Interviewing a Real Estate Agent
In 2009, in the middle of a horrible real estate market and a terrible economic downturn, my parents put their home of 40 years up for sale. They had said for years that they knew who their real estate agent would be when the time came; in fact, the woman was a family friend whom they even invited to a big birthday bash for Mom as my parents started to think that the time to sell was approaching.
Within days of calling her to say it was time to list the house, however, my parents recognized that they were making a mistake.
My parents quickly arranged to change real estate agents midstream, and gave the listing to someone who was more in sync with the way my parents viewed their home and the real estate market. Thankfully, the story has a happy ending, as a quick sale followed the change in agents, and my parents were pleased by the outcome.
Yet, in the middle of it all, at the most stressful time, there was my father saying, "I've come to realize that if we had talked to a few real estate agents earlier, we might have avoided the drama."
"Don't be so hard on yourself, Dad," I said, putting my tongue firmly in my cheek. "I mean, how could you have known there would have been trouble? It's not like you have a close relative who is an expert at selecting financial advisors of all stripes who had been telling you to meet with real estate agents for years, before you had a need for one. I mean, if you had that kind of guidance, then doing it wrong would be unforgivable, but lacking that kind of resource you will make the same mistakes everyone else does."
Honestly, I am thrilled with the way things turned out for my folks, and I doubt the end result could have turned out better if my parents had gone through the process exactly as espoused here. That's the vagary of the market, to some extent. I am certain, however, that they had a much bigger hassle factorâand that the outcome could have been much worseâbecause they took the common approach to finding a real estate agent, rather than engaging in a proactive search long before the house was due to hit the market.
Smart Investor TipYou should find an excuse to "work" with a real estate agent before you ever need them. The more you learn about them without a pressing need, the more comfortable you will feel with them when the time comes to make a move.
But a home is the single biggest investment most people ever make, and it makes sense to periodically consult with a specialist who can help determine the appropriate steps to take to get the most from that holding. You might think that the $25,000 in renovations you plan to make will come back to you in sales price someday, but an agent familiar with the local market may know better. You might have a particular type of houseâsay a townhomeâwhere there seems to be an upper limit as to what local buyers will pay; if you bought near that upper limit, you may not get the $25,000 in improvements back out of the home because prospective buyers may not be willing to pay that much for a townhome in your neighborhood.
Real estate agents are a valuable member of your financial team, precisely because they can help you determine the monetary impact of your otherwise unsupervised moves affecting the biggest piece of your investment portfolio. Just as many people wouldn't invest $10,000 in their stock portfolio without consulting a broker, it is prudent not to make a big change in your real estate portfolio without consulting an expert.
While most people work with real estate agents when there is an imminent transaction, part of hiring the right one to make a transaction is looking at what happens after the sale.
By only working with a real estate agent during sale periodsâthe way my parents didâyou treat your home entirely as a "use asset," akin to a car, using and repairing it and getting whatever value possible from it when it's time to sell. Unlike a car, however, you probably expect your home to appreciate in value. The preâbaby boom generation and the front edge of the boomers lived through tremendous home-price appreciation. In the late 1980s, however, real estate price growth slowed dramatically and even turned negative in some parts of the country. Prices began appreciating sharply again in the late 1990s, but only in certain popular locations. Then the 2000s brought the bursting of the housing bubble and the mortgage crisis, which sent home prices plummeting in many areas.
If location alone won't make your house appreciate, it puts a premium on managing your property. It's not that every quart of paint trickles down to the bottom line, or that you might not want to spend money for your own comfort, even if you will not be rewarded with a better sales price, but it does make it smart to consult with an expert every now and again.
"You should treat real estate as part of your portfolio and treat it the same way as any other asset, and your market perception is best formed by checking with a realtor, not by sitting at home coming up with your own opinion of what everything is worth," says John Tuccillo of John Tuccillo and Associates in Arlington, Virginia, the former chief economist for the National Association of Realtors. "Given all the ins and outs of the market and financing, you can own more or less of your house every day, depending on leverage. And that's before you get into issues like the value of repairs and additions and more.
"You may not be ready to buy or sell, but it's a good idea to have a real estate agent you can talk to every now and again."
Presumably, that agent will be the one who served you when you bought or sold a home in the community where you live, or the one you are likely to work with years from now when it comes time to move. Had my parents actually had serious discussions with the agent they first worked with during the years they were certain she was "the one," the issues almost certainly would have surfaced long before there was a real problem.
Advice given over time can be a precursor to doing business down the road, which is precisely why agents will take the time now to have informal meetings and to create a comfortable working relationship before the time comes to sign an actual listing contract.