Working as a Real Estate Agent, I frequently see ads that say things like, YOU ARE THROWING AWAY YOUR MONEY IF YOU RENT! BUY NOW!
The majority of these ads claim that now is the time to buy (always), and that if you don’t purchase a home, you are ultimately throwing away your money and not making a financially savvy decision.
Let me go over a handful of reasons you might not want to buy a home right now.
- It’s a sellers market and you can’t get into a home that is the size, condition, or location that you want. If it is a competitive market, an agent can tell you what it takes to get into the type of home you want, where you want. Whether you are falling short on price, or having enough cash to be competitive in other terms, a trustworthy agent can give you the scoop on what to expect when competing for houses you are wanting to purchase. All of my clients make compromises somewhere, but if you can’t get something even close to what you want, maybe buying right away isn’t in your best interest.
- You are in debt already. If you have any debts that are accumulating and making you feel stressed already, maybe it is in your best interest to pay off some of those debts before you take on a substantial amount of additional debt, like taking out a home loan.
- It is something you are “supposed to do.” I tell people all of the time, what is most important is your reason for purchasing a house. Being ready is important, especially when you buy a home in a hot market. Don’t feel like you have to buy because you are a certain age, all of your friends seem to be buying, or because “it is just what people do”.
- You might have a huge life change soon. Might move in a year? Thinking of growing your family? Maybe now isn’t the best time to buy. At the very least, let your agent know about the possible transitions when you meet with them. That way you can have a plan that takes the unknown into consideration. Can you rent that house out when/if you move in a year and can’t sell? Is the house large enough to accommodate your growing family in the next couple of years? People don’t realize how much it costs to sell their home, so depending on how the market looks a year later compared to the year you bought, you could easily lose money, or barely break even, EVEN IF the market price has increased.
- You have a great rental rate, and are living below your means. If you have a great living situation and are happy living below your means, take advantage of that! Buy when you are ready, and toss away societies expectations that you should always be living large. Save what you can and get yourself in a great position to buy later, if you so choose!
Why does my loan type matter to a seller? Loan types you typically see are Conventional, FHA, and VA. Each have their own set of benefits for buyers, but why does a seller care what type of loan a buyer is using?
- One of the main reasons a seller might favor one offer over another due to financing type, again comes down to the cost to a seller, and risk assessment of the transaction falling apart down the road. Some loans have a slightly higher fee that the seller is required to pay at closing, while others have no fee due from the seller. When two offers are close in offer amount, a seller might choose one offer over another based on the tiniest of details.
- Some loans have stricter qualifications on the condition of the home. This goes back to the appraisal and work orders. A Conventional loan typically is the least strict on condition, out of the financing options listed above. It is possible to have work orders come back on a house being purchased using a Conventional loan.
- Some loans require little to no money down. Why does a seller care how much you’re putting down? Typically a buyer putting a higher amount of money down looks more solid to a seller, meaning it is less likely their financing will fall apart towards the end of a transaction, causing the deal to die. Another reason a larger down payment looks attractive to a seller is typically sellers want to negotiate items that the buyers request them to fix after they have an inspection. Usually the goal for the sellers is to fix the least amount of items possible. If there are terms of an offer that indicate that the buyers might not have a ton of cash on hand (such as little to no down payment, or if they are using down payment assistance), the seller might worry about the buyer asking for more fixes on the inspection, or asking for a credit towards their closing costs to help them make fixes themselves after close. In summary, more cash can signal higher likelihood that the buyer(s) can handle fixes, and fees on their own, without asking for help from the seller(s).
When you have many offers all coming in around the same value, you get into weighing more of the gritty details like loan type, earnest money and down payment amount, closing date, inspection time, to the tiniest of details, more heavily.
As a buyer, your agent communicating with the listing agent prior to writing and submitting the offer to find out what terms the seller is looking for specifically can be enough to win you the house in multiple offer situations. If there are no other offers at first, and then other offers come in after you’ve submitted yours, your agent should follow up with the agent representing the seller and ask if there is anything you can do to sweeten the offer.
For more information about financing a home purchase, check out my blog post, Why Does a Seller Care If I’m Using Cash or a Loan to Buy Their House?
When I first sit down with people to help them understand the home-buying process, prepping them for the journey ahead, one of the topics I dive into is why a seller cares where the funds to buy the home are coming from. In the end they get paid the same, regardless of where it comes from, right?
A seller does care how you are purchasing their home, whether it be with cash, or by using a loan. It all comes down to risk assessment for them. The seller is weighing how likely the deal will survive. From the point of accepting your offer, making it through the inspection negotiations, getting passed the appraisal, to arriving to closing day, their payday. These are some of the factors they consider while reviewing your offer, especially if they are comparing your offer to other offers that around the same offer amount:
- Why do sellers prefer cash to loans?
- Cash offers don’t require an appraisal. Although including an addendum that makes the deal contingent upon a successful appraisal is still an option with cash offers. No appraisal means there is no risk of it appraising low (bank saying it is worth less than you’re offering), resulting in the bank not loaning the original amount to the buyers, which was offered to the sellers. In this event, the deal dies, the buyer brings more cash to close, or the buyer backs out and gets their earnest money refunded to them. A low appraisal is seen as a risk to the sellers, so not having to worry about that is generally appealing.
- No appraisal means, no work orders. Work orders are fixes required by the appraiser prior-to approving the appraised amount. It is possible to have work orders required, in-addition-to an appraisal coming in low. For example, you might offer 350k for a house, have it appraise for 325k, providing the seller install hand rails along the stairs out-front, and touch up paint on the exterior in the specified areas where it is chipping. Those are small work orders, but sometimes they require much larger, more expensive fixes, such as installing a new roof. Not having to stress about this process as a seller gives them one less thing to worry about and looks great in a competitive situation.
- Speedy close! Typically, you can close on a house with a cash offer in 1-2 weeks, depending on where the funds are located. This timeframe is half of the time it takes to close on a house with a buyer using a loan. Lenders typically ask for 30-45 days to close on a home using traditional financing. This varies depending on where you are at in the loan process and what type of financing you are using! Depending on the sellers situation, perhaps they don’t need a quick close, giving cash offers a little less of a competitive edge. Your agent should be reaching out to the listing agent (sellers representative) before writing/submitting your offer to make sure they are up to speed on what the sellers unique situation is, and what they are looking for.
- Less picky on inspection? Many of us working in Real Estate would argue this is not always the case, but if someone has the cash to buy a home outright, there is an idea that perhaps they will be less picky during the inspection negotiations. One of the arguments agents can make on behalf of their home buyers using traditional loans is, they don’t have the money to make the repairs. A seller might make the assumption that a person using cash has the funds to not be as picky about some of the smaller fixes needed that may come up on inspection.
Many people in the industry tout the phrase, cash is king! However, depending on what the seller is looking for, there are other ways you can make your offer more competitive, if you are using a loan. Do the sellers want a rent-back? Are they waiting for a job transfer and prefer a long close over a fast one?
Don’t despair if you get beat out by someone paying with cash. There are always more houses coming onto the market!
The real estate market in Tacoma, the past couple of years especially, has been difficult for buyers. There are multiple offers, low inventory, and folks with cash, eliminating the seller’s need to accept an offer from buyer using traditional financing, which requires additional steps like an appraisal.
While representing a buyer, it is my duty to present clients with all of the strategic options at their disposal for competing in this sellers’ market, and to encourage them to take advantage of options that are available to them to enhance their offer, and hopefully beat the competing offers.
The conflict for me is, what about tactics that I think muddy the ethical waters in Real Estate?
“Love letters” are commonly found in the real estate world, especially in competitive markets, where houses are receiving multiple offers. The letters I have seen typically include a cute little bio about the buyer’s family, what they like about the house, and their plans moving forward after they’ve completed the purchase. Some even include pictures of the buyers.
If you are like me, you might start to question the ethical validity of something like this. Sure, for the heteronormative, cis couple with an adorable child and golden retriever, this sounds like a wonderful tactic. But what if you are a gay, childless couple? A single woman? What if you are a gender nonconforming person trying to compete for the same house?
I have had gay and straight couples write letters, and there are times where a seller has loved the letter and hasn’t discriminated against my clients. However, I have had letters put my clients at a disadvantage as well.
I have seen my buyers lose in a competitive situation because the seller preferred a family move in rather than a single lady. This does happen. My question is how is this allowed?
I agree that as long as this is legal, we shouldn’t tell our buyers that they cant submit a letter to a seller. I have had clients write up some well thought out letters, focusing on the house and their plans, more than their personality and marital status. I have had clients submit the cute family photo, with no malice or ill will intended. I just can’t help but think of my clients who are scared that the seller won’t want to cooperate with them if they find out their identity. I have had gay clients worried about the seller being at the inspection and not liking that they are LGBTQ. There are concerns that some have to carry that others do not.
Some people may argue that the seller can’t break a contract because of these things, but they sure can make it difficult and discourage a smooth transaction; for example, not cooperating on needed repairs, or not allowing an extension of the closing date because of appraisal issues.
In some circumstances, a letter can backfire. What if the buyer writes about how much they love animals, and how they are looking forward to moving in with their three kitties, and the seller doesn’t like cats? Sometimes these details can be more detrimental than beneficial to the buyer’s competitiveness.
I don’t think people who write letters are doing a bad thing. I do however think that the letters inherently encourage bias, prejudices and favoritism based on factors that dance on the line of ethics in fair housing.
You have the Redfin and Zillow App, and your financing terms are set and ready to go.
Why get a Realtor?
There are numerous benefits that come from having a buyer’s agent!
First off, buying a house is complicated and can be overwhelming.
A buyer’s agent can keep you organized and be there to answer all of your questions through the entire process. We can let you know what to expect and anticipate problems that may occur along the way. We can usually gage how big of an issue something is and let you know which problems are an easy fix.
It costs you nothing!
Many people do not know that having a buyer’s agent costs you nothing. The owner of the home has already negotiated the commissions for both the listing agent (the person representing the seller) and the buyer’s agent. That means the seller pays both the listing and selling agent. It is in the buyer’s best interest to have their own agent representing only them! If you want someone to only owe you the duty of confidentiality and work just for you, you need your own agent.
We are a nexus of resources.
We realtors are in the trenches everyday working with home inspectors, lenders, title and escrow officers and fellow realtors. A realtor has many contacts that they trust and know they can rely on. This means you spend less time searching and filtering through the internet for contacts and let us refer you to people you can count on.
You already have a job!
When you add up all of the phone calls, scheduling, paper work and other tasks in a typical sale, the time adds up! Having a FULL TIME buyer’s agent allows you to focus on calling the shots and making those hard decisions, while we carry out the action steps and solve problems. It can be difficult for buyers to touch base with the other parties involved in a transaction on their own, especially those who work traditional work hours. If you have a real estate agent, you can have them facilitate the transaction while you are at work or enjoying your time off. We make all of those phone calls, appointments and manage your files for you. One less thing for you to worry about!
You make the decisions, but we advise and support you along the way.
Although you ultimately make the final decisions, buying a home can be emotional. You invest a ton of energy into finding the right place and naturally develop strong feelings around the purchase. A buyer’s agent that is trustworthy, empathetic, and who has your best interest in mind understands this and has your back! They will make you aware of your options in any given circumstance (and if they don’t know they will find out or direct you to someone who does!) and will help you figure out what the best decision is for you. An ethical realtor will not try to close you despite it not being in your best interest.
One thing that the apps don’t have?
The apps can show you what a house looks like and how much it costs. However, it won’t tell you where the best places to get coffee with friends are, which bars make the best cocktails, or where you can go for community and fun. You need a neighborhood specialist. Realtors are working and playing in their communities and if they are doing it right, building relationships with its members. Nothing beats having a person you can strategize and celebrate with and lean on during the hard times. You don’t get those things from an app.
Pick an agent who you like, trust, and who you know is competent. Whether your friend has used them in the past and can vouch for them, they have great reviews online, or you interview a few upfront and ask questions about the process! Check out my blog post about what Real estate agents do all day, here!