Real Estate Insight

How to Find the Perfect Home

05/02/2008 – 10:28 pm

Buying a home is a high-pressure, extremely emotional decision. No house will ever fully live up to your dreams, and whatever compromises you make (and you will have to make some), you’ll have to live with it for years.

The perfect home isn’t the one that has everything. It’s the one with more of what you want and less of what you don’t.

Buyers are rarely totally rational when evaluating a home they are thinking about buying. Removing the emotions from the evaluation process will lead to rational and smarter decision making. To help make rational decisions, buyers should separate the evaluation process into distinct parts. Just as diamond buyers focus on four criteria known as the four C’s (carats, clarity, color and cut), home buyers need to consider a home’s four Cs: cost, condition, capacity and convenience.

A Home’s Four C’s

Cost

Most buyers make this basic mistake: When deciding if a particular house fits their budget, they look only at listed price and their mortgage payments.

But to make an honest comparison of the houses on your list, you must consider all the costs associated with owning the home including the mortgage payments, maintenance costs, property taxes and homeowners association fees, utilities and insurance.

After calculating those costs, your next step is to estimate your tax benefits afforded to home owners. This is an important step that nearly all buyers ignore, overlook or are unaware of. Tax benefits will effectively reduce your actual cost of owning the home. The amount of reduction is substantial and can range from 25% to 40%. Failing to consider these tax advantages when deciding on a home’s affordability can, and many times does, cause a buyer to pass on the perfect home when it was well within their means. Always talk to your CPA to determine what your tax benefits will be.

Condition

Unless you’re buying brand new, expect your home to need some repairs or upgrades. Buyers need to decide what their “acceptable” condition is. Every buyer is different based on their ability to do the work themselves, time involved to complete the repairs and how much cash they have. It’s important to remember that you’ll usually need to have the cash to do most repairs. This is why it’s important to have a professional home inspection done. What you may think is a minor repair could turn our to be a costly nightmare.

If you have the ability and/or cash to renovate a home, your greatest opportunity lies in the worst house in the best neighborhood. Your “sweat equity” will increase both the home’s value and your pride in ownership.

The following chart will give you some idea of what to be aware of. There’s no right or wrong on this chart, it’s meant to give you an idea of what to expect. While a first time buyer might avoid homes with “red light” problems, a contactor might jump at it. The investment you make in resolving these issues will improve your quality of life while living there and increase the resale value.

RED LIGHT These problems can be incredible costly.	YELLOW LIGHT These issues may be fixable. Consult a pro to determine.	GREEN LIGHT Fixing these problems will return at least some of your investment. Many can be done by you.
Major cracks in the foundation To fix major foundation cracks, the house often needs to be propped up.	Leaking or sagging roof Ask the roofer if you can plop on a new one (cheaper) or if you must strip the old (more costly).	Too few bathrooms A half bath could run $15,000 but it can increase the home’s value by 12%.
Sagging stairs One loose tread is okay, but if the entire staircase bows, you may have foundation problems. It’s a big job – see above.	A 20-year old central a/c… A more modern system (which you will likely have to install within a few years), will cost thousands.	Outdated kitchen Revamping a kitchen can return 75% to 100% of your investment on resale.
Leaks or water damage A long-term leak can rot your carpet and your walls, cause mold and require extensive repairs.	Mature trees within 15 feet Roots can grow into pipes causing leaks or sewage backups.	Too-small rooms Adding an archway or moving a non-load bearing wall can open the layout at a cost of around $7,000.
Termites Mud tubes and hollow wood are signs of a serious infestation, particularly worrisome if the house has a wood frame.	Mold To mitigate a potential health problem, you should install a ventilation system.	Worn carpet/flooring and paint Most people can paint their home. They can also learn to install flooring themselves.

Capacity

To squeeze into a budget, you might have to get a smaller house than you’d like. Forget about square footage, often a misleading number. More important is how that space is allocated. These questions will help you evaluate whether the space in a house fits you.

Does it have enough closet space? Rather than look at the number of closets, measure the length of them (for instance, six feet in the hall, two in the kids’ rooms and so on). Compare the total with that of your current home. Also, take along a hanger to make sure the closets really are deep enough for clothes.

Are there enough bedrooms or Do you need that many bedrooms? Ideally, you’ll know your family’s expansion plans before shopping. Since that’s not always possible, consider whether there’s room for surprise long-term guests, be they kids or in-laws. If you can’t afford extra bedrooms, is there an area that could be converted or ask yourself if you really need that many bedrooms. I can’t tell you how many times a buyer tells me he “needs” a 3 bedroom house when he’s currently renting a small studio by himself.

Does the kitchen suit my needs? Think about whether there’s space for you, your family and your guests – as well as your cooking gear.

Will you outgrow it anytime soon? On average, we move every 7 years. For first time buyers, maybe a smaller home is all they can afford. But by buying a home they can be comfortable in for the next few years, they can let the market appreciate and then use that equity to buy a larger home as their needs dictate.

Convenience

Cities offer great job and cultural opportunities, but they generally come with high real estate costs. To get more house for your money, you might look along the edge of a hot neighborhood or in a smaller town nearby.

But will you miss the pace? Will you end up with a longer, pricier commute than you’d prefer? Will family and friends ever visit? How far is the baby sitter, day care and schools?

To determine whether moving farther out is worth the sacrifice, look at a house in the area you like and a similar one 60 minutes away. Then consider the factors in the worksheet below.

YOUR DOLLARS WILL GO FARTHER IF YOU DO TOO Use a list like the one below to determine whether moving farther out is worth the sacrifice.
	Closer House	Farther House
Listing price
Length of commute
Gas price
Cost of commute
Cost of child care
Nearest hospital
Nearest supermarket
Nearest pharmacy
Nearest airport
Good schools?

By using this technique of breaking down the decision making into parts, you’ll be able to make smarter, rational and more informed decisions.

Hope this helps. Until next time, happy home hunting!

Elliot Lau