You’ve chosen a real estate agent and mortgage lender, have your pre-approval letter in hand, and have narrowed down the neighborhoods and types of homes you’re looking for. It’s time to get this show on the road!
Zillow/Trulia and the dreaded Z-Word
Most first-time home buyers start their home search online long before they contact a real estate agent, and they inevitably end up on the Zillow or Trulia websites. Zillow and Trulia are great for doing research on neighborhoods and types of homes, but they can present some challenges when it comes time to buy.
Zillow, Trulia, and other similar sites pull most of their listing data from the Multiple Listing Service, or MLS (the official system real estate agents use to list homes for sale, explained later in this chapter), which is great. The problem is, it takes one to three days for the data to update in Zillow/Trulia. In a red hot seller’s market, three days is way too late to be seeing a new listing!
The other issue with Zillow in particular, is the dreaded Z-word – The Zestimate!
The Zestimate is Zillow’s proprietary automated valuation tool that spits out a number that Zillow thinks a house is supposedly worth. It’s a neat idea, but obviously, Zillow has never seen the house, doesn’t know the neighborhood or the market dynamics, and hasn’t done an appraisal.
As a result, the Zestimate for some properties can be wildly off-target and can be confusing to buyers and sellers. (Case in point: In February 2016, Spencer Rascoff, CEO of Zillow, sold his own home for $1.05 million – $600,000, or 40%, less than the Zestimate!). Zillow itself freely admits on their own website:
“…the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.”
Bottom line: Trust your real estate agent and their knowledge of the market, and don’t put too much stock in the Zestimate!
For Sale By Owner (FSBO) Listings
First-time home buyers are usually curious about homes that are For Sale By Owner. I often get asked, Should we consider them? Can we get a better deal? And will FSBO sellers consider working with my real estate agent?
As usual, the answer is, “it depends”.
You should definitely consider FSBOs. In a strong seller’s market, it may even open up additional inventory with less competition from other buyers. There is nothing inherently wrong with a home that is for sale by owner, and once you have the home under contract, the closing process is almost identical. However, there are some potential issues to be aware of when dealing with FSBO sellers:
- You won’t necessarily get a better deal from a FSBO seller. In fact, some FSBO sellers may be out of touch with the market (for example, some may put too much faith in their Zestimate!), in no rush to sell, or just plain stubborn, and may have their house over-priced.
- Some FSBO sellers are more than happy to work with a Buyer’s Agent (they just want to avoid the listing agent commission), however…
- Some FSBO sellers may refuse to pay any commissions whatsoever (see inset).
- Some FSBO sellers are much less familiar with real estate law and the closing process, which can mean much more work for your buyers agent – they essentially have to do their own work, plus the work of the (non-existent) listing agent, to get your transaction to closing!
Having your cake and eating it too – Just because a FSBO seller refuses to pay any realtor commissions doesn’t mean you can’t buy their house and use your realtor! In some cases, you may be able to pay your realtor’s commission yourself and still get a great deal on a house. The only time this is not allowed is when the buyer is financing with a VA loan.
The Gold Standard: MLS Listings
As previously mentioned, the Multiple Listing Service, or MLS, is the system used by real estate licensees to post properties that are for sale. Homes that are “listed” in the MLS already have a listing agreement in place that specifies the compensation for the listing and cooperating brokerage, and usually have a listing agent that represents the seller and is actively involved in marketing the property, showing it to prospective buyers, negotiating offers, and managing the transaction.
The MLS is generally the source of the “freshest” new listings, and your agent should be able to set you up with an automated search that filters for the listings that match your search criteria and sends you an email when new properties hit the market.
Many MLS listings also have showing instructions already provided in the listing, which can make seeing the home much more straightforward.
Should We Shop for Foreclosures?
This is another common question from first-time home buyers. While some foreclosures may be worth considering, there are often significant repairs needed that make them impractical for some first-time home buyers. Here are some issues and ideas to consider:
- Foreclosures are sometimes priced at a discount relative to their market value, but this isn’t always the case. Sometimes banks price foreclosures at or very close to full retail value, despite badly needed repairs or other problems with the home.
- Some foreclosures may not qualify for insurance and/or financing until repairs are completed, making them more suited for cash buyers, contractors, and real-estate investors (and that’s a different book!).
- For homes in need of significant repairs, there are special loan products available such as a 203k or Homestyle loan. While buying a home that’s badly in need of serious renovation is not for the faint of heart – these loans fill a specific niche for some buyers.
- Federally-backed foreclosures, such as Fannie-Mae and HUD homes, often have a “First Look” period, during which only offers from owner-occupants (no investors) will be considered.
- Almost all foreclosure properties will show up on the MLS once they are ready for sale – you do not need any special subscriptions or tools (just a good REALTOR!) to track available foreclosures or receive foreclosure listings in your market.
Now You See Me: Scheduling Showings
Once you have a handful of favorites picked out, it’s time to hit the road and go see some houses! Viewing houses can be one of the the fun parts of the home buying experience, but it’s important to use your time wisely and be as efficient and effective as possible. Here are some home showing tips:
- Allow your real estate agent to schedule all showings unless he/she specifically directs otherwise. There is a certain protocol and level of professional courtesy expected between the buyers agent and listing agent, and your agent will know the do’s and dont’s for your local market.
- Try to schedule a handful of showings at a time in a relatively close geographic area – while it may not sound like much, trying to see more than five homes within a few hours of each other can be tedious and tiring.
- If possible, try to see a home as soon as possible after it comes on the market – the early bird usually gets the worm!
- Remember to take notes and take pictures to help you remember your favorite features of each property you see – after a while they will start to become a blur!
Occupied homes are generally more complicated to schedule a showing for, and often require at least 24 hours’ notice for a showing appointment. On the other hand, vacant homes can often be seen almost right away if the listing agent has provided showing instructions.
What to look for during a showing
While you may have your own preferences and there is certainly no right or wrong way to look at a house, here is the general “system” I use after looking at literally thousands of homes (and these are also logical points at which to snap a photo for future reference):
- Start with the street – How much traffic is there? Is is a major thoroughfare? (If in doubt, be sure to come back during rush hour to see how much traffic and street noise there is).
- View the home from afar – While standing near the street, take a careful look at the home from a distance. Are there any sags in the roof, broken windows/shutters, missing siding, cracks, or other defects that may be less noticeable from close up? How is the general curb appeal? Note the type of siding and color of the home.
- Walk around the outside – Pay special attention to the “top and bottom” of the house, looking for any rotten wood or other defects in the roofline, eves and soffits, and at ground-level (these are areas that tend to be prone to moisture, rot, mold, and mildew). Note whether the home has a crawlspace and a wooden subfloor, or is built on a concrete slab.
- Note whether the home is constructed of concrete block, wood frame, or some other material.
- Note where the electric service enters the home – Do the wires come from above, or from underground? This will also clue you in as to the location of the electrical panel.
- Take note of the external components of the HVAC system.
- Take note of exterior lighting, fences, gates, garage doors, and the exterior condition of all windows and doors.
- Step inside.
- Take note of the the floor coverings, walls, and light fixtures.
- Pay special attention to the kitchen and bathrooms – these are areas you’ll spend a lot of time and are the most common target for major renovations.
- Get a general feel for the floorplan and layout – when a home suits your lifestyle, you’ll know it!
The 4-Point Inspection
Depending on the age of the home, chances are your insurance company will require a 4-Point Inspection if you decide to move forward and go under contract on the home. This is an inspection of the home’s four major systems:
- Electrical Panel & Wiring
- Heating & Air Conditioning
Since a professional is likely to be inspecting these systems for you, you don’t have to sweat the details during a showing. But, keep in mind, if there are glaring defects (like a visibly leaking roof or missing A/C unit), you may not be able to get insurance, which means you also may not be able to finance the home. Cosmetic issues or dated fixtures and finishes are generally okay, but in most cases, these four critical systems must be in good working order for first time home buyers seeking financing. So it’s a good idea to make sure they look okay while you’re there!
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Offers & Contracts
You Got One! Now What? Inspections and Appraisals
Sealing the Deal: The Closing Table & Beyond