Study: Homebuyers don’t understand closing documents

Despite the requirement of closing disclosures (CDs) to inform homebuyers of their transaction costs, consumers still don't understand the costs associated with buying a home.

Only one in five homebuyers say they understand all of the closing documents they signed at closing, according to the Qualia Homebuyer Sentiment Index, which shined a light on the risks consumers may be taking when they act too quickly without understanding the home purchase process or transaction costs involved. Meanwhile, homebuyers are acting quickly in a competitive market with nearly a quarter of homebuyers purchasing their home sight unseen. 

“This survey emphasizes the need for increased education and transparency during the home buying and selling process,” says Nate Baker, CEO of Qualia. “Our core belief is that technology that powers the transaction is the key to providing that assurance. It can simplify a very complex process to allow real estate professionals to focus on client education and a seamless home buying experience.”

Insights from the survey revealed: 

Homebuyers take bold action in a competitive housing market

Low interest rates and limited housing inventory sparked a competitive housing market. The survey highlighted how far buyers were willing to go to get the house of their dreams. Nearly a third (30%) of buyers paid more than anticipated for their home, and of those who paid more than anticipated, 32% paid $50,000 or more over the asking price. Buyers are also making what they may believe to be calculated concessions, with some removing inspections from the contract (19%) or purchasing the home without seeing it in person (23%).

Homebuyers expect and experience stressful, complicated closings 

The survey indicates that recent homebuyers found the real estate closing process to be the most stressful and complicated part of the real estate transaction itself, especially the closing documents. In fact, when Qualia explored the consumer sentiments around the entire home-buying journey, the only thing more stressful or complicated than the closing was the move-in process. 

Future homebuyers are also apprehensive about real estate closings. One in four future homebuyers reported that they do not understand the closing process or the closing documents they sign. Qualia’s survey illuminates the value of combining knowledgeable local agents to guide homebuyers through the process with technology that automates real-time transaction updates and offers consumers instant access to information. 

Homebuyers Experience Sticker Shock 

Despite the requirement of closing disclosures (CDs) to inform homebuyers of their transaction costs, consumers still lack an overall awareness concerning the costs associated with buying a home. In fact, 44% of recent homebuyers were surprised by higher-than-anticipated transaction costs. Qualia’s survey also found that consumers desire multiple touch points to receive information prior to closing. More than half (55%) of future homebuyers would like to receive information face-to-face about the closing process prior to the closing date and nearly half would like to receive information over a secure mobile app or web-based portal (44%). The survey data demonstrates the importance of empowering and educating consumers on whatever channel they choose to engage. 

Millennials Are Still Banking on Homeownership

Personal finance struggles and student debt have created roadblocks for Millennials to become first-time homebuyers, but they are not throwing in the towel on homeownership. According to the study, 72% of Millennials that are in the market to purchase a home are currently saving more than $500 a month to do so. 

The pandemic may have eliminated a downsizing trend

The percentage of homebuyers seeking more space increased more than 10 percentage points within the past year since Qualia’s November 2020 survey. According to the study, the most popular reason for buying a new home was the need for more space (36%) (vs 23% in November 2020). Needing less space was the top driver for only 5% of recent homebuyers. With work from home increasingly becoming a more widely accepted work environment, is this a signal that any downsizing trends may not pick back up as offices reopen? 

About the Qualia Homebuyer Sentiment Index

Qualia commissioned Savanta Research to conduct a quantitative online research study during July 1-July 9, 2021 among a general consumer pool in the US who recently bought a home or are planning to in the coming 12 months. 1,024 respondents participated in the study. The margin of error is 3.1% at a 95% confidence level.