Real Estate – Winter Prep

Real Estate – Should you have a Home Equity Line?

Should you have a Home Equity Line?

Answer: Generally, Yes.

Also known as a HELOC (home equity line of credit), this type of loan can provide a safety net for you and your family. As someone who is most always averse to non- ROI debt… the reason I say “yes” to a HELOC:

Outside of the closing costs (appraisal, processing/recording fees, attorney) it doesn’t cost you anything.
You only owe on the loan if you use some or all of the funds.
You have flexibility to use however much of the loan desired. It is as simple as writing yourself a check for amount needed.
It allows you to keep cash funds invested in financial markets without having to sell.
It provides for maneuverability when buying a home or another investment. For example, you can use the HELOC funds for a downpayment on a home purchase. This is especially useful when you own your current home and are planning to take equity from the sale to apply on purchase. Using the HELOC can make the sale process easier as you do not need to rush on market; you may even be able to choose a more opportune time to sell the home increasing your rate of return. Or, if the home you are purchasing is very competitive you may need to close within 30 days which makes selling your current home ahead of purchase nearly impossible. Once your current home is sold, you simply apply the proceeds to HELOC and your monthly payments go back to $0. The HELOC remains incase needed in the future.
The rate is generally lower than a credit card or private loan.
A HELOC helps create liquidity for your asset (home) that is otherwise frozen until sale.
There is no prepayment penalty.
Perhaps most importantly, it provides a layer of security for cash access if something unforeseen comes up (ie. medical emergency, job loss).

Things to be cautious/aware of with a HELOC:

Do not spend the money for personal pleasure (ie. vacations, cars, jewelry; etc)
Some say to use it for home renovations, but I am against that unless you are doing renovations to increase near term sale value; at which point you will pay off the loan.
The payments are interest only, so there is no growth on the money.
Lenders will usually allow you to take a credit line on your primary residence up to a max 85% of the homes value, minus the amount owed on first loan. So, if your home is worth $1,000,000 and you have a $500,000 mortgage the bank may offer a HELOC for $425,000 ($500,000 in equity x .85 = $425,000).
Only use as much as you need.
Pay off the money borrowed ASAP.
There may me a small yearly fee for the HELOC (ie. $25-150)
If you fail to make payments on the HELOC you risk losing your home in foreclosure.

So, essentially a HELOC is a very low cost option that provides you flexible use of cash and financial security in case of the unknown.

Mortgage rates drop to lowest level since Feb ’23, and are down 15% since May. As I have been telling buyers, there are some deals out there if you can zero in on the right property. Real estate isn’t a one-size-fits-all on the investment front. Within a specific market/area the ROI between 2 properties can be drastically different, even if the purchase price and mortgage rate are the same. When purchasing, you need to fully understand the potential carrying costs in relation to updates, repairs, and general buyer demand for a specific unit type will be as years go by. So, although rates are down that does not mean you should jump at the first place you see without fully processing all sides of the purchase. The rates falling will however make it more competitive on the buying front. The summer saw a stall in buyer activity, but that has quickly transitioned as we settle in to Fall Market, compounded by rates dropping. If you are looking to purchase make sure you evaluate thoroughly before making an offer!

Real Estate – A Buyer Agent; do you need one?

Well, this is a loaded question. The short answer is yes, you should most definitely have representation when making one of the biggest financial decisions of your life. However, it is not that simple. The answer of “yes” would imply that every agent is proficient and educated on the process of buyer representation and all that goes in to it. And, if you asked me “are they?” my answer would be a resounding “no”. The quality of agents within real estate may have the widest range of variation for any industry. There are agents that are well-versed on all aspects of negotiation, quality of construction, location implications, forecasted growth, anticipated carrying costs, potential detriments; then there are agents with little to no value-add through representation. For example, on a recent listing of mine I had multiple “buyer agents” submit offers without ever coming to view the home – all after I held a broker tour + four public open houses. Additionally, they advised their buyer’s to waive home inspections without every laying eyes on the property or asking about age of systems and mechanicals, questioning if any planned or recent repairs/assessments, who else lives in the building; etc. I find it incredibly hard to understand how an agent can “advise” a buyer to spend $1,000,000 without ever seeing the property or, at the very least, ask targeted questions.

The reasons for such a wide range of quality in today’s real estate agent (imo) has a few contributing factors:

There is very very low barrier to entry. A remedial course and subsequent “test” are all it takes to become licensed. Now, compare that to a finance professional who must go through the CFA, Series 7; etc. It is drastically different qualifications, but both operating in a similar realm in that they are giving advice on large investments.
Social media and third party (pay-to-play) websites such as Zillow, Redfin; etc can make people believe an agent is qualified much more easily than years ago. It has become far more difficult for buyers (and sellers) to decipher who is legitimate.
There is mis-aligned incentives for buyer agents (ie. they only get paid if you purchase). This can lead agents to give bad advice in the pursuit of their own interests.
The development of the “real estate team” has watered down the quality of service in many instances. It used to be that the agent you hired was the agent that represented. Now it is so often the case that you hire the “team lead” and are then given a subordinate “team member” to represent you. Many times the team members are inexperienced and would otherwise not meet standard to work for a specific company (ie. not enough sale history to meet baseline for a company to hire). This is a great model for team leaders as they can scale more easily and create a wider net with little to no out of pocket cost. But, it doesn’t always serve the consumer.
With the availability of information online, I frequently see that buyers have more knowledge of a specific area and property value than the buyer agent does.

So, to summarize a short answer having turned long…. Yes, you should have a buyer agent! But no, it is not one-size-fits-all. You need to complete thorough diligence before hiring/trusting someone to best represent you. A good buyer agent can save you tens (and sometimes even hundreds of thousands) of dollars on purchase.

Real Estate – Spring Forecast

As we get in to Spring, inventory will begin to pick up (quite substantially). I anticipate a more active Spring Market than we have seen since 2022. There are multiple reasons for this:

Rates have come down (slightly) from their peak.
Many would-be-sellers in 2023 decided to stay put once rates rose above 7%. They were unwilling to trade their low mortgage rate for a much higher one. However, these sellers are now at the point they must downsize, or move due to life circumstances. These drivers are pushing them to perform.
Most buyers have mentally adjusted to the higher rates. Buyers in 2023 had sticker shock when they saw their monthly costs nearly double when rates went from 4% to 7.5%+. Many of these buyers scrambled to purchase last Spring before rates rose higher, or withdrew from the purchase market altogether. This softened values for sellers further leading them to delay sale. These factors all but eliminated the Fall ’23 market. Since then, buyer adjustment to higher rates has begun to push property value back up – providing motivation for sellers to now capitalize. This will help alleviate (to a degree) the supply constraint.
A lot of buyers in today’s market never saw a pre-approval with a 4% rate. They are only accustomed to higher rates and have budgeted accordingly. This has increased demand, subsequently increasing prices.

If you are considering purchase or sale, now is the time to begin getting pieces in place. The Spring/early Summer markets tend to come and go very quickly.

Remember, every individual situation in real estate is different. Please make sure you are informed as to not make any mistakes. Preparation is everything when it comes to succeeding in a competitive market.

Real Estate – Seller Beware

If contemplating sale, now is a good time to consider your options. We are heading in to a competitive Spring Market where prep and representation can make all the difference toward achieving your goals.

As a potential seller, there are more agents to choose from than ever before. We have seen the total number of licensed agents jump approximately 15% since covid struck (1,400,000 realtors in 2019 to over 1,600,000 in 2023!). This drastic increase in agent availability has created a more difficult field for sellers to navigate. The combination of total agents available + the major decrease of inventory since interest rate hikes, has created a far more desperate agent pool. If you don’t believe me… try posting “Looking for a realtor!” in any neighborhood Facebook group, and see what happens. 🙂

To compound the increase in available agents, social media has created a platform that can be incredibly misleading. Even for me it is difficult to figure out who is legitimate versus who simply “looks the part”. It is not until I speak with someone and/or see their performance through a transaction, that I realize who is informed and an asset to their client. Unfortunately, the last couple of years I have seen far more agents become client liabilities than assets.

The good news for sellers is the market is in your favor. With this advantage it is incredibly important you hire someone that is going to make the sale process seamless and ensure you receive top dollar. Hiring the wrong agent or someone not fully qualified can result in a significant loss that is difficult to recoup in other facets of life. I have recently seen seller’s (lucky for my buyer clients..!) undersell a home for $150,000+- less than what it was worth. Often times the seller does not even know this happened… they simply are unaware to the full scope of market conditions or procedural mistake(s) made by their agent. So, when looking for an agent please be sure to complete ALL diligence and educate yourself on who is the best fit to represent you and your property. Do not simply choose the most convenient option (a friend, family member; etc) or someone making more effort to look the part than truly learn the process. You deserve the best representation available.

Remember: real estate is not rocket science… but a small mistake can be incredibly costly. Seller beware!

Real Estate – Limited Inventory

The lack of supply within Boston, and all Metro Boston markets, has bottlenecked buyer demand. There is not nearly enough homes for sale to satisfy the number of buyers looking to purchase. This has been an ongoing theme since the drastic rise in interest rates. Rates are currently 2x+ what many home owners currently have on a 30 year fixed mortgage. This has all but eliminated any motivation for an owner to sell. After all, why sell a home that has a mortgage rate of 3% to buy something at 7%? Even if it is an upgrade. The financial discrepancy on cost is not being offset nearly enough by an upgrade of property quality, size, or location. Compounding this predicament is the fact inflation and cost-of-living has not gone down by any substantial measure. The whole intent of interest rates being increased by the Fed was to curb inflation. I think we can all say it has not yet worked… while creating collateral damage within the housing market (among others). This is going to have a generational impact as many younger people simply cannot afford to buy, leaving them void of a historically strong and stable asset as time goes on.

Real Estate – Shop for Insurance!

Real Estate – Shop for Insurance!

If you own a home, you should be well familiar with property insurance and what it covers. If not, you will want to make a priority to review your policy and determine if there are areas of coverage that should be increased. Our needs change over time and with that our insurance should follow.

Coverage aside, it is also important to review your annual insurance premium. Over the last few years we have seen a drastic rise in costs relating to repairs, materials, contractors; etc. Many insurance companies have passed these increases on to the consumer (us!!). So, what may have been a $2,000 annual premium may now be $3,000. You will want to take a close look at this and ask your agent pertinent questions that will help you understand the increase. Maybe even negotiate 😉

The good news, home insurance prices can vary wildly. I see it often in Boston due to age/nature of the homes. For example, if you use a company that does not work much in Boston they may charge much more than a company that specializes in the area. This is often related to the company’s fear of building age, shared walls between single families, no fire-walls between buildings, shared foundation, old wiring, old insulation; etc. They see this as higher risk, whereas a company that frequently works with these property-types may have a better understanding and/or a different business model. This can result in less money out of your pocket for the same coverage.

So, my suggestion is to ALWAYS shop insurance rates. I have seen/worked with hundreds insurance companies over the years and I can tell you for certain… They are not all the same. If you are interested in who I use personally, don’t hesitate to reach out!

Real Estate – Purchase Valuation

Purchase Valuation

One of the hardest things as a buyer is determining what a property is worth. This can be especially difficult if you are emotionally invested in a home that you saw. The process of valuation should rest on the shoulders of your agent. You should trust the information is accurate and do not hesitate to ask questions on how the suggested value (or offer price) was determined.

When evaluating a property for a buyer the agent should factor in comparable sales, current market vs these comparable sales, quality of building/structure, quality of interior/finishes, forecasted improvements needed and when, condition/age of mechanicals, general maintenance, projected growth for given location, natural light exposure, ceiling height, layout, lot design and quality, exterior space or ability to improve such, general amenities such as sqft, beds/baths; etc. In order for a buyer to have a chance at securing a property (without over-paying) these contributing factors of value must be analyzed. If you do not have representation to effectively determine value, the chances of you making a bad investment and/or purchasing a property that has compounding costs are exponentially higher. It is essential that proper and detailed evaluation be completed prior to offer submission.

Additionally, I also caution buyers to not put much emphasis on estimates provided by Zillow, Redfin, or the like. These are often inaccurate and highly influenced by the asking price. I have seen many of these “estimates” on my own listings adjust to at/around asking price once a given property hits the market. So, by the time a buyer sees the “estimate” it may already have been influenced by the asking price. These website algorithms are impressive technology… but they are far from perfect and do not factor in many of the mentioned variables that can greatly impact value. This is especially true in areas such as Boston where the age, the style, and the location within a small neighborhood can vary wildly.

When making what is most often the biggest investment of your life, ensure you have the proper representation to eliminate costly mistakes. This will significantly increase the likelihood you have a strong return on investment when the time comes to sell.

Remember: a buyer agent only gets paid when you buy… so do your best to make sure your motives are aligned!