The Top 7 Biggest Mistakes Home Buyers Make
By: Ralph D. Nudi
Weichert, Realtors® - Unum Properties
Kenosha Real Estate Expert
With my experience as a mortgage professional and real estate agent, I have helped hundreds of people over the years buy their homes. As a foreclosure intervention specialist in the real estate industry, I work with dozens of people each year that are losing their home in foreclosure. Unfortunately their are plenty of mistakes buyers and their agents make during the home buying process that can really cost you as the buyer later on. Here are my top 10 real estate buying mistakes, and how to avoid them. Of course some of these are Wisconsin specific and is not intended as legal advice. Check your local laws if you reside or are buying outside of Wisconsin, and consult with an attorney for legal advice.
Not PLANNING your mortgage first.
Most people start looking at homes before they even know what mortgage strategy to take. This means they find the home they LOVE first, and after getting emotionally involved with a house, they look for ways to pay for it. This problem is not unique to buying a home. The average consumer takes advantage of special finance options on everything from automobiles to furniture, to appliances, televisions and home theatre equipment, to boats and ATV's based on emotion. They convince themselves that they "have to have it" and find ways to finance it at any cost.
Getting pre-approved for a mortgage before hand is not only necessary, it is really the BARE MINIMUM and perhaps even insufficient when home shopping. Choose a mortgage lender that will help you to integrate your mortgage into your overall financial and investment goals. The key is not to find out how much you qualify for, but how much you can afford while still leaving enough money in your budget for other priorities such as savings, retirement and education planning, and long and short term investment goals. This number may end up being a bit smaller than the total amount you actually qualify for. There are plenty of programs that will help you to get yourself into financial trouble. It is your responsibility as a consumer to educate yourself financially and exercise fiscal restraint. Most lenders and Realtors® want you to be qualified at the maximum possible amount, their commissions will be higher if you spend more money. You should avoid doing business with these people. Also, avoid ARM (Adjustable Rate Mortgages) unless they are part of a financial plan that you understand. These products DO have their place, but it's up to know whether or not they fit in to your strategy. Choose professionals that will be trusted advisors, and not just tell you what you want to hear.
Not understanding how AGENCY works
When a Realtor® is showing you properties, they should be insisting that you either enter in to a buyer's agency agreement with him/her, or provide a "Disclosure of Agency" form for you to sign or initial.
If you are not in an agency agreement with a buyer and you are looking at homes with an agent, that agent is a subagent of the seller and has a fiduciary responsibility to that seller. If that agent is giving you advice about how to effectively negotiate a price or terms favorable to you, or is in any way acting in a manner that gives you an advantage over the seller, that agent is violating that responsibility. That agent may be making a mistake based on ignorance or laziness, or that agent may just be unethical. Either way that agents lack of competence or ethics is a liability to you as a buyer, and you should RUN AWAY and find yourself another agent.
Often times a buyer doesn't want to sign a buyer agency agreement with a Realtor® out of fear of being forced in to a long term relationship with an agent before knowing if they are working with the right agent for their needs. Remember, you call the shots. You should ALWAYS want an agent representing your best interests, but you can always ask an agent to modify the agreement to only apply to properties he or she shows you, or ask for an "escape clause" or right to cancel the agreement at a later time if the agent is not performing up to your standards.
Remember ANY AGENT when acting as your agent can show you ANY HOME offered for sale with any other agent through the MULTIPLE LISTING SERVICE or MLS. Once you are in an agency agreement you should refer to your agent for information on any property you come across. Not doing so can put your agent in position where he/she may not be allowed to negotiate on your behalf. This includes visiting Builder's model homes. In most cases you will not have to pay your agent, your agent will be paid by the listing brokers sharing of commissions collected from the seller.
Not fully understanding all the provisions of documents you are signing
Ask your agent to explain the Offer to Purchase and other addendums and documents before you find the property you want to write an offer on. It doesn't hurt to ask for blank copies of the documents so that you can familiarize yourself with the language in those documents. Look for things you don't understand and ASK QUESTIONS. The only DUMB QUESTION is the one you didn't ask, and should have.
Not considering RESALE VALUE
All too often buyers are looking ONLY at their own wants and needs when buying a home, and not considering the investment end of their purchase. Although you may think you will stay in your home forever, statistics prove otherwise. Chances are you will move within 5-7 years, and the equity you build (or don't build) will have a large impact on your future options.
If you don't currently have children and are buying a home with 3 or more bedrooms, you should seriously consider school districts. Although they will have no impact while you are living there, they will certainly have an affect on the ability to resell the home to families with children. Other issues may include being on or near a busy road and other dangers such as high voltage wires or near retention ponds.
Try to avoid letting emotion having too much of an effect. Some "niceties" such as a finished basement/rec room, hot tub, or swimming pool may seem fun to you, but will do very little to add value come time to sell.
Not getting a Home Inspection
Time for a little story... When I bought my first home, I got a home inspection to make sure there were no hidden problems. I also got an inspection for my second home and for my first investment property. When I was ready to buy my third home I was in the mortgage industry and owned rental properties. I had family "in the trades" and I was an expert... right?
I couldn't have been more wrong. The home I bought had a very nice finished basement, where emotion took over and I envisioned family holidays and lots of good times. The first spring in that home, I found my beautiful basement flooded. A home inspection would have saved me tens of thousands in legal fees and money spent to remedy the situation. The point is, an ounce of prevention is cheaper than a pound of cure.
Not getting the proper title coverage
When buying a home, you need to have title insurance for the following reasons:
- Undisclosed heirs.
- Improperly recorded legal documents.
- Gaps in the chain of title.
- Forged deeds, mortgages, wills, releases of mortgages and other instruments.
- Deeds by minors.
- Inadequate legal descriptions.
- Conveyances by undisclosed divorced spouses.
- Issues of rightful possession of the land.
- Special tax assessments.
- Utility easements.
- Probate matters.
- Documents executed under false, revoked or expired powers of attorney.
In addition to title insurance, make sure you have GAP COVERAGE. This is a blanket endorsement insuring any events that may have affected title after the "EFFECTIVE DATE" of the title commitment but before closing.
Not taking a "Final Walkthrough"
How would you like to walk into your new home and find out that the sellers damaged every piece of molding and scratched the walls and hard wood floors when they removed furniture? Or find a huge stain on the wood floor that had been hidden by a bed? You want to find damage before closing, because it'll sure be more difficult to recover funds to make repairs after the papers are signed. Do a final walk-through after the house is vacant, on the day of closing if possible, and don't let anyone talk you out of it.
For more information on real estate see my web site: www.RalphNudi.com
Ralph D. Nudi