5 Pieces of Outdated Homebuying Advice That Your Parents Might Give You

When I was preparing to put an offer in on my first home, my mom, over the phone, was nudging me to come in under the list price. My real estate agent — who I knew was tenacious because she told me from the onset her favorite color was leopard — was blunt: That would be a horrible strategy and I’d likely lose the bid. Plus, it wasn’t worth haggling over the $5,000 to $10,000 that would be spread out over a 30-year mortgage, especially since my heart was set on the home.

In this case, mom — who is very financially savvy but last bought real estate before dial-up internet was around — didn’t know best.

As it turns out, the well-intentioned real estate advice parents relay is sometimes outdated or misinformed. Here, real estate experts share some of the worst (and most persistent) pieces of advice that family members share regarding homebuying.

The Bad Advice: Don’t pay the full price in your initial offer.

In a buyer’s market, you may be able to gamble and come in under the list price. But, in general, underbidding (as my own mom advised me to do) is an outdated strategy, especially in this ultra-competitive market.

“Paying the full price in your initial offer can help you score the home of your dreams, so don’t be afraid to go all in,” says. Beatrice de Jong, Opendoor broker associate and consumer trends expert. In fact, if there are multiple offers on a home and properties are flying off the market quickly, you may need to go a smidge over the asking price, typically 1 to 3 percent, according to The Mortgage Reports.

The Bad Advice: When checking out a property, don’t let the Realtors see that you like it.

Your family members may tell you to wear your best poker face to a showing or open house. The idea is if you show neutrality or disinterest, you’ll be able to negotiate a better price, de Jong says.

“However, in today’s hot housing market, this tactic may deter folks who would rather sell to someone who is clearly passionate about that particular home,” she says. “After all, sellers want certainty that a buyer is motivated to close on the home.” She suggests being honest about how you feel about the space. “Acknowledge what you love about it while being forthright about its shortcomings,” de Jong says.

The Bad Advice: Buy something you can see yourself living in for years.

Your first home doesn’t have to be your forever home, says Liz Coughlin, who co-owns HD Properties LA in Palm Springs and Los Angeles. In fact, in many markets where homes are expensive, this isn’t realistic advice, she says. But if you’re in an area where homes tend to appreciate over time, it’s a good idea to start small in a starter home that you can comfortably afford, she says. “Update over time, gather equity, then move up to your next property that suits your next life stage,” she says.

The Bad Advice: You need a 20 percent down payment or else you won’t be able to afford a home.

Larger down payments have some advantages. They can help you avoid paying private mortgage insurance (or PMI) and they can translate to lower monthly mortgage payments. But did you know that, according to the National Association of Realtors, the overall average down payment is 12 percent, and that the average first-time buyer puts down 6 percent?

If you can’t wait to get into the home of your dreams, but don’t yet have 20 percent down, consider looking into an FHA (Federal Housing Administration) loan, which is backed by the government, suggests Andy Taylor, GM of Credit Karma Home. FHA loans allow borrowers with down payments as low as 3.5 percent to qualify for home loans, if their credit scores are 580 or higher. Borrowers with scores between 500 and 579 will be on the hook for a minimum 10 percent down payment, he says.

The Bad Advice: “You should use the same lender we used.”

Mortgages aren’t one size fits all, so it’s always smart to shop around for your mortgage, Taylor says. “Anyone shopping for a mortgage should compare rates and terms from different lenders,” he says. Spending the extra time shopping around could save you tens of thousands of dollars over the course of a loan. Taylor suggests getting quotes from a handful of lenders before you commit to a new loan.

If you’re worried about multiple requests or inquiries dinging your credit score, understand that any impact to your score will be small, and you can minimize any negative impact by shopping in a short period of time, Taylor says.

“Complete your mortgage shopping in 14 days, and when multiple lenders request your credit score within that time, it will only count as a single inquiry,” he says. That window could be as much as 45 days but the rules can vary depending on what scoring model lenders use, so 14 days is the recommended safe bet, according to Taylor.

Brittany Anas

New Single-Family Homes Are Getting Bigger

November 23, 2021

The pandemic has prompted more Americans to want to supersize their homes. The median single-family square floor area as increased to 2,337 square feet as of the third quarter, while the average (mean) square footage of new single-family homes rose to 2,541, according to the latest Census Bureau data, as reported by the National Association of Home Builders.

The average size of new single-family homes is 6.2% bigger since the lows reached during the Great Recession.

“Going forward we expect home size to increase again, given a shift in consumer preferences for more space due to the increased use and roles of homes—for work, for study—in the post-COVID-19 environment,” writes Robert Dietz, the NAHB’s chief economist, for the association’s Eye on Housing blog.

 

A line graph showing the change over time in single-family home sizes

 

Existing homeowners are also looking to expand their spaces and are undertaking larger remodeling projects to either enlarge or rearrange floor plans, according to the Q4 2020 Kitchen & Bath Market Index, released by the National Kitchen & Bath Association and John Burns Real Estate Consulting last spring. “We’re seeing an incomparable surge in homeowners looking to rearrange floor plans, tear out complete kitchens, baths, and other rooms to make space for increased activity within the home, and generally create a space that better suits their evolving needs,” Bill Darcy, the NKBA’s CEO, said in March when releasing the report.

As Homes Expand, Starter Homes Fade Away

Meanwhile, the supply of starter homes has dwindled by more than half over the past five years, according to realtor.com® listing data.

Realtor.com® defines a starter home as one that is generally less than 1,850 square feet. Using that definition, there were only 300,000 starter homes listed for sale in September. Also, the median list price for a starter home reached $260,000 last month, about 11% higher than a year ago, according to realtor.com®. Starter homes are 64% more expensive than they were in 2016 compared with larger homes, which have grown 43% in that same period.

Here’s What’s Keeping Homeowners From Selling in 2021

There’s a reason many prospective buyers have struggled to purchase a home in 2021. Low mortgage rates have led to a surge in buyer demand, but there hasn’t been enough inventory to meet that demand. As such, home prices have soared on a national level, and even buyers with larger budgets are having difficulties finding a suitable place to make an offer on.

So why are there so few homes available on the market? Realtor.com conducted a survey, and here’s what it dug up.

Sellers can’t find replacement homes

For many potential sellers, the decision not to list a home in 2021 boiled down to not being able to find a new home in their price range. For those who are looking to sell and then rent for a while or downsize, now’s the optimal time to put a home on the market. But those looking to sell and buy a comparable or larger home are apt to face the same struggles as buyers without a property to sell.

Sellers are worried about the economy

The U.S. economy is in far better shape these days than it was back when the pandemic first hit U.S. soil. The jobless rate has steadily declined, and there are plenty of employment opportunities available. But in spite of those improvements, many sellers still say the current economic climate makes them hesitant to make a big life change, like selling a home and moving to a new one.

Sellers aren’t sure where to move

A lot of people are still working remotely in the wake of the pandemic and aren’t sure whether they’ll get to do so on a permanent basis or not. As such, many workers’ moving plans are in flux. So it’s not surprising that another big reason people aren’t selling homes is that they’re just not sure where they want to move to.

Sellers worry about buying and selling simultaneously

Sometimes, people who sell and buy a home at the same time find that everything runs smoothly. In some cases, they’re able to arrange it so they can close on both properties in a single day and move without stress. But things don’t always work out like that. And today’s sellers don’t want to take the risk that they might get an offer but struggle to find a new place to move to in time, or that they’ll find a replacement home but that closing will be delayed.

When will more homes hit the market?

Some of the above issues may resolve in time. For example, if the economy continues to steadily improve, sellers may grow more comfortable with the idea of putting their homes on the market. And once more employers firm up their longer-term work plans, sellers may have a better sense of what their relocation options entail.

But when it comes to home affordability, we have a bit of a catch-22 going on. Today’s sellers don’t want to list their homes because they worry about affording a new one. But home prices aren’t going to come down until more inventory is added to the real estate market.

There’s a good chance housing inventory will pick up at some point in 2022, though most likely not until the second quarter of the year at the earliest. Today’s would-be buyers may need to continue being patient on the road to finding the right place to call home.

Motley Fool/ Maurie Backman

6 First-Time Homebuyer Hopes and Dreams That Are Completely Delusional Today

By Erin Flaherty

Nov 8, 2021

Every house hunt starts with a dream, one that can easily escalate into pure fantasy. Homebuyers, particularly first-timers, often harbor visions of purchasing the perfect house, in a great neighborhood, for a bargain price.

All that might have been achievable—with some luck—in the past. But in today’s hot seller’s market, once buyers move beyond mooning over listings to making an actual offer, things can get jarringly real all too fast.

As a real estate agent, I see this wake-up call regularly. So do my colleagues.

Peter Cantine, a real estate agent in the Catskills where I live, says many of his clients want “a house with seclusion, views, and a water feature,” for a budget of about $300,000.

“In this market, $300,000 will get you a hammock—just the hammock,” he says. “Want a hammock that sleeps two? That’s 400,000!”

Jokes aside, we’re not here to discourage you from house hunting, and we’re certainly not angling to dash real estate #goals. We simply want to help homebuyers succeed by pointing out certain overblown expectations we see consistently in our line of work.

Here are a few homebuying dreams that may need a reality check today.

1. Your dream home will have everything you want

With historically low inventory, the so-called perfect home—if and when it does come on the market—has so many buyers lined up that, even if it started at a “great price,” it will most likely go into a bidding war. So that means it won’t be perfect after all, right?

Having an open mind is key: It’s understandable that you want to avoid a gut renovation or a long commute to work, but a willingness to make cosmetic changes or drive even 10 minutes farther than planned will substantially help your cause.

2. There’s time to find a mortgage after you find the house

While house hunting can be fun, finding a mortgage feels more like a chore. Still, if you save the financing step until after you’ve found the perfect home, there’s nary a chance the home will still be available by the time your loan paperwork comes through.

“Your first call when even thinking about maybe purchasing should be your bank,” says Haden Riggs, a Keller Williams agent and team leader in Tyler, TX. “They will line everything out and put you in the best position to purchase.” 

There are many important reasons why you need to have your mortgage pre-approval before making your first viewing appointment. One, it gives you a guidepost: You might qualify for a larger loan than you thought you would, or in some cases, less. Also, due to COVID-19, many markets have made buyer financial statements a requirement to schedule a showing—and this trend is likely to continue, as it helps sellers separate the looky-loos from the serious buyers.

“If an agent shows you properties without a pre-approval, they probably aren’t the best agent,” says Riggs. 

And what happens if you’re just window-shopping, then find a home that checks all your boxes, and you want to make an offer immediately? You can’t submit a competitive offer without your proof of funds.

Because interest rates are so low right now, even cash buyers should consider obtaining a pre-qualification just in case they fall in love with a home that exceeds their liquid budget. It’s so easy to call your banker and secure one on the phone in less than an hour.

3. You can handle the homebuying process on your own

Thanks to the internet, you can do preliminary sleuthing without a real estate agent, and it’s a great way to educate yourself about the market where you’re searching. But beware: There’s no substitute for an agent’s training, guidance, and experience. 

The fact is, a local real estate agent can more accurately assert what constitutes a “good deal,” and can speak to factors like location a lot more confidently than a homebuyer. Real estate agents also have access to crucial notes shared on the multiple listing service, including need-to-know issues such as “This property is located on a flood plain” or “Price reflects that the home needs a new roof.”

4. The seller will fix any issues that come up in the home inspection

Traditionally, a house-proud seller will be more inclined to remediate most problems. But in a seller’s market—which is still most of the country right now—not so much, especially when sellers have backup offers and buyers willing to waive the inspection altogether.

So be realistic. If there are major structural issues, evidence of radon or mold, or serious plumbing problems, you may be able to negotiate the price, but not always. 

Take heart: While an inspection is meant to shed light on any and all maintenance issues and real or potential defects, many of the smaller “flags” will likely be forgotten once you move in. Expecting a seller in a competitive market to address every line item is a delusion that could cost you the house.

5. The asking price is probably what you’ll pay

The prevalence of bidding wars over the past few years has resulted in a reverse pricing strategy that can be frustrating for real estate agents and buyers alike.

In order to maximize interest in a property, many seller’s agents have employed a “bargain basement” starting price in anticipation of a bidding war driving up the price.

In some markets, it climbs way up. In high-demand areas across the nation, $100,000 to $200,000 above the list price is not unusual. If the cost for a beautifully renovated, spacious home in a fantastic location seems too good to be true, chances are it is a delusion.

6. Can’t find the right house? It’s easy to build one instead

The real estate market is challenging homebuyers across the United States. Many real estate agents are seeing client interest in land purchases with the belief that building a home from scratch will somehow be less painful than slogging through the listings and surviving bidding wars. It’s a lovely fantasy, but make sure to do your homework.

“If you have all the time in the world and the patience of a Tibetan monk, building is for you,” says Riggs.

But beware: Many building materials are back-ordered due to supply chain disruptions, and priced at all-time highs. There’s a general labor shortage across much of the U.S. Plus, depending on the parcel, you’ll have to hire professionals to conduct tests to determine if you can build on the land, and you may need to add infrastructure for electricity and septic systems, for starters. The costs can be astronomical, and the process could take many months. Here’s more on how long it takes to build a house.

Yes, you can appeal your property tax bill. Here’s why you should and how to do it.

1. You can lower your property taxes up front

Your property tax bill is calculated by taking your home’s assessed value and multiplying it by your local tax rate. The latter is determined by your town or city and is set in stone. When you file a property tax appeal, what you’re really doing is arguing that your home is being assessed at a higher value than it’s actually worth.

2. You can potentially prevent a future property tax hike

Sometimes, tax assessors raise property assessments simply because they can. But if you make a point of fighting a higher property tax bill, your local tax assessor may not be so quick to raise your assessment the next time that process takes place.

When you appeal a property tax bill, it often means taking your local assessor to court. That’s a hassle your assessor may not want to deal with. If you fight your property taxes one year, it could cause your tax assessor to leave you alone for a few more years.

3. You can help your neighbors lower their property taxes

The more you’re able to lower your home’s assessed value, the more you might manage to help your neighbors out with their property taxes. Arguing an assessment down is easier when there are more lower-valued homes nearby. If you manage to knock your home’s assessment down from $350,000 to $320,000, your neighbors will have an easier time claiming their homes are worth less, too.

Remember, if you’re selling a home, you want to argue that your home is worth more. But from a property tax perspective, having a lower home value works to your benefit.

How to fight your property taxes

The process of appealing property taxes differs based on where you live. In some cases, it simply means filling out a form and submitting it online or mailing it in. In other cases, it means facing off against your local assessor in court (this is something you generally do not need a lawyer for, though). There are also fees to appeal a property tax bill that differ by area and home value.

If you’re looking at a modest tax hike, appealing your property taxes may not be worth the hassle (such as if your home was previously assessed at $320,000 and is now being assessed at $323,000). But for a larger increase, fighting back could be more than worth your time for multiple reasons.

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