Thinking about buying real estate? Not sure where to start when buying real estate?
When I talk to friends about my business and the Colorado real estate market in general, I see them striving to be enthusiastic listeners. Then there is a point where most people who are not fluent in the language of real estate, simply get lost and begin to lose attention. Understandable.
The suggestion for a short series of posts that outline the process of buying real estate in Colorado came from a friend/client who was actually thinking about buying real estate with me.
Stage One: Thinking about Buying Real Estate… But Where To Start?
It seems I’m rarely short of an inspiration, but often find myself thinking “where do I begin?” and this results in a perpetual delay.
Selling or buying real estate is a huge decision – but the decision is just the beginning and the rest of the process is often put off when there is no immediately obvious first step.
What is the first step to buying real estate?
Except in a cash deal, there are two people who will be instrumental in the property buying process. A lender and real estate agent.
To get started, you might be tempted to just call an agent and go see some properties.
Wrong, wrong, WRONG!
It’s really important to discover before starting a search:
A) What you can qualify for and
B) What price cap you are comfortable with.
They may not be the same and a quick pre-qualification chat with a reputable lender is the way to figure it out.
I regularly have clients who are told they can buy up to $X and then they tell me they are more comfortable with a lower monthly payment than that. This is good for me (and any agent) to understand. Your time is precious and there is little value in showing you homes that you may fall in love with, but are not comfortable (or qualified) paying for.
The lender can also advise you well ahead of actually buying real estate, what you can do to improve your credit score (thereby getting you a better interest rate), how you should handle gifted money or cash that needs to be transferred between accounts. They can also give you good information on such things as leveraging other properties, different types of loans and the additional lending requirements for people who are self employed.
Your Realtor should be able to give you contact details for trusted lenders. With a little info, in fact, your Realtor should be able to direct you toward a lender that specializes in the type of loan that you might need, whether that be VA, reverse mortgage, FHA condo or a plain old conventional loan.
Your RE agent should also know the market. Average days on market and average discount from list price are good to know ahead of writing an Offer to Buy or during strategy planning discussions.
In my market I usually find it’s normally less 2-3% discount from asking price, once the property is priced well. By that I mean, the house may have originally been listed for $110,000 but didn’t get any interest until it was reduced to $100,000. At $100,000 gets an offer and the contract purchase price is agreed on at $98,000, making the discount 2% from asking price. Right now though, with low inventory for the last 2 years, more and more properties are being bid up by multiple offers and may sell 1-2% above asking price – or more!
The agent should be able to drill down the analysis to determine if properties with the highest days on market, the vacant homes or the foreclosures sell for a bigger or smaller discount too. Every market is different and often seasonal.
Depending on the expected negotiated discount, the RE agent may counsel you to look a little above your comfort range.
Ok, so now you have a chosen a lender and a real estate agent to work with and come up with a reasonable price range within which to search.
So, what exactly are you looking for?
It helps to make a list – two actually.
The first is headed “Must have” and will fulfill the needs you have regarding a living and working situation.
Consider such things as the proximity to work or amenities, school zoning, the minimum number of bedrooms and bathrooms you require, whether or not you need a garage or yard. Are you handy or does this new home need to be move in ready?
The second list is “Would like to have”. Things you can live without, but would prefer not to.
You might want to think about such things as a view, extra bedroom for guests, fireplace in the living room etc.
I cannot stress enough that each buyer should make their own list and prioritize the items according to their own needs and desires. Only then, should couples or partners share their lists and discuss them in detail. It’s revealing!
Let me tell you a quick true story…
A cute young couple were referred to me by their work colleagues. Mr and Mrs S had been married a short time. I noticed during our first lot of showings that he did most of the talking – including over her. At some point I realized that I knew what he wanted, but not her. I split them up and gave them one of my “needs and wants” cards to fill out. Simple really. The card asked each person to list the top three things they wanted in their new homes, in order of descending priority. Mr S filled his out super-quickly. He then made tracks to the other side of the room and looked over his wife’s shoulder. In 30 seconds flat he assessed her list and began telling her what to change. More scary for me, she changed her list! Let’s just say there was an intervention and he was removed from the room until she had a chance to fill in her own card.
What I have found is that even when 2 people believe they have almost the same needs in a house, they rarely place those needs in the same order of priority. I know… hard to believe that two different people might have differing needs, huh?
Once the Buyers needs and preferences are on the table, the first thing your agent will likely do, is set up listing alerts. Listing alerts is a tool by which the agent programs the MLS with the search criteria of the buyer and sends the results of the search to the buyers email. The search can be set to run automatically and produce “instant” results when a new listing is entered into the MLS.
Listing alerts have a a 2-fold benefit:
1. The buyer gets new and changed listings sent to their inbox just as soon as possible and can ask for an appointment to see a home or can make an offer on a home quickly.
Most Realtor websites have a search function, but it should be known that they may be a few days behind with their info. Your agent can set up a search directly with the MLS system to ensure timely arrival of new listings. NOTE: Zillow is notoriously out of date. Properties that sold 12 months ago may still be listed for sale and I wouldn’t trust it to catch and deliver new listings as soon as they hit the market either. The biggest disappointment any of my clients face is asking me to see properties listed for sale on Zillow, only to discover they are not even for sale!
2. Listing alerts help a buyer get to know the market. The longer they receive listings that match their search criteria, the better informed they become about how the market is performing and what to realistically expect for their money. When the right home comes along, the informed buyer is primed to jump on it, comfortable with the offer price and able to rationalize and defend their decisions in an educated fashion.
Educated and informed buyers make better decisions!
Now its time to go shopping – in person.
I will walk you through showings and making an offer, in my follow up blog posts:
Stage Two: Ready to See Houses and Make An Offer
Stage Three: Under Contract
Stage Four: Closing This Week
Stage Five: Post Closing