Top 10 Reasons to Use a Realtor when Building a New House

Top 10 Reasons to Use a Realtor when Building a New House

1. Who is Representing You? The builder represents themselves and their contracts are filled with fine print signing many of your rights away disguised as arbitration. Realtors are licensed Real Estate agents and the builder’s representatives are not licensed. Their contracts detail that you are not relying on anything that you’ve been told; everything must be in writing. You know that vacant lot next door? The one the builder said is for a future elementary school? It’s actually going to be a commercial building. Your Realtor relies on nothing the builder states or promises and is on top of his/her research. The builder said your child will go to the local elementary school, but the school district is actually busing kids to a school much further away due to maximum capacity of the local school. Your Realtor has already discovered this through research. Trust, but verify.
2. Leverage and Negotiation.  If you’re a buyer and you attempt to work with a builder you represent one deal. All you have to offer the builder is ‘one deal’. But if you’re represented by a Realtor you’re likely to get a better deal. Most builders’ homes are sold by Realtors and they are a great source for buyers. Builders do all they can to entice Realtors to bring them buyers. As a buyer you’re ‘one fish’ to the builder. A Realtor, however is a fisherman and is a valuable resource for the builder. A builder will do all they can to work with the Realtor’s clients because they want more of the Realtor’s business.
3. Experience Counts! Realtors have represented many buyers and have negotiated with builders. They are aware of their contracts and can point out any red flags upfront. They’ll assist you with mandatory target dates in the contract (pre-approval through lender, etc.) and will guide you through every step of the process. Realtors can help you on upgrades you might consider. If you upgrade the carpeting, then you could be paying more than double the actual costs because of the mark-ups. Realtors can help you to focus on the structural features which are harder to install later; walls, closets, cabinets, etc. Realtors can help you with a good lot selection; quiet and less traveled street location, orientation of the house to assist with efficiency, etc. A good Realtor will offer assistance from beginning to end.
4. A Middle Person. Issues will arise. I’ve had builders miss important features such as cabinet location, misplace a door, forget about coach lights, install the wrong fixtures, etc. A Realtor knows the hierarchy of a builder’s corporation and can get items resolved. Many times a builder will be too far into the process and try to bully you into accepting the issue. Having a Realtor as a middle person helps. Sometimes a Realtor can resolve it with a simple email or phone call. Sometimes they have to ‘bulldog’ the matter and get resolve. A Realtor is always working for you.
5. Builder Tie-ins. Builders are notorious for making discounts and perks conditional on you using their lender and/or title company. A good Realtor will minimize the tie-ins or give you ‘outs’ if the lender isn’t competitive.
6. The Red-Line Meeting. You’ve made all your selections for the house. You’ve picked out the lot and you’ve chosen which side the garage will face. It’s time to meet with the builder and verify all options selected, determine where every outlet will be located, inspect the blueprints and verify what you’re building. A good Realtor is an extra set of experienced ‘eyes’ which will ensure you’ve not missed a detail and will assist with your last chance to include vital selections to the house. Is the house zoned properly with the HVAC to maximize efficiency? Did they include that second sink in the upstairs bathroom? Is the back porch stubbed with a gas line for the grill? Is there insulation between the media room and game room? So many details and this is the most important meeting with the builder.
7. Walk-Through Meetings. It’s critical a Realtor is with you at the first meeting, the slab pour, the framed pre-sheetrock meeting, and the final walk-through. This experienced set of ‘eyes’ has been through many homes and can assist you with features you might miss. The best advice you can receive is to hire a licensed inspector to ensure all components of the house are installed correctly. You don’t want to rely on a city inspector because they sometimes are lax when completing an inspection. You want someone on your side at all times.
8. Assisting with Financing Options. Unless you’re paying cash you’ll need assistance with all of your lender choices. Comparing fee worksheets between different lenders can be like reading computer code. It’s imperative you breakdown each fee worksheet and make it an apples-to-apples comparison. One lender might be charging one point and a higher document preparation fee while another might not be charging any points, but has a higher interest rate. You might be considering a 30-year note with an 80% LTV or an 80-10-10. There are so many options available to you and a good and experienced Realtor can lend critical guidance.
9. Closing. You started this process over six to eight months ago and it’s finally here. Did the builder complete the final walk-through items you pointed out? Is all the paperwork at the title company and is it correct? Your Realtor will help you celebrate the day by attending your closing and having already reviewed your paperwork to ensure there are no surprises. They’ll assist you with getting the keys and help welcome you into your new house.
10. Post-Closing. A good Realtor continues their relationship post-closing. They’ll remind you to file for your homestead (Texas, Florida, & other homestead states), assist you with tax assessment appeals, and if a warranty issue arises and the builder is reluctant to resolve the Realtor has the ultimate leverage on your behalf. Remember, he/she is a source of business for the builder.

You should never work with a builder without a Realtor by your side. A buyer might purchase five to ten homes over a lifetime but a Realtor might deal with twenty to thirty+ homes per year. Having that type of experience by your side is invaluable. 

James DeLaGarza

Real Estate Broker

B.B.A., Real Estate Finance, Texas Tech University

972-390-2000

Fire the Landlord!

Does your landlord give you a gift each Christmas or send you Birthday cards? Why not? Does he send you ‘thank you’ notes each time he makes a car payment or send a kid off to college? Don’t you think he should? You’re paying down his mortgage and you’re giving him money each and every month. You might as well get deposit slips and make a trip for him each and every month.

It’s time you start investing in yourself. It’s time you Fire the Landlord! I’ve sold homes for nearly twenty-two years and I’ve seen people purchase houses and invest in rental properties. I’ve also seen people rent for years at a time. I own and manage properties for some tenants who have lived in a rental house for over ten years. If you’re a landlord you love these types of tenants. They are paying down your mortgage and creating cash-flow.

How do you Fire the Landlord!? You start by saving some money each month. If you plan properly you only need to save about 4% of the price of the house. If you’re a Veteran you can purchase a house with no money down. I’ve seen some people get a ‘gift’ from a mom and dad and make their dream come true. I’ve also seen people borrow from their 401k to purchase a house.

When you own a house you are paying down the mortgage each month, probably enjoying appreciation in value, and you’re writing off the taxes and interest against your taxable income. If you’re an investor you’re also writing off depreciation. So let’s look at an example I have seen personally.

I purchased one of my rentals in 2006 for $75,000 and rented it for $950 per month. My total payment to the bank is $705. That’s a profit of $245 per month and I’ve seen the house value climb to over $115,000. I’ve realized a net value increase of over $40,000 and have made about $20,500 in net rental income over that time period. Rents have increased to over $1,150 per month thanks to the tougher requirements to get a loan and more people moving into the area (pushing prices upward). Due to a few property tax increases the payment is now $725. Why couldn’t the tenant do that for himself?

There are only a few reasons why someone should rent. The first is you are saving for a down payment and you’re improving your credit situation. The second is because you’re not sure that you’ll live in the area for more than three years. Another reason is because the market values are in a period of decline. You can consult an experienced Real Estate Agent for advice.

In the above example, if the tenant had invested 3.5% down on the property and purchased it in 2006, their payment would have been about $650 (investors pay a higher rate), $300 lower than the prevailing rent. That’s a forced savings account deposit of $300 per month! Each year they would have been saving $3,600. That $3,600 could have paid for a nice car or could have been invested. And if the interest and taxes on the note would have been higher than their IRS deduction that $650 mortgage payment would have really been around $550 per month because of the tax breaks. They didn’t Fire the Landlord! They chose to give this money to the landlord. They chose to pay $950 in rent, live there for multiple years and now the rent is higher ($1,150) and the landlord now has an investment that is worth $115,000 and his mortgage balance has gone down to $68,000. If the tenant had invested in themselves and purchased the house they would have enjoyed a profit of $47,000 (current value minus current mortgage balance) and would have saved or invested over $3,600 per year. Over six and one-half years that’s over $23,400. Combine the $23,400 with the current equity of $47,000 and you get $70,400. If you’re there over six and one-half years, that’s over 78 months of paying rent. $70,400 divided by 78 is $902.56 which would have been the realized investment value. That equates to getting paid $252.56 per month to live there. If I told you that I wanted you to live on 123 American Way, Allen, Texas and I’d pay you $252.56 per month, wouldn’t you jump on that opportunity?

Let me give you another example with a twist. Let’s imagine you purchased that same property in 2006 for $75,000 but the value went down to $70,000; the market was horrible for a few years and it’s just now climbing back up. Your mortgage balance is $68,000 so you have $2,000 equity but you still paid $300 less per month because the rents for similar houses was $950. You still realized a benefit of over $3,600 per year! That’s $23,400 over the 78 month time period. That equates to a mortgage payment of $350 per month ($650 payment minus the realized savings per month).  If I told you that I wanted you to live on 123 American Way, Allen, Texas and all you had to do was pay $350 per month wouldn’t you jump on that opportunity?

It’s time to Fire the Landlord! It’s time you invest in yourself!

James DeLaGarza, B.B.A, Real Estate Finance

Licensed Real Estate Agent since 1992

972-390-2000

The Dreaded Repair Negotiations

The Dreaded Repair Negotiations

It’s so exciting to get a contract and start the plans for moving! Final price negotiations have been completed, the closing date is set, and now you can call the movers. But wait! You still have the inspection.

In Texas, sales contracts are very buyer protective. There are many clauses which give buyers an ‘out’. Paragraph 4 mandates that the property must meet the lender guidelines...vague! The buyer needs to qualify for the loan. The house must appraise. Title work must be completed and discover no hindrances to funding. The list goes on and on but let’s just focus on repairs. Repairs can be very sticky issue but is an integral part of negotiations.

Prior to 1997, we, as agents, would set a limit in the contract as to the amount of costs the sellers would incur. For instance, a repair limit could be set at $1,000. That was a horrible setup because if you discovered that an A/C needed to be replaced you could have a reluctant seller and a deal could turn sour quickly. Most of the time I’d get an inspection report full of so many minor items that they’d be repairing everything to utilize every bit of the repair amount. A compromise needed to come about and the ‘option’ period was created.

The option period is also known as the ‘inspection phase’. It’s a period of time pre-negotiated, typically 7 to 10 days, which gives the buyer the unrestricted right to terminate and protect their earnest money. Option money, credited back to the buyer at closing, is anywhere from $50 to $200. This allows the buyer to inspect the property and potentially negotiate repairs. Granted, per the contract, the buyer can inspect the property at anytime with notice but it’s best to do it during the option period. That’s when their leverage is greatest to get repairs agreed upon.

Both the seller and buyer have leverage during the option period. If the buyer is too demanding, the seller can take his chances on getting another buyer (good in a hot market). For the buyer he/she can back out of the contract if the house is in need of too many repairs.

Let’s focus on the sellers. They are excited! They have their house under contract and they are planning the big move. In fact, they’ve already picked out the next house. Then the inspection comes in and there is a long list of repairs. My counsel to the sellers depends on the market conditions, how long the house was on the market, and if I have another buyer waiting. For the most part I like to keep it as a win-win situation.

My common advice is as follows: if the requested repairs are repairs which could affect the sale of the property to the next buyer, then its best to complete the repairs and close the current contract. I focus on the larger items and always remind the buyers to keep things in perspective; you’re buying a pre-owned house and it will need maintenance.

Congratulations on your contract but get past the option period; the inspection phase. Then you can start making your plans. There are so many steps involved with selling a house. A good agent can guide you from start to finish.

James DeLaGarza

Real Estate 101: Why Isn’t My House Selling?

Real Estate 101: Why Isn’t My House Selling?: There are four factors which determine how fast a house will sell. Each factor plays an integral part in the role of selling; some you can ...

Why Isn’t My House Selling?

There are four factors which determine how fast a house will sell. Each factor plays an integral part in the role of selling; some you can control and others you can’t. With today’s technology, the advertising of a house through a Realtor’s local multiple listing service is a fixed constant and a surefire given that the house will receive maximum exposure. Let’s explore the four factors and answer the question of ‘Why isn’t my house selling?’

The four factors are price, condition, location, and economic conditions. When pricing a house, a good Real Estate agent will take into consideration the condition of a home, the location, and how the overall market is performing.  Pricing is easily the most influential factor, but often the one that most sellers will resist changing. When pricing a house for sale it’s not a matter of ‘if’ the house will sell but ‘when’. Pricing a house in relation to other houses in the area without any consideration for the condition of the home or location positions your house to be priced too high or to ‘leave money on the table’ (selling too low).

The condition factor is sometimes easy or the most difficult to manipulate. Let me share an example. When studying like-sized and comparable homes with regards to amenities, upgrades, and location you can easily assume that ‘House A’ should be the same price of ‘House B’. But if ‘House A’ is lacking exterior paint, has a colorful interior appealing to a lesser percentage of buyers, lacks upkeep, needs updating, etc. then a seller must either price it lower than ‘House B’ or improve the condition. Sometimes there are too many items to take care of so a combination of some repairs and a lower price will be required. Years ago, I was working with a couple whose dining room was located directly off the foyer and the first room visitors would see. It was pink and they commented, “If someone can’t see that a can of paint can easily change that then this isn’t the house for them.” They refused my advice and put the house on the market. The house sat on the market for over two months attracting lots of showings but not a single offer. Feedback from Realtors and buyers was consistent, “The house was hideous because of the paint color.” I told them they needed to reduce the price, offer a paint allowance (same as lowering price), or paint the room. Within one week of painting, they received two offers and closed quickly.

Location is singly the most important factor with regards to pricing. Location is literally what defines Real Estate. It seems every major metropolitan area has a neighborhood that is prime above others. Sometimes the location is so valued it even allows one to tear down the existing house and erect a new custom home. Developers and builders recognize this important factor of location when selling their houses. If the new development borders a busy street they’ll put deeper lots at the busy street to create a compensating factor. Most of their buyers would prefer an interior lot but some will want the deeper lot and accept the nosier location. A cul-de-sac location with a nice pie-shaped yard will be sold at a premium. Let me share an example. Years ago I was selling a house for a church friend. He had purchased the house from a builder three years prior and it sat directly next a fire station and was on a busy street. I asked my client/friend, “How much did the builder discount this house when you purchased?” He quickly responded, “We got it at a steal! They took off 15k!” I analyzed the market prices for the area and determined that liked-sized houses with similar finish-outs had appreciated about $50,000 since he purchased. He was ecstatic. However, I had to give him my professional opinion based on education and experience and shared with him the following, “Since there is decent amount of available homes comparable to yours we need to price yours at about 10 to 12k lower than the others.” He was not happy. I explained to him that he had an inferior location, the very reason why he got a steep discount when he purchased. Against my advice he listed it at the comparable price to other like-sized homes, with no consideration for the inferior location, and it sat on the market for over six months. Throughout that time period he refused to lower his price and became increasingly frustrated. When he would ask, “Why isn’t my house selling?” I’d respond with the same answer, “You have an inferior location and need to be competitive.” He listed it with someone else and it took another year to sale. Sometimes an improving market can catch up to your price. Location matters!

Throughout history Real Estate has been cyclical with rising prices followed by lowering prices. Recessions and boom markets happen. Years ago, I was working with a client and the analysis I shared with her was thorough and detailed. I explained that we were in a declining market and needed to price her house just ahead of the declining curve. So although the comparable homes were showing a price of $380,000 I explained that we needed to list it at $370,000. She was alarmed and after some discussion, some of which was an agreement to lower the price after 30 days, she listed the house and enjoyed an above-average amount of showings but no offers. After 30 days the amount of showings influenced her not to reduce the price. After five months on the market she said, “There are more houses on the market and it appears the prices are coming down a little...and I need this house sold.” I gave her some depressing news. I explained to her that the market had turned even further downward and she needed to list it at $359,900 if she was going to employ the strategy of staying ahead of the curve. She refused and ended up a market casualty. She had to lease the house and I ended up marketing and selling her house about eight years later.

Interest rates are low and inventory conditions have been tight in the recent year. Early in the Spring I was seeing houses list and then sell within hours. Some were getting multiple offers, most above the list price. Most agents in my market were not staying ahead of the curve and pricing the house high enough. Experience, knowledge, and good analytical skills matter and a good agent and/or a savvy seller must take into consideration the four factors which determine how fast a house will sell. The question of “why isn’t my house selling?” can easily be answered by factoring price, condition, location, and the current economic conditions. Price the house right. If you have some deficiencies with the condition either make some changes or price to reflect the deficiencies. If you have an inferior location with no compensating factors then you need to make a price concession. What kind of inventory of homes are you competing against? Price the house accordingly and constantly analyze and review the market. Don’t be a market casualty or leave money on the table. Be informed and maximize your sales price.

James DeLaGarza

972-390-2000

Real Estate 101: The Power of Real Estate Leverage

Real Estate 101: The Power of Real Estate Leverage: Many times we hear that a personal home isn’t an investment. However, it’s probably the largest transaction a person will ever endeavor. Th...

The Power of Real Estate Leverage

Many times we hear that a personal home isn’t an investment. However, it’s probably the largest transaction a person will ever endeavor. The alternative is to pay someone rent and have nothing working for you. A home purchase involves the commitment of upfront money so it is an investment; one that should be carefully researched and planned. Let me describe for you the power of Real Estate leverage.

Leverage is defined as using something to gain maximum advantage. From our physics class we remember the classic example of a lever being used to move a large rock or boulder. The lever would be placed under and against a rock and exertion applied downward on the lever to move the object. In Real Estate the lever is the money and the rock or boulder is the house. The amount of money you invest determines the amount of leverage you are applying for your advantage. As long as the payment is comfortable, you should always invest the least amount of money possible. The power of Real Estate leverage is buying power and buying power leads to greater wealth opportunities.

Let me break it down using an example. If you have $10,000 in the bank and you’re getting 1% rate-of-return you’re getting $100 and your account is worth $10,100 at the end of the first year. How can I use that $10,000 and maximize the advantage? If I’m looking to invest in a $100,000 house and use the $10,000 to purchase the house (down payment, closing costs, etc.) I now own a $100,000 house and a 1% increase in value makes this house worth $101,000. That $10,000 investment created a return of $1,000, a rate of 10%; ten times what a CD or savings account would pay. The $10,000 investment is the lever and the $100,000 house is the rock or boulder that I’m moving. This is the power of Real Estate leverage; leveraging a minimal investment to create maximum wealth. Which would you rather have; $10,000 making $100 over a year; or that same $10,000 leveraged into a huge $100,000 investment? You have to live somewhere so why not invest and enjoy the power of Real Estate leverage.