Financial matters and discussing money is often a sensitive topic for many consumers.
This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says telling someone how much you earn, or for that matter, how much you owe to your creditors, is something that most would like to keep private and close to their chest.
He says most find it uncomfortable to divulge financial information and would prefer to keep as much as possible a matter of privacy. However, when it comes to buying a property or requesting a home loan, there is a certain amount of information that a potential buyer will need to discuss with their real estate agent and their lender.
Goslett says if potential buyers are at all concerned about providing details of their finances to their real estate agent or the bank, they can rest assured that their privacy is protected by their client and agent relationship.
He says the real estate agent will not expect the buyer to fully disclose all their financial information in detail, however, it is important for the agent to understand the buyer’s financial situation in order to provide guidance and advice with regard to affordability and what the bank will be willing to give them as a bond.
“Agents will want to discuss the buyer’s finances in general, as well as details regarding getting pre-approval from their preferred lender.”
They will also need to have a discussion regarding what the buyer can realistically afford, bearing in mind that is not just the bond repayment amount that the buyer will need to budget for, he says.
“It is important for buyers to remember that there may be a difference between what the pre-approval letter states as a purchase price and what they may be able to pay comfortably on a monthly basis.”
Goslett says real estate agents should give the buyer some guidance regarding transfer fees, attorney costs, deposit requirements and how the interest rate can affect their monthly bond repayments.
Knowing how much a buyer has to work with as far as a deposit or paying their own property transaction costs is important for an agent, he says. Many first-time buyers and even experienced buyers are unaware as to how much the transfer costs will be.
He says even financial institutions can, from time to time, fail to inform their clients as to the full amount of cash needed upfront. If the costs are higher than expected, he says it can lead to a bad situation at the closing table.
This situation can be avoided if the agent makes the buyer aware, upfront, as to how much will be needed and knows how much the buyer has available, he says. It helps to ensure that there are no surprises at the end and makes for a happier buyer.
A bank or bond origination company will be able to calculate the buyer’s maximum purchasing power and their monthly payments based on their loan application, financial documentation and debt-to-income ratio. Buyers should be prepared to supply the lender with recent pay slips, bank statements and investment account statements.
According to Goslett, once the buyer and the agent have established a total monthly repayment that the buyer is fully comfortable with, they will be able to determine a purchase price that works for the buyer. This will assist the agent in narrowing down the property search and will save time as the agent will only show the buyer properties that they can realistically afford.
“Once the financial discussions have been covered, the agent can focus on finding a perfect home for the buyer, and will assist in keeping the transaction on track and assisting in navigating the real estate paperwork.”
An agent’s strength lies in their understanding of the market, home values and neighbourhood features, he says.