I’ve noticed a number of news reports lately on the extreme lengths to which builder/developers are going to try to push entrenched would-be buyers off the fence and into buying a property. And bizarrely enough, I’ve seen multiple articles around a single theme: the real estate test drive.
Yes, the real estate test drive. One builder in Georgia is letting would-be buyers spend the weekend in one of their unsold properties for $99, hoping that they’ll love their surroundings so much that they’ll ring up the sales office on Sunday evening and sign the papers to make their vacation home their permanent residence.
And the Wall Street Journal says "dozens" of retirement communities in sunny foreclosure hot spots like Arizona, Florida and California are offering the 55-plus set the opportunity to take a two-night test drive in their fully furnished, luxury-laden model homes for the low, low price of $299 for the weekend.
Desperate times call for desperate measures, so far be it from me to criticize these builders’ creativity and hustle. This extreme strategy will undoubtedly generate some revenue from their assets that were just sitting empty before, has already generated a good value in terms of press coverage and might even generate some sales; the Georgia builder says about 17 percent of the 1,100 people who have signed up for the deal have bought homes. Having people pay for the opportunity to sell themselves on the properties? Seems sort of win-win, no?
With that said, I don’t know that the premise of the real estate test drive really deals with the core issues keeping most procrastinating, qualified, would-be buyers on the fence. Maybe for that 17 percent, indecision about the property is the problem, and staying in the most tricked-out model home the developer has to offer will push them into pulling the trigger. But for the other 80 percent-plus of hemmers-and-hawers, there are a number of other issues and experiences they would need to test-drive to thaw their self-imposed homebuying freeze:
1. Test-driving a mortgage: The prospect of having a mortgage — a long-term commitment to paying for a home — is daunting to some would-be buyers and completely horrifying to others. The fact is, even renters have a 30-year (or longer) commitment to paying for housing.
In fact, their commitment is as long as their lifespan — if you live 50 years, and you rent that whole time, you’ll be paying rent for 50 years. If you live another 60 years, but you buy a home now with a 30-year mortgage and you pay it every month without refinancing, in 30 years that obligation is over and that payment will go away.
So, to some extent, we all are "test-driving," having a long-term commitment to paying for housing, even if we don’t know it. But what renters might be concerned about is making that payment commitment to a larger amount than they are currently paying, without the flexibility to move to a cheaper place and reduce their expenses, if they need to in a financial crunch. What they don’t think about is that homeowners can take in roommates or move and rent their homes out, if their financial picture grows dire.
In fact, if you have a job loss or temporary financial glitch and can’t pay your rent, you’ll likely get booted out within a month or so of missing your first payment. It’s bad form to plan on missing mortgage payments, but if you should happen to, due to unavoidable circumstances, it might take six months of missed payments to get evicted, much longer, in some cases.
(Right now, the average number of missed mortgage payments before a foreclosure ranges from 16 to 22 months, in various states.)
2. Test-driving permanence and immobility: For other buyers, the biggest concern about committing to homeownership has nothing to do with the mortgage — it’s all about needing to be in the same geographic place for years to come. They don’t know if their job will move, or their industry will crumple and they’ll need to relocate.
They don’t know if the loft that seems perfect for them today will still work for them a few years down the road. And they don’t know what the history of home values will hold, which leads to the next thing conflicted homebuyers wish they could test drive: the market.
3. Test-driving the market: Probably the largest driver of homebuyer hesitance is the fear that home prices will continue to decline after they close their home purchase. By waiting, they hope to hedge against further price declines, often delaying the life they really want to live and delaying the tax and other advantages of homeownership.
The best test-drive would be one where they could buy and have some sort of stop-loss in place; a guarantee that the value of their home would never drop below what they paid for it.
Unfortunately, these simply don’t exist.
Fact is, no one knows what will happen in the housing market over the short-term. So, a short-term buy is simply, truly, deeply inadvisable. Wannabe buyers can best hedge against losses by picking a home that should work for their family, life and career plans for the next seven to 10 years (shorter in a market that’s been fairly recession-proof, longer in a locale that has been a foreclosure hot spot, like most of those where the test-drive homes are on offer).
4. Test-drive retirement: Much data has recently been released revealing the distressing delays that the recession has created in the financial lives of many retirement-aged Americans. I suspect that some of these real estate test drives are designed to get those who have pushed retirement off for a few years excited about the vision of the lifestyle they could live in retirement and lured into buying that retirement home now, while prices are low.
But if your current financial plans didn’t allow for you to buy your retirement home with integrity, falling in love with a place during a test drive should not change your decision-making. On the other hand, if you simply need to put retirement off, but it makes financial sense to buy now, while you have a salary and while prices and rates are low, then perhaps the test drive can help the property selection part of the process.
Either way, market dynamics and even falling in love with a particular home should not overshadow the personal finance and life plans that you know make sense in light of your numbers and your vision.
With all that said, I’m a huge believer that only a well-qualified, financially responsible subset of people who really want to be homeowners should buy homes.
But I also know that there are many things besides concerns that can be overcome by a stay in a home that stop even the best-qualified of wannabe buyers from moving forward, despite the current climate of high-affordability and low-rates (which are unlikely to stay this low for much longer).
More critical than the fact that a given house might not be the right one — which is the issue ostensibly addressed by a test drive — are the many, graver concerns with which smart buyers should rightfully be occupied.
From the long-term commitment to a mortgage, to the long-term commitment to a home or geography, to whether or not they are ready to buy or retire in the first place, buyers-to-be are smart to calculate for all these items they can’t test-drive, but can plan and strategize for in their decision-making, before they test-drive or commit to a home.