Questions about Real Estate and Buying Properties

[Winston]

Questions about Real Estate and buying a house:

1. Do you really need a real estate agent nowadays? With sites like Zillow now, aren't all properties for sale listed online? Why do you need a real estate agent?

2. Does only the seller of the house pay a commission to a realtor? What about the buyer?

3. What if your realtor finds a house that is being sold by another realtor? Wouldn't there be two middle men taking a cut then?

4. If foreclosed homes are cheaper, why doesn't everyone buy them? What's the disadvantage?

5. What's the difference between an apartment, condo and a town house?

6. Is there a way to avoid those expensive monthly association fees that condo communities make you pay?

7. Is it better to buy a home being sold by a realtor or by the owner?

[Contrarian Expatriate]

Questions about Real Estate and buying a house:

I own investment property, but I advise people to just rent without buying. That way you can move more easily, and you don't have to pay property taxes, association fees, and many other things that owners pay.

1. Do you really need a real estate agent nowadays? With sites like Zillow now, aren't all properties for sale listed online? Why do you need a real estate agent?

No you do not, but they can help you sift through the nonsense and find you are property and they can help you market the property to sell. Technically, you can buy a home using a closing agent only, but you would have to negotiate the price yourself.

2. Does only the seller of the house pay a commission to a realtor? What about the buyer?

The seller usually pays 6% commission, 3% to each party's agent.

3. What if your realtor finds a house that is being sold by another realtor? Wouldn't there be two middle men taking a cut then?

They could get a finder's fee, or get a 3% commission if they represent you as the buyer.

4. If foreclosed homes are cheaper, why doesn't everyone buy them? What's the disadvantage?

They are SOMETIMES cheaper, but the red tape or auctions are a huge hassle. Also they require huge cash up front and they are risky in terms of damage to the homes.

5. What's the difference between an apartment, condo and a town house?

Apartment is for rentals, condo is like an apartment but it is actually owned, townhouse is like a condo but usually in a community, not a building.

6. Is there a way to avoid those expensive monthly association fees that condo communities make you pay?

Not really. That is why some people choose to rent especially when the fees are as much as the mortgage!

7. Is it better to buy a home being sold by a realtor or by the owner?

It depends, the realtor has a duty to disclose certain things by law. An owner could hide flaws and problems.

But sales by owners can land you a good deal since the seller is not paying that 6% I mentioned before.

[Devil Dog]

A townhouse starts on the ground floor and typically has some amount of deeded land included.

A condominium only conveys undivided ownership of the space inside its walls, can be on any floor.

[xiongmao]

I rent out my apartment. The last tenants made a mess. Still, they stayed for 4 years and I got a lot of rent over that time.

My agent showed 3 sets of prospective tenants round at the weekend.

Small apartments in crowded countries like the UK are a great long term investment. I want to buy another one, then I'll have enough rent to live off of in retirement.

[momopi]

Questions about Real Estate and buying a house:
1. Do you really need a real estate agent nowadays? With sites like Zillow now, aren't all properties for sale listed online? Why do you need a real estate agent?
2. Does only the seller of the house pay a commission to a realtor? What about the buyer?
3. What if your realtor finds a house that is being sold by another realtor? Wouldn't there be two middle men taking a cut then?
4. If foreclosed homes are cheaper, why doesn't everyone buy them? What's the disadvantage?
7. Is it better to buy a home being sold by a realtor or by the owner?

The actual selling price of a home is dependent on the buyers and what they're willing to pay. So, if there are 10 buyers interested in a house, and the highest solid offer is $150,000, then the house will probably be sold for $150,000 regardless of who's selling it. The seller is less inclined to accept a lower bid, with exception to all-cash offers.

Traditionally the seller pays 6% commission to be split evenly between buyer and seller agents. Some agents will kick back $$ cash to their client afterwards. However, in a seller's market with low inventory, the seller might dictate lower commission and only offer 2% to the buyer's agent -- take it or leave it.

5. What's the difference between an apartment, condo and a town house?
6. Is there a way to avoid those expensive monthly association fees that condo communities make you pay?

First, if you choose to buy into a condo home owner's association, why should you be exempt from the dues? Nobody forced you to buy into a HOA community. If you want to live in a nice gated community with swimming pools, jacuzzi, private parks, BBQ, gym, and sports facilities, pay up.

Second, if you don't want to pay the HOA fee, you simply buy a house that doesn't have a HOA. You can make friends with someone who lives in a nice HOA and get invited to use their facilities for free as a guest (cough).

Buying a condo in a HOA has some risks. If half your neighbors decided to mail in their keys and bail, and the HOA isn't collecting sufficient funds to maintain the facilities, you and the rest of the remaining homeowners may be hit with a large special assessment.

[Winston]

Question: If you refer someone to a real estate agent you know, should you demand some kind of commission or kick back from that agent, if a sale is made? What do most people do in this situation? What's the general rule about referrals in this area?

Also, I've never seen a real estate agent offer any rewards for referrals. Why is that?

[momopi]

Question: If you refer someone to a real estate agent you know, should you demand some kind of commission or kick back from that agent, if a sale is made? What do most people do in this situation? What's the general rule about referrals in this area?
Also, I've never seen a real estate agent offer any rewards for referrals. Why is that?

RE laws differ by State, so I'm only commenting on California (your State may differ). Referral fees is also known as "finder's fee", which is allowed under CA law.

If you're a licensed broker or RE professional (or works for one), you're allowed to act as an agent or participate in the transaction and receive a fee for your services.

If you're NOT a licensed broker or RE professional, then you're restricted to "introduction" activities only, and receive a finder's fee for your trouble. It's illegal for you to act as an agent for someone or take part in the actual transaction.

Generally speaking agents do not advertise finder's fees, but many will pay. The amount is, of course, dependent on the size of the transaction (price of the home) and how much the agent will make. A token finder's fee of few hundred dollars is common. When the supply of homes on the market is low, agents are more willing to pay higher finder's fee.

[Halwick]

Winston, sounds like you're getting ready to flip some houses.

[Winston]

@momopi thanks for your replies. I have a quick question. How do you check the market value of a house or property? Is there a website that anyone can look up? Who determines the market value? Is it something official that gets entered into some type of database?

Do real estate agents have access to special websites that everyone else does not? Or do they use the same tools as everyone else?

Thanks.

[Winston]

@momopi since you know a lot about real estate, I have a question for you about my cousin's situation.

My older cousin has a big real estate problem. I was wondering if you knew any tips or tricks to help solve it. Before her father passed away, he bought an expensive house for her in Taoyuan, Taiwan as an investment. It was expected to go up in price and then she was supposed to sell it and make a profit. However, things did not go as planned. The house dropped in market value. And if she sold it now, she would lose $100,000 USD on the price that was paid initially. But if she keeps it, she has to keep paying over $2000 a month (70,000 NT) on it in mortgage payments. She is having trouble keeping up with this big monthly payment, and now has to sell her other house and car to help pay it. There seems to be no other way. This is a sticky situation it seems. A lot of Chinese, I hear, make money from buying and selling property quickly like this, but sometimes it goes wrong.

So her options now are to:

1) Keep the property and keep making big 2,000 USD monthly mortgage payments on it, and risk the property losing even more value if the market price goes down, while hoping that it goes back up again.
2) Or sell it and lose $100,000 and take the huge loss, which she is reluctant to do.

Do you have any advice for her that I could pass on to her? Do you know any tips or tricks to get out of this? Do you know anyone else in this situation? What can they do about it? Are there any loopholes in the system that can be utilized? What would you do in this kind of situation?

Thanks in advance.

I wonder what her dad was thinking when he bought it. How did he know this wouldn't happen? And why is the mortage payment so huge? Must be an expensive house.

Also, since Taiwan's economy is declining and stagnant and wages haven't even risen for years, this was a bad idea. I don't think it's wise to invest in a country that is declining economically, as well as morally and spiritually. Don't you agree? Even English teachers are leaving Taiwan now because of declining wages, declining economy and unfavorable policies and treatment of them, as well as lack of work opportunities.

[chanta76]

Winston,

why not have your cousin try to rent the house out? It can help pay for the mortgage and you can wait once the market goes up to sell.

[momopi]

@momopi thanks for your replies. I have a quick question. (1) How do you check the market value of a house or property? (2) Is there a website that anyone can look up? (3) Who determines the market value? (4) Is it something official that gets entered into some type of database?

(5) Do real estate agents have access to special websites that everyone else does not? (6) Or do they use the same tools as everyone else?

Thanks.

1. You wrote 6 questions, not "a quick question". It may help if you number every question separately or by bullet point, then review to remove any redundant items. The more questions you ask, the less likely that you'll receive detailed reply for each item.

2. There are numerous "home value estimators" online, use google to find them. You're already aware of popular sites like Redfin (as mentioned in your first post in this thread), which provides estimated home values for select regions.

3. Estimated home values are calculated by computer based on data, such as recent sale price of similar homes nearby and other factors (desirable location, number of bathrooms, local school district rankings, etc). Each computer system use proprietary algorithms, so the results will differ between Redfin, Zillow, Realtor.com, etc. Keep in mind that these are computer generated estimates only.

4. The true value of a home can be calculated at rent vs buy's break-even point, but what you can sell it for at any time is dependent on what buyers are willing to pay. Market trends are always changing due to demographics, interest rate, economy, government policy, etc. But if 30 people came to your open house on day one, chances are that buyers will bid above market, versus if only 2 people came, chances are buyers will lowball their offers.

5. Real estate agents traditionally access MLS data from their associated franchise (Century 21, RE/MAX, Caldwell, etc.).

[momopi]

@momopi since you know a lot about real estate, I have a question for you about my cousin's situation.

My older cousin has a big real estate problem. I was wondering if you knew any tips or tricks to help solve it. Before her father passed away, he bought an expensive house for her in Taoyuan, Taiwan as an investment. It was expected to go up in price and then she was supposed to sell it and make a profit. However, things did not go as planned. The house dropped in market value. And if she sold it now, she would lose $100,000 USD on the price that was paid initially. But if she keeps it, she has to keep paying over $2000 a month (70,000 NT) on it in mortgage payments. She is having trouble keeping up with this big monthly payment, and now has to sell her other house and car to help pay it. There seems to be no other way. This is a sticky situation it seems. A lot of Chinese, I hear, make money from buying and selling property quickly like this, but sometimes it goes wrong.

So her options now are to:

1) Keep the property and keep making big 2,000 USD monthly mortgage payments on it, and risk the property losing even more value if the market price goes down, while hoping that it goes back up again.
2) Or sell it and lose $100,000 and take the huge loss, which she is reluctant to do.

(3) Do you have any advice for her that I could pass on to her? (4) Do you know any tips or tricks to get out of this? (5) Do you know anyone else in this situation? (6) What can they do about it? (7) Are there any loopholes in the system that can be utilized? (8) What would you do in this kind of situation?

Thanks in advance.

I wonder what her dad was thinking when he bought it. (9) How did he know this wouldn't happen? (10) And why is the mortage payment so huge? Must be an expensive house.

Also, since Taiwan's economy is declining and stagnant and wages haven't even risen for years, this was a bad idea. I don't think it's wise to invest in a country that is declining economically, as well as morally and spiritually. (11) Don't you agree? Even English teachers are leaving Taiwan now because of declining wages, declining economy and unfavorable policies and treatment of them, as well as lack of work opportunities.

1. It's good that you summed up the options to 2 items, but then you crammed 9 questions into paragraphs right after. Questions #3-8 are basically redundant as you're already asking for advice. Avoid using words like "tricks" with financial discussions as it suggests dishonesty.

2. I don't have a crystal ball and cannot accurately predict future real estate price. This is why when I invest I insist on positive cashflow from rent (or at least break-even or better). This doesn't apply to the primary residence (home) since it's not a rental house.

The price of houses cannot go up perpetually. At some point buyers cannot afford to buy and prices will drop. Investors who bought homes for short-term flipping become "knife catchers" when the price drops -- when you catch a sharp knife you bleed.

3. If your cousin is currently residing at the house, she needs to decide if she likes the house enough as her home to make an effort in keeping it. A home is a place where you want to live in, just because the value went up or down $100K you're not going to sell it. If she's having trouble with the loan payment she might consider renting out a bedroom for extra income.

4. If the house is just an investment property and she doesn't care for it, then she can consider liquidating it. In the US, loss from sale of investment property (not primary residence) is tax deductible so you can reduce your losses. I'm unfamiliar with tax codes in Taiwan so she'll need to consult a tax professional. If deductions are only allowed for investment and not primary residence then she needs to make sure the property qualifies as an investment by tax code.

5. If Taiwan's real estate value drops too much, the government has the "nuclear option" to open real estate investment to Mainland Chinese. But this would be a very controversial move. Considering the size difference, it only takes a small % of RE investors from China to make a big splash in Taiwan.