Thursday, May 04, 2006

First-time Buyer Information

You are about to begin one of the most exciting things you will ever do in your life---you are about to buy your first house! You may have some things to accomplish before you even begin to look, but there are some basic facts you need to know about the process itself.

If you have never considered your financial situation, buying your first house will force you to face any problems. Your credit should be good. You should have little credit card debt, and a minimum of open credit accounts. It is optimum for you to have at least five per cent of your anticipated sales price saved for closing costs. If you have not saved, and still want to consider buying, look into the 401K withdrawal program, or talk to your parents or grandparents about a “gift” to help you buy. Some states offer “first time buyer” loans which help with the down payment. It is not too early to talk to a loan officer. Most pre-qualifying letters are done without charge. A loan officer will also let you know if you need to straighten up anything on your credit. You will be given a letter stating your maximum loan amount, and that, based on the current information, you qualify for the loan. Once you have qualified for the loan, don’t change jobs, buy any item on credit which would change the current situation, or miss any payments. A promotion is OK, but don’t change companies, or especially don’t change fields. If you need a new car, wait. Changes can eliminate you from buying for several months. Your loan officer will advise you as to what options may be best for you in your particular situation.

For most people, a house is their most expensive investment. It is also sometimes a status symbol, sometimes a vacation location, and sometimes a “money pit”. But, in almost all instances it is a home---a place to raise your children, or to have family dinners, a place of warmth and safety. Your first consideration about the home you plan to buy is its location. Sometimes, this, by necessity, must be in a limited area (a specific school district, or so many miles from a job). Sometimes, you know the specific neighborhood you are interested in. Sometimes the price you can afford dictates the location. If a specific location is not necessary, for family or job, you need to think about the type of home you want and where those homes may be currently located. (If you have always loved log homes, and think it would be nice to have one, begin thinking about the hills outside of town.) Take into consideration the widest of locations possible for your family goals.

Now, even before you contact a Realtor, is a good time to sit down and write your “need” and your “want” list. If you have 3 kids under 5, you may “need” at least 3 bedrooms, and “want” five. You may need 2 bathrooms and want a fireplace. Try to keep within the range of what you may want to pay for. Many of us “want” a house directly on the beach, but realistically we cannot afford it. Put things on your list you think may be available in your price range. Later, after you have looked at some of the houses available in your price range, you may need to adjust the wants and needs to fit into the price and location, but at least you are doing it with the knowledge of what your goals were to begin with. This also makes it easier to compare two houses with very similar features. If you like both about equally, these early lists can set you back on the right path towards the best house for YOU.

Many first-time buyers, or people who have been out of the market for quite a while, do not understand how the process of working with an agent to find a home works. Your agent may or may not represent you. In most states now, the agent will be representing you. If he or she is not, they will be telling you that fairly early in the process. In Florida, the agent is assumed to be a “transactional” agent. The buyer and the seller are both represented with a limited agency. The agent cannot reveal confidential information from either side to the other. Pertinent information concerning condition of the house, or even comparative sales information can or even must be shared with the buyer, but the agent cannot tell you the sellers’ bottom dollar, nor can he tell the seller the maximum you might pay.

When you do contact an agent about buying a home, you should find someone you would trust to give you good advice. You will want a Realtor (an agent who must abide by the Realtor Code of Ethics) who will listen to what you want. You will also want an agent who can offer you options, if what you want is not available. Everyone in Florida wants a house by the beach for under $50,000, but they are only available via time machine. You may not be aware of what is available at what price. If you have only so much to spend, you need to know what you can buy where. Your agent should inform you of the choices you have, without pressing his or her own preferences upon you. It may be best for some people to buy location first, but others need the larger house and can buy in what may be considered a poorer location. Choices need to be offered, and your agent should be knowledgeable about all the steps necessary to make this a smooth process.

Choose only one agent. In today’s world, the listings you may be getting on the Internet are on the MLS. This means the “listing” agent has made them available for the “selling” agent to show and sell. Your agent can show you any of the properties listed on the MLS. Sometimes the agent has been in the house and can tell you about the inside. In today’s sellers’ market, the best ones do not stay on the market long, so chances are your agent has not seen in it either. When you choose only one agent to work with, that agent is more likely to work hard to find you the perfect property. If you go from agent to agent, none of the agents will work their hardest, because they do not know if they will get paid for any of it. The commissions are split between the listing company and the selling company, and then your agent will only get part of that. Even the 100% companies take part of the agent’s commissions (or charge for the name, etc.). It’s a hard job to find the right house, help negotiate the best deal, follow through with all terms of the contract including reports and inspections, and to keep everyone happy about the process. The key is to find an agent who can make all that seem easy and possible for YOU. Since the commissions are generally part of the sales price and paid out of the seller’s side of the transaction, the buyer will have no commission due to the agent or the company. Most companies do charge a transaction fee (probably under $500) against the buyers’ side. This is not paid until you are paying for the property at closing of escrow.

Whether you have a lawyer or not; who pays for title insurance; whether a contract is written with the initial offer; when earnest monies are paid; who goes to present the offer---all this and more varies from state to state, and area to area. One thing doesn’t vary. You will be better off with a Realtor you can trust. A first-time buyer is sometimes the hardest to work with, because they need to know so much, but most of us Realtors think they are the most fun to work with, too. Find someone you can trust, who knows how to listen to you. Get your e-mail lists and then---when you are ready--- call them to go see in the ones you might be interested in. Don’t be afraid to ask “silly” questions. And have fun and ENJOY!

If you are looking to buy in South Florida, I would love to work with you personally. If you are shopping in another state, or in the north or western parts of Florida please fill in the buyer information I have on the web page, and I will have a good agent contact you. Feel free to e-mail me with any of your questions.


There are several things affecting the value of a house. “Location, location and location” is only one of those. Price and condition are also factors. Two identical houses both of the same age and in the same neighborhood could be priced the same but if one has condition issues it will sell for less. Two houses in the same neighborhood, both with the same features, and both in great condition, the lowest priced one will sell faster. It is the better VALUE. Two houses exactly alike, both in great condition, in the same neighborhood, but one is on a corner lot (location in the smallest choice), the corner lot house will sell faster and possibly at a higher price. You, as a buyer, need to weigh the factors. Can you fix up the one with condition problems for less than the difference in price? Do you want to? Is it worth $5000 extra to be nearer the park? Can I live without the extra bathroom if I get the condition, location and price I want?

When we consider the location factor, we are choosing to consider one thing we cannot change. We cannot fly the house and the lot to another location. Chances are the Interstate in the back yard is not going to close down and become a green park. Neighborhoods can change, however. Look for signs that the neighborhood is coming up (people out working on houses, several houses looking like they have just been redone, new sidewalks). And look for signs the neighborhood is going down (lots of houses needing work, streets not maintained, bars on the windows). Some of the best buys can be in neighborhoods going “up”. Under location considerations are also lot size and potential changes. The lot a house sits on is pretty well locked in. Once in a great while the lot next door may be available to increase your lot size, but generally what you see is what you get. Remember, you can always do something to a house. You can tear it down and start all over again. But, you can’t move your lot to a better location nor can you make it larger. Your Realtor should also check or help you check about potential changes coming in the neighborhood. If your view of the mountains or the sea is going to be blocked in the next year or so by the big new condo going up across the street, the value of the property you are looking at will be affected. Some potential changes may increase the value of the location. There could be a new grade school building coming soon, or new businesses, or newer roads. Trees and landscaping can also be changed. But trees take time to grow, so they must be considered as part of the location.

Condition can mean one thing to one person and a different thing to another. Most sellers are aware that the property should be in “showing condition”, but some do not have the energy or funds to get the house in great condition. Often you can tell whether or not a house has been “remodeled” or “maintained”. If it looks as if every surface has recently been repainted, be aware that the house may have been in poor repair and the seller is trying to get it back into shape. This is better than one in poor repair completely, but you need to know that putting paint on the surface can hide things such as mold and walls in rough condition. If a house has been maintained all along, chances are you will have fewer problems throughout your ownership. Don’t let carpet color or condition stop you from buying the house priced considerably cheaper. Check into the price of new carpet and its installation and add that to the sale of the house, and then require the seller to put that money in escrow (or better yet have your carpet installed prior to closing). Chances are you can get that house considerably cheaper than the one just like it down the street with new carpet throughout. Sellers lose a considerable amount of money if they do not have the house in good condition, because most buyers do not want (nor do they have money) to fix a property up. Investors buy fix-up properties and then fix them up to make a profit. It is that profit you can save if you are not afraid to fix it up yourself. Conventional wisdom of real estate says to buy the cheapest house in the best location you can find. Often the reason it is the cheapest is that it needs some work.

Price is a big component of VALUE. But price, too, is relative. The better the location the higher the price. If the condition of the house is below average, the price better be too as it will sell lower anyway, giving the buyer a good to great value. The value of a property is what a willing and able buyer will pay for it at any set time. Sometimes appraisal value and real value do not match (as when sales prices are rising and interest rates are low). The price of the house may have been determined by the seller, the seller’s agent, the neighbor, an appraiser or anyone else who may have had a say. It does not have a direct correlation to its VALUE. Most agents hope they can list the property pretty close to value. But when inventory is low, we often see “seller priced” properties. The person who knows the value of the property the best at the time of offer is the buyer, because he or/and she have seen enough properties on the market to be able to make reasonable deductions and reach reasonable conclusions as to the property’s value.

All of these must mesh into your personal criteria for the home you are looking for, including the price. A good Realtor will explain all of this to you and then show you houses that will give you the options of condition, price and location. If you choose the houses based on outside drive-bys, make sure you remember you can not judge a book by its cover. The size of the house is not determined by how it looks from the road. Judge the location and the condition, but size is so deceptive. The livability of the house may make up for a smaller size anyway. Just like books on the shelf, you can judge the location by the exterior. Check out the neighborhoods, then look for houses in the neighborhoods you like.

There are so many choices out there for most first-time buyers, it can be confusing. With the internet feeding you homes and areas to check out, you soon will know what area you will like to be in and how much what you want will cost in that neighborhood. Or if price is a top consideration, where you have to go to get the price, condition and size you need. After you know that, call me (or your local Realtor who has been e-mailing you all this good information), and tell him or her it is time for us to “go look at the following houses”. Then the fun really begins.


The time will come when you have found at least one property you really like. It used to be there was plenty of time to investigate all about the house and neighborhood, after you found the house you liked. In today’s sellers’ market in many areas, you may not have time to investigate too heavily. Properties are selling within days of being put on the market. There may be several bids on the property the same day. If you are looking in this type of market, you must be prepared to make a quick decision, and ready to make the offer the day you find the house. Carry your pre-qualifying letter with you, or make sure your agent has one in her/his file. Have your earnest money moved from your savings account to the checking account, so you can write the deposit check at any time. (The amount required by the seller will vary depending on the price range, the tradition in the area, even sometimes on the terms of the contract.) Know what you have looked at (taking notes helps). If you find that “one and only” that you and your family all agree on, do not hesitate. In a seller’s market, it may be gone tomorrow. Tell your agent you would like to go back to the office and write up an offer.

In most states, verbal offers are not binding. In the sellers’ market, it is best to write it up. Some areas do “Offers to Purchase” and then write the formal contract after all has been negotiated. Others use the offer written as the formal contact and all parties just initial the changes as they are made. Some Boards of Realtors use uniform contracts so changes are made on additional pages. In any state, you are always welcome to use a lawyer. Some states have the sellers and buyers use a lawyer as a matter of law. In others, it is rare for either to have a lawyer. In the quick market, when you want your offer considered, make the contract subject to lawyer review rather than wait for him to review the contract prior to your signature. This way, if there is something on the contract your lawyer does not like, you can have that changed, or get out of the contract. Since Realtors are not lawyers, they are required to use Lawyer approved contract forms, so most of it is standard anyway.

The contract should address the process of inspections, the guarantee of title, default terms, pro-rations, etc. The parts usually negotiated are the price, the closing date, the possession date and any contingencies. There are many different ways to handle condition issues. Your agent should make sure you have a disclosure form from the seller prior to complete and final agreement. Many contracts state that the final agreement is subject to the buyer’s review of the disclosure statement. You will probably need to pay an inspector to write up a formal inspection form within a few days of the contract agreement. Generally, ugly does not count as a repairable item. The wear and tear of general life is not considered a repairable item. A broken door lock, an air conditioner that doesn’t work properly---these things need to be fixed. Unless you are buying totally “as is”, the seller usually has to fix these types of things. (Sometimes, this is done up to a dollar amount.) In a sellers’ market, the buyer sometimes has to accept the property “as is with rights of inspection”. I would advise you put a “not to exceed” dollar amount on this type of contract so that if you find the basement is cracked and needs $15,000 worth of work and repair, you are not obligated.

You may need the seller to pay some of the closing costs on your loan. Be aware that the property must appraise for enough to cover these expenses and leave the seller with the funds he feels he needs to have after closing. Any costs he pays he is going to look at as a subtraction from the offer. If the house is priced at $250,000 and you offer $240,000 and ask him to pay 5% of the sales price as closing costs, in his eyes you are making an offer of $228,000. Really, it is even less to the seller, as he must pay the commission, any state taxes, and title costs based on the larger amount. Most sellers just look at the bottom line. In a sellers’ market, you want to make your offer high enough to guarantee you get the house you want. You probably will not be privy to any other offers. You need to decide what the property is worth, both to you and in comparison to other properties on the market. If you only have a small or no down payment, the property appraisal becomes a consideration, too. The property must appraise for the sales price for a loan of more than 80% of the appraised value. Your Realtor can go to the computer and do a quick CMA (estimate of value) for you on the property. Sometimes, the agent is familiar enough with the area to let you know about other properties in the area and what they have sold for while you are looking at property.

With most people, there are other things to consider than price during the negotiating process of the sale. The closing date and possession may be an important part of the initial offer and of the final contract. Most sellers are planning to buy another house and need things to work in their favor on the dates. Sometimes, the buyer is needs to get out of his apartment by a certain date and needs the closing to correspond. In some areas, the seller gets a few days after closing to move, and in others the keys to the house are turned over at the closing table. If the seller of the house you are buying wants to stay after closing, have a rental agreement. The closing of the sale of the house ends the contract to purchase. In order to make sure you get possession in a timely manner, and potential damage to the house is addressed, have a written lease or rental agreement, even if the rent amount is one dollar.

Another potential negotiated item concerns the personal property that may stay with the house. Most sellers list the things they are leaving in the listing agreement and they will be printed on the MLS information your agent has. If you ask for something in the offer that is not part of the listing agreement, be aware this is an “offer” to the seller. They may put a lot of value on that particular item. I usually advise sellers not to lose the sale of the house for the cost of a 15-year-old clothes washing machine, but it has been known to happen. In today’s market, as a buyer, appreciate all the seller may leave. If you do ask for something not on the listing, consider its real value. Do you want to find another house for the cost?

When you make the initial offer, you may want to put a date and time that the seller must respond by. If you have no date and time, the offer is out there hanging, and the seller can accept at any time. It is not a true contact though until you, as buyer, acknowledge the acceptance. Until final agreement, the seller can take another contract. After you have reached agreement, he may take a “back-up” offer. If you really want the house, I hope you hear the words from your agent “You got the house!” If you do not, chances are there is a better one out there for you.

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