What you should and should not compromise on when buying a home
The hot housing market has been driving up sale prices and making it especially challenging for people trying to secure their dream home.
“I’ve never seen such a strong seller’s market in my 18 years of real estate,” said Jody Meredith, a REMAX legends group real estate agent in Indianapolis with 18 years experience.
In the resulting bidding wars, homebuyers may be unsure about what compromises they should be wiling to make and what compromises they should never accept when buying a home. We spoke to experienced Realtors to find out.
What you should never compromise on when buying a home
1. Never skip the house inspection
In a housing market where a single property often enjoys multiple offers, some prospective homebuyers are offering to waive the housing inspection, Meredith said.
“Waiving an inspection is a compromise I wouldn’t expect anyone to make,” Meredith said. “The house could have a foundation issue that you’re not aware of, that would (bring the value of the home down) $18,000 to $20,000 and you have no idea. If you go to sell in 3-5 years, and if the market is not a seller’s market, you’re going to be stuck paying for that.”
Homebuyers should be aware of the difference between taking a house as-is and waiving an inspection, Meredith said. Taking a house as-is would still give the buyer an opportunity to carry out the inspection and walk away from the sale or renegotiate the price if the inspection reveals a major issue.
“I would only advise somebody to buy and waive (the house) inspections if they’re a totally sophisticated and savvy person who is handy with a screwdriver and hammer,” said Eric Baiz, who has been a real estate agent with Tucker for 29 years. “Most first-time home buyers are not that.”
2. Location
Prospective homebuyers should think seriously about where they want their home to be located and not compromise on that. Is it within your ideal school district? Is it close to friends and family?
“You can’t change the location of the house,” Meredith said, “but you can change the features later on.” 3. The agent
A fast-moving real estate agent could give homebuyers the leg up they need when a home they want has multiple offers. Some agents can help homebuyers get strong pre-approval mortgage letters that could convince a seller to take one offer over competing offers, Baiz said. The pre-approval letter provides information on a buyer’s income, assets, employment and credit report.
An agent can also provide homebuyers access to a good database that allows them to be instantly notified when a new home is put on the market so they can be first to make an offer.
“You need a good mortgage person and a good Realtor that can work together,” said Meredith. “Get a Realtor that knows what they’re doing because it’s so easy to overpay in this market, and people get caught up in winning and that’s great and all, but you need to look out for your future.”
What you should be willing to compromise on when buying a home
As a rule of thumb, homebuyers should be willing to make concessions on anything that does not substantially change the value of the home.
Baiz’s principle is that buyers should be willing to compromise on anything that costs less than one half of one percent of the purchase price. On the other hand, they should not compromise if an item substantially affects the value of the home, he said.
So if a home sells for $250,000, the buyer should be willing to accept any defects or improvements that would cost less than $1,250 to fix.
He gave an example of a client who was going to spend $300,000 on a house. The center support under the first floor bedroom was leaning and would cost $1,500 to fix.
“A $1,500 item on a $300,000 house is minor,” he said. He advised the homebuyer to take the house and pay to fix the support on their own.
1. Offering cash
To make an offer more appealing, some buyers bring cash to a closing on a home.
When a home is appraised at a value below the original listing price, buyers who offer to pay extra in cash to make up the difference may be more attractive to a seller than someone who does not. Banks will not provide a loan that exceeds the appraisal value of the home, so without cash to back up the offer, the buyer and seller would have to renegotiate the price, explained Meredith.
A buyer willing to pay extra in cash is advantageous to the seller because it gives them a guarantee that they will be able to close the home at the original price.
“They’re having to use that to win in the home buying process,” said Meredith. “Anything that can make their offer look better.”
2. Extras, updates, appliances
Dreaming of buying a home that comes with granite countertops, a refrigerator and more? Homebuyers may have to let go of those expectations.
“The big compromise I’ve seen people make is not having the updates or having the home move-in ready the way they expect,” Meredith said. “You might have to compromise that dream kitchen and buy the house in the location and add the dream kitchen later on.
“Buyers are not asking for those because they want to make their offer stand out.”
She said that this is a function of the sellers market that exists now.
“As little as 2 to 3 years ago, I may ask them to leave things, the new appliances, or bar stools that went with the bar in the basement or any extra items,” Meredith said.
3. Home warranty
A home warranty tends to be worth a relatively small price compared to a new home, so if a home is not sold with a warranty, buyers should not sweat over it.
Just three years go, Meredith said, almost every home was sold with a warranty paid for by the seller. Now, most buyers are not asking for that.
She suggested that in cases of no warranty, a buyer can put aside a small amount of money each month and use these savings to fix items and maintain the home as issues crop up.
Contact Ko Lyn Cheang at kcheang@indystar.com. Follow her on Twitter: @kolyn_cheang.