Note: This my next post in my series the ABCs of buying, selling and investing in real estate. I pick a letter (E this month) and write a fictional real estate story around it. The story is fiction, but the story is real(ty).
This post continues the post Three Examples of When Buyers Expect Too Much in a Seller’s Market
Nancy had called me the previous week asking me if I though her expectations for a house was too high. We explored what buyers should expect in this tight seller’s market and gave her some examples of when buyers expect too much. Nancy called me back and wanted to continue our conversation. She understood that expecting too much from a particular market will lead to frustration about buying a home. Nancy had thought about what I had said and she was calling me back to put me in my place. Expectations should be treasured as a home buyer and she should not be forced to settle. She wanted to hear from me what I thought were some expectations all buyers should have despite the state of the market. She felt there had to be some universal truths that buyers could rely on, and not feel ill at ease before even beginning the home buying process.
This is what I told Nancy…
First, I told her I understood from where she was coming. Buying a home is one of the most expensive propositions a person can make in a lifetime. It is no easy task and full of a lot of risk. Buyers should not have to settle when it comes to the home they purchase, no matter the current state of the market. In saying this, however, I reinforced my comments from our last conversation. Sales price is something that some buyers expect to be within reach of their budget. In a tight seller’s market, this is something you can never fully count on as sellers are going to get what they can out of their homes (who can really blame them). I also readdressed the idea that a buyer has to have everything checked off their want list before settling on a home. In a market with a tight inventory, your choices are limited. In essence, then, I told Nancy that I do hold some idealism for a buyer so they must pursue their home search standing tall and never settle. At the same time, I am a realist and want my clients to realize that expectations in a tight seller’s market can be crushed. What are the ideas that all buyers should expect from a market? I still believe buyer should be realistic about their home search. However, here are three that I believe idealistically all buyers should hold true when buying a home.
1. Find a Livable Safe Home – In my time as a realtor, I have seen a wide variety of properties in a wide variety of conditions. Buyers should have the expectation when buying a home that is, or can be turned into, a livable safe home. We do have laws and city codes in place that make sure that homes do have the minimal safety features built into the various components of the home such as plumbing, electricity, etc. When renovations are made to a home, you have to have a building permit pulled and a city inspector has to look over the work before it can be finalized. Cities put these processes in place to protect buyers from themselves and the other homeowners around them. Faulty work can lead to disasters later so these standards have been put in place to ensure we are better protected against future harm. Yes, these laws are pain to follow if you are trying to do something to your home, but it makes us a stronger community to have them in place versus not. Buyers should especially be aware of these laws and codes since many more are buying fixer uppers because in this tight seller’s market, it is often the only type of property they can get as many more buyers are shooting to get that move-in ready home.
2. Find a Home Within Budget – Affordable housing is an issue close to my heart and I am a huge supporter of finding ways to get more affordable housing in place. Here in DFW, we are seeing many more buyers looking for homes lower than $200k than buyers looking to purchase homes over that amount. The lack of affordable homes has put a damper in the American dream for many buyers and I would love to see something done about it on the policy level. I can’t really blame the house builders as they realize more profit on the higher price points, but it would be nice to see more programs like the one the City of Fort Worth has where new homes are being built in communities where they are traditionally not built. For the buyers shopping in the current market, you have to be smart and aggressive with your agent about what type of homes you would like to pursue. Although the market inventory is very tight, you will eventually find a home that you will love and be able to acquire.
3. Find a Home You Can Sell Later – In tight seller’s markets like this one, there is a distinct danger of buyers spending too much for a home. Recent studies have shown that we are 10 to 14% higher in our sales prices than what is justifiable. A buyer should have the inherent right to purchase homes that will not be underwater (where you owe more than the house is worth) when the times comes to sell the home. If a buyer buys a home overvalued, they stand a good chance of being underwater as soon as the market corrects itself. Tighter lender standards in recent years have made this tougher to do, but I believe we could see a major reversal of these policies under the new administration, which hopefully won’t lead to a major repeat of the 2008 crisis. For buyers in the market today, just be realistic with your agent on what you want to pay for a home and that you don’t want to overspend. It can be difficult to do in this competitive market. You have to find a delicate balance between being aggressive and realistic when it comes to what you offer on a home.
Nancy acknowledged my thoughts and appreciated my honesty in my answers. She agreed that a safe livable home should continue to be a right for any buyer in any market. It should also be a “no-brainer” that buyers should be able to find a home within their means, but she could see how some people might be lead to go after their dream home too soon. Finally, she was totally on board with the idea of finding a home with a realistic sell price. She had seen some homes for sale that she felt was way overpriced. Nancy said she felt better about things and wanted to go see a few homes in the upcoming weeks.