by Neil Kearney | Dec 18, 2014 | For Buyers, General Real Estate Advice, Real Estate 101 |
Here are some of the reasons why people buy their first home.
- Tired of paying rent / rents are rising.
- Home prices are rising and if they don’t buy now they might be priced out of the market.
- Just got married.
- Just got a great new job.
- All my friends are buying a place and it seems like a good idea.
All of these reasons are reasonable, but none of them hit on the key factors that a first time home buyer should consider when they are thinking about buying a home. They can push you in the right direction but they don’t ensure an intelligent purchase.
Buying a home is one of the best ideas you can make. It is a great long term investment, your payments are tax advantaged, with each payment you are gaining equity and you get to live in a place you can make your own. It’s a win, win, win! However, the keys to making it a good investment have much to do with your stability and your budget.
I mentioned in the previous paragraph that owning real estate was a great long term investment. Unless the market is appreciating very quickly you will be doing very well to break even if you need to sell within two years. Real estate is cyclical so not everyone gets lucky and makes the purchase right before prices take off. In many markets prices are just now getting back up to 2007 levels after a big decline. If you bought in 2006 and needed to sell in 2010 you lost money. So the first question to ask yourself when you are considering a home is: “How long will I be living in this house?” If you answer is less than five years it might be better to rent. A key to making real estate an investment, not just a place to live is the ability to wait out market cycles.
Besides geographic stability the other main thing to consider is affordability. The first step to figure out what is affordable is to take an in depth look at your finances. Examine your long term financial goals such as savings, retirement, kids college, vacations, etc., and figure out how to make it all fit within your budget. When you know your comfort level regarding monthly payment call a mortgage lender to get pre-approved. Most likely you will be approved for more than what you are comfortable paying. If you over-extend yourself with your new house you will feel burdened instead of smart. Pick a payment that is comfortable for you and that allows you to keep your savings and lifestyle goals in tact.
Some practical considerations regarding affordability:
- Plan ahead for future changes in income. Do you plan to become a one income family after you start a family? Don’t lock yourself into a payment that requires two incomes.
- Have you saved enough of a down payment? Low down payment options are available but they require an additional payment called mortgage insurance. If you have less than 20% down it might be a good long term decision to delay the purchase and save every penny you can until you have what you need.
- As interest rates rise your payment dollar buys you less house. If you are almost ready to buy and your qualification is right on the edge it might be good to lock in a home before interest rates rise. To read more about how much this can affect your payment see my article The Impact of Interest Rates on Home Affordability.
- Credit scores have a huge impact on your ability to buy a house. If you have a credit score of less than 760 your qualification or the interest rate you are offered will be negatively affected. To check your credit score for free (with no strings attached) go to www.AnnualCreditReport.com. If you find out that your credit score will negatively impact you, figure out why your have a low score and start fixing your FICO score.
by Neil Kearney | Dec 4, 2014 | For Buyers, Real Estate 101, Statistics |
Most real estate buyers can’t afford their home. A first time buyer who saves up for a down payment, has good credit still can’t afford their home. Being able to afford their home means paying cash. When a buyer says that they can afford a $300,000 home for example what they actually mean is that their budget allows for them to afford the payment on the mortgage that goes along with a purchase price of $300,000.
When a buyer is in the market for a home, the search process is usually short enough so that the mortgage interest rates are relatively stable. But this is not always the case. For a long time now, interest rates have been historically low but as you can see from the attached graph they are still historically VERY LOW. At a recent meeting I attended, the Chief Economist of the National Association of Realtors predicted that interest rates would rise .5% by spring and be up near 6% by the end of 2016. These are big jumps in a market where we have gotten very used to low rates. I fear that many potential buyers are beginning to expect the rates to stay where they are. And I hate to be the bearer of bad tidings, change is the only constant and the cycle for increasing interest rates is coming. When I broke into the real estate business as a green agent in Boulder Colorado in 1992 8% was a great rate. Now 4% is considered a great rate.
So when interest rates do go up the issue will not be how expensive a house you can afford, it will be how big a payment a buyer can afford. So, let’s look at how sensitive a payment is to changes in interest rates. This is called payment elasticity. Let’s consider the following scenario.
- A buyer has been pre-qualified for a mortgage payment (not including taxes or insurance) of $1800 per month. Let’s assume a current interest rate of 4.5%, at this rate they qualify for a top home price of $355,000.
- They are excited about their home search and on their first time out with their Realtor (hopefully me :)) they see some really great homes. They are happy with the type of home they can get, but decide to keep looking.
- They have a trip planned and then people coming into town, so they are not able to look at homes for a number of weeks. After that they find that there isn’t much to look at. The time between first looking at homes and their second viewing trip is two months. During that time interest rates increase from 4.5% to 5%. The next time out they find a house listed for $355,000 and write an offer for $350,000. The offer gets accepted and everyone is really excited until they talk to their lender who informs them that “interest rates have increased and they can no longer qualify for the house they have a contract on. Their top price range is now $335,000”. Crushed! Disappointed! Upset! Betrayed! These are just a few words that come to their minds as they quickly cancel the contract.
It’s called interest rate risk and it can really happen. In my scenario, the buyers lost $20,000 of purchasing power in a short amount of time as interest rates climbed just 1/2%. To see how this looks with real payments take a look at the chart below. In this scenario for every 1% increase in interest rates they lose $40,000 of purchasing power. If in our scenario the buyers find a way to qualify their payment just went up $106 per month or
Moral of the story – Don’t ignore interest rates. If you are happy with your payment and happy with a house, jump on it. This could become an issue in the near future.
My source for the historical interest rates is FeddieMac
by Neil Kearney | Mar 13, 2014 | For Buyers, For Sellers, General Real Estate Advice, Real Estate 101, Uncategorized |
Home ownership is a long term relationship. And just like other long term relationships in our lives, it needs constant attention and care.
Let’s imagine a typical situation. A family purchases a new home and uses most of their savings to do so. 
The first few years are spent installing landscaping and furnishing and personalizing the rooms. Everything is new and fresh and all is good with the world. After awhile the house is either just the way you want it or good enough. For a long time the homeowners live happily in the relatively new home, not much to be done but enjoy.
As many years go by the house starts showing some wear and tear and features that were once fresh and hip are now showing up on the “before” side of the “before and after” shows on HGTV. But the house still works so you live in it and fix something when it breaks. Unexpectedly you get a new job out of town and you have to sell your home in a hurry. Your realtor comes in for a meeting and nicely tells you that your home is dated. There’s not enough time or money to upgrade everything at once so the only option is to set a low price and hope for the best. It might take many years to get to this point but I see it time and time again.
The other option is to proactively upgrade your house over time. Yes, there is a honeymoon period on a brand new home where you don’t need to upgrade, but after five or six years you will want to start looking at your property with a discerning eye to determine what project is next. When you take one reasonable project at a time you will be continually improving your investment. Using this strategy you will not only keep your investment on the top end of neighborhood values you will be able to enjoy and take pride in your house as you live in it.
Here are some ideas of yearly projects to consider for your home:
- Replace flooring in a bathroom.
- Upgrade the light fixtures throughout the house (sconces, bathroom light bars, chandeliers)
- Upgrade the countertops in the kitchen
- Replace the furnace and air conditioning
- Re-carpet
- Replace the vanity in a bathroom
- Paint the exterior or interior of the home
- Replace the front concrete walk with something more eye catching
- Replace the appliances (non matching appliances are not a good selling point)
- Re-stain or install a new deck
Take on one project a year and when the time comes to sell you will be ready to maximize the value.
by Neil Kearney | Jan 24, 2014 | For Buyers, For Sellers |
I love serving my clients and it’s great to get feedback on how I’m doing. Here are some testimonials I have received from clients I have helped over the last few months.
“We worked with Neil Kearney for the sale of our Gunbarrel home during our relocation out of state and were extremely happy with him! He provided a comprehensive market analysis in a short time so we could price our home competitively. His marketing of the house drove traffic to our home and led to multiple offers in a short time, allowing us to achieve our target price for the sale of the house. Neil’s personal touch and communications while we were out of the state were a great comfort to us during our busy relocation. He took care of all of our worries and kept us informed during every step of the sale of the house. We highly recommend Neil for your agent!”
Jim and Anna McClatchey
“In selling my home I was searching for a realtor that had plenty of experience in pricing and selling properties, is familiar with my neighborhood and surrounding area, has a friendly demeanor. Above those qualities, the single most important thing to me was being confident that my realtor would know how to price a house right without listing it for too less or too much. A friend had recommended Neil Kearney to me, as he had told me that his experience with Neil had surpassed his expectations. I took my friend’s recommendation and Neil Kearney personified each of those qualities I was looking for in a realtor very well. Neil did his homework and helped me price the house right. Three days later I was under contract. From the first handshake to the closing of the sale, Neil made my home selling experience a pleasant one.”
Shaun Tomkins
“Neil Kearney is a great realtor and we highly recommend him! Neil’s knowledge, skill and personal qualities make him a highly successful realtor which made our real estate transaction smooth and enjoyable.
Neil recently helped us purchase a home in Broomfield. He is very knowledgeable about real estate in Boulder County, Longmont, Broomfield and other neighboring areas. We looked at houses in all of these areas and his manner of quiet, patient, competent service made it a smooth process to find the right house. As individuals returning to the Boulder area from out of state, it took us a while to determine the right location at the right price for us. We also were unsure about the type of housing we wanted and thought we wanted to downsize. After looking at smaller properties, we realized that we wanted a home that was similar in size to the one we had most recently. Using his strong knowledge of the communities and how they related to our housing needs and desires, he guided us through the process of finding the house that suits us perfectly. His provision of the on-line search capability was also very helpful. In addition, he has a ready sense of humor and it is fun to work with him.
Neil quickly and efficiently made our offer for the house. He monitored all of the steps of the purchase with ease including recommending potential inspectors and working with the title company. It made it very simple for us. It was a pleasure to work with Neil and if the opportunity arises, we would anticipate using his services in the future.”
Kent and Jan B.
To see more testimonials go here.
by Neil Kearney | Oct 3, 2013 | For Buyers, For Sellers |
Why I Love Being a Realtor
My plan coming out of college was to be a real estate agent long enough to put myself through graduate school. I did just that, and after four years of night school I had a freshly minted MBA and no desire to do anything else but to continue on my path in real estate. Sixteen years later (24 in all), I still feel the same way. I’m really lucky to love going to work every day and here is why. I get to work with great people. I get to be creative, I get to work for myself and…
On any given day and within any given day I’m a:
- CEO
- Janitor
- Customer Service Representative
- Accountant
- Web designer
- Graphic Designer
- Counselor
- Chauffeur
- IT troubleshooter
- Confidant
- Furniture Mover
- Problem Solver
- Marketing Specialist
- Blog Writer
- Public Speaker
- Video Editor
- Social Media Director
- Board Member
- Ethics Committee Chairman
- Recruiter
- Negotiator
- Decorator
- Sales Person
- Copy Writer
- Database Specialist
- Photographer
- Advisor
- Office Manager
- Transaction Coordinator
- Sign Installer
- Researcher
- Strategic Planner
- Manager
- Bathroom cleaner
- Babysitter
Each day I am responsible for putting forth a professional effort in an increasingly competitive market. The perks are many and as you can see the variety and scope of what I do are large. I’m apt to work seven days a week for weeks on end, answer work emails at 11 pm, take business calls at 7:30 in the morning. But I also get to arrange my schedule so that I can watch most of my kids games and go on vacation without asking for permission. The responsibility to my clients and my personal code of excellence are my only boss. And I wouldn’t have it any other way!
by Neil Kearney | Mar 22, 2013 | Boulder Real Estate, For Buyers |
Budding trees, singing birds and swarms of home buyers. These are the signs that spring is just around the corner. The first two happen every year but this year especially home buyers are our early and in droves. As we learned from the ‘birds and the bees’, ying and yang and Marvel Comic Books, it takes opposing forces to create balance. Right now the balance of the Boulder real estate market is off kilter. There are not enough homes on the market to satisfy the demand of the buyers.
Over the past week 171 properties have come on the market in Boulder County. Already 24% of those homes have gone under contract. If you look back two weeks that number jumps to 32%. It is a fast moving market. We just listed a home in Louisville and over the three days on the market there have been 18 showings. Multiple offers are very common and many buyers are getting caught up in the frenzy. Here are the top three mistakes I see being made in this market.
Paying Too Much
When you are at the supermarket comparing products and prices is easy. For example, you want some soup so you compare the choices available and decide; what flavor, what brand, what size, etc. It is easy to decide because there are ample choices and whether you are a value shopper looking for a generic brand or are willing to pay for organic soup with a brand name, you can easily make that choice. But if you go to a remote store, like you often find near a campground with one soup choice the decision is whether paying $5 for a can of Campbells is worth it to you. The scarcity in choice allows the seller to raise price and at that price soup will be worth it for some and not worth it for others.
Pardon the extended metaphor, but right now there is a scarcity in the real estate market and buyers are faced with buying decisions with limited options. In many cases the decision is, do I pay more than seems reasonable or do I wait and hope that something better comes on the market. I have seen many sellers pushing the market and some are being rewarded by buyers willing to pay high prices.
So, if you are a buyer how do you balance being competitive in this market where 18 buyers are looking at the same property within a few days and making a smart decision. The first tip is to do research like an appraiser would do. Look at the sales in the neighborhood over the past six months or year (depending upon how many have sold) and find the homes that are most like the home you are looking at. Compare the upgrades, price per square foot and I like to compare the assessed values as set by the county appraiser. After comparing the sold homes to the home you are interested in you should have a good idea if you are within a reasonable range or if you are going to be setting a new record for the neighborhood. If you are getting a loan, the appraiser hired by the bank will be doing the same analysis and they are much more conservative than the normal buyer who is newly in love and is riding an adrenaline high from beating all of those other buyers. If you have paid too much the appraisal will stop the sale. So save yourself some time and money and work with your Realtor to see if what you are paying is reasonable.
Getting Caught Up In A Scarcity Mentality
When houses are flying off of the market and you may have missed out on a home or two, it may be easy to start to think that the house you have just seen (and might just work) will be the only one and if we don’t make an offer now… Home buying is a process and sometimes there is a delicate balance between patience and action. This is where advice from a good buyers agent is invaluable. The truth is, even though you think that there will never be another house like the one you just lost out on, new listings are coming on the market all the time. A home buyer must always look forward and never dwell on houses that “might have been”. The right state of mind is one that objectively looks at the options and sees each house that doesn’t work as one step closer to the one that will work.
Not Acting Quickly Enough
In a sellers market the competition for good houses is fierce. Being a part-time buyer is frustrating and futile in many ways. In order to be successful you must be ready to pounce on a good home. Here are the steps that a buyer must take to be a active buyer, ready to buy.
- Financing Ready – You must have your ducks in a row. A lender letter is required with all offers and it is best that you are already in the process of loan approval, just waiting for the property, verification of your information and an appraisal. You also must have liquid funds for earnest money ready to go.
- Quick Information – Knowing about the homes on the market is the next hurdle. If you are waiting for the Sunday paper you are most likely missing most of the homes. What I do for my clients is to set them up with a search that automatically scourers the MLS for new listings every few hours and sends us both an email with the results.
- Quick Showings – Once you know about the new listings you need to get out there are see them quickly. Flexibility is a key and seeing promising new listings on the first day gives you an advantage. I showed a listing this week that had just come on the market at 10 am. We met at 5 pm and there were four other groups meeting there at the same time. What a zoo!
- Quick Offer – Being ready to make an offer quickly is another key. Be ready to analyze the data (see
above) and make a strong offer is key to getting an offer accepted. A few weeks back I was able to make an offer on the spot at the house by writing the contract on my IPad and having the buyers sign on the spot. The seller and listing agent were about to meet so we had a tight deadline and we were able to meet it.
- Be Smart- As coach John Wooden said “Be quick, but don’t hurry.” Buying real estate is a long term decision with large consequences if you don’t get it right. Be ready to make your best offer but don’t get caught up in the wave of competition.
Buying a home in a tight market is a stressful situation and under pressure it is much easier to make a poor decision. I hope the three tips above help you navigate the process a bit easier.
If you are looking for a proactive buyers agent call me Neil Kearney 303.818.4055
Here are some of the reasons why people buy their first home.
