Teacher's Lounge to Living Room: The ABCS of Home Buying, Lesson 2

Lesson 2: The ABCs of Home Buying 📔

Buying your first home can be a mixture of emotions: excitement, fear, avoidance, and, hopefully, joy and peace at the end of the transaction. As realtors when we start working with buyers, we try to be as transparent as possible with all the information buyers will need to know along the way. One of the very first action items we ask buyers to do is create a list of 5 “want-to-haves” and 5 “nice-to-haves.” Oftentimes this is the easiest part of the process, and for many people is the moment they feel that “this is really happening” feeling. I would caution buyers to take a breath, enjoy the moment, but also try to keep your feet firmly planted on the ground. Try to not let the excitement carry you away from reality. 💆‍♂️

When I was looking for a home, location was my number one priority. I’ve written about this experience before, but I was willing to take a smaller home in my preferred neighborhood versus a larger home in an undesirable area for me. This is personal preference, and based on needs. I was a family of three at the time, and could work with a two bedroom townhouse with a small yard. A family of four or more might feel differently. All situations are good and manageable for any expert realtor. This is all to say, before getting excited about finding the dream home in the perfect location that fits your needs and budget, buyers will most certainly conjure more questions and need more instruction along the way. 

👩‍🏫 This is where my teacher hat goes on, and all that patience I’ve summoned from the last two decades becomes an even greater asset. Unfortunately, if buying a home was just the 5 “want-to-haves” within your budget, this process would be easy. It’s not. It will become more confusing, and before a buyer signs and initials their lives away it is important to understand more about the process and requirements of buying a home. Here are the most challenging and under-explained concepts buyers need to know about when they start the home buying process.   

 🏦 Get Pre-Approved for a Mortgage: Getting pre-approved for a mortgage is crucial as it gives you a clear understanding of how much you can borrow from a lender. This step involves submitting financial documents such as income statements, tax returns, and credit reports to a lender. Pre-qualification means that the mortgage lender has reviewed the financial information you have provided and believes you will qualify for a loan. Pre-approval is the second step in the loan process, which is a conditional commitment to loan you the money for a mortgage. Based on your financial information, the lender will pre-approve you for a certain loan amount, which strengthens your position as a serious buyer when making an offer on a home. If a buyer is uncertain of which lenders to contact, agents will provide buyers with a few lenders that are trustworthy and have the best rates to offer. Take-Away: Get pre-approved and don’t be afraid to shop around for lenders. One last note here, do not get discouraged. If a buyer has not saved for a down payment or needs to wait for their credit to improve, just give it time. Be patient and make a plan. It will happen. Teacher Advice: Stop the lender when you don’t understand something and ask for an explanation. These are not commonly known words or phrases unless you work in banks or in real estate. Here’s that theme again, don’t feel stupid asking all the questions!

🏚 Hidden Costs: Buying a house involves more than just the down payment and monthly mortgage payments. There are numerous additional costs to consider, including closing costs, property taxes, homeowners insurance, HOA fees, maintenance, and repairs. Being aware of these hidden costs can help you budget effectively and avoid financial surprises down the road. When we walk through a home with buyers, we always point out potential issues, as well as areas for future improvements. We are not contractors, however, we have years of experience helping buyers and sellers complete renovations. We are able to ballpark estimated costs for redoing a bathroom or refinishing floors. We also help buyers connect with fairly priced contractors to get actual bids for these later on post sale. Take Away: Every house will need something. It might be an aesthetic, structural, or safety need. You may not need these items completed immediately, but make a budget for some home maintenance in the future. 

 📝 Contingencies: Purchase offers often include contingencies that protect the buyer, such as financing or appraisal. These contingencies give you the opportunity to back out of the deal if certain conditions aren't met. Understanding these contingencies and their implications is crucial for a smooth transaction. Take-Away: In the Bay Area, non contingent offers are the strongest and most desirable. Honestly, we just don’t see contingent offers. It’s not a thing here. Pre-sale inspections are provided, and a buyer's offer should reflect the information provided in the disclosures. If you are not from the Bay Area, this might be something done in your region. If you are moving to California, know this is the accepted practice here. 

📈 Market Conditions:Oof. This is the area where realtors spend a great deal of time speaking with sellers. Don’t get me wrong. We love working with sellers, but every seller likes to let us know how much their home should sell for and that their home is “the best.” Unfortunately for sellers, market conditions control much of the sale price. For buyers, this can be good news. The real estate market is constantly changing, and it's essential to stay informed about local market trends. Factors such as inventory levels, median sale prices, and days on market can impact your buying experience. Researching market conditions can help you make informed decisions and negotiate effectively. Take-Away: Listen to your realtor. After looking at a home and reviewing disclosures, buyers and the agent will decide on an offer price. We always make sure to be transparent with buyers about their decided upon offer price. We will tell buyers if it is a strong offer, or perhaps maybe due to market conditions, if the offer is most likely on the low end. A good realtor will keep it real. 

 🤝 Negotiation: Good news! This is why we have buyer’s agents. Buyers don’t do this. We do this! Negotiation is a fundamental part of the home buying process. From the purchase price to repair requests and closing costs, there are many aspects of the deal that can be negotiated. Buyers agents work 10s to 100s of hours to understand and internalize the market and the specific home. A buyer's agent also makes strong connections with other realtors, so when negotiation time comes, your realtor can leverage all their knowledge and relationships to get a you the desired property. Negotiations can be tough on realtors, but honestly, this is what manu of us thrive on. We like to get wins for our clients. Take Away: Be prepared to receive multiple phone calls from your agent during this time. Be ready to go back and forth. A buyer might have to increase an offer price to get the property. Buyers may be at the tip-top of the max budget and will need to let the property go. Trust an agent’s skills. We got you. Oh, and whatever you do, please please do not contact the seller’s agent yourself. Please. This never goes over well. 

📄 Title Insurance: Title insurance is a type of insurance policy that protects homeowners and lenders against any potential issues or disputes regarding the ownership of a property's title. It provides coverage for losses arising from defects, liens, or encumbrances that may affect the property's ownership rights. (What is an encumbrance in real estate? Just that- liens, easements, leases, mortgages, or restrictive covenants. Encumbrances impact the transferability or use of subjected properties).This is one of those things startles buyers because it is not relevant until way after all the open house visits or scouring multiple disclosure packages or the exhaustion of the negotiation process. This happens at the end. Take Away: Don’t let it be a surprise. Title insurance ensures that the buyer has clear ownership of the property and protects against financial loss due to title-related issues that may arise after the purchase. Teacher Advice: Same song and dance…ask those questions. Ask the escrow officer all the questions about all the word you do not recognize. I can’t say it enough, unless you do this everyday all day, NO one really knows these things. 

 💵 Property Taxes: Property taxes can vary widely depending on the location and assessed value of the property. Researching property tax rates and understanding how they will impact your overall housing expenses is crucial for budgeting effectively. Take-Away: A realtor will be able to help you estimate property taxes. Roughly buyers can estimate 1.25% of purchase price. A realtor will also help you discover (hold onto your hats for this word) if there are any “mello-roos.” (Pause, what in the world is Mello-roos? A special tax assessed on property owners in California to finance infrastructure projects, services, and facilities within a specific district. The tax is named after the sponsors of the law, California State Senator Henry Mello and State Assemblyman Mike Roos…and it’s kind of a fun word to say). 

🏘 Resale Value: Frequently we find ourselves helping buyers purchase a home they know they will be in for only a few years, and later use this home as a stepping stone to their next purchase. Rarely do we help people buy their “forever” home in their first transaction. Even those planning to be in the home for many many years, might change their mind when their children are moved out and start having their own families. The desire to be near grandchildren is strong! Take- Away: While finding a home that meets your current needs is important, considering the property's resale value is also essential. Factors such as location, school districts, and neighborhood amenities can impact the property's long-term value and marketability. You may not want to ever move, but you cannot predict the future and your needs will change. Teacher Advice: Because I am also a Senior Real Estate Specialist® I often see this with my agind clients. Even for my own self. I laugh about never leaving my current home, but the truth is I have steep stairs and those stairs and my old runner knees have a shelf life. Try to think long LONG term about the home even when you think you’ve found your “forever home.” 

🎢 Emotional Rollercoaster: Buckle up. Buying a house can be an emotional rollercoaster, with highs and lows throughout the process. Staying patient, flexible, and focused on your long-term goals can help you navigate the ups and downs of the home buying journey with confidence. Enjoy the highs, take a beat during the lows, and remember everything does happen for a reason. That may sound “hippie-dippie” for some, but seriously, the right house and situation will be present at the right time. Forcing something to happen that causes emotional distress most likely caused by financial stress is not going to be worth it. Take-Away: Trust the process. It’s also ok to take a break from the process. Be upfront with an agent, and express your emotional needs in those moments of fear or disappointment. Remember, it’s not going to be smooth sailing. A good agent will hold your hand and respect your decisions. 

As your teacher and guide in this process, I hope these important factors are clarified. Most importantly, it is my goal to make sure information is not a surprise. There is no worse practice in teaching than when a teacher assigns a test, and just instructs student to “study chapter whatever” as the study guide. Absolutely not. Drove me nuts as a principal. Students, now my clients, need to know how to prepare and what to expect. Realtors cannot predict everything in a transaction, but surely we can arm our clients with information to make the process less stressful. 

Class Dismissed. 📚

Next on the syllabus, let’s talk about buying a condo, townhouse or single family home and all the differences. Hint: The city of San Francisco is very unique! 🌉