Risks of Buying a House: Before and During the Transaction

I Signing a buyer representative agreement

Buyer representative agreement is the contract between the homebuyer and the brokerage that represents you, the realtor working with you acts on behalf of the brokerage. The realtors are more like independent business owners, but per RECO law, they have to work under a brokerage in order to trade.

Once you signed the buyer representative agreement, you are pretty much locked by the contract period time. The holdover period is more like an extended period of time to protect the agent’s interest. In some way, the holdover period does make sense and is quite fair because it only protects the work and effort done by the agent when he introduced or showed the property to you. 

The contract itself does make sense and is fair. It fairly projects the agent for the service rendered since the buyer agent doesn’t charge anything upfront usually. What if the agent shows the property to the buyer, the buyer, later on, decides to buy the home privately or through another realtor who offers a better deal. 

However, we often hear a lot of complaints and disputes about the contract. The main reason could be the contract time. Once you are into the contract, you would be obliged. To back out of the contract, you need a mutual agreement, which obviously is not an easy job. 

The alternative solution is to sign the contract, but in a shorter period of time, say by weeks or days if you are not sure of the services from the agent you hire. In the meantime, you also need to specify the specific location or even name the property. But please allow enough holdover period time for the previous realtors, their only remuneration is the commission for the most full-time players, their delivered efforts need to be guaranteed.

II Multiple Representation

When you like a place and wish to initiate an offer, you find out that the listing agent is with the same brokerage as your agent. It is a hotly debated topic. There are a number of rules and practices that RECO regulates agent behavior.

But once you are into the multiple representation, your interests are in the line. Especially as a first-time homebuyer or a buyer who is not familiar with the home market value, you would not get the valuable pricing information by law. 

What is even worse, if your relationship with the brokerage is customer instead of client, you are legally put into a disadvantaged situation since all your critical information will be passed to the seller lawfully.

By RECO rule, you still have an option to protect your own interest. It is quite straightforward you just simply don’t agree to sign into the multiple representation. Your agent/brokerage will find someone else from a different agent for you or release you from the agreement.

III How do you know if the listing agent lie on the other offer

As we all know, the existence of another offer may have a large impact on your offer price. It is very natural for you to worry about the spook offer or even a cook offer. 

There are a few methods to crack it. Do some homework and work with your realtors to check if anything unusual, say, the long days on the market, any price drop, unsuccessful offer presentation, their possible showing number, or even putting a condition on your offer. You can learn more details on my another article on this.

IV Home condition

The home condition would not very problematic if you have a home inspection clause on your offer. However, during the bidding war, to add a condition could be wishful thinking. 

So some risk-averse buyers would opt for a home inspection before the offer. But if the seller doesn’t accept your offer, you waste your money and time. It really depends on your circumstances, your willingness to take the risks.

V Financing

What if the appraisal home value requested by the lender is short of the amount of loan. There are two scenarios

If your offer price is actually in line with the current market value, you could talk directly with the lender or ask your agent to explain the situation to the appraisal. Things may work out.

However, if your offer price is way higher than the market price, which is not uncommon during the bidding war or for the buyer who doesn’t do any homework, you may have to work out the discrepancy on your own. The mortgage broker would love to help in this case.

Outbidding

Bidding wields the magic wand to remove some buyers’ rationality temporarily. The consequences of overpaying are not only about the potential unobtainable of the desired mortgage amount, but your mid or even long-term life of quality. 

The insane market is moving crazier, amplified by the irrational buyers, many of them apparently didn’t do their due diligence. The very basic thing you would know is how to estimate a home market value. Finding a comparable is not tough math in many cases. 

If you are determined to move on with the bid, there are still a few ways to play instead of simply increasing prices. Those methods include a bully offer to circumvent the bidding, increasing your deposit amount, and being proactive on conditions removal. But you would always be prepared to walk away psychologically. 

There are also many other risks, which include but are not limited to 

• Your new home happens to be outdated in feature
• You wish to fix up and flip and realize it is a heritage house and there are many restrictions.
• A future zone may negatively impact you.

In short

We here are focused on the risks you may be associated with when you are buying a home with a realtor. In essence, the risks with the agent come from the inherent conflicts of interest from both sides. This trading practice has been existing for decades, and it probably will carry over in the coming future. 

So how to protect your best interest:

• Do your own diligence, and gather a basic understanding of the transaction

• Find a fair and transparent package, the system speaks louder than human beings. I’ve designed a commission package, which is based on efficiency and transparency. It would mitigate the conflicts of interest and is fair to both of us.

• Be always reading through the contract before signing your signature

If you have any questions or want to exchange some ideas, please be free to connect with me.