December 17, 2004
With respect to residential real estate, certain “rules of the road” or real estate buying truisms make sense and offer guidance whenever one buys for whatever one buys. Here are, in my opinion, the most important of these rules. In my 35 years as a real estate broker, I’ve participated in over 100,000 separate real estate transactions. Asking these questions and/or considering these topics can save you time, money and anguish.
This is the gold standard of real estate valuation. The most important attribute of any real estate is its location. Choose the location of your home wisely and after considering all available information. Corner lot, flag lot, proximity to or insulation from traffic, suburban or urban – all of these factors affect desirability and value.
Buying and selling real estate is expensive. Selling expenses can easily run in excess of 12% of the sales price. If you think in less than five years you will need four bedrooms instead of three, or a three car garage instead of two, buy the bigger home now. In the long run, you will come out ahead in most markets.
For the first time home buyer, generally the most significant reason to buy a used versus a new home is the leverage of home financing. Used homes with completed landscaping, yards, fences, drapes and window coverings allow one to finance these improvements in with the purchase price of the real estate and avoid cash expenditures or additional credit card purchases.
As an example, in the used vs. new scenario, a used home with all completed improvements as mentioned above utilizing 100% financing can be acquired for closing costs and prepaid items only. The same new home with a zero down payment still requires anywhere from $10,000 to $20,000 in improvements and additions to offer the same utility and comfort as a fully accessorized used home.
Choose your real estate broker and mortgage banker wisely. They have years of experience helping others like yourself. They will save you time and money and can assist you in the finding the right home and the right financing.
Select a Realtor®, a member of the National Association of Realtors (NAR), and a Mortgage Banker, a member of the Mortgage Bankers Association (MBA). Both associations require compliance with strict ethical and professional codes.
You are primarily responsible for your own due diligence. Never waive inspections even on a new home. The builder could have skimped in the construction, used under-sized components or worse yet, hired incompetent sub-contractors. There are countless examples of new homes which deviate significantly from plans or specifications. The requirement of inspections and testing is even more compelling for a used home.
Don’t rely on litigation to try to solve an obvious problem. Warranties are only as good as the builder or the warranty company.
If you love the design of a geodesic dome home, don’t make it your first home and make sure you’ll never want to move again. If you are a frequent transferee, avoid buying the home with elegant black and white checkerboard granite flooring and the velvet walls. Try to stay mainstream and your next move will be both easier and faster.
There is a reason why lenders always require a Mortgagee’s Policy of title insurance. A simple failure can cost them the entire amount of your loan. A buyer should always obtain an Owner’s Policy with ALTA 100 coverage to insure access (or the equivalent in your area). Unlike auto or home owner’s insurance, title insurance is a one-time expense.
You can benefit from the appreciation and value enhancement that accompanies a smaller or standard sized dwelling in a housing development. Misplaced or over improvements are generally penalized by the market, and sometimes severely, upon resale.
No one can better protect his or her real estate investment than an informed purchaser. While we have seen many years of inflation in housing prices, inflation is not a guarantee and should not be relied upon as a bail-out for a bad investment decision. In the last two decades, housing inflation has been quite uneven and unpredictable. Having a place to call home and a sanctuary against the outside world with the significant tax benefits afforded home ownership is reason enough to buy your own home. Equity created by the inflation in housing prices is simply the “icing” on an otherwise delicious cake.
Tom Di’Mercurio is the President of BuyBankHomes, the nation’s largest free Internet listing service of foreclosed homes or REO assets. He is a career mortgage banker specializing in non-performing loans and REO, writes extensively for industry periodicals, and is a licensed real estate broker in Texas and Colorado and an industry consultant. Di' Mercurio graduated cum laude from the University of San Francisco as well as earning an MBA with honors from St. Mary’s College of California.
This article by Tom Di'Mercurio was originally published on BuyBankHomes.com.