Common Mistakes of a First Home Buyer

I'm of the firm belief that no one ever becomes an "expert" in property. It isn't possible to learn everything there is to know about buying, investing and researching property. There's always more to learn whether you are a first home buyer or seasoned investor. It is particularly hard for First Home Buyer (FHB). I've said it before but most people could count the amount of times they purchase property in their lives on one hand and still have fingers left over. Why are we all of a sudden expected to be an "expert"?

Most people are pretty aware of my deep passion regarding property. I regularly get approached by people with plenty of questions. I've probably been exposed to buying property more than the average joe on both a personal and professional level but I'm still learning let alone someone wanting to buy their first home. I see plenty of common mistakes when it comes to FHB but most of these are a result of fear and pressure. The property and finance industry is unfortunately built to confuse. It can be an extremely daunting process for FHB to purchase property. Add in some emotion, pride and naivety and you've got a recipe for disaster. Sometimes it's best to sit back, breathe and understand the common mistakes FHB make:

Emotions

I am not for one second suggesting buying your first home shouldn't be an emotional process. It is one of the most exciting, amazing times of your life. We all imagine how our lives will look once we are "in our own place". But the process of buying your first place shouldn't bring you to the point of a breakdown! Many FHB start looking at the property first before getting their ducks in a row. They fall "in love" with one particular house and its all down hill from there.. Finance issues, time delays, multiple buyers, over-paying, pressure, short term and narrow minded thinking.

Solution: Relax - Sort your finance prior to searching. Get a pre-approval and look at your budget. Know what you can afford and stick to it. Look at your long term plans (family, work, schooling, etc). Remember you can change a house but you can't change the location. Be prepared for delays during the process. Nothing runs on time so build in buffers for this. You don't need the added stress. Do your research and look at comparable sales. Once you've sorted all this you will be in the position to put in strong, fair offers. If they aren't accepted walk away!

"The deal of a lifetime comes along every week"

Finance

A huge issue for FHB is their understanding of finance. If you're a FHB lets be honest. You just want a mortgage no matter what so you can get into the good stuff! You want to get out there making multiple offers and be on your way to becoming a property tycoon! I mean who cares about the finance side? Anyone can get money from the bank and they'll just give you what you can afford as they know your personal circumstances to perfection. Right? Wrong.. Finance is the gateway to purchasing property. The ticket to the game and just like match day tickets, mortgages can be front row or in the nosebleed section. Many FHB will immediately look at interest rate but think of these like the price you pay for tickets. A low rate may put you 30 rows up, behind a pole, tucked in with an overweight, smelly 40-something screaming "get em onside!" every 3 minutes. In other words low rates may result in no offset facility, poor customer service, poor loan structure, locked in for long term fixes with very limited flexibility if your circumstances change in the future. Overall its a quick way to ruin your experience. So many FHB spend days negotiating a few $k on a property whilst forfeiting potentially tens of thousands in savings if they correctly structured their loan and took their time with finance.

Solution: Take your time with finance. Look at what YOU can afford (not what the banks think you can afford). Don't just chase a low rate. Look at the loan as a product and what you get with it. For me an offset account is a bare minimum. Go direct to a GOOD mortgage broker! I cannot stress this enough. Quality mortgage brokers have access to numerous lenders. They will know lending policy backwards. They will minimise your application time and reduce the risk of rejections. Talk to them about your personal goals and ambitions in the future. Once again a quality mortgage broker will tailor these decisions around these and will continually check in and adjust when your circumstances change.

Negotiation

It's that awkward moment we all know is coming but unsure how to bring it up. After attending open homes, talking it over and deciding that this is "the one" it's common to feel a little daunted knowing the time to negotiate is here. Often first home buyers are either extremely fearful or over confident - both of which aren't very helpful. In negotiation it is important to recognise all parties in the transaction. Obviously there is you the buyer, the seller/vendor and the agent. Obviously you as the buyer wants the property for the cheapest possible price and the seller wants to sell for the highest. But there are other terms and conditions that may make your offer more attractive to the seller. Consider the seller may require a longer settlement period as they have yet to find somewhere to live post sale. Or they may be strapped for cash and require the property to sell quickly with no delays. Remember that a verbal offer is just that - a verbal offer. Most agents prefer a written signed contract and it is a good idea to go in with a strong offer on a signed contract in order to secure a property. Think of a negotiation a bit like dating.. Open homes are like first dates. Everyone is very polite, well dressed and both parties think the other can do no wrong. Match made in heaven! Putting an offer down on a signed contract is like your first argument. You both think you're right and not willing to budge. The barbs come out and you see the other parties "true side". Often you must compromise to find a resolution.

Solution: It is best to remain composed, polite and back your offer with facts. Present your offer in writing and be prepared to be questioned. If you can show some comparable recent sales this will add weight to your offer and show how you came to this price. Recognize that likely the selling agent will return with a counter offer so for me I like to "leave some in the tank".

Tip: The listed price is exactly that. A listed price. It doesn't always reflect what the house is worth nor what it will sell for. Do your own research and offer what is fair and reasonable.

Real Estate Agents

A big mistake I see in first home buyers is understanding the Real Estate Agents motivation. I have met countless agents in my time from all walks of life. Some are model citizens, truthful and hardworking whilst others are downright scumbags. Its very important to understand that the agent is employed by the SELLER! They are bound by agreement to work towards achieving the best possible outcome for the seller. Make no mistake - agents want a quick sale for the highest price possible. Higher price is important to maximize the commission they receive whilst a quicker sale minimizes the amount of time spent on selling the property. Effectively it is about maximizing bang for buck and increasing their hourly rate. Nothing more nothing less. Once you understand this as a buyer you understand all parties motivations.

Solution: Understand the agent is working for themselves first and their vendors second. Accept this and move past the emotion of that realization. They more than likely want a quick sale at a high price. Work with them to achieve that goal but for a price you are comfortable. Be respectful and clear. Don't get them offside early but at the same time put your interests first. Don't be overwhelmed or pressured by a pushy agent. Most agents will respect clarity and honesty. They want you to be decisive but don't rush and spoil the overall deal. Put offers in writing, don't waste their time with numerous inspections etc and don't be a tyre kicker.

Overall the buying of your first property can be a daunting experience. Identifying some of the common mistakes seen in FHBs is a good way of understanding why these occur and avoiding these if possible. Remember that you're not expected to be an expert but by minimising these mistakes it will enable you to make informed decisions that will set you up well for future success. Best of luck!

- The Tattooed Investor