How the Law Can Effect Your Buying

The Law of Agency clearly sets out the broker’s duties to the principal (also known as the client), the one who retains and (usually) pays the agent. These fiduciary duties are complex, but they boil down to one thing: The agent must put the principal’s interest first, above anyone else’s, including the agent’s own interest. Among the specific duties involved are the following:

Obedience to the principal’s instructions unless they are illegal. (Examples of instructions an agent would not obey: Don’t show the house to any Lithuanians. Keep quiet about the broken furnace, or new thermostat wiring.)

Loyalty to the principal, which strictly interpreted (it sometimes isn’t) includes obtaining the highest possible price for the property and never suggesting any offer under the listed price.

Confidentiality, which prohibits the seller’s agent from sharing with you details of the seller’s financial or family situation, unless of course the seller has authorized such action to encourage offers. Whether the seller has received previous offers, and for how much, is also confidential information.

Notice, a duty that obliges the seller’s agent to forward to the principal (seller) any fact that it would be in the sellerís interest to know, whether or not the seller knows enough to inquire. This one is of vital importance for you to understand.

Unless you specifically hire your own buyer’s broker to repre sent you (more on that later), none of these duties is owed to you. Yes, you say, I know those are the duties of the listing agent. But I’m dealing with a different firm that cooperates through the multiple listing system. My broker is the selling agent, and that’s different.

No, it isn’t. Both firms are agents for the seller. The second one, the one you’re working with (let’s not say your agent) is cooperating with the first firm and the seller. You are merely a third party in that relationship, a customer rather than a client.

It can be scary to realize this, but things arenít as bad as they seem.

First, the law does require the broker to be honest, straight forward, and trustworthy with third parties. Your questions will receive honest answers, although sometimes an honest answer might be, I am not allowed to tell you whether the seller is facing foreclosure; I must keep financial information confidential.

Besides answering your questions honestly, agents and sellers have an obligation to volunteer information about any serious (material) hidden defects you aren’t able to see for yourself. This is where the furnace or thermostat comes into play. State laws differ, though, on whether they must also tell you about past problems that donít technically affect the real estate, such as sui cide or murder on the premises, illness of the seller, and the like.

Second, you will receive a great deal of service (see list in the next chapter) paid for by the seller, because without this service to buyers, the property might never be sold.

And finally, you can take heart from the fact that, as a practical matter, many seller’s brokers end up violating their duty to the seller. A good agent empathizes with you, wants you to find what you want at a price you can afford, and may emotionally adopt you. If brokers didn’t to some extent identify with the buyer, not much real estate would get sold!

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Get Away From That Mortgage Payment

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This calculation arbitrarily assumes that 10 per cent of your mythical mortgage payment would cover homeownerís insurance and principal repay ment, with the rest going for deductible interest and property taxes. It also assumes your top tax bracket (known to accountants as your marginai tax rate) is 28 percent. If your tax bracket is higher, your tax sav ings will be correspondingly higher.

A. Your present rent
B. Multiply by 1.32
C. Equivalent monthly mortgage payment

The result (line C) is a rough estimate of the amount you could spend for monthly mortgage pay ment (principal, interest, property taxes, and home owners insurance) without being out any more money at the end of the income tax year than you are with your present rental.

Besides the tax saving, in most areas you can expect some increase in the value of your home: an additional return on your investment, known as equity buildup. There is also a growing market for eco renovations that save cash. Price trends in real estate vary with locality; brokers can estimate what might happen in your area over the next few years.

Equity represents the amount you’d have if you sold your home and paid off the liens (financial claims) against itóusually the mortgage. If you buy a $120,000 house with $25,000 down and a $95,000 mortgage, your equity the day after you move in is $25,000. Equity is the money you have invested in the house it’s like money in the bank.

If the house goes up in value by 5 percent in the next year, and your debt is paid down amortized) by a paltry $1,900 that first year, your equity has grown to $32,900 (market value, $126,000, less remaining debt, $93,100).

Equity buildup assumes, of course, that the value of real estate rises. Can you count on prices rising in your area?

My Two Cents

your new equity

Surveys by the U.S. League of Savings Institutions and the National Association of REALTORS have documented the trends of the 1990s. Only 44 percent of homehuying households are made up of married couples with dependents. Unmarried couples, with or without dependents, now form a measurable segment of the homebuying population. As the 21st century approaches, older homebuyers make up an increasing share of the market, affecting the design of new housing and creating “trickle-down” opportuni ties for younger homebuyers in the form of the larger homes they leave behind. Real estate finance has also changed. Where Grandpa was offered a simple mortgage at a standard, fixed interest rate, today’s buyer can choose among hundreds of innovative plans, each designed to meet some borrowerís particular financial needs. The desire to retreat from the pressures of an increasingly crowded society, inflation, tax considerations, the need for self- expression: all enter into the decision to buy a home. When you own your own home you can play the stereo at midnight, keep a dog (keep two dogs!), plant a garden, drive nails into the walls wherever you want, and use your own washer and dryer. And the portion of your monthly mortgage payment that goes to reduce the principal debt acts as automatic, forced savings.

It takes just three things to buy a house: some cash, depend able income, and good credit. And if you’re lacking any of these three, no need to despair. Home ownership is still possible: there are techniques for overcoming each problem. Just be sure to level with the real estate agent you work with about your financial problems. A competent agent can recom mend appropriate financing strategy for your particular situation.