11 Mistakes Home Buyers Make & How To Avoid Them
Congratulations! If you're reading this, there is a good chance you are taking the first steps in becoming a homeowner and delving into the world of real estate.
Whilst this is an exciting time, you also need to be careful and have your wits about you whilst making what may be one of the most important decisions of your life.
We see it time and time again where people make simple and easy-to-fix mistakes on their first purchase which can cost them tens of thousands of dollars, sometimes more, and most of the time it's just because they didn't fully understand the fundamentals of purchasing property, or they became confused in dealing with the purchasing process.
So in order to help you avoid making these same mistakes, we have put together a list of the most common 11 mistakes that we consistently see to help equip you with the knowledge that you need to make the right decision!
1. Wanting More Than You Can Afford
When you first start looking at properties, it can be tempting to look at properties that may fall above your budget. This can be further complicated by the fact that properties will generally be underquoted and some agents will make you feel like you have a chance so you attend an auction and can be emotionally drawn into a property. This is never a good scenario as it give you false hope for properties that are outside of your price point.
The best way to figure out what properties in your price point actually look like is to look through the sold section in realestate.com & domain.
2. Not Doing Enough Research
Whilst this may seem like an ambiguous statement, it has to be, as there are so many areas of research that need to be carried out. On a macro level, these may be which suburb you want to live in, have you actually lived there before? Do you know what traffic is like at peak hour? Are there great amenities?
On a micro level, this may be checking for easements, planning overlays, getting contracts reviewed, organising building and pest inspections and understanding how to negotiate these clauses into a contract.
Often first home buyers are surprised regarding the cost of owning a property so make sure you check what council & water rates are plus insurance and the owners corporation fees are.
Overall, make sure not to rush into a property or area too soon. Make sure you are comfortable with the area, property, street contract and costs before making an offer.
3. Not Getting Pre Approved For Your Max Budget
Firstly, you want to make sure that you are getting a pre-approval before researching and making offers on a property. Real estate agents will take you more seriously and you can also have a better understanding of what you can afford.
A common mistake we see is from people who don't want to take the largest loan out that they can afford and so in turn get a pre-approval for less than their maximum borrowing capacity.
Please keep in mind, we are not suggesting to always spend to the max of your pre-approval, however, you want the option to have more money available than less because if you change your mind it's much harder to get your pre-approval increased than it is to spend less than your max.
4. Listening To The Media
The media's job is to sell advertising and because of this they need to use clickbait titles and wild stories to suck people in. The property sector is an extremely loved sector in Australia and because of this it's always in the news.
Our advice is, to take media headlines and articles with a grain of salt and get all of your property research from those who work in the industry day in and day out. Real estate agents will be experts on their local area, buyers agents may be experts on a larger portion of a state and research firms like SQM and CoreLogic often provide insightful free reports.
5. A Bargain Doesn't Mean it’s a Good Deal
Whilst it is possible to find great opportunities of properties that were initially overpriced and have had their marketing campaigns backfire, in general, the properties that are on the market for a long time with little interest and large price drops are not the properties you want to be buying.
Because a property is cheap for the area and looks like a bargain, it doesn't mean it's good.
We generally suggest looking in the sold section at properties that are selling extremely quickly and making that your brief as it's clear this is what the demographic of the market wants. Once you know what you're looking for, move fast when you find it whilst doing all your due dilligence.
6. Forgetting Who The Agent Is Working For
Some agents are lovely people and those that are really good at their jobs, may make it seem like they are on your side. This is not the case. You should always remember that an agent has a legal responsibility to represent their client by getting the highest price possible for them on their property.
Whilst most agents are great, some can also be unethical and lie in order to try to push you to your max. If you are not experienced in dealing with agents, our recommendation is to keep some of your cards to your chest and never tell them what your maximum number is.
7. Making A FOMO Purchase
We do understand that buying a property, especially one that you are planning on living in and potentially even raising a family in, can be an emotional journey. And whilst we do actually recommend using some of these emotional drivers to find the property that best suits your brief, you can not let your emotions get the best of you and overpay on a property or not do your due diligence correctly.
The Fear Of Missing Out is a real driver and one that becomes ever more apparent in rapidly rising markets with high demand. We have heard stories from agents of people making obscene offers on properties without them even seeing the property in person just because they are so exhausted from constantly looking at properties only to be outbid.
In times like this, rather than overpaying, we suggest trying to form relationships with the agents so that you can be the first to look at a property. This allows you time to do due diligence before it hits the market so that you can make an offer as soon as the first open or before.
8. Not Meeting The Market
Hesitation and trying to get a “bargain”can sometimes cost you if you aren’t meeting the market or being ahead of the curve. Eg. if you are looking at properties in a particular suburb and you know they sell for around $800k for what you are looking for. You go to an open with heaps of people and the agent calls you on the day to say, it looks like we will have a few offers are you interested in making one? You like the property and want to make an offer. Thinking you are being a good negotiator you might make an offer of $790k. The agent comes back saying, we have a similar offer, would you like to increase your price? You increase, but again not wanting to pay the market price you offer $795k. The property sells for $800k and you are back to the drawing board.
Round 2 you find another property, very much the same except now, the market has moved and they are selling for $810k. This time you are more aware, and at risk of missing out you offer $820k to secure it. You get it, but $20,000 more than if you had met the market or pre-empted where the market might be going rather than trying to save a couple of thousand dollars.
9. Analysis Paralysis
Hesitation can come at a price. We have helped many clients who feel paralysed to make an offer as they would rather wait to see what other properties come onto the market... Who knows, maybe a better property will come online soon at a cheaper price? Unlikely.
It can be easy to wait and research for months or years until you eventually get priced out of the market that you were looking at and are forced another suburb back.
In our experience talking with investors and those who have held real estate over the medium to long term, imperfect action beats perfect inaction.
10. Thinking You Need A 20% Deposit
I, hear it all the time that younger people believe it's impossible to buy a house because it will take them years to save a deposit. Whilst it may take a long time to save a deposit, you don't always need to save a full 20% before you start looking. Sure if you are able to it will certainly help and reduce your loan repayments.
However, government grants and support schemes often allow first home buyers to get into the market much sooner than this with some schemes allowing for as little as a 2% deposit without also having to pay stamp duty.
Our advice is to book a call with a mortgage broker when you have saved around 5% of your ideal purchase price and then they can help you get an understanding of the numbers and set up a savings plan to get you on your journey.
11. Making A Big Purchase Before You Go For Your Loan
Before you take out a loan, the banks will evaluate your spending habits, your serviceability and your debt-to-income ratio. If you purchase a car on finance prior to taking out a mortgage you may be surprised as to how much this will affect your borrowing capacity.
The reason for this is that car loans are generally taken out over a much shorter period of time and can be between 2 - 7 years. As they are over a shorter timespan, the repayments are high in comparison which can massively affect your serviceability.
Additionally, as you have a maximum debt-to-income ratio that the banks will lend you, the loan amount of your car will generally then also come off the possible purchase price of your property.
Overall, holding this decision off until you have purchased a property may be much better off for you over the long term and make things much easier for your home loan application.
