8 Big-Time Buyer Mistakes

TO AVOID! when buying a home

If you have been reading MIKE GAINESís Ask the Realtor blog lately you know that the Grand Traverse area real estate market is very strong for Buyerís, like it is across much of the United States.

You may be asking yourself, ìHow do I take full advantage of such a strong Buyerís market?î

Here are MIKE GAINESís 8 Big-time Buyer Mistakes to Avoid in the Traverse City real estate market. I will analyze all of these big-time mistakes in greater detail in upcoming "Ask the Realtors" blogs (except real estate agency, which we covered earlier).

#1 - Failing to use the (free) professional services of experienced, principled, and successful real estate agents

Some times a Buyer will avoid using Realtors' services under the mistaken beliefs that it's too expensive, that they can save money by bypassing those services, or that the real estate agent wonít be able to negotiate as a good a ìdealî with the Seller as the Buyer can directly. Buyers who make big-time mistake #1 are missing out on the biggest advantage and best ìdealî available as they try to purchase property in Michigan, and that mistake can be a very expensive one in terms of time, effort, money, and ultimate outcome.

We discussed the nature real estate agency and the cost of utilizing agents professional services when buying (theyíre free) in last week's "Ask the Realtors" blog, so letís look at some of the ways that a Buyerís agent can save you time, effort and money as you try and find The One in this market.

Realtors can greatly assist Clients sort through the sea of available properties in their local market, and develop a lucid view of the best candidates quickly and effectively. Yes, you can read through newspapers, or even drive around neighborhoods in your car, but with gasoline at $3 a gallon and rising, these are neither quick nor efficient methods for obtaining The One.

Even with the unprecedented access that laymen consumers have gained to real estate markets worldwide through the internet, any savvy Buyerís Agent can greatly increase the speed, breadth, and effectiveness of a Clientís efforts with the variety of resources available to Realtors. Any Buyers who are utilizing an agentís services are going to have first crack at the choicest, best priced homes because they are focusing greater, more specialized resources in thier efforts.

When buying a home, if you are trying to negotiate directly with the Seller, or heaven-help-you the Seller's agent, you are not taking advantage of your best potential asset ñ the free professional services of the top local agent(s) of your choice.

#2 - Not knowing whom an agent is working for & what their responsibilities are

Read last weekís Ask the Realtors blog about real estate agency in Michigan if you missed it, or are unsure about what agency means and how it works specifically. Suffice it to say that itís of paramount importance for Buyers to know and understand agency, who an agent is obligated to, and specifically what those obligations are. In the State of Michigan, until you enter into a Buyer Broker Agreement with an agent, their ability to represent your best interests is needlessly constrained, and they are in fact obligated to represent sellers of listed properties. If you are not sure whom your agent is working for - ask them. Your Realtor should fully explain agency before any offer is written or negotiations commence - really at the outset of your interaction with them. You want a good agent working hard for your best interests.

#3 - Failing to be financially pre-approved, and having an interest rate guarantee before looking at homes

This is more important today that it has ever been. Especially with the tumult in todayís residential lending market, you really need to know what monies are available before proceeding further down the path of buying a home. Contact some local lenders, assess your current situation with them, learn about your options and what you can and want to afford. Do not be afraid to shop around, but avoid out of town (particularly internet) sources of financing except as a very last resort. Choose the best local lender to work with and ask them for a Pre-Approval Letter and Good Faith Estimate before you begin searching for property in earnest.

You already have a financial relationship with your local bank or credit union - that's one place you can start. You can also reference TEAM MIKE's recommended lender list on our website for a list of local lenders that have done outstanding jobs for Clients of ours in the past. This process similarly will not cost you anything except 30 - 60 minutes of your time with each lender. You will need a recent pay stub, current year's tax return or W-2 form, and recent month's statements from all of your asset accounts (checking, savings, IRA, securities, etc.).

This process doesnít sound as sexy as falling in love with a home and then trying to figure out if thereís any possible way to pay for it, but believe me, nothing is more frustrating and trying on relationships (personal and agent-client) than searching through properties beyond your financial capabilities and intentions, while all the choicest properties in your "real" area of interest are scooped up by more savvy Client/Agent teams who have already done their homework and are successfully purchasing the homes of their dreams.

#4 Failing to have a Comparative Market Analysis (CMA) prepared before producing an offer

Before making an offer to purchase The One, you must have precise and accurate knowledge of what the real market value of that property is in order to ensure that you do not overpay. (Read that sentence again.) From an investment standpoint, your return on investment will be greatly reduced if you pay too much when purchasing.

Good real estate agents prepare exhaustive Comparative Market Analysis (CMAs) showing what similar properties have recently sold for, the difference between asking and selling prices in a neighborhood, the amount of real estate activity in an area and where it is trending, how long these properties have been on the market before they sold, what the current Sellers paid for this particular parcel, what the tax assessor's opinion of value is... Starting to get the picture?

This is the same type of information Sellers should be receiving when deciding on a listing agents, a marketing plan, and what the asking price should be when they list a property for sale. You should have access to at least the same level of information as the Seller, shouldn't you? Remember, the Seller's agent is working to maximize the sale price for their Clients. It's highly unlikely that the Seller's agent is going to work as hard for you as a Buyer to purchase their listing at the lowest possible price. Not impossible, but highly unlikely.

#5 - Failing to negotiate successfully considering all of the various personality types, transction scenarios, and expensive oversights

Oh, Boy. Listen, TEAM MIKE works with Buyers, Sellers, agents, lenders, appraisors, inspectors, attorneys, brokers, tax assessors, coordinators, prospective buyers and sellers, assistants, marketing agents, trustees, surveyors, financial advisors, zoning administrators, health inspectors, title company closers, mortgage underwriters, and accoutants all day long. So does any active real estate agent. Good agents are very skilled at negotiating in their Clients' best interests because that is what they do for a living - they get lots of practice.

All of an agent's effort is for naught until both sides of a transaction are happy and the transaction is complete. That Buyer has to be happily tucked into their new home and that Seller has to be gleefully counting their money or the agent does not earn a dime. Realtors have lots and lots of practice with lots and lots of different people in lots of different situations. Each one is at least a little different from all of the rest and experience goes a looooonnnggg way towards achieving success.

Stop and add up all of the successful sales and purchases of real estate that you have been involved in through your adult lifetime. Odds are very good that an active and successful Realtor has helped their Clients enjoy that much success in their real estate investments in the last month alone.

It is not impossible for people to purchase property without the assistance of a licensed Realtor, but why risk such an important endeavor without utilizing everything at your disposal? Would you similarly attempt to start your own small business without utilizing the professional services of a good attorney, banker, and accountant, especially if their services were free?

#6 - Failing to have your prospective home inspected by a licensed inspector before purchase

Once you have found The One, we cannot stress enough the importance of paying for a professional home inspection. First of all, Michigan law guarantees purchasers of residential real estate the right to an independent inspection, at the purchaser's expense, and that right is the most powerful option allowed for Buyers through the contractual process. Unless you are buying a brand new home, which has just gone through a battery of inspections in order to gain the Certificate of Occupancy (CO), or you are buying a home that will be gutted or razed by design, a home inspection is your best protection against purchasing a "lemon." Remember, caveat emptor, "Buyer Beware."

You are going to be very busy and focused on the big picture - hire a knowledgeable professional to go through The One with a fine-toothed comb before you close on the property. A good home inspection will cost between $300 - $400, but considered as a percentage of the purchase price, that is a the best "insurance policy" we can think of. Your buddy or uncle who works in the construction trades cannot provide the kind of investigation and analysis that an inspector focuses on a property, no matter how good they are at their trade. An inspection is money well spent pretty much every time.

#7 - Failure to fully understand your rights and follow through on your obligations as Purchaser as set out in the Purchase Agreement

It is important to completely understand all the terms, details, conditions, and commitments of the Purchase Agreement before you sign it and the offer is presented. Inaccurate assumptions, poorly written or missing contractual clauses, or failure to fathom both the law's and the contract's requirements of you can lead to dangerously increased costs at the very least. At the risk of sounding like a broken record, utilize the professional expertise of a good real estate agent. If you are saying to yourself, "I have bought and sold a number of properties by myself before," please post a comment to this blog at the bottom of the page. The case law that applies to residential real estate just in the State of Michigan is (like all statutes) complicated and constantly changing. If you were really saving yourself a significant amount of money by not using a real estate agents services and thought you might risk it, that would be one thing. But as readers of this blog, you know that a Buyer's Agent's services are free to Buyers, so...

#8 - Letting emotion blind reason

Buying your home is an exciting and important time and is always an emotional decision. Letís face it, for most people their home is their single greatest financial asset, as well as the place where they lay their head at night. People feel very strongly about their homes, but it is very important that those emotions be guided by facts, reason, and rational thinking and decision making. In other words, Good Judgment. A good real estate agent will provide counsel and an insulatory layer between your (perfectly normal) emotions and the important searching, decision-making, negotiating, and purchasing processes. Proper information and guidance will help you make your best decisions while you strive to capture The One.

Being aware of these 8 Big Time Mistakes to Avoid will help ensure you receive the best value for your dollars and hours when you are buying your next home. Following these basic but important steps will go a long way towards helping you take advantage of today's strong Buyer's market successfully.

I can help you find The One!

Last Updated: February 15, 2012