Source: Dana Bull.
When purchasing a property, you don’t want to make the wrong move or completely overlook something important. The best thing you can do is educate yourself and be aware of common mistakes buyers make – so you can avoid them and the stress they cause.
1. Miscalculating the Full Costs of Buying
Buying a house is a big deal, literally. It’s likely the biggest financial endeavor of your life thus far. Even with all of the low down payment programs available to first-time buyers, it’s no small feat. Down payment aside, other expenses can really add up. Along the way, there will be a few sunk costs, like paying your home inspector and the appraisal fee. The biggest “hidden cost” that comes as a surprise to first-time home buyers is the closing costs, which cover a wide variety of transactional fees and pre-payments.
Down payment aside, other expenses can really add up. Along the way, there will be a few sunk costs, like paying your home inspector and the appraisal fee.
Closing costs can amount to 2 to 5 percent of the home’s purchase price. The best way to determine a comprehensive list of fees is to speak with all of the key players involved in the transaction (your real estate agent, the lender, the insurance provider, the title company, your attorney, etc.) to get an estimate.
2. Only Fixating on the House
The house is obviously a very important part of the home-buying equation. But, I would argue that its surroundings are equally important. As a buyer, you are investing in the community and particularly the neighborhood. If you’re relocating to a new area, it’s especially critical to analyze things like crime rate, school systems, amenities and public transportation options. With a little effort, you can scout neighborhoods like a pro.
3. Being Close-Minded About Inventory
You know the expression, “Don’t judge a book by its cover.” Well, the same thing could be said for buying real estate. Sometimes we are put-off by a listing online, especially if the marketing efforts are lacking. Before ruling out a property based on poor-quality photography, run through its other attributes.
The same can be said about neighborhoods and housing types that are outside of your current knowledge base. As a buyer, the best thing you can do is to keep an open mind and fully explore your options.
4. Letting Emotions Override Your Wallet
Buying a home can be emotional. It can be hard to think logically when a seller has pulled out all of the stops to make you fall in love with his or her home. Trust me, an immaculate and beautifully staged property in your ideal neighborhood may be difficult to pass up. It’s fine to let a home pull at your heartstrings, and to let the emotions help to guide your decision. However, if the financials are a critical driver of your purchase, you’ll want to balance emotions with logic.
I always recommend creating a comparative market analysis to help you determine a home’s fair market value and justify your purchase price.
5. Getting Distracted by “The Small Stuff”
If you’re new to homeownership, it’s difficult to imagine the responsibility that goes into maintaining a property. Heating/cooling systems, roofs, siding and windows are all fundamental components of a home. Home shoppers love to look at the surface items like finishes and paint colors, but you don’t want to become so distracted that you completely ignore what’s under the hood.
Try to compile a list of the big-ticket infrastructure items and how much life is left in each. Request a disclosure form from the seller and press for answers during your home inspection so that you can budget for repairs.
6. Misunderstanding the Role of Real Estate Agents
Real estate professionals can have a variety of relationships with consumers. Before you go and divulge all your secrets and purchase plans to the agent hosting an open house, make sure you understand the person’s role in the transaction. The agent likely represents the seller and does not have your best interests in mind.
If you aren’t sure where an agent’s allegiance lies, be sure to ask! To eliminate any gray area, you can ask for a consumer-licensee disclosure form, which should detail whether the agent is acting as a seller agent, buyer agent, dual agent, facilitator, etc.
7. Forgetting Contingencies in the Offer
Submitting offers and writing up purchase contracts is serious business. Although much of what you’re signing is boilerplate or standardized language, every property is unique and the offer must reflect any nuances. You’d be surprised by how many things can slip through the cracks in a heated market where buyers are scrambling to present offers in time for a deadline. However, do not assume that a seller will bend if you forget an important contingency. For example, if you’re buying a property that is currently being used as a rental, you should not assume that it will be delivered vacant of tenants – you want to spell out this request upfront.
8. Skimping on Due Diligence
Thoroughly researching a property and neighborhood takes time and energy. Trust me, it’s worth it! Potential headaches and major issues can easily be avoided by taking a few extra precautions like checking the sex offender registry and having a meet and greet with neighbors. I also advise that you speak with the building department to review permit files on the property and learn about new development work that may impact property values.
9. Letting Buyer’s Remorse Take Over
Second-guessing your decisions or playing the “what-if” game is normal, but it can also be self-destructive when it becomes a point of obsession.
Buyer’s remorse can happen to anyone and it’s not a great feeling. Fortunately, there are ways to minimize regrets before and after a home purchase. By creating a needs and wants list and really sticking to it and not comparing your home purchase to others can help keep you on track and in a good state of mind.
10. Blaming Other People When Things Go Wrong
Investing in real estate always holds some level of risk. It’s only wise to make well-researched choices and to hire experts throughout a transaction. Sadly, even with all the good intentions, sometimes things go south. What’s worse is when you feel like you’re stuck holding the bag. Say, you bought a house and quickly find out the finished basement has a water seepage problem. While it would have been nice for the home inspector to catch the issue, it may not have come up in a visual assessment.
My advice? Be your own advocate. Ask the hard questions and think about things from a holistic viewpoint. Also, protect yourself. It’s always best to have a reserve fund to cover the unexpected (when and if they should arise).
Lastly, don’t make the mistake of thinking this is an exhaustive list! Every deal is different, but by avoiding these common mistakes you’ll be putting yourself in a stronger buying position.