Why is Searching for a Home Important?
The home search is an important aspect of the home buying process – getting a feel for price ranges and availability in the neighborhood(s) you are looking in, learning about new neighborhoods, and fine tuning your list of criteria for a potential home is a must when you are getting ready to buy. Buying a home is often the largest financial commitment a person will make in their lives – shopping around is more than worth the effort. Have you ever bought something just to find something you like a little bit more or at a lower price a day later? You do not want to have that feeling after buying your home! You want to feel confident that you got the best deal for the best price. Be persistent and look at house-hunting as a second job. Home buyers who work hard at it end up getting a good deal on a home they love. So can you.
How Should I Conduct My Home Search?
You’ve lived in some sort of residence your whole life, so you’re likely to have a lot of ideas about the features you are looking for. For that reason, shopping for a home doesn’t have to be intimidating. It’s not like getting a mortgage, which you’ve probably never done.
During your first meeting with your agent, your goal shouldn’t be to start looking at properties. It should be to develop criteria that you would like your prospective home to meet. Of course, you will have already been pre-approved for your loan and been introduced to your mortgage lender and real estate brokers. With these things done, it’s time to start thinking seriously about the kind of home that will meet your needs. Make a list of the ten most important criteria for a new home. Then, divide your list items equally under two categories: “top priority” and “nice to have.” Take this list with you as search for homes, as it can be difficult to remain objective when you are home hunting. You might find a home you fall in love with—one that has huge windows and hardwood floors. While these features might be desirable, they may not be your top criteria. It’s not as fun having a beautiful home if your commute is two hours each way. Keeping your list of “top priorities” and “nice to haves” will help you stay level-headed when searching for a home. As you search – you may shift some of your priorities. If you do, be sure to update your list, keeping it with you as you search.
Search Online and In-Person
In the olden days, searching for homes was done while looking through the windshield of the agent’s car. Today, the Internet allows you to see homes that are available in your search area, at any hour of the day or night, from the comfort of your own home. You can visit the website of the National Association of Realtors, www.realtor.com, as well as the many sites managed by the large real estate brokerage companies.
Also, while you’re online, you can check on the estimated value of the type of homes in the areas in which you’re looking. Don’t take the seller’s word for it; look up the value online. Once you’ve identified homes you’re interested in, go see them in person with your realtor. As you search, take detailed notes about each home you see. It can be easy to forget the differences between properties when you are looking at several homes a day. Make a note of anything that needs to be fixed so you can evaluate the cost of these repairs. You may also want to bring a digital camera along with you.
Forge a Partnership with Your Realtor
You and your agent should agree to shop for homes together, as partners. Use the same system your agent uses, and develop a means of communication that allows you to share information about and evaluate homes that are on the market. That way, if he or she finds out about a new listing, you can get a call, an e-mail, or an instant message that alerts you to it. At the same time, if you discover a listing you like, you can pass it along for your agent to evaluate. It’s important to develop this partnership!
What happens next is a function of the marketplace in your area. In many markets today there is a huge inventory so you and your agent will have a lot to choose from. You can review all of the existing listings that meet your criteria, then narrow down the list to the best ones. Then you can arrange to see them and, if one happens to strike your fancy, you can make an offer on it.
With so many homes available in the overall marketplace today, it is inconceivable not to find one that you like. If you can’t, you are probably being too picky. And that indicates that you’re not committed to buy—a surefire way to turn off a good agent. Nevertheless, if you happen to live somewhere that the real estate market is particularly strong, you can ask your agent to use the multiple listing service (MLS) database, which will alert you when a home meeting your designated needs enters the marketplace.
Remember, too, that there are other buyers out there competing for housing. When you find the right home, be prepared to move quickly.
Educate Yourself Before You Try to Buy a Foreclosure
With the financial markets reeling from the sub-prime mortgage crisis, housing sales are down dramatically and inventories of homes that have been listed for sale is soaring. What that means is that you are going to have to look at more non-traditional ways of home-buying. When homeowners miss mortgage payments, their homes go into default. Unless they catch up on their debt, these homes will go into foreclosure. Further into the process, foreclosed homes can be bought “on the Courthouse steps,” as the expression goes; they are auctioned off to the highest bidder. Be warned: Buying foreclosures at this stage — “on the courthouse steps” — is a realistic strategy only for sophisticated buyers, not you; for starters, you are often required to buy the home without seeing it, and to pay cash. This is not a good idea for a first time home buyer.
If, at the auction, there are no bids high enough to cover the loan amount, the lender will assume ownership of the property and will try to market it in order to recover its losses. At this stage – once the foreclosed home has been transferred to the lender’s ownership – you may want to consider buying the foreclosed home. A lender who has just assumed ownership of a foreclosed home MAY make for the most negotiable seller, especially if that lender has a number of foreclosed properties in their possession. Your agent should recognize this and act accordingly. Not to be unfair to newbie agents, but now is not the time to have a real estate agent still learning the ropes about this market segment.
Some banks that are selling foreclosed properties are requiring buyers to get their mortgage from them. That is most likely a violation of Federal law but it is NOT illegal for them to offer you very attractive terms on a loan—terms that are so attractive, in fact, that no one else can compete. That would certainly make it easy for you to use them.
But there are so many cases of abuse by “affiliated” lenders that you should be very wary. It’s best to deal with your own lender. If the seller comes up with a finance deal that seems unbeatable, show it to the lender of your choice. He may not be able to beat it, but you can ask him to have standby financing available just in case the seller turns out to be less than honest and comes up with a totally different, less attractive deal at closing. Should you take the seller’s loan, be prepared to do the honorable thing and pay a fee to your lender for being willing to provide the loan on standby. He deserves it.
If you are going to consider buying a foreclosed property, buy a book on the topic. Don’t spend $500 on a seminar that will tell you the same thing. That’s a waste of money, and a weekend.
Consider a Condo: The Pluses
If you are a first-time homebuyer, you may be shocked to find that a detached home is priced beyond your reach. That’s why condos have filled an important spot on the real estate landscape. With the cost of land in many urban and suburban areas accelerating so rapidly, the cost of building a single family detached home on its own lot has simply gotten beyond the reach of many potential homebuyers.
Why are condos less expensive? They increase the density of homes on a property, thereby spreading the cost of the expensive land over more units, making them less expensive. The units are typically smaller in size too, which also make them more affordable.
The legal definition of a condo may vary from state to state, but the common denominator is that you own the portion of space within your particular unit, rather than the entire building in which it resides. You have the right to occupy this box and sell it to someone else, but the responsibility for the physical structure and maintenance of the building in which it resides lies with the condo association, of which you become a member. Your title report might read that your property is unit 34 plus, say, a 1/75th interest in the entire parcel occupied by your project’s 75 units.
Note that several types of condos are possible: There is the garden type, which is a single or two-story building containing two, three, or four separately-owned units. Townhomes, or “row houses” as they are sometimes known, are more common. These are buildings in which single units are laid out side-by-side. Then there are “stacked” condos in which units may be stacked several stories high. Finally, there are urban high-rise projects that may reach 20 or 30 stories.
There are reasons to buy a condo beyond the low cost. In particular, young, first-time homebuyers might not be fully prepared for the rigors of homeownership, e.g., mowing the lawn. Other owners might enjoy the flexibility condos allow—they can leave home for a week at a time and not worry about having to maintain their home. Others might enjoy amenities like the pools, tennis courts, or golf courses that are often part of condo communities. So-called infill projects in downtown urban areas attract buyers who like a location within walking distance of their offices. Still others, particularly those who are retired, like the fact they don’t have to be responsible for maintaining their property.
You can see that there are a number of homeowners who would be more attracted to such a home rather than the traditional home with a picket fence in front.
Finally, the value of a condominium is based not only upon its intrinsic real estate characteristics (location, size, quality, and so forth) but also on the financial health of the association, amenities, and the portions of the property owned in common with the other owners. These usually include the streets, landscaped areas and the actual structure. Remember that all you own is the air space within the walls. The walls, floor, and roof are owned in common. Not all associations are equal in these regards, and therein lies a potential problem.
Consider a Condo: The Minuses
Condo owners must pay monthly dues. The Association will pay the property insurance, also known as fire insurance. If there is a pool, someone must maintain it. If you have a security guard at a gate 24/7, someone must pay them too. All those services are paid by the monthly dues.
The value of a condo also lies in the value of the common area beyond the physical space occupied by the owner. There are significant issues here because control of the total property is beyond the reach of the individual homeowner. The condominium association is managed by Board of Directors and an individual owner has only one vote to decide policies.
The association of owners sets up reserve accounts so that when parts that are owned in common with the rest of the owners wear out or break, there is enough money to pay for replacement costs. In a single-family residence, the owner is clearly responsible for maintaining the roof and other parts of the home. In the case of a condo, however, a unit owner may be in the middle of the building or on the ground floor. An owner on the bottom floor unit cannot personally to maintain “his” roof. The Association owns it and is responsible for maintaining and replacing the roofs and other items known collectively as common areas.
Each owner pays dues every month, and a portion of those dues goes into the reserves, a “sinking fund.” If there are 100 units in a project and the roofs are expected to last 25 years and cost $750,000 to replace, $7,500 per unit, then $30,000 has to be set aside every year so that after 25 years enough money is available to pay off the new roofs. This would amount to $300 per homeowner per year, but it would be paid monthly. Say the total dues were $200 per month. Of that, $25 of that would put into the reserve account for the specific purpose of the roof. Another portion of the dues is used to pay for liability and casualty insurance on the building, and so forth.
Every year the association’s Board of Directors should hire a company to do a Reserve Analysis. The analysis studies every single item in the common area—from the roof to the paving in the parking lot, to make sure that adequate reserve funds are being established. If they aren’t, the Board must increase the dues. This isn’t a bad thing, but in an inflationary world you can expect that as replacement costs increase, so does the amount required every month from the dues so as to assure an adequate level of reserves.
You can see that if you are interested in buying a condo, you would want to do research to make sure that the level of the reserve account is adequate to handle the projected replacement costs and the maintenance costs of the structure.
Make Sure the Condo Association is Financially Sound
When you buy a condo, the association is required to give you many documents—the Conditions, Covenants, and Restrictions (CC&Rs) that govern the association, the By-Laws, the Rules, and the Annual Budget. You can’t do much about the first three, but you can look at the Budget—both the operating statement that shows income and expenses—and the Balance Sheet, which would show the level of reserves. Review these carefully with your real estate agent.
Very few buyers review these documents. Most of the time, of course, they are safe, because most associations are run responsibly, but some aren’t and you do NOT want to buy a unit in a project that isn’t financially sound. Everyone in real estate has heard stories of people who bought a condo only to find out six months later that the association was poorly managed and each owner was faced with a $20,000 assessment to solve a problem. This does happen, and you do not want it to happen to you.
Be Ready for Close-Quarters Living
The other warning here is that higher density means living in tighter quarters. This can bring out undesirable qualities in some people. In a neighborhood of single-family homes, you can pretty much do what you want to. But in a condo, the association rules govern what can and can’t be done. To put it bluntly, there are some people who are chronic complainers who want to stick their noses in other peoples’ business. Get enough of these folks in a project and it can be unpleasant.
You also find that people who have never had any power before in their lives can get elected to the Board, let the power go to their heads, and go off on some wild adventure, dragging the association with them until someone stops them. It doesn’t take very many “Condo Commandos” to create a very unpleasant environment. People have moved out of associations because of the negative atmosphere created by some of the “leaders.” Choosing to spend 6% of the cost of a home just to get away from people like that is an expensive lesson you don’t want to experience. So how can you avoid this?
Knock on a few doors and ask some questions about the management and neighbors so as to unearth any problems. Most of the time, of course, there will not be problems, but if there are, let them be someone else’s problems. Buy somewhere else.
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