While Most Home Buyers Understand How to Buy a Home, Expectations for Homeownership are Out of Line with Reality, According to Zillow® Survey of Home Buyers
SEATTLE, Oct. 28, 2011 /PRNewswire/
Despite widespread volatility within the housing market and five consecutive years of home value declines, more than two in five (42 percent) of polled prospective home buyers believe home values typically appreciate by 7 percent a year, according to a recent survey by leading real estate information marketplace Zillow (NASDAQ: Z).
This is an unrealistic expectation as, historically, home values in a normal market tend to appreciate by 2-5 percent a year. (1)
Zillow, with Ipsos®, surveyed prospective home buyers (2), asking basic questions about the home buying process.
Despite the unrealistic expectations about home value appreciation, prospective home buyer respondents seem fairly knowledgeable about the home buying process, answering questions correctly more than half the time (65 percent). However, several important parts of the process confused them. Two in five (41 percent) buyers think they are required to buy private mortgage insurance (PMI) regardless of the amount of their down payment. In fact, lenders typically require PMI only when buyers are putting down less than 20 percent of the home’s purchase price.
Additionally, more than half of prospective home buyers who were polled confuse appraisals and inspections. Fifty-six percent said the purpose of an appraisal was to determine if the home is in good condition, when in fact that is the purpose of an inspection.
“It’s troubling that we’re still in the midst of one of the worst housing recessions in history, and yet prospective buyers continue to have such high expectations for home value appreciation,” said Dr. Stan Humphries, chief economist at Zillow. “It’s great that buyers seem to have a fairly solid grasp of the home-buying process, but since this is one of the biggest financial decisions of most people’s lives, it’s even more important that they understand how that investment will appreciate after they sign the papers. Over-estimation of the appreciation potential will lead many to buy real estate when the time in which they plan to live in the house may make renting a better strategy.”
Additional Survey Findings
•More than one-third (37 percent) of prospective home buyer respondents believe buying homeowner’s insurance is optional. In reality, lenders require that borrowers purchase homeowner’s insurance. This insurance protects the lender. If catastrophe strikes, the mortgage will be repaid from the insurance proceeds.
•Nearly half of polled prospective home buyers in the study do not understand when they will actually own the home they intend to buy. Forty-seven percent said a prospective buyer owns a home after the purchase contract is signed. The purchase and sales agreement merely kicks off the closing phase, which can be a lengthy process.
•The majority (87 percent) of polled prospective home buyers know that closing costs are negotiable and can vary by bank and lender. Lender fees, like loan-origination fees, administrative costs and other clerical fees, are typically the most negotiable in the home buying process.
Interactive Online Quiz and Resources Available
An online version of the Zillow survey, the “Buyer IQ Quiz,” is available at http://www.zillow.com/mortgage-rates/buyer-iq-quiz/ and contains the correct answers. Following the quiz, participants are given a score and resources to learn more about the home-buying process.
If you’re confused about the answers, you’re not alone! The answers to these and many more questions are why you hire a Realtor. I work with Buyers exclusively and can help you navigate the process without a hitch. – Lori