Avoid home buying pitfalls
Buying a home is probably the biggest purchase you’ll make. The process is full of potential pitfalls, and many home buyers stumble through it. Any mistakes could cost you thousands of dollars, if not more.
The average price of a house in Australia in 2017 was around $680,000, according to the Australian Bureau of Statistics. Average house prices in Melbourne are almost $800,000 and that figure climbs to over $1.1 million if you live in Sydney.
Many home buying blunders are avoidable. Here are eight things that you should know before you start your search.
Home buying isn’t a casual project
According to some estimates, it takes an average of 12 weeks to find a home. It can also take three to four offers on different homes before one is accepted - either in a private sale or at an auction. A major purchase like buying a home requires commitment and perseverance.
You can narrow down your options by attending as many open houses as you can. Listen to the questions that are being asked by other potential buyers. When you know what you want, schedule private viewings so that you can inspect the property carefully, at your leisure and without the pressure of competing buyers.
When you’re ready to make an offer, speak to the neighbours to identify any potential issues. You can ask about traffic and parking, noise issues and disruptions, and nearby development plans.
If you don’t have the time, then consider hiring a buyer’s agent, who can help you navigate the process and negotiate on your behalf.
Sydney-based buyer’s agent Jonathan Randall recommends doing your homework and exploring multiple options before making an offer. And don’t just rely on the advice of friends and family. “I’ve heard of many people buying a property believing the house is within a particular school catchment area or because a neighbourhood is said to be on the rise,” Jonathan said. “The buyers then learn otherwise when they finally investigate for themselves.”
You’ll need to strengthen your credit rating
Most people don’t consider their credit rating until they apply for a mortgage. You need to get your finances in order well before starting to look for a home. You should also avoid big life changes in the months preceding your mortgage application such as quitting your job, starting a business or changing jobs. Don’t take on more debt - and that includes on credit cards.
The mortgage isn’t your only home buying expense
In addition to your deposit, there are upfront government fees, including transfer fees and stamp duty. You will also need to budget for other costs for your mortgage application, valuation, building and pest inspection reports, strata searches, settlement, and legal expenses. For those with less than 20 per cent deposit, you will probably also need to pay mortgage insurance. There are also moving costs. “These expenses can add up to 11 per cent of the purchase price in the first year,” Jonathan says.
Then there are ongoing expenses, including taxes, insurance, strata/management fees, and electricity, gas and water. “You’ll also need to budget for ongoing maintenance and repairs,” Jonathan says. “An emergency fund – of between three and six months’ salary – is therefore very important.”
Don’t buy more house than you can afford
Richard Holden, a professor of economics at UNSW Business School, estimates that Australians can borrow around 25 per cent more for the same level of income compared with borrowers in the US, even if the amounts are adjusted for tax and exchange rates.
“The rule of thumb is to buy a house that is no more than 2.5 times your annual household salary,” Jonathan says. “This will help to ensure you don’t overextend yourself.”
Be clear on what you want and need from a house. At the same time, be realistic – you’re unlikely to find your dream house on the first try. First home buyers will need to make some compromises to meet their budget. As Jonathan says: “there’s no such thing as the ‘perfect’ house.”
Be clear on the role of the real-estate agent
While you will meet many friendly real estate agents, remember that agent fees are paid by the seller. For this reason, real estate agents are legally and morally obliged to work for their client: the seller.
“Agents may pray on your emotions and certain comments you make may inflate the final price,” Jonathan says. “So, it is important that you don’t show too much enthusiasm or excitement or to reveal too much information.”
At the same time, it can be valuable to develop a strong relationship with agents in your preferred buying areas. These agents can provide good local knowledge and inform you of new listings. Ask your family and friends for a personal recommendation on agents who they loved working with.
Don’t always start with your lowest offer
If you’re buying a home in a strong and competitive market, you may be wasting the seller’s time – and your time – by starting with your lowest offer. “It’s likely that a home that is priced right and presents well will receive multiple offers and possibly above the asking price,” Jonathan says. “So, in these conditions, you need to be smart with your offer strategy.”
Pay for your own inspections
A survey of 400 real estate professionals found that the most important tip is to pay for your own inspections to evaluate the safety and overall condition of your home before you buy. Any issues may also be used to negotiated a better deal.
Jonathan also recommends confirming the zoning of the property, the development application history of the property you want to purchase as well as neighbouring properties. Future developments that could overshadow the property, obstruct existing views or increase density may have a negative impact. Other things that can be overlooked include flight paths (check Air Services Australia), eligibility for resident parking permits in inner city locations (local councils) and investigating the proportion of owner-occupiers versus tenants in a particular building or street. For an investment property, you should also obtain the current land value to calculate any ongoing land tax liability.
If you’re buying an apartment, do a strata search of the Owners Corporation records to investigate whether there are any future changes that could mean you’ll have to pay up. These might include improvements, renovations, maintenance, or any other financial burdens.
Get agreements in writing
Get the seller to put every part of the deal, including verbal agreements, in writing. Include any important contingencies, such as financing and property inspections, with your offer.