Most home buyers will experience a feeling of remorse when purchasing a home. This is not UNusual at all. For most, this will be one of the biggest transactions you will ever make in your lifetime, In today’s hot market, though, you might be competing with other buyers for same the perfect home. You might even need to offer a price which would have seemed UNrealistic when you first started looking for homes. You might have to offer over your maximum too! The moment of truth comes when you realize that you just won the bidding war! Uh oh, you think, this is UNreal! This is when Buyer’s Remorse can start to set in and you wonder, what have we just done?
It seems that no matter what the circumstances, everyone has at least a slight case of buyers remorse. You wonder if the price you paid is UNsustainable. You wonder if you have over paid for this home and its going to go down in value the moment escrow closes! This is not an UNusual feeling. So how do you assess what you’ve done?
What I have done for many clients, especially in a hot market, is an analysis of the long term history of the market area where the home is located. I use a calculation for the Time Value of Money (TVM) using the price of a home from 60 years ago and looking at the value of that same home today. For instance, in Palo Alto in 1953, a brand new median priced Eichler home cost about $15,000. Now, that same median priced home in 2013 is approximately $1,500,000. When you apply these numbers to the TMV calculator, you come up with a compounded return of about 8.0% per year over that period of time.
Although this is a very UNscientific approach, it does provide a guideline for whether you are on track with the market over a long term period. If you calculate the value of a home using these guidelines, you can compare whether you are UNder or over performing for that period of time. Rates of return will vary for different market areas so you will need to obtain some historic data for that specific market area. Hopefully, using this information can give a buyer the confidence that their decision to buy is an UNremorseful one!