Article Courtesy of: Inman News
By: Marian McPherson
Over the past year, the worsening imbalance between supply and demand has pushed homebuyers to the edge. Bidding wars and seller-friendly concessions have become the norm as buyers vie for their chance to own a home, even if it’s far from what they originally hoped for.
Although bidding wars are slowing and asking prices are leveling out, NerdWallet’s latest market analysis shows buyers are still feeling the pressure to do whatever it takes to purchase a home, which, unsurprisingly, can lead to dissatisfaction and regret.
“There are many reasons a buyer might regret their home purchase, or aspects of it,” the report read. “And in 2021, even more than in the past five years as a whole, the risk of buyer’s remorse is high. The heavily tilted seller’s market means most buyers are making sacrifices in order to successfully close on a home.”
Here are a few ways to make sure your clients don’t rue the day they bought their home.
Encourage buyers to separate wants from needs
The first issue for homebuyers, NerdWallet said, is the breakneck pace homes are being snapped up. Prior to June 2020, the five-year average for days on market was 41 days. However, that average has plummeted to a mere 18 days as low-interest rates keep buyers on the playing field.
To avoid wasting time during the home search, NerdWallet suggests buyers take more time to calculate a reasonable purchasing budget and create a list of wants and needs, so they can quickly identify the home that has everything they need, even if some of the bells and whistles are missing.
“Get specific: Know which features you’re willing to compromise on and what’s out of bounds in regards to [the] sales price,” the report read. “Making decisions such as ‘Do we really need a third bedroom?’ or ‘Can we afford another $50,000?’ on the fly is risky, at best.”
Don’t sacrifice everything
Although parsing the difference between a buyer’s wants and needs is important, NerdWallet noted the best way to avoid regret is resisting the urge to dismiss everything on the nice-to-have list.
“The number of homes on the market has fallen by about 55 percent from September 2019, when it last peaked, according to residential listing data from Realtor.com,” the report noted. “The supply of homes being offered for sale is paltry, so buyers are unlikely to find one that satisfies their wish list.”
“Being flexible is a must in this market, but sacrificing too much could leave [buyers] with a home that’s a far cry from the one [they] envisioned,” it added.
Ask buyers what their most important wants and needs are, and be willing to search longer or even pause the homebuying process if you foresee more-fitting inventory coming down the pipeline in the upcoming months.
Pull back on exorbitant offers and waiving contingencies
The past year has been an unusually strong sellers’ market where buyers are even battling over clearly overpriced homes. When offering four or five figures above the asking price hasn’t been enough, some buyers have resorted to waiving contingencies — a move that can come back to bite.
“When pitted against an all-cash offer for asking price or above, buyers who must borrow might try to entice the seller by taking dangerous risks, like forgoing a home inspection,” the report read. “But 10 percent of homeowners who have purchased in the past five years regret not getting a pre-purchase home inspection, and 13 percent of these recent buyers say they regret discovering their home had significant problems in need of repair.”
Before making an offer, NerdWallet said, it’s important to know your buyers’ purchasing threshold and be willing to walk away from a deal that could cause major headaches in the future. “Winning isn’t everything. Don’t let the competition pressure you into forgoing important protections or going over budget,” the report added.
Stop buyers from stretching their budget to the max
Many homebuyers, especially first-timers, don’t understand that just because they’ve been pre-approved for a certain loan amount doesn’t automatically mean they can afford it. Although they can afford a monthly mortgage, additional homeownership costs such as appliance repairs and purchases, regular maintenance and insurance could easily push them over the edge.
“Five years ago, in July 2016, homes were selling for $245,100, or $278,100 in today’s dollars, according to data from the National Association of Realtors,” the report read. “Now, the typical sales price is $360,000, nearly $82,000 more [and] incomes have not kept up.”
“What this means is a buyer’s money won’t go as far today,” it added. “Add to that the ongoing costs of homeownership, and it’s clear how quickly home buyers can get in over their heads.”
To avoid regret and possible foreclosure, help buyers create a holistic budget that accounts for their mortgage and the costs for maintaining their home on a monthly and annual basis. That will give them a more realistic idea of how far they can go to get the home they want.