Information is at our fingertips. When you can Google nearly anything, it can be easy to feel like an expert in everything. However, despite all of the instantaneous knowledge, there are still a lot of real estate myths circulating. Follow along as I bust 5 real estate myths.
Real Estate Myth #1: If you sell your home FSBO (For Sale By Owner), you will save money
Selling your home yourself can save you money. But, that is the exception rather than the norm. Also, it’s a time trade-off. You may save money by selling your own home, but you will need to do the agent’s job too.
Did you know that home sales prices are typically higher when a real estate agent is involved? According to the National Association of REALTORS® data, “the typical FSBO home sold for $225,000, compared to $330,000 for agent-assisted home sales.”
When a seller uses an agent for a home sale, about 6% of the sale will go to the real estate agent. Usually, half of the commission goes to the buyer’s agent and half to the seller’s. On a $330,000 home, 6% is $19,800, bringing the net sale price of the home to $310,200 (taking agent fees into consideration only). That’s still significantly higher than the average FSBO home.
The bottom line: it’s a myth that selling your home yourself will always save you money. We see it occasionally, but it’s the exception rather than the rule.
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Real Estate Myth #2: A seller pricing their home higher and a buyer offering a lower price will leave room for negotiation
Naturally, buyers and sellers strive to get the best deal possible when selling or purchasing a home. Pricing high or offering low may seem reasonable. After all, when negotiations are settled, you will either be receiving more for your home or buying one for less than what the home is actually worth. However, depending on the market, being too bold could cost you. Lowball offers are often not taken seriously by sellers, particularly in a hot market like we have in Southern Wake County (including Holly Springs, Apex, and Fuquay-Varina). In that case, buyers lose the opportunity to negotiate at all. Additionally, pricing a home too high could scare off an entire pool of potential buyers if the price is beyond their search parameters.
Let me break it down with an example. Your agent uses the available data to determine that a competitive list price for your home would be $400,000. You decide to price it at $425,000, figuring that by the time negotiations are over, you’ll be closer to the $400,000 mark. What you don’t realize is that if buyers are maxed out at $400,000, your home won’t come up in their searches. Furthermore, if other houses with a similar market value are priced competitively, buyers will notice that your home is pricier by comparison.
Offering a lower price is not much better
Similarly, if there is a good pool of active buyers and a seller receives an offer much lower than the listing price, the seller may completely bypass that offer and wait for one that is more reasonable. You risk losing any chance of purchasing the home at that point.
It’s a real estate myth that pricing higher or offering lower is a good strategy to leave room for negotiation. Real estate transactions are a big deal for buyers and sellers—it’s better to avoid playing games and instead list or offer at a competitive price.
Real Estate Myth #3: You have to put down 20% to purchase a home
Short answer: No. Many people fixate on needing a 20% down payment because doing so has an advantage: no private mortgage insurance (PMI). Most lenders require PMI when the borrower will have less than 20% equity in the property. Putting less money down puts lenders in a risky situation, and PMI protects them in case of a default on the loan. PMI is an additional monthly payment added to the mortgage costs. To avoid this extra fee, many people try to put 20% down on their home loan.
All of that said, there’s no requirement that you must put 20% down to purchase a home. If you don’t have 20% to put down, but are comfortable paying the additional PMI amount, it may make sense for you to invest in a home now rather than waiting and losing years on your investment. Chris Mann, a real estate attorney at Mann, McGibney, & Jordan law firm, said, “Buying a house is on the short list of best ways to accumulate wealth, and I don’t want you to wait to start accumulating that wealth.”
I am not a financial expert, but I do know that when you invest your money it has the potential to grow. I have seen clients opt not to pay a 20% down payment. Instead, they invested that money and earned more on their investment than they would have by avoiding PMI. Disclaimer: Please consult with a financial professional before making such decisions.
Real Estate Myth #4: You need to make renovations to get a good price
The key word here: need. Can the right renovations net you a higher price for your home? Absolutely. Should you renovate something that is necessary for the functionality of the home? Yes. However, renovations are not always necessary. It’s important to make sure that the renovations you choose have a higher return on investment.
How do I identify home renovations that will have a high ROI?
Considering renovations for your home can be tricky. Sometimes the gains you’ll get from making renovations depend on market conditions. In a seller’s market, renovations might not be as important as they would be if the market favors buyers. If there aren’t a lot of buyers on the market, giving your home a facelift could set your home apart from the others and earn you a sale. If there is a low supply of homes and a higher number of buyers, making changes might not be as important.
Furthermore, some renovations aren’t a great return on investment. In some cases, even if you sell your home for a higher price, the difference might not be enough to cover the cost of the repairs or remodeling. So which renovations have a higher return on investment? In my experience, kitchen updates, bathroom renovations, and painting yield some of the highest returns.
If your home doesn’t need renovations, consider utilizing a home stager. Home stagers can spruce up your home, give it a fresh new feel, and prepare it to be listed without requiring permanent changes.
Real Estate Myth #5: If the home is newer, you do not need to get it inspected
False, and also one of the more nefarious real estate myths out there. New does not equal perfect. New-ish does not mean pristine condition and flawless. I don’t care if your home was built in the Stone Age or is new construction—you must ALWAYS get an inspection. There are a lot of fantastic builders and construction companies. There are also tons of honest, wonderful sellers. However, you still need to take measures to make sure that your investment is free of any hidden issues.
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What real estate inspections are recommended for new construction?
If you are building a new construction home, I encourage you to get three different inspections. First, a pre-drywall/framing inspection. You want to make sure everything is as it should be before the drywall is put up and you can’t see behind it anymore. Second, a full-home inspection at the end of the building process. The third is a radon test.
Home sales that aren’t new construction
For other home sales, I still recommend a full-home inspection, a termite inspection, and a radon test. Depending on the home, its condition, and the results of the full-home inspection, I may recommend other inspections as well. These are recommendations, and you as the buyer get to choose what you’re willing to pay for. However, I stand behind wanting to make sure my buyers have the best possible experience and find their dream home. As such, it is imperative that buyers are fully aware of what they are walking into.
Regardless of which inspections you choose, just know that real estate myths imply that new construction and newer homes do not need an inspection. They do.
Throughout my years as a real estate professional, I’ve heard countless misconceptions related to the real estate world and I am happy to bust real estate myths and share the truths. Inevitably, you might hear other myths along your real estate journey. If you aren’t sure what to believe, I would be happy to help you figure it out. Contact me to schedule a consultation.