I got a really good deal on a house!

Volcano and house - "I just got a good deal on a house" phone call to momNot long ago I heard someone gleefully say “I got a really good deal on a house!” When I looked up the county records, I discovered that the “good deal” was on a busy 4 lane road. The same kind of joyful exclamation might be made when purchasing next to a high voltage power tower, backing to a grocery store, or adjacent to a freeway onramp.

Guess what? If you buy a property with a major location defect, it will cost less than if you buy it in a quieter, interior neighborhood location. Getting the property for less doesn’t make it a good deal on a house. It just means you bought real estate that is less expensive because it’s an undesirable location. Someday, when you go to sell it, it will also sell for less than nearby homes in better areas.

Beware the “good deal on a house” thinking

Sometimes when home buyers score a great price on their new home it does not have a location defect.  A closer look may reveal, though, that they didn’t look very hard at the disclosure package and there are fundamental issues with the property condition that will be expensive to repair, or that there are expensive items to replace.

Several times in my career, which is sneaking up on 30 years, I’ve worked with clients who were bargain hunters. This probably works better in locations outside of the highly competitive Bay Area and Silicon Valley markets. When these folks decide on a home, as often as not there is something wrong with the property that makes it less appealing to most buyers and therefore attainable for a lower price. Translation: it’s having trouble selling now, and if you buy it, you will have trouble selling it later, too.

The good deal on a house situation often comes down to one of these issues:

  • Location defects. Realtors are notorious for saying “location, location, location” because it is crucially important. Choosing a less desirable one is the #1 mistake made by misguided home buyers looking for a steal of a deal.
  • Land use issue, such as a large lot but almost no backyard or no useable yard (think large hillside lot with steep slope).
  • Living space misallocation, such as having a very small kitchen but a house with 5 bedrooms.
  • Property condition in need of expensive repairs and remodeling

What’s usually the case is that it’s difficult or impossible to fix what is wrong.

Related to this can be the issue of who you hire to assist you when buying a home. Maybe your sister just got her license last month in California and she lives 350 miles away, but if she’s your agent, she’ll give you 75% of her commission back. This is the largest purchase that most buyers ever make, and I would suggest that it’s wise to have the best agent guide and help you, not the cheapest one or the one who gives you a big rebate.

Most home buyers don’t know what to look for in the disclosures, inspections, or in the property condition when viewing the home, and most new licensees don’t, either. Consumers either don’t realize or don’t remember that not all buyer’s agents are equal in their skill set, knowledge, experience, or willingness to really fight for you. Some are just in it for a quick sale.

In short, the buyers looking for a bargain are setting themselves up to make a purchase that may not serve them as well in the long run as if they had made one with the basics in mind.

Next: 3 tips to help you get the best deal in any market.

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Silicon Valley Real Estate Tip: Pinpoint the Pricing, Beware Common Buyer Mistakes and Fears

Multiple offers have returned to many segments of the Silicon Valley real estate market, so it is more important than ever for motivated home buyers to pinpoint the pricing.

Most of the time, when there are multiple offers, the sales price goes higher than the list price.  Does that mean you would be over paying for the property? Possibly.  Or it could simply mean that the listing agent and home seller listed it strategically low – under its true market value.  In that case, the list price was never the expected sales price.  Unless you and your Realtor carefully analyze the comps (comparable listings, pendings and sales), you won’t have a sense of the probable buyer’s value for that house, townhouse or condo.

Common home buyer mistake

A very common mistake for new home buyers is to get as far as to analyze the comps and find what they think is market value…and then start subtracting for everything wrong with the house.  This is because they assume that the house is supposed to be perfect, or that they should not have to pay for any improvements or repairs after close of escrow.

The difficulty here is that most of the time, the house or townhome or condominium is not brand new.  The comparable sales were not new, either. A 40 or 50 year old property is not going to be in perfect condition.  Had you or any buyer seen all of the comps’ presale inspections and disclosures, you’d have learned that they also had a myriad of things wrong with them – mostly small but items to be repaired, replaced or improved nonetheless. (more…)