Buying a house is a big deal. Most would say it's the largest investment of your life.
But to that, I'd say: For what purpose are you buying the house?
Answering that question is another article all on its own.
Either way, here's everything I wish I knew before I bought my first house.
Hopefully, you can take my experience and apply it to your home buying efforts to get the best results possible.
Never Skip A Home Inspection
I've talked about home inspections extensively on this blog for one reason.
Inspections are a vital step for anyone looking to purchase a new home.
Yes, they may be a little pricey. Inspections can range anywhere from $350 - $500.
Typically, I've paid $450 per inspection.
It sounds like a lot of money, but wouldn't you prefer to know if the home your buying might:
Only have a year's worth of life left for the roof?
Need all new electrical?
Have serious foundation issues?
Should you discover significant issues with a house after going under contract, you can either:
Request the sellers repair the issues
Back out of the deal
Or continue moving forward and accept responsibility for the house as-is.
Whatever you do, you should never skip a home inspection.
Never Trust The Seller
I'm not saying that sellers are liars here, although some may be.
But you never want to make a buying decision based purely on what the seller says.
Sometimes, they honestly may not know something or genuinely believe what they tell you through no fault of their own.
Here's an example.
One house I bought supposedly had no electrical problems.
Why did I assume that? Well, because that's what the seller told me.
Halfway through the renovations, my contractor told me the electrical was shot, and we needed to rewire the entire house.
$4,500 vanished almost overnight!
Listen to what the seller has to say, of course, but always verify everything yourself.
Getting an inspection will help you avoid the mess I found myself in.
Use An Escalation Clause To Win The Bid
Are you in a hot real estate market where:
Almost every house has multiple offers.
Barely any home lasts longer than a week.
Most properties sell over the asking price.
I know it's frustrating when trying to win a bid, but there is something you can do if there's a house you really, desperately want.
Use an escalation clause.
An escalation clause can be written up by your agent and added to the special stipulations section of the purchase and sale agreement.
It might look something like this:
"Buyer will pay $1,000 over the highest bid up to $200,000 if they're not the highest bid."
An escalation clause can help give you an edge, but it may not always work.
An important thing to consider is there are unscrupulous real estate agents out there.
Hopefully, no one does this to you, but an agent can have someone else submit an offer just to drive up the price.
You Can Get Sued If You Don't Close on Time
Before I bought my first house, I didn't pay too much attention to the closing date I put in the offer.
This is a HUGE mistake!
If you fail to close by the date provided, and all your contingencies have been met, the seller can:
Keep your earnest money deposit.
Sue you for breach of contract.
Depending on how much earnest money you put up, you could be looking at a significant loss.
You can argue it's better to lose a little cash than buying a house you decided is not the right fit.
It may be rare for sellers to pursue legal action should you fail to close. It’s possible, and certainly not something you want to provoke!
If you can't close for a legitimate reason by the agreed-upon date, the best thing you can do is be upfront and honest with the seller.
As long as they are reasonable, you should be able to sign an amendment that gives you more time to close.
Sellers Want What's Best For Them
You can try brown-nosing sellers all you want, but sellers will pick the best offer that makes the most sense for them.
They will carefully sit down with their real estate agent and review all the offers submitted.
Or if your offer is the only offer, they will carefully consider it to make sure it meets their needs.
If it does, great! Hopefully, they accept the offer as-is with no counter.
But if they don't like it, they will either:
Make you a counteroffer.
Reject your offer.
Say nothing, which is the same as a rejection.
99.9 times out of 100, sellers are going to act in their best interest, and their realtors will advise them to act in their best interest as well.
I'm not trying to make sellers seem like jerks or anything. That’s just the way it is. And let's be honest, you'd do the same thing if you were selling a house too!
The Longer The House Has Been on The Market, The More Leverage You Have
Where will most of the negotiating power you'll have come from when working with sellers?
The more days on the market, the better position you're in to negotiate.
If the seller hasn't received any other offers, you'll be in a stronger position to negotiate.
Both of these points of negotiation can go hand in hand.
When you see properties sitting on the market for a long time, say 60 days or longer, the sellers may start getting anxious to sell.
If that's the case, you may be able to negotiate a better price with them.
Some sellers have balls of steel, though. I once watched a woman try to sell her house for over a year and only dropped the price by $5,000.
I made multiple offers, but she wouldn't budge.
If you have a house in your sights.
You believe you're the only one making offers.
And the home continues to languish on the market.
I've got a trick for you that might make sellers feel a bit of urgency, or it could backfire.
If you make a second offer on a property, drop it by $1,000. The seller might see the offer is getting lower and jump on the deal before it gets even worse, or they could be put off by it.
Use this tactic at your own risk!
Your Offer Looks Better With Fewer Contingencies
Every contingency you add to your offer is another opportunity for you to back out of the deal in the seller's eyes.
In your eyes, of course, it's protection.
But remember what we discussed above. The seller wants what's best for them.
You want to make sure the offer is as irresistible to the seller as possible, especially if you're bidding on your dream house.
You can include as many contingencies as you want, but the fewer, the better.
Let's review what contingencies you can include.
You have the right to order a professional home inspection.
Within a given amount of time, you should request your inspection, and the inspector will create a detailed report based on what they find in the property.
Your realtor will likely have an excellent inspector recommendation for you.
Inspectors are trained to call out most general issues but may recommend a specialized inspector for problems that involve:
Once you receive the report, you can use the contingency to pull out of the deal if the results are far from what you'd like.
Instead of backing out, you can negotiate with the sellers to see if they'll make any repairs.
Something to consider is home inspection contingencies can act as a catch-all for you too.
Even if you are happy with the results, you can change your mind for a different reason.
Let's say you find a house that better matches your needs during the inspection period.
You just need to cite something in the inspection, and you may technically be entirely within your rights to back out of the contract.
An appraisal contingency is straight forward. All it means is the agreement is contingent upon the appraisal coming back either at or above the contract price.
Should the appraisal fall short of the contract price, all hope is not lost.
You can ask the seller to lower the price to meet the appraised value, or you can bring more cash to the table.
The sellers will most likely reduce their price, as who would buy a home for more than what it’s worth?
A financing contingency makes the offer contingent upon you being able to receive a mortgage.
If, for any reason, you're unable to qualify for the financing necessary to purchase the property, you can back out of the deal without penalty.
As long as you're pre-qualified, this contingency shouldn’t be much of a concern for the seller.
The fact that you're pre-qualified shows the seller you've already taken steps to secure a mortgage, and the lender is expecting to have little to no issue underwriting your loan.
Home sale contingency
Home sale contingencies are the devil in the eyes of sellers.
A home sale contingency allows you to lock a property up until your property sells or doesn't sell.
For example: If you sign a contract with a seller to close in 30 days, and the offer is contingent upon your house selling within those 30 days, what happens if your house doesn't sell?
You can either:
Renegotiate the closing date with them.
Or the deal will fall apart.
Home contingency clauses are one of the biggest red flags I look for when selling a house, and other sellers do too.
If you can find a way to avoid adding a home sale contingency to your offer, I recommend it. But if you need to include it, include it.
You Can Ask Sellers To Help With Closing Costs
Did you know you can ask sellers to contribute towards your closing costs?
Yup! You can!
When a seller contributes towards your closing costs, it's called seller concessions.
Concessions come in three flavors:
Cash towards your down payment.
Cash towards other related closing costs, such as loan points or origination fees.
Or cash-in-lieu of repairs.
Whatever you're requesting the concessions for, it doesn't matter to the seller.
$5,000 in requested concessions is still $5,000, no matter what you use it for.
It's best to speak with your real estate agent and ask what they believe are fair concessions to ask for and how much.
Every real estate market is different in terms of what's considered appropriate.
You Can Ask The Sellers To Make Repairs Before Closing
Unless the seller specifically states the house will be sold as-is, you can request they make some repairs to the property after receiving the inspection results.
There are, however, some things that are more appropriate to ask for than others.
For example, suppose an inspector finds something wrong with a major system, such as a safety issue with the electrical or plumbing. In that case, you can request the seller remedy the problems before closing.
Everything you want to be repaired, or replaced, will be written up by your realtor in the repair and replace agreement.
You should not go around asking sellers to change minor cosmetic things just because they aren't to your taste.
For example, don't ask the seller to
Change the paint colors.
Replace the carpets because you don't like them.
Or install new granite countertops for you.
Technically nothing is stopping you from asking, but it's tacky. Don’t do it.
If you're unsure what's acceptable to ask for, discuss it with your realtor.
Ask For a Home Warranty If One Isn't Explicitly Provided
When buying a new house, I highly recommend asking the seller to provide a home warranty if they aren't already.
It's easy to get caught up in the excitement when making such a life-changing purchase, but remember, anything and everything will eventually go wrong with a house - Even a brand new one.
Home warranties may be able to help you when the unexpected happens, such as:
Your hot water stops working.
The lights stop turning on.
Or the HVAC stops blowing cold air.
Typically, when something you feel is covered breaks, you submit a claim to the home warranty company, and they start helping you resolve the issue.
The home warranty company will assign your claim to a local technician capable of diagnosing and fixing the issue.
You'll likely have to pay a small service fee. For example, I paid $65 for a technician to come out, diagnose, and fix a problem I was having.
Every home warranty company is different, and I can't tell you precisely what each one covers or how much they'll pay out for any issues you may have.
But I can tell you it's worth asking the seller to provide one.
You Can Add Special Stipulations To Your Offer
Whenever you make an offer, you can add special stipulations to it.
Special stipulations are specific terms you'd like added to the contract.
As we discussed above, an escalation clause would be added to the special stipulations section of the contract, as a standard purchase and sale agreement makes no mention of them.
Special stipulations also take precedence over anything else in the agreement should a conflict arise.
For example: If the agreement says your closing date will be May 5th, but the special stipulations say the closing day will be May 6th, then the closing date will be May 6th.
Make Sure You Work With A Great Lender
If you're taking out a mortgage on a property, which you probably are, you must work with a great lender.
You need a lender who:
Is highly responsive.
Can close on time.
Offers excellent customer service. You'll be working closely with them, after all.
Not all lenders are created equally, so be sure to do some research into who you'd like to work with.
You can check reviews online like Google, Facebook, or Yelp.
But first, you should ask your realtor.
Your realtor will likely have connections with local lenders familiar with any lending programs you can take advantage of.
Get Pre-qualified So Your Offers Look Stronger
After finding a lender you want to work with, I highly recommend getting pre-qualified with them.
Because submitting a pre-qualification with your offer makes it stick out that much more to