A real estate expert has revealed that buying a home based on emotions is the biggest mistake first-time home buyers make on the housing market.
Money.com.auMansour Soltani told Daily Mail Australia that first-home buyers often buy a home because of the “good feeling” it gives them, leading him to coin the term “emotional equity.”
According to Soltani, there is a growing trend: buyers are ignoring the usual due diligence that goes into purchasing a home.
Emotional equality also causes buyers to set aside the financial implications. This is a mistake that can have serious consequences.
“We see it all the time: First-time buyers fall in love with a home and rely solely on their emotions. That can be a reckless move,” he says.
The mortgage expert has revealed five top tips to avoid the pitfalls of emotional self-worth.
1. Check comparable sales in the area
“If you’re buying a three-bedroom, two-bathroom home, look at comparable sales of similar properties in the area,” Mr. Soltani said.
‘This allows you to compare apples to apples and ensure you are paying a fair price for the property based on current market conditions, rather than relying on a “gut feeling.”‘
Krystal McBride, 38, says it was a sense of nostalgia that prompted her to buy her first home in Woodville Gardens, Adelaide when she was 25.
Krystal McBride, 38, (pictured) regrets not doing her due diligence when buying her first home and getting caught up in nostalgia
The 38-year-old bought her first home (pictured) when she was 25, thinking it was in an ‘up and coming’ area – but she never based this on facts or research. After nine years, she sold it for a small profit
After purchasing the 1950s brick Art Deco home for $346,500, Ms. McBride admitted she quickly regretted her decision.
“I wish I had done more research on the area and driven or walked the streets surrounding the property before I bought it,” she said.
“That would have opened my eyes a little bit to what it would be like to live there.”
2. Consider the home’s attractiveness for resale
“Even if you are buying a home with the intention of living there for the long term, you should always consider how other buyers will view the property,” Mr. Soltani said.
‘Look at the property’s layout, square footage and features that will appeal to a wide range of homeowners.
‘If your financial or personal circumstances change, you can sell your home quickly and for a good price if you know it has good sales potential.’
Mrs. McBride soon realized that the environment was not ideal.
“The streets were often full of trash, broken bottles and sometimes discarded syringes. It was dangerous to walk our dog through the neighborhood,” she said.
“We used to drive to other places where we didn’t have to worry about him licking anything or stepping on glass.”
The South Australian local (pictured) admitted she also got caught up in the ‘excitement’ of the buying process and was disappointed the home didn’t increase in value as much as she had expected.
Mansour Soltani, a mortgage expert at financial comparison site money.com.au, advises first home buyers to do their research so they don’t get carried away by their feelings about a property (pictured, buyers at an open house)
3. Look at infrastructure projects in the area
“Research the infrastructure projects that have been implemented in the area in the last five to 10 years, such as new highways, shopping centers, schools and public transportation improvements,” Mr. Soltani said.
‘Also check whether any future projects have been approved by the local council or government that could impact property values and neighborhood growth.’
According to Mr Soltani, emotional self-worth can undermine the financial future of first-home buyers.
“Your first home is meant to be a stepping stone to greater prosperity or the home of your dreams. But if you make a bad purchase, it can have major consequences for your financial future,” he said.
“It can limit your ability to build wealth, invest in additional real estate and even impact your retirement income.”
4. Check that the property has all the necessary building permits
‘Have your solicitor or conveyancer carry out a building survey with the local authority to confirm that the property you are buying has all the necessary planning permission and that any renovations or extensions have been properly approved,’ says Mr Soltani.
‘Once the property is in your name, you are responsible for any unapproved work or compliance issues, which could result in hefty fines or mandatory renovations.’
Mrs McBride said that although she had a building and pest inspection carried out, her investigation stopped there because of her feelings about the house.
“I walked into the living room and immediately got a feeling of home and nostalgia,” she said.
‘The light coming in and the way it lit up the room reminded me of my childhood and I wanted it so badly.
“I was worried I would miss out on the house because the window to make an offer was so short. I got caught up in the excitement and the process.”
5. Get a second opinion from someone you trust
“Take someone you trust with you to the home inspection (many first-home buyers bring their parents) who can give you a more objective picture of the home and the neighborhood,” Mr. Soltani says.
“They can flag up potential problems that you might miss, which could save you a lot of pain and money in the future.”
Ms. McBride said she did the home inspection at the last minute after seeing another property in the neighborhood that she didn’t like.
“We viewed the property on Saturday, made an offer on Monday and the next day we were told it was ours.”
Mr Soltani said buying a first home should be a ‘stepping stone to greater prosperity’ but it could have a negative impact on a person’s finances if they do not do their due diligence (pictured)
The 38-year-old woman said she planned to keep the house for only five years because she was convinced the neighborhood was “on the up and up.”
“But that wasn’t based on any real evidence, just a feeling and what my family had told me,” she said.
Mrs. McBride ended up holding it for nine years, barely making a profit.
“The value of the house hasn’t increased as much as I expected in the nine years I’ve owned it, but I never really did my research into areas where I could expect high growth,” she said.