18 Common Home Buyer Mistakes

When doing something for the first time, like buying a home, mistakes are expected. Some say, “learn from your mistakes” I say, “learn from the mistakes of others”. Many first time and repeat home buyers are smart enough to do research to educate themselves and the Internet is a great source but not the only source. I typically spend one to two hours with first time buyers going over all the ins and outs including common mistakes. I have jotted down many of the areas real estate buyers should keep in mind during the home buying process.

1. Know how much home you can afford
Many first time homebuyers spend time researching neighborhoods, looking at homes on the internet, and even driving around before fully considering the cost of purchasing a home. One of the first things buyers should do is meet with a loan officer and get pre-approved for a mortgage. To make sure you are dealing with a quality loan officer ask if they typically use a processor. If they do then chances are they don’t fully know the loan process and the processor is probably working with several loan officers juggling many loan applications. Try to find a loan officer that is a control freak, as they are good at avoiding unforeseen problems and always meet with at least two loan officers. Be sure to get a Good Faith Estimate from each loan officer and compare.

2. Document and maintain your financial status
If you are pre-approved for a loan, do not change your financial status without consulting your loan officer. Purchasing large ticket items like a car, a boat, furniture, a washer and a dryer, or canceling a credit card, or not paying rent are all reasons why a loan could be denied before closing do to the change in your financial status.

3. Choose a qualified real estate agent
Unless you are a Realtor or an attorney you should find a good Realtor early in your home search process instead of waiting until you find a place. Since Realtors have direct access to the MLS (Multiple Listing Service) it only makes sense to use their knowledge and resources to get a jump start. The trick is to find that qualified Realtor that you will work well with. Experience, education, intelligence, and availability is a good starting place to help distinguish Realtors but you’ll have to make the choice and don’t be afraid to change Realtors if your needs are not being met. Also because of all the legal forms involved in a real estate transaction you will need a professional on your side.

4. Be cautious of Foreclosures
Just because a place that sold for $500,000 several years ago and is now offered for $300,000 does not make it good deal; maybe the place is only worth $250,000. Normally foreclosures are worth less because most homes owned by lenders or banks have been sitting vacant for months and many have been vandalized. Extensive repairs will probably be required and don’t expect the bank to repair anything before the close of escrow; foreclosures are typically sold-as-is.

5. Control your emotions
For the amount a home costs don’t let your feelings override your common sense. Owning a home is not cheap and neither is remodeling. Try to see the big picture and take everything into account. Many homebuyers don’t anticipate the additional cost for repairs and maintenance, or for an increase in utility costs. Consider the age of the place you want and how well it appears to have been treated by the previous owners. Buying a home is not just about the money that you spend upfront; it's about all the rest of the money you have to spend beyond that. Find out what the property taxes are, what your water bill might be and what a standard electric bill is in that home. You also want to factor in furnishings you may need to purchase before you can move in.

6. Do not assume your first offer will get accepted
As home prices become more affordable and with the tax credit competition has increased. Don’t be surprised to hear that a new home on the market as 20 offers. To increase the chance for your offer to be accepted you need to be quick in submitting the offer and have a strong offer. Having more money down and offering more money are two parts to having a strong offer. There is a third part to make an offer stronger but if I divulge it my clients will loose their edge.

7. Always have the property inspected, its cheap insurance
The importance of a physical inspection can’t be stressed too much. A physical inspection cost between $300 to $500, which is a small price compared to the price of a home. Wouldn’t it be nice to know that the pipes leak before closing so you can get the sellers to repair them or reduce the sell price? There are a lot of things a home inspection can reveal about a property that are not visible to the naked eye. Be sure to hire someone with credentials and verify them, as there is no branch in the government that monitors inspectors. Your agent can steer you to sources but the choice is yours.

8. Contract contingency clauses are important
A mortgage financing contingency clause protects the buyer in the event you can’t get financing because a loan officer did not do due diligence, the place you wanted did not appraisal high enough, or your financial status changed. Should one of these events occur the buyer gets back the deposit money. In California this clause is on the first page of the Purchase Contract, make sure the small box is checked.

9. Put yourself in the sellers shoes
The average homeowner only stays in a home for about five years. When purchasing a home, consider the reason you want the home, is a good reason some else may want the home later. The same goes with remodeling. Converting the garage into another room might sound like a good idea but many garage conversions are converted back into a garage; this would deter many future buyers.

10. Avoid Dual Agency
A Realtor representing both the seller and the buyer is like an attorney representing both the defendant and the plaintiff. This practice is called dual agency and is frowned upon by the DRE (Department of Real Estate). The seller’s agent primary fiducially responsibility is to the seller so home buyers may innocently disclose confidential and material information about their buying needs, financial abilities and negotiating strategies to the seller, especially when not aware of the roles of the Realtor involved.

11. Discount the seller's Decor
Remember that you are buying the house, not the items inside it, so make sure you see beyond the decorations. Focus on the location, the floor plan, and the square footage. If there are furnishings you want you can write them into the contract; it doesn’t hurt to ask.

12. Use your Realtor as an asset
Realtors work only on commission so if a transaction is not completed he/she does not get paid and when the transaction is completed their commission typically comes from the seller not the buyer. Working with a good Realtor can save money as they can provide you with data on a comparable place to give you a general ideal of the value of a place before you engage an appraiser and inspector. A great Realtor can even get your offer accepted in a sellers market without having to offer thousands over the listing price.

13. Research the neighborhood
It's absolutely critical that you research the neighborhood before you buy. Check out the area, amenities and the school system to be sure that your address corresponds with the correct school district. Also attend a community meeting, if possible. You're not just buying a home; you're buying a piece of real estate and the land around it. Check the commute by driving to the neighborhood you are interested in early in the morning then drive to work during rush hour. Do the same after work to see if you can live with the drive five days a week 52 weeks a year. Walk the neighborhood a few nights and see what is going on.

14. Don’t treat real estate like stock
When the real estate market is really hot and is appreciating really fast, people tend to look at it like it's the stock market. But playing real estate is nothing like the stock market; when you invest in real estate, you really need to take a long-term approach. I know people will disagree with this eight years ago but look where we are today.

15. Buy with appreciation in mind
The less expensive houses will pull down the value of the most expensive house on a block. The opposite is also true. Also, the more expensive houses are usually not the first houses to sell because they are usually overbuilt for the neighborhood.

16. Be proactive at closing
At the end of a transaction closing documents need to be signed and there is no reason you can’t have a copy before hand to review at your own pace. Most of the closing documents come from the loan officer so have your loan officer give you a copy a day or two before. One of the documents is called a HUD (Housing and Urban Development) and it is a form that lists all the charges; you can legally obtain it in 24 hours before closing. Try to sign the documents at the office of the escrow company so you don’t have to pay the notary traveling fees and have the loan officer there to answer any questions.

17. Choose the best way to take title
In July of 2001 husbands and wives owning real property in California can opt to take title in the form of Community Property with Right of Survivorship. When a husband and wife hold title as Community Property with Right of Survivorship the full interest in the property will vest, by law, in the surviving spouse immediately upon death of the first spouse. Title insurers will be able to vest title free and clear of the deceased spouse’s interest merely by the recommendation of an Affidavit similar to the one used to clear the interest of a deceased joint tenant. The survivorship feature will, in most instances, avoid the lengthy escrow delays caused by probate proceedings and other legal actions often associated with the traditional community property form of title. (See an attorney for the best way to take title)

18. Fully review the CC&R’s, meeting minutes, and financials
Buying a condo or a single family house in a community with HOA fees means there are CC&R’s (Covenants, Conditions, and Restrictions) and Bylaws. Get a copy of CC&R’s and Bylaws and go through them to make sure you can meet them. Some places might have restrictions on pets like the quantity and the weight. It might even be a good idea to have a real estate lawyer review them for you. Take some time to review the meeting minutes of the condo association board to see what the owners have been complaining about, if possible try to go back 12 months. Finally, get a copy of the last reserve study; they are required to be done once a year. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. In reality there are not many condo communities that have the necessary reserves. Condo communities that have low fees more likely than not will have low reserves. In other words the fees will be going up and/or there may be some pricey assessments in your future.


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