professional, don't depend on someone else to evaluate what is important to you. After all, your home is the largest part of your family's net worth.