Experiences like this happen more than you might think. When you are thinking of making an investment of that size you expect to fall in love. But are you falling for the right reasons? Is a modern, stainless kitchen the most important factor?
There is no denying 2020 was a perfect storm of sorts with regards to the real estate markets. With people spending more time at home and spending less discretionary income, the savings rates increased along with the desire for additional space. Low interest rates gave Americans another reason to make a move.
A recent Pew Research study showed a 2.6 percent increase in homeownership rates in 2020 over 2019—the highest rates have been since their peak in 2004. The estimated 2.1million additional homeowners mainly came from two, previously unengaged groups—those over 65 and those under 35—which indicates an expansion in market demographics not seen in years. All this data points to the fact that, now more than ever, buyers and sellers need to incorporate more logic and smart planning to ensure a wise financial investment so they do not get caught-up in the excitement that comes with a bidding war.
It is true houses are seen as a smart investment, but unlike stocks and bonds, homes provide memories and a sense of stewardship one does not get with other investments. We fall in love with our homes and that can cloud our judgment when it comes time to sell.
Homes are also expected to appreciate over the years which makes it easier to justify spending more than one’s initial budget or compromising on aspects such as a longer commute to have the extra square footage. When it comes to flawed human rationalization, there is no guaranteed method to prevent emotions from playing a role in our decision-making processes. Here are a few suggestions, however, to keep them in check:
Before you even start looking for that dream home, make a list of must-haves, calculate a realistic budget, and make note of areas where you are not willing to compromise. Having such a list handy in the heat of the moment will help to prevent making costly, impulsive mistakes or compromising in areas you’ll later regret.
Have a realistic discussion about your future finances with your partner, and possibly your banker or accountant. Many people assume every house will appreciate 20 percent in 3 years but that is the exception, not the rule. Are you banking on your house investment providing retirement funds down the road? Will you be ok if there is a reduction in household income for a few months or will the purchase max out your monthly budget? Having a firm understanding of how a purchase will affect your financial wellbeing helps to ensure you stay within your budget so you can enjoy your home and not feel like it is the reason you have to work longer hours.
Have someone on your side to help you analyze the choices. Having a professional realtor, or even a friend or family member, involved in the process means you have opinions from people you trust who are not personally invested in the outcome. They can help spot the imperfections you might otherwise overlook or the little details which might make it more difficult to sell in the future.
Do a comparative market analysis. Whether it’s a professional realtor or one of the many companies which can help For-Sale-By-Owner (FSBO) clients, it is important to have a personalized comparative market analysis done in order to price the home correctly. Pricing a house too high because of personal attachment often results in no offers. By dropping the list price to something more in line with the current market, we have seen sellers get multiple offers and end up getting almost the same price as before they reduced it. Personalized analyzes are more expensive, but also much more accurate as they consider the inside improvements as well as the outside curb appeal.
Research the current market trends. Understanding the median selling price, average days on the market, current inventory, and the percentage of homes selling over asking price will give you a much better understanding of what you will need to do to be successful in your market. A competent realtor will have these stats handy and can explain how each affects your situation.
Home buying and selling is supposed to be an emotional process. Falling in love with your home leads to higher life satisfaction and happiness ratings. Whether you are buying or selling, it is important to remember, however, that your memories and your personal tastes may not translate to the next owner in the same way. Being able to take a step back and analyze the situation with a current market analysis and data may not sound romantic, but it will save you a lot of heartache down the road.