How to Avoid Panic Buying When House Shopping

As mortgage rates start to climb due to rate increases by the Fed and with housing inventory still in short supply, homebuyers may find themselves in a very competitive market. This has led many homebuyers to feel pressured to move quickly when shopping for a home and possibly stretch their budget to the limits. According to a recent report by Hippo Insurance, in 2021, a whopping 68 percent of homebuyers paid above asking price when purchasing a home.

This is often referred to as “panic buying” and in a market like this it can be easy for new homebuyers to end up over their budget and house poor. Here is a quick overview of panic buying and how to avoid it when house shopping.

Panic buying Defined

Most industry experts refer to panic buying when buyers are worried that interest rates are going to go up and they will no longer be able to afford a home, so they panic and make bad decisions when purchasing a home. 

This can lead to buyers not only waiving contingencies and inspections but also offering significantly more than the asking price to ensure they get the house. “We’re seeing 10 offers come in on a property, and, like, two of them just blow out the comps by 15 or 20 percent,” said Kevin Kieffer, a Realtor with Compass’ EastBayPro Team in the San Francisco Bay area in a recent Bankrate article.  “Twenty percent is something that we’ve never seen before.”

In addition to overextending themselves with high offers, buyers are often waiving inspections and other contingencies that could lead to expensive repairs immediately after moving into their new house. The Hippo survey sound that 81 percent of recent first-time homebuyers had unexpected repairs in the first year. In addition, 66 percent of all new homeowners spent $1,000 or more on repairs in the first year.

Panic buying can lead to buyer’s remorse

Many home buyers (especially new home buyers) often underestimate the cost of maintaining a home and failing to do annual maintenance can lead to even more expensive issues.

Industry experts almost never recommend waiving an inspection before putting an offer in on a home as you can end up buying a money pit that needs a shocking amount of work. If you decide to waive the inspection in your offer, experts recommend getting the inspection done anyway so you are aware of what issues you may be facing and get them repaired before moving into the home. 

In addition to an inspection, it is important to consider the other factors that can push up your cost of ownership. As an example, depending on where the home is located you may need to carry flood insurance coverage or coverage may be more expensive than you think due to wildfire or weather risks. Insurance costs should be checked on any home you are serious about buying. Easily shop and compare the best home insurance rates online is the most time efficient way to review insurance companies and prices.

Avoid panic buying

Here are a few tips to help you avoid panic buying when shopping for a home:

• Work with a knowledgeable realtor: Working with a seasoned realtor that is familiar with your area can help you avoid overpaying for a home. They should be able to help you determine a fair price that gives you a shot at getting the home. 
• Stick to your budget:  While you may be tempted to up your budget to help you win a bidding war, this is never a good idea. Being house poor is never fun and if the home ends up needing repairs in the first year you may struggle to cover those costs. 

• Avoid overbidding: While you may have to go over asking price, if you end up over asking price by too much you may end up with a mortgage issue. If the appraisal doesn’t match the price you offered, you will need to come up with more cash to close the deal.
• Wait if necessary: If you cannot find a home that falls into your budget, it may be best to just wait for the market to cool down. As inventory rises and rate increases slow demand, there is a good chance prices will level off or even a fall a bit.