Buying your first home is a wonderful, yet often times scary and stressful experience. Many would-be buyers are understandably nervous at the prospect of making a mistake in the largest purchase of their lives. Rather than going at it blindly and hoping for the best, careful preparation and due diligence can help to ease the nerves a bit, and create a much more enjoyable house hunting experience.
Here are some useful tips that can turn an overwhelming and intimidating experience into an exciting search for the right home!
1.) Hire a Realtor to Work for YOU! Buyer Brokerage is becoming more and more prevalent in NY State. However, a large number of buyers, and even a good amount of agents do not know what this means, or how to properly go about it.
Let's look at this scenario;
You are searching online, or doing drive-by's, and you find a house you think you are interested in looking at, so what do you do? Most of the time, you call the office number on the listing or on the sign, and ask about seeing the property, right? You are, hopefully, connected to the listing agent, and are able to schedule a time to get into the property.
The listing agent meets you at the house, and walks you through. After looking at the inside of the house, you decide it doesn't really meet your needs. You ask the listing agent if they can show you any other properties that might meet your needs. They respond, "absolutely!" , and they even tell you that they can show you any property on the MLS, even if it is NOT their listing! You're thinking "GREAT!", right? well, here's the problem;
When you called the listing agent, and they took you through the property, who do you think they are working for? The Seller, correct. They have a contract with that seller to work in their best interest, and negotiate the highest possible sales price, and not disclose any information that could be detrimental to the sale of the property--- that all makes sense.
But, what about when that agent shows you other properties? What if that agent shows you properties that are NOT listed by them, OR their office? Who is the agent now working for? Well, obviously, they put together a list of properties for you based upon your needs, they are taking the time to show you other properties, you have built a rapport with them, you showed them your pre-approval letter, they MUST BE working for YOU, right? WRONG!
In NY State, BY LAW, every agent MUST work in the best interest of the seller for EVERY property they show! Yes, EVEN IF they have never met that seller! Even if the house is listed by a completely different real estate agency!
So, how does a buyer get proper and fair representation? They sign what is known as a Buyer Broker Agreement with an agent of their choosing. This is a contract between the agent and the BUYER- much like the contract between the agent and a seller. It states that there is a mutual agreement between the buyer and the agent, that the agent will work FOR the buyer, and in the buyer's best interest. They will negotiate the BEST selling price for the buyer, and can research and disclose any negative attributes to the property which may be detrimental to the sale. Wouldn't you want an agent to be working FOR YOU?
2.) There IS a Difference Between a Pre-Approval and a
Pre-Qualification. Sellers typically will not accept an offer without proof that you can afford the house, and are approved for financing.
A pre-qualification is simply an ESTIMATE by a lender of what you can afford. A pre-approval is a more detailed process in which the lender investigates your credit history, and performs an extensive financial analysis to determine your ability to get a mortgage.
Getting a pre-approval is a safeguard to prevent the deal from falling apart due to failure to obtain financing. It is important to compare loans from several lenders to see which one is best for you. Once there is an inquiry on your credit report for mortgage approval, you have 30 days to seek out as many lenders as you want without it affecting your credit.
3.) Determine the Difference Between Your NEEDS and
Your WANTS. Many first time home buyers go into the search with a long list of everything they think they need in a home. Here's the truth; if I could find a 4 bedroom, 2.5 bathroom, with granite counter tops and stainless steel appliances, an in-ground pool, with the perfect color scheme, and crown mouldings, and shiny hardwood floors, in the best school district, with low property taxes and under $300,000---- well, it still wouldn't be available because I'D PROBABLY BUY IT FIRST!!
In all seriousness though, separate you needs from your wants. Needs might include the number of bedrooms due to the size of your family, high quality schools for your children, and commute time to your job. These are aspects of the house that cannot be changed or compromised due to necessity.
Wants, on the other hand, are things that you would like to have in a house, but can be changed or added or removed down the line. Wants may include a pool, a hot tub, walk-in closets, updated features, landscaping, a finished basement or hardwood floors.
Making a list of needs and wants helps you focus on what is really important, and will help broaden the search, while also eliminating homes that don't meet your requirements.
The Realtor's job is to find you a house that meets your needs. If they can also meet a few of your wants, great! If they can meet all of your needs and wants, please send me their contact info so I can book them as a magician for my kid's next birthday party!
4.) Don't Play Price Games, and PAY Closing Costs. Some first-time home buyers try to get creative with their offers. Often times, making the offer look good up front by offering a higher price, then attempt to recoup the money in seller-paid closing costs, repair credits, or other concessions. The problem that most buyers don't realize is that the appraisal must support the full offer price. If the appraisal comes in lower than the full offer, you won't be able to get your financing.
It is ok to ask for a seller's concession to help cover some, or all of the closing costs. But, be aware that this technique does weaken your offer. The seller is really concerned about one thing, their net. If you ask for 3% towards closing costs, that is 3% less in the seller's pocket. Some homes do have enough value to incorporate the closing costs into the purchase, but it takes a skilled negotiator to show the seller the benefit of accepting an offer with a seller's concession built in (see tip #1, HIRE A REALTOR to work FOR YOU).
5.) Know Your Budget, Be Realistic, and Act Fast. Right now, there is a shortage of quality inventory on the market. Much of the homes that have been sitting on the market for the past 6-12 months, are not selling for a reason. Either they are over priced, or are in such bad shape that even an investor won't pick them up. So, when a new listing comes to the market, that is in fair to good shape, and properly priced, it is disappearing in the blink of an eye! All too often, I get a call from one or more of my buyers (that I represent with a Buyer Broker Agreement), asking to see a house that came to the market a few days ago---and it's no longer available! Properly priced homes are selling within weeks, if not days!
Knowing your budget, having a pre-approval ready, and being realistic about your needs vs. wants is important in aligning yourself with the right house when it comes to the market. Being able to accept some defects in the home is important. Other than safety concerns, or missing appliances when using a VA or FHA loan, be prepared to look past minor flaws that can be fixed.
The bottom line is that purchasing a house can present challenges. Don't get discouraged. Enlisting the guidance of a professional Realtor, who has the experience and knowledge to help you through the process will make a huge difference. Staying educated about the market conditions, activity, and future forecasts will empower you to make the right decisions.