First Time Home Buyer Blog/Interview
Since moving to Columbus in 2011, I have been the city’s biggest champion. I immediately fell in love as I walked down Neil Avenue admiring the Victorian style homes & meandered my way to the Short North. As I cut through Goodale Park, strangers genuinely greeted me with smiles & hellos - A level of friendliness I was not accustomed to, but quickly adopted myself.
Fast forward to 2018 and it seems I am not alone. Columbus is growing at a fast pace & finally getting the recognition it deserves. The city just won the Smart City Grant (after besting some other highly respectable cities), we’re still in the running for Amazon H2 & our small businesses continue to thrive through collaboration, innovation & community involvement. Despite this excitement, one of the challenges has become a HOT real estate market.
With this in mind, I sat down with Jim Sulayman of Sorrell & Co. to provide suggestions for any buyers who may be intimidated by the current market.
CW – What’s the first piece of advice you’d give to any first-time home buyer?
JS - When starting a home search, you should ALWAYS do so with the assistance of a real estate professional, who is dedicated to protecting you and watching out for your best interests. Many buyers think that it is somehow beneficial to work with the listing agent, however ask yourself this, what do you really have to gain? Remember, the listing agent has a signed listing agreement with the sellers which obligates the agent and their brokerage to protect the best interests of the sellers, as they are technically the client of the listing agent. Once a client/agent relationship is formed, the agent has a fiduciary duty to do everything in their power (that is both legal and ethical) to make sure that their clients’ interests are put above all else. This means that your interests as the buyer, take a back seat to those of the seller. And why not have a professional watching out for you? In the large majority of cases, the seller has already agreed to compensate a buyer's agent out of THEIR proceeds, so why turn down free representation?
CW – Let’s assume our client has representation. Anything they should have before viewing a listing?
JS – Before you go to your first showing, I always recommend having a lender pre-approval on hand. This should be done for a couple of reasons: First, any offer that is submitted in this market will require a pre-approval to be submitted along with it. Second, and most importantly, a buyer should have a very precise idea of what they can, and cannot afford before they begin the process of looking for a home. I cannot tell you the number of times that I have had an initial consultation with a client, and had them tell me what they think they can afford, only to find out down the road they could not qualify for homes in the price range. Conversely, I have spoken to clients who thought they could not qualify for a home in a certain price range, and then realized after speaking to a lender that they could qualify for homes that they were very interested in. Also, it is very important to have a pretty good idea of what sort of loan programs are available to you. Some people do not realize that they can qualify for limited down payment programs, that opens up homes in a whole new price range for them. Clearly you also need to know what your monthly housing expenditure will be for homes in different price ranges. Just because you can qualify for a home, may not mean you are willing to have that high of a monthly payment! Being "house poor" and stretching yourself thin, is never something I would recommend to any of my clients!
CW – Great advice! What can someone do to stand out from the pack? It’s not uncommon for several offers to be on the table at once in this market…
JS – Differentiating yourself in this hot seller’s market, is one of the most important things you can do as a buyer, and it all starts from the beginning of your interaction with the sellers. It is important that any interaction your agent has with the listing agent is cordial and professional. Also, if you do decide to submit an offer, it is imperative that any documentation sent to the listing agent is completed correctly, and that the offer has as few contingencies as possible. A "clean" offer that is written correctly, is a signal to the listing agent (and therefore the sellers), that you are a serious buyer with a competent agent. That is almost as important as the contents of the offer, as if you are the listing agent and see a poorly written offer filled with contingencies come over, you know that the chances of successfully closing with that agent and their client is exponentially less, than with a competent agent and their buyer. I like to say the negotiation of an offer is like a first dance. You do not want to make a wrong move and step on your partners toes on the opening move, as it can be a signal of trouble to come throughout the entire number!
CW – In my job as a Financial Planner, we often discuss the importance of keeping emotions at bay. A home purchase can be a very emotionally charged experience. Let’s say we find our “dream house”. Any advice for making sure your offer is properly aligned with the local market & their budget?
JS – When you have found a home that you are interested in putting an offer in on, I do recommend that you as a buyer establish a maximum amount that you are willing to pay for that home. Your real estate agent should be able to pull comparable sales to show you what homes similar to the one you are interested in have sold for recently. The one thing to remember is this kind of market, is that almost every home that sells is setting a new comp. What that means is that with home prices increasing at the rate they are, you as a buyer should expect to pay more for your home than the last similar home that sold. Now just because you have maximum amount that you are willing to pay for a home, it does not mean that should be your offer. You obviously want to buy the home for the lowest price possible, so you should share your maximum acceptable purchase price with your agent, and then come up with a plan on what to offer initially, and how you will increase your offer if necessary. Also, keep in mind that if this is your first home, it more than likely will not be your "forever" home. If you drastically overpay for the home, that could complicate efforts to sell it down the road, if you outgrow it in a few years. It is also important to TRY and keep in mind that although buying a home is a deeply personal process, it is still a business decision. It is a big business decision, but sometimes you have to take a step back and take a breath, and see if really makes sense from that perspective.
CW – What about the process of submitting the offer itself? How long can someone expect to wait before they know if their offer was accepted?
JS – The offer process should not be long....especially in this market! Most of the time after you have submitted an offer, you will know whether your offer has been accepted within 24-48 hours. There are occasions that a seller will have an extended deadline for submission/acceptance of offers, but this does not happen very frequently. Once your offer has been accepted, the timeline to close averages 30-45 days. Sometimes a seller will need a shorter (or longer) closing time, but this will be established within the contract ahead of time, so all parties are aware of this fact. Most of the time a buyer will have a home inspection completed within 15 days of going into contract. The appraisal for the lender is usually completed after the inspection has been done, and is satisfactory to the buyer, and during this time the lender will be doing their due diligence as well. Also during this period, there will be a title company who acts as a disinterested third party to ensure that all Ohio property transfer laws are followed, who will be completing state mandated tasks. At around 30 days, you should have a commitment letter from your lender, and the title work should be completed. Once that is done, you are 95% of the way there, and should just be awaiting your scheduled closing date.
CW – That should be a relief to some of our first-time buyers… they’ll generally know within 24-48 hours if their offer was accepted or if they need to keep looking! What is your opinion on Fixer Uppers? Is this a good way for a homebuyer to potentially save some money?
JS – A fixer upper can be a great option for a buyer! The one thing to remember is that dealing with a fixer upper is nothing like your favorite HGTV show! It can be incredibly stressful. Dealing with contractors can be very difficult, and a lot of the time good contractors can be booked out 6 months in advance. This leaves you the option of dealing with a contractor who might not be as reputable (or reliable), or doing the work yourself. If you are not handy, it's not that you can't do the work and do it well, but you must be prepared for a learning curve which could cost you in both time, and money. When putting in an offer on a fixer upper, your best strategy is to estimate (and I mean overestimate) how much money you will have to put into the home, and what the possible valuation will be once those repairs/upgrades have been completed. If the purchase price & renovation costs put you at, or preferably over, the fair market value for the home, you are in good shape!
CW – Chip & Joanna make it look so easy! Great advice without sugar-coating the hard work needed. What’s one last bit of advice for dealing with a hot buyer’s market?
JS – One pitfall to try and avoid in this market is getting discouraged. It is much easier said than done, but going into this process, you have to expect disappointment to rear it's ugly head at some point. Columbus is one of the hottest housing markets in the country, with more and more prospective buyers moving here every day, and there is only a finite amount of housing for all of us. Your chances of starting the process, putting in an offer on the first house you see, going into contract on that home and then closing, are very, very small. It is not that it is impossible, but I would say that the average amount of time a buyer must be seriously be in the market before closing on a home can be anywhere from six months to a year. You will more than likely put in offers on multiple houses, before you are able to get into contract and close. Just remember that every other buyer is in the same boat as you! Sometimes the buyer that gets the home is the one that is the most dedicated. On that vein, it is also important to be aggressive in any offer you submit. In this type of market, your chances of getting a "steal" on a home are slim. If you see a home you love, pursue it aggressively. However, this is not me telling you to overpay. I have seen some crazy offers over the last year, where buyers are paying 20% more than the most recent comparable. When I see that, I simply tell me clients, "If someone is willing to pay that, let them dig that hole, as that is a deep one that they will have a hard time getting out of!" Keep your nose to the grind stone, and you with the help of your agent will find the perfect home for you eventually!
Jim, we are so grateful for your guidance & advice. Thanks for helping our clients navigate this wild Columbus housing market!
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Sorrell & Co. is not affiliated with LPL Financial.