If there’s one thing buyers don’t want after closing, it’s finding out that the costs to own and maintain their new home are not what they’d expected. They’re higher, and sometimes much higher. That’s why it’s imperative for you as their trusted agent to help determine future finances and share the information with them before they put pen to contract.
That goes for both freestanding houses and condos, both of which have unique costs that change and must be understood and planned for.
“I mention to buyers that condo fees generally go up every year, and there are assessments that can happen at any time,” says Pam Rosser Thistle, with Berkshire Hathaway HomeServices Fox & Roach, Realtors® in Philadelphia. “Taxes are also a fluid expense but tend to ease up for traditional homes. Properties with tax abatements will jump for a preferred tax amount to full value at the end of the abatement term. I discuss this with buyers. But I never guess as to the amount. Life is too uncertain.”
Jeffrey Decatur, with REMAX Capital in upstate New York, also warns clients they must be prepared to spend more going forward without getting into specifics.
“I don’t predict exact numbers, because nobody can, but I always prepare clients for what history tells us is coming,” notes Decatur. “As with all things real estate or just life in general, I find it best to manage expectations. If I have an experience or relatable story, I share it. It is always better to share and manage expectations than backpedal. When it comes to fees associated with real estate, I don’t project because one never knows. If I knew the future, I wouldn’t be selling houses.
“What I do say is that history dictates. For example, history dictates that your homeowners association fees will go up. When I used to live in a development back in the 1990s, the HOA fees were $79 a month. I thought that was crushing. Now, 30 years later, they are $289. In addition, about 15 years ago they replaced the roof, and each condo owner got hit with a special assessment for an additional $3,000.
“The same can be said for all fees. Homeowners insurance, property taxes, gas and electric, it is inevitable. Inflation is inevitable. Think about how much it was to buy a candy bar when you were a kid and what it costs now.”
Decatur puts a positive spin on the negatives by pointing out one major plus.
“I tell my clients that their mortgage principal and interest, provided it is a fixed rate, does not change and you have frozen those in time,” he says. “Additionally, while you have frozen your principal and interest, your equity grows as you pay down the loan, and historically, homes have appreciated over time.”
Monthly payments usually increase year-over-year even if a buyer has a fixed-rate mortgage, due mostly to property taxes and insurance.
Matt Schulz, LendingTree chief consumer finance analyst, says changes in monthly payments are an unfortunate reality that more homeowners should anticipate.
“Many people just assume that their payments don’t change, so they don’t pay that much attention to it,” he says. “Unfortunately, little could be further from the truth, which many people are finding out the hard way. One of the best ways to soften the blow is to have a home expenses fund to tap into. You might think a fund like that would be more for repairs and maintenance, but there’s nothing that says those funds can’t help you handle mortgage payment increases, too.”
Buyers need to research
Jeremy Olsher, a principal at Mizner Residential Group in Boca Raton, says buyers should be especially careful about using a seller’s existing tax bill as their own estimate.
“When someone asks what a home costs each month, I want them to see a number built for their purchase,” he says. “The seller’s tax bill tells you what that owner paid. It may be a poor guide to what you’ll pay after closing.”
Information from Florida’s Department of Revenue can be used for guidance in all states. It advises first-time homebuyers that a change in ownership can result in the removal of the previous owner’s exemptions and a reassessment. Buyers should check their circumstances with the local property appraiser and seek an insurance quote for the property before treating a monthly estimate as settled.
Nick Nastos, a Chicago real estate broker with a background in mortgage lending, suggests a second calculation before buyers make an offer.
“I’d ask a buyer to look at two payments: the one on today’s estimate and one with room for taxes, insurance and maintenance to rise,” he says. “If the second number makes the household budget uncomfortable, we should know that while there are still other homes to consider.”
The questions to put to the lender, insurance agent and appropriate local tax office are straightforward:
- What is included in the quoted payment? Separate principal and interest from taxes, insurance, mortgage insurance and any HOA fees.
- What tax amount is the estimate based on? Check whether it reflects the current owner’s bill or a projection for the buyer.
- What does coverage cost for this specific property? Get a quote and understand what it covers.
- How much room is left each month? Test a higher payment alongside repairs and other regular expenses.
A lender can explain the loan estimate and escrow calculation. A real estate professional can help a buyer spot when an attractive listing price is drawing attention away from the fuller cost of owning the home.
Decatur adds that giving what is obviously not great news, like alerting clients to future costs they may not have realized, usually ends up positive in the long run.
“Always warn clients of a potential change or pitfall,” he says. “Let them know you are their resource for all things real estate, good and bad. They will remember that you protected them, warned them and educated them, and will come back again and again.”
