Real estate myths are everywhere, as experienced agents, buyers, sellers and investors across the country can tell you. Most myths appear reasonable, though reasonable is not always the definitive authority for determining if something is true. I’ve plucked the top myths 10 to expose and explain why they simply don’t hold water. Let’s count them down from number 10.
10. If a room has a closet, it’s a bedroom. There are several variations on this myth and they are all based on a single misconception: that any room can be called a bedroom if it has all the features required to meet the local building code for a bedroom (closet, window, door, etc.). Sure, homeowners can use space in their home for any purpose they wish, but that office with a closet is still an office until local authorities issue a permit approving it as a bedroom. Since the number of bedrooms in a home makes a substantial impact on market value and desirability, sellers should accurately disclose the number of permitted bedrooms, then suggest other potential uses for any of the rooms. Cities, counties and other entities that issue permits want to make sure that bedroom meets design and construction requirements, plus they also keep track of the number of bedrooms in their communities because that could be used as an indicator of how much capacity will be required to provide water, sewer and other services in the area.
9. Easements are agreements between property owners that end when one of the owners sells their property. Most easements are permanent and can only be removed by mutual consent of everyone involved. The most common easements – easements in gross (usually relating to utility access and sidewalk placement), easements appurtenant (others using your land or you using theirs) and prescriptive easements (when someone claims a right to use your land because they’ve been doing it for a long time and you haven’t tried to stop them) – are generally permanent and are not removed by change of ownership.
Easements can be temporary for special purposes, such as Temporary Construction Easements (TCE). When a TCE is required to access a parcel of land during construction, owners who allow temporary use of their land have the right to receive reasonable compensation. When construction is complete, the easement is terminated.
When a land owner wants to grant use of their land to another for a long term, but not burden future owners with an easement, they have several other options. The most common approach is to lease the land with termination of the lease tied to a specific date that can be renewed periodically or terminated at change of ownership.
8. Buyers and Sellers must split closing costs according to local custom. Real estate transactions are heavily regulated and local customs and traditions are only options – never mandatory. Despite this, some real estate agents regularly enter “Per County Custom” in the closing cost allocation section in purchase offers. If this agreement is signed by buyer and seller and allowed to go to escrow, the escrow officer determines county custom and the cost split is agreed to more specifically in the buyer’s and seller’s settlement statements. But buyers and sellers do not have to go along with this process. Fee splits are always a point of negotiation, I recommend identifying fee splits using specific percentages or amounts when making or countering an offer.
7. Real estate broker commissions are set by law, regulation or local custom. All commissions and fees charged by brokers are negotiable and are not set by law. Brokers have a right to ask a price for their services, but it is ultimately up to the client to agree to the requested commission or take their business elsewhere. Also, commissions do not have to be a percentage of the sale price. Some brokers charge a flat fee quoted as a specific dollar amount rather than a percentage. Others charge a hybrid, such as X% of the sale price plus a bonus of $X if the final sale price is higher than a specified goal.
6. Sellers must repair all items identified as needing repair in the property inspection report before escrow can close. Sellers are required to disclose all problems with the house, items that need repair included, but they are not required to repair anything unless doing so is required by the purchase agreement. However, most mortgage lenders require that certain repairs be made or they will not give final approval for the loan. For example, if termite damage is noted in a termite inspection report, lenders frequently require treatment and repair of the damage prior issuing final mortgage approval and closing escrow.
5. Lawn and garden tools, hoses or other items present when the buyer conducts their last inspection before escrow closes (“final walk through”) are included in the sale. Sellers are not obligated to leave behind personal property such as pool maintenance supplies, yard tools or anything else not permanently attached to the home unless those items are identified in the purchase agreement. A list of personal property the seller intends to leave behind is typically documented in a written inventory included in the purchase agreement. Otherwise, sellers have until the day escrow closes to remove personal property not included in the sale.
4. All homes listed for sale by agents must be published in the MLS. Agents who are members of the local MLS (Multiple Listing Service) are normally required by MLS rules to publish homes they have been hired to sell as listings in the MLS. However, the seller has the final say and MLS rules often allow the seller to direct their agent not to list their home in the MLS. These listings are sometimes called “pocket listings.” Also, not all real estate agents are members of a local MLS and prefer to advertise their listings using other methods. Always ask your agent how they intend to market your property before signing a listing agreement.
3. Verbal agreements and handshakes are legally binding in real estate sales. One of the most common real estate myths is that verbal agreements pertaining to sale of a home are binding. In most states, real estate sales and leases lasting longer than one year must be documented in writing or they can’t be enforced. Ask your attorney or broker for the rules where you plan to buy, sell or lease.
2. Final mortgage approval is… final. After final mortgage approval has been granted by the lender, there’s nothing regarding the mortgage that can stop the sale, right? Wrong! It’s not common, but mortgages can be disapproved all the way up until the day escrow is set to close. Let’s say final mortgage approval has been given and buyer and seller have signed all their papers. A day or two before escrow is scheduled to close, sometimes the morning of the day escrow is scheduled to close, the escrow officer submits a “request for funds” to the mortgage lender. Before the lender pushes the button to wire the borrowed money to escrow, they obtain an updated credit report and call the borrower’s employer to verify employment. This usually happens either on the scheduled closing day or the day before. What if the buyer/borrower believed the final mortgage approval was… final, and quit their job the morning escrow is supposed to close? What if they made a huge purchase or missed payments on an account that is reflected on their credit report on that day? Inability to verify employment or significant changes to a borrower’s credit status could result in a last-minute denial of the mortgage loan.
1. “Realtor” and REALTOR® are the same thing. Realtor is often used as slang for real estate agent, but agents who call themselves a realtor may not be a REALTOR®. The term REALTOR was created in 1915 to identify members of a national organization of real estate boards and agents that later became the National Association of REALTORS® (NAR). The term REALTOR® became a registered trademark in 1949 and is pronounced REAL-TOR (not real-a-tor). Only NAR members may identify themselves as REALTORS® and are required to display the trademark properly. NAR membership is not required to conduct business as a licensed broker or agent, which leads to confusion when brokers and agents who are not NAR members refer to themselves are realtors. Some NAR members add to the confusion by displaying the REALTOR® trademark incorrectly, such as “realtor,” “Realtor” or even “Realtor®” (the word should be in all capital letters with circle R registration symbol). As recently as 2015, NAR has successfully defended ownership of the term REALTOR, its trademark and its authority to require that it be used to identify only its members.
Final note – it’s possible that some myths described above may be true in very unique circumstances. Always consult with a qualified real estate professional regarding your specific situation or transaction.
Have questions about real estate terms, practices or any other topic relating to buying and selling real estate? Drop me a line!