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Sunday, January 13, 2008

Be a buyer and not just a shopper...


I get called a lot by people who want to go look at houses, but who aren’t ready to buy. By that, I don’t mean that they aren’t mentally ready to make a move (although that may still be an issue for many); but, rather that they haven’t prepared to enter into a purchase agreement for a new house, even if we find the perfect house on the first trip out. They are shoppers, not buyers.

For the sake of the rest of this post, I'm going to assume that the potential buyer is unencumbered by a current house - they don't have to sell their house before they can buy. If you have a house already then the first thing to do is to figure out what you're going to do with it. Some, but very few, buyers that I get tell me that they can afford to buy a second house without having to sell their current home. That's good, because most sellers today are not in a mood to listen to contingent offers. They know how long it might take you to sell your current home. So let's assume that you've already sold or that you're coming out of an apartment or lease and don't need to sell anything.

There are several things that the potential home buyer needs to do to prepare to become a serious home buyer. The most obvious step is to try to get a handle upon what you can afford to spend on a new house. Getting a good, accurate estimate about what you can afford may involve more than just sitting with a mortgage broker to understand your current credit score and borrowing ability. If you have a financial advisor, you should likely start with them to understand how a new house payment will fit into your overall budget and financial plans.

After meeting with your financial advisor, get with the mortgage broker and use the figure that you have worked out with your financial advisor as your total monthly payment budget. The mortgage person will figure out what you can afford for that number, including taxes and insurance. Ask the mortgage person to give you a pre-approval letter based upon those discussions. They may also suggest locking in a mortgage rate for some short period of time – usually a month or less.

Next, get with a real estate professional – a REALTOR® – and take some time up front to discuss in detail what you would like to have in a new house. Make a list of locations and features and other things that are important to you. If the school district’s MEAP scores are of concern to you, let your Realtor know that, so that he/she can research that for you. If drive time to work is critical in your decision let your Realtor know that, too, and perhaps try out the routes from the area that you are interested in to your work to see what you hit in the mornings or afternoons. If close, convenient shopping is important, tell the Realtor that, too. The more that you can share with your Realtor up-front, the more helpful he/she can be in your search. Just saying, “I’ll know it when I see it,” doesn’t give the Realtor much to work with and will likely result in a long and potentially frustrating process.

There are lots of checklists available that you can use as you go out looking. I have one in the FAQ section on my Web site www.MIHomeBuyer.com, along with tons of helpful information for both the first time buyer and the experienced buyer. Even if you’ve bought houses in the past, it’s worth a quick read through the FAQ section on that site to refresh yourself on the process and any changes that might have occurred since you last bought.

There is also a form there that looks at the house much as a home inspector might, so it gives you a different perspective on what to look for. In real estate people tend to make their offers based upon the heart (they fall in love with the house), but they end up buying based upon logic ("what’s this really going to cost me, if I find major issues during the inspection?"). You can get both working on the front end with the proper preparation.

Another thing to think about at is the actual move itself. What will you do if your offer is accepted and now you have to move in 30-45 days? If there are children involved, what about their school situation? If you are currently leasing or renting, can you get out of that obligation in time? If you have lots of stuff in your current home, how will you get that moved? Will you have time to do some work in the new house before you move in, or do you have to move in immediately? You should have at least thought about questions like those before you make an offer on a new place. If you need extra time, you might be able to negotiate a delayed closing up front. Trying to get the seller to renegotiate the closing date after it is set (and after the sellers have made their plans to move) is difficult.

Home shopping doesn’t have to be all that difficult or intimidating, but it does take a little more thought ahead of time than just going to the mall for some window shopping. Buying a home is certainly not an impulse buy that you can just whip out your credit card for on the spot. Fortunately, there are professionals available every step of the way to provide help, information and (if you’ll allow us) guidance through the process. So, if you've decided that you want to take advantage of the best buyer market in decades, get yourself prepared to be a buyer and not just a shopper.

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