Smart Moves

Rich Harty, a real estate broker in the Chicago area, has been selling homes since 2008. But he’s never witnessed such high levels of worry among potential first-time purchasers.

“People are extremely, extremely cautious about what they buy. That’s understandable, because buying a home isn’t like buying a pair of jeans you can return. It’s a vastly larger commitment,” says Harty, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

Of course, there are solid reasons for the unusual level of wariness on the part of potential buyers. One is that since the pandemic first started, prices have risen dramatically. And in many popular neighborhoods, prices continue to escalate.

Orphe Divounguy, a senior economist for Zillow, the national realty company, says the estimated total value of all homes in America has surged since February 2020.

“The U.S. housing market has rebounded impressively in 2023 after a short-lived downturn last year. The total value of the U.S. housing market is 49% higher than before the start of the pandemic,” Divounguy says.

It’s not only high prices that pose a significant affordability challenge for prospective purchasers. Mortgage rates, once expected to ease by this point in the economic cycle, are still elevated. And there’s no certainty that rates will moderate by the end of the year, as once hoped.

“Heading further into the fall season, home listing prices continue to be propped up by a low existing home inventory, as higher mortgage rates contribute to an ongoing existing home inventory crunch,” says Sabrina Speianu, economic data manager for Realtor.com, the home listing service.

Besides the pricing barriers facing would-be homeowners, many are holding back due to the dearth of available listings in the areas they prefer.

Harty is currently working with four sets of renters, all in their 30s, who for many months have been unsuccessful in finding a suitable property in central or suburban Chicago. They include two couples with young children as well as two single adults trying to relocate to larger properties.

“Those who already own homes don’t want to move because they’re sitting on 3% mortgages and know that buying elsewhere would mean a much steeper home loan rate,” he says.

Due to their extremely cautious approach to home selection, many first-time buyers are hoping they can obtain a property they could hold indefinitely.

“They’re skipping over the ‘starter home’ and trying to go straight to the ‘forever home’ because of the high costs of moving,” Harty says.

Affordability barriers are not the only reason many purchasers are resistant to making an immediate purchase. They’re also troubled by worries that limit them psychologically. Here are a few such common fears and how buyers can address them:

-- Fear of humiliation about your credit history.

“It’s truly a smart idea to go to a lender’s office for mortgage preapproval before heading out on a house hunt. You might be very pleased to realize the lender would qualify you for a larger loan than you anticipated,” says Dorcas Helfant, a former president of the National Association of Realtors (nar.realtor).

Some would-be mortgage applicants, especially those with modest incomes, worry they’ll feel shame when lenders look at their pay stubs or federal tax returns. Applicants who are self-employed fret that their financial documents won’t convey their true capacity to afford a home.

But most mortgage lenders rely on commissions and don’t get paid unless their clients get approved. This gives them a strong incentive to take the time and effort required to help rectify their clients’ problems.

-- Fear of choosing a place against the advice of your family members.

Many would-be first-time buyers are in their 20s or 30s. On financial matters, they still look to their elders for direction and, not infrequently, for cash subsidies as well.

“I can’t tell you how many times buyers crave the support of wise family members when it comes to buying their first home. It’s a new experience that can feel exciting yet incredibly scary,” says Merrill Ottwein, an Illinois-based real estate broker who specializes in helping buyers relocate.

There’s nothing inherently wrong with seeking help from relatives. But Ottwein says you should request their involvement early on, not when you’re about to sign the papers to buy a place.

“Your family could be caught off-guard by a late-stage request for guidance. They might be needlessly negative and counsel you against a particular purchase in an attempt to shield you from an error,” Ottwein says.

If you’re afraid to go forward without your relatives’ guidance but don’t want them to mess up your plans, he suggests you bring them along on all your house-hunting trips. That way, they can compare various alternatives and are likely to give you more objective advice.

-- Fear of coming up short on funds to close a home deal.

Granted, it can be costly to make a housing change at any stage of life. But many first-time buyers overestimate their need for cash to go through the transition. They fail to take into account the reality that there are a multitude of low-to-no-down payment mortgage programs available to them.

Ottwein says first-time buyers are well advised to explore these options as soon as they decide to make a purchase, rather than waiting until their savings accounts are brimming with funds.

“Before you head into a huge savings campaign, call an experienced mortgage lender. It’s possible that you may not need as large a down payment as you imagine,” he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Fifteen years ago, a senior executive for a major retail chain fell in love with a Civil War-era house located in rural Maryland, a long drive to the nearest major city, Washington, D.C. She filled her beloved Victorian -- set on a 12-acre lot -- with antiques.

Now 71 and retired, the executive has a whole new vision for her lifestyle. She’s planning to put the iconic property on the market and buy an RV for travel all over the country.

“This woman’s house is totally unique and historic. It will sell in an instant,” says Stacy Berman, the woman’s real estate agent.

Exceptional properties like this Victorian, along with remotely located homes in resort areas such as those near the ski slopes of Colorado, continue to command high prices. That’s because many high-end buyers, including those with elite tech jobs, are still able to work from home on a full-time or nearly full-time basis.

But with the worst of the pandemic behind the nation, more employers are telling their workers to return to the office. And that’s somewhat weakening demand for properties in remote areas.

Take the case of a married couple of financial analysts who for three years worked remotely from San Francisco for their New York-area companies. This summer, they were put on notice by their employers that they needed to spend more “face time” in the office. So they packed up and moved to New York.

“It got so exhausting flying across the country just to attend an office meeting or a happy hour with my office mates. We were sorry to leave San Francisco. But we know our bosses are grateful we now live so much closer, which is good for our careers,” the wife says.

Are you planning to sell a remotely located property in the near future? If so, real estate specialists caution owners to exercise caution when selecting a listing agent. Also, it’s important to price your place to reflect changing work patterns.

“You can’t assume everybody will want to move to your quiet village just because its peaceful to live there and the cost of living is low,” says Eric Tyson, a personal finance expert and co-author of “House Selling for Dummies.”

Karen Rittenhouse, author of “The Essential Handbook for Selling a Home,” says that agent choice can have major financial implications.

“Who you select is a really big deal because you’ve got a lot of money riding on your sale. You need to ask for referrals, check references and interview every agent you’re considering. Like hiring a cancer specialist, you don’t want to just pick someone at random,” she says.

Many successful agents hire assistants to handle much of their routine work, and Rittenhouse doesn’t necessarily disapprove of this practice. But she says it’s important that your primary agent handle such core functions as negotiating on your behalf when an offer comes in.

Here are a few other pointers for sellers:

-- Examine a potential listing agent’s track record.

Maybe the agent you’re thinking of hiring is a superstar -- having won numerous awards for sales volume. Even so, this could be the wrong type for you.

“Just because the agent is a ‘big producer’ in sales volume doesn’t mean they have expertise selling in your specific area or your type of house,” Tyson says.

He urges sellers to get an “activity list” from any agent they’re considering. This should itemize all sales closed in the previous 12 months and show the property locations as well as list and sale prices. This info tells you how the agent is performing on a day-to-day basis.

Agents don’t just specialize in particular areas; they also specialize in certain price categories.

“For instance, you wouldn’t want an agent who’s earning most of his commission dollars on suburban houses worth over $1 million to list a studio worth a fraction of that. In that case, your studio might fail to get the attention it deserves,” Tyson says.

-- Consider the implications before hiring “partner agents.”

Some agents, including married couples, like to work as a professional team. They bill themselves as two interchangeable parts of a qualified whole.

“In theory, such a partnership has big advantages for clients because you get a doubling-up of talent with two people devoting themselves to your sale,” Tyson says.

However, in practice the two-agent arrangement is only advantageous to sellers if both partners are truly committed to their work.

“Sometimes the two halves don’t equal a whole, and the clients are shortchanged,” Tyson says.

-- Survey the agents you interview about their holiday and vacation plans.

Obviously, agents like to pull away from work from time to time. But real estate experts caution against hiring one who plans to head for vacation during the early weeks of your listing period. That could hinder your sale at the time when buyer excitement about your place is high.

Tyson says it’s unreasonable to ask agents to forecast their travel plans a full year ahead. But it’s fair to ask a couple of months in advance about any lengthy absence that will occur shortly after your property goes on the market.

“To avoid a timing conflict, ask the agent about his or her vacation plans as far ahead as he knows them. Then if you’re really committed to working with that person, you might still want to postpone your listing to suit their schedule,” Tyson says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Before the pandemic hit in 2018, a married pair of nurses began pondering a home purchase. Even so, the couple, still in their 20s, put a priority on their splashy destination wedding in Hawaii. Homebuying would have to wait until their wedding bills were paid.

COVID-19 took an exhausting toll on the couple, who worked in the same hospital. But it yielded one silver lining: major salary increases to rebuild their savings. Hence, this summer they could pursue home shopping in earnest.

“(O)ur small one-bedroom apartment ... felt like living in a shoebox. So we rushed out to buy one of the first houses we could afford, a little one-story rancher with a big price tag,” the husband says.

At this point, the couple admits to buyer’s remorse. Looking back, they wish they’d bought sooner, before the big run-up in home prices and mortgage rates. They also regret not being more choosy when selecting a house this summer.

“Frankly, we didn’t play our cards very well at all,” the husband allows.

Real estate pros have long advised homebuyers to exercise caution when making a property choice, especially when there are few homes on the market, as is the current case.

Selecting a home should be a careful, painstaking process. Your quality of life and sense of safety are greatly influenced by the neighborhood you choose. Picking an outlying suburb or rural area could cost you precious family time due to a lengthy commute. And your children could be adversely affected if you move to a community with subpar schools.

Merrill Ottwein, the co-owner of an independent real estate firm, doesn’t know the nurses in this example. Yet he offers a few general pointers for would-be owners who are highly motivated to quickly conclude a home purchase.

“Buying a home in a hurry could be a terrific decision if it gets you a dream place and prevents you from locking yourself into an expensive long-term lease. But it could be a lousy choice if you aren’t careful what you buy,” says Ottwein.

Niko Voutsinas, an agent for Redfin, the national real estate brokerage, says the urge to buy quickly is due in large measure to the dearth of inventory.

“Some buyers are cutting back on other expenses to up their housing budgets because they believe home prices are only going to increase. They’re nervous that the minute rates come down, a flood of competition will edge them out,” he says.

Here are a few pointers for homebuyers in a hurry:

-- Question whether a long commute would work for you.

Ottwein says it’s not unusual for some purchasers to accept a punishing commute to a distant community in order to buy a large house.

“Some people say they don’t care how far they must drive to get all the bells and whistles they want. But then they call us back six months or a year later to say they can’t stomach that killer commute anymore,” says Ottwein, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

How long a commute is too long? That depends on the buyers involved and the type of commute. For example, driving in heavy stop-and-start traffic can become far more tiring than doing so on a free-flowing highway.

“I would worry about any commute that’s over 50 minutes each way,” Ottwein says.

-- Proceed cautiously before buying a “fixer-upper.”

Ottwein urges buyers considering a property that needs major rehab work to obtain reliable estimates on the cost of restoring the place. To get a sense of potential repair costs, your home inspector can help with estimates and your real estate agent should be willing to help you arrange with contractors for bids.

Are you convinced you could handle the renovation work yourself?

If so, Ottwein recommends you do a reality check by canvassing friends who know you well. Ask them if they think this big do-it-yourself project would be a good option for you, both in terms of your skill level and available free time.

-- Select options early when buying in a new subdivision.

If you’re planning to buy a brand-new house, you’re likely to be faced with many trade-offs before your contract is written.

“For one package price, some builders give lump-sum allowances for anything ranging from lighting fixtures to appliances to landscaping to kitchen cabinets. Anything not included in that package will cost you extra money,” Ottwein says.

These choices should be made before the sales contract is written, but not under pressure from a hurried homebuilder or salesperson.

“To make genuinely solid selections, you may need to take weekend time or a day or two off work to explore the options,” Ottwein says.

Those who are indecisive at the outset may find they have to pay a premium price for options they later decide they want -- for example, for solid wood cabinets in the kitchen.

“Once your contract is signed, you have little leverage left in negotiating with the builder. So you’d better pick the right kitchen cabinets at the beginning,” Ottwein says.

New homebuyers on a tight budget may wish to defer those items that can be installed later with relative ease, such as landscaping upgrades or window treatments.

“Lock in early those choices that are part of the infrastructure. The other options can wait until you have the funds to put them in yourself,” Ottwein says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)