In Search Of A Perfect Home

Updated: Aug 4 2002, 05:30am hrs
Buying a home is a tricky issue for various reasons - from the emotional to the financial - since for most people, such a purchase is made once in a lifetime. In the current times, with a wide variety of housing options, dozens of housing finance companies offering loans at competitive rates and a large number of advertisements for real estate, buying the ‘dream house’ can be a rather time-consuming process, especially if one has not done detailed homework in advance.

One of the reasons for the anguish is that a majority of the buyers confuse their ‘wants’ with their ‘needs’ while scouting for the perfect home. Result -- they often rule out those houses that perfectly satisfy their needs while lost in search of one that fits into their ‘wants.’

The basic step in buying a home is to identify the needs before setting off on the job. There are a few pointers that should be kept in mind during the house-hunting exercise.

One of the most important factors to be considered while choosing a particular house over the others is the location. As Knight Frank chairman Pranay Vakil says, "In our parlance, we say, the most important factor involved in buying a home is location, location and location." It is not the size that matters the most, but the location. Because at the time of sale of the property, it should be able to fetch the owner a good price.

The next point of consideration should be the surrounding areas and then other factors like the size and price for the flat. The buyer should minutely survey the surrounding area and pay for it accordingly. "There are other parameters such as proximity to railway station and other facilities which are also important and to be taken into consideration before agreeing to pay for the cost charged for the flat," adds Mr Vakil.

There are secondary factors such as the construction of the building and the track record and reputation of the builder. Adds Marathon Realty Ltd director Mayur Shah: "The first step is to verify whether the plans of the building were approved by the authorities concerned. It is necessary to verify whether the plans have been legally approved by financial institutions as the case may be."

According to Mr Shah, if one is buying a house that is still under construction, the buyer should track the progress of the project which would give a fair idea as to whether the project has received all clearances from the authorities.

If one is purchasing a house that is already completed, the buyer should verify the title. Agrees Moiz Lokhandwala from Lokhandwala Builders: "The property under development should have a true disclosure of the title certificate from a solicitor, showing the rights and obligations of the developer along with the agreements of the sale."

After the title, comes the agreement stating the area of the flat. Mr Vakil points out: "One should pay for the area covered." Since the builders charge for the super-built-up area (this includes the area utilised for the lift and the passage), the actual area that can be utilised is much less. Hence, the buyer should find out the actual area that will be available.

Once a person decides to buy a house, it is imperative that an analysis of the financial situation is done ie, impact of the purchase on the household budget. The income flows should be measured not only with the monthly mortgage payments (including insurance and taxes) but also items such as repairs and maintenance. Then, there will be the one-time fixed stamp duty, depending on the cost of the flat purchased and the registration cost.

Another issue that requires careful consideration is the financing arrangement opted for. This involves approaching the right bank for a loan and ensuring that the terms and conditions of the loan arrangement are properly understood. Though banks advertise speedy dispensation of housing loans in a couple of hours, the actual process takes longer. And if one is not ready with all the documents, it can be an even more time-consuming and frustrating process. It is always advisable to start the process of approaching banks as soon as one sets on in search for a house. So, by the time the house is finalised, the buyer has made up his mind on which bank to approach.

At the time of making a loan application, documents such as the last three years income tax returns, current copies of payment slips, records of past outstanding credit that have since been paid off and records of any supplemental income that one may have must be kept ready. If you are self-employed, you will need all business records and tax returns for the last three years. Having these items close at hand will save an enormous amount of time when the authorities ask for the documents.

Do not incur any new debt. Many mortgage applications have not been processed because the applicant has decided at the last minute to buy a new car with a big finance or lease payment. Since mortgages are based on debt to income ratios (the amount you pay out monthly versus the amount you bring in) a newly acquired debt could be enough to throw the ratios off and make the mortgage unobtainable.

While looking at various properties, a useful aid is to maintain a scorecard which lists the features of each individual house. It will not only make your search easier, but also will help immensely when it comes to making the final choice.

Every house in which you have an interest should be scored. In case you have 10 or more scorecards, you should develop a recap sheet, which will make your comparisons much easier. The recap allows you to rank each house subjectively according to your needs and wants.

Once you have found a house that you are prepared to buy, the first step in the process of negotiation is to determine its fair value. The real estate agent employed can be of great help here, since they have access to the information that you need. Do a detailed Comparable Market Analysis (CMA). A CMA will show exactly what properties, similar to the one in which you have an interest, have sold for. This analysis is based on fact, rather than opinion. Such information is always of more value to you.

Generally, CMAs will list location-wise, the houses that are (i) currently in the market (ii) are pending sale (iii) have expired from the market, or (iv) have been sold. Houses available in the market for sale are not always a good indication of what their values are. Those that are pending sale will only tell you what the listing price is (not what the house is going to sell for) and those that expired because they didn’t sell are likely to indicate that they didn’t move because the pricing was inappropriate.

Once you have this information in hand, it would be beneficial to see the properties that are listed in the sold column. How does your preferred house compare to the others that have been sold recently Size, number of rooms and such other factual data can only tell you so much. Your eyes will be able to tell you a lot more. Make a realistic comparison between the condition of your chosen house and those that have recently sold. Then take a call on what you want and whether you have a fair deal.

Another point to be considered is whether the house that you have chosen has the same type of amenities as a comparable house Although amenities do not affect the value as much as location or condition, they still can be a factor. Be wary, though. An outdoor hot tub may have been a major motivating factor in your choice of a house, but it will not add a great deal to the value of the property.

An effective negotiator will gather as much information as is available on the house and the sellers. One important piece of information would be the seller’s reason for selling. Is it a case of having to sell or wanting to sell Or, is it a case of -- let’s throw it in the market at an arbitrary price, and if somebody bites, we’ll move. If your agent represents you in the transaction as a buyer’s agent, he may or may not be able to secure this information for you (it depends on what the seller and the seller’s agent want to reveal). If you are working with an agent that represents the seller in the transaction (or in a dual agency position), he will not disclose this information without the seller’s consent.

If this information is not revealed to you, a friendly discussion with one of the neighbours may give you some hints.

Just having the right information is not enough. You must prepare yourself to use it effectively. For most people, buying a house is an emotional experience as well. It is not unusual to be excited--in fact, it is normal--but you must keep your excitement in check, think rationally or you will lose the value of all the information you have gathered.

You must stick to the budget set by you and should be able to walk away from a deal if the terms and conditions do not match your plans. It is important to set a realistic limit and then stick to it. A common characteristic among buyers is that they end up overpaying for a house as a result of letting their emotions rule their better judgment. It becomes very easy to regret paying too much for a house when you make a mortgage payment every month. Unlike a product that you may have overpaid for once when you buy it, a house reminds you every 30 days that you made a mistake.

Finally, organise your information and have it quickly available. Don’t throw away all of the information gathering and preparation you have done by making a ridiculous offer on a well-priced home. Nothing will turn a seller off more than a low offer for a house that has been realistically priced. Often, negotiations will stop, rarely to be revived again. If they are reopened, the sellers, generally, will show their displeasure at the initial low offer by locking at or near the listing price.