11 Worst Home Buyer Mistakes HOME BUYER: Episode 00004


Are you gearing up to buy your first home, a move-up home or a second/vacation home? Shopping for a home is exciting, exhausting and a little bit scary. In the end, your goal is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes that prevent them from achieving this simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 11 of the most costly home buyer mistakes that could put a hold on that sold sign going on the home you want.

1. Not Knowing What You Can Afford

As we’ve all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don’t forget major expenses that only occur once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month.

If you end up looking at homes that are outside your price range, you’ll end up lusting after something you can’t afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can’t afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking.

2. Skipping Mortgage Qualification

What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get pre-approved not, pre-qualified, for a loan before placing an offer on a home. If you don’t, you’ll be wasting the seller’s time, the seller’s agent’s time, your buyer agent’s time and your time if you sign a contract and then discover later that the bank won’t lend you what you need, or that it’s only willing to give you a mortgage that you find unacceptable.

Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score prior to the closing transaction on the home, like finance a car purchase, apply for credit for furniture for the new home. If you cause the deal to fall through, you may have to forfeit the several thousand dollars that you put up when you went under contract.

3. Failing to Consider Additional Expenses

Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike when you were a renter, you’ll be responsible for paying property taxes, insuring your
home against disasters and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace). Also HOA fees if you are in a development that the HOA is mandatory.

If you’re interested in purchasing a condo, you’ll have to pay maintenance costs monthly regardless of whether anything needs fixing because you’ll be part of a homeowner’s association, which collects a couple hundred dollars a month from the owners of each unit in the building in the form of condominium fees.

4. Being Too Picky

Go ahead and put everything you can think of on your new home wish list, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to or never find a home you could like. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home, or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list – you’ll just have to decide how important it is for you to become a homeowner now rather than in a couple of years.

5. Lacking Vision

Even if you can’t afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home otherwise meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let physical imperfections turn you away. Besides, doing home upgrades yourself, even when you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you.

6. Being Swept Away

Minor upgrades and cosmetic fixes are inexpensive tricks are a seller’s dream for playing on your emotions and eliciting a much higher price tag. Sellers may pay $2,000 for minimal upgrades or staging that you’ll end up paying $40,000 for. If you’re on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder.

7. Compromising on the Important Things

Don’t get a two-bedroom home when you know you’re planning to have kids and will want three bedrooms. By the same token, don’t buy a condo just because it’s cheaper when one of the main reasons you’re over apartment life is because you hate sharing walls with neighbors. It’s true that you’ll probably have to make some compromises to be able to afford your first home, but don’t make a compromise that will be a major strain.

8. Neglecting to Inspect

It’s tempting to think that you’re a homeowner the moment you go into escrow, but not so fast – before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.

9. Not Choosing to Hire an Agent or Using the Seller’s Agent

Once you’re seriously shopping for a home, don’t walk into an open house without having an agent (or at least being prepared to throw out a name of someone you’re working with). Agents are held to the ethical rule that they must act in both the seller and the buyer parties’ best interests, but you can see how that might not work in your best interest if you start dealing with a seller’s agent selling their listing that you are looking to purchase before contacting a buyers agent to be on your side.

10.Not Thinking About the Future

It’s impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Some questions you should ask about your prospective property include:
• What kind of development plans are in the works for your neighborhood in the future?
• Is your street likely to become a major street or a popular rush-hour shortcut?
• Will a highway be built in your backyard in five years?
• What are the zoning laws in your area?
• If there is a lot of undeveloped land? What is likely to get built there?
• Have home values in the neighborhood been declining?

If you’re happy with the answers to these questions, then your house’s location can keep its rose-colored luster.

11.Should I Use More Than One Agent

Many times the question is posed about using multiple agents.
Why not use two or three agents? Isn’t that better than just one?” and “How do I choose a real estate agent?”

When I get ready to buy a house shouldn’t I use at least a couple of agents? To answer this question I will begin by explaining the multi listing system (MLS). The MLS is a computer program that allows real estate agents to place details of real property for sale. This information is then most likely fed to other real estate web sites, however without significant detail. In Florida the MLS is accessible to any Realtor® that is a member of their local Real Estate Board giving that agent access and authority to sell any piece of property listed.

Realtors® work on a commission basis and only get paid when the transaction is fully executed and closed, which means the buyer and/or buyer’s lender has paid the agreed upon price. What is the definition of partner? Webster’s defines it as “one that shares”. You will be sharing confidential information with your Realtor® and that Realtor® will be sharing their knowledge of the market and expertise with you in order for you to get the best house at the least expensive price.

It is a partnership that once applied to the fullest extent you will receive:

1) Better Service
2) Professional Support
3) Confidence and Protection
4) A Real Estate Consultant

So, the next time you wonder if two is better than one. Remember that if you choose your Realtor wisely, one is better than five! If you want to make sure you are being taken care of properly, make sure your Realtor® is given all the information they request in a timely manner. You will find that more and more Realtors® are also requesting that you sign an Exclusive Buyer Brokerage Representation Agreement. This agreement is similar to a listing agreement when a seller decides to sell their home, they give a Realtor® the exclusive right for a period of time to sell their home. At the end of the agreement either the home has sold or it can be renewed. Same with an Exclusive Buyer Brokerage Representation Agreement, either the buyer has purchased a home or do to a change in criteria, the agreement can be renewed taking into account those changes.

Since you are a potential home buyer, you must understand the difference between seller, buyer and dual real estate agents (Not Allowed In Florida, a Transaction Broker is allowed in Florida). Using the wrong type of agent could affect the financial terms of the deal and have significant legal implications. Read on to arm yourself with an understanding of the difference and how to use it to your advantage when buying a home.

There has been a significant amount of talk over the past few years about buyer’s agents and seller’s agents. Real estate law has evolved to require that an agent list who they are representing. This is normally done early in the process through a disclosure document that you must sign that clarifies whether the agent is working for the buyer or seller. A seller’s agents represent the seller. Most real estate agents who show and market houses are seller’s agents. They may be friendly to you as a potential buyer, show you multiple homes and help you through the offer process. However, they normally are working for the seller if you’re purchasing one of their listings and are looking out for the interests of the seller. Conversely, buyer’s agents actually work for the buyer and have a fiduciary responsibility to look out for the interests of the buyer. There are also transaction agents, but we’ll come back to that in a moment.

Normally, this has nothing to do with who actually pays the agent. So, why does it matter? If you are the buyer, it is important for you to use a buyer agent because of the financial, legal and ethical implications. A seller’s agent has a fiduciary responsibility to the seller not to you
as the buyer. This means during the negotiations a seller’s agent will be looking out for the interests of the seller on their listings. Here’s a real life example to help clarify. Suppose an agent discovers that the seller must relocate for a new job, has become highly motivated and is now willing to accept $15,000 under the listed price. If the agent is a buyer’s agent – working for you – he/she will be obligated and probably excited to tell you this information. However, if the agent is the seller’s agent – working for the seller – he/she does not have to disclose this information to you and may withhold the information initially in an effort to get the highest offer from you.

So then, what is a transaction agent? In Florida your will find an agent that says they are performing as a transaction broker( other states may call it dual agency); meaning they are acting as a buyer and seller agent. Be careful in this situation. As a buyer you may want to avoid a transaction agent/dual agency. Realistically, the transaction agent/dual agency cannot fully represent the buyer’s interests without adversely affecting the seller and visa versa. There are some excellent agents that can operate effectively in the transaction agent/dual agency role. However, as a buyer, you should realize the potential conflict. If you want the lowest price on a home, seek a good buyer’s agent whose loyalties are aligned solely with you.

You may be wondering who actually pays for a buyer’s agent. Typically the selling agent lists the property in the MLS (“multiple listing service”) and agrees to split the commission with the agent who brings the buyer. In this scenario, the seller’s agent and the buyer’s agent split the real estate commission 50/50. This means that although the buyer’s agent is working for you, the seller is actually paying for the buyer’s agent. Occasionally you may find a listing where the selling agent does not agree to split the commission with the agent who brings the buyer and in that case you would have to negotiate who will pay for the buyer’s agent fee. You may have signed an Exclusive Buyer Brokerage Representation Agreement that details how the buyer agent fee is paid, by whom and if any credit is given for funds received from the sellers agent.

Understanding the financial, legal and ethical implications of buyer, seller and transaction agent/dual agency, is important to you as a home buyer. Before you start searching for a new home, find yourself a good buyer’s agent. They will be aligned with your interests and have the experience to help you negotiate the lowest price for the home.

Buying a home can seem stressful and overwhelming, and it isn’t without its share of potential pitfalls. If you’re aware of those issues ahead of time, you can protect yourself from costly mistakes and shop with confidence.

For many people, a home is the largest purchase they will ever make, but it need not be the most difficult.


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