Here’s another awesome tidbit of information to discuss when you’re showing those anxious first-timers some homes. Listen for their concerns, and help them weigh what’s really “no big deal” versus a concern that’s truly worth walking away from!
First-time homebuyers can get easily side-tracked by fixable “problems,” like an unappealing paint color, and they often overlook hidden costs of home ownership like maintenance expenses. Such rookie errors are hardly their own fault, since they lack the experience that comes with owning property over time. With low mortgage rates luring many newbies into the marketplace, here are four classic mistakes they tend to make:
1) Being turned off by problems with the home that are easily fixed.
According to a survey by Coldwell Banker in 2012, almost 9 in 10 first-time buyers are looking for move-in ready homes. They don’t want to have to fix the kitchen or redo the bathroom before settling in. They also want to live near shops, their work, and “highly-rated” schools. They want (or, are really hoping for) that place that jumps out to them with all the stars perfectly aligned. These homes are the unicorn!
While location isn’t negotiable, many smaller fixes are, such as a dirty carpet or scratched hardwood floor.
Jane Hodges, author of the book “Rent Versus Own,” was concerned about cracks in the plaster of her first home, but she later found they were just a cosmetic blemish that could easily be painted over. Home buyers should ask their your real estate agent for help understanding how costly fixes will be and to grill the home inspector as well. “Buyers sometimes focus on things like carpet, but that’s really a renter’s mentality. They forget you can make all these changes,” Hodges says.
The buyer-friendly market means that many first-time buyers can satisfy their high standards. Most participants in the Coldwell Banker survey of 300 first-time buyers found they could buy a home sooner than they expected – and at a better price than anticipated. Four in 10 got more space, and half scored a neighborhood that exceeded their expectations.
The lesson: High standards can work to your advantage, but don’t forget that some fixes, like cosmetic makeovers, are relatively easy (and cheap).
2) Overlooking hidden costs.
In addition to the down payment and subsequent regular mortgage payments, home ownership also brings a slew of other expenses, from closing costs, to appliance maintenance, to homeowners insurance. That’s why you should warn your clients against doing a simple comparison of monthly rental payments versus mortgage payments.
Home maintenance typically costs 1 to 3 percent of the purchase price, which is as much as $9,000 a year on a $300,000 home. If their motivator is that rent is going up, they need to think about the actual annual operating costs. Homes that are distressed from extended periods of vacancy usually have added maintenance costs, just to get everything up to snuff.
The lesson: Leave plenty of room in the budget to absorb the extra expenses of homeownership. That usually means borrowing far less than the bank approves and taking expected income fluctuations into account.
3) Failing to budget for DIY projects.
Home improvement stores and scores of television shows make renovations look so easy, and seem to always focus on the romantic side of couples doing it together. This will put stars in their eyes! Recently, the art of fixing up houses has fallen out of favor. According to market research firm Mintel, the DIY home improvement market has fallen 21 percent in the last 10 years. The reason appears to be financial. While about one in four would-be-DIYers say they want to start on a major renovation, they simply can’t afford it.
The lesson: When purchasing a home, reserve some cash for needed DIY projects during the first year of home ownership. Make sure they realize the projects may keep coming, other higher-priority issues may surface first, and don’t get in over their heads!
4) Misunderstanding new homeowners insurance coverage.
New homeowners often falsely believe their insurance covers flooding, for example. A report from the Consumer Federation of America last year found consumers are often surprised by their expenses, including deductibles and coverage gaps, after they experience an event such as a hurricane or fire, requiring them to work with their insurance company.
The lesson: Read the fine print of your insurance coverage, and if you don’t understand it, talk it through with your insurer. Since there are bound to be plenty of unexpected costs during that first year of home ownership, padding your budget can prevent late-night panic attacks when the dishwasher starts leaking all over your new floor.
Once again, things we as realtors don’t always think about sharing with those first timers!
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~Keller Williams Realty~
