WHY BUYING A HOME IS A GOOD IDEA
The Best Investment:
As a fairly general rule, homes appreciate about five percent a year. Some
years will be more, some less. The figure will vary from neighborhood to neighborhood,
and region to region.
Five percent may not seem like that much at first. Stocks / Shares (at times)
appreciate much more, and you could earn over ten percent with the safest investment
But take a second lookÖ
Presumably, if you bought a R200,000 house, you did not pay cash for the
home. You got a mortgage, too. Suppose you put as much as twenty percent down
Ė that would be an investment of R40,000.
At an appreciation rate of 5% annually, a R200,000 home would increase in value
R10,000 during the first year. That means you earned R10,000 with an investment
of R40,000. Your annual "return on investment" would be a whopping twenty-five
Of course, you are making mortgage payments and paying property taxes, along
with a couple of other costs. However, if you don't buy a property you would
have to pay rent to a Landlord. Your rate of return when buying a home is higher
than most any other investment you could make.
Relatively Stable Monthly Housing Costs:
When you rent a place to live, you can certainly expect your rent to increase
each year Ė or even more often. If you get a fixed rate mortgage when you buy
a home, you have the same monthly payment amount for years. Even if you get
an adjustable rate mortgage, your payment will stay within a certain range for
the entire life of the mortgage Ė and interest rates arenít as volatile now
as they were a few years ago.
Imagine how much rent might be ten, fifteen, or even thirty years from now?
Which makes more sense?
Some people are just lousy at saving money, and a house is an automatic savings
account. You accumulate savings in two ways. Every month, a portion of your
payment goes toward the principal debt. Admittedly, in the early years of the
mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately
five percent, though it will vary from year to year, and in some years may even
depreciate. Over time, history has shown that owning a home is one of the very
best financial investments.
Freedom & Individualism:
When you rent, you are normally limited on what you can do to improve your home.
You have to get permission to make certain types of improvements. Nor does it
make sense to spend thousand of rands painting, putting in carpets, tile or
window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will
probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You
get the benefits of any improvements you make, plus you get to live in an environment
you have created.
REASONS TO DELAY BUYING A
Assuming you have the financial resources and the desire to
eventually own your own home, there are very few good reasons to put off the
purchase. You can miss out on years of appreciation if you do.
thing you want to avoid when buying a home is being put in a position where you
will have to sell it too soon. If you have to sell a home before it has
appreciated enough to cover the costs and commissions of selling, you could find
yourself in a financial bind. This is especially true for those who buy a home
with a down payment of ten percent or less.
Real Estate commissions
traditionally run around six percent of a homeís sales price. The sellerís
closing costs generally come to about one and a half percent. You can see how
this can easily exceed the first yearís appreciation. If you made a minimal down
payment, you could actually have to come up with cash out of pocket to sell your
New to the Area:
A very good to reason to delay buying a
home is if you have just moved to an unfamiliar area or region of the country.
It makes sense to rent for a while before deciding on exactly where you want to
live. Often when people buy a home immediately they find that they might have
made a better decision if they had waited awhile.
You could be right out of university or expecting a promotion and
a transfer. Or your company has announced and impending "restructuring." If any
of these apply, it might be best to wait to buy a home. When you have a more
accurate picture of what your next few years will be like, that will be the time
Real estate agents see a lot of life
unfold before their eyes. One of the saddest occurs when former clients divorce
and are forced to sell a recently purchased house. It happens all to often when
a family in turmoil decides that buying a new home may help resolve their
problems. Perhaps it is inevitable that such problems occur, but selling a home
before it appreciates can create an additional financial burden in an already
FACTORS AFFECTING YOUR OFFER
How Property Condition Affects Your Offer:
you have toured the property you are interested in, you should know how it
compares to the general neighborhood. All you have to do is put the home in one
of three categories - average, above average, or below average.
evaluating a homeís condition, there are a number of things you should consider.
Structural condition is most important - items such as walls, ceilings, floors,
doors and windows. Then paint, carpets, and floor coverings. Pay special
attention to bathrooms and bedrooms and whether the plumbing and electricity
work efficiently. Look at the fixtures, such as light switches, doorknobs, and
cupboard handles. The front and back yards should be in reasonably good
The missing ingredient will be information on the condition of the
homes from comparable sales.
Provided you chose the right agent to
represent you, they will have actually visited most of those homes and be able
to provide key insights.
How Home Improvements Affect Your Offer
Even when comparing exact model matches within a tract of homes,
you should note whether the previous owners have made any substantial
improvements. Cosmetic changes should be largely ignored, but major improvements
should be taken into account. Most important would be room additions, especially
bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools
should be taken into account, too, but should be discounted. A pool that costs
R25,000 to install does not normally add R25,000 in value to the home. Rely on
your agent to give you guidance in this area.
How Market Conditions
Affect Your Offer Price:
A hot market is a "sellerís market." During a
sellerís market, properties can sell within a few days of being listed and there
are often multiple offers. Sometimes homes even sell above the asking price.
Though most buyers want to get a "deal" on a home, reducing your offer by even a
few thousand rand could mean that someone else will get the home you
A slow market is a buyers market. During a buyers market
properties may languish on the market for some time and offers may be few and
far between. Prices may even decline temporarily. Such a market would allow you
to be more flexible in offering a lower price for the home. Even if your offered
price is too low, the seller is likely to make some sort of counter-offer and
you can begin negotiations in earnest.
More often than not, the market is
simply "steady," or in transition. When a market is steady, no real rules apply
on whether you should make an offer on the high end of your range or the low
end. You could find yourself in a situation with multiple offers on your desired
house, or where no one has made an offer in weeks.
Transition markets are
more difficult to define. If the economy slows unexpectedly, people who buy on
the high end of a sellerís market could find their home loses value for several
years. So far, no one has proven reliable in predicting when markets change or
how good or bad the real estate market will become.
Motivation Affects Your Offer Price:
Truthfully, it is rather rare that a
sellerís motivation will dramatically affect the price of a home, but it is
often possible to save a few thousand rands. The most common "motivated seller"
is someone who has already bought his or her next home or is relocating to a new
area. They will be under the gun to sell the home quickly or face the prospect
of making two mortgage payments at the same time. Since that can drain a bank
account quickly, most sellers want to avoid such a situation and may be willing
to give up a few thousand rands to avoid the possibility.
There are also
family crises that can motivate a seller to make a quick deal. However, when you
see a real estate ad that mentions "divorce," "motivated seller," "relocation,"
or something to that affect, beware. Although the facts may be true, that does
not necessarily mean the seller is motivated to make a quick and costly sale.
Most likely, the ad is more designed to generate phone calls and leads rather
than sell the home.
However, there are times when a seller is truly
distressed, willing to make a quick sale and sacrifice thousands of rands. With
the sellerís permission, the listing agent may convey this information. Provided
this information has been made generally available to Realtors, your agent
should know when a seller is truly motivated and when it is just "puff" designed
to illicit interest in a property.
The exception is when an agent is
selling a home they have listed themselves or selling a home that was listed by
another agent. In such a situation, the agent may be acting as an agent for the
seller, or as a "dual agent," representing both you and the seller. In such a
situation, they cannot legally provide you with information that would give you
an advantage over the seller.
Other Factors Influencing Your Offer
Gathering and analyzing information from comparable sales helps to
establish the range of prices you should consider when making an offer to buy a
home. More weight should be given to the most recent sales, but even so, you
need to do a bit more analysis before setting upon the price you will offer.
That is because you also need to consider the condition of the property,
improvements, the current market, and the circumstances behind the sellerís
decision to sell.
The Final Decision on Your Offer
Comparable sales information helps you to determine a base price
range for a particular home. Adding in the various factors like property
condition, improvements, market conditions, and seller motivation help determine
whether a "fair" price would be at the upper limit of that range or the lower
limit. Perhaps you will feel a fair price is outside of that price
The "fair" price should be approximately what you are willing to
agree on at the end of negotiations with the seller. The price you put in your
offer to begin negotiations is totally up to you and depends on your negotiating
style. Most buyers start off somewhat lower than the price they eventually want
Although your agent may provide advice and guidance, you are the
one who makes the decision. The price you put in the offer is totally up to
WRITING AN OFFER TO PURCHASE REAL
Once you find the home you want to buy, the next step is to
write an offer Ė which is not as easy as it sounds. Your offer is the first step
toward negotiating a sales contract with the seller. Since this is just the
beginning of negotiations, you should put yourself in the sellerís shoes and
imagine his or her reaction to everything you include. Your goal is to get what
you want, and imagining the sellerís reactions will help you attain that
The offer is much more complicated than simply coming up with a
price and saying, "This is what Iíll pay." Because of the huge amounts involved,
especially in todayís litigious society, both you and the seller want to build
in protections and contingencies to protect your investment and limit your
In an offer to purchase real estate, you include not only the price
you are willing to pay, but other details of the purchase as well. This includes
how you intend to finance the home, your down payment or deposit, who pays what
closing costs, what inspections are performed, timetables, whether personal
property is included in the purchase, terms of cancellation, any repairs you
want performed, which professional services will be used, when you get physical
possession of the property, and how to settle disputes should they
It is certainly more involved than buying a car and more
Buying a home is a major event for both the buyer and seller.
It will affect your finances more than any other previous purchase or
investment. The seller makes plans based on your offer that affect his finances,
too. However, it is more important than just money. In the half-hour it takes to
write an offer you are making decisions that affect how you live for the next
several years, if not the rest of your life. The seller is going to review your
offer carefully, because it also affects how he or she lives the rest of their
That sounds dramatic, because it is true.
CONTINGENCIES IN A OFFER TO
In most purchase transactions there may be a slight
challenge or two, but most things will go quite smoothly. However, you want to
anticipate potential problems so that if something does go wrong, you can cancel
the contract without penalty. These are called "contingencies" and you must be
sure to include them when you offer to buy a home.
For example, some
"move-up" buyers often agree to purchase a home before selling their previous
home. Even if the home is already sold, it is probably a "pending sale" and has
not been transferred. Therefore, you should make finalization of your own sale a
condition of your offer. If you do not include this as a contingency, you may
find yourself making two mortgage payments instead of one.
other common contingencies you should include in your offer. Since you probably
need a mortgage to buy the home, a condition of your offer should be that you
successfully obtain suitable financing. Another condition should be that the
property appraises for at least what you agreed to pay for
Basically, contingencies protect you in case you cannot
perform. If you cancel a contract without having built-in conditions and
contingencies, you could find yourself in a lot of trouble.
PATH TO BUYING A
pay debts, get your Credit Report, clean your credit report.
Read real estate classifieds, free real
estate magazines, web home searches.
Get a good book on home buying, and get a good real estate
Secure financing and
pre-qualify for a mortgage.
Choose a good real estate lawyer
Negotiate tough with the seller, begin escrow, sign a
for homeowner's insurance.
Have the house inspected by a professional engineering
If inspection and
financing are OK, buy the house.
TYPES OF HOUSES YOU WANT TO
expensive house in an upscale neighborhood.
On a golf course. The views are great. Some people love
it, some don't.
A house at
the end of the block or a cul-de-sac. You'll get less
Backed up to land
that is zoned residential, or a forest, or water.
In a neighborhood that puts your kid in the best
Reasonably close to
fire departments and hospitals.
Reasonably close to the grocery store or work.
No traffic or logistics problems getting
in and out of your street.
High ceilings, large kitchen, walk in closets, office (higher
At least a 2
car garage, 3 is preferable if you can afford it.
Has a paver brick driveway. Much nicer than
home, upgraded appliances, higher efficiency A/C, good
Has a nice pool
in good condition. Make sure it's fenced in.
Energy efficient home with the highest A/C SEER rating,
SCAMS TO WATCH OUT
Often times the
listing Real Estate Agent uses too much poetic license and embellishes the
description of the house. In one case one of our visitors reported the
listing described "hardwood floors", but it was cheap plastic imitation
wood, only in one room. Don't believe anything you read until you see it
The Real Estate
Agent tries to get you to sign a release of liability form, for example
when your home is built near a landfill. They claim the water is good now,
but they are not to be held responsible for what happens
Don't trust the
seller's "termite report". Probably every house has termites. It's just a
matter of how much infestation there is. Get your own report.
HOUSES TO AVOID
Backed up to a shopping center or land
that is zoned for business.
Backed up to a street with lots of traffic. You'll hear it at
Houses that have any
kind of flat roof, for example on a room addition.
The biggest, most expensive house on the
Next door to a
renter. Renters treat the house and yard like crap.
A house with chipped paint, or a damaged
Avoid any house that
you did not have a home inspection firm review.
In an area that puts your kid in a bad school, or
far from their school.
noisy area like an airport or other industrial area.
In a high crime area, that you drive
through would have to get home.
In a neighborhood with high homeowners association maintenance
In an area prone to
flooding when it rains. Visit the house when it's raining.
A house with only one bathroom. It's very
difficult to resell.
near a 15 MPH school zone.
Neighborhoods with no code enforcement: boats, commercial vans,
view" lots. If you can't get a decent price, don't buy.
Only has a one car garage or a carport.
These will be hard to sell.
In a neighborhood where property values have not increased
2 bedroom, 2 bath
homes are a lot harder to resell than 3 bedroom, 2 bath.
You don't want a house with a tiny master
bedroom or tiny closets.
weird architectural design that you'll have a hard time selling
Anywhere within 2
miles of a landfill, or near a water treatment plant.
Close to the beginning of the block.
You'll get all the traffic.
The lot that gets headlights of all the cars turning onto the
street at night.
near the entrance to your street. You'll get tracks in your
On a street that's
hard to get in and out of, i.e., long traffic light, or busy
intersection, or a street that you have to drive past and make a
On a golf course.
Expect broken windows. Some people love it, some