Frequently Asked Questions
Should we leave the house when there is a showing?
Buyers and agents tend to be uncomfortable when you are home during a showing. Buyers tend to spend about half the time on the showing as they would otherwise, and buyers tend to remember those homes the most where they spent the most time on the showing. Buyers are also inhibited about looking at everything as thoroughly as they would like when a seller is on the premises. It is best for sellers not to be home during showings.
Commission rates are supposed to be negotiable, so why can't I negotiate the commission with an agent who makes us an offer?
Commissions are only negotiable with your listing broker (that's us) before your home is listed. Once it's decided what commission is to be offered to the buyer's agents for bringing their buyers, that commission amount is entered in the MLS by the listing broker. This creates a contractual obligation for the listing broker to guarantee that commission to any agent who produces a buyer.
This can be confusing to some For Sale By Owner clients who assume our only role is to enter the listing in MLS, similar to placing an ad in the newspaper. Anybody can place an ad in a newspaper, but you need a real estate license and must sign a contract with a real estate board to be able list a home on MLS. 
It becomes clearer when you consider why the MLS was created in the first place. The concept is for agents make their listings available to all the other agents to sell, and to be able to show their buyers all the other agents' listings as well as their own. The traditional 6% commission is split in half, with 3% going to the buyer's agent, and the other 3% to the listing broker. They all sign a contract with each other to make this work, and thus the MLS is created. This makes a lot more sense than listing your home with multiple agents, or having to deal with a different agent for every house you want to see.
The difference is that we only charge a small fee to save the seller half of the 6% commission, and we refer buyers directly to sellers so they can save the other 3% as well. Such a "self-service" listing allows the seller to save money by doing much of the work on their own. But the listing broker is still ultimately liable for the commission offered to other agents by their contract with the MLS.
The results of a seller trying to negotiate down the commission after receiving an offer can be any one or all of the following:
- Agent calls us to complain
- Agent refuses to conduct any further negotiations with the seller, and threatens to file a complaint with the real estate board
- Agent's broker actually files a complaint with the real estate board
- Agent's broker files a lawsuit against us for the commission
- Listing broker will cancel your listing!
If you don't want to pay a 3% commission to a buyer's agent, then whatever you are willing to pay must be stated in your listing agreement and will be entered in the MLS.
Your listing agreement says we will pay 3% to buyer's agents, but we only want to pay 2%. Can we change it?
Of course you can. But unless your house worth about $1,000,000, it's not a very good idea. You could get away with it if your house were in California or New York, where houses cost 3-4 times what they cost in Texas. In Texas, about 99% of all homes are listed with 3% being offered to buyer's agents. The result of offering less is that most agents won't show it. They will simply tell their buyers it's not available.
Of course agents are supposed to look out for their clients' best interests and aren't supposed be selfish. And they even make this promise when they join the real estate associations. So they should show your house, shouldn't they? The truth is that they won't because they care about their commission more than anything else.
The smartest thing to do is set your price to include a 3% commission for a buyer's agent, and leave less room for negotiation. If a buyer comes along without an agent, there's 3% room for negotiation. If you insist on 2% anyway, here's what will normally happen:
- Your house will get far fewer showings
- Some agents assume it's 3% without looking, and write their offer to include a 3% commission anyway. Then there's the problem of restructuring the offer, which usually ends up irritating the agent as well as the buyer. The result is you end up agreeing to pay the 3% anyway or they go buy something else.
- Most agents who do notice the lower commission offered and are still willing to show the house will have a written agreement with their buyers that guarantees the agent a 3% commission. The buyer then has to pay his agent the other 1%, which is 1% less he is willing to pay for your house than some other similar house. The result is that it would be the same deal to the buyer if the house were listed for 1% more with a 3% commission. It's just more complicated and tends to annoy the buyer.
- Almost all sellers who start with 2% eventually increase the commission to 3% after the house doesn't sell at 2%, and they miss out on the first 2-3 weeks when a listing is fresh and buyers are more anxious to make offers.
Should I accept a Contingent Contract?
A Contingency Contract is when a buyer offers to buy your house, but only after his house sells. If his house doesn't sell, he can back out of the deal to buy your house. The problem with contingency contracts is that any property under such a contract gets drastically fewer showings, and the buyer's property may never sell. The seller may end up wasting a lot of time and money with his property effectively off the market in the hope that the buyer's property will sell.
Most Realtors will advise against Contingency Contracts because they don't know the right way to structure the contract. Contingent offers can be okay if you get the buyer to agree to list his property for the appraised value from an independent appraisal, and to agree in advance to periodic price drops until it sells. And if he doesn't adhere to that agreement, the contract is canceled and he loses his earnest money. If this is part of the contract, you know that his house will eventually sell. The problem is that it isn't always so easy to get the buyer to agree to that.
Most Contingency Contracts fail because the seller doesn't recognize the "red flags" and doesn't take the proper precautions. They're tricky and there are many variables, so if you are considering a Contingency Contract, we recommend you hire us for a nominal fee to negotiate it for you.
The form used for Contingency Contracts is the Addendum for Sale of Other Property by Buyer.
Is it better to market a house furnished or vacant?
Vacant, but it doesn't make a huge difference. Don't go through extra trouble of moving out so it can be vacant, but don't make any effort to furnish a vacant house because somebody told you it will show better that way. If you have tenants, it's better to get them out, clean it up, and show it vacant (unless it's investment property). Tenants almost always cause showing problems. NEVER let somebody move into your vacant house because they will "help with showings" or any other reason. You don't need them - you only need a keybox.
There are "home staging" companies that make a living furnishing houses to make them "show better". If a seller would take whatever money a staging company would charge, and use it to reduce the price, the house will sell that much faster. Nobody buys an over-priced house no matter what furniture is in it. Builders furnish model homes when the home is also their office, but you won't see them moving furniture in and out of their spec homes or inventory homes.
Advantages of a vacant house:
- Easier to show
- Easier to keep clean and in showing condition
- It looks bigger
- Buyers can visualize their furniture in the house better
- Buyers feel more comfortable looking at vacant homes
- Buyers who need a quick closing may choose to only view vacant homes because they know most sellers expect to have a month to move out.
Disadvantages of an occupied home:
- Showing problems with pets, tenants, or other occupants
- Annoyance of people trudging through your home and having to leave for showings (assuming you are, which is best)
There are no advantages of an occupied home or disadvantages of a vacant one. It is a common misconception that a home will sell faster or for more money if it's occupied or furnished.
If we sign a contract, how do we know the buyer can qualify for a loan?
As a seller, you want to be very wary of entering into a contract with a buyer who has not gotten a pre-approval for a loan. When you enter into a contract, you are effectively taking your house off the market. If you find out a month later that your buyer can't get a loan, you've wasted a month and missed other potential buyers. It's not wise to enter into a contact without obtaining a strong pre-approval letter from a reputable lender.
WARNING: There are unscrupulous lenders who routinely give pre-approval or pre-qualification letters to borrowers who they know will never get the loan. Why? Because they charge the borrower all kinds of nonrefundable fees, often thousands of dollars. They play the game, tell the unsuspecting borrower they'll get them the loan, string everybody along, and charge their outrageous fees. Then the day before the closing, the crooked loan officer tells the borrower how sorry he is that the underwriter didn't approve the loan, and how he (the crooked loan officer) did everything he could to fight to get an approval.
This happens most often with homes in the lower price ranges with first-time home buyers (under $130,000) and is most common in lower income areas and homes under $80,000. Low income borrowers, unsophisticated buyers, minorities, and people who have difficulty obtaining financing are the most common victims. The likelihood of it happening reduces as the price of the home and the income and education level of the buyer increases.
As the seller, you want to get a Pre-Approval letter from a name you recognize. If your home is in the lower price ranges and the buyer has a loan officer working for a rinky-dink mortgage company, you may want to ask some more questions. You should be suspicious if the buyer is also paying high nonrefundable fees to the mortgage company.
What is the difference between being "Pre-Qualified", "Pre-Approved" or "Approved" for a loan?
"Pre-qualified" generally means a borrower had a conversation with a mortgage company, and told a loan officer what their debts and income are. "Pre-Approved" generally means the borrower made a complete application with a mortgage company, and has provided paycheck stubs, bank statements, W-2s, and when applicable, tax returns. Technically, the term "Approved" means the loan has gone through underwriting, which can only be done after the property is identified and appraised and all conditions are met.
The problem is that various mortgage companies may use these terms loosely, and what is Pre-Approved to one company means Pre-qualified to another. The important thing is what the letter from the mortgage company says.
The mortgage company's letter should state that the borrower has completed and signed a loan application, has provided documentation showing income and assets, and that the mortgage company has evaluated the borrower's credit, and based on these items, the loan should get approved. The only significant conditions remaining should be that the property is acceptable to the mortgage company (title and value), and that there is no material change in the borrower's credit or situation such as loss of a job.
Whether you are the seller evaluating a buyer, or a buyer who wants to make an offer on a property, the only kind of letter you should consider is one that states a complete application with supporting documents and credit report has been made, and that these items meet underwriting requirements, or words to that effect.
How much are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, it is primarily what the charges are from the lender, plus insurance, tax pro-rations, and about $500 for escrow fees for the title company. This usually totals about 4-6% of the total sales price of a property. Some of the closing costs buyers might encounter are: property inspection and termite inspection, loan application and origination fees, appraisal fee, survey, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners' association fees, loan fees, mortgage insurance, tax registration and buyers title insurance premium.
For sellers, a good rule of thumb is 1% for title insurance and miscellaneous charges, plus $500 for escrow and related fees from the title company, plus property tax pro-rations. Anything else such as home warranty, survey, or buyer's closing costs that the seller agrees to pay on behalf of the buyer needs to be added as well.
Property taxes are paid in arrears, so a tax bill that needs to be paid by 1/31/07 is actually for 2006 taxes, and isn't usually even received until September of 2006. That means that if a house closed on 6/30/06, the buyer would get a credit for half the taxes, because he is accepting the tax burden for the period the seller had the house and didn't pay any taxes. The seller has to pay the taxes for the first half of the year, which gets deducted from the seller's proceeds. (The title company figures all this stuff out.)
Whenever taxes and insurance are "escrowed" (included as part of the monthly mortgage payment), the buyer needs to pay an additional amount at closing of about 3 months worth of taxes plus insurance. This can vary with the lender and the time of the year. If the seller escrowed their taxes and insurance, they get a credit for whatever is in the escrow account when they close.
What is a "Showing Service" and what do they do?
Any time a property is listed on MLS, there must be one, and only one, phone number for agents to call to set up a time to show the property. Showings can be missed if a call to that phone number results in a voicemail, or even worse, a busy or no answer. The showing service answers all calls and sets up the showings; records the name of the showing agent and verifies the agent's identity; gives the agent pertinent information such as keybox combinations, alarm codes, and any special showing instruction (i.e., don't let the cat out, dog in back yard barks but won't bite, etc.); and informs seller of the planned showing at any phone numbers designated. Other benefits are an email for each showing for your records, and a weekly showings report by email that shows the activity for the week in addition to agent comments and feedback.
The showing service is only for agents to set up showings through MLS, and not for use by the general public, so the showing service telephone number should NOT be put on flyers, yard signs, or any other advertising materials intended for buyers. The showing service is CSS (Centralized Showing Service), and is available in DFW, Houston, and San Antonio.
For more information about the Showing Service and keyboxes, see Keyboxes & Showings Advice.
What is a home inspection?
There are numerous types of inspections. An inspection is meant to evaluate, at minimum, the structural and mechanical condition of a property. It is not the same as an appraisal which evaluates the market value of a property. Persons involved in real estate transactions need unbiased information about the physical condition of property they plan to buy or sell and your contract should include a contingency that you obtain a satisfactory inspection report.
Click here to see a sample inspection. Please note that the format of inspection reports vary, and they don't always include pictures or as much detail as this sample report.
What does a home inspection include?
Every inspection should include, but not be limited to, an evaluation of at least the following:
- Foundations
- Plumbing and electrical systems
- Doors
- Ceiling, walls and floors
- Roof
- Hazardous materials concerns
- Heating and air conditioning systems
- Common areas (in condominiums)
- Insulation
- Ventilation
What is a wood-destroying organism inspection report?
A wood-destroying organism inspection report is a written opinion by a qualified state licensed structural pest control inspector based upon what was visible and evident at the time of inspection. The inspection report does not represent or guarantee the structure to be free from wood-destroying organisms or their damage, nor does it represent or guarantee that the total damage or infestation is limited to that disclosed in the report. Wood-destroying organisms include subterranean termites, damp-wood termites, carpenter ants, wood boring beetles and wood decay fungus.
What is a point?
One point is equal to 1% of the new loan amount. Lenders often charge an "origination fee", which is normally 1 point, in addition to points. The greater the points, the lower the interest rate; the lower the points, the higher the interest rate.
What is earnest money?
When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account with the title company until either the contract gets canceled or the deal closes. Typically, earnest money is 1/2-1% of the offer amount.
Is VA or FHA financing unfair to sellers?
FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a larger market for sellers, who also benefit by receiving all cash for their equity. There are some fees a seller must pay that aren't required for conventional loans. The fees normally range from $600 to $1,000.
What is title insurance?
Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy. All lenders will require title insurance to cover the loan amount, and buyers usually pay a little extra to cover them for the full purchase price.
What are the hazards of lead-based paint?
All sellers are required by law to supply buyers with a Lead Paint Disclosure regarding their knowledge of any lead-based paint hazards for homes built before 1978.
What is the difference between a Mortgage Broker and a Mortgage Banker?
The state of Texas differentiates between a mortgage banker and mortgage broker. A mortgage banker requires a larger net worth ($250,000) because it has the ability to engage in the entire loan process from origination through funding. A broker originates the loan and then relies on outside sources to handle the rest of the process. Most brokers cannot meet the financial requirements to originate FHA loans, whereas all mortgage bankers are able to originate FHA loans. In Texas, a broker and loan officers working under the broker must be state licensed. Loan officers working for mortgage bankers don't need to be licensed because they are employees, and the mortgage company is federally licensed.
What is the difference between a REALTOR® and a Real Estate Agent?
REALTOR® identifies real estate professionals who "are members of the National Association of REALTORS® and subscribe to its strict Code of Ethics", which is the official line from that NAR. Not every real estate agent is a REALTOR®. In more practical terms, a Realtor is a real estate agent who signed some papers and paid his/her dues to belong to the local real estate board to have access to the MLS listings.
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