It’s been said that you should go into marriage with your eyes wide open (and once you get married, you should close one eye). If that is true, then buying a home should be similar. As one of the most important financial decisions you can make, you should go into it with both eyes open, too. Here are a few things to watch out for when in the market for a new home:
- Size up the Competition
According to The Orange County Register, this spring roughly 30% of homes in Orange County sold over their asking price. At least one of the causes is lack of inventory; historically over 9,000 homes are placed on the market in May each year. This year fewer than 6,000 homes were listed. As a result, housing prices have gone up, and in some cases, bidding wars have pushed the sale price way over the listing price. Finding a home that fits your criteria is becoming more difficult. [Sidebar: note that interest rates are still historically low, and housing prices are likely to continue to climb for a few more years, so it’s still a good idea to buy now].
Before you start shopping for a home, it’s a good idea to shop for a mortgage. Getting at least 3 good faith estimates allows you to compare the APR of each offer, and select the bank with the lowest rates. In some cases, you can negotiate a better deal with your preferred lender because you have an offer from the competition. Once armed with how much you could feasibly borrow, and an idea on how much you want to spend on a monthly mortgage payment (don’t forget to add in up front costs and additional monthly fees like utilities, taxes, etc), you can be ready to make an offer that you know is realistic for you.
Armed with the information about your price limit and preferred lender, you can go in for the kill as soon as you find a home that fits you. In a seller’s market, the seller could receive multiple offers. You may have to differentiate yourself from the competition by getting a good offer in first, adding a personal letter (tug on their heart strings a bit), throwing in a gift (one buyer had a gift basket delivered to the seller, complete with treats for their children!), or adding a perk for the seller (not necessarily monetary; ask your agent for ideas).
- Find out If It’s All Good in the ‘Hood
This is a common rule of thumb: don’t buy the best house on the block. Housing values are closely linked to comparable homes in the neighborhood, so if the surrounding homes are half the price, you don’t have a good chance of getting what you paid for it, even if you make improvements. If you see your house as an investment, you should maximize your odds for turning a profit. The better approach is to buy a home in a great neighborhood that needs some work. Once you fix it up a bit, you have an immediate increase in value. So check out the comps in your prospective neighborhood and try to make sure the asking price doesn’t stick out like a sore thumb.
Once the house has passed the neighborhood price test, gather some more information about the area, as this can also affect your future home value. Are there apartment buildings or rental homes on the same block? If so, your neighbors may not be as invested in maintaining the value of the neighborhood as you are. Visit the neighborhood at different times (morning, afternoon, night, weekends) to get a feel for the community, and even what your potential morning commute would be like. If it is new construction, it’s a good idea to ask the neighbors how good the builder is at addressing issues that come up after you’ve moved in. Lastly, check into the type of schools that are zoned for the house; even if you don’t have children of your own, the type of school could affect the resale value by up to 20%.
- Perform Quality Control Testing
Don’t skip the inspection. Some home repairs can be very costly not only in terms of money, but in terms of your comfort. For example, a roof that is in poor condition can spring a leak and literally wet the bed. Or water can hide out in the attic or walls, causing mold (yikes!) and expensive repairs later. Replacing the roof can cost over $10,000, and mold remediation isn’t cheap either. For older homes, there could also be an issue with outdated electrical circuitry and plumbing; increasing the chances for fire hazards or water damage.
Speaking of water, a good inspector will check to make sure that water is draining away from the house instead of pooling near the foundation. If the foundation is shifting or cracking due to water damage, the water drainage issue will have to be addressed, the foundation may have to be repaired, and other symptoms may have to be resolved.
Do yourself a favor and hire a good inspector; a good real estate agent will know of a few. In the likely chance that you still choose to buy the home; at least the inspector will have identified a list of things that should be repaired. This list is invaluable because you can use it to ask the seller to make the repairs, or negotiate the price down and be prepared to make the repairs yourself.
If you are looking to buy a home in South Orange County, The Reed Team can help. Contact us today!