You would think after what we have seen happen in the housing market during the past 5 years, especially in the area of falling home prices, that home buyers today would not have lofty expectations about a home they buy appreciating, but apparently many do. According to a recent survey Zillow, 42 percent of prospective home buyers believe home prices typically appreciate by 7 percent a year.
Even if we were in a normal market, which we are not, this would be a very unrealistic expectation as, historically home prices have only appreciated by less than 5 percent (the period from 1948 to 2007 averaged 4.87 percent per year).
Even though prospective home buyers may not be very informed on home price appreciation, the survey does show that they are fairly knowledgeable about the home buying process itself, with 65 percent of those surveyed properly answering questions about the home buying process.
Additional Survey Findings:
- 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.
- 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.
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