5 Real Estate Myths



If you live in Blaine, Lino Lakes or in the 55304 zip code you’ve no doubt seen our snazzy new newspaper. We’ve been getting some amazing feedback from readers, including real estate questions they’d like answered. I thought this week we’d give you a sneak peek into September’s issue — specifically the question we received from a reader and the answer.

We will be buying a home in Blaine in about 6 months and I just learned that the seller pays the real estate commission. I was floored! I thought we would have to pay our real estate agent and the seller would pay his. What are other misconceptions about real estate that you encounter a lot? Joan T., Circle Pines

Thanks for the interesting question, Joan. Nobody really knows who starts myths, whether of the classic Greek variety or the modern real estate type. While the former are harmless enough, common real estate misconceptions may be dangerous – especially to your pocketbook.

Like a game of telephone, facts become lost in the translation and misinformation conflates with fact. It’s time for a little myth busting.

1. In a Buyer’s Market I Should Make an Absurdly Low Offer

While it’s true that the buyer is typically in the driver’s seat during a slow market, he still shouldn’t exceed the speed limit, run stop signs or insult sellers. And that is the risk you take by offering an absurdly low price on a home.

Homes are full of emotional attachments for most owners. Offering a rock bottom price may be offensive to the seller who takes pride in the home. Even if the seller counters the offer, giving you a chance to come in higher, the damage may already be done. The seller doesn’t like you, and the transaction, if there is one, may be tainted.

What happens if you determine the house needs some repairs? After dragging the homeowner’s price down and offending him in the process, it’s doubtful he’ll be amenable to making repairs.

Figuring out how much to offer on a house involves walking a fine line between an insultingly bargain-basement offer and maintaining the possibility of future negotiations.

2. A Foreclosure Impacts your FICO Score More Than a Short Sale

I don’t hear this one as often as I did during the recession but it’s still worth mentioning. According to the folks at Fair Isaac, the company that calculates our FICO scores, the two are treated the same – as accounts “not paid as agreed.”

There are other reasons a homeowner underwater on her mortgage may choose to pursue a short sale to avoid foreclosure, but the impact on her FICO score should not be among them.

3. I Should Wait Until the Market Hits Bottom to Buy a House

Trying to time the real estate market is an exercise in futility, yet daily I hear homebuyers say they want to wait to purchase until prices are at rock bottom. Unless you have a crystal ball, how will you know when the market hits bottom? Even the experts are only able to offer educated guesses as to when a market has reached its lowest level.

Consider this: the only way you will know that the market has reached the bottom is when it starts to go back up. By then, it’s too late and you’ve missed the best buying opportunity.

4. I Can’t Buy a Home with Less Than 20 Percent Down

We can probably blame the media for this myth. For years now we’ve been hearing about how the mortgage debacle that got the housing market into such a pickle has resulted in more stringent lending standards. While that is certainly true, the facts have been greatly exaggerated.

While it’s preferable to have a large down payment – you won’t be required to purchase private mortgage insurance and you’ll get a better interest rate on your loan -, folks are still buying homes without one. Veteran’s Administration and USDA loans still require no down payment for qualified borrowers.

5. I Should Price My Home Higher Than Market Value to Provide Room for Negotiation

This is a dangerous notion, especially in a buyer’s market when buyers have too many other homes to choose from to waste time on one that’s overpriced. Instead of attracting buyers, an overpriced home repels them.

If by some chance a buyer offers a price that’s over market value, the house may not appraise at that price. To save the deal you may have to lower the price to where it should have been in the beginning.

To avoid problems with both your offering price when you’re buying and your listing price when selling, rely on your agent to assist you.

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