The 5 Biggest Mistakes Home Buyers Make
If you are trying to understand the steps involved in buying a house and want to understand how to buy properties either in the Los Angeles area or California in general, an important part in the preparation is knowing what mistakes to avoid. This post will discuss some of the most common mistakes buyers are making.
There’s a lot involved in buying a home in California
Whether you are a buyer trying to answer the question “how do I buy my first house” or you have been through the home buying process before, here’s a quick recap of the home buying process.
It begins with determining your budget and getting pre-approved for a mortgage to understand how much you can afford and whether you want to go to your maximum budget or spend less. (If you are paying cash, you’ll skip this step.)
Next, you'll probably start house hunting online, 95% of home buyers do, and maybe attending open houses if you are buying in an area near close to where you live or work.
Once you get a feel for the market from doing your groundwork you should find a real estate agent to help you in the process.
When you've identified a potential home, you'll make a written offer with the help of your real estate agent who will prepare the paperwork and negotiate the price. If the offer is accepted, you’ll enter into a purchase agreement and open escrow.
Next, you'll schedule a home inspections to thoroughly assess the property's condition. Based on the inspection results, you can either request repairs or negotiate further with the seller.
If everything about the property condition is acceptable the last steps will be to finalize your mortgage, secure homeowners insurance, and prepare for the closing process.
During the closing, all necessary paperwork is signed, funds are transferred, and ownership of the property is officially transferred to you after which you will get your keys.
That’s the short version. For answers to some common questions, check out buyer FAQs on this site.
Now let’s look at the 5 biggest mistakes buyers are making in the home buying process.
MISTAKE 1: ONLY LOOKING AT NEW LISTINGS
When people first seriously enter the housing market as buyers, they will look at every listing in their price range, if not in person than at least online. But after that initial activity, most people just look at the new listing alerts or price drops they get from whatever apps are on their phones. And some have agents sending them new listings.
If you are only looking at new listings, you are missing out. Many properties will sit on the market for quite a while before the seller reduces the price, if they ever do. Your goal is to be a step ahead of the price drops so you have less competition.
BUYER TIP
For listings older than 21 days on market, focus on the home and not the price. You may well be able to get a better deal on older listings than new ones which are likely to get bid up with multiple offers in many instances. Your agent can best guide you on whether a property is likely to sell for 1-3% less than the listed price or 5% or more is in line.
MISTAKE 2: PUTTING TOO MUCH EMPHASIS ON THE LIST PRICE
Here’s why you should not rely on the advertised prices you see. The MLS list price - which is what you see on listings your agent sends you and the national portal sites is often entirely subjective and often randomly decided on by the agent, the seller, or both.
Most homes will sell for more or less than the price you see online and sometimes by a substantial amount. Very few sell at exactly the listed price.
The following comments are true no matter what the market conditions are and whether there is low inventory or too many homes listed which has been rare in most markets in California for the last 10+ years.
Some agents specifically list homes at prices well below the what they expect the final sales price to be. Assuming they aren’t just incompetent and making a mistake, experienced agents know that under priced homes will get bid up and often substantially.
Other homes are over priced and often wildly so. That often happens because sellers are often obstinate about getting an unrealistic price and the agent they choose to list with doesn’t push back on them.
So how do you know the difference?
If the price on a new listing looks too good to be true, it probably is and you can expect there to be multiple offers and overbids. This is mostly true the first few weeks a property is on the market.
If a property has been on the market for over 21 days, it is over priced and almost always will sell for less.
BUYER TIP
Don’t wait for price reductions. As noted above, for homes on the market for longer than 21 days, they will most likely sell for less than the advertised price. Be proactive and make your offer before the seller reduces the price and you have more competition.
MISTAKE 3: BELIEVING WHAT YOU FIND ON THE INTERNET, SEE ON TV SHOWS AND WHAT YOUR WELL MEANING FRIENDS AND FAMILY TELL YOU
There’s a lot of real estate information on the internet so don’t make the common mistake of believing what you read or see on video. Most of it is, unfortunately, misleading or wrong. And what you see on those TV shows is entertainment, not reality.
As for your friends, family and co-workers, well unless they bought (or sold) a property similar to what you want to buy and in the previous six months, their information is outdated at best.
Also, unfortunately a lot of what agents tells you is just as likely to also be wrong. Not necessarily because they are sketchy or dishonest but because many are inexperienced and just don’t know better. An example is when agents advise buyer clients to waive certain contingencies. That is usually not in the buyer’s best interest.
BUYER TIP
There as some absolute truisms in real estate like “location, location, location” but except for that, it is best to put the most reliance on the most recent information about buyer experiences that are most similar to your situation.
A best practice is to find a team of people who you can absolutely trust. That means agent, loan officer or broker, inspector and all the other resources you’ll need to close the transaction. You won’t get a choice of absolutely everyone involved in your purchase. If you are getting a loan you don’t get to choose the appraiser and underwriter who will review your file. And chances are that the seller may choose the closing agent (either escrow or title company) even though some of what you read will indicate that you can make that choice.
MISTAKE 4: BEING REPRESENTED BY THE LISTING AGENT
A lot of people walk into open houses and think that nice agent standing there can represent them. Often the agent you meet is the listing agent or someone on their team. The listing agent - who really is the seller’s agent, loves it when they get to represent the buyer also. It’s called “double popping” because it literally doubles their income.
While it is currently allowed in California, when home buyers are represented by the listing agent, there can be a conflict of interest.
The listing agent's primary relationship started with the seller. When the listing agent is representing two parties - with the disclosure to both, their duty is supposed to be to both. But think about it. Would you want a lawyer also representing you and the other party in litigation. Doubtful.
You need someone advocating solely for you.
BUYER TIP
It's essential that you have your own representation to ensure that your interests are protected throughout the buying process. The best way to find an agent is through online reviews or referrals from people you trust who have recently used that agent’s sevrices.
MISTAKE 5: NOT SECURING INSURANCE EARLY IN THE ESCROW PROCESS
Because of the wildfires and floods, many insurers have left California and are not writing new policies or renewing old ones. Being able to get insurance is actually part of the home owner investigation (inspection contingency) and it is unfortunately more difficult in years past.
For Single Family Residences in certain locations, insurance may wind up costing more than you anticipated. That may also affect qualifying for your loan.
For condos, townhouses and PUDs that have a master insurance policy, getting insurance may be less of a challenge. Depending on the master policy you still may have to secure what is called “walls in insurance”. This is also referred to as HO6 insurance.
BUYER TIP
Because of the current challenges in securing insurance, it is a good idea to do research even before you get in escrow or identify a home. No insurer can give you a quote on a TBD property but you should be able to identify a few insurance companies that can meet your needs when you find the home you want.
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