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Preparing for What
Discover What’s Holding You Back
The first step in the process to a successful home purchase is to understand which obstacles you must overcome in order to make your goal of purchasing a home a reality. When I meet with a new client in my office for our initial consultation, one of the first questions I ask is, “What obstacles are standing in the way of you buying your next home?” Almost always, the client responds with something along the lines of, “I think we are in good shape. I can’t think of anything at the moment.”
The best question to ask yourself at this early stage of home buying is, “What is preventing me from making an offer on a home, today?” The word today brings the buyer from an abstract goal of purchasing a home someday to the very tangible goal of doing it now. When I ask this follow-up question, a light goes off in the client’s head. He can now see that there probably will be a number of things that must happen before he can move forward with the purchase of a home.
There are no right or wrong answers, but it is important to ask this question on day one of your home buying process. The faster you can uncover what is standing in your way, the easier it will be to make a plan to address each obstacle. Some obstacles will be easy to address, while others will require more effort. Completing this process early on lays the groundwork for a smooth transaction and helps you avoid problems later on.
The two most common answers that buyers provide are saving enough funds for a down payment and obtaining a mortgage. Other answers include determining whether they can terminate a lease to purchase a new home, figuring out whether they want to sell their current home or keep it as a rental, waiting to see whether they will get a raise at work, obtaining clarity about the size of their family, getting emotionally prepared for such a large life event, or any other number of responses.
Each buyer will have different obstacles in the way. Some obstacles will be larger than others. And some things a buyer perceives to be an obstacle will turn out not to be an obstacle at all. Just be honest with yourself and get it all on the table now. This self-reflection can be difficult for some individuals, but it is an incredibly high value-add part of the process and should not be skipped.
How Do You Feel about Contact Sports?
When I meet with my clients for the initial buyer’s consultation, I make sure to ask them a number of questions related to their home purchase. We discuss thoroughly the criteria for their future home, which obstacles are in their way, how they will obtain financing, and much, much more. As you can see, I am a big believer in preparation because the few extra minutes we spend discussing these important questions can save the buyers weeks, if not months, of frustration later on.
One of the most important questions I ask is, “How do you feel about contact real estate?” I always get a perplexed look from my clients. During this part of the presentation, I show my clients a slide with two pictures. (Note: My buyer consultations are always conducted in my office where we view my PowerPoint presentation on a big screen TV.) One of the pictures shows a rugby match where all of the players are tackling each other to get the ball. The other picture shows a professional soccer player scoring on a penalty kick.
The goal of this slide is to gauge the buyers’ comfort level with different aspects of the home buying process, and in particular how they feel about multi-offer scenarios. I can’t think of a better analogy than these two pictures to get the point across. This is because the home buying process can be broken down into two broad categories: those situations where buyers are competing against other buyers who are interested in the same home, and those instances where the buyer is in a one-on-one negotiation with the seller. Both games can be a lot of fun to play, or they can be incredibly painful. This is why it’s important for the buyers to understand how they feel about each scenario on day one so they can avoid problems down the road.
One of the biggest mistakes buyers can make is to assume the winning strategy is the same for either a multi-offer or a one-on-one scenario. Later in the book, we will discuss which strategies buyers should execute to increase their odds of winning in a multi-offer scenario. But for now, it’s important to understand that while every situation is unique, the winning bid in a multi-offer scenario looks a lot different from the winning bid in a one-on-one situation.
Often the winning bid in a multi-offer scenario is for well above the asking price, and the seller waives numerous contingencies such as the right to perform a home inspection or the right to back out of the transaction if the property doesn’t pass appraisal. Timelines for closing are often greatly accelerated and, in some instances, buyers pay all cash instead of obtaining a mortgage. Buyers in a one-on-one scenario can’t take anything for granted. They still need to write a compelling offer and often must make concessions, but the process is completely different from a competitive situation.
Some buyers also assume that my preference is to play the one-on-one game because it seems like that game is easier to win. In fact, that assumption can’t be further from the truth. A strong buyer who is competing against relatively weaker buyers has a great chance of coming out ahead. A buyer who is working one-on-one with a seller who is obstinate or has unrealistic expectations is in for a painful experience.
In some areas of the country such as Washington, D.C., New York, Seattle, or San Francisco, the buyer doesn’t have a choice. There are just too many buyers for limited inventory, so competition is the norm rather than the exception. But my experience tells me that even in the fiercest of competitions buyers should know exactly which situation they find themselves in, and if they have hired an awesome agent, that agent should know exactly what to do to win.
Although I don’t have a preference for whether the buyer decides to play in a fierce competition against other buyers or play a one-on-one negotiation with a seller, I do insist on always being aware of which game we are playing and making sure we take the necessary steps to win. Too many buyers go into the offer process completely unaware they are competing against other buyers, only to find out several days later the seller accepted another, more compelling offer. Some buyers are naïve and submit an offer, hoping the seller will accept, even if the buyers or their agent knows in their heart that their offer has very little chance of winning against more competitive buyers. Both of these scenarios lead to frustration, missed opportunity, and wasted time, and should be avoided at all costs.
The good news is it is relatively simple to understand whether you as a buyer are in a highly competitive or one-on-one scenario. Later in the book we will discuss how exactly to do that. For now, you should make sure to do some honest reflecting about which type of situation you feel most comfortable in. How do you feel knowing that other buyers are writing an offer on the home you love? How does it feel knowing you may have to pay above the asking price for the seller to accept your offer? Do you prefer to take things a little slower, or are you okay with an accelerated pace?
Not surprisingly this part of the buyer consultation generates lots of frank discussion with my clients. I always make it a point to emphasize that there are no right or wrong answers to these questions. Every buyer and every situation are unique. However, before my clients go any further in their home buying process, we make sure to discuss the answers to these questions and the implications those answers will have on their home buying process. I suggest you do the same with your agent. Doing so will ensure you win in either game you play instead of accidentally getting roughed up by the competition because you decided to play a sport you didn’t intend to.
Selecting Your Lender
Aside from choosing your agent, choosing your lender is one of the most important decisions you will make as you purchase your next home. The lender will provide the funds you need to complete the purchase. Choosing a lender with the most favorable interest rate will save tens of thousands of dollars over the course of the loan.
In addition to price, the next most important factor to consider when choosing a lender is the speed in which the lender can process your loan. The lender plays such a large role in almost every aspect of your real estate transaction, so you had better choose wisely and pick one that can meet tight deadlines.
In most real estate transactions, there are usually four events—also known as contingencies—that take place after your offer is accepted. These include (1) completing a home inspection, (2) having the property appraised, (3) providing a guarantee that you can obtain financing, and (4) signing the closing documents. Each of these contingencies has a deadline, and your lender will play a role in several of them. Your lender will be...