Let me preface this by saying I love my realtor. Last time we moved, she showed me like 35 houses in 2 days, dealt with all of my crazy, and provided all kinds of friendship during a tough time in our lives. I would recommend her to anybody in the area. Love you, Debbie! *hugs*
With that said, I would never take financial advice from her.
Now, this has absolutely nothing to do with Debbie, per se. Debbie is a great person, she is super hard-working, and she definitely knows the market. I freakin’ love that about her, and that’s why I hire her. But, when it comes to my finances, that’s where our conversations end.
You see, it’s not that I don’t trust realtors. It’s just that my interests as a buyer and her interests as a realtor may not be the same. In fact, they might be competing. That’s why I believe it’s extremely important for every buyer to do their own homework, become financially literate, and not rely on advice from salespeople to guide their financial decisions.
So, when we published a piece about why 30-year mortgages are a trap, you can imagine how my head nearly exploded when I read this comment on Facebook:
Comment: My realtor said the worst thing you can do is get a 15-year mortgage. She said get a 30, pay like it’s 15, and it will be paid off in less than 8.
Yeah. I almost lost my shit… and not just because the math is wrong. (Paying like it’s a 15 gets you done in about 14 years and 11 months. Even by doubling the payment, you’re still only done in about 10.5 years.) Luckily, I sit behind a computer screen all day, so I could temper my response. I won’t bore you with all the details, but I can’t let the entire moment go to waste, either!
With peak home-buying season right around the corner, let this serve as a reminder that financial advice from realtors should be taken with an entire bag of salt. Here’s why:
#1) Realtors Have a Conflict of Interest
Most realtors try to do a bang-up job because they want happy customers that will (hopefully) provide referrals. Without them, they’d be out of business. Unfortunately, when it comes to providing financial advice for buying a home, realtors have a HUGE conflict of interest. Since they are salespeople, they are paid a commission based on a percentage of the total sale. So, the more you spend, the more money they make. They have an incentive to encourage you to pay more. Of course realtors love 30-year mortgages because they lower your payment, enabling you to spend more on your future home. That means a bigger paycheck for them, regardless whether it’s a good deal for you or not.
#2) They Don’t Know Your Financial Situation
No matter how great they are at selling real estate, a realtor does not know your complete financial situation. They don’t know what your bills look like. They don’t know what kind of debt you have. They don’t really know how much house you can truly afford… nor is it up to them to decide. All of this is on you. Don’t put your financial decisions in somebody else’s hands simply because they are the “professional.” Often, their goals are different from yours and could actually be competing against what’s ultimately best for you. (See #1.) The bottom line: Take control of the situation and know what you’re doing.
#3) You Have to Deal with the Consequences
If you overspend on your house, sorry ’boutcha. That’s totally your problem and your mess to clean up. What does a realtor (or mortgage broker) care if you struggle to meet your payments? They don’t. If your new payment means you don’t have the money to take a vacation… or save for college… or retire early, it doesn’t affect them one bit. They cashed their commission check long ago. If you end up house poor because you spent wayyyyyyyyyyyy too much, don’t count on your realtor to help you pick up the pieces.
#4) Realtors Are Trained to Sell
While some realtors do have a little training in personal finance, what they are really trained to do is sell houses. They are not there to help you make the best financial decision. Their job is to make the sale, and many of them are quite good at it. Keep that in mind the next time your realtor starts talking about financing options. It’s not their expertise, it’s not their money, and it’s not their decision. The decision rests with you, so treat their advice like they’re trying to sell you something… because they are.
#5) Most People Are Bad With Money
Just because somebody is a professional doesn’t mean they are financially savvy. Doctors, lawyers, and even accountants make poor financial decisions all the time. Advanced degrees and fancy diplomas only give someone the opportunity to make more money. It doesn’t mean they’re good at managing their money, and it doesn’t mean they have a clue how much house you can afford.
Buying a house is serious business. Your decision will impact your financial life for years to come. Use your realtor as a sounding board, and ask them for advice on advice on houses, neighborhoods, and other factors that might impact your home purchase. When it comes to financial advice, however, you should consult a professional or go with your gut.
It’s your life, it’s your money, and it’s ultimately your debt. Make sure you have all the information you need to make the best decision for your future. The aftermath is yours to deal with – yours and yours alone.
What do you think? Do you listen to financial advice from your realtor? Why or why not?