First Time Home Buyer Beware – 7 Common Pitfalls to Avoid

First Time Home BuyerAre you ready to buy your first house? That’s exciting and possibly terrifying at the same time. But don’t worry, if you know what to look for and have a structured plan of attack, you can maneuver through the obstacles and reach the finish line with a great new home.

Before you start your search, there are few things you will want to watch out for. Also known as… common pitfalls to avoid. If you can recognize these and figure out how to bypass them before they cause a problem, you will save thousands of dollars and plenty of headaches.

Here are 7 of the 15 pitfalls that are outlined in chapter 4 of my new book – How Much House Can I REALLY Afford? Practical Tips To Avoid Becoming House Poor.

Pitfall Number 1:

Falling in love with a house before shopping around. I always recommend looking at 20-30 houses before you place your first offer. This way you will see what’s out there, at what price points and know what features you really want. If you fall in love with one of the first… you may over-pay and miss an even better, more affordable house down the road. This is a very common pitfall and it can be very costly too.

Pitfall Number 2:

Cosmetic House Flippers. Beware of investors that purchase downtrodden houses and spruce them up with cheap labor and materials in order to “Flip” them onto an unsuspecting buyer. Don’t let that buyer… be you! As the saying goes… “You can put lipstick on a pig…it may look nice… but it is still a pig”

Pitfall Number 3:

Realtor Tells You To Offer Above Asking Price. In some very fast-moving markets, you may have to offer above the asking price, but most real estate markets are not moving that fast. However, most Realtors want you to believe that they are. This is one of the most common “games” that real estate sales people play. Don’t fall for it.

Pitfall Number 4:

Make sure to add a 24 or 48 hour – “Accept, Decline or Counter” clause to every purchase offer on a home. If you offer them 24-48 hours to make a decision, you will get your answer and/or a counter offer quicker so you can continue negotiating or move on to the next property.

Pitfall Number 5:

You will also want to add a “Mortgage Financing Contingency” clause which states that if you are unable to get the mortgage financing commitment under the specific terms and rate maximum that you are asking for, the deal is canceled and your deposit is refunded. Without it, you could be on the hook.

Pitfall Number 6:

Making Too Big of a Deposit. Whenever possible, only make an initial deposit of $500 to $1,000 with the contract. Try not to make any additional deposits until closing. If you need to make any additional deposits, don’t get influenced to deposit any more than the absolute minimum required. Let the realtors know that you will not be making any deposits over 2% of the purchase price before closing.

Pitfall Number 7:

Telling Your Realtor Everything. This can be an eye opener as well. Did you know that all realtors (unless specifically acting as a buyer’s broker) work for the sellers? This is true. Even if you are working with a realtor on your own, they get paid a commission from the Seller, not you.

Tell your realtor only what you want them to know and ultimately tell the sellers. Normally you will not be allowed to meet the sellers or attend the offer presentation. The less wiggle room your realtor has, the harder they can sell to get your offer accepted… as is.

I hope this helps you on your journey to buying a house, making it a home and keeping you financially secure. Being a home “owner” can be a great thing… but if done wrong, it can become a living nightmare. 

Check out my Amazon Author Page here for more details about this book and others. 

Why Many Realtors… Hate Working With Buyers

Home BuyersThis may sound like nonsense, but many Realtors do not like working with home buyers. How could that be? Why? Doesn’t every real estate transaction need a Buyer… and a Seller? Of course they do.

But think about whom Realtor’s actually work for in most transactions. Their commissions are generally paid by the Seller. That means they have a contract with the Seller to sell their house. If they successfully arrange for a qualified buyer who agrees, executes and closes on the deal, they receive their commission.

Sure they have to place the property on the MLS online, advertise the house, hold open houses if necessary and present offers as they come in, but if they consummate a sale, they get paid. Ideally, some Realtor’s would only work with Sellers if they could.

This can also be a conflict of interest for Buyers. If you are looking to purchase a house, do you have to pay the commission to a Realtor that you decide to work with? Generally No. If the Realtor that you are working with helps you find a house and you agree to a deal, they get paid their commission… from the Seller. Who did they really work for?

In most cases, they also work for the Seller. Even though they are helping you… the Buyer, by giving you advice and showing you houses in the area. They are still paid by the Seller of the home you end up purchasing.

Do you see the conflict of interest here? If both the Seller’s Realtor and your Realtor are being paid by the Seller, what kind of offers are they making on your behalf.

I have actually witnessed a situation where a Buyer told their Realtor to place an offer for $199,000, but I am willing to go up to $215,000 if needed. The house was listed with an offering price of $225,000

Guess what “your” Realtor is obligated to do when they present your offer to the Seller and Seller’s Realtor?

It went like this.

I have an offer from a young couple that wants to offer $199,000 for your house. I believe this is a nice offer, they have been pre-approved and their purchase has no contingencies. I have also been told that they are willing to go as high as $215,000 for the property….

What do you think the Seller and Seller’s Realtor are going to do? Accept your $199,000 offer?

Of course not, they will counter your offer higher than the $215,000 and then have you counter offer back with $215,000.

Did “your” Realtor help you with this deal? Did they fight for your best price? Did they get paid a higher commission on $215,000 than on $199,000? Who did they really work for?

When you are dealing with a Realtor, you need to know who they work for before you allow them to negotiate on your behalf.

For many Realtor’s, Sellers take up too much time and effort. Driving around, looking at houses, never finding the right house… it makes them wonder if you will ever buy a house. Or maybe you will find a FSBO, For Sale By Owner and cut them out of the transaction entirely.

At least with Seller’s, if someone brings them a Buyer… they get paid their commission. I hope you can see why many Realtors, don’t particularly like working with Buyers.

Remember there are many great Realtors out there. But as a Buyer… you should always be concerned with and know who is paying their commission? If you are looking to buy a house or know anyone that is considering it, please make sure to share this information with them.

For a simple solution to this problem, check out my new book entitled – How Much House Can I REALLY Afford? – on Amazon.com.

This article is just one of the many “Common Pitfalls to Avoid” that are covered in the book. Any one of them could cost thousands of dollars, cause headaches, plenty of stress and arguments in the process.