PRISCILLA C. MILLER REALTOR® - THE COMPLETE GUIDE TO BUYING A HOME

THE COMPLETE GUIDE TO BUYING A HOME

PRISCILLA C. MILLER REALTOR®

Table Of Contents

How Real Estate Agents Help Home Buyers

Owning Vs. Renting

Buyers' Needs And Desires

Real Estate Horror Stories To Learn From 35

Searching For The Right Home

Buying A House: Negotiation Dos And Don'ts 51

What To Know About Home Inspections

Shopping For A Home Loan

Programs For Home Buyers

10. The Closing Process

11. Organizing Your Move

Preface When I first ventured into the real estate industry years ago, I did so with the hopes of helping sellers like you avoid the headaches often associated with the home-selling process. In my years of experience, not only have I helped alleviate the stress of selling for numerous clients, but I’ve also accumulated years of knowledge to help them get more money for their homes in the least amount of time. I decided to share all of my expertise in one place with potential clients. And that’s why you’re receiving this book. I want to help you have the best possible home-selling experience. And by that, I mean I want you to 1. Get the most money possible for your home, 2. Sell in the least amount of time, and 3. Avoid the headaches most commonly associated with the home-selling process. Think of this book as my gift to you. It contains insider advice on the home-selling process to help you achieve your ultimate real estate goals, including: Secret strategies to sell your home for more money • Marketing techniques employed by top agents • Advice on how to appeal to today’s buyers • And much, much more If, after reading through it, you want to hire me to help you sell your home, I’d be more than happy to meet with you to discuss a specific plan to sell your home. Happy reading!

Priscilla C. Miller DRE:01361484 Phone: 949-413-1168 Email: agentpmiller@gmail.com

About Priscilla

This story perfectly sums up the kind of agent Priscilla is and the type of agent she continuously strives to be for her clients. She was taught at a young age that if one wants something in life, they have to work for it. So that's what she did. And she worked hard. Priscilla grew up in the vibrant South Bay area, California, raised alongside two older brothers. From an early age, she exhibited a strong work ethic and an unwavering drive to achieve her goals. Inspired by the opportunity to make a difference in people's lives, Priscilla embarked on her journey in the real estate industry. Armed with a solid educational foundation and experience in real estate investing, she was well-prepared to navigate the dynamic world of real estate. As Priscilla entered the industry, she brought with her a dedication to excellence and a commitment to providing exceptional service to her clients. With a finger on the pulse of the local market, she made it her mission to stay informed about market trends, neighborhood developments, and industry dynamics. Throughout her career, Priscilla has had the privilege of working with diverse clients, helping them achieve their real estate goals. She understands that each client has a unique story and takes the time to listen, understand, and guide them through the process. One particular success story stands out in Priscilla's career. She was working with a couple who had been searching for their dream home for quite some time. The market was competitive,

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and the couple was becoming disheartened. But Priscilla was determined to find them the perfect home. She went above and beyond, conducting an extensive search and exploring every possible avenue to uncover hidden gems that matched their criteria. Finally, after thorough research and evaluation, Priscilla found a property that seemed to be the perfect fit. Priscilla guided her clients through the entire process, from viewing the property to negotiating a favorable offer. Despite facing multiple competing offers, she used her expertise and strategic approach to ensure her clients' offers stood out. To their delight, it was accepted. The joy and gratitude expressed by her clients were truly rewarding for Priscilla. Witnessing them find their dream home and knowing that she played a part in their journey is what fuels her passion for the industry. Her dedication and commitment to her clients have earned her their trust and resulted in many referrals. Outside of her real estate endeavors, Priscilla cherishes spending time with her family and friends and helping her community. Priscilla strives to be more than just a real estate agent to her clients. She aims to be a trusted advisor, a knowledgeable guide, and a dedicated advocate as they navigate the complexities of buying or selling a home. Her goal is to make their real estate journey as seamless and successful as possible. Priscilla is a dedicated and caring real estate agent who consistently strives for excellence in serving her clients. With a genuine commitment to meeting their needs, she eagerly looks forward to assisting them in achieving their real estate goals and being a part of their success stories.

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CHAPTER 1 How Real Estat eal Estate Agents e Agents Help Home Buyers

I’ll come right out at the start and tell you I’m a broker-agent — proudly so! Nice to meet you! I’m not trying to sell you anything, but I’m pleased to be of service. In fact, generally, real estate agents for buyers are paid out of the listing agent’s commission. So, I’m not looking to part you from your money. Instead, I’m giving you the benefits of experience and advice I have gleaned throughout my career selling houses and being in real estate transactions — for both sellers and buyers. If you want me to help you find a house, we can talk. Call me if you need me. In most home sales, there are two key agents involved: the listing agent, who is engaged by the seller to sell the property, and the selling agent, who introduces the buyer into the transaction. The selling agent is sometimes referred to as the "buyer's agent" because they typically work on behalf of a specific buyer. This term is used to distinguish them from the listing agent and simplify the explanation. It's important to note that a buyer generally doesn't directly pay any commission to an agent when purchasing a house. The commission for the buyer's agent is typically paid by the seller, with a few exceptions. In most cases, the seller either pays the commission directly or includes it in the overall purchase price. This means that as a buyer, you can benefit from the services of a buyer's agent without having to pay their commission separately. Engaging the services of a buyer's agent offers numerous 1

advantages, primarily because they operate exclusively in the best interests of the buyer throughout the entire transaction. When buyers choose to work directly with the listing agent, potential conflicts of interest may arise, as the listing agent's primary focus is to secure the highest possible price for the seller. In contrast, a buyer's agent is dedicated to understanding and fulfilling the buyer's needs, guiding them through the intricacies of the home buying process. The expertise, market knowledge, and negotiation skills of a buyer's agent are invaluable. They can provide buyers with a broader selection of property options, as they have access to listings from multiple agents and sources. Additionally, buyer's agents possess in-depth knowledge of the contracts and paperwork involved in purchasing a house, ensuring that the buyer's interests are safeguarded and guiding them through each step of the process. While online platforms have undoubtedly made it more convenient for buyers to search for and view properties, the assistance of a buyer's agent remains indispensable. These professionals serve as advocates for the buyer, offering valuable guidance and expertise to ensure a seamless and successful home buying experience. Their role extends beyond simply finding properties; they are dedicated to protecting the buyer's interests and helping them make informed decisions throughout their journey. Having a buyer's agent can be advantageous because they work exclusively in the buyer's best interests throughout the transaction. When buyers go directly to the listing agent, there is a potential conflict of interest since the listing agent's primary goal is to secure the best price for the seller. On the other hand, a buyer's agent focuses solely on the buyer's needs and helps them navigate the home buying process.

By engaging a buyer's agent, you can access their expertise, market knowledge, and negotiation skills. They can provide you with a wider range of property options since they have access to listings from various agents. Moreover, buyer's agents are familiar with the contracts and paperwork involved in buying a house, ensuring that your interests are protected and guiding you through the process. Overall, while online platforms have made it easier for buyers to find and view homes, there are still significant benefits to using a buyer's agent. Their role is to advocate for your interests, provide guidance, and facilitate a smooth and successful home buying experience.

WHY HOME BUYERS NEED A REAL ES UYERS NEED A REAL ESTATE AGENT

The importance of having a real estate agent when buying a home cannot be underestimated. While advancements in online transactions and self-assistance services have emerged in recent years, the role of a real estate agent remains just as relevant today as it was in the past. Although it may seem that handling the transaction yourself could save money, particularly when purchasing a "For Sale By Owner" (FSBO) property with a reduced price, the long-term costs and complexities involved in a DIY home purchase can outweigh the benefits of avoiding an agent's commission. Furthermore, it's worth noting that as a buyer, you typically don't directly pay the commission to the agent involved in the transaction. In most home sales, there is a listing agent (representing the seller) and a selling agent (commonly referred to as the "buyer's agent"). The buyer's agent works on behalf of the buyer, assisting them in finding suitable homes, negotiating terms, and managing the purchase process. This distinction is important because it ensures that the buyer's interests are adequately represented.

Certain real estate agents specialize in working exclusively with buyers, emphasizing the benefits of not approaching the listing agent directly. By engaging a buyer's agent, you can avoid conflicts of interest that may arise when the same agent represents both the buyer and the seller. Buyer's agents focus solely on advocating for the buyer's best interests throughout the real estate transaction. It's essential to understand that the buyer's agent's commission is typically paid by the seller, although there may be exceptions. The commission can either be paid directly by the seller or arranged in a way that the seller provides a credit to the buyer, who then covers the commission. Regardless of how it is structured, the buyer still ultimately acquires the house, while the seller typically retains 94% of the purchase price. In summary, the guidance and expertise of a real estate agent are invaluable when buying a home. They work diligently to find suitable properties, handle negotiations, and ensure a smooth transaction. While the idea of saving money by bypassing an agent may seem appealing, the long-term benefits and protection provided by a buyer's agent often outweigh the perceived cost.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market and a special knowledge of local conditions. The agent is a full-time liaison between sellers and buyers. An agent will have ready access to other properties listed by other agents. Buyers’ and sellers’ agents know how to put a real estate deal together. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. On their own, buyers have a more difficult time with

these things. This is even more so the case when a buyer is moving due to relocation or employment opportunity and does not engage a buyer’s agent to handle matters.

NEGOTIATING IS HARDER ON YOUR OWN

A real estate agent plays a crucial role in maintaining a professional and objective approach throughout the transaction. They act as a buffer, ensuring that personal emotions and interactions do not interfere with the negotiation process. Skillful negotiation requires a deep understanding of the psychology behind offering and counter-offering. By working with an agent, you can express your preferences and concerns about a property without directly offending the owner. For instance, you may appreciate a home but have reservations about certain aspects such as outdated decor or the need for renovations. Your agent will effectively communicate your interest in the property while highlighting the potential expenses involved in addressing those concerns. This allows you to make a reasonable offer that takes into account the necessary improvements. The agent acts as a mediator, conveying your position to the seller in a tactful and professional manner. They help bridge the gap between buyer and seller, facilitating productive discussions and maintaining a constructive atmosphere for negotiations. Ultimately, a real estate agent's role is to ensure that the transaction remains focused on the facts and figures rather than personal sentiments. Their expertise and experience in handling these situations contribute to a smoother and more successful outcome for both parties involved.

CONTRACTUALLY SPEAKING…

Purchasing a house involves a significant number of contracts and documents, which can be overwhelming for someone without experience in real estate law or title work. These documents require precise and accurate completion, as buying a property is more complex than simply filling in the blanks. Making a mistake in the title work or any other document can have long-lasting consequences for the buyer even after the purchase is complete. To illustrate this point, let's consider a real-life scenario. A property sitting on a double lot was put up for sale, and a neighbor purchased it with the intention of expanding their yard. Subsequently, the seller listed the house again, and it was sold to a new homeowner. Several months later, a property tax notification revealed an error in the new deeds. The expanded yard area was correctly transferred to the neighbor's name, but the house itself was mistakenly transferred to the new homeowner. As a result, the new homeowner unknowingly owned both houses, while the neighbor possessed the expanded driveway and yard. Fortunately, the situation was resolved amicably between the neighbors with a few signatures. However, this example highlights the potential complications that can arise when dealing with contracts and documents in real estate transactions. A real estate agent has extensive experience in handling these contracts, conditions, and unexpected situations. They possess the knowledge of which conditions should be applied, when they can be safely removed, and how to utilize the contract to safeguard your interests. Their familiarity with the intricacies of real estate transactions helps ensure that the necessary documents are completed accurately and that your rights and investments are protected throughout the process.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a real estate agent would be to save money, right? Otherwise, why would someone turn down professional assistance in finding a home? However, it’s unlikely that both the buyer and the seller will reap the benefits of not paying real estate agent commissions. It works like this: An owner selling on his own (FSBO) will price the house based on the sale prices of other comparable properties in the area. Many of these properties will be sold with the help of an agent; therefore, the seller profits in getting to keep the percentage of the home’s sale price that might otherwise be paid to the real estate agent (usually 6%). Buyers looking to purchase a home sold by owner without an agent may believe they can save money on the home by not having an agent involved, and so they look solely at FSBO houses. They might expect money to be saved and make an offer accordingly. Unless the buyer and seller agree to split the savings, they can’t both save the commission — and that’s if the listing price was not already lowered by near the commission amount to make it more market-attractive. Here’s a short list of the advantages that using a real estate agent can bring to your buying experience:

• Education and experience • Neighborhood knowledge • Price guidance • Market conditions information • Negotiation skills and confidentiality • The ability to handle paperwork • The ability to handle closing questions • Relationships for Future Business 7

It’s extremely important to know the “ins and outs” of real estate agents before you bring one along with you to help in your search for a home, just so that you might know what to expect, and what will be expected of you.

WHO A REAL ESTATE AGENT IS! GENT IS!

A real estate agent is a licensed professional who is authorized to list and sell various types of real estate properties, such as homes, multi-family properties, commercial buildings, and industrial properties. On the other hand, a Realtor® is a real estate agent who is a member of the National Association of Realtors® (NAR). While all Realtors® are real estate agents, not all real estate agents are Realtors®. When it comes to representing buyers, real estate agents who work in the best interests of the buyer are commonly known as buyer's agents. In contrast, listing agents represent the sellers and have a fiduciary duty to secure the best price for the seller. However, there are other agents who may show homes to buyers without having a formal buyer-agency agreement in place. These agents are still working on behalf of the seller and are obligated to obtain the best possible price for the seller. In terms of compensation, buyer's agents typically work on a commission basis. The commission is outlined in the listing agreement, and when a buyer's agent brings a buyer to a transaction, the listing agent is required to share the agreed- upon commission with the buyer's agent. This ensures that the buyer's agent is financially compensated for their services.

HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS UR NEEDS

You might feel the urge to pick the first real estate agent who appeals to or approaches you, but that’s something to avoid. As with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will simply wear off. Meet with prospective buyer's agents in their offices. A good buyer’s agent will want to know whether you’re preapproved for a loan by a financer, what kind, and the terms of the loan you’re getting. They should spend adequate time to discover what you’re looking for in a house. They should listen as much as talk and ask questions. Watch to see if the agent makes notes. If the agent doesn’t broach the topic, ask for an explanation of his understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll be working for the buyer or the seller whenever they have substantive contact with a customer or prospective client. If the agent doesn’t offer you a buyer’s agency agreement, that agent is representing the seller, not you. If the agent can’t explain agency concepts to you, then move to the next agent. Be sure that the agent will be showing you all listings or properties on the market that meet your requirements, and not only listings that are handled in-house. Buyer’s agents have the legal duty to put the buyer’s needs ahead of their own. Even when an agent will be paid more for selling an in-house listing, they must inform you about other available, suitable listings and take you to see viable prospects. A good buyer’s agent will provide a home-buying education. The listing agent will point out all the features of a home; a good buyer’s agent will point to the faults — or advise when they can be overlooked.

Competent buyer’s agents help their buyers to think clearly as

the home-buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and look at the space above the garage that will make the perfect art studio you desire. Likewise, a cute house with all the amenities but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According to the San Francisco Chronicle’s Home Guide, if you decide to buy with the intention of building an addition, the agent should advise you to check the zoning before making an offer. Agree to sign a buyer’s agency agreement after you have met with an agent. Some people sign an agency agreement after attending a showing given by the agent. Working with a seller’s agent is a mistake, according to an article by Amy Fontinelle of Forbes’ Investopedia. Any information you reveal will become leverage that the seller can use in a purchase negotiation. A buyer’s agent is legally required to maintain your confidentiality, disclose material facts to you, and maintain loyalty to you. These are fiduciary duties.

LOOK FOR PROPER CREDENTIALS

You wouldn’t trust a doctor who didn't have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with special credentials — those who have gone that extra step to take additional classes in certain specialties of real estate sales — is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: • Accredited Buyer’s Representative (ABR): Completed additional education during representation of buyers in

their transactions. • Certified Residential Specialist (CRS): t (CRS):Completed additional training during the handling of residential real estate, such as houses and apartments. • Seniors Real Estate Specialist (SRES): RES):Completed training for the purpose of helping sellers and buyers 50+ years old. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of Realtors®, it will be a bonus. However, ensure they have credentials that are relevant to your need(s).

RESEARCH LICENSING

Your state will have a license board for all active Realtors® and agents, which you can easily access. You will also be able to see their contact information, disciplinary actions, complaints, or any other information that you’ll need to help influence your decision — especially since most of the information is now posted online.

GIVE THE “WHAT ELSE” TEST

A good agent will know about all the other properties for sale in the area. Also, a good agent always does their research regarding the events in the current market, and those homes that are out there for the taking. In short, you want an agent who’s an expert of the current market, and someone who always stays on top of things.

RESEARCH THEIR BUSINESS ACTIVITY

Learning the type of market presence that a real estate agent has is the best way to figure them out. Ideally, you’re going to want an

agent who specializes in one or two real estate markets, and who understands which types of homes and amenities are available within your price range. You can unearth this information by asking them or by asking the state licensing authority if you’re not comfortable with asking the agent directly. You’re better off with an agent who’s engaged actively in one area and price range — e.g., residential homes around the $200,000 to $250,000 range or the $400,000 and up range.

GOING THE BUYER'S AGENT ROUTE

So, you’re ready to take the plunge and look for a place to call “home.” To get the most out of it, use a buyer’s agent to avoid a flurry of paperwork, stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting and exhilarating, but it can also be complex and stressful — which is why having a pro by your side can make an enormous difference. As discussed, you’ve probably heard of buyer’s agents, seller’s agents, listing agents, and so on. You’re a buyer, so what’s a buyer’s agent? True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. When you find the right one for you, these real estate agents will work day and night to ensure all your needs and requirements are met when it comes to finding the right home.

WHAT BUYER'S AGENTS DO FOR YOU

Your buyer’s agent will have a vast knowledge of the current real estate market for the area, which will include neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance.

Once you meet with the buyer’s agent, they’ll generally help you

determine your needs and wants when it comes to finding a home and a neighborhood. The agent will teach you what you can afford, help you set a budget, provide some insight on the current conditions of the market, and explain what you should expect while shopping for a home. During the shopping period, you’ll meet with your agent for tours of homes in which you might be interested. They will give your insight into the floor plans, the home’s pertinent selling points, and the overall crime rate of that neighborhood. They will also give you the rundown for local activities, restaurants, shopping centers, and schools nearby. Your agent is responsible for ensuring inspections of the homes are complete, as well as the disclosures therein. They’re also in charge of ensuring coordination and completion is done through the roof inspector, attorneys, lenders, and all other professionals involved with the purchase of the home. If bargains need to be made over the price, you won’t have to negotiate yourself. Your buyer’s agent will do that for you, along with signing the final closing documents. They will be present whenever there are documents to go through and sign.

DUAL AGENCY: THE BASICS

A “dual agency” relationship occurs when a buyer is being represented by a brokerage firm that controls the listing. Once an agent represents both the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker.

All agents hold the same responsibility, which is to inform their

clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without consent from the clients. If you’re selling your home and you don’t want your agent to also work with the buyer of your home, it’s your right to say so in the listing agreement. This is also true for buyers. A buyer can get out of an agreement with an agent if they are interested in purchasing a home their agent is listing. When it comes to dual agency, there are definite advantages for the seller. • Trust has already been gained with your listing agent, so representation for the buyer has been established. • Your agent brought you the buyer knowing that you’re selling, even if your property has not yet hit the market. • Your listing agent will have already covered and researched your neighborhood’s market to gain buyer inquiries, which means your agent will be working from all sides of the deal to sell your house faster, and with more incentive. • Your agent works together with corporate relocation buyers who need to find a house quickly, and they will ensure it’s your house that’s bought. There are also cons for the seller when it comes to dual agency, and they are: • You can’t be advised by your agent as thoroughly when they must act as a dual agent because impartial facilitation is required.

• Your listing agent is not allowed to negotiate the best or highest price for you if also negotiating both the best and lowest terms for the buyer. • Earning a full commission, if the opportunity arises, may tempt the agent to coerce a deal that you might not accept otherwise. • Your agent may inhibit all access to your listing through buyers with agents. To avoid surprises or missteps in a dual agency sale, always ensure you have clarified important details with your agent ahead of time. You can do this by using an exclusive buyer agency agreement, or a listing agreement.

HOW REAL ESTATE AGENTS ARE PAID

The National Association of Realtors® 2021 Profile of Home Buyers and Sellers states approximately 8% of homeowners opted to put their homes up for sale in 2021 without using a real estate agent or Realtor®. A handful of For Sale By Owner (FSBO) transactions dealt with sellers and buyers who previously knew each other or were directly related; Real estate agents and Realtors® — unlike professionals in different categories who bill by hourly rates or earn a salary — get paid through a transaction (commission) at the end of each sale. For example, if an agent has worked with a seller or a buyer for months, they don’t get paid for the time spent if there is no transaction during that period. Agents receive a commission once the transaction goes through 15

to settlement (closes) based on the selling price of the home. At that point, the commission is earned. The commission itself is negotiated — in most cases, between the seller and the agent. Typically, an agent will earn a commission of 6% from the sale price, but some brokerages have commission discounts for the sellers with whom they work. Essentially, the listing agent and the buyer’s agent will split the commission. That can bring forth some issues. For example, sometimes the split might not be negotiated evenly. A seller could have agreed to pay a commission of 5.5% that, if further divided, the buyer’s agent would receive 2.5% while the listing agent receives 3% of the commission. Even though some agents are associate brokers, or brokers in general, all commission payments are instructed to go through to the broker who’s managing the brokerage where the agent is working. From there, the commission is then split to the agent and the broker, according to the agreement that’s been made. The split will vary; sometimes, newer agents will earn a small portion of the commission compared to the experienced or successful agents who generally sell more expensive properties or homes.

PAYING THE COMMISSION ITSELF

The overall commission is paid for at the settlement period by the seller. The fee is taken from the proceeds of the sale of the home or the property. However, the buyers pay the commission because they’re literally paying to purchase the house, while the sellers take the commission for the agent into account during the process of determining the price for the listing. From there, the commission is then divided during the settlement process between the buyer’s agent brokerage and the listing agent’s brokerage. Afterward, the agents who made the real

estate sale are further paid by their brokers.

CHAPTER 2 Owning vs. Renting

Owning your own home might be one of the defining qualities of the “American Dream:” the set of ideals that includes opportunity for prosperity and success and an upward social mobility for the family and children, achieved through hard work. Home ownership is surely ingrained as one of the strongest representations of that vision — 66% of Americans own their own home, and more hope they will or wish they did. Something about home ownership plucks a strong chord with Americans. Financial security, permanency, status, and pride are values many of us seek. Lifestyle plays a big role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and growing a family. Less than 40% of people under 35 years old own homes, 60% of people over 35 years old own homes, and more than 80% of people 65 years old or over own homes. Interestingly, for the millennial generation, the primary reason for buying a home? Owning a dog. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs associated with purchasing a home. As they build careers, save money, and start families, many choose to buy a home, recognizing that home ownership, as opposed to rental living, is more appropriate to their growing family needs. At the other end of the age spectrum are homeowners nearing 19

retirement who may desire to sell their homes, downsize, avoid the maintenance and other obligations, and go back to renting.

WHICH IS BEST?

Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have their advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is possible to predict. In general terms, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership). If you’re thinking about buying a home and selling it in two years, buying is very unlikely to be cheaper than renting. Do you think of or need your house as an investment in your retirement plan? Americans are used to their homes being a store for wealth to liquidate in retirement when downsizing their lifestyle. According to Jacob Passy, a recent study from the Federal Reserve Bank of New York examined consumer preferences toward being a homeowner and how their perceptions have changed over the course of the COVID-19 pandemic. Survey participants were asked to rate which was the better investment—a home or stocks. The results showed that over 90% of the respondents preferred owning their residence rather than investing in the stock market. Majority of the survey participants also favored the idea of being a landlord to buying stocks, with more than 50% of the participating households preferring to own a rental property.

Are you financially ready? Owning a home is a financial

commitment that requires planning how home ownership fits into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first-time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This is the lump sum payment that funds your equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred and gets the best rates. There are some loans that allow down payments as low as 3%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan because lenders will add the loan debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (prorated). These items can affect the monthly loan-only payment by several hundred dollars. Are you emotionally ready? Can you handle the stress? A big factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such

as marriage (No. 7), switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It’s better to rent if your life is in flux and then buy when your stress levels are lower. Are you ready for commitment? Are you ready to make lots of decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready for devoting the time and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your biggest investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expense. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner has assurance that housing costs won’t increase over the period, and, in fact, will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity — actual ownership of the property. Further, the property should appreciate in value each year, further adding to equity (what the house could be sold for versus what is owed on it). Discounting certain blip periods, such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5%. Remember, though, home value appreciation in different metro areas can appreciate at markedly different rates than the national average.

Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus both making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and appeal, while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: • Homestead exemption. Many states exempt owner- occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can be deducted on your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for, and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service (IRS) Form 1098, which you’ll receive from your lender at the end of the year. This form shows the amount of

mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes; state, and local, and foreign income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year, up to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a trade or business, or in an activity engaged in for the production of income. In other words, if you are just living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Current mortgage rates are relatively moderate. Interest rates vary through the years. In the last few years, interest rates dipped quite low, and for a little while it was less expensive to obtain a mortgage. While these costs have increased, good rates are available to borrowers who are ready to become homeowners. Ownership rights and creative freedom. Your decorating and home-improvement choices are just that — yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls any which way, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit whims is a freeing aspect of homeownership. A sense of belonging to the community. Homeowners tend to stay in homes for longer than renters and are more likely to grow roots. They might join a neighborhood association, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, particularly if they know their lease is up in a year and 24

they might move. There’s an intangible pleasant feeling attached to owning your own house — a sense of freedom and independence. The home you live in belongs to you, and you can do what you want with it. You aren’t daunted about increases in rent or losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area on a more permanent basis; you never need to worry about a notice from the landlord to vacate your rented house or apartment for a variety of reasons over which you have no control.

ADVANTAGES OF RENTING

It seems a shorter list, but one man’s pro is another man’s con, and there certainly are advantages to renting to factor into your buy- or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. As a renter, you’re not responsible for home maintenance or repair costs. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person — you just call your landlord or superintendent. Renters in condos, townhouses, or apartments don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is easier. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell — it is.

DISADVANTAGES OF OWNING

Maintenance. The renter’s largest advantage might just be the homeowner’s major disadvantage. While insurance might be available to protect against expense from major catastrophe, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the baseboards and can also be as extensive and expensive as replacing a HVAC system or sewer pipe. The expense will vary from year-to-year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you must replace a costly, long- lived mechanical item, such as a furnace. Keep in mind the usual homeowner’s chores of lawn care, snow removal, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranging from 3.5% for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. Loss of relocation flexibility. It’s much easier to break a lease and move out of town than to arrange for the sale of a residence. Selling the home from out of town involves special logistics and financial matters, such dealing with the mortgage while the home is on the market. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a

homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

No equity building. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. You gain no ownership in the property, no matter how long you live there. No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Additionally, approval for desired major redecoration will be necessary. After all is said and done, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying, though, that a home of your own is a good financial and a great emotional investment. An investment in a home can also mean an investment in your future. There is much to consider when you want to buy a home. Switching from renting to homeownership is highly challenging, but an exciting and amazing decision to make.

CHAPTER 3 Buyers' Needs and Desires

After you’ve decided to buy a home, what sort of home it will be is your next decision point. It’s a better approach to have a concrete vision in mind of what type, features, and amenities you want in your home, rather than a “shotgun look” at every listing that’s out there in your price range. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (i.e., bedrooms, living room), and functional rooms (i.e., kitchen, bathroom[s]). Your needs fulfilled, you turn to your desires. Perhaps you envision a home on the beach or in the woods, a gourmet kitchen, a wood-paneled den, a crystal chandelier over a banquet table in the manor-sized dining room or an Olympic-sized swimming pool with a hot tub and sauna. Your priority in any home purchase should be ensuring all of your needs are met. Sometimes, you won’t find everything you desire in a home and if you do, you may not be able to afford it. It’s important to prioritize the things you want in a home by how important they are in your search.

Decide your needs vs your desires.

Would you like a swimming pool? Enough that a home without one will not be looked at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute or home price reasons?

• What features would make it special? • What can you afford and what is out of your budget?

Budget usually constrains us most in selecting a home. While some things are necessary for any home (as mentioned, a good roof and working appliances), others will just stay on the list of desires for now (like the sauna).

MAKE A LIST; CHECK IT T ; CHECK IT TWICE

You may have an impression of what you want in your new home. Putting that to paper and having a complete checklist can prove useful. Before starting your hunt for a new home, it’s advisable to make a list of all your basic needs and desires, then prioritize the desires, figuring that all needs must be met in any house under consideration. This will make the search easier and help weed out the ones that don’t meet the basics. Realize, however, that it’s nearly impossible to find a home that meets all requirements. Compromises will be necessary. It’s a good idea to work from outside-the-house factors to inside- the-house. For example, location is perhaps the primary concern and both “needs” factors and “desires” factors might be involved. A “need” would be “must be within 25 miles of work.” A desire might be, “would like Westwood” (a favored neighborhood), while a need might be “on the west side of the city” (because work, family, friends, and recreation activities are all located there). Location needs may include proximity to schools, frequently used recreation facilities, or mode of transportation (bus or suburban rail access). Whether an item is a need or a desire depends on circumstance.

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