If you bought a home during the pandemic, there’s a good chance you think you paid too much.
Over one-third (36%) of buyers who closed on a home during the last two years believe they overpaid, according to a survey by Money and Morning Consult, a decision intelligence company.
That’s twice the percentage of those who purchased a home two to nine years ago and feel like they overpaid (18%), and more than double the rate of those who bought 10 or more years ago and think they paid more then they needed (14%).
Homebuyers faced incredibly challenging market conditions once the pandemic started in 2020. Record low mortgage rates, the desire for more space and the move towards working from home all combined to create a huge demand and a rush to buy homes.
At the same time, buyers were met with an inadequate housing supply that quickly led to fierce competition, bidding wars and double-digit price growth. The median sales price of a typical home was $346,900 in 2021, a nearly 17% increase over 2020 prices. As of April this year, the median sales price increased to $391,200, with some cities seeing significantly higher price growth.
Naturally, the circumstances led to many buyers to spend more than they'd originally planned. According to the survey, 54% of those who bought a home in the last two years said they compromised on their budget, compared to 35% who felt the same when they bought between two and nine years ago.
When it's OK to overpay for a house
For many buyers, overpaying may have been worth it if the alternative was losing out on a home, says Jeff Lichtenstein, president of ECHO Fine Properties in Palm Beach Gardens, Florida. “If they can’t afford to lose out or will regret it, then it’s okay to overpay,” he says.
In the pandemic’s ultra-competitive housing scene, it often hasn’t been clear when a buyer actually needs to overpay to secure a home. Kurt Grosse, a realtor with Realty One Group in Las Vegas, was helping his daughter and her husband look to trade in their two-story house for a one-story home because their child has spina bifida, and they needed more space and easier access to outdoor spaces.
After six months of competing against other buyers and multiple losing bids, they finally found a home last July that suited their needs. Not willing to let this one get away, Grosse’s daughter decided to offer $50,000 over the asking price and was able to purchase the home. After closing, they found out their offer was the only one made on the property. However, they have no regrets as the home provides plenty of space for outdoor exercise and meets their daughter’s needs.
“In this case, it was worth the risk of over-offering for the house,” says Grosse.
Home prices aren't the only aspect that buyers have been flexible about during the pandemic. According to the survey, 44% of those who bought within the last two years had to compromise on the location or style of the home they purchased, while another 43% compromised on amenities inside the home.