Some advice on buying a house

When I bought my first house, there was very little information on what people should do. Should I get a lawyer? What are the steps in buying a house? It can be a very intimidating process. This is my attempt to share my experiences.

Remember that you are the buyer, and you are in control. You are the one financing the entire transaction, and that everyone should cater to YOU. Real Estate agents (especially the seller's) sometimes act as if the buyer doesn't matter. One of my original favorite sayings is, "If the real estate agents aren't complaining, then you (the buyer/s) aren't working hard enough." Make them work. (More on this later.) You need to be comfortable about every aspect of the transaction, from your buyer's agent to what you are paying for the property to what happens at closing.

Here are the highlights of what I think you should do:

  1. Read everything you can about real estate and financing
  2. Hire a competent buyer's only agent
  3. Get pre-approved by a bank and shop around for a mortgage
  4. Make sure you know everything there is to know about the property and write a good purchase and sales agreement
  5. Once you find a property, have it inspected by a competent home inspector
  6. If there is the slightest doubt in your mind that you're paying too much, get comfortable! Or don't go through with the sale.
  7. Hire a capable real estate attorney to look over the HUD form and proposed deed, and have the attorney explain everything to you
  8. At closing, read and understand every document the bank gives you to sign. Talk to your attorney if you are unsure about anything.
  9. Make sure the closing agent gives you copies of the HUD form and deed before leaving closing (both properly signed, of course)
  10. Make sure the closing agent sends you a copy of the title insurance policy (ask your attorney, but most will advise you to buy it) and all documents you signed at closing
  11. Have your attorney go over all of the paperwork after the fact

1. Study and learn

It's very important that you read everything you can get your hands on. Talk to people, use the web. It will only help you in the long run. As I am very fond of saying, "Information is power."

2. Hire a buyer's only agent

Many real estate agents who represent sellers also represent buyers. The problem with using a buyer's agent who also represents sellers is: what happens if you're interested in a property that is listed by your agent? I personally think that dual disclosure is a crock of you know what. Get a good buyer's only representative and be done with it. Listen to what he says, but also use your own common sense. In the end, you are the one who'll have to live with each and every decision throughout this process; make each decision your own! This could be summed up by another of my favorite sayings, "You snooze, you lose."

3. Mortgages

Ahh, mortgages. You sign your life away for the privilege of sending the bank a check each month for 30 years! All kidding aside, this is a very important step. Any competent buyer's agent will insist you be pre-approved. Bear in mind that you don't have to use the mortgage company who pre-approves you. You can be pre-approved by one mortgage company and get your mortgage some where else. Shop around for the best rate, but be aware of the fees. If you hire an attorney to look at the closing papers (and you should--more on this later), he'll make sure that the bank's not gouging you in terms of fees and ensure that the bank sticks to it's initial good faith estimate.

Should you use the bank your agent recommends? Sometimes, you receive a lower rate reflecting the fact that the bank doesn't have to do any marketing to reach you. Another reason to use the agent recommended bank is when you can't reach your banker (in a hot market, they're busy) you can tell your agent, "You get a hold of that banker you recommended." Your agent wants the sale to go through (he'd like to get paid) so he should do everything in his power to make the sale "sails" through.

4. Finding everything out about the property and purchase and sales agreements

Ask lots of questions. Walk the property lines before you buy. On my first property, I found out several years after I bought the place that my garage encroaches on my neighbor's property. There may be an easement on her deed for this. If there isn't, before I sell it, I plan on straightening everything out. On our second property, we didn't understand exactly where the property lines were until after closing and we saw a neighbor burning brush in what we thought was our back yard. After I put the fire out, I had an amicable discussion with my new neighbor where he pointed out the property lines at 45 degree angles to the street! Make sure you know what you are buying before you buy it.

When your buyer's agent writes up the purchase and sales contract (your offer to buy the property), be sure to put everything that isn't a fixture (window treatments, fireplace treatments, appliances, etc.) that you want to remain after closing into the offer. If you're not sure whether or not it's a fixture, put it in! If the seller wants to keep it, he'll take it out.

5. Home inspectors

Having your property inspected by a qualified and competent home inspector ensures you're not going to be in for any surprises. He should outline each of the items that need to be addressed with the property. The money I've spent on a home inspector always has saved me at least twice the cost of the inspection. I'll give you an example. For my last house, the cost of a home inspection was $300. As a direct result of having the inspection done, the seller put in a brand new electrical entrance (about $750) and had the chimney swept and repaired (about $300). On my first house, instead of actually correcting the problems the home inspector documented, the seller lowered the price by $1400 (the inspection cost around $250, if I remember correctly). And pick a home inspector with a reputation as a "deal breaker". Ask your buyer's only broker or a seller's only real estate agent (yes, they do exist) which inspectors they don't like, and start there. Having a reputation as a deal breaker means that you'll be finding out about EVERYTHING. This is one area where what you don't know could very well hurt you!

6. The purchase price

How do you figure out how much to pay? Most real estate agents will tell you the best measure of the value of a property is what someone will pay to purchase it. This is not entirely wrong, but it is not entirely correct, either. What do I think? The value of real estate is driven by the local economic conditions. "It's the economy, stupid!" I made the mistake of buying my first property in a declining market. Now I have a property that, if I wanted to sell today, I'd have to bring money to closing as the seller. So, I'm renting it, albeit at a loss (this is a whole other story I'll hopefully go into at some future time).

On my first property, I had no representation, because there was no such thing as buyer's agents. If there were the buyer agents then like there are today, I am certain I would not be in as bad a position I am today (having to rent it out at a loss). So what are some things you can do to get comfortable? Here are a few:

7. Selecting an attorney

Talk to people, get references. You want someone who only does real estate law. They see HUD forms, deeds, etc. every day. You want someone who will simply look over the HUD form, make sure it is legal and in accordance with the good faith estimate, and make sure the language of the deed is correct. You typically do not need him to actually be at the closing, but you can. I wanted my attorney to be at closing on my first property, but he succeeded in essentially talking me out of it. It's not that expensive, either. In my area (New Hampshire), the attorney charged me $250 in 1998. Still not sure you need an attorney? Consider this:

8-10 Closing and beyond

These items are pretty much self explanatory. In the paragraphs below, I've gone over a couple of things that have happened to me as closing approached or at the closing itself. Closing (or settlement) is where you get to meet the seller, you sign a bunch of papers and the deed gets signed over to you once monies are exchanged.

I've decided that no matter how hard everyone tries, something is just bound to go wrong. And usually, you, the buyer, ends up hating the bank. Expect it to happen, but realize that it is a normal feeling and it's not the end of the world.

What kinds of things can go wrong? Anything. I've always had very minor things go wrong (I seem to attract deed problems), but they're irritating nonetheless. On my first house, my attorney found a problem with the deed (the piece of paper that says you own the property). I remember my real estate agent complaining that he had to have it re-typed (this is where I got my favorite saying about complaining real estate agents). On my second house, my attorney notified the closing agent of a problem with the deed the night before the closing. At closing, the deed still hadn't been changed, and the closing agent actually argued with me (I'm no attorney, mind you, and neither was he, it turns out) about the wording on the deed! I couldn't believe it. The moral of this story is: get legal representation, and do exactly as your attorney says. Houses are expensive items and you want to be sure everything is done correctly the first time. The bank certainly has its attorneys, so who is looking out for your (legal) interests?

I remember talking to the seller's agent shortly before the closing on my second house. This was my wife's first closing, and she mentioned something to the agent about reading everything that she will be signing at closing. The agent made a comment about how "she could read it but they weren't going to change anything." While we could argue about the validity of that statement, one thing is for sure: you don't have to (and probably shouldn't) sign anything you aren't comfortable with!

Finally

I hope this has been useful. Have any comments, additions, corrections? Send me email.

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