With homebuying confidence on a steady descent since August, it’s clear the high prices of homes are affecting both buyers and sellers across the country.
According to ValueInsured’s Modern Homebuyer Survey, 79 percent of homeowners believe that now is a good time to sell, yet they don’t feel as comfortable actually selling their homes due to the expenses awaiting them in a new home. Brokers fees, capital gains taxes and mortgage closing costs are preventing willing homeowners from breaking into the market, and as a result, some overly-eager homebuyers are enlisting in trends that look promising on the outside, but actually have deep repercussions later on.
“Selling and buying are always fraught with worry about timing the market, and life events don’t always cooperate,” said Joe Melendez, CEO of ValueInsured. “In any market, it’s wise to explore all your options for protecting your hard-earned equity.”
ValueInsured asked homeowners which trends they feel homebuyers will come to regret. Read about five main home buying traps that should be avoided:
1. No home inspection
Hiring home inspectors has always been a nuisance, but with prices increasing, homebuyers are ditching inspections altogether. Many buyers are conscious of the high home prices awaiting them on the market, opting to rid any extra fees they can, including mandatory inspections on the homes they plan to sell.
As another option to cut costs, some homebuyers are enlisting in “pre-inspections,” where inspectors perform a scaled-down check on homes by only fixing noticeable problems, but none of the more intricate issues. Though this method does indeed help sellers focus on the competitive market and hoard their savings, problems arise if the person who purchases their home finds a major issue that went unchecked and prosecutes them for it.
2. Offer sight unseen
Some homebuyers are so desperate to move they aren’t even taking the time to tour their new homes in-person before buying. Millennials in particular are huge culprits of this trend, feeling they can get the most out their desired homes from a computer or phone screen. Not to mention, interactive photo galleries and 3D house walkthroughs are giving young homebuyers the false confidence they need to press “Buy,” before even seeing the house they’re purchasing.
3. Co-buying with strangers
Fearing they can’t purchase their homes alone, and unable to find financial support from family or friends, some homebuyers are looking to strangers in similar financial situations to help them afford their new home and share financial burdens. Cities like London now feature match-making apps and websites where buyers are grouped together to help one another purchase properties. The downside — if one person falls behind on their share of the mortgage, the other owner will have to pay, which isn’t an ideal situation for homebuyers already scrapped for cash.
4. Cashing out from retirement savings
With no other access to cash, homeowners are making the risky choice of extracting money from their retirement funds. Not only can this minimize one’s savings after retirement, but spending these funds prematurely will make it difficult to earn that money back in time. Retirement accounts don’t only function as nest eggs, but they also compound interest over time. Spending that interest permanently on a down payment will prevent that money from being retrieved, seriously injuring one’s savings once retirement hits.
5. Tiny homes
Perhaps the most popular fad, bolstered by reality show networks like HGTV and the DIY Network, homebuyers are becoming increasingly fond of the cheap costs tied to tiny homes. Though feasible for one or two people, these types of homes aren’t ideal for large families, a prime demographic in the real estate market. Plus, small living quarters don’t grant much room for excess belongings, meaning any extra assets will need to be kept in a separate storage unit with costs of its own and defeating the purpose of buying a tiny home in the first place.