In todays Agent Insights post, Ryan Fitzgerald - a Realtor in Raleigh, North Carolina - sheds light on what mistakes first time home buyers tend to make and how to help clients avoid them.
Working with first time real estate buyers in the Raleigh area is one of my absolute favorite parts of real estate. Addressing the common mistakes first time buyers make upfront leads to a much smoother transaction.
There are so many options available to first time buyers that they are typically unaware of. This leads to an attitude of gratitude from first time home buyers once we show them how they are able to save thousands of dollars.
First timers range in age, from millennial buyers to older adults looking to settle down in the Raleigh area. Either way, there are great financial opportunities for these new buyers.
So what are the commonalities among first time home buying mistakes?
1. Not Educating Your Client:
One of the first things your first time buyer should do when they decide to buy a house is educate themselves. If they jump into searching for homes for sale online without a proper understanding of the home buying process, emotions could lead to poor decision making.
The other day, a client from California called us and informed us she would be moving to Raleigh, NC. She told us that she was planning to buy a home in the next three months and had never visited the Raleigh area. We recommended she make a visit here before buying real estate in the area. Three days later she told us she called a builder and bought new construction.
This is common among buyers. They set their mind on accomplishing something and their emotions control their decision making. This is an example of how not to buy a house. Having never visited the neighborhood, or the home in person, it's tough to truly know what you're buying.
If you haven't visited Raleigh we don't recommend you spend hundreds of thousands of dollars on a house until you do. It should take more than three days to make an educated decision as well.
Not everyone is going to make education, or a loan pre-approval the first step in their home buying process, but not making it part of the process at all is a common first time home buying mistake. Buyer beware.
2. Over-Extending a Budget:
There is a good chance your first time home buyer isn't fully aware of ALL the costs of homeownership. The best way to help them understand what they can afford is to be reasonable, and logical. Emotions will take them to a place they don't want to go, and if they haven't been pre-approved there is a good chance they may be looking at homes in the wrong price range. This is a mistake among all types of buyers.
A pre-approval should be the second step in the home buying process, after a first time buyer has been educated on different lenders and first time buying options. Different lenders will have different first time home buyer programs, and some will be local, while others will be state or national grants.
Even as a Realtor®, and homeowner, I am still learning new costs that I couldn't have possibly accounted for initially. My home inspector found a problem with the HVAC and upon further investigation the unit was completely shot. A $5,500 investment that had not been accounted for when I originally went under contract on the property. Fortunately, the sellers bought a new unit so we were able to proceed to closing without my budget being affected.
Not all sellers will account for problems with the home found on the inspection report. There's a good chance you'll have a list of items to be paid for at time of closing as well. Familiarize yourself with the hidden costs of buying a house, the costs of homeownership, and pad these numbers appropriately for things that may happen.
One of the best ways to determine what a buyer can afford is to reverse engineer the process. Start with everything you know a buyer will be paying like electricity, water, tv/internet, other utilities, food, etc. Once you account for everything that will be paid monthly, pad the number by several hundred dollars to leave room for savings, hobbies, traveling, etc. Take their monthly income and subtract their monthly expenses. This will leave you with a number that they should add padding to as well.
A lot of people don't realize how different the costs of renting and homeownership are until they actually own their first house.
3. Not Knowing Their Priorities:
If a client is buying a house alone it's different than buying a home with a significant other or a friend. When they purchase real estate for themselves, they should make a list of priorities, needs, and 'want-to-have's.' This can lead to an easier home purchase since it's only them. If they’re buying with someone else then they need to account for everything they want in a home as well and need to make sure they're on the same page about buying real estate.
We have often seen buyers where one party wants to buy, and the other party isn't ready to commit to homeownership just yet.
This can complicate the home buying process for everyone involved. Your buyer needs to have a conversation with the other party involved and make sure that they are both 100% ready to buy a house. After this conversation, they can sit down together and start planning out what they both want in a house.
If your first time buyers jump into a home search online without truly understanding each other's wants it will lead to complications later on. It's important first time home buyers understand everything upfront, so they're fully aware of all that is involved.
4. Wrong Real Estate Team:
Buying a home is not an easy process. We work hard to simplify it, and it's something we are constantly tweaking. Our list of vendors has been changed too many times to count because we are always trying new ones and figuring out who the best is.
Hiring the wrong real estate team can cause all sorts of additional stress for first time home buyers. There's a chance they don't have a definitive idea of who the best vendors and resources are in their home buying process. It starts with finding a top local Realtor to assist them, and this person will have a list of names to help with your home purchase.
If you're targeting first time home buyers, you should also be able to refer real estate professionals who are going to best assist you with the transaction.
5. Buying With Emotions vs. Reason:
One of the mistakes first time home buyers make involve buying a home based on emotion vs buying a house based on reason. Everyone struggles with this, even myself, and others who know what to expect in the home purchase process. It's going to be a roller coaster ride, your buyer has to be ok with saying no to something they love, in order to find something they can love within their budget.
This is not easy. In fact, shopping for a home is a lot like dating. Chances are you've met different types of people, just as you've seen different types of homes. You have an idea what you like, and what you are searching for. Then it's time to start dating
You want to go out with different types of people, just like you want to view different homes for sale. If you find one you like, and your priorities line up with your budget, then you are ready to make an offer. Here's what happens after your offer is accepted.
What's funny about the dating buying a home analogy is that we tend to make things into something they are not. For instance, if you aren't sure about a home and it is purchased by someone else, you might immediately begin to think you'll never find another one like it. You'll turn the home into something it is not. This is similar to dating, where you realize you aren't sure whether or not you want to be with someone, and then she starts dating someone else you instantly confuse her for something she isn't.
Your client has to be prepared to make proactive decisions, and leave their previous decisions in the past.
Final Thoughts on the Mistakes First Time Home Buyers Make
A lot of first time home buyers walk away happy, and with highly successful real estate transaction when they follow the proper home buying process. It doesn't matter if they’re buying new construction or a luxury home, they’re still going to want to work with a top local Real Estate Agent. Falling into the hands of the wrong real estate team can completely ruin a home purchase. We've seen it happen many times at Raleigh Realty, where a buyer brings in a new mortgage lender we have never worked with, and they fail to secure funding.
Another important thing to note is that Zillow Home Values and Real Estate Listings are wrong. You will be missing out on a ton of available properties if you're searching homes for sale online there. They also don't collect accurate data, so how could their home value estimator (zestimate) be correct? It isn't.
If you're working with a client who is ready to buy a home for the first time, help them do their homework, determine budget/priorities, find a great lender and real estate team, and date around!
For the original blog post and more from Ryan, visit: www.raleighrealtyhomes.com.