Never has it been easier for prospective home buyers to pursue a course of DYI (do-it-yourself). I am not sure why buyers hesitate to utilize professional Realtors. I believe it has to do with the ease a home can be found on line. There also is the mistaken idea that contacting the listing agent directly will save them money. Rarely will using the listing agent save you money. It is my opinion that a professional listing agent can handle representing the seller and buyer, but how does a buyer know? Even when a buyer has a contracted buyers agent, it is still prudent to be wise to some of the home buying mistakes commonly seen and how to avoid them.
Here are some important speed bumps to make sure you and your agent are avoiding.
The Right Home
Are you looking at the right home for you and your family? I see many first time buyers squeezing every dollar of borrowing approval in order to buy the biggest house. Somebody forgot to tell them that they need extra money to buy furniture, lawn equipment and heat the home. Keep in mind that you may one day wake up with an emergency and a need to make a repair. You need savings. Don’t tie your hands behind your back buying more home than you can afford…no matter what the mortgage lender tells you.
When it comes to the right home, one of the common home buying mistakes is pursuing foreclosures unless you have some reserves and can make repairs. Understand that foreclosed homes have been vacant for a long time and often will need investment that will only come from a future buyer.
Inspect the Home
If you are looking at homes from out of town, please invest in a buying trip and do not make offers without inspecting a home. If the home is considered a “fixer-upper” or sold “as-is” these are code words of warning. The home likely will require a buyer who is willing to undertake a renovation project. In that case, be sure and have your local contractor come inspect the home. If you are not able to physically walk the home, have a trusted friend and your contractor inspect the home. Have your agent use technology to walk you through the home. Cover your bases before you make an offer.
I have written several posts about the importance of a home inspection. That is still the case. It is your most important step to ensure you can negotiate a solution to a problem that may not otherwise be discovered.
Check the Comps
After inspecting a home, ask your agent for comparative sold properties (comps). Make sure you understand what condition these comps represent and then build in your cost of repairs or maintenance. Don’t take the quick and easy way of using a formula based on a percentage of list price to determine an offer. Do your homework if you really want a home.
If a buyer is paying with cash, please still invest in a buyers title policy. Don’t fall into the idea that you do not need to incur this extra cost. Title insurance is the best money you will ever spend when buying real estate. It will protect you from surprise liens, taxes and other cash draining issues that only a professional title search will reveal.
John bought a foreclosed property based on the representations of the bank, listing agency, and his title policy. Except nobody really reviewed the legal description on the title work closely enough to question why the lot width was only 60 feet when the structure he was buying was 80 feet. John actually waived his option to obtain a survey with the bank. John ended up with a house that the master bedroom (an addition) was on another lot owned by the foreclosed owner. Except nobody had foreclosed on the second parcel because even the lender did not know to make the loan on both parcels when refinancing a few years back!
A survey would have revealed this issue very early in the process. Don’t skip a survey! This is an extreme example but I can tell you it is not unusual to find fences and driveways someplace where they are not suppose to be!
Walk Through Inspection Before Closing
What happens to a buyer who goes to closing and does not stop and inspect the property before the closing? There are plenty of horror stories when it comes to buying vacant homes. How about the couple who rushed in from out of town to the closing of their investment property. They signed all the papers and handed over their check, then went to their new investment. Shocked is the best word to describe their reaction to the fact all the drywall was destroyed because thieves had pulled every stitch of copper plumbing from the home the week before closing. That investment became a huge loss. In fact, the couple ruined their credit because they could not afford the repairs and never made a single payment on the loan they had obtained! Don’t go to closing without a final walk through inspection.
Estimate For Your Out of Pocket Expenses
Make sure that the buyer knows what their out of pocket costs will be before negotiating an offer. Confirm that the purchase agreement has the seller paying all taxes, association charges, and assessments through the date of the closing. If you are buying a bank owned home, do not assume anything is “standard” that the bank will pay.
We occasionally receive phone calls the day before closing of a HUD home sale where the buyers agent is screaming that the settlement statement is incorrect as the buyer is being made to pay for an owner’s title policy. Agents assume that the seller will pay this and it is a very costly assumption. HUD does not, but you have to review their policy to know that. Usually when this costly mistake occurs the agent ends up paying for it and at a cost that is most of the average HUD home buyer agent fee!
Review and Understand the Final Closing Disclosure Form
Before closing get a copy of the closing disclosure. You are suppose to have three days to review the form before you can close. So there is plenty of time to make sure you understand and agree with all parts of it. Review it and make sure all the charges make sense and are as agreed. Settlement entities are left to interpret the purchase documents on many issues and they do make the occasional mistake. It is better to get them corrected before closing than to try and fix them at the table.
Now that you know my list, in your experience, what other buying mistakes exist?