Getting The Whole Storyâ€¦
Real estate became a regular topic in the news during and in the aftermath of the housing crash of the late ’00s and public interest is still high years into the recovery. Housing is both an important and emotional issue – largely because everyone needs a place to live and homeownership is still considered part of the proverbial “American Dream.” Casual reading, the nightly news and surfing the web can mislead people into disqualifying themselves from a great opportunity or hastily jumping into one that’s questionable. The following stories offer great examples of why it’s smart to base any decisions you make about real estate, mortgage and finance on professional advice provided specifically for you.
Home values – while seemingly straightforward – are widely misunderstood and a recent headline in the business section of Southern California’s Orange County Register provides a great example. It read, “Patient buyer gets $35,000 discount waiting out overconfident seller.” The story described a transaction that fell through because the home’s value came in lower than the sales price. Months later, the homeowner agreed to sell for the appraised value and the buyer paid far less than the original price – but it was not a discount. The buyer ended up paying what the property was actually worth. A property’s value is not the asking price – or even what a buyer is willing to pay. In cases where a mortgage is used to finance a property, value is established by a real estate appraisal, which is required by the lender to approve financing. Real estate appraisers are not employees of banks or mortgage companies and are generally licensed and certified in the states where they perform work. Appraisers use sales of comparable properties to determine property values and consider mitigating factors such as upgrades, condition and other variables. Homeowners and buyers alike need to understand the difference between price and value to avoid wasting time and money.
A trade publication recently posted a piece with a title that likely caused agents and brokers to bristle: “Survey: Home Sellers Not Always Comfortable with Real Estate Agents.” The story described results of a poll of 1,000 adults that found 45% of home sellers “didn’t realize they are expected to pay the buyer’s agent commission,” and only 35% knew what the standard commission fees are. There were other responses that could also indicate a negative attitude toward agents; however, readers only learned that the poll was conducted by a flat-fee real estate brokerage company that undercuts standard commission if they did extra, specific research. Sticker shock isn’t just for cars. Real estate commissions generally total thousands of dollars as they’re based on the amount a home sells for. Understandably, commissions â€“ and who pays them â€“ are confusing to many in the buying and selling public. It is true that in standard residential transactions the seller pays the commission to the buyer’s agent from the proceeds of the sale. In fact, many agents tell buyer prospects that “it doesn’t cost them anything for an agent to represent them.” What’s important for sellers â€“ and buyers â€“ to understand is that the housing market considers commissions to be factored into a property’s value, which is one reason why homes “for sale by owner” (FSBO) sell for less than those listed by real estate agents. The National Association of Realtors’ (NAR) 2018 Profile of Home Buyers and Sellers reported that 7% of U.S. home sales were FSBO last year, and the median price was $64,500 less than the median sold price of agent-assisted homes.
Concern about housing affordability has grown simultaneously with home price appreciation over the last several years. News stories about affordability are often laced with a significant scare factor, like this headline from the 2019 Rental Affordability Report by California-based property database company ATTOM Data Solutions (ADS): “Renting is more affordable than buying in 59% of U.S. housing markets.” A major conclusion from the report is that rent is high enough to inhibit saving for a down payment, but it’s more affordable because the monthly payment is lower. ADS does not sell or lease properties, but they do provide information to the real estate, mortgage and insurance industries as well as government agencies. The amount of time a person rents is not addressed in ADS’ affordability report or many others that make news. Renting for five years might be more affordable, but renting for 30 years is a different story. A homeowner could pay off a mortgage in thirty years, leaving them with a valuable asset; but renters pay indefinitely and are rarely guaranteed a fixed rate.
It’s important to get the whole story. Everyone’s situation is different and the most reliable information is that which you gain from professionals who can help you analyze your personal scenario and explore options based on your resources and goals.