krate.com
20 steps to a great home buy in 2007
Wednesday March 21, 6:00 am ET
Dana Dratch
When it comes to real estate, timing is
everything. And if you're buying this year, your timing is perfect.
For most homes in most areas, it's a buyer's
market. That means you'll see plenty of houses on the market with prices
that have slowed, stabilized or, in some places, even declined. And
motivated buyers will likely be more amenable to making concessions.
1. Know your score. Pull your credit report and purchase
your credit scores. "It's especially critical this year because the government
has started cracking down on mortgage lenders offering nonstandard financing,"
says Chicago-area attorney Diana Brodman Summers, author of "How to Buy Your
First Home." A small change in your credit rating can make a big difference in
the amount you pay for your home over the life of a loan, or even whether you'll
be offered a loan at all.
Do this early because if you find mistakes that lowered your
score, you'll need time to correct the record before you apply for financing.
And, if you find that your scores are correct, but lower than you expected, you
can change your habits, pay down some balances and rack up a few more months of
good marks on the record before you obtain financing.
2. Get preapproved for a mortgage. Preapproved, not
prequalified. Prequalified simply means you're good for the loan -- if your
income, debts, credit and other factors are exactly as you stated and can be
documented. In other words, it's more like wishful thinking. Preapproved means
these things have already been checked and verified. This is always a good idea
in any market, especially now. Along with a lot of housing choices, there are
many more selections on the mortgage menu in recent years too, says Tyson.
Sorting out the mortgage first will let you concentrate solely on the loan
terms, without the added pressure to chose something quickly or risk losing your
"dream house." Since you're likely to have more options in terms of properties,
this step will also help you narrow the field to only those homes you can truly
afford.
3. Determine your dollar limit. Decide how much you want
to pay, not just how much you can pay. The maximum for which you qualify isn't
automatically the amount you want to spend, says Summers. You may want to buy
less house to allow for a future where one of you might want to stay home with
the kids or make a career change. "Everyone would like to see you move into a
bigger house -- they would get a bigger fee," says Summers. "But that's no good
if you're miserable." And if you get overextended and life throws you a curve,
like a job loss or family illness, "you have to have a fudge factor," she says.
4. Make a list, check it twice. Another way to narrow
your search in a market with many choices is to really zero in on the individual
features of your future home. Which items do you really need? Which do you
merely want? Which don't matter? And what would be a deal-breaker? "You've got
to make sure that what you're looking for is really what you want," says
Patricia Fitzgerald, broker/owner of Coastal Properties in Jupiter, Fla. If
you're buying the home with a spouse, make up your own separate lists first,
then try to integrate them. That way, you approach sellers and agents as a
united front -- and you're more likely to get find what you want.
5. Do your homework. If there are communities you like,
do the in-depth research now. Buyers, especially in a market with a lot of
choices, "get caught up in finding the 'perfect house,' and don't do their
research," says Tyson. Instead, "you want to be able to take advantage of the
fact that we've got a lot of choices."
-
Study the quality and cost of living. If you're semi-local,
shop in the community for a week or so. Buy groceries, gas, and all the
little necessities in the same places you'd patronize if you already lived
there.
-
Sample the way of life by checking out things you use, like
libraries, health clubs, bookstores, restaurants and movie theaters.
-
Test the commute. It's one thing to drive an area on Sunday
morning and look at homes. It's another to roll out of the driveway at 7
a.m. Monday morning and fight commuter traffic. So drive it during rush
hour. And if you want to use public transportation, check out those options,
too.
-
Scope out the schools. If you have kids, or are planning a
family, research the neighborhood schools. What do they look like, and what
kind of reputation and scores do they enjoy?
-
Read the newspaper. Almost every community has a local
paper. Subscribe -- via mail or online, and keep up with the local
happenings. From water quality to zoning, you're likely to get the inside
information you really don't get anywhere else.
6. Hire a buyer's agent. A good real estate agent can
help you focus your search and avoid the pricing pitfalls. Ideally, you want
"someone patient, someone focused on the neighborhood you're interested in,"
says Tyson. Talk to several agents. "Have they taken advanced classes or
received a designation?" says Fitzgerald. "Is it somebody that you feel
comfortable with, somebody who's going to listen to your needs? Is what you're
looking for what they're showing you?" Don't fall victim to the trap that you
can save money by not using an agent. The seller, after all is paying that agent
in most cases, and even if there's only half a commission involved, don't you
think the seller wants to save that same amount you have your eye on?
7. Don't trash the house. It's become almost routine to
point out all the things you don't like about a house to shake the seller's
confidence and try and bring down the price. This can be a crucial mistake.
First, it makes them angry. Second, once you've insulted their house (and them),
it's going to be tougher to get them to negotiate a good price. If you're at the
stage where you're making an offer, but there are details you really can't live
with, be tactful and kind, says Ron Phipps, broker with Phipps Realty in
Warwick, R.I. Instead of declaring that their 1950s kitchen is horrible, say "I
understand the kitchen is original." Then follow with something along the lines
of "obviously, competing houses have been updated and that would be a priority
for me," says Phipps.
8. Study comparables. Do this before making a first
offer. When you look at the comps (which should be within six months and ideally
within three months), what's the relationship between the list price and the
sales price? That's going to give you a good idea of just how much room you have
to bargain. And just how much your first offer cuts from the asking price can
vary with the town, neighborhood and price range. "In some areas of the state,
people wouldn't be distraught," at an offer than came in 15 percent to 20
percent below the asking price, says Phipps. "In my area, the sellers would be
offended and you wouldn't get a counter offer." And that's why it can pay to
have a professional on your side. Especially in today's market, "you need a
buyer's agent to explain the nuances of the market," he says.
9. Stay current. Keep up with the market while you're
shopping. In the areas you like, watch the for-sale signs go up and come down.
How long are homes staying on the market? Look at the listing for the asking
prices. Comb the local paper to see what they actually bring when they're sold.
What's the relationship between sales price, value and asking price? The trends
you see can really help when it's time for you to make those offers.
10. Determine the real value of the property. Buyers
sometimes focus on how large an offer it will take to "get" the home, and lose
site of what it's actually worth. But before you make an offer, sit down and
determine, based on tax records, which can often be found online, comparables
and the other data, just how much is the property actually worth? Then analyze
the relationship between the actual value of similar houses and their selling
prices. Often there's a pattern, and that can help you too, says Phipps. In
addition, knowing the home's real value serves as a good touchstone to keep you
grounded during negotiations.
11. Research the sellers. Are they motivated? Do they
have to move by a certain date? While your offer should be determined by how
much the house is worth, "There's nothing wrong with doing some intelligence on
the seller and using that to your advantage," says Phipps. Your best source: the
agent or the sellers themselves. If the listing agent or the sellers are at home
when you view the property try to engage them in small talk. Ask them where
they're going and why. "It's amazing how many sellers and agents volunteer a
lot," says Phipps. A buyer's agent can also help in that area too, says Tyson."
Your agent should do as much inquiring as possible on the sellers and their
situation," says Tyson. While you do have to get a handle on why they're
selling, "If you lowball someone, they're not going to think you're serious," he
says.
12. Look at the real numbers. Was it a for sale by owner?
Have the sellers used other agents? And how long has it really been on the
market? The current listing may show that the home has only been on the market
two weeks. But it may not show that it's been on the market before -- and
recently. Some agents will pull a property off the MLS, and then put it back on
the market to reset the clock, says Phipps. A buyer's agent can look at the
listing records and determine just how long, in total, these owners have been
trying to sell that home. And that can make a big difference in the offer you
make.
13. Leave room for a second offer. Many sellers will
assume that if you knock $20,000 off the price the first time around, you're
looking for a counteroffer that will reduce the asking price by $10,000, says
Phipps. But it's a fine line to walk. Offer too little and they won't believe
you're a serious buyer; too high and you leave little room to negotiate.
14. Have a backup plan. Don't set your mind on one house
and say it's that or nothing. "It helps you remain more objective," says Phipps.
And you won't get carried away and pay more for a house than the house is really
worth. And if you are seriously considering other homes -- and could be just as
happy with other choices, have your agent convey that point, says Phipps. Doing
the negotiating yourself? Be respectful and honest. Alert the seller to that
fact without threatening them with it. Something along the lines of "we're
looking at two other houses, we know the numbers there are workable, and we can
get either at a good price." But don't say it if it isn't true.
15. Put all extras in your first offer. Negotiations are
more elastic in the beginning, when the buyer and seller are most likely to want
to reach an agreement, says Phipps. It's a lot easier to include that entire
list of concessions or repairs in the beginning than to drop it in at the very
end. And that list should include a warranty deed and title insurance, he says.
16. Don't let them play mind games. "If you make a good
offer, within the realm of reasonable, and the seller rejects it outright, move
on," says Phipps. Some sellers don't really want to sell. Others like to play
games. And that just slows your search for a home. "In this market, it makes
sense to take advantage of the breadth of inventory and deal with a seller who
wants to sell," he says.
17. Surrender where you can. You're going to be dealing
with the seller throughout the process, so on points where it really doesn't
matter, giving ground can be smart, says Phipps.
18. Call your insurance agent. How will the neighborhoods
you're shopping affect your home and auto premiums? Your agent will be happy to
tell you. And it's even more important since some areas are seeing large
increases in premiums in the wake of natural disasters. "It's free knowledge,"
says Summers. And like the price of groceries in your new community, "it all
goes into the cost of living and you never think of it until you move there."
19. Call the power company. Look at your current power
bill to see just how much juice you're using each month. Now call the would-be
supplier in the neighborhood you're considering. How much would it charge for
the same power? "It may require a little math," says Summers. But it can save
you from sticker shock after the move.
20. Educate yourself. "Education is more valuable now,"
says Tyson. "People have trepidations and fears because they realize that real
estate doesn't go up every year." But with low rates and decent prices on
housing, he says, "it's a good opportunity to get into the market."
