10 Things First Time Home Buyers Should Know and Understand
Purchasing your first home in the Greater Seattle & Eastside real estate market? There’s plenty to know, so here’s just a few things I would make sure you’ve got down before you go start thinking this process is going to be fool proof. Some of these are easier to work with than others and some of these will be a reality check and may hurt the ego for others but they’re all true I promise.
1) You’re not the only one looking for a great deal!
So many times I’m talking with clients who are ‘waiting for that great deal’ or ‘a real bargain’, or even ‘the right home’. Seriously, ‘waiting’ isn’t the smart way to go in our very progressive, competitive market! Those who hire a professional team to work with, who are serious about pursuing a home and those who are willing to sacrifice a couple small things or budge slightly on an item will be the most successful.
2) Price AND Terms win the deal
Many first time home buyers pay attention to the price only, not knowing that it turns out the winning offer was actually not the highest offer in terms of price, but that the offer was the best overall offer of Price AND Terms. Turns out the 2nd highest offer can close in 28 days with a trusted local lender, they had a pre-inspection done and found no issues, the buyer is fully underwritten, and so on. We’ve beat out a few slightly higher offers similarly.
3) Ignorance Isn’t Bliss: Buying a Home Isn’t a DYI Project Like on TV
Purchasing a home is a ‘process’, not a ‘project’, please definitely keep this in mind if anything else as a first time home buyer this competitive Seattle real estate market. Sometimes it will be fun, sometimes it will be less fun, but rest assured a quality team will be holding your project in their best interests as you would. You’ll want to establish a good relationship with your preferred lender and real estate agent for starters.
Would you show up to defend your own lawsuit? Would you fix your own spleen in a medical surgery procedure? Would you work on your intricate fuel injection system? Not unless you’re an expert in the field would you even consider taking on these projects! Yet time and time again because of the internet and access to information we are meeting dozens of people wanting to do almost everything themselves in the real estate process to save a few dollars. To be frank, it’s just not a smart decision.
4) You Need At Least 90 Days Prior to Your Ideal Move Date Lead Time Typically
Waiting until you’re ready to move to get started on the process is already too late! The number-one phrase I hear from new potential homebuyers I meet is, “we’re not ready to buy yet, we’re a couple months out.” However, most of these people haven’t met with a lender yet, don’t know their credit score, haven’t figured out their living situation if they need a 1-2 month buffer, don’t know a thing about the home buying process, and so on. They may think they’re a couple months away, but they’re actually more like 4-5 months away at best and they don’t even know it because they’re trying to do it all their self!
See this article for a broader definition and a good example: https://www.homebuyingwithconfidence.com/2017/03/first-time-home-buyer-timelines/
5) Honesty and Clarity Go a Very Long Way
Open book policy is usually a good way to go. There should be nothing to hide from your agent and lender during this process, and especially when getting pre-approved. The quicker you’re in full disclosure and they know what you know about your financial picture, goals and past, the quicker you’ll get on the same page and get your next home under contract. Be a proactive first time home buyer and conduct a personal assessment of anything you feel you’d need to share for full disclosure as it relates to submitting an offer to purchase real estate.
6) There’s More to Quality than Discounts
Shopping for the best rates and lowest commissions won’t typically produce the best results and many times winds up costing you more money, time and energy than you had imagined!
We’re seeing an influx of ‘discount, part-time agents’ in real estate who many times aren’t as knowledgeable as a full-time agent who knows what they’re worth and what value they bring you the homebuyer in a competitive market. When it comes to commissions some people are aiming to shave a $1,000 to many thousands off in hopes of producing the same result. However, many times this person will not work as hard for them and many times lacks the quality of a higher caliber professional who can get the best deal, will do the research, knows micro markets within the market, has a quality team behind them, and so on.
Example: If you save $3,000 on a commission discount but that agent costs you $10,000 where’s the value? Thus far I’ve had three clients fire their ‘discount agent’ that wasn’t doing much for them and didn’t know the area. Two of these three I negotiated their home for list price or below in very competitive areas.
When it comes to loan officers or home loan consultants, many people are shopping lowest rates and forgetting about level of service, especially when times are competitive and closing on-time is paramount. Also, be sure you understand the difference between ‘APR’ and ‘interest rate’, they’re not the same thing. The interest rate refers to the annual cost of a loan to a borrower and is expressed as a percentage. The interest rate does not include fees charged for the loan. The APR is the annual cost of a loan to a borrower, including fees.
7) Timing Is Paramount When You’re Serious About Putting An Offer In
When you find a home you’d like to submit an offer for, moving fast and efficiently is of ultimate importance! This cannot be stressed enough, however is overlooked many times by Seattle and Bellevue area first time home buyers. Poof! Suddenly another competing offer or a series of offers will pile in and your offer is dead in the water, all because of not being prepared and paying close attention to your timing.
You may have a work trip, relatives in town, a project at work, a formal event occasion, whatever it might be, but if paperwork has to get completed you’ll sometimes need to squeeze some extra time and rearrange a schedule slightly to satisfy this or you’ll lose the chance to get that home you’ve been searching so dearly for. There’s been a few occasions we’ve been up at 9 or 10pm on a call to go over paperwork before submitting an early morning offer or likewise due to schedules.
8) Knowing Common Real Estate Words and Terms Is Essential
Some key terms many new homebuyers don’t know that carry significance can endanger you in a heated bidding situation if you’re unaware of what options you have. You must strategize your ‘Terms’ offering just as much as your Price offering when putting it in context.
Here are a few important Terms such as: ‘Offer Review Date’, ‘Best and Highest’, ‘Escalation Clause’, or ‘Seller Reserves Right to Accept Offer Sooner’.
Offer Review Date: In a competitive market where a multiple offer situation will be taking place, the ‘listing agent’ (representing the home seller) will have established a specific date to review offers at their client’s request. Let’s say this is next Tuesday by 1pm, offers are due, meaning your offer must be in by this time to be considered.
Best and Highest: This simply means the ‘best’ (terms) AND ‘highest’ (price) offer you can put together with your agent. Sometimes there are
Escalation Clause: This is a separate addendum that is included with your offer that specifically states not only how much higher you are willing to ‘escalate’ your offer above a competing offer, but what your highest limit is. For example: Let’s say for this example that the home we’re looking into is listed at $400k and your offer is $400k with an escalation clause of $1500 increments escalating up to $430k. A competing offer comes in for $410k, which means your ‘escalator’ takes you immediately to $411,500 and you’re now higher than the competing offer.
Seller Reserves Right to Accept Offer Sooner: Although many homes in competitive neighborhoods will feature an ‘Offer Review Date’, the seller legally has the right to accept an offer before this review date and may not honor the review date. This is where communication with the listing agent is VITAL! This is happening quite a bit to start the year out when inventory is extremely low and a high offer comes in early with good terms.
9) Contingencies: Know About Your Them, How They Can Work For and Against You, and What ‘Waiving’ Them Means
Most popular ‘Contingencies’ in your offer would be the following:
- Financing: You promise/ability to obtain financing as part of your offer and that the sale is dependent on this financing. A cash buyer would not have a financing contingency the same as someone obtaining a loan.
- Inspection: Your ability to have an inspection done in a timely matter (typically 5 or 7 business days) and approve or decline the home and it’s defects or findings. Once you have an inspection done you can ask the seller to repair items and if they decline you can back out of the offer. They may also modify what they will fix and you could accept these terms as well.
- Appraisal: Your lender will hire an appraisal firm to conduct an assessment of what value they can lend money based on the value the appraiser comes back with.
- Sale of Current Home: That you need to sell your current home before you can purchase the home you’re putting an offer in on.
Waiving Appraisal Contingency: This refers to saying in your offer that you are willing to overlook a low appraisal and can ‘close the gap’ with additional cash funds if the appraisal were to come in lower than your offer amount. For example: If you offer $450,000 and the appraisal report came back at $440,000, you would need to come up with $10,000 more in cash above your down payment and closing costs if you ‘waived’ a low appraisal.
Waiving Inspection Contingency: You’re waiving your right to have an inspection completed on the property, essentially accepting the home ‘as-is’ with no discussion of the home’s condition. We’re seeing this more and more, however this can be a very risky endeavor so please waive with caution. Personally I rarely would advise a client to waive this but there are occasions that is a smart move.
10) Micro Market Knowledge Comes In Very Handy
For example, there’s a huge difference from Ravenna and Bryant neighborhoods for single family homes in North Seattle versus Magnolia or Queen Anne, also just north of downtown Seattle. Or perhaps knowing the micro market of Eastgate and Crossroads versus Somerset and Lakemont for regions of Bellevue. Working with my clients I stress to them that each micro market has it’s own statistics, trends and behavior that are worth taking a microscopic view of versus the macro market.
For example, working with a client looking for a townhouse in Ballard, Greenlake or Wallingford areas produced results that we’d have an average of 4 offers to beat out and would need to bid up to 107.5% approximately to compete on every occasion safely. We’d also need to do a pre-inspection 3 out of 4 times and be prepared to be strong on the earnest money deposit and have our paperwork in timely. This is just one example from Spring 2016.