“Insider Secrets for Buying a Home” Series
Buying a home can be confusing. That’s why the tips and strategies you’ll find in my 8-week series will set you on the right path. It’s my own unique approach and a “behind the scenes” glimpse of what you should look out for and consider when starting your own search for a home.
Over the years, my buyer clients have asked many of the same questions. I’m always happy to answer them, but sometimes…
- You just don’t know what you don’t know (y’know?)
- Or, you’re not sure HOW to ask the question…
- Or worst of all – you don’t ask a question because you think it’s a stupid question. No such thing! You gotta start somewhere!
So…I compiled a list of the most frequently asked questions I’ve gotten over the years. These are the questions swirling around in your mind, and the same ones that other buyers have too. And, the buyers before you. And the buyers before them!
Even though each buyer’s situation is unique, you’ll find the question/answer sections below helpful in giving you some insight on what steps might be best for you.
Q: What is earnest money? Why is it necessary, and will I ever lose it?
This is a concept that changes depending on the state you’re buying in. In Illinois, we use earnest money.
I created a YouTube video all about earnest money – you can see that here.
Earnest money is also known as “good faith money” – it’s money that the buyer gives the seller to show they are serious about purchasing the property and to put “skin in the game”. It’s not legally required (in IL), but no seller will look at your offer without it.
The amount of money given varies, but 1% of the offer price is customary. However, there is no “standard” amount – your agent can help you decide the best amount to offer for the specific offer you are writing. Regardless, however much you give in earnest money gets credited to you at closing, and appears as a line item on your side of the “ledger”. This means you are NOT just giving the seller “extra” money.
It is possible to lose your earnest money if you don’t perform specific steps as outlined by deadlines in the contract, with the home inspection being what most people worry about.
Here in IL, you have 5 business days to conduct a home inspection and decide if you want to move forward with the purchase based on the results of the inspection. If you do not notify the seller or request an extension of the deadline within those 5 days, they can keep your earnest money if you back out. This is where your attorney comes in…
Q: Should I hire an attorney?
Since Illinois is an attorney state (meaning attorneys commonly handle real estate transactions) you should hire an attorney to help you.
It is not required, but there are so many pitfalls that a good attorney can catch and help you avoid, they are worth their weight in gold!
Your attorney is your advocate and will work in your best interests in the transaction. But in addition to this, they also manage the deadlines, talk to the seller’s attorney (remember they will have one!), draft and review the paperwork for closing, and be present at the actual closing to walk you through the paperwork and explain the process.
So, hire a good attorney and stay connected to that person
Q: How do I know the property value will increase?
Although there are no guarantees, there are clues and historical data that are indicative of future performance. The 2 things that can have the greatest impact on rising home values in the Chicagoland area are a central location – close to highways and main streets, and areas with good schools.
Regardless, if you know the area is changing and is going to increase in density or desirability, you are likely to see an increase in value over time, perhaps more than other areas. I always tell my clients to not go on hearsay, but look at projects that have actually gone through the planning, development, and funding stages.
However, you still need to buy smart — each neighborhood, block and/or building can be different and it’s important to understand that so you don’t overpay.
There is an old saying that says you make money in real estate when you buy, so focus on that and you’ll be fine when you sell.
Q: Should I put a deadline on an offer?
This is a tough question to answer and really depends on the specific situation of the home you are bidding on.
In more competitive neighborhoods, most sellers want to give their home full market exposure to get the highest price possible. That means sellers tend to have their own deadline for any and all offers.
If a seller is not anticipating multiple offers or perhaps just wants less inconvenience or a need for a quick sale, moving quickly with an offer and having a deadline for a response can be a useful strategy.
If you are going to put in a deadline, make sure to give one that allows for enough time for the seller to respond, but not long enough for another offer to swoop in.
Again, it highly depends on the particular situation. With a seller that’s local and responsive, I’ve found that 24 hours (one full day) is often a good time period for a deadline. However, if the seller is in a different time zone, or if you are buying from multiple parties (like adult children selling mom’s old house), this can be unrealistic.
But you might have to make it worth the seller’s while to take their home off the market quickly—perhaps a higher price than asking and favorable terms such as no or short contingency periods.
In some situations, a deadline will not make the seller respond, and in fact could anger a seller, so be prepared for that outcome as well!
Q: Is it worth it to find something faster when interest rates are low?
No! Don’t let interest rates dictate your time to buy a home. We are still in a period of historically low interest rates and we don’t expect them to spike any time soon.
A slight increase in your interest rate is not going to make the home you want unaffordable. And, just like buying and selling other investments, such as stock, timing the market is never a good idea.
Buy and sell when the time is right for you. Speak with an expert about perhaps which month is best, but always go based on your own timeline and schedule.
One thing I know for sure—there will always be homes to buy. And, when interest rates rise a lot, that oftentimes leads to a slight cooling of prices.
Q: How do I get a good deal?
Good question and one I focus on for each and every one of our clients! You make money when you buy in real estate, so making sure you buy right is HUGE.
The one and only way to make sure you are getting a good deal is to look at the specific neighborhood, building or block you are buying in and compare your home to what has sold over the last six months to a year.
There will be a range in prices depending on specific location (for example, a house backing to a main road will sell for less) and condition (just renovated will sell for more). Compare the home you want to buy with what has sold recently to make sure you are not overpaying.
Also get information from your agent about whether it’s a sellers’ market or a buyers’ market, and make your offer accordingly. The longer a home sits on the market, the more likely you can get a lower price.
And please keep this in mind—just because something is “cheap” doesn’t mean it’s a good deal. Foreclosures and short sales usually fit this category. Be sure not to make this crucial mistake!
Q: If the house I want is $20k over my price range, does that mean I can’t afford it?
Maybe, maybe not…
We tell our clients to focus on your monthly payments, not just on a purchase price. By doing this, you’ll know what you may or may not be comfortable paying for a home every month.
In other words, focus on the fact that you want to pay, say, $2,500 per month on your new home and NOT on a somewhat arbitrary price point.
Why?
Because for every $10,000 change in price, your monthly payment only goes up about $40 per month. When you look at it that way, you might be able to afford the home of your dreams or that home you just fell in love with.
So, that extra $20,000 price tag equates into an extra $80 per month. Is that something you can handle? If so, and it’s a home that has everything you’d ever want, go for it…as long as it doesn’t break the bank or make you need to change your lifestyle in any way that is uncomfortable.
On the other hand, if you buy something not as nice for less money, you might have to spend money on repairs, etc. You’ll need to weigh the pros and cons of each situation when determining what is affordable to you.
Q: Does the seller still live here? Why are they selling? Who lives here? What is their situation?
Unless your agent is representing the seller AND you – (not a great idea), they will have no connection to the seller and have no information about them.
If they did represent the seller, they likely wouldn’t share that information anyway. 🙂
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Next week is one of my most favorite articles — Is the “Netflix Effect” Derailing Your Home Search? I use Netflix as a warning and give you tips that can help you focus on making a decision and not being overwhelmed by too many choices. You don’t want to miss it!
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