When I first moved into the community where I live it cost me roughly $6,000 out of pocket. My monthly mortgage payment including property taxes, insurance, and PMI was $1,650 each month. I moved into a brand new 2,150 square foot home on a cul-de-sac with a pond view, 3 bed/2 bath plus an office, gas log fireplace and a second living room. I was 21 years old.
I sold that home 9 years later and made $74,000 in profit (even going through the housing collapse and Great Recession). That same home is now 15 years old and costs roughly $225,000 more than I paid for it when it was new. The windows have lost their thermal seals, the roof probably needs replaced, the hot water heater definitely needs replaced, and the HVAC system is likely on its final days.
In order to buy that home today a buyer would need roughly $30,000 in cash to put down at minimum (if they could get a seller to actually accept that offer). The monthly mortgage payment would be about $2,950.
It costs $15,600 more each year to a homebuyer today than it cost me to buy it 15 years ago. Incomes are relatively flat over that same time period.
Here’s the reality. If you have lived in the same home for 10+ years right now, you likely couldn’t afford to live in your same community today. That means your kids…. When they start their families…. They can’t come home. They can’t afford it.
There are thousands of really smart people trying to solve this problem right now around the country. Real estate ownership is the fastest way to building long term wealth. Everyone deserves that opportunity. The solutions probably won’t look like a 21 year old buying a brand new 2,150 sq. ft. house. Housing is going to have to look different than generations of the past have grown accustomed to. We need to collectively recognize this shift rather than bury our heads in the sand. Townhomes, garden homes, patio homes, duplexes, quadplexes, condos, multi family homes, accessory dwelling units, and traditional single family homes are all housing options that we must embrace as reasonable places for people of different life stages to lay their head down each night. The long term path we’re on right now is financially catastrophic to our kids. There are solutions, but we have to change.
It’s unlikely you live under a rock, so you probably know that we’re in a hot real estate market. Well, maybe because of the real estate market and current home prices you are actually living under a rock! Home values increased around 17% in 2021 and we are expecting similar market appreciation in 2022.
While it has left many home buyers frustrated and increasingly disappointed, this is not the time to be giving up on the real estate market. Whether you’re a first time buyer just looking to get into your first home, an upgrade buyer looking for somewhere to settle down for the next few decades, or you’re ready for a lifestyle change completely, the market is providing you with some really amazing opportunities if you’re patient enough to jump in.
Here’s just a few reasons you should buy a new home in this market:
Fixed monthly budget:
If you don’t currently own a home, you’re most likely renting. Rental rates nationwide increased over 15% in 2021 and are on track to exceed that in 2022. Landlords, especially in the Texas market, are raising rents to offset increasing tax and insurance bills, but also to be competitive with the increased home pricing, labor, and repair bills. It is safe to assume that if you have $1,500/month rent today in 2022, that your rent will be $1,725/month in 2023, and $1,985/month in 2024. Unless your income rises at a similar pace, your housing costs in future years will continue to take up more and more of your available income. This limits your ability for discretionary spending as well as the potential to save and invest for the future.
Purchasing a home in today’s market locks in your monthly housing expense in your monthly budget permanently. If you know your income will rise in the coming years, locking in your long term monthly housing expenses today gives you greater ability for discretionary spending, saving, and investing into the future.
But what if you already own a home? Why should now be the time you jump into the market and buy that “forever home?”
Home Value Appreciation:
There are a dozen different items we could point to that are fueling this home value appreciation we’ve seen over the past few years, and especially the past 24 months. The “why” behind what’s happening isn’t nearly as important as the fact that it is happening and is going to continue at least for a few more years into the future. Real estate in Texas has a historical appreciation rate of 3% annually over the long term, even when factoring in market collapses like the 2009 housing crisis. Over the past 5 years or so we’re averaging 7% appreciation and over the past 2 years we are well over 12% appreciation.
So your $300,000 house today will likely sell for $335,000-$345,000 12 months from now. But that also means a $500,000 house today will likely sell for $560,000-$575,000 12 months from now. That’s what we saw happen in 2020 and we saw it again happen in 2021. If you’re not in the home you want to see your family in the long term, it is only getting more expensive the longer you wait. You can lock in your long term monthly housing costs at today’s rates and values and still have the benefit of long term home value appreciation.
Interest Rate Changes:
We had a really weird season right after Covid broke out in March 2020 where 30 year mortgage rates plummeted below 3% for the first time. While we’re not in those days anymore, mortgage rates are still at historic lows in the 4%-4.5% range as of this writing. With inflationary concerns impacting the markets today, it is anticipated to see interest rates climb throughout 2022 and be in the 5%-5.5% range by this time next year.
What’s that mean for you? On a $450,000 loan that’s a long term difference of $267/month for 30 years. It’s a $96,000 cost of interest difference between buying a home now and waiting as interest rates rise, in addition to whatever the cost of the home actually appreciates.
Equity Opportunities:
If you own a home today, it is likely you have substantial equity in your home. While it is impossible to time the “top of the market” this is a great time to sell your home to cash out that equity and put it to work in other areas of your financial life. You likely don’t need all of that equity to be put into your new home. You can instead use some of it for the down payment on your next home, and use the rest to pay off consumer debts, boost your emergency account, and look for other investment opportunities to grow your wealth even further.
Some of our clients this past year have used their equity to purchase their dream forever home, become debt free, and use the rest as the down payment on rental property where they can earn more cash flow each month and enjoy the financial benefits of owning multiple real estate properties. There are a ton of equity and wealth building opportunities this market has provided.
Next Steps:
These of course are just a few of the basic reasons you should buy a home in this market. Your unique circumstance may include some other reasons too. If you’re considering a move in 2022, you should reach out to your Realtor to discuss what options are available to you and develop a strategy to make it happen.
We have several options for home buyers and home sellers to make the process convenient and the moving process seamless. We can help juggle the intricacies of selling your home in order to buy another home, find the perfect next place, and even arrange interim housing if necessary. Learn more about our team and how we can help you here.
When home inventory is limited like it is right now across the country it can become frustrating for everyone. Homebuyers obviously struggle to find a home they’d like to purchase and struggle even more against competing offers to actually be able to purchase a home. But even home sellers face some frustrating challenges.
What if your family has outgrown your “starter home” and it’s time to buy a new place with some more space? And you can’t compete because all of your equity is tied up into your current home and there are dozens of other buyers in your same market with the same challenges competing for the one or two homes that have come on the market? That of course leaves your starter home unlisted on the market and unavailable for the next owner. It’s a compounding issue that’s difficult to resolve.
The solution often is purchasing a new construction home.
New construction homes can provide homebuyers with more flexibility, certainty, and favorability than trying to compete in the open real estate market for already existing homes. The great news is that in a market like this current one, home builders are building homes as fast as they can. We have a ton of new construction home options and more on the way.
But purchasing a new construction home does come with some challenges and you need real estate professionals representing you and your interests in the transaction. Why?
Representation:
For starters, as nice as your new construction salesperson is going to be to you, they represent the builder and the builder only. They’re not going to volunteer information that is not required. They’re not going to help you navigate upgrade options, contract terms, incentive programs, or anything that is not beneficial to the builder. They aren’t going to care too much if they’re delayed or off schedule. They aren’t going to advise you about what a typical contract looks like or voluntarily make terms favorable to you. They do not represent you. You are on your own. If you know homes and real estate and purchase transactions and do them often, that may be fine. If not, you need an agent on your team.
Home builders include in their pricing the cost of real estate commissions. You don’t get a better price by purchasing a new construction home without using a Realtor. Home builders typically enjoy having a real estate professional involved in the transaction because it helps them coordinate the transaction, make the process more smooth, gives them someone to communicate with that speaks a common language, and is understanding of the construction process. Builders like for you to have representation and that’s why they pay a real estate brokerage fee.
Relationships:
Home builders have taken the time to strategically form relationships with lenders, title companies, and attorneys that will all pay affiliate fees, kickbacks, and marketing agreements. In some cases the home builder even owns the title company or the mortgage company. Your agent not only has relationships with multiple lenders, title companies, and attorneys, but they also know the programs and customary charges associated with those services. They can make sure you’re getting the best deals available from these ancillary services and that you are being served well. In addition, your real estate professional will have relationships with other home builders and know of all the new construction opportunities that are available to you, not just what that one home builder may have available.
Floor plan, lot, design selections, and cost savings:
In addition to their fiduciary duties in representation your Realtor can advise you of options available to you when choosing your floor plan, lot, and design features. When you meet with a builders representative, they have the options available to them and them only. Your Realtor may know of another neighborhood directly adjacent that better meets your needs with lot sizes or home types that more match what you’re looking for. Your real estate agent may be able to advise on future resale value and desirability of your choices throughout the build process to make sure you are making wise decisions and investments.
Your agent can also advise on areas where you can install an upgraded option or have better design selections by going outside of the homebuilders standard choices. They’ll help you from overbuilding/overdesigning and also help you focus your upgrade dollars in the areas that will make the biggest impact on your future home.
Contract to close:
If you’re unfamiliar with real estate contracts and terms, this is where having an agent on your team really helps. The builder’s salesperson isn’t going to be looking out for your best interests when it comes to contract dates and deadlines. Making sure you meet the contingencies and deadlines in your contract is your agent’s job. Coordinating with the lender and title company to make sure you get to the closing table on time with all of the needed documents is a key part of your agent’s job. And ensuring you know about all of the options available to you from lenders to title policies to surveys and more are all part of an agent’s fiduciary duties to you.
Construction Process and checkpoints:
A great real estate agent will be checking in on your project jobsite regularly and providing you with updates. They’ll attend your pre-construction meeting with detailed notes to make sure everything that you have requested for your new home is on the builders radar. They’ll walk the home weekly to make sure your wishes are actually being installed in the house and raising red flags along the way as things get missed. Having an agent on your team during the construction process ensures you have an advocate that does the fighting for you so that you can stand on the side and know your interests are being addressed. When you have concerns, they’ll communicate directly with the builder on your behalf and make sure that all of your concerns are taken care of along the way. And if they think something is being done incorrectly, they’ll get professionals involved early in the process. The vast majority of the time, construction goes on without many issues. But in the rare instance that construction doesn’t go as planned or there are issues, having an agent on your team is an invaluable part of the process to make sure your best interests are protected, that your money is protected, and ultimately that you get the home you want at the end.
Closing, follow up, and warranty:
Having an agent make sure you get keys, move in, and that everything is as you expected is putting someone in your corner to represent you. As things settle and you get moved into your new home, there will come times for warranty requests and repairs that need addressed. An agent can help you navigate warranty claims and know what you should request.
Ultimately, the builder is an expert at building homes and has a team of professionals, attorneys, architects, engineers, sales people, title companies, and lenders that are all on their team and representing them and their best interests. The home builders are willing to pay your real estate agents commission on new construction. You need a Realtor on your team protecting you and making sure that your new home construction experience goes smoothly and reaches the finish line the way you intend.
In a sellers market it can certainly be tempting for you to sell your home For Sale By Owner and save the money on the Realtor commission. But in almost every case I’ve come across it will cost you more money, a lot more time, and cause a significant amount more stress in your life versus hiring a professional.
Okay. So I’m a licensed, practicing Realtor. I sell a bunch of houses in Texas and refer real estate agents around the country. I’m supposed to say this, right?
For a minute though, set that fact aside and lets just look at some logical reasons why selling your house For Sale By Owner is a bad idea.
1. Time: There’s a lot more to selling a home than just putting a sign in the yard, taking pretty pictures, holding an open house, and waiting for a buyer. When you show your home, someone has to let the buyer in, allow them to walk through the house, spend time with them, and answer any questions about the home or neighborhood. There are all of the calls that come in off of the sign in your yard. There are all of the other real estate agents calling you to ask you about your house. If you show your home to 15 buyers at 30 minutes each you’ve personally invested 8 hours of your life into just showing your home.
And all of this is before you even get an offer. Then there’s the time to negotiate, time to go through inspections, time to coordinate closing with lenders and title companies.
2. Preparing Your Home: No offense here, but you aren’t necessarily unbiased about your home. When you hire a Realtor to come in they will point out the dirt on your baseboards that you’ve stopped noticing or the kids finger prints and scuffs on your kitchen cabinets. I don’t care how great of a decorator you think you are, your home is not ready to sell.
Home buyers that view your home will also walk through a similar home in a similar price point as yours that a professional pointed out all of the little details that need fixed before listing the home. That seller took care of those things. When you sell your home For Sale By Owner you miss those details and they hurt you by either not generating an offer or an offer comes in below list price because the house wasn’t perfect.
3. Risk: If you sell your home For Sale By Owner you are taking on all of the risk that your transaction was done legally and that you’ve disclosed everything you needed to disclose about your home to the buyer. Did you forget about that plumbing leak from 5 years ago that you thought dried out but in fact caused mold to grow between the drywall of your home? Well, when your buyer rips open that wall for their renovation project they will find that and sue you for non-disclosure and you will be responsible. By hiring a professional they will make sure you’ve disclosed all of the important facts about the home and make sure the transaction is handled correctly.
4. Negotiating: Who do you think is better at negotiating a real estate contract? You after you’ve read several articles on the internet and received a little bit of advice from your friends who sold their home For Sale By Owner? Or a professional that has negotiated 70 or 80 real estate contracts recently? When you sell your home For Sale By Owner you will likely be negotiating with a buyers real estate agent that negotiates contracts for a living. They are better than you at this.
There’s a lot more to a real estate contract than the sales price. There are exclusions, financing options, earnest money deposits, seller closing costs, timelines for surveys and HOA addendums, buyers objection timelines, notices required to be delivered to the buyer, inspection periods, closing dates, home warranty’s, possession dates, settlement expenses, mediation, option periods, and more.
Once you execute on a contract as the seller, you no longer have control of how your home will be sold. The buyer and that contract dictate everything about the sale from that point forward. If you’re not familiar with real estate contracts and don’t put everything in writing prior to signing, your entire deal can fall apart and often does just before you were supposed to close on the sale.
5. Price: This is usually one of the major reasons homeowners choose to sell their home For Sale By Owner in the first place. They think that they’ll be able to save on the real estate agent commission and pocket that money. In reality they almost always sell their home for a lower price and still pay a realtor.
Over 90% of home buyers have hired a Realtor to represent them in a home sale transaction. So with that, most Realtor’s will only show their buyer a home that is listed in the MLS or that has agreed to pay them a buyers agent commission. This amount is typically 1/2 of the total commission that a listing agent charges to the seller.
For example, if a seller hires me to sell their home for them at a 7% commission then I will earn that full 7% commission if I bring a buyer to the seller. However if another agent brings that buyer, then I earn that 7% commission but agree to pay the buyers agent 3.5% (or 1/2) of my total commission.
So if 90% of homebuyers have already hired an agent to represent them, those agents will only show their buyer a home in which they will receive a commission. So if you’re selling For Sale By Owner and 90% of buyers have a Realtor, you must pay a decent Realtor commission in order to get those agents to show your home. For this example, let’s assume 3% commission.
Now as far as listing agents are concerned, a really good one will typically have a sales price vs. list price ratio of 100% or higher. This means that they will typically sell a home near the list price or higher and that they fight in negotiations to get that price.
If you list your house For Sale By Owner for $200,000 and a professional buyers agent brings a buyer to you, they will negotiate with you and you will likely settle on a price around $190,000 to $195,000. Remember, these are professionals that negotiate for a living. You still have to pay them 3%. Did you really save any money or make any more money by doing this on your own? Nope. And you get to add all of the stress that goes into the process to not even make any more money.
This example doesn’t even account for the situation where a professional has better access to comps than you do and can possibly price your home higher than you expected. It doesn’t take into account the situation where an appraisal comes in below your contracted price and you need access to comps to fight for a higher appraisal. It doesn’t factor in that a professional knows how to negotiate contracts up over the list price.
Even if you are able to sell your home for the exact same price that a professional would be able to sell it for, which is highly unlikely, it doesn’t factor in all of the other costs working with a Realtor are able to save you, like marketing costs, time, and negotiating a beneficial contract for you.
6. Marketing and Tools: In order to sell a house it has to be in the MLS. It just does. That’s what puts your house on Realtor.com, on Zillow, and all of the other buyers and agents radars as the home is for sale. There are some agencies and companies that will list your home in the MLS for a flat fee. Sometimes this is $200. Other times it’s $500. But it is a cost you’d have to pay up front whether your home sells or not in addition to the Realtor commission you’ll be paying a buyers agent.
Also, Realtors in most areas have access to a showing or scheduling service. This is a central company that organizes all of the showing requests to come view your home. That way you don’t have to answer your phone every time it rings from an agent that wants to show your house tomorrow at 9am. They call the showing service, the showing service texts you to ask if that’s okay, and arranges the showing with the other agent.
You’ll also need to put really great photos of the house in your MLS listing. Your iPhone camera just doesn’t cut it. Realtors hire professionals photographers to take listing photos, so if you want to compete on the MLS you’ll need to spend that $200 out of your own pocket to get professional marketing photos taken.
There are tons of other tools, tricks, and techniques that Realtors have access to that brings in buyers, markets your home effectively, and generates offers that you just don’t have access to.
7. Relationships: You need to know at least 2 different lenders and a real estate attorney or title company to assist you in closing your transaction when you’re selling For Sale By Owner. You have to stay on top of them the entire time to make sure the transaction goes smoothly.
Realtors already have these relationships and their vendors like title companies and lenders work incredibly hard to keep Realtors happy. If a title company screws up a transaction they know that the Realtor will never use them again and encourage other agents to not use them again. These relationships are already established so you know that a good Realtor has a good team behind them that make things work smoothly.
I know it’s tempting. I know you think you can do this on your own and that you need that extra money to buy the next house or to pay off some debt or to boost your emergency account. But I promise that when it comes to selling your home For Sale By Owner you rarely get that extra money you want and you bring a lot of extra stress into your life in the process. Hire a professional.
(If you’re looking for a professional real estate agent anywhere in the country, I can help. Check out the real estate page here to find a top real estate agent in your area.)
In a large part of the country, the real estate market is booming. Somehow interest rates are still incredibly low and we’ve finally burned through all that excess foreclosure inventory from the 2008 crash.
It’s created a pretty fantastic dynamic for sellers looking to move up in home and a great opportunity for buyers to get into a house with a historically low interest rate. And this combination has caused home values to rise, homes to sell fast, and sellers getting multiple offers on their listings.
Want to really screw up a home purchase?
Jump into this type of market without a solid financial foundation.
In a real estate world with competing multiple offers there are 2 types of offers that get chosen.
The first is the one that offers near the list price, has a large amount of cash, like 10%, 20%, or 50% as a down payment, has a conventional loan pre-approval and doesn’t ask for much seller assistance. A seller views this offer as a safe bet. As they look over the offer they don’t find any indications that this type of offer will fall apart and not close on the house.
The second type of offer accepted is the buyer that offers a substantial amount over the list price, because they are rolling their closing costs into the loan. Their down payment is the minimum the bank requires for an FHA loan. They need the seller to contribute to their closing costs. They don’t offer up much in the form of earnest money. Basically their offer screams to the seller that they don’t have much money, and barely qualify for the house. The only reason a seller would gamble with this offer is because the buyer is willing to pay $3,000, $4,000, $9,000 more than everyone else is because the buyer is just rolling in all the upfront costs into the loan. If the offer isn’t substantially better than the more stable offers this buyer loses out, so they must overpay in order to get the house.
And that is how you really screw up a home purchase.
You decide to buy a house before you’re really ready to. Sure you can qualify for a loan, and have a little bit of cash for a down payment. But you’re not ready to take on homeownership, and in order to do it in this market you’re going to overpay. Or you’re going to have a ton of heartache and wasted time going from listing to listing and making offer after offer that sellers reject.
So what do you need to buy a house, even if a lender or real estate agent says something different?
You need a good, healthy emergency account.
You need a large down payment.
You need to know you can afford the house.
You need to be out of consumer debt.
Basically, the best way to avoid screwing up a real estate purchase is to get really prepared financially before you even go look at a house.
*Are you finally ready to make a real estate purchase? Maybe you need to sell your house or want to upgrade your home? Check out my Real Estate page for information on how I can help, even if you don’t live in the DFW area.*
Want to really screw up a home purchase?