MISTAKES BUYERS AND SELLERS MADE IN 2005            For months the media has been predicting the proverbial “pop” of the “real estate bubble.”  Both buyers and sellers have rushed into the market and sometimes paid the price for unwise decisions.            Some of those mistakes are found in a recent issue of a professional real estate agents’ magazine and summarized below in order to help buyers and sellers avoid mistakes in 2006.  Buyers  1.     Investors who were new to the market paid “top dollar” for properties that they were hoping to “flip.”  These investors had visions of becoming real estate millionaires overnight.  Flipping is hardly ever profitable unless you follow the basic rule of “buy low/sell high.”  If it is not undervalued when you acquire it, the chances of selling for profit are almost none. 2.     Many buyers took advantage of “interest only” mortgages and purchased homes priced at the top of the market.  When faced with declining market values and no reduction in principal, interest only mortgages can result in foreclosures.  Mortgage underwriters and the buyers they serve will look more to fixed-rate mortgages in 2006. 3.     New home construction gives buyers the opportunity to “personalize” their purchase.  The buyers in 2006 may want the same opportunity to choose flooring, color schemes, kitchen cabinets and appliances that new home buyers had in 2005.  In order to have this opportunity they may bypass resale homes and move straight to new construction.  This will be especially true when the decorating choices made by the initial buyer are judged to be “bizarre” by current homebuyers. 4.     Some buyers gave up the right to a home inspection in their rush to purchase.  A typical home inspection, generally costing between $250 and $350, could save the buyer hundreds even thousands of dollars in costly repairs.  Buyers should always exercise their right to have a professional home inspection before closing. 5.     Buyers should be wary of “free” or “give-away” promotions offered by developers.  There is an old adage that proclaims that nothing is FREE.  When sellers are providing free appliances or any other promotion, it is generally because the market is softening or increased competition and not because of their desire to be generous. 6.     Some buyers were not represented by their own agent.  When buyers call on an ad or stop at an open house, often times they do not realize that the listing agent represents the seller.  An unrepresented buyer should always be informed immediately in such a situation as to whom the agent represents.   Some buyers are willing to continue on knowing that they are the agent’s customer –not client.  The discussion of customer vs. client, dual agency and facilitator are all important aspects of this relationship and should be discussed thoroughly before the buyer continues.  Most states require that buyers be provided written documentation for their signature stating the agency relationship that exists between all parties. 7.     Buyers do not always read the homeowner association documents and/or the development’s restrictions before purchasing.  Not knowing is not an excuse for violation of rules and restrictions.  8.     Buyers were overwhelmed when they got to the closing table and discovered the cost of state and local transfer taxes/stamps.  Typically, these fees cannot be added to the loan balance and must be paid.  Buyers should make every effort to know the full cost of purchasing a home well in advance of writing a contract and not be surprised at the closing table.  Generally, a buyer’s lender will be happy to provide a good faith estimate showing all costs relating to the sale.  Cash buyers will either have to gather the information themselves or depend on their realtor.  Sellers  1.     Sellers initially over-priced their property.  Two important facts that sellers should realize before putting their home on the market are that “new listings” receive the most attention from buyers and that buyers are smart.  Studies show that over 70% of all buyers have searched Internet listings for weeks and sometimes months before actively searching for a home.  They know the price of similar homes in the neighborhood and they know which ones have sold and which ones have been on the market for months.  Real estate agents know these facts and provide sellers with sold comparables in order for them to price their property within a suitable price range.  If a home is initially priced too high, buyers may bypass it and never return regardless of how many times the price is reduced in the future. 2.     No Internet marketing.  Remember the more than 70% of buyers who are mentioned in the preceding fact?  If property is not listed on the Internet, 7 out of 10 buyers never see it.  They don’t drive by and see the yard sign.  They don’t buy the local newspaper.  They may never know that their “perfect” home is on the market.  Before listing property, sellers should make sure their property is going to be available to the vast majority of buyers. 3.     Showings are stopped too early after a contract is accepted.  All real estate agents know that nothing is definite in real estate until the transaction is “closed.”  After a property has been contracted, it is “pended.”  A pended status tells other agents and buyers that this property is no longer being actively marketed because someone has already contracted to purchase it.  It is just a matter of closing the transaction.  But wait a minute.  As stated above, nothing is definite until a transaction closes.  Both sellers and agents have often found that it would have been wiser to continue to market the property with a “contingent” contact. 4.     Sellers refuse to pay buyer’s closing costs.  Seller participation with the buyer’s closing costs is something that should be considered at the time of listing.  Ready cash is not a commodity that all buyers possess.  Sellers can either reduce their amount of net proceeds or they can add the buyer’s closing costs to the purchase price, but either way the property will probably have to appraise for the purchase price. 5.     Avoid the confusion of including/excluding personal property.  If the claw foot tub that belonged to your grandfather is not going to be included in the sale, remove it before the house goes on the market or be absolutely sure that every possible buyer is informed of the exclusion before serious negotiations begin.  The same is true for inclusions.  Don’t throw in your boat or lawn tractor to make the sale more enticing.  Lenders are loaning money on the purchase of real property not personal property. 6.     Know your market and your competition.  Sellers should attend open houses, check the local real estate ads and generally know the competition before putting their home on the market.  As already mentioned, buyers are smart.  Sellers should be smart, too.  If your home has been on the market for a few months and there have been no or few showings, step back and objectively evaluate the situation.  If a seller wants to or needs to sell, he must remove the sentimental feelings and see it as a business transaction.  7.     Paid document fees on top of full-commissions.  Sellers expect to pay commissions when they list their property with a real estate brokerage.  In addition to a commission on the sale, many brokerages are beginning to charge additional fees.  These fees are called “transaction fees” and generally range in price from $200 to $300.  Sellers should know the exact amount they are going to pay for the sale of their property, and they should know that transaction fees can be waived or paid by the listing agent.  Conclusion  The purchase and sale of real estate is a complicated business transaction and every buyer and seller should be as informed as possible before beginning the process.   When buyers and sellers choose to handle the transaction without the assistance of a trained real estate professional, they should educate themselves as much as possible and avoid the mistakes that others have made along the way. If you should decide to use a real estate agent, do your homework there, too.  There are lots of agents and no two are exactly the same.  Interview agents until you find one who meets your needs.