Arleen Boyd - THE HOME BUYER’S GUIDE

THE HOME BUYER’S GUIDE

THE HOME BUYER’S GUIDE ’S GUIDE

Arleen Boyd

Table Of Contents

How Real Estate Agents Help Home Buyers

Owning vs. Renting

Buyers' Needs and Desires

Real Estate Horror Stories to Learn from

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 43

What to Know about Home Inspections

Shopping for a Home Loan

Programs for Home Buyers

10. The Closing Process

11. Organizing Your Move

Arleen began her real estate career in 2005 and in 2008 opened her own Brokerage Firm in Norwood Colorado, a beautiful Victorian building next to the post office on Main Street. Arleen has been the top selling Broker year after year, a tribute to her work ethic, reputation and integrity. Arleen grew up on Long Island New York and then lived for 15 years on Malibu Beach before finding her perfect place in space here in Norwood, Colorado.. Her past professions: Dental Hygienist, Paramedic for the Fire Department, Emergency Medical Instructor and Personal Trainer. She has found her perfect niche in real estate, matching people with the perfect properties. She would love to help you find your perfect home or investment property in this gorgeous part of the world. Throughout her 20 year career, Arleen Boyd has earned numerous accolades, including: • Telluride Association of Realtors, Realtor of the Year awards: 2010, 2012, 2022 • Power Agent designation (Less than 1% of agents across North America) • Pine Cone Realty, #1 Brokerage in sales- Norwood, Wrights Mesa • Top Producer in sales past 20 years Arleen provides the highest level of service to her clients and takes deep pride in helping them achieve their real estate goals. She would love to help you achieve yours! Over the years, she has honed her skills, keeping herself up to date with the latest trends, market fluctuations, and legalities. Her dedication to continuous learning and professional development ensures that she can provide her clients with the highest level of service and expertise. She understands that purchasing or selling a home is one of the

most significant decisions in someone's life. With her compassionate and empathetic nature, she takes the time to listen attentively to her clients, understanding their unique circumstances and goals. This allows her to tailor her approach and provide personalized solutions that exceed expectations. With a remarkable blend of professionalism, expertise, and genuine care, she is the ideal partner for anyone seeking to navigate the real estate market. Her unwavering commitment to excellence and her clients' satisfaction sets her apart and makes her a trusted ally throughout the entire real estate journey.

Preface Hi there! It’s nice to meet you. If you’ve received this book, it’s probably because you’re thinking about buying a home. And if you’re like most home buyers, you may be nervous about the entire process. But that’s why I’m here! My job is to make your job as a buyer as easy and seamless as possible. Throughout my years of experience in the real estate industry, I’ve amassed insider knowledge to help home buyers get great deals on their home purchases. And now, you’ve got all of that information at your fingertips. In this book, you’ll find: • An overview of the buying process • How to determine your wants vs. needs in your next home • Information on securing a home loan • Common mistakes to avoid • A negotiation guide to save money on your purchase • And much, much more Sure, you can try to employ these strategies yourself, but you should know that an agent focused on serving buyers’ needs can make a huge difference in finding your dream home. Yes, buying a home can be stressful, but with this book (and my help!), we can make the process as seamless as possible.

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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 real estate Broker—proudly so! Nice to meet you! I’m not trying to sell you anything, but I’m pleased to be of service. 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. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the home they eventually purchase via the internet, through Zillow, Realtor.com, or one of hundreds of other real estate websites. With all this information available, you might wonder if you need a buyer's real estate agent. Can you handle the process on your own?

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

Ah, not so fast, friend. The reasons to use a real estate agent today are as valid as yesterday. The ease of online transactions and the proliferation of services to assist buyers in handling their own real estate transactions came about recently, throughout the last decade. This has caused buyers to wonder if using a real estate agent is no longer necessary or if it's an expense that can be avoided. While doing the work yourself can save you money if you buy a “For Sale By Owner” (FSBO) house and the seller 1

agrees to reduce the price to offset agent compensation, for many, a do-it-yourself home purchase might be pricier than a real estate agent’s compensation in the long run. On most home sales, there is a listing agent (the agent engaged by the seller to sell the property) and a selling agent (the agent who introduces the eventual buyer into the transaction). The selling agent is sometimes called the “buyer’s agent” because he or she is often working on a certain buyer’s behalf, and it’s easier than explaining that the selling agent is not the listing agent but really the buyer’s agent. There are some real estate agents that market themselves as “buyer’s agents,” “exclusive buyer’s agents,” or “buyer’s representatives.” These real estate agents have chosen to make a business of finding homes for prospective buyers and handling the negotiations and transactions attendant to the purchase. A buyer's agent is therefore a real estate professional dedicated to representing your interests throughout the home-buying process. Once you agree to work with a buyer’s agent, you will sign a written buyer agreement outlining key services and compensation. Then the Broker will work on your behalf, helping you find properties that meet your criteria, scheduling viewings, negotiating offers, and handling all the necessary paperwork and legalities involved in purchasing a home.

BUYER AGREEMENT GREEMENTS

New regulations will mean that potential home buyers will need to enter into a written buyer’s agreement before touring homes. A written buyer agreement is a formal contract between you and your buyer's Broker. It outlines the services your Broker will provide, the terms of your working relationship, and how the Broker will be compensated. Compensation for the buyer’s Broker can be directly paid by the buyer or negotiated in various

forms. This agreement ensures that both you and your Broker are clear on your mutual expectations and responsibilities.

Key Components of a Buyer’s Agreement

• Services Provided: Details of what your Broker will do for you, such as finding homes, arranging viewings, and negotiating terms. • Compensation: Clear disclosure of how your Broker will be paid. This could be a percentage of the purchase price, or another arrangement. It's important to know that agent fees are negotiable and not set by law. • Term and Termination: The duration of the agreement and conditions under which it can be terminated by either party. • Consumer Protection: Disclosures related to your rights, confidentiality, and any potential conflicts of interest. Entering into a buyer's agreement provides several benefits. First, it brings clarity to your relationship with your agent, ensuring that both parties understand their roles and responsibilities. Second, it demonstrates a commitment from your agent to dedicate their efforts to your home search. Lastly, it offers protection by safeguarding your interests and ensuring transparency throughout the transaction. By having a formal agreement, you can proceed with confidence, knowing that your Broker is committed to helping you find your dream home while protecting your interests.

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

A real estate Broker 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. A Broker will have ready

access to other properties listed by other agents. Buyers’ and Sellers’ Brokers know how to put a real estate deal together. A real estate Broker 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 Broker to handle matters.

NEGOTIATING IS HARDER ON YOUR OWN

A real estate Broker will keep the transaction “at arm’s length,” such that personalities and emotions do not become involved. Price negotiations take a special skill and understanding of the psychology of offering and counter-offering. Brokers keep the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood- paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without insulting the owner. Your agent will translate that to the seller—that you very much like the property but can see having to spend a certain amount in decorating costs, and thus can offer that much less.

CONTRACTUALLY SPEAKING…

There are many contracts and documents involved in purchasing a house. The stack is more than an inch thick. Unless you’re a real estate lawyer or title agent, these documents will be foreign to you. Yet, they require detailed and accurate completions. Buying a property is not necessarily a “fill-in-the- blanks” transaction. One mistake, let’s say in title work, could

haunt the buyer well down the line after purchase. This very situation happened. A property that sat on a double lot was put on the market. The neighbor bought it to carve off a bit of the second lot to expand his own yard. The seller then put the home back on the market, and it sold. Months later, through a property tax notification, it came out that, in preparing new deeds for the properties, the expanded yard area was correctly in the name of the neighbor; however, the house had been transferred to the home buyer. The new homeowner now owned both houses, and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A real estate Broker deals regularly with these contracts, conditions, and unexpected situations and is familiar with which conditions should be used, when they can safely be removed, and how to use the contract to protect you.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a real estate Broker 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 Brokers. Buyers looking to purchase a home sold by owner without a Broker may believe they can save money on the home by not having a Broker 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 that money—and that’s if the listing price was not already lowered to make it more market-attractive.

Here’s a short list of the advantages that using a real estate Broker 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

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

WHO A REAL ESTATE BROER IS

Simply put, a real estate Broker is someone licensed to list and sell real estate, including homes, multi-family properties, commercial, and industrial buildings. A REALTOR®, however, is somewhat different. A REALTOR® is a member of the National Association of REALTORS®. While a Broker is always a real estate Broker, a real estate Broker isn’t always a REALTOR®. Buyer’s agents are dedicated to looking out for the buyer's interests throughout the home-buying process. Buyers can schedule consultations with agents to learn more about the services they offer and to assess who can best represent their needs. Once buyers have decided on an agent who they feel can effectively represent them, they will enter into a buyer's agreement, formalizing the relationship and ensuring that their interests are protected during the search for their new home. 6

HOW TO CHOOSE THE BEST BROKER FOR YOUR NEEDS UR NEEDS

You might feel the urge to pick the first real estate Broker 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 Brokers in their offices. A good Broker will want to know whether you’re pre-approved 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 Broker makes notes. A good Broker will provide a home-buying education. The listing agent will point out all the features of a home. Competent Brokers help their buyers to think clearly as the home-buying process unfolds. For example, if a house is a good buy, a buyer’s Broker 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 agreement after you have met with a Broker, and discuss the terms for payment, whether that's a negotiated commission structure or a direct payment from buyer to the buyer's Broker. A buyer’s Broker is legally required to maintain your confidentiality and disclose material facts to you.

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 Broker who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate Brokers who can take the job, but finding Brokers 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. Similarly, if you choose to use a real estate Broker 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 Brokers, 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 Broker 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 a Broker 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 Broker has is the best way to figure them out. Ideally, you’re going to want an a Broker 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 Broker directly.

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. True to the name, buyer’s Brokers 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 Brokers will work day and night to ensure all your needs and requirements are met when it comes to finding the right home.

GETTING STARTED WITH A B TED WITH A BUYER’S Broker

Your buyer’s Broker 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 Broker and sign the buyer’s agreement, 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 Broker 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 Broker 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. All Brokers hold the same responsibility, which is to inform their clients of all potential risks that could arise due to conflicts of interest.

HOW REAL ESTATE BROKERS ARE P KERS ARE PAID

The compensation structure for real estate Brokers can vary, especially with recent regulatory changes that offer more flexibility and transparency. Brokers are required to disclose their compensation arrangements clearly in the buyer agreement. This ensures that you, as a buyer, understand exactly how your Broker will be compensated and can make informed decisions. Possible Compensation Structures Here are some of the ways a buyer’s agent can be compensated:

1. Split Commission Model: Starting August 17, 2024, commission information will no longer be communicated via the MLS (Multiple Listing Service). Compensation agreements based on commission must now occur off-MLS through negotiation and consultation between real estate professionals. These agreements may still follow the traditional split commission model, where real estate Brokers are paid a commission based on the final sale price of the home. This commission is typically a percentage agreed upon between the seller and the listing Broker. If using this payment model, the buyer's Broker would receive a portion of the commission, as arranged between the listing Broker and the buyer's Broker. Typically, all commission payments go through the broker managing the brokerage where the Broker works. From there, the commission is split between the managing broker and the associate Broker according to their internal agreement. 2. Direct Payment from the Buyer: The buyer may agree to pay their Broker directly. This can be a flat fee, an hourly rate, or a percentage of the purchase price. 3. Negotiated Arrangements: Other customized compensation agreements can be negotiated between the buyer and their Broker. Before you start touring homes, you will need to enter into a written buyer’s agreement with your Broker. This agreement will outline the services your Broker will provide, the compensation structure, and other terms of your working relationship. The greater flexibility for Broker compensation methods due to recent changes in regulations reinforces the importance of entering into a written buyer’s agreement. This formal agreement ensures both parties are clear on expectations and protects your interests throughout the home-buying process.

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 13

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? Many Americans see their homes as a valuable asset, often integral to their retirement strategy. Real estate is commonly regarded as a solid long-term investment, frequently favored over other options like stocks, gold, or savings accounts. Its appeal lies in the potential for value appreciation over time. However, it's wise to remember that the real estate market is subject to fluctuations. Property values can both increase and decrease, influenced by various market and economic factors. This reality highlights the importance of considering real estate as one component of a diversified investment portfolio, recognizing both its potential benefits and inherent risks. 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 17

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. Comparatively lower lending rates on mortgages. Mortgage rates, though subject to fluctuation, often remain more favorable compared to other types of loans. Even in periods of higher rates, mortgages typically offer more competitive interest rates than personal loans or credit cards. This aspect of home financing can make homeownership a financially advantageous decision, providing a more affordable route to building equity than other borrowing options. 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 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 .

• 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? 23

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. Closeness to family might be a need for a couple with young children or elderly parents to care for—or a desire if those factors

aren’t involved. It’s items like these that make a checklist most helpful. After location needs and desires are compiled, housing factors can be considered. Needs include having all essential house structures and systems in good working order. Accepting a house with need for a new roof because the owner is willing to knock $7,000 off the listing price—but it will cost $10,000 to replace the roof in two years—is not a s ensible deal. Needs might include a minimum number of bedrooms and bathrooms, no steps, fenced yard, perhaps a first-floor laundry facility, and any feature the prospective buyers have decided they cannot accept a home without. Desires are features that make the home more attractive or enjoyable—an upgraded kitchen, walk- in closets, a master bedroom suite. Of course, one buyer’s need is another buyer’s desire. The point is to know your own needs and desires so you can easily assess potential properties and make the process smoother. Regardless, buying a house is not a simple process. Much of the planning should be done well before contacting a real estate agent or looking at homes. Work the costs as well as your budget. Choose a general location. Contact lenders well ahead of home shopping, so that your offers aren’t tied up in getting financial approval. Having the image of your dream home is reality married with imagination. In fact, you may find that some aspects of the house you intend to buy are different. It’s not the same as what your dreams told you. Different people have different requirements. It depends on your thought processes, as well as personality. We understand important things and potential compromises differently. Needs are basic requirements that just can’t be ignored or compromised. Desires, on the other hand, can be left

behind if the situation demands it. You need to make a clear distinction between what your needs are and which items you would classify as desires. No matter how many desires you have unfulfilled now, they can be worked on later. A pool can be added and paint colors can always be changed.

A NOTE ABOUT PETS

Consider your pets in your home shopping. Home buyers who are pet owners have specific requirements—they must provide for their pets. A third of millennial-aged Americans (born between 1981 and 1996) who purchased their first home (33%) say the desire to have a better space or yard for a dog influenced their decision to purchase the home, according to a survey conducted online by Harris Poll, on behalf of SunTrust Mortgage. Dogs ranked among the top three motivators for first-time home purchasers and were cited by more millennials than marriage/ upcoming marriage, 25%, or the birth/expected birth of a child, 19%. It’s essential that the neighborhood in which you’re going to buy a house has no restrictions on pets—or livestock, if that’s something you desire. Do you raise American Staffordshire Terriers, also known as pit bulls? There are neighborhoods that ban this breed. What about goats? Vietnamese pigs? Have you always wanted fresh eggs from your own chickens? Include your animals in location planning. Some pet owners choose wood or other hard flooring, not wanting to risk pet damage or odors. An appropriate-sized fenced backyard is on the “needs” list for many pet-owning house buyers. Consider the arrangement of rooms and the structure of the house to ensure it’s suitable for

your pets, too. Traffic in the area could be another checklist item.

Pet services, such as veterinary, grooming, and exercising, should be conveniently nearby.

LOCATION, LOCATION, LOCATION!

You must make sure to limit your search to a neighborhood that offers the closest possible match to the kind of lifestyle that you like and want to live. In addition, based on the 2021 NAR Generational Trends Report, 62% of homebuyers ages 22-95 years old prioritized the quality of the neighborhood as a reason for purchasing a house and primary reason for neighborhood choice. Location is so important that people are willing to give up “must- have” features to buy into their desired neighborhood—72% would forget about a pool, 55% would lose a finished basement, and 33% would accept less square footage. What matters is living in a safe place with good schools. According to Trulia, 69% would drive through the neighborhood during different times of day to determine if the neighborhood was the right fit. You can’t go shopping for a home without choosing a location where you’d like to live. Probably the most significant decision when buying a home is where it is. Location influences your everyday life. Your property does not exist in a bubble; it’s part of a bigger community. It’s important to find a neighborhood or area that suits your needs. Do you want the peace of a secluded woods, or the energy of a bustling city center?

Do research before starting your search. Drive through the area

and see if all the stores, activities, and features you want are there. Eat at local restaurants and walk through a nearby park. As price is mainly based on location and condition of the property, when someone starts looking for their house, it’s important to consider the location and how far it is from schools, shopping areas, and other facilities. Home means comfort, and comfort can’t come if the location isn’t suitable.

CHAPTER 4 Real Estate Horror Stories to Learn from

You’ve seen frightening stories like this on TV. Perhaps you’ve heard about them from neighbors or co-workers, but you still haven’t witnessed anything like them yourself. Be warned. The first time is one time too many. Now that you’re in the market for your first home, or maybe a second or third, congratulations! Buying a new home is one of the biggest achievements for many people. Unfortunately, home buyers—especially first-time buyers—can be the victims of real estate horror stories. Absolute horror, from the buyer’s perspective. Here are a few examples. Alex was excited about making her first home purchase. Being in the Washington, D.C., area, she was limited with pricing options, with many of the lower-cost homes around $250,000. She went to several banks and got preapproved for different amounts at various lower interest rates. She found her dream condo, and, after some deliberating, she decided to go with the lowest rate of 7% offered by her lender. She completed her paperwork and submitted it with her 10% deposit. The rate wasn’t her only deciding factor. Personnel had been friendly and great at communication, making her feel very comfortable about the process. Until now. Suddenly, it seemed as though all of the bank's cooperation dropped off the map. A closing process that should 29

have taken 30 days or less turned into several months of waiting and a larger deposit of an additional $20,000. They ran her in circles, until the seller told her, through the real estate Broker, that the deal was over if she didn’t find another solution. Luckily, the seller’s real estate Broker referred her to another lender and was able to help her to obtain another loan (although at higher interest) much more quickly. It turned out the first lender was a scammer. In another case, Ron and Jenna were planning on upgrading to a new home. After a long search, they found it—or so they thought. A bright and colorful kitchen, open living and dining areas, three bathrooms, high ceilings, a fireplace, and even a covered porch made the home seem perfect. They were especially thrilled that the price was only $235,000. That was a steal. They signed the contract and were in the house a little more than a month later. Less than six months later, the horror story began to unfold. Jenna was cleaning one of the bathrooms when she noticed tiny little ants with wings. Following Ron’s advice, she called the exterminator. When he arrived, he delivered the first blow—these winged ants were te rmites. Th e exterminator went under the house to assess the damage. He found that not only was the floor under the bathroom completely infested, but also the other two bathrooms, and the infestation was spreading to more of the house. The grand total to repair this problem came to over $12,000! That’s an unbelievable amount of money to unexpectedly invest in a house you’ve only lived in for less than six months.

The key lesson here is to really know the house that you’re buying.

If you’re going to make such a huge investment in a new home, the small price of precaution is worth it. The moral of the story is to have a good inspection. These buyers were attracted by a price. They didn’t have a proper inspection of the home before purchasing.

HOME-BUYER PLAGUES

Although a home inspector passed on Justin’s and Kate’s home, he missed some problems. For instance, the previous homeowner supposedly installed and tested the sump pump in the basement, and it failed shortly after moving in, flooding the basement. Then, the sunroom was filled with termites, costing the couple $2,000 in repairs. After the termites were eradicated, they discovered the sunroom was entirely covered in mold, and there was no caulking around the windows to keep the moisture out. A better home inspector would have been able to see the signs of termites and mold. The sump pump should have also been checked by the inspector, but it could have failed after the inspection. Sump pumps can burn out, lose power, become clogged or misaligned, or malfunction in a variety of other ways. It’s valuable to have a warning device installed that will signal water buildup. These alarms can alert homeowners or neighbors of flooding, so that it can be resolved before water damage occurs. Be careful. Be smart. These horror stories are real and happen every day. Do your homework before signing paperwork or jumping into a new home. Too many people spend more time shopping for a car than they do on a home—a much larger and more permanent investment.

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