Home Buyer Guide & Checklist

Guide by Jeffrey T. Couch, SRPA, SRA

The Home Buyer guide notes below identify some of the important factors to consider when choosing a home or condominium unit to buy. First decide if your target market area is stable or not. If prices are falling due the economy, you may be wise to wait a while to purchase a home. In addition to an affordable sales price, you will also want to be sure that the neighborhood and the house you settle on meet the needs and preferences of your family, whether the family unit is small or large.

It is important that you realize a cardinal economic rule: understand how the interplay of supply and demand affects the real estate market when you are thinking of buying a property.

Next, think about what housing types are attractive to you: traditional ranch, modern/contemporary, historical, cottage, and so forth. One story or two? What home size matches your family's needs. Buy something you really like. Probe your own mind. Do you like the idea of living in a subdivision or would you prefer living in a less dense suburban area? Do you want a new home or would a nice older home be your preference? Do you need a garage? Do you need a basement? Match the property to you, not the other way around. Study the floorplans of the homes of friends and relatives. What about the home's plan and room arrangement do you like and what do you dislike. Look at home magazines and study floorplans. Which rooms in a house are you likely to use more than others and what special rooms (studies, extra bathrooms, sun-porchs) would enhance your lifestyle or match well your personality.

In selecting a home location, look for areas of the market that offer historical price stability, limited foreclosure activity, good-quality construction, "green" construction, attractive lawns and landscaping, and convenience to employment, schools, parks and other recreational amenities. Avoid developments that have suffered pricing distress, rapid value drops or have evident excess supply. What is the predominant price range of the area being studied. Remember too, some developments offer common area amenities, such as neighborhood pools/clubhouses, and some do not. Consider if common area amenities are something you would need or prefer. It is very important to understand that lots and home sites can vary widely in price depending on the neighborhood. The size of the lot, while an important factor, is not at all the determining factor in lot or site value. It is the desirability of the lot, as determined by the behavior of buyers and sellers in the marketplace, that supports a lot's value. In this vein, it is noted that lot values do form a sizable component of a home's ultimate value.

It is also wise to check the zoning or zonings in the neighborhood and how they relate to the home you are looking at. Zoning can be crucial in its impact to valuation. For most residential properties it is virtually a non-issue; for others it is of prime importance. Be especially cognizant of homes in or near commercial areas.

One of the decisions you will make is whether or not to utilize a Realtor in helping you with your purchase decision. While nominally expensive, considering the services and knowledgeable advice provided by a dedicated Realtor, the commission paid can be one of the wisest expenditures you will make in this process. Remember, the home seller's listing Realtor represents the seller. While not always required, you can engage your own Realtor, who will then represent you. Considering the large nature of the real estate investment and its consequences, the help you get from a qualified Realtor can be very important in making the correct purchase decision. Find a Realtor committed to excellence as demonstrated by education, professional designations and a proven track record.

Appraisals are available to those shopping for a home or other property. While fairly rare, because they are redundant, these may be helpful if the home shopper is uncertain of values in a given neighborhood. While the Realtor can be of great assistance in gaining knowledge of the market; in some cases, people are at times willing to pay for their own appraisal up front. This may be important in allowing them to be more familiar with the property's market context, ascertaining a property's strengths and weaknesses, and ultimately what a professional deems the market value of a given home to be as of a given date.

Before you decide on a property, analyze the lot or site that underlies the home of interest. Assuming the location is appealing to you, especially consider what size lot or site you want and need. Will you have time to maintain a large lawn and fencing? Would you prefer a large lot on a low-traffic-volume street if you have children? Do you have pets that require a certain amount of space? Do you like shade trees? Carefully consider these and other questions. If the property is not in a subdivision, does the owner have a survey of the lot that shows the position of the home in relation to the boundary lines? Is the lot connected to public utilities? Are electricity, water delivery and waste disposal aspects safe and suitable. If there is a neighborhood Association, what are the mandatory fees? Don't be afraid to ask the right questions.

Not all locations are equal in the marketplace. Analyze the home you are considering to make certain it does not have obvious external factors peripheral to it that might adversely impact its desirability and daily enjoyment. For example, a house located next to an industrial concern may suffer from noise or noxious odors. You can change your own house but you can't change the properties nearby. Don't buy someone else's problem.

Once you become further interested in a specific home, before you go any further, make a list of needed repairs and items that will require immediate attention or cash expenditures to repair. Be observant. In some cases, the correction of these items can be negotiated with the seller. If you are uncomfortable with construction, hire a contractor to accompany you to the house (after making an appointment with the owner).

Sadly, a tiny fraction of the houses in America have a stigma aspect. Is the house you are looking at infamous in the neighborhood (or even the city) due to some horrible, tragic or unsavory event or aspect? While it is hardly the home's fault, both neighbors and users may have an adverse reaction to a stigmatized home. Generally, the more heinous or noxious the stigma, the greater the impact. If there was a murder in a home, there may be a significant market rejection factor. If "meth amphetamine" was produced in the home for a while, noxious smells, chemicals and possibly toxins may permeate the sheetrock,  flooring, etc.  Whether certain conditions are provable or not, the neighborhood residents themselves may cast aspersions on the home, influencing its desirability in the market. Sometimes the stigma cannot be overcome for long periods of time, though the impact does tend to diminish over time. Why buy such a property when there are other choices and options.

In addition to an appraisal, consider hiring a professional home inspector and possibly other specialized professional inspectors (foundation, roof, etc). The expertise of these professionals can be invaluable in ascertaining defects, deficiencies and costly repairs that might not be readily apparent to the non-professional eye. The scope of inspection is typically more intensive than the valuation inspection performed by the appraiser. It is better to negotiate with full knowledge of what repairs and cash expenditures will be necessary should problems be uncovered. The home inspector fees are very reasonable considering the service provided. Professional fees that are somewhat specialized can be quite expensive.

Consider also the functional utility of the property. Is the home one that has an appearance, floor plan, equipment and features that are fairly typical in the market context? Be aware that atypical homes or even atypical features may reduce the broad market appeal of a given property. Overly personalized homes that fall too far from the "mainstream" may meet buyer resistance. From another angle, does a home have certain omissions or sub-standard aspects (such as an obsolete/antequated heating-cooling system, only one bathroom, 7 foot ceilings, etc.) that are problematic in your market. Many shoppers will reject homes that have functional issues related to deficiencies and defects. Even if you are okay with the home as is, what is its market posture? Do you want to buy a home that is going to be hard to re-sell down the road? Do you want to buy a home that is going to require obvious remodeling later? Be careful in this area of decision-making.

Also, it is well to know that some structures and features in a property may be superadequate. This relates to a structural element, equipment item or feature that costs more than it will return at sale. What is superadequate in one neighborhood may not be in another, however. The classic example of a superadequacy is a swimming pool. In many areas, the pool's contribution at sale will not match its cost (often not even close). This is because not everyone wants a pool and there are added liability aspects, safety issues and  maintenance costs. Superadequate properties foster their own reduction in the number of would-be buyers. The fewer the number of potential buyers, the lower the bidding pressure that acts to firm up demand. The same can be said for superadequate tennis courts, barns, extra garage, workshops, extra fireplaces, extra kitchens, extra large decks/porches/patios, atypically elaborate construction and so on.

When you make an offer on a home you like, understand that this is the prelude to a legally binding contract. State laws apply. If the seller signs your offer, as is, you are bound to the contract. The seller may counter-offer. Ideally, your offer should be made in writing. It is imperative that you or your representative carefully compose the offer in such a way that you are protected both in a practical sense and a legal sense. Be especially careful when negotiating an earnest money payment that will accompany the contract. My personal preference is to not pay very much earnest money, though this is up to the purchaser. There are any number of potential clauses and conditions that can and should be placed in your offer to protect you. Having the advice of an attorney and/or a Realtor in crafting your offer (and responding to counter-offers) is recommended. Finally, remember that, prior to the offer and after a counter-offer, you have the right to negotiate. The seller does not have any advantage at all if you are willing to walk away from a  disadvantageous deal before you sign your name.

If you require a mortgage, the selection of the lender is also a very important part of the process. Carefully consider the interest rate and term that will be best for you. What down payment matches your budget? Decide if you really want to pay PMI or not. Most people must do so because almost all small down-payment plans require it. Understand its cost to you on a monthly basis. Most lenders can tailor a mortgage to match your financial requirements and preferences. In selecting a lender, remember that, in addition to good rates, ethical dealings and attentive service form an important layer of the total service package. Remember, too, most interest rates in a given finance genre are highly similar (because they are market driven and published). The mortgage "points" to be paid often vary, however. Diligently ask about and examine the "points". So, while rates are very important, the "points", fees and service charges charged by the lender should be very carefully scrutinized. If you are not attentive, you may literally pay thousands you don't have to. Request a "good faith estimate" for any loan before you sign on the dotted line (they are actually required by law). Don't be embarassed to have your attorney or Realtor look it over. Understand the overall percentage of the various charges in relation to your loan. Some hidden service fees can be obscenely high, with no gain in service. Feel free to comparison shop with several lenders. The vast majority of lenders are ethical, some are not. Seek recommendations from friends and relatives as to companies they have used and been happy with. While the Realtor may suggest a preferred lender, you ultimately have the right to use the lender of your choice.

Remember also, that a small percentage of sellers may be willing to finance the home sale themselves. In many cases everything works out fine. However, this mode of finance raises numerous red flags up front. You may lose many of the main-stream procedures and governmental regulations that operate to protect you should you go outside the "normal" mortgage company and bank lenders. With proper legal/financial counsel though, it may be a viable option in some circumstances.

Remember too, the lender will require both a termite inspection and an appraisal of the home you are buying. Your sale agreement may be made contingent in some way on the results of these procedures. Regardless, you should take an interest in the results of these procedures. This mortgage appraisal will not be the same one that a home shopper may have obtained early on. The mortgage appraisal will establish a value criteria that the lender will utilize in making a lending decision, with the mortgage company or bank as the client.

Below is a simple "home shopper comparison" checklist. It is designed to help you keep certain details organized when comparing properties you have on your short list. Take a copy of this checklist along when you go shopping for your house or condominium unit. It will help you evaluate in a basic way the homes and neighborhoods you like best. By studying the comparisons of location, lot, home and features, you can assess the availability and condition of various features for three homes in a side-by-side comparison, emulating to a rough degree the analyses used by Realtors and appraisers. Click here to print this page.