- About four in 10 first-time buyers blow their budget.
- Median list price for a home hit $245,000, up from $229,000 a year ago.
Don't let this spring's home-buying frenzy drive you into bidding on the wrong house.
Meanwhile, listing prices continue to climb as well: As of March, the median list price for a home reached $245,000, up from $229,000 a year ago, according to data from Zillow.
The market has become so competitive that buyers may find themselves shelling out far more than the asking price.
"In a seller's market, we see buyers competing for the same house, and they will go so far as to waive an inspection," said Jeremy Wacksman, chief marketing officer at Zillow Group. "They're so sure they want the land that they'll take it."
Indeed, a "teardown" in San Francisco reportedly sold for $623,000 above ask, at a final sales price of $2.55 million.
Here are four signs that you ought to walk away from a purchase.
Nearly four in 10 first-time home buyers blow their initial budget when they buy a home, according to Zillow.
You can blame that overeager spending on hot housing markets in major cities and bidding wars, according to Wacksman.
Other factors include not weighing the all-in cost of owning a home in the first place and how much you will have to pay each month. Buyers know to factor in the mortgage and interest payments they'll make, yet they may be surprised about the cost of homeowners' association fees (if any), insurance costs, repairs and utilities.
Property taxes are also a nasty surprise for first-time buyers in certain locales, as they can add hundreds of dollars to your monthly costs.
New Jersey, for instance, has a mean effective property tax rate of 2.11 percent, boasting the highest levies. Meanwhile, the highest median property tax bill — $9,941 — is in Nassau County, New York, according to the Tax Foundation.
And don't forget closing costs; they can run up to 3 percent of the sales price.
The title to your home is key to understanding who truly owns the property and whether its ownership can be successfully transferred to you.
You're likely buying title insurance as you wind down your home purchase. This coverage protects buyers and lenders from problems with ownership.
Banks generally won't give you a mortgage unless you have this policy.
"In the title search, issues may come up that are so substantial that they can't be resolved, and you say 'no,'" said George Holler, principal at Holler Law Firm in Milford, Connecticut. "Your contract will typically have a provision that says you can walk away."
You might run into an issue with the title if you buy a home from a seller who inherited the property and he or she failed to release the estate's claim to it. In that case, actual ownership may lie with the decedent's estate and not with the individual who sold you the home. You could wind up going to court in order to assert your claim.
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Bear in mind that there are two flavors of title insurance. The lender's policy protects the amount your bank will let you borrow, while an owner's policy can help you protect your equity in the event someone contests your ownership.
If your inspector discovers a structural flaw in the home you want, it can be an opportunity either to renegotiate your price or to run away from the sale.
Know the terrain in your neighborhood. "Having a good inspector and an agent who's done deals in the area can be a big help," said Wacksman of Zillow. "Maybe you're sitting on a low water table in New Orleans or Seattle, or you're in an area with termites."
Other issues may not be so apparent. Let's say you'd like to buy a home and the sellers made an addition to the home. Make sure the owner and contractor picked up a building permit for the job, otherwise you may be on the hook for costly repairs.
"You might find that this particular section of the house isn't properly permitted and the municipality will give you a hard time," Holler said.
Let's say you're buying in an up-and-coming neighborhood, and you believe the area's cache warrants the high asking price.
You'll run into problems if your bank disagrees and gives you an appraisal that comes in far below the agreed-to sales price.
This means that if you were hoping to finance 80 percent of your purchase, but the bank will only lend you 70 percent, you'll need to come up with more cash in order to wrap up the sale.
"If you're at the maximum of your budget and the bank's appraisal is too low, you'll need a larger down payment or you'll need to negotiate with the seller," Wacksman said.
"That's a checkpoint: It could be time to walk, and it could be a time to adjust your offer," he said.