Tuesday, January 18, 2022

Your Home is a Hedge Against Inflation



The concern about inflation is the sustained upward movement in the overall price of goods and services while the purchasing value of money decreases.  Tangible assets like your home consistently become more valuable over time.  In inflationary periods, your home is a good investment and a hedge against inflation.

Money in the bank loses purchasing power due to inflation and the interest you may be earning is almost always less than inflation.

Home prices are going up but so is rent.  With mortgage rates near historic lows, the interest is, generally, less than the appreciation the property is enjoying.  Combine this with the leverage that occurs using borrowed funds to control an asset and your equity is most likely, growing at a faster rate than inflation.

A 90% mortgage at 3.5% for 30-years on a $400,000 home that appreciates at 4% a year will have an estimated equity of $220,000 in seven years due to appreciation and amortization.  That is a 27.5% annual rate of return on the down payment.  That is a significant hedge against a current inflation of 4%.

If a person were to put that same $40,000 in a certificate of deposit that earned 2%, it would be worth only $45,947 in seven years.  If it was invested in the stock market that earned 7% annually, the $40,000 would grow to $64,231.  The equity in the example for the home would be almost 3.5 times larger.

The assets that are considered to be good bets against inflation include some bonds, gold and other commodities and real estate.  Another distinct advantage of investing in a home is that you would be able to live there with your family and enjoy it which is not possible with bonds and commodities. 

There are certainly other considerations in a comparison like this such as maintenance, but it could be offset, at least partially, by the cost of housing being less than you would be paying for comparable rent.  And with the shortage of rental units available, the rent will certainly continue to increase annually where your housing costs are fixed with the exceptions of increases in property taxes and insurance.

Tuesday, January 11, 2022

Why is the APR higher than the interest rate?



Annual percentage rate is a calculation to accurately reflect the cost of the mortgage considering the note rate of interest, financing fees and charges based on the term of the mortgage.

Annual percentage rate, APR, calculates the interest rate and loan fees over the life of the loan expressed as a rate.  A mortgage has a quoted interest rate plus a specified number of points which may be paid at closing or rolled into the loan, in some instances.

For example, a $400,000 loan amount at 2.98% interest for 30-years with 0.7 points would have an annual percentage rate of 3.0349%.  While the mortgage rate is quoted at 2.98%, the borrower must additionally pay 0.7 points or slightly less than one percent of the amount borrowed as a fee to the lender in consideration of making the loan.

This increases the yield to the lender on what they are earning by making this loan and is expressed as the annual percentage rate for the benefit of the buyer.

Since the lender is required to include all the loan fees being charged in the APR calculation, if the seller is paying some of those fees on behalf of the buyer, the APR would not accurately reflect the cost to the buyer.

The lender is required to disclose the APR to the borrower in the Truth in Lending document referred to a TILA.  Your mortgage officer will be able to answer any specific questions regarding what is included.

Tuesday, January 4, 2022

There's more to it than you might think



There is more to selling a home than you might think.  Superficially, a person might think that it will sell itself currently because, nationally, homes for sale receive 3.6 offers and they sell within 18 days. 

Any business student can probably list the four Ps of marketing: product, price, place, and promotion.  It may appear that there isn't much to selling a home: put a price on it; photograph it; put a sign in the yard; and, put it in MLS but, on closer scrutiny, there is a lot more that the best agents provide.

Long before the home goes on the market, the agent will create a detailed value and pricing study based on similar homes in size, price, proximity, and condition.  An overpriced home will sit on the market longer than it should.  The longer it stays on the market, buyers, as well as other agents, begin to wonder if there is something wrong with it.

The agent will develop a staging and declutter plan to make the house show at its best because first impressions matter and this type of effort provides a neutral canvas for buyers to start imagining their things in the home.

The marketing plan is a comprehensive strategy to consider every aspect of selling the home with the focus being to maximize efforts to get the highest possible price, in the shortest time with the fewest unanticipated events.

The individual marketing materials need to present the home in its best light.  It begins with professional photos because today's buyers will most likely, first see the home online and if the pictures don't make the property look good, they may decide not to see it. In addition, those photos will be used on the brochures for the home and just listed announcements, as well as social media.  They are crucial.

Among the most important value the agent brings to the table is their negotiation experience.  Every phase of the sale involves negotiation and the position of third-party negotiator eliminates an uncomfortable situation for sellers having to deal directly with buyers, other agents, appraisers, inspectors, and lenders.  Your listing agent will be your champion.

The following list includes typical things that most professionals will provide.  When interviewing an agent, feel comfortable to ask questions regarding their position on these items.  Another item you might find helpful is our Sellers Guide.

 


Listing Presentation

  • Create Value/Pricing Study
  • Staging/DeClutter Plan
  • Develop Marketing Plan
  • Document Preparation

Marketing

  • Professional photos
  • Property Description
  • Lockbox
  • Sign
  • MLS & Portals
  • Flyers
  • Showings
  • Open Houses
  • Answer phones
  • Just Listed/Just Sold
  • Prospect for buyers
  • Weekly Follow-up - Seller
  • Inquiry phone calls
  • Pre-qualify buyers
  • Maintain files

Negotiations

  • Meet with buyer's agent
  • Write & Review contract
  • Net sheet
  • Present offer
  • Negotiate

Pending

  • Inspections
  • Appraiser
  • Resolve Issues
  • Review Escrow Statement
  • Track buyer' loan progress
  • Coordinate closing
  • Documents Review
  • Attend final inspection
  • Attend settlement