Buying – Homeowner Savings

Buying a House: Working with Real Estate Agents

Real estate agents love working with people, but there are always clients who may unintentionally cross the line. Here are a few simple protocols you can use while shopping for a home that will keep you out of hot water and on good terms with real estate agents—especially your own agent.

Choose a Real Estate Agent

If you are interviewing agents, let each agent know you are in the interview stage.
Decide whether you want to work without representation, dealing directly with listing agents, or if you want to hire your own agent.
If you decide to hire your own agent, interview agents to find an agent with whom you are comfortable.
Never, never, never interview two different agents from the same company.

Understand Agents Work on Commission

Most real estate agents are paid a commission. If an agent does not close a transaction, they do not get paid. Agents are highly motivated to do a good job for you.
Agents are not public servants and do not work for free. Do not ask an agent to work for you if you intend to cut the agent out of your deal.
Very few real estate agents work on salary and if they do, you probably don’t want them.

Keep Appointments and Be on Time

If you are running late, call and let your agent know when you expect to arrive. Just show respect.
Be respectful, use common courtesy, and don’t expect an agent to drop what they are doing to run out and show you a home. You are probably not that agent’s only prospect or client. And if you are, it’s not a good sign.
Do not make an appointment with an agent and then forget to show up.

Do Not Call the Listing Agent If You Are Working With a Buying Agent

Listing agents do not want to do the buying agent’s job. Let your buyer’s agent do their job.
Listing agents work for the seller, not the buyer. If you hire the listing agent to represent you, that agent will now be working under dual agency. Conflicts of interest may occur.
If a listing agent shows you the property, the listing agent will expect to represent you. Ethics prevent a listing agent from showing preferential treatment. If you ask a listing agent to do you a favor and try to discount the price, it’s compromising integrity, and most won’t do it.

Sign a Buyer’s Broker Agreement With a Buying Agent

Ask about the difference between an Exclusive and Non-Exclusive Buyer’s Broker Agreement.
If you’re not ready to sign with a buyer’s broker, do not ask that agent to show you homes. Otherwise, a procuring clause may pop up.
Ask your agent if they will release you from the contract if you become dissatisfied. If they refuse, hire somebody else. Your agent should also be respectful of your goals.
Expect to sign a buyer’s broker agreement. It creates a relationship between you and the agent and explains the agent’s duties to you, and vice versa.

Always Ask for and Sign an Agency Agreement

The best and most practiced type of agency is the single agency. This means you are represented by your own agent, who owes you a fiduciary responsibility.
By law, agents are required to give buyers an agency disclosure. This document varies across state lines.
Signing an agency disclosure is your proof of receipt. It is solely a disclosure. It is not an agreement to agency. Read it thoroughly.

Make Your Expectations Known

Set realistic goals and a time frame to find your home. Ask your agent how you can help by supplying feedback.
If you expect your agent to pick you up at your front door and drive you home after showing homes, tell them. Many will provide that service. If not, they will ask you to meet at the office.
Let your agent know how you want them to communicate with you and how often. Do you want phone calls, emails, text messages, IMs, or all of the above?
If you are displeased, say so. Agents want to make you happy. Don’t be afraid to speak up.

Do Not Sign Forms You Do Not Understand

Realize agents are not lawyers and cannot interpret law. Don’t ask agents to give a legal opinion, prefaced by the statement you are not asking for a legal opinion.
Do not feel silly for asking your agent to explain a form to you. It’s their job. Many forms are second nature to agents but not to you, so ask for explanations until you are satisfied you understand.
Try not to sign forms titled “Consent to Represent More Than One Buyer.” This is never in your best interest. But sometimes you can’t help it because your agent could work for a large brokerage. That brokerage could represent more than one buyer, not your agent.

Be Ready to Buy

Bring your checkbook. You’ll need it to write an offer because an earnest money deposit may be required to accompany your purchase offer. And please, be preapproved.
If you aren’t ready to buy, you don’t need a real estate agent. You can go to open houses by yourself and call listing agents for showings—but be honest. Say you are “only shopping.” Look at homes online, but don’t waste an agent’s time if you aren’t ready to act.
If possible, hire a babysitter to care for children who are too young to stay out all morning or afternoon touring homes.

Practice Open House Protocol

Do not ask the open house host questions about the seller or the seller’s motivation. Let your agent ask those questions for you. Your agent will probably use a different approach that works.
Ask your agent if it’s considered proper for you to attend open houses alone. In some areas, it’s frowned upon to go to open houses unescorted.
Hand your agent’s business card to the agent hosting the open house. Sometimes this agent will be the listing agent, but often it is a buyer’s agent also looking for unrepresented buyers. Announcing you are represented protects you.

With a little respect and courtesy on both sides, you and your agent can have a successful relationship and smoothly navigate the process of buying a home.

A Guide for Buying a Home

Buying a house requires a lot of time and effort, but these 10 steps can help make the home buying process manageable and help you make the best decisions possible.

Step 1: Work with a Mortgage Banker to Select Your Loan

Lenders have a wide range of competitively priced loan programs and a reputation for exceptional customer service. You will have many questions when you are purchasing a home, and having one of our experienced, responsive mortgage bankers assist you can make the process much easier.

Every home buyer has their own priorities when choosing a mortgage. Some are interested in keeping their monthly payments as low as possible. Others are interested in making sure that their monthly payments never increase. And still others pick a loan based on the knowledge they will be moving again in just a few years.

Step 2: Start Your Research Early

As soon as you can, start reading Web sites, newspapers, and magazines that have real estate listings. Make a note of particular homes you are interested in and see how long they stay on the market. Also, note any changes in asking prices. This will give you a sense of the housing trends in specific areas.

Step 3: Determine How Much House You Can Afford

Lenders generally recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.

But you should make this determination based on your own financial situation. Use our Affordability Calculator to see how much house you can afford.

To help you save for your down payment, try Discover Bank’s AutoSavers Plan, which makes it easy to put aside money each month.

Step 4: Find the Right Real Estate Agent

Real estate agents are important partners when you’re buying or selling a home. Real estate agents can provide you with helpful information on homes and neighborhoods that isn’t easily accessible to the public. Their knowledge of the home buying process, negotiating skills, and familiarity with the area you want to live in can be extremely valuable. And best of all, it doesn’t cost you anything to use an agent – they’re compensated from the commission paid by the seller of the house.

Step 5: Shop for Your Home and Make an Offer

Start touring homes in your price range. It might be helpful to take notes on all the homes you visit. You will see a lot of houses! It can be hard to remember everything about them, so you might want to take pictures or video to help you remember each home.

Make sure to check out the little details of each house. For example:

Test the plumbing by running the shower to see how strong the water pressure is and how long it takes to get hot water
Try the electrical system by turning switches on and off
Open and close the windows and doors to see if they work properly

It’s also important to evaluate the neighborhood and make a note of things such as:

Are the other homes on the block well maintained?
How much traffic does the street get?
Is there enough street parking for your family and visitors?
Is it conveniently located near places of interest to you: schools, shopping centers, restaurants, parks, and public transportation?

Take as much time as you need to find the right home. Then work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighborhood. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the period of time it takes to complete all of the remaining steps in the home buying process.

Step 6: Get a Home Inspection

Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.

Both you and the seller will receive a report on the home inspector’s findings. You can then decide if you want to ask the seller to fix anything on the property before closing the sale. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.

Step 7: Have the Home Appraised

Lenders will arrange for an appraiser to provide an independent estimate of the value of the house you are buying. The appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will let all the parties involved know that you are paying a fair price for the home.

Step 8: Get Prequalified and Preapproved for credit for Your Mortgage

Before you start looking for a home, you will need to know how much you can actually spend. The best way to do that is to get prequalified for a mortgage. To get prequalified, you just need to provide some financial information to your mortgage banker, such as your income and the amount of savings and investments you have. Your lender will review this information and tell you how much we can lend you. This will tell you the price range of the homes you should be looking at. Later, you can get preapproved for credit, which involves providing your financial documents (W-2 statements, paycheck stubs, bank account statements, etc.) so your lender can verify your financial status and credit.

Step 9: Coordinate the Paperwork

As you can imagine, there is a lot of paperwork involved in buying a house. Your lender will arrange for a title company to handle all of the paperwork and make sure that the seller is the rightful owner of the house you are buying.

Step 10: Close the Sale

At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender. Once the check is delivered to the seller, you are ready to move into your new home!

The Real Question: Buying or Renting?

Millennials accounted for the largest share of home sales last year, with 24- to 35-year-olds making up a full quarter of all homebuyers. Another 20% of buyers were 35 to 44 (older Millennials and younger Gen Xers). But will the next up-and-coming generation of Gen Zers follow in their footsteps? Recent data seems to suggest so.

Furthermore, economists expect Gen Zers to have a higher homeownership rate when they’re age 35 to 44 than Millennials did at the same age. Still, the renting versus buying debate is never clear-cut despite where current trends seem to point. There are pros and cons for both situations. The right choice depends on your budget, location, long-term plans, and many other factors.

The Pros and Cons of Renting a Home

Pros

One of the biggest advantages of renting is that you don’t have as much financial responsibility to your home as a homeowner would.

Renting is a more flexible option for moving, too. If your job changes or you simply want to move to a new place, it’s just a matter of putting in notice with your landlord.

Renting isn’t without its faults:

You have to deal with a landlord
You may have to live in close proximity to your neighbors
Usually, you can’t make any updates or customizations to your property

According to Apartment Guide’s 2020 Annual Rent Report, the average monthly rent for a two-bedroom apartment in 2019 was $1,808.70. Over the course of a one-year lease, your rent payments would total $21,704.40.

The Pros and Cons of Buying a Home

Pros

There are some big benefits to buying a home, too. For one, you build equity. You can use that equity later with a home equity loan, HELOC, or just in cold, hard cash when you’re ready to sell the house.

Owning your home creates peace of mind and pride. It’s all yours, there’s no landlord you answer to and you can truly make the place your own.

Cons

Owning a home comes with significant up-front and ongoing costs.

Average yearly home maintenance/improvement spending: $1,521
Average closing costs in 2018: $5,779
Average down payment in 2018: $15,490

If you want to move or your job changes, it might not be as easy to pick up and leave as it would if you rented.

Making Your Decision to Rent or Buy

Your location will play a big role in the rent-vs.-buy debate.

In addition to location, finances play a role in your buying-versus-renting decision, too

With the average down payment and closing costs totaling more than $25,000, homebuying’s financial demands are high. If you choose to buy a home instead of renting, make sure your finances are prepared for the up-front costs.

The Bottom Line

It’s clear there are arguments for both renting and buying. Recent trends do point toward a higher interest in homeownership among younger generations. Future trends indicate Gen Z homeownership rates will outpace Millennials.

However, trends shouldn’t dictate your choice. The buying-versus-renting decision is a very personal one. It’s one you should make with careful thought and consideration of your finances, goals, and needs as a household.