Are you considering buying your first home? If you are at that stage in your life, you’ve probably determined your general budget guidelines and evaluated your lending options. You might even have a preferred style, square footage, and builder in mind. Even after extensive research to make these decisions, there are still plenty of potential home buying pitfalls to consider.
There’s nothing new I can say about the importance of an optimal fixed interest rate or researching public schools in your new neighborhood. There are, however, a few home buying tips that you won’t find with your average Google search. I want to help make your home buying process as smooth as possible. So here are my three most overlooked tips for first-time homebuyers.
1. Structural Versatility
When I think of “versatility,” I think of an athlete who can perform well at different positions or various roles. Being versatile makes the athlete more valuable to their team.
Think about it. If a key player gets injured, it can be incredibly disruptive to the team. They need to find a way to take their existing roster and replace that player’s production. If they have a versatile player on the roster, they might be able to overcome the injury. If not, they might have to look elsewhere for a replacement – which can be costly.
When it comes to buying a home, I place a tremendous value on the structure’s versatility. That is, the ease with which you can modify the structure.
Most individuals will own approximately 5 homes during the course of their life. A major reason for this constant change in home ownership is something most families face. Outgrowing the current space.
How do most families respond? Do they construct an addition to their current home? Or do they sell and move into something bigger?
Unfortunately, a significant percentage of homeowners will sell. This is probably largely due to their failure to consider their home’s versatility and their upcoming needs before they purchased.
Before you buy, do some research.
If you’d consider building an addition to your home someday, you’ll want to investigate how much it’ll cost to get a permit. A standard building permit can range from $400 to nearly $2,000.
You’ll also want to consider your potential new home’s age. Until the mid- to late-70s, Asbestos was considered a fire resistant super-material. Now it’s almost universally banned. What does that mean for home buying? Well, if you buy a residential home that was built in the 80s or more recently, you probably won’t have to worry about asbestos attaching to your lungs and killing you. Plus, as a bonus you won’t have to deal with additional abatement charges during home renovations.
Newer isn’t always better when it comes to home buying. But you can avoid massive renovation costs by avoiding extremely old homes or homes built during certain eras.
And one last thing to think about when you’re evaluating the versatility of your potential new home. Find out how compatible the house is with additional load capacity. In my line of work, I often encounter homeowners looking to upgrade their roofing system. Too often, the frame of the house is under-engineered and unable to support additional weight.
For instance, a cement roof weighs about 10 pounds per square foot, compared to the 3 pounds per square foot of standard shingles. So unless you are upgrading to a metal roofing system you will need to know what your home can support.
2. How Competent is the HOA?
HOAs can be instrumental in protecting your home’s value. But they can also be your worst nightmare. As of 2018, roughly 70 million homeowners live in HOA-governed communities. There seems to be no shortage of horror-stories about run-ins with HOA boards and bylaws.
So what should be on the lookout for?
Let’s start with the board members. These folks are usually poorly trained volunteers with little to no property management experience. Most people think the board merely needs to collect dues and make sure the gardener shows up to trim the bushes. Turns out there is a lot more to it than that.
Ideally, the HOA board will periodically compare prices to ensure unit owner dues are used efficiently. Few HOAs do this.
A quality HOA board will also be well-versed in construction methods. This knowledge allows for timely and sensible repairs that will preserve aging communities. Unfortunately, it is rare to find a reputable general contractor or structural engineer serving on the board.
Another huge problem I see with regularity is an inability among HOA board members to interpret their own documents that govern their community! This one infuriates me. But it makes sense when you think about it. Typically, HOA board members have no legal training or experience interpreting legal documents. So when it comes time to settle that dispute over maintenance of common areas, don’t be surprised if the HOA doesn’t even understand the bylaws they are using to levy penalties against you.
You’re probably thinking, “how do I even research the quality of the HOA board members?!”
Here’s what I’d do. First, don’t pinch pennies on your real estate representative. Find the best real estate agent in your area. Resist the urge to use your buddy who just got his real estate license a few weeks ago. Relying on a friend’s advice is fine if you’re looking for a recommendation about which umbrella to buy. But do not rely on anything less than an expert when it comes to buying real estate! A stellar realtor will have extensive knowledge of the HOAs in communities you’re interested in.
Next, don’t be afraid to knock on a few doors and talk to the people who actually live in the community. You’d be surprised how many unit owners would love to divulge their ten-year’s worth of dealings with the HOA.
Finally, look at the historic changes in HOA dues. Are HOA dues increases tracking the rate of inflation? Or are there periodic jumps every few years? Responsive HOA boards tend to avoid giant community issues that drastically impact community-wide fees. Observing huge spikes in fees typically indicates a lack of care or attention, which is a foreboding sign.
3. Is the Home Easy to Insure?
There are certain qualities that can make homes costly to insure. Even worse, some homes require non-standard home insurance if the qualities are bad enough. The best way to avoid this issue is to speak with an independent insurance agent before buying.
Things like a wood-burning stove or older wood shake siding may be appealing to you as a homeowner. However, those features can also significantly impact your insurance premiums. Insurance companies look at a long list of other factors such as ease of access to the property, proximity to a fire department, and deviation from average crime rates in the state.
Your potential home’s insurability might seem like a minor detail during the home buying process, but those extra premiums add up. For example, an extra $400 a year comes to $12k over a 30-year term. Factor in how much that extra cash could grow if invested and that seemingly minor oversight becomes even worse. So before you buy your home, ask a few insurance companies what they think of the property.
A Few Final Thoughts
Buying a home can be a romantic process. Prospective buyers start to envision their family living in the home and that pretty much brings the due diligence process to a close. As Thomas J. Stanley, author of The Millionaire Next Door, repeatedly contends, “the pinnacle of the affluent in America never partake in business dealings they can’t walk away from.”
We should adopt a similar mentality when shopping for a home. There are many more factors that affect a home’s value than square footage and location. As a potential homebuyer, it’s your job to find out what those factors are and ask the right questions. It could end up saving you thousands and a lot of headaches.