Chapter 7

Your Real Estate Team

IN THIS CHAPTER

check Forming a winning team

check Picking a superior listing agent

check Choosing your broker

check Dealing with house inspectors and inspections

check Finding an escrow officer

check Securing financial advisors and lawyers

A dentist Ray knows compared what he’d just gone through during a protracted house sale to having root canal work done on every tooth in his head … without Novocain. Don’t take the dentist literally; he’s a master of understatement.

Unless you’re a masochist, you never willingly seek out intense pain. Yet we’ve seen smart people blunder into painful situations while selling their houses. The key word is blunder. What usually gets people into trouble is something that they (or the professionals they hire to handle the transaction) should’ve known, but didn’t. No need to worry, though. This chapter takes a closer look at who you need on your real estate team and how to select them.

Teaming Up — A Winning Concept

Knowing everything about everything is impossible. What is possible, however (and much more important, to boot), is putting good people on your team — people who know the things you need to know to solve the problems that invariably arise during your sale.

You don’t have to become an expert in property values, mortgages, tax and real estate law, title insurance, escrow, pest-control work, and construction techniques to play the house-selling game well. Instead, you can hire people who’ve already mastered the skills that you lack.

House selling is a team sport. Your job is to lead and coach the team, not play every position. After you assemble a winning team, your players should give you solid advice so you can make brilliant decisions.

remember If cost were no object, you’d hire every competent expert you could get your hands on. However, because you probably don’t have an unlimited budget, you need to determine which experts are absolutely necessary and which tasks you can handle yourself. In this section, we explain which experts generally are worth hiring and which ones you can pass on. Ultimately, of course, you’re the one who must determine how competent or challenged you feel with the various aspects of the house-selling process.

Here’s an overview of the possible players on your team:

  • Your favorite person: You are the most important player on your team. Sooner or later, another player is bound to drop the ball or fail to satisfy your needs. You have every right to politely, yet forcefully, insist that this person make things right. Remember that you hire the players on your team; they work for you. Bad players may see things the other way around — they want to believe that they’re in charge. They may attempt to manipulate you into acting in their best interests rather than yours. Don’t tolerate this behavior. You’re the boss — you can fire and hire.
  • Real estate agent: Because the house you’re getting ready to sell is probably one of your largest investments, you want to protect your interests by having someone on your team who knows property values. Your agent’s primary mission is to accurately tell you what your house is worth and then negotiate on your behalf to sell it for top dollar.
  • Real estate broker: All states issue two different real estate licenses: one for salespeople (agents) and one for brokers. Real estate brokers must satisfy more stringent educational and experience standards than agents. If your real estate agent isn’t an independent broker or the broker for a real estate office, a broker must supervise the agent. The broker is responsible for everything your agent does or fails to do within the course and scope of the duties of real estate sales professionals. In a crisis, your transaction’s success may depend on backup support from your agent’s broker.
  • Property inspectors: Your house’s physical condition greatly affects its value. Smart buyers will insist on having your house thoroughly inspected from roof to foundation as a condition of the purchase. Don’t passively wait for buyers to give you a copy of their report. Get your house thoroughly inspected before putting it on the market so you know what to expect during any subsequent corrective-work negotiations with the buyer.
  • Escrow officer: Mutual distrust is the underlying rule of many real estate deals. You and the buyer need a neutral third party, an escrow officer, to handle funds and paperwork related to the transaction without playing favorites. The escrow officer is the referee in the game of house selling.
  • Financial and tax advisors: Before selling your house, make sure you understand how the sale (and the purchase of another home, if applicable) fits into your overall financial situation. In Part 1 of this book, we explain how financial and tax advisors can help you evaluate these considerations.

  • Lawyer: Whether you need a lawyer on your team depends on three things: the complexity of your contract, the location of your house, and your personal comfort level. As we discuss in Chapter 6, if you decide to sell your house without an agent, you definitely need a lawyer who specializes in real estate law on your team.

    remember The purchase agreement you sign to sell your house is a legally binding contract. If you have any questions about your contract’s legality, put a real estate lawyer on your team.

Each player brings a different skill into the game. Assemble members of a great team, and they can guide you through any situation that may arise during your transaction.

remember Keep in mind that good players serve as advisors — not decision makers. Decision making is your job. After all, it’s your money on the line.

Landing the Perfect Listing Agent

The real estate agent you hire to sell your house, known as the listing agent, must be able to accurately answer your most important question: “What’s it worth?” Houses sell for fair market value, which is whatever buyers are willing to offer and sellers are willing to accept. Fair market value isn’t a specific number; it’s a price range.

For example, suppose an agent says your property is worth $300,000, more or less. If your agent is a better negotiator than the buyer’s agent, and the buyer desperately wants your house, you may sell it for $315,000. On the other hand, if you have to sell your house immediately, and the buyer has a better agent than you do, you may only get $285,000.

Sale prices often are directly related to a listing agent’s knowledge of the price that comparable houses sell for and negotiating skills. Of course, other factors (such as the buyer’s and seller’s motivation, needs, and market knowledge) also are important.

A good agent can be the foundation of your real estate team. An agent helps you price your property, orchestrates the marketing and showing activities, negotiates with buyers on your behalf, supervises property inspections, and coordinates the closing. A good agent’s negotiating skills and knowledge of property values can add 5 percent to 10 percent to your house’s sale price.

warning Bad agents may pressure you to accept a low offer to make a quick sale. The real estate world is full of many well-intentioned but inept agents. In this section, we show you how to avoid the bad agents and how to sift through the hordes of mediocre agents to narrow the field down to good agents who are worthy of their commissions.

Understanding agent relationships

Sellers and buyers can have two types of relationships with real estate agents:

  • Single agency: In this form of representation, an agent represents only one of the two parties (the seller or the buyer) in the transaction. In single agency, an agent may play one of two roles:
    • Seller’s agent: In this type of single agency, an agent works solely for the seller.
    • Buyer’s agent: In this type of single agency, the agent works only for the buyer. A buyer’s agent isn’t an agent of the seller even if the buyer’s agent gets a portion of the commission paid by the seller.
  • Dual agency: In this form of representation, the same agent represents the seller and the buyer. Dual agency is the most confusing and least understood form of agency.

Ideally, you want a single agency relationship. However, given the ever-expanding market presence of large regional and nationwide brokerage firms, it’s increasingly likely that you’ll find yourself in a dual agency situation where the same estate brokerage firm represents both you and the buyer. Should that happen, we strongly recommend that you and the buyer at least work with different individual agents within the firm. If humanly possible, avoid having the same agent represent you and the buyer.

Recognizing the best listing agents

Good agents come in a variety of races, colors, creeds, and ages and may be male or female. All the best listing agents, however, have certain important qualities in common. They do the following:

  • Listen: The best agents know the importance of tailoring the relationship to your wants and needs. Beware of agents who lay out a program without first getting your input. Minimally, you should tell your agent how and when you prefer to be contacted, what you are willing to do to prepare the house for sale, when the property can be shown and when you would ideally like to close the transaction. Remember, you’re the boss. Be sure your agent knows it.
  • Educate you: Your agent knows the selling process and carefully explains each step so you understand exactly what’s happening at all times. Agents should be patient, not pushy. A good agent never uses your inexperience to manipulate you.
  • Enable you to make good decisions: Your agent always explains what your options are so you can make wise decisions regarding your best course of action.
  • Advise you if they think you should add other experts (property inspectors, lawyers, and so on) to your team: Experts don’t threaten a good agent. The agent’s ego should always be secondary to the primary mission of serving you well.

  • Voluntarily limit themselves geographically and by property type: Good agents know that trying to be all things to all people invariably results in mediocre service. Even though real estate laws are the same throughout your state, different areas within the state generally have radically different market conditions, local zoning ordinances, and building code restrictions.

    warning Agents go out of their area of geographical or property expertise for one of two reasons: because they’re greedy or because they’re too darn inept to know better. Whatever the reason, avoid such agents like the plague.

  • Are full-time professionals: To reduce the financial impact of changing jobs, many people begin their real estate careers as part-timers, working as agents after normal business hours and on weekends. Such an arrangement is fine for the agents but not for you.

    tip One of the first questions to ask any agent whom you’re considering working with is “Are you a full-time agent?” Just as you wouldn’t risk letting a part-time lawyer defend you, don’t let a part-time agent represent you.

  • Have contacts: Folks prefer doing business with people they know, respect, and trust. You can make use of your agent’s working relationships with local lenders, property inspectors, lawyers, title officers, insurance agents, government officials, and other real estate agents.
  • Have time for you: Success is a two-edged sword. An agent who’s already working with several other sellers and buyers probably doesn’t have enough surplus time to serve you properly. Occasional scheduling conflicts are unavoidable. If, however, you often find your needs being neglected because your agent’s time is overcommitted, get a new agent.

  • Are technologically savvy: Good agents know how to use technology to get the job done. They (or their staff) know how to use the Internet to make property searches, can put listing information about your house on a variety of websites, and routinely use digital cameras and desktop publishing software as marketing tools. They understand the importance of staying in close touch with you and their other important contacts via cellphone, email, or some other yet-to-be-invented high-tech tool that works immediately if not sooner.

    warning Some agents think technology has replaced human interaction. They’re wrong. A geek who spends all his time in the office hiding behind a computer is the wrong agent for you. A good real estate agent harnesses technology to make more efficient use of her time, maximize your property’s exposure, and stay in closer touch with clients and others involved in real estate transactions. Personal relationships still are critically important.

Choosing your listing agent

When you’re ready to get down to the nitty-gritty specifics of selecting your own agent, we recommend you interview at least three agents before selecting the lucky winner. (Chapter 6 deals with the pros and cons of selling your house without using an agent.)

To help you find three good agents to interview, tap into the following referral sources:

  • Friends, business associates, and members of professional, social, and religious organizations to which you belong: In short, anyone you know who recently sold a house or is in the process of selling a house in your neighborhood is a source of agent referrals. Don’t just ask for names; find out why they liked the agent.
  • Your employer: The company you work for may have a relocation service that you can consult.
  • Professionals in related fields: Financial, tax, and legal advisors can be good sources of agent referrals.

  • Sunday open houses: Visit houses currently on the market in your neighborhood to check out the competition and to see how well the agents hosting the open houses handle the process. Here’s your chance to “audition” agents without their knowledge. Listen to the agent answer questions from prospective buyers. Observe the way people respond to the agent.

    tip Seeing is believing. Chapter 9 covers preparing property to optimize its favorable impression on prospective buyers. When you tour an open house, note whether the house makes a good impression on you. If not, drop the agent from further consideration as your listing agent.

In the next few sections, we outline the process of choosing your listing agent.

Step 1: Showing off your house

After you identify at least three prospective agents, start the selection process by inviting these agents to tour your house — individually, of course — so each can prepare a comparable market analysis (CMA) for your property. The CMA establishes your house’s value by comparing it to other houses in your neighborhood that are approximately the same size, age, and condition as your house. Chapter 10 goes into detail about how to use sale prices and asking prices of comparable houses (comps) to determine the probable value of your house.

During that first meeting, tell each agent that you intend to interview several agents before selecting the one to work with to sell your house (the listing agent). Schedule second meetings with each agent a few days later to review their CMAs, their marketing plans for your property (a topic we cover in Chapter 12), and their activity lists.

investigate Before the second meeting with your prospective listing agents, you have to do a little homework (pun intended) yourself. Be sure to read Chapters 10 and 12 before the second meeting so you know the difference between good and bad CMAs and marketing plans. Read Chapter 8, as well, to find out about the different types of listing agreements and ideal length of the listing period. Chapter 8 also explains real estate commissions, a subject that should be of great interest to you because sellers usually pay the commission.

Step 2: Conducting agent interviews

Begin each interview by analyzing the agent’s CMA, marketing proposal, and activity list. After you review the written material, get answers to the following questions:

  • Are you a full-time agent? You should’ve asked this question before inviting the agent to be interviewed. If you didn’t, do so now. Don’t work with part-time agents.
  • Whom do you represent? This question gets back to the fundamental concept of agency. Be sure you know whom your agent represents at all times.

  • What can you tell me about your office? Office size is a matter of personal preference. Some folks feel that they need the depth and scope of services a large office provides. Others think they’ll get more personal attention in a small office. No matter whether you prefer large or small offices, check on staff support, market specialization, and reputation. Determine whether the agent’s broker is knowledgeable, is available to you if necessary, and is a good problem solver. In a crunch, the success of your transaction may depend on the quality of backup support you and the agent receive.

    tip Don’t select an agent based solely on the size of the agent’s office. Office size, or lack thereof, doesn’t affect how quickly property sells. Some excellent agents operate as sole practitioners; other excellent agents prefer the synergism and support services of a huge office. Although larger offices tend to have more listings, no one office ever has a monopoly on the good listings. Quality of service is more important than quantity of agents or listings.

  • How long have you been an agent? You want an agent who keeps learning and growing. After five years in real estate, a good agent has five years’ experience, whereas a mediocre agent has one year’s experience five times. Time in the saddle is one factor to consider when selecting an agent, but, by itself, it’s no guarantee of competence. Even with a time-tested agent, you still have to review activity lists and ask all the other questions.
  • Do you have a salesperson’s license or a broker’s license? An agent must satisfy rigorous educational and field sales experience requirements to get a broker’s license. Many fine agents have a salesperson’s license throughout their entire career. Although a broker’s license isn’t a guarantee of excellence, good agents often get a broker’s license to improve their professional skills and to give themselves an advantage in agent-selection situations.
  • Do you hold any professional designations? Have you recently taken any real estate classes? What do you read to keep current in your field? Taking continuing education courses and reading to stay informed about changes in real estate brokerage is a good characteristic in an agent. So is obtaining professional designations, such as the GRI (Graduate Realtor Institute) and CRS (Certified Residential Specialist) designations through the National Association of Realtors’ study programs. Credentials in and of themselves are no guarantee of competence or ethics, but they usually indicate that the agent has a desire for self-improvement.

  • What do you think of the other two agents (name them) whom I’m interviewing? To encourage frankness, assure the agents that you won’t repeat their comments. Good agents never build themselves up by tearing down other agents. If all three agents are good ones, you won’t hear derogatory comments about any of them. If, however, one of the agents (or the agent’s firm) has a bad reputation in the community, the other two agents’ silence will speak volumes.

    remember Good or bad, the reputations of your agent and the agent’s office rub off on you.

  • How many other sellers and buyers do you currently represent? If, for example, the agent holds four listings open every weekend and is working with six buyers, where will you fit in? Don’t contort your life to fit the agent’s schedule. The agent who’s right for you has time to accommodate your schedule.
  • Do you work in partnership with another agent or use assistants? Sometimes an agent teams up with another agent to handle sellers and buyers jointly. In such cases, you must interview both agents. Other agents delegate time-consuming detail work to their assistants so they can focus on critical points in the transaction. If an agent relies on assistants, be sure you understand exactly how and when during the process the agent plans to work directly with you. You don’t want to hire an agent only to find that you end up working most of the time with an assistant whom you can’t stand.
  • Is there anything I haven’t asked about you or your firm that you think I should know? Perhaps the agent is planning to change firms or is leaving next week for an extended vacation. Maybe the agent’s broker is going out of business. Always ask this “make sure I find out everything I need to know to make a good decision” question.

Step 3: Checking the all-important agent references

By checking up on agent references, you can gain experience the easy way — by learning from other people’s mistakes. Be sure to get activity lists with names and phone numbers of every seller and buyer the agent represented during the past 12 months. With a complete activity list, you can pick and choose whomever you want to call, instead of permitting the agent to limit you to a highly selective list of references who are primed to tell anyone who calls that this agent is God’s gift to real estate.

What’s to prevent agents from culling their worst transactions from the activity list? Nothing. However, the more deals they delete, the less activity they have to show you — and the worse they look when you compare the agents’ overall sales activity.

warning Any agent who refuses to give you an activity list is trying to hide either a lack of sales or unhappy clients. Dump the agent.

Suppose each agent gives you a list containing 50 transactions. Assuming one seller or buyer for each transaction, 50 clients per agent times 3 agents interviewed equals 150 phone calls. No way. Your doctor would have to surgically remove the phone from your ear by the time you finished checking references.

tip Good news. You don’t have to call every client to check references — that is, unless you want to. You can get a pretty darn accurate picture of the agents you’re considering by making just six calls per agent. Here’s how:

  1. Because you’re a seller, ignore buyer references.

    That restriction probably cuts the list in half.

  2. Next, look for people who sold property comparable to yours in price, location, and property type.

    Because their property is like yours, their experiences also are likely to be similar to yours.

  3. Of these sellers, call two who sold a house about 12 months ago, two who sold approximately 6 months ago, and two whose sales just closed.

    By spreading references evenly over the past year, you can see whether the agent’s service has been consistently good.

investigate After you identify which sellers to call, ask the following questions while you have them on the phone:

  • Is the agent trustworthy and honest? Did the agent follow through on promises? Your agent can’t be even slightly untrustworthy, dishonest, or unreliable. Consider a “no” answer to either of these questions to be the kiss of death.
  • Did the agent have enough time to properly serve you? Was the agent available to fit your schedule? An occasional scheduling conflict is okay. Frequent conflicts are absolutely, flat-out unacceptable.
  • Did the agent clearly and satisfactorily explain in sufficient detail everything that happened during the selling process? What one person thinks is ample detail may not be nearly enough for another. For example, some folks are content just to know what time it is. Others aren’t happy until they know exactly how to make a clock. You know which type you are; question agent references accordingly.
  • Did the agent set realistic contract deadlines and then meet or beat them? Time is of the essence is a condition of every real estate contract. Contract deadlines for obtaining financing, completing property inspections, and so forth are extremely important and must be met, or your sale will fall apart. A good agent makes sure you and the buyer meet all contract deadlines.
  • Do the words self-starter, committed, and motivated describe the agent? No one likes pushy people. But if you need to sell quickly, the last thing you want is a lethargic agent. You shouldn’t have to jab your agent periodically with an electric prod to make sure he’s still breathing. Find out how energetically your prospective agent is prepared to work for you.
  • Did the agent get a good sale price for your house? See whether the agent’s clients still think they did well on their sale.
  • Would you use the agent again? This question is the ultimate test of customer satisfaction. If someone answers “No,” find out why. The negative answer may be the result of a personality conflict between client and agent that won’t bother you. On the other hand, the negative answer may reveal a horrendous agent flaw that you haven’t yet uncovered.
  • Is there anything I haven’t asked you about the agent or the agent’s office that you think I should know? You never know what you may find out when you ask this open-ended question.

Step 4: Picking the best of the lot

By analyzing all three agents’ CMAs, marketing plans, and activity lists; interviewing the agents; and talking to their clients, you can gather facts that you need to make an intelligent decision. Here are three final considerations to help you select the paragon of virtue that you need on your real estate team:

  • Will you be proud having the agent represent you? People who deal with your agent will form opinions of you based on their impressions of your agent. You can’t afford to have anyone on your team who isn’t a competent professional.
  • Do you communicate well with the agent? Good agents make sure you completely understand everything they say. If you can’t understand your agent, don’t blame yourself; the agent is probably a poor communicator.
  • Do you enjoy the agent’s personality? Don’t kid yourself. House selling is stressful. You share extremely intense situations with your agent. Working with an agent you like may transform the selling process from a horrible experience into an exciting adventure — or, at least, a tolerable transaction.

Achieving top performance from the winner

After working so hard to find a great agent, the last thing you want to do is inadvertently ruin the relationship. Good seller-agent relationships aren’t accidental. On the contrary, these relationships are based on pillars of mutual loyalty and trust that develop over time.

You obviously don’t want to tell your innermost secrets to an agent who’s going to blab them to a buyer or the buyer’s agent. To that end, some sellers view their agent as an adversary. These sellers think the less their agent knows about them, the better. Such sellers believe if their agent finds out what their bottom line is and why they want to sell, the agent will manipulate them into selling their house for less than it’s worth just to make a quick commission.

Good agents don’t betray your trust. They know that if they take care of you, their commission will take care of itself. If you can’t trust your agent, don’t play cat-and-mouse games; get a new agent. Smart agents know you have the power to make or break their careers. If they please you, you’ll be a geyser of glowing referrals for them. If your agent upsets you, you’ll be like a festering thorn in her paw.

tip Use the immense power of potential referrals to control your relationship with the agent. If your agent does a lousy job, don’t get mad — get even. Tell the world every gory detail of your rotten experience. Nothing ruins an agent’s career faster than dissatisfied clients.

Bringing in the Broker

When you select an agent, your agent’s broker is part of the package. If your purchase rolls merrily along, you may never meet the broker. But if a truly nasty problem rears its ugly head, guess who you can turn to for a quick fix? Brokers are the invisible grease in problematic transactions.

All states issue two markedly different types of real estate licenses: one for salespeople (agents) and one for brokers. Agents who have broker’s licenses must satisfy much more stringent educational and experience standards than agents with only a salesperson’s license.

Your agent may have either type of license. Broker’s licensees have the option either to operate independently or to work for another broker. An agent who has a salesperson’s license, on the other hand, must work under a broker’s direct supervision, ensuring that you have access to the broker’s higher lever of expertise if you need it.

The broker’s image, good or bad, will be obvious from comments that you hear while checking agent references. You want the buyer, lender, and all other people involved in your transaction working with you because of your broker’s reputation, not in spite of it. You shouldn’t have to overcome guilt by association. If an agent’s references disparage the agent’s broker, dump the agent.

Good brokers develop and maintain relationships with the people with whom their offices deal — other brokers, lenders, title officers, city officials, and the like. This reservoir of good will is yours to use if the going gets rough. Brokers with strong business relationships can work near-miracles for you in a crisis.

House sales sometimes become highly emotional. If your life savings are on the line, you may lash out at other players. Someone must handle the resulting quarrels and misunderstandings. That someone is the broker. Because the broker participates directly or indirectly in every deal the office handles, your broker’s practical experience is directly related to the number of agents in the office. A broker who manages a 25-agent office, for example, gets 25 years of real estate experience per calendar year. Any broker who can survive five years of handling all the office’s gut-wrenching messes becomes a superb problem solver out of sheer necessity.

tip Call your broker into the game if your agent is stymied by a tough problem or if you’re having problems with the agent. Everything an agent does or fails to do is ultimately the broker’s responsibility. After all, the broker’s job is to help make your problems go away.

Handling House Inspectors

Houses in good physical condition sell for top dollar. Fixer-uppers sell at greatly reduced prices because whoever buys them must spend money on repairs to get them back into pristine condition.

Even if you’ve lived in your house for the past 20 years, it may have hidden problems you know nothing about. You probably can’t see, for example, whether your house’s electrical system is shot or whether dry rot is turning the woodwork into sawdust or whether the roof is one rainstorm away from springing a Niagara of leaks.

Invisible defects can be deal breakers because they cost major money to repair. The more you know about your house’s hidden problems, the better you can effectively deal with those problems. For that reason, we recommend that you have your property thoroughly inspected before putting it on the market.

Arranging premarketing property inspections

Count on it. Prudent purchasers will have your property thoroughly inspected before they buy it. Expect inspectors to poke into everything — your house’s roof, chimney, gutters, plumbing, electrical wiring, heating and cooling systems, insulation, smoke detectors, all the permanent appliances and fixtures in your kitchen and bathrooms, and the foundation. They’ll also check for health, safety, and environmental hazards. If you live in a temperate climate, you can bet that they’ll have a structural pest control inspector look for damage from wood-destroying insects (carpenter ants, termites, and powder-post beetles) as well as dry rot and fungus infections. Whew!

Flowers, fragrances, and all that other staging stuff aside, smart buyers know that a house’s physical condition greatly affects its value. No matter how beautifully your property is staged, buyers won’t pay top dollar for a house that needs extensive and expensive repairs.

Exploring the advantages of inspecting before marketing

The best defense is a good offense. Beat buyers to the punch — get your inspections before they get theirs. Discover everything wrong with your house before putting it on the market. Defusing a crisis begins by discovering that a problem exists.

Some real estate agents argue against getting a house inspected before putting it on the market. As we explain in Chapter 8, many states now require that sellers disclose any known property defects to prospective buyers. These agents point out that you can’t tell buyers about problems if you don’t know the problems exist. Handing buyers a long list of repair problems as they enter your house will turn many of them off. They recommend getting buyers emotionally committed to the property first, before their own inspectors drop the bomb. That line of reasoning is based on an ostrich-like logic: What you don’t know can’t get you in trouble — for a while, anyway.

Agents may use a second argument to convince sellers not to get their own property inspections: Buyers generally won’t believe anything in reports paid for by sellers. According to these agents, buyers suspect you’ll hire a go-easy inspector to falsely report that your house is as solid as the Rock of Gibraltar. Why spend several hundred dollars on an inspection report that buyers won’t believe? Again, you can find a nugget of truth in this argument. Only a suicidal chicken would ask the fox about how things are in the hen house. More than one unscrupulous seller has paid an equally unscrupulous inspector to write a false inspection report.

On the other hand, consider these four reasons to have your property thoroughly inspected before putting it on the market:

  • Damage control: Suppose your house needs a new roof. The problem is there whether you know about it or not. Why wait passively for an ultimatum to fix the roof at a cost established by the buyer’s inspection or kiss the deal goodbye? If you discover the problem before marketing the house, you can either disclose it to prospective buyers with a repair estimate or, although — as noted in Chapter 9 — we don’t recommend this, you can do the work before putting your house up for sale. Your negotiating position is much stronger if you know about problems in advance — and accurately know the cost to correct them.

    tip You can’t lose what you never had. Some buyers won’t want to tour your house if they know it needs a great deal of repair work. Those buyers don’t want a fixer-upper. Even if you paid for all the repairs, they still wouldn’t buy your house. Forget them. Concentrate on buyers who are willing to do corrective work after the close of escrow if your price and terms are fair.

  • Financial planning: Chapter 3 explains that it’s very important to have a realistic estimate of your present house’s net proceeds of sale before committing to buy a new home. Asking prices aren’t sale prices. If your house needs major repairs, you’ll pay for them one way or another — either by doing the repairs yourself, by reducing your asking price to reflect the cost of repairs, or by giving buyers a credit in escrow to do the work.

    warning Latent defects — flaws hidden out of sight behind walls or concealed in inaccessible areas, such as under your house or up in the attic where you can’t see them — are time bombs. Defects you can’t see and don’t know about (such as faulty wiring, a cracked heat-exchanger in your furnace, asbestos insulation, lead in your water pipes, and so on) are potential deal killers. A good premarketing inspection can reveal all these problems.

  • Fine tuning: Professional property inspectors can help you spot minor defects, such as dirty filters in the heating system; ventilation problems in the basement, garage, or crawl space; blocked gutters; loose doorknobs; stuck windows; a missing chimney hood or spark arrester, and so on. Eliminating small maintenance problems like these gives prospective buyers who tour the property a favorable — and correct — impression that your house is extremely well-maintained.
  • Peace of mind: The inspector alerts you to health and safety precautions you should take. Installing smoke and carbon monoxide detectors, grounding electrical outlets, clearing a clogged sewer line, and keeping flammable products away from furnaces, heaters, and fireplaces, for example, make your house safer for the next owner and safer for you as long as you continue living in it.

Investigating inspectors

Quite a few so-called house inspectors have neither the background nor the special training required to do premarketing house inspections. Compounding your problem of finding a qualified inspector, few states certify, license, or regulate house inspectors. And, as we all know from personal experience with government regulation, states that do regulate house inspectors don’t always do a good job. Anyone with a clipboard, a pickup truck, and a decent houseside manner can instantly anoint himself a house inspector nearly anywhere in the country.

warning Avoid contractors who graciously offer to inspect your house and then do repairs that they discover during their inspection. If, like us, you’re mechanically challenged, unscrupulous contractors can use your ignorance to fatten their wallets by billing you for phony corrective work they create themselves.

The best way around this conflict of interest is to hire someone who only performs property inspections — a professional property inspector, not a contractor wearing two hats. Doing property inspections requires special expertise that not all contractors, engineers, and architects have. Good professional property inspectors earn their living solely from inspection fees and don’t do corrective work. This restriction removes any temptation to find unnecessary corrective work during inspections.

Finding property inspectors

Locating house inspectors is usually quite easy. One good source of property inspectors is either online or printed phone directories under “Building Inspection Services” or “Home Inspection Services.” You can also ask friends and business associates who’ve either bought or sold a house recently for the names of their property inspectors. If you’re working with an agent, ask the agent to recommend several highly regarded inspectors. Using a well-known inspector with an excellent reputation increases your report’s credibility.

tip The American Society of Home Inspectors (ASHI) is a professional association of independent property inspectors. ASHI membership doesn’t guarantee that the inspector is competent, but hiring a member of this organization increases the likelihood that you’ll be working with a qualified professional. You can’t buy your way into the ASHI by paying a fee. All ASHI-certified members must have performed at least 250 property inspections and must pass two written proficiency exams as a prerequisite of membership. ASHI members must also adhere to the ASHI standards of practice, continuing education requirements, and code of ethics. To find members in your area, call ASHI at (800) 743-ASHI (2744) or visit its website at www.ashi.com.

warning In the interest of full disclosure, allow prospective buyers to review your inspection report prior to making an offer if they want. However, encourage buyers to get their own inspections. Even the best inspector occasionally misses defects. If the buyers rely solely on your report and find repair problems after the sale is complete, you don’t want them claiming that you intentionally gave them a faulty inspection report to mislead them about your house’s condition.

Selecting your inspector

investigate Choosing the right inspector takes a little effort. We recommend that you interview several property inspectors before hiring one. The following questions can help you select the best inspector:

  • Are you a full-time, professional property inspector? The only satisfactory answer is yes.
  • How many houses do you personally inspect annually? Although the number of inspections varies from area to area, active inspectors usually average from 100 to 300 inspections per year. Be sure the inspector works primarily in the vicinity of your house and is familiar with local building regulations and codes as well as local problems (such as mud slides, earthquakes, floods, or tornadoes).
  • Do you have any special certifications or licenses? Property inspectors generally have experience in some related field (such as construction, architecture, or engineering) or have worked as an electrician, plumber, or insurance-claim adjuster. This diversity brings extra depth to their inspections. Membership in ASHI or other trade associations indicates at least a minimal knowledge of house-inspection procedures. Ask about the size of the inspector’s company and how long the company has been in business.

  • What’s the scope of your premarketing inspection? Be certain that the inspection covers all your house’s major structural and mechanical systems, inside and out, from foundation to roof. Anything less is unacceptable. Thoroughly inspecting a house or condo of average size usually takes three to four hours.

    tip You probably won’t be invited to join the buyers when their property inspector goes through your property. That’s why it’s critically important that you (and your agent, if possible) tag along when your inspector does the premarketing inspection. Reading the best report ever written is no substitute for seeing defects with your own eyes and hearing your inspector’s commentary on the significant findings. Use this opportunity to question the inspector about a defect’s ramifications and explore corrective work alternatives. After completing the inspection, you understand why some defects cost megabucks to fix, and others are no big deal.

  • Will your report include a cost estimate for you to do necessary corrective work? Trick question. If the inspector says yes, don’t use the inspector. Good property inspectors only do inspections. They don’t do repair work themselves or generate referral fees for themselves by sending work to their pals. A good inspector can, however, help you determine repair costs by giving you a list of reputable contractors, roofers, electricians, plumbers, and other tradespeople who can give you corrective work quotes. Generally, more than one way is possible to fix a defect. You must decide the best way to deal with a problem after you consult the appropriate repair people.

  • What type of report will I receive? Verbal reports and boilerplate, checklist reports are usually worthless. You need a written, narrative-type report that provides a detailed description of your house’s mechanical and structural condition and clearly explains the implications of the findings in plain English.

    tip Get a sample report from each inspector you interview. The best way to find out if an inspector writes good reports is to read one and draw your own conclusion. We thoughtfully include a premarketing inspection report in Appendix B so you know exactly what a good report looks like.

  • Do you have errors-and-omissions (E & O) insurance? To err, unfortunately, is all too human. Even the best inspector misses a defect or two every now and then, which is why good property inspectors carry E & O insurance. If your inspector accidentally makes a mistake that costs you big bucks, E & O insurance can help ease your pain.
  • May I call your recent customers for references? Good inspectors happily give you names and phone numbers for all the satisfied customers you want. Bad inspectors, by definition, don’t have satisfied customers. Check at least three references per inspector. Ask references if, after the transaction was completed, major defects were discovered that the inspector missed. Also see if they’d hire the inspector again.
  • How much will your inspection cost? A good inspection can cost anywhere from $350 to $800 depending on the property’s size, the inspection’s scope and degree of detail, and where the property is located — inspections cost least in the Midwest and South; they’re much more expensive in urban areas of New York and California. Beware of unrealistically low, “this week only” promotional fees offered by new inspectors just starting in the business. Don’t let inexperienced inspectors practice on you.

tip See whether the premarketing inspection includes an additional consultation at a later date to discuss the report’s findings with buyers who make an offer to purchase your house. Because time is money, the inspector probably adds an extra charge for this service. The fee is worth every penny, though, if the property inspector’s explanation helps you negotiate a lower corrective work credit.

The Officiating Escrow Officer

Even the simplest house sale involves many details that must be resolved to everyone’s satisfaction before the sale can be completed. Without someone to bridge the gulf between mutual buyer and seller distrust that exists in most transactions, deals would grind to a halt.

Bridging that gulf of distrust, real estate (like other team sports) engages the escrow officer, a referee who keeps the game civilized. Escrow officers aren’t on anyone’s team; they’re neutral. They act as a disinterested third party for buyers and sellers without showing favoritism to either party.

After you and the buyer have a signed contract, all the documents, funds, and instructions related to your transaction usually are given to the escrow holder specified in your purchase agreement by the buyer’s agent. We cover this process, known as opening an escrow, in detail in Chapter 15.

Buyers and sellers often select an escrow holder based on the recommendations of their real estate agents. Depending on the location of your property, local custom dictates whether your escrow is handled by a lawyer, bank, real estate broker, or the firm that issues the title insurance.

tip Escrow fees range from a few hundred dollars to several thousand dollars and are based on your property’s sale price. Once again, local custom nearly always determines whether the buyer or seller pays for escrow, or whether escrow fees are split 50/50. However, as Chapter 15 explains, this item often is negotiable.

Finding Financial and Tax Advisors

tip If you need the services of another advisor, such as a tax or financial advisor, find one who works by the hour and doesn’t have a vested interest — because they sell investments or manage money for an ongoing fee — in your house-selling decision. Few financial advisors work on this basis. Although tax advisors are more likely than financial advisors to work for an hourly fee, they tend to have a narrower-than-needed financial perspective. A competent tax advisor may be able to help you structure the sale to maximize your tax benefits. For most transactions, however, a tax advisor is unnecessary.

If you want to hire a financial or tax advisor, interview several before you select one. Check with your agent, banker, lawyer, business associates, and friends for referrals. As is the case with selecting your agent, you should get client references from each tax advisor and call the references.

investigate A good financial or tax advisor should possess the following qualities:

  • Does the advisor work full time in this occupation? The realm of personal finances and taxes is too vast for you to trust a part-timer. You need the services of a full-time professional.
  • Does the advisor speak your language? Good advisors can explain your options in simple terms. If you don’t understand exactly what the tax advisor is saying, ask for clarification. If you still don’t understand, get another tax advisor.
  • Is the advisor objective? Hire someone who works solely by the hour and doesn’t have a vested interest in the advice he or she gives you. Never blindly follow the advice of experts because you’re in awe of their expertise. Experts can be just as wrong as ordinary mortals.
  • What is the advisor’s fee schedule? Hourly fees vary widely. Don’t pick someone strictly on a cost-per-hour basis. An advisor who’s just beginning to practice, for example, may only charge half as much as one with 20 years of experience. If the rookie takes four hours to do what the old pro does in an hour, which advisor is more expensive in the long run? Furthermore, the quality of the seasoned veteran’s advice may be superior to the quality of the novice’s advice.
  • Is the tax advisor a Certified Public Accountant (CPA) or Enrolled Agent (EA)? These professional designations indicate that the tax advisor has satisfied special education and experience requirements and has passed a rigorous licensing exam. A CPA does general accounting and prepares tax returns. An EA focuses specifically on taxation. Only CPAs, Enrolled Agents, and attorneys are authorized to represent you before the IRS in the event of an audit.
  • Does the tax advisor have experience with real estate transactions? Tax practice, like law or medicine, is an extremely broad field. The tax advisors that big corporations use may be wonderful, but they aren’t necessarily best for you. You need a tax advisor whose clients have tax problems like yours.

tip The best advisors in the world can’t do much to change the financial and tax consequences of a transaction after the deal is done. If you’re going to consult advisors, do so before you make significant financial decisions.

Locating a Good Lawyer

Lawyers are like seat belts. You never know when you may need one. Your deal is rolling merrily along when out of nowhere — slam, bam, wham — you hit a legal pothole and end up in Sue City.

The real estate purchase agreement you sign is a legally binding contract between you and the buyer. If you have any questions about the legality of your contract, get a lawyer on your team immediately. No one else on the team is qualified to give you legal advice.

tip Suppose the buyer’s contract is presented to you at night or on a weekend when a lawyer isn’t readily available. Put a clause in the contract to stipulate that your acceptance is contingent upon review and approval of the contract by an attorney of your choice within five business days after you sign it.

To determine whether you need a lawyer on your team, check out the following factors:

  • If no agent is involved: For example, suppose you’re selling your house by yourself. If neither you nor the buyer has an agent, get a lawyer to prepare the contract, and have the lawyer do the work that an agent would normally handle. As Chapter 6 explains, eliminating the real estate agent doesn’t eliminate the disclosures, inspections, contingency removals, and other details involved in the house-selling process.
  • The location of your property: In states such as California, lawyers rarely work on deals that only involve filling in the blanks on a standard, preprinted purchase agreement that’s been previously reviewed and approved by members of the state bar association. In other states, however, lawyers routinely do everything from preparing purchase contracts to closing the escrow. Your agent, if you’re working with one, knows the role lawyers play in your locale.
  • The complexity of your transaction: You need a lawyer if you get into a complex financial or legal situation that can’t be covered by a standardized contract. For example, suppose you hold title as a tenant-in-common and are selling a partial interest in the property, or you want to structure the transaction as an intricate installment sale. Whatever. Unless your agent also is a lawyer, the agent isn’t qualified to do creative legal writing.
  • If consulting an attorney helps you sleep at night: You may have the world’s easiest deal. Still, if you feel more comfortable having a lawyer review the contract, your peace of mind certainly is worth the cost of an hour or two of legal time.

Choosing among lawyers

If, for whatever reason, you decide you need a lawyer, interview several before making your selection. Real estate law, like medicine, is highly specialized. A corporate attorney or the lawyer who handled your neighbor’s divorce isn’t necessarily the best choice for your real estate team. Get a lawyer who specializes in residential real estate transactions. Good agents and brokers usually are excellent referral sources because they work with real estate lawyers all the time in their transactions.

investigate A lawyer working for you needs to have the following qualities in her favor:

  • Is a full-time lawyer and licensed to practice law in your state: Of course.
  • Is local talent: Real estate law, like real estate brokerage, not only varies from state to state, but it also changes from area to area within the same state. Rent control laws, condominium conversion statutes, and zoning codes, for example, usually are formulated and adopted by city or county governing agencies. A good local lawyer knows these laws and has working relationships with people who administer them in your area.
  • Has a realistic fee schedule: Lawyers’ fees vary widely. A good lawyer gives you an estimate of how much it costs to handle your situation. As with financial and tax advisors, the experience factor comes into play. Seasoned lawyers generally charge more than novice lawyers, but seasoned lawyers also may get more done in an hour than inexperienced lawyers can. A low fee is no bargain if the novice is learning on your nickel. And you may pay the consequences if the novice fails to handle your case properly.
  • Has a good track record: If the lawyer you consult thinks your case may go to trial, find out whether that lawyer has courtroom experience or intends to refer you to another lawyer. (Some lawyers don’t do trial work.) Always ask about the lawyer’s track record of wins versus losses. What good is a lawyer with a great deal of trial experience if that lawyer never wins a case?

  • Is a deal maker or a deal breaker (whichever is appropriate): Some lawyers are great at putting deals together. Others specialize in blowing them out of the water. Each skill is important. Depending on whether you want the lawyer to get you out of a deal so you can accept a better offer or need legal assistance to keep your deal together, be sure you have the right type of lawyer for your situation.

    warning If your lawyer’s only solution to every problem is a lawsuit, you may be in the clutches of a deal breaker who wants to run up big legal fees. Find another lawyer!

  • Speaks your language: A good lawyer explains your options clearly and concisely without resorting to incomprehensible legalese. Then she gives you a risk assessment of your options to help you make a sound decision. For example, the lawyer may say that one course of action will take longer but will give you a 90 percent chance of success, whereas the faster option only gives you a 50/50 chance of prevailing.

Working well with your lawyer

Whoever said that an ounce of prevention is worth a pound of cure must’ve been thinking of lawyers. A two-hour preventative consultation with your lawyer is infinitely less expensive than a two-month trial.

Good lawyers are excellent strategists. Given adequate lead time, they can structure nearly any deal to your advantage. Conversely, if you bring wonderful lawyers into the game after the deal is done, all they can do is damage control. The best defense is a good offense.

warning Beware of the awe factor. People tend to hold lawyers in awe because their word is law. Disobey lawyers and you go to jail. Baloney. Don’t blindly follow your lawyer’s advice. If you don’t understand the advice or if you disagree with it, question it. You may be correct and the lawyer may be wrong. Lawyers are every bit as fallible as everyone else.

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