After renting a couple of years, Jake decided to buy a home. When he first found a place to put an offer to, he got concerned, so he canceled his contract. The second home had significant problems during the inspection, so Jake canceled his contract. Finally, he found a quality team representing him that made him feel secure, comfortable, and confident in purchasing his dream home! You can learn from Jake when to back out of the deal and what you should watch out for before buying a home. Here is his story…
—
When To Back Out Of The Deal – Interview With A First Time Home Buyer
The big question that many first-time home buyers have is, “When should I pull out of the deal and not buy the home?” In this episode, we’ve got a real-life story from a real-life first-time home buyer. I love doing these interview episodes because it’s a chance for you to read, and I know I tell you all the time that everybody’s personal situation is different but you can still learn from these real-life experiences. Especially when it comes to something as tricky as getting an inspection and deciding not to buy the house that you already got your offer accepted on. Here’s Jake.
—
We are very excited about this episode. This is take two. Thank you, technology. We are going to see if it works. This is Jake in Utah, who I found out, so I will recap for you. He started thinking about buying a home back in April of 2021. He closed earlier in 2022, at the beginning of the year. Jake, say hi to the world.
How’s it going?
We found out in the last interview that it got cut off. Thank you, technology. April of 2021, what was the big reasoning behind you deciding that you wanted to become a homeowner?
It was the next step in my plan for me. I’m a structural engineer. I had a big test in April 2021, and after I passed that test, it felt great, and on the next big thing.
Did that change career for you?
No, it was all a part of the growth of the career.
How long have you been renting before that?
A couple of years since getting out of school.
You always have this plan in mind that you thought, “I’m going to do this, take my test, and buy a home someday?”
Yes, that was the idea.
When you started your planning process, where did you start? Did you have friends or family that gave you some advice? Did you start online? What did you do?
I started online. I started looking up articles and everything and then started listening to the podcast, and that led me to you.
That’s very nice. I appreciate the fact that you stuck with it. What were the things that were attracted to you about becoming a homeowner besides the fact that you thought it was what you were supposed to do?
Honestly, the biggest thing was I wanted a bigger garage, so I had to focus on that.
Do you have toys in there or do you have a giant vehicle? What’s the deal?
I need a future vehicle that’s going to be big in there but it’s already full.
You had to figure out how to pay for a house first.
That’s what it was.
[bctt tweet=”Make sure all the research you can do beforehand is good before making a deal.” via=”no”]
You got a good plan then. We will jump right into it. In April 2021, you started the process, and looking around, what were your next steps? How soon was it that we ended up chatting?
A couple of months or within a month or two. It got to the point I needed a realtor. I had gotten pre-approved already. I knew what I was looking at. I was looking at homes, and it was time to get a realtor and reached out to you for that unicorn realtor. I’m so glad I did.
Once you got in touch with a unicorn, you had your preapproval. Are there any steps there that you can give advice to people to prep them like, “Make the call but maybe before you make the call, here are some things that I had to do immediately that could be good things to help other people get ready?”
Make sure all the research you can do beforehand is good. My realtor had to test her patience with me because I took a long time working through the whole process and had to put in a few offers before getting more aggressive with them and the inspection periods. They will walk you through it all and make you feel good about it but at least for myself, the more research I put in, the better I felt.
I will let you know a little secret. We have a couple of different little categories in real estate. When we refer people, we go, “This one is a lawyer or this one is an engineer.” When we get an engineer, it’s great, though, because it tests us. It makes us realize, “Data, I have to give this person all of the data.”
For the people out there who could be of the same mindset. What were some of the pieces that made you more comfortable? Especially considering the fact that for your first couple, you were shooting a little low. What pieces made you feel comfortable going ahead and not feel like you were overpaying or overreaching?
It was practicing. After the first offer, then you go down to the second year. I got a better understanding of this. It’s funny you brought up data. My home inspector did three homes for me before this one. by the end of it, he was like, “I love engineers. They take all the emotion out of it.”
It is funny because sometimes I have to pull people back off the ledge, whether they are falling in love with the place or dying sad because they don’t get a place. It is hard. I tell people all the time, “I can’t help it when you turn this age but you turn this age. You, specifically right in the middle of the most competitive market in history.” That’s cool. That’s a good thing to help explain to our readers. You went ahead and did inspections on homes and then decided not to purchase. Am I understanding that correctly?
Yes, I did that twice before. Paying the inspection fee wasn’t great but on that one, the house was bad. You needed to walk away from it. No regret on that.
That’s interesting because it brings up something that not a lot of people like to hear. When you are buying a home, you are basically buying a car without lifting up the hood or taking it to your mechanic. You can walk home for an hour at the open house but you are still not going to get all the information that an inspection gets, and inspection costs money.
You have that period. It’s different all over the country, the contingency period, condition period, due diligence period, whatever it’s called in your area. Your unicorn, Heather, sets you up so that you have enough time to put in your deposit that is being held by the company, do your inspection but then still get your deposit back.
That’s right. It was a tight deadline. It was fast.
For an engineer’s mind now because you had to do it quick. That’s why I tell people all the time, “As soon as you get that offer accepted, schedule that inspection right away.”
That’s what it was. It was within a week. We had that inspection, and then as soon as we got that inspection report, I had to make sure you could live with it.
Give us those red flags. What were the things that held you off on the first two?
The funny one, as a structural engineer, I should’ve picked up on this one but I didn’t have access to the basement. One, there were foundation issues. In that same house, the electrical panel was undersized, and the inspector wouldn’t even open it because he didn’t feel like it was safe. The trees were uprooting a lot of stuff. It was not a great house.
That’s interesting because a lot of people don’t realize that. Especially because of the speed of the market and the competitive time that you were shopping back in 2021, you couldn’t even see the basement, and they still expect you to write an offer.
It was a crawl space, so it wasn’t like a basement.
Understanding that the few hundred dollars you put out, inspections can be anywhere from $400 to $900. Depending on how big an inspection you get and what part of the country you live in but that was enough for you to realize that “I’m going to be out this money because this could be a $10,000, $20,000, $30,000 problem.”
It’s part of the biggest investment or the biggest amount of money you are going to put in for your house is worth it. You got to take it. If you need to walk away, don’t feel bad. It’s still money well-spent.
That’s why I tell people all the time, “Start the planning as early as you can and have that extra money.” That extra money can be to walk away from home. It’s like poker. If that’s your last dollar in the pot, you are going to play that hand not as well as if you can afford to lose it. He wouldn’t even open the electrical panel. That’s a red flag right there. What about number two? What were the inspection problems on that one?
That one was number two. Number one, that one was nothing as big on that one, no major red flags. I probably could have lived with that but that was still early in Phase 2. I wasn’t as comfortable with it and didn’t love the house as much as the one I’m in now. I decided I didn’t want to live there as much either.
Sometimes, especially if you are a unicorn realtor and your lender is okay with it, there are times that at the end of the day, we will go home and talk to our partner and say, “How did it go?” I will be like, “This buyer needed to do this. I could talk to him until I’m blue in the face but they had to put an offer down and then realize, ‘Now I’m ready to go to the next step.’”
That was me.
Before we started the interview, I believe your exact words when I said, “How’s the house?” you said, “I freaking love it.” Tell us, what are the exciting things about you and your new home now?
It took seven months until we found it and get it finally. Sometimes time but the right one does come up. It’s a 4-bed, 2-bath, split level. We are mostly down in the basement living. It’s fantastic. Cool in the summer. It’s got a backyard. I won’t say big but it’s got a good backyard with some grass, so that part is nice. Fire pit out back. The garage is two-car deep. It’s the big selling point for me.
I know it can be tough. I love these interviews because I start asking questions and see where it goes. How did you do research? One of the often neglected pieces in online listings are garages. Did you get to a lot of places, skip past everything, go to the garage, turn around, and walk out?
Yes.
Did you find any tricks to research garages before if there were any good pictures?
Google is great for that. You drop the pin down and see what’s there. You can see pretty well from above. At least in Utah, there are a lot more garages. It’s stated more whether it’s 2 or 3. I needed like a 2-car deep garage versus a standard 2-car then an extra height. It was tricky to find a little bit. During the whole house hunting, I had an Excel sheet. I would go through every single listing every night on the MLS, and I would rate them all. Depending on the car garage size, it would come up with like, “You will be very happy in this house or a frowny face if it wasn’t big enough.”
The spreadsheet buyers. I have had my share of you, folks, in the past. It’s great, though, because when you understand what’s important to someone, you do start to realize the one-off, a phrase I use for the show a lot. It’s 1 seller selling 1 house one time, “Sometimes, you and I, buyer and buyer agent, we have to discover.”
There’s only so much I can learn because of garage height. Not necessarily something that’s going to be listed. It might say two-car garage but it might barely fit the nose of your vehicle and not be deep. That’s an interesting part. It took you seven months. As I said, I’m sure there were a lot of times you walked in, walked out, and a lot of times, walked in, went home, put it in your spreadsheet, and did the pros and cons on your stuff. What about any other pitfalls in the process? Everyone listened to you and was like, “Great. That’s awesome. You got a house but what do I look out for?” Was there anything that surprised you in the process? Whether it’s from the financing side to the online search side.
I would contact my realtor whenever a house would come up to go look at it, and I wasn’t the most proactive at going out and seeing it. Somehow or another, we ended up going and seeing them on Tuesdays or Wednesdays or something like that. My realtor elected me once and she’s like, “We got to go on this day. Otherwise, we are not going to get a house.” It was a readjustment of my schedule to make that day work versus whenever it worked because of how fast the house went. You had to get in almost before the weekend even. It was readjusting that way in a weird schedule deal.
It is very difficult for us to help explain. The market is softening a little bit now, and homes are a couple of weeks as opposed to a couple of days, which is nice but I know exactly what you went through. I’ve had to this to people like, “Here’s what’s going on. A house goes up Friday, most of the time or Wednesday, Thursday, Friday, and then they do open houses.” If your days off are Tuesday and Wednesday, there are still going to be some houses that are available Tuesday and Wednesday but they are probably in negotiations with five offers and are about to be gone.
Getting that understanding with your realtor, that’s why you can’t talk to anybody, “I bought a house two years ago. Let me tell you how to do it.” No, the market was totally different. You have to learn. Are you happy and satisfied with the fact that you had to adjust your job stuff for a little while? I know a lot of people get angry at me and say, “These are my days off. That’s when I’m buying a house.” Did you find that to be beneficial for you?
It was part of the process. Part of if you wanted it, you had to adjust and play the game right. Do what you can to get better at it. Luckily, my job is pretty flexible, so I was able to take off in the middle of the day. Go to the home inspection, come back, work later that night and be flexible in that way.
[bctt tweet=”Get a good team to help you feel confident because you’re going to analyze, if not overanalyze, everything.” via=”no”]
You went through it a few times there. You had that avalanche of paperwork. Did it get easier as you went along?
It definitely did. I didn’t have to read it every time.
On the financial side, was this something? I know you said you got out of school and were thinking about this. Have you been prepping this for a while or were you surprised at what you could afford? Some people think they’ve got to put 20% down. Where was your headspace coming in?
With that one too, that was one, maybe not pitfalls. I put 5% down and was worried, “Do I need to try to put more down to get less interest over the life of the loan, this and that?” The lender helped a lot because he was like, “Don’t stress between 5% to 7% to 8%. Unless you go up to the next 10%, then don’t worry about it. Let’s stay with the 5% and move on kind of deal,” which was good to hear. I was losing sleep over it or trying to find the perfect number to put down. He was like, “Put the 5%, and you got a good deal. Let’s move on.”
I could give you the spreadsheet on how it works but it’s still convoluted and complicated. It’s like credit. People will freak out about their credit. Once I explained to them, it’s twenty-point tiers. From 660 to 680, 680 to 700, and people are freaking out about 685 to 692. I like, “You either got to do the big full jump or let’s work with what we’ve got.” The difference with this is when you are doing it with 5% versus 8%, you are keeping 3% in your pocket for that rainy day.
That’s what I was stressing about. Like, “Maybe I could give it up now or do I want to keep it for later?” Having the lender guide me with the 5% and say, “That’s good. It’s okay.” It helped a lot.
It’s a big math problem.
Which I like but not to worry about it.
It’s great to be able to be in a position where you know you could sit down and figure it all out but if someone says to you like, “Maybe a hundred dollars difference a month versus thousands of dollars in your bank account, let’s go here and work at the 5% because you got to hit 10 or 20 before anything ever changes.”
That’s what he was saying.
For your lender search because we have people that find their lenders all over the place. Was it a referral? Was it someone that you found on your own? You said you were pre-approved before you ended up talking to your realtor.
I went with the lender the realtor referred to me. There was a switch there from the initial pre-approval to them. I didn’t bother searching for more. I was so impressed with my realtor. I didn’t even consider that they would give me a bad lender. The only back-checking I did I check with my local credit union on the interest rate. They gave me the same interest rate. I’m like, “Let’s go with it. I’ve got other things to worry about,” as the house was closing and getting all the finished paperwork.
I can’t believe I’m going to say this. I was watching TikTok but it’s part of my job. I heard this guy talking. It’s amazing how many people think that when a realtor refers you to a lender that there’s some kickback or something involved. That is illegal. When we refer to a lender, it’s like, “This is a person who we know can get the job done.” You can shop for rates all you want. The problem with the credit unions and all those places. God bless them for doing their best but they are 9:00 to 5:00-ers. They are not going to pick up the phone on the weekend for you. They are not going to be able to give you that top-level service.
They also don’t care what happens with you when you close because their business doesn’t grow based on your satisfaction with their work. You being able to get that lender, I’m glad that worked out for you. I didn’t even know you went with someone else. I was asking a random question but you backed up everything that I said on the show. Like, “Get that good realtor that will get you a good lender, and then can go from there.”
I’m doing a series coming up pretty soon on things that people should know after they buy a house. Now, with your engineer background, this could be cool, especially structural. Was there anything that has come up about being a homeowner and things that you can help other people? Let’s assume. Let’s be positive and say, “They are going to figure out how to buy a house when they buy a house.” Any advice?
It takes longer to unpack than you would think.
That garage did you well-holding boxes for a long time?
It sure did. Minor maintenance stuff always comes up but I don’t mind it. It’s fun to figure out. It’s my home. I get to do what I want now with it. Add my own flare but it drags. I feel like I could dedicate every weekend to the house, and it wouldn’t be enough. It’s a balance.
The nice positive about it is like you said, you can do whatever the hell you want. It’s your house. No landlord. No HOA. You do what you want and have a good time.
I ended up with an older house, too. There was some inherent maintenance anyway.
Change those air filters. If you have a chimney, get a chimney sweep, all that stuff. I always tell people all the time, “Pay $75 if you have any heating and air conditioning once a year.” Get that tune-up because it will cost you way more down the line if you run it and hope that it keeps working forever.
That would be money well spent.
This is fantastic. I love it. Thank you so much for helping all my other engineer minds out there. Stick with it. Probably the big moral of the story is to get a good team to help you feel confident because you know you are going to analyze, if not overanalyze everything. It’s nice to have somebody else to back you up and make you feel comfortable with what you are doing. Congratulations to you. I hope you are enjoying the new home. Most importantly, enjoy your new garage.
Thank you. I’m enjoying both.
That’s fantastic. Thanks a lot for coming on.
Thank you, David.
—
There it is, I should have changed the show to How to Buy a Garage. It seems like Jake didn’t give a dang about anything in the house except the garage. One of the neat things about that was that Jake realized right away what one of his most important factors in buying his home was, and that was figuring out his garage and then being super smart. He’s using the top story for a rental. That’s a house hack I love to hear about.
As I mentioned at the top, everybody’s personal buying experience is different but if you are one of those engineer types anal, then I’m pretty sure Jake’s story was very helpful for you. He’s a big-time planner. That planning ended up coming in handy for him as he got closer to when he was ready to pull the trigger. I hope you got some great information out of that. One of the big things we learned from Jake is that once you get your offer accepted, that’s the beginning of everything that you need to do.
The home inspection. I know some of you out there heard that episode, and your butt cheeks probably clenched up a little bit. When you heard about a guy who put in 2 offers, got 2 different offers accepted, and pulled out of those deals. Remember, gang, this is a giant purchase, and you want to make sure that you know everything about the home that you are buying. No home inspections aren’t cheap but it’s going to cost you a lot more in the long run.
Jake gave some great examples of what to look for and the things that were important to him and made him realize maybe he shouldn’t put hundreds of thousands of dollars down. He would take the hundreds of dollars hit in his wallet to know that he didn’t make a decision that was going to affect him for years. Probably the biggest thing that we learned from Jake and his engineer mind was that all that planning that he did help him once he got that offer accepted.
When you finally get your offer accepted, you are going to freak out about how fast things go. That time period for you to pull out of the deal to do your inspections and decide whether you want to move forward or not comes up quickly. It’s called the contingency period, the conditions, the due diligence, and the option period. It’s different all over the country but talk to your unicorn team. They are going to let you know. You have X amount of days to decide if you’re going to move forward.
In California, you’ve got seventeen days. In this competitive market that we have been seeing for the last few years, sometimes it’s shorter than that. I’ve even had to do inspections for buyers and make all our decisions in seven days. Learn from Jake. Learn your own individual lessons as fast as you can. He ended up putting an offer on a house and pulling out because he realized he hadn’t figured everything out yet. That’s good to know if you are maybe, I don’t know the opposite of a planner. I’m talking to you. You know who you are.
This guy was a crazy planner with a giant spreadsheet and still didn’t know everything that he wanted to do until he put an offer on the house. It’s important for you to remember once that offer gets accepted, things move quickly. If you think you’ve done enough planning, go ahead and do some more. Finally, the big lesson that Jake talked about was that 5% versus 7% or 8% down. I don’t know how to explain it to you except with some math, so let’s do it like this.
Let’s say you are buying a $400,000 house, and you’ve got 8% or 9% of that $400,000. You want to put as much down as you can because you want a real low-down payment but then your lender says, “Why don’t you try to put 5% down because we are going to get the same rate and the same terms and the same loan product?” You are like, “No way. I want to put as much as I can down to save as much money as possible.”
Get this, you put 5% down. Fantastic. You put 6% down because you want to save money. That one percentage point of the down payment that you are going to put down. That’s going to cost you $4,000. A percentage point on a $400,000 loan. Do you know how much your monthly payment is going to change with that extra $4,000 that you put down? $23 a month. Do the math on that. Do you want to have $4,000, $8,000 or $12,000?
That’s the difference between 5%, 6%, 7%, and 8%. The difference in your monthly payment would be $23 or if you want to go to 7%, $23 plus $23. You can either have $46 a month less or $8,000 in your checking account, savings account or under your mattress. I don’t care but you’ve got $8,000. Since you are a new homeowner, you might need that as opposed to $46 a month less in your payment.
That was awesome. We appreciate Jake. We love hearing all these stories. I hope that you are getting as much out of these as I am learning from them because I get to learn every single time. I have been doing this for many years and have learned from every single experience. If you are reading this, you are not there yet, which means you can need to start your plan.
Go to HowToBuyAHome.com, and find all the information that you need to get your plan started. If you have been reading for a while and haven’t reached out, go to that website and hit Ask David. That’s me. I will answer you. We will get you started on your very own personalized plan using some of the things that we’ve learned from all these other readers, from other buyers that we talked to all over the country, and using all the great information for me. Now over 300 unicorn realtors all over the country with decades of experience helping first-time buyers like you.
Thanks so much for reading. Share the show. Please send it out to your friends. The more people that read the show, the more people we can help and the faster we can start this real estate revolution. Make sure that all you first-time buyers are getting the incredible quality service that you deserve. A great way to get started is to check out the How To Buy a Home starter kit. That’s right there at HowToBuyAHome.com. Thank you, folks, so much for reading. Thanks to Jake. You folks rock on. Keep reading, keep learning and remember, everybody’s situation is different but there’s always something you can learn because the bottom line is you can do this.
Important Links
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
Instagram @DavidSidoni
Tik Tok @howtobuyahome