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 Post subject: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 12:20 pm 

Joined: Thu Sep 20, 2012 12:17 pm
Posts: 3
I am looking at buying my first house in the Seattle area within the next year. Even though the price of houses is going up, the interest rate is still very low and for that reason I think it is a good time to buy. However I have questions about the benefits of buying a home and the process. It would be great if someone on this forum could help me answering my questions.

- Who could help me evaluate if buying a home is more profitable than renting? Are there professional who can help with that? I know that there are calculators on the web, but I would like something specific to my situation. Right now, my rent is about $1375 + Utilities. A house would be around $500,000.

- I looked at some new constructions and I’d like to learn more about the reputation of some builders. I have in mind CamWest and Polygon Northwest. None of them appear to be accredited by the BBB. Where can I get information about the reputation of those builders?

- Should I get an agent to buy a new/first home? What are the benefits? Who’s going to pay for the agent?

- If I decide to buy a new construction, should I get an inspector?

If someone could help me with those questions, that would be great! Thanks in advance!


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 1:07 pm 

Joined: Tue Jun 12, 2012 4:34 pm
Posts: 474
I don't really have the knowledge to answer your first couple of questions, but I can share my experiences with the last two...

trudeo wrote:
- Should I get an agent to buy a new/first home? What are the benefits? Who’s going to pay for the agent?


Absolutely get an agent, especially since this will be your first home purchase. My husband and I purchased our first home about a year-and-a-half ago, and our agent was able to walk us through every point in the process step by step. She explained everything we were doing and why it needed to be done. She talked us through the mounds of paperwork. She worked with the seller's agent and with the underwriter at our bank to make the process as smooth as possible. She even was able to keep things on track when our loan officer got a new job offer and it was obvious she (the loan officer) was no longer prioritizing our application. She was extremely knowledgeable about the local area, and sharing that knowledge helped us make a better decision as to which property to buy. She was completely on "our" side, acting as our advocate. And the best part is, as a buyer, you do not pay the real estate agent. Generally, the buyer's agent negotiates with the seller's agent to split the commission the seller's agent charges the seller. So there is no cost to you.

trudeo wrote:
- If I decide to buy a new construction, should I get an inspector?


110% YES. Just because it is new construction doesn't mean there can't be any problems with the property. If the inspector finds anything of note in the inspection, you can ask the seller to either (1) fix what is wrong or (2) reduce the price of the property by the amount needed to fix it so you can have it fixed. If the seller refuses to do either of these two things, that's your cue to walk away. However, once you buy the property, it's on you to fix anything wrong that turns up. The inspector usually only costs a couple hundred dollars, and it's the best money you can spend in this entire process. Just make sure you get recommendations for good, thorough inspectors. If anyone thinks this ISN'T worth the cost, I'd encourage them to watch the show "Holmes on Homes" on HGTV.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 1:11 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1596
Location: Seattle, WA
I will answer your questions last in first out, because your last questions are easier to answer :)

trudeo wrote:
- If I decide to buy a new construction, should I get an inspector?

Yes, without question. You are spending 500k. An inspector is only $500. Even on a brand new house, any inspector (not employer by the builder) will find more than $500 worth of things you can get the builder to fix, even on a brand new house.

trudeo wrote:
- Should I get an agent to buy a new/first home? What are the benefits? Who’s going to pay for the agent?


The buyer's agent (who is actually referred to as a "selling agent" in the contracts, I believe) is paid with half the typical 6% commission. If you don't have a buyer's agent, then the seller's agent (aka "listing agent") keeps the whole 6%. So you don't really gain anything by not using one.

However, that does NOT mean the agent is on your side. They have an incentive to get you to buy a house at the highest price possible (larger commission) and/or to buy any house at all (if you never buy a house, they never get paid).

In Seattle you have a couple of interesting options for your buyer's agent. Both will give you a portion of the 3% commission back. One is Redfin, that last I checked gave up to half the commission back to the buyer. And another is WaLawRealty, that charges a flat fee and gives the buyer the rest; however, if you never buy a house, you have to pay them out of your own pocket.


trudeo wrote:
- I looked at some new constructions and I’d like to learn more about the reputation of some builders...


I can't answer this question. (Just mentioning this for completeness)

trudeo wrote:
- Who could help me evaluate if buying a home is more profitable than renting? Are there professional who can help with that? I know that there are calculators on the web, but I would like something specific to my situation. Right now, my rent is about $1375 + Utilities. A house would be around $500,000.


Only you and your family can decide that. A case could be made for either renting or buying. Interest rates and lowered (from the peak) prices definitely help.

But the true decision point is: Is now a good time in your life to buy a house? When you buy you will be "settled down" to one spot, for better or worse; have you lived in the area to be ready to commit to it long term? Is your family about the size it will be for the next decade or two? How much of a down payment do you have saved up? How is your credit history and job stability? Do you have kids; have you looked into the schools in the area you're targeting?


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 2:47 pm 
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stannius wrote:
However, that does NOT mean the agent is on your side. They have an incentive to get you to buy a house at the highest price possible (larger commission) and/or to buy any house at all (if you never buy a house, they never get paid).


That's not necessarily true. In some states all real estate agents have a legal obligation to work in the best interest of the seller (the situation you described). In other states a buyer's agent has the same legal obligation to work in the best interests of the buyer.

I suppose anyone working on commission has an incentive to keep the price high. But I would fire an agent at the first sign of not acting in my best interest to negotiate a low price. Besides, YOU decide how much to offer not your buyer's agent.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 3:13 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1596
Location: Seattle, WA
DoingHomework wrote:
That's not necessarily true. In some states all real estate agents have a legal obligation to work in the best interest of the seller (the situation you described). In other states a buyer's agent has the same legal obligation to work in the best interests of the buyer.


What states are you aware of that have this law? Certainly not Washington state, where both I and the OP reside.

DoingHomework wrote:
I suppose anyone working on commission has an incentive to keep the price high. But I would fire an agent at the first sign of not acting in my best interest to negotiate a low price. Besides, YOU decide how much to offer not your buyer's agent.


I don't think that an agent who failed to negotiate would last very long. However, two things are true. 1) The agent ONLY gets paid if a deal, any deal goes through. and 2) The agent gets paid more, the more the buyer spends. So if the agent is good they will steer the buyer towards the most expensive houses s/he thinks is likely to result in a sale, and to encourage you to complete deals. If you let them choose the houses you see and/or ask for their opinions, they will inevitably be biased.

The might do this subconsciously. The tricksy thing about conflicts of interest is that they can sway your decisions even if you know about them and think you can compensate.

I agree that only you can decide what houses to look at, how much to pay, etc. I am just saying, you are the one with the money and life at stake here, so keep control of those decisions.

One nice thing about working with Redfin is that their touring agents don't work on commission. Even so, they're directed to not give opinions about the houses you look at (though sometimes you can get some opinions out of them). Nobody there picks out houses for you, so there's no steering there (subconscious or otherwise). OTOH the company is still funded by commissions, so they (as a company/group of employees) do have a vested interest in closing deals, and thus reassuring buyers (and sellers) to accept the offer in front of them.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 3:32 pm 
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stannius wrote:
What states are you aware of that have this law? Certainly not Washington state, where both I and the OP reside.


Title 18, Chapter 18.86 of the Revised Code of Washington (your state's law) specifies the duties of real estate agents. Your state does have buyer's agents as well as seller's agents. Washington also allows for dual agency. In your state buyer's agents do have the duty of loyalty that I was referring to. Rather than explain the details of all that I'll just provide a link to a fairly clear explanation. Based on what the Washington law says, this article seems to accurately describe the situation in Washington state.

http://homebuying.about.com/od/realestateagents/qt/92807_DualAgncy.htm

stannius wrote:
I don't think that an agent who failed to negotiate would last very long. However, two things are true. 1) The agent ONLY gets paid if a deal, any deal goes through. and 2) The agent gets paid more, the more the buyer spends. So if the agent is good they will steer the buyer towards the most expensive houses s/he thinks is likely to result in a sale, and to encourage you to complete deals. If you let them choose the houses you see and/or ask for their opinions, they will inevitably be biased.

The might do this subconsciously. The tricksy thing about conflicts of interest is that they can sway your decisions even if you know about them and think you can compensate.

I agree that only you can decide what houses to look at, how much to pay, etc. I am just saying, you are the one with the money and life at stake here, so keep control of those decisions.

One nice thing about working with Redfin is that their touring agents don't work on commission. Even so, they're directed to not give opinions about the houses you look at (though sometimes you can get some opinions out of them). Nobody there picks out houses for you, so there's no steering there (subconscious or otherwise). OTOH the company is still funded by commissions, so they (as a company/group of employees) do have a vested interest in closing deals, and thus reassuring buyers (and sellers) to accept the offer in front of them.


I think these other points are valid. You have to be proactive in how you deal with any professional. They don't know what you like. You have to somehow communicate that. The good ones will stretch you just a bit to probe the limits. They are not necessarily trying to steer you higher. As you said, they only get paid if a sale is made. They want to show you houses that you are likely to buy. Doing otherwise is a waste of their time. But it can take some time to understand what you want.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 3:47 pm 

Joined: Thu Sep 20, 2012 12:17 pm
Posts: 3
stannius wrote:
But the true decision point is: Is now a good time in your life to buy a house? When you buy you will be "settled down" to one spot, for better or worse; have you lived in the area to be ready to commit to it long term? Is your family about the size it will be for the next decade or two? How much of a down payment do you have saved up? How is your credit history and job stability? Do you have kids; have you looked into the schools in the area you're targeting?


Thank you all for the responses! This is super useful and interesting!

To answer the questions above. I've been living in the area for 5 years and I intend to stay for at least another 5 years. Over the last 5 years, I paid ~$80,000 in rent. This is a lot of money I will never see again. In addition, last time I renewed my least, the landlord tried to increase my rent by 12%... I was able to negotiate, but this is way too much.

I have a good credit history and I have 20% for the cash down on a potential house. Considering all this, would you still by a house?


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 4:28 pm 

Joined: Fri Jul 11, 2008 3:29 pm
Posts: 167
One of the big potential issues is kids and family. Are you married? Do you have kids? Because the picture changes a lot. What if you the house you buy is not in a school district you hate? What if your future wife doesn't like the location? I'm not say not to buy a house if you are not married or have kids, just that those things should be taken into consideration. A lot can change in you life in 5 years.

Yes you paid $80000 in rent but in return you got a roof over your head. It's not like it was just flush down the toilet.

It probably is worth buying a house if you can afford it, are staying for a while and are willing to put money into the house for maintenance. Just a few things to consider.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Thu Sep 20, 2012 4:44 pm 

Joined: Tue Jun 12, 2012 4:34 pm
Posts: 474
Remember when you're doing your cost comparison to take into account the various expenses of home ownership that you didn't have to consider while renting: property taxes, homeowner's insurance (which is significantly more expensive than renter's insurance), maintenance costs (most assume about 1% of the price of the home per year), etc. Also, one thing that my husband and I didn't think about is that there are likely one-time expense things you don't own as a renter that you may need as a homeowner. Two of the bigger expenses for us were lawn care equipment (lawnmower, tree trimmer, garden hoses, mulch, etc) and tools for household repairs / home improvement projects (table saw, power drill, tool cabinets and a workbench were our bigger expenses).

There are times when something breaks (and believe me, something always breaks) when we lament being homeowners and pine over the ease of calling the landlord to come fix his stuff, but overall we're both very happy that we bought.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Fri Sep 21, 2012 6:01 am 
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alohabear wrote:
Remember when you're doing your cost comparison to take into account the various expenses of home ownership that you didn't have to consider while renting: property taxes, homeowner's insurance (which is significantly more expensive than renter's insurance), maintenance costs (most assume about 1% of the price of the home per year), etc. Also, one thing that my husband and I didn't think about is that there are likely one-time expense things you don't own as a renter that you may need as a homeowner. Two of the bigger expenses for us were lawn care equipment (lawnmower, tree trimmer, garden hoses, mulch, etc) and tools for household repairs / home improvement projects (table saw, power drill, tool cabinets and a workbench were our bigger expenses).

There are times when something breaks (and believe me, something always breaks) when we lament being homeowners and pine over the ease of calling the landlord to come fix his stuff, but overall we're both very happy that we bought.


I agree with Alohabear might be a good idea to consider the big picture regarding house upkeep and maintenance.

One-time expenses: Replacing the central AC unit every 10-20 years cost in the thousands? $10,000+? Usually not covered by insurance. Replacing the roof of your house every 15-20 years cost in the thousands? Often home owners insurance covers this but you still have your deductable... What about a hot water heater? Or the foundation in some places...

When something breaks: Appliancees such as refrigerator, microwave, dishwasher, stove, oven, washer & dryer, etc. might need to be replaced periodically.

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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Fri Sep 21, 2012 1:27 pm 

Joined: Thu Jun 23, 2011 3:24 pm
Posts: 87
DoingHomework wrote:
Title 18, Chapter 18.86 of the Revised Code of Washington (your state's law) specifies the duties of real estate agents. Your state does have buyer's agents as well as seller's agents. Washington also allows for dual agency. In your state buyer's agents do have the duty of loyalty that I was referring to.


To be clear: in most states (maybe all? I'm not a lawyer), you have to sign an 'agency agreement' to obligate your agent to the duties of loyalty, etc. You can limit this to specific areas, a specific home, a specific time frame if you wish. If you haven't signed anything, at least according to Realtor continuing ed in the state of CT, the agent technically still is working on behalf of the seller. Ask around for references/referrals, some agents are wonderful and some are doing this as a hobby...most are in the middle.

For builder info, you might try to check with recent to medium-term buyers of prior newbuilds of the contractors - say 6 to 24 months. If construction (or customer service) is shoddy, it should turn up in that time. Ask the builders what other developments they've done (or find out online), then go knock on a few doors or send some postcards or connect somehow with the residents.

Consider your reasons for looking only at new built homes - a 2-3 year old home may have no more "issues" and be lower $/sf if that is something you are open to. In most areas, homes depreciate quickly (like new cars). While opinions differ, if you move into a not-new home, a home warranty may help you budget/handle any issues that do crop up & make you feel more comfortable. We have had a home warranty only once, it worked out great for that home but not sure if we'd do it again unless it were offered by the seller (which it was in that case).

I agree with stanius, only you & your family can know if now is the right time for you to buy. I would say that if you come to the conclusion that it is the right time to buy but *only* at these rates & prices, maybe that is cutting it a little close to be sure of your decision. But if the conclusion is that it is the right time to buy, especially at these rates & prices, then that makes more sense.

Good luck!


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Mon Sep 24, 2012 6:08 am 

Joined: Thu May 24, 2012 4:20 pm
Posts: 19
Over the past few months, we decided purchase something---not a home but a co-op. (Yeah, yeah technically I don't "own" anything but that's besides the point.) When we first started looking, we had a very short list of things we wanted: two bedrooms, one bath, something to fix, washer and dryer on-site (did not have to be in the unit) and an outdoor space. I was ready to up my payments from $1300 (rent, which would have gone up again) to $1500-$1700 (for the mortgage + monthly maintenance.)

But then I stepped back and realized that living in a cramped co-op was not what I really wanted---so why am I so willing to up my spending? Just because? The biggest factor was that I did not see us living in the space forever, so maybe I would have been more open to increasing my spending if that was the case.

You can really evaluate your own numbers, especially if you're very interested in a home. You can find out how much the current owners spend in taxes, heat, electricity, etc. We ended up purchasing a co-op that needs work to the bathroom (immediate) and kitchen (eventual.) But that allowed us to purchase something at a price far below what it would have otherwise cost. (And that hopefully returns our investment.)

But this has allowed us to:
-Put down 30%, with plenty of money leftover (requirement for a co-op)
-Have mortgage and maintenance costs that are less than our rent
-Maintenance costs include heat, water, taxes, etc.
-Co-op means I don't directly have anything to do with the major sources of repairs (i.e. roof, plumbing, heating, etc)
-Tax deduction not only for the mortgage interest but half of my maintenance, as part of that maintenance pays the underlying mortgage of the building.

Why do I tell you all of this?

In my opinion, I find that owning a piece of property right now is really only beneficial if you have tons of dough or if you do the calculations and you don't have a major difference in what you pay now. I have sat down and done my own calculations a million times (every time we saw a property, oy) and taking into account not only the mortgage. If I were you, I probably wouldn't take on a mortgage right now unless you are currently paying a small fraction of your income in rent. Based on some basic calculations:

Price of Property: $500,000
Downpayment: $100,000 (20%)
Loan Amount: $400,000
Interest Rate: 3.5% (Just picked something.)
Loan Term: 30 Years
Principal and interest payment: $1,796.18 (Monthly)

Now can you afford to up your payments to $1,800 monthly PLUS take into account everything alohabear mentioned---utilities, property taxes (not sure about in WA but where I am they are outrageous), homeowner's insurance, maintenance costs, etc. I live in one of the most expensive cities in the world so I don't even bother thinking about purchasing a home right now---maybe never. My guess is after all is said and done, you will be paying more than $2,200 in mortgage + additional costs every month. Is that what you want and more importantly is that what you can afford? That's almost $1,000 more than what you pay now in rent and the reality is that you will probably be paying 1K+ more every month.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Mon Sep 24, 2012 2:40 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1596
Location: Seattle, WA
trudeo wrote:
To answer the questions above. I've been living in the area for 5 years and I intend to stay for at least another 5 years. Over the last 5 years, I paid ~$80,000 in rent. This is a lot of money I will never see again. In addition, last time I renewed my least, the landlord tried to increase my rent by 12%... I was able to negotiate, but this is way too much.


Imagine you buy that house today. In 5 years, you have to move, so you sell that house. Let's say it's worth $500k. You'd pay a 6% real estate commission and a 1.78% excise tax (in King County). That's $40k right there, half of the $80k you would have "thrown away" on rent.

Assume you put 20% and got a 4% loan on the other 80%. You would have paid $76k in interest over the five years. Some of that is tax deductible, but the majority of that money would come out of your pocket.

The rule of thumb on maintenance and repair costs is 1%. That's another $25k over 5 years.

Remind me, what's so bad about "throwing away" money on rent?

I return to my original statement - you should only buy if you're at a point in your life where you plan to stay put for a long time.


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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Mon Sep 24, 2012 5:37 pm 
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Yes interest rates are expected to remain low til at least 2014/2015.

Now is a good time to get credit if you are in a good financial position, especially if you are buying an asset.

On that point, (Asset), based on 3 or 4% mortgage rate, and then rent figure you posted, I'd say you'd be better off buying the house, renting it out, apply ALL of your rental income against the mortgage and then just continue renting. High value properties tend to cost more per month than what you can rent for.

And this way you have someone helping build your wealth.

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 Post subject: Re: Is it a good time to buy a home? What are the benefits?
PostPosted: Tue Sep 25, 2012 4:51 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1716
Location: Ottawa, Canada
DoingHomework wrote:
I would fire an agent at the first sign of not acting in my best interest to negotiate a low price.


Maybe it's different in your neck of the woods, but around here, it's standard for buyers to sign a contract with their buying agent which restricts them from working with any other agents for 6 months. That is, if your real estate agent hasn't found you a house in 6 months, you can fire them and hire someone else, but within those 6 months, you're stuck working with them. If you hire another agent, you'll have to a) lie to them (since the new agent is required to ask if you're currently under obligation to any other agents - if they knowingly work with you while you're contracted to someone else, they'll lose their license), and b) risk getting sued by the first agent.

It's a pretty crappy arrangement, but that's how the industry works around here. :( Not even incompetence or negligence are grounds for breaking the agreement. It's only void if either you both (you and the agent) agree to terminate it early, or if they've violated the law or industry regulations.


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