Common First-Time Homebuyer Mistakes

Speaker 1: [0:00] Hello, hello, and welcome to the Awesome in Seattle podcast. This is Christian Hossum, your host, with the Awesome Nossum Group at Wilson Realty, and I have, as always, my wonderful team. First up, we have Mr. Jason Sadariaga, the data guru.

Speaker 2: [0:16] Hello, everyone.

Speaker 1: [0:18] That's

Speaker 2: [0:18] me.

Speaker 1: [0:19] That is you. Uh, we have the Seattle native, Ms. Reid Watson.

Speaker 3: [0:23] That's me.

Speaker 1: [0:24] And the dog whisperer, Mr. Les Cutting. Woof, woof,

Speaker 4: [0:27] woof, woof, woof. Hm.

Speaker 1: [0:31] At least you're not Arsenio Hall like last time, Les. All right. So today, we are talking about the biggest mistakes that we see first-time homebuyers make. Now, we are slightly qualified to discuss this topic, as we've been running one of Seattle's most popular home-buying classes for the last six to seven years. If you wanna learn more, just go to beersandhomebuying.com. And as a result of this class, we have literally taught over 1,000 first-time homebuyers and helped hundreds of them successfully buy directly from what we've taught at this class. So, our main goal is really to always teach people how to buy a house and have a smooth transaction. Um, and recognizing some of the pitfalls and mistakes that people make generally helps that experience go a little bit, uh, smoother.

Speaker 2: [1:21] And it starts with the prep work. You know, we have a kind of a process in place because we help a lot of first-time homebuyers. We give a monthly Home buyer classes, and this is part of the process. For us, that's kind of the first step of several, and we put a lot of work into the prep. If clients come to us already kinda skipping some steps, in our experience, a lot of times, you know, they just might not have the best experience buying a house. Th- there might be more emotions, confusion, frustration on their end. Um, and so we have, like I said, this process in place for a reason, starting with education through the home buyer class and through connecting with us on a one-to-one basis, talking about their plan and their steps forward. One of the biggest issues we encounter, and it's really common these days, is clients looking at houses before setting their budget. Um, it's really easy to get into some houses. You know, you'll see open houses in the neighborhood. You might go on Zillow and just click a button and be let into a house pretty quickly. But if you don't have a budget in place, at the end of the day, it might be a bit frustrating for you because you might realize when you sit down and run the numbers, oh, this might not actually be the budget that I want to remain in. Um, I don't wanna be stretching myself too thin. I don't want to never go on trips or w- uh, go to sleep worrying every day about, a- again, stretching myself too thin financially. And so what we do is we start with a budget in reverse. We say, "What do you want your monthly payment to be?" And then we use that and some other information to figure out what your loan amount should be. In other words, what your, your budget for your house will be. And that'll really help level off a lot of that frustration of falling in love with a really nice house and realizing, eh, I don't wanna spend that much money when you actually run the numbers. Another thing that's really important is getting your finances in line. So not only figuring out your budget, but getting pre-approved, and in Seattle, you have to get pre-underwritten. Pre-approval is kind of the first step in terms of getting a loan to figure out what your budget can be and that sort of thing. But you really want an underwriter to validate your information so you can go in very confidently with your offer, because in Seattle things are really competitive, and so you're competing oftentimes against all cash offers and things like that. And in order to stand out if you're getting financing, you have to, quite frankly, take on more risk. Um, but you can mitigate that by getting pre-underwritten. We can talk a lot more about this, but basically what that means is the bank has already validated, like you're gonna get the loan. The only thing that's left really is the house needs to get appraised, and that's a separate thing than the financing contingency somewhat, or it can be. So it's really important to get pre-underwritten, um, so you can compete in the first place. And then lastly, you know, it's easy to let the market get to you. You know, you see houses, you start falling in love with things, and you're like, "Well, I set a budget. I really wanted to remain under $3,000, but we could go to 4,000 I guess." And the bank might be willing to do that in terms of like your debt-to-income ratio and that sort of thing, but that doesn't mean that's what you want to do at the end of the day. Um, you don't wanna be house poor Um, so you really want to get your budget dialed in just as early as possible. It's really important to do that, and you need to find a lender that will help you set a budget, preferably a real person, not like a website or an algorithm. You know, somebody who really can walk you through what your goals are- Preach. Preach, Jason. What makes it-

Speaker 4: [5:29] Ooh. Mm-hmm. Yeah. You talking dirty to me today,

Speaker 2: [5:32] boy. Yeah. Um, and, you know, you also preferably want a local lender. Every market is different. Every state has different laws and does things in a different way. We in Seattle, or really most of Washington, moves pretty quickly. So if you have a lender that's based in Ohio, they might be used to 60-day closes. In other words, they have 60 days to get their ducks in a row as a lender before they close on the property. But in Seattle, that won't fly. Mm, and there's other benefits here with a local lender. That's just one of many. But anyways, definitely get your budget dialed in. Prep work is essential for smoothing out those, uh, emotions as you start the home buyer process or home, home buying process. So Reid, if you wanna take it from here, we just chatted about the prep work, the education, dialing in your budget. Now you've found a house, you really like it, you wanna submit an offer. Take it from here. What are the

Speaker 3: [6:33] next steps? Yeah. Let's go over a couple of the mistakes people often make when it's their first time buying and submitting an offer. Um, so One of the big ones, and this is also a little bit ahead of making an offer, is waiting to tour a home you really like. It's a great idea if you see a place you like to tour it right away because of those really fast timelines in this market that you were talking about, Jason. You need to be able to get in there, see if you like it. You might need to do a pre-inspection before offers are due. You might want to have a little bit of time to sleep on it before you put an offer in, and that's not something that you can do if you're seeing it a day or two before the offer review date. So that's really important to think about. Like Jason was saying, things move really quickly in Seattle, so you wanna kind of have all your ducks in a row as much as you can before you make that offer so that if you're, especially if you're under a 21-day close, everything just falls into place after that and you're on time to close quickly. Another thing we really don't like to see people do is get blown out of the water when they make offers. You can oftentimes, you know, make what you think is a strong offer at list price, and it ends up going for 20% above sales price. So one thing that we really like to do at the Austin & Austin Group is have our clients do what we call a sold search, where they go through a ton of properties that have already sold, take a look at the ones that they would be interested in, so that they not only know what things are listed for in the active market, but what things are actually selling for. And that helps them to not make low-ball offers at first, especially if they really like the place. We don't want them making a low offer trying to get a deal and then totally losing out and being bummed because they could have afforded what it went for, but they went in really low and didn't end up getting it. Another set of issues that I see a lot, I don't know about you all, is waiving a contingency if you don't know what that means.

Speaker 4: [8:36] Oh. Oh, yeah. Mm-hmm.

Speaker 3: [8:38] Yep. So basically, there are a lot of different contingencies that you can have in place when you make an offer. There are financing, appraisal, inspection, HOA contingencies, and it's, if your agent wants you to waive one of those, then they're probably asking you to do that because it'll make your offer even more competitive, which is important in this market. But it's really important to understand what exactly it is you're waiving with each and every one of those contingencies, and to understand the risk of doing so. The biggest one that I see, especially with some of these discount brokerages that have been popping up, is not getting an inspection. We always advise our clients to get an inspection. It's so important to know what you're buying and what the condition of it is, and- You just really need to know that before you put an offer in, or you need to have that contingency in place so that if something like, you know, the foundation is crumbling, you can back out and you're not stuck with a house that's falling into the earth.

Speaker 5: [9:41] Okay, man. I got my Bible to my heart, my hands in the air. Y'all are preaching that gospel today. Okay. Well, let's talk about expectations of a property. For example, you're buying a condo or maybe a house that has an HOA. Not reviewing the HOA materials. Do not take the seller's word. Y- uh, as a buyer, you should get that HOA resale certificate, you should review those documents, and you should approve it to your satisfaction Though we are real estate agent, it is not our job to review the HOA documents for you. You need to take it yourself. You need to read it and review it, and make sure it's good to your satisfaction. One common thing is the HOA may not… may restrict, uh, pet breeds or dogs that are, you know, over a certain weight limit. So you wanna make sure you read through the resale certificate and make sure that, um, everything is to your satisfaction. Um, another common mistake that people, uh, make is focusing on the little things like broken doorknobs, paint colors. Um, instead, focus on the things you can't change. Maybe the location, maybe that you're, you're next to a busy street. You cannot change that at all, so you're always constantly gonna hear cars. The layout. Unless you have tons of money and tons of cash to spend, you are not gonna be able to modify the layout of the house. So, um, don't wor- I mean, you can't, you can't fix those things. The lot size. You cannot fix the lot size, and maybe unless you bought the house next door to you, and then you can knock the fence down, then you can have one big property. But other than that, you cannot fix the lot size. So, uh, don't focus on the little things, just focus on the big things that you can't change. One mistake buyers always make is knowing the property types available to them. So for example, if you are from Texas, you know, maybe there's a style of house there that's typical for that region of the country. But here, we have a lot of Craftsman homes, and a lot of our houses don't have garages. And if we do have a garage, 9 times out of 10 your car probably can't fit in it. Also, we don't have AC here. It's not a common thing in Seattle. If you come from California, Arizona, or somewhere where it's always hot, if you come here, don't be surprised when you see a lot of older homes that do not have AC units inside the houses.

Speaker 1: [11:53] And we actually did a whole episode on things like this. We did. So, so many times people, buyer, first-time home buyers come into this process, and maybe they'll start looking at homes on their own, and then, you know, halfway through the process, they'll start involving their parents or their friends or, you know, really anyone else. And we've seen it where sometimes those other outside influences kinda try to take control of the process. And every time we've ever seen this, it's usually ended up, uh, poorly for the buyer. You know, as a buyer, you, you know what you want, you know what you're comfortable with, you know what you like. You need to make your own decisions. Uh, you can definitely involve other people. We're not saying don't involve them, but don't let them completely take control. That can sometimes happen. We don't wanna see that happen. Another thing that, that is very often occurring in the home buying process is getting emotionally involved. It is an emotional process. It is scary. You're spending a lot of money Nine times out of 10, you're spending the most money you've ever spent in your life on this house or condo or whatever. And it's very easy to get emotionally involved where, you know, you're, you're freaking out and you're letting your emotions take over, and you don't want to let that happen. We try to mitigate your emotions by educating you upfront. This is why we really harp on this. Get fully educated, understand the whole process, understand the steps that are coming up ahead of you so that you understand and you're not freaking out, you're not scared. You understand what the contingencies are. When you know all this stuff ahead of time, it really mitigates that emotional roller coaster that is the home buying process and, and can really make it from a Six Flags type crazy roller coaster with loops into the little kid roller coaster at the Puyallup Fair. So that's our goal, try to minimize the emotions, but we do see those take over sometimes. Another thing is picking the correct agent for you. There are often times where, you know, clients that we've worked with started working with a different real estate agent to begin with, and then, you know, after a while they realized that wasn't a good fit. Some agents, not us, but some agents make you sign a contract called a buyer's agency agreement. That basically says you are tied, you are committed to working with that agent only. So be aware, if an agent is trying to get you to sign one of those, you need to understand what you're signing, because in that case you're not gonna be able to get out of that. We don't do that. We want you to make sure that we are a good fit for you. That's part of the business. We want you to be happy and comfortable and understand what it is you're getting into. Um, so if you are working with an agent and you don't think it's the right fit, maybe they're a part-time a- real estate agent, maybe you didn't know that i- initially, and they're only doing this, you know, after work. They might not have the full experience or knowledge of what's going on in the market, and they might not know what it takes to get your offer accepted. Um, they might not have these conversations with other agents every single day and know exactly the ins and outs of what's happening. So, you know, just, just making sure that, that you understand that part of it is, is very, very important.

Speaker 2: [15:24] Kind of, uh, summarizing or concluding this, this episode really quick. We get questions a lot, um, when we first meet clients. Should I buy now? Should I hold off, maybe save more for down payment? A lot of times when we start showing houses to clients They're like, "Man, I should have bought two years ago when I first thought about it." That's a very common sentiment. But of course, at the time two years ago, they thought prices were crazy or whatever. You know, it's hindsight is 2020 or whatever- Yeah … the saying is. I'll

Speaker 1: [15:56] jump in here. Uh, there's so many times that I have, y- you know, I've been financially ready and able to buy a place, and Wished I would have, and I didn't do it, and I look back and I'm like, "Man, I wish I would've bought that place. It would've been so good for whatever reason, but I just didn't think I had enough cash in order to do it or, you know, even though I did, but something in my mind, you know, held me back from doing it", and I, I would be so much better off had I bought back then even more properties than I have now. And it's just, it's tough seeing other people do that and make that mistake.

Speaker 2: [16:32] Probably one of the biggest mistakes you can do is just not buying. If you're wanting to buy a house, holding off oftentimes, es- especially in the recent past, has not been a good decision. We've seen just very consistent, strong appreciation really since the Great Recession 12 years ago. There were a few moments of, like, stalled prices, but they didn't necessarily decrease in the, in the recent past. In Seattle, it's been very strong. I will say, you know, waiting, sometimes you can just get priced out. Um, saving more for down payment or what we hear a lot, like, "I don't wanna pay PMI," which is insurance that you pa- It's like a fee basically that you, you have to pay if you put less than 20% down. Again, honestly, a lot of times it makes sense to not necessarily worry about that so much. Get a home now, and with the appreciation and the money that you're putting into it each month with your mortgage payment, uh, you might not be paying that PMI very long. So a caveat to all of this, if you're not gonna be in town or o- wanna own the house for at least three years, if not maybe closer to five, a lot of times you're putting on more risk because you're gonna be unable to ride out the volatility of the real estate market. It goes up, it goes down on a daily basis, and what you have on your side is time. The longer you own the home, the better your chance that you can ride that volatility to, at the end of the day, making money. It's really important to think of real estate as a long-term investment. While historically prices, at least in the recent past, have gone up, there are averages, long-term averages. So if there's a long run-up of prices, there might be a drop to revert back to the mean. It's just kind of how this plays out usually. So, you know, when you sell, you wanna recoup your investment, make money. Selling in the short term just can be a little riskier. So something to keep in mind.

Speaker 1: [18:39] Yep. And if you are in that situation, um, where, you know, say you got a job change and you weren't planning on that after two or three years, maybe it makes sense to hold onto it as a rental and, you know. If that's the case, then that might just make more sense than trying to sell it and, um, you know, possibly take a loss or maybe just break even. So that's always an option as well. Well, that is it for today's episode. We talked a lot about what not to do on this episode, but, you know, we're not usually very negative. We're usually very positive. And if you wanna hear all the positives, you definitely need to check out our home buyer class. Like I said earlier, we've taught this class for over six or seven years. I don't even know at this point, kind of lost track. We've taught over 1,000 people, helped hundreds of them actually successfully buy houses that have attended that class, and it is very successful. There's no pressure at this class. It is currently, during the pandemic, it is all online. We don't make you turn on your camera or your sound. You can just sit there and watch, ask questions via the chat, or if you wanna chime in with your audio, you can. Um, it doesn't cost anything. There's no commitment by going that you have to work with us. It's literally just education. And we get you up to speed on the home buying process in only an hour. So it's a very, very low commitment on your end. Um, it's only an hour. We do it in the evenings, generally middle of the week, um, after work, and we just make it easy for you. So feel free to sign up for one of those classes or check it out and learn more. The website is beersandhomebuying.com. That's beers as in B-E-E-R-S, uh, and homebuying.com. Uh, that is it for today's episode. For all of my awesome teammates, we will say goodbye.

Speaker 4: [20:32] Peace

Speaker 1: [20:32] out. See ya.

Speaker 4: [20:33] Bye.