Work with a REALTOR
Many home buyers don’t realize that working with a REALTOR (as a Buye)r is essentially ‘free” to them. Unless the home is “For Sale By Owner” (FSBO), it’s almost guaranteed that the home seller will have already pre-agreed to pay a commission to any Buyer’s Agent. This confuses some buyers, because they think if they don’t use a REALTOR, they can get the house for cheaper, or if they use the Listing Agent as their own REALTOR, that might also save them some money. Neither of these are usually true, because, when the homeowner signed the original “listing contract” to put the home for sale, a commission was designated for the Listing Agent AND the Buyer’s Agent. If you show up to a house without your own REALTOR, many states allow (if not literally require) the Listing Agent to automatically assume the role of your Buyer’s agent too. Therefore, since a commission agreement is already in the contract for two REALTORS, if it happens that, in the end, there is only one REALTOR, he or she will earn both shares (in the business, this is called double-ending). With that in mind, it doesn’t serve you fairly to use the Listing Agent as your Buyer’s agent, since that agent’s relationship with the seller is probably deeper and stronger than with you. Just like if you got sued in court and the plaintiff had a Lawyer but you didn’t, I doubt you’d agree to let the plaintiff’s attorney represent you at the same time they’re representing the plaintiff. Conflicting interests are obvious in my courtroom example, but in many states, it’s legal in Real Estate. When you use your own REALTOR, he or she will get to know your specific needs and wants, will negotiate purely on your behalf, and will not be torn with a conflict of interest by representing two opposing sides of one transaction.
Get your Loan Pre-qualification Early
It’s debatable on whether or not this should be your first or second step in the process. If you already know a good mortgage lender, it might be wise to get your loan qualification first. If you learn that you have credit issues that require time to repair, you’ll know early enough to prevent them from causing problems later. Also, if a down payment is required, you’ll know early on how much to save up. If you need to do some saving or credit repair, it doesn’t make sense to start home-shopping until these issues are worked out. Probably the only reason not to get your loan qualification first is in the event that you don’t know a good mortgage lender and you intend to rely on your REALTOR for a referral. In either case, get your loan prequalification early, figure out how much you’ll need to put down, and what your monthly payment estimate will be based on your estimated home purchase price. Once you know your numbers, stick to them. Don’t get qualified for a three hundred thousand dollar loan and shop for four hundred thousand dollar homes. It’s ok to shop out of your range a little bit, but if you know you can only afford a Chevy, you’ve got no business on the Mercedes lot… right?
Define your “Wants” vs “Needs”
Depending on your family, you’ll have varying needs compared to your wants. To put this into an understandable example, I want to own a waterfront mansion… but I can’t afford it. I also need at least three bedrooms due to the size of my family. Some people want a home with a work shed, others want a home with a boat dock on riverfront property, while others may just want one extra bedroom for use as a home-office or guest room. Depending on your ability to afford what you want, you may get stuck just buying what you need. Almost every buyer I’ve ever worked with has made at least one compromise between their needs and wants. Likewise, if you have a spouse or mate, your list may not be the same as the other’s. If you want a home with a huge family room, sometimes called a “great room”, but can’t find the perfect one, perhaps you’ll settle for something different. Buying a home is just as much about compromise as it is trying to find your “perfect” dream home. So, before you even start shopping for homes to buy, know that you’ll probably make at least one compromise between your needs and wants.
Communicate clearly with your REALTOR what you’re looking for. Describe your dream home in great detail. Give your REALTOR your full list of needs and wants. Then start looking at the available inventory. Depending on your market conditions, things might change. If you live in an area with a fast-moving seller’s market, there may not be a lot of homes to choose from… and they may sell faster than you can get to them. If you live in a slow-moving buyer’s market, you might have tons of homes to choose from, making it easy to get overwhelmed. In either case, once you start looking, it’s almost certain that your ideas on which home you want will change, sometimes significantly. Go to Open Houses on the weekends if you have the time and interest… but if you do, please do not get “caught up in the moment” and forget about your REALTOR… the person who has been listening, looking, helping, searching, working…. just for you, sometimes for months. If you find your dream home at an Open House, call your REALTOR immediately and have him or her write the offer for you.
Take Notes During Viewings
This often gets overlooked, but I can’t emphasize enough how helpful this simple little idea can be. When you’re out there looking at homes, even if it’s just one… TAKE NOTES. Get yourself a little notebook to use only for this purpose. I encourage this, because, without a doubt, after you’ve looked at a dozen or more homes, they all start to blur together. It becomes difficult to remember what you liked or disliked about each specific property. So take copious notes, including the things you liked and disliked. Trust me, this will help tremendously at the end of a long day of home shopping when you’re trying to remember which home had the “whatever” you liked or disliked.
Write an Appropriate Offer
When you finally find the home you want, make sure your offer is appropriate. Don’t make the mistake of low-balling the seller too much. While it’s often assumed every buyer’s first offer will be on the low side, by low-balling the seller too deeply, you run the risk of offending him or her and just getting yourself wiped off the negotiation table completely. Remember the saying, “A House is where you make your Home”, and the Seller has made that house his or her home, most probably, for years. Maybe they’ve raised their kids there. Maybe they were the first owner and, like myself, was the first person to ever live on the street. People get attached to their homes, especially once they’ve made memories there. Before you write your offer, have your REALTOR check the “comps” to determine the “fair market value” and write an appropriate first offer. Yes, there is always room to negotiate, but if you come across as greedy (which I’ve seen happen hundreds of times), you may unintentionally upset the owner so much that they refuse to accept any offer you write, even if you do come up on your price. I’ve had it happen dozens of times where the seller turns down offers for this reason. Be friendly, be cordial, be appropriate, but also be fair.
Have the Home Professionally Inspected
Never pass on this option. A home inspection is not required, but it’s an awful idea not to get one. In most states, REALTORS are required to perform a “reasonably diligent” “visual inspection” of the home, but REALTORS are not typically educated in electronics or electricity, appliances, HVAC or other heating or cooling systems, plumbing, foundations, roofs, mold, etc.. While REALTORS may develop “experience”, they are not experts. For only a couple hundred dollars, a professional home inspector will inspect, check, test, and photograph just about every corner and component of the home. They are far more likely to discover problems with the home that even the best REALTOR may easily overlook. Once you buy the home, it’s yours, and so are its problems. If something gets missed, it’s on you… unless there is proof or evidence the seller had prior knowledge of the problem but failed to report it to you. Sellers are required to share ALL their knowledge about the home with you, good and bad, and if they leave out something important that leads to a problem later, they’ve opened the door to a lawsuit. But why not avoid that trouble altogether? Always, always, always get your home professionally inspected.
Don’t Require too many Repairs
Once you get your Professional Inspection Report, more than likely the Inspector will find at least a few things wrong with the home. Maybe some of them are small and simple, while others may be really major. If you learn there’s a foundation leak, termites, or a hole in the roof, it might be a good idea to ask the owner to fix the big problems first, before you buy. But if you have small items, for example, a broken light switch, or a few missing light bulbs, it’ll go a long way in your favor to let the small stuff slide. If you do choose to add every single defect to your ‘Request for Repairs”, don’t be offended if the owner agrees to some, but not all of them. Every home sale is a negotiation, and most written Requests for Repairs aren’t binding, meaning “required by law”… unless the repair is actually required by law (smoke detectors, or carbon monoxide detectors and water heater straps in some states). Negotiate your list of repairs with the Seller carefully, but don’t let your dream home slip away over small items that you could easily fix yourself. Repairs are part of home ownership, so if you don’t like the idea of repairing your own home, consider renting a home instead.
Prepare for Delays
Know in advance, most closings don’t occur on the original planned date. More times than not, it’ll be an issue with the loan. What happens is that, you get your loan pre-qualification early, but the money isn’t paid until the very end. Just a few days before your loan “goes to funding”, most loan applications get a second, closer, look by the lender’s underwriter. While the initial “prequalification” is more like a brief glance into your credit, the underwriting process goes into hair-splitting detail. If something was missed, such as an unpaid lien or judgment in your credit, you may have to settle that third-party debt before the underwriter will approve the loan. Loans can be a bag of surprises, and they usually don’t emerge until the last minute. Be prepared for delays, and don’t be surprised if that unpaid phone bill from five years ago comes back to bite you. Once I saw a loan get kicked back because the buyer didn’t pay a late fee to Blockbuster Video, which with interest, had grown to over $300… all for returning a video late and not paying the fee. Go back to step 2 in this article and make sure to closely review the credit report your lender pulls when you get your initial loan pre-qualification. If you see something fishy or concerning, address it early on. Don’t “hope” it’ll slip through; it probably won’t. Failure to address known credit problems can easily jeopardize, or completely ruin, your loan at the very last minute.
Refer your Realtor
Real Estate is a hard job. Even writing it like that, that’s a huge understatement. Working as a Professional REALTOR full-time is a HARD job. If your REALTOR worked hard for you, treated you with respect, and did everything possible to make your home buying experience a good one, please refer him or her to your friends. We all know that once you get your new home, it’s the only thing on your mind, but don’t forget about your hard-working REALTOR. Maybe invite him or her to your housewarming party, or ask for a few business cards that you can give out to anyone you know who is thinking of buying a home. While the Federal Real Estate Settlement and Procedures Act (RESPA) may prevent your REALTOR from physically compensating you for any referrals, most REALTORS find legal and appropriate ways to return the gracious favor of a referral. So while you’re sleeping soundly in your beautiful new home, remember the work that went into getting it for you… or if you don’t realize how hard it was, just trust me and take my word for it. Refer your REALTOR and you’ll have a friend, an adviser, a source of referrals when you need a repair, and possibly a partner in Real Estate for life.