Many years ago, after a carefree weekend away, my husband and I came home to discover we had no water, our television was fried and our refrigerator wasn’t working.
We looked at each other and thought of calling the landlord to demand immediate repairs, until we remembered that we were the landlords!
As new homeowners, we needed to figure this out. As we muddled through insurance company claims and coverage, we were forced to come up with emergency money to repair the well and replace the damaged appliances. Needless to say, carefree weekends away were put off for quite a while.
Homeownership is still considered by many to be the American dream, but to help make that dream a reality, we as real estate agents must not overestimate the importance of understanding the goals and expectations of each and every client.
Across the country, inventory is tight. As a result, buyers today are often encouraged to bid over asking price and remove inspection and/or financing contingencies if they want their bid to have a prayer of being considered.
Savvy buyers understand this is a necessary part of negotiating in a hot market. But while this strategy may get your client the winning bid, does it help him or her understand the true cost of ownership once successful?
To help you feel more prepared to talk this out with your potential homebuyers, here are a few of the oft-overlooked costs to bear in mind:
1. Unexpected – or unprepared for – emergency repairs
Purchasing without an inspection contingency, for example, can leave buyers vulnerable to unforeseen structural issues and code violations.
Gauging the life expectancy of key components of the home can give buyers an idea of what to expect in the upcoming months and years, but it is the unexpected emergency repairs, like those caused by a lightning strike, that can wreak havoc on a budget.
As a result, emergency reserves are a must when entering into a non-contingent sale.
2. Property taxes
The mortgage interest tax deduction and property tax deductions have also been motivators for many to purchase real estate.
But new changes in the federal tax code may well remove that motivator in certain parts of the country where property taxes and property values are high.
3. Lost equity
One consideration purchasers in this market need to consider is the number of years they expect to be in the home. A well-priced home in good condition will typically sell, but if the new homeowner needs to move quickly or is transferred out of state, he or she could be facing a loss of equity as there are fees associated with selling.
Not all markets are sellers’ market, and many are still experiencing modest- to flat-price gains. Because interest rates are still relatively low, and prices are still soft, this is a perfect time for many first-time buyers to jump into the market.
Often, the cost of purchasing a home may still be less expensive than the cost of renting. There are many financing programs available for purchase with minimum down payments and seller-paid closing costs. But, these scenarios could mean little to no equity for a few years.
4. Maintenance costs
My brother-in-law once told me two of the best days of his life were when he bought his boat and when he sold it. The cost of maintenance in time and money had diminished his love for his boat.
New home amenities aren’t so different. That shimmering in-ground pool or beautiful perennial garden may look wonderful and inviting to your buyer, but what will it take to keep them looking great?
Nothing looks worse than green pool water or a waning garden full of weeds. Buyers likewise need to be realistic regarding the upkeep of the home.
Antique homes can be beautiful, but they require special care and craftsmanship to maintain. Homes listed on a local historic registry may require special permission from before certain maintenance can be performed.
Many buyers romanticize the fixer-upper, coming to the scene with an idea book of all the wonderful improvements they want to make to their new home.
Although each addition or improvement may be perfect for the lifestyle of the homeowner, it may not bring a dollar-for-dollar return when it comes time to sell.
There is a delicate balance between upgrading a home and over-improving for the neighborhood. Although it might make personal sense to add a four-car garage to a 1,200-square-foot ranch home, it may be unrealistic to expect to find another buyer willing to purchase that home for market value plus the cost of the improvement.
For many owning your own home is still the American dream. The reasons are as varied and diverse as our population. And though the cost can be higher than the final closing price, the rewards of making a house a home can be priceless.