Open House: How to Avoid Home Buyers’ Remorse
A recent survey was released by Bankrate, stating that buyers remorse is currently exceptionally high in real estate. There are several factors that go into why these buyers had remorse, especially at higher rates than previous years. Some are the same reasons we hear all the time, but there are some reasons for remorse that are unique to the current real estate market. Knowing what some of the common reasons for home buyers remorse are can help you identify key things to think about and focus on in your home search to avoid having remorse yourself.
Be Patient
The housing marketing is on fire, which is why this might be the hardest lesson to stick to.
Patience is hard. Like, really hard. I get it. And it can be mentally and emotionally exhausting to not have your offer accepted again and again. It’s also physically exhausting and sometimes challenging to tour dozens of houses. Plus waiting to hear back from the seller once your offer is in can be nerve-wracking.
In a “typical” housing market, you can be picky. You can wait until you find “the one”, put an offer in, and typically get the home. But with less than 2 months of inventory and literally millions of people looking to buy a home, buyers have been jumping on anything that even remotely resembles what they want, sometimes even regardless of budget as I’ll get to below.
Just because you see a home for sale that has your ideal 3 bedrooms and 2 baths doesn’t mean the house is the right fit. The bedrooms could be the size of closets, and both bathrooms could be that early 1980’s shade of mauve from floor to ceiling. If you can’t see yourself enjoying living in the home for several years as is or with very minor changes, you might just have to say no. Plus, knowing that you probably paid over asking price for a home you can’t stand won’t make the home buyers’ remorse any better.
To be honest, even with patience you might still not get your dream home. But more houses are coming back on the market. Interest rates are still at almost historic lows. And unless you need to relocate for work or other circumstances, you typically have the option to be patient.
Set a Budget
I’m sure by now you’ve heard that homes are selling for significantly over asking price. Part of the excess is due to bidding wars. It’s easy to see the list price and know if you’ll be able to afford the home or not. But something you can’t predict is the bidding war. You need to know what your absolute max budget is when putting an offer together, and that limit is your walking away point.
You can determine your max budget in a few ways. The first is to get pre-approved for a loan. This will do a few things for you. One, it will let you know how much a lender is willing to give you for a loan so you know what the max mortgage is, and how much that translates to in monthly payments by doing some quick math.
Just because you’re approved for $700,000 in loan amount doesn’t mean you can afford the almost $2,000 a month mortgage payment (this doesn’t include property taxes and homeowners insurance either!).
Getting pre-approval can also put you ahead in the buying process. If you put in an offer on a home and the seller sees you’ve been pre-qualified, they know a lender has already agreed to give you money. This instills confidence that there is little reason financially why the deal should fall through.
The other way to determine your max budget is to take a complete look at your finances. Again, just because you can technically afford to spend $2,000 a month on your mortgage doesn’t mean that’s a smart move for you. Having the discussion with your partner, or yourself, of what you feel comfortable paying each month can help you calculate how much total you’re willing to get a loan for.
Additional Costs
Something that was new to me when buying a home was the appraisal price situation. Let’s say a seller puts a home on the market for $250,000. There is a bidding war and the final accepted bid comes in at $275,000. Now an appraisal company comes out to determine what the home is worth. This is almost always necessary when getting a mortgage, because the lending company wants to make sure that they’re not giving you a loan for more than the house is worth. The appraisal comes back and the home is only actually worth $260,000. The bank will only give you $260,000 then in a mortgage, and you’ll either need to make up the difference in cash, or go back to the sellers and try to renegotiate.
In this market, you’d probably be better off predicting the weather than getting a seller to renegotiate. So, you need to be prepared to know how much higher you can go in a bidding war to be able to cover the difference if the appraisal comes back lower than the accepted price.
Don’t forget about all the other costs associated with buying a home too. This is the largest area reported for home buyers remorse. There’s property taxes, closing costs, inspection, appraisal, moving supplies, the list goes on and on. I don’t say this to scare you, but these costs add up very quickly and might surprise you.
Then there’s general upkeep and maintenance on your home. If you’ve never had a lawn to care for, you’ll need to either hire someone to mow the grass or buy a lawn mower, for example.
Plus, if you’re moving to an older home, you’ll want to pay close attention to your inspection. Inspections outline what items are in good working order, what is near the end of it’s life that you’ll need to pay to replace, and what you need to watch out for.
Do NOT Skip the Inspection
It’s being reported that buyers are offering to waive inspections in order to have their offer stand out. I would highly, highly not recommend this option.
Inspections are part of the home buying process for a reason. They give you a chance to have a professional evaluate the entire health of the home, identify things that are literally unsafe or hazardous, and things that could be very costly to fix. An inspection might turn up asbestos, black mold, or that your heat and air conditioning need to be replaced. These fixes easily cost thousands of dollars that you don’t necessarily need to pay for, but only if you do an inspection.
When writing your offer on the home, you can add an inspection contingency, or a due diligence contingency. Depending on how your agent writes it, this allows you to back out if something comes up in the inspection.
When you waive an inspection, you do not have a chance to back out of the deal without losing your earnest money or other legal action, depending on where you’re buying. Or, you might not even discover an issue until after you’ve closed and the home is yours. You’re going to wish you had the inspection if your heating system goes out three months after moving in.
If something major does come out of the inspection, you can always try to renegotiate with the owners. Now that they are aware of a major issue, they technically need to disclose it if you choose to walk away. They might also have to list the house for less money back on the market, making buyers wonder what’s wrong with the home.
If you’re still interested in the home after a potential deal breaker is brought to light, most sellers will likely want to just get the deal over with. This works in your favor because you can do one of three things. You can ask them to make repairs, pay for the repairs, or ask for a lower sale price. The last option then assumes you’ll pay to fix things yourself. You can also do a combination of these options as well, if multiple items are brought to light.
Make a Wish List
Home buyers’ remorse has disproportionately affected Millennials. This could be for a couple of reasons. First, millennials are most likely buying their first home, and therefore will be in a lower home price range. The “starter home” price range has the most competition of all, and that compounds all the above issues.
Secondly, because this is a first home, there’s a high likelihood you have no idea what you’re looking for in a home. If you’ve only ever lived in apartments, you might think you need a 3 acre lot. This can quickly turn into way more work and maintenance than you anticipated. Or maybe you’ve only ever lived in ranch-style homes and didn’t realize how painful it can be to lug laundry and groceries up and down stairs. First time home buyers will always have some of this type of home buyers remorse simply because you don’t know what you don’t know.
To combat both these issues, I’d suggest making a wish list. You, or whomever you’re buying a home with, should sit down at the start of your home search and write down all the features you’re looking for. Write down everything you can think of that you’re looking for and not looking for in your home.
Want to be close to work? Add it to the list. Must have a two car garage? On the list it goes. Does the kitchen have to have granite countertops? Put it on the list.
Creating a list like this has so many benefits. For one, it will help your real estate agent know exactly what you’re looking for, and how necessary features are. You can identify what is a must have, nice to have, and what you know you don’t want or need.
This can help your agent weed out properties that don’t fit, saving you both time. This list can also open up discussions with your partner or whomever you’re buying the home with. If there’s something you need that they don’t, maybe you can compromise and make it a nice to have.
Another thing to think about is your ideal location. Many people bought homes during the pandemic when they were able to work from home. Now, they’re going back to the office and they’re either states away, or have a rude awakening for what their daily commute will be.
One thing my mom always said to me was that you can change things in a house, or even tear it down, but the one thing you can’t change is location. If the house is located near everything important to you, but is missing a few list items, don’t completely rule it out.
If the issue is that it isn’t open concept, but the floorplan allows for you to knock down a wall, consider it. Or the home has floor to ceiling wallpaper in every room; spend a few weekends ripping it off and painting. Cosmetic and even structural things can change, location can’t.
Be Realistic
This might be the toughest thing to do besides having patience. We all have an idea in our heads about our dream home. The odds are, even if you’re building from scratch, you’ll probably never have exactly what you want in a home. If you’re on a budget, you might have to be even more realistic of what your money can get.
The reality is that because of the lack of supply, the demand is up. What you could have bought 5 years ago might cost you twice as much today. This is where making your list of nice to haves comes into play as well.
If a non-negotiable is that the house has to have 5 bedrooms, and you have a low budget, your agent might have to show you a home that needs some cosmetic changes, or is just outside your search radius, to check all your boxes. If you’re determined to buy in this market, you need to be realistic in what is available and affordable.
Wait to Buy a House
Another option, if you can swing it, is to wait altogether. Just hold off on the current market and wait until it cools down. When that will be, no one really knows. Depending on where you live, the market could slow down enough in winter, making it the perfect time to buy.
If you’re able to wait, you can also be picky waiting for the perfect house to come on the market. Just know that you could be waiting a long time, and that house may never become available.
There are some risks with waiting as well, like interest rates going up. But over the course of your loan, a slightly higher interest rate might still be significantly less than what you pay over asking price in an inflated market up front.
If you’re looking to buy soon but waiting, make sure you’re ready – wish list made, budget determined, pre-approved. This way, when the market does start to slow down and cool off, you’re ready to jump in.
