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What is the True Cost of Home Ownership?

What is the True Cost of Home Ownership?

Most potential homeowners begin their planning with the down payment and monthly mortgage amount in mind. It's an excellent start but anyone who is planning on buying a home needs to be ready to take on the total costs and look beyond the mortgage payment.

If you want to effectively determine a home's affordability you also need to consider the following:

Real Estate Taxes
Insurance
Home Owners' Association Fees
Landscaping
Maintenance costs
Electric Bill
Gas or oil expense
Trash removal charge
Water & sewer bill
Snow plowing costs
Miscellaneous expenses

There is no obligation in most states for the seller to provide the costs of utilities to a potential home buyer (although the State of Hawaii has now made this mandatory in real estate transactions.) The responsibility falls to you or your buyer agent to request the utility costs and copies of the electric bills from the owner.

Maintenance costs will fall into the categories of ongoing and occasional.

Ongoing items include changing the filters in your heating system and air conditioning units, furnace maintenance, gutter cleaning, and chimney sweeping, recaulking your bathroom and blacktopping the driveway.

Occasional maintenance items are repainting, replacing the roof, recarpeting, replacing appliances, refinishing hardwood floors, repointing masonry work and an assortment of repairs that can crop up from time to time.

As a homeowner you should keep a running tally of all the items that you replace and maintain along with the cost of your heat and other utilities.

A smart buyer may very well ask for it.

Written by

Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230

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Posted by Claudette Millette - Metrowest Mass Buyer Broker on 09/08/2010 07:53 PM

Comments (59)

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59 Comments on What is the True Cost of Home Ownership?

SEP

2010

Good post today.

Disclosing everything is what a seller should do. If you have nothing to hide, why not.!!

Patricia

Claudette - This is a great, short article on home ownership. I loved it and reblogged it! Congratulations on the feature!

Perfect blog for home buyer, any buyers work with you should be very lucky.

Claudette, great post. Owning a home does cost more than renting, and we're doing our clients a disservice if we don't give them the complete picture.

I did a post a couple of months ago "Test Drive before you buy", which tried to address the same issues.

Congratulations

Patricia:

Absolutely, a buyer needs to have all of the facts and figures of what it will take to own any particular home and the seller should be ready with them.

Christianne:

Thanks for reblogging.

Eileen:

That is very kind of you. Thank so much.

Greg:

I like the sound of that "Test Drive before you buy." That is a great title for a post.

I thought it was too! but could buy a comment. Here's the link if you're interested

Claudette...

But you subtract principle and potential tax savings ... and the is a genuine value in "pride of ownership."

This should be required reading for any potential home buyer. Great post Claudette. It's no wonder it received "Featured Blog" status!

They should teach that in High School.

Hi Claudette -- Very good clarification of the financial aspect of owning a home. A software program could capture a lot of this information and report on it. MLS's and value added reporting are still in the dark ages in giving consumers good information. Much of this could be better systematized with good data collection, analysis and reporting.

Claudette, the hidden cost of ownership are hard to fully appreciate...nice run down of items to expect and congrats on the featured post.

Claudette,

Excellent post, just re blogged. I think this is why we are seeing so many folks lease these days. If the home isn't going to appreciate in the short term, the costs are more in synch!

All the best, Michelle

Claudette - I won't hijack you but nice list. One thing missing for some areas is pool maintenance. This might come under Misc expenses. Just a thought.

Our local utilities won't give information about accounts and services. The seller giving it doesn't really help anyway. You don't really know if they shut down all the vents and kept is cold or hot or how many people where in the house, etc.

Excellent and particularly good for new home owners. How many first timers have been sharing expenses with three or four others and don't have the first clue beyond the down payment and the mortage?

There are many buyers coming from rental situations that do not stop to think of insurance, taxes, repairs, maintenance, HOA fees, etc. They are used to calling the landlord when the AC gives out and a repairman comes to fix it for no fee. That does not happen if you are the owner. Too many use the mortgage payment as the basis for deciding what they can afford and it comes as a very costly shock when the other items kick in.

There are some that should not buy, at least not until they are ready. And to be honest, some people may prefer and be better off renting. Each person's situation is different. But homeownership should be an option for as many as possible, but never a requirement.

This is an excellent post and something that first time buyers sometimes do not consider. There will be no landlord any more and it is necessary to consider these expenses and see if there are sufficient immediate funds and later reserve funds to make home ownership a reality.

Great post. Buyers need to understand that home ownership comes with its share of expenses.

Excellent post -- and one that I wish my agent would have shared with me when I purchased my first home! I tell my buyer clients to set aside funds that equal about 10% of their mortgage payment so they will have the $500 or $2000 for necessary repairs.

Great post! Thanks for sharing. Lots of first-time home buyers have absolutely no idea what it takes to own a home. They do learn rather quickly.

Greg:

That was an interesting concept and quite a thorough post. Thank you for the link.

Richard:

Pride of ownership is one of the biggest reasons for buying and owning a home and it is well worth it - even with all of the additional costs.

Craig:

New buyers may not be expecting all of the associated costs. They need to be prepared. Thanks so much.

John:

Maybe an entire semester on why and how to buy a home should be required - at least in college. It could be extremely useful.

Chris:

So, this could be an additional feature in the MLS. That sounds like a reasonable idea.

Steve:

Yes, all of those hidden costs that buyers do not think of right away. It is better to have them listed some place than to be a surprise to the unsuspecting.

Michelle:

Yes, and I hope that is not a continuing trend. I know that when I was single I appreciated that fact that the landlord would be shouldering all of these expenses. But, you know, owning your own home is really worth everything you put into it - because it is yours.

Ken:

Pool maintenance is important, particularly in some parts of the country. In Florida it is probably a very common and expected additional expense.

Yvette:

You are right about that. Sometimes it is not completely representative depending on how the current owners live. You need to ask them what their heating habits are and how much time they spend at home - but, at least it's a place to start.

Michael:

Absolutely. Roommates and renters really have no idea of what it actually costs to run and own a home on their own.

John:

There are pluses and minuses that go along with renting vs. owning. It's best to go into it with all of the facts. One drawback with renting is that you can be "asked to leave" your home at any time.

Joan:

You really do have to plan on a budget for any upcoming repairs or replacements like the roof, for example. But that is all part of being a homeowner.

Rodney:

I believe that to be true. In your business you must see this with your clients - only planning for the actual mortgage payment.

Kerry:

That is good advice. 10% of the mortgage payment would give them a nice cushion for when they will need repairs to be made.

Diane:

It is truly better to be prepared for additional expenses. This is why we see homes with so much deferred maintenance. I think the owners were not planning on the costs and are not able to keep the home up as they should. It is always a shame to see a nice home neglected.

Hi Claudette,

very clean clear and appropriate way to explain the realities of home owneship, good for you on the feature and well deserved

Good informative list Claudette. So many 1st time buyers don't quite realize that there will be ongoing, regular maintenance costs. And if they haven't thought about that & budgeted accordingly, it can be a real shock to them - & their pocketbook!

This is a great post to share with buyers, particularly with first time home buyers.

SEP

2010

Short, and to the point! You hit all the highlights. Will be posting this to our business page in Facebook... thanks for this well written and informative post.

I think renters tend not to think about these "details." Property taxes are particularly tough in our neck of the woods.

Great information, Claudette, especially for first-time buyers. You clearly demonstrated that the financial obligations to owning a home goes well beyond the mortgage payment. Thanks for the post and congratulations on the well-deserved feature.

Very good, clear and concise. Ah, yes, the joys of homeownership. But, I have owned since I was 19, and I wouldn't ever change that. The costs of having my own home . . . priceless.

Well yes there are many extra costs but it's still better than renting. If you go into homeownership with the idea that you will get your new pad whipped into shape in the first year or two it will save you major costs down the road in maintenance. Keep it up and it will reward you.

I see a lot of client's homes years after I've sold it to them and they have done nothing to it yet want top dollar.

Good choice of subject matter. I would also add that for older homes Buyer's need to consider the usable life of major system and how soon they may have to be replaced like roofs, furnaces, air conditioners, wells, septic systems, water heaters, kitchen appliances, water treatment systems & windows just to name a few.

There's so many other expenses too. People who love gardening will be forced to spend every spare dime on their passion, now that they have a piece of ground they know will produce beauty and sustenance for them year after year. People who love decorating are in the same plight, as they will absolutely have to spend money on making their house a home they will love to come home to, knowing their landlord isn't going to decide to rent it to their nephew as soon as the lease runs out, or sell it from under them.

A great way to remind first time home buyers not to over budget house payments! They don't always consider the "other" costs of owning a home.

I think deep down inside many first time home buyers are aware of these extra costs but choose to ignore them. They only focus on getting just prize....just buying the home.

It is a great list and most of it applies to investors. Just last night I had to walk a client through all the expenses which turned a "great looking" condo into not such a great deal. Cost me a sale, saved me a client.

Fabulous post! I had a friend of mine call me a couple of years ago because her mortgage payment increased. She lamented, "But we have a fixed rate mortgage!" I was not her realtor when she purchased and she did not realize that Taxes and Insurance escrows were part of her mortgage payment. And those can (and will) change.

Peter & Linda:

I think we need to explain this to people so they will not be in for an unpleasant surprise.

Nancy:

Maintenance is something that, as a renter, you have not had to think about. It does need to be budgeted for or you will end up with a home that is a tough resale in the end.

Sharon:

First-time buyers are completely unaware of all that goes into owning a home. But, they will discover that it is all worthwhile in the end.

Ruthmarie:

Property taxes can be an unwelcome surprise if you live in an area where they are particularly high. My buyers often measure which towns they are drawn to by the cost of real estate taxes.

Dan & Amy:

Thanks so much for reading.

Carla:

Wow - you are an experienced home owner. I agree, it is all worth the price of owning your own home.

Steven:

Absolutely - owning beats renting any time.

George:

I always try to explain this to people who are buying an older home. I actually like it to be totally renovated. But, even then, they have to be aware that some items may need replacing in the future.

Joetta:

Gardening and decorating is a passion with some people and those are things that you are severely limited on as a renter. I admire the gardeners - it makes such a difference in the appearance of the home.

Debbie:

First-time buyers are susceptible to getting caught up in the moment - they need to budget for everything that is ahead.

Robert:

That client will surely buy something else with you and will be eternally grateful for your honest advice.

Kathryn:

H-m-m - taxes and insurance are not at a "fixed rate." I guess she found that out.

Great post. Most buyer have the mentality why pay rent when you can own and they forget about the other cost of owning a home.

Claudette, good information every prospective homeowner should know. There is more to ownership than just the mortgage payment.

Claudette, good points, I find almost all new homeowners forget to factor in the inevitable maintainence costs...

A house is a depreciating assett. Roofs, air conditioners, furnaces, hot water heaters, appliances etc. have limited life expectancies. Every year they wear down and one needs to accumulate a reserve fund to meet these eventual expenses.

I chuckle when buyers say that they want a house instead of a condo because they don't want to waste their money on those montly HOA fees. I make them realize that a house has those same fees, and they're probably more. But instead of being a monthly mandatory fee, you get "assessments" when you least expect it. You are the single member of your "HOA" and you better run it like one with a budget and reserve fund for contingencies.

Claudette...good post. I beleive it is our responsibility to point out and counsel these things so that they the buyer understands the big picture and the long haul application. Between the purchase and the paying off of a home, a lot can take place.

Mike:

Yes, there are additional costs but I think they are worthwhile when you consider the quality of life that comes with home ownership.

Michael:

Indeed - PITI and then some.

Gerry:

I think that is because we would like to forget those pesky maintenance costs. I know that I keep those in the back files of my mind - like hiring someone to clean out the gutters on a regular basis.

Tim:

I hope a house is still an appreciating asset. Or, it will be again be again soon.

Richie:

I think it is incumbent on us to at least make first time buyers aware of these additional expenses.

Excellent points! Home ownership involves a lot of responsibilities but it's also a privilege that is well worth it! Oh...and thanks for the reminder about cleaning the gutters, That is my next phone call ;-)

Nice to see your post on the front page!

Russell:

That gutter cleaning is one that is easy to forget (and I often do.) But it is definitely that time of the year.

Thanks so much.

Love it, reblogging it. Glad it was a feature - it needed to be!

Danielle:

Thanks for reading - and reblogging.

Great post! Often times I blog about the true cost of home ownership. I think its very important for potential buyers to consider the additional costs associated with owning a home, especially if they are first time home buyers going from renting to owning. A lot of the additional costs are not even considered sometimes. Keeping a realistic perspective is crucial!

In my area, you can call the utility company to find out what the utility bills have averaged over the past year. Not many people know that, though.

I tend to deal with larger homes and often get the question regarding maintenance and utilities. This is especially true of homes with multiple heating and cooling zones. I had a listing with close to 6000 sq. ft. with two zones. It was a "green" home and as such didn't take much to heat and cool. However, buyers will all cash, not concerned with money per se, all asked about the cost of heating and cooling.

The other one I get asked about a lot is landscape maintenance. It doesn't seem to matter if it's a 1/4 acre or a full acre, the cost associated with keeping up the landscaping is a common question.

Disclosures on these are not required in Silicon Valley but most good agents have answers for the questions.

Leanne:

The local utility companies around here will usually not give out that information. They will only give it to the actual subscriber or home owner.

Bryan:

Heating, cooling and landscaping are all pretty universally important. In this area we need to also answer the question of snow removal costs.

Yes, you're right. Personally, I keep track of everything. Our utility companies do give out all information regarding the cost of utilities to anyone who asks. Odd, I would think that's privileged but it's not. Great post. :) Gail

Claudette, great list, and as a reminder to a Landlord/Owner too when factoring out their NET in an investment those items need to be taken into consideration too and often put them in NEGATIVE cash flow. Renting by a tenant is often better than owning if they have a short term focus or are cash strapped or income strapped.

Claudette--This is a powerful post and one which should be "must" reading for potential Buyers. It goes into the category for me of "can you REALLY afford this home", which is a big part of what a good Buyer's Agemnt like you shoul be reviewing. It has been my experience that people who really stretch to buy, have no reserves when some maintenance item comes up. That is the beginning of the downward spiral.

It is thinking like this which puts you in the "non-stereoype" category for my recent post aout real estate caricatures.

Gail:

Yes, I think that varies with utility companies. Here they seem to feel that it is privileged information. You are so organized to keep a record of everything.

Gary:

I agree for a short term, renting may be wiser but for the long term I think that owning is the best choice even with these additional expenses.

Elliot:

I appreciate that comment very much. Yes, I do care about more than just getting a commission check. I just checked out your post on caricatures. I actually think there are quite a few of us who care about our clients. You do not get repeat business and referrals if a client doesn't feel cared for.

I think it works the same way with attorneys.

SEP

2010

Hi Claudette, This is such good information. Often buyers fail to figure in the additional costs in maintaining their home. I thought our dishwasher was broken yesterday...appliances just don't live forever! Luckily, we fixed it and I think it has a few good years left!

NOV

2010

Claudette, the hidden cost to maintaining a home can run into hundreds every time we turn around. Excellent post to share with first time buyers so they can have a better understanding of the cost of home ownership.

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Claudette Millette - Metrowest Mass Buyer Broker

Ashland, MA

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The Buyers' Counsel

Address: 27 Thomas Street, Ashland, MA, 01721

Office Phone: (508) 881-6230

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