When Liang Zhao and her husband decided to start looking for a dream home in late 2018, they were up for the challenge. “We had been renting in New York since 2011, and our parents were like, ‘You both make enough money, it’s time for you to put down some roots and stop throwing money away on rent,” says Zhao, a 32-year-old entrepreneur with a marketing consultancy.
So began the home buying process of speaking to a lender about the size of the mortgage they could potentially afford. Once they decided on the price range, they started putting away funds for the down payment, closing costs, repairs, and moving expenses.
Referrals from family and friends helped them to find a broker they could trust. “Buying a house is a pretty strenuous process and the broker sees all of our personal financials,” says Zhao. “We wanted someone who truly understood the market and could provide realistic timelines.”
After zeroing in on specific neighborhoods and getting their finances in order, Zhao “easily browsed through 200 properties online and saw 20 in person.” In December 2019, the couple bought an 1,100 square foot co-op in Brooklyn that needed a full-gut renovation.
“In New York City, apartments for sale are primarily made up of co-ops and condos with co-ops being the cheaper option,” says Zhao. “While condos offered more flexibility, we were looking for a home to live in rather than a rental property, so a co-op worked well.”
In a co-op, owners own shares of a corporation, so you’re basically investing in the property rather than the unit. Typically, the larger the space, the more shares you own. There’s also a maintenance fee, which covers building upkeep, staff salaries, and your taxes.
Agent referrals: Should your real estate agent give you referrals when you’re buying or selling a home?
Finding a house you can afford: COVID hasn’t stopped the housing market, but good luck finding a home you can afford
Buying a home is probably the biggest purchase you’ll ever make. In fact, according to a 2019 report from the National Association of Realtors, the average home buyers will visit 10 homes over 10 weeks before they find “the one.” Once you’ve found a home that ticks off your must-have criteria, here are some steps to take to make sure it becomes your abode.
Step 1: Get intel on the home. Realtor.com and HomeFinder.com will not only give you the skinny about the home, neighborhood, crime, and schools, “they are now offering virtual 3D tours and high-quality photos,” says Bob Bradley, a Realtor in Southern California. “Buyers can also ask the seller’s broker,” says homeowner Zhao. “From the seller’s broker, we learned that the owner had passed and the apartment was part of an estate owned by the family.” Also, learn as much as you can about the neighborhood by driving through at night or on the weekends to ensure that the neighbors are sane, properties are well kept, and the noise level is minimal.
Step 2: Make an offer the seller can’t refuse. “The best offer would be an offer at list price or above with no finance contingency, meaning the buyer does not need time to obtain financing, and a quick close,” says Ashley Baskin, a real estate expert and board member of Home Life Digest, a free resource for home improvement tips. Not an option? Have your agent talk to the seller’s agent about the expectations for pricing and terms. “Then, when you present an offer, make it as close to the seller’s demands as possible without overpaying on the home.”
Because their home was an estate sale, speed nor cash was a big “selling” point for the seller, says Zhao. “What helped us most was having the pre-approval from our bank and our financial package together before we went shopping, which helped to communicate our intent to the seller’s broker.” Having a strong work history and a high six-figure income also helped.
While every buyer won’t have a high net worth, it’s a good idea to have money set aside to increase your offer if needed. If you’re tapped out from saving for the down payment and other costs, pick up a side job, ask parents for a loan or a gift, or do some overtime to save up.
Step 3: Order a home inspection. As a buyer, a home inspection report will give you an in-depth understanding of whether the home has been well maintained or if it needs major repairs. “Always get a home inspection,” says Denise Supplee, a licensed Realtor, and co-founder of SparkRental.com, which helps people build passive income through real estate. “Not only does a good one reveal possible long-term costly issues, but a good inspector will provide home maintenance tips.”
During the inspection, Zhao put actual numbers behind each faulty item to help build a case for lowering the selling price, and leaving more room in their budget to do repairs in the future.
“Note a list of the items that need to be fixed in order for the home to be livable,” she says. “I don’t mean a different wallpaper, but serious concerns like a cracked driveway, creaky wood floors, and water damage.” In all, they shaved thousands off the final price.
In a seller’s market, giving a seller a laundry list of items to fix can quickly cause you to lose the home. “Instead, prioritize potential insurance issues like the roof, AC, electric, and plumbing,” says Kseniya Korneva, a licensed real estate agent in Florida. “If a home can’t be insured, then the buyer cannot obtain financing and the deal will be over.”
Step 4: Prepare for a bidding war. According to RedFin, a tech-based real estate brokerage, more than 41% of its offers faced a bidding war in the four weeks ending May 10. The report cites that the lack of housing is partly the blame for the high competition rates. That said, Korneva offers these tips for sweetening the deal when multiple offers are on the table:
- Offer a higher purchasing price
- Include an escalation clause that bumps up your price in designated increments up to a capped amount
- Ask the lender to call the listing agent to review how qualified you are as the buyer
- Offer a short inspection period of seven days or less if possible
- Agree to a short closing if the seller’s prefer this
Step 5: Add a personal touch during negotiations. “We crafted a heartfelt letter as part of the bid package that complimented the apartment, spoke to what the home meant to us, and how we wanted to modernize the space for our future family,” Zhao says. “That letter went a long way with the seller’s family, and we received acceptance at $7,000 less than the highest all cash offer.”
Step 6: Understand the appraisal process. Lenders order an appraisal to objectively assess the home’s market value. “Ideally, the appraisal comes back higher than the sale price,” explains Supplee. “If the appraisal is less than the home’s sale price, or worse, the mortgage amount, negotiations begin.” Either the seller will need to come down in price, or the buyer will need to come up with more cash.”
Step 7: Get ready for the closing. The closing is likely the first time that all parties, including the buyer, seller, lawyers, brokers, title agent, and mortgage lender, are in the same room. Zhao advises buyers to take this opportunity to ask honestly about the house and whether there are quirks to be mindful of. While most of what you are signing should have been provided to you prior to the closing, take your time. When reviewing paperwork, experts advise buyers to understand whether there is a prepayment penalty, whether the mortgage includes taxes and insurance, or if there is a grace period.
Supplee says that she has seen people take more care in purchasing a car than they do a home. Her best advice: “A home is a huge deal and should be taken very seriously. Learn everything.”
This article originally appeared on USA TODAY: Buying a home: You found one you like. Here’s what to do next