Biggest Real Estate Myths
Real estate isn’t something that most people well versed in, so there is a lot of false information that's shared by people about the process of buying residential real estate. Someone who bought a house 20 years ago may think the process is still the same and share outdated information with other people, who then go on believing it to be true. We see this a lot with parents talking to their kids when they're ready to buy. In our last blog we talked about how the average age of the first time home buyer keeps rising, I think this has some to do with it.
It can be a surprise when someone starts the home buying process and learns that the process is not what they thought it was, whether for the good or the bad. It’s good to know what sort of misinformation is out there. Here are some common real estate myths, along with the facts.
Myth #1
Down Payment
You need 20% down to buy a home. These aren't going to go in any kind of order, but this is the biggest one we still hear. A recent study done by NAR (National Association of Realtors) showed that 30% of people believe you need 20% down. We sell homes all of the time with 0% down. USDA loans and VA (Veterans) loans don't require any down payment. The most common loans, which are FHA and Convention, typically require 3-5%.
The only time you'll need 20% down is if you're buying an a secondary home, like an investment property or a vacation home. The main reason why people believe you need 20% down is because if you don't have a 20% down payment on a conventional loan you'll have to have PMI (Private Mortgage Insurance) which is generally around 1%. After your loan gets to 20% down PMI falls off.
Myth #2
All Agents Are Created Equal
Here are a few Realtor stats. Real Estate is the biggest failing business out of any industry in the world, even more than restaurants. About 90% of Realtors fail within the first two years and out of the remaining 10% another 80% of those end up failing at some point. Around 70% of all Realtors work part time, meaning they also work a second job. The average Realtor sells 3.5 homes a year and would make more working at McDonald's than they would in Real Estate. These stats also debunk the myth that all Realtors make a lot of money.
The reason I bring these up is because I always feel bad when I see buyer's and seller's using family members or agents they found off of a site that are costing them lots of money. Hiring a good real estate agent is huge and can and will save you lots of money. Interview a few different agents and ask them lots of questions. Ex. Do you do this full time? How long have you been in the business? How many homes have you sold in the last 12 months. We have a checklist of questions at www.theredpengroup.com if you would like to download or print it off.
Myth #3
Selling as “For Sale By Owner” Saves Money
This is one we see daily and I feel so bad for so many sellers doing this. Around 93% of FSBO's don't ever sell, but out of the 7% that do sell, sell for about 87% of asking price. Our sellers right now are getting around 99.8% of asking price. To put that in perspective see below
| REALTOR | For Sale By Owner |
|---|---|
| $300,000 (Home Price) | $300,000 (Home Price) |
| Commission 6% ($18,000) | Commission 0% (0) |
| $295,800 (98.6 Sales Price) | $261,000 (87% Sales Price) |
| $278,052 (What You'll Walk Away With) | $261,000 (What You'll Walk Away With) |
As you can see in the chart above the average FSBO loses $17,000 when selling on their own. I use $300,000 because that's our average selling price here. I was just talking to a FSBO yesterday who told me he just went under contract on his house (FSBO). He was so excited he was able to get it under contract without using a Realtor. After looking at the contract, he at the very minimum, lost out on $125,000. I showed him what comparable homes were selling for in the area and he was devastated, but the way the contract was written there was no way he could get out of it. This happens almost daily, not to this extreme but lots of similar scenarios.
The reason "For Sale By Owners" either don't sell or sell for a lot less is just because they aren't listed on the MLS (Multiple Listing Services) which is the site Realtors use. That along with just not being able to be marketed as well. Usually FSBO homes will lose even more money than just on the sales price as well because they don't have a Realtor on their side for negotiations on inspections and everything else on the contract.
Myth #4
Search For Homes Before Being Pre Approved
There are a couple reasons why you should be pre approved before you start looking at homes, even if it's just online. You should always know what you're pre approved for so that you know how much you can afford. The other reason is one that most people don't think about or just don't think is a big deal. I'll see a lot of people looking at certain priced homes online, usually for several months, and then they'll give us a call to start going out and actually looking at homes in person. They'll find one they love and then when they go to get pre approved they're approved for much less. This can be a very deflating feeling when buying a house and you'll probably have to completely change your strategy. This could change the type of house you buy, number of bedrooms, bathrooms and possibly even the area you can now afford.
Myth #5
Where To Search For Homes
Where is the best place to search for homes online? Below is a chart of the top home search sites. As you can see most people search for homes on Zillow and Realtor.com, two sites that you've probably heard about. Trulia.com comes in at third, but is owned by Zillow. These sites are great sites to search for homes as they are pretty easy sites to navigate.
The issue with the sites below, is that they are selling your information. If you ever click on "More Information" on Zillow or any of the call to action buttons on these sites, your information is being sold. How it works is you click on the button, your information is put in, and then that information automatically goes out to several Realtors and Loan Officers who are paying for that information. Prepare to be bombarded with phone calls seconds after you click that button, and probably daily for years to come. Another issue with these sites is not only the selling of your information, but going back to Myth #2 you don't know what kind of agent you're going to get. A lot of new Realtors will buy information when starting out because they haven't been in the business long enough to build up their database, so just be careful and ask questions.
When you're ready to start looking at homes reach out to your preferred Realtor. They will get you on their personal home search site where you won't have to worry about your information being out there.
Myth #6
Price Your Home High To Get More
Don’t do this. If the goal is to make as much money as possible, this won’t work. Interested buyers are looking at things like price, bedrooms, bathrooms, and square footage, and if a house matches the criteria but is out of their price range, they’ll move on. Buyers are looking at comparable homes in terms of the features they offer and the price, and if a house is well over market value, it won’t get offers. The seller can end up losing money by pricing too high. If someone does show interest, once appraisal time comes and the price is too high for what the appraisal shows, they’ll end up having to negotiate the price down anyway. The seller will want to price the house competitively for the current market, but not so high that people just brush past the listing. A good agent will be able to help price it appropriately while still allowing them to get the most bang for their buck. Buyers also get suspicious of houses that sit on the market for more than a couple weeks, because they start to wonder what’s wrong with it that no one has put an offer in yet.
Myth #7
Low Ball Sellers To Get Best Price
What I tell my buyers is to come in at a price that won't offend the sellers. A good real estate agent will help negotiate a good starting price, but what you want to do is come in at a low enough price for negotiation but not something so low that it angers the sellers to where they won't even counteroffer. There's a lot more than the initial contract price when it comes to negotiating real estate. If you beat the seller up on price right off the bat they won't be willing to work with you on anything else, including anything found during the home inspection.
Hopefully this information can help you debunk any real estate myths you have or may have heard. It is important to approach buying or selling a home with as much accurate information as possible as it can help avoid costly mistakes.
And if you’re ready to buy or sell real estate, let us know! Our team is ready to help get you started on your journey. Feel free to contact us at info@theredpengroup.com or 314-307-6287 with any questions.