What Should You Consider First When Buying a Home?

June 10, 2021 by Matthew Fraker

When I first started my real estate career years ago, a colleague told me that the average homebuyer typically considers three aspects before purchasing a home: price, location, and features (size, updates, style). The same colleague said that potential buyers should only pick two of the criteria as it is near impossible to find a property that meets all three.

Let’s delve into this and determine if there is truth to the statement. There are certain areas, suffice it to say, that may fall outside of a buyer’s price range. However, just because one neighborhood in a given location is priced too high doesn’t mean there aren’t adjacent neighborhoods in the same general area selling at a lower price point. After all, market value is ultimately dictated by what someone will pay for a good or service, and it’s constantly changing depending on the supply and demand.

If it were me, I would begin by determining how much I want to spend, or rather, what I can afford. Numerous articles and publications state that your monthly debt should not exceed 30-35% of your gross take-home pay. I am not a financial advisor, nor do I claim to be. I gathered this information from what I have read. Chase.com has a good article on this. Affordability will influence where buyers will look and what they should expect to receive for what they are willing and able to pay. If you have a financial advisor, this would be the right time to have a conversation with them. I am going to guess that most people do not utilize the services of a financial advisor, but perhaps that’s presumptive of me.

In any event, the first step in determining what a buyer can afford when looking to buy real estate is to talk with a mortgage lender. If a buyer doesn’t know a mortgage lender, a real estate agent should provide a few names, or the buyer can search online for reputable companies. A suitable lender can educate a potential buyer on what they can afford based on their credit score and debt-to-income ratio, what they will need for a down payment, and what monthly payments will look like at the current interest rate. I am a real estate agent(not a lender) but have spoken to lenders and worked in the field long enough to know a few types of conversations a potential buyer can have with a mortgage lender in a standard transaction. I am going to focus on two kinds of discussions. The first being a conversation where the buyer provides the lender with income information verbally, without verification. The lender will use the information to estimate what they can afford and subsequently generate a prequalification letter outlining the estimate. The second type of conversation verifies credit and income through documentation. The second type of conversation, or “preapproval,” will result in a preapproval letter. A preapproval letter is beneficial when making an offer on a home, but preapproval letters typically have an expiration date. On a side note, buyers do not necessarily need to be preapproved to start searching for a property; however, sellers may require a preapproval letter to accompany an offer. Types of conversations and processes may vary by state, so a buyer should confirm this particular bit of information with a licensed lender that practices in the state where the buyer is searching.

Knowing what I can afford or my price point, I would look towards the location next. I consider the location to be the most critical facet of the search process. I imagine most readers have heard of the phrase “Location, Location, Location,” but what does that mean? In some respects, a good location is relative to the buyers’ needs. If a buyer is looking for a quiet secluded abode, a house near the central business district probably won’t be the best choice. However, a few guidelines dictating a desirable location seemed to have held over the years: buying a home in a good school district, vicinity to amenities (e.g., grocery store), and transportation nodes (accessibility to highways, trains, etc.). Buyers should also consider the placement of the property within a neighborhood and the neighborhood’s location relative to the city. I can’t speak to a post-pandemic world as speculation is a dangerous game, but property located closer to downtown—or uptown in Charlotte’s case—is usually more expensive. Before the pandemic, some home buyers would consider a more substantial commute to get more bang for their buck. I always recommended that people opting for property further from the city drive the route a few times, especially during rush hour, to account for variable traffic patterns. According to realtor.com, Urban properties are sitting for over 5% longer than suburban properties in the current climate. As people continue to work from home and no longer need to walk to the office, suburbia is becoming a popular homebuyer option. However, as vaccinations increase and states continue to reopen and end mask mandates to return to normalcy, it will be interesting to see if buyer demand shifts back to urban areas.

Lastly, after the buyer determines what they can afford and which locations are desirable within their price point, they can delve into different property characteristics. When looking at the elements of a home, it’s essential to consider how different facets affect the value. The details can be important, but I think it’s vital to take a step back and look at the broader picture. By this, I mean, if a house has a beautifully renovated but small galley kitchen or master bathroom, it may be tougher to resell in the future, depending on the ability to expand and further renovate. I am not saying that a buyer should walk away from a small kitchen, especially if it is a good deal, but know that the house may suffer from functional obsolescence. I wrote a separate blog that briefly discussed different forms of obsolescence called Real Estate Depreciation. In any event, I think it’s important to remember that the design, features can be changed to a certain extent, whereas the land/lot is fixed. Depending on the HOA architectural guidelines, setback lines, weight-bearing walls, and many other considerations, the structure can also be changed, but this usually is very expensive. That’s not to say that the process of renovating cosmetic features (cabinets and countertops) can’t be costly and stressful, but the value often exceeds the cost, depending on the amount of equity a buyer has in the home. You can add quartz countertops to a kitchen with Formica, and you can repaint a house with unattractive wallpaper, but it may prove challenging, financially imprudent, or impossible to add a bathroom, vault ceilings, or expand closets to meet the needs of today’s buyers.

In conclusion, I think it is possible to find a house that meets all three aspects, price, location, and features; buyers need to be creative. I placed these aspects in the order which makes the most sense to me, but there are many ways to go about a home search to meet potential buyers’ needs.

I hope you enjoyed this blog post; if so, please comment with your thoughts below!

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