8 Common and Costly Homebuyer Mistakes
1. Knowledge makes for a better offer
What price should you offer when you bid on a home? Is the seller's asking price too high? Does the price represent a good deal? If you fail to research the market before you shop, making an offer would be like bidding blindly. Without knowledge of current market value, you could easily bid too much, or fail to make a competitive offer once you found a potential home because you just weren't sure. An easy method to gain a basic understanding of value is to use a common denominator called (living area) price per square foot. This is one way for comparing price. Acquire a list of recently closed homes in the area that you are interested and divide the â€˜soldâ€™ price by the living area:
An example: Today's date is 4/10/2006. You like the Cedar Hills area of Brooksville. Locate the last 5 sales that have closed in the past 3-4 months. An example would be if one sold for $389,000 and the living area is 2144 sq ft (not including lanai or garage):
$389,000 / 2144 sq. ft = $181 per sq. ft.
Keep doing this approach until you have a square footage price range. Make adjustments for lot size, pool, landscaping, interior ceiling heights, type of construction (block being superior to frame), roof age and type of roof like tile v. shingle.
If the home you are interested in making an offer on is listed for $539,000 and the living area is 2520 sq. ft ($539,000 / 2520 = $213 P.S.F. This home is either: (a) overpriced; (b) a better location; (c) a bigger lot; (d) pool; (e) better amenities like hurricane insulated windows or granite surfaces; (f) or possibly better built. Price per square foot creates a common denominator to make such comparisons. When you are doing your comparisons, try to compare similar properties to the type you are interested in. For example, if you are looking for a 4/2/2 home with a pool within a certain development, obtain info on comparables that are also 4/2/2's with pools in that specific area. In other words, try to compare apples to apples.
2. Buying the Wrong Home
What are you looking for in a home? A simple enough question, but the answer can be quite complex. Often, buyers have been swept up in the emotion and excitement of the buying process only to find themselves owners of a home that is either too big or too small. Maybe they're stuck with a longer than desired commute to work, or a dozen more fix-up projects than they really want to deal with now that the excitement has died down. Take the time up front to clearly define your wants and needs. Put it in writing and then use it as a yard stick with which to measure every home you look at.
3. Unclear Title
Title Insurance is the most important element of purchasing a home. If you can, hire a board certified real estate attorney to issue and review the title policy and close your real estate deal. If something goes wrong months later, you have a law firm and a title policy issued by an attorney to back you up. Look at it this way: it someone attempts to make a claim against your title because of some unsettled past matter, you will need every bit of power on your side.
There are too many reasons to list why it is paramount to have title insurance on the property. If someone is going to defraud you, it will likely come through LACK of title insurance. Cash buyers need title policies too because it is all your money and not the bank's. Ask just one question: would you take someone's word that they really own something if they wanted $300,000 for it? That's the reason for title insurance. It takes away any doubt about who owns the property now and what rights go along with your purchase. It insures the property against adverse tax liens, undisclosed owners, easements, leases, or the like.
4. Inaccurate Survey
As part of your offer to purchase, make sure you request an updated property survey showing the boundary and the location of the home, fence, shed, seawall and pool. If the survey is not current, you may be lacking important changes since the last survey like a new un-permitted addition, a new swimming pool, a neighbor's new fence which is extending a boundary line, etc. Be very clear on these issues.
5. Undisclosed Problems
There are two ways to analyze potential hidden problems when purchasing a home. The first method of buyer protection comes from what's called a Seller's Disclosure Statement. It is Florida Law that all licensed real estate professionals get a Sellers Disclosure Statement executed as a part of all contract negotiations. If a buyer is transacting a deal without a Real Estate Agent, then it is advisable to have the seller fill out this form and have it signed. If the seller misrepresents the home and hides material defects that effect value, then the buyer has recourse in the courts. The second way buyers can protect themselves is to have the home inspected by a professional home inspection company. Most real estate contracts are contingent upon the home being inspected within 10 days of the effective date (date all parties to the contract agree with no further changes or counters) of the contract. The typical home inspection report will detail the condition and operating status of all appliances, electrical outlets, pool pumps, roof, windows, air conditioning and all other major systems of the home. If something is in need of repair, the report will give an estimate of approximate cost so the buyer and seller can negotiate the price.
6. Not Getting Mortgage Pre-approval
Getting pre-qualified is not the same as getting pre-approved. Pre-qualified is a worthless piece of paper because none of the borrower information is verified. Pre-approval is fast, easy and free. Pre-approval is also recognized as being a powerful buyer tool. When you have a pre-approved mortgage, you can shop for your home with a greater sense of freedom, security and confidence in knowing that the money will be there when you find the right home. Buying the right home often means having the confidence to write a contract quickly. If you have not verified how much borrowing power you actually have, you may end up wasting your time (and your agent's time) looking at homes that are not within your budget.
7. Take away any possible issues that might delay closing
Often, the home inspection report reveals issues with the home that are in need of repair. Typically an agreement is consummated between the seller and buyer to have these items fixed before closing. Here's the catch: If the seller fails to deliver on the repairs, what's the remedy? The buyer and seller need to arrive at a dollar amount for the items to be fixed so if the seller defaults and has not corrected these items by "X" date, then seller is to credit buyer at closing "X" dollars for such unfinished items. Each item must have a separate dollar amount. This avoids hassles and delays in renegotiating the items to be fixed.
8. Closing issues
Make sure your closing agent or real estate attorney does a careful search for possible open building permits or building violations that have not been resolved. Make sure the prior years' real estate taxes were paid by the prior owner. If new construction, make sure a Notice to Owner was filed prior to start of construction and that all subcontractors have signed affidavits of no lien. This means they have been paid by the general contractor or builder and in turn, have paid their employees and suppliers. If you don't have this, you might pay twice if a supplier was never paid by the subcontractor and liens your property.