A real estate expert has revealed that buying a home based on emotions is the biggest mistake first-time home buyers make in the market.
Money.com.auMansour Soltani told Daily Mail Australia that first-time home buyers often purchase a property because of the “good feelings” they experience, leading him to coin the term “emotional capital”.
The trend, which Soltani says is increasing, is for buyers to ignore the usual diligent research that goes into buying a property.
Emotional equity is also causing buyers to overlook financial implications, which is a mistake that can have huge consequences.
“We see it all the time: first-time homebuyers fall in love with their home and go solely on emotion, which can be a reckless decision,” she said.
The mortgage lending expert has revealed his top five tips on how to avoid the pitfalls of emotional equity.
1. Check comparable sales in the area
“If you’re buying a home with three bedrooms and two bathrooms, look at comparable sales of similar properties in the area,” Soltani said.
‘This helps you compare apples with apples, to ensure you are paying a fair price for the property based on current market conditions rather than a “good feeling.”‘
Krystal McBride, 38, said it was a sense of nostalgia that made her buy her first home in Woodville Gardens, Adelaide, when she was 25.
Krystal McBride, 38 (pictured), regrets not doing due diligence when buying her first home and getting carried away by 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 her decision on facts or research. After nine years, she sold it for a small profit.
After purchasing the 1950s art deco brick home for $346,500, McBride admits she soon regretted her decision.
“I wish I had researched the area more and spent time driving or walking the streets around the property before purchasing,” he said.
“This would have opened my eyes a little to what it would be like to live there.”
2. Consider the resale appeal of the home.
“Even if you’re buying a home with the intention of staying long-term, always consider how other buyers might view the property,” Soltani said.
‘Pay attention to the property’s layout, lot size and features that appeal to a wide range of homeowners.
‘If your financial or personal circumstances change, knowing your home has strong resale potential means you can sell it quickly and for a good price.’
Ms. McBride quickly realized that the area was not ideal.
“The streets were often littered with rubbish, broken bottles, sometimes discarded syringes, it was dangerous to walk our dog in that area,” she said.
‘We used to drive to other places where we didn’t have to worry about him licking something or stepping on glass.’
The South Australian resident (pictured) admitted she also got carried away by the “excitement” of the buying process and was disappointed that the house did not appreciate in value as much as she had expected.
Mansour Soltani, mortgage loan expert at financial comparison site money.com.au, urges 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. Observe infrastructure projects in the area.
“Research infrastructure projects completed in the area over the past five to 10 years, such as new highways, shopping centers, schools and public transportation improvements,” Soltani said.
‘Also, check to see if there are any upcoming projects approved by the local council or government that could impact property values and neighborhood growth.’
Soltani said emotional equity can sabotage the financial future of first-time homebuyers.
“Your first home is supposed to be a stepping stone to greater wealth or your dream home, but if you buy a bad investment, it can have a domino effect on your financial future,” he said.
‘It can limit your ability to build equity, invest in additional properties and even affect your retirement income.’
4. Verify that the property has all necessary building permits
‘Get your solicitor or conveyancer to carry out a property search with the local council to confirm that the property you are buying has all the necessary building approvals and that any renovations or extensions have been properly authorised,’ Soltani said.
‘Once the property is in your name, you will be liable for any unapproved work or compliance issues, which could result in hefty fines or necessary renovations.’
Ms McBride said that although she conducted a building and pest inspection, her investigation stopped there because of her feelings about the house.
“I walked into the living room and felt a real sense of home and nostalgia,” she said.
‘The light coming in and how it illuminated the room reminded me of my house when I was a child and I loved it very much.
“I was worried about losing the house given the short deadline for receiving offers and got carried away by the excitement and the process.”
5. Get a second opinion from someone you trust
“Bring someone you trust to the home inspection (many first-time homebuyers bring their parents) who can give you a more objective perspective on the home and the area,” Soltani said.
‘They can spot potential problems that you might miss, and this can save you a lot of pain and money in the future.’
Ms McBride said the home inspection came about spontaneously after seeing another property nearby that she didn’t like.
‘We viewed the property on a Saturday, made our offer on Monday and were told it was ours the next day.’
Mr Soltani said buying a first home should be a “stepping stone to greater wealth” but can negatively impact a person’s finances if they don’t do due diligence (pictured)
The 38-year-old said she only intended to keep the house for about five years as she believed the area was “on the up and coming”.
“But that wasn’t based on any real evidence, just a feeling and what my family had told me,” he said.
Ms. McBride ended up holding on to it for nine years and barely made a profit.
“The house didn’t appreciate as much as I had anticipated over the nine years I owned it, but I never properly researched areas where high growth was expected,” he said.