Well aren’t we all grown up? Before you venture off on your way to becoming a rich, fat land baron, let’s review a few things.
Thing No 1 Buy the best neighborhood you can afford.
Your first step here is to figure out what city or neighborhood you
want to live in. Remember the old saw about "location, location,
location?” Well, its true. The cheapest house in a great
neighborhood is a better investment than the most expensive house is a
lower quality neighborhood. For overall demographics and
data on metropolitan areas, you can visit a city site like
CNNMoney.com's annual Best Places to Live list. For more detailed
neighborhood information, check out sites like Yahoo! Real Estate or NeighborhoodScout.com Look for signs of economic vitality, low
unemployment, good incomes and good schools, Buying in a “transitional”
neighborhood, like growth stocks, is higher risk and potentially higher
reward.
Thing No. 2 No child left behind.
Even if you don't have
school-age children, pay special attention to districts with good
schools (high teacher-student ratios and graduation rates are among the
hallmarks), When it comes time to sell, you'll find that a strong
school system is a major advantage in helping your home retain or gain
value. Check out greatschools.net There are a few “schools
don’t matter – kids don’t matter” chi chi areas like TriBeca or the
Hollywood Hills, but those are rare and we’ll go ahead and assume you
aren’t Lindsay Lohan. You can also not worry too much about this if you
are buying something that is not, and will never be, geared toward
families like an urban loft. Finally, You want to be careful
about pimping out a one-bedroom condo in a neighborhood filled with
four-bedroom houses. It’s going to be hard to find a buyer for
the condo who wants to live in a family neighborhood.
Thing No. 3 Think local.
Get an idea about the real estate
market in the area. For example, if homes are selling close to, or even
above, the asking price, that shows the area is desirable. Try Zillow.com or Homegain.com, which are free, or Dataquick.com , which is available only
to paid subscribers, to check out recent home sales. Then, drill down
to the zip code and even the neighborhood or street. This may reveal a
different picture. For example, the overall market could be up
slightly, the neighborhood you are looking in could be up a lot, but
the street could be down as it falls in a different school district,
has noise from a freeway or another flaw.
Thing No. 4 Baby it’s cold outside.
In family-friendly hoods –
driven in large part by school year, people often try not to
uproot their kids in the middle of the year, so the market heats up in
March and is cooling by September. If you have the flexibility,
consider doing your house hunt in the off-season -- meaning, generally,
the colder months of the year. You'll have less competition and sellers
may be more willing to negotiate.
Thing No. 5 The lay of the land.
Next,
take your search
to real estate sites like Realtor.com or Yahoo! Real Estate which let
you search for property that matches your requirements. Your agent can
sign you up to the MLSs so you receive daily email updates. Yes,
daily. You don’t need him/her to screen them for you. Nobody knows the little Natalie Wood inside you like you. (Natalie Wood as in Miracle on 34th Street and her dream house not Natalie Wood as in lying dead at the bottom of a lake potentially whacked in the head with an oar by Robert Wagoner).
That said, everything is not disclosed in a listing and don’t forget that these listings are – in essence – ads written by the selling agent and are skewed to make every property sound as dreamy as possible. Your agent should be an expert in the areas in which you are looking in and should be able to give you a quick “oh, that house has a 70s kitchen” or “you can see and smell the city dump from that street” kind of read. (Unless of course the listing is brand new)
Thing No. 6 All agents are not created equal.
By law,
companies that list homes for sale represent the seller’s
interest. But you’re buying, right? Do not buy from the
seller’s agent. This is what’s called the old conflict of
interest. Find an exclusive buyer’s agent, whose duty it is to get you
the best possible price and terms, disclose all pertinent facts about a
property, and offer advice every step of the way. And best of
all, their cut will come out of the seller’s commission at
closing. Make sure this is specified in your buyer agency
agreement. Don’t be breezing in there like you’re, buying a classic
pair of Chuck Taylor’s on zappos.com. This is a frigging house.
And, don’t commit to a long-term exclusive relationship with the agent
until you’re sure he or she is the right person for you. In fact, you
really don’t have to do so ever. Truth be told, you can work with
as many buyer’s agents as you want, letting the one who brings you the
right house get the check. Just be careful to NOT let two agents
actually show you the same house or it gets messy. Also, unless
you are in a small town, no agent can be an expert in every
sub-market. If your search area is broad, with many
neighborhoods, use multiple agents. Trust the people who focus on
a neighborhood to know it best. What can we say? We’re
commitment phobes.
Thing No. 7 Get your own house in order.
We know you’ve
completely forgotten about that bill from Neiman Marcus that got lost
and took 60 days to pay last year but it’s coming back to haunt
you. Check your credit report with the three national bureaus 90
to 120 days before you plan to start your search and look for any
mistakes or “dings” that might affect your credit score and, in turn,
the terms of your mortgage loan. Something small like this can
cost you thousands of dollars in the form of a higher interest rate.
And some are just plain mistakes. (Statistics say 70% of all credit
reports have at least one error.) This is one of the biggest
headaches of all time. You’ve got to get on this pronto. You
would be very sad if we told you how many bureaucrats and meanies
you’re going to have to talk to in order to get these corrected and how
long it will take. On top of that, start your search with more than
your shiny perfect credit – come armed with a pre-approval letter from
a reputable lender. It will put you at the top of the offer list
and its even required by many sellers to consider your offer.
Finally, you have to demonstrate that the amount of the deposit is
“seasoned” meaning it has to have been sitting in your account for at
least 3 months. We suppose this weeds out the “I can’t really
afford this house but Mummy gave me the deposit for my birthday’ crowd.
(Of course, it doesn’t really do any such thing.)
Thing No. 8 Determine how much you can really afford.
Rule of thumb is 2 ½ times your annual gross income. But check an
online calculator to be sure: quickenloans.com/loan_programs. Don’t assume what they tell you can
afford is a good idea. You may qualify for a really big loan,
maybe even more than you can actually afford. Make a realistic
budget, factoring in the down payment, closing costs and, of course,
monthly payments. And don’t forget to leave room for the little
things, like savings, food and Yogalates classes.
Thing No. 9 Sometimes too good to be true, is.
As houses
have gotten more expensive, lenders have come up with exotic loans like
interest only and 40+ year loans, as well as short-term fixed rates
(1-5 years). When the market is going like gangbusters, these
work well. Your appreciation every year gives you equity and a
safety net. In a declining market, you don’t want to end up owing
more than the house is worth, or having to sell in a soft market when
your rate goes up and your payment jumps. That’s not to say these
options are never right. There is also the option of a double
loan – two different lenders. Speak with your accountant or
banker about your 5-10 year goals, fiscal situation and the market, and
then make the smart choice for you.
Thing No. 10 Shop around for the best mortgage and get
pre-approved.
After finding an agent, you'll need to start looking for
a mortgage lender. Take your time, since you could be paying this loan
for 30 years. Start on the Internet at places like LendingTree.com and E-loan.com. You may also want to check out the rates at CNNMoney,
Bankrate or HSH Associates. These sites carry nationwide listings of
mortgage interest rates and other related information. Don’t
sweat the 20% too much. If you can afford the monthly mortgage
then you should be able to get a mortgage at a lower down payment
although, the rate will go up. For more info on the mortgage
check 5things for mortgages.
Thing No. 11 It’s hard to make up for the closing costs in a
short timeframe.
Presumably you wouldn’t be here if you wanted to
rent but let’s run through the logic for grins. If you’re only
going to live there for a few years or less then you may want to stay
out and rent. Closing costs at purchase cost you 1-2%. If you
sell in two years, its roughly a 5% sales commission and another 1-2%
Closing. So, if you don’t think the house will go up 7-9% in that
time frame, you’ll lose money. On top of that, if you sell in
less than 2 years, you’ll have to pay capital gains on profits.
If it’s more than 2 years, you get up to $250,000 tax free profit as a
single and $500,000 as a married couple. The last wild card
is the interest income deduction you get if you buy. In essence,
it offsets the cost of ownership and means that a $3,000 mortgage
“costs” you less per month than a $3,000 rent. Again, talk to
your accountant and figure out what the “net” cost is to you at your
income level, then use “apples to apples” to see what you can buy and
what you can rent at those figures.
Thing No. 12 Buy with an eye toward selling.
People keep
a house an average of seven years. You’d like to create some
wealth in that time, right? Then don’t buy a house that’s
overpriced to begin with. Ask your agent for “comps.” These
are comparable properties in the neighborhood with their asking
prices. You don’t want to pay for the most expensive house in
neighborhood. You and your agent should be able to figure out what an
average, comparable house in the neighborhood is worth, (compare your
info with data from sites like zillow.com and realestateabc.com),
and then don’t pay more than that. Make sure to double-check the
trends and the amount houses are selling above or below the
asking. That should also be factored in to the offer.
Thing No. 13 Know the stakes of the game.
Try to line up
data on at least three houses that have sold recently in the
neighborhood. Calculate the difference between the original list price
and the final price of the homes sold. If the average difference
is, say, 5 percent below the asking price, then you know you can make
an offer 8 to 10 percent below, leaving yourself a little room to
negotiate. If you really want the house, don't lowball. The seller may
give up in disgust. Another factor to consider in determining
your bid is whether the trend in recent home sales is up or down over
the past year. For instance, if a year ago houses were selling for 10
percent below list, and recent ones are going at 3 percent below, then
you might want to tighten your opening bid to just 5 percent below list.
Thing No. 14 Don’t try to catch a falling knife.
Buying
a house is like buying a stock. Buying a home in an area where prices
are moving up or remaining stable in a down-market historically
continue to perform well if things get bad or worse. Those going
down tend to stay sour.
Thing No. 15 All home inspectors are not created equal
either.
Find yourself a professional home inspector, whose job it
is to find and identify any problems or potential problems with the
home you’re looking to buy. Ask about any tests or special
inspections that are recommended for homes in the area. And while
your buyer’s agent is required to disclose everything to you, it’s also
a good idea to hire your own inspector, not necessarily the one your
agent recommends. You want an inspector with no agenda other than
to tell you the truth about the house, and not one that might be
inclined to facilitate a deal for the agent that recommended him.
BONUS INFO FOR SHOPPING IN A BUYER’S MARKET:
• In a buyer’s market, when there are a lot of homes
for sale and not so many buyers, you have a lot more leverage.
Use it.
• Your deposit should be contingent on inspections,
etc. so that you can back out if you see anything you don’t like.
Make sure you include additional contingencies for anything that might
change your mind like appraisals.
• Ask for a credit against the closing costs or an
allowance to cover the cost of certain repairs, upgrades or changes
you’d like to make.
• Ask the seller to pay certain closing fees that are
normally paid by the buyer, including title insurance, recording fees
and more.
• Ask for a shorter than normal period, say 24 hours, for the seller to decide on your offer.
There you go. See you in fat cat heaven. Say hello to
William Randolph Hearst for us. Or was he a newspaper baron not a
land baron? But he had that castle. Oh whatever.
5. Raise the stakes. Most people probably do
not negotiate commission with their agent but, consider it if your
house is relatively expensive. It’s possible that an agent might not
flinch if you suggest a percentage or two lower than is standard.
Conversely, if you know it's a buyer's market, consider offering the
incentive of a higher commission if the agent can land you a sale
within 5 percent of your asking price
6. Fixer Schmixer. Very few buyers want a fixer
upper. The houses that sell the quickest, and for the most money, are
the ones that buyers feel they can move into without having to do any
work (aka “turnkey”) So, fix all the little things, like the leaky
faucets and doors that stick. Replace warn carpet, and paint with
neutral colors. The time and money you invest in getting your
home in prime selling condition will pay off. You might even
consider hiring a home inspector to uncover potential problems before
you try to sell. And always, disclose everything you know about
your home to buyers.
7. Presentation is everything. Nobody is going
to walk in and dream of living in this house by looking at your
depressing treadmill in front of the TV or your collection of vintage
Star Trek memorabilia. Clean out the closets, clear out extraneous
furniture and get rid of all the junk. Clutter is bad for your
chi anyway. Put it in storage if you have to, but get it OUT! Pay
special attention to the landscaping, front exterior and entryway, as
these contribute to “curb appeal.” Hire a cleaning crew.
Remember, buyers are looking for a clean, free flowing home, in which
they can live like those people in the magazines. You can also
hire someone to come in and “stage” your home. They will take
away and add furniture, art and accents with a professional designer’s
eye. This how the house “shows” (and how you live in it) until
you sell. This is expensive but they will basically make your
house photo-shoot ready and they are experts in terms of the touches
that sell homes. If you are on your own – put flowers in the
vases, some fruit in the bowls, stash the photos of Gram on Space
Mountain in her favorite teal track suit and, if you’re really
inspired, put some apple pie flavored mulling spices on the stove
before the open house. If you don’t know what mulling spices are… williams-sonoma.com and please, don’t leave the flame on when you
take off.
7. You’ve got a live one. When you receive a
bid via your agent, ask for guidance on how to respond. This will
depend on how you priced the house, what the housing market is in your
area and your urgency to sell or wait for a better price. You can
accept, decline or counter offer. If you are lucky enough to have
multiple offers, don’t just go with the highest one. Look at the
percentage down, how “clean” the terms are, even if you think they love
the house most. You’re looking for the offer with the lowest
chance of “falling out.” What’s a few thousand more on paper if
they never complete the sale and you have to start all over again?
8. Clauses are not just for Santa. Make sure
your lawyer or agent reviews the contingency clauses included with the
bid. For example, it's generally not a good idea to agree to sell your
home with the contingency that the buyer must first sell his or her own
home. Also make sure that all the buyer's contingencies are
restricted within specific amounts of time. For instance, if the deal
is contingent upon the home passing an inspection, then the inspection
must occur within a week to 10 days of an accepted bid. The same is
true of the closing date: Make the buyer commits to a reasonable date,
usually 30 to 45 days from acceptance.
Now dump that shack and go enjoy your piece of the pie.