Walkability

Top 5 homebuyer regrets

By Tara-Nicholle Nelson
Inman News®

In life, and in real estate, there are decisions that, if we had them to do over again, we might do x, y or z differently. But all in all, we are not too upset about how things turned out. "C'est la vie," as they say.

Then there are the decisions and actions we actively regret, worrying over their long-term consequences, wishing we could have a cosmic do-over, stewing and ruminating over what we did wrong. (In truth, it's a sign of emotional maturity to see every experience as an education, and to be free from ruminating over even the worst of our regrets. But I digress).

Contrary to popular belief, my experience shows that the vast majority of homebuyers commit what they see as the first type of mistakes, but not those deep, dark regrets. However, those that do have serious regrets can lose many hours of sleep and many thousands of dollars trying to remedy them. Their only gain? Experience and gray hairs.  

Here are the top 5 true, deep regrets of homebuyers and some insights for how to prevent them from taking over your own life:

 

1. Premature buying. This is not at all about timing the market or making sure you get in at the "just-right" moment. There's not much you can or should do about that. But buying before your life or your finances are ready for homeownership is a transgression that ends up causing serious, long-term regrets for those who end up doing it. Premature buying takes several forms, the most common of which includes jumping the gun and buying before you've saved as much as you really need, or before you've paid your debt down to the level you really needed to.

Another pervasive form of premature buying is to buy before you've truly, deeply, seriously run all your own personal financial numbers, which puts you in the position of forced reliance on what the bank, lender or someone else thinks is affordable, which is often wrong.

Similarly, buying because you feel pressure to get in while the market is keeping prices and interest rates low, rather than because you want and can afford a home, is a surefire path to real estate regret.

 

2. Buying too small of a house. People who buy too large of a home often realize, several years in, that they simply aren't using all of their rooms and many either sell and downsize or find ways to put the extra space they have to better use. People who buy too small of a home, on the other hand, are acutely aware of it from the moment their children start fighting, they find themselves and their energy levels deactivated by clutter or they end up realizing that there is no room at the inn for the family members or friends they'd like to house, short or long term.

Buying too large of a home is potentially wasteful of the money spent maintaining, heating and cooling the place; buying too small a home is uncomfortable and frustrating, sometimes intensely so, on a constant basis -- hence, the regret it can create.

Avoid this regret by starting your house hunt with a visioning exercise: What do you want your home life to look like in 10 years? Who will live with you? Do you entertain or have overnight guests? What activities do you want or need to be able to do there? Do you want to practice yoga, crafts, have kid-sized homework spaces, work at home, collect classic cars or move your parents in? If so, seek to buy a home that can comfortably fit all these people and their activities, even though they might not all exist -- yet.

 

3. Buying a home you can't truly afford. You might think that one of the top 5 regrets of homebuyers would be buying at the top of the market. But that's not the case -- I know plenty of buyers who bought at the top, paid top dollar and are still upside down on their homes, yet are still happy with their homes because they can well afford the payment and bought homes that will serve their families very well for the very long term (which will allow their home's value to recover).

It is much more problematic to simply overextend yourself on a home -- no matter what the market dynamics are at the time you buy. People who both bought at the top of the market AND overextended themselves made up the large majority of folks who lost homes, as the mortgage gyrations they went through (i.e., taking short-term, interest-only, adjustable-rate mortgages) in order to qualify for the home in the first place also caused them to be utterly unable to sustain the mortgage once the market declined and their mortgages weren't able to be refinanced.

If you can't foresee being able to make the mortgage payment on your home 10 years in the future without refinancing it, that's a sign you might be approaching the unaffordability danger zone.

 

4. Incompletely resolving co-buyer conflicts. Many co-buyers are couples, but I've also seen parents buy homes with their children, siblings buy homes together and even good friends team up to co-buy a home. Any time there is more than one buyer, there is a chance that the co-buyers will have one or more disconnects in their wants, needs and priorities. Often these are resolved almost effortlessly by the realities of the homes that are on the market (e.g., neither party's dream home turns out to actually exist, or pricing realities require everyone to compromise); other times, people simply work things out like mature individuals, seeking first to understand their co-buyer's position, then working out a compromise that works for everyone involved.

But in still other cases, the conflict is never truly, deeply resolved; even on closing day, one side feels completely misunderstood, or caves in for the sake of avoiding conflict, or someone simply throws a tantrum, insisting that they get their way. In these cases, it's common for the party who feels undermined and trampled on to ruminate on it as they live in the property every single day, ending up with great resentment and anger over the years.

 

5. Taking on fixing beyond their skill, patience and resource level. It can be heartbreaking to tour one of the many homes on the market that was clearly the subject of a previous owner's fixer-upper dream but was abandoned in the middle of a remodel. Often, these abandonments happen because the owner simply underestimated what the project would take and ran out of time, energy or, most commonly, money to get the remodeling completed. But it's even sadder to tour the home of a frustrated fixer whose owner and family still lives in a half-done, very dysfunctional property, and who are getting more and more disgruntled with their situation every time they make a mortgage payment.

Top Ten Legal Mistakes Home Buyers Make

4 ways buyers can compete in today's market

By Dian Hymer
Inman News®

Inventories of homes for sale are dropping in areas where they've recently been high like in Oakland, Calif., Phoenix and Miami. Interest rates are approximately 0.75 percent lower than they were a year ago. It seems like a good time to get off the fence and into the action if you can find a house that reasonably matches your wish list and you don't find yourself bucking other buyers who have the same idea.

Months' supply of inventory is an estimate of how long it would take to sell all of the homes in a given market at the current sales pace. A six-month supply of unsold inventory is thought to represent a balanced market.

In California, there was a 4.2-month supply of inventory in April 2012, down from 5.6 months a year ago. When buyer demand increases, the unsold inventory drops, and multiple offers often enter the picture -- sometimes in a big way.

In the hills above Berkeley, Calif., buyers are chasing too few homes for sale. But not all homes are coveted. The best homes that are priced right for the market are drawing attention. The multiple-offer activity can be fierce. Recently, a home that was perhaps underpriced for the market was bid up significantly with 17 offers. Four of the top offers included no contingencies.

The first step to successfully compete in a sizzling market is to know the inventory. Pricing low to generate multiple offers is a strategy commonly used in a low-inventory, high-demand market. You need to be familiar with how much listings in your area are selling for in order to determine if a listing is priced at, above or below market value.

HOUSE HUNTING TIP: You might have only one opportunity to grab the sellers' attention, which means that your first offer may need to be your best. You need to feel confident that the price you're offering -- particularly if it's significantly over the list price -- is reasonable in terms of your long-term housing needs and in light of the fact that the current uptick in many segments of the market may not be a sustained recovery.

Before writing an offer, find out how many offers the agent anticipates. If you can barely afford the asking price and there are seven offers, you might reconsider and wait for an opportunity that will allow you to move up in price, if necessary.

It's hard to compete with an all-cash offer if you need to qualify for a mortgage. Make sure to get preapproved for the financing you need. Some sellers will accept an offer with a loan contingency from a well-qualified buyer over a cash offer if the price is higher. A large cash down payment makes your offer more attractive.

Make the cleanest offer you can without taking on too much risk. Offers made contingent on the sale of the buyers' home have little chance of being accepted. In the example above, four buyers were willing to make offers without any contingencies. That's as clean as it gets.

In this case, the buyers preinspected the property. In 2005 and 2006, buyers waived inspection contingencies to compete. Sometime negative consequences such as drainage or foundation problems were discovered after closing.

But if you're willing to pay to inspect a home before the sellers have accepted your offer, you can gain the information about the property's condition before moving forward. Be sure to ask for the sellers' permission before preinspecting their home.

It's always a good idea to find out as much as possible about the sellers' situation. This may allow you to offer a perk that could swing the deal your way. Recently, buyers of a Piedmont, Calif., home offered the seller 30 days to rent back at no cost.

THE CLOSING: This clinched the deal.

Do pre-emptive purchase offers work?

By Dian Hymer
Inman News®

The home-sale market has come to life this spring for the first time in years. Inventories of homes have dropped, interest rates are near all-time lows, and buyers feel the market has hit bottom and they'd be wise to buy now before prices rise.

It's impossible to call the peak or valley of a market cycle until after the event has occurred. In some hot micromarkets, like the housing markets around Northern California's Silicon Valley, the market may have bottomed a while ago.

In Silicon Valley, the inventory of homes for sale is too low to satisfy the demand of eager, newly made millionaires. The result is multiple bidding contests and sale prices over the list price, sometimes hundreds of thousands of dollars more.

Silicon Valley is an extreme example, but there are low-inventory niche housing markets around the country, which is good for sellers and tough on buyers. Reminiscent of the bubble of 2005 and 2006, buyers often have to make offers on more than one listing before they have an offer accepted.

Sellers in a low-inventory market may list their home on the low side of market value hoping to stimulate multiple offers and a higher price. In this case, a date is often set for offers to be heard. The date is usually after the house has received market exposure; giving the sellers more of a chance that more than one buyer will make an offer.

Some sellers don't feel their property has received enough exposure until it has had two public open houses. They might decide to hear offers a few days after the second open house.

HOUSE HUNTING TIP: Buyers competing in a market that's short of inventory have the option of trying a pre-emptive offer. A pre-emptive offer is one that is made before the seller's predetermined offer date.

Let's say that you, like the sellers, feel that a home you want to buy will receive more than one offer. You want the house badly enough that you're willing to make an offer before even knowing if there will be multiple offers or not.

Even though the sellers have told their real estate agent that they don't want to hear an offer before a certain date, some do. There is no guarantee that your early offer will be accepted or even reviewed by the seller. Some sellers will stick to their word and wait until the official offer date.

There's also no guarantee that you will successfully avoid competition by making an offer before the due date. Recently, sellers who said they would wait until after the second Sunday open house to entertain offers changed their mind when they were told that an offer had been written before the first open house.

This buyer made a full-price offer and gave the seller until 2 p.m. the next day to respond. That night the listing agent received a call from another buyer's agent who wanted to know when offers would be presented. Upon hearing that an offer had already been made, the second buyer made an over-asking-price offer that was accepted.

If you're going to make a pre-emptive offer on a property that you think is well priced, you might want to offer over the asking price to make a positive impression on the sellers. Your offer should be good enough that the seller will be encouraged to carefully consider it even if there isn't another offer.

Your financing should be in order, and include a strong preapproval letter from a lender. To maximize your chances of acceptance, make sure that your offer isn't littered with contingencies.

THE CLOSING: Keep it simple and back it up with confirmation of your sincerity and ability to perform.

6 signs a home will hold its resale value

By Dian Hymer
Inman News®

Most buyers have a wish list of features they'd like to have in a home. Often missing from that list is how salable the home will be when they later decide to sell.

Generally, buyers deal indirectly with resale value. They want a home they can buy at market value or less. They want to buy a home that will retain its value. They want to buy a home that will suit their needs. They want to buy a home they can make their own.

A listing that's priced low to sell fast may be one that will have good resale value only if you use this marketing strategy. The low price may offset an incurable defect, such as a location on a busy street.

There's nothing wrong with buying a home on a busy street as long as (1) you buy it at a price that reflects the location issue; (2) it suits your long-term needs; and (3) you understand that you will probably have to discount the price accordingly when you sell, depending on the market at the time.

In a hot seller's market, buyers are desperate to buy. They often overpay, and they are more likely to overlook defects that they would shun in a sour market.

Resale value has become a bigger issue since the housing recession began five years ago. Buyers are more cautious in their homebuying decisions. They don't want to buy just any home; they don't want to make a mistake and end up wanting to move in a slow market in which they might lose money.

The homes that hold their resale value well are the ones that appeal to a broad cross section of buyers; offer a good floor plan that works for different lifestyles; have a good amount of space but are not enormous and expensive to maintain; and exhibit a pride of ownership. They should also be in good condition.

Location is also a critical element of resale value. There are market niches that are always in demand, in both hot and soft markets. For example, there are always buyers for homes in the Rockridge neighborhood of Oakland, Calif., and the adjacent Elmwood neighborhood in Berkeley. Both are conveniently located to shops, cafés and a Bay Area Rapid Transit (BART) stop for easy commuting to work.

That's not to say that every listing in these areas sells quickly. To sell, it needs to be priced right for the market.

It's easier to recognize a home with good resale value in the current market than it was in the bubble market of 2005 and 2006 when virtually all homes sold in many areas. In a soft market, the homes that sell within 30 to 60 days are either good homes or good deals.

Ideally, you want to buy a home that has good resale value. Not one that's just a good deal. There's no urgency to buy now in many areas, although it would be nice to take advantage of record-low interest rates. But you shouldn't buy a home that won't work for you long term just to lock in a great interest rate.

Even though there are a lot of homes for sale on the market, in many areas there is a not a surplus of quality inventory on the market. One reason for the lack of quality homes on the market is that many sellers are waiting for a better time to sell. Another reason is that homes with good resale value don't tend to change hands that often.

THE CLOSING: There may be good news ahead. Leslie Appleton-Young, chief economist for the California Association of REALTORS®, predicts that sellers who have been waiting for a better time to sell may decide they've waited long enough and list their homes for sale in 2012.