If you’re in the market for a home, you’ve probably noticed that it’s still a seller’s market, which means that prices are high and inventory is low. According to a report by Zillow, in 2021, existing home sales reached a 15-year high. At the same time, the report noted that, for the first time in the more than 20 years that Zillow has been tracking home sales, inventory fell below 1 million listings. So it’s probably no surprise that median home prices increased 16.9 percent from 2020 to 2021—the highest since 1999.
And buyers are pulling out all of the stops to make their offers more attractive. Lizzie Ryan of HomeLight explains that her team has seen buyers using unbelievable tactics to win a home. “Some of these stories include buyers offering a lifetime supply of candy, a puppy, expensive dinners, and wine,” she says. “More than one realtor has seen buyers pay competing bidders to walk away.” While those stories are comical, buyers may also be tempted to use other tactics that aren’t humorous at all; in fact, they could prove to be disastrous. These are some of the home-buying mistakes to avoid.
Overbidding the market value
Bidding more than the home’s selling price is one way to get the seller’s attention. However, Candice Williams, a realtor at Coldwell Banker Realty in Houston, Texas, advises against this strategy—especially if you’re using a lender.
“The lender will require the buyer to pay the difference between the market value and the agreed-upon bid price,” she explains. So, if the home has an appraised market value of $300,000, and you bid $310,000, Williams says you’ll need to pay that additional $10,000 in cash to close on the home—and this is in addition to any required closing costs and down payments required by the lender.
But there’s a caveat: It depends on your financial situation and your ability to predict the home’s future market value, according to real estate broker Egypt Sherrod, one of the hosts of HGTV’s new show Married to Real Estate. “Some buyers are rationalizing whether the future appreciation of the property will equate or exceed what they pay for the property today,” Sherrod explains.
Even if you pay $30,000 over market value, she says you may break even in three years with the current rate of appreciation. “If they plan to live in the home for five to 10 years, then the overpayment now seems like a sound gamble,” Sherrod adds. But if you aren’t “cash heavy,” she notes, this may be more than you can pay out of pocket.
Waiving the appraisal
Waiving the appraisal can save some time and money. However, this tactic can backfire.
“If your real estate agent has run comparables on the property, they can tell you approximately how much the true worth of the property is,” Sherrod says.
However, if you’re relying on financing, she says waiving the appraisal is too risky. “There is always a chance that the appraisal comes back lower than the contract price—and then you’ll be responsible for paying the cash difference.”
And if you don’t have the liquid funds to do so, Sherrod says the deal will be terminated—and you will have lost your earnest money deposit, since the appraisal contingency was waived.
Bidding above your budget
In addition to not bidding over the home’s market value, make sure you don’t get caught up in the bidding process and go over your budget.
“Buyers should think to themselves, ‘How will I feel if the amount I bidded is accepted?'” says Michael J. Franco, a broker at Compass in New York City. If it’s an amount you’re not comfortable with, he warns that you’ll regret it—and the deal may end up falling through. Even worse, you may go through with the purchase and struggle to pay your mortgage.
Alternatively, if you bid low and don’t get the property, he says there’s a tendency to regret not bidding more. “But if you can’t afford the bid, it simply isn’t the right property for you.” Franco says.
Waiving the home inspection
All of our experts agree that you should never waive the home inspection. “Never assume that because a house looks decent or is aesthetically pretty, it doesn’t potentially have problems that aren’t apparent to the naked eye,” says builder Mike Jackson, one of the hosts (along with Egypt Sherrod) of HGTV’s Married to Real Estate. “You don’t want to find out later that the home has underlying structural issues, water infiltration, mold, a pest infestation, a cracked septic line or a host of other costly deficiencies,” he says.
We get it: You don’t want to do anything to slow down the home-buying process. However, Jackson recommends taking a contractor or inspector along on your initial house tour. “While it may cost a few hundred dollars to do so, it will be money well spent, because this person can check out the roof, hot water heater, and HVAC units—and give you an estimate on the cost of potential repairs.”
Ignoring the location
Regardless of how much you like the home, Kimberly Jay, a broker at Compass in New York City, warns that the location is just as important. “Buying the best house in the worst location is a curse, because you can always make changes to the inside of the home, but you can never change locations,” she says. Also, if you buy a home near a railway track or flight path, the noise will never go away—and you may or may not grow accustomed to it.
Underestimating a fixer-upper
If you can’t find a move-in-ready home, a fixer-upper is always an option. However, you need to understand what this entails. A buyer needs to be aware of the cost, time, and emotions involved with these kinds of projects. And it can be easy to underestimate each of those three factors. “Purchasing a home should be a positive and exciting time, not something that’s going to drain you both emotionally and financially,” she says.
Increasing debt after getting pre-approved
New homes need new furnishings, right? Whether you agree or not, let’s agree that you shouldn’t start making purchases after you get pre-approved. You can lose your financing approval if you increase debt, reduce income, or change employment during the home-buying process.
“It’s tempting to want to get new furniture, but do not open any new lines of credit until you close on the home,” advises Williams. Why not? “Lenders reverify everything—debt, income, employment, bank statements, and credit score—prior to giving final approval to complete the purchase of the home.”
Failing to have funding lined up
In fact, you should consider funding before you even start touring homes. “There’s nothing more disappointing than thinking you’re in a position to buy a home, and finding one that you love, only to discover that you can’t get approved for a mortgage, can’t afford the down payment or associated closing fees, or you overestimated the financing approval amount,” Williams says.
Whether it’s a cash offer or a pre-approval letter, it’s best to be prepared for all aspects of financing a home before planning to buy one.
Terri Williams, Real Simple