Be a Smart Home Buyer
At best, buying a home can be a complicated process. At worst, it can be an emotional and financial nightmare! Preparation and proper representation are key.
Points to Ponder
Consider the following before you start your home search. Smart home buyers make some of these decisions before the stress and fatigue of house hunting set in.
- How much can you comfortably afford and still have enough money to keep the lights on, fund your retirement, and put your kids through college?
- Is the figure above based on one income or two?
- What will happen if either you or your spouse loses your job?
- Is the home you want available in your price range?
- How much more will you have to spend to get everything you want?
- What are the right compromises to make?
- Have you received and reviewed a CMA?
- Is the home priced too high? Too low?
- Has the home increased or decreased in value over the past several years?
- What are the trends in the neighborhood?
- Is this home in line with those trends?
- If it is priced higher than the market, why?
- If it is priced lower than the market, why?
- How many times has the house changed hands?
- What is the TAV? Too high?
- Have you received and reviewed all the relevant disclosures relating to the property?
- Is there a foundation problem?
- Has the home ever had a foundation repair?
- Is there a transferable warranty?
- How will a foundation repair affect the future value of the home?
- How is the quality of the construction?
- Is it a solid home built to last or is it a pig wearing lipstick?
- Is the floor plan livable?
- Can many different types of families live there?
- Is there a lot of wasted space?
- Is it energy efficient?
- If the home needs updating, can you buy it cheaply enough to justify the expense?
- Is the size and shape of the lot sufficient not only for your purposes but for future buyers?
- What repairs has the seller made?
- If the home needs a new roof, for example, does the homeowner have the cash or equity in the home to make the repair before closing if the insurance company rejects the claim?
- Should you use a bank or a broker?
- Is your lender giving you good advice?
- Is your lender telling you the truth?
- What is the best loan for you?
- How do loans compare in upfront cost? Long-term cost? Closing costs?
- Can your lender deliver what they promise?
- Will your lender deliver or bait and switch at the last minute?
- What do you do if your lender fails to perform?
- What do you do if you don’t qualify?
- How do you get your earnest money back if you don’t qualify?
- What about your option fee?
- What lender docs do you need to review in advance?
- Do you need an appraisal?
- What if the house doesn’t appraise?
- When do you get the keys?
- When does the seller move out?
- What if the seller leaves the house in bad condition?
- What if the seller refuses to leave?
- How do you take care of the house?
- Do you need to file for exemptions?
- Is the home you like in an area where home values are appreciating or depreciating?
- Are there good schools in the area?
- How is crime in the area?
- Are the homes in the area owner occupied or tenant occupied?
- How does the house fit into the neighborhood?
- Is it over-improved?
- Is it a smaller home surrounded by larger homes or vice versa?
- Can the neighborhood support any improvements you make to the property?
- Would lots of people like to live in that neighborhood or did you fall in love with a nice house in an undesirable neighborhood?
- Why is the home being sold?
- When does the seller need to move and is there any flexibility in that date?
- Is the seller under financial distress?
- Is the home in pre-foreclosure? A short sale? Bank owned?
- Are there any obvious repairs that need to be negotiated in advance of the inspection?
- How much do you like this home?
- How many other homes have you seen that suit your needs?
- How soon do you need to move?
- Do you have a lock that is going to expire?
- Does the current homeowner have an FHA mortgage to pay off?
- Is their loan assumable with qualifying?
- How much is the seller’s payoff?
- How much equity does the seller have in the home?
- Who is paying closing costs? Which ones?
- What repairs may your lender require?
- What repairs may your insurance company require?
- Is the house insurable?
- When should you ask the seller to make the repair?
- When should you ask for a repair allowance?
- What if the seller refuses to make repairs?
- How do you know if the seller completed the agreed-upon repairs?
- Were the repairs completed by a qualified professional?
- Are the repairs completed to your satisfaction?
- What does the CLUE report show?
- Which title company should be used?
- Do you need a title policy and who pays for it?
- Do you need a lawyer to review your loan docs?
- Do you need a lawyer to attend the closing?
- What if your loan isn’t ready on time?
- What if the sale of your current house (if you own one) falls through?
- Is the closing statement accurate? Are you being overcharged? Undercharged?
- Is there a survey you can use or do you need a new one?
- What if the current survey is rejected by the title company?
- What if there are liens against the property?
- What if title contingencies can’t be cleared?
Mistakes Buyers Make
Consider the following before you start your home search. It’s better to make some of these decisions before the stress and fatigue of house hunting set in.
Mistrusting Your Agent
It’s dumb to insult your agent by accusing them of trying to sell you a higher priced home or of taking a kickback from a mortgage company, title company, or inspector. RESPA prohibits kickbacks and a decent career agent isn’t going to risk their license for a couple of hundred dollars or a Starbucks gift card. If you aren’t sure that you can trust your agent to work on your behalf, don’t hire them in the first place. It’s fair to question their competence..but don’t question their integrity.
Applying for Credit
Don’t apply for any credit between the time you’ve applied for your loan and CLOSING. Don’t buy a car, or furniture, or get a new credit card. Assuming more debt changes your debt-to-income ratio and can hurt your credit rating, causing your loan to be denied.
Don’t compromise on important things. Don’t buy a 3 bedroom home if you plan to have 5 kids. You’ll inevitably be forced to make some tough choices, but don’t compromise on the important things like size, floor plan, and location.
Don’t put much – if any – faith in online valuations. Even Zillow concedes that their online valuations can be highly inaccurate. The only accurate source of pricing information is from the Multiple Listing Service (MLS).
Falling in Love
Don’t buy with your heart and not your head. Don’t fall in love with anything until the house checks out. The house has to be priced properly so that it will appraise. It must be insurable, pass inspection, and must have good resale potential. The house that looks the prettiest might have an unlivable floor plan. Be reasonable and methodical in your search.
Not Reading Paperwork
Don’t fail to read your loan documents and your purchase contract. Ask questions if you don’t understand the terms. It’s ultimately your responsibility to ensure you know and understand the terms of your loan. New lender regulations have made everything transparent, but you MUST read your paperwork.
Not Having Vision
Don’t lack vision! Wallpaper can be removed. Walls can be painted. Light fixtures can be replaced. Don’t discount a really good home simply because it needs a few cosmetic improvements.
Here are a few of our most frequently asked questions.
What is a seller's market?
A seller’s market occurs when there are more buyers than sellers. Inventory is low and buyers must compete for the best homes. Homes sell quickly with multiple offers at or above full price. A seller’s market is a great time to be a seller!
What is a buyer's market?
A buyer’s market occurs when there are more sellers than buyers. There is a nice selection of good homes, and sellers will offer discounts and incentives to move their property. It’s great to be a buyer in a buyer’s market.
When is the right time to buy a house?
It’s impossible to time the market and it’s silly to try. The best time to buy is when:
1) You have money for your down payment and closing costs
2) You have good credit
3) You have steady employment and
4) when you know you can stay in the home for at least 5 years
Give us a call if you’re unsure. We’ll help you figure out your best course of action.
How do I win against a competing offer?
Sellers are going to choose the most qualified buyer who offers them the most money, the fewest complications and the least amount of risk. Down payment matters. The buyer’s lender matters. Contingencies, option fees, and closing/possession matter. Prepared buyers have a much higher chance of winning a house.
How much does exclusive buyer’s representation cost?
It’s free. Real estate commissions are historically a seller’s expense. Sellers hire a listing agent and agree to a commission long before the house is on the market. If they agree to pay 6% in commissions, for example, the seller’s agent shares the 6% with the buyer’s agent. If the buyer doesn’t have an agent, the listing agent keeps the full 6%. That makes for a very happy listing agent, but an unrepresented and at-risk buyer.
What if I discover a problem with the house?
We write our buyer’s offers with several “out clauses” to protect you in case there is an unresolvable issue with the house, financing, or title. You’ll have time to get the house inspected, shop for homeowner’s insurance, and to finalize your financing before you risk more than a few hundred dollars.
Where can I find more information about the home buying process?
The National Association of Exclusive Buyer’s Agents has guides, podcasts, and videos for buyers. You can check them out at NAEBA.org.