5 Reasons You Should Never Take Financial Advice From Your Realtor
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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.
Your realtor should help you find houses that check items off your house hunting checklist, not provide financial advice. Use 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?
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Terrific post Holly! Great writing and easy to understand…
Housing and transportation are the two biggies when it comes to making good/bad financial decisions. Well, and other debt.
Keep up the educating!
Well, I do remember one bit of advice I took that worked out nicely. We made an offer on the house we wanted. The sellers countered with their ‘final offer’. I was ready to accept and my realtor advised that we do one more counter even lower. They took it. So listening to my realtor in that case saved me five grand. 🙂
That’s great! That is the kind of financial advice I can actually get behind!
Solid points. My realtor is not the first person I think of for financial advice, though honestly he really does seem to have his financial house in order. But I also wouldn’t ask my bank teller for real estate advice. Different fields.
The commission isn’t changed a whole lot by fairly large swings in price (a $10,000 difference in price only results in a $250 change in the realtor fee, and the realtor himself is only getting a portion of that, too). I tend to think changes in home price aren’t tempting enough to truly alter a realtor’s advice, but it’s hard to say for certain.
6% of $10,000 is $600. Buyer’s agent gets half, and seller’s agent gets the other half. But then they have to split that with their broker, so it’s less than that.
Really, that’s not the point. The point is, your realtor doesn’t know what you can afford – or what you feel comfortable with. They often give whatever advice will help them get a sale, whether that’s spending 10K more to get the exact house you want or something else.
To both points, pushing a 30 instead of a 15-year loan substantially increases the amount you can borrow. So, if it’s a difference of moving you up $10 grand, there isn’t much incentive. (Which is also why some may push you to accept less when you’re selling…) But, if it’s a difference of $50K or $100K, that’s a big change in the commission.
Thanks for sharing this. Many people don’t realize that a realtor isn’t supposed to help with the financial part of buying a home. Like you said in reasons 1 and 2 realtors have a conflict of interest because they’re benefit is greater if your spend is greater and they don’t know your financial situation.
Realtors are not finance advisors. It is not that they don’t care about you, it is just that they are also misinformed about money personal finances. If someone doesn’t know that they are preaching is wrong, they will keep preaching the wrong info.
Hi I am a Realtor in Michigan. Let me start off by saying each state is different in how they allow Realtors to operate. Some states like Arizona are like the Wild, Wild West, where a lot of the things they do would get you fined in Michigan.
I can’t speak for what other Realtors are saying to clients. I can say that I don’t advise my clients on their personal finances. Their personal finances are for a conversation with the mortgage company. I consistently refer them to speak to a reputable accountant, financial planner, estate planner, etc. I am only licensed to practice real estate, not be a lawyer, accountant, loan officer, etc. If the issue is out of the scope of real estate they are referred.
I do take exception to the statement “They are not there to help you make the best financial decision.” I work off of what my client has instructed me to search within. The client has to be truthful. I ask every potential customer, “you were approved for x amount, what amount are you looking to actually finance to get to a monthly payment you are comfortable with?” I remind them that their kids will be going to college in a year and did they consider that in their budget and other factors that could affect them down the road.
I very rarely tell my clients my opinion and sell it as the answer. I try to present data that they can easily understand to help them make the decision that is best for them. For instance, I always get asked, what do I think their home is worth and I always answer back, “it doesn’t matter what I think, it’s not my house.” I then show them 10-20 comparable homes in the area that sold in the last 6 months and let them decide what the home is worth. If it is a price I feel I can market and sell within their time constraints, I’ll take the listing. If the price is unreasonable and totally unrealistic for the market, I won’t take the listing.
I do make recommendations on offers, but it usually how to structure an offer in the case of buying and what is being offered and the financial impact of the offer in the case of selling. for example, I always inform my clients that if they get in a bidding war, go over asking price and the appraisal of the home does not match their agreed upon price, they could have to make up the difference in cash. We usually place a contingency in the contract that the buyer can get out of the deal if the house does not appraise at the agreed upon price.
Most people just have to be open and honest to their Realtor. If they don’t feel the Realtor is acting in their best interest, which is one of our fiduciary duties, they should contact the Realtors management and look to either replace the Realtor or mutually withdraw from the contract.
As a Realtor, I agree 100% to this sentiment. We provide data and information and it’s up to the client to decide what’s best for them. The way this article spoke of Realtor’s is as if we only care about the money instead of our clients, generalizing the job. If you don’t think your Realtor has your best interest at heart, get another Realtor. As Realtor’s it is our fiduciary duty to be transparent and look out for our clients.
Nope because they’re all about their commissions.
Most real estate agents are only after the commission. Some convince you to sell at a low price and some delay selling the home and you end up losing potential home buyers.
You don’t say who to use for this advice, though.