Avoiding The 10 Biggest Home Buyer Mistakes

The following buyer’s mistakes,although not inclusive, are the ones that have consistently appearedin my decade of real estate experience.

MISTAKE #1 - Not Obtaining aMortgage Pre-approval. It may seem strange to start the homebuying mistakes with finance but there is an old real estate salesmaxim “If you can’t finance

it, you can’t sell it.” As ahome buyer, your similar maxim should be “If I can’t finance it,I can’t buy it.” There is no sense wasting your valuable timelooking at or making a purchase offer on a home which requires a newmortgage if you weren’t able to get one.

Your first stop as a homebuyer shouldbe a mortgage lender’s office where you can get pre-approved inwriting for as large as a mortgage as possible. Most lenders arefree service for pre-approval. You may have to pay small fee forcredit report.

Most lenders use ratios to qualifyhome loan borrowers. For example, some lenders say your home loanpayments should not exceed 28% of gross family income and your totalmonthly loan payments, such as for an auto loan and credit cardloans, should not exceed 36%. All mortgage lenders are not the same!If you have excellent income and a perfect credit report with nodelinquencies more than 30 days, your mortgage will be considered “A”and you will get the lowest available interest rate.

The loan pre-approval increases thechances your purchase offer will be accepted from the home seller.

MISTAKE #2-Not Timing Your PurchaseCorrectly. One of the biggest mistakes is that home buyers taketoo long to acquire your home. If you take a year to acquire a homeand the market appreciate 10%, the market value of a $100,000 houserises to $110,000. Translated, this means that you need an extra$10,000 down payment to have the same equity in the home that youcould have purchased it at the beginning. Another consideration inan appreciating market is the return on your investment (downpayment). The paper return on a $5,000 down payment, ($100,000 homethat appreciates at the rate if 10%) is $10,000 or 200%. Imaginewith a steady growth over just a few years what your annual returnwill be!

MISTAKE #3 – Not Determining WhatType of Home Do I Want, What Features Must I Have. The next keyquestion for home buyers shifts the focus to the type of home youwant. Include the features it absolutely must have, and whatfeatures you would like it to have within your price range.

Please take some time now to write ona separate piece of paper the type of the home you want and thefeatures it must have. Be reasonable and practical.

MISTAKE #4 – Only considerLocation while ignoring other factors such as, how long will my jobcommute be, and what is the quality of the community. Evenlocation has its pros and cons. None is perfect. Commute to workduring the morning rush hour and home again in the evening rushhours. Those far-distant suburbs, which seem so quiet and wonderfulon the weekends, will seem much less desirable after you’vesurvived an hour or more commute each way. Unless there is noalternative location for you to buy a home, wasting more than onehour each way getting to and from your work each day may not be asmart use of your time. Also before buying a home, please carefullycheck the quality of schools in the community where you areconsidering buying a home.

MISTAKE #5- Not Using a Real EstateAgent Who will Represent You as a Home Buyer If you are buying ahouse, to use an agent will help you to familiar with neighborhoods. The agent knows of local trends, it will give you access to all theavailable properties. The agent knows your local area and can giveyou professional services. The agent can give you information thatyou don’t have access such as new noisy development being builtnear the home you buy. When you sign the purchase contract, theagent can protect you from cost mistakes and speak for your bestinterests.

Please note - ads are sometimescreated to make the phone ring! Many of the homes have somedrawback that's not mentioned in the ad, such as traffic noise, powerlines, or litigation in the community. What's not mentioned in the adis usually more important than what is. For this reason, I want youto be very careful when reading ads.

Remember that the person writing thead is representing the seller and not you!  The most importantthing you can do is has someone on your side looking out for yourbest interests. So whether you decide to work with me or not, pick anagent you feel comfortable with and enlist the services of that agentas a buyer's broker. Then you become a client with all the rights,benefits, and privileges created by this agency relationship, andyou're no longer just a shopper.  Did you know that many homesare sold WITHOUT A SIGN ever going up or an AD EVER BEING PUT IN THEPAPER?  These "great deals" go to those people who arecommitted to working with one agent. When an agent hears of a greatbuy, who do you think he's going to call? His client, who he has alegal obligation to work hard for you, or someone who just called onthe phone and said "keep your eyes open"? So to get thebest buy on a property, I always recommend that you hire your ownagent and stick with him or her.

You are probably aware the realestate agent that lists the home for sale represents the seller. The seller’s agent can also represent you as a buyer, called a“dual agency,” but that is not a good idea. The reason is theagent then has a conflict of interest, trying to get the seller thehighest price while also trying to get you the lowest cost. When theseller gives the listing agent to sell the house, the commission isfixed rate, usually 6%. The seller doesn’t care who bring abuyer because the commission is fixed cost. Seller only cares tosell the home to the highest bid. By working with the seller’sagent, the buyer is not especially well represented and certainlywon’t be encouraged by the agent to consider other homes forpossible purchase. It won’t help you to negotiate price. It’sthe seller who makes decision to sell, not the listing agent.

MISTAKE #6—Before making apurchase offer, neglecting to ask your agent to show you a writtenfair market value of the home. Before making a purchase offer,ask your agent to prepare a written CMA (Comparative Market Analysis)form showing fair market value of the home. This is like“mini-appraisal”. The CMA form is the same one that was given tothe home seller by the listing agent at the time of listing theresident for sale. It shows recent sales prices of comparable nearbyhome as well as asking prices of other neighborhood homes currentlylisted for sale. With the help of your agent, you can add orsubtract value for the pros and cons of the home you want to buy ascompared to the recently sold houses. Your agent should haveinspected all the recent nearby home sales so you can be told abouttheir special features.

MISTAKE #7—Before making your offer, failure to request a fullwritten disclosure of all known defects in the home you want to buy.

Michigan now has a law requiring homesellers to disclosure in writing, all known defects in the residence. Before making your offer, asking the agent for a copy of this sellerdisclosure statement. It is very important to have this defectdisclosure information before you make your written offer. Forexample, if the roof leaks, you will want to subtract the cost of anew roof from the amount you offer for the home. In Michigan, if theseller fails to disclosure a known defect in writing, you have thelegal right to cancel the transaction and obtain a full refund ofyour money.

MISTAK #8—Failure to ask whatpersonal property is included in the sales price. The generalrule is the sale of real property includes personal property that hasbeen permanently attached to the structure. Such items are called“fixtures.” To illustrate, drapery rods are included in the salebecause they are permanently attached, but not the drapers (sincethey are not permanently attached and can be removed without damageto the building).

Most printed home purchase contractsspecify what personal property will be included in the sales price ofthe home. For example, you probably want the kitchen appliances,washer, dryer, carpets, window coverings included. Be sure toitemize them in your purchase offer, even if the listing informationsays they are included.

MISTAKE #9—Failure to ask your agent what contingency clausesyou should include in your purchase offer.

Virtually every home purchase offershould contain at least two contingencies: (1) a finance contingencyclause and (2) professional inspection and approval contingencyclause. Even though you are pre-approved for a home loan, you stillneed a finance contingency clause just in case the house doesn’tappraise for the amount of your purchase price. You should need aprofessional inspection contingency clause so you can have the housethoroughly inspected. In addition, include contingencies forcustomary inspections such as for termites and radon. Your agent cangive you full details.

Be sure to accompany the professionalinspector. He or She will point out any defects discovered and theirapproximate cost of repair. Many defects look far more serious thantheir area. For example, a few years ago I bought a house with a bigcrack in the basement wall. When I accompanied the inspector, hetold me the crack wasn’t as bad as it looked and could be repairedfor about $200. It turned out the repair cost was only $180. Butthe ugly crack, I’m sure, prevented other perspective buyers frombuying the house. As a result, I got a bargain price. Theprofessional inspection contingency clause not only protects you frombuying a “lemon” house, but it also gives you leverage over theseller to repair any defects that are discovered. 

MISTAKE #10—Failure to ask youragent, “How Much Will My Closing Costs Be?” Before yourpurchase offer is presented to the home seller, ask your real estateagent to prepare a written estimate of your closing costs. These arethe expenses you will be expected to pay at the time the sale closes. They normally amount to 3 to 5% of the home cost. For example, theyinclude costs for the mortgage loan fee (already quoted by themortgage lender at the time your home loan was pre-approved),homeowner’s insurance premium, pro-rated mortgage interest to theend of the current month, pro-rated property taxes, escrow fee,recording fee, title insurance, etc.

Summary. These 10 tips are importantconsiderations for buying your next property correctly, so you don’tmake costly mistakes. Never be afraid to ask your agent anyquestions you have.