I work with a lot of first time buyers. I have a knack for helping educate you on the process so you feel confident making non-contingent offers well over the asking price while I maintain a level of patience and understanding necessary for working with first timers through their journey to becoming homeowners.
Buying your first home is a BIG DEAL. Buying a house is a BIG DEAL. Buying in the hyper-competitive San Francisco Bay Area real estate market is a BIG DEAL.
When you enter this exciting phase of your life, venturing into the unknown new land of homeownership, your emotions are going to run the gamut. You are going to feel excited, anxious, stressed out, nauseous, hopeful, and very grown up. You look at this first purchase with the ideal of never doing this again. You want your first home to be all you’ve scrimped and saved for, all you’ve dreamed of. You want the life you envision. These are totally normal feelings. And they’re setting you up for failure.
I know with prices the way they are it feels like you can barely afford what you’re trying to buy right now -- how can you think of moving in 5-10 years? How can you afford whatever houses will cost then if they’re already what they cost now? Nope, you think, this first one has to be the only one. The forever house.
With that mindset you corner yourself into a house you don’t yet have the life to live in. Your first child is a glimmer of thought in the back of your mind, planned to maybe come in a few years. With that child’s brightest future in mind, you’re only considering homes in the best school districts all the way through high school. You need at least three, preferably four, bedrooms, definitely two full baths, and since we’re all working from home forever now, mom and dad need home office space, a yard is a must, and you’d really like to be able to walk to stores and restaurants. Oh, and an easy commute, since we may actually have to go back to the office someday, is also important.
From what you’ve seen online, the asking prices for properties encourage this list of ideals -- it’s downright doable. You have a plethora of options! Alas, you're looking at asking prices not sales prices and no one has told you about our local custom of listing properties at teaser prices. These are prices the homes will never sell for -- prices the seller would never accept. They are meant to generate a feeding frenzy of offers and drive the ultimate selling price up. It is often in our first meeting that I share the somewhat disheartening news that you need to tack on 20% (at least) to any asking price -- and the reality is that to be successful on a popular property the winning bid will be 30%, 40%, sometimes 50% over the asking price. It makes no sense, I know, but here we are and it appears that here we will stay. Read this for more info about teaser prices.
So how can you better set yourself up for success? Here are some tips:
Buy for the life you live now (or the one you’ll be living when the child you are currently pregnant with arrives). Buying a house will not magically make you the kind of person who makes canapés and throws annual BBQs or weekend dinner parties. If you eat in front of the tv now, you probably will do that when you buy a house.
Be open to locations. Good public schools drive home prices up. A lot. If you absolutely have to be in a good school district, you may need to compromise on home size, or yard, or condition. Or you may need to ask a family member for help with your down payment so you can afford more house.
Your down payment matters. If you’re in a competitive offer situation, which as been the norm for the past 8-9 years, having at least 20% as a down payment will make your offer competitive. Having 10% or less can knock you out of the competition. The more you have to put down, the smoother your financing and the smoother the appraisal process will be. This is important to the seller. If you have 10% down or less you need to look toward properties that are not competitive to find a seller who may be more willing to work with you and your necessary financing and/or appraisal contingencies.
Accept that you'll feel financially stretched for a bit. Homeownership is more expensive than renting, but you’re building equity with every mortgage payment. Try to keep the big picture in mind: In time your home will be worth far more than you paid for it, far exceeding the equity built through payments alone.
Homeownership is a form of wealth building. The sooner you start, the sooner you begin to build. The equity you will become the down payment on your next home when you’re ready to move up in size or location. Every month you take to adjust your vision from the ideal to the realistic is a month you’ll pay more. The longer you take with this adjustment, the more you will pay for it.
The broader your search parameters and the more flexible you can be in the size of home and your future neighborhood, the faster you’ll be successful. If you’re adamant on achieving ideals you will pay more. A lot more. It’s simple supply and demand: If what you want isn’t readily available, you will pay more to get it.
Don’t be a lemming. This one can be tough. A great house hits the market and you fall in love. But so do a swath of other buyers. If you can’t follow your agent’s advice about how to construct a successful offer you should look the other way while your competition is all focused on the popular property. Your heart and gut is going to be screaming, “Let’s just try. You never know!” But your agent does know. It’s her job to know. If she’s telling you it’s a long shot, it’s probably a no-shot. Making unrealistic offers puts you through a lot of unnecessary stress while contributing to the property's competition and ultimately driving the price even higher (thereby increasing the cost/value of future properties in the neighborhood which you may want to buy). There are properties that get overlooked for one reason or another. When your buyer competition focuses on one property, look at what might be being overlooked. It could be an opportunity worth seriously considering.
Remember your goal is to buy a home. Remember your important Why motivating this goal and remember what it will mean to your life if you don’t accomplish it.
Make sure you have a great team to help you get home. Your agent is your ally and your advocate. If you don't feel like you can trust her, you need to have a conversation and you may need to find a new agent. You are making the largest purchase of your life. It is a very exciting time pregnant with possibility, make sure you feel educated, empowered, and supported.
Have a good support system in place. You need cheerleaders beyond your buying team. Enlist your friends and family. If your family isn't familiar with our property values and competitive market educate them so they know how to support you. It can be hard for east coast parents to understand that a two bedroom home can cost well over $1,000,000; help them understand because you will need them to be excited for you when you get your offer accepted.