In Other Words, Don’t Do This!
If you are buying a home, you have no doubt noticed that the local real estate market in the Scotts Valley area has been a hot one where buyers are lining up to see homes and multiple offers are the norm. As of this writing, 70% of single-family homes for sale in Scotts Valley are already pending sales.
So how are some buyers getting into homes faster than others? The money looks the same, doesn’t it?
Truth be told, there is a strategy that many agents and home buyers use to gain the competitive edge when trying to negotiate the purchase of a home and the successful agents and buyers usually avoid the following 21 don’ts of home buying. In addition, once you are in escrow, following these tips will help you towards a smoother and happier transaction in most cases.
#1 Don’t do anything without first talking and consulting with a lender and real estate agent. Very important. Your lender will pre-qualify you, advise you of the many different loan programs available to you, let you know how much of a down-payment you will need and what your monthly payments will be. Your agent will discuss and consult with you on prices and homes available on the market and what homes have sold for to ensure that what you are looking for is attainable.
#2 Don’t work with more than 1 agent. It’s OK and smart to talk to more then 1 agent before you figure out who you want working for you, but once you have chosen an agent, stick with him or her. Don’t continue to shop for agents. Since agents get paid only when the transaction closes, a good agent will really work for hard you. If the agent feels that you are working with several agents, they will lose their motivation to work hard for you. Remember, Loyalty Breeds Loyalty.
In addition, word travels fast in the tight-knit real estate community and you do not want to get a reputation of going from agent to agent or else you may find a difficult time finding a good agent who wants to work with you knowing that you are not committed to them.
Plus, agents don’t like spending their day showing homes for other agents only to have the other agent write up the offer. And I do not blame them. Don’t get me wrong, on occasion I have no issue letting someone in a home that already has an agent and they were unavailable, I’m ok with that because I am doing it for the seller as well. But an agent’s responsibilities and duties really are to go out and canvas neighborhoods and other agents as well a MLS to find their buyers more homes, and it is equally in the job description of the agent to arrange and be present for the showing to their clients.
#3 Don’t work with an agent or lender you don’t like or trust. Need I say more? The relationship you will have with your agent and lender will be a very close relationship as they will work hand in hand for you for 30, 60, 90 days or more. They are going to know a lot of personal information about you that most of your friends and family will even know. There could be a time when you might have to rely and trust that they are doing what is right for you. You will have to put your trust on them as they could make a decision that could affect your finances over the next 30 years.
If you don’t feel good about your agent or lender, find someone else. Life is too short. Trust me.
#4 Don’t always take real estate advice of friends, family, co-workers or neighbors. It never fails. Once you tell a friend or family member that you are buying a house, all of a sudden they become real estate experts and will give you advice on how to buy a home or what type of loan you should apply for. Not that they don’t know what they are talking about and I certainly do not want to discredit their advice, but chances are that their financial situation could be different then yours – credit issues, income, down payment – and it is also possible that it was a different market at the time they bought or sold.
If you can’t rely on your agent to get the proper advice, see item number 3 above.
#5 Don’t spend all your time looking for homes on the Internet. The internet is a very powerful tool and there is a lot of great information out there, but it does not always have every single home that is for sale. Many agents have what is called “pocket listings” where a seller will not want to go on MLS for some reason, or they have homes that are coming up and nobody really knows about them just yet.
Your agent should be networked and connected to other local agents to stay on top of opportunities. You may also see a posting of a home on the Internet that is not on MLS. If you do, let your agent know and have them arrange a showing for you with your agent being present to show you the home.
#6 Don’t charge credit cards or have your credit report pulled by anyone else other then your lender. If you buy goods on credit or continue to have your credit report pulled, it could affect your ability to purchase a home. Lenders qualify you based on your credit score, income and debts. One extra debt on your credit report could put you over the edge of qualifying for the home of your dreams. Also, continuous credit inquiries on your credit report can take points off of your credit score even if you don’t buy anything. Avoid having continuous credit checks pulled on you.
More food for thought, most lenders will pull a new credit report before they actually fund the loan. They usually do this 1 to 2 days before close of escrow to make sure that you have not bought anything on credit or are thinking of buying anything on credit before you close escrow. I actually had a client lose their home and almost lost their deposit because they bought a car with a $500 monthly payment right before close of escrow causing their debt ratios to soar above the acceptable guidelines. Remember, it isn’t over until it actually closes escrow.
#7 Don’t transfer funds, move money around, make large deposits into your account without receipts or close bank accounts while in escrow without a complete paper trail. Because lenders have to verify your source of funds and make sure you are not borrowing money for a down payment, they want to have a complete paper trail of all of your money. They don’t want you borrowing the money because eventually you would have to pay it back and it could put a strain on your ability to make your monthly mortgage payment.
If you for any reason have to transfer funds or make large deposits, consult with your lender before you do it so that they can advise you how to do so.
#8 Don’t wait to save money for a larger down payment. Due to the appreciation rate of homes and the availability of low down payment financing, waiting to save more money for a down payment may not always be the smartest thing. You could spend the next 6 months saving $10,000 for a down payment but the same house can appreciate and cost you $10,000 more. Not to mention the fact that you have missed out on 6 months of tax write-offs.
Also, did you know that for every $1,000 that you borrow at a 4% interest rate over 30 years your monthly payment is only $4.78? So if you save another $100,000, you will be saving about $477 in monthly mortgage payment.
However, if you need more money to qualify, then that makes it a mute point. 🙂
#9 Don’t make an offer without having your agent prepare a CMA. Make sure your agent prepares a CMA (comparative market analysis) to help you determine the value of the home you are looking at. A CMA consists of comparable properties For Sale, Pending Sales and Sales that have closed escrow in the past 3 – 6 months in the same neighborhood. This is the same information an appraiser uses to make an estimate of value in an appraisal.
You want to make sure you are not over-paying for a home. However, with the new lender and appraiser guidelines that have tightened up, even though you may agree on the price, the lender will still have to agree on the price as well as they will not lend more money on a property than what it is worth. I always think that this is a good sort of “insurance”.
#10 Don’t make low-ball offers on a well priced home that already has other interested buyers or other offers. While I am an advocate for trying to get the best deal out there, in many markets that are hot markets your low-ball offer will not get the job done nor will you get a counter-offer if you come in too low with other offers also already on the table.
If the market is a hot market and the home has been sitting for a while with no offers, it could be over-priced so by all means do your homework and come to a reasonable conclusion as to what it is worth and offer lower than asking price. Well priced homes in hot markets do not last long, but over-priced ones do. Run the numbers and determine if your offer is reasonable before you write the offer.
However, if you have done the math, did a value analysis and you determine that the home is priced way above comparable sales, unless you are paying cash, you may have an issue with the appraiser.
A good real estate agent should be able to guide you with what an acceptable offer price should be.
#11 Don’t make an offer without loan and inspection contingencies even in an as-is purchase. The purchase should always be contingent upon you being able to obtain the loan and the condition of the property being acceptable to you. Unless you are a licensed contractor, you may not know the full extent of any needed repairs by just looking at a property.
In addition, although you may have a pre-approval, things change, rates change or you may have even been promised something in the beginning that you are no longer being offered and what you now have is unaffordable. This is a very valid concern, I have seen it happen.
When you have the approval and loan commitment, review the figures and make sure you are good to go before you remove contingencies.
#12 Don’t accept promises, put it in writing. Are you being promised new paint, new carpet or other repairs/upgrades? Put it in writing! If it is not in writing, it doesn’t exist. Simple as that.
#13 Don’t sweat the small stuff, look at the entire picture. Don’t lose or blow a deal over a doorknob or a $50 repair. Like a wise man once said, “Don’t step over dollars to pick up nickels and dimes”.
#14 Don’t take your agent’s advice on legal or tax issues. Unless they are an attorney or CPA, you should not rely on their legal or tax advice. Always seek the advice of an attorney or CPA for legal or tax questions.
#15 Don’t sign anything without understanding it. How much more can I explain this. What you are signing are legal and binding agreements. If you don’t understand it, have it explained to you until you do or ask to take the documents home so you can seek the advice of a qualified professional or even an attorney.
#16 Don’t rent back the property to the sellers without a security deposit. Sometimes a seller may have to rent-back the home you just purchased from them because their new home may not be ready when your sale closes. That is OK, but what if while they are moving out, they accidentally tear the kitchen linoleum when moving the refrigerator? It has happened. Without a deposit, you could have a problem.
#17 Don’t close escrow without a walk-thru. You want to make sure before you close escrow that the home is in the same condition as when you first saw it and all repairs agreed upon by you and the sellers have been completed. And not just completed, but in a workmanship-like manner.
#18 Don’t expect everything to be perfect and go smoothly. Because we are all human, mistakes can and do happen. Or sometimes inspectors, appraisers, lenders, repairmen and others involved in the transaction could be backed up sometimes causing delays.
If you are flexible and just realize that these things can happen and you may not have any control over them, you will sleep a lot better.
#19 Don’t quit your job or change jobs. This sounds silly but I have seen this happen! There are some exceptions. You can quit your job and start a new job as long as it is in the same line of work with comparable pay.
However, new verifications of employments will have to be sent that could cause a delay in the closing date. If your new job pays you less, you could have a problem qualifying. Also, if you have just received a degree, diploma or training for a completely different field and will be starting an entire new career in that new field that you received training for, you may be ok. But BEFORE you do anything, talk to your lender immediately and ask them what the best course of action would be.
#20 Don’t ever negotiate directly with the seller. Always use your agent to negotiate with the seller’s agent. That is what they get paid for and it avoids confusion and problems that could result from misunderstanding the seller or you.
#21 Don’t buy a home just to buy a home. Make sure that it fits your needs and that you are happy with the purchase. After you buy, you can’t just give the house back and ask for a refund just because you changed your mind. While I always stress not being too picky, I also stress not settling for something that just does not and will never suit your needs.
Robert Aldana is a 29+ year licensed real estate veteran with American Dream Realty in Scotts Valley, and also a long-term resident and homeowner here in town. He is the founder of MyScottsValley.com and the popular local news and events page at Facebook.com/MyScottsValley.
He was voted as the “Rave” winner in the category of “Favorite Real Estate Agent” in the Scotts Valley Press Banner’s contest for 2014, and also awarded the Scotts Valley Man of the Year in 2014 for his contributions to the community.
Robert was also a nationally syndicated real estate journalist and was a highly sought after interviewee on the topic of real estate by local, national and even international media, in addition to appearing on HGTV and local NBC’s “Best of the Bay”. Many of his articles and interviews can still be read at RobertAldana.com, DeadlineNews.com, RealtyTimes.com, Forbes.com, among many other real estate and finance news sites and publications.