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Questions Buyers Should Ask – Before looking for, and, certainly, before buying a home
By Linda O’Koniewski & Peg Botte – Broker/Owners, RE/MAX Heritage
Buyer: What should I do to get ready to buy a house?
Agent: Get a satisfactory pre-approval letter from a reputable and reliable lender. It should be subject only to a satisfactory appraisal and a purchase and sale agreement. We have a list of lenders we know are good. We see a lot of bait and switch on rates and closing costs, and many lenders who simply do not live up to the promises they make when they start doing business with the buyer. We can not overemphasize how important it is to do business with any of the people we know, because if a problem arises (and they always arise!) these people will be responsive to us and the team of attorneys, surveyors, title examiners and appraisers that work with that lender. If you can learn from other people’s mistakes, please learn from the many people we have worked with in the past who report that they wish they had not worked with someone unknown to us. Remember, if your bank is not prepared to close on closing day, you will be in default, and your deposit of five percent will be forfeited. We’d be glad to provide a list of people who wish they had taken this advice and incurred a lot of undue stress. This is likely to be the piece of advice you are most likely to ignore, but at least we can sleep at night knowing we tried to help you avoid the problems you may encounter with a stray lender.
If you already own a house, your pre-approval letter should say that you are qualified to bridge if your home is not sold. If you choose not to bridge, or don’t qualify for a bridge, you may want to consider making an offer with a 48-hour kick-out clause, which would mean the sellers could come to terms with you but would continue to market their property. Should the seller receive a bona-fide offer, you would have 48 hours to either drop your contingency to sell your home, or to waive it and go forward under the terms of your offer.
Buyer: What else do I need?
Agent: Deposit money. Arrange to have it now, so it will be ready when you need it, particularly if your money is tied up in your current home. Even if you are expecting 100 percent financing, it is unlikely that a seller will accept your offer without a “good faith deposit” or earnest monies. Traditionally, 5% of the purchase price is given as a remaining deposit on the home at the time that you sign your purchase and sale (minus your good faith deposit); however, some towns have a norm of 10% of the purchase price. If you need to take a home equity loan out the bank will not give you a home equity loan if you house is on the market. You must get a home equity loan before the sign is in the ground or your property is listed in MLS.
Buyer: When do we start seeing property?
Agent: When I have your pre-approval and you tell me you are ready to buy. If you still aren’t ready, please register on my website and start educating yourself on the market by tracking properties and following the new listings, price changes, under agreements and sold homes. I want you to have a good handle on the market so you will feel comfortable with the price you are paying for your home.
Agent: You will need to tell me when you are ready to buy so I can be on full alert. Also, and this may appear to be fresh, but there is a phenomenon among many homebuyers that agents have identified. Agents continue to see homebuyers who need to fail on several properties before they learn some hard lessons. For example, after losing several homes that they wanted because they would not put down a strong deposit, they finally borrow money from family or take money from their credit card so they will be able to buy the next house on which they offer. Or, some homebuyers, set on getting a good bargain, continue to make bad offers on good properties, and continue to get outbid or rejected until they finally understand that a terrific house that is priced right might just warrant paying full price. Or, homebuyers, who “intend” to get their pre-approval, fail to do so before the house of their dreams comes on the market and they are either trying to move heaven and earth to get a solid pre-approval with a bank over the weekend, or they lose the house to someone who was “ready” to buy. So I need to know, are you the type of buyer who can learn from other people’s mistakes, or do you need to make your own? I can guide you well if you take my advice.
Buyer: How long will it take to find the right property?
Agent: That depends on your karma. You could find a fantastic house the first day, or it may take months. Are you ready to pull the trigger if you find something right away? I see buyers who find a good house, and then pass because it was so easy to find so fast, and then search for that house for the next 18 months. Are you ready to buy if a home speaks to you? According to the Massachusetts Association of Homebuyers, the average homebuyer in Massachusetts, because they know the market so well through the internet, takes 10 weeks in their search and views 11 properties.
Buyer: I want to buy smart.
Agent: Let me tell you what we tell Sellers about Buyers. We tell sellers that a lot of buyers – particularly first-time homebuyers – are “shallow and don’t have the vision thing… they only see what they see, so you have to create the vision.” Many buyers fall for the sex and sizzle; the décor, paint colors and furniture.” They don’t pay attention to the items and systems that may be expensive to replace or repair – roof, heating system, electric, plumbing, etc. We want to educate you to buy smart.
What is buying SMART? Don’t necessarily fall for the cosmetics. Buying smart is buying good location, flow, light, amenities, and space for the price. If you can see past clutter and outdated decorating, you stand a good chance to buy into property with more equity once you’ve done some cosmetic overhauls. The quintessential “Little Old Lady House” may have shag carpet, eagle wallpaper and older kitchens and baths. But if may also have a new roof and heating system and a lot of the amenities you want, like a fireplace, garage and nice yard, which would be expensive or impossible to install – but the painting of the rooms and floor refinishing won’t cost much but will increase the value of the house tremendously. In other words, some work is a very good RETURN ON INVESTMENT. The manta, location, location, location still rings true.
Buyer: If I follow your advice, will things go smoothly?
Agent: Not necessarily, we say real estate is fraught with disaster and that no one would pay us the kind of money we make if it were easy. But you have a lot of control how this unfolds. For instance, if you use a bank that we recommend, you will be working with people who will make every effort to conduct the transaction smoothly. Too many banks make promises they can’t deliver, or use people who aren’t invested in making this work on your schedule. Therefore, your bank selection is critical to making this transaction go as smoothly as possible. A bank we know will use surveyors, title examiners and conveyancing attorneys we know. We won’t recommend anyone who would fall down on the job. If you choose to work with someone we don’t know, we won’t have any influence in the transaction, which could mean missed deadlines, title problems that crop up last minute, or people who are not invested in helping to make this work. Know that your five percent deposit is on the line and can be kept by the seller if your bank isn’t ready to close on your contract closing date. Also, anticipating in advance that a lot of things will come up at your home inspection will help you deal with the problems that WILL MOST CERTAINLY ARISE when you do your home inspection.
Buyer: What is the purpose of a home inspection?
Agent: The purpose of a home inspection is to allow you to investigate the house and uncover the issues that you will need to address during your ownership. There are always issues – and some may be costly. You need to take that into consideration when you make your offer. Buyers are often shocked to discover that houses that looked so good and well cared for still have so much work that needs to be done. You will only be disappointed in the home inspection if you do not anticipate such issues when you make your offer. Remember, the seller does not have any obligation to fix, upgrade or repair the house. The buyer has the right to investigate what he is buying. Most agents don’t disclose as much as they should. ASK FOR A SELLER’S STATEMENT OF PROPERTY CONDITION before you make your offer. Not every office will provide one, but it will give you a heads up about water in the basement and past termite treatments – both of which are much more common than you would think. NOTE: If you are trying to buy a home with a contingency to sell your house or a 48-hour kickout clause – EXPECT TO DO AN INSPECTION even though you may be kicked out. You need to know before you sell your house that the home you want to buy is in acceptable condition. Yes, you will lose your home inspection fee if you get kicked out, but that is the tradeoff for not being able to perform and buy the house. Everyone is taking a risk when there is a contingency clause in an offer agreement. The seller is risking that he will have less activity because someone already wants his house and yet he/she doesn’t have a solid deal because it is “flagged” in the MLS, and the buyer risks that someone will come and buy the house before they sell their existing home.
Buyer: When is it fair to negotiate on the home inspection?
Agent: You’ve just hired an expert to pick your new home apart top to bottom. Be mentally prepared in advance for how tough the news will inevitably be. Given that you understand that lots and lots of issues and problems are going to come up after a good home inspection, we will borrow our office’s attorney’s definition for “fair to negotiate”, given that he represents both buyers and sellers and has developed the following definition that he thinks is fair to both parties. He thinks it is fair to negotiate on anything that comes up that is serious (that would cost more than $1000 to fix) that you could not have anticipated from viewing the house or reading the seller’s description of property providing that a home inspector deems the work necessary to do “immediately.” If a roof was found to be leaking or a heating system would need to be replaced immediately because of a crack, or if termites (not just old termite damage) or pest damage needs to be treated and the structure repaired, these items would qualify as “serious, expensive, need to be done immediately, and items that the buyer could not have known about when making an offer.” This does not cover an ancient heating system or roof that your home inspector will tell you is at end of life, because those items are like an 80-year old man, they could expire tomorrow or last another 15 years. Use your eyes when you view the home: you can tell that a heating system is old or that a roof has a lot of wear when it is curled. Know that when you make your offer those items will probably need replacement in the near future.
Buyer: I’ve been thinking about a property I saw last week and think I might want to make an offer on that home. Would you tell me if another offer comes in?
Agent: Do you want to get in a bidding war? If you want to make a commitment to a property follow Nike’s advice, “just do it.” If you wait for another offer to come along the property will probably be more expensive. Even in a slow market many homebuyers will recognize a good house at the right price, so you don’t want to wait if one of the good ones comes along – that’s when the price is driven up. Competition is good for the seller, not the buyer.
Buyer: I’m not sure I want to sign a buyer’s contract.
Agent: I have to make a business decision about how I spend my time. If you want me to diligently show you every home that looks intriguing in your price range, I am willing to do that if I know that at the end of day, I will be paid. Certainly, that makes sense to you. My buyer’s contract can be voided by either party at any time if for any reason you are not happy with my services or I don’t feel like you are doing your part to find the right property. Naturally, if you decide to purchase a home I showed you, you would be stuck working with me until closing.
Buyer: Should I use an attorney?
Agent: Good idea. But don’t use a friend, relative or any attorney who doesn’t specialize in real estate or isn’t from the area in which you are buying and isn’t familiar with our standard contracts. Would you use a dermatologist for an orthopedic problem? Why would you use a lawyer who specializes in anything other than real estate? A good attorney will also make the transaction go more smoothly – we can’t emphasize enough the importance of having not just an attorney, but a GOOD, SAVVY, REAL ESTATE ATTORNEY. ALSO, a contract is a contract. If you want to be able to move things into the garage early or clean the rugs in an empty house before closing, or be able to measure for window treatments, you are only allowed to do what is in the contract. If you make a request of the seller keep in mind that the seller does not have to grant the request – no matter how reasonable. Remember it is just a request. The only obligations either party has in a transaction are those that are spelled out in the contract. So make sure you can live with your contract.
Buyer: What if I can't reach my buyer’s agent and I want to see a property?
Agent: Home viewing emergencies are rare. But if you can't contact your buyer’s agent, call our office and explain the situation. Someone here will arrange to have you see the property that intrigues you. If you call the listing office remember a) they are working for the other team (the seller) and can't help, aid, advise or assist you in the transaction and do not owe you any confidentiality, loyalty or fiduciary responsibility and b) the agent that you have been working with has educated you about the process and given up an immense amount of time to listen to your requirements and needs, select property, schedule property and show you property. Hopefully you feel that is the person who should be paid when you do buy a home. Also, if you have signed a Buyer’s Contract your agent is entitled to a fee when you buy a home, regardless of who showed you property or took the offer; so it only complicates matters for everyone if you call another agency. If you are not happy with the service you are getting from your agent, contact him or her and discuss the situation so either you can work out the problem between you or find another agent. But, at the very least, you would owe an agent a call before you began working with someone else. If you are happy with your agent, they will appreciate your loyalty and in return work very hard to find you the best home.
Buyer: When is it “official” that I have bought a home?
Agent: When you make an offer, you do not have an agreement until the seller signs the contract. This can be one of the most frustrating periods in the transaction, because you don't have a deal until you have the seller's signature. Be patient, because we have no control over the seller, the other agent, or the showings that could be taking place while we are negotiating. Timing is everything, and losing a property during negotiation can be devastating. So acting on something and being decisive can be the difference between winning your bid on the house or losing your bid. We know that the negotiation is open until the fat lady sings, so you can't blame sellers for taking a better offer if they can. Although it is common courtesy for a seller's agent to call if another offer comes in, it is not required. Remember, the sellers and their agents do not have any obligation to you. They do not need to communicate or offer you another chance to increase or enhance your offer if they feel they have a deal they want to pursue, although we think that it is a courtesy that should always be extended to make sure all parties have a chance to make the best offer happen.
Buyer: I don't want to get in a bidding war to buy a house, can this be avoided?
Agent: If you want to buy a house that intrigues other buyers, you definitely won't get the house unless you make an offer. Pouncing on a quality property quickly and paying for it quickly usually gets you the home you want. When a home is new to the market, you won't find the sellers very negotiable, so you won't have much choice but to pay or wait out the market to see if it sits for a while which may make a lower offer attractive to the seller later.
Buyer: What if I REALLY want a house that other buyers want?
Agent: The buyer who makes the most attractive offer will most likely get the house. REMEMBER – you may not get a second chance to make a better offer. We don’t control the listing side, and there is no guaranty that you will be told there is another offer on the table. So by starting low with the intent of raising your offer, you may lose a house for a price you were willing to pay. We ask that you keep that in mind. The seller will take the highest price combined with the best terms. Here are a few good strategies if you find yourself in a multiple offer situation. Pay an odd number. In multiple offer situations, most people come in at round numbers. For example if a house is being offered for $399,900, a buyer who knows they are in a bidding war may offer $405,000. We suggest paying an extra $1100, by offering $406,100, it could be the difference in getting the property at the end of the day. Also, if you know you are all set on your financing, consider eliminating your financing clause and writing that the only financing contingency is a satisfactory appraisal at the selling price. Your deposit is on the hook after the finance commitment date anyway, so why not make your offer more attractive to the seller by putting a more solid deal together by not hinging your offer on financing? There is little risk if you are pre-approved by a reputable bank and have good job security. The next option when you want to make an offer is not for the faint of heart, but might make the difference in having your offer accepted. You may want to consider eliminating your home inspection clause. We recommend that you do a home inspection, but by waiving the clause you are signaling to the seller that you won't negotiate on the price after a home inspection, which will be most appealing to a seller. If the home inspection turns up scary items and you do not want to move forward with the contract, you will loose your $1000 deposit if you have waived/eliminated your home inspection clause.
Buyer: I have learned that I qualify for 100 percent financing. How will that impact my "buying power."
Agent: You have two things to think about, one is rather philosophical and will require that you think about your future. First, there are some very good programs for 100 percent financing, but sellers with good agents will learn that 100 percent financing is riskier, so that kind of financing is not usually a seller's first choice when reviewing and selecting offers. Second, even though you can finance the entire cost of buying the house, the seller is still going to want a deposit. Why would a seller take the house off the market if you aren't willing to put money where your mouth is? In other words, a seller will want to know that you are more than just emotionally invested in the property; they want to know that after the financing date you are "risking" a deposit that they can keep if you back out of the deal. That is why you will be asked to put down 5 percent at the time of purchase and sale, even if you are 100 percent financed. If you aren't willing to put up money, they might not be willing to sell you the property. If you do put up a five percent deposit or enough money to satisfy the seller, you will be able to get your deposit back at closing.
This brings us to the more philosophical question that we feel compelled to share with you. It seems to us that banks are very anxious to push 100 percent financing to buyers who have some money by saying to buyers, "Why not hold on to your money for upcoming repairs and furniture?". Although 100 percent financing can be a fabulous financial tool for people who just couldn't possibly swing a house any other way, we aren't sure that it is the smartest way to buy a house. THINK ABOUT IT. 100 percent financing is usually accompanied by very high closing costs that are rolled into the mortgage. That means you are paying a lot more than the market value for the house and that the day you purchase that property it probably isn't worth your mortgage balance. If you ever had to move, (no buyer expects to move soon, but we see people get transferred, divorced or outgrow a small house just a few years after purchasing) you would be UPSIDE DOWN in the house, in a stabilized market. It might mean that if you had to sell, you couldn't because you would owe the bank more than it is worth, you'd be UPSIDE DOWN in your mortgage. So think long and hard about this option. There is a reason that banks require a deposit - often it is to protect you as well as the bank. Also, in years past when 100 percent financing was only available as a special government program, buyers often did put their last dime into a property in order to own a house, and had to save to fix up a place and buy furniture - they didn't have it all right away, but they did have a good investment. Lastly, we think you should know that it is often very lucrative for a bank to offer you 100 percent financing - they make more money on that kind of transaction, so ask yourself if 100 percent financing is really in your best interest.
Buyer: What should I do if I go to Open Houses on my own?
Agent: Open Houses are a great way to see many properties in a short amount of time and explore the inventory; we encourage you to see as many properties as you can. ALWAYS sign in using your agent’s name and company at every open house you attend. After you have gone through the open houses, please call us and report your feedback on the properties: It serves two purposes: your feedback to us will enable us to assist you in your search and our feedback to the listing agent will help him/her in marketing that property (we oftentimes receive calls requesting feedback from open houses & showings).
We wish you the best of luck and look forward to working with you and finding you a house that really works for you.
Warmest regards,
Peg and Linda O'
RE/MAX Heritage
781-979-0100 X 211
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