Personal Financial Tip 6

You’ve tired of paying rent and you’ve decided to purchase a home. You feel now is a good time. There’s plenty of inventory to choose from and although the credit market is tight rates are still attractively low. Now it’s time to get organized.

House hunting is exciting but it’s also a lot of work. You are going to be investing a lot of your time in researching, viewing and then negotiating the property. The time you are investing is your most scarce commodity. That is your free time. You don’t have a lot of it to begin with and now you are going to use a good portion of it in your desire to buy a place to live.

There are several avenues available to you as you begin your search. There’s direct advertising such as newspapers and the Internet. There’s open houses held every weekend that you can take advantage of. You can talk to your friends, co-workers and relatives to discover what’s currently on the market. And finally, you can work with Realtors.

Every avenue should be utilized to help you develop your own opinion as to where you want to live, the type of home you’d like to buy and the price you are willing to pay for that property.

Before you start actively searching there is some homework you need to do first. Begin by getting an idea of what your housing needs are, but keep this general. Starting off with a detailed list of what you want will work against you. In its worse form it can discourage you from even looking. As you view properties you will note the attributes of each property. You will begin to develop a list of priorities. The action of looking at properties will supply you with the data from which you can determine what is really important to you from things that would be nice to have from things you really don’t want.

You also need to find out what you can afford and more importantly what you feel comfortable paying each month. The way you do this is to total up your current assets and your current income and then talk with a professional. Get a recommendation for a mortgage broker from you accountant, attorney or use the Internet to find one. In using the Internet begin your search with the UpFront Mortgage Brokers Association and The National Association of Mortgage Brokers. Brokers who become members of these associations tend to take their business more seriously, especially those who take an active roll in the association. They also tend to have more experience.

Once you meet with the broker and feel comfortable with his knowledge as well as his personality you can then discuss your financial situation. The broker needs to prove to you that he is not only knowledgeable but also willing to take the time to understand your position and help you in making decisions that you will be happy with.

Based on your financial data and his understanding of your wants and concerns the broker can then make suggestions as to the price of the home you should be looking for. You will be leaving this meeting with more than a prequalification letter. You should have an understanding of the current underwriting criteria, the process in getting a mortgage, what the maximum financing that a lender will be willing to grant you and most importantly, where you want to be after closing on the purchase. After you close on the purchase you will be facing a new monthly expense and less cash assets that you had when you were paying rent. You need to understand that you will be facing a balance between the mortgage payment and the amount of cash left on hand.

As your hunt progresses you will be talking with your broker. You will be updating him as to what you’ve found in terms of price, property tax etc. and he will be updating you to the current mortgage market.

Now that you an idea as to what features you want to have and what you feel comfortable paying you can begin your search. If you don’t have a specific area your interested in then you need to superficially look at as wide a geographic region as necessary. Use the media and the Internet to find open houses. By visiting these properties you will be able to develop a feel for the neighborhood, the styles of homes that are typical for each neighbor and a general idea of the housing costs. This will give you the background from which you will be able to focus in on one or two areas. Now you can begin to look seriously.

You will be using multiple sources of information in your search. Always keep in mind the strengths and weaknesses of each source. Friends, relatives and co-workers have the best intentions when then give you information. They sincerely have your best interests in mind. They are however limited in the quality of their data. They may have purchased a home in a different market or at a different time. Recent sales activity that they are giving you may not be accurate. The information typically comes from a friend of a friend. Before depending on anything information you should confirm it through another source.

The media, the Internet and open houses will give you the asking prices of the properties you’re viewing. This is not the market value; it is a price a homeowner is asking. You need to keep in mind that there is no formula available that converts an asking price to the market price.

Realtors, except in the rare condition that they are working as a buyer’s broker, represent and are compensated by the seller. You need to keep this in mind for two reasons. Information supplied to you will be from the seller’s prospective. The Realtor’s job is to get the highest and best price for the seller. Conducting business through a Realtor does not cost you any more that dealing directly with the owner. You will be buying the property at a price that you feel is right for you. What financial commitment the seller has made with the proceeds of sale doesn’t impact what you’re prepared to pay.

The Realtor has access to closed sales in the neighborhood. This is date you need to negotiate intelligently. There is no way for you to know how close a seller’s asking price is to market price if you don’t have market data available. Based on your analysis of the closed sales data you will be able present an offer based on facts. This will force the seller to argue your facts if he wants to get a higher price from you.

Let’s take a simple example. You are selling your home. This is a house that you have lived in for many years and therefore has special value to you. You are selling the home for $500,000. There are two buyers interested the home. The first buyer offer you $425,000 claiming that’s all they can afford, there are a lot of homes on the market, they’ve read in the paper that housing prices are down and there are sure prices are going to fall further.

The second buyer offers the same $425,000. This buyer acknowledges the qualities of the home as the reason he wants to buy it. The buyer points out that six months ago a house around the corner was sold for $440,000 and last month the house across the street closed for $425,000. He couldn’t find any other sales in the neighborhood.

The first buyer is negotiating with the same thought process as the seller. The property is worth $425,000 to the buyer because that’s what he wants to pay and it’s worth $500,000 to the seller because that’s what he wants to get. This is similar to 2 kids fighting over a piece of candy.

The seller has a different issue when address the second buyer. Here the seller can take the position that he doesn’t care what the market value is, he wants what he wants. It’s obvious that this seller will not be selling his home anytime soon with that attitude. If the seller is truly interested in selling the property he is now forced to address the recent sales. He will have to find similar closed sales at a higher price then the second buyer or will have to prove that his property is substantially better that what already sold. Maybe the house is bigger or it’s been updated, etc. The seller is pressured to deal with facts and figures, not emotion.

There is another benefit in negotiating with facts. What if there are higher priced sales in the neighborhood justifying a higher price for this property? The seller identifies them and presents them to this buyer. Should the buyer want to purchase this property and is willing to increase the offer, he can do that with the confidence that he paying a proper price for the home. The buyer is dealing with facts, not emotion, in the negotiating process.

When finding a home that you would to buy, there in no guarantee that you will be able to buy it at a price you’re happy with. You do however stand the best chance if you are properly prepared and negotiate based on facts.

Buying a home is a job. You need to dedicate the time necessary to do the search and develop the skill set that gives you the ability to identify the right house and purchase it at the right price.