There has been a sense of urgency, and sometimes almost despair, for some looking to purchase a home. There are some news stories I have seen recently where some homeowners regretted their purchase. Do you know of anyone who purchased a home within the past year? Did they regret their decision?
Below is a chart from the National Association of REALTORS article on home buyer regret. It reflects the results of a survey made by bankrate.com, which reflects the percentage of those who regret their home purchase, and the reasons why. (Click here to read)
In the survey, Baby Boomers had the lowest percentage of regrets, compared to Millennials, who had the highest. Much of this is likely due to Baby Boomers having more life experience which enables them to foresee situations that might lead to regret, either due to past mistakes or just learning more as time goes by.
What are some reasons why a homeowner might feel regret over their purchase? How can some of these situations be avoided? Let’s talk about a few.
BUYING A HOME SIGHT UNSEEN
While there have always been some who have purchased homes without seeing them in person, this seems to have become a more common occurrence. Many homes across the country are selling within days, with multiple offers. Some buyers may be relocating from a different state, and feel pressured to purchase a home sight unseen.
They may rely on pictures they see online. But pictures can be deceiving! With wide-angle lenses and amazing camera technology, a good photographer can make a room look more attractive in a picture than in person.
It’s not that these pictures are meant to deceive buyers. In most cases, online pictures are meant to attract buyers to come and look at the home in person. However, some put a lot of faith in thinking that the vibe they get from the picture will translate into reality, when in person.
The way a home flows and feels can be very different in person compared to what appears in online photos.
Another disadvantage of purchasing a home, sight unseen, is that the buyer may not be aware of the feel of the street, and external factors that may have an impact on the desirability of a home. Satellite imagery is a fantastic tool that can help see what is around a property. Additionally, mapping programs like Google Maps can allow a person to take a virtual walk down many streets. However, it is not the same as being there in person.
There may be noise from a railroad track or some other exterior influence, that cannot be detected in aerial imagery or virtual views.
Additionally, smells cannot be detected with online tools. There may be a sewage treatment plant down the road, or a pig farm, or some other thing that produces smells that may be undesirable.
A home may not pass the smell test in person.
WAIVING HOME INSPECTIONS
Recently, I was visiting with a home inspector. He said this year has been extremely slow for him because people are waiving home inspections to get a competitive edge on other buyers, bidding on the same home. Is this wise?
Getting a home inspection is a personal decision. I would strongly recommend getting one if you’re purchasing a home. I’ve appraised many thousands of homes over the years. Even so, I would hire a home inspector if I were looking to buy a home. They are trained to catch things that most people might miss. Things that may not be readily observable.
By the way, appraisers are looking for things readily observable. For this reason, a buyer should not rely on an appraiser’s inspection to catch things that might not be obvious. The scope of work for an appraisal inspection is completely different than that of a home inspector. Spending a few hundred dollars may save you many thousands!
I have seen news reports of people who waived the home inspection, only to find that there were a lot of issues that could have been caught by a home inspector. That’s a real bummer!
It’s not lost on me that, to be competitive, a buyer may be asked to waive the home inspection. If you are in this situation, just know that it can be risky.
HOME VALUES AND OVER-PAYING
Some buyers are paying over market value for their homes. In many cases, if they want the home, they may have to do so. This can lead to buyer’s remorse, depending on the situation.
Some may have over-paid because of costly repairs needed to the property, that the buyer did not know about. So, in this case, there is likely to be some remorse about overpaying. It’s one thing to pay more than market value for a home because of being in a bidding war. It’s another thing when the reason is due to major repairs that were missed. What about paying more than market value due to being in a bidding war?
If prices continue to increase rapidly, people may not feel remorse about overpaying. At least not in the short term. Many neighborhoods in Northeast Ohio, and other parts of the country, are currently experiencing 15-25% annual home price appreciation. So, if home values are increasing by, let’s say fifteen percent annually, and they paid around fifteen percent over market value last year, the rapid appreciation may have caught up with what they purchased their home for last year.
Here’s a chart reflecting single-family price increases in Cuyahoga County, compared to recent years.
Renters looking to purchase a home may be willing to pay more than market value, at least to an extent, reasoning that it’s better to do so than to continue paying rent.
When paying more than market value for a home, there are a lot of things to think about. If the market has a reset, over-paying for a home is likely to lead to regret. It’s a gamble. No one knows what the market will do tomorrow.
Property taxes are an important thing to think about before paying more than market value for a home. In many areas, property taxes can be expensive. In Cuyahoga County, the auditor will use the purchase price of the home as their assessed value for three years. Therefore, someone who pays more than market value today will be stuck paying higher taxes for years.
Furthermore, with home prices increasing rapidly, you can be sure that taxes are going to go up substantially in the future. According to one Bloomberg.com article, U. S. property taxes increased at the fastest pace in four years, in 2020. Here is a chart from that article, reflecting ten states where the property tax rate is over 1.5%.
In that same article, it shared the metro areas with the largest tax rate increases in 2020.
For buyers, it is important to factor taxes into their home budget, including any potential taxes increases in the years to come. Some homeowners I know, have had tax increases so large that they were forced to sell their home because they could no longer afford to pay the taxes. So, taxes are something to consider in many areas.
At the end of the day, whatever decision one may make, I strongly recommend doing everything possible to protect and educate oneself before pulling the trigger on purchasing a home.
That includes having the home appraised by a state-licensed or certified appraiser. An appraisal will provide a buyer with some helpful information, including the appraiser’s opinion of the home’s market value and an analysis of the market, including the rate of change in prices for homes that compete with the property. The appraisal should also note any readily observable external influences that would detract from the marketability and value of the home.
I also strongly recommend getting a home inspection. It may uncover repairs that were masked over and not easy to detect with an untrained eye.
It is also wise to research property taxes and think about how they may impact the affordability of the home.
Lastly, if possible, walk through the property. Check out the lot. Drive around the neighborhood to get a feel for it. Make sure that it is what you envisioned it to be.
When it comes to buying a home, making an informed decision is always the best way of helping avoid remorse.
This week I leave you with a funny video about dealing with summer heat. Especially in the south! Enjoy!
Have a great weekend everyone!
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If you are interested in stats, and nothing but the stats, for neighborhoods in Northeast Ohio, check out my other podcast. In it, I provide short episodes that provide you with stats on median sales prices, marketing times, housing inventory and other related stats, on specific neighborhoods in Northeast Ohio. You can find me on Apple Podcast, Spotify, Google Play Music, Breaker, Overcast, Pocket Casts, Radio Public or you can listen right here at the Cleveland Appraisal Blog.
I am a member of the National Association of Appraisers. If you’re an appraiser, and you’re looking to join an appraisal organization, please check them out. The NAA is made up of fantastic appraisers from across the country who are working hard to keep their fellow appraisers up to date on what’s happening.
Here are some links to other articles I’ve enjoyed recently! I hope you will also…
Housing Is Flying High Like A Bird? – Housing Notes by Jonathan Miller
Just say NO to subjective language in real estate – Sacramento Appraisal Blog
How Do Appraisers Use Active Listings and Pending Sales In An Appraisal? – Birmingham Appraisal Blog
Why is the Appraisal Under Sales Price? – APPRAISAL TODAY
The Blessing of Work #289 – The Brian Buffini Show (PODCAST)
Five (5) Ways a Proper Reconciliation Keeps Your Assets Out of a Sling – The Appraiser’s Advocate (PODCAST)