Wednesday Welcome: Homebuyer Homework
Today’s Wednesday Welcome goes out to Leonard Baron, a blogger for Zillow.com and author of Real Estate Ownership, Investment and Due Diligence 101. As the housing market — and the weather — continues to heat up, home buying is a timely topic. Our homes are the largest purchase most of us will ever make, so it’s important to be informed — Leonard’s checklist will arm you with what you need to know.
If you want to make a smart home purchase decision, there is a lot of “homework” you can do to increase the chances that things go well with your purchase. These days, it isn’t just checking the school district or having a home inspection done.
Below, a checklist of steps every buyer should go through when purchasing real estate (don’t let it intimidate you – your real estate agent, lender, and closing attorney will be there to lend a hand).
- Select a competent real estate agent. Interview at least three and select a skilled licensed real estate agent. Call references, and check their business standing.
- Select a mortgage lender. Meet with at least two, get pre-approved, and compare their quotes for providing your financing. Then call references and check their license and business standing.
- Do a financial analysis. Does it make financial sense to purchase a home right now? The breakeven time frame for property is about five years, so plan to own the property at least that long; otherwise you’re probably better off renting. (Note from Jean: The New York Times has one of my favorite buy versus rent calculators – it can help you run the numbers here.)
- Make a list of qualities you want in a home. Is granite a must? A five-piece master bath? Would you be happy with one bathroom, but a basement is non-negotiable? Narrow down what you want ahead of time.
- Shop properties. This is the fun part! You should shop for several months and look at many properties to compare your options before making an offer. If you feel that your real estate agent is showing you properties that are outside of your budget – or properties that don’t met your minimum requirements – it’s okay to move on to another agent.
- Make an offer – if you find something you like. Review the terms carefully with your agent and make sure you understand the purchase contract, disclosures, addendums, contingencies, etc.
- Understand escrow. Once the seller accepts your offer, you are in escrow. That’s great news, as you are getting closer to owning the property, but there are still a lot of items that you need to consider, review and think through.
- Secure your mortgage loan. Continue the mortgage process and review all the documents, estimates, terms, addendums, and disclosures.
- Schedule your home inspection. Find a reputable inspector – your agent will have recommendations, as well friends and family members in the area. This is your last chance to gain an understanding of what needs to be repaired, replaced, or renovated at the property. Be sure to ask the inspector any questions you have, and bring in other experts who can estimate the potential cost of repairs. Get bids from contractors to figure out if the price still seems to be reasonable.
- Review additional property information. Your agent and the other professionals involved in your purchase will help you review Natural Hazard Disclosures, insurance reports, the title insurance policy, and crime statistics, as well as help you secure other inspections you may need – think radon, soils, and flood or earthquake zone. He or she will help you decide whether you need these inspections, based on the home and the area.
- If you have a homeowner’s association, get ready for a few more documents. In HOA governed properties there are many more pages of documents, reports, financials, CC&Rs, disclosures, etc. that you need to obtain, understand, review and analyze.
- Purchase homeowners insurance. Talk to your insurance agent and make sure you procure the proper type and amount of coverage. It may save you money to bundle with your auto insurance – shop around for the best quote.
About Leonard: Leonard Baron is known as America’s Real Estate Professor®. You can find him on Twitter.