Secrets to Winning Your First Home Offer!

Transcription

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Wayne: What I'm seeing here in Redding is there's a lot of new employment that is coming to town out at the industrial park, the airport, you have Bethel Church, they're doubling in size, and then we have.

Pete: Yeah, Win-River is doing a hospital, I think.

Wayne: They're doing a hospital, 190 million hospital, and then you also have Dignity Health, they're have to build their campus. So we're have to see an influx of people and it's already started coming into Redding. The other thing that I'm seeing as a realtor is we're seeing a lot of elderly people that live in that outlining area and there's two factors. Number one, fire insurance has gone up through the roof, everybody knows about that, that's nothing new. The thing that we're seeing is they are coming to Redding for medical, and so they're driving.

Pete: Oh, wow.

Wayne: Here for their medical appointments.

Pete: Because we have good medical, so they need to live closer to the hospital, that's what you're saying?

Wayne: Yes, that's the point is they're moving closer and they're cashing out. I'm talking to like Burney Fall River Mills.

Pete: I see, yeah.

Wayne: The real outlining areas or even, Weaverville. All these outlining areas, now they're coming to Redding. Where before they just come for an appointment, it's the traditionalists and the baby boomers that's what we're seeing, and they're coming in with cash.

Pete: In this episode, we're have to talk about real estate, and in particular, we're have to talk about how first time home buyers can really win that offer and I have a really, really special guest here today. His name is Wayne Martin, he's been a broker here in Redding, California for over 25 years and it's really, really special to have him, he's so knowledgeable and you really want to hear what he has to say. Thank you so much for joining. So you are Real Estate One now.

Wayne: Yeah.

Pete: Yeah, that's awesome.

Wayne: We just changed over this last month, and now we're back to real estate one. It's been a good move for us.

Pete: You were a Real Estate One when?

Wayne: 11 years ago. We were Real Estate One for 12 years and then when technology was really an issue, we went with Windermere great company, no problems with them. The reality is technology for a real estate brokerage has really changed to the point it's very affordable, and we don't need a big big.

Pete: I see.

Wayne: Franchise to support that now. So we went back to our roots.

Pete: Nice.

Wayne: And a lot of our past clients remember us as Real Estate One.

Pete: Real Estate One, that's cool.

Wayne: Happy to serve.

Pete: Yeah, that's awesome. Well, Wayne we did this a couple months ago, we were talking about the market.

Wayne: Yes.

Pete: And, Wayne Martin. So you have been in Redding now for how long? For?

Wayne: Well, I grew up here moved away, '81 moved back in 2003, I just couldn't stay away from.

Pete: '03, 2003?

Wayne: 2003, so it's been.

Pete: That's when I got in the mortgage business.

Wayne: Yeah, I remember your cute little face back then, 20 years ago, we've been doing business a long time.

Pete: Yeah, long time.

Wayne: Because, we were Real Estate One when you popped by our office for the first time that we met.

Pete: Yeah. And you guys were working all the Fannie Mae properties, foreclosures, and you had the Fannie Mae accounts.

Wayne: We had the big, foreclosure accounts. We were the biggest brokerage, Freddy and I we had all the big, big, big accounts in the four counties, and so we churned and burned a lot of bank property and it was tough times for people that were losing their homes. But the people that invested, wow, a landslide of profit over the years.

Pete: Oh, big time.

Wayne: Big time.

Pete: Yeah, I should have bought 10 houses.

Wayne: Yes, all of us, except I was working like my hair was on fire, just trying to handle all the foreclosures.

Pete: Would you do it again?

Wayne: Probably not no. Looking back, I would rather represent buyers getting in investing in the time, if that happened again, we'd see interest rates go through the floor. But that's not have to happen, so it's a great time to talk about what I'm seeing in the marketplace.

Pete: Yeah, love it.

Wayne: As far as Real Estate's concerned. So what's happened is there's been a lack of inventory because when rates went down, they went down to 3%, it was like ReFi Venus, everybody refied. So, at the same time, there was a lot of buying going on, a lot of people bought, I created a Seller's market and prices went through the roof. It's like we went 20. We gained. If you owned real estate, your real estate went up about 20% in three to four years, it was just insane. And then all of a sudden interest rates changed, about a year or so ago.

Pete: Yeah. Two years ago, roughly.

Wayne: Two years ago, yeah. So, what happened is everybody that has those 3% rates are not moving because now, the payments have doubled because they're, 7% or 6.5% whatever it is at this moment. So we've seen a restriction of inventory. But at the same time, we've had buyers move in. So between having a restriction of homes to sell, but buyers moving in and willing to buy, it's created a market that actually I think in the next, year is have to appreciate, we're just starting to see it now. It kind of went backwards a little bit, that your house would roll back about $5,000, $10,000, but then really in the last month.

Pete: Yeah, so it wasn't really like, it was just kind of stand steady, stand steady.

Wayne: Yeah, if you look at the statistics, looking at the sales trend report 2023, the average home price was $421,269. This year so far it's $421,990. So you can see that it's just kind of hovered prior like 2022 it was $428,800, and so it was a little bit higher.

Pete: In 2022, yeah.

Wayne: Yeah '22. So, what I'm seeing is there's pent up demand, because everybody was waiting for the rates to come down, well they're not coming down. At least not, I don't have a crystal ball, who knows when rates will come down, but they're not have to probably come down a lot. What's your thoughts on that?

Pete: Yeah, I agree. They could swing maybe half to a percent, potentially they could get in the sixes, but I don't see them like dropping down to the fours or threes.

Wayne: No.

Pete: And the reason why I say that is because for them to get down there, the government would have to buy our mortgage debt, they would have to step in and start buying our mortgage backed securities. And that's what they did from 2008 and '09 all the way up through COVID, they would turn on this quantitative easing. A lot of people don't know what.

Wayne: That means.

Pete: This QE means, what that means. All it means is all the mortgages that are done out there, they get securitized, Fannie Mae buys them, they buy 100% of all the mortgage, Fannie Mae and Freddie Mac. Then someone has to buy it from them because it's not an unlimited supply of money. So we all buy mortgage debt and our 401 [k] s and our pensions, banks buy them. Big banks buy mortgage debt. Well, the government was buying mortgage backed securities, and it was like a bull run, it was a bull run for mortgage backed securities. Anyone that was buying those was making a ton of money, because if you bought a mortgage bond, let's say back in 2000, let's say you bought a mortgage bond in 2008-ish 2007 at a 7% rate. Well, over time that was a 30 year bond that you bought. Well over time that appreciated because rates got down to the 3% right?

Wayne: Right. It was very valuable.

Pete: It was very valuable. So the balance sheets of these banks that were buying these bonds, the value of them were going up and up and up, and I don't know why I got on this topic, but.

Wayne: Yes.

Pete: You asked me if rates are have to come down, I think rates are have to come down if the government steps into buying 'em. Now, the natural market for many, many years, the reason why rates would go up and down is how many. Who bought our bonds and how much were they buying. So like China, for example was the majority buyer of our mortgage backed securities, and that's how rates could go up or down China, India, Japan, they were all buying our mortgage debt, and so that's how it happened. Well we started buying our own debt, which basically means that they would borrow the money, they would print money essentially and then buy our mortgage debt with it and put it on their balance sheet. Well, that's how rates stayed low and so if you go back before they were doing that rates were around 6% and 7%.

Wayne: Right. Well, if you look at a chart, I looked at a chart, a 50 year chart, the average rate over a 50 year period was 8%.

Pete: 8% yeah.

Wayne: 8%, and I've been in the business so long that, since '79 that rates were four. They were probably around 8%, 9% there was deregulation of the SNLs and. Anyway, rates went to 18% and then around, '96, '97, they started coming down, they were coming down, but it really kind of turned the economy around, but it was a long time.

Pete: Yeah, and with the government I think they got addicted to this, because the addiction is, Hey, we will just fix this really quick and buy mortgage backed securities.

Wayne: Yes.

Pete: Bring rates down, stimulate the economy.

Wayne: Well, we really needed to, because Wall Street, basically.

Pete: Yeah, they.

Wayne: They messed up, let's be honest, they got greedy, everybody's buying mortgage backed securities, and they were leveraged through the max, and then it all tanked. That's why we had 2008.

Pete: Yeah. They had to figure that out for sure and they figured out it worked well, it worked actually really well.

Wayne: It worked out well. But anyway. But that brings us it seems like that was a long time ago, but we've been paying for it ever since. And the other thing that's happened in the real estate world, many, many, many years ago, and it probably goes back, I would say even as far back as the mid '80s when they changed tax laws on apartment dwellings and the way you wrote things off. We've known there was have to be a housing crisis of lack of inventory, we've known this for so long. Because houses have become more expensive, the buyer's taste their. We've talked about this before. My parents would buy a two bedroom, one bath and carport, single pane windows, no air conditioning, maybe a swamp cooler was an upgrade, but you could get in a house really cheap, those days are gone, if you want to buy a new house now, what are we talking, $400, $450, maybe $475.

Pete: What's the payment on that? It's more the payment that they're looking at not necessarily.

Wayne: So what would the payment being? $2800?

Pete: Yes, so if you want to. Well, if you want buy for $300,000 payment's, 2,500 bucks.

Wayne: Right, there you go.

Pete: $350, you're looking at $3000, $400, 3500 bucks ish about $500 for every $50,000.

Wayne: With what kind of down payment.

Pete: First time home buyers, they get in 100%, that's 100% financing, so that's not.

Wayne: Yeah, that's 100%.

Pete: So that's not putting any money down, those payments. But there's a lot of first time home buyers, there's many, many first time home buyers that want to buy and they're not buying yet. In Shasta County, there's a statistic. You can actually find out based on the average home ownership, and you know that there's a statistic out there that out of all of our population, how many people own a home here? How many homeowners are there? And this is statistic has been pretty consistent over time. So I think in Shasta County, I'll put up the thing for the video, but it's, I think our percentage of home ownership is about 60%. So 60% of the population are homeowners, the other 40% are renters.

Pete: And so you take that statistic and you layer that on top of how many new household formations there are. So there's a new household formation. What that means is that my daughter, let's say she turns 18, 19, she now is able to move out of the house. She's moving out of the house or a new household formation would be like a divorce situation where you have one household, now you have two households because they're moving separate. Well, new household they track this as well, so based on new household formations, there's. I don't know the exact number, but I think it was right around 2200 sorry, maybe in the 3000 household formations every single year in our county.

Wayne: In our county.

Pete: 3000 to 4,000, let's say. Well, you take that with the percentage of home ownership, and that's how many people typically need to buy a home, that makes sense?

Wayne: Okay. Well, the other thing that I'm seeing here in Redding is there's a lot of new employment that is coming to town out at the industrial park, the airport, you have Bethel Church, they're doubling in size and then we have.

Pete: Win-River doing a hospital, I think.

Wayne: They're doing a hospital, 190 million hospital, and then you also have Dignity Health, they're have to build their campus. So we're have to see an influx of people and it's already started coming into Redding, the other thing.

Pete: And that's the employment.

Wayne: Yeah, the other thing that I'm seeing as a realtor is we're seeing a lot of people, elderly people that live in that outlining area and there's two factors. Number one, fire insurance is gone up through the roof, everybody knows about that, that's nothing new. But the thing that we're seeing is they've had bigger houses, maybe they're two story, or maybe they have big yards, and the other thing that's happening is they are coming to Redding for medical, and so they're driving.

Pete: Oh, wow.

Wayne: Here for their medical appointments.

Pete: Because we have good medical.

Wayne: And if you have a couple of week, it's expensive.

Pete: Oh, you're saying they're driving and so they need to live closer to the hospital?

Wayne: Yes, that's the point.

Pete: That's what you're saying.

Wayne: They're moving closer and they're cashing out they own their homes pretty much.

Pete: They live in Cottonwood, it's a 20 minute drive, 25 minute drive, they need to be closer to.

Wayne: No, I'm talking to like Burney Fall River Mills.

Pete: I see, yeah.

Wayne: The real outlining areas or even Weaverville, all these outlining areas now they're coming to Redding. Where before they'd just come for an appointment, they're just going, I'm going to see my doctor so much, I need to be here. And then the other thing is, if I have something big happen, I may not be able to make it to the hospital. So it's kind of a weird dynamic, but it's the traditionalists and the baby boomers, that's what we're seeing, and they're coming in with cash and they're writing some healthy checks. So I think it would be good for us to really talk about the necessity for your buyer to get pre-approved or pre-qualified, but really pre-approved and to talk about some strategies about how we can get them in the house, because sometimes a competition could be really great for a great house.

Pete: Yeah, absolutely. A lot of. What are you asking, you're talking about the generation, the older generation?

Wayne: No, the younger generation.

Pete: Just the young.

Wayne: First time home buyers.

Pete: First time home buyers, yeah.

Wayne: Or maybe you're a move up buyer and you bought luckily and you have some equity, but you don't have big down payments and you're working against.

Pete: Yes.

Wayne: All cash buyers potentially.

Pete: So there's strategies out there, and my recommendation would be talk to a lender and talk to. Talk to the lender first, obviously.

Wayne: Right, obviously.

Pete: Figure out what that payment is and the lender's not have to need to pull credit, they're not have to need to do all that. I'll sit down or over the phone. I can tell you, Hey, this is what your payments looks like. Hey, this is what your down payment looks like or if any down payment first time, like within a five minute conversation, 99% of the time I could be like, okay, yeah, this is the price range they're have to be at, this is how much they're have to be able to afford based on what they're telling me.

Wayne: Right, sure.

Pete: And they can get a lot of information without spending the time to go because I think that's the big hurdle or the big thing that most buyers they don't want to come to see the lender because they gotta sit down, they gotta tell 'em all about their credit and tell 'em all about their income, all these documentation before they even get any information out of what they're thinking. So they just want the information to see before they actually get pre-qualified. Hey, does this make sense for me? What is my payment have to be? Do I qualify? Des a 640 credit score actually allow me to buy? Well, yeah, absolutely it does.

Wayne: Yes.

Pete: So all you have to do is talk to the lender, say, Hey, this would be the best conversation. Talk to your lender. You want to buy a house, call your lender. You can call me too. But like, Hey, my name is so and so, I make this much money, I work at this place, I've been there for this long, I have a car payment, I have this, what do you think my credit score is 650. I have a couple credit cards that lender that they're good. And if you call me, I'll be able to tell you right away, Hey, this is what where you're at. This is where your price range is have to be, and most of the time that price range, Wayne is have to be more than what they actually want to afford. It have to be more.

Wayne: Right. I see that. Yeah.

Pete: But that's one thing that's like step number one, talk, have a conversation. But don't be scared about talking, because a lot of people think they're have to have to just give all this information before they are have to get any information back in return.

Wayne: Right. Right. Yeah. Just getting comfortable with a payment. A good lender can explain the benefits of home ownership, which is different than renting. I mean renting for some people is important.

Pete: Yeah.

Wayne: They need to rent because they don't have money to fix a house or do do whatever. It's just too tight. They need to focus on career and not having debt. Those are the two things. The other thing too that I think is very important, I've worked with a number of people and they had poor credit. But within six months to a year they were able to buy. And the only reason they were able to buy is they got with a good lender that understood.

Pete: And told them what they needed to do.

Wayne: Exactly. Yeah. And it isn't always just paying debt off. Right?

Pete: Yeah.

Wayne: I mean, a little background on that would be.

Pete: Absolutely.

Wayne: Helpful for the audience.

Pete: Oh, for sure. So like it's not just paying down credit cards, although that is easy, that's super easy fix.

Wayne: Sure.

Pete: To get someone. But there's erroneous things that can be on the credit where, you make one phone call. I've had examples where you make one phone call and that buyer says, Hey, I'll negotiate. So like let's say you owe $1000 on a collection. And you say you call up that collection company, Hey, I'll give you 400 bucks now today. The only reason why I'm have to give you this 400 if you delete this collection from my credit.

Wayne: Period.

Pete: Yeah. And if they don't agree to that, now I'm talking deletion, there's two different things.

Wayne: Right, yeah.

Pete: Be very clear. I want to be very clear at this. A collection, they will say, Hey, yes, we will take your balance from a 1000 down to zero if you pay us 400 bucks. That's not what I'm talking about.

Wayne: Right.

Pete: What I'm talking about is they actually delete it from the credit and in other words, it's no longer there. If you pay them the $400 and they update the balance to zero, well now that's the situation where that credit score can actually go down. And the reason why is because the credit bureaus, they don't look at the actual balance of that collection. The fact that it says collection is what's hurting the credit. You could have a $20,000 collection and a $5 collection. It's have to mean the same to the credit bureaus. Because it says collection.

Wayne: Right. You gotta get that off.

Pete: Okay. That's number one. And then the second thing is that if they bring that balance down to zero, well now you just looks like a brand new collection because they updated the date. Does that make sense?

Wayne: Yes.

Pete: So what you want to do there, and this is a really good example of. This is just have them delete the credit or delete the collection instead of lowering that balance Down.

Wayne: Well. Right. And to the audience, if you're really unsure about how to go about that, you really want to talk to Pete. Or talk to your lender, but Pete's the guy really, honestly. You need somebody that really understands the nuances of credit and debt and all that to walk you through. Because it's amazing how you can rebuild your credit score. Maybe you're a 620, and you're not quite there yet, but you're getting close. Right?

Pete: Yeah, yeah.

Wayne: You can really help them go. Like, one of the things that that we do, my wife and I is we make sure in our credit card debt, it's never over 50% of the balance. We never go over that. And it's like, we've just watched over the years, our credit score just go through the roof. It's like 880 or something. It's just insane. But there's all these little tweaks that you can use to your benefit and it's like, you don't want to just cancel your credit cards.

Pete: Yeah. You definitely don't want to cancel your credit cards. You want to keep them open. The more available credit you have, the better your score can be. Like, if you cancel, let's say you have a balance of. Let's say you have a Walmart card and you have $1000 limit on it and you get upset because something happened and you're like, I'm have to cancel it. Well, you might cancel that card, but all of a sudden you no longer have available $1000. So when someone's looking at you to lend you money. If you have $1000 that you're not using, well that's better risk to them if you don't have $1000 available to borrow. In other words, Wayne if you're lending your money to me and I had no available credit. I didn't have anything and it'd be a higher risk to instead of having $1000 available that I'm not actually using.

Wayne: Right.

Pete: So you never want to cancel your credit cards. You always want keep them open.

Wayne: So what you're saying is the banker who's looking at possibly lending at you, is looking at your discipline, your fiscal.

Pete: Absolutely.

Wayne: Discipline the way you pay your bills.

Pete: Yeah.

Wayne: And if you have a lot of credit available to you and you're not using it.

Pete: Even farther than that.

Wayne: You're a better credit risk. Right?

Pete: Yeah. Correct. But it's really, that's how the credit scores work. This is the algorithm because they understand what makes a good fiscal borrower and so.

Wayne: Right. Profile.

Pete: Profile. Yes. And so it's the scores that actually look at that. In other words, the scores will say, Hey, yeah, this person has $1000 and they're not using, therefore a higher a credit score. And then obviously yeah, the bank's have to look at it too, but the scores is where the bank. The scores know the Equifax, TransUnion, Experian, they understand what lenders want to see.

Wayne: Right. Right. And so a good lender like yourself can help guide someone.

Pete: 100%. Yes.

Wayne: And it really affects interest rate too. because you're buying power.

Pete: Oh yeah. The.

Wayne: It becomes a massive thing as you do the whole get into the housing and possibly buy investments and stuff like that. Homes rentals.

Pete: Yeah.

Wayne: Understanding the stuff and have somebody guide you.

Pete: It can save you tremendously. Especially like for example, mortgage insurance. And if you not don't know what mortgage insurance is, it's an extra cost if you're putting less than 20% down. But mortgage insurance costs on a conventional loan can change based on your credit score. So like a 20 point increase or decrease could literally be an extra $100 a month on mortgage insurance. So it's very important to have that discussion.

Wayne: So Since we're talking about mortgage insurance, so on a conventional, say you have 80% or 20%.

Pete: 20% you avoid mortgage insurance.

Wayne: You have 20% down or equity. because you can go back after a period of time and recast thus.

Pete: Yes Yeah, so let's say.

Wayne: Get rid of your mortgage insurance.

Pete: Correct. Let's say you bought a house. Let's say you bought a house two, three years ago. Let's say you bought that home for $500,000. Or, sorry, let me try to get the math easy in my head. Let's say you bought that house for $300,000. And it appreciated over the last couple years to let's say 350. Now that's not quite 20%, 360 would be 20%, right?

Wayne: Correct.

Pete: So there's multiple things that you can do on a conventional loan. They allow you to get rid of that mortgage insurance after two years. You have to pay the monthly amount for two years. Now you can do a one-time fee and get rid of mortgage insurance altogether when you start the loan. Okay? So, in other words, you don't have to pay monthly on a conventional loan, you could do a one-time fee. Sometimes we structure a loan that way. So like, let's say your value's at $350, you owe $300, but you've got mortgage insurance because you bought the home for let's say $310.

Wayne: Correct.

Pete: And you owe $300, let's say. So you don't have that full 20%, but what you can do is you can refinance that home and I can include a one-time fee, mortgage insurance cost. It might be like 0.3% or something because you're really close. It might be like $800 one-time fee to actually not have mortgage insurance at all. We add that into your loan. Boom, you save on the mortgage insurance. Plus obviously we would be refinancing if rates were lower.

Wayne: So you lower your rate, get rid of mortgage insurance, boom, you're off to the races. The other thing with mortgage insurance is, let's say rates don't drop and you want to get rid of it after two years, you can get rid of it. Now, the thing is, with Fannie Mae and Freddie Mac, you have to wait at least you until you have 25% equity in the home. In other words, to get the appreciation, you have to get 25% equity instead of just 20%. Some people think it's just 20% now it's 20% if you pay down the balance from when you started on the value.

Wayne: Okay. Otherwise, it's another 5%.

Pete: You have to wait for 5% to get the appreciation.

Wayne: 5% appreciation. Got it.

Pete: So you can use the appreciation to get rid of mortgage insurance. You just have to have 25% in two years. Now you can actually get rid of the mortgage insurance if you get that 20% from the original purchase price before the two years. So that would be like if you paid down the balance of the home or if you remodeled the house.

Wayne: Okay.

Pete: So if you remodeled the home and you show that you put the money in, you can do it before the two years and you only need 20% equity. So.

Wayne: Wow.

Pete: There's some.

Wayne: There's some nuances there.

Pete: Yeah. Yeah.

Wayne: Oh, wow. Okay. I didn't know that. That's a great information.

Pete: Yeah.

Wayne: Yeah. Now I know we're kind of getting in the weeds for everybody.

Pete: No, that's good.

Wayne: But you know it's stuff.

Pete: Good content.

Wayne: Good content and stuff like that. So let's talk about first time home buyer potentially, and they're looking to get into a home. So let's talk about different strategies as. Because as a realtor, I need to work with you as a lender. I can't write you out of the deal and I really gotta know what you can do with these folks and how we can work together to massage a deal so we can beat out.

Pete: The competition.

Wayne: Possibly we might be competing with a cash offer.

Pete: Yeah. So let's look at that. So I was looking on this report, this is average sales price, but I wonder what the statistics, oh, here it is right here. So like a normal first time home buyer, the average price range that they're have to be at is.

Wayne: $300,000.

Pete: $300 to $350 maybe. First time home buyer.

Wayne: Yeah. Honestly, if you're under $300 it's a rough deal.

Pete: Well, yeah. But look at how many sales are in that range? 300 to 350.

Wayne: Okay. Yeah.

Pete: Yeah. So we're looking at $300 to $350 number sold year to date is 142. From $250 to $300, 142 sales. Am I seeing that right? Number of sold here to date May.

Wayne: So if you're between $ 250,000.

Pete: $250 and $300.

Wayne: And 300,000. Sales to date.

Pete: It's 142.

Wayne: This as of April. So we're, May we almost have the statistics out on that, but say 30 houses were sold in May, So hundred and.

Pete: So there's been thirty.

Wayne: 142 houses sold. But if you went over $300,000 to $350,000 that's 138. So there's.

Pete: So most of the buyers are in that 250 to 350 range. Is my point.

Wayne: Yeah. Yeah. So there was 280 transactions roughly according to this.

Pete: So my point to this is this, if you're a first time home buyer, you really want to understand this because you're have to have competition.

Wayne: Right?

Pete: So like, if your CA home, you love it. It's for $300,000, it's perfect neighborhood. Great price, good price.

Wayne: There's have to be competition.

Pete: There's competition for sure. So the next question is, okay, how do you set yourself apart? Let's say you have another buyer that's offering $300,000 on that $300,000 home. You offer $300,000, now what's the difference?

Wayne: Yeah. So what's the difference?

Pete: Well, there's multiple strategies, couple things. First strategy I would say is, make sure if I'm a seller selling my house and I get two offers, one for 300,000, another one for $3000, first thing I'm asking is, is it a local lender or is it a outta town lender?

Wayne: Right. I don't want to. Yeah. I'll tell you what, I just. Internet lenders, some are good, some aren't. But a lot of times they will have you get pre-qualified and get you going and they push you, push you, push you. And I just went through this and actually flip somebody to you. And they went to walk away from that lender and the lender sent them a bill of 250 bucks.

Pete: Yeah. Horrible.

Wayne: Just unbelievable. This is the other problem. The other problem with internet lender is you can't go to their office and stand on their desk.

Pete: Oh, Right.

Wayne: You don't have any recourse. You're.

Pete: That's why a listing agent's have to say, Hey, I would pick the local lender.

Wayne: Absolutely.

Pete: Yeah.

Wayne: Absolutely.

Pete: Yeah. So another way you can help with that offer is for that lender to also reach out to the listing agent.

Wayne: Correct.

Pete: Let's say they have two offers at the same price. If you're representing that seller, I call you and say, Hey Wayne, it's Pete Metz over here at Vaughn Mortgage. I have a buyer that made an offer on your property. Just wanted to give you some details and also answer any questions you may have on this buyer. Now I'm very careful I don't share any personal information, so I keep the confidentiality, but there's a point where I could say, Hey, yes, they're very well qualified. I have looked at their credit, I have looked at their income, and they do qualify, and I've run them through our automated underwriting system.

Wayne: They're golden.

Pete: They're a great buyer and that goes a very long way with a listing agent.

Wayne: Yes.

Pete: Yeah.

Wayne: Having somebody that's been in the business locally, well known with the realtors is very, very important. Because they will actually take sometimes a lower sales price. We've actually won, we've won deals that were $10,000 less.

Pete: Wow.

Wayne: Than the other offer above. Just because.

Pete: Yeah. It can go a long way.

Wayne: It goes a long way. It doesn't always happen. You don't want to just like, oh, I'm have to the bank on that one. But I've done thousands of transactions. It does happen.

Pete: Yeah.

Wayne: It does happen. I've had other lenders, I go, oh my gosh, I don't. They never close on time. They're never available. I can't get information and I'm have to pass that on to the seller and just say, Hey, I don't want to talk bad about anybody, but this has been my experience and it hasn't been good.

Pete: Of Course. Yeah.

Wayne: Yeah. That's just the way it is. Right?

Pete: Yeah, of course. Yeah. So that's another tip you can give to a first time buyer. The other thing, and this is where I'm have to share a story because it's really, really good. I've shared this story with multiple buyers recently. So, most buyers that are first time. Before they actually make the offer, Hey, I want to go look at the home. Go look at the house. Okay. Maybe they want to look at it again before they make the offer. Hey, I want to think about it. Let me think about it. Okay. Yes. I want to make the offer make two or three days later. By that time it could be gone.

Wayne: It's gone.

Pete: Or you're like six offer and there's already another offer in there. The one thing that's very important for a first time home buyer to know is when you make an offer and they accept you did not buy the house.

Wayne: Correct.

Pete: You did not buy the house at all. So I found a house, this is like 10 something years ago, and a house came on the market for $425,000. It was my dream home. You actually helped me sell this house. My dream home. And I loved the house, and I made a full price offer. Well, I learned that oh, sorry that's actually another trick. Hold on. I'm have to tell the story of how I bought my current house. So I bought it side unseen. I made the offer. I was the first offer. So the home comes on the market. I made the offer that morning. I made it immediately without going to look at the home. And what I know is that I know I didn't buy the house if they accept my offer, because I have time to now go get an inspection, I can go look at the property as many times as I want, if they accept my offer. I can get a home inspection. I can do the whole thing. Now, if I don't like the home, of course I can retract my offer. What are your thoughts on that strategy?

Wayne: It's not a bad strategy, but you gotta watch it because if I am representing the seller it's like, okay, well that's great, but you haven't seen the house, and why am I have to accept it. Now sometimes that does work. This is the advice that I want to give to first time home buyer. You want to be on the hunt with your realtor every day. Because something's have to pop up. And a good realtor, like one of the things that we do is when a house comes up, gets sold like that, but like somebody say like, you made an offer. Sight unseen. You get there and you go, oh my God, this isn't have to work for me. The layout is. I can't live with the layout. I'm here now. Well, then it comes right back on the market. Bam. We want to be on top of that.

Pete: Oh right, right, right, right.

Wayne: Right. We're the first in line, we've seen it, we know what it looks like. Or the other thing is we may put a backup offer behind your offer, so you walk away from that boom, I'm under contract now, so there's a couple different strategies there that you can do.

Pete: So the strategy would be on guard with your realtor.

Wayne: Yes.

Pete: Be ready to go home.

Wayne: Right.

Pete: Be ready to look at the home.

Wayne: Right.

Pete: Be ready to make the offer.

Wayne: Yeah, you cannot. If it's a good house, it is have to go, we just showed one last week and they sold it right out from underneath us while we're showing it and the realtor didn't tell us that they had an offer, and the seller accepted it as we were showing it, it had only been on the market like four hours, so that was very irritating.

Pete: Just making the offer getting it in that.

Wayne: Yeah. You want to get in and get in there fast. My recommendation is just work close with your realtor, always be on the internet. As realtors sometimes we get busy, we're team so there's three of us working together we're always on top of things, but if you're working with an individual they have other clients and showing appointments. So you want to be looking, looking, looking constantly, every day, and just make that part of like, get your cup of coffee, see what's out there, because it can change or in the afternoon even. Because if I have the listing, you put an offer in and you went out there and looked at and then you said, "no, I'm going to instantly put that on and it might be 1:00 o'clock."

Pete: Yeah, exactly.

Wayne: Right, so or noon or whatever. So the other thing, the way you can work your offer is you can take a look at that property and with the realtor, you can kind of determine, can you get it to appraise a little bit more over what they're asking? Not a lot, but a little bit more. Is it $1000, $2000, that can swing the deal in your favor. Sometimes they just go, I don't care if it's financing, they're with a good lender money is money, I don't care if it's cash or a loan.

Pete: What you're saying is, Hey, offer more than the list price?

Wayne: Yeah, offer a little bit more than the listing price. So sometimes, they're like "Oh, I'm not have to offer more," Well, you may not be able to replace that property, but what if you could get it for a couple thousand more? So $1000 on a 6.5% how much would that affect your payment? $6.50, 7 bucks?

Pete: Not a lot, but I love that Wayne, I love that. Because the way I explain it is if you look at the last 12 months of what home prices have appreciated.

Wayne: It's going.

Pete: It's going. So like let's say you offer $5,000 more and to get it. And let's say you've been looking for six months well, during that six month period, home price have been.

Wayne: Going up.

Pete: Going up, but if you would've made an offer $5,000 more six months ago.

Wayne: In the beginning you would've recaptured it.

Pete: You'd recaptured on two or three and so keep that mindset at the forefront of.

Wayne: Exactly.

Pete: I call it the bid-over-ask so, bidding over the ask price at what point and if we have buyers, I can provide a document that shows based on our historical market appreciation in Shasta County, at what point will they now be in the green, by bidding over ask.

Wayne: Right. So that's something you consider it all depends on what's going on in the marketplace and in that niche too sometimes, and the kind of property it is. One of the things that can help with a buyer making an offer, is you can shorten the inspection period instead of normally it's 17 days.

Pete: Oh I like that, yeah.

Wayne: After your offer is accepted, maybe you could get everything done in 10 days.

Pete: Yeah, shorten it.

Wayne: Shorten it, and because that.

Pete: Moving quicker.

Wayne: It moves quicker, it might be that you pre-qualify within 17 days instead of 21, or you get your appraisal done in 17 days, you get all the lending side of it done and then that means you can waive your contingencies, which helps the seller feel certain that you are going to buy this property. Right now it's fairly easy to get inspectors, a home inspector, a pest inspection.

Pete: Yeah, quick.

Wayne: All those, within 10 days you can normally get that done, sometimes I can get them done in less than that, just depends. But we have a big catalog of good people that we refer to our buyers if they need a referral, and so that's another strategy. The other strategy is understand the seller's needs, so maybe they need to get some cash out of the house, they might be strapped, they need their sales price, but you let them move.

Pete: Later.

Wayne: You close escrow and you let them move, you give them three to five days to move.

Pete: Yeah.

Wayne: And in the contract, it's laid out really well that they have to get out, if there was a problem. I've been doing this years and years and years, years, thousands of transactions, I've only seen one or two that would ever have a problem.

Pete: Really?

Wayne: But they always move, they don't have the tenants rights.

Pete: Yeah, I just had one of my clients, they made the offer, and that was how they got the offer, is they let the sellers stay there for another 30 days after they closed. And they were worried, like what you're saying, they were worried that what if the sellers don't move, but they ended up moving out and it was okay.

Wayne: Yeah, it's very, very, very rare that the seller does not move after a close of escrow. And it's set up that you could go into a mediation arbitration and they're out, and they get penalized, it is a big deal if the seller doesn't move.

Pete: Yeah. This.

Wayne: So, that's another way. Lemme.

Pete: Go ahead.

Wayne: Here's an even another way. Another way is because you have in most contracts, liquidated damages where your initial deposit, goes non-refundable after you've done your inspections, you're totally approved for your loan, it's appraised, you've waived all of it. So you could, if the seller needed move money, release that directly to them, you might feel like, well, that's a little risky if they don't sell, they don't sign their loan. Well, you have a contract again, it's easily enforceable, it's not necessarily, but if you're really competing and you feel you could handle that, that's another possibility.

Pete: Yeah, I like that.

Wayne: And, there's different ways to tweak it, tweak the contract. A lot of times it's just, you want to bring a lot of certainty to the transaction as a buyer ones.

Pete: To the listing agent and to the seller.

Wayne: To the listing agent, correct, correct.

Pete: Yeah, the listing agent has all the knowledge, the listing agent has all the advice for the seller, they're looking out for their seller. So you really want to make sure you impress that listing agent as well.

Wayne: Exactly. And having a good standup local lender is super important. Working with a good knowledgeable buyer's agent is very important, because there's a lot of different ways we can massage the deal depending upon the information that I would have.

Pete: What do you think about this strategy? This is the one that I was have to tell you about that and.

Wayne: Is this a secret sauce?

Pete: No, it's just a strategy that I use and I've used it before on that one and other properties, but also I talked to my buyers about this. So like most of the negotiating happens after you go into contract most of the time.

Wayne: Absolutely.

Pete: So when you're making the offer, don't try to negotiate it down, you can absolutely but the negotiation. Let's say there's multiple offers, well you can negotiate the price down if there's problems, you don't know if that roof is bad, you don't know if the heating and air is bad, you don't know if the septic.

Wayne: How much pest work.

Pete: Or pest work or any of all the inspections.

Wayne: A myriad of things.

Pete: I had a client that went into contract on a multi unit, it was a fourplex. Seller wasn't given any seller credits or reducing their price, and there was like two or three other offers, and they had a strong offer going in full ask, they got their inspections done, and there's some challenges with a few things wrong with the property, got a $14,000 seller credit.

Wayne: It happens.

Pete: And they were able to get what they originally wanted was a seller credit to keep their payment down because they wanted to do a temporary buy down a two, one buy down, and so it keeps the payment down, keep the cashflow good, that's originally what they wanted and they were a little bit bummed out but then they ended up getting it after.

Wayne: And what happens also, I'm representing a buyer, bring the buyer in, we do our inspections, and things come up. The buyer is buying the property based upon a cursory visual expecting that unless it's blatant.

Pete: Correct.

Wayne: And there's a report that they get before that says there's all these things wrong, you're buying it as like, oh, the pest works, there's not a big pest problem or the roof's have to be okay, or that the heating and air actually works, or a number of myriad of things. And when you get that report, you go, "Okay, now I have to take that on." Or they've done work without permits, now I have to decide if I'm have to buy that house, without permits of like, they enclose the patio, we see this all the time, they didn't get any permits, well, the next buyer that comes along when you go to sell that in the future could be a problem. But it might be worthwhile for you to accept that, you might just tear it off or you might live with it to get into the house. The other thing is this, for a first time home buyer, one of the things that you have to realize, unless you're renting something that's really wonderful, and paying a lot of rent you want to buy your rental, it doesn't have to be perfect right?

Pete: Yeah.

Wayne: Just get in the marketplace, because once you're in, the magic happens, then a home appreciation is working in your favor. We looked at that appreciation chart over how many year period was long period.

Pete: 81 years, yeah.

Wayne: Yeah. And what was average?

Pete: Only seven years where home prices actually went down.

Wayne: In how many years total?

Pete: 81 years.

Wayne: In 81 years, there was only seven.

Pete: Seven years, and only five of those years were in one period.

Wayne: Yeah, and that was 2008.

Pete: Right.

Wayne: So really, if you threw that out, there was only two periods.

Pete: The other two years was down 0.1% in 1990 and 1% in 1991, and that was a dot-com crash.

Wayne: Dot-com crash, yeah. So the reality is you want to get in the game. I'm not saying you should buy something that you can't afford, you don't want to buy something that's got a roof that's going bad this year, and it's have to be $15,000 or $20,000, you don't want to do that stuff. But a good realtor will help walk you through it along with the lender because there's. This is what happens, you get an inspection, and the roof's bad well, they didn't think the roof was bad. All of a sudden, that report goes to the seller, and the seller has to live with that report for the next potential buyer that comes along, you can't hide it, it's a material fact, it has to be disclosed. So the seller goes, well, bird in the bush is I don't want to start over. Usually, they don't want to start over.

Wayne: And so you work something out and do your favor.

Pete: Yeah, totally true, absolutely.

Wayne: We see that a lot. You see things with decks, wood decks are just a nightmare for a lot of people. How much did your debt cost?

Pete: More than what I would have wanted.

Wayne: More than what we're have to talk about. But you may have come across a property that has a wood deck on it, has a big bill on it but you go, "I don't need that deck. I'm not have to make it up. " It doesn't need to be 20 X 12, I can tear it off and do whatever with it, make it smaller or maybe I'll make steps down and we'll have a patio, stuff like that. So you want to be a little creative there. Understand what your budget can live with, but you want to get in the game.

Pete: Well, some people might enjoy it, I think that the Feds are mandated to create inflation if you think about that. They are mandated to make sure more money is put and bumped into the economy. Well, more money, what does that mean? Okay, what that means is that there's more money coming out and they have a 2% increase, and what that means is they're mandated where all of our prices go up 2% a year. Well, in order to do that, you have to pump money into the economy, and so you have to keep that going. That 2% comes out to higher wages, they just increased the minimum wage for restaurants to $20 an hour, minimum wage continues to go up.

Pete: So income continues to increase. And so if you think about that just for one second, renting, it means rental prices will continue to go up, and they have. Rental prices continue to. The housing cost goes up because there's simply more money out there, and so with real estate, it's the same exact situation where there's more money going in, there's more money going in, real estate goes. And so what I'm getting at is real estate is a very safe place for inflation, and that's why a lot of. If we had this inflation and a lot of people didn't own their home, it would be really, really bad. If homeownership wasn't at 60%, and let's say homeownership was at 20 or 30%, it'd be very bad.

Wayne: The economy.

Pete: For a lot of people because their rent would be going up, and their wages weren't keeping up with it, although their wages are increasing. So like in 2005, the Feds said, "hey, we need to help affordability, we need to bring more affordability back."

Wayne: Sure.

Pete: And all of that, because in 2005, 2004, if you look at a graph for affordability, it's actually worse than it is today.

Wayne: Really?

Pete: Yes.

Wayne: Wow, I didn't know that.

Pete: If you look at the affordability, and that's average purchase price to average income, this is what I'm talking about, affordability.

Wayne: Okay, so inflation and wages and earning power?

Pete: Yes, So if you look at. And so the affordability has been worse than it is today. This is why I'm optimistic that it's have to get better for affordability, it can get better. So like in 2005, and so they were pushing, we need to make homes more affordable, we need to make more homes, so they were like, okay, let's start creating. Now, they obviously went way too across the thing, made it to where there's a big real estate crash, because then everyone that had a pulse could now go buy a house, is what they did, so everyone was buying a house, not realizing that what they were buying, they couldn't afford. It's not where we're at today, but the government.

Wayne: Not even close.

Pete: Not even close, but the government. My point is this, the government understands the affordability problem.

Wayne: Correct.

Pete: And they're working on trying to fix it.

Wayne: Yes.

Pete: Now, how can they fix it? Well, we can help create wage growth.

Wayne: That's one way.

Pete: So people are have to continue to make more money. So if you want to buy a house, that mortgage payment's have to stay fixed, it's never going up, whereas the wages are have to continue to go up, right?

Wayne: Correct.

Pete: And so mortgage payment's have to get easier and easier.

Wayne: Easier.

Pete: So affordability can get better. The other way they could do it is, if we go into a recession, they can lower the rates.

Wayne: Correct.

Pete: They can buy more mortgage-backed securities, bring rates low, the other thing, they can create ways to create more affordability. And so my whole point to this whole thing is long-term real estate is good.

Wayne: It is.

Pete: Real estate is have to continue to do well.

Wayne: Well, just think about this.

Pete: It's have to hold with.

Wayne: So in 1980, I was building here in Redding, a 1,650 square-foot, three-bedroom, two-bath on West Redding, that was my bread and butter, I was a builder back then, and I had my real estate license. That house was selling for $74,000.

Pete: Yeah, it's crazy.

Wayne: So that house today.

Pete: Three something.

Wayne: Three something, high threes, definitely high threes.

Pete: Yeah. So it's.

Wayne: And so it only gets more expensive, I want to make one other point. The other point is this, because I was a developer for many, many years, built lots of houses. Anyway, permits to build a house they're not going down.

Pete: Oh yeah. It's super expensive.

Wayne: What cities and counties want in a house, whether it's a starter house or not, if it's have to be newly built, it's just more and more and more expensive. So what happens as the land prices go up, the infrastructure prices go up, water, sewer, electric, all that goes up.

Pete: Harder and harder and harder.

Wayne: It's not cheap to put in. Right now everything has to be buried where before you could go overhead, you see stuff like that. Anyway, there's all these things that go into building a home. So the new house goes way up. Well, what does that do to the other houses? It pulls them up with them right?

Pete: Yeah.

Wayne: That inflation there on a new house pulls the older house up along with it.

Pete: Other guys, yeah.

Wayne: So don't get hung up of, oh, I gotta save all this money to buy a new house, no get in the game. And the other thing that happens with the loans, as it's tougher and tougher, you'll see more zero down programs.

Pete: You mean with the affordability piece?

Wayne: With affordability piece.

Pete: Yeah, I think that we have no down payment assistance. I think that we do. I think what, they're have to try to figure it out is how people can access their equity. So like they're actually talking about this right now, Fannie, Freddie, they're talking and figuring out how they can, because the average equity position is about 50%, what that means is that on average, people only owe 50% of what the home is worth, so I think it's actually less than that.

Pete: But they're like, oh, people have so much equity, there's like trillions and trillions of dollars of access to the equity, well it's really expensive to access your equity right now, because of where rates are at. So this could be a way. So like what they're trying to figure out is, hey, can we get a product, a Fannie Mae product that allows you, if you have a Fannie Mae loan. Let's say you have a Fannie Mae loan. You wouldn't really know if you do because Fannie Mae doesn't service loans, but there's a 50/50 chance it's either Fannie Mae, Freddie Mac, or it could be Ginnie Mae, but one third chance or whatever.

Wayne: So that's not a federally insured loan?

Pete: A Fannie Mae, Freddie Mac, and Ginnie Mae, they're conservatorship of the government.

Wayne: Oh, okay.

Pete: Yeah, so like Fannie Mae or Freddie Mac is what they're saying is, if you have a Freddie Mac loan that you pay on time, they're trying to let you access your equity up to 80% of your home with very low documentation and a significantly lower potential interest rate. And so I don't think it's have to be smart, honestly, because people are have to start getting their equity out of their home, but then they have to pay it back too, they have to pay it back. But they're trying to figure out how to create more affordability with the housing, and that's one of the things they're working on. I think when it comes down to it, in order to fix it, they need wage growth. We need to help and in order to do that, you got to have competition. But I think that the affordability piece, the quick fix is getting interest rates lower, but long term, that's bad because home prices are have to continue to go up, and then we're back in the same situation.

Wayne: Oh will they drop interest rates a point in Redding, the Crater Redding area, you're going to see.

Pete: Home prices.

Wayne: Home prices go through the roof.

Pete: So that's not.

Wayne: You'll see crazy appreciation. So we don't want that actually it's okay if you own but if you're trying to get in that's not great. But this is the thing that I do know if you don't own now you need to focus on getting pre-qualified.

Pete: Yeah, getting in there.

Wayne: And understanding where you're at and then work on a game plan to get into a home and it may take a year it might take, who knows? Maybe two years. Maybe you have really crappy credit and you're over it, you're willing to do the work, but you want to pay your bills on time, you want to work diligently in your career. Get some education maybe, get higher wages, keep your debt low, don't go out and buy a new car, don't do a bunch of stupid stuff, stay away from Starbucks, pay off your debt, stop eating out as much.

Pete: Absolutely, absolutely.

Wayne: It's expensive, you go out now and a hamburger is just insane unless you're going to In-N-Out.

Pete: I know, tell me about it, that's inflation, prices are just. But that's the thing is wages have not kept, let's be real, wages have not kept up with inflation.

Wayne: No.

Pete: It has not. So let's say someone's working a 9:00 to 5:00 and they're making a wage of 20 bucks an hour. Well, I talked to customers, they've been at $16 an hour for five years, six years, their wages haven't gone up, however, the burgers are going up, everything's going up, so like what do we have to do for them? What is have to happen to the people that aren't able to afford a home and we have this inflation problem.

Wayne: Rates are have to go up.

Pete: We have this inflation problem.

Wayne: I mean, the reality is housing is not have to become more affordable.

Pete: Correct, yeah.

Wayne: You just got to get in the game, you got to get your mind right, you've got to suck it up and do what you need to do. And work with professionals that can guide you because trying to figure this out on your own or just go on the internet. I mean, you can get some information, but you need a really good game plan. And then you'll get there, you'll get there, it's not impossible.

Pete: Yep.

Wayne: And when you're in the game and then, say you bought that $300,000 house and inflation's marching along at 5%, so what would that be? How much would that house appreciate? Say it's $15,000.

Pete: Yes. Well, the payment drops now for that $500,000 at 5%, that payment's getting better by like $600, $700 a month.

Wayne: But just think about appreciation alone, so how hard would you have to work to make an extra $15,000 in one year if it went up 5%? Okay, so now it's worth $315,000, now it goes up another 5% and then another 5%.

Pete: Compounding.

Wayne: It starts compounding.

Pete: Compounding, yeah.

Wayne: So it's like.

Pete: In the balance that mortgage is going down.

Wayne: You look at the vast majority of wealth that is made.

Pete: Equity.

Wayne: Is equity in a home, so you want other investments, you need to diversify, but get in a home.

Pete: Yep, absolutely. Wayne, this is good talk, thank you. Anything else you want to bring up or talk about?

Wayne: No, I think we're good, I think we got in the weeds a little bit, but that's just part of it, you starting to understand and what's going on, so I think we just need to kind of review it's like, if you're thinking about buying, talk to Pete, if you're wondering what your money will buy after you talk to Pete, talk to me, and we'll start looking at stuff and getting a strategy and work together and to get you in that home.

Pete: Yeah, absolutely.

Wayne: And if you need to sell your home first because you're have to be a move up buyer or maybe, move down or change things, give us a call. Our number will be around here somewhere and give us a call, no obligation, to take a look at your house. We can also tell you how to stage your house to maximize it, maybe you need some reports to be done before you put it on the market, stuff like that. But we can get you through.

Pete: Nice.

Wayne: And then you can maximize your equity there and then go out and buy that next home that you really want.

Pete: That's awesome.

Wayne: With Pete.

Pete: That's awesome.

Wayne: Alright.

Pete: Yeah, thanks, Wayne.

Wayne: Thanks.