The Reality of Realty - Always look before you leap when when buying a home

Feb. 18, 2004

Buying a home, or selling one, is usually the largest economic transaction of your life. Yet, buyers and sellers are generally in the dark about the most basic questions ñ or even where to find answers. Helpful real estate professionals will try to guide you through as much of the tangle as possible. Others will take advantage of your ignorance ñ and they can have a moral obligation to do so.
For instance, do you know the difference between a “client” and a “customer”? By law, an agent has a fiduciary obligation to a client. Nothing special protects a customer. This means that when you buy a home, the seller’s agent labors under moral, ethical, and legal mandates to extract every penny you are willing to pay. With some broad and general exceptions, the seller’s agent is also bound to keep quiet about any defects in the property.
On the other hand, as a seller, you cannot assume that every agent in the same office as yours shares your interests. If you are having an open house and the host is not your own contracted agent, you could be talking freely to a buyer’s agent who will seek out defects in the home and weaknesses in your bargaining position. They will use this new information to lower the price you will get when you sell -- and as a buyer’s agent, they are obligated to do exactly that.
The fact is that realty is an arcane agora. Centuries of conflicting interests -- among public bodies as well as between private entities -- have delivered a patchwork of laws -- and of traditions that can be stronger than laws. Typical of this is the fact that you might not even know if your agent is a “REALTOR®” -- a word not recognized by law in Michigan.

TAARing and Feathering Their Nest
Real estate is the most reactionary sector of the economy. We call it “real estate” for reasons that go back to the Middle Ages. In medieval law, only land was real property and title to it came from the king. Even in the post-industrial cybernetic era of rockets to Mars, we say that a man’s home is his castle.
You cannot have a medieval society without guilds, and realty has the National Association of REALTORS® (NAR). Only members of NAR can call themselves “REALTORS®.” Brokers or sales associates who are not must call themselves something else. The National Association of Real Estate Brokers uses the word “realtist.” The NAREB was founded in 1947 by African-American professionals who were refused memberships in local associations of REALTORS®. Today, both the NAR and NAREB are racially integrated.
What sets NAR apart from NAREB is the multiple listing service (MLS). The MLS is a computerized database of properties for sale. The list is available only to members of the local associations of REALTORS®. In our region, that mean the Traverse Area Association of REALTORS® (TAAR).
“The MLS allows competitors to cooperate in selling property,” says Judith Lindenau, executive vice president of TAAR. “It is an offer between members to cooperate for the sale of property. We provide a safe place for competitors to cooperate.”
The environment is so safe that Lindenau can think of no significant retail residential agent or broker who is not a member of TAAR.
A lesser version of the Multiple Listing Service is available to the public via the TAAR website, www.taar.com. This is, after all, the information age. Just about all realty brokers and many agents have websites.
Interestingly, TAAR was a pioneer in the computerization of the MLS. Almost 25 years ago, they created a computerized database forerunner called BORIS, the Board of Realty Information System.

Medieval Yet Modern
Despite the hoary origins of property laws, progress is possible. For example, suppose, an agent is driving a client around, showing homes, and the client makes a racist comment. What should the agent do? According to Gwyn Besner, a trainer for the Holloway’s Institute of Lansing, you stop your car right there, tell them the deal is off, and let them out right there. Michigan’s Elliott-Larsen Act prohibits discrimination on the basis of race, color, national origin, religion, age, family status, or marital status, or gender.
Michigan is called a “dower” state. This means that every male who enters into any agreement involving real estate must disclose whether or not he is married. This is to secure his wife’s “dower rights” to their property. However, she is not equally required to include him in her property transactions. That is called “curtsey” and it applies in some of our neighboring states, but not here. In Michigan, half of everything he owns is hers and everything she owns is hers, also. No medieval queen had it so good.
This inevitable tension between archaic legal structures and 21st century society is probably the true source of frustration that many people feel when they buy or sell a home. We live in a world of push-button gratification, but the actual buying or selling of a house typically proceeds at a horse-drawn pace, usually demanding about six months of personal involvement. For many people, getting to that stage can take years.

Ducks in a Row
In the five-county Grand Traverse region, the average house stays on the market about 140 days before it is sold. Aggressive and experienced agents can reduce that to 135 days. Most people cannot look at more than four houses in one day. Most people can go to open houses only on weekends. This restricts the seller’s opportunities, of course.
Making an offer on property is three-step process. First, the buyer makes an offer in writing and that offer is delivered to the seller who either accepts it or rejects it. Finally, that acceptance must then be delivered to the buyer. If the seller makes a counter-offer, this is actually a rejection of the original offer, and starts the process over again. The buyer can back out of an offer before the seller’s acceptance arrives.
Offer and acceptance do not close the deal. The mortgage lender can need a month to process a loan application. Many buyers are surprised to discover errors in their credit reports. Fixing these can take a couple of months. Therefore, the process of buying a home often begins by shopping for a mortgage lender, filling out applications, verifying credit reports, filing taxes, paying off and closing out credit cards. From the seller’s point of view, the process can begin with a series of inspections and repairs to make the property competitive.
The title insurance company might also need a month. The seller needs to provide title insurance for the buyer, a process that can take longer than expected if the title company finds problems. When a title company issues an insurance policy, they are promising to defend their research work in court. They will provide the lawyer if your title is challenged. For most people, it never comes up. Only when someone else’s undead relative materializes on your doorstep to challenge your title do you appreciate the value of title insurance.
In Michigan, a title company manages the process of closing the sale. The title company has no interest in either side of the transaction. They only want to assure themselves that all the papers are in order.
Shopping for a title company is an action item that many people ignore. A real estate agent might have one or two title companies they say they “like to work with.” According to the federal Real Estate Settlement Procedures Act (RESPA), agents cannot receive compensation from title companies for bringing them business. However, some title companies win loyalty from realty agents by providing them with free marketing tools such as brochures and postcards. However, it is the buyers and sellers who pay the title companies. Rates and services vary.

Gathering Intelligence
Buyers and sellers tend to be at the mercy of real estate professionals. Historically, that unfair position has been the motivation for a powerful tradition of business practices and state laws that protect the consumer. It starts with agency disclosure. When you buy or sell a home, every professional you meet will tell you up front who they work for and where their interests are. You need to listen to that disclosure and you can ask for it in writing.
As the challenges to buying or selling a house begin to mount, most people wish they had known more before they started. Your Grand Traverse libraries have dozens of books on the subject of real estate. There are also websites. The Atlanta Board of REALTORS® produced a video seminar called “The Home Stretch“ that aired on PBS television and is available on VHS tape.
You can find several books on how to buy or sell your home without an agent. Reading them will tell you what is required and how it gets done. As a result, you will be better prepared if you choose to hire an agent.
Michigan law allows you to buy or sell five houses a year without a license. You can do it only for property that you own. You cannot do it for hire or for others (with some minor exceptions, such as being a court-appointed executor). By federal law, if you have lived in a home for two years of the last five, you can sell it for up to $500,000 (married couple) without paying capital gains tax. If you find that buying and selling houses is a lot fun, you can make a profitable hobby out of it. You might even turn professional. Realty is a career that appeals to extroverted, optimistic people, but anyone can make a niche. According to the NAR, 60% of all full time agents, and 67% of part-timers, are women.

Writer Michael Marotta is a sales associate with Century 21. He last wrote for the Express on the topic of local currency.

-----------------------------

SIDEBAR

Why Buy a Home?

Tax advantages are one of the main reasons that people own homes. In the early years of a mortgage, most of the money pays the interest, not the principal. This is deductible on your income tax. An accountant can show you whether or not this is really best for you. However, it usually is for most people.
A second major reason for owning a home is the equity you build. After seven years of paying rent, all you have is cancelled checks and receipts. In Northern Michigan, it is generally true that many homeowners find their break-even point in the seventh year. A house is a thing of value.
The third reason -- probably the only real reason for most people -- is “quiet enjoyment.” Quiet enjoyment actually means just the opposite: you can be as noisy as you want in your own home. You can have kids, either children or goats or both.
The average home in the five-county region prices at about $159,000. The conventional loan for that requires $32,000 down and about $1,300 a month in mortgage, taxes and other fixed costs. However, thanks to the Republicans in Congress, there is now “The American Dream Downpayment Act” to grant about $5,000 to $7,500 toward down payment and closing costs to make ownership even easier for first-time buyers. This is just the latest in a long history of state and federal programs to facilitate and subsidize home ownership. In Traverse City, a not-for-profit foundation called Home Stretch helps qualified low-income families acquire their own homes.
Generally, the recommended path is to start small with something you can afford, build equity, and trade up. There are “zero down” mortgages and “pick your payment” mortgages. In order to get a miraculous mortgage deal, you need to bring something to the table: lots of cash, or great credit, or great expectations, or some combination of them.
You might prefer an old home, a manufactured home, a condo or a duplex. You might find a half-built house to complete. There is a federal program to lend money for the purchase of a non-working farm, ideal for someone who wants to live in the county but who has no intention of agriculture for a career -- and you can put your land into a conservancy. No matter how much money you have or don’t have, if you want to live in your own home on your own land, there are at least 700 realty agents in the area who want to help you.
The dollar value can represent several years’ wages. The emotional value is beyond price. To gauge what is involved remember that in reality, it is only “a house,” but in realty we always call it “your home.”