Why does the fear of missing out costs a fortune when house hunting? What are the common pitfalls and why have property buyers to pay penalties at delayed settlement?
Fear of missing out
Common Pitfalls when Buying a Property
Fear of missing out buys any house you see
For achieving financial goals the common advice is to start as early as possible. From investor’s point of view I simply agree because of the accelerating power of compounding growth. Saying if an investment works over a longer time, it returns more interests or equity under the right circumstances.
In contrast an owner-occupied house is first of all an costly asset that doesn’t produce returns. In the best-case a family home cumulates wealth when paying off the mortgage. People for instance strive for a retirement in a debt-free home.
As illustrated here, the most expensive part owning a house are homeowner’s costs of finance. How much that might be in your case you can figure out by using an online mortgage calculator. For a 20% deposit loan you can expect approximately interest payments in size of the value of the property. That is a huge amount of money. That means waiting without fear until you saved a larger deposit will be the alternative to carrying lifetime long debts.
What get home buyers commonly wrong?
It can be a circle of death when homeowners are locked up with a huge mortgage and do not have a chance (e.g. because of the location or circumstances) to push up their income, or invest in career and job opportunities.
Pricewise house hunters sometimes forget that not only the property costs money, importantly choosing the right partners like the bank, lawyer, accountant, building inspector, local services and trades people can make a difference.
Relying on the real estate agent
Normally buyers deal with the vendor’s agent. Be certain he/she is working for the seller and get only paid when the buyer signs the contract.
Not taking independent advice
Independent advice starts with making informed decisions. Join property talk groups, talk to different agents and people in the area, who do not have a commercial interest in your project. Avoid walking blindly into a situation and not knowing the risks, legal requirements or the neighborhood.
Lack of due diligence
It is very human to value a property based on appearance. Be on alert as over-painted problems will surface costly. A house that looks messy might actually be structurally sound. (DD Process)
Timing and late settlement penalties
I experienced twice a delayed settlement. In one case the bank needed to re-issue faulty loan papers and drawing the money took longer. In another case the vendor failed to discharge the mortgage and had to postpone the settlement.
You might plan some extra days for the settlement schedule. Good practice is not to settle on Fridays. That can spoil the weekend.
Not doing a settlement inspection
Between signing the contract and settlement conditions of the property can change (damage, chattels can disappear or change colors or brand, etc). Good practice is to conduct a settlement inspection before calling the lawyer with instructions.
Market value and purchase price
Properties are sold at market value. Commonly the market price is what the buyer is willing to pay. It is an all too typical situation that the buyer gets pushed by the seller’s agent. If so, take your time to proceed. Developing a vision about the long term effect (value) would help you to justify an adjustment of the offered price.
Buying the wrong type of property
People and families grow into relationships. It is a normal part of the process that in fact everything related to your lifestyle will change over time. A chosen home can become an obstacle after years of enjoying it. You can deal with that in two different ways;
· Keep and upgrade (major renovation)
· Sell and buy within the same market (incl. re-finance)
Not being prepared for relationship changes
Talk to your lawyer about 'joint tenancy' where all owners on the title own the property together or 'tenancy in common’ where each one owns a share. That becomes important when circumstances have changed, read here more.
Getting one-sided information increases the risk. Steer clear of emotional ad hoc decisions, do your homework and choose your partners carefully.
Klauster Properties Ltd. - Homeowner's Blog
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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, residential properties and healthy lifestyles.
The passion of making experiences available comes from renting in different countries and working with people who are interested in home ownership. Helping people to avoid pitfalls has been most rewarding, when forming relationships.
Our philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices by having realistic expectations.
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