Shelhee Gal | David Elan - THE SECRETS EVERY HOME BUYER NEEDS TO KNOW

THE SECRETS EVERY HOME BUYER NEEDS TO KNOW

Shelhee Gal | David Elan

Table Of Contents

How Real Estate Agents Help Home Buyers

Owning vs. Renting

Buyers' Needs and Desires

Real Estate Horror Stories to Learn from

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 43

What to Know about Home Inspections

Shopping for a Home Loan

Programs for Home Buyers

10. The Closing Process

11. Organizing Your Move

Preface Hi there! It’s nice to meet you. If you’ve received this book, it’s probably because you’re thinking about buying a home. And if you’re like most home buyers, you may be nervous about the entire process. But that’s why we're here! Our job is to make your job as a buyer as easy and seamless as possible. Throughout our years of experience in the real estate industry, we’ve amassed insider knowledge to help home buyers get great deals on their home purchases. And now, you’ve got all of that information at your fingertips.

In this book, you’ll find:

• An overview of the buying process • How to determine your wants vs. needs in your next home • Information on securing a home loan • Common mistakes to avoid • A negotiation guide to save money on your purchase • And much, much more Sure, you can try to employ these strategies yourself, but you should know that an agent focused on serving buyers’ needs can make a huge difference in finding your dream home. Yes, buying a home can be stressful, but with this book (and our help!), we can make the process as seamless as possible.

Shelhee Gal | David Elan, Co-Founders, REALTORS® Lic. #01721758 | #01000321 424.363.4630 | 424.421.2401

info@uniquelyre.com | uniquelyre.com Uniquely Real Estate | Lic. #02014153 ii

About Shelhee & David

Our Values, Your Success

Trust, Professionalism, & Exceptional Results

At Uniquely Real Estate, we go beyond traditional real estate services. Founders Shelhee and David bring over 40 years of combined experience and a deep passion for helping clients achieve their real estate goals. Their commitment to trust, professionalism, and exceptional service is the driving force behind your success. Their partnership began during a particularly challenging real estate transaction that tested their skills and patience. Through navigating this complex deal, they discovered a shared dedication to honesty, teamwork, and client satisfaction. This pivotal experience not only marked the start of their professional collaboration but also led to the creation of Uniquely Real Estate. Together, they’ve built a company focused on delivering exceptional results and fostering lasting client relationships. With their combined expertise, they offer a wide range of services tailored to meet the diverse needs of their clients. Shelhee Is Not Your Typical Real Estate Specialist—She's A Business Maestro With A Flair For Turning Every Venture Into A Lively Adventure! With A Colorful History Of Owning An Eclectic Mix Of Businesses, From Retail store shenanigans To Production Line Enterprise From Bangkok To The Land Down Under. Raised In Tel Aviv, Israel In A Household Where Business Was The Family Language, Shelhee's Upbringing Was A Crash Course In Entrepreneurial Excellence. With A Mom Ruling The Retail Scene And A Dad As A Real Estate Guru And Investor, She

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Inherited A Double Dose Of Business Sharpness That's Hard To Beat. David brings over 30 years of unparalleled real estate experience. He offers expert guidance, sharp market insight, and a deep commitment to understanding and meeting his clients' unique needs. David's background includes strategic selling, marketing, and luxury branding. As a top negotiator and problem solver, he navigates the real estate landscape with ease. Throughout his career, he has assisted a wide range of clients, from seniors to first-time buyers and investors, consistently delivering exceptional results. Beyond his professional life, David enjoys family time, travel, reading, and coaching soccer. He volunteers on the City Council Land Use Committee, contributing to the local real estate scene. Serving the Los Angeles area,

Testimonials & Reviews for Shelhee & David

Here is a list of people whom we have helped buy or sell a home, and what they said about working with us:️️️️️ ***** I cannot speak highly enough of Shelhee and David and their team at Uniquely Real Estate. They went above and beyond to navigate through a challenging real estate transaction with professionalism and expertise. From the outset, it was clear that this deal would be anything but straightforward, with numerous obstacles ranging from title issues to complex lot adjustments. However, Shelhee and David tackled each hurdle with determination and skill, keeping communication lines open and ensuring all parties remained informed and engaged throughout the process. What truly stood out was their ability to represent both the buyer and seller while upholding contractual obligations for each party. Their negotiation skills were exceptional, and they navigated the transaction with integrity and fairness. I am incredibly grateful for their unwavering commitment and tireless efforts, which ultimately led to a successful closing. I highly recommend Uniquely Real Estate to anyone in need of professional and dedicated real estate services. In closing, as this is my 7th transaction with Shelhee and David I want to express my gratitude for their exceptional service, and I look forward to the opportunity to work with them again. Shay Y.️️️️️ ***** From the moment we met Shelhee and David it was clear that we are in good hands. Their knowledge of the real estate market was evident, and they took the time to thoroughly explain every step of the process, ensuring that we felt comfortable and v

informed throughout. What truly set Shelhee and David apart was their unwavering support and positive attitude. When we encountered challenges, particularly with a difficult buyer’s agent, they handled the situation with grace and professionalism. Their problem-solving skills were remarkable, and they worked tirelessly to ensure that our interests were protected. Shelhee and David’s dedication to our sale went above and beyond our expectations. They were always available to answer questions and concerns. Shelhee and David also assisted us to locate an agent in the area we moved to, they took the time to find us a perfect fit although they are not compensated on this transaction. We wholeheartedly recommend Shelhee and David to our family and friends, and we will certainly turn to them for any future real estate needs. Thank you for your outstanding service. Your company name, Uniquely Real Estate is so fitting to both your profiles, because you guys are so unique in this industry!!! You are a true asset to the real estate industry, and we are fortunate to have had the opportunity to work with you. If it will allow me to give you more than a 5 star rating, I would have given that to you in a heartbeat because you truly deserve it!!! Good luck! Tootsie R.️️️️️ ***** We are real estate developers and we just completed a very long and complicated escrow. We bought a development site. Shelhee and David presented us in this transaction. They kept us informed and made sure the seller followed and completed all his obligations throughout the process. It was my 8th transaction with them. I find them as a very professional team you can rely on, regardless if you are a real estate investor or first time buyer. Definitely the right team to market your property when you are ready to sell. Always a pleasure to work with them and looking forward to our next transaction together. Best of luck with Unique Realty. Adi C.

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***** Considering that I stay at home with three small children, selling our family home was one of our more challenging life events. Shelhee was amazing! I interviewed several Realtors® and Shelhee's professionalism combined with her enthusiasm and obvious empathy put her far above the rest. We felt cared for as people and had justified confidence in Shelhee's marketing and sales ability. She respected that it was our home that we lived in while assertively and effectively marketing in this far-less-than- ideal market. She is kind, genuine, and an amazing business woman. Andrea M.️️️️️ ***** I have worked with Shelhee and David for the past 12 years. From my 1st rental when I moved to California to now my 4th purchase with them. Moving from Florida with zero knowledge on the California market looked like a big stress but from the moment I hooked up with them I felt most comfortable and knew I found the right people. They are professionals who knows how to guide you as a seller and buyer to make the process easy and smooth. Their knowledge of the market, the process and dealing with people is very impressive. Nothing was too difficult and they always made it happen. I gained trust immediately and allowed myself to go with their suggestions without even questioning because it just always works. I recommend Shelhee and David to all of my friends because I can trust them 100%. Take my word. You will be very happy. Yael K.️️️️️ ***** David is truly a great real estate agent. He walked my wife and I through the entire selling process, from putting our townhome on the market all the way through the end when it was sold. Not only did he do a spectacular job, but he was able to negotiate the

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highest selling price for a unit in the townhome complex in many years. If it wasn't for David's knowledge and expertise, I do not believe we would have received as much as we did for our townhome. David is really the best. Ean S. ***** We had a fantastic experience with Shelhee and David. They were very professional and went above and beyond to help us find our perfect home in LA. They were always on top of everything including finding listings, touring the houses on FaceTime with us, and giving us good advice since we were unfamiliar with LA and it’s surroundings. We would highly recommend them for all your real estate needs! Thanks so much for making it so easy and smooth to find our dream home. Stephanie J. ***** Shelhee and David helped us land our dream home! In a particularly challenging market, they guided us through submitting multiple offers until we were finally under contract. We dealt with an extremely difficult seller or selling agent (which almost led us to walk away), but this team remained dedicated, ensuring we hit all of our deadlines to close the deal. Today, we are absolutely in love with our new home. Thank you, David and Shelhee! Angela J. ***** Shelhee and David at Uniquely thank you so much for making my first time buying experience a positive one. Always available to answer any questions I had and making the entire transition smooth and easy. THANK YOU! Diane T.

-Read more reviews here: https://uniquelyre.com/testimonials

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CHAPTER 1 How Real Estat eal Estate Agents e Agents Help Home Buyers

We'll come right out at the start and tell you we are real estate agents—proudly so! Nice to meet you! We are not trying to sell you anything, but we are pleased to be of service. We are giving you the benefits of experience and advice we have gleaned throughout our career selling houses and being in real estate transactions—for both sellers and buyers. If you want us to help you find a house, we can talk. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the home they eventually purchase via the internet, through Zillow, Realtor.com, or one of hundreds of other real estate websites. With all this information available, you might wonder if you need a buyer's real estate agent. Can you handle the process on your own?

WHY HOME BUYERS NEED A REAL ES UYERS NEED A REAL ESTATE AGENT

Ah, not so fast, the reasons to use a real estate agent today are as valid as yesterday. The ease of online transactions and the proliferation of services to assist buyers in handling their own real estate transactions came about recently, as a result of the NAR settlement. The settlement has caused buyers to wonder if using a real estate agent is no longer necessary or if it's an expense that can be avoided. The fact is that while sellers can choose not to pay buyer's agent compensation, this doesn’t 1

necessarily absolve them of related costs. Buyers may request concessions or include contingencies in their offers, effectively shifting the burden back to the seller. A do-it-yourself home purchase might be pricier than a real estate agent’s compensation in the long run. On most home sales, there is a listing agent (the agent engaged by the seller to sell the property) and a buyer's agent. A buyer who goes directly to the listing agent and allows that agent to “manage” both sides of the transaction is dealing with an agent who has conflicting fiduciary responsibilities. Their job is to get the highest price for the seller, and they might not zealously represent the interests of the buyer. A buyer's agent is therefore a real estate professional dedicated solely to representing your interests as the buyer throughout the home-buying process. Once you agree to work with a buyer’s agent, you will sign a written buyer agreement outlining key services, area and compensation. Then the buyer’s agent will work on your behalf, helping you find properties that meet your criteria, scheduling viewings, negotiating offers, contingencies, terms and handling all the necessary paperwork and legalities involved in purchasing a home. You should look for an agent who's gone through extra training as a Certified Expert Buyers Agent (CEBA).

BUYER AGREEMENT GREEMENTS

New regulations obligate potential home buyers to enter into a written buyer’s agreement with an agent before touring homes. A written buyer agreement is a formal contract between you and your buyer's agent. It outlines the services your agent will provide, the terms of your working relationship, and how much the agent will be compensated. Compensation for the buyer’s agent can be directly paid by the buyer or negotiated with the

seller. This agreement ensures that both you and your agent are clear on your mutual expectations and responsibilities.

Key Components of a Buyer’s Agreement

• Services Provided: Details of what your agent will do for you, such as searching and finding the right homes, arranging viewings, and negotiating terms. • Compensation: Clear disclosure of how your agent will be paid. This could be a percentage of the purchase price, a flat fee, or another arrangement. It's important to know that agent fees are negotiable and not set by law. • Term and Termination: The duration of the agreement and conditions under which it can be terminated by either party. • Consumer Protection: Disclosures related to your rights, confidentiality, and any potential conflicts of interest. Entering into a buyer's agreement provides many benefits. First, it brings clarity to your relationship with your agent, ensuring that both parties understand their roles and responsibilities. Second, it demonstrates a mutual commitment from your agent and you to dedicate their efforts to your home search. Lastly, it offers protection by safeguarding your interests and ensuring transparency throughout the transaction. By having a formal agreement, you can proceed with confidence, knowing that your agent and you are committed to helping you find your dream home while protecting your interests.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market and a special knowledge of local conditions. Agents are a professional liaison between sellers and buyers. An agent will have access to

many properties listed by other agents. Buyers’ and sellers’ agents know how to put a real estate deal together. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. On their own, buyers have a more difficult time with these tasks. This is even more so the case when a buyer is moving due to relocation or employment opportunity and does not engage a buyer’s agent to handle matters.

NEGOTIATING IS HARDER ON YOUR OWN

A real estate agent will keep the transaction “at arm’s length,” understanding personalities and emotions that often become involved. Price and terms negotiations take a special skill and understanding of the psychology of writing offers and counter- offers. Therefore a Certified Real Estate Negotiator (CREN) comes handy. Agents keep the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood- paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without insulting the owner. Your agent will translate that to the seller—that you very much like the property but can see having to spend a certain amount in updating costs, and request a price consideration.

CONTRACTUALLY SPEAKING…

Generally, there are many disclosures, advisories, documents and contracts involved in purchasing a house. Unless you’re a real estate professional, escrow or title officer, these documents will be foreign to you. Yet, they require detailed

and accurate completions. Buying a property is not necessarily a “fill-in-the-blanks” transaction. One mistake, could haunt the buyer well down the line after purchase. For example, a property that sat on a double lot was put on the market. The neighbor bought it to carve off a bit of the second lot to expand his own yard. The seller then put the home back on the market, and it sold. Months later, through a property tax notification, it was discovered, in preparing new deeds for the properties, the expanded yard area was correctly in the name of the neighbor; however, the house had been transferred to the home buyer. The new homeowner now owned both houses, and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A real estate agent deals regularly with these contracts, conditions, and unexpected situations and is familiar with which conditions and contingencies should be used, when they can safely be removed, and how to use the contract to protect you.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The main reason buyers might choose not to use a real estate agent is to save money. But does skipping professional representation really result in savings? In most cases, it doesn’t. Buyers often assume that purchasing a for-sale-by-owner (FSBO) home without an agent will allow them to negotiate a lower price, because the seller isn’t paying agent compensations, the seller will lower the price of the home accordingly, and they base their offer on this expectation. However, FSBO sellers usually have the opposite expectation—they’re looking to maximize their profit by keeping the compensation savings for themselves. This creates a direct

conflict between buyer and seller, making it unlikely for both parties to benefit financially. Here’s some of the advantages that using a real estate agent can bring to your buying experience:

• Education and experience • Neighborhood knowledge • Price guidance • Market conditions information • Negotiation skills and confidentiality • The ability to handle paperwork • The ability to handle closing questions • Protecting your interest

WHO A REAL ESTATE AGENT IS GENT IS

Simply put, a real estate agent is someone licensed to list and sell real estate, including homes, multi-family properties, commercial, and industrial buildings. A REALTOR® however, is somewhat different. A REALTOR® is a member of the National Association of REALTORS®. While an agent is always a real estate agent, it is important to clarify that a real estate agent isn’t always a REALTOR®. Being a REALTOR® indicates a commitment to higher ethical and professional standards. As mentioned, real estate agents who work on behalf of the best interests of the buyer are commonly called buyer’s agents. All listing agents represent the seller, and work on the best behalf of the seller. Buyers can schedule consultations with agents to learn more about the services and who they feel can best represent their 6

needs. Once buyers have decided on an agent who they feel can effectively represent them, they will enter into a buyer's agreement, formalizing the relationship and ensuring that their interests are protected during the search for their new home.

HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS UR NEEDS

As with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will simply wear off. Meet with prospective buyer's agents personally. A good buyer’s agent will want to know whether you’re pre-approved for a loan by a lender, what kind, and the terms of the loan you’re getting. They should spend adequate time to discover what you’re looking for in a house. They should listen as much as talk and ask questions. If the agent doesn’t broach the topic, ask for an explanation of his or her understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll be working for the buyer or the seller whenever they have substantive contact with a customer or prospective client. A professional agent will offer you a buyer’s agreement, and will explain it to you. If the agent can’t explain agency concepts to you, then move to the next agent. Be sure that the agent will be showing you all listings or properties on the market that meet your requirements, and not only listings that are handled in-house. Buyer’s agents have the legal duty to put the buyer’s needs ahead as a top priority. A good buyer’s agent will provide a home-buying education. The listing agent will point out all the features of a home; a good buyer’s agent will point to the faults—or advise when they can be

overlooked.

Competent buyer’s agents help their buyers to think clearly as the home-buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and look at the space above the garage that will make the perfect art studio you desire. Likewise, a cute house with all the amenities but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According to the San Francisco Chronicle’s Home Guide, if you decide to buy with the intention of building an addition, the agent should advise you to check the zoning before making an offer. Agree to sign a buyer’s agreement after you have met with an agent, and discuss the terms for payment, whether that's a negotiated compensation structure or a direct payment from buyer to the buyer's agent. A buyer’s agent is legally required to maintain your confidentiality, disclose known material facts to you, including the potential for direct compensation, and maintain loyalty to you.

LOOK FOR PROPER CREDENTIALS

You wouldn’t trust a doctor who didn't have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with special credentials—those who have gone that extra step to take additional classes in certain specialties of real estate sales—is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: • Certified Expert Buyers Agent (CEBA): Completed additional education of representation of buyers in their 8

transactions. • Certified Real Estate Negotiator (CREN): Completed additional training for handling tough negotiations in real estate transactions. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of REALTORS®, it will be a advisable and a bonus. However, ensure they have credentials that are relevant to your need(s).

RESEARCH LICENSING

Your state will have a license board for all active REALTORS® and agents, which you can easily access. You will also be able to see their contact information, disciplinary actions, complaints, or any other information that you’ll need to help influence your decision—especially since most of the information is now posted online.

GIVE THE “WHAT ELSE” TEST

A good agent will know about all the other properties for sale in the area. Also, a good agent always does their research regarding the current market, and those homes that are out there for the taking. In short, you want an agent who’s an expert of the current market, and someone who always stays on top of things.

RESEARCH THEIR BUSINESS ACTIVITY

Learning the type of market presence that a real estate agent has is the best way to figure them out. Ideally, you’re going to want an agent who constantly follows the real estate markets, and who understands which types of homes and amenities are available within your price range. You can unearth this information by asking them.

You’re better off with an agent who’s experienced and also engaged actively in the price range you are qualified to buy.

GOING THE BUYER'S AGENT ROUTE

So, you’re ready and excited to look for a place to call “home.” To get the most out of it, use a buyer’s agent to avoid a flurry of paperwork, dealing with stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting and exhilarating, but it can also be complex and stressful — which is why having a pro by your side can make an enormous difference. True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. When you find the right one for you, these real estate agents will work day and night to ensure all your needs and requirements are met when it comes to finding the right home.

GETTING STARTED WITH A B TED WITH A BUYER’S AGENT

Your buyer’s agent will have a vast knowledge of the current real estate market for the area, which will include neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance. Once you meet with the buyer’s agent and sign the buyer’s agreement, they’ll generally help you determine your needs and wants when it comes to finding a home and a neighborhood. The agent will teach you what you can afford, help you set a budget, provide some insight on the current conditions of the market, and explain what you should expect while shopping for a home.

During the shopping period, you’ll meet with your agent for

tours of homes in which you might be interested.

They will give you insights into the floor plans, the home’s pertinent selling points, and the overall condition. It will recommended that you will check into crime in the area, local activities, restaurants, shopping centers, and schools nearby. Your agent will assist you in ensuring inspections of the homes are complete, as well as the disclosures therein. They will also assist you with implementing results of inspectors, lenders, and all other professionals involved with the purchase of the home.

DUAL AGENCY: THE BASICS

A “dual agency” relationship occurs when a buyer is being represented by a brokerage firm that also has the listing. Once a broker represents both the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker. Even in states where allowed, dual agency must be clearly disclosed and consented to and by all parties involved. This arrangement can create potential conflicts of interest, and buyers should be fully aware of these implications before agreeing to dual agency. All agents hold the same responsibility, which is to inform their clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without consent from the clients.

If you’re selling your home and you don’t want your agent to also

work with the buyer of your home, it’s your right to say so in the listing agreement. This is also true for buyers. A buyer can get out of the agreement with an agent if they are interested in purchasing a home their agent is listing. When it comes to dual agency, there are definite advantages for the seller. • Trust has already been gained with your listing agent, so representation for the buyer has been established. • Your agent brought you the buyer knowing that you’re selling, even if your property has not yet hit the market. • Your listing agent will have already covered and researched your neighborhood’s market to gain buyer inquiries, which means your agent will be working from all sides of the deal to sell your house faster, and with more incentive. There are also cons for the seller when it comes to dual agency, and they are: • You can’t be advised by your agent as thoroughly when they must act as a dual agent because impartial facilitation is required. • Your listing agent has a conflict to negotiating the best or highest price for you and at the same time negotiating both the best and lowest price and terms for the buyer. • Earning compensation from both buyer and seller, if the opportunity arises, may tempt the agent to coerce a deal that you might not be accepted otherwise. • Your agent may inhibit all access to your listing through buyers with agents.

To avoid surprises or missteps in a dual agency sale, always ensure you have clarified important details with your agent ahead of time. You can do this by using an exclusive buyer agreement, or a listing agreement.

HOW REAL ESTATE AGENTS ARE PAID

The compensation structure for real estate agents can vary, especially with recent regulatory changes that offer more flexibility and transparency. Agents are required to disclose their compensation arrangements clearly in the buyer agreement. This ensures that you, as a buyer, understand exactly how your agent will be compensated and can make informed decisions.

Possible Compensation Structures

Recent regulations now allow for more varied compensation structures. Buyers will need to be proactive in understanding the costs associated with their agent's services, and may need to factor these costs into their overall budget for purchasing a home. Here are some of the ways a buyer’s agent can be compensated: 1. Split Compensation: Starting August 17, 2024, compensation information will no longer be communicated via the MLS (Multiple Listing Service). Compensation agreements based on commission must now occur off-MLS through negotiation and consultation between real estate professionals and their clients. These agreements may still follow the traditional split compensation model, where real estate agents are paid a commission based on the final sale price of the home. This compensation is typically a percentage agreed upon between the seller and the listing agent. If using this payment model, the buyer's agent would receive a portion of the compensation, as arranged between the listing agent and the buyer's agent. Typically, all compensation payments go through the broker managing the brokerage where the agent works. From there, the

compensation is split between the broker and the buyers' agent according to their internal agreement. 2. Direct Payment from the Buyer: The buyer may agree to pay their agent directly. 3. Negotiated Arrangements: Other customized compensation agreements can be negotiated between the buyer and their agent. Example, in the offer the there is a request for the seller to pay the buyers' agent compensation. The buyer will make up any portion not paid by the sellers' broker. Before you start touring homes, you will need to enter into a written buyer’s agreement with your agent. This agreement will outline the services your agent will provide, the compensation structure, and other terms of your working relationship. The greater flexibility for agent compensation methods due to recent changes in regulations reinforces the importance of entering into a written buyer’s agreement. This formal agreement ensures both parties are clear on expectations and protects your interests throughout the home-buying process.

CHAPTER 2 Owning vs. Renting

Owning your own home might be one of the defining qualities of the “American Dream:” the set of ideals that includes opportunity for prosperity and success and an upward social mobility for the family and children, achieved through hard work. Home ownership is surely ingrained as one of the strongest representations of that vision — 66% of Americans own their own home, and more hope they will or wish they did. Something about home ownership plucks a strong chord with Americans. Financial security, permanency, status, and pride are values many of us seek. Lifestyle plays a big role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and growing a family. Less than 40% of people under 35 years old own homes, 60% of people over 35 years old own homes, and more than 80% of people 65 years old or over own homes. Interestingly, for the millennial generation, the primary reason for buying a home? Owning a dog. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs associated with purchasing a home. As they build careers, save money, and start families, many choose to buy a home, recognizing that home ownership, as opposed to rental living, is more appropriate and secure to their growing family needs. At the other end of the age spectrum are homeowners nearing 15

retirement who may desire to sell their homes, downsize, avoid the maintenance and other obligations, and go back to renting.

WHICH IS BEST?

Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have their advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is impossible to predict. In general terms. If you’re thinking about buying a home and selling it in two years, buying might not be cheaper than renting, depending on market trends. Do you think of or need your house as an investment in your retirement plan? Many Americans see their homes as a valuable asset, often integral to their retirement strategy. Real estate is commonly regarded as a solid long-term investment, frequently favored over other options like stocks, gold, savings accounts or gold. Its appeal lies in the potential for value appreciation over time. However, it's wise to remember that the real estate market is subject to fluctuations. Property values can both increase and decrease, influenced by various market and economic factors. This reality highlights the importance of considering real estate as one component of a diversified investment portfolio, recognizing both its potential benefits and inherent risks. Are you financially ready? Owning a home is a financial commitment that requires planning how home ownership fits into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of

first-time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees if applicable, and ongoing maintenance. Are you prepared for the down payment? This is the lump sum payment that funds your equity as required by your lender. Down payments vary; 20% is preferred and gets the best rates. There are some loans that allow down payments as low as 3.5%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan because lenders will add the loan debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (prorated). These items can affect the monthly payment by several hundred dollars or more. Are you emotionally ready? Can you handle the stress? A big factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage (No. 7), switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It’s better to rent if your life is in flux and then buy when your stress levels are lower.

Are you ready for commitment? Are you ready to make lots of decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready for devoting the time and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your biggest investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expense. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner has assurance that housing costs won’t increase over the period, and, in fact, will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity—actual ownership of the property. Further, the property should appreciate in value each year, further adding to equity (what the house could be sold for versus what is owed on it). Discounting certain blip periods, such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5% and even higher in California Remember, though, home value appreciation in different metro areas can appreciate at markedly different rates than the national average. Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus both making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a

bathroom or remodeling a kitchen substantially increases the property’s functionality and appeal, while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: • Homestead exemption. Protects the equity in a homeowner's primary residence from creditors and involuntary sales. The amount of the exemption is based on the median sale price of single-family homes in each county for the prior year. The exemption amount can fall between $300,000 and $600,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can be deducted on your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for, and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service (IRS) Form 1098, which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes;

state, and local, and foreign income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year, up to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a trade or business, or in an activity engaged in for the production of income. In other words, if you are just living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Comparatively lower lending rates on mortgages. Mortgage rates, though subject to fluctuation, often remain more favorable compared to other types of loans. Even in periods of higher rates, mortgages typically offer more competitive interest rates than personal loans or credit cards. This aspect of home financing can make homeownership a financially advantageous decision, providing a more affordable route to building equity than other borrowing options. Ownership rights and creative freedom. Your decorating and home-improvement choices are just that — yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls any which way, add fixtures, or build a patio or deck. Changing your environment to suit whims is a freeing aspect of homeownership. A sense of belonging to the community. Homeowners tend to stay in homes for longer than renters and are more likely to grow roots. They might join a neighborhood association, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, particularly if they know their lease is up in a year and they might move. There’s an intangible pleasant feeling attached

to owning your own house — a sense of freedom, independence and security. The home you live in belongs to you, and you can do what you want with it. You aren’t daunted about increases in rent or losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area on a more permanent basis; you never need to worry about a notice from the landlord to vacate your rented home for a variety of reasons over which you have no control.

ADVANTAGES OF RENTING

It seems a shorter list, but one man’s pro is another man’s con, and there certainly are advantages to renting to factor into your buy- or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. As a renter, you’re not responsible for home maintenance or repair costs. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person—you just call your landlord or maintenance. Renters in apartments don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is easier. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment with the landlord permission, or talking with your landlord. On the other hand, selling a home takes time and effort. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell—it is.

DISADVANTAGES OF OWNING

Maintenance. The renter’s largest advantage might just be the

homeowner’s major disadvantage. While insurance might be available to protect against expense from major catastrophe, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the baseboards and can also be as extensive and expensive as replacing a HVAC system or sewer pipe. The expense will vary from year-to-year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $1,500,000 home for 10 years, that’s $150,000 over the period, and perhaps more if you must replace a costly, long- lived mechanical item, such as a furnace. Keep in mind the usual homeowner’s chores of lawn care, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranging from 3.5% for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

No equity building. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. You gain no ownership in the property, no matter how long you live there.

No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Additionally, approval for desired major redecoration will be necessary. After all is said and done, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying, though, that a home of your own is a good financial and a great emotional investment. An investment in a home can also mean an investment in your future. There is much to consider when you want to buy a home. Switching from renting to homeownership is highly challenging, but an exciting and amazing decision to make.

CHAPTER 3 Buyers' Needs and Desires

After you’ve decided to buy a home, what sort of home will suit your needs is your next decision. It’s helpful to have a clear vision in mind of what type, features, and amenities you want in your home, to make the process of finding a suitable home productive. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (i.e., bedrooms, living room), and functional rooms (i.e., kitchen, bathroom[s]). Your needs fulfilled, you turn to your desires. Perhaps you envision a home on the beach or in the city, a gourmet kitchen, a wood-paneled den, a crystal chandelier over a banquet table in the manor-sized dining room or an Olympic-sized swimming pool with a hot tub and sauna. Your priority in any home purchase should be ensuring that most of your important needs are met. many times, you won’t find everything you desire in a home and will need to compromise. It’s important to prioritize the things you want in a home by how important they are in your search.

Decide your needs vs. your desires .

• Would you like a swimming pool? Enough that a home without one will not be looked at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute, schools or home price reasons? 24

• What features would make it special? • What can you afford and what is out of your budget?

Budget usually constrains us most in selecting a home. While some features are necessary for any home, others will just stay on the list of desires for now.

MAKE A LIST; CHECK IT T ; CHECK IT TWICE

You may have an impression of what you want in your new home. Putting that to paper and having a complete checklist can prove useful. Before starting your hunt for a new home, it’s advisable to make a list of all your basic needs and desires, then prioritize the desires, figuring your "wish list" in any house under consideration. This will make the search easier and help weed out the ones that don’t meet the basics. You need to understand that it will be nearly impossible to find a home that meets all requirements. Compromises will be necessary. It’s a good idea to work from outside-the-house factors to inside- the-house. For example, location is perhaps the primary concern and both “needs” factors and “desires” factors might be involved. A “need” would be “must be within 15 miles of work.” A desire might be, “would like Westwood” , while a need might be “on the west side of the city” to easily access, family, friends, and recreation activities. Location needs may include proximity to work, schools, family and frequently used recreation facilities. Whether an item is a need or a desire depends on circumstance. Closeness to family might be a need for a couple with young children or elderly parents to care for—or a desire if those factors aren’t involved. It’s items like these that make a checklist most 25

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