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 of all.
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 percent.
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.
The main 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 home.
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.
Uncertain Job Future:
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 to buy.
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 difficult situation.
FACTORS AFFECTING YOUR OFFER
How Property Condition Affects Your Offer:
Since 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.
When 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 shape.
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 Price:
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 desire.
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.
How Seller 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 Price:
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 Price:
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 range.
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 to pay.
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 you.
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 goal.
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 risk.
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 occur.
It is certainly more involved than buying a car and more important.
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 life.
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.
There are 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 it.
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
TYPES OF HOUSES YOU WANT TO
SCAMS TO WATCH OUT
HOUSES TO AVOID