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Don't
get nervous, the FSBO
Registry
& our Lending Partners will
be there to help you every step of the way!
I
know it seems a bit early to be thinking of selling your home since
you haven't even bought one yet. But you need to start thinking about
the sales potential before you buy so that you buy a home that will
be easy to sell later and give you the most potential for profit.
For a moment you need to think as a Seller as well as a Buyer.
This
means you probably want to stay away from Foreclosed properties (you
already have proof those properties don't sell well) and homes that
back to busy streets, high tension power lines, shopping centers and
apartment complexes.
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LOCATION!
LOCATION!! LOCATION!!!
The
old adage about location, location, location is true, but what
does it mean? There are 2 different answers depending upon your
needs.
If
you are looking at a property totally dispassionately then it
simply means an area that will have the maximum potential for
appreciation & easy resale.
On
the other hand if there is an emotional content to the purchase
(as is normal) then it is the best blend of personal needs,
value potential & easy resale.
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Even
tho most home sales have a very heavy emotional content you need to
be cautious and not let your heart totally have it's way with your
head. So many people get excited when they realize they can actually
buy a house they jump on the first one they see no matter how far
from the mark it is.
I am not saying that the first house you look at can't be the one
you need to buy. It can, IF you already have a good idea of
what you want and need in a home and have an idea of the area and
the market.
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Buying
a home is easy!
Finding
the right home is also easy!
If
needed, it can be done in a weekend!
Don't
get nervous or discouraged. You have the choice of ALL the homes on
the market. The house you want is probably out there right now - all
you have to do is find it. Of course to do that means you must know
what you want & need in a home. Prior planning is very important.
Sit down together and talk it out. See what everyone (including the
kids) feels are the most important features and what trade offs might
be acceptable. BE FLEXIBLE!
While
there is no such thing as a perfect property, try to find the one
that comes the closest to fitting your needs AS IS.
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CUSTOMIZATION AND HOME IMPROVEMENTS
You
don't want to buy a home that needs major modifications if there is
a house available down the block that doesn't need a lot of work.
Other than the hassles of construction you often can't recover many
of these costs when you sell the house. Keep in mind that when it
comes to home improvements or customization many things have cost
but add little or no value. Keep this in mind when budgetting
for improvements or repairs to the house you are buying.
For
example:
POOLS!
Unless the majority of the homes in your neighborhood have a pool,
a pool will cost you more to build than it will be worth when you
sell. Presuming you are not building a more elaborate pool than
the norm for the area, a rough rule of thumb says you will get back
about 50% of the cost. (in rare cases a pool can even make a home
worth less)
You
would expect that replacing the carpet would add value, and
it does, but it usually doesn't add anywhere near enough value
to cover the COST. BUT new carpet definitely adds desirability!
Of course by the time you go to sell, any carpet you put in
now won't be considered new so there will probably be no value
increase.
Once
again, people expect that every home will have Heat and A/C. This
means that a new Heat/AC adds desirability, but not necessarily
much or any value.
Regardless
of what the high pressure door to door salesmen or those guys on
TV say, Siding or storm windows DO NOT add value to your
home. It is questionable if they add desirability because many people
are nervous about what kind of abuse or neglected maintenance the
siding might be covering up.
The
main thing to remember is that you will have had the usage and enjoyment
of the customization or improvement. If you don't feel you will
get as much usage or enjoyment as the work costs then you need to
think twice about making the improvement or buying a home that needs
that much work.
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THERE
ARE SOME BUYER PROTECTIONS AUTOMATICALLY BUILT INTO THE TRANSACTION
IF YOU USE THE STATE PROMULGATED CONTRACTS, BUT YOU MAY NEED TO BUILD
IN OTHERS.
The
standard language in a state promulgated contract makes the sale contingent
upon the property appraising for AT LEAST sales value. If the house
doesn't appraise for at least sales value you can get your earnest
money back and back out of the contract. Unfortunately, unless the
house has an appraisal before you write a contract (which is the ideal
set up), you will have to wait a week or more for the appraisal to
be done. Do you get on with your life while you are waiting or do
you sit there waiting for the other shoe to drop? When is it safe
to get excited? Do you need to keep looking at other homes? Do you
tell your friends and family you've bought a new home? Do you change
schools, etc., etc.? An appraisal buys a lot of peace of mind! Always
ask if a Seller has had a new mortgage appraisal and ask to see a
copy.
A
tax appraisal isn't an appraisal at all!
It
is only a piece of a formula to determine taxes due and
is an assessment value only with no bearing upon real
value. See the Appraisal
section in the Financing section to learn more.
You
want a real appraisal done by a licensed appraiser done to
mortgage company standards. Nothing else will do. It is the
only appraisal type trying to determine ACTUAL SALES VALUE.
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Unlike
the Buyer, the contract has no built in protection for the Seller
when it comes to appraisal. If the Seller sells for too little he's
stuck with the contract sales price and cannot legally get out of
the contract.
An
appraisal ensures you are not paying too much for a home. You can
pay over appraisal if you want, although it is not recommended, just
be aware of the consequences. If you pay over appraisal it means you
are paying more than the property is worth. This will decrease your
equity (amount of money you receive) when you sell the home and could
make it impossible to resell later.
Another,
and more immediate factor, is that financing is always limited to
a certain percentage (97%. 95%, 90% etc.) of the sales price or the
appraisal WHICHEVER IS LESS.
If
you pay above appraisal it means you will have to pay your normal
downpayment, closing costs and prepaid items PLUS
have to pay the difference between the appraisal and the sales price.
If you contracted at $5,000 over appraisal it would cost you $5,000
EXTRA at closing. There is NO WAY to finance this extra money!
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HOME
INSPECTIONS
A
home inspection is one of those protections you will need to build
into the contract. The state promulgated contracts no longer address
the issue of what happens if the Inspector finds items that need
repair. Mortgage companies and Agents tell us that almost a third
of all contracts have serious difficulties or fall apart after
the inspection.
The
present state promulgated contracts allow for an inspection but does
not address what happens if deficiencies are found. Since almost every
house has some deficiencies it means almost every contract has to
be renegotiated after the inspection.
Once you are renegotiating a contract the helpful advice Sellers and
Buyers have received in the interim from friends plus other fears
often surface change the whole face of the agreement. You may end
up "revisiting" parts of the contract you thought you already
had resolved. We're told that almost a third of the contracts blow
up at this stage.
We
have found it is much better to address the repair issue upfront!
Get it out in the open and address what each of you expect right
upfront! If you both can't agree, maybe you would be better served
buying another home.
Here
are a few options:
- You
could write into the contract what would happen if repairs are needed.
You could come to an agreement of the dollar limit to the repairs
required of the Seller. (you need to address what happens if the
repairs exceed this dollar amount?)
-
You could earmark certain items that will need to be repaired or
replaced if deficiencies are found regardless of cost.
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You could even make the contract contingent upon the house needing
no repairs on the roof/foundation/(or whatever scares you).
Basically you can do whatever makes you and the Seller feel comfortable.
Since a contract is a meeting of the minds there is no way to truly
have a meeting of the minds without some KNOWN limitations for both
parties.
We recommend
an inspection be done as soon as feasibly possible. After a week or
two has gone by both of you will start second guessing what you should
have done or said and as Elvis said "that's when the heartaches
begin".
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KNOW
HOW MUCH HOME YOU CAN AFFORD BEFORE YOU BEGIN LOOKING!
"Can
we afford the payments on a new home?" is probably the
first thing you said when you started thinking of buying a home,
BUT often people decide to first see if there are any houses
they like before they talk to anyone about financing.
After
all if you can't find the right house why bother with financing, right?
Financing
is no fun, looking at homes is. One thing leads to another and
soon you are looking at homes forgetting you don't even know what
you can purchase.
What's
going to happen when you find your dream home and find out later there
is an income, credit, stability, money or whatever issue that either
prevents you from buying or preventing you from getting a good loan?
What if delays in your financing cause you to lose that home? National
figures say that 44% of all buyers get almost to closing before they
discover they either can't have the financing they want or can't get
financing at all.
BEFORE
YOU DO ANYTHING have your personal situation EVALUATED
(not just be PreQualified!) by a LENDER not an Agent/friend/book/internet
site/etc. to be sure you are looking in the right price range and
there are no financing issues. You learn more about the difference
in PQs, Evaluations and PreApprovals in the PQ vs. EVALUATION section.
Why
must you go to a LENDER? Is the Agent/friend/book/internet site/etc.
going to loan you the money to buy the house? I thought not. There
is much, much more to qualifying for a loan than just the ratio of
income to outgo.
Check
your Credit Reports as soon as you can to see there are no errors.
Most credit reports have errors (which contributes greatly to that
44% of people with approval problems). If there are items reported
more than once or derogatory information that is wrong, it can be
corrected. It can take anywhere from 2 days to 2 months to get this
type of information corrected AND have your credit scores made
accurate so you need to begin early. Our Lending
Partners will be happy to help you get your reports made
accurate so that you get the loan you deserve. One more reason to
use one of our Lending Partners
rather than some plain Joe off the street or on the net.
There is a difference
in the credit reports you can pull as a consumer and the reports Lenders
pull. The Lender report has more detail plus includes your Credit
Scores. Since an Underwriter will use the Lender report to approve
your loan you need to get the more accurate Lender's report not just
a Consumer report.
Another
reason to get an EVALUATION is
to prove to a Seller that you really can afford their home so they
will sell it to you. Many Sellers end up with multiple contracts on
their home. If they have a choice of a Proven Performer or a Dreamer,
whose contract do you think they will choose?
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HOME
WARRANTIES
Although
Home Warranties have limited long term value they do have good short
term value. They help eliminate fears and protect a Buyer from unexpected
expenses in the first year. Warranties typically cost from $295 to
$325. More times than not the Buyer pays for the warranty but sometimes
the Seller will.
Be
warned that Home Warranties aren't exactly what you think they are.
If there are troubles the warranty company will not replace defective
items, only patch. You may have to wait 2 days or more for their service
people even if the AC is out, you have a sick baby and it is 108°
outside (ask me how I know) or you will have to pay for the repairs
yourself with no reimbursement potential.
A
good example of home warranty limitations can be illustrated by
my experiences with them. I had a persistent freon leak in my
AC system. For 3 years I paid $35 several times a year for the
service people to come out and refill the unit with freon. The
warranty company would not allow them to even look for or repair
the leak! I finally ditched the warranty and had the leak
fixed for less than $100. I had already spent over $300 in deductibles.
Home Warranties can give you peace of mind when you buy, but definitely
are not worth renewing.
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