Mistakes that cost buyers thousands of dollars, and how you can avoid making them…
They don’t hire a buyer’s agent
Many people still think that you’re going to get the best deal on a home if you purchase directly from the listing agent. While this used to be true in the time of exclusive sub-agency where all agents worked for the seller, it’s no longer true. Why? Because in today’s market you can hire an agent to work for you, to negotiate for you, to get YOU the best price. If you purchase direct from the listing agent, then the best that agent will be able to do for you will be dual agency (if it’s available in your state) where they work for both you and the seller. That’s not the right way to get the best price. Get a good negotiator on your side and let them do the work of getting you the best price available.
They don’t interview agents
When you are shopping for someone who will represent your interests in what may be the biggest purchase of your life, you want to make sure it’s the right person. Get referrals from others who have had good experiences. Ask hard questions of the agents you interview. Questions like:
How long have you been in the business?
How many buyers do you help purchase each year?
Do you act as a buyer’s agent?
What is your knowledge of the area we want to buy in?
What is your average sales price?
How many other clients do you have right now? Will you have time for us?
What days and times do you work?
Only about 20% of the agents in the industry sell more than 12 houses per year. Every year there are a huge number of people who get into the business. 70% of those who get into real estate today will be out of the business before the end of the year. You want to make sure that you’re working with someone who has the experience with both the market and the area that you are buying into, to be able to help you make the right decision for you.
They don’t act quickly when the right house comes along
If you have picked a good real estate agent, then the likelihood is that he or she will find you the right house for you within the first 5-10 houses that you see. Because they haven’t seen many houses, they don’t know what the market is and they don’t realize that this is a great price for the house they are looking at. If they don’t trust their agent to tell them (and if you don’t trust your agent, you need to ask yourself why you hired them), then they feel they need to see more houses before making a decision. Invariably, if the house is a good deal, it will be sold before you are ready to buy it. If you need to do research, then do it in advance in front of your computer, before you head out with your agent. That way when you see the house of your dreams you’re ready to bid on it right then. Bring your checkbook – good deals sell quickly.
They shop for their mortgage by their rate only
Any experienced agent will tell you that there are many mortgage lenders out there who will quote you a rate on the phone or on the internet and then, when you’re at the closing table, you’ll find out that they’ve changed the rate, terms or closing costs in such a way that the loan is much more expensive than you would have gotten with a more reputable lender. And that’s if you’re lucky enough to get to the closing table. Many of these lenders bring you in with offers of great deals and then fail to underwrite the loan at all, leaving you high and dry and scrambling for another loan before you lose the house. Do yourself a favor. Ask your real estate agent what lender they like to use. If that lender is within 1/8 of a point of the loan you can find elsewhere from any reputable lender, then use the real estate agent’s lender. Why? Because your agent has pull with that mortgage officer. If they don’t get something done, or if there’s a problem, that mortgage officer has a relationship that they need to maintain with your real estate agent that will motivate them to fix the problem quickly. Otherwise, you may find yourself sitting in the office of your lender refusing to leave until someone speaks to you. And this brings us to our next mistake.
They use an out-of-state lender
Invariably, there are problems with any loan. There are very few deals these days that don’t have a hiccup or two along the way. If you work with a lender who is out of state, you may find yourself paying to FedEx paperwork that they forgot to ask for. Or, in cases where there is a major problem, you may find yourself in voicemail hell trying to get through to someone who will actually solve your problems. It is not unheard of for lenders who don’t want to deal with you to simply place you on hold and never come back. If you have a local lender, at least you can sit in their office until they deal with you. If you’re hundreds of miles away, you’re stuck with the phone, and if they won’t answer it, you’re just stuck.
They skimp on the inspections
Many buyers think that they can bring in their uncle or friend to look at a house and make sure everything is OK with the structure before purchasing. In this way they seek to avoid the cost of a home inspection. The problem with this approach is that your uncle, friend, etc. is not a licensed home inspector. No matter how much construction work they’ve done, they don’t have the piece of paper that will convince the listing agent that work needs to be done. Plus, if they miss something what recourse do you have? At least the standard home inspector has insurance that will cover you in the event they miss something major. You’ll have to sue them, but you do have recourse. Are you really going to sue your uncle or friend? Not to mention the fact that a home inspector will look for things that your uncle will not. They check the polarity of the outlets. They trip the GFCI breakers. They look at the flow of water from the well. They test the water quality. They open and close every window in the house. There is a whole list of things that the inspector checks that you would never know about without the patience and the right equipment to find out. Spend the few hundred dollars. It’s well worth it.
They don’t pay attention to the dates on their purchase and sale
The dates on this agreement are critical. If you don’t meet even one of these dates, you run the risk of losing your entire deposit. Depending on the area you are buying in, this could be as much as 5-10% of the purchase price of the house. It’s no small matter. Something as simple as applying for your mortgage one day late could mean disaster by the time you get close to closing. A nitpicky seller could use that as an excuse to keep your deposit and not sell you the house. Inspection dates are even more critical since these are the dates you have by which to respond to get problems fixed, or to get out of the purchase with your money back. Mark these dates well and make sure you meet them all, or you could be very sorry.
They believe that the bank appraiser will inspect their home
The bank sends an appraiser out to the property you want to purchase for one reason only – to make sure the bank is making a good investment. The appraiser determines a value for the home based on comparable sales in the area and the condition of the home. They are looking for major problems like missing fixtures, leaking roofs, peeling paint, etc. On some first time homebuyer loans they have certain conditions that the house must meet in order to qualify for the financing, but those conditions do not remotely constitute a full inspection of the house. That is not the job of the appraiser. They work for the bank to determine value. An inspector works for you to determine the structural condition of your property. Don’t confuse the two. They do completely different jobs.
They believe that private mortgage insurance pays off their house if they die
Private mortgage insurance does not insure you, it insures the bank. It is basically the insurance company guaranteeing the bank that you will pay off the first 20% of your mortgage balance. This insurance is the reason that banks can now lend to people with no money down. They aren’t taking more risk, they are just passing off that risk to the insurance companies for a fee. This insurance kicks in if you default on your loan. It will pay the bank the balance of 20% of the purchase price of the home. Your credit will still suffer and if you die, your mortgage is still due. This insurance does nothing for you except allow you to purchase the home with less than 20% down.
They try to time the market
There are very few instances of the real estate market declining greatly. Buyers who wait for the market to come down often find themselves renting for many years, losing all of the equity they could have been building if they had just bought when they first thought to do it. In today’s word of changing interest rates, it is tempting to “wait and see” if the interest rates come back down. The fact of the matter is, that even though today’s rate is higher than yesterday’s, it is still significantly lower than it has historically been. Buyers who wait to purchase could find themselves facing the more typical rates of 7%-9% interest. And the house you want today, will be even more expensive tomorrow. If you want a home, go buy it. There’s no better time than the present.