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Cover story: Mistakes first-timer buyers can avoid

- The Washington Times - Thursday, July 1, 2010

First-time homebuyers tend to have the same goals: ownership of a home they love, that meets their needs and that they can afford. While it's hoped that first-time buyers end up satisfied with their first experience in the real estate market, it's sometimes inevitable that mistakes are made.

Potential first-time buyers can learn from the mistakes of buyers who have gone before them to ensure a smooth transaction of their own.

  • Not working with professionals

"The two worst mistakes a buyer can make, mistakes that, in turn, lead to other mistakes, [are] not choosing a Realtor to work with and not working with a lender to get pre-approved for a mortgage loan," says Peggy Parker, an associate broker with Keller Williams Realty in Alexandria, Va.

Ms. Parker says buyers often don't understand the importance of having a Realtor represent their interests.

"First, most people don't realize that the Realtor is paid by the seller at the settlement table, not by the buyer," Ms. Parker says. "Buyers also sometimes don't understand that a real estate agent can show them every property, including for-sale-by-owner properties. Realtors can really help buyers save time and money by showing them all the possibilities in their price range that meet their needs."

Jerry Thatcher, a Realtor with Weichert, Realtors, in Fair Oaks, Va., says the worst mistake buyers can make is to start looking for a home without meeting with a lender.

"Buyers who have yet to meet with a lender have no knowledge of their buying power and no foundation they can use to narrow down their search for a home," Mrs. Thatcher says.

Brandon Green, principal broker of the Brandon Green Team at Keller Williams Realty in the District, says even buyers who have met with one or more lenders sometimes make the mistake of not locking in a loan rate before their contract is ratified.

"Buyers hope that they will get a lower interest rate if they wait until after they have a signed contract, but it is just as common to have interest rates rise or even a loan product disappear between the time they meet with a lender and have a signed contract," Mr. Green says. "I recommend that all buyers be decisive when it comes to choosing a loan. Time is not always on your side, and you can lose out on the home you want to buy if you are not careful."

  • Not being financially prepared for homeownership

Joanne Darling, broker-owner of Darling Real Estate Co. in Greenbelt, Md., says first-time buyers often are unprepared financially for buying a home, especially when they have not met with a lender.

"Buyers often have no sense of how much they can afford to pay and no idea of how much cash they need to buy a home," Ms. Darling says. "There's nothing worse than discovering that you can't afford to buy the home you love."

Ms. Parker says buyers can find out how much they need for a down payment and closing costs at the first meeting with a lender. In addition, buyers need to have cash reserves to pay for home maintenance and unexpected home repairs.

While a lender can qualify buyers for a mortgage, it is up to the buyers to decide how much they are comfortable spending on housing payments. A home loan qualification depends on the credit scores of the borrowers and their debt-to-income ratios on minimum monthly payments, but the lender cannot know about borrowers' other financial goals or needs. Homebuyers need to develop their own budget, based on their current and anticipated spending patterns.

  • Spending too much before settlement

"One of the biggest mistakes a homebuyer can make is to assume everything is in place before settlement and begin spending money," Mrs. Thatcher says. "Sometimes people are eager to furnish their new home, or they want a new car to go along with the new house, and they don't realize that the lender will do another credit check before settlement.

"Even if the financing contingency is gone from the contract, the lender will still run the borrower's credit again before the closing. If their credit score has dropped or they have taken on too much additional debt, they may no longer be able to qualify for the mortgage. This can jeopardize the whole transaction."

  • A too-narrow or too-broad vision of the perfect home

Mrs. Thatcher says homebuyers often think they will find the perfect home, not realizing it rarely exists.

"At each initial buyer consultation, I have the buyers make an independent list of what they think they need in a home and what they want in a home," Mrs. Thatcher says.

"It's especially important for a husband and wife to do this separately and then come together for a discussion on where they can compromise. These lists are a good place to start, but then people need to be open to changing their minds as they begin to visit properties. Sometimes they realize that while a two-car garage is nice, they might make better use of a finished basement instead."

Ms. Darling says first-time buyers often limit themselves by insisting on a certain home style and refusing to visit other types of property.

"My mentor told me years ago that 'every home is someone's castle.' I believe that buyers need to be more open-minded about looking at homes, especially if they are inexperienced buyers," Ms. Darling says.

On the opposite end of the spectrum are buyers who are so open-minded they visit far too many potential homes.

"Buyers sometimes look at too many homes, to the point that they can't figure anything out," Mr. Green says. "The role of the agent is to help buyers narrow their priorities, because seeing too many homes leaves everyone confused and muddles up the buyer's personal criteria."

Mr. Green says that while buyers typically evaluate hundreds of properties online, they should physically visit only a dozen or so homes that meet their needs.

"Seeing too many homes is a sign that the buyers are not ready financially or emotionally to buy a home," Mr. Green says. "The likelihood also becomes higher that they are seeing homes that are not in their price range."

  • Not visualizing the potential in a home

Ms. Parker says buyers often get hung up on the cosmetic details of a home and do not think about the possibility of having a home painted or flooring replaced after the settlement date but before they move in.

"Sometimes first-time buyers have a hard time visualizing their furniture in a home or will turn away from a property because they don't like the paint colors," Ms. Parker says. "They just don't realize that paint and flooring can be fixed within a short period of time and that they should focus on the space of the home rather than the finishes."

Ms. Parker points out that buyers can ask for an allowance for decorative improvements from the sellers. She also says real estate agents often have lists of reliable contractors who can quickly make cosmetic improvements to a home.

"A real estate agent should point out to the buyers the potential use of space in a home and talk about how rooms would look with different colors or different furniture," Mrs. Thatcher says. "Buyers can sometimes miss a home they would love because they have a hard time envisioning themselves in the home."

  • Skipping the home inspection

Ms. Darling says the most critical step for homebuyers, especially for first-time buyers, is attending the home inspection.

"Sometimes people are reluctant to spend the $300 to $500 on a home inspection, but there's nothing more important than knowing the condition of the home you are about to buy," Ms. Darling says.

Ms. Parker says the sales contract contingent on a home inspection means that all the systems and appliances must be in working order.

"A home inspection should not only check on those systems, but it should also serve as a 'to-do' list for the buyers in terms of their home-maintenance schedule," Ms. Parker says.

  • Listening to parents or friends instead of the professionals

The majority of Realtors highly recommend a home inspection, particularly if the home is a foreclosure that will be sold in "as-is" condition. However, some buyers listen more closely to the advice of others when buying a home.

"A lot of buyers will listen to their parents or to friends who have no experience in the D.C. market and do not realize that each real estate market is extremely local in terms of the way things are done," Mr. Green says. "While the advice is well-intentioned, it really does a disservice to the buyers if they listen to their parents in Iowa telling them they are paying too much for a home."

Mrs. Thatcher says this is particularly a problem when it comes to making an offer.

"Some buyers have family members who have told them to never make a full-price offer for a home, but sometimes they will lose out on the home if they make a low offer," Mrs. Thatcher says. "Family members and friends don't always know best, and buyers should listen carefully to a real estate professional who can show them a comparative market analysis and give them an educated opinion about the home price."

Ms. Parker says some buyers are reluctant to recognize that buying a home involves a delicate negotiation and refuse to accept the fact that sellers will not automatically accept any offer they make.

  • Making assumptions about the sellers

"Buyers sometimes assume they know what sellers will or will not do when negotiating the price or terms of the contract, and this can be disastrous," Mr. Green says. "Sometimes buyers are too aggressive and the sellers will not even make a counteroffer. I recommend that buyers make an offer based on what works for them and on the value of the home rather than getting caught up in a negotiating game."

Mrs. Thatcher says some buyers attempt to communicate directly with the sellers instead of having their agents communicate, which can derail a negotiation.

  • Not doing due diligence

While Mrs. Thatcher recommends that buyers allow their agents to do the negotiating and communicating, she points out that buyers must take responsibility for their choice of home and for investigating issues that may have an impact on the home and community that Realtors are not allowed to discuss, such as school quality and crime statistics.

"If buyers are concerned about the local schools, they need to do their own research and find out about them," Mrs. Thatcher says. "Ultimately, the choice of a home is up to the buyer. I always tell buyers to visit the home on a Monday morning or a Friday afternoon, not just on a Sunday afternoon, so they can evaluate their commute. I can help them narrow down their choice to a subdivision or a ZIP code and help them find homes to visit, but, in the end, it's important that the buyers love their home."

While buyers can rely on the assistance of real estate agents and lenders, they also need to carefully evaluate their own priorities and take their time to find a home that is both financially and emotionally comfortable.

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