8 Things You Absolutely NEED to Know About Buying a Home in 2023

Warren Buffet once said that “Risk comes from not knowing what you’re doing.” Years ago, Forbes put out a great article regarding things that home buyers need to know before making a purchase. While they have yet to follow up on the publication, the market has certainly changed and we feel it is important to keep the public educated on best practices when entering the buyer’s market. 

Hire a Trusted Realtor

It is extremely important to work with a trusted real estate agent when buying a home. While a seller’s agent will prioritize the interests of the seller, it is crucial for the buyer to have their own representation in the transaction. A trusted realtor can provide valuable guidance and help the buyer navigate the process while ensuring their best interests are protected.

The real estate industry has seen a decline in the number of transactions in recent years. According to recent statistics, the average real estate agent in 2022 sold 3.8 homes, however, in 2023 the number of transactions is expected to decrease by 20%. With so many realtors competing for a smaller pool of commissions, it is increasingly important for buyers to choose wisely and find a trusted realtor.

When searching for a real estate agent, it is crucial to ask the right questions and do the proper research. Some tips for finding a trusted realtor include asking for the number of homes they have sold in the past 12 months, checking for online reviews, and speaking with past clients. If an agent is unable to provide these details, it may be best to move on and find another realtor who can provide the level of support and guidance needed during the home buying process.

Real Estate Involves Contracts

The process of buying or selling a home can be overwhelming, as it involves a large amount of paperwork and fine print. This can be especially true for first time home buyers. Many of the professionals involved in the process, including real estate agents, lenders, and title closers, handle this type of paperwork on a daily basis and may move quickly through it, however, it is important for these professionals to understand the experience of the buyer or seller, and to approach the process with empathy. A real estate agent who has gone through the buying process themselves is more likely to be able to provide a more supportive and understanding experience for their clients.

It’s also important to note that a good real estate agent will provide all necessary documentation upfront, including the purchase agreement and any other relevant addendums, such as a pool addendum for a home with a pool. They will take the time to go over each clause in detail, so that the buyer or seller can understand the process and move confidently. By the agent making all documentation available to their client well in advance, they should have ample time to review it and ask any questions before it's time to make a decision.

Buy For the Future

When considering the purchase of a home, it is crucial to think ahead and plan for the future, not just for present circumstances. Buying or selling a home is a major financial investment and requires careful consideration. While the average American may believe they will only stay in their home for five years, the reality is that the average tenure in a home is over 13 years.

To ensure that your home purchase aligns with your long-term goals and plans, it is important to consider potential future life changes. Will you stay in your current job or will you need to move for work? Are you planning on getting married or starting a family? These factors can have a significant impact on your home buying decision.

It is also important to consider the current market conditions and mortgage rates when buying a home. In the first three years, it may not be possible to pay down enough of the mortgage or gain enough market equity to break even or come out ahead. For this reason, it is essential to think ahead and plan your wants and needs with any potential life changes that may occur in the 5-7 year horizon in mind.

Commitment

While commitment to a long term purchase should be taken into consideration, it is also a critical aspect to consider when entering into a real estate investment with a significant other who is not a spouse. While the laws of the state determine the distribution of assets in the event of a divorce for married couples, the same rules do not necessarily apply to unmarried individuals. This highlights the importance of thinking about the long-term implications of such an investment.

When purchasing a property with a non-spouse partner, it is crucial to have a contingency plan in place should things not go as planned. To protect the investment and ensure a smooth transition, it is recommended to establish an agreement that covers important aspects such as titling, mortgage payments, liability, repairs, and more. This agreement should be put in writing and, for added protection, reviewed by a legal professional.

Look Beyond the Paint

When searching for a dream home, it is easy to get caught up in the cosmetic appeal of the property and overlook the underlying structural and functional components. While fixing cosmetic issues like paint or wallpaper is relatively inexpensive, major renovations such as those to kitchens and bathrooms can be quite costly. When making an offer on a home in need of significant repairs, it is essential to factor in not just the cost of cabinets, appliances, and counters but also the cost of labor, which can quickly add up.

It's important to keep in mind that the cost of labor can easily double or even triple the cost of the materials, making a seemingly affordable renovation project much more expensive. This should not deter potential homebuyers from considering properties in need of significant repairs but rather serve as a reminder to be mindful of the costs involved.

Making concessions during the negotiation process can also help to mitigate some of the expenses associated with repairs. For example, having the seller cover some or all of the closing costs can help to keep more money in the homebuyer's pocket to put toward faster renovations. It is essential to look beyond the cosmetics and to carefully consider the cost of renovations when making an offer on a property.

Buy the Home You Want to Afford

When buying a home, it is crucial to purchase the property that you know you can afford, rather than what you are pre-approved for. This may differ from the pre-approval amount as many factors come into play, including personal circumstances and financial goals. For instance, a person who is fresh out of college and entering a new career might opt to purchase a property that falls within 20% of their gross income, rather than 40% as recommended by pre-approval, to provide leeway in case of unexpected financial difficulties.. 

By purchasing a property that falls within a comfortable range, homebuyers can relieve stress and focus on building their emergency fund. For example, a first-time homebuyer who is fresh out of college and starting a new career in real estate may choose to buy a house that is below their pre-approval amount to allow for financial flexibility and to mitigate the risk of financial strain. This buyer may also choose to keep their housing costs at 20% of their gross income, which can provide a comfortable cushion in the event of financial setbacks or emergencies. 

This smart financial decision could also allow them to eventually transition the property into a rental, which can help provide a steady stream of passive income. If the monthly payment on a home is $1,000 but rents for $1,600 per month, the additional $600 per month translates into an extra $7,200 per year, or assuming rent prices don’t increase during a 10 year period (which they will), $72,000 over a decade. This demonstrates the importance of considering not just the present but also the future when making a home purchase decision.

Don’t Fixate on Purchase Price

It is also important to not solely focus on the purchase price when buying a home. While this is certainly a significant factor, it is just one of many costs associated with owning a property that should be taken into account along with various other costs that come with homeownership.

One such cost is closing fees, which can add up quickly. Additionally, it is important to be aware of any homeowner association dues, which can vary greatly and add to the monthly expenses of owning a property. Or, whether the home is located in a floodplain, which may require purchasing flood insurance, adding to the overall cost of owning the home.

Property taxes are another factor to consider, as they can vary greatly from one city to another. For example, a homebuyer may find that $300,000 home they are interested in offering on, but after taking into account the high taxes, the cost of ownership may be higher than a $400,000 home in a different city, with lower taxes and a more updated layout. 

Finally, it is important to keep in mind that there are often hidden costs associated with unique properties, such as pools, fancy heating and cooling systems, and other special features. These costs may not be immediately apparent, but they can quickly add up and have a large impact on the overall cost of ownership.

You Don’t Have to Buy a House

Finally, when it comes to making the decision to buy a home, it's important to remember that there's no pressure to do so. Buying a home is a major investment that should not be taken lightly, as there are a number of factors to consider. These factors can include the state of the housing market, interest rates, personal plans for the future, and more. For those who may be unsure about the prospects of buying a home, there are alternative options available. Renting can provide a good test drive for a neighborhood, or it may be the preferred choice for those who desire more flexibility or mobility in their lives. According to the U.S. Census Bureau, last year the home ownership rate was only 64.9%, meaning 35% of adults in the country do not own a home. This statistic demonstrates that there is a significant portion of the population who choose not to buy, whether due to financial reasons or a preference for flexibility and mobility. Regardless of the choice you make, it's important to make a well-informed decision that works best for you and your situation.

Home ownership is an attractive option for many individuals as it provides stability, financial benefits, and peace of mind. The ability to build equity, access tax breaks, and have control over one's living space are all compelling reasons why some choose to invest in a home. However, it is important to remember that home ownership is not for everyone, and that is okay. The decision to invest in a home should be made at the right time for each individual, taking into account personal circumstances such as career, family, and lifestyle. Ultimately, it is up to each individual to determine whether home ownership is the right choice for them.