The first step in the dream of home ownership is to separate the idea of house from the idea of home. Starting to think of a house as a home prematurely can create two immediate problems. If you are looking only for a home, you will reject many house that may be excellent purchase choices because you simply do not want to live in that house or in that neighborhood. There are a lot of houses that can be bought and sold on your way to one that you actually want to call your home.
The second problem with beginning to think of a house as your home to soon is that you may develop an attachment to the house that will cripple your ability to negotiate. The “I need this house” mentality can set in, and you will overpay for a house that you could have gotten for thousands less. Try to avoid becoming too attached to a piece of property until after you have walked away from a successful closing.
If you have time to look and negotiate without the pressure of needing immediate housing, it will help you find the best house for the best price. Whenever possible, try to position yourself so that you can stay where you live for several months during the search and purchase process. This will give you the ability to say no to a bad deal without feeling like you are in a panic situation. Even when moving to a new community, it can be a good idea to find a place to rent for six months to one year while you look for your next house.
To begin your search, you must determine if you want a house that is ready for you to immediately occupy. If you can live with a house needing some repair and renovation, many dollars can be saved. For a “move in ready” house, look for one that has been recently renovated in a neighborhood that is not fully restored. This should give you a house that is on the upswing in value while still being a good price because of the lesser houses around it.
Unlike purchasing a new home where the price is set by the builder and is relatively nonnegotiable, a pre-existing home price is based on multiple criteria. The quality of construction, the overall condition of the house, the quality and desirability of the neighborhood, and how the house looks from the street are just a few of the variables.
Before starting to tour houses, preview neighborhoods. When it comes time to live in the house or to flip it, the neighborhood will attract or repel potential buyers long before they step over the threshold. Since very few people today move into a house and stay for multiple decades, a future sale of the house is inevitable. Think about selling the house during the buying process. Even if a house is rehabbed, if the neighborhood is bad, it will not sell for a price to let you recoup your costs.
Once you have selected the neighborhoods that will work for you, begin to look at houses in these neighborhoods that are below your desired purchase price. If you look at houses needing repairs, determine if you can do the repair or will have to pay for it to be done. This will greatly alter how much it will cost you to do the restorations. Sweat equity is still equity. Paid labor can erode potential equity in a hurry. It is alright to pay for labor, just make sure that you factor this into the purchase price before making an offer.
Once you have located a house, it is time to begin the negotiating process. Look at the asking price of the house. Have your agent secure the prices of similar homes in the area that have recently sold. Try not to look at the selling price of any home that sold more than a year previously. These prices will give you an idea about how the house price compares to what others are willing to spend in this neighborhood.
Deduct the cost of expected repairs from the price of the house if it does not appear to already be reduced to compensate for problems that are already noted in the selling brochure. Even if reductions have been made, you will need to make certain that this reduction is enough. A contractor that is recruited by you to inspect the house and estimate the cost of repairs is the best way to verify your opinions.
Never forget that the agent that is helping you is being paid by the seller and makes a commission based on the selling price of the house. Every thousand dollars left on the price of the house means additional dollars in the agent's pocket. Only trust the agent so far. Most decisions need to be made by you. Agents will often discourage a low ball offer for a house.
