5 Top Blunders of Internet Home Buying
How to avoid the common pitfalls of online real estate searching
By Matthew Bandyk
Posted January 7, 2009

While the painful real estate swoon appears likely to extend well into 2009—at least—the number of Americans using the Internet to find the home of their dreams is poised to keep on climbing. According to the 2008 National Association of Realtors Profile of Home Buyers and Sellers, 87 percent of home buyers used the Internet to search for homes in the past year. That's up steadily from 84 percent in 2007, 80 percent in 2006. But despite its mounting popularity, the Internet home-buying process can present a host of pitfalls. To help make your online real estate searching more effective, here's a look at the top five Internet home-buying blunders and what you can do to avoid them.


1) Assuming you can do it all yourself. The Internet allows users to handle for themselves many of the tasks that could once only be performed by real estate agents. The NAR profile, for example, found that the number of home buyers who first learned of their homes on the Internet has been rising in recent years—to 32 percent in 2008, up from a tiny 2 percent in 1997. Accordingly, the number of home buyers who first learned of their homes through agents has been declining—it was at 34 percent in 2008, down from 50 percent in 1997.

But although the Internet can provide heaps of helpful tips and research, it would be a mistake to assume that the Web is all you need to buy a house—unless you are an experienced real estate investor. The process of purchasing real estate can be extremely complicated from a legal standpoint, and it's easy to make a mistake if you don't have an expert advising you. And when it comes to something as expensive as real estate, those mistakes could cost you thousands of dollars. "Doing all the paperwork yourself is a huge mistake," says Joshua Dorkin, CEO of BiggerPockets.com, a real estate networking and information site. "There are so many things you can miss on a contract."

[See 5 Reasons to Hire a Pro to Sell Your House]

2) Looking too narrowly. The sheer amount of information about the real estate market online can be overwhelming. As a result, buyers can be tempted to stick to just one or two popular real estate search engines, like Realtor.com, for their research. The problem with doing that, however, is that you're missing out on the biggest advantages that the Internet offers.

First, you're closing yourself off to a smaller cross section of the homes that are out there. "A lot of the sites aren't comprehensive and don't have all of the new listings," says Pat Kitano, a cofounder of Domus Consulting Group, which works with real estate brokerage firms on technology marketing strategies. Don't assume that because a house is on one real estate website that it is on them all, says Greg Healy, vice president of operations at ForSaleByOwner.com. "It's still very fragmented," he says. Healy recommends using several websites to get a more complete picture.

Second, you miss all the breaking, up-to-the-minute information on the housing market that can make you a smarter consumer. Blogs have become a popular resource for real estate agents and others to post information as it happens. "If consumers are interested in a local area, they should find local real estate bloggers who know this breaking information," says Kitano.

[See Six Secrets of Internet Home Buying]

3. Ignoring the indies. One area that major real estate search engines often overlook is the market for homes sold by the owners. "A lot of people forget to think how many homes are sold without agents. The current estimate is that 20 to 25 percent of homes are" listed by owner, says Healy.

Your dream house could easily fall into that 20 to 25 percent. So how do you bring homes sold independently into your online searches? "Craigslist is one of the best resources," says Dorkin.

4. Falling for fake listings. Remember, the Internet is a giant playground for scammers, and unfortunately they have penetrated the world of online home buying as well. Combine big dollars for online advertising and a lot of people searching for homes, and the result is a proliferation of fake home listings. There are a number of red flags to look out for. "If there are no photos [of the house], that's a big warning sign. That's just people trying to collect page views," says Healy. But even if there are photos, it's not guaranteed to be legitimate. Legitimate websites will put watermarks on their home photos to brand those photos as their own. If a home's photos have several different watermarks on it, then you can guess you are looking at the work of a scammer.

5. Putting too much stock in home valuation websites. Sites like Zillow.com and Cyberhomes.com have changed the way people buy homes by putting pricing information at buyers' fingertips. But they're not infallible. Don't assume to know what the value of a home should be based on what these sites tell you about the neighborhood. There are many elements of a home's value that home valuation sites cannot incorporate. "Take their values with a grain of salt," says Dorkin. He recommends using this information merely as a range. Do other research to narrow that range. For example, walkscore.com can tell you the number of amenities within walking distance of a location—those are some of the tangibles that can raise or lower the value of a home.

Minnesota's BEST

Minnesota BEST Our quiet little "Land of 10,000 Lakes" is being recognized in several studies as a great place to live! Of course, the residents here already knew that, but a little recognition for it never hurt! Forbes has named the Top 10 Cities for earning a living and MINNEAPOLIS, MN is #2! Houston tops the list and with its oil and commodities industry it's not hard to see why. What's shocking is Minneapolis coming in at #2, or is it? Forbes took information about the location of headquarters for 400 best big companies and 200 best small companies. They also compared each metro's median income with the cost of living. While you would think cities like New York, Los Angeles, and even Chicago would top the list, consider the companies headquartered in Minneapolis. We have Target, Cargill, Pepsi Americas, Travelers Insurance, Best Buy, 3M and United Health Group. In fact, Minnesota is host to 19 Fortune 500 companies and eight Fortune 500's on the Global list. Money Magazine named Plymouth, MN as the # 1 Most Livable Town in the U.S. "This year Money's number one Best Place to Live reflects robust Midwestern values in a small city that is 30 minutes from a vibrant metropolis, with a low cost of living, rising incomes, and job growth," said Money managing editor, Eric Schurenberg. "It's simply a great place to raise a family, join a community, and build a rich life." Minnesota ranks in the top 7 for "Greenest" states, 3rd for Wind Energy Production, and the Twin Cities were ranked the 5th Cleanest in the WORLD in 2007 by FORBES. Why would you want to live anywhere else? Use these great Minnesota facts in your next client presentation, especially for those clients from out of state! For more on this and other stories please visit: http://www.forbes.com/home/2008/08/18/cities-10-living-forbeslife-cx_mw_0818realestate.html http://money.cnn.com/magazines/moneymag/bplive/2008/snapshots/PL2751730.html http://www.metromsp.org/sidebar/why_nationalrankings.htm

I received an e-mail from a client earlier today asking if they will get a lower rate in response to the Fed “lowering” rates today. I thought it would be beneficial for you to know what the actual answer is to this seemingly simple question. Before I do that I would also like to speak about the current status of the market and how it effects either you, or your clients directly, so that you are able to make better decisions and/or give better advice.

With that being said, bonds enjoyed enormous gains yesterday on the heels of the almost unprecedented weekend action by the Fed, cutting the Discount Rate and facilitating the Bear Stearns bailout. This morning, stocks are soaring higher on positive earnings results and the highly anticipated Fed announcement, which has caused Bonds to give back some of yesterday's gains.

The big news for today is the Fed's Interest Rate Decision and Policy Statement which will be released at 2:15pm ET. The financial markets are now widely expecting a cut of .75 to 1.0%, with some even saying it could be as much as 1.25%. History shows us that in the wake of a Fed cut, Bond pricing may initially pop a bit higher in response, but generally very quickly reverses direction and worsens.

I recommend floating for now, but remain ready to take action if today's news and events require a change in direction.

So, now to address the question “will my rate go down” and the answer, which is Fed Rate Cuts Do Not Equal Lower Mortgage Rates, and why.

The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent five Fed rate cuts. This is difficult to explain to consumers who have watched a 2.25% reduction by the Fed with very little benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.

It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.
The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%.

Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so. Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.

Now let’s take a look at what happened with the Fed’s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a “knee-jerk” reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions.

Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. So far this year, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days.

Eight days later and as widely expected, the Fed cut rates by 50bp. Within 13 days from that 50bp cut, mortgage bonds lost 269bp.

So, as you can see, the media (ABC, CBS, NBC, etc) does a very poor job of actually educating the general public, and a very good job of both misinforming and “uninforming” them of what actually is happening.

Thus the reason for sending this to you.
Hope it helps!!
Have a great day!!
David M. McLeod

12 South 6th Street
1250 Historic Plymouth Building
Minneapolis, MN 55402

Click here to hear a radio show that discuss the benefits of using a Buyer Broker / Exclusive Buyers Agent.

http://www.blogtalkradio.com/feeds/RealEstate-Synergy

Investigation of Realtors

This Report from Consumer Reporter Susan Wornick aired 31-March-1997
When looking for a new home .. Realtors act as your guide .. showing you possibilities .. in some cases even helping you get a mortgage.

They're usually very accommodating .. even solicitous .. but despite their friendliness .. they're not working for you .. and they're suppose to tell you that. Consumer Reporter Susan Wornick joins us now with a new report showing many don't.

The Real Estate agent's commission is based on the sale .. so it behooves him or her to get the highest possible price. According to state law .. Realtors are suppose to disclose it up front But in an undercover investigation, the Executive Office of Consumer Affairs discovered .. it isn't happening.

MICHAEL DUFFY, SEC. EX. OFFICE OF CONSUMER AFFAIRS
"IN NONE OF THE TESTS THAT WE DID WASANY DISCLOSURE GIVEN AS REQUIRED BY LAW."

Undercover state investigators visited 45 real estate offices in the greater Boston area and at the Cape.. They found that NONE of them revealed they were working for the seller. Even the investigators were surprised.

ELLEN CASSIDY / INVESTIGATOR

"I WENT TO A PHONE BOOTH AND CALLED THE OFFICEAND I SAID AM I DOING SOMETHING WRONG HEREAND SHE STARTED LAUGHING AND SHE SAID NO ..YOU'RE DOING THE RIGHT THING .. THEY'RE NOT DOING THE RIGHT THING."

A Realtor's commission is based on the selling price of the property .. the more money you spend .. the more money they make. State law mandates that Realtors tell you and have you sign a disclosure form to avoid a conflict of interest.

DUFFY

"IT'S KIND OF LIKE A MIRANDA WARNING ..THAT ANYTHING YOU SAY CAN AND WILL BE USED AGAINST YOU."

But the industry claims the law is unclear .. and they doubt the survey.

ROBERT NASH, EX. V.P. MASS. ASSOC. OF REALTORS
"WE'RE GOING TO HAVE TO KNOW EXACTLY WHAT QUESTIONSTHE INVESTIGATORS ASKED OF EACH OF THE AGENTS ..WE'RE GOING TO HAVE TO FIND OUT IF THE SPIRITOF THE REGULATIONS WERE VIOLATED ORIF THEY WERE ACTUAL VIOLATIONS OF INTENT TO NON-DISCLOSE."

But even Nash admits .. the study is a necessary educational tool in the process of buying and selling a house.

"IT POINTS OUT THE NEED FOR ADDITIONAL EDUCATIONIN THE FIELD NOT ONLY BY ASSOCIATIONS .. BY AGENTSTHEMSELVES .. BY PRINCIPALS .. BUT ALSO BY I THINKOUR REGULATORY AGENCIES OF THE STATE GOVERNMENT."

The state is giving the offending Realtors the benefit of the doubt .. accepting their defense that they didn't realize they were violating the law .. But a recurrence will mean fines .. even license revocations. Another thing you should know .. you CAN get an agent to represent YOU in a real estate deal .. So-called Buyers' Brokers are becoming increasingly popular .. and are listed in the yellow pages in the Real Estate section.

Buyer Beware Copyright (©) 1997 WCVB TV All Rights Reserved.

The Star Tribune recently ran an interesting article from the Washington Post (Some agents failing to make key disclosures) on a lawsuit in Washington where real estate agents failed to disclose whom they represent in transactions.

Agents frequently represent the property seller exclusively. But under "buyer agent" arrangements, they may represent the purchaser exclusively. It is the responsibility of the agent to tell a buyer immediately who they represent. Unfortunately that often does not happen.

At Buyers Real Estate Group our goal is to let people know that they have an option. Real estate agents can most effectively represent the buyer or the seller not both. Buyer agents exclusively represent the buyer – as buyer agents we always have the buyer’s needs in mind.

The advice in the article and our advice is always ask and make sure that the real estate agent you meet represents you before you disclose information on what you want or are prepared to spend.

Some Agents Failing to Make Key Disclosures - Before signing a contract for real estate agent representation, make sure you know which side the agent actually represents.

The Nation's Housing Kenneth Harney, Washington Post Writers GroupLast update: March 18, 2006 – 11:32 AM

A pending suit in suburban Washington is focusing fresh light on a growing problem: real estate agents failing to disclose whom they represent in transactions -- even where state laws require it in writing at their first substantive client meeting.

Research by the National Association of Realtors shows that just 30 percent of all buyers last year received disclosures about representation from their agents at their first meeting. Nearly half of all first-time buyers either received no disclosures anytime during the sales transaction or were unaware of whether they did or did not.

To the association's top lawyer, general counsel Laurie Janik, this is very bad news. "I was so extremely disappointed" at the latest low disclosure percentages, she said. "Our eye is not on the ball anymore.

"Most states require agents to inform potential sellers or buyers in writing about who will be representing whom.

Agents frequently represent the property seller exclusively. But under "buyer agent" arrangements, they may represent the purchaser exclusively.

In Minnesota, an agency disclosure statement -- explaining the five types of representation -- must be shown to potential buyers or sellers at their first substantive meeting with a real estate agent.

The consumer is supposed to sign an acknowledgment of seeing it.

Clarity about representation is crucial because sellers and buyers often divulge confidential information to agents about their finances, personal lives or bargaining strategies that can dramatically affect pricing and negotiations.

If a buyer mistakenly confides key information to an agent representing the seller, that agent is highly likely to pass it along for the advantage of the seller.

When agents don't provide the written disclosures required by most states, clients might be misled into paying too much, forgoing contractual protections such as contingency clauses, and generally end up dissatisfied with the outcome of the transaction.

Some buyers or sellers end up angry enough to sue. That's what Joel Stern of Silver Spring, Md., did after dealing with two agents affiliated with Weichert Realtors, one of the nation's largest independent brokerages.

Though the specific factual allegations are complicated, the bottom line is this: Stern believed he was induced to sign a contract on a house with an excessive price because the agent he thought represented him as a buyer's agent was in fact functioning as an agent for the seller.

The agent did not disclose her representation until the contract signing, according to the suit. Maryland law requires written disclosure much earlier. Meanwhile, the agent's partner allegedly convinced Stern to list his current home for sale with Weichert through her.

The first agent also persuaded Stern not to include a contingency clause that would have required his home to be sold before the new purchase could close.

The agents "defrauded [Stern] into overpaying" on the new house "because they assured him he could quickly sell his house," according to the complaint. Working together, the agents "were intent on making the highest commission" off Stern's purchase and in profiting further from the listing of his current home.

Stern had put a $34,000 deposit on the home he sought to buy. He backed out of the contract when he learned that his agent represented the seller, not him as he assumed, and suspected that he had agreed to an excessive price.

A county circuit court ruled recently that Stern's agent's failure to disclose her representation was not sufficient to cancel the purchase contract outright. Stern is appealing that decision and seeking $300,000 in punitive damages and the return of his $34,000 if the contract is deemed valid.

Lawyers representing the agents and Weichert declined to discuss the case, citing a company policy of never commenting on ongoing litigation. Stern's lawyer, Francis Koh, said the court's ruling essentially means that agents "can violate the law and not be held responsible.

Mr. Stern believed [his agent] to be representing him. If he had known that she was working for the seller, he would not have gone ahead" with the transaction, Koh said. What's the significance for you? Putting aside the allegations in the Stern case, the statistical reality is that agents nationwide are neglecting to provide the up-front disclosures regarding representation that their own trade association says they should.

Under the circumstances, you as a buyer or seller must be alert. Demand a formal disclosure of representation before beginning any substantive discussions with an agent. Do not assume that you are working with a buyer's agent whose sole loyalty is to you. "If it's not in writing, it doesn't exist. "

Distributed by the Washington Post Writers Group. Kenneth Harney is a nationally syndicated real estate columnist. He can be reached at the Washington Post Writers Group, 1150 15th St. NW., Washington, DC 20071-9200 or by e-mail at kenharney@earthlink.net.