Imagine that you've been living in a slumlord's apartment for a year, and you're trying to terminate your lease in the next 45 days. Thinking about next steps in life, you've decided that you're finally over the woes of renting and are ready to buy your first place.
Now add to this picture a beautiful realtor who pretends she's here to save the day, but in reality, she's prepping for a big payday on one of your most vulnerable moments.
That's how I almost paid $275,000 more than I needed to on buying my first home.
I've lived in New York City for three years and have been contemplating buying a place for a while now. After living through roaches, gnats, spiders, broken ovens, roommates and floods, I decided that I had enough and was ready to buy something I could take care of myself. I was looking for duplexes in Jersey City, and someone referred me to what seemed to be a great Realtor. She had five star reviews online, was very knowledgeable, and had been in the industry for over eight years. More importantly, when we spoke on the phone, she sounded like my long lost aunt who would guide and protect me during my purchase. I was so excited to work with her!
On that Saturday, the realtor took me out for a drive. We drove around for hours! We talked about everything under the sun while looking at different neighborhoods. She then took me to the house that she wanted me to buy. This house was in an up-and-coming neighborhood, and her husband was closing on it that week. He and his business partner were going to flip the house to a buyer, and were letting me look at it in case I was interested due to my timeline.
We walked in the house, and it looked scary, yet the realtor kept insisting that the house only needed basic cosmetics that I could take care of with $50,000. She even went so far as to have her husband's contractor come out, and she showed me some of his work in other houses. Of course I fell in love with the potential of this home!
Then we talked numbers.
I gave her my pre-approval letter earlier in the week. She said the home was for sale $425,000, the top of my budget, and called my lender to see if I could borrow $50,000 more for modest renovations. At the end of the day, I went home dreaming of renovated kitchens, bathrooms, new furniture, and hosting my first house warming with friends.
But I also did my research…
And to my surprise, I found out that the home was listed six months earlier in the exact same condition for $150,000!
Further more, there were no comparable homes to support this new $425,000 asking price, as the highest home price in that area was $268,000. I was livid, and felt betrayed and taken advantage of.
But most of all, I felt proud that I was able to save myself years of financial distress.
So before you buy your first place, take these five steps to make sure you're covered:
1. Let go of emotion
Realtors are salespeople, and many great salespeople are very relatable. If you're working with a realtor day to day, it is natural to grow a bond with them. While some people genuinely have your best interest at heart, it's sometimes difficult to tell who actually does. That being said, always verify any information that a realtor gives you, no matter how much you trust them.
2. Search for the property online.
Zillow gives you an idea of property values to help you figure out if you are paying too much, just right, or if you've got yourself a steal and should move fast! You can also see how many days a home has been listed, how many people are looking at it, and plenty of other useful information. Trulia is another good site that provides similar facts. Their crime rate heat map is very helpful if you are looking in unfamiliar areas. Use these sites and others to supplement information you receive from your Realtor.
3. Call the listing agent.
Even if you're working with a realtor, call the listing agent to verify everything that you've heard about the area and the property. And while you're at it, call one or two more realtors! Ask the same questions across the board to make sure you're getting consistent responses.
4. Phone a friend.
One of the biggest reasons I was able to dodge this bullet to my finances was because I called someone who knew more than me about real estate. He helped me research the area, and together we called the realtor's bluff. Talk to someone who owns a home or pays attention to the market. If you don't have any friends in the industry, see what you can find out from the online community. Start with leaving a comment below.
5. Ask the lender.
One benefit to taking out a mortgage is that the lender will have to verify the property value. If you've been pre-approved for a mortgage loan, send the property address to your lender and get their opinion on the numbers.
In the end, I did not purchase the house. By taking those five steps, I learned that the purchase price was much higher than the actual market value according to homes in the area. The house also needed a lot more work than the realtor let on. A few weeks later I decided to make a different house my home.
Lots of emotions come with house hunting from excitement to anxiety. Let's make sure we stay informed to make the best decisions that we can. To all the homeowners out there, what's your experience been in buying your first home?
Related Post: 10 Major Keys for First Time Home Buyers
Jasmine T. Brown is founder and CEO of Onward Holding Company, LLC, a real estate investment group