Have you ever noticed that the more times people say something, the more times it gets repeated, and then eventually it’s just assumed to be true? From a sociology standpoint, I’m sure that’s fascinating.
At Green Light Real Estate, our real estate professionals have seen and heard it all. It’s time to address some of the top ten real estate myths.
Myth #1: Real estate values always go up.
Would that this were true! Of course, we all remember from our high school test-taking skills that “always” is a tough position to justify. It’s true that over the long term, housing prices have a strong tendency to rise. Since 2000, the sale price of Vermont single family homes has gone up around 5% each year. But within that, there have been years with increases and years with decreases. This includes an interesting period from 2008-2015, where average sale prices declined in five of seven years, going from $269,039 to $248,613.
The real estate bull market that we’re in now is obviously unprecedented over the past 20 years, with average annual sale price increases during 2020-2022 ringing in at 15.9%, compared to the last boom of 2002-2004 with average annual sale price increases of 13.5%.
Owning residential real estate is an incredibly strong financial and personal move to make. Owning gives independence and stability that is harder to come by with renting. Owning residential real estate also gives tremendous opportunities for increasing net worth over time. But…do real estate values always go up? No.
Buying real estate with the hope that values will go up is logical and correct. Buying real estate depending on values going up is speculative.
Myth 2: Properties that are in “move-in” condition are free of maintenance.
Move-in can actually mean different things to different people. It can mean anything from “there are utilities and no holes in the roof” to “P.E.R.F.E.C.T.” But no matter the house, there’s always maintenance and upkeep.
With a brand new property, or even an extensively renovated property, you might get away with maintenance-free living for a short time. But soon, you’re going to want to have systems serviced, appliances maintained, and maybe even going around and touching up paint.
A home inspector will be able to give a good maintenance service plan so that you can keep on top of things. By the way, you can have a home inspection after you’ve purchased your house, or even years afterward. Many homeowners find this kind of thorough “check up” very beneficial.
A wise person once told me they plan on spending 1% of the value of their house each year in maintenance and repairs. In any year, that might be overkill. But it gives a good idea on what you might expect. Then, when you do have to shell out a couple thousand or more every year, you won’t be caught off guard.
As a summary, there’s no such thing as maintenance free.
Myth 3: Any sentence that begins with “I could never…”
As in, “I could never live with this kitchen”. Or “I could never own a house that doesn’t have a garage.” First, just like “always”, it’s a difficult position to take.
The kitchen might be dated, and it might be small. But you can live with it. You can update and renovate if you feel like you really want something different.
Buyers who fixate on having a property exactly the way they want are setting themselves up for a long, disappointing, and frustrating home search. We also know that most of these people end up shifting their mindset eventually anyway, and realizing that they can live with it.
“I could never…” goes for sellers too. “I could never accept an offer contingent on the sale of someone’s house.” Or, “I could never sell for less than X.” We’ll talk more about the contingent sale later in this article, but, if the market value is less than X, and if you want to sell, you’re probably going to sell for less than X. We’ve also seen instances where a seller realizes that putting their lives on hold for a few thousand dollars just isn’t worth it.
Key takeaway on this myth: Just because you’ve said “I could never…” doesn’t mean that you have to stick with it. You can change your thinking and change your mindset. When you do, you’ll likely change your results as well.
Myth 4; No one buys or sells houses in winter.
First, to clarify, when people talk about buying and selling, there are usually two points in time they’re talking about. And they can get mixed up in people’s own heads.
The first date is the contract date. That’s the date that a buyer and seller agree on the price and terms. The second date is the sale date. That’s the date that the buyer gives money to the seller and the seller gives the keys to the buyer. For financed sales, there’s going to be 6-8 weeks between those two dates.
You can already see how that’s going to start busting this myth. No one buys in winter? Well, if you got into contract in February (which sure feels like winter), you’d be moving in in April (which sure feels like spring). So…when did you buy?
If you’re a seller who got a contract on your house in October (fall) and closed in December (winter), when did you sell?
But that’s just the vagaries of how people think and how people interpret situations. Is there any data?
Here’s a breakdown of the dates that properties went into contract and when they closed. This data is for single family homes, statewide, from 2018-2022. We can read this as saying that more properties get into contract in spring and summer than winter, and more properties close in spring and summer than winter, but there’s plenty of real estate action in all of Vermont’s season
Myth 5: Everything is selling for cash.
There is some truth behind this myth. Since 2018, the percentage of sales in Vermont that were cash sales increased by 35% (from 27% of sales to 36% of sales). The percentage of conventionally financed sales stayed virtually unchanged over those five years at right around 55% of sales. Mortgages requiring lower down payments, including FHA, VA, and USDA/Rural Development loans decreased 35% (from 13% to 8%).
There have been more cash sales in the past couple years than there were a few years ago. However, there were also a lot more sales recently than a few years ago. There were 1000 more financed sales in 2021 than there were in 2018.
We’re calling this myth mostly debunked. In 2018, 67% of Vermont’s single family sales were financed. In 2021, it was 65%.
Myth 6: The sellers need to bring the property up to code.
We actually do hear this a fair amount. So what gives? Do owners of a 1920 house have to bring the house “up to code”?
That house was built to 1920 codes, and then, whenever updates were done, presumably the work was done in accordance with current codes and best practices. Which means that the addition that was built in 1947 was presumably done to 1947 code.
When people talk about “up to code”, most of the time people are talking about the electrical system. Does the property have old wiring? It might. Does it have to be updated? No. A lender or an insurance company might have a hard time underwriting a property with active knob and tube wiring, a fuse box, or outdated outlet types. But in those cases, the requirement is because of something the buyer is looking to do, apart from the property itself (specifically, to use it as collateral for a loan or to apply for a new insurance policy).
It’s always safest to have a property inspection. And, if you’re concerned about certain systems, such as the electrical system, consult with an electrician or other professionals.
As a fun thought experiment, imagine that today you built a brand new house. It’s your dream house and you built it with the highest quality materials, with the work done by the most talented and knowledgeable contractors. It is, by all accounts, perfectly built. Since you’ll love it so much (as you should!), you live there for the next 40 years.
In 40 years, you decided it’s time to sell. However, as it turns out, the building codes 40 years from now require all electricity to be generated by solar panels and for all wiring to have a particular type of sheathing and conducting material which your system does not have. Oh, and no one uses circuit breaker panels anymore.
Would you feel compelled to rewire and re-power your home to meet those future standards and bring your house “up to code”?
Myth 7: Everything is selling for more than the asking price.
Sale Price/ List Price Statewide
Looking at all the single family sales in Vermont for these years, real estate is selling at pretty close to the asking price. While it’s true that average sale prices have gone up over this time period, on the whole, people aren’t paying more than the asking price to buy real estate in Vermont.
There are plenty of cases where properties have been underpriced or have had multiple offers. In those cases, it’s almost certain that they’ll sell for above the asking price.
Myth 8: Sellers aren’t accepting offers with contingencies.
Technically every sale has at least one contingency in that if the seller can’t prove that they have the legal title to sell that which they claim to be selling, the sale won’t happen. But that’s not really the myth.
Generally, the most common contingencies in an offer are a home inspection, financing, an appraisal, and even the sale of another property. Our office did see a downturn in the number of transactions that were contingent on home inspections. Financing has stuck around (see above, with the percentage of sales using mortgages).
Our brokerage occasionally sees offers come through with the appraisal contingency marked “no” even though there is financing. These are mostly either tricks that buyers tried or they’re the result of working with inexperienced buyer agents. In almost every one of those instances, they marked “no”, but then said “Well, if it doesn’t appraise for the contract price, the buyers can’t get their loan, and they’ll exercise the financing contingency.” That’s like ordering a cheeseburger and then saying that you didn’t order a bun, just that you expected it to be included.
So, those gimmicks aside, both financing and appraisals are still common contingencies
One contingency that has changed over the past couple years is the “see it in person” contingency. Not long ago, an offer from a buyer who hadn’t physically been to the property just didn’t hold much water. Sellers and listing agents now are much more comfortable working with this type of buyer. By “much more”, I don’t mean all the time. I mean, sometimes, in the right context, with the right buyer and the right seller. And we did have buyers who after seeing the property for the first time, looked for any contingency they could find to get out of the contract.
Another final contingency that has been increasingly accepted in this white hot market of the past couple years has been the “contingency sale”, wherein a buyer needs to sell another property before they can buy the next one. Sellers have been more willing to extend time for buyers to make that happen.
Conclusion? Contingencies can still be part of an offer, but they have to be reasonable and honest. And they still might not all make it into the final accepted offer.
There you go. The top Eight Real Estate Myths debunked by your Vermont and Central Vermont real estate experts at Green Light Real Estate.