Tips For Buyers

Though following the previous steps can help a first-time home buyer find the right home, buyers never need to go it alone. After conducting your own research, it is a good idea to find an agent you can trust. Besides being able to assist you when searching for the right home, a reliable real estate agent can help guide you through the home buying process.

If you are patient with the home buying process and do your homework before purchasing your first home, your diligence will most likely lead you to the perfect home for your family.

The staff at Coldwell Banker Real Estate LLC writes select articles about important topics related to real estate. For more information about buying a home or selling your current property, visit ColdwellBanker.com today.

Tip #2 – Benefits of Owning Your Own Home
The Best Investment – As a fairly general rule, homes appreciate about five percent a year. Five percent may not seem like that much at first and yet your rate of return when buying a home is higher than most any other investment you could make.

Income Tax Savings – Because of income tax deductions, the government is basically subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.

Stable Monthly Housing Costs – When you rent a place to live, you can certainly expect your rent to increase each year – or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Imagine how much rent might be ten, fifteen, or even thirty years from now?

Forced Savings – Some people are just not good at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates. Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year. Over time, history has shown that owning a home is one of the very best financial investments.

Freedom & Individualism – When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousands of dollars painting, putting carpet, tile or window coverings when the main person who benefits is the landlord and not you. When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created.

Tip #3 – Other Things to Avoid Before Purchasing a Home
Don’t Move Money Around – When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. If you have been moving money around between accounts during that time, there may be large deposits and withdrawals in some of them. The mortgage underwriter (the person who actually approves your loan) will require a complete paper trail of all the withdrawals and deposits. Moving your money around, even if you are consolidating your funds to make it “easier,” could make it more difficult for the lender to properly document. So, leave your money where it is until you talk to a loan officer and don’t change banks, either.

Tip #4 – The Effect of Changing Jobs
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.

Salaried Employees – If you are a salaried employee who does not earn additional income from commissions, bonuses, or over-time, switching employers should not create a problem. Just make sure to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage.

Hourly Employees, Commissioned Employees, Self-Employed – Changing jobs if you fall into one of these categories could negatively impact your ability to buy a home. Check with a lender to find out what they will be looking for before you change jobs.

Tip #5 – No Major Purchase of Any Kind
When an individual’s income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct to spend money.

Don’t Buy A Car – If you are thinking about buying a home, put off any large purchases until after you have closed on the house. Any large purchases that you might finance such as a car, furniture, appliances, vacations, etc could change your debt-to-income ratios preventing you from qualifying for the home of your dreams.

Tip #6 – The Business Cycle and Buying a Home
Recession and Expansion – There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a Result, they spend money. People eat out more, buy new cars, and they buy new homes. Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.

Supply and Demand – When the supply of available houses is greater than the supply of buyers, appreciation may slow and prices may even fall, as happened in the early eighties and the early to mid-nineties. If you are lucky enough to purchase a home during a slow period, you can be reasonably certain the economy will begin to show strength again. At times, real estate values may even surge drastically. In many regions of the county, this is precisely what occurred in the late eighties and nineties

Should You Try to “Time the Market”? – One problem with attempting to time your purchase to the business cycle is that no one can accurately predict the future. Another challenge is that interest rates are generally high during a depressed market and income may not be keeping up. For that reason, fewer people can qualify for a home purchase than in more prosperous times.

Why You Should Not Wait – This strategy generally works best for first-time buyers. People who already have a home usually need to sell it in order to buy their next one. If a “move-up” buyer wants to buy a home during a depressed market, that means they usually have to sell one during the slow market, too. Same in a “hot” market. It tends to equal out.

Tip #7 – Determining Your Offer Price
When you prepare an offer to purchase a home, you already know the seller’s asking price. But what price are you going to offer and how do you come up with that figure?

Comparable Sales – The first step in determining the price you are willing to offer is to look at the recent sales of similar homes. These are called “comparable sales.” Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.

Other Factors Influencing Your Offer Price -

Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. You need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.

How Property Condition Affects Your Offer – When evaluating a home’s condition, there are a number of things you should consider. Structural condition is most important – items such as walls, ceilings, floors, doors and windows. Then paint, carpets, and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should be in reasonably good shape.

How Home Improvements Affect Your Offer Price – Even when comparing exact model matches within a tract of homes, you should note whether the previous  owners have made any substantial improvements. Cosmetic changes should be largely ignored, but major improvements should be taken into account. Most important would be room additions, especially bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools should be taken into account, too, but should be discounted. A pool that costs $20,000 to install does not normally add $20,000 in value to the home. Rely on your agent to give you guidance in this area.

How Market Conditions Affect Your Offer Price – A hot market is a “seller’s market.” During a seller’s market, properties can sell within a few days of being listed and there are often multiple offers. Sometimes homes even sell above the asking price. Though most buyers’ want to get a “deal” on a home, reducing your offer by even a few thousand dollars could mean that someone else will get the home you desire.

A slow market is a “buyer’s market.” During a buyer’s market properties may stay on the market for some time and offers may be few and far between. Prices may even decline temporarily. Such a market would allow you to be more flexible in offering a lower price for the home. Even if your offered price is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations in earnest.

More often than not, the market is simply “steady,” or in transition. When a market is steady, no real rules apply on whether you should make an offer on the high end of your range or the low end.

How Seller Motivation Affects Your Offer Price – It is rather rare that a seller’s motivation will dramatically affect the price of a home, but it is often possible to save a few thousand dollars. The most common “motivated seller” is someone who has already bought his or her next home or is relocating to a new area. They will be under the gun to sell the home quickly or face the prospect of making two mortgage payments at the same time. Since that can drain a bank account quickly, most sellers want to avoid such a situation and may be willing to give up a few thousand dollars to avoid the possibility.

The Final Decision on Your Offer Price – Comparable sales information helps you to determine a base price range for a particular home. Adding in the various factors like property condition, improvements, market conditions, and seller motivation help determine whether “fair” price would be at the upper limit of that range or the lower limit. Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you.

Tip #8 – Writing an Offer to Purchase Real Estate
Once you find the home you want to buy, the next step is to write an offer. In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.

Buying a home is a major event for both the buyer and seller. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his finances, too. However, it is more important than just money. In the half-hour it takes to write an offer you are making decisions that affect how you live for the next several years, if not the rest of your life. The seller is going to review your offer carefully, because it also affects how he or she lives the rest of their life.

Earnest Money Deposit – After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the “earnest money deposit” to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk. As with practically everything in real estate, there are exceptions to this rule, too. During a hot market there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your unknown competitor is offering the same price or slightly higher.

The Closing Date – It is absolutely essential that you include a closing date as part of your offer. This way both you and the seller can make plans for moving, and the seller can make plans for buying his or her next home. Though most transactions actually do close on the right date, do not be so inflexible that a delay creates insurmountable problems.  There are times when closing can be delayed by weeks, through no fault of your own. Have a back-up plan prepared for such a contingency.

Transfer of Possession – A transaction is considered “closed” once the deeds have been recorded. Then you own the home. However, it is not always possible for you to occupy it immediately. This can happen for several reasons, but the most common is that the seller may be purchasing a home, too. Usually, it is scheduled to close simultaneously with your purchase of their home. As a result, it has become customary to allow the seller up to a maximum of three days to turn over actual possession and keys to the home. When transfer of possession actually occurs should be clearly laid out in your offer to prevent confusion later.

Tip #9 – Safeguards Regarding the Property
Disclosures From the Seller – Although you have toured the property, looked at the walls and ceiling, turned on the faucets and played with the light switches, you have not lived in it. The seller has years of knowledge about his or her home and there may be some things you want to find out about as quickly as possible. For this reason, you will require certain disclosures as part of your offer.

Basically, you want the seller to disclose any adverse conditions that may have a substantial impact on your decision to purchase the home. This would include any problems with the house, whether the property is in a flood zone, a noise zone, or any other kind of hazardous area. If you have an agent representing you, this is automatic. Obtaining these types of disclosures should always be a part of your offer, and time is of the essence.

Condition of the Property – The last thing you want when you assume possession of your new home is to find it in a total mess. Therefore, you should make it clear in your offer that certain minimum standards are required. Some requirements you might want to include in your offer are that the roof does not leak, the appliances work, the plumbing does not leak, that there are no broken or cracked windows, the yard has been dept up, and any debris has been cleared away.

Inspections You Should Require – Besides appraisal and the termite inspection, you should also have a professional go through the house and seek out potential problems. The seller will want this inspection performed quickly, so that you can approve the results and more forward with the purchase. Once you receive the inspection, you will want to allow yourself sufficient time to review and approve the report. If you do not approve the report, you may negotiate with the seller on which repairs should be performed and who should pay for those repairs. Otherwise, you can cancel the purchase without penalty, provided you have included timetables and an option in your offer.

Final Walk-Through Inspection – Before closing, you will want to revisit the property to ensure it is in the condition you have required in your offer, and to inspect that any required repairs have been performed. You should do this no sooner than five days before you intend to close. Make sure this right to do a final inspection is included in your offer to purchase the home.

How Financing Details Affect Your Offer – Most buyers do not have enough cash available to buy a home, so they need to obtain a mortgage to finance the purchase. Since you will probably make your purchase contingent upon obtaining a mortgage, the seller has the right to be informed of your financing plans in order to evaluate them. That is on of the major reasons that financing details are included in your offer. You should have already talked to a mortgage lender in order to find out what your down payment would be, what interest rates are available to you, what type of loan best suits your needs and what the costs are to obtain a mortgage and the associated closing costs.

Escrow and Settlement – You are going to need an escrow or settlement company to act as an “independent third party” between you and the seller. Without having a third party involved, how do you know that when you hand over the money, you are going to get the deed? This is the type of service provided by escrow and settlement. They will hold your deposit and coordinate much of the activity that goes on during the escrow period.

Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. You need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.

Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. You need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.

– Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. You need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.

How Property Condition Affects Your Offer – When evaluating a home’s condition, there are a number of things you should consider. Structural condition is most important – items such as walls, ceilings, floors, doors and windows. Then paint, carpets, and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should be in reasonably good shape.

How Home Improvements Affect Your Offer Price – Even when comparing exact model matches within a tract of homes, you should note whether the previous  owners have made any substantial improvements. Cosmetic changes should be largely ignored, but major improvements should be taken into account. Most important would be room additions, especially bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools should be taken into account, too, but should be discounted. A pool that costs $20,000 to install does not normally add $20,000 in value to the home. Rely on your agent to give you guidance in this area.

How Market Conditions Affect Your Offer Price – A hot market is a “seller’s market.” During a seller’s market, properties can sell within a few days of being listed and there are often multiple offers. Sometimes homes even sell above the asking price. Though most buyers’ want to get a “deal” on a home, reducing your offer by even a few thousand dollars could mean that someone else will get the home you desire.

A slow market is a “buyer’s market.” During a buyer’s market properties may stay on the market for some time and offers may be few and far between. Prices may even decline temporarily. Such a market would allow you to be more flexible in offering a lower price for the home. Even if your offered price is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations in earnest.

More often than not, the market is simply “steady,” or in transition. When a market is steady, no real rules apply on whether you should make an offer on the high end of your range or the low end.

How Seller Motivation Affects Your Offer Price – It is rather rare that a seller’s motivation will dramatically affect the price of a home, but it is often possible to save a few thousand dollars. The most common “motivated seller” is someone who has already bought his or her next home or is relocating to a new area. They will be under the gun to sell the home quickly or face the prospect of making two mortgage payments at the same time. Since that can drain a bank account quickly, most sellers want to avoid such a situation and may be willing to give up a few thousand dollars to avoid the possibility.

The Final Decision on Your Offer Price – Comparable sales information helps you to determine a base price range for a particular home. Adding in the various factors like property condition, improvements, market conditions, and seller motivation help determine whether “fair” price would be at the upper limit of that range or the lower limit. Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you.

The staff at Coldwell Banker Real Estate LLC writes select articles about important topics related to real estate. For more information about buying a home or selling your current property, visit ColdwellBanker.com today.