Wednesday, July 30, 2014

Rookie mistakes of first time homebuyers

From page C2 | August 17, 2012 |

Last week my column offered a few suggestions for sellers looking to take advantage of the best seller’s market in six years. Record low interest rates and a shortage of available homes for sale have contributed to a mini price bubble. About half of all listings are selling at or above the listed price. July’s median selling price of $285,000 was 8 percent higher than July 2011 and an 11 percent bump over June.

First-time homebuyers, who account for the majority of the county sales, are attempting to take advantage of affordable homes and low mortgage rates. Many are frustrated that their offers are not getting accepted. They wait for weeks for the right home to appear in the MLS and by the time they get there to preview it has multiple offers, often over the listed price.

Federal guidelines define a first-time homebuyer as one who has not had an ownership in a home in the previous three years. Anyone who has not recently experienced the process of landing a home in escrow and qualifying for a mortgage would be surprised at the changes. There is a learning curve when shopping for a home. Good agents will prepare their clients for the fierce competition they will likely experience when making an offer. Every situation is different and often the best structured and presented offers get rejected in favor of another. Avoiding the most common mistakes of first-time buyers will not guarantee opening an escrow but it will increase your odds at success. If you or someone you know is shopping for a home, here are some mistakes to avoid.

Not furnishing overwhelming evidence of being fully qualified can be a costly mistake. Back in the day, a “pre-qualification letter” from your mortgage broker attesting to the probability of qualifying for a loan was usually sufficient for any offer.  After all, anyone who could fog a mirror could get a loan. Furnishing a pre-qualification letter to the seller was only a formality. That’s all changed. Seller’s and their agents want to see “pre-approval letters” and often from their (not the buyer’s) preferred lender. In addition, REO sellers will likely want to see “proof of funds.”  When in competition with other offers there can be no financial modesty. Buyers must reveal everything if they are to be serious contenders.

Not being in search mode 24/7. Waiting until the weekend to drive by that cute house that popped up on your search engine may be more convenient but it will likely be too late. No dilly-dallying around. Often buyers will get discouraged with the lengthy search process and take a break. That’s when someone more diligent will be writing a purchase contract. The first offer usually has the best chance of getting accepted provided it meets the seller’s expectations. Here’s why. Dealing with multiple offers and counter offers is time consuming. Most agents will take the easiest path and work the first offer.

Homebuyers with unrealistic expectations will likely remain shoppers while practical buyers are closing escrow. It is no longer a buyer’s market. Buyers who missed the buying opportunities available over the last three years need to get over it. Sellers will not accept offers substantially under the listed price or pay for all the closing costs. Selecting a home, like many things in life, is about compromise.

Complicating the purchase contract with unnecessary contingencies automatically ensures that other offers will be given greater consideration. Keep contingencies to a minimum. If the short sale seller will not do any repairs or pay for any inspections, it should not be in the contract.  If the buyer is fully qualified for a mortgage, perhaps eliminating the loan contingency will be a competitive advantage. Keep contracts as simple as possible.

Skipping inspections can prove costly. REO sellers have no history of the property’s condition and often short sale sellers have no incentive to provide an accurate representation of their property’s condition. A buyer’s agent is responsible for making a visual inspection and disclosing known conditions but what about the unknown? Many sellers will not do any repairs on their property; however, it is still important that buyers have complete knowledge of the home’s condition and its component parts.

Most first-time homebuyers make the mistake of underestimating their closing costs and monthly mortgage payment. A buyer’s closing costs including lender and title fees can easily run 3 to 4 percent of the loan amount. A few years ago the seller might have picked up that tab but not today. Failure to include property taxes, homeowners insurance, homeowners association fees and Mello Roos taxes, if any, in calculating the total monthly payment is a common mistake and often a bit of a shock when pointed out.

Buying a pig in a poke can be an unpleasant surprise. The market is so competitive in certain price ranges that a few agents and their clients will make a sight-unseen offer. Offers are written contingent upon the buyer’s personal inspections which they will perform if and when their offer gets accepted. This often is a waste of time later when the buyer discovers the home did not meet their expectations. If a buyer isn’t interested enough to preview the listed property, their offer will likely be uninteresting as well.

As the market continues to change, homebuyers must adapt their strategy. The tactical advantages often go to the team making the least mistakes.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at





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