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Home-Buying Process:
Using Real Estate Professionals

Objectives for this Lesson:

* Include in partcipant's packet.

Resources for this Lesson:
Key Points For Educator: What to Say For Learner:
Slide #1: Home Buying Process:
Real Estate Professionals Introduce yourself. Participant Introductions.
Slide #2: Objectives:
  • Identify Types of Real Estate Professionals
  • Define Pre-Qualification and Pre-Approval
  • Determine How To Find and Work With Real Estate Professionals
  • Discuss Buying Directly From a Home Owner
 Explain: By the end of this session, you will be able to identify types of real estate professionals, define pre-qualification and pre-approval, determine how to find and work with real estate professionals, and discuss the option of buying directly from a home owner.
A key person in the home buying process is the real estate professional. Let's first define who these professionals are.
Slide #3: Real Estate Brokers
  • Licensed by the state to operate a real estate agency
  • Employs real estate agents
  • Arranges for the sale, purchase, lease or exchange of property for a fee
 Question: Can anyone explain the difference between a real estate broker and a real estate agent?
Explain: A real estate broker is licensed by the state to operate a real estate agency and employ real estate agents. A real estate broker arranges for the sale, purchase, lease or exchange of property for a fee. 		Discussion point: Participants will share their ideas.
Slide #4: Real Estate Agents
  • Represents a broker in a real estate transaction.
  • Licensed by the state and has been trained to represent the buyer or seller in the sale of houses, buildings or land.
  • A Realtor is a real estate agent who is a member of the National Association of Realtors.
 A real estate agent represents a broker in a real estate transaction.
Explain: A real estate agent is licensed by the state and has been trained to represent the buyer or seller in the sale of houses, buildings or land. A Realtor is a real estate agent who is a member of the National Association of Realtors.
The difference is simply that one is a member of an association and the other is not.
Transition Statement: There are four different types of real estate agents.
Slide #5: Types of Real Estate Agents
  • Listing Agents
  • Sellers' Agents
  • Dual Agents
  • Buyers' Agents
 Instructor Note: Highlight types of Real Estate Agents listed on Slide #5.
Explain: Real estate agents usually work for the buyer but have a legal obligation to represent the interest of the person selling the house. It is important to know that real estate agents that work with a buyer have an obligation to represent the interest of the person selling the house. The exception is an exclusive buyer's agent.
Understanding this can help you in choosing the type of real estate professional with whom to work.
Let's look specifically at each of these four types of real estate agents, beginning with listing agents.
Slide #6: Types of Real Estate Agents
Listing Agents
  • Work for the sellers of houses.
  • Name of contact on “For Sale” signs, real estate magazines, newspapers or on the Internet.
  • May or may not be involved in the actual sale of the house, but will receive a percentage of the sales commission.
 Explain: Listing agents work for the sellers of houses. You usually will know who the listing agent is because his or her name will be shown as the point of contact on “For Sale” signs, as well as in real estate magazines, newspapers or on the Internet.

A listing agent may or may not be involved in the actual sale of the house. Even if the listing agent is not involved in negotiating the sale, that agent and broker still receive a percentage of the sales commission. If the listing agent is the one who sells the house, that agent is called the seller's agent.

Transition Statement: Before we discuss sellers' agents, let's talk about listing agreements and how they relate to listing agents.
Slide #7: Listing Agreement
  • Contract created between the seller and broker
  • Obligates the real estate agent to seek qualified buyers, report all purchase offers and relevant information to the seller, and help negotiate the highest possible price for the property.
 Explain: When a homeowner decides to sell his/her house through a real estate broker, a listing agreement is signed. This is a contract created between the seller and broker to market and sell a house. The contract obligates the real estate agent to seek qualified buyers, report all purchase offers and relevant information to the seller, and help negotiate the highest possible price for the property.

Transition Statement: Now let's discuss sellers' agents, which are very similar to listing agents.
Slide #8: Types of Real Estate Agents
Sellers' Agents
  • Obligated to keep the seller's best interest in mind.
  • Has a financial interest to close a sale at the highest possible price since the commission is a percentage of the sale price.
 Explain: A seller's agent is obligated to keep the seller's best interest in mind by seeking qualified buyers, reporting all purchase offers and relevant information to the seller, and helping negotiate the highest possible price for the property. It is in the seller's agent's financial interest to close a sale at the highest possible price since the agent's commission is a percentage of the sale price.
Slide #9: Types of Real Estate Agents
Sellers' Agents vs. Listing Agents
  • Seller's agent is the one who actually sells the house
  • May or may not be the listing agent for that property.
 Explain: The difference between the seller's agent and the listing agent is that the seller's agent is the one who actually sells the house, but may not necessarily be the listing agent for that property.
Question: With this explanation of seller's agents and listing agents, both have the interest of whom in mind?

Instructor Note: Strongly emphasize that both agents have the seller's best interest in mind, NOT the buyer's. 		Participant Response.
Slide #10: Types of Real Estate Agents
Dual Agents
  • Represents both the seller and the buyer in the same transaction.
  • Legal in New Mexico.
  • NOT recommended.
  • No one represents the buyer's best interest.
 Explain: A dual agent is a real estate agent who represents both the seller and the buyer in the same transaction. This type of representation is legal in New Mexico and many other states, but is NOT recommended.

In this type of representation, there is no one to exclusively represent the buyer's best interest, and negotiation can be very difficult. The dual agent is committed to representing the seller's best interest and receives a higher commission if the sale price is not negotiated.
Keep in mind, one agent cannot represent the buyer's best interest and the seller's best interest at the same time. A good comparison is a football game. Each team needs its own coach to help it determine the best strategy.
Slide #11: Types of Real Estate Agents
Buyer's Agents
  • Represents the interest of the buyer.
  • Legal obligation to represent the buyer's best interest in obtaining the lowest sale price possible and best conditions in the purchase contract.
 Explain: The final type of real estate agent is a buyer's agent. In this case, the real estate agent is hired by a buyer and agrees to work solely with that buyer. This agent has a legal obligation to represent the buyer's best interest in obtaining the lowest sale price possible and best conditions in the purchase contract.
Slide #12: Buyer's Agents
  • Compensation is set up based on effectively negotiating a lower sales price.
Example:
Basic Fee: $200
Incentive: $200 for every
$1,000 negotiated
Listing Price: $125,000
Negotiated Price: $110,000
Compensation: $3,000
Explain: The compensation structure for a buyer's agent is set up based on effectively negotiating a lower sales price. In hiring a buyer's agent, you can negotiate a basic fee plus incentives to reduce the price of the house.

For example, the buyer agrees to pay a basic fee of $200 plus an incentive of $200 for every $1,000 negotiated off of the original base price. The house of interest is listed at $125,000. The buyer's agent negotiates to a sell price of $110,000. The buyer would then pay the agent the $200 basic fee plus $3,000 for negotiating the price down $15,000.
  • Seller must be informed that the buyer is contracted with an “Exclusive Buyer's Agent.”
 When a buyer's agent is involved, the seller must be informed that the buyer has contracted with an “Exclusive Buyer's Agent.”
Slide #13: Pre-Qualification
  • An informal way a financial institution can tell you the amount you can borrow to finance or refinance a house.
  • A tentative decision based on information not yet verified.
    • Employment
    • Income
    • Down payment information
    • Outstanding debts
 Transition Statement: Now that you understand more about the four different types of real estate professionals, you can choose one with which to work. Any agent may want to pre-qualify you for a mortgage loan.

Pre-qualification is an informal way a financial institution can tell you the amount you can borrow to finance or refinance a house. This is a tentative decision based on information that has not yet been verified, including your employment, income, down payment information and outstanding debts.
Slide #14: Pre-Approval
  • A commitment from the lender to lend you the money.
  • Application and Records
    • Pay stubs for last 2-3 years
    • W-2 forms for last 2 years
    • Tax returns for last 2 years
    • Assets and long-term debts
    • Recent bank statements
    • Proof of additional income
 Explain: Pre-approval is different than pre-qualification. Pre-approval is a commitment from the lender to lend you the money. The pre-approval process lets you know exactly how much you can borrow and tells sellers you are approved to buy a house.

To obtain a pre-approval, you must provide several financial records and complete an application. You will usually need your pay stubs for the last 2-3 years, your W-2 forms and tax returns for the last 2 years, information about your assets and long-term debts, recent bank statements, and proof of any additional income.
Slide #15: Pre-Qualification by a Real Estate Professional
Drawbacks:
  • Agent may report personal financial information to the seller, making it difficult to negotiate a lower price.
  • Agent may show you only houses within the upper range of what you can afford.
 Explain: We suggest going to a financial institution to be pre-approved before visiting with a real estate professional. This will eliminate the agent from the process, but will let the agent know you are seriously interested in purchasing a house.

Keep in mind, pre-qualification through your real estate professional can provide him/her with more financial information than he/she needs to know to help you find a house. If the professional is a seller's agent, he/she may report personal financial information to the seller, which may make it difficult to negotiate a price. Or the real estate agent may show you only higher priced houses within the upper range of what you can afford.
Slide #16: Pre-Qualification by a Real Estate Professional
Suggestions:
  • Provide the agent with a general price range
  • Keep personal financial information confidential
  • Pre-qualify yourself with a lender of choice
 Explain: It is best to provide the agent with a general price range and keep your personal information confidential by pre-qualifying yourself with a lender of your choice.

Keep in mind, a lender may qualify you for more than you want or can comfortably afford to pay for a house. You need to determine the dollar amount and price range you feel comfortable about sharing with a real estate professional.

If you have an exclusive buyer's agent under contract, you can share information more freely with that individual since he/she is working for you. Otherwise, remember that some agents may want more information than they actually need in order to get you into a more costly house.
Slide #17: Working with a Real Estate Professional
  • Help you decide your needs and wants.
  • Show you affordable houses in your determined price range.
  • Give you copies of listing sheets that describe these houses.
  • Provide house prices and property tax information for houses in the neighborhood of interest.
 Transition Statement: Even without knowing your personal financial information, real estate professionals can help you in many ways.

Explain: Here are some common tasks real estate professionals do.

Instructor's Note: Highlight the tasks listed on Slides #17, #18 and #19.
Slide #18: Working with a Real Estate Professional
  • Help you determine how much a house is worth by giving you information about other houses that they have sold recently.
  • Provide information about the schools and community services in the area.
  • Buyer's agents present the offer you make to the seller.
Slide #19: Working with a Real Estate Professional
  • Refer you to possible home inspectors, lenders, appraisers, and escrow agents, etc.
  • Explain all of the legal paperwork to you so that you understand what you are signing. An attorney may need to be involved.
 Transition Statement: If you feel a particular real estate agent is not completing these tasks, does not serve your needs, does not understand your questions, or is not well informed, you are free to select another agent.

One thing you might want to do is test to see how long it takes the agent to return your calls. As busy agent may not have the appropriate time to give you good customer service.
Slide #20: Finding a Real Estate Professional
  • Recommendations
  • National Real Estate Companies Referral Services
  • State Real Estate Commission
  • Local Association of Realtors Chapter
 Explain: The best way to find a real estate professional who can meet your needs is to ask people you know for recommendations.

If you are not familiar with the area or do not know someone who can make recommendations, the national real estate companies offer referral services and will provide you with a list of agents in your area.

You also can check a real estate agent's professional record by contacting the state real estate commission or a local Association of Realtors chapter.
Activity: Once you have a list of possible real estate professionals, you can use this work sheet to help you determine the best option. Activity: Distribute Selecting a Real Estate Professional Work Sheet
Slide #21: Buying Direct From Owner
Buying Direct From Owner
  • FSBO (For Sale By Owner)

What are advantages and disadvantages of buying a house directly from the owner? 		Transition Statement: We have talked a lot about working with real estate professionals, but as a buyer you also have the option to purchase a house directly from the home owner.

Explain: A house for sale by the owner is usually called a FSBO (For Sale By Owner).
Question: What are some advantages and disadvantages of buying a house directly from the owner?
Instructor Note: Create a list of advantages and disadvantages listed by the participants on the board.
Explain: You should strongly consider the advantages and disadvantages of buying directly from an owner. Let's actually start by talking about the disadvantages you have as the buyer. 		Discussion: Participants share advantages and disadvantages of buying a house directly from the owner. Instructor creates a list of each on the board.
Slide #22: Buying Direct from Owner
Disadvantages
  • Lack of Housing Expertise.
  • FSBOs are often overpriced.
  • Real Estate Agents help determine the fair value of the house.
  • Real Estate Agents help evaluate the condition of the property.
 Explain: The biggest disadvantage to buying a house directly from the owner is the lack real estate expertise, especially if you are a first time home buyer. An agent can be helpful if you do not have the benefit of professional's experiences, expertise in real estate, and knowledge of the housing market.

Some FSBO houses may be overpriced. The owner of the house may view the property as more valuable than it is. If working with a real estate agent, he/she can help you determine the fair value of the FSBO house, as well as evaluate the condition of the property.
Slide #23: Buying Direct from Owner
To Determine the Fair Value:
  • Look on-line or call the local assessor's office for the tax value of the property.
  • Find out how other comparable houses in the neighborhood are valued.
  • Ask a real estate professional to show you comparable houses on the market.
  • Look at realtor listings available on-line of houses with the same specifications, and compare prices.
 Explain: Some other techniques you can use to determine the fair value of the house if you choose to buy directly from the home owner are:

Instructor's Note: Highlight the points listed on Slide #23.
Slide #24: Buying Direct from Owner
Advantages
  • Buyers are not required to use the services of a real estate brokerage firm when purchasing a FSBO.
  • Real estate agents may discourage you from buying a FSBO house because they have less of chance of earning a commission.
 Explain: The biggest advantage to buying a FSBO is the buyers are not required to use the services of a real estate brokerage firm. This can allow you to get the house at a low price because the seller does not have to pay a commission.

Real estate agents may discourage you from FSBO houses because they have less of chance of earning a commission.
Slide #25: Summary
  • Identified Types of Real Estate Professionals
  • Defined Pre-Qualification and Pre-Approval
  • Determined How To Find and Work With Real Estate Professionals
  • Discussed Buying Directly From a Home Owner
 Lesson Summary:
Congratulations! You have completed Real Estate Professionals in this Home Buying Process series of classes.

Today we have identified types of real estate professionals, defined pre-qualification and pre-approval, determined how to find and work with real estate professionals, and discussed buying directly from a home owner.
Question: Are there any questions? Participant questions.

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