1. Not Getting Underwritten Up Front
Most of the time when someone decideds to buy a house, they start shopping online or causally attending open houses. This is the same as window shopping. If you never intend to actually buy anything, keep going.
Though, if you are serious, you need to get fully underwritten up front. Success in this market will be dicated on two things. 1. Knowing your number. 2. Proving to the Seller and listing agent that you are qualified and motivated.
If you get your file underwritten up front you will know your budget, costs and other paramaters at a very deep level. This will give you supreme confidence once you start going into open houses.
When it comes to negotiating you can both be strategic with the way you either strategically lift a contingency or at least show a seller that you’re financially capable of completing the transaction. Thus making it much easier for them to accept your offer.
2. Assuming you can buy your “100%” house
I’m sure you’ve got a list of things you would love to have, want and need in your next house. As a first time buyer, you are coming in at an entry level price point there a few things need to be aware of.
The properties that you’re going to be seeing are, by and large, older. Most of the time the housing stock was built somewhere between 1910 and maybe 1945 depending on what neighborhood you were in. Those homes were built differently because people lived differently back then. So you might have a slightly outdated floor plan or older kitchen or maybe just simply some finishes that need to be updated.
The wonderful thing about buying a home like this is that you get an opportunity to make it your own. Plus, it may be a little less competitive. Be willing to see beyond what the house looks like today and see what it could be.
This will give you a strategic advantage over other buyers who have no vision. If you want to buy something that’s move-in ready that also has everything on your list, be ready to compete. Thats because chances are everyone else has those things on their list too.
3. Falling in love with a house
I won’t berate the point that you are entering a very competitive market right now. Just know that you are likely going to loose an offer or two. If you fall in love with a house and it goes to someone else, it may derail you. Protecting your mindset is critical here. If you let a setback derail you, it will be hard for you to compete going forward. Instead, keep it at arms length until the ink is dry and the deposit is in.
4. Using the listing agent to represent you
Speaking of competition, there are agents out there who will claim to give you a leg up if you use them. Often times, you will walk into an open house and either the listing agent or someone from their team/office will be standing there. Some of them will tell you that if you use them to write your offer, it gives you a strategic advantage.
In the case of the seller, thats called dual agency. Its legal but needs to be disclosed, in writing, to everyone. The problem is that the listing agent has established agency with Seller and is legally bound to bring them the best price and represent their intersets. That relationship pre dates you.
In the case of someone from their office/team, it doesn’t present these same exact conflict. However, if the listing agent has even a shred of integrity, using their colleague/team member will not give you a leg up. If they tell you this, you have to decide if you want to work with an opportunistic individual on the biggest purchase you have ever made. Just sayin’.
5. Assuming the list price is the real price
If you poll a group of buyers and asked them what they think of the home pricing structure int he East Bay, you will get words like: artificial, manipulated, ridiculous, maddening.
Depending on who the agent is and what neighborhood you are in, you could see a listing price 50% lower than what the house should sell for. This is done to attract both digital and real eyeballs. If you have more views online and more traffic in the open house, you can both create a sense of urgency and competition in the mind of a buyer. The idea is to price under a major threshold like $1,000,000 to show up in all the online searched.
For example, the “Montclair Special” is a house that is located in Montclair that is priced at $995,000 and will sell between $1M and $1.4M.
The listing agent can then tell their Seller how many eyeballs they attracted and use bottom pressure to push the top few real contenders to put their best foot forward.
6. Assuming the list price is the real price
If you think you have crystal ball that can help you perfectly time the market, think again. By the time you read it in the news, you are likely four to six weeks behind. In fact, most people that bought at the rgith time or sold at the wrong time did so out of dumb luck or alternative motives.
What you need to do is stay focused on your goals. A home should serve you and your family’s needs. If you intend to be in it for a long time, you can ride out any market shifts or changes. Your personal timeline and needs should be the only thing that pushes your buying decision. Make sure you and your agent discuss that strategy ahead of time to make sure it is feasible in the market you face today.
7. Feeling Rushed
There are so many opinions flying around the internet these days that it will leave your head spinning. We’ve had a really strong seller’s market historically and it does look like that is shifting a little bit right now. Though, an inventory imbalance creates a sense of urgency that, coupled with low interest rates, create a sense of rushing to transact. This feeling influences people to do things they may not otherwise do.
Market influences aside, your friends, parents or agent can add to the pressure.
In the end, make sure that you are doing this for you, on your timeline. Don’t let anyone influence that decision. You don’t want to move in and have immediate buyer’s remorse, do you?
8. Not knowing your numbers
Your 20% down payment is not the only cash you will have to bring ot the table when it comes time to close. There are other closing costs as well as ownership costs that go into the “true cost” of ownership.
You obviously have the purchase price of the home which directly impacts you down payment. You also have closing costs like lender fees, transfer taxes, points on your loan and notary fees.
Once you close, the expenses are not done. You have utility costs which are often much higher than what you are used to; especially if you are coming form a studio apartment. Not to mention the repair and maintenance costs that you will now be responsible for.
As much as possible, work with your agent, escrow officer, lender and other venros (contractor, utility provider, etc) and others to get a handle on the costs you are going to incur. Going in with your eyes wide open will hel you have a better ownership experience!
9. Assuming renting is throwing money away
I know, that’s kind of insane coming from a real estate agent. But hear me out. If you buy a house and turn around and sell it within a few years, you will incur a huge amount of costs in a short period of time.
You have the closing and ownership costs that I outlined in the previous point. But you also have selling costs like real estate commissions and transfer taxes. Plus, in the short time you have held the house, most of your mortgage payment has gone to interest.
So, unless your property has seriously appreciated, these costs likely won’t pencil out for you. This requires you to go back to your goals and make sure you are clear about ALL the costs of buying a house.
In the Bay Area, a starter home will cost a lot more in the short run than renting an equivalent place. So, before you pull the trigger, make sure you are clear on your goals, how it’s going to serve you and your family and the financial side. Trust me, you will be happier if you do!
I hope this list has helped you. If I can give you more context on the process of buying your first home, please do not hesitate to reach out. My information is below.
Heres to all your success!