Five home buying myths

Good content from the Wall Street Journal:
By Iyna Bort Caruso

In the luxury real estate market, what you don’t know can undermine you. The soft market has produced waves of smarter, savvier buyers. It’s also spawned several misconceptions. How low can you go? What should you know? Here are five home-buying myths:

Myth #1: Buyers Can Name Their Price in Today’s Market

Historically low interest rates combined with low home prices make it an excellent time to buy, but some have unrealistic expectations based on global assumptions instead of local sales patterns. Many regions are bucking trends and gaining strength. Buyers who are stuck in a mindset of fire-sale prices are liable to miss out on investment opportunities. According to Vestards Rozenbergs of Baltic Sotheby’s International Realty in Riga, Latvia, when foreign buyers start searching, the most common myth is that the real estate market has collapsed and “prices should be lower than offered in reality.” However, he says, the demand for luxury homes, particularly in areas that have international “brand” recognition “is now increasing for the first time after the recession started.”

Myth #2: Wait Until the Market Hits Bottom

There is, of course, no way of ever knowing how low prices will go until they start creeping up again. Those who try to time the market often stay on the sidelines, waiting for some signal that prices have hit bottom instead of pouncing on the solid values out there. Gail Cook, of HCH Sotheby’s International Realty in Harvey Cedars, N.J., says, “Mortgage rates have never been this low in history. If you are not earning this kind of interest on your investments, why aren’t you looking into real estate where you can enjoy your investment? Make a deal that you and the seller are comfortable with and move on with it.”

Myth #3: The Internet is the Best Way to Find a Home

The Internet is a good starting point to begin a home search. But, says Cook, it is just that--a starting point. “The Internet gives buyers a shopping list of properties they can look at, but those buyers aren’t educated with the area so we have to start back at square one. ” How do you envision using the home? Are you buying for investment purposes or for personal use? Are you expecting to turn it over in a couple of years, or will it be your family home for the long term? Square footage, bedrooms, taxes and glossy images are just part of determining what kind of home is the right fit for a given lifestyle. Most buyers are savvy as far as finances go and how much they have to invest, Cook says, “but don’t have any idea of what they’re buying into. It’s an important education process we have to provide.”

Myth #4 All-Cash Transactions Drive the Luxury Home Market

A perception among buyers in the luxury home market is that transactions are often all cash and that offers by those who are financing don’t carry the same weight. Not so, says Jonathan Miller, president and CEO of Miller Samuel Real Estate Appraisers in New York. “It’s a false premise.” A buyer who comes with mortgage pre-approval, brings a substantial down payment or is flexible on closing dates will stack up well against the buyer who wants to leverage an all-cash transaction for a lower price. Terms are far more important today across all sectors but particularly in the high end market, Miller says. “The reality is that for a buyer, the terms they can provide are equally important to what the price is. These buyers are more attractive than they know.”

Myth #5: Condominium Living is Carefree Living

It is a widely held belief that condominium living is maintenance-free. While homeowners may say goodbye to snow removal and lawn care, there can be some “very bad financial consequences” when owners allow condos and homeowners associations to run themselves, says Patrick Hohman, the Louisville, Ky.-based author of “Condos, Townhomes and Home Owner Associations: How to Make Your Investment Safer.” Hohman says there have been instances of “stunning, multi-million dollar assessments within the entire complex…which meant special assessments up to several hundred thousand dollars per unit owner” in high end luxury buildings because the infrastructures started showing their ages, and there simply was not enough money in reserve for maintenance. Boards and associations that commission Reserve Studies, which entails both an engineering analysis and a financial analysis, anticipate and budget for major repairs. “When you buy into a condo, you may not have to do physical labor to maintain the property, but you still have to be alert,” Hohman says. Read quarterly newsletters, attend meetings. “Stay involved in the property. You’re trading physical labor for more mental labor. You have to be aware of what’s going on, like any investment.”

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