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By Tara-Nicholle Nelson | Broker in San Francisco, CA

5 Surprise-Prevention Strategies for Home Buyers

I’ve long believed that the number one source of stress experienced by home buyers is all the unpredictability that lies along the home buying timeline: the prospect of unpleasant surprises that seems to lurk around every corner. Fact is, there are some commonly arising surprises that foul up buyers’ plans and expectations, killing deals and leaving expectations dashed and emotions frayed in their wake. These days, that list includes everything from homes turning out to cost more than the buyer expected to appraisals coming in below the agreed-upon purchase price.

Here’s some good news: there are steps you can take to manage the risks of being taken by surprise while you’re in the process of buying a home.  As I see it, they fall into a handful of buckets. Here are the five big categories of actions you can take right now to minimize your chances of having an unpleasant home buying surprise:

1. Study up. As a smart manager of your life and your finances, it’s your duty to get as detailed a primer on the ins and outs of home buying as you need to feel comfortable and confident as you move forward with the process: what lenders require, the nuts and bolts of a purchase transaction, that sort of thing. But when you’re specifically seeking to minimize the risk of unpleasant surprises, you’ve got to take your real estate education to the next level, and study up on some very specific subject matter: your local market, in real-time.

What I mean is that markets vary a lot from place to place, and individual real estate markets change very quickly. If you’re the sort of savvy buyer that’s been stockpiling your cash for a year or more in preparation for buying, it’s entirely possible that the market dynamics you’ll face when you get out there will be very different from those dynamics which inspired you to buy in the first place. It’s a pretty unpleasant surprise to expect to have your pick of the market, then lose out on the first few ‘dream houses’ you find to other offers.

Studying up on your local market empowers you to rejigger your search and offer strategies to be successful without having to first experience these sorts of traumas and dramas. It may also allow you to explore new alternatives for achieving the results you want, like buying via an online auction or

Neighborhoods where homes lagged for months on end a couple of years ago are starting to seem some new life this spring, as buyers like you who have been waiting and saving have begun to sense the bottom of the market might actually have passed.  Anecdotally, I’m hearing many more local agents across the country reporting receiving 2 or 3 offers on homes they couldn’t sell at all 18 months ago, and many more buyers reporting that the ‘good’ homes come on and off the market much more quickly than anytime in recent years.

But, again - this stuff is hyperlocal. So ask your agent to help you understand the actual data of the housing market in the neighborhood(s) you’ll be hunting in. Specifically, look at how the number of days a home stays on the market (DOM), inventory levels and the list price to sale price ratio have been trending over the last 6 months to 1 year.

2. Team up. It never ceases to amaze me the amount of expertise and plain old help that goes untapped - and the avoidable stress and expense that are incurred - because buyers don’t even think to express certain concerns to their real estate and mortgage pros. If there are particular potential surprises or other issues that keep you up at night, you should clearly express those to your team of real estate and mortgage professionals, and enlist their help in keeping them at bay.    

Obviously, not all surprises are within your agent or mortgage broker’s power to prevent; and many of the risks that you worry about are things they’re surely already making their best efforts to manage. But if your team knows that your closing cost cash is to-the-penny tight, or that your move-in timeline is hair-trigger touchy, that knowledge might inspire them to call in favors like a free rate-lock extension from their rep at your lender, or to set up a strategic solution, like negotiating your ability to move in a few days before closing.

This knowledge also gives them the signal to educate you about what factors will impact the particular surprises you most dread.  And that, in turn, allows you to go from wondering in the wilderness of unknown fear factors, to being able to help them smartly spot issues before they snowball into badness.

For example, the date on which you close your transaction during the month has an impact on how much cash you’ll need to bring to the closing table. Generally, the amount of prepaid interest you have to pay if your escrow closes the fourth week of the month is much less than what you’d have to pay if it closed, say, the second week of the month.  But think about that: if you’re aiming to close at month’s end to keep your closing costs low, and escrow closes even 10 days late (not at all uncommon, these days) you could end up with a big spike in the cash you’re required to bring in to close.  

Letting your team know that this would break your heart - and your bank - can help them quickly act and react to either keep closing on track or, if that’s not possible, pushing it out to avoid jacking up your closing costs.

3. Keep up.  Like this closing date/closing costs debacle-in-the-making, there are a number of critical dates and deadlines in a home buying transaction by which decisions and deliverables and course-corrections must be made or the seeds for a scary surprise take root.  And only some of the time are you, buyer, in control of making sure those timelines stay on track; many other times, loan underwriters, appraisers, inspectors and lenders are responsible for achieving these important must-meet dates. What you can control is your own awareness of all these calendar points, so that you can make more or less urgent nudges and check-ins, as needed, in order to ensure that things either (a) stay on track, or (b) don’t take you by surprise, if they get off track.  

Ask your agent and mortgage broker to help you create and stay on top of an escrow calendar containing all the major and minor deadlines and tipping points of your transaction, as well as to leverage this tool to avoid surprises throughout the transaction.

4. Fess up. It’s one thing to be surprised by something you have no control over. But imagine how you’d feel if your deal was killed by a surprise that you (and only you) could easily have avoided! I’ve personally seen this happen a number of times. One buyer I know ended up losing her dream home - and her deposit money - due to false information on her loan application. She’d apparently gotten away with it on a number of credit applications, but a mortgage is an entirely different animal.

Another nearly had the same tragic outcome as a result of telling her team that she was divorced when, in fact, the divorce was not final. (The bank then wanted to vet her soon-to-be ex-husband’s qualifications for the loan. And his credit was really, really bad. Really.)

When you are in the loan application process, keep in mind that it in the world of lending, technicalities matter - a lot. This is not just a conversation with friends; rather, it’s about as official as you get. So, the things you normally say and do to describe your life, the things that make up your aspirations and plans, the way you see things turning out in the near future - none of these things count as fodder for your loan application.  What does count?  The hard cold facts of your status quo situation - right now. So, be brutally honest about the state of your life and your finances, warts and all. This might creates obstacles you’ll have to workaround up front, but I assure you that is preferable to getting caught in a falsehood - intentional or otherwise - and having to scramble to try to salvage a deal days before closing.

5. Fluff up. Your cash and time cushions, that is.  The reason home buying surprises are so stressful is that they threaten to do one of two things: (a) screw up our timelines for moving, or (b) force us to come up with more cash than we have at hand to close the deal.  If you get just a few days away from closing, bags and boxes packed, and are told you need to bring in just an extra few thousand dollars to close the deal, it can feel like your home - actually, your life! - is being held hostage for extra cash, on the one transaction you’ve already spent years saving up for.

The least stressed-out buyers are those who have built in time and cash cushions to their home buying and moving plans. Give yourself the gift of a few weeks of planned overlap in your ability to occupy your last home and your future one; even if that means you wait to give your landlord notice until you’re well into escrow, it empowers you to avoid looking for hotel rooms and being distressed by the very predictable, very common occurrence of a late escrow closing.  Similarly, if your home buying-related financial plans involve maintaining a nice, fluffy cushion of so-called emergency cash even after your planned down payment and closing costs, you’ll be less likely to go off the deep end if the lender requires you to drop $500 on repairs to get the deal closed.

Agents:  What are the most common, unpleasant surprises you see arise during home buying, and what advice do you give your clients for preventing them?

Buyers:  What surprises do you most fear?
 

P.S. - You should follow Trulia and Tara on Facebook!     

Comments

By Emily Medvec,  Tue May 1 2012, 05:40
Your post is beyond excellent advice for buyers in our real estate market.Our community is a destination market from all locations around the globe for relocation, 2nd home and lifestyle change. What is frequently an issue seems to be more prevalent within the generation of boomers. Many are unaware of how important it is to be qualified to purchase a home prior to their arrival in Santa Fe to see homes. Many will book a plane reservation and book accomodations and not contact a Realtor until they arrive in Santa Fe. What would be best is to "team up" with a Realtor on the ground several weeks prior to arriving in-town. This way you have the opportunity for a consultation, updates on market trends, background information on properties and the benefits of working with a professional broker experienced in working with buyers long-distance.
By Ann Wilkins,  Tue May 1 2012, 23:29
Excellent article with great advice for buyers. Very well written. Sometimes these concepts are hard for the buyers to understand - such as how closing costs will vary depending on the time of the month they close escrow.
By Davisangela,  Thu May 3 2012, 09:55
Hi. I just experienced my first upset in the home buying process! I matched the asking price for an APPROVED short sale with 3% closing help. .Today, I was told that instead of 3%, the bank only wants to pay 2%!!! I guess approved doesnt really mean approved!
By Melissa Shriver,  Thu May 3 2012, 10:19
@davisangela, welcome to the real world of negotiation. If the house is under market considering for the general condition, (not talking about the color of the walls, flooring, or tile you hate), and its on a great lot/location, Suck it up and buy it. You won't regret it.
By Helen Oliveri,  Thu May 3 2012, 10:20
Great buying process tips, Tara!
By Dianne Langston,  Thu May 3 2012, 10:38
I think the absolute most stress occurs with moving in, and moving out. Either the buyer gives notice too soon based upon poor projections for closing, or enthusiasm, I am not sure which, but the results are extreme stress for all parties if the buyer can't move when he thought he would. Secondly, would be in short sale transactions if the property does not meet the buyers occupancy standards. What a great business this is, I love resolving conflict and working towards solutions.
By Real Estate Confidently,  Thu May 3 2012, 10:51
I love Realtors!!! Great article Tara! From the beginning to the "end" (if there is really ever an "end"), I so want my Buyer clients to know that it is nothing personal - don't make it personal. Melissa stated that if you like the home "suck it up and buy it" (if the market supports it don't allow ego or fear of appearing weak stop you from getting the home you want). The $15 to $35 difference a month is worth it. If you have indifference and there is inventory and options you are able to decide from a point of strength - then do what you want to do - negotiate! Once again - declines/rejections/counters/extensions/amendments - nothing personal. The other points, as a Buyer, meet your task and deadlines. Your agent is helping you work these deadlines. If you, the Buyer, anticipate a problem speak up, your agent can help. If you do not understand something have your team (mortgage, real estate agent etc) explain it to you until you get it. If you understand IT but IT keeps you up at night - speak-up.
By Anna Baran,  Thu May 3 2012, 11:04
Great, great article for my buyer clients! One other thing I would like to add is while under contract keep those credit cards in a drawer! I know you are excited but please Don't go on a spending spree or open new credit cards until after closing. There is nothing you need to get until after you close. The banking industry is very sensitive to loan to debt ratio & they check before you close.
By Henry Hutchinson,  Thu May 3 2012, 11:14
Great information for the public. Knowledge is always power!
By Cm50,  Thu May 3 2012, 11:15
Incredible advice!
Thanks for writing it out for us. I shall keep it and refer to it - a lot.
Carol M. (NJ)
By Elizabeth Sorgen,  Thu May 3 2012, 11:44
Good info, happy to share with everyone.
By Materesacha,  Thu May 3 2012, 11:53
excelent
By Frank Walsh,  Thu May 3 2012, 12:00
got turned down by two inurance co. because we had filed a claim on our present home a couple yrs ago. Really had to scramble to get a policy written in time for closing. EXPECT THE UNEXPECTED. Frank Walsh
By Wendy,  Thu May 3 2012, 12:13
I don't think we're anywhere near the bottom. I think saying that is giving a very false idea.

Alley
By Robin Ruth,  Thu May 3 2012, 12:22
Davisangela there really is no such thing as an "approved" short sale until the transaction is closed. If you have made it to the stage where the negotiator is coming to the table with terms then you are very close to finally owning the home that you chose. I'm sure that you have been waiting for some time just to hear something. Let your agent and the negotiating team do their job. If you are able to come up with the extra funds to close (point 5 on the list in the article) then you probably will not regret doing so.
By Sandy Le Roy,  Thu May 3 2012, 12:26
In addition to working with a professional stager to create cosmetic appeal, a key principal of Smart Selling is to have a pre-listing home inspection. If work is needed, the seller can do it on his own schedule with his preferred service provider, and at the lowest cost because there's time to get estimates. You don't want the buyer's inspector to find a problem that could derail or kill a sale, or cost more to fix because you're in a hurry.
By Vivianligon,  Thu May 3 2012, 12:47
Thanks alot your advice help me to understand something's about buying a house that's what I want to do in the next month or so and I had no ideal of any of this
By holmet51,  Thu May 3 2012, 12:48
I'm sitting waiting now to close... got the financing , got insurance, got the house inspected so there wouldn't be any ugly surprise to fix.... the week before my closing. got an email that the title source had come back and their were liens again the previous owner (IRS)... the company that foreclosed on him, never checked or acted like they weren't there when I put my contract in on the house.. So now I sit here waiting for them to settle with uncle sam on the liens.... I have 2 weeks left before my mortgage contract runs out, at which time i wil lose my locked in rate, the fees that i paid to process the loan...and gods know what else.....
By Lisa,  Thu May 3 2012, 13:10
Excellent and necessary article for home buyers new to the game or who are a bit too laid back in one of the most important [financial] transactions of their lives. I have finally reached a closing date after a rollercoaster ride to get here. Every action I took that saved me lots of money and heartache, I learned through online research. A lesson to be learned is that not every real estate pro that is commissioned to represent the buyer and look out for the buyer's best interest....doens't look out for the buyer's best interest. I acted as my own buyer's agent, legal rep and liaison between mortgage broker and bank; gathering information, documents, educating myself on contracts, lock-in rates, MIP deadlines for FHA mortgages (April 1st by the way), how to prep for closing, the list goes on and on. Yes, I have an attorney but pro-activity apparantly isn't his strong suit. Needless to say, this will be my last real estate transaction with his firm. Long story short: do your homework. The only person looking out for your best interest is YOU.
By Birdwatcher,  Thu May 3 2012, 14:17
The only surprise I had as a buyer was when the agent for the seller found out I could borrow most of the money for a 3-flat building in San Francisco, years ago. We duked it out in the title company when he became totally insulting and even threatening as I sought to close the deal. I had to face him down and threaten a combination of mayhem and a lawsuit. He then retreated. It became obvious he would have made the buy himself had he known how little down payment was needed at the time. There are agents and then there are agents. One must pick carefully and even then feathers may fly.
By John Crowe,  Thu May 3 2012, 15:08
Still hear stories of buyers quitting jobs post-contract, pre-closing. I think the theme is limit surprises to stay on course.
By Valerie MacKnight,  Thu May 3 2012, 16:14
Most unpleasant but preventable surprise is when buyers find they no longer qualify for the loan at closing! This occurs when they run up their credit cards buying things for the new home. I instruct all buyers to hold off on making purchases for the home until after they move in. Lenders can and do check credit again right before funding!
By Lori Walker,  Thu May 3 2012, 22:04
Is it true that if you go through a re-finance with a lender, have the appraisal done and then decide because the loan/origination fees went up and you decided NOT to proceed with the loan because the loan would end up costing you more than you initially agreed upon...do you still have to pay for the appraisal and credit processing fees? Just curious if they can still charge you for this or not? Does anyone know?
By Mary Petti-ABR,SFR, Relocation,  Fri May 4 2012, 07:36
My concern is a house not appraising in this market since the appraisers are pretty conservative with them as opposed to several years ago. Just recently I had a buyer who seriously wanted an over priced house (the listing agents fault), and the seller had their head in the clouds about fair market value because of this, and DESPITE comps to the contrary. We went back and forth with an offer price and I was a bit concerned when my buyer came up in price to a level where I seriously worried about going through a home inspection ($$ to the buyer) and mortgage application ($$ to the buyer) with a chance the house would not appraise at (what I felt) was the inflated price he was willing to pay. In this case I suggested the buyer pay for an appraisal BEFORE making his best and final offer . Better to lose $350 now, then inspection and mortgage application costs, and waste all the time involved waiting for that final commitment based on the banks appraisal.
By Lorraine,  Fri May 4 2012, 11:13
I'm in a nightmare situation right now,
Was supposed to close mid March but the former buyer and the relo company never bothered to get a survey of the property. I did and discovered a ROW that now needs three owners and two banks to sign off on. Needless to say this is costing everyone time and oodles of money. Tempted to walk away due to the stupidity of the sellers attorney. Can't imagine anyone not taking precautions when spending such a large chunk of their hard earned money but stupidity knows no bounds
By Kathy Devine,  Sat May 5 2012, 08:17
Sellers in the Boston area are seeing multiple offers as well. Two pieces of advice - don't go out and open another credit card account or, as one of my buyers did, co-sign a car loan for a relative. This may be obvious, but don't change jobs/careers between the application and the closing. Lenders now double check credit reports and employment a few days prior to closing.
By Buyer Beware,  Sat May 5 2012, 16:12
This is important information for buyers considering the underhanded ways and gouging methods that title companies and mortgage lenders use to fleece home buyers. Be informed, ask questions, make demands and don't put your trust in realtors.
By Rookieinv,  Sun May 6 2012, 02:17
very useful advice. thank u all for sharing. what advice would you give to a rookie investor who's trying to buy a condo for cash? I've looked at a few apartments. it seems the projected rental income is about twice the amount of RE taxes and common charges - is this too good to be true? how do i check that my agent's estimate of rental income is realistic? what do i need to know about survey, title etc - what perils should i be prepared for?
By Pat and Steve Pribisko,  Mon May 7 2012, 08:50
Great info for both 1st time home buyers and repeat buyers.
By Barb Mihalik,  Mon May 7 2012, 15:14
Excellent advice for agent and buyer. The 3 most common problems I run into in my beach side FL market are: Inability to find affordable insurance, property didn't appraise, and lender last minute demands and requirements. As we get closer to closing I always let the clients know that there could be a few bumps along the way and to be prepared. Buying real estate isn't always a smooth sail.
By Kiki,  Fri May 11 2012, 10:13
The house market is crazy right now. It takes 2 or 3 houses to get sold quickly or have multiple offers and the rest of the bungalows start getting listed 10 to 30 percent more than a month ago. It is crazy. Agents love this situations--money start flying in their pockets.

Having said that, the article is OK but read it intelligently; do not get panicky. remember, in some situation renting is cheaper than owning. By the way, what the term homeowner means ? It should be replaced with mortgage owner. You cannot be owner of something that you actually do not own ( unless you are a cash buyer )
By Davis.linda.marie,  Wed May 16 2012, 08:57
Kiki's suggestion that "homeowner" should be replaced by "mortgage owner" should help hyperventilating buyers to slow down a little and maybe consider what they really do want or need out of life. With my Alaskan mentality, I also consider what should be obvious: the local government's ownership in your house. Even if you pay cash and "own" your house outright, you may be paying several hundreds of dollars per month in property taxes, or, you're subject to lose your house. Is that "owning" your house? And, before buying the house of your dreams, investigate how many permit applications you'd have to file and their costs, and how many persons' permission you'd need to, say, cut a tree on "your" property, or install a bay window in your home. The majority may accept these premises as part of "owning" a house, but restrictions do vary by locale. It's only prudent to educate oneself about your "co-owners'" legal rights prior to your purchase.
By rgonzalez5150,  Thu Aug 23 2012, 14:38
where can i go or who can i contact on understanding our lease to own home? the agent we signed the papers with isnt with the company anymore,and what they are saying isnt the way our lease was explained to us.we need help
By Voices Member,  Fri Aug 2 2013, 13:16
I am going to try these as soon as I can! They are some of the coolest out there! They are better than windows and doors in edmonton!

David | http://www.greatcanadian.ca/services/windows-and-doors
By Voices Member,  Thu Aug 22 2013, 16:12
These prevention strategies are some of the best around and I am happy that they have been made available. I am going to try them right after I finish computer recycling in Miami! :)

David | http://www.stselectronicrecyclinginc.com/miami-fl

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