With about 20 years in the real estate industry as an agent, both in multi-family and residential real estate, I have been through tons and tons of transactions and have learned many lessons from each. Not every transaction is the same, and each brings upon it’s own challenges, and it’s up to the agent to be pro-active and solutions-based. But, some mistakes can be prevented on the Buyer’s end. Here are some mistakes that I have seen many first-time homebuyers make, which I am passing along so that you can be even more prepared to excel through the home buying process, when the time is right for you. Ready to get your learn on? 😉
1.) Not getting a pre-approval prior to home shopping. I have spoken with many first-timers (well, some move-up Buyers, too) at my open houses, and I get it…it’s an exciting thing to tour properties! I also love to walk through homes, but it’s important to really know what you qualify for (what the bank is willing to lend) BEFORE you do your research in person, and not just try to guess at what you can afford. Believe me when I say that the numbers that you see online will be different than what you get from a lender. Factoring in income-to-debt ratios and credit scores are what matters, not just initial investment and monthly HOA amounts. And, know that all of those cool online mortgage calculators are meaningless. Why would you risk falling in love with homes that are $100k higher than what you can comfortably invest in, especially in this market where Sellers are receiving 98% of their asking amount? You must be prepared (please know that you will not be able to make an offer on a property without a pre-approval, and I’d hate to see anyone scrambling to try to get one once they found a home that they like, while other prepared Buyers are already beginning to submit offers) and be able to show that the bank has agreed to lend on the offer amount. Additionally, in this current market, if you actually want to have a chance to win a home and be looked at by the Seller with more confidence over your competition, please take my advice and go a step further than a pre-approval by actually getting FULLY approved for a loan with a local lender. It takes twice as long to get the full approval, since your file will go through the underwriting process, yet my preferred lender can have this done for you in about 48 hours. This is an actual guarantee that the bank has approved your financials and will lend to you (unlike a pre-approval), with the exception of looking at the individual complex financials, as well as the appraisal report.
2.) Think practical, not emotional. It’s difficult not to get excited when you walk in to a home that you love. You’ve probably been wanting to be a homeowner for quite some time, and you may even have the colors of your walls picked out. The best thing to do, though, is to not get emotionally-invested in to a home (until you have closed escrow, preferably). Instead, before you even begin to research homes, make a list of criteria that are important to you, and try to take the emotions out of it. Make categories for both wants (galley-style kitchen, extra bathroom, central a/c, wood flooring) and needs (close laundry and parking area, additional storage space, 2 bedrooms, secured complex, no pet restrictions). And I always advise my clients to visit the home more than once! You’ll notice more things the second or third time around.
3.) Failing to make competitive contingency durations. You may lose out on a house (or several) because you’re taking your time on your contingencies, especially if you’re in a market that moves fast. It’s ok to learn about the market. But once you’re ready to make an offer, do it quickly and aggressively. Contingency durations are there to protect the Buyers, yet you also don’t want to drag your feet by extending them out farther than what is common practice in your market area, so first take the time to learn the market and discuss with your Realtor what your options are. Then, once you have the information and are more confident, strike and strike quickly. The inspection contingency is tricky. It’s the one contingency duration that I recommend keeping in your offer (there are ways to gain protections when competition is steep and the need is there to construct an offer with no loan or appraisal contingencies, especially when you have your full-approval from your lender), even if the inspection contingency is made for a short duration. In many locations right now, actually, some Buyers are removing them right off the bat within the initial offer to the Seller. And as much as I want to see my clients win the home that they want to own, by making competitive offers, I also want my clients to be well-informed, know of any risks, and avoid any surprises down the road. The home inspector tells you things that you cannot see, and some of my preferred vendors will even tell you about active or past leaks behind the walls, or old plumbing and electrical. With so few listings and such large demand (many Buyers want to get in to a home while rates are still low), you absolutely must be competitive in your offers and be prepared to take some calculated risks and move quickly. However, I do advise my clients to take at least a couple of days to inspect the home and the area, and get all questions satisfied. You’ll end up spending more money with more stress in the long run without it.
4.) Hire your own agent. I know so many Buyers that have seen a sign in a yard, spoken with the Listing Agent, and are convinced that they should write an offer through that agent. It’s understandable…they think maybe it’s an easier way to get a deal and save money, and have a smoother escrow. They know the house and Seller…easy right? Wrong. When an agent is hired by the Seller to represent them with their listing, they have a “fiduciary duty” to always work in the best interest of that Seller. Who’s going to fight for your best interests, as a Buyer? Someone that’s hired by the Seller? Nope. Would you want your divorce attorney representing both you and your spouse? Dual agency (representing both Buyer and Seller) is still allowed in California, and it can indeed be done ethically, yet most of the time Buyers will actually pay more for a home (even though the agent will drop their total commission to the Seller while doing double the work to represent both parties). You don’t pay anything for your Realtor’s service and representation, the Seller does, so save yourself the hassle of having to constantly wonder if you are being treated fairly and getting the best possible deal, and have your own agent working for you in your corner and not anyone else.
5.) Forgetting to factor in closing costs. This is an easy estimate to get on your behalf from my escrow company, based on location of property and purchase price. You should know that some things, such as property taxes (may add more to your monthly amount than you think!), are prorated and expected to be paid up front, as well as fees from escrow and title companies.
6.) Not knowing location of the parking spot. This may be a silly one to add here, but as you know, for condo and town-home complexes especially, the value of having off-street parking is high for many areas. Don’t wait until all contingencies have been removed to begin asking about the parking situation. Check it out!
7.) Not knowing the restrictions on the condo docs. This is a major, major mistake, specific again to condo and town-homes. No one wants to read the condo documents, I know. They can be a lot of pages, and lead to sleepy time, but you must read them. Seriously, you must make sure you know the basic rules! I personally like to look for the information on pets, modification allowance to the condo units (can I add a 1/2 bath or laundry hook-ups, a/c unit, or even change the carpet to wood flooring?), responsibility of costs for changing out windows or front doors, if they are old and need upgrading, rental restrictions (both short and long-term), and if BBQs are allowed on balconies or in common areas. But you may also have your own questions and needs, so be sure to address those within your agreed-upon inspection contingency duration.
8.) Not knowing the % of owner-occupied units. Another biggie for complexes. This is usually difficult to get it up front, before making an offer, but some agents are on the ball and have already obtained this info for the HOA/Management Company. A big key point to know is that as the renter ratio increases and throws off the “balance” of the complex, compared to owner-occupied units, lending becomes more difficult. That means that Buyers could have a harder time purchasing, and when that happens, Sellers have a hard time selling. Prices will go down if Sellers cannot sell to those Buyers that will need financing (and finding the required cash-only buyers can take time), since the Buyer pool will be reduced. The best thing to do (your lender will do this) is check for rental caps or restrictions in the community. This is clarified by the HOA or Management Company. You don’t want to be caught in a situation where your neighbor decided to put a renter in their unit, and now you can’t sell your unit when it’s time to move on.
9.) Not thinking of the resale value. Some new Buyers just can’t understand that some improvements made to the property after close of escrow will not give you the investment back upon selling. A big mistake is not putting an emphasis on features and benefits that increase value. Oh yeah, and adding on space without getting a permit (like an additional bedroom) will be a risk that’s not desirable to the majority of buyers when you go to sell.
Although it took a while for me to compile this list from my experiences, I hope that it is helpful in your quest to become a homeowner. One of my passions, actually, is to help educate you so that you are armed for battle, and also to guide and protect you through the home buying process! I am here for you whenever you are ready to begin the research and preparation process, whether it’s next year or 5 years from now, and will provide excellent service and apply my many years of experience (as well as offer my trusted lender and vendor list). Please let me know how I can help with your real estate needs. 🙂