Historic low interest rates. Lowest home prices in nearly 15 years. Yet, buyers remain hesitant to buy a home. Why? Fear. Here are the top 5 fears associated with buying a home along with some calming solutions and thoughts.
1.) Home prices may fall even more! Yes, they may. When you make a stock purchase, you certainly buy with some understanding it may go up, down, up, and down over the course of ownership. The same with the home. You don’t sell when its low and you hold until its high. Now that the “crash” has passed, do we really believe housing prices could fall another 10-40%? OK, maybe if the entire EURO fails. OK, maybe if the sky falls. But really, unless you plan on putting your money under a mattress (and even that has risks – rodents, fire…) every investment has risk. The real question is how do you reduce your risk? First, understand what you are buying. Much like buying a stock, review the history, check out what the professionals are saying about that market, look at competition, and with your real estate agent pull together some predictions. Know what you’re buying and set reasonable expectations on the holding of that investment. In spite of real estate history between 1992 and 2007, real estate is a “BUY AND HOLD” investment. Long term. Not forever, but not 2 years.
2.) I need a deal or my friends will think I am stupid! Yes, they may. There is a huge amount of pressure on any home buyer in this market because whether it is around the water cooler, over dinner, or sporting events, a buyer’s friend upon hearing you are shopping for a home will say, “What? No, don’t do that now! What do you mean you are writing a full price offer? You should be getting 10-20% below market!” Really? Oh yes, I forgot, your friends spend time looking at Zillow and reading the web and believe they know everything about real estate anyone could possibly know. I understand they mean well. But I have to ask, do you also take their advice on buying stocks for gospel? Do you call them before you buy a TV? Maybe you do. Certainly buying a house in the Bay Area can not be compared to buying a TV but the point is really, know your own stuff. Advice is nice but knowledge is power. The best way to respond to the questions you may get from friends and family is to know why you are buying a home and then know the reasons why this is a good deal even if it isn’t 10-20% below market and you are writing a full price offer. Make sure your real estate agent is helping you pull together this information and support.
Why are you paying list price? Answer: Because this is 1 of 1 houses in a good school district and this is the only one that has been updated and I am competing with 4 other buyers. Why aren’t you buying a foreclosure? Answer: After pulling estimates together on the cost of repairs and remodeling needed, the 10% under market price was not real. Why are you buying now? Answer: Because I want a home not a rental. Rents are projected to increase 4% this year alone!
3.) With all the maintenance of a home, it is better to rent! Yes, there is maintenance. If your landlord is completing maintenance (important point: IF), then you will also be paying for that maintenance in increasing rent over the years. You will also be helping to pay the landlord’s taxes. You will also not be taking advantage of the current mortgage interest deduction (assumed to last for at least some period of time). You will also not know when your landlord is taking your rent and not paying her/his mortgage and then suddenly you see a for sale sign in the yard or worse, a notice to vacate because the home has been foreclosed upon. But more importantly, maintenance is a part of anything you own. Your car needs oil changes but that does not prevent you from purchasing a car. You can buy service packages that cover your oil changes. You can also pay for gardeners and handy persons to help maintain the home. You can also purchase a condo/town home or PUD (planned urban development) and pay a monthly HOA (home owners’ association) dues to maintain the exterior and the like so you don’t have to think about it. Life requires maintenance. (relationships, cars, skills…)
4.) How do I know I am getting the best loan? Great question. Maybe even more importantly, how do you know when you aren’t getting the best loan? First and foremost, do your home work about loans. There is a great book called, Mortgage Confidential: What You Need to Know that Your Lender won’t tell you by David Reed. Great book. Easy read. Know the different products and decision points about how to decide on a loan product. There is not just one product. Like finding a deal in real estate, you need, must, find a professional that you can trust. The loan products available are available to almost anyone completing loans. Whether you work with a broker or a direct lender (advantages and disadvantages to both – read the book), find someone that can review your specific situation, your short and long term financial goals and offer the best options for you. ALERT: The lowest interest rate may not be the best product to meet your financial goals. Seriously, it is not all about rate. Understand this and you will be 95% closer to mastering an appropriate decision on what loan to choose.
5.) All real estate agents are liars and you can’t trust them! Yes, the industry has its issues. There are some really bad, bad agents out there. I feel your pain. However, there are those of us who went into the profession to make it better, to really help home owners and home buyers, and we really, really know our stuff. We are professional, we return calls, we do our home work, we know the neighborhoods like the back of our hands, we see anywhere from 12-50 houses a week (a staggering 3000 homes a year), we drool over MLS (multiple listing data) until wee hours in the morning, and maybe most importantly we believe in the concept of home (read land) ownership. Tangible dirt ownership. Tangible memory producing home ownership. Tangible legacy and generational asset potential. If you don’t have an agent you feel you can trust, if you don’t believe they have your back; fire them. Find an agent that supports your goals, places your best interest first, will answer every question with a smile, and addresses every concern before, during, and after the sale.
In summary, caution in any market is prudent and necessary. If you are considering buying a home there must be a reason, an understanding of the reason and a desire to support the goal with true professionals and knowledge. Knowledge is simply smart living. If you have questions or concerns about buying a home contact me. Whether you buy a home or not, don’t go without addressing your questions and concerns.
“Fear of the unknown translates to fear of losing control. In order to feel safe, we feel we must control every variable–human, environmental, technical. And yet, as life, this just isn’t realistic. Controlling everything that’s around the corner simply isn’t possible.” IVY NAISTADT, Speak Without Fear