Avoiding home buying errors  (Back to top of page)

• Paying too much
• Buying the wrong home

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. Before an offer is presented to the seller, your Realtor should offer to do a comparative market analysis on the value of the home based on market conditions, condition of the home, and the neighborhood and its amenities. Without knowledge of the market, your offer could be too high.

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Outdated real property report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.

The Right Buying Price  (Back to top of page)

Whether you are buying your first home, or your fifth, the process of buying a home is a detailed, time-consuming venture. At the same time, it can be an emotional period laden with difficult choices. You want to ensure that the home you purchase meets your family’s needs now and in the future, and you will want to ensure that you don’t pay too much. This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process. With this information, you’ll be closer to finding your ideal home.

#1 Before you shop, develop a needs vs. wants list
Everyone has a picture of an ideal home. This would include all the features you not only need, but have long de-sired. However, when it comes time to buying a home, the desires cost more. While it’s nice to think about having a beautifully landscaped backyard, or a solarium, perhaps even some built-in appliances, these are usually considered luxury items, which can add considerably to the price of your home.

That’s why it’s a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage and number of bedrooms. For most people, basic needs should be considered first. After that, you could consider additional desires if you can manage these benefits financially. With such a list in your hands, you’re less likely to be caught up in the excitement of the pursuit. You’ll have a good idea of what you want, within you price range, and if you can afford those additional items.

#2 Get pre-approved prior to shopping
Visit your financial or lending institution prior to home buying. Quickly, you’ll know the amount of mortgage you’ll receive. Be sure to get a mortgage commitment in writing. Most importantly, you’ll tell sellers that you are a serious prospect. Depending upon market conditions, a seller may lean towards an unconditional offer. You’ll have less negotiating power if you have to wait for mortgage approval. Banks and financial institutions have developed many pro-grams especially for home buyers. When you review your needs and objectives with a lending officer, you’ll be one step closer to purchasing your home.

#3 Choose your winning team
Buying a home is a complicated process with many people involved. From choosing the right mortgage, to finding a home inspector, to viewing available properties, there are many steps involved for even the hardiest person. With a professional realtor on your side, you’ll have access to these services, already in place, and highly recommended. A good agent has the knowledge and experience developed from many years of helping both buyers and sellers. During this time they have developed a network of people, from lenders, lawyers, home inspectors and movers, to assist both home buyers and sellers.

#4 Communicate clearly with your Realtor
Spending time with your Realtor will reap huge dividends. When you have a clear picture of the type of home you’re looking for, your Realtor can come closer to finding the home you want. You won’t waste time looking at homes that don’t match your needs.

#5 It’s still true – location, location, location
You’ve heard it so many times, that it’s probably starting to sound like a broken record. That’s because it’s true! A home is not a stand alone item. Rather the value of a home is greatly affected by the surrounding homes. Don’t let your emotions determine your purchase. Think resale. The desirability and resale value of your home depends largely 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 front and backyards and the exterior of the homes properly maintained?

Walk around the neighborhood and get a feel for the area. You may want to speak with a few neighbors to get their comments. If you like the community, carefully examine the home you like. Generally speaking, extremely large homes surrounded by smaller homes tend to appreciate less than a large home among other large homes. Alterna-tively, the smallest home in the neighborhood tends to stand out by the other homes on the block. Sometimes, it could take a bit longer to sell a smaller home, as some people are reluctant to pay extra for the neighborhood.

Additional factors that affect the property value of a home include traffic, sounds, smells, zoning bylaws. Be objective. Don’t rely too heavily on your emotions. 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 Realtors’ knowledge of the community
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. As they regularly view homes as they are placed on the market, they are at the heartbeat of knowledge and information about housing trends and prices. They can save you time and money, by narrowing your prospects to only those that meet your requirements. It is a very time consuming process to view every home available that meets your needs. A professional Realtor can do much of the work for you, by re-viewing your needs, reviewing the properties and then hopefully, advising you of a potential 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 Check your emotions, and shop with your head
When people purchase a home on emotion, without an objective view of the property, problems may develop later. Shopping for a home is an emotional process. It could be costly. Using your head, along with asking for an objective opinion (from your Realtor) could help you avoid costly errors.

#8 Pay attention to “red flags”
When evaluating a home, be sure you know the difference between acceptable and unacceptable problems. Cos-metic items like peeling paint, worn carpeting, unattractive wallpaper can be easily remedied. You could use these as negotiating 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 cost you dearly in the future.

#9 Hiring a home inspector is a wise investment
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.

#10 Be cautious with fixer uppers
Some people may be inclined towards purchasing a home that needs some work. This could be a challenge and an opportunity to make money. Sometimes, a fixer-upper can be purchased below market value, and sufficient repairs made to bring it to a good sale condition with a profit realized. However not all fixer uppers will bring in the profits you might expect. It depends upon the price of the home, the amount of repairs needed and the market conditions at the time of sale. If the home is not priced low enough, you may not recover your investment of time, trouble and money. Before you purchase what looks like a quick way to profit, carefully consider the condition of the home and ALL the repairs that need to be made. Get several estimates. Complete a comprehensive budget. Also consult with your Realtor. He or she can give you an idea of what you can reasonably, expect to recover when the home is put back on the market.

#11 Consider your future needs
Take a look at your lifestyle now and in 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 later.

#12 Proceed quickly
When you’re ready to buy, move fairly quickly because good properties usually sell fast. This is especially true when there is a shortage of homes available. However, when you work with a Realtor, you have access to the most current technology. As part of the MLS network, a Realtor has access to properties within hours of when they are listed. When a Realtor knows your needs, they will notify you when properties that meet your criteria become available. Many Realtors now have personalized web sites which allow you to sign on a client, and receive notification of these listings via email. You save time and effort, and you can view only those homes that come closest to your needs.

#13 Clarify relationships
In any real estate transaction, be very clear about who is working for whom, and what the relationship represents. Many people believe that the agent they are working with automatically represents them and their interests. Yet, without specific disclosures this is not always true.

#14 Ask for a Comparative Market Analysis (CMA)
A CMA is an analysis of comparable homes in the neighborhood. It shows you the sale prices of comparable homes, along with asking prices of other homes in the area currently on the market. A Realtor can provide this information to you so that you will have the appropriate data for either a too-high asking price, or one that is a bargain.

#15 Investigate the seller’s situation
Knowing about the 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 rather than someone who is still shop-ping for a new home. A vacant house, a house that has been on the market for several months and reduced in price, could also be indications of a motivated seller.

#16 Keep personal information to yourself
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 negotiating factors. While you want your Realtor to know these details, don’t reveal any of this information to the seller.

#17 During negotiations, keep your emotions intact
In certain situations, emotion could cost you money. If you let the seller know how interested you are in the property, this might be seen as a financial opportunity. Recognizing that you are highly motivated, you could an easier target for a higher price. If you absolutely love the home, keep it to yourself. This is a definite advantage of working with a professional Realtor. Trained to be non-emotional, he or she can ensure you get the best price.

#18 Ensure the deal is right before you sign
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 doing so for a reason. This could involve money, or a multitude of other reasons.

#19 Exercise your negotiating skills
Even if you prefer not to haggle, it’s worth it, especially when it’s your home and your future. Most people expect to haggle over the price. That’s often why the price is set a big higher than the actual selling price. There is always room for negotiation.

#20 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 overpay.

#21 Insist on a written disclosure of all known defects
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 it be costly down the road? Are they “serious” defects?

#22 Be aware of your hidden costs
There is more to a home than simply the mortgage. You will be responsible for other items including mortgage insur-ance, appraisal fees, legal fees, inspection fees, transfer taxes, title insurance, inspections, etc. Your Realtor can give you a good idea of the costs associated with buying a home that are beyond the final negotiated price of your home.

Evaluating Real Estate  (Back to top of page)

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.

Six-step Smooth Home Purchase  (Back to top of page)

1. Check your credit.
Before you apply for a home loan, regardless of your credit, it's a smart idea to obtain a copy of your credit report from the three major credit bureaus and review the information. If there are errors or things that need to be addressed, it's easier to address them before you have found a house, than after you have found a house and are trying to close your loan.

If you know that there are a few blemishes on your credit, let your lender know what they are, why they are there, and why you are a still good credit risk. Lenders look at your credit to determine how likely you will pay back the loan. If you had extenuating circumstances - like a loss of a job or medical bills - let them know so that they understand that it is not likely to happen again in the future.

2. Get approved before you buy.
An approval means that a lender has reviewed your credit history, verified your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home appraises for at least the purchase price, the loan should close.

Getting approved also gives you an advantage over other buyers. Your commitment letter from the bank makes it easier for you to negotiate on the price of a home, than a person who is not pre-qualified.

While getting pre-qualified may sound official, it is really just getting an idea of what you can afford. Its having a person plug in a few numbers that you give them - your monthly income and your monthly debt - and getting an ap-proximate payment calculated. From the payment, the calculator can approximate the house price range that you can afford. No information is verified. Because your assets, income or credit is not verified, a pre-qualification has little value when purchasing a home.

3. Find a great buyer's agent.
When you are not working with a buyer's agent, real estate agents who represent the sellers in a transaction are less likely to negotiate the best price or contingencies for you. Moreover, you have no idea if the seller's house is one of the many real estate listings on the market that is over-priced.

A buyer's agent's job and fiduciary responsibility (meaning legal duty) is to you, the buyer. Before working with an agent, establish if they are a buyer's agent or a seller's agent. After spending a lot of time with a Realtor, it's natural to feel like you're a team. But if they are not negotiating for you, then they are not on your team.

4. Learn about the neighborhood.
Often times the house you find may be in a neighborhood that you're not familiar with, which is ok. It just means that you'll have to do a little more research. If you find a house that you like, ask for a list of the neighborhood properties that sold in the last year. How does your home rank? Is it at the top of the price range? If so, it might be hard to resell. Is it average or on the low end? If so, great - as the other home prices go up in value, they will pull your home's value up as well. Check out the schools - are they sought after? A good school district means your neighborhood will always be valued by families which is a great reassurance to purchase, not to mention the value-add if you have school-age children. Obtain crime statistics and demographics. Are they acceptable to you? Talk to the neighbors. The more people you talk to, the better sense you will get of who makes up the neighborhood and how they will effect your time spent in it. Check out the location of the shopping, police and fire stations, schools, and air traffic overhead. These are all things that might affect your property value or quality of your life.

5. Protect Yourself.
Ask your Realtor for a copy of the documents you will be asked to sign if you decide to buy the house. Read them ahead of time so that you'll understand the questions that you will be asked, the things you need to know, and the decisions you will need to make.

6.) Have reasonable expectations.
There is a lot of money at stake. No house is perfect. Understanding and remembering these two statements will help diffuse the negotiation stage, the inspection stage and the closing stage. Emotions are high for both buyers and sellers - The seller may have loving memories and years of sweat equity in the house. Maybe they are being relocated and don't want to go. Understanding their motivations for selling will help you appreciate their situation and predicament during these emotional times.

There is a lot of money at stake for all the parties involved (and that includes the realtors) - Just remember that market value (the value of a home) is the price that a willing buyer and a willing seller can agree to. If you can not agree on a price, ask yourself:

• Is there something you missed?
• Are there comparables that support the price that they want?
• Are there motivations that might factor into the price they are demanding?
• In the end, does it matter?
• What is the house worth to you today and what do you think you can reasonably sell it for based on the amount of time you plan to spend in it?

Think about the answers to those questions before you make your move. No house is perfect - Always get an inspection. It might be a few hundred dollars, but it's worth it. It's the inspector's job to find any problems with the house that could cost you thousands to repair down the road. Some inspectors have a tendency to over play the importance of their role and the items that they find. Get objective opinions that you trust before making a decision on an inspection report. Likewise, if an inspector says a foundation is cracked but its nothing to worry about - get a second opinion. Ask a handyman for an idea of how much repairs will cost and how compli-cated they are.

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.

Buying Your First Home  (Back to top of page)

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 payment 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 financially? 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. 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.