The Risks of Buying Real Estate

Comparing Risky Auto Purchases to Risky Home-Buying

Making any kind of purchase involves a number of possible risks. There’s a lot of talk about taking measures to reduce your risk when buying real estate, but it seems very few people actually take any preventative measures during their home-buying process. Are you familiar with the risks you may face when buying a new home? Do you know what to do to reduce your risks?

It’s easy to consider the risks associated with buying a car, but they’re very comparable to purchasing a home. Let’s look at two people who are looking to buy a used car, and see who makes better decisions through their process. Then we’ll compare their practices to buying real estate.

Who’s a Better Car Buyer?

Meet Impulsive Ian. He often makes decisions on a whim, and doesn’t really look into things before buying big-ticket items. He follows a “fly by the seat of your pants” type of lifestyle. One day he decides he’s ready to buy a new car (new to him, anyway), and drives to the dealership he passes every day on his way to work.

Ian meets with a salesperson, who takes him out on the lot and gives him a brief overview of the lot to show him a few cars he thinks suit Ian well, based on the 5 minute exchange they had in the showroom. The salesperson raves about how fantastic each car is, and settles on a particular car that he reports was owned by a grandma who only ever drove it to church on Sundays. Ian thinks that’s a pretty great deal, because the car must still run like brand new.

After taking the car for a quick test drives, Ian decides he likes it and asks how much it’s going to cost him. He haggles for a bit with the salesperson, and sets up his financing with the dealership. Ian drives off in his new car.

Now meet Smart Sally. She also decides she’s in the market for a car, but instead of rushing out the door she sits down at her computer instead. From the comfort of her couch, still in her pajamas, Sally browses several car websites online, comparing a few cars that have piqued her interest. She uses Kelley Blue Book and Consumer Reports to compare the value, reliability, and pricing of each model. Based on her findings, she decides which car she wants, and the maximum she’s willing to spend on it. She knows that a salesperson will try to sell her whatever car is tagged with the biggest commission, which is usually a car no one wants that’s been sitting on the lot for six months.

With her new information, Sally still isn’t ready to leave the house. Next, she goes on the Better Business Bureau’s website to find a used car dealership that specializes in the car she wants. She checks to make sure the dealership has a good rating for consumer experience. She also looks into a few local lenders to see what kind of car financing options and rates they have to offer, so she can compare those to the dealership’s financing options. She decides that now it’s time to get dressed and go out, because she’s well-informed about her impending purchase.

Once she arrives at the dealership she found online, Sally test drives the car she set out to find, refusing to be talked into a different model that’s less suitable to her needs with a higher price tag. This salesperson also gives Sally the story about grandma only driving this car to church, so she requests a vehicle history report to corroborate what she’s just been told.

Before signing on the dotted line, Sally brings the car to her personal mechanic to get his OK because she trusts him. She requires the dealer to declare the car a “certified pre-owned” vehicle, and asks for the prior owner’s maintenance records so she can see precisely what work has been done on the car. She entertains their financing offers only briefly, before laughing them off and opting to finance her car through the credit union that’s offering dramatically better rates. Sally drives away in the car that is perfectly suited for her.

Who Got the Better Deal?

It goes without saying that Sally definitely made off better than Ian in this scenario. It’s very likely that Ian paid way more for his car than Sally did, and it’s probably not as reliable as Sally’s. The simple reason for this is that Sally did her homework, and took every possible opportunity to reduce the risks of her purchase.

How This Parallels to Buying Real Estate

Whether they know it or not, a huge number of potential homeowners follow Impulsive Ian’s lead when it comes to buying real estate. Buying real estate isn’t generally something that people do often, and as a result it’s easy for people to feel lost because they don’t know the process. When they feel this way, they’ll usually jump headfirst into a house after driving past an open house, stopping, and deciding they like what they see.

These same real estate buyers will have inspections done by whoever makes the first offer, will scan the contract and sign on the dotted line, and will accept the whatever loan financing offer they get first. They never even think to look at the title policy, escrow, or homeowners’ association documents before closing the deal on their new home.

Don’t buy a home like Impulsive Ian would. There’s a Smart Sally parallel to buying real estate!


Start your search online, using any of the many reputable sites that show local houses on the market. Look into the area in which you want to live, and consider all of the options that are relevant to your life, both now and several years down the line. You may not have kids right now, but do you plan to start a family in the next five years? If so, the school district in which your new home is located is very important. You can find the statistics of how the neighborhood has developed over time, and how the taxes have increased or decreased. You can also find information about crime rates and criteria that will help you determine if that’s where you want to live.

Once you’ve found the area where you’d like to live, you can find a reputable real estate agent the same way that Sally found a reputable used car dealership! The Better Business Bureau also rates real state agencies, so you can use them to find a team of agents you can trust. Your real estate broker will help you navigate through all of the negotiations pertaining to the purchase of your new home.

Explore your options every step of the way, just as Sally did, so that you make sure you’re getting the best bang for your buck. You can consult as many lenders as you’d like to see what kind of mortgage rates you can get for your new home. Read through all of your agreement paperwork thoroughly, and ask your real estate agent as many questions as necessary to get the answers you need—that’s why your agent is there in the first place!

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