2020 Real Estate Market ForecastWestern Suburbs of ChicagoJoe The Guardian Troll photo courtesy Morton ArboretumHow’s the Market?If you’re thinking of buying or selling a home in 2020
3 Home Buying Myths Busted!
3 Home Buying Myths Busted
Everyone Has An Opinion, Right?
When you’re buying a home there will be no shortage of advice from just about everyone you know. But some conventional wisdom doesn’t hold up in the real world of trying to buy a home. Here are three of the most common home-buying myths and why you should disregard them.
Myth #1: Buy the worst house in the best neighborhood
Most real estate agents say that the location is more important than the house. That’s true. Sort of. But a house in very poor condition or that is significantly different (in a bad way), won’t appreciate at the same rate as it’s neighbors. Why? Because unless you’re planning to significantly upgrade the home and property, the worst house in a neighborhood won’t be as attractive to future buyers. Despite the popularity of renovation-flip TV shows, there aren’t that many people who are willing to take on major projects, so the buyer population for a compromised house will always be small.
Myth #2: Foreclosures are great deals
During the great housing downturn of 2007-2012, some people bought foreclosure houses for less than they were worth. But the fact is that many houses sold for less than they would have a few years previously - all prices were depressed.
Today, the situation is pretty much the same - houses sell for market value, so it's important to understand the definitions of distressed, pre-foreclosure, and foreclosure properties.
A property in poor condition is generally called "distressed". A property might be called distressed because the homeowner hasn't kept up on maintenance, or there are material defects like a leaking roof or dangerous wiring. The home likely won't pass a standard home inspection and if the problems are serious enough, a buyer can't get particular types of loans. But the homeowner can legally sell the property, albeit at a discount.
In some areas, distressed also has a legal meaning of pre-foreclosure or foreclosure.
Pre-foreclosure means that a legal action has been taken against the homeowner, usually for not paying the mortgage or taxes. Some homeowners in pre-foreclosure will try to sell their house in a short sale, which means that when they sell for less than they owe they will come to the table "short" in paying off the loan. A short sale needs bank approval, which will be given when the bank decides it’s the best way to get the most money possible out of the situation. The home will sell at the market value given its condition, with a slight discount for the time a buyer has to wait for bank approval. Banks have an obligation to their shareholders to make as much money as possible on the sale of an asset.
The situation for a foreclosed property is somewhat similar to that of a pre-foreclosure property. A foreclosure is owned by the bank or another institution (like the FHA or HUD) that took possession of the property after a homeowner defaulted on the mortgage. The property may be somewhat discounted compared to perfectly kept properties in the neighborhood that are being sold by traditional sellers. But it’s rare to find houses significantly discounted just because they’re foreclosures.
Myth #3: There's nothing wrong with making a low offer because...
- you don't get what you don't ask for
- it will make the seller come down to a lower price
- it’s just business and the seller can say no
While all of these riffs sound harmless, it’s not usually a great strategy to make an offer you don’t expect to be at least somewhat attractive to the seller. If you're thinking of starting a negotiation with a low offer, ask yourself "what will be the impact of this offer?".
First, there’s a difference between a low-ball offer meant to provoke a seller and an offer that is in-line with market realities. Provoking a seller to see what you can get might just make them stubborn and resentful, which isn’t a great place to start a negotiation. If the home is truly over-priced compared to comparable properties, then a friendly call from the buyer agent to the listing agent might uncover the circumstances for the seller’s price. Sometimes houses are listed as what can best be called “fishing expeditions” where the seller would sell if they got their price, but otherwise, they’re not planning to budge. In this case, a low-ball offer is just a waste of time and effort.
On the other hand, sometimes either the seller or the agent misjudged the asking price because they chose the wrong comparables, or new comparables closed after the property was listed. A common issue is when the seller believes that a particular feature -- like a pool or elaborate landscaping -- justifies a higher price because of the amount spent on it. A seller may need to hear that unless buyers value a feature they simply aren’t willing to pay for it. If a pool isn’t important to a buyer they’re not going to pay more for a house with a pool.