For Home Buyers

Sal's 12 Home-Buying Rules

Rule #1:        Heed counsel from those who live what they teach.

Rule #2:        Buying is not always better than renting.

Rule #3:        Don’t shop until you know why you are buying.

Rule #4:        Don’t shop until you know what you can afford.

Rule #5:        Trust everyone, but cut the cards.

Rule #6:        Choose a mortgage as you would a spouse.

Rule #7:        When shopping for a home, nothing trumps value.

Rule #8:        Before you bid, know the market and the seller.

Rule #9:        Never tip your hand when negotiating price.

Rule #10:      A bargain without a contract is wishful thinking.

Rule #11:      Good inspections, clear title, and the right insurance put your
                      goal in sight.

Rule #12:      Countdown to closing – a failure to plan is a plan for failure. 

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Pre-publication praise for

How To Buy a Home and Keep Your Sanity:
  12 Simple Rules in Any Market

“Quite frankly, I liked it … I liked the fact that you were exposed to the opportunities and problems associated with real estate at a young age. Your insights are right on target.”

Dr. William D. Danko

Co-Author of The Millionaire Next Door



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Rule #1:    Heed counsel from those who live what they teach.

The home buying strategies I show you in How to Buy a Home and Keep Your Sanity can help you find and buy the right house, condo, or co-op for the lowest price. But don’t follow anyone’s advice, including mine, until you feel sure the person giving the advice is qualified. In Rule #1: Heed counsel from those who live what they teach, I describe the events that triggered my lifetime passion for buying and selling homes. I hope after you read Rule #1, you feel confident you can count on me for real estate advice you can trust. If you have not read Rule #1, please click here.

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Rule #2:    Buying is not always better than renting.

Even if you can afford to buy a home, does it mean you should? Many factors affect the decision to rent or buy. How secure is your job? What are your plans for marriage and starting a family? Would you rather answer to a bank or a landlord? Do you flinch at the word “commitment.” How does your spouse or significant other feel about buying a home? Do you believe the only thing you can do with nails is get them manicured?

If your decision to rent or buy boils down to dollars and cents, your first step is to compare the cost of buying a house, condo, or co-op to the cost of renting a similar house, condo, or co-op. When you compare the costs of buying to renting, make sure to include all costs—the obvious and the obscure—associated with both options.

When you buy and own a home, besides paying a mortgage, closing costs, and property taxes, you will pay for homeowners insurance, utilities, repairs, and maintenance. If you buy a condo unit, townhouse, or single-family home in a planned community, you typically pay homeowners association fees. Buying a home often requires making a large down payment. To accurately estimate the costs of owning a home, you must factor in the interest lost on your down payment had you kept that money in the bank.

When you estimate the costs of renting a home, your monthly rent is not your only expense. Tenants are normally responsible for some utilities, certain repairs, and a renters insurance policy. The IRS has not (yet) eliminated the generous mortgage interest and property tax deductions that benefit homeowners. That means when estimating the cost of renting, add the income tax savings lost from not qualifying for these deductions.

In Rule #2 of How to Buy a Home and Keep Your Sanity I help those still unsure whether to rent or buy make a sound decision in their own best interests. Unless you are buying an investment property, don’t base your decision to rent or buy solely on financial prudence. Mathematical formulas serve a purpose, but they don’t tell the whole story. They don’t tell your story. No ledger sheet takes into account your unique wants and needs, nor replaces your human intuition.

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Rule #3:    Don’t shop until you know why you are buying.

Good decisions of profound consequence—like choosing a home to buy or deciding whether to buy a home at all—come gradually. The better you understand your reasons for buying, the better choices you make when you search for a home, negotiate price, and select a mortgage.

Second to needing a place to live, the reason I hear most from clients looking to buy a home is because buying a home is a good investment. Do you really earn a better return on your money making a down payment and taking on big debt to buy a principal residence than investing that same money in stocks, bonds, precious metals, artwork, or other hard assets?

The answer depends on your personal and financial circumstances, and on national economic trends. How long do you plan to live in the home? Are prevailing interest rates high or low? Are rates moving up, down, or not at all? What percentage of the purchase price do you intend to finance? On what terms? Are other asset classes appreciating faster than residential real estate? Is the general economy healthy and getting stronger? Or is it headed for recession, or already there? What about local market conditions in the town or city where you plan to buy?

When clients ask my advice about buying a home, before I give an answer I ask 10 questions about their background and lifestyle. Each answer leads to more questions that help me understand their home buying preferences. After weighing their responses, I draw on my skill, knowledge, and experience to offer suggestions for buying a home to satisfy their particular needs and wants.

The first question I ask is, “What is the number one way, unrelated to investment potential, buying a home will improve your life?” The most frequent answer I hear is gaining independence, whether from a landlord, parent, ex-spouse, or roommate. Think twice before you buy a home because you believe owning a home will bring greater freedom. Nothing could be further from the truth. Home ownership entails great responsibility. Depending on where you live, the size and condition of your property, and how far you stretch your income and savings to own a home, you can quickly become a slave to a home that owns you.

There are many valid reasons for buying a first home or trading up to a larger home. However, not knowing your reasons for buying, or buying for the wrong reasons, can have disastrous results. Rule #3 in How to Buy a Home and Keep Your Sanity helps you understand your motives—the obvious and subconscious—for buying a home. Your reasons for buying will influence every important choice you make as you search for the right home at the right price on the best terms. If along the way you find yourself struggling with some important decision, knowing why you are making this journey in the first place helps guide your next step.

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Rule #4:    Don’t shop until you know what you can afford.

Contrary to the advice of well-known infomercial gurus, when you buy a home it is never a good idea to overextend your financial resources. No one should pay more for a home than their income and savings comfortably support. Don’t believe the lie that you shouldn’t worry about stretching your financial limits because real estate values and your personal income never decline. Look no further than the last few years to dispel that fallacy. Real estate prices in some markets plummeted by as much as 60%, and millions of Americans lost their jobs.

The first step to an affordable home is respecting the difference between needs and wants. What separates a want from a need when shopping for a home differs for each of us. Many factors come into play—the size and age of your household, proximity to schools and jobs, physical infirmity caused by age, illness, or special needs, and what we were used to when we grew up. If your parents raised you in a 7,000 square foot Mediterranean-style manor house on Sheridan Road in Highland Park, complete with servants quarters, tennis court, and private putting green, your definition of a need is vastly different from someone like me, who after my mom died thanked God every day I could come home to a three-room attic apartment in Brooklyn with crumbling floors and peeling walls, but which at least had decent heat.

Your goal is to find a home that suits the needs of you and your family for the lowest price, while not assuming too much financial risk. Rule #4 of How to Buy a Home and Keep Your Sanity teaches you how to use the Seven Keys to Home Affordability to buy a home you can feel secure living in for as long as you decide to stay. One of the most important of the Seven Keys is what I call The Gift of Thrift—the mindest you need to conserve your income and money. You can learn more about The Seven Keys to Home Affordability and The Gift of Thrift right here at HomeDingo.

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Rule #5:    Trust everyone, but cut the cards.

After 25 years running a title insurance agency, conducting closings, and negotiating real estate deals, whenever I buy a home I still depend on the skill and know-how of others to purchase my own homes. Few other acquisitions need so many competent people to complete. That’s the nature of buying real estate.

Over the years I’ve met scores of men and women whose livelihoods depend on how well they perform their role in the home buying transaction. A select few have become close friends. Others I hope never to see again. One thing they all have in common:  an agenda, sometimes hidden, sometimes open. Experience has taught me who to trust, and who to keep an eye on.

Rule #5 of How to Buy a Home and Keep Your Sanity gives you the tools you need to choose wisely the professionals who will help you buy a home:  real estate agents, mortgage loan officers, attorneys, property appraisers, mortgage underwriters, settlement agents, home inspectors, and homeowners insurance agents.

Besides the professionals who help or hinder your quest for a home, people already dear to you—your spouse, lover, friends, and relatives—may influence your home buying decisions, even if they know little about real estate. If you are buying a home with a friend or relative, not only must you take into account their wants and needs, but you should understand the important legal consequences of co-ownership.

Rule #5 of How to Buy a Home and Keep Your Sanity discusses the consequences of buying a home with someone else, whether that person is a spouse, a friend, or a lover. No matter who you choose as your home buying partner, neither of you will have a positive home buying experience unless you both embrace the wisdom of give-and-take. I show you techniques for sorting out your respective priorities, then learning how to compromise and forge ahead driven by the common goal of home ownership.

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Rule #6:    Choose a mortgage as you would a spouse.

When you pick a spouse or significant other, you expect to live with that person for many years. You look for someone who complements your lifestyle and shares your dreams—someone who will stay with you for the long haul, in good times and bad. When you choose well, the ride is smooth. When you choose poorly, the road is bumpy, and often the marriage does not last. If you are not careful, you leave the relationship poorer than when you started. Marrying the right mate not only eases your worries, but boosts your balance sheet.

The same when you pick a mortgage. The right choice reduces the stress of owning a home. A good mortgage boosts your financial confidence, and gives you the chance to prosper.

Rule #6 of How to Buy a Home and Keep Your Sanity helps you find the right lender to finance your dream. I help you sort out the differences between a mortgage and deed of trust, both of which secure the payment of a mortgage. I describe the different types of mortgages—the good, the bad, and the ugly—available to homebuyers. By understanding your options, you can choose the mortgage best suited to your short and long-term needs. I also examine the costs of buying a home. Most costs relate directly to your mortgage;  others you incur even if you pay cash. I then suggest how to find a lender, and walk you through the mortgage approval process from application to commitment.

Even if a lender says yes, you still face important decisions. When should I lock my rate? Should I pay points to buy down the rate? Will the lender make me buy insurance? What if your loan is denied? Do you have any recourse?  All these questions and more are answered by Rule #6.

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Rule #7:    When shopping for a home, nothing trumps value.

Each of my 12 Home Buying Rules is important in its own right, but for me, Rule #7 eclipses all others. The pursuit of value has controlled every home buying decision I have ever made. To buy a home for value I mean buying a home likely to sell for a higher price than you paid, and faster than comparable homes in the area.

Not all home buyers care about value, or if they do, they rank value second to personal preference. That’s fine. But I make value my number one priority when I shop for a home—or for that matter, anything. I abhor spending more for a product or service when I can buy a comparable product or service for less money elsewhere. So deeply is this trait ingrained in my psyche, that for me, buying for value has become second nature.

Buying a home with value in mind does not mean ignoring quality or personal preference. After all, a home is where we live, and for increasing numbers of us, where we work. A home gives us shelter on a dark and stormy night, and offers sanctuary from the troubles of an often cruel world. In a home, we create memories, good and bad, that live and die with us.

But if among your priorities is choosing a home that retains its worth—a home that attracts a steady line of buyers when you sell—you must consider value. My home buying experiences, and those of my clients, friends, and family, have taught me buying a home for value means focusing on three elements:  price, location, and condition. To a lesser extent, a home’s type, size, and features also affect value. Rule #7 of How to Buy a Home and Keep Your Sanity explores all these facets of value, and shows you how to spot homes that offer the greatest value for the dollar.

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Rule #8. Before you bid, know the market and the seller.

Home shoppers blessed with high income, impeccable credit, and abundant assets, who don’t care about squeezing the most home from the fewest dollars, can skip Rule #8. They see a home they want, pay the asking price, and move in. Lucky them. But if your goal is like mine—to find and buy the right home for the lowest price—you’ll want to read Rule #8 of How to Buy a Home and Keep Your Sanity.

I show you how to sniff out the best deals in the area where you hope to buy, how to get a handle on local market trends before you make an offer, and how to find out why the owner is selling to get the home you want for less than you expect. If you already own a home, and are looking to trade up or down, you may wonder if it’s better to buy your next home before selling your current home, or sell your current home before buying your next. Rule #8 discusses the pros and cons of both options to help you decide.

By the time you get to Rule #8, I make three assumptions. First, an honest self-assessment has led you to conclude that buying, not renting, is your best choice. Second, you know what type of home you want, and where you want to buy. And third, you have embraced the lessons of Rule #4, buy within your means, and Rule #6, choose a sensible mortgage. The stage is now set for you to find the right home for the best price. In Rule #8 I share my strategies to make that happen.

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Rule #9:    Never tip your hand when negotiating price.

Riding in your real estate agent’s car, you pull up to the curb of a prairie-style house cut from the cloth of Frank Lloyd Wright. Even before you get out, you fall in love. You skip all the way to the front door. You walk inside, and your right brain runs wild. You imagine fresh colors for the den and living room, a new floor for the dining room, and a bay window for the kitchen. With a few minor tweaks, the house is ideal for you and your family. You must own this home, and no other. You turn to your agent and proclaim your good fortune at finding the house of your dreams. The listing price, though a tad high, is at the upper limit of what you can afford. Your real estate agent smiles. His commission will be larger than he had hoped.

The first rule of negotiation:  “He who cares least, controls the negotiations.”

I don’t care if a house or condo your agent shows you is the only home you can ever see owning—refrain from open displays of emotion. Calculated compliments and overdone flattery are not the same. Politely acknowledging a home’s positive features does not hurt your bargaining position. Fawning does. Speaking well of a home’s décor can improve your negotiating power with the seller. Restrained praise delivered directly to the sellers, or through their agent, creates a bond with the owners, and reinforces their self-perception as people with good taste. On the other hand, drooling with excitement instills bravado in sellers and agents who will sleep soundly knowing you are right where they want you.

In Rule #9 of How to Buy a Home and Keep Your Sanity I share the specific bargaining techniques that have helped me buy homes for less. I teach you how to emphasize your strengths, hide your weaknesses, and use the sellers unique reasons for selling to get the home you want for the lowest price. I share with you my formula for establishing an opening bid, and techniques for calculating counteroffers once negotiations are underway. I suggest strategies for coming out on top when multiple bidders put an offer on a home you don’t want to lose.

Some sellers, especially in slow and declining markets, are unable or unwilling to negotiate in a reasonable manner. They have an unrealistic view of their home’s value, and simply cannot grasp the market’s changing dynamics. An irrational seller does not mean your negotiations are doomed. You may work harder to buy a home you want from an unreasonable owner, but following the techniques I describe in Rule #9, you have the best shot at getting that home for a fair price.

Unlike buying stocks on a stock exchange, when you buy a home, you negotiate with a known seller—a flesh-and-blood person whose unique mood, personality, and motives affect the tone and tempo of bargaining. Understanding this reality, and making it work in your favor, are essential for getting the home you want at the best price. Rule #9 teaches you the bargaining techniques that have worked for me.

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Rule #10:  A bargain without a contract is wishful thinking.

Historically, in most states, an attorney was the professional mainly responsible for coordinating and conducting residential real estate closings. Today, in many states, the attorney’s role in the home buying process has diminished. Clerical and administrative tasks, and some legal functions, have been assumed by real estate brokers, title insurance companies, escrow agents, transaction coordinators, and settlement services providers.

In California, for example, after the parties agree on price, the listing agent fills in a form contract prepared by the California Association of Realtors®, and the buyers hire a title or escrow company to handle the closing. In a few states, attorneys still play a central role. In Connecticut, most mortgage lenders and title companies require that an attorney represent the buyer. In New York City, all parties pitch in. Typically, the seller’s attorney drafts the sales contract, the buyer’s attorney reviews and amends the contract to protect the buyer’s interests, a title or escrow company prepares the settlement statement, and the bank or mortgage company drafts the loan documents and disburses the closing proceeds.

I recommend home buyers always hire an attorney to safeguard their interests, and that they do so before they sign a contract. You may think, as an attorney, my advice is biased. The problem with not hiring an attorney early in the process is that by the time you need one, it’s often too late. Only after you run into trouble will you realize had you hired a lawyer to vet the contract, the problem you face now may not have arisen. And if it did, your rights—and deposit money—would not have been compromised. I no longer maintain an active law practice. My plea that you hire an attorney puts no money in my pocket. I urge you to hire an attorney so that if something goes wrong, your money stays in your pocket.

Of the many duties an attorney performs, the job most buyers consider number one is protecting their deposit money. If the sale does not close, buyers want to know they will get back their earnest deposit. The first line of defense for protecting your deposit lies in the contract of sale.

Rule #10 of How to Buy a Home and Keep Your Sanity describes what terms and provisions you should watch out for in your real estate contract, and suggests ways you can amend—or have your attorney amend—standard contract clauses to better protect your rights and interests. Through real-life examples, I show you how a properly drafted real estate contract can protect your deposit, and how a poorly drafted contract can put your deposit in jeopardy.

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Rule #11:  Good inspections, clear title, and the right insurance put your goal in sight.

The Home Inspection

Before you agree to buy a home, get a professional home inspection from a qualified home inspector. Make sure the inspector is someone of your choosing. Some sellers, to market their homes more easily, get a home inspection report and give out copies to prospective buyers. The large majority of home inspectors are honest, hardworking professionals. But in the same way a buyer would not ask the seller’s attorney for legal advice, or the seller’s real estate agent to negotiate price, you should not rely on a seller’s inspection to identify problems with a home.

Buyers can perform many types of home inspections—structural and systems inspections, pest and wood-destroying insect inspections, well and septic inspections, geological inspections, and environmental inspections. Your mortgage lender may not approve your loan unless you get one or more of these inspections. For example, lenders often condition mortgage approval on a wood-destroying insect inspection that checks for past and ongoing termite damage. Many states require sellers to disclose problems and defects they are aware of. In these states, home buyers may be tempted to forego their own home inspection, and rely on the seller’s disclosures to identify potential problems with a home. Don’t fall into that trap. Get your own inspections.

Rule #11 of How to Buy a Home and Keep Your Sanity describes the various types of home inspections available to home buyers, and gives you tips on how to choose the right inspector. I guide you through a typical home inspection, and show you how to use the written inspection report to improve your bargaining position with the seller.

Title Insurance

Title insurance is different than other types of insurance. Title insurance, unlike life and medical insurance, or automobile and homeowners insurance, does not protect against loss from a future event, but insures against problems or conditions that may have happened in the past. The hazards title insurance protect against do not apply to acts of the homeowner during the time he or she owns the property. Instead, they arise from events that occurred before the homeowner purchases the policy.

Before you buy a title insurance policy, a search of the public land records is conducted on the property. The search discloses if banks or other creditors of the property owner have a lien on the property. The search also tells you who may have a right—other than the owner—to use the property for a particular purpose (called an “easement”), or whether the owner must abide by rules or restrictions affecting the use of the property.

In Rule #11, I show you how to identify and address issues and potential problems disclosed by the title examination—whether a flaw in a past deed, an unrecorded or improperly executed document in the chain of title, past or current heirs with rights in the property, income and property tax liens, construction liens, open mortgages, judgment liens, and fraud and forgery.

Homeowners Insurance

Homeowners insurance protects you against financial loss caused by fire, wind, rain, and other natural acts that can harm your property. A homeowners policy also safeguards your wallet against losses caused by people who riot, steal, or vandalize. Losses from accidental injury, as when a person slips and falls on an icy walk leading to your front door, and from failure of a home’s building system, as when a pipe bursts or a septic system backs up, are also absorbed in whole or in part by most homeowners insurance policies. Some policies pay a portion of your living expenses if the damage to your home is so great that you must move out of your home while it is being repaired or rebuilt.

In Rule #11 I teach you about the different types of property and casualty insurance you can buy to protect your piece of the American Dream. I explain in plain English the different types of homeowners polices insurance agents will try to sell you:  Open peril vs. named peril policies, monoline vs. package policies, and the different classes of homeowners policies, in most states referred to as “Homeowners-1” through “Homeowners-8,” or simply HO-1 through HO-8. Each state has the authority to regulate property and casualty insurance within its borders, and every company doing business within a state bundles its policies differently. As a home buyer, it is important to know what coverage is provided by different HO classes in the state where you buy a home.

I also show you strategies for deciding how much homeowners coverage to buy, and what you can expect to pay for that coverage. I walk you through the different parts of a homeowners policy, and explain what information your mortgage lender will expect to see in the written insurance binder you furnish at or before closing. I familiarize you with other types of property and casualty insurance related to home ownership, such as flood, earthquake, umbrella, and condo and co-op insurance.

Another type of protection available to homeowners is the home warranty. Home warranties cover the cost of mechanical failure due to normal wear and tear, such as a broken furnace or clogged drain pipe. Some warranties cover systems and features not included in most plans, such as a well, roof, pool, hot tub, or septic system. I show you how most home warranties work, and how to distinguish between legitimate and less than honorable home warranty companies.

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Rule #12:  Countdown to closing – a failure to plan is a plan for failure.

You found the right house, negotiated a fair price, satisfied your contract contingencies, and lined up your insurance. There’s nothing left to do, right? Wrong. The devil is in the details, and leading up to closing, there are many.

In Rule #12 of How to Buy a Home and Keep Your Sanity I explain what you need to do and know during the months, weeks, days, and hours leading up to closing:  how to pick a moving company, how to pack boxes and prepare furniture for moving, the ups and downs of moving with children, and arranging for access to the money you need to close. I offer hints on when to schedule and what to look for during your pre-closing walk-through. I explain what documents you must bring to closing, and what to expect once you reach the closing table. Finally, I address important post-closing issues, including tax benefits for homeowners, verifying that your deed and mortgage have been properly recorded, cleaning and maintaining your home after moving in, and the importance of living within your means.

I wrap up by discussing how to deal with those inevitable pangs of buyer’s remorse—something almost every home buyer feels at one time or another. Keep in mind, if you take time to understand your home buying needs and wants, then find the right home for you and your loved ones at a fair price and financed with an affordable mortgage, you won’t second-guess your decision too much. The buyers tormented most by self-doubt are those who did not invest countless hours mining websites and hitting the pavement to narrow their choices before signing a contract. Whether you take some or none of the advice tucked between the covers of How to Buy a Home and Keep Your Sanity: 12 Simple Rules in Any Market, merely by reading everything you can about buying a home, you have taken a giant step toward avoiding buyer’s remorse.

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If you want HomeDingo to notify you when Sal's book, How to Buy a Home and Keep Your Sanity: 12 Simple Rules in Any Market, becomes available for sale, click on the link below and send us an e-mail. As soon as his book for home buyers is available, HomeDingo will send you an e-mail with information on how you can order your own copy.

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DISCLAIMER

HomeDingo.com is intended to provide general information as to the topics covered. Although the author has used his best efforts in preparing the information included in this website, he makes no representations or warranties regarding the accuracy or completeness of any information on this website, and disclaims all warranties, including without limitation warranties of fitness for a particular purpose. The advice and strategies on this website may not be appropriate for your situation. The information provided is given with the understanding that the author is not giving legal, accounting, or personal financial advice. If you need legal, accounting, or personal financial advice, seek the services of a competent professional. This author is not liable for errors or omissions in the information on this website, nor for damages resulting from the use of information contained on this website. This website makes no endorsement, express or implied, of any companies, individuals, or websites named in this website. Companies and government entities named on this website may have become inactive since this website was created or updated, and any other websites referred to on this website may have changed or disappeared since this website was created or updated. The author reserves the right to proofread, edit, and revise any questions or writings submitted to him on this website before posting said questions or writings on this website.