Key Details:
- A significant portion of Americans, around 60%, underestimate the median home sale price.
- Roughly 56% of individuals who own homes and 72% of those who don’t own homes believe that a 20% down payment is necessary for purchasing a home.
- Buyers continue to be surprised by different aspects of the home buying process, especially when it comes to closing costs, how fast homes are selling, and the length of the entire transaction.
Americans have significant gaps in knowledge and understanding about various aspects of the real estate market—especially surrounding home prices, interest rates, mortgages, and the home buying process in general.
In a study conducted by Real Estate Witch, data showcased real estate myths Americans believe about the home buying process.
Understanding these five consumer misconceptions will allow agents to address clients’ concerns better and provide accurate information.
Misconception #1—Consumers underestimate the median home sale price
While 76% of individuals who do not own homes express worries about the upward trajectory of home values, a substantial 60% continue to underestimate the actual median home price.
Among those who underestimate the price, 23% believe that the median home price falls between $200,000 to $299,999, while another 23% peg it between $300,000 and $399,999.
However, at the time of the study, the median price for homes in the United States is $436,800. Yet only 14% of Americans surveyed knew that the correct cost range lies between $400,000 and $499,999.
Many homebuyers also underestimate the expenses involved in buying a house. Surprisingly, more than one-third of homeowners (34%) spent more on their homes than their initial budget had allowed. This trend might be worrisome for the 74% of individuals who still need to own homes and are concerned about their ability to afford one in the current real estate market.
Exceeding the planned budget for a home purchase can result in severe financial repercussions. Approximately 24% of Americans who have previously owned homes but no longer do, attribute their situation to unaffordable mortgages. Furthermore, 16% had their homes become so financially burdensome that they faced foreclosure.
Misconception #2— Interest Rates
Merely 12% of the U.S. population knows that the existing interest rate for a 30-year mortgage falls from 6% to 7% (Note that at the time of writing this, rates are now above 7%).
Unfortunately, those most likely to be impacted by the surge in interest rates—non-homeowners—are the least informed about them. Only 8% of non-homeowners surveyed were acquainted with the current mortgage rate, contrasting with 15% of individuals who own homes.
Despite their lack of knowledge about the specific mortgage rate, 73% of non-homeowners express concern about the ongoing increase in these rates.
What’s interesting is Americans are so apprehensive about the upward trajectory of mortgage rates that they have substantially overestimated them. About 43% believe the interest rate is higher than it actually is, with 26% assuming it exceeds 10%. It’s worth noting that the last instance of a 10% mortgage rate was over three decades ago in 1990.
Misconception #3— Down Payment and Mortgages
It used to be a known rule that a 20% down payment was required for purchasing a home, but now buyers can purchase a property with as little as 3%-5% down (or in some cases, even less). Even with low down payment options, many still believe 20% is required. Roughly 56% of individuals who own homes and 72% of those who don’t own homes believe that a 20% down payment is necessary for purchasing a home.
What’s more, over 20% of Americans believe homebuyers are obligated to provide a down payment exceeding 20%.
This misconception encompasses 6% of individuals who assert that a 30% down payment is necessary for a home purchase. Notably, those who don’t currently own homes (8%) are twice as likely as current homeowners (4%) to hold this misconception.
Another mortgage misconception deals with private mortgage insurance (PMI). Buyers who don’t put at least 20% down are subject to paying additional fees because the lender assumes more risk.
Approximately 23% of the U.S. population incorrectly believes that Private Mortgage Insurance (PMI) offers protection to homebuyers in cases of mortgage payment inability, when in fact, it safeguards the lender if buyers default on payments.
Homeowners (17%) are more likely than non-homeowners (11%) to know about PMI. Nonetheless, most in both categories need a proper understanding of its meaning. This lack of awareness is worrisome, especially considering that many homeowners make down payments of less than 20% and have likely encountered PMI requirements since their home purchase.
Misconception #4— Real Estate Agent Commissions
While it’s generally the seller’s responsibility to cover commission expenses for both the buying and listing agents, 62% of Americans believe that buyers are responsible for paying these fees.
This misconception is even more prevalent among non-homeowners, with a 12% higher likelihood of believing this myth.
Misconception #5— The home-buying process
Among homeowners, 30% find the unexpectedly high cost of closing expenses to be the most surprising aspect of purchasing a home. Almost one in six homeowners (17%) stated the volume of offers they had to submit before one was approved was the most surprising.
On the other hand, non-homeowners seem to overestimate the complexity of the offer process, indicating a need for more familiarity with current real estate market dynamics. Despite a reduced buyer pool due to increasing interest rates, many Americans still envision intense competition.
Behind closing costs, home buyers are most surprised by—
- How fast homes sold (29%)
- What makes up closing costs (27%)
- The length of the process (26%)
- The price they paid for their home (25%)
- How little interaction they had with the seller (24%)
- Competition among buyers (23%)
- Securing a mortgage (23%)
Around 53% of non-homeowners anticipate making more than three offers on a home, whereas the actual statistic shows that only 24% of homeowners had to make many offers before succeeding.
For Agents
It’s up to agents to inform homebuyers about all the ins and outs of the buying process. All of these misconceptions can ruin the dynamic between the agent and client—and could even stop consumers from buying a home. As an agent, make an effort to keep your clients moving forward by clarifying the process, addressing misconceptions, and educating consumers throughout the process.
