Millennials Are Taking Risks When It Comes To Homebuying — But Are They Worth It?
The real estate market has been hot for months, making it challenging for buyers to secure their dream homes. With the market so competitive, some buyers — especially millennial buyers — have been willing to take risks they might not under different circumstances, such as purchasing homes sight unseen or taking on fixer-uppers. In some situations, these risks can pay off — but other times the buyer might be left with some less-than-ideal real estate.
Here’s a look at the risky homebuying decisions millennials have been making — plus, how to know when these risks may be worth it.
71% of Millennials Are Willing To Purchase a Fixer-Upper
Clever’s 2021 Millennial Home Buyer Report found that most millennials — 71% — would buy a fixer-upper property. In some cases, a fixer-upper can be worth the hassle — a buyer can turn the property into their dream home by remodeling as they see fit. But other times, a fixer-upper can easily turn into a money pit. For first-time millennial buyers, it might not be so easy to tell the difference.
“The biggest risk with a fixer-upper is that there might be hidden costs — and those can be especially difficult to estimate for those who haven’t owned a home or a fixer-upper before,” said Francesca Ortegren, PhD, a data scientist with Clever Real Estate. “The simple answer is to do the math. Figure out the projects you’d like to (or have to) tackle and price them out. This will likely be a rough estimate, but it can give buyers an idea of whether the fixer-upper is worth it. And always get an inspection! There can be huge underlying problems that can cost more than what you think the house is worth, and an inspection can help uncover those issues.”
The percentage of millennials willing to buy a fixer-upper in 2021 is up from 2019 when 68% of millennials said they would take on a fixer-upper property. Ortegren believes this is the result of a number of different factors: “(1) People tend to be more cautious spending when in a recession, so buyers are likely looking to spend less on a home as a result of the pandemic and U.S. economy. (2) The market is really competitive for buyers and home prices are high right now. People looking to buy a home might find it more difficult to afford something newer or that requires less work now than they were a couple of years ago. (3) In a similar vein, mortgage lending was tighter throughout the majority of the last year than it was prior to the pandemic, so getting a mortgage to cover a more expensive home is more difficult for many prospective buyers. That might cause people to look into cheaper options.”
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Nearly One-Third of Millennials Would Buy a Property They Had Never Seen in Person
With the rise of remote work, many millennials are now willing to relocate to new cities or even new states. Because of the magnitude of this kind of move, they might not be willing or able to see a property in person — and some millennials are willing to go through with a purchase of a home they have never actually visited. The Clever report found that 29% of millennials would buy a home after seeing only photos or virtual tours. Of this group, 44% said they would be willing to buy a home after only seeing photos.
“It definitely seems like a bad idea for anyone who has ever shopped for a home before — there can be huge discrepancies between what you see in a photo and what a home looks like in person,” Ortegren said. “At best, people who buy after having seen only photos might be disappointed in the size, layout, color or feel of a home. At worst, there could be huge issues with the home that weren’t obvious through photos. This risk is lower with a virtual tour, but unless it’s a live tour with an agent or someone you know and trust, you could still be in for some surprises.”
If a buyer does decide to go this route, they should take extra precautions to ensure they don’t end up with homebuyer’s remorse.
“If at all possible, I’d suggest getting someone you know to go to the home to check it out themselves or take you on a video tour,” Ortegren said. “This is a good reason to make sure you’re hiring a real estate agent who you trust — you want to be able to trust they have your best interest in mind!”
If you or someone you know is unable to visit the property, there are other steps a buyer can take to get a better feel for the property and its potential value that will also protect buyers from buying a home that may not be what is expected.
“Check out Google Maps — especially the street view — to get a feel for the neighborhood and outside of the home,” Ortegren said. “To mitigate risk, ask a lot of questions about the home and appliances. Check out a floor plan if the sellers have one. Make sure your ‘must-haves’ are taken care of — I’d ask both the seller and agent about those. Add contingencies in the contract so you can back out in certain cases due to findings from an inspection or appraisal.”
When Is It Worth It To Take Some Risk When Buying a Home?
While millennial buyers should make an effort to mitigate the risks that come with buying a fixer-upper or a sight-unseen property, in general, taking some risks in the homebuying process may be worth it in the end.
“A lot of competition could be a good reason to jump at an opportunity to buy a home, particularly if it’s in a neighborhood you know you want to buy,” Ortegren said. “Great price points and seller concessions could be worth the potential risks, too, if the savings are good enough. Importantly, you can avoid huge money-sucking issues by getting an inspection.”
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