In light of Virginia's seller's market and the sparsity of homes for sale, buyers are pulling out all stops to make their offers more attractive.
Many realtor teams have reported that buyers are using unusual and often outrageous tactics to win a home. Stories include offering lifetime supplies of candy, a designer puppy, expensive dinners, cases of rare wine, and even paying competing bidders to walk away.
While some of these offers could make for a good movie comedy, some homebuyers are using tactics that could prove disastrous. Here are some of the buying strategies all homebuyers should avoid.
Overbidding the market value
Offering more than a home's selling price is tempting, particularly if a house is your "dream home," but lenders may require you to pay the difference between the market value and the agreed-upon price upfront. If you don't have that kind of cash on hand, you'll find yourself scrambling to find it or digging into retirement savings which is never a good idea.
If you don't plan to stay in the home for more than five years, you aren't likely to recoup the added costs. Predicting a home's market value down the line is tricky, but the longer you stay in a house, the more likely you are to see property value equal or exceed what you have paid.
Waiving the appraisal
Waiving the appraisal is appealing as it can save some time and money. If your agent runs comparables, you have a better idea of the property's true worth. If you are financing the home, however, waiving the appraisal is risky. If an appraisal comes back lower than the contract price, you will be responsible for paying the difference in cash. If you don't have the money on hand, the deal can be canceled and you'll lose your earnest money deposit.
Catching Bidding Fever
If you've ever been to an auction, you know how easy it is to get caught up in the excitement of winning an item and paying more than you'd intended. The same can happen in a bidding war for a home.
Be sure to carefully consider how you'll be impacted financially and emotionally if a bid that is more than what you're comfortable with is accepted. Living in a home that leaves you struggling to pay your mortgage quickly takes the shine off the experience.
Alternatively, if you bid too low and don't get the property, you'll experience another form of regret. However, if you can't afford the home, it isn't the right home for you.
Waiving the home inspection
Never, never waive the home inspection. Just because a house looks like it is in good shape doesn't mean it is. Underlying structural issues, water seepage, termites, mold, and many other deficiencies are not visible to the untrained eye.
It is tempting to want to speed up the buying process, and one way you can do this is to have a contractor or inspector join you for the initial house tour. It will cost you a few hundred dollars, but if you know the house is in your price range, in the neighborhood you want, and is aesthetically appealing, it may be worth the added cost.
Ignoring the location
Location is still one of the most important considerations when purchasing a home. It is the one thing about the house you cannot improve. Noise, traffic, school districts, taxes, lot sizes, trees, and nearby amenities can affect your enjoyment of the home. If you have a train track nearby or a home sits in by a school or park, you may love the house itself but hate the distractions that will never go away.
Underestimating a fixer-upper
Your dream may be to become the next Chip or Joanna Gaines, but if you don't have a clear understanding of what improving a fixer-upper entails, you can quickly regret your buying decision. Carefully consider the time, cost, and emotional investment you'll need to bring your home up to the standards you want. Tackling too big a project can lead to stress and disappointment.
Increasing debt after pre-approval
You've been pre-approved to purchase a larger home for your growing family and you are going to need new furniture to fill it up. Or, you know you're going to find the perfect home with the right outdoor space for a new grill and fire pit. Time to start shopping, right? Wrong.
Once you've found your perfect home, your lender will reverify everything about your finances before closing. This includes new lines of credit, your debt, income, employment status, bank statements, and credit score. If any of these changes significantly, you could lose your funding and have to start the process all over again – not to mention losing out on your ideal house.
Shopping Before Securing Funding
Believe it or not, some homebuyers start looking and bidding before they even have funding lined up. Make sure you get pre-approved for a mortgage and have enough for the down payment and closing fees before starting the process. It's easy to think you have enough to cover everything, but if you don't know the particulars you could be in for an unhappy surprise.
Going with the First Mortgage Lender
Your neighbor has a cousin whose husband's sister is a mortgage lender and he'll be happy to set you up with her. "Great," you think. One-stop shopping and you're ready to go. Not so fast.
While lenders may offer competitive rates that look the same on the surface, not all lenders are built alike. Some may have clauses and closing costs that can increase your final price considerably.
You also may think that your long-term bank will offer you the best rates. In most cases, big banks are significantly more expensive than a good mortgage broker or other lender. Get several offers (at least 3-5) and read the fine print carefully before choosing a lender. It could mean thousands of dollars either in or out of your pocket over time.
Not Comparing the Loan Estimate to the Closing Disclosure
By law, your lender has to provide you with a closing disclosure three business days before your closing date. This five-page document lists the exact costs you're expected to pay at closing, including your down payment, closing costs, loan details and terms, and other important information.
You may see different totals than what was in your initial loan estimate. The reason could be that your lender added "junk fees." These are fees that are unexpected by the borrower and not clearly explained by the lender. You always have the right to challenge junk fees and negotiate fairer costs, but many borrowers often don't, all to the lender's benefit. So, if certain fees go up more than expected, ask your lender to explain why.
Another critical step is to make certain basic details, such as your name and other identifying information, are listed correctly so you don't run into paperwork issues on the closing day.
If you find errors or questionable fees, tell your lender immediately so those issues can be addressed. In some cases, your closing might have to be pushed back to ensure the paperwork is corrected and updated, and all problems are resolved.
Sources: Real Simple, Investopedia, The Mortgage Reports