Avoiding home buying errors

Shopping for a new home can be an emotional experience. It’s also time-consuming and comes with a myriad of details. Some buyers, however, caught up in the excitement of buying a new home can overlook some items. Their home purchase turns into an expensive process. These errors generally fall into three areas:

• Paying too much
• Buying the wrong home 
• Losing a dream home to another buyer

When you have a Realtor you trust and systematic plan before you shop, you’ll be sure to avoid these costly errors. Here are some tips on making the most of your home purchase:

Bidding without sufficient information
What price do you offer a seller? Is the seller’s asking price too high? Is it a deal? Without research on the market and comparable homes, you could spend thousands more than other homes that have sold in the same area. Your own research is important, as is the assistance of a Realtor®.  A professional Realtor® can offer an unbiased opinion on the value of a home, based on many factors and a great deal of information. Without knowledge of the market, your offer could be too much. Or worse, you could miss out on a great buying opportunity.  Hire the right person and trust that person to represent your interests.

Buying a mis-matched home
What do you need and want in a home? Sounds simple. Yet, clearly identifying your needs and bringing an objective view to home shopping, leaves you in a better position. Sometimes, home buyers buy a home that is too large or too small. Perhaps they didn’t consider the drive to work, the distance to school, or the many repair jobs waiting for completion. Plan ahead. Use your needs list as a guideline for every home you view.

Unclear title
Before you sign any document, be sure the property you are considering is free of all encumbrances. As part of their services, a realtor can supply you with a copy of the title to ensure there are no liens, debts, undisclosed owners, leases, or easements and restrictive covenants which would affect building a garage or other upgrading plans you have for the property.

Outdated real property report
Before the purchase is completed, an updated survey is essential. This report will indicate boundaries and structural changes (additions to the house, a new swimming pool, neighbor’s new fence which is extending a boundary line, etc.). A survey is the home seller's obligation to provide.

Unexpected repairs
For $300 - $500 a professional inspector will conduct a thorough inspection of the home. This way, you’ll have an idea of the cost of future repairs. Your Realtor will make the final contract subject to a favorable report.

Shopping without pre-approval
It only takes a few hours to a few days to get financing pre-approval. When you are shopping for a home, this gives you more power. A seller is more likely to consider an offer from a serious buyer.

Remember additional closing costs
Besides the funds for the purchase of a home, you’ll need funds for items such as loan fees, home insurance, legal fees, inspections, title insurance, etc.

Rushing the closing
Before you sign, ensure that all documentation clearly reflects your understanding and conditions of the transaction. Has anything been forgotten? Don’t rush. You could lose money, financing, or even the sale.

Buying Your First Home

With mortgage rates as low as they are, many renters are thinking about purchasing a home of their own. Several factors should be considered when purchasing a home.

How long you plan to live in the home?
If you purchase a home and get a job transfer or decide to move after only a short time, the value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home. The length of time that it will take to cover those costs depends on various economic factors in the area of the home. Most parts of the country have an average of 5% appreciation per year. In this case, you should plan to stay in your home about 3 years to cover buying and selling costs. If the area you buy your home in experiences an economic up-turn, the length of the time to cover these costs will be shorter, and the opposite is also true. Your Realtor can guide you to choosing communities with good resale value if a job transfer is in your future.

How long the home will meet your needs
What features do you require in a home and community to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, does the community have the amenities that you need and will the home be large enough if your family grows? Could the basement be turned into a den and extra bedrooms? Having an idea of what you need now and in the future will help you find a home that will satisfy you for years.

Your financial health - your credit and home affordability
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a loan, but you might have to pay a higher interest rate and fees.

Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a pay-ment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching finan-cially? Make sure that whatever you do, it's within your comfort zone.

To determine how much home you can afford, talk to a lender, ask me for a referral to a mortgage specialist or go to my mortgage calculator. Good calculators will give you a range of what you may qualify for. Lenders today are making loans customized to a particular person's situation. Your monthly housing costs can't exceed 32 percent of your income and your total debt load together with your housing costs can't exceed 40 percent of your total monthly income. It’s important for you to know your options.

Where the money for the transaction will come from
Typically homebuyers will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved is not always necessary - if you can prove that you are a good financial risk to a lender. Moreover, you could also look at homes/condos with assumable mortgages. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good finan-cial risk to a lender. If you have excellent credit, you may qualify for zero-down. However, interest rates are higher.

The ongoing costs of home ownership
Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or a home in one of the newer communities, a monthly homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to inform your realtor your desire to limit these costs.

If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.

Evaluating Real Estate

How much is it worth? Looking for value-markers in both the purchase and sale of a property is part of market analysis.

The value of a house (or condo, co-op, townhouse) fluctuates often, based on many situations, such as ever-changing market conditions, the condition of the home, the costs associated with owning it, and more.

For that reason, it's difficult to answer the question, "How much is it worth?" There is one certainty, however. The answer to true value does not lie in how much the seller wants for his or her home (though that is what the seller and the listing broker want you to believe). In fact, the listing price of a home sometimes has nothing to do with its market value but reflects what the seller wants for their home.

Figuring out how much a home is actually worth is a tricky process. You'll have to do your homework, pull out your calculator, and spend some time learning to recognize certain "value markers." Once you've figured out what a property is worth relative to others that are similar in the area, you can begin to compare various homes. Where a home is located (within a city, within a neighborhood, on a particular street, within a single building) is crucial to determining its value. When you begin to compare homes, it's important to factor location into your house valuation formula. First, think about where the house is located in relation to the entire neighborhood. Are shops and various services within walking distance? Is the house close to major forms of transportation and to the schools your children will be attending? Is it too close to any of these amenities?

Many families want to be within a few blocks of the local public school, but they prefer not to have their backyards adjacent to the school playground.

Next, think about where the house is located on its block. Is it on a corner, or on the interior row? Is it next to a high-rise building or a three- or six-flat building? Are there many homes just like it on the block? Does the block have a nice residential feel or is it mixed residential/commercial? If you're considering a townhouse, start by asking yourself about the townhouse's location in relation to shopping and service retailers, such as a dry cleaner. If the townhouse is located within a subdivision, compare its location with the premium location within that subdivision.

For example, is it better to be located on the perimeter, or is an interior location better? Are end units more prized, or are middle units preferred? Are you close to the entrance of the subdivision, or do you have to drive several blocks to get there? Do you have to walk far to the garbage drop-off or mail pick-up spot? The location questions for a townhouse apply for condominiums and coops as well. If your condo or co-op is located in a high-rise building you also need to consider where the unit is located in the building. If one side of the building has a fabulous view and another faces a windowless brick wall, you can bet that units with the full view will be more prized than units with a peek-around or no view. Which is more important to you, the lower cost or the better view? If there are two views – say, a water view vs. an urban view, an east view (sunrise) vs. a west view (sunset), or a high-floor vs. a low-floor perspective – remember that a unit with the best view in a building will generally appreciate faster than a unit with only a so-so view, even if the so-so has more amenities.

How to get THE home at THE price

Whether you are buying your first home or your fifth, the process of buying a home can be an emotional, time-consuming venture.  Feeling that, in the end, you made the right decision and got a good deal can make all the difference.

As with most major decisions, the amount of work and research you undertake before you start shopping can have a dramatic effect on how well you do in the end.

#1  Do you really need that backyard tennis court?
Everyone can picture their ideal home.  If you haven’t thoroughly prepared yourself prior to viewing houses, chances are that you will find what you think is your ideal home, and will wind up paying too much for it.

It is essential to treat the buying process in a slightly detached manner.  Those who fall in love with houses usually pay too much.

That’s why it’s recommended that you develop a list of needs and one of wants.  When looking at houses, make sure that they cover all of your needs – things like adequate space, a good neighborhood, perhaps a garage – and then have fun with items on your wants list.  Treating the process in a regimented manner will help you to make a rational, informed decision.

#2 Get pre-approved
Visit your lending institution prior to shopping.  Be sure to get a mortgage commitment in writing. Being pre-approved gives you a solid price range, and lets your Realtor® and potential sellers know that you are serious and not just a browser.

#3 Get the right people behind you
Buying a home is a complicated process, with many people involved.  Having the right people on your side can make a big difference.  An experienced, dedicated, and knowledgeable Realtor® can put a team of advocates, including lenders, lawyers, home inspectors and movers, on your side immediately.

#4 Communicate
The more you share with your Realtor®, the better he or she will be able to represent you.  Letting your representative know exactly what you’re looking for, in terms of needs/wants, price range, and location, can eliminate unnecessary trips to unsuitable homes and that focus can help ensure that you wind up in the right home.

#5 Location, location, location
It’s still true.  The desirability and resale value of your home depend on location more than any other factor. People want a desirable community that includes character, quality of schools, access to work, major transportation arteries, recreational facilities, etc.

On your viewing trips, take a careful look and ask the following questions: How does this home compare to others in the neighborhood? Are yards fenced? Are there many children playing in the streets? Are the front and back yards and the exteriors of the homes properly maintained?  The less expensive houses in a better area tend to appreciate faster than the most expensive houses in a less desirable area.

Additional factors that affect the property value of a home include traffic, sounds, smells, zoning bylaws, and many others. Be objective. Be sure you are completely satisfied with the neighborhood. If you choose a neighborhood with problems, you likely won’t get as much as you hoped with it comes time to sell.

#6 Use your Realtor’s® knowledge
Your Realtor® is trained in all aspects of real estate, including understanding supply and demand, economics, and the neighborhoods of the city in which they practice. A professional Realtor® can do much of the work for you, by reviewing your needs, reviewing available properties, and making an informed match. A comprehensive knowledge of the available homes in your neighborhood is one of your Realtor’s® strongest assets. With the aid of computerized systems, a Realtor® is notified within hours when a home becomes available.

#7 Pay attention to red flags
When evaluating a home, be sure you know the difference between acceptable and unacceptable problems. Cosmetic items like peeling paint, worn carpeting, or unattractive wallpaper can be easily remedied, and can be used as negotiation items, as there will be costs involved in updating the home.

Major problems, however, are clearly red flags.  Look for items such as major foundation cracks, water damage, outdated electrical systems, and inadequate plumbing. These items could be too expensive to remedy to make the home a worthwhile investment.

#8 Hire a home inspector
A home inspection is an inexpensive way to gain peace of mind, and guard your pocket book. A proper inspection will cover all areas of the house including foundation, electrical, heating, plumbing, floors, walls, ceilings, attic, roof, siding and trim, porches, patios, decks, garage and drainage. A professional inspector can give you an objective view of the property, with a written report, indicating the present condition and items that will need repair.

#9 Be cautious with fixer-uppers
Sometimes, a fixer-upper can be purchased below market value, and once sufficient repairs are made, can be sold at a significant profit. However, not all fixer-uppers will bring in the profits you might expect. 

Consumers often overestimate their level of dedication to doing extensive renovation work, and underestimate the costs associated with such work.  A wall that needs to be replaced can often lead to the discovery of faulty plumbing, electrical, or other major undertakings.  Your Realtor® and home inspector are your best allies when it comes to cost-benefit analyses.

#10 Consider your future needs
A move can be a major undertaking.  Take a good look at your current lifestyle and consider the future. Will you need extra space for a home office, a child, or perhaps a child moving back home? Perhaps it may be easier and less expensive if you purchase a home that can meet these needs now, rather than moving up to a larger home a few years down the road.

#11 Proceed quickly
When you’re ready to buy, act.  Good properties sell.  This is especially true given the current state of most real estate markets. However, when you work with a Realtor®, you have access to the latest technology. As part of the MLS and Agent Handshake networks, a Realtor® has access to properties within hours of when they are listed.

Technology works to your advantage. Many Realtors® now have personalized websites which allow you to sign on as a client, and receive notification of new listings via email. You save time and effort, and you can view only those homes that come closest to meeting your needs.

#12 Clarify relationships
In any real estate transaction, be very clear about who is working for whom, and what the relationship represents. Unless otherwise stated, an agent represents the seller in transactions for the sale of a home. This agent, as part of his or her fiduciary duty, must ensure that the seller’s (and not your) position is represented throughout the entire process.  Get a buyer’s agent on your side, or ensure that someone is acting in your best interests.

#13 Ask for a written CMA
A Comparative Market Analysis (CMA) is an analysis of comparable homes in a given neighborhood. It shows you the sale prices of comparable homes in the neighborhood, along with asking prices of other homes in the area currently on the market. A Realtor® can request this report for any home and neighborhood.  Ask for this report in writing. With this valuable document, you’ll have solid, reliable information about how fairly a home is priced compared to its real market value.

#14 Know the seller
Understanding a seller’s reasons for moving could work to your advantage during negotiations.  For instance, a seller who has been transferred to another city may be more motivated to sell than someone who is still shopping for a new home.  A vacant house, or a house that has been on the market for several months and has been reduced in price, could also provide the opportunity for lucrative negotiations.

#15 Keep it impersonal
Conversely, information could be used to your detriment. Information about your mortgage, size of down payment, move-in deadline, or circumstances for buying could be used to the seller’s benefit in negotiations. While you want your Realtor® to know these details, maintain your poker face and keep your cards hidden with the sellers and their agents.

#16 Measure twice, sign once
While you definitely want to move quickly once you’ve made the decision to purchase, you don’t want to cave in to pressure for a quick close. Someone who is trying to pressure you into buying a home is likely doing so for a reason. Make sure the reasons for you to buy a home are your reasons, not theirs.

#17 Exercise your negotiating skills
Even if you prefer not to haggle, it’s worth it, especially when it’s your home and one of your biggest investments. Most people expect to haggle over the price. There is always room for negotiation, and your Realtor® should be a professional negotiator.

#18 Avoid bidding wars
In some cases, the seller’s Realtor® may use scare tactics to rush the sale or increase the price. Falling for this trap could cost you money. If there is another buyer, or some other reason this pressure is being applied, whoever wins also loses because they tend to overpay. Let reason be your guide, not passion.

#19 Get it in writing
Legally, sellers must disclose all known material defects of a property. Ask for this in writing. Also be sure to consider the ramifications of these defects. Will they be costly down the road? Are they “serious” defects?

#20 Be aware of hidden costs
While Realtors® often tempt first-time buyers with rent/mortgage comparisons, there is more to a home than simply the mortgage. You will be responsible for other items including mortgage insurance, appraisal fees, legal fees, inspection fees, transfer taxes, title insurance, inspections, property tax, increased bills, etc. Your Realtor® can give you a good idea of the costs associated with buying a home that are beyond its final negotiated price.

Six-step Smooth Home Purchase

The home buying process is an emotional, complex and time-consuming process, but it is worth it. Nothing compares to owning your own home in a neighborhood that you chose.