As both buyer's and sellers start thinking of joining the Spring Market, take a few minutes to analyze Reality vs. Fiction in today's changed real estate market.
After pre-approval the hardest process is narrowing down your choices now that you actually know what your actual budget is. At times we have to come to the realization - i.e. Reality, that our dream home is not within our current budget.
So how does a buyer - even one that has owned before - come to terms with those choices?
The following are a few questions to ask yourself?
Are you being realistic about a long commute to buy more house? What if gas prices go up? What are the probabilities that you may change jobs in the next few years? Is driving one hour or more one way really plausible with your current family obligations? How close is the home to highway access if you commute? How close is the home to public transportation if you need it?
Are the schools where you want your children to attend within the boundaries? Are you and children willing to switch school districts?
Are your hobby interests covered? Will you be able to attend your favorite health club, park?
Will your friends/family be willing to visit you in the super boonies?
You have heard about people buying more house than they need during the housing bust of recent years so do you really need 2500 sq. ft. or more when your children will only be with you for four or less years? Do you really need a finished basement to entertain in when you really will only use it for storage or "it would be nice" to have?
Must you have the latest appliances, color schemes, crown molding, hardwood floors, granite and or a host of other "nice" touches now or can you slowly replace a basic model as you adjust to home ownership and its additional costs?
Monthly Payment Amount
Besides the Principal and Interest to be paid on your mortgage loan do you have a solid idea what insurance costs for your potential home will cost. Do you have a solid relationship with your insurance agent so you can call them and get an estimate on home insurance for a specific area, type of home, etc.
Have you considered the impact that property taxes will have on your home? A myth that many home buyers believe is that if they buy a home for much less than market price their property taxes will automatically go down...NOT TRUE!
In Illinois we pay our property taxes 1 year in arrears, i.e. 2013 taxes will be paid in 2014. Those taxes have already been determined. You can appeal the following year's taxes but remember that the assessor will use the last 3 years of market activity to determine price and even if the prices have gone down the taxing municipalties can offset that by increasing the multiplier. Understand property taxes so you will understand why your realtor is not going to show you homes with higher taxes than you can afford.
Remember if you have to pay Homeowners Association Fees, that will also be considered part of your monthly housing payment.
The final part of your monthly payment is Private Mortgage Insurance - Unless you put down at least 20% the majority of loan programs will charge you a fee for this type of insurance to lessen the investors risk in giving you a low down payment loan. There is nothing for free in life...somewhere you will pay for it.
Speak with your mortgage professional so you understand ALL the components in your monthly payment not just the loan amount. You will save yourself a lot of heartache in the long run.
Sellers also need to realize that although prices have gone up the Midwest/Heartland is not the East Coast, West Coast, Arizona or Florida. Our market is totally different and only modest gains were report overall. Real Estate is Local...and what happens in Vegas stays in Vegas applies to real estate....what is happening in Chicagoland is totally different than the rest of the country.
Of course you think your home is the best, prettiest on the block. Like our favorite child, our homes reflect more than four walls. This is where our first child took his first steps, our daughter got married, our grandchildren slept over, our significant other proposed and a host of other memories.
Realize that a potential buyer will only see your home and pay for what it appraises at no more no less. Even cash buyers are not going to over pay for a home since today's buyer's have access to more information to price a home than ever. A buyer does not care if you spent $25K in high end improvements, or put in a pool or the latest security system - its nice and may give you a leg up on your competition but you won't get all your money back.
A buyer does not care how much you need to net because you "are not going to give it away" and neither does the market. The home will sell for what the market will allow based on the latest sold homes with similar characteristics in the same area. If you don't declutter, clean, and make it market ready expect to get less than other homes. If people have to "visualize" because you are a borderline hoarder and you have not dusted, repaired, made your bed, removed pizza boxes, leave dirty dishes in the sink, carpets are so spotted that people put on those booties because they don't want their shoes "messed up" than prepare yourself for low ball offers.
Reality is harsh and if your agent is unable to tell you to declutter, clean, organize, etc. your home before listing it because your "feelings" might be hurt, prepare for lower than market offers but your feelings will be intact. Watch HGTV to get an idea what is meant by "show ready" and then put in the hard work to get your home in "model" condition. If you have no clue hire an agent that can recommend a stager, organizer or other professional that can get the job done.
We all have different levels of acceptable cleanliness and decorating but if you want to gain the highest return on your home spend the time getting it ready for market.
Remember the majority of buyers are not visual, they need to see themselves in your home and that is difficult if they can't even get in the door!
Although we all may want that 2 story brick home with exotic hardwood floors, italian stone backsplash, Viking appliances, home office with floor to ceiling custom shelves, a home theater with 62 inch plasma TV in our custom basement and a master bedroom suite the size of our current apartment or something similiar, the reality is that we have to deal with our budget so we don't repeat the mistakes of the past!
HGTV is great for ideas but like most of TV its not "real life". So trust your professionals to guide you in the right directions - that is why we are licensed and make this industry our profession and you hire us! We may have to burst your bubble and bring you the honest truth but we too have dreams of the "perfect buyer or seller" who buys or sells a home in the most prestigous neighborhood for millions cash...then we wake up and realize that we don't live in CA or Manhatten and are not doing an episode of "Million Dollar Listing LA" or Million Dollar Listing New York"
Agents too have dreams but with a few years in the industry we know the difference.