Seven Mistakes to Avoid When Buying in Today’s Market
Negotiating a property to the best possible price is one way to build instant equity into your property. Buying the property right is the key to your real estate investments. Avoid these mistakes when buying in today’s market.
- Not Understanding How Agency Works in Real Estate: A primary financial mistake buyers make is not understanding who is representing whom in real estate transactions. Unless you are in fact the market expert and have negotiated multiple properties, we recommend that you have a professional agent representing you in any transaction. Many times buyers find out too late that they were not represented or they are actually under-represented because of a conflict of interest that they were unaware of. An agent is required by law to disclose the relationship that exists in the transaction, but make sure you ask.
- Not Consulting a Market Expert: Without the most relevant information regarding property values, market trends, upcoming developments, etc., a buyer cannot be fully informed. Knowing the ins-and-outs of the local market is the only way you can make the best decision. A professional agent is working in the market every day and has a knowledge base that extends beyond the actual properties. The professional's knowledge extends to potential pitfalls that could surround a property. They may look good on the surface, but may cost a new buyer thousands in the future.
- Not Having A Plan for Your Purchase: Buying without a business plan for your property is like getting in your car and driving with no particular direction and wondering why you didn't get where you wanted to go. Many buyers make decisions based off of everything except their plan for the property. In order to make the best purchase choice the property should fit your plan. Your plan will include variables such as how long you will own the property? What is important about the property if you resell it sooner than you plan? What type of financial performance do I expect from the property?
- Not Sticking With the Plan You Made: Many buyers will have a plan for their purchase up until the point that they start looking. Because there are always choices when buying, one can be tempted to abandon efforts to find a property to fit the plan. Instead, shoppers find a property and then adjust their plan to fit the new property. Rarely will a property’s performance change if it did not already fit the original plan.
- Not Setting A Limit When You Choose A Home: It is human nature to become emotionally attached to a property, especially if it is something you will spend time in. It is important to establish your top line before you begin negotiating. That top line will be based on logic. If, during the negotiation you decide that you want to abandon the logic and spend more, at least you made a conscious decision. If you get caught up and just paid too much without prior analysis, you may only realize in hindsight that you overpaid. Depending on market appreciation and the value of the property, that can mean an additional several years to make up the difference.
- Over-Improving for a Short Term Hold: Whether you are flipping or only planning to stay in your property for a couple of years, it is important to make improvements that you will enjoy, but beware of things you will spend excessive cash on that will not affect the resale value. Consulting with a professional agent who sells a lot of properties similar to yours before you make improvements will inform you before you make the investment. Again you may still choose to make the changes, but now this will be an informed decision.
- Trying to Time the Market: Sellers will say “I am waiting for the market to come up” Buyers will say “I'm waiting for the market to go back down a little more.” The reality is that no one can predict with certainty what prices will do. And when buyers have the information that proves to them that the market has bottomed out, it is often too late. They are going to pay more for the property. "Waiting" is the answer that a buyer will have when they do not have a plan. If they do have a plan, they can figure out easily if that plan works right now. If it does they buy. If it does not they do not. They dictate their terms, they do not wait for the market to make decisions for them.