Understanding for Buyers

You want to buy a home in Metro Detroit, Michigan. You’ve found that perfect high-rise condo in downtown Ann Arbor. Or that amazing Victorian in downtown Northville. Or that completely rehabbed bungalow a short walk to Kellogg Park in the center of Plymouth. Or that home you’ve had your eye on in Novi, Livonia, Birmingham or Farmington Hills. What now? Where does the process begin for a buyer of real estate? Understanding for buyers begins with an understanding of several key concepts one needs to grasp before taking any action, or making any decisions, regarding the purchase of a home.

These key concepts are:

  1. Understanding the different types of real estate agency in Michigan
  2. Understanding representation, and why it’s so crucial to be represented by a Buyer’s Agent
  3. Understanding the various real estate disclosures required by the State of Michigan
  4. Understanding home inspections
  5. Understanding radon

On this page, we’ll cover these five points, in order.

1. Understanding Agency

It is imperative that every buyer fully grasp the legal concept of “agency.” It is equally crucial that every buyer be represented by a “Buyer’s Agent” (you’ll find more on “Understanding Buyer Representation” below).

Those things said, here are the key things to understand about real estate agency in Michigan:

Every Realtor in the State of Michigan is legally required to have every client sign Michigan’s “Disclosure Regarding Real Estate Agency Relationships,” a document that specifies the nature of the agency relationship between the Realtor and their client. Following are the different types of agency relationships that exist within real estate:

Buyer’s Agent

A buyer’s agent, under a buyer’s agency agreement with the buyer, acts solely on behalf of the buyer. A subagent of the buyer is one who has agreed to work with the buyer’s agent and who, like the buyer’s agent, acts solely on behalf of the buyer. Buyer’s agents and their subagents will disclose to the buyer known information about the seller which may be used to benefit the buyer. The duties a buyer’s agent and subagent owe to the buyer include:

  • Promoting the best interest of the buyers
  • Fully disclosing to the buyer all facts that might affect or influence the buyer’s decision to tender an offer to purchase
  • Keeping confidential the buyer’s motivations for buying
  • Presenting all offers on behalf of the buyer
  • Disclosing to the buyer all information about the willingness of the seller to complete the sale or to accept a lower price

Seller’s Agent

A seller’s agent under a listing agreement with the seller acts solely on behalf of the seller. A seller can authorize a seller’s agent to work with subagents, buyer’s agents and/or transaction coordinators. A subagent of the seller is one who has agreed to work with the listing agent, and who, like the listing agent, acts solely on behalf of the seller. Seller’s agents and their subagents will disclose to the seller known information about the buyer which may be used to the benefit of the seller. The duties that a seller’s agent and subagent owe to the seller include:

  • Promoting the best interest of the seller
  • Fully disclosing to the seller all facts that might affect or influence the seller’s decision to accept an offer to purchase
  • Keeping confidential the seller’s motivations for selling
  • Presenting all offers to the seller
  • Disclosing the identities of all buyers and all information about the willingness of those buyers to complete the sale or to offer a higher price

Disclosed Dual Agent

A real estate licensee can be the agent of both the seller and the buyer in a transaction, but only with the knowledge and informed consent, in writing, of both the seller and the buyer. In such a dual agency situation the licensee will not be able to disclose all known information to either the seller or the buyer. As a dual agent, the licensee will not be able to provide the full range of fiduciary duties to the seller or the buyer. The obligations of a dual agent are subject to any specific provisions set forth in any agreement between the dual agent, the seller and the buyer.

Transaction Coordinator

A transaction coordinator is a licensee who is not acting as an agent of either the seller or the buyer, yet is providing services to complete a real estate transaction. The transaction coordinator is not an agent for either party and therefore owes no fiduciary duty to either party. The transactional coordinator is not the advocate of either party and therefore has no obligation to negotiate for either party. The responsibilities of the transaction coordinator typically include:

  • Providing access to and the showing of the property
  • Providing access to market information
  • Providing assistance in the preparation of a buy and sell agreement which reflects the terms of the parties’ agreement
  • Presenting a buy and sell agreement and any subsequent counter-offers
  • Assisting all parties in undertaking all steps necessary to carry out the agreement, such as the execution of documents, the obtaining of financing, the obtaining of inspections, etc

2. Understanding Buyer Representation

Once you learn the basics of agency law, you will more than likely come to the same conclusion that most of our buying clients reach: your preference will be to be represented by a “buyer’s agent.” We completely agree with that conclusion, as this is the alternative that is most logical in such circumstances. The goal of a buyer’s agent is to find the perfect point of connection between the homes available in the market and the needs and financial capacity of you, the buyer.

A buyer’s agent, under a Buyer Agency agreement, acts solely on behalf of the buyer. A subagent of the buyer is one who has agreed to work with the buyer’s agent and who, like the buyer’s agent, acts solely on behalf of the buyer. Buyer’s agents and their subagents will disclose to the buyer known information about the seller which may be used to benefit the buyer. The duties a buyer’s agent and subagent owe to the buyer include those things spelled out in the prior section under “Buyer’s Agent.”

The bottom line: a Buyer’s Agent represents YOU, the purchaser. Here are some of the advantages of this relationship when working with a Professional One Real Estate agent:

  • We’ll respect the price range that you have established (we’ll never show you homes beyond your price range)
  • We’re completely dedicated to you, the buyer
  • We’ll take whatever time it takes to find you the right home
  • We’ll help you get the best terms
  • We’ll utilize a “Buyer’s Contract” to afford you the greatest contractual protection
  • We’ll prepare a “Comparative Market Analysis” (CMA) to show you recent comparable sales and give you the information you need to identify the proper price to pay for the home
  • We’ll help you negotiate the lowest reasonable price
  • We’ll advocate your interests, and only your interests, throughout the entire buying process
  • We’ll make recommendations with respect to quality, competitively priced lenders
  • We’ll make recommendations with respect to inspectors
  • We’ll make recommendations with respect to radon testers
  • We’ll make recommendations with respect to attorneys
  • We obtain and review the closing documents prior to the closing and follow up on any errors or unusual items that we discover
  • We review the closing documents with you
  • We attend the closing with you
  • We follow up with you after the fact to ensure your complete satisfaction
  • We strictly adhere to the National Association of REALTORS® Code of Ethics in all respects

3. Understanding Real Estate Disclosures

The State of Michigan requires every seller of a home to provide the following disclosure statements:

Seller’s Disclosure Statement

As the name implies, the Seller’s Disclosure Statement is intended to disclose information about the condition of the property of which the current owner is aware. Experience shows that the five most common defects in residential properties are as follows:

  • Bad foundation
  • Worn roof
  • Radon
  • Poor water drainage
  • Inadequate systems (electrical, plumbing, heating and cooling, etc.)

Accordingly, particular attention should be paid to these specific topics when reviewing the Seller’s Disclosure Statement.

Other important points relating to this document are as follows:

  • The items disclosed on the Seller’s Disclosure Statement should be carefully analyzed and taken into consideration BEFORE determining what price to offer on a home, not AFTER.
  • An unwritten rule of price negotiation is that if an item is properly disclosed on the Seller’s Disclosure Statement, a seller will almost never allow that item to be used by a purchaser as “leverage” in negotiating a lower sales price AFTER the initial offer has been made.
  • The most common example of this is a purchaser seeking to renegotiate a lower price after the inspection has been performed. As an illustration, assume a buyer has an inspection and the resulting inspection report states something like “roof is significantly worn and will need to be replaced within five years.”
  • Assuming this condition was properly disclosed by the seller on the Seller’s Disclosure Statement, the purchaser will be fighting an uphill battle in attempting to renegotiate a lower price. The seller’s very reasonable position will almost always be: “I properly disclosed that before you made your offer. You should have taken this factor into consideration when you determined the initial price you were willing to offer.”
  • Sellers complete this disclosure with varying degrees of honesty and candor. We always advise our sellers to complete this disclosure as honestly and as completely as possible, as you never want a prospective purchaser to have doubts about the homeowner’s integrity.
  • However, we know from experience that not all people think this way. Which is why we place limited reliance on this disclosure.
  • It is only a guide – we never assume it is all-inclusive. This is precisely why we insist that you have both a complete “contractor’s inspection” AND a radon test. THESE are the actions that you will take to protect yourself.

Lead Based Paint Disclosure Statement

The Lead Based Paint Disclosure Statement is intended to inform a prospective buyer about the potential existence of lead based paint in a home. Specifically, the homeowner is required to disclose whether they are (1) aware of lead based paint in the home, and (2) in possession of any records or reports relating to any lead based paint testing that has been performed. This disclosure is only applicable to homes built prior to 1978. Experience has shown that in our particular market very few homeowners actually test for the presence of lead based paint, and accordingly this disclosure typically yields no information of benefit to a prospective purchaser.

Read the EPA-prepared Protect Your Family from Lead in your Home for more information about the hazards associated with lead based paint.”

4. Understanding Home Inspections

No thinking, rational purchaser can make a fully informed decision on whether or not to move forward with a purchase without first having a home inspection. The primary purposes of an inspection are as follows:

  • To discover issues affecting safety and habitability
  • To discover items not already properly disclosed by a seller on their Seller’s Disclosure Statement
  • To help a purchaser determine if they want to consummate the contemplated purchase
  • If the volume and or nature of the inspection findings are sufficiently negative, whether the buyer should request a price adjustment from the seller

Those things said, the purpose of an inspection is not for the seller to repair every item found during an inspection, particularly those things already properly disclosed by the seller on their Seller’s Disclosure Statement.

And while an estimated 70 percent of all homes sold annually involve a home inspection, a surprising amount of confusion remains over what the process does, and doesn’t, involve. Here are seven common misconceptions about home inspections:

  1. Licensing ensures a professional home inspection. Not necessarily. Currently, 29 states have some form of inspector regulation – but state requirements vary widely. Verifying the inspector’s credentials, experience, and adherence to professional standards is still important, even in a state with licensing.
  2. A home inspection is designed to identify problems that might be the basis for renegotiating the purchase offer. That is not its main purpose. The inspector’s service is primarily one of education, providing buyers with a better understanding of the physical condition of the home and giving them the knowledge to make smart decisions. The inspector’s observations or recommendations might help to dispel buyer anxieties and provide useful home repair and maintenance suggestions. When areas of concern or problems are identified, the inspector should play no role in fixing them or addressing them with the seller.
  3. Home inspections are needed for existing homes only. Unfortunately, no. New construction is often the most in need of a thorough inspection. Many professionals offer “phase inspections” in which the property can be checked at various stages of completion.
  4. Having an appraisal, code inspection, and termite or other hazard inspection eliminates the need for a separate home inspection. Usually not.. While each of these inspections is valuable, these should never be used in place of a complete home inspection. Similarly, a home inspection should never take the place of other prescribed inspections. To suggest otherwise is dangerous for your client and creates serious risk for you.
  5. Home inspections are for the buyer. It’s true, most inspections are conducted on buyers’ behalf during the purchase process, but pre listing inspections for sellers also can be beneficial. Pre listing inspections can identify areas of concern to be addressed before the sale and can assist in disclosure matters. The American Society of Home Inspectors recommends that a home be inspected every 10 years, regardless of whether a sale is taking place.
  6. Home inspectors are too nitpicky and will identify every little problem in the home. A professional home inspection is an objective examination of the condition of the visible and accessible components of a home on the day of the inspection. Professional home inspectors don’t point out every small problem or defect in a home. Minor or cosmetic flaws, for example, should be apparent without the aid of a professional.
  7. All home inspector certification and credentialing programs are equal. Some organizations for inspectors offer credentials in return for nothing more than an annual payment, while others are new or exist mainly online. Some require 250 inspections before a member can advertise their membership. When selecting a home inspector, look at the background, history, and reputation of the person’s certifying organization as well as the experience of the inspector.

5. Understanding Radon

Similar to having a home inspection, we feel it is absolutely imperative that every purchaser have a radon test performed on any home they intend to purchase.

Without going into too much detail or getting too scientific, radon is a colorless, odorless gas that has been linked to lung cancer. It has also been know to affect peoples’ perceptions about homes, so even if you don’t think radon is an issue, be aware that the next purchaser of a home you may be thinking about buying may care greatly about radon even if you don’t.

Here are links to key research materials you may review if you’d like to be more educated on this topic:

The bottom line: every purchaser should have a radon test. The good news: if a radon problem is found, it is not expensive to fix (usually no more than $1,000), and sellers almost always agree to pay for this (because they know they’ll have to fix the problem one way or another, even if you decide not to buy the home).

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