Be Very Afraid: 5 Key Ways Homebuyers Are in the Dark

Unless you've been living in a cave for the past five years, word surely must have reached you that home values have been declining for a while. Yet 42 percent of the people polled by Zillow recently said they thought home values appreciate by 7 percent a year. Really, people?

Even in a normal market, typical appreciation is 2 to 5 percent a year (albeit we kind of went a little bonkers in the appreciation game in the mid 2000s), but nothing about the past five years has been typical.

The Zillow study also revealed a lot of other things the home-buying public doesn't understand.

More than half of homebuyers didn't know the difference between an appraisal (where the value of the property is established) and an inspection (where the guy looks everything over and tells you what's wrong with the house).

Two in five thought they had to buy private mortgage insurance (PMI) regardless of the amount of their down payment; PMI is required only when buyers are putting down less than 20 percent of the home's purchase price. Another area of confusion: More than a third thought that homeowner's insurance was optional, when in fact lenders require it.

But the biggest shocker is that nearly half of the homebuyers polled didn't understand when they actually become owners. Forty-seven percent said a prospective buyer owns a home after the purchase contract is signed. That contract is just the beginning of the escrow period, which can be both lengthy and problematic. About 30 percent of all escrows end without the property being sold.

Want to test your real estate knowledge? You can take the Zillow quiz here.

Also see:
[Video] Buy or Rent? Which is Right for You?
Viewpoint: Feeling Guilty About Buying a Foreclosure?
5 Reasons Why Real Estate Deals Collapse
Open Houses of the Week: Scary Good

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Find rentals in your area.

Reader Comments (5)

by Bob D - October 29th 2011 @ 7:13PM

My opinion of when you OWN your house is when it is PAID OFF
Until the you and the bank own it, you have your share based on the ballance owed on the loan. Thats MY definition.....

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by BraverSaver - October 30th 2011 @ 2:34AM

Bob D. is absolutely right. And the (now discovered) facts that most homebuyers, even today, don't know the difference between an appraisal and a home inspection, that almost half (still!) think home values always appreciate, that fully 47% don't understand escrow, and that 40% thought PMI was always required -- all this points to a frightening ignorance on the part of prospective homebuyers. Good taxpayers who followed the rules now are having to bail out another large group of ignorati who didn't carefully read or understand their mortgage contracts, and that's bad enough. But it seems many more with little or no knowledge of the process still want/expect to buy homes. Ah, America: Land of the Free, Home of the... Dumb!

by James - October 30th 2011 @ 5:31AM

The tax assessor will keep adding about 7% every 4 years in property value even when the property value goes down - You have to appeal the assessor or keep paying a higher tax bill every year Tennessee is one place to not buy property and Memphis city and county taxes are almost 10% per on 25% of its value The appeals system in tennessee is a f-ing joke like to hear from some one that been to the state board of appeals in tennessee- I been 3 times and 25,000 off my property value -25,000 at the county appeal , 25,000 the local city appeal . so far 75,000---- looks like I need 3 more appeals to get my property fair market value the way it working .

by Ned Sheats - October 31st 2011 @ 6:42PM

I really got a good laugh at the individual who said "even at no interest he couldnt afford a house". OMG.. hey dude did you ever think that maybe you just arent making enough money to deserve one.. Perfect example of someone who, if he does scrape together enough, shouldnt be allowed to own one. In 5 years it will be the eyesore of the neighborhood cause gee, he didnt think of insurance maintenance, taxes.

by BHarrison - November 1st 2011 @ 1:51AM

LOL . . . all this article does is to emphasize the FACT that most Americans are just too apathetic to really bother to learn the basic facts about buying a home/condo, insurance requirements, or the reality of the financial and legal aspects of buying a home/condo. People don't want "to be bothered with the details" . . . they just want someone to simplify all of the information and the mortgage industry 9salesmen) rely on this to earn "extra profits" from these sales. If people do not want to bother learning about the basic facts involved in all of these matters, then they set themselves up to be taken advantage of by others . . . like believing everything that a used car salesman tells them . . . Ha! "Stupid is, as Stupid does". One doesn't have to be an "expert" in all of this; just knowledgable about what they obligate themselves to.

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