15 things I wish I had known before buying my first home03 Jun 11 07:00AM EST |
Buying your first home can be a daunting prospect. The thought of entering into a new realm of finance, solicitors, reports and negotiations is a little overwhelming, to say the least. In order to assist potential buyers with this process I've complied a checklist of 15 things you’ll need to consider before entering the market and some you will want to know once you've decided to take the plunge.
It's a list of things I learnt during the recent purchase of a property. Most, I wish I'd known before the process began!
1. Find a good solicitor
One with plenty of experience in property matters. They cannot make your decisions for you but a good solicitor is an important resource who will think of various things you may have otherwise overlooked and will be able to reassure/advise you when your sticking-to-your-guns conviction fails. You will also thank your lucky stars for them during the often-stressful rigmarole that is the post-exchange process. FYI: exchange is what happens after your offer has been accepted and you have been given the all-clear on your reports. It is followed by settlement, six weeks later.
- A recommendation from a friend is invaluable.
Make sure your finances are in order. Before you step foot in a lender's office you should have a very clear idea of what you can afford to borrow and still live comfortably. Don’t over commit. DO NOT let your lender advise you on this amount. Most people will qualify for loans far and away above what they can afford to pay back. If, like me, you don’t have a numbers brain, seek the advice of a financial planner or friend/family member who does. Gather advice from various sources if possible.
- Draw up a budget and determine what amount is right for you: what you want and what your lender is willing to give you are not always the same thing.
3. Shop around
Once you have settled on an amount consider your options. Ask your lender your options regarding deposits, honeymoon periods, fixed vs variable, and also the option to fix a percentage and leave the rest floating. Shop that advice around and see if another lender can better it. For more information on potential savings see Five ways to save on your home loan.
- Make appointments to speak to a few different lenders.
4. Get preapproval
You will need preapproval on a loan before bidding at auction or entering into a private treaty sale. Well, truth be told, you don't legally require it but you would be mad, or a stress junky, to proceed without.
- Preapproval generally lasts three months.
5. Research the market
I can’t emphasise the importance of this enough. Oh, yes, I can: it ended up saving us almost $40k on the property we just purchased. Listen to real estate shows on the radio and read news articles. Follow the market. Make real estate your new passion. Attend auctions on the weekend. Bore your home-owning friends with endless questions about their experience.
- Decide on an area and get to know its property market. Inside out. Learn the value of the location and don’t be talked up.
OK, now you’re ready to enter the market
6. Follow your instinct
My partner and I recently faced off with a pushy agent who fed us a lot of misleading information. We knew the advice the agent was giving us was not sound. Despite this fact, it was hard to remain convinced in the face of overt persuasion. Thankfully we did and saved a lot of time and disappointment by doing so. Read more about our experiences in Real estate: Mistake or misrepresentation?
- If your conviction starts to wane, seek reinforcement in the form of knowledgeable friends, family and your solicitor.
7. Plan your attack
Before you even consider tabling your first offer, work through as many potential outcomes as possible and decide what your reaction will be to all of them. How high am I willing to go? What will we do if they tell us another party has offered more? Are we willing to bid at auction if the vendor decides to switch from a private treaty sale to auction mid campaign? There will be curve balls thrown at you. If you have anticipated even half of them you will be in a stronger position and more likely to be able to lead the situation and determine the outcome, rather than be taken along for the ride. It will also help prevent emotional decision making.
- Avoid emotional decision making: it generally results in you paying more than your instinct and research told you to.
8. Stick to your guns
Stick to your original plan. No matter what. Chances are you devised it in a calm state of mind. It’s more reliable than an emotional, reactive decision made on the spur of the moment.
- See each disappointment as a learning experience and take the knowledge you gain from it into the next purchase attempt.
9. Buy with a little help from your friends
If you are planning on bidding at auction enlist the help of a strong-willed, trust-worthy friend or family member to bid on your behalf. Brief them on your limit prior to the auction. This is the best way to avoid an emotional purchase that could potentially blow your budget. Having someone else bid on a property saved us from me - in the heat of the moment I decided it was advisable to bid over budget. Thankfully our enlisted bidder’s nerves held and he refused to do any further bidding on my behalf. Our future quality of life thanks him for that.
- Discuss your bidder's method and advise them not to listen to anything you say after bidding commences!
10. Be prepared!
If you do decide to go to auction make sure you prepare for it well in advance. Order pest and building reports on the property. If it’s an apartment, flat, villa or townhouse a strata report is also important. Have your solicitors review the contract and all reports before proceeding to auction.
- Once that hammer falls, the house is yours – rotten floorboards, white ant infestation and all. If you are entering into a private treaty sale all of the above advice still applies but reports should not be purchased until after your offer is accepted.
11. Making an offer prior to auction
All the advice we received on making an offer on a property going to auction, prior to the auction, was varied. Some advised against it – it can push up the vendor’s reserve if there are a lot of offers tabled prior to the auction. Some advised it – you may successfully secure the property without the rigmarole of going to auction.
- Watch the market and let it help guide your decision.
12. Making an offer on private treaty sale
If you are making an offer on a property for sale by private treaty don’t be afraid to offer well below what you’re prepared to pay. It gives you much more room to move during the negotiation process. For me, offering $60k below the original asking price on a recent purchase meant that we ended up securing the property for $34k below this price. During this process, wherever possible, move up in small increments. Before tabling your final offer let them know that this is as far as you are willing to go.
- Don’t be afraid to walk away if they reject your final offer – if they chase you, it’s yours, if they don’t you know you will need to take it up a notch.
13. Don’t let the market dictate your spend
Just because a house goes for a certain price at auction does not mean that is what it is worth. Don’t overpay just because someone else is willing to. Do your research before bidding or entering into negotiations. There are plenty of sites available that will tell you sales history of a particular suburb (see below). This history will allow you to ascertain a rough guide for the value of this property.
- If you are not confident in your ability to calculate the value of a property, you might consider purchasing an independent property evaluation.
14. Suburb shopping
If you can’t find exactly what you want in a certain area, don’t be afraid to reset your parameters a little. You may be able to buy better a few suburbs over. The rule of distance from the city varies depending on which experts you consult but most will say property within 10 – 15km of the CBD will always be a “good” buy. However, if buying further out means more bang for your buck, and better long term quality of life, you might decide to disregard this rule. Many do.
- Spend time in a new suburb before entering the market there. Shop at the local centre, utilise the parks, drive around during the day and night. Travel to and from by public transport. Talk to people who live there.
15. Know your limit and learn to walk away
If this house does not suit all your needs, including budget, it’s not your house, it’s someone else’s. Your house is still out there. So forget about this one and concentrate on finding it.
- This one is easier said than done but, in my opinion, it's the most important rule of all.
Information on property valuations
RPData The largest property database in Australia. Provides a range of information, including paid property evaluations.
Australian Property Monitors Provides free top-line sales history, sortable by suburb and street.
Property Value Report Provides property value reports. Users can purchase individual and postcode reports. Free postcode profiles also available.
Have you recently purchased a house and have additional advice you’d like to share? We’d like to hear about it in the comments section. We’d also like to hear from you if you have any questions about buying your first property.