The Best Advice for Buyers
- Develop a Plan for Success
- Shop for a Lender
- Get Pre-Approved for a LOAN Early
- Consider How Your Needs May Change Over Time
- Begin with the End in Mind
- Consider the Total Cost Of Ownership (TCO)
- Hire the Most Experienced Professional Possible
- Make a Solid Offer That is Appropriate for The Market Conditions
- Inspect, Inspect, Inspect
Develop a Plan for Success
Someone once said, “If you fail to plan, you should plan to fail”. Developing a plan, or a strategy to successfully purchase an asset as large and expensive as a single family home in any market is critical to success. Too often, home buyers are simply inexperienced and start searching for a home without considering the dynamic forces that impact home values and appreciation rates. Or they rely on the advice of an agent who may or may not be as aware of the economic conditions and future of a neighborhood (zoning, new construction, school ratings, etc.). That is why it’s important to home buyers to actually make a list of “Must Haves” versus “Want to Have” for their new home. For example, must be in a good school district may be more important to a young family versus has a good view in the backyard. Determining what is truly important for the next 1, 3, 5, 7 years (time horizon) will set the parameters for comparing one property versus another. Without determining if you will need 3 or 4 beds in 7 years time… or a bedroom downstairs versus up for grandparents to use when visiting can is a totally avoidable mistake. The process can be introspective and rewarding, make sure you consider all the principal residents (adults and kids alike) needs, and the appropriate time horizon first. Talk to an experienced and qualified REALTOR in your neighborhood and learn more about creating a plan for success.
Shop For a Lender
These days, it helps to ‘shop’ a variety of providers when looking for a loan. Many large consumer banks, mortgage banks/brokers and lenders offer a wide variety of lien packages designed for specific consumer profiles with respect to credit scores, employment history, income, savings and military status. You’ll benefit from visiting with at least 2-3 different mortgage lenders to determine what loan best fits your budget for payment and avoids unnecessary fees or origination costs. Talk with your REALTOR about their experience with various loan providers to determine who has the best rates as well as the best reputation and a track record of closing on time according to schedule.
Get Pre-Approved for a LOAN Early
If you are like most of us, you will need a loan to purchase a home. The process for qualification has actually been significantly tightened up over the past 2-3 years following the mortgage industry melt-down. Lenders will need proof of income for the past several years, employment verification, evidence of savings, and a fairly good credit score before you will be qualified to purchase a home. Don’t make the mistake of searching for a home prior to having all your ‘ducks’ in a row. Ask your REALTOR to recommend a reputable lender and provide them with all the information they need to prepare a conditional qualification letter. The process can take a few hours or a few weeks so plan ahead and get pre-approved early.
Consider How Your Needs May Change Over Time
When buying a home, most people consider only their most immediate needs for space. For example, how many bedrooms or baths they ask for may be correct in the present, but not in 1 or even 2 years time. Projecting your minimum housing characteristics over several years and selecting homes that will fit your budget now, while accommodating planned changes in family size later is critically important in order to avoid the cost of transition (selling) too soon. For example, lets say you are one of a young couple, with a baby on the way… if you purchase a home now, you’ll need at least 2 beds, but if your plans for the next 4 – 7 years include more kids, consider buying a house with more bedrooms and perhaps another bath. While you must avoid buying too much house for your current needs or budget now, the cost of transition (selling, moving, buying something larger) is both expensive (10% of the combined sales prices normally) and emotionally straining. Sit down and make a reasonable plan for the next 7 years. If you don’t have firm plans for a 7-year time frame, perhaps its better to delay the purchase decision.
Begin with the End in Mind
Stephen Covey said, “Begin with the End in Mind” in a self-help book titled The Seven Habits of Highly Effective People. In that context, he was saying it was important to envision the ideal characteristics for each of your various roles and relationships in life. In home buying, beginning with the end in mind involves forecasting the resale value of the property at some point in the future. Home buyers often overlook the future value of a home when they are so focused on finding a place to live in the present. However, that’s a big mistake. Ask your REALTOR to give you historical appreciation rates for the county, city, and neighborhood where you are considering making a purchase. Think about what is good and or bad about your neighborhood and how that might impact future appreciation. Be thoughtful, practical and logical. Buying that perfect home today that is located in a neighborhood that has declining values year over year is a mistake you don’t want to make.
Consider the Total Cost Of Ownership (TCO)
Buying a home doesn’t just cost you a payment (PITI = principal, interest, taxes and insurance) each month. There are lots of little costs that are associated with homeownership that is often overlooked by buyers. For example, when you purchase a resale home, did you consider the age of the roof or the appliances. All the items in a home have a planned life expectancy before failure you must consider when you are comparing one home versus another. For example, If you’ll have to replace the water heaters and the HVAC / furnace in the next 1-3 years, consider that cost before deciding on what house you’ll buy. If you need help with the expected lifespan of appliances and or their cost of replacement, ask your REALTOR or home inspector for data you can use to forecast those costs.
Hire the Most Experienced Professional Possible
Given all the tips above you may feel you can surely handle this “buying” process all by yourself. That is often the case when buyers consider building a new home versus buying a resale. The saying “Caveat Emptor” (Buyer Beware) will apply! Going it alone on a resale or choosing to work with a Home Builder’s sales representative without proper representation increases your risk of overpaying for your new home significantly. Also, since your REALTOR as a Buyer Representative is actually paid via the listing agents commission agreement – you have nothing to lose and everything to gain by hiring an experienced Buyer’s Representative when building a new home or buying a resale! Similarly, to the “Seller’s Tips” offered on this website – we recommend you don’t simply hire a friend or family member as a favor. After all – Agents are not all the same! Your buyer’s representative should be intimately knowledgeable about the various builders available, the neighborhood’s history, the market statistics, the price appreciation rates, the schools, and any plans that might impact the neighborhood’s value. Hire a REALTOR (a full-time agent, with a clean professional history, who demonstrates high integrity, and has a long list of past client references) to be your representative. They can save you thousands of dollars – you’ll be glad you did!
Make a Solid Offer That is Appropriate for The Market Conditions
Finally, the time has come to pull the trigger! Please don’t hesitate while trying to time the market for lower interest rates, or make an initial ‘low-ball’ offer to a seller to see if they’ll accept an offer that’s 10%-20% below ask price! Instead, ask your REALTOR what is expected and or normal for the market. In Austin, (at least as of May 2012), most offers that are accepted are for 97% of ask price OR BETTER! Find out what is normal for your local market and follow the advice or your trusted buyer’s representative. He/she won’t ask you to overpay for a property – besides, since most buyers also require a loan, there will be an appraisal made on the property’s value by your lender’s (loan officer’s) underwriter. If the house doesn’t appraise for the value of your offer price, you will be asked to re-negotiate with the seller on the price. Most of the time, the buyer and seller come to a new understanding when a house doesn’t appraise.
Inspect, Inspect, Inspect
Okay, the time has come, you’ve been pre-qualified and your REALTOR has located the perfect house that fits your budget and long-term family needs. Don’t skip the next most important step – get the house completely inspected by a “Professional” level inspector. There are 3 levels of inspector in the State of Texas, apprentice, inspector and professional inspector. The latter level is earned through experience. If your home has unique qualities (e.g., septic, well water, swimming pool, solar panels, etc.) make sure your inspector is qualified to inspect those as well or hire additional inspectors to cover the items he/she does not cover. Remember the discussion above regarding Total Cost of Ownership (TCO)? Consider the cost to inspect a swimming pool is far less than it is to replace a heater, or reseal the pool’s cracks! If you believe Location is important in Real Estate, (and it is), Inspection is important as well.
The list of tips above was developed and published by Bob McKenna, Broker/Owner of Austin Real Estate Partners