Now that the housing market is changing.
What should you do?
I wanna walk you through some advice from a Sacramento appraiser, and this is on
the Sacramento Appraisal Blog by Ryan Lundquist, which is a fantastic blog that
you should check out and subscribe to.
He has really great insights about specifically the Sacramento
market, but it does apply to a lot of markets across the US.
What I think a lot of home buyers are facing right now is they're
recognizing that the market has shifted.
That's not super big news to most people, but what's difficult is some of the,
advice that was given when the market was really a heavy seller's market.
Isn't as applicable as things start to shift into a little bit more.
Of where we're at now, which isn't quite a buyer's market.
But, and isn't quite out of a seller's market.
We're more moving into a little bit of some more neutral
territory in different markets.
And of course there are some markets that are hotter than others.
And so he walks through some advice here that I think would be really helpful
if you are looking to buy a home soon, or maybe you're looking at buying in
a few months from now and wanna get a better gauge on what this market is like.
Okay.
So I'll have the link to this, down here in the description.
This article is geared towards advice for buyers and then near the bottom.
It also has advice for sellers as well.
If you want to check those out, just wanna talk about the
buyer's advice at the moment.
So first he brings up don't low ball, like it's 2008.
It's not a name, your price market.
So you still have to make reasonable offers instead of way below market value.
I find some buyers think it's 2008.
That's not the vibe right now.
For instance, a property was priced well at $450,000 and a buyer offered 320 and it
closed at 455, $5,000 above asking price.
So if you get lucky at a low level, great, I'm just saying
being reasonable rather than low balling is likely a better strategy.
And really, I think this sentiment really applies.
It's not just realtors pushing the narrative of Hey, you should
buy to make some commission.
Maybe some realtors are like that.
Actually, there's probably a good amount of realtors that are like that,
but it's often this thing where it's, if you want to buy a home and
you see a home that you like, it's okay to pay money, to get the house, right?
I know everybody wants a deal on a home.
I totally get it.
I absolutely understand, not wanting to overpay for a home and get yourself
in a bad financial situation, but that is completely different than
paying a fair market value for a home.
So just keep that in mind.
It's amazing the amount of times I've talked with buyers and they
say, I love this house so much.
And then they go in low balling, right?
Make your offer actually back up how you feel about, the home
that you're looking to buy.
Or another example.
I was talking with my aunt the other day, who is also a real estate agent,
which it happens that seems like everybody in my family is becoming
a real estate agent at this point.
She was talking about, how she was working with a buyer who really wanted this house.
They were like, this is our dream house.
We really wanna move in here.
And through putting in offers and they had these little back and
forth, this kinda like little tiff about these little tiny things.
Like one of them was if someone was gonna move the washer and dryer,
like things that can definitely be done after you buy the home.
And they got to the point where they were like if they're gonna be that
way, then we don't wanna buy em.
Then we're not gonna buy it from them.
You just said, this was like your ideal home, but you're not gonna buy
it because you got a little annoyed with the seller that, that shouldn't
matter in the grand scheme of things.
So ultimately this market is completely different than in 2008.
And 2008, we had an incredibly unsafe credit system where mortgages were
given out a little bit like candy.
And they're really not like that anymore.
This is a vastly different market than 2008.
And although I do think that the market is shifting in your favor, where
you can begin having more aggressive offers in your favor, like a lower
prices or better terms for you.
Don't just come in and super low ball it, and then be upset
that you didn't get the house.
If you are gonna low ball that's okay.
And there's nothing morally wrong with that.
You have every right to do that.
Just understand that the market isn't really conducive to you.
Just being able to throw out whatever price you want.
And being able to get it he also says be patient instead of selling
in hours or days, properties are spending weeks or longer on the market.
This is a real advantage for buyers.
Because what that ends up happening to a seller is they're
like, oh my gosh, my home
isn't selling in two hours, what's going on.
And they start to realize that they don't have as much control anymore.
And that's where you get to come in with a little bit more of an aggressive offer.
So he says, you can take more time to shop.
Yet if you find something perfect, be swift since properties that
check, all the boxes are going quickly with multiple bids, right?
It's important to keep in mind that even though the market is shifting,
it doesn't mean that it's this huge over correction on the other side
where there's nobody still competing.
There's still people like he mentions, if the home checks all
the boxes, if it's the right price,
there likely is still going to be multiple offers on it, meaning you're gonna be
competing against other home buyers.
So that's why you don't wanna come in and just put your worst foot forward.
Is that even part of the saying worst foot, you don't wanna come in putting
your, not your best foot forward and then being upset if you don't get the home.
Okay.
So if you are in that spot where you're like, I want to buy the home that
meets most of the things that I want.
Be patient, but make your offer, align with your intention about the
house that you're buying as well.
Okay.
Also, ask for credits, if you can.
So he said we're tending to see more buyers asking for credits to
help with closing costs or repairs.
So talk with your agent about whether asking for credits is
something the market will allow.
And this is gonna be all in your local market.
And remember this isn't going to work in every price range or situation.
So like Sacramento, for instance, a lot more competitive than
Dayton, Ohio, where I'm at.
And so what happens here is when you put in an offer to buy a home,
you can say, Hey, I'd like to buy your home for, let's say $450,000.
And I would like a credit back at closing towards my closing costs.
So with those or repairs, for instance, so with those, you can do things like
buying down the rate, which he talks about in the next section, or just use
it to pay for things like your appraisal your recording fees, title insurance,
homeowner's insurance, things like that.
Buy down the rate if possible, talk to your loan officer about what it would
take to buy down the mortgage rate.
This means you can pay more to get a lower rate or better yet.
If you're in a situation where the seller is going to offer a credit
consider using that credit to buy down the rate, getting your monthly payment
lower can be a massive financial win.
And he is absolutely right about this.
This is, something that I don't think a lot of people really realize as much.
But you can use the credit that you get from the seller when you negotiate
if you do get one to actually buy down your interest rate, and when you talk
with a lender, You can say, Hey, can you show me options of if I paid points
upfront to lower the interest rate?
Now something I want you to be careful of is in this market right now.
There are a lot of people advertising temporary buy downs,
things like two, one buy downs.
Basically what this does is it only temporarily lowers your
rate for the first couple years.
But your mortgage payment is going to go up over time.
I personally don't think these are great options because it really is the
stereotypical, get you in with a low rate, but then your rate is going to increase.
It's gonna, it will go up.
It's not like an, if it will.
Absolutely.
I'm not a huge fan of them.
I think they can be.
They can put buyers in bad financial situations because the expectation
is your income will increase.
That's really the only reason you would get those temporary buy down.
I'm not a huge fan.
However, you can get just a regular buy down where you pay money up front and
the lender gives you a lower interest rate over the term of your loan.
So for instance I have here I built the software called The Loan Clarity Advisor.
I think it's awesome.
Helps you compare loan side by side.
So what I did is I put in a quick scenario to show you three different options.
Now, I have to put them on two different calculators, because
one is a price reduction.
So lemme walk you through these scenarios.
So let's say we're buying a $400,000 home, or that's what the seller's asking for.
Great.
So three options, let's say we have $10,000 that we're gonna play with.
Okay.
So what we could do is we can ask the seller for a $10,000 credit.
All right.
What that would allow us to do is we could look at that, it has to offset
our closing costs in the right way.
So talk to a loan officer about this, but if we offset our closing costs, instead
we could increase our down payment, right?
So the seller can't directly pay for our down payment, but if it offsets our
closing costs, we can use that additional money to go towards the down payment.
Hope that makes sense.
Just let me know if I need to clarify.
So we can increase the down payment with $10,000 extra.
So instead of doing 3% down, we can do 5.5%.
All right.
5% interest rate, zero points.
For the sake of the example, no lender fees here. Option two, we can buy down the
rate instead of using that extra $10,000 to increase our down payment, which in
reality is offsetting our closing costs.
What we can do instead is we can have a 3% down payment, which is available for first
time home buyers on conventional loans.
We can pay $10,000 in points, an upfront cost.
And get a 3.99% interest rate.
Okay.
Now the mortgage insurance is higher monthly because
we have a larger loan size.
And our third option here I'm gonna cover this over a little bit is instead,
what if we reduce the price by 10,000?
So through all these options, the seller is giving us a credit of $10,000.
So it's either to offset or closing costs so we can increase our down payment
or we use it to buy down our rate.
So it gets lower, or we just say, you know what, just knock $10,000 off the top.
These are all things that can be negotiated.
So in this instance, 3% down 390 purchase price, which is why I need
to have it on a separate calculator.
5.2, 5% interest rate.
Okay.
Zero points, zero fees, mortgage insurance.
About the same as this second option here.
Okay.
And just a quick side note, you can get this calculator
it's down in the description.
If you want to use it for your situation.
So what we would do is scroll down here and I want to take a
look at what the total cost is.
What I wanna look at is let's just look at a 10-year average.
That's the average time somebody is in a home.
So what we wanna consider is all the costs of financing to see which one of
these is a better loan option for us.
So that's the way we actually figure out these numbers.
It's not just the interest.
We need to look at mortgage insurance interest and any points included as.
So when we look at this over 10 years, the increased down.
Has a total financing cost of $190,000 over 10 years buying down the rate
is of 172, so $17,000 cheaper.
And then the reducing price option is $208,000.
So the better option here is if we choose to get a credit to buy down the interest
rate, it allows us to save about $17,000 over increasing of the down payment and
about $25,000 over reducing the price.
Same thing with the monthly payment here, it'd be about 180 bucks cheaper
per month when we buy down the rate and the monthly payment here
is $2,740 on reducing the price.
Okay.
So that definitely is an option to buy down the rate.
If you'd like. Then he also says target overpriced listings.
Overpriced homes represent opportunities for buyers.
So go after them.
Of course, some sellers are stubborn about accepting offers
below their unrealistic list price.
Okay.
So in here, one of the best ways to do this is talking
with your real estate agent.
And asking them, Hey, can you help me spot some of these properties? A really
good way to identify these is going to be through looking at how long the home has
been listed the average days on market.
Right now from a national perspective, the median days on market is
sitting in July about 35 days.
And you can see this has a kind of cyclical nature to it.
So talk to your agent about what's average for you in your specific
market that can help you spot some of these properties where you might see
some of those sellers who are still feeling like it's the market is what
it was maybe six months to a year ago.
And they're feeling really confident about being able to
list maybe over what it's worth.
And you can come in that's an opportunity to look at it.
Also, don't overpay.
On one hand it's unwise to low ball as a strategy, but still try to get the
price lower if possible local stats show, even when properties get multiple offers
today, they aren't tending to get bid up to the crazy levels we saw last year.
Generally speaking, you probably don't need an offer as aggressively high
as you might have two quarters ago in Sacramento last month we saw buyers on
average pay about 2% below the original list price, which comes out to $12,000.
This is the average though.
So it would be a colossal mistake to automatically offer $12,000
below whatever the asking price is.
Remember, there are many examples of offers still going above the list price.
So don't impose an average on every escrow.
So basically this is a really good reminder to understand real estate is
all about these local neighborhoods and the averages might come down to
2% below the list price, but different markets are gonna be different.
This is where a real estate agent can help you look at what's
happening in different local markets.
And when you're looking at, should I offer for a home?
A real estate agent is gonna be really helpful in helping you
understand how to look at comparable homes and what those homes sold for.
Maybe within the past few months, past six months, past year and looking at
what is going to be a fair price for the home that you're looking to purchase.
Okay.
Also realize there's still competition about 37% of homes last month, and the
Sacramento region sold above the original
list price.
So not everything is selling below some are talking about.
Remember selling above or below the list price.
Isn't just about the market.
It's about how the property was priced, right?
Because a seller can come in with.
A certain list price as a strategy to entice buyers to come in.
This happened, I made a video about a home where it was like swarmed by home buyers.
And there was a video of somebody showing just, I can't even tell you,
it was at least 50 buyers, just sitting in line, waiting to see the property.
And if you look at why was this home so attracted?
Why was this one home gathering so much attention?
It was because in the height of a seller's market.
Those sellers came in and listed for a super low price.
And so you have all these buyers saying, oh my gosh, we have got to
go see that home and write an offer.
And then when you get this huge influx of competition, It's going to sell above
because all those people are competing and they see all the competition.
And so it's not always a good indication of, if home's being fairly priced or not.
Just based on the list price is more about the strategy of the seller, trying to
get buyers interested in the home rather than what the fair price of the home is.
All right.
And finally, don't string sellers long an agent friend told me about
a situation where the buyer was in contract for 40 days and then backed out.
Look, it happens and buyers should back out as needed.
So I'm not saying to state do what you need to do.
All I'm saying is if you're on the fence, find a way to be decisive so you can give
the seller more space to find another buyer in a market with quick change,
idling buyers can cost the seller money.
Now I know a lot of a lot of buyers aren't in a super
empathetic position at the moment.
totally get it.
But usually in the long run and as you're in the home shopping world for
maybe, hopefully not super long, but a lot of people have been in that home
shopping phase for quite a bit of time.
It's usually better if we try to do it with as much.
Trying to think of the right word.
I don't know if ethics is the right word, but treating people like we
would wanna be treated and ultimately you can still get a great deal and
negotiatewell while being considerate of somebody else you don't have to.
I think sometimes people feel like real
estate's a zero sum game where like the only way to feel good about the
home that you bought is to make sure that somebody else got screwed over.
And it's if I'm not taking advantage of somebody or I'm not screwing
somebody over, if I don't feel like they got the short end of the stick,
then it wasn't a good deal for me.
When real negotiations are actually about two parties getting pretty close to what
they want usually a good negotiation involves compromise on both sides and
both people being pretty content walking away with the deal that they had.
Your deal does not have to include somebody getting the
short end of the stick to feel better about where you're going.
Ultimately here.
This is really great news for buyers also.
I love that.
There's all these, you got all these nice memes in here.
Great news for buyers.
You're getting more options, more leverage.
Just keep in mind that things haven't completely flipped the other direction.
Keep in mind why you wanna buy.
And if you're in that spot where you're like, I really want this home.
Make your offer reflect your intention with the home.
If you don't really care about it that much.
And you're like, you know what?
It's moving right now.
Isn't, it's more of a want than a need.
Great.
Your offer can reflect that.
But if you're saying I really need a home, I really want this home.
This is perfect for us.
And your offer doesn't reflect your intention.
You can't get upset that you didn't get the house.
So just keep that in mind.
You're getting more leverage to be able to put in better, other types
of loans, not just conventional, not just cash things like FHA,
VA, USDA and more favorable terms.
Where you don't have to wave inspections and wave appraisal
contingencies, just to be able to have a seller entertain your offer.
Okay.
If you need help with a mortgage, I'd be happy to connect you
with somebody on my team.
We can work in all of the US. Link is in the description or you to
winthehouseyoulove.com/lender.
And if you're looking for the next step, if you're like I even know where to begin
with buying a home because all the steps can be long and confusing and convoluted.
Go ahead and watch this video over here.
I walk through how to buy a home step by step, beginning to end.