Best Tips for First Time Home Buyers: Learn to Trust
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Joi We have just finished buying our first home. It's a great feeling, but has been a long process with a steep learning curve. Over the next few weeks I'm going to be sharing tips and stories in an occasional series about buying your first home.
As chronic information gatherer I started out the home buying process by scouring the internet for information and hitting up the local library. I read everything I possibly could about buying a house.
I read 8 or 9 books, countless blogs and websites, reread book chapters, and still couldn't fully understand the home buying process. I talked to friends and family who own homes. After all of this information hunting I concluded: there is too much to know about the ins and outs of buying a house to learn it all yourself.
Thus, I learned to trust. There is a reason people specialize in real estate careers. Just like most people don't represent themselves in major court cases, most people don't buy a house without assistance.
Here are the best tips for starting the home buying process.
Find People You Can Trust and Trust Them
Because you can't know everything about buying a home, you need to surround yourself with people who know more than you. And these people need to be people that you trust. Here at the key trustworthy people you need on your side:
Realtor
Find a realtor who will tell you if a home is a good value for the neighborhood (and if the neighborhood itself is any good).
Mortgage Broker
Find a mortgage broker who answers your questions honestly and truthfully and does so in a patient and professional manner.
House Inspector
Find a home inspector who is certified and will take the time to walk you through your house and point out all its faults.
Friend or Family Member
Find a friend or family member who can give you a second opinion on a house you like to point out qualities about the house that fit with your likes and dislikes. (Perhaps the kitchen is too small, but your favorite activity is cooking.)
I'll discuss in future posts more specific questions to ask these people, the qualities suggested above are a starting point. The critical piece is that they are people you can trust.
Ultimately Trust Your Gut
While it's critical to find people you can trust, ultimately you have to live in the house you buy, with the mortgage rate you lock-in, and with the house's quirks and problems. So, if your gut is tells you something is off, do more research.
Moreover, no one will have more invested in your home than you will. Realtors and mortgage brokers earn commission based on the cost of the house/mortgage you buy. So, the more expensive your house and mortgage, the more money they earn. (There are exceptions, but this is the general rule.) So, while you should trust these people, do some homework and remember their biases.
Ask Questions
I asked hundreds of questions while house hunting. The people we surrounded ourselves with provided sometimes brutally honest answers, but these answers were critical to having a good experience.
Buying a home is an enormous endeavor. But by finding people you trust, the process will run a little more smoothly.
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You really can't just trust blindly. People make mistakes. It is up to you to check your closing statement carefully and read your contracts. For example, when I first looked over our closing statement the number on the final line didn't add up with the rest of the statement. I had to go over the statement four times with the broker to get it right. A lot of people that bought homes in the last few years failed miserably because they trusted the people they worked with and didn't bother with trying to understand their mortgage contracts. So my first tip wouldn't really be learn to trust, but learn the important financial stuff such as what different mortgage types are, what different insurance options are there, and what your obligations are. Trusting others blindly without being responsible for your own affairs will get you in trouble no matter how trustworthy these people are.
Placing trust in the professionals who should guide you through the process may seem a lot easier than trying to sort through all your research. But you have to do the hard work to avoid getting screwed over! Even professionals have an agenda - to make money! If not from you then from whom? If you want to be absolutely, 100 percent sure that you aren't being taken advantage of then you've got to sort through that research, learn the lingo, take some time and absorb it fully. YOU have to be the last word when it comes to YOUR deal.
We've bought twice and sold once in the last five years. It is important to keep in mind what is rewarded on part of these experts. Realtors make money by closing sales, quickly. Not necessarily by finding just the right house for you. You need to decide what are the most important features a house should have for you. Privacy? Good schools? Access to downtown? Access to transportation? Then you need to do some research. If one of your criteria is tied to location, research the neighborhood, find out what prices are like. With publicly accessible MLS sites, you don't need a realtor for that anymore.
In the shopping process, we just used an agent to open doors so we could look. Her recommendations were often out of line for what we wanted, and that was the case across half a dozen realtors, including those that came with recommendations.
They talk about their negotiation skill, but really, all the negotiation ends up being with their client, so they can close the deal. It's never "I can get you that house for $X." It's always "If you're not ready to offer $Y, plan to lose this deal."
And the points that Xin Lu mentioned applied, both buying and selling. It took several iterations to get all the contracts right.
Buying a house is like buying a used car from a private party. You need to know what you want, what the market cost for it is, and you have to check out the one you are thinking of buying thoroughly, because when the deal is done, it's done.
You forgot the most important specialist you need:
a real estate lawyer. This becomes particularly true
if you are buying a condo or any other special legal entity.
But really, your Realtor is not a lawyer. Your mortgage
broker is just a salesman. There's no substitute for seeing a lawyer before you sign any contract.
A buyer's agent gets usually a percentage of the sale cost. Their motivation is to do less work, get you to buy quicker and get your to pay more or buy more. There are also things they legally can't tell you or wont because of how they relate to other agents.
A mortgage broker (less so right now, but its still there) will try and get you as large of a mortgage as you can pay. The closing costs increase with purchase price.
Friends and family will usually impose their own needs/desires/impressions into their opinions. Its nice to have more input, or someone to mention what you may be missing, but this can steer you away from what you want and need.
In the end I think you need to but the work into it yourself. Its the largest financial decision you could make. The tendency will be for people to tell you to buy more/better than you went in thinking. If you do more research ahead of time you can find what you want, where you want for how much you want and then let the pros handle the rest.
If you follow this advice without doing your own research, you may just end up being another foreclosure "victim". How is this author an "expert" on Wise Bread anyway?
If you're a foreclosure "victim", you get lots of free money from the government! Notice how much more money "victims" are getting than responsible home owners? There may be merit to this method...
/sarcasm
The sad part is, there is way more truth to what I said above than there should be.
I do agree that it is important to find people you can trust -- that's not easy but doable. My husband and I met with a dozen or so real estate agents before we found one that we liked and trusted for our first home purchase. We've had similar experiences in the next 2 purchases. Ditto for mortgage brokers, closing attorneys, inspectors, appraisers etc. Having unbiased third-parties involved is helpful though and those should be the inspectors and appraisers.
The problem with not eventually finding someone to trust is that you may alienate those who can help you and you're paralyzed in making a decision. I should mention that I bought homes when the process was more tightly regulated (though I did have one agent tell me that the appraiser would make sure that the appraised value would equal the purchase price; so of course I found another agent). I look forward to reading about the questions to ask of agents, brokers, etc.
I lucked out and got a good house, but:
My real estate agent recommended only houses at or above my "maximum" price and plenty of things that were out of the area. I had only FOUR requirements: 1) affordable to me, 2) accessible to downtown, 3) big living room, 4) solid foundation. And she couldn't even keep her recommendations within those bounds.
I found an inspector recommended by friends, but he wasn't available for several weeks. So I used one recommended by my agent; later I learned that the inspection report shouldn't be "just a checklist," which is exactly what mine was. Luckily, the house was okay.
The appraiser appraised the house at exactly my offer. What a coincidence. (I was hoping it would appraise lower, closer to what the tax guys said, so I could negotiate the price down.)
For mortgage brokers, I got good-faith offers from several sources and chose the best one. That worked fine (both when I bought the house and when I re-financed). And I requested to see all the closing documents before closing day so I could look them over ahead of time. And there were no surprises there. But I've heard of plenty of people who ARE surprised on closing day and don't have the guts to walk out and start over.
I'm much better at researching the issues than finding people I can trust.
I recommend the book Home Buying for Dummies.
It should give you enough information to get started, and it makes you aware of many potential pitfalls (agency issues, "checklist" inspection reports, etc.).
I'm one of those who was burned by trusting other people when I bought my house. Most were personal friends, which is why I trusted them implicitly. I think you need to trust yourself and that little voice in your head, but be wary of anyone else you deal with when buying a house. They each have their own agenda which might conflict with your own. I've been writing a series for first time home-buyers, the kind of guide I wish I had when I bought my first house. I certainly can't cover every angle but I've tried to give a good overview of the process and pitfalls. It's a 10 part series, here is part 1 for anyone who is interested:
The First Time Home Buyer - Introduction