Fred George of Puritan Realty in Plymouth, Mass., knows a thing or two about buyers' mistakes. In the mid-1980s, he found himself a casualty of the banking crisis. Like many others, George was caught up in the buying and selling frenzy before the bottom fell out. Banks closed, homeowners lost the homes that were now mortgaged at inflated rates, and in a matter of a few short months, George lost the real estate holdings he'd spent 30 years acquiring. (We originally brought you a profile of George in AgentNews' Jan. 21 edition.)

Although it's difficult to speculate which came first -- the chicken or the egg -- that buying and selling frenzy in the real estate market led to runaway home prices. According to George, who has published a guide entitled "How to be a Smart First-Time Homebuyer," prior to the mid-80s, when the dream came crashing down, property values, both real and imagined, increased like never before. Buyers agreed wholeheartedly to pay far more than sellers were asking, simply to get the homes of their dreams. Banks, in turn, loosened their standards. George describes the scenario: "There was a feeding frenzy that was ... helped by bankers willing to finance almost anything at any cost, sometimes even making illegal loans that were called 'no docs,' where they didn't even check credit ratings, look at the property, or do the usual necessary work before approving a loan.

"The banks were making money," he continues. "Real estate brokers, lawyers, and everyone involved were reaping the profits, but the cost wouldn't be determined for a few years. It was like a train going down the tracks at 100 mph, then applying the brakes; but the train ran out of track and crashed. We were living in a false economy."

George says he learned an invaluable lesson from the experience, and it's one he wants to share with first-time homebuyers as they embark upon one of the most important decisions of their lives: "The old saying in real estate -- 'location, location, location' -- really does not hold true. A more appropriate saying would be 'timing, timing, timing.' In other words, when to buy and when to get out."

While this warning might sound daunting to first-time homebuyers who don't claim to be economists, George, in his guide, has laid out a series of practical tips that demystify the homebuying experience in layman's terms. Claiming that "a smart buyer is a qualified buyer," he outlines a few steps to take before you begin searching for properties. First, obtain a copy of your credit report, and make sure it's in order. Now is the time to clear up any problems. And ask to be pre-approved for a mortgage. Many first-time buyers, he says, make the mistake of seeking pre-qualification and stopping there. "'Pre-qualified,'" George says, "only tells you theoretically what size mortgage you can handle. It doesn't mean the lender will pre-approve you for that amount unless you make a formal application to the bank, filling out all of their forms and getting your credit checked along with employment and bank accounts to verify balances.

"What pre-approval does," he continues, "is to make you a cash buyer. In the eyes of the seller, you are a better prospect than pre-qualified buyers who only have an estimate of the extent they can buy, but who have not gone through the necessary paperwork to be pre-approved." The bottom line is that buyers are more prepared, which puts them in a position of strength before negotiations begin.

Mortgages may be obtained from one of three options: your local bank, credit union, or mortgage lender. George's guide discusses the merits of each route, and he recommends that buyers investigate all three options to find out what each has to offer. When you make your decision, seek pre-approval.

Another advantage of pre-approval is that your lender is often able to provide you with a close estimate of your closing costs. According to George, closing costs generally are between 3 percent to 6 percent of your loan. The estimate should include items such as bank's attorney fees, surveys, appraisals, and points applicable to your mortgage, as well as pre-payment of any interest due and tax escrow account.

Many first-time buyers are stumped as to whether to use a seller's broker, buyer's broker, or multiple listings broker. George discusses the pros and cons of each type of broker, along with a warning concerning a fourth type of broker -- dual brokers. Dual brokers wear two hats, representing the seller as a listing broker, and also the buyer as a buyer's broker. "All I can say is, 'Be careful,'" George advises. "Remember the old saying, 'One cannot serve two masters.' This is true here. You should be very careful when a broker says he is representing both parties. Legally, he can't be looking out for both parties' interests at the same time on the same sale."

Among the other issues George covers in "How to be a Smart First-Time Homebuyer" are "How Much Should I Offer?," "Do I Need an Attorney" (and the answer is yes), "Common Pitfalls of Buyers," "Should I Build or Buy?," "How Many Properties Must I Look At?," and "Home Inspections." When it comes to home-buying -- particularly in the case of first-time homebuyers -- it seems that old adage is once again proven true: Knowledge really is power.

Published: February 9, 1998

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