Despite plenty of educational resources and budgeting tools to help inform home buyers about the cost of purchasing property, the upfront expense is still up to four times more than most buyers expect, according to a new survey from Best Interest Financial and Clever Real Estate.
While the down payment is the most expensive upfront cost, it is just one of many that can snowball into a big expense that cash-strapped home buyers aren’t prepared to pay.
In addition to their down payment, the average home buyer spends $31,052 on upfront expenses, such as repair costs, closing costs, concession costs, and moving costs. That’s quadruple the $8,083 they expected to spend on those expenses.
The total cost can vary, but in general, buyers spend the following amount on these expenses:
- Repairs and improvements during the first year of ownership: $15,073
- Seller concessions: $7,678
- Closing costs: $5,719
- Moving costs: $3,032
Surprisingly high costs can lead to increased stress as buyers scramble for more cash at a time when they’re already struggling to afford their down payment.
Breaking It Down
Within a year of moving into their home, more than two-thirds of buyers made repairs and improvements, which cost an average of $15,073. For 55% of buyers, that’s more than they expected to spend on maintenance and repairs in their first year of ownership.
Although the strong seller’s market of years past has cooled slightly, low inventory has preserved sellers’ leverage. About two-thirds of buyers made concessions to the seller, paying $7,678 on average in concession costs.
Buyers also paid $5,719 on average in closing costs, with 1 in 6 buyers saying closing costs were the most surprising home-buying expense. Finally, moving costs added about $3,032 on average to buyers’ final bill, with 95% of buyers opting to pay for movers.
First-time buyers generally had higher upfront costs, despite buying less expensive homes. Buyers purchasing a home for the first time spent $36,460 on additional home-buying expenses beyond the sale price — about 30% more than the $28,260 repeat buyers spent.
For Some Buyers, It Could Be More Expensive
Buyers have traditionally been spared from one of the single largest costs in the home-buying process: real estate commission.
Although sellers have historically paid commission for their agent and the buyer’s agent, a recent legal settlement with the National Association of Realtors made this arrangement optional instead of compulsory. That means buyers can now be held responsible for their agent’s commission.
If home shoppers had to pay the average buyer’s commission rate of 2.82% on the average-priced home of $534,000, that would add an additional charge of $15,058 for the buyer, bringing the total to $46,560 on upfront costs beyond the down payment.
In most markets, however, sellers are still paying commission for both agents, and professionals caution against trying to save money by cutting corners.
“The risks are high in a real estate transaction,” said Dick Barr, a real estate agent in Illinois. “Going without is often not a good idea. Professional representation, inspectors, and title insurance are all must-haves. There’s very little fluff in a transaction that doesn’t supply peace of mind and financial protection.”
Regrets Are Common
Almost three-quarters of buyers had regrets about their home purchase, and their specific regrets were overwhelmingly financial.
More than 1 in 5 buyers wish they’d negotiated more, while 1 in 6 regretted that they exceeded their budget. Sixteen percent regretted that they paid too much for their home, and the same percentage thought closing costs were too high.
First-time buyers were much more regretful than repeat buyers, with 85% of first-timers expressing buyer’s remorse, compared to 65% of experienced buyers.
Had they known the true cost of buying a home, 73% of buyers would have made different decisions. This includes 85% of first-timers, along with 66% of repeat buyers.
If they could do it again, just under a quarter of buyers said they’d bargain more aggressively, 20% said they’d make lower offers, 17% would ask for more concessions, and 14% would wait until interest rates declined. Had they revised their strategy, buyers think they could have saved an average of $38,082.
To save more money on a home purchase and avoid regrets, Barr said frugal buyers should think long term, as well as short term.
“Someone looking to save money over the long term should time their purchases to slower market months and search for properties that have been sitting on the market a long time to possibly catch a good deal with good negotiation,” Barr said. “Buyers looking to save cash at closing should work with their agent and lender to identify grant programs offering down payment and closing cost assistance, and shop lenders for the best upfront charges.”