Rent vs Buy 2021

rent vs buy 2021
Increasing rent

Thinking of your Rent vs Buy 2021 question? Consider Quarterly Residential Vacancies and Homeownership released by the US Census (census.gov) for the third quarter of 2020 is very interesting.  First the good news is that the US homeownership rate is the highest it’s been in a decade!  The seasonally adjusted US homeownership rate of 68.2 percent recorded in the second quarter 2020, was the highest rate since 2007.  In fact, the homeownership rate hasn’t had two consecutive quarters above 67 percent since 2009.  As you remember, the homeownership rate progressively dropped through 2015 to hover in the 63 percent range, which was the lowest homeownership rate in several generations.

rent vs buy 2021
Homeownership rate 1997-2020

The story of the housing market this year has been nothing short of phenomenal.  Initially thwarted by a dismal spring market, only to rebound at a record setting pace.  Even with historically low existing home sale inventory and rising home prices, eager home buyers are actively pursuing homeownership. 

On the flip side, the second and third quarter US rental vacancy rates are the lowest since 2008.  And the mean US rental asking rent of $1,600 marks a high point as rents continue to creep higher.  Of course, homeownership rates and rental vacancies will vary significantly depending on the region and locality.  However, looking at the US averages is a good benchmark to see trends develop.

For many, comparing increasing rent versus a low interest mortgage rates makes buying a home the answer to the rent vs buy 2021 question.  A November 8, 2012 article from Realtor Magazine (Rising Rents Press More Americans to Make Big Decision; magazine.realtor) describes the renter’s plight, by saying, “Rental price expectations continue to rise and are much higher than home price expectations…” This sentiment continues to hold true.  Besides escaping rising rents, many home buyers are drawn to the touted benefits of homeownership, including increased well-being and wealth-building.

How do you know if renting or buying is better?  First, when deciding on the rent vs buy 2021 question, there are many other considerations besides rising rents.  Consider how long you intend to live in the area.  Renting is often the housing solution if you think your residence in the area is temporary. 

Next, if you don’t already have one, create a housing budget.  Besides deciding on how much rent you can afford, talk to a mortgage lender to get prequalified to further help you understand how much you can afford to pay for mortgage or rent. 

Once you have a budget of what you can afford, create an estimated renter’s and home owner’s budget to compare.  Besides the basic housing payment (rent or mortgage), there are other items that need to be taken into account and can vary depending if you rent or own.  These other items include (but not limited to) monthly utilities, insurance, and maintenance.  To help with estimating the “extras,” start by asking the landlord and/or home seller for twelve months of utility bills (Montgomery County MD requires home sellers to provide this for owner-occupied homes).  Ask your insurance agent for a quote to compare renters’ vs homeowners’ insurance. 

Home maintenance is usually forgotten and not budgeted.  Tenants typically have minimal maintenance, which is an attraction to renting.  Generally, home maintenance for owners usually includes having seasonal or annual inspections on the home’s systems (e.g., HVAC, roof, etc).  Additionally, you have to budget to repair and/or replace systems as they age. 

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/12/13/rent-vs-buy-2021/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Real Estate Agent Personality

real estate agent personality
Working with a real estate agent (infographic from keepingcurrentmatters.com)

Many home buyers and sellers don’t give much thought in choosing their real estate agent. They may decide to work with an agent after meeting once or a phone call.  But having the right agent by your side can mean the difference in having an event-free home buying or selling experience, or one that is full of pitfalls and non-communication.  Besides professional expertise and experience, is there a real estate agent personality trait that gives you an advantage?

Lee Davenport conducted a groundbreaking study comparing real estate agent personality differences (Home Sales Success and Personality Types: Is There a Connection?; Journal of Real Estate Practice and Education; 2018; Vol 21, No 1; p29-57.)  The study investigated the question whether there is a connection between successful real estate agents and their personality type.  Success was measured through lead generation (e.g., meeting new clients).  Although you might think there is a personality that is better suited for real estate, the study concluded that there wasn’t one specific personality type that correlated to real estate success.  However, he suggested that there should be further research to understand why there is no difference in the success among real estate personality types.

Back in 2014, Graham Wood wrote an article for NAR that also questioned if there was a perfect agent personality (Are You Sure Your Agents Have the Right Personality for the Job? nar.realtor; April 11, 2014).  Although the article was not a study published in a peer reviewed journal like Lee Davenport’s, it does provide food for thought and an obvious conclusion. 

Wood, like Davenport, questioned which personality dimension on the DISC test was better suited for real estate.  After testing himself, Wood believed his personality traits were not suited for a people-skills intensive field (such as real estate sales).  However, after interviewing several brokers, he learned that there is place in real estate for pretty much any personality type.  The DISC (discprofile.com) is a behavioral assessment tool that helps people be more self-aware, and increase productivity. 

What should you look for when choosing your agent?  First, make sure they are licensed in the area you intend to buy and/or sell.  I can tell you that there are agents who try to do business over state lines where they are not licensed.  It happens more than you think. 

Second, what’s their experience and expertise?  In today’s market, most agents don’t confine themselves to specific neighborhoods.  The idea of “neighborhood specialists” is antiquated.  Information is abundant to agents and consumers, and can easily be applied to any neighborhood.  You can learn more about an agent by how they handle adversity. Instead of asking about how many sales they have or neighborhood experience, ask about specific transactions where they overcame obstacles.

Other considerations include getting a referral from a friend or relative. But referrals should be vetted.  Just because your friend had a good experience with their agent, doesn’t guarantee success for you.  Sometimes agents and clients connect and work well together, and sometimes they don’t. Just in case, make sure you can walk away from your agent by ensuring your buyer or listing agreement provides for termination without a penalty.

Also, it doesn’t hurt asking the agent for a couple of references from recent clients.  You can get insight into the agent’s business by calling the references and asking about their experience with the agent. 

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/11/28/real-estate-agent-personality/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Buying Persistence

home buying persistence
How to prepare for the bidding war.

Before the health lockdowns, home sale inventory was already well below the volume to maintain a healthy housing market.  Many home owners decided to put off their spring and summer home sales this year as a result of health concerns, further reducing the available home sale inventory.  The result was that the number of home buyers competing for one home increased. Low home sale inventory continues to be an issue, and there is still a high probability of competing with other buyer offers on a home.  As a home buyer, you are probably wondering how to win the multiple offer scenario. It comes down to home buying persistence.

The obvious way to win a bidding war is to make the most attractive offer to the seller.  But that’s easier said than done.  The reality is that beating out multiple home buyer offers means you need to be organized, and go in with your best offer.  And if you lose out on the home, don’t give up. 

Get organized.

First, talk to a mortgage lender before looking at homes.  Have the loan officer review your credit and income to determine what mortgage program is best for you, and get pre-approved.  Once you’re pre-approved, you can be confident about making an offer on a home.  Your mortgage application should also be easier because you’ve already given documents to the loan officer.  But the most important reason for a pre-approval is for the seller to feel confident with your offer.

When the seller reviews multiple offers, they usually rank offers with contingencies lower than the non-contingent offers.  Rather than foregoing the home inspection, consider having a pre-offer home inspection.  The pre-offer inspection will allow you to determine the condition of the home so your offer will be more attractive to the seller. 

As a home buyer, you should try to gain some insight into what the seller wants .  You may think that the seller just wants the highest price.  But that’s not always true. In multiple offer situations, the home seller looks at all factors, including price AND terms (including deposit, closing date, contingencies, etc.). 

Should you use an escalation clause?  Maybe.  In a multiple offer situation, a clean offer is usually best.  This means making your best offer.  But if you decide to use an escalation clause, make sure you are aware of the cap (limit to price), and your escalation factor.  Make your escalation factor is worthwhile for the seller; meaning if you’re the highest price by $500 or $1,000, the seller may consider other factors in their decision.  Also make sure that your escalation is in line with the estimated appraised value.

Don’t get discouraged if you lose out in multiple offer scenarios. Stick with it and have home buying persistence. Sometimes, reassessing your home buying strategy may be warranted. And your home buying persistence may mean that you look at alternative sales.

If you’re feeling a little skittish about encountering a multiple offer scenario, or already have lost a bidding war, look for homes that have little or no home buyer competition. Besides looking at “ugly” or fixer-upper homes, you may also consider FSBO (sale by owner), bank owned homes, and auctions.  Ask your agent to canvas the neighborhood asking homeowners if they want to sell, as well as calling expired listings.

Fixer-upper homes have potential and the price can usually be negotiated. If you’re worried about the cost of renovations on fixer-uppers, talk to your loan officer about renovation loans, such as the FHA 203k.  Renovation loans provide you the funding to acquire the property, and the funds to rehab the property.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/11/13/home-buying-persistence/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Buying Strategies 2020

home buying strategies
Home Buyers (infograpic from nar.realtor)

Experts’ home sale inventory forecasts for the spring echo expectations from recent years. And in some regions, it could be a very competitive home buyer market.  Affordability is likely to be a major issue according to CoreLogic’s chief economist Frank Nothaft (Peering into the Housing and Mortgage Outlook with 20/20 Vision; corelogic.com; December 5,2019).  The CoreLogic Home Price Index predicts that 2020 home prices will increase more than they did during 2019.  Lower priced homes will likely appreciate at a much higher rate than upper bracket and luxury homes.  Buyers should have their home buying strategies in mind when looking for homes.

Many first-time home buyers may become discouraged and decide to continue renting.  However, renting is expected to be less affordable in 2020.  CoreLogic’s Single-Family Rent Index indicates that rents are increasing at double the rate of inflation.  So, although renting may seem like the default fallback, it may be the more expensive option.  A combination of increasing rent, a continuing good economy, and historically low mortgage rates are expected to be the catalyst for home buyers to get into the market.

If you’re a home buyer, the 2020 housing market outlook may sound daunting. Although you may be anticipating something akin to the Game of Thrones this spring, take heart because planning and having home buying strategies can help your home buying success.

Talk to a mortgage lender.  One of the worst feelings is finding out a seller took another offer because your offer didn’t have a financing letter.  Not identifying a lender and securing an approval letter before looking at homes is a strategic error, especially if you need to move fast on making an offer. Having awesome credit scores, a good income, and savings in the bank, means nothing to a home seller unless a mortgage professional confirms this with a mortgage approval letter. 

Work out a home buying budget.  Consult financial professionals, such as your financial planner or CPA to review income, assets, and debts to determine a realistic housing budget.  In deciding on your housing budget, consider monthly mortgage payments, HOA or condo fees, property tax, insurance, utilities, maintenance, etc.  Your loan officer can help determine a home price range based on your monthly housing budget.  Although, your home buying budget may be less than the maximum mortgage amount for which you qualify, don’t be tempted to go beyond your budget.  Sticking to your budget can help you avoid “buyer’s remorse.”  

Although the national housing market is portrayed as very competitive for home buyers, CoreLogic’s Nothaft suggests that local neighborhood markets can differ widely.  As a home buyer, keep an open mind and consider a wider home search area.  Consider all your home buying options, including new construction, and the possibility of doing an FHA 203k renovation

One of the most important home buying strategies is to choose your Realtor carefully, as not all agents are the same.  Hookup with an experienced full-time real estate agent.  Empirical research studies indicate that a seasoned, veteran agent can make a positive impact on your home purchase.  Experienced agents understand the nuances of negotiating and can make your home buying experience more efficient.  Full-time agents know the market, which is an asset during your home search.  Don’t just rely on the first agent you meet at an open house, or finding an agent on the internet.  Talk to several (or more) Realtors to determine if they’re a good fit for your goals.  Make sure the agent you hire has your best interests in mind when searching homes and negotiating. 

Original article is published at https://dankrell.com/blog/2020/01/10/home-buying-strategies-2020/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

New Home or Resale for You?

new home or resale
First time home buyers (infographic from nar.realtor)

No matter what items a home buyer has on their wish list, they are typically constrained by the home price.  As a result, the buyer is often limited in their choices.  Accordingly, buyers prioritize home features and benefits when comparing homes. Deciding between a new home or resale becomes a part of the buying process.

Nonetheless, home buyers often have a choice between a new home or resale.  Besides the allure of contemporary design and modern building materials, the benefit of new construction is the minimal maintenance during the first year of ownership.  Although many home buyers desire to buy new construction, the combination of their budget and criteria lead them to a resale home. 

A resale refers to a home that is being sold by a home owner, rather than the builder.  The average age of a resale home can vary depending on the location.  It’s not uncommon to find a resale in a new home development.  However, when resale comes to mind, most think of homes where they grew up.

Although the home buying budget is a main consideration, there are other reasons why home buyers decide to purchase a resale rather than new construction.  One of the main reasons, as stated above, is that the resale fits their criteria for price, location, size, etc.  It’s typical to get more house and yard when purchasing an older home, when compared to a new home of similar price.  Resale homes tend to be located in established neighborhoods, whereas new home developments’ amenities are often not yet completed. 

Regardless, some home buyers are attracted to older homes.  It seems as if there is a correlation between a home’s age and the charm it exudes.  The older the home, the more likely a home buyer is captivated by its charm.  When explaining a home’s “charm,” buyers usually describe a combination of style and craftsmanship.  They often refer to the saying “they don’t build them the way they used to.” 

Although most home buyers want a turn-key home, some buyers find opportunity in older homes that are in need of repair or updating.  These buyers feel they can create a home that meets their needs and lifestyle without breaking their budget. 

When buying a resale, don’t expect the home to be perfect, even if the home is relatively new or has been renovated.  There is no getting around the fact that living in a home promotes wear-and-tear.  Consider that a home is made of many components each having a limited life span.  Regular maintenance can prolong a home’s life.  However, you will eventually have to replace components and systems. 

Resale homes are not maintenance free, and deferring maintenance creates costlier repairs.  Experts recommend that you have a repair budget.  You shouldn’t just budget for regular maintenance and repairs, you should also budget for future updating.  Ask your agent about a home warranty that can help you with repairs on a fixed service-call fee.  Get a thorough home inspection.  Home building has changed dramatically over the last one-hundred years, so make sure you hire a licensed inspector that is knowledgeable with the engineering and materials in your home.  (Keep in mind that home inspectors are not perfect, so there may be a chance of finding conditions that eluded the inspection.)  Even if the home appears to be in good condition, the inspection is likely to find items in need of repair.  You and your agent can decide on the best negotiating strategy of inspection repairs. 

Original article is published at https://dankrell.com/blog/2019/12/15/new-home-or-resale-for-you/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.