This section gives you some advice on making the most of your viewing experience. When you separate emotion from facts, and the condition of the house, you'll be in a better position to purchase a home that meets both your needs, and your budget. You can also avoid any costly errors that could lead to future problems.
How to avoid the most common buyer errors
- Buying without pre-approval, not having a home inspected, not being clear about what you want, unclear title, and rushing the closing are just some of the ways buyers can lose money. Here are some suggestions for avoiding these costly, and time consuming errors.
Take off the rose colored glasses and save $$$
- Here's how to avoid the mistakes that some buyers make. When you think about needs and wants, relative to price, your dream home doesn't have to be a costly investment.
- This article explains how specific house, present condition and reasonable selling time, are the factors that influence market value.
How not to pay too much for your next home
- Here are some suggestions for keeping your head during the buying process. Buying solely on emotion could be costly down the road.
How to avoid the most common buyer errors
Shopping for a new home is an emotional experience. It's also time consuming and comes with a myriad of details. Some buyers, however, caught up in the excitement of buying a new home tend to overlook some items. Their home purchase turns into an expensive process. These errors generally fall into three areas:
- Paying too much
- Losing a dream home to another buyer
- Buying the wrong home
When you have a systematic plan before you shop, you'll be sure to avoid these costly errors. Here are some tips on making the most of your home purchase:
Bidding without sufficient information
What price do you offer a seller? Is the seller's asking price too high? Is
it a deal? Without research on the market and comparable homes, you could lose
thousands of dollars. Before you make that offer, be sure you have researched
the market. A professional realtor, can offer an unbiased opinion on the value
of a home, based on market conditions, condition of the home and neighborhood.
Without knowledge of the market, your offer could be too much. Or worse, you
could miss out on a great buying opportunity.
Buying a mis-matched home
What do you need and want in a home? Sounds simple. Yet, clearly identifying
your needs and bringing an objective view to home shopping, leaves you in a
better position. Sometimes, home buyers buy a home that is too large or too
small. Perhaps they didn't consider the drive to work, the distance to school,
or the many repair jobs waiting for completion. Plan ahead. Use your needs list
as a guideline for every home you view.
Unclear title
Before you sign any document, be sure the property you are considering is free
of all encumbrances. As part of their services, a realtor can supply you with
a copy of the title to ensure there are no liens, debts, undisclosed owners,
leases or easements.
Outdated survey
Before the purchase is completed, an updated survey is essential. This report
will indicate boundaries and structural changes (additions to the house, a new
swimming pool, neighbor's new fence which is extending a boundary line, etc.).
Unexpected repairs
For $300 - $500 a professional inspector will conduct a thorough inspection
of the home. This way, you'll have an idea of the cost of future repairs. Make
the final contract subject to a favourable report.
Shopping without pre-approval
It only takes a few days to get financing pre-approval. When you are shopping
for a home, this gives you more power. A seller is more likely to consider an
offer from a serious buyer.
Remember additional costs
Besides the funds for the purchase of a home, you'll need funds for items such
as loan fees, insurance, legal fees, surveys, inspections, etc.
Rushing the closing
Before you sign, ensure that all documentation clearly reflects your understanding
and conditions of the transaction. Has anything been forgotten? Don't rush.
You could lose money, financing or even the sale.
Homebuyer: take off the rose colored glasses and save $$$
"A home that meets my needs, at the lowest possible price," is every homebuyer's creed. Yet, when a home buyer goes shopping for a home, two homes compete for his dollar: a home that meets his needs, and a home that fulfills his desires. The goal is to find a home that meets these two criteria. However, in the real world, this rarely happens. Usually, it's a compromise of needs against wants relative to price.
Sometimes, a buyer falls in love with a home for the wrong reasons. Later, they regret the choice because the home doesn't match their needs. It may be too big, too far away from work or school, or even too large to maintain. In the long term, a dream home ends up being a costly investment.
While it sounds simple, decide what you want in a home before you shop. Take off the rose-colored glasses. As much as possible, look at your needs and the home you're considering, objectively. To get you started, fill out the following items below:
What do I absolutely NEED in my next home:
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______________________________What would I absolutely LOVE in my next home:
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How prices are set
Usually, four common strategies are used to price a home. Understanding these
techniques can help you get a better deal on your home, while matching your
needs.
Greatly overpriced
Ever seller wants to get the best price on their home. However, with multiple
offers, the battle may be won by inflating the price, anywhere from 10-20% of
its true market value. Too high a price could leave the home on the market for
months. If it doesn't sell, it could be considered a "problem." The price may
have to be reduced to sell it.
Somewhat overpriced
Homes in this category also tend to sit longer on the market. The reasons: there
may be room for negotiation in the price, or the seller is emotionally attached
to the home.
Priced at fair market value
These homes tend to sell within a reasonable time, at close to the asking price.
Competitively priced, they represent a thorough analysis of other homes on the
market.
Priced below fair market value
For various reasons (including health, relocation, condition of the home, divorce),
a seller may want to sell a home quickly. This type of sale often results in
multiple buyers, with the home being sold quickly.
A professional realtor can provide you with a thorough analysis of any home you are considering. This price will be based on market conditions, similar homes in the neighborhood and condition of the home. At the same time, a realtor will work with you to match your needs to the price, in a great neighborhood.
When you are buying a selling a home, naturally, your most important concern is getting the best price. As a seller, you may have lived in your home for years. You've contributed towards the mortgage each month. You've maintained your home. And now, it's only right that you should reap the rewards of your efforts.
As a buyer, you want to ensure you are paying fair value for a home. How then, do you get fair market value for your home? In this article we'll explain, specific house, present condition and 30 to 90 days, the three factors that influence market value.
In this article, we refer to market value, as it applies to single-family homes only. Evaluation methods are different for apartments and commercial properties.
The term, "market value," is a broad and confusing term. Consumers shop in a store and pay the price indicated on the price tag. A book is worth $18.95 according to the tag. A car is worth $15,000 because the price tag says it is. We rarely question the value or worth placed on these items. We just pay the price.
At the end of the season, if an item did not sell, its value changes. The $18.95 book did not attract enough buyers. Therefore, the store puts the book on sale to entice people to buy the unsold books.
Initially, the market value of the book was $18.95. However, when new titles arrive on the shelf, or the subject of the book is no longer popular, the market value could drop to $9.95.
Therefore, market value is the price that an item will sell for, within a reasonable time period. When considering real estate, "reasonable" refers to one to three months.
When it comes to determining fair market value on a home, the following definition is helpful:
"Market value is the price at which a particular house, in its current condition, will sell within 30 to 90 days."
Three criteria make up this definition;
1. Specific house
2. Present condition
3. 30 to 90 days
To determine a home's value, most people use an appraisal or comparative market evaluations.
An appraisal, conducted by a certified appraiser, is a professional opinion of a property's market value, based on recent sales of comparable properties, location, square footage, construction quality, floor plan, shopping, schools, transportation, etc. On average, this type of evaluation costs $300 - $500. Lenders require an appraisal as part of the mortgage application process.
A comparative market evaluation (CMA), performed by a Realtor, is a free, informal estimate of market value, based on sales of comparable properties.
Specific house
Market value is limited to your specific house. The location and neighborhood
of your particular home is the starting point for this determination. The exact
same house in another city, or another neighborhood across town, does not matter
for your determination.
For example, a house in St. Albert could be worth $375,000. But if the exact same home was located in Edmonton, it may only be valued at $300,000.
Home prices also fluctutate significantly from city to city and from neighborhood to neighborhood. Therefore, when considering the market value of your home, it must be compared to similar homes in the same or adjoning neighborhoods.
Present condition
The second factor in determining market value is the condition of your home.
Is it in "showing" condition? Does it need some improvements? The condition
of your home determines the number of buyers who may want to view and purchase
the property. This relates to the time your home will remain on the market before
it sells. Most home buyers want a reasonably priced home, in good condition.
They may look less favourably on a home that requires major work.
Some people determine a market value by subtracting the amount of estimated fix-up costs from the selling price. This may not be the best way to evaluate a home. A home in good condition sells for $80,000. A home you may like needs $4,000 in repairs. This may not equate to a market value of $76,000 ($80,000 - $4,000). Why not?
Homes that require work take longer to sell. To attract more buyers, the price may have to be reduced beyond the cost of the repairs. It's all a matter of how much someone is willing to pay for these repairs. Additionally, determining market value for a home that needs some work, is not an exact science. Some realtors suggest subtracting approximately two to three times the amount of the fix-up costs.
30 to 90 days
In most markets, a home will sell within 30 to 90 days. If it doesn't, the price
is probably too high. Even homes that are "perfect" won't sell in this time,
if the price is too high.
On the opposite end: if a house sells within a short period, perhaps the asking price was too low. Or, it could be a hot market. When there are housing shortages, or fear of rising prices, many homes are purchased within a matter of days of the listing.
How not to pay too much for your next home
Whether you are buying your first home, or your fifth, the process of buying
a home is a detailed, time-consuming venture. At the same time, it's an emotional
period laden with difficult choices. You want to ensure that the home you purchase
meets your family's needs now, and in the future.
Each of these decisions often involves money. When you consider all that money represents, you'll want to ensure that you don't pay too much. This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process. These include such things as knowing what you want before you begin shopping, taking your time to shop, choosing the right realtor, and remaining objective while viewing potential homes. With this information, you'll be closer to finding your ideal home.
#1 Before you shop, develop a needs vs. wants list
Everyone has a picture of an ideal home. This would include all the features
you not only need, but have long desired. However, when it comes time to buying
a home, the desires cost more. While it's nice to think about having a beautifully
landscaped backyard, or a solarium, perhaps even some built-in appliances, these
are usually considered luxury items, which can add considerably to the price
of your home.
That's why it's a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage and number of bedrooms. For most people, basic needs should be considered first. After that, you could consider additional desires, if you can manage these benefits financially.
With such a list in your hands, you're less likely to be caught up in the excitement of the pursuit. You'll have a good idea of what you want, within you price range, and if you can afford those additional items.
#2 Get pre-approved prior to shopping
Visit your financial or lending institution prior to home buying. Quickly, you'll
know the amount of mortgage you'll receive. Be sure to get a mortgage commitment
in writing. Most importantly, you'll tell sellers that you are a serious prospect.
Depending upon market conditions, a seller may lean towards an unconditional
offer. You'll have less negotiating power if you have to wait for mortgage approval.
Banks and financial institutions have developed many programs especially for home buyers, be that first-time buyers or those with equity in their homes. When you review your needs and objectives with a lending officer, you'll be one step closer to purchasing your home.
#3 Choose your winning team
Buying a home is a complicated process, with many people involved. From choosing
the right mortgage, to finding a home inspector, to viewing available properties,
there are many steps involved for even the hardiest person. With a professional
realtor on your side, you'll have access to these services, already in place,
and highly recommended. A good agent has the knowledge and experience developed
from many years of helping both buyers and sellers. During this time they have
developed a network of people, from lenders, lawyers, home inspectors and movers,
to assist both home buyers and sellers.
#4 Communicate clearly with your Realtor
Spending time with your Realtor will reap huge dividends. When you have a clear
picture of the type of home you're looking for, your Realtor can come closer
to finding the home you want. You won't waste time looking at homes that don't
match your needs.
#5 It's still true – location, location, location
You've heard it so many times, that it's probably starting to sound like a broken
record. That's because it's true! A home is not a stand alone item. Rather the
value of a home is greatly affected by the surrounding homes. Don't let your
emotions determine your purchase. Think resale. The desirability and resale
value of your home depends largely on location more than any other factor. People
want a desirable community that includes character, quality of schools, access
to work, major transportation arteries, recreational facilities, etc.
On your viewing trips, take a careful look and ask the following questions: How does this home compare to others in the neighborhood? Are yards fenced? Are there many children playing in the streets? Are front and backyards and the exterior of the homes properly maintained?
Walk around the neighborhood and get a feel for the people living in the area. You may want to speak with a few neighbors to get their comments. If you like the community, carefully examine the home you like. Generally speaking, extremely large homes surrounded by smaller homes tend to appreciate less than a large home among other large homes. Alternatively, the smallest home in the neighborhood tends to stand out by the other homes on the block. Sometimes, it could take a bit longer to sell a smaller home, as some people are reluctant to pay extra for the neighborhood.
Additional factors that affect the property value of a home include traffic, sounds, smells, zoning bylaws. Be objective. Don't rely too heavily on your emotions. Be sure you are completely satisfied with the neighborhood. If you choose a neighborhood with problems, you likely won't get as much as you hoped with it comes time to sell.
#6 Use your Realtors' knowledge of the community
Your Realtor is trained in all aspects of Real Estate, including understanding
supply and demand, economics and the neighborhoods of the city in which they
practice. As they regularly view homes as they are placed on the market, they
are at the heartbeat of knowledge and information about housing trends and prices.
They can save you time and money, by narrowing your prospects to only those
that meet your requirements. It is a very time consuming process to view every
home available that meets your needs. A professional Realtor can do much of
the work for you, by reviewing your needs, reviewing the properties and then
hopefully, advising you of a potential match. A comprehensive knowledge of the
available homes in your neighborhood is one of your Realtor's strongest assets.
With the aid of computerized systems, a Realtor is notified within hours when
a home becomes available.
#7 Check your emotions, and shop with your head
When people purchase a home on emotion, without an objective view of the property,
problems may develop later. Shopping for a home is an emotional process. It
could be costly. Using your head, along with asking for an objective opinion
(from your Realtor) could help you avoid costly errors.
#8 Pay attention to "red flags"
When evaluating a home, be sure you know the difference between acceptable and
unacceptable problems. Cosmetic items like peeling paint, worn carpeting, unattractive
wallpaper can be easily remedied. You could use these as negotiating items,
as there will be costs involved in updating the home.
Major problems, however, are clearly "red flags." Look for items such as major foundation cracks, water damage, outdated electrical systems, and inadequate plumbing. These items could cost you dearly in the future.
#9 Hiring a home inspector is a wise investment
A home inspection is an inexpensive way to gain peace of mind, and guard your
pocket book. A proper inspection will cover all areas of the house including
foundation, electrical, heating, plumbing, floors, walls, ceilings, attic, roof,
siding and trim, porches, patios, decks, garage and drainage. A professional
inspector can give you an objective view of the property, with a written report,
indicating the present condition and items that will need repair.
#10 Be cautious with fixer uppers
Some people may be inclined towards purchasing a home that needs some work.
This could be a challenge and an opportunity to make money. Sometimes, a fixer-upper
can be purchased below market value, and sufficient repairs made to bring it
to a good sale condition with a profit realized. However not all fixer uppers
will bring in the profits you might expect. It depends upon the price of the
home, the amount of repairs needed and the market conditions at the time of
sale. If the home is not priced low enough, you may not recover your investment
of time, trouble and money. Before you purchase what looks like a quick way
to profit, carefully consider the condition of the home and ALL the repairs
that need to be made. Get several estimates. Complete a comprehensive budget.
Also consult with your Realtor. He or she can give you an idea of what you can
reasonably, expect to recover when the home is put back on the market.
#11 Consider your future needs
Take a look at your lifestyle now and in the future. Will you need extra space
for a home office, a child, or perhaps a child moving back home? Perhaps it
may be easier and less expensive if you purchase a home that can meet these
needs now, rather than moving up to a larger home a few years later.
#12 Proceed quickly
When you're ready to buy, move fairly quickly. That's because good properties
usually sell fast. This is especially true when there is a shortage of homes
available. However, when you work with a Realtor, you have access to the most
current technology. As part of the MLS network, a Realtor has access to properties
within hours of when they are listed. Technology works to your advantage. When
a Realtor knows your needs, they will notify you when properties that meet your
criteria become available. Many Realtors now have personalized web sites which
allow you to sign on a client, and receive notification of these listings via
email. You save time and effort, and you can view only those homes that come
closest to your needs.
#13 Clarify relationships
In any real estate transaction, be very clear about who is working for who,
and what the relationship represents. Many people believe that the agent they
are working with automatically represents them and their interests. Yet, without
specific disclosures this is not true. Unless otherwise stated, the agent represents
the seller in transactions for the sale of a home. This agent, as part of his
or her fiduciary duty, must ensure his loyalty protects the seller's position
throughout the entire process.
#14 Ask for a written CMA
A Comparative Market Analysis (CMA) is an analysis of comparable homes in the
neighborhood. It shows you the sale prices of comparable homes in the neighborhood,
along with asking prices of other homes in the area currently on the market.
A Realtor can request this report for any home and neighborhood in Canada. Ask
for this report in writing. With this valuable document, you'll have the appropriate
evidence for either a too-high asking price, or one that is a bargain.
#15 Investigate the seller's situation
Knowing about the seller's reasons for moving could work to your advantage during
negotiations. For instance, a seller who has been transferred to another city,
may be more motivated to sell rather than someone who is still shopping for
a new home. A vacant house, a house that has been on the market for several
months and reduced in price, could also be indications of a motivated seller.
#16 Keep personal information to yourself
Conversely, information could be used to your detriment. Information about your
mortgage, size of down payment, move-in deadline, or circumstances for buying,
could be negotiating factors. While you want your Realtor to know these details,
don't reveal any of this information to the seller.
#17 During negotiations, keep your emotions in tact
In certain situations, emotion could cost you money. If you let the seller know
how interested you are in the property, this might be seen as a financial opportunity.
Recognizing that you are highly motivated, you could an easier target for a
higher price. If you absolutely love the home, keep it to yourself. This is
a definite advantage of working with a professional Realtor. Trained to be non-emotional,
he or she can ensure you get the best price.
#18 Ensure the deal is right before you sign
While you definitely want to move quickly, once you've made the decision to
purchase, you don't want to cave in to pressure for a quick close. Someone who
is trying to pressure you into buying a home, is doing so for a reason. This
could involve money, or a multitude of other reasons.
#19 Exercise your negotiating skills
Even if you prefer not to haggle, it's worth it, especially when it's your home
and your future. Most people expect to haggle over the price. That's often why
the price is set a big higher than the actual selling price. There is always
room for negotiation. If you want to get the best home possible for the least
amount of money, then negotiation is the only way to get a good deal.
#20 Avoid bidding wars
In some cases, the seller's Realtor may use scare tactics to rush the sale or
increase the price. Falling for this trap could cost you money. If there is
another buyer, or some other reason this pressure is being applied, whoever
wins also loses because they overpay. If there really isn't another buyer, then
it's likely that the deal with fall through. Be sure the other side is aware,
that if this is the case, you might be interested if this happens.
#21 Insist on a written disclosure of all known defects
Legally, sellers must disclose all known material defects of a property. Ask
for this in writing. Also be sure to consider the ramifications of these defects.
Will it be costly down the road? Are they "serious" defects?
#22 Be aware of your hidden costs
There is more to a home than simply the mortgage. You will be responsible for
other items including mortgage insurance, appraisal fees, legal fees, inspection
fees, transfer taxes, title insurance, inspections, etc. Your Realtor can give
you a good idea of the costs associated with buying a home that are beyond the
final negotiated price of your home.
Congratulations! You're on your way to getting the home you want at the best price. Armed with the information contained in this article, you're less likely to be swayed by emotion, high pressure, or time constraints. In addition, it's a time-tested principle - a professional Realtor, working for your interests, is your best route to the home you want. A truly sharp and professional agent uses all of the suggestions outlined in this article.