Buying & Selling Homes Like An Expert

[ThisDinosaur]

I went through the home buying process like a deer in headlights. I want to be smarter about it next time around.

House flippers, landlords, or anyone who ever learned anything buying or selling a property, please chime in.

Starter questions:
1) How do you value the housing market and a particular property?
2) [How] Can you DIY appraisal and inspection on your own before laying out money?
3) What sort of avoidable mistakes do people make when buying and selling a home?
4) What ways are there, if any, to minimize transactional/closing costs?

[Seppia]

I only try answer the questions where I feel I have some minimal competence:


1) How do you value the housing market and a particular property?

Mostly based off of how much the equivalent rent would be.

3) What sort of avoidable mistakes do people make when buying and selling a home?

Buyers often overpay vs rent, sellers usually tend to overvalue their property due to emotional attachment.
Result for me has almost always been that it’s better to rent

[Peanut]

1. Look at comparable properties and what they recently sold for.
2. Don't quite understand this question. Why is this necessary? Are you talking about earnest money?
3. On buying: if you miss out on a house, know there is always a better one down the line if you're willing to wait. Negotiate the fixes that come up on the inspection. At this point the buyer has a lot more leverage than the seller.
On selling: Not professionally cleaning and staging is a mistake as buyers have no imagination and have already been inundated with Hgtv imagery. But biggest one is pricing your house too high to start. This drives serious buyers away and gets you less money in the long run bc people end up lowballing after it sits for months. Also, not taking your first offer. This is usually the highest one.
4. Pay cash

Try to avoid corner properties. Turnover is a lot higher on them.
Finally, realize your agent's interests do not align that well with yours. Their goal is speedy turnover while yours is lowest/highest price.

[saving-10-years]

Good questions but the answers are going to depend on what type of property you are interested in. We have bought two houses for ourselves, helped find properties (2) for my mother and bought one rental. The properties we bought for ourselves were both in a bad decorative state because we knew how to add value and like the idea of not paying for someone else's home-making work and DIYing. But the rental and properties for my mum were more ready to move in, particularly the rental.

1) How do you value the housing market and a particular property?
There is no short cut to research. The houses we bought to live in were ones where we went in (somewhat) blind but because we were buying hard-to-buy properties we did fine. The rental was most recent and I knew exactly what was good value, what other properties sold in the area went for and how this was different.

2) [How] Can you DIY appraisal and inspection on your own before laying out money?
I assume you mean how can you tell whether work required is superficial or not, how much it will cost (whether an obvious discard) without paying for experts? Part experience, part contacts (friends who are builders/electricians/plumbers will look things over and give an opinion). Mainly experience of looking at properties (above). I _really_ like to look at properties which are in a bad state and work out how to improve them. Love the problem-solving-ness of it all. Be aware that some jobs are time-consuming but basically cheap (so pointing brickwork can come in at a huge amount paying someone else to do it, based on hourly rate but if you are going to DIY then you need mortar, a simple tool, scaffolding and lots of time). Be very aware of the limitations on professional opinions - Homebuyers surveys in the UK seem to tell you very little. We found that for historic/interesting buildings we got great value advice as the surveyor was really interested in every aspect and did not treat it as another job. More recently finding a surveyor who would talk about their report and answers what if questions was helpful too. They have huge experience but are often writing identikit reports because that is what is expected.

For rental we bought a council-built property which was part of a terrace and within a small development where all houses were the same starting exterior and interior. So there was confidence that it was solidly built and there were examples to right/left and up/down of it that we could look at to see whether there were any obvious problems (windows replaced, cracks in walls or missing rendering).

3) What sort of avoidable mistakes do people make when buying and selling a home?
The houses that sell fast and well are in good condition and present few issues for new homeowners - most of whom want no work whatsoever. Our first house was a little too unique in the decoration department to sell quickly. The two buyers who wanted it _really_ wanted it (we were lucky), but most people looked at the photos and did not bother coming to view. When buying don't ignore damp that you cannot easily see the cause of. We have had bad damp in properties but easy remedies (fix broken down pipes etc) but a friend bought a house with damp interior walls that she has never been able to sort (it may be her neighbour's house that is the issue).

4) What ways are there, if any, to minimize transactional/closing costs?

No ideas on this. I have never used an online estate agent - not because I am a fan of the bricks and mortar agencies but because I think that its easy to waste people's time using these. Properties seem to come up for sale which are not really for sale (posted on a whim). Conventional estate agents possibly filter out the timewasters better?

[Fish]

1) How do you value the housing market and a particular property?

• Relative to other recent sales of similar homes in the same area, i.e. comps. Then correct for differences in physical characteristics and amenities. This more or less sets the price. You can then use a rent vs. buy calculator to determine if it is in your financial interest to transact.
• You can also approach it as an investor and decide based on cap rate.

2) [How] Can you DIY appraisal and inspection on your own before laying out money?

• A professional appraisal is required if a loan is involved; the bank is protecting its interest. You can't DIY that but you can perform your own CMA (comparative market analysis) to get an idea of how much your bank would be willing to lend. In the US, an 80% loan-to-value ratio is typically used. If you need more than that it's a sign you can't afford the house.
• My inspections have always paid for themselves. Inevitably some deficiencies will be found and this can be used to request concessions from the seller if your offer has an inspection contingency. In a seller's market, you might have to waive inspection to get your offer considered. My recommendation is to always get a thorough inspection conducted by a professional.
• DIY inspections are possible (have done twice, no adverse consequences), but I don't think the risk/reward profile is appropriate for noobs.

4) What ways are there, if any, to minimize transactional/closing costs?

• Minimize transactions. Commit to a holding period of at least 5 years.
• Avoid agents, or negotiate discounts.
  • Ideally, both parties would do without agents. One of our purchases was FSBO. While nerve-wracking to negotiate directly with the other party, it was an enormous savings and translated to a very high hourly rate for the time spent. We used generic legal forms and escrow to conduct the transaction.
  • The next best thing is to negotiate a discount. Find an agent who will work for 1% or 1.5% instead of the customary 3%. They're out there.
• Get your bank to pay the closing costs. The bank will reduce its origination fee in exchange for you taking a higher interest rate on your loan. In the extreme case, the origination fee can be negative (you get paid to take the loan) and you will receive a credit towards closing costs. This is a great deal if you will pay your mortgage off quickly.
• You can shop around for cheaper escrow, but the potential savings is much smaller than the above. You might save a few hundred dollars.

[Dream of Freedom]

Well, I have only ever bought, never sold, but I've read a lot of real estate books.

1 You could ask your broker for comps (short for comparisons), but the broker should already know what price to put it at. I asked for comps when I bought my house and got about 30 sheets of previous sales printed out. It saved me the price of an appraiser. Though if I needed a mortgage the bank would have made me get one.

4 Well, the biggest transaction cost is the broker. You could do a for sale by owner type of transaction. Though I would definitely read up on it before I tried to sell that way.

[ThisDinosaur]

2) [How] Can you DIY appraisal and inspection on your own before laying out money?
I assume you mean how can you tell whether work required is superficial or not, how much it will cost (whether an obvious discard) without paying for experts?

Exactly this. This question is about how to avoid wasting time and money on a property I won't end up buying. Been there, done that.

You can then use a rent vs. buy calculator to determine if it is in your financial interest to transact.
[*]You can also approach it as an investor and decide based on cap rate.

Excellent. So how do I determine what cap rate should be? When comparing to rent, the landlord's rent includes mortgage/taxes/insurance/etc. plus their profit margin. How much do you adjust for that? I assume this involves the Comparative Market Analysis, so how's that done?

wrt Comps, last time around I got suspicious when the appraisal came back at *exactly* the contract price. I would have expected an independent appraisal to be off by maybe a couple grand. But neither my Agent or my attorney thought there was anything unusual about that. Some time after buying the house, I met a friend of a friend who worked at an appraiser's office. His opinion was that the comps chosen were inappropriate, and that the appraisers may have either been lazy or trying to ensure future business from the bank. Matching the contract price to the appraised value ensures a sale.

wrt Agents, I know their incentives are not aligned with mine. They don't get paid if there is no sale, and a higher price means a higher commission for both agents. This time around, there is one who lives in my neighborhood. I figure I'll use him next time b/c our incentives are aligned. Maximizing my sale price should increase his own property value.

[Riggerjack]

last time around I got suspicious when the appraisal came back at *exactly* the contract price. I would have expected an independent appraisal to be off by maybe a couple grand. But neither my Agent or my attorney thought there was anything unusual about that.

Because there isn't.

No two houses are the same. Even in the Mcmansion developments. If the same floor plan, different lot, neighbors, items included in the sale, condition, decor, etc. So, at best, an appraisal is a range of acceptable prices. But if you bought at the top of an acceptable range, you may not try as hard to keep the deal from falling through. and if at the bottom, the seller would lose motivation. The entire industry is only paid when a deal goes thru, and if your price is in the acceptable range, the appraisal will match the negotiated price. And since you negotiated the price, that was the fair price, the definition of a fair price, with all pertinent details factored in. Go read appraiser's forums, they have to deal with this all the time.

[ThisDinosaur]

Go read appraiser's forums, they have to deal with this all the time.

Can you clarify what you mean by "deal with this" ? Do you have specific forums that you recommend?

[RealPerson]

Well, the biggest transaction cost is the broker. You could do a for sale by owner type of transaction. Though I would definitely read up on it before I tried to sell that way.

The seller saves a lot of money by not using a realtor. The buyer should be able to take at least the 3% off of the planned offer because the seller will not have to pay the commission "reserved" for the realtor of the buyer.

I like to avoid using a realtor, but I would NEVER sell or buy real estate without the involvement of a real estate attorney representing you in the transaction. The attorney should cost much less than a realtor, but obviously the attorney doesn't do any marketing, staging, etc..

[Riggerjack]

Can you clarify what you mean by "deal with this" ? Do you have specific forums that you recommend?

This specific question. Why does the number on my appraisal match the number on the contract, why did I pay for this? I looked it up years ago, found an answer I found satisfactory, and never thought about it again. If my summation isn't satisfactory for you (and there's no expectation on my part that it should), then that's how I recommend you deal with it. Because if you are going to buy RE, you should get comfortable with what each profession brings to the table, what they are looking for, and what they provide. This will allow you to move quickly, and decisively when you need to, and good deals require speed.

Or maybe I just like to research more than I like to deal.

[SavingWithBabies]

What I learned this weekend:

1) If your agent is away, instead of waiting a day, have them send an alternate to show you the listing.
2) If you like the house, don't believe the listing agent about holding offers to show them at some future time (like tomorrow) -- instead, make an offer that same day -- right away if possible.
3) Consider making an exploding offer that goes against what the seller outlines in terms of the timeline -- so you can go see it right away and make an offer that explodes that evening. As in, you're offering $x amount up until midnight tonight.

Apparently, #3 is a dirty thing but that just happened to us (as in, we just lost a house due to someone doing that). We offered more but the seller never saw our offer. Listing showed up on Friday, realtor away so we saw it Sunday, listing realtor said they were showing offers to the seller on Monday at noon so we put together offer on Sunday and our realtor was sending it to listing realtor on Monday morning. But then we found out on Monday that they had already accepted another offer Sunday evening.

Real estate is a dirty game.

[jacob]

+1 to SWB on #3. That happened to us as well on our first bid on this house. We got it the second time around when the first bidder fell trough.

An even dirtier trick: Another RE agent stole the key out of the lock box for a house we wanted to see. Our RE requested a new key to be put in the lock box. That key was gone within a couple of hours as well. And then the bidding on the house was shortly closed.

Score +1 for corruption Apparently, that's how it works in some locales. It helps to know the right people.

[SavingWithBabies]

One other idea is to not be affiliated with an agent and instead approach the listing reality directly. That way the listing reality can double dip on the transaction. This is probably a risky gambit but if you combine it with the above tricks (maybe an exploding offer), you can probably get even more of an edge. I haven't done this but it has crossed my mind that some might.

@jacob I am going to savor your victory now that I know the pain. We have our fingers crossed the first offer will fall through but I know the odds are not good.