Buying

Buying vs Renting

Here are some of the major advantages of buying a home, as well as advantages of renting:

Advantages to Buying:

• Equity You build up equity, or ownership, in your home over time as you pay off your mortgage, as long as your home is appreciating in (or at least maintaining) value. Having to make monthly payments becomes a form of forced savings.

• Price appreciation If you buy wisely, and your home is well maintained and in a good location, your home's value is likely to appreciate over time. Homes also provide one of the best hedges against inflation.

• Personal taste You can remodel your home to suit your needs and tastes. You are unlikely to do the same for your rented home since improvements are at your expense but ultimately benefit the owner.

• Sense of community Owning your home gives you a deeper sense of commitment to your community. Wanting to maintain property values, homeowners tend to take better care of their homes than renters. They also tend to be more involved in neighbourhood and community issues.
  Source of borrowing. Your home can be a source of cash in the future. Whether you decide to take out a home equity loan or reverse mortgage loan, your equity in the home is available for you. Interest on most home equity loans is also tax-deductible.

Advantages to Renting:

• Lower share of income Costs of home ownership-ranging from the down payment to monthly mortgage and maintenance expenses-take a large bite out of your household budget. Many people sacrifice their entire lifestyle by sinking half or more of their income into home ownership costs. If you can rent for 30 percent or less of your income, you may find yourself less stressed by doing so

• Price depreciation Prices of homes may fall in your neighbourhood. By renting, you will not be hurt by eroding real estate values. Once you think the local real estate market has "bottomed out," you can get a better deal if you choose to buy

• Alternative investments Money you save by renting can be invested in stocks and other securities, which may be appreciating at a faster rate than home values. If you are disciplined with such investing, you may be able to build up your personal net worth faster this way

• Control of living expenses You may be able to avoid a rental increase by moving or negotiating with your landlord in the event rents rise in your neighbourhood. On the other hand, with an adjustable-rate mortgage, there is no way to avoid higher monthly payments that come with higher interest rates

• Relocation-friendly If you anticipate relocating several times with your career, it may make more sense to rent. Unless your local real estate market is extremely active, you probably cannot expect enough appreciation in a year or two to compensate you for the significant transaction costs of buying and selling a home.

Picking a Neighbourhood

To help you find the right neighbourhood, it helps to:

• Create an attribute list.

• Use a neighbourhood location service on the Web.

• Research neighbourhood sales trends.

Attribute checklist
Picking a home often starts with finding the right neighbourhood. Are you looking for an urban or rural setting, or do you prefer the suburbs? Consider the tradeoffs in commute time, quality of schools and access to recreation and services such as shopping. Look at the composition of the neighbourhood you're interested in. Is there a neighbourhood association that actively participates in community issues? Is the neighbourhood made up mostly of homeowners, or are there many renters? Is the neighbourhood patrolled regularly? It's likely that the quality of life in your neighbourhood will determine how happy you are in your new home.

Consider using a checklist of attributes that you deem most important. You may wish to rank them in order of importance. Here's an example, ranked arbitrarily, of an attribute checklist:

Sample Checklist

Research neighbourhood sales trends
Analysing recent home sales in your target neighbourhood is helpful. Using your realtor, check for prices and number of homes sold. Be sure to look at comparable sales: '3-bedroom, 2-bath homes with 2,00 square metres', for instance, if that's the size of home you are looking for.

Look at the number of home sales over time and the sales price. Are there more sales in the past six months than in the previous period? If yes, this suggests increasing demand for homes in the neighbourhood. Rising average sale prices is also a good barometer of the neighbourhood's appeal.

Negotiating a Purchase Price

In negotiating a sales price, you should determine whether you or the seller have the stronger bargaining position. If the local market is active, and there are other qualified buyers, the seller is likely to have the upper hand. If the market is inactive and the seller desperate, you will have a distinct advantage.
Keep in mind that negotiating goes through a couple of stages: an initial ask price (the list price), and then a counter-offer. Like any price negotiation, the seller will ask for more and usually be prepared to lower his price. But he's also expecting you, the buyer, to be offering less than you are ultimately willing to pay.

Negotiating a sale price can be intimidating. Because the stakes are high, however, you should be resolute and constructive in negotiating.

Obtain a building and pest inspection
Once you've found a home that suits your needs, you should have it professionally inspected to detect any problems.

A qualified home inspector will be unbiased, have years of experience and good reputation, and will guarantee the inspection. Some companies even offer a one-year warranty that covers any defect not caught during the inspection. Among the items that should be inspected are:

Structural components:
Foundations, floors, walls, columns, ceilings and roofs.

Exterior conditions:
Wall flashings and trim, doors, windows, chimneys, decks, balconies, steps, drainage, driveway, walkways and patios.

Plumbing systems:
Pipes, drains and traps, showers, toilets and taps.

Interiors:
Walls, ceilings, floors, cabinets, doors, windows and stairs.

Pests:
Inspect for pest infestation such as termites.
Inspectors examine the structural and mechanical components of a home you are considering. The inspector does not examine paint, wallpaper, carpeting, household appliances and draperies.
 

Obtain a Building and Pest Inspection

Once you've found a home that suits your needs, you should have it professionally inspected to detect any problems.

A qualified home inspector will be unbiased, have years of experience and good reputation, and will guarantee the inspection. Some companies even offer a one-year warranty that covers any defect not caught during the inspection. Among the items that should be inspected are:

• Structural components: Foundations, floors, walls, columns, ceilings and roofs.
  Exterior conditions: Wall flashings and trim, doors, windows, chimneys, decks, balconies, steps, drainage, driveway, walkways and patios.

• Plumbing systems: Pipes, drains and traps, showers, toilets and faucets.
  Interiors: Walls, ceilings, floors, cabinets, doors, windows and stairs.

• Pest: Inspect for pest infestation such as termites.
   

Inspectors examine the structural and mechanical components of a home you are considering. The inspector does not examine paint, wallpaper, carpeting, household appliances and draperies.

Buying at Auction

6 Steps to Buying at Auction

The auction system is an increasingly popular method of selling property. Buyers bid against each other, and the one who offers the highest price becomes the owner, assuming the reserve price has been reached.
The advantages of buying at auction are that you obtain a definite result. Contracts are exchanged at the auction and they are binding and unconditional.
It is important to note that there is no cooling-off period if you buy at auction.

Buying at auction can be a nerve-racking experience so it's a good idea to familiarise yourself with the process by attending an auction or two as a spectator.

Step 1 - Your first step in purchasing your property is to contact your lending institution for finance approval. You should have written loan approval before the day of the auction.

Step 2 - Inspect the Property
Inspections of the property are usually conducted in the company of the agent who should know the features of the property and should be able to answer questions about the facilities in the local area. Viewing times are normally specified, giving everyone equal opportunity to inspect the property before the auction. However, getting an appointment for inspections at other times can generally be arranged.

Step 3 - Get a Valuation
Properties are normally subject to a reserve price (unless otherwise advertised). A reserve price is the minimum price that the person selling the property will accept.
Even though the agent will not disclose the reserve price, you can get an idea of what it will be by;

• Asking the agent what similar types of properties are selling for in the area;

• Researching the prices at which similar properties in the area sold for (i.e. on the internet, in newspapers, in magazines and in other price guides)

• Receiving a valuation from the lending institution, or

• Engaging a registered valuer to complete a formal valuation.

Step 4 - View the Agreement for Sale
The Agreement for Sale is prepared by the seller's solicitors. If you are seriously interested, you should have your solicitor inspect the Agreement for Sale which will be held by the auctioneer. Your solicitor may suggest additions or variations to the agreement. These can be negotiated between the solicitors and if agreed, the contracts will be amended accordingly.
At the auction, before the bidding starts, go up to the agent and check that your copy is an exact copy of the auction contract by checking for any late changes.
Ensure you have a clear understanding of exactly what is to be included in the sale. All fittings, furniture and other items to be included should be clearly listed in the Contract.

Step 5 - Bidding at the Auction
Before starting the auction, the auctioneer will read from something similar to the following terms and conditions (below is for NSW).
 

• The highest bidder is the purchaser, subject to any reserve price

• In the event of a disputed bid, the auctioneer is the sole arbitrator and the auctioneer's decision is final

• The auctioneer may refuse to accept any bid which, in the auctioneer's opinion, is not in the best interests of the vendor

• If the vendor reserves the right to bid at the auction in respect of a lot and instructs the auctioneer to make more than one bid on the vendor's behalf, the auctioneer must, before submitting the lot for sale by auction, announce in a clear and precise manner the number of bids reserved by the vendor in respect of that lot

• A bidder is taken to be a principal unless, before bidding, the bidder has given to the auctioneer a copy of a written authority to bid for or on behalf of another person.

• As soon as practicable after the fall of the hammer the purchaser is to sign the agreement for sale

• Should the reserve price not be reached (or the property is 'passed in') then the person making the highest bid generally has the first opportunity to purchase at the reserve price. If the highest bidder does not purchase at the reserve price, then the property will be placed back on the market for sale by private treaty, at which time you should negotiate directly with the agent.

• When a property is 'on the market' it means bidding has either reached the reserve, or the reserve has been lowered or waived. Often bidding interest can increase after this call.

Step 6 - Closing the Deal
If you win the auction, you will be required to immediately exchange contracts (i.e. sign the Agreement for Sale) and provide a deposit, usually 10% of the purchase. The deposit will usually be held in a trust account until settlement, when it is paid to the seller. You are now bound to proceed with your purchase. You will generally be expected to have the funds available immediately (many people bring their cheque books).
Upon exchange of contracts, your solicitor will conduct a number of searches and enquiries to verify that all is in order with the legal title of the property. At the same time, you should finalise your finance with your bank or building society. This process normally takes four to six weeks.
When all arrangements have been attended to, the solicitors for both parties will arrange settlement.
At settlement, you pay the balance of the purchase price, certain adjustments will be made, any outstanding mortgage will be attended to and you will then become the legal owner of the property.
Congratulations!