Negotiating Winning Home Offers

Transcription

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Pete: So that's some good advice for a first time home buyer. If you see a property, basically what I'm hearing you say is if you see a property that you like, let's say it's 350 and it's been on the market for a month, four weeks, and it's still in the market, hasn't gone into contract, make an offer.

Dan: Doesn't hurt.

Pete: Doesn't hurt. Yeah. Make an offer. Well, Dan, thank you so much for coming on. This is my second episode of the Dream Big podcast.

Dan: Congratulations. This is awesome, Pete.

Pete: Thank you.

Dan: Yeah.

Pete: Thank you.

Dan: Thanks for having me on too.

Pete: Yeah, for sure. This is my brother Dan. And you've been in real estate now since 2009? 

Dan: About that. That's right.

Pete: 2009. As right now you work over at Josh Barker's office.

Dan: That's right.

Pete: And you work with buyers and sellers? 

Dan: Primarily sellers.

Pete: Got it.

Dan: We really focus on specialization.

Pete: And so you specialize in helping the seller.

Dan: That's right.

Pete: I wanted to have you on to talk about your expertise as it relates to a first time home buyer, because a lot of buyers in this market, they might have a lot of questions on what a listing agent is, what a buyer's agent is, and how does it all come together for them? And so my first question would be, can you explain the difference between a buyer's agent and a listing? What is your role as a listing agent, and how does it differ from helping a buyer? 

Dan: Yeah, good question. Well, first of all, one of the questions on here you had before we dive into that is, I always like to share the story of how I got into real estate.

Pete: Oh, yeah. Yeah. I would love that. Yeah.

Dan: 'Cause you had a big impact on that. I probably wouldn't be sitting here today if my big brother Pete hadn't paved a path for me.

Pete: Yeah, definitely.

Dan: No. But yeah, back in 2009, I had graduated school and I didn't really have an idea of what I wanted to do, and I had a hard time finding work. If you remember back in 2009...

Pete: I remember. Yeah.

Dan: There was a lot going on with the economy, in real estate. And you had been a lender for a short while, maybe 5, or 6 years or so. And I remember calling mom and dad and talking to mom and dad about, hey, I don't know what to do. I'm working down here in LA looking for work. I've applied everywhere. Can't seem to find a good job, and I've got my business degree. And they said, you should call your brother Pete, he's doing pretty well with loans. You should see if you could move home and get a job with Pete. And so that's what I did and you brought me into Megastar.

Pete: That's awesome. Yeah. At the time, I was working for a company called Megastar. Yeah. And I remember because you were going to come to work for me as doing mortgages, I remember this. And then all of a sudden interest rates went up. And it slowed down, and all of a sudden all the refis had stopped. And I'm like, oh, Dan, I'm really sorry. I don't have the business to be able to hire you. And you're like, okay. So then we did an audible, and then you went and got your real estate license.

Dan: That's right.

Pete: And that's how you started. And that was in 2009? 

Dan: 2009. Yeah. Yep.

Pete: So yeah, it has been about 14 years.

Dan: 14.

Pete: Yeah. 14 years.

Dan: And going on 15.

Pete: Yeah. Wow. Well, you've come a long way. You have an amazing story.

Dan: So thank you. Yeah. Yeah. Thanks for...

Pete: And maybe we'll talk a little bit about your story. We're going to have you share a little bit towards the end of this of your story of how you became a real estate investor, bought your first home and all of that. But yeah, go ahead and share with us what you do and what a listing agent actually is.

Dan: Yeah, yeah. So we truly believe in specialization. So what we found is the more specialized we can get in what we do, the higher the level of service we can provide.

Pete: I like it.

Dan: So, think of other industries, step outside of the realm of real estate, and think about like maybe a doctor, eventually doctors become more and more specialized in their craft. So you've got a surgeon maybe who's really good with knees...

Pete: A brain surgeon.

Dan: Or brain surgery. Yep.

Pete: Someone who focuses just on the knee.

Dan: Yeah. And...

Pete: Focuses just on the foot.

Dan: Exactly. And the better they become, the higher the level of service they can provide to their clients.

Pete: Interesting. I like that. Okay.

Dan: At the end of the day, the other reason we believe in specialization is it helps us to focus on what's best for the client. So the better we are at our craft, the better we can help our clients and put them first.

Pete: I like it. So what you're saying is you specialize in just helping mostly the seller.

Dan: That's right. That's right. So right now, early on in my journey, I did work with a lot of buyers. So I started out on the buyer side as a buyer's agent. And I did that until about 2019. So about 10 years I worked with buyers, and then in 2019 I made that shift to really try to focus in on the seller side.

Pete: Got it. So for our listeners, what Dan's talking about is you work with a seller. So if a buyer wants to go and buy a property, they have a person that just represents the buyer. And then if they like the property that they want to buy or make an offer on, they're going to have to make an offer on that property. And that property is going to be, they call it a listing agent. And so you're actually representing the sellers, most of the time you're representing sellers. And so you're looking at all the first-time home buyer offers.

Dan: That's right. That's right.

Pete: And so when you have a listing and you're helping a seller, you're looking at all offers. So this is very important for a first-time home buyer.

Dan: It is, it is. I mean, we're seeking out inventory. So our goal is to find more inventory for the buyers to have, for opportunity. So without the inventory, the buyers wouldn't have options.

Pete: Yeah. That's true.

Dan: So we're on a daily gold, daily hunt, search, if you will, for finding people that are ready to sell a home in the market we're in.

Pete: Okay. Yeah. Right now we have an inventory crunch, we have lower inventory right now, and that's very much needed, finding inventory and finding people to sell the homes.

Dan: Inventory is historically down right now from what we've experienced in the last year or two.

Pete: Okay. And so I wrote down a couple of questions here for you, for our listeners. So can you share some insights on how you determine the listing price of a property? Because a buyer when they're going to make an offer, a lot of them will see a home for sale, and they're like, hey, I want to offer this. So, how do you actualy determine the price for the home that's going to be listed for sale? How does that come about? 

Dan: Yeah. Good question. So when we approach sellers, we're trying to sell it for the absolute highest amount possible. That's always the goal.

Pete: So you're looking... Yeah, the goal is to help that seller get the most amount of money.

Dan: Yeah, yeah. Every seller we meet has a goal in mind, and we really want to understand that seller's goal and buy in with that goal. We want to really partner up with them on their goal and help 'em hit that goal. Which, in every instance, that's getting the most amount possible so that they can go and do what they want to do, whether it's buying another home, moving out of state, or maybe they want to downsize or upsize. So, the price really matters. So our goal is to maximize that value as much as possible.

Pete: Okay. And so, how do you determine the value of that price? 

Dan: With determining that value, yeah. Sorry, you had to bring me back on that one. Basically, we start out by looking at what the market conditions are. So we want to understand the macroeconomics. We want to understand, okay, what's going on nationally? And then from there, we're honing in on, okay, what's happening here locally in the county? Nationally we're talking about interest rates and inventory. What's going on there with, what's the Fed doing with bank rates? What are any new policies out there that could affect value nationally? And then once we've established a good understanding of what's going on nationally, then we're taking a look at our local market here in the county. So we'll dive into Shasta County numbers to get a feel for how many buyers are buying every month, how many new listings are hitting the market, and how many transactions there are. And that gives us an idea of that. And then the last thing we're looking at, once we have a good understanding of nationally, then Shasta County, and then at the very end we're going to dive into the neighborhood analysis. We want to have a good understanding of what's happening in their neighborhood.

Pete: What homes have recently sold?

Dan: Exactly. We do what we call a comparable market analysis, and we take a really close look at your active competition. Right now when you go to sell your home, if you've got four homes for sale in the neighborhood, we want to make sure we're competitive at the highest price possible as well. So we're really critiquing how we compare to the competition. And for the buyers out there what you could take on this is, study the homes you're looking at, and then it might not hurt to study the homes that have sold. Zillow is a pretty good feature with that or different websites like realtor.com, you can get a feel for...

Pete: So what you're saying is, for the buyer, first-time home buyer, they see a home that they love and they see the price, let's say the price is currently listed by Dan for 350,000, and they really like the home, and they're like, okay, how do we know what to offer? 

Dan: Right. Yeah, exactly.

Pete: And you're saying they can go on Zillow. Now, is it the estimate on the Zillow that they're looking for? 

Dan: No. 

Pete: Okay.

Dan: Now, I mean, Zillow it's a tool, for sure. But it's not boots on the ground. So, actually, I shouldn't have said go to Zillow. I should have said check out our website, reddinghomes.com.

Pete: Yeah. Well, actually...

Dan: It'll give you a feel...

Pete: Yeah, go ahead.

Dan: Also hire, you're likely working with a buyer's agent, so ask your agent to do that homework for you. I mean, that's what you're hiring them to do, to get their expert opinion. If you're going to hire a buyer's agent, you want to make sure that that realtor has a good track record. The days of just calling anybody and asking them to show you a home and making an offer, I mean, this is a whole nother topic, but I don't know how much.

Pete: No, this is good. I mean, this is going to help buyers, first-time buyers. I mean, this is important for them.

Dan: You can do that, but I'd really recommend calling an expert, somebody who has a track record closing a lot of homes, 'cause a good agent won't even have to go look at comps. A good agent's going to say, hey, I've already shown these homes. I've already seen these homes, and I've sold three in this neighborhood.

Pete: I remember when you were working with mostly buyers, and you were actually working with mostly first-time home buyers, from 2011, '12, '13, '14, '15. I mean, that's all you were helping is first time home buyers. And I remember sending deals your way or talking to a customer and you'd be like, oh yeah, no, this house sold this time in this household over here in this neighborhood. I mean, you really understood, and the important piece to hit on this was when you were talking with that customer about buying this house, you would tell them, I think you could get it at this price, but you can offer what you want. This is the price that I think it's going to go for. And it might have had maybe three or four offers already on the table, and you're like, if you really want the house, this is how much you're going to have to spend.

Dan: Yeah. Yeah.

Pete: And this is what you're talking about. You want first-time home buyers, they need to have agents that know the market and understand the local market.

Dan: That's right. That's right.

Pete: Yeah. That's huge.

Dan: The better advice, at the end of the day, when you hire an agent, you want the best advisor you can get. You want someone with a ton of knowledge because you're making a huge decision. Having that knowledge to make those decisions just puts you in the right position. I mean, if you're going to hire an attorney to argue a case, do you want an attorney who's never done it before but they went and took a test and passed the test and this is their first case? Or do you want to hire somebody who's done tons of these cases, knows how to see around the corner for you, and gives you that advice ahead of time so that you're not falling into a trap? So looking at the inventory, is your agent studying the inventory? 

Pete: So let's say there's, let's say I'm a first-time home buyer and I want to pick the best, a really good buyer's agent that knows the market, that understands these numbers, like you're saying, how would they go about finding an agent like that? 

Dan: That's a good question. I mean, the track record is pretty easy to find. You can look at it online, and try to track it down.

Pete: The ones that are doing lots of business, closing lots of deals. Yeah.

Dan: That's right. That's right. Yep. And, of course, you can always ask for references from friends and family. And then I would back it up with what's their track record.

Pete: Yeah. I think that's the best one, referrals. I think that's huge—friends, family, someone who's already had a really good experience with that particular realtor.

Dan: Yeah.

Pete: Yeah.

Dan: Yep.

Pete: I like it. Okay. Let's say, Dan, that you have a listing. And this one, like the previous example is listed for 350,000. You put it on the market and a couple of days later you have four or five offers. What is important to you to sell the house? In other words, let's say two, or three of those offers are first-time home buyers. Are you, what are you looking for? Because obviously, it's price. So let's just assume that they're all the same. Let's just assume that everyone's offering the same price. We can get into the differences because these are multiple questions.

Dan: Yeah, yeah, I hear you.

Pete: But like, I know that you've probably accepted lower offers for your customers. There was a lower offer that wasn't as high, but you picked it because of other reasons.

Dan: Sure. Yeah.

Pete: And so I want you to, if you can just touch on some of that, those important aspects as a listing agent picking a good offer.

Dan: Yeah. Yeah. So whenever we get an offer, you have to understand it's not me. I'm not paying that mortgage. So, think of me as the seller's advisor. So my job is to explain all the options to the seller. I try to lay it all out for the seller, just very simply. I'll go over the major bullet points on each offer, starting with the price of course. And if all prices are the same, the next thing we're looking at is some of the other terms like when does it close? Closing is very important to a seller.

Pete: Closing.

Dan: Close of escrow, their timeline, does this line up with them? If I have a seller that's moving to Indiana and they have to drive for three straight days, and they're hiring a big moving truck, and they have to pack.

Pete: And it has to be. They have to be leaving on that day.

Dan: Yeah. And so they have to plan a trip like that weeks in advance. So who's going to close on that date and who's going to honor the contract as best as possible? So we're sifting through those offers for the seller to do the homework that we need to do so that the seller can make the best decision for that move. And our job is to keep it as smooth of a process as possible. And in some cases, if the offer we're looking for isn't there to make it smooth, now we're explaining to the seller how we can make it as smooth as possible.

Pete: Smoother, for the seller.

Dan: Smoother, yeah.

Pete: Yeah.

Dan: For example, if all the offers were 30-day escrow, I might explain to the seller that, hey, we know you're going to need to plan this trip. So what we might want to do is request or counter back with a one or two-week stay back in the house. So that way if the worst case happens, it's day 29 of the escrow and we're supposed to close tomorrow, and something happens with the transaction, the seller isn't packed up and ready to leave tomorrow because he's got the two-week stay back.

Pete: I see.

Dan: So we'll want to negotiate that into the transaction. That's just one example of several things. Another thing we're looking into is their financing. This is your realm. When we're looking at four offers and all of the offers have financing, we're taking a really close look at the preapproval letter. Who is it? Are they local? What kind of appraisal network does that lender have? Do they have a good appraisal network or do they have no appraisal network at all? If it's a Southern California lender or a lender from another state like Rocket Mortgage, we've been running into issues with the appraisal because they're ordering an appraisal and we're finding that appraisers don't want to pick that up because, the appraisers, when we ask the appraisers, they say, well, I'm not getting fed a lot of business from Rocket Mortgage, so I'm going to focus on the clients that I have in front of me that I know are going to give me repeat business. So then that Rocket Mortgage lender is having trouble getting an appraisal on time to meet the seller's timeline to close on time so that they can make that move. So that is, you know, time is probably the second most important thing to a seller.

Pete: So, on a scale of 1-10, how important is it with the buyer? Let's say first-time home buyers picking a lender. How important is that on the offer as a listing agent? 

Dan: I just said it, it's the second most important thing to price.

Pete: Yeah. Second most. Yeah.

Dan: So on your offer, you really want to make sure your lender is going to perform to that contract.

Pete: Yeah. It makes sense because you're saying that the appraisers, the local lenders, do a lot of business and the local appraisers know each of us and will work hard for us. In other words, hit the dates. Now, we don't talk to them. We can't pick who the appraiser is, and it's random. So all of the compliance situations make sense where we're not... But we're not contacting them. But these appraisers do have relationships with them. We do ask them to move forward and quickly get an appraisal done. Whereas what you're saying is Rocket Mortgage and some of these online lenders, don't have that relationship built up with the appraiser. They don't know who this appraiser is. And so this appraiser may not be able to accommodate because they're accommodating the other local lenders that they have the relationships with, who's given them the business.

Dan: Repeat business. Yeah.

Pete: Repeat business, makes sense.

Dan: There's something to be said about that. There's something to be said about having a good reputation and a reputation to protect. Redding's a small community. And these out-of-area lenders have nothing to lose. So if they drop the ball heavily, no one's going to track down that lender and go and complain in their office, or there's no repercussion. So, it helps us on the seller side to know that it's a local lender. I can call that lender up, and I've worked with that lender in the past on other transactions, and I can really get to the bottom of what's going on and provide a smoother process for the seller, you know? It really helps us to have more control over making it a smoother process.

Pete: I love that. I love that. As a listing agent, what do you think are some common misconceptions about buyers, with the buyer's agent and listing agent relationship as it relates to the listing agent helping the seller, the buyer's agent helping the buyer? What would you say are some common misconceptions with first-time home buyers and understanding the whole process? 

Dan: Yeah. You'd have to give me a more specific misconception, like what? 

Pete: Maybe as a first-time home buyer, they may not know who gets paid. In other words, do they have to pay for a buyer's agent? And I know there's some—a lot of.

Dan: Yeah, this is a big deal right now.

Pete: This is a big deal right now, so I'm glad we're talking about it. But as a first-time home buyer, this is good information for them to understand. So how do the realtors get paid, and who pays the realtors? 

Dan: Yeah, good question. So the process starts with, we want to find a seller and align ourselves with that seller to help them hit their goal. And when we interview with a seller to get their home sold, we're providing... We're laying out all the services we provide to sell their home for top dollar in the time they're looking for and make it smooth along the way. And when we're sharing that process we negotiate a commission, a fee to sell the home. And that fee is established with that seller. And then, whatever that fee may be, commissions are negotiable. Whatever that fee is negotiated to, we take that fee, and we typically cut it in half. Half of it goes to the listing company, and then the other half is offered out to all the other realtors in the county or in the state of California or anyone who can sell a home in California if they have a client or a buyer and bring that buyer to the table. We're offering out that other half of the commission to go to that realtor or that company.

Pete: And this is the way it's been for over a hundred years.

Dan: Yeah. It's been that way for a long time. I don't know if it's quite a hundred.

Pete: A very, very, very long time.

Dan: Long time.

Pete: Yeah. I've been doing some research on this. How the commission structure has worked has been around for over a hundred years. So what you're saying, Dan, is that the listing... The seller of the property they're going to negotiate with the listing agent a certain amount of commission that would go to the listing agent, and the listing agent will then split that commission with the buyer.

Dan: That's the buyer agent.

Pete: Sorry, the buyer agent who brings the buyer. So, technically speaking, the buyer who's making an offer on the property is not technically paying a commission; it's coming from the seller's side.

Dan: That's right. And using the right language on that is important. So, the seller is paying that commission on the closing statement, and the seller negotiated that commission. And the buyer is ultimately paying the purchase price.

Pete: They do pay it in the price, yeah.

Dan: So essentially, the buyer is paying the home's full price. And that buyer is represented by a real estate agent. And so that agent's getting paid for helping the buyer buy that property.

Pete: Yeah. And for our listeners, it's a topic right now, because right now, National Associate for Realtors is being litigated against a practice basically saying that the seller is not allowed to pay the buyer's agent's commission. And they're going back and forth, and it could change, this rule could change, and it could be very different than what it is today. And I don't know what that will be, and maybe you don't either, but it's a good topic to understand how it works currently.

Dan: Yeah. I did a bit of reading up on it and what I gather from it, Pete, is the lawsuit was about buyers not having an opportunity to know or understand that a commission was being paid, That they didn't get to negotiate.

Pete: The buyers.

Dan: The buyers.

Pete: Wow.

Dan: The buyers.

Pete: That makes sense. They don't, they haven't, they don't get to.

Dan: Yeah. They didn't.

Pete: It is what it is. That makes complete sense.

Dan: Yep, so that is what it is. As you said, it's been this way for a long time—your question about how it was with commissions.

Pete: Yeah. A common misconception is buyers don't understand who pays who and how the money is.

Dan: Yeah. When a buyer buys a property, they're paying the full price for that property, and a commission is paid to their realtor through the seller. However, the buyer did pay the full purchase price to cover that commission. So, when I was working with a lot of buyers for ten years, I always would explain that to the buyers when I was sitting down with them, especially first-time home buyers, and explaining the process, I would let them know that you're going to buy this home, and when you do, you're going to pay the full price. And you don't have to pay me directly on the closing statement. The seller's gonna have a commission offered to me for helping you buy that home.

Pete: To the listing agent. The listing agent then gives you the commission.

Dan: Yeah. It goes from the seller to the listing agent. And the listing agent offers to the buyer's agent.

Pete: To the Listing agent and the listing agent to the buyer's agent.

Dan: That's right.

Pete: Yeah. Makes sense. Okay. Cool. Well, I appreciate you going over that. It's super important for a first-time home buyer to understand. Here's another question for you. We touched on negotiations. With your expertise, let's say you spent 10 years working with first-time home buyers and you have your experience now working with sellers. Let's say you go back to being a buyer's agent, and you have a first-time home buyer in this market. What advice would you have for that buyer? 

Dan: Man, what an opportunity you have right now! You know? There's a lot of opportunity out there.

Pete: Yeah. I do, too. I do, too.

Dan: Dream big. I think that comes with, if you want to attain home ownership if you look at the last a hundred years in appreciation of real estate, it's typically a win decision, you know? Over the long run.

Pete: Yeah. In the last 84 years since they've been tracking it, since 1941, Case-Shiller, there have only been seven years where real estate has actually declined. That's the statistic.

Dan: And we're somewhat in a dip right now. Values are not appreciating 20% anymore. So this is, in my mind...

Pete: It's slowed down. It's slowed down.

Dan: Yeah, it's slowed down. The number of transactions over the last two years has been almost cut in half. So we have fewer buyers buying.

Pete: Now, does that mean that real estate is going down? I mean, I obviously know the answer, but I want you to explain.

Dan: Value has come down for the whole county. I wanna say the peak, I think you'll have to check with me on this, but I think the market peak was in June of last year.

Pete: So I do know the statistics on this. So the peak was in June of last year. I don't know the local numbers, so you may know more about the locals.

Dan: I'm speaking to Shasta County, so...

Pete: Okay. So, Shasta County, I do know national numbers. National numbers hit a peak in January of last year, sorry, June of last year 2022. We actually overtook that peak. We have a new peak this year. Nationally, we've hit all-time highs for like three or four months up until September. And there are five different companies that track this: Case-Shiller, FHFA, Black Knight, Zillow, and there's another one. But they all are showing record highs for real estate, which is, I know, you're saying there's an opportunity for buyers. And what I'm hearing you say is that there's an opportunity because they have the opportunity to find homes and allow for negotiating maybe the price.

Dan: That's right. That's right. I've been doing this for a while, and when I was working with a lot of buyers during 2020 and 2021, if you had a buyer, if you were a realtor working with a buyer at that time, could you imagine making an offer on a home that has ten offers? And you're trying to win.

Pete: How many years... How many, sorry to cut you off, how many years did you go with a market like that, if you remember? 

Dan: I've been doing this since 2009, and I've only seen that in 2020 and 2021.

Pete: Okay.

Dan: Yeah. And in parts of 2022.

Pete: So 2012 to, like 2018, how many typical offers were...

Dan: Depending on the deal, but on the average, that's a good question. I don't want to shoot from the hip, but it wasn't like 2020 through 2023, where every house has multiple offers. And you'd have to go well over the list price to get it. Typically speaking, if a home was just listed, this is where expertise comes in. If a home was just listed, I could tell you if it was a good deal based on what's been sold in the neighborhood.

Pete: I like that. Yeah.

Dan: So it's really hard to put a blanket statement on how...

Pete: I see.

Dan: How the years have been. But as a whole, the last three years' properties, you know, any home could sell. We all saw the memes of shacks being listed.

Pete: Yeah, I remember that.

Dan: Getting 20-plus offers. And you have to give your firstborn, too.

Pete: So you're saying the opportunity for first-time home buyers, they're not experiencing that now? 

Dan: That's right. Yeah. So those days are gone, and now we're experiencing a process where buyers can look for those opportunities. It surprises me, Pete, because I have some inventory to where it's been for three weeks, and there are no offers, not one offer.

Pete: Wow.

Dan: And the reason that surprises me is that the home will sell for the right price. And for whatever reason, buyers or maybe their agents aren't advising them to make a lower offer on that home. And so if we're on the market for three or four weeks...

Pete: I hear what you're saying, so what you're saying is, okay, Pete, I had this property. It's been on for three weeks. Normally, what would happen, let's say, in 2008, '09, '10, you'd get an offer for 10,000 less, $20,000 less. But you're not getting any offers.

Dan: Yeah. 2015, 2016, 2017, buyers were.

Pete: Still making offers.

Dan: They would make an offer if they liked.

Pete: Just coming in under.

Dan: Yeah, that's right.

Pete: So that's some good advice for a first-time home buyer. If you see a property, basically what I'm hearing you say is if you see a property that you like, let's say it's $350,000, and it's been on the market for a month, four weeks, and it's still on the market, hasn't gone into contract, make an offer.

Dan: It doesn't hurt.

Pete: It doesn't hurt. Yeah. Make an offer. Okay, great. Yeah. What other advice would you have? 

Dan: Look for those deals that have been on for quite some time. Suppose they've been on for two months three months. What I was trying to say earlier was, that I'd rather be a buyer in today's market than I would a year and a half, two years ago. Now, take that with some reasoning behind it. I'd rather be a cash buyer in that market, and in this market, I'd rather be a cash buyer today.

Pete: Today? 

Dan: Yes.

Pete: Okay. What if you don't have cash? 

Dan: You can find good deals.

Pete: Yeah. I like it.

Dan: You can find good deals.

Pete: I believe that if you can afford the home, if you're a first-time home buyer, and you can afford the home, and you can afford that payment, and it's not going to overstretch you, 100% get in the market as soon as you can.

Dan: I agree with that.

Pete: As soon as you can, get in the market. The reason why I say that Dan, is because we have 610 620 homes in the market right now in Shasta County. From 2012 to 2019, how many homes, on average, were on the market during that time? 

Dan: Oh, probably 800 to 1000.

Pete: Yeah. It's more like 1200.

Dan: Oh, okay.

Pete: On average, in the summer months. Sorry, in the summer months. Summer it might, inventory always comes down in the summer, and then it goes up in the winter. But when I was doing my research, it was 1000 to 1200.

Dan: I haven't checked it recently. It's been over the last 10 years.

Pete: Okay. So we have 600 homes on the market, and during that time, in 2012 and 2019, homes on average in Shasta County appreciated about 6% per year. It was 5%, 8%, 5%, 8% during those years. And we had that much inventory. And so we have a bad affordability problem right now. Not nearly as many people can qualify for a home. That's why I say if you can qualify, get into a home. And if you can qualify, definitely go into it. And so rates will eventually come back down. I don't know when, and I'm not going to predict when, but when they do come down because we don't have the inventory that we should, there's going to be a lot more people that can afford a home and a mortgage payment than what there are homes to be able to sell.

Dan: Right. Yeah. And then prices will go back up again.

Pete: Like you said at the beginning of the podcast, you're looking for inventory. Right? 

Dan: Right.

Pete: So your goal is to find homes and find inventory. And what I talk about with my customers and the people that I talk to is in order for a real estate crash, we need inventory.

Dan: Surplus.

Pete: We need a surplus. We need a lot more homes for sale to have a crash. And my big question is, where are those homes going to come from? 

Dan: Right. It's not going to be new construction. We're tracking that.

Pete: Why Is that? Do you want to talk about that? 

Dan: Buyer demand slowed down. So, with the slowdown of buyer demand, new construction can't.

Pete: They're having a hard time.

Dan: Yeah. They can't go at the pace that they were. So they had to adjust the amount of buyers like you said, that can qualify to buy right now.

Pete: New construction. But where did the inventory come in 2007 when the real estate crashed? 

Dan: Oh, yeah. You know this too. So we had a... I mean, I called them napkin loans. I didn't coin that term.

Pete: Napkin loans. Yeah.

Dan: Yeah. "Here, write down on this piece of paper how much you make, and we'll give you a loan." Right? 

Pete: Yeah.

Dan: And tell us what you do, and The Big Short, great movie on it. But buyers were basically leveraging 100% financing, arm loans...

Pete: This has not been the case.

Dan: Yeah. We're not seeing that at all right now. The loan products have been, you know, what do you call them? A plus or.

Pete: Oh, they're all A-paper loans.

Dan: A-paper loans.

Pete: Yeah. We're fully documenting their pay stubs.

Dan: So you got A, B, C, and D, or how far does it go? 

Pete: Yeah. Back then, there was A paper and B paper. B paper was, hey, they had assets, but we didn't show their income. And so then there were C papers where we didn't show their assets or their income. And all they did was say, I make this much, and I have this much in the bank, and they put it on the application and signed their name. So they said they had that much, but obviously, they were liar loans.

Pete: But anyway, so the inventory in 2007, to get back on track, came from sellers.

Dan: Right.

Pete: From people that own homes.

Dan: Right. So, sorry to go on the tangent.

Pete: That's all right.

Dan: Once everyone realized they needed to sell their properties, or they couldn't make everything float when they had a surplus of supply ,and they couldn't put a renter in the house, they realized, oh, we might have to sell this property, we're paying.

Pete: There's way too many.

Dan: We're paying the mortgage on five homes we own. And we can't get tenants in these homes, so we have to sell them. And then you have a surplus supply.

Pete: So do you think that's... So obviously it's different now with the mortgages, but this is my big question. So I have a first time home buyer webinar that I do once a month, and my listeners, I'll put the link below. But I do a webinar every month and I talk.

Dan: Yes. Super. I highly recommend it. It's a really good webinar. I've watched a few of them.

Pete: Nice.

Dan: You're giving really good information.

Pete: Thank you. Yeah. So I will talk about this now.

Dan: Not just because you're my brother. 

Pete: So I talk about this on the webinar as supply and demand. So if someone's selling their house, back then they were selling and going to rent. But if someone sells their house, what's the likelihood of them renting another house? 

Dan: I do not see that a whole lot. In fact, sellers don't want to get priced out. They'd like to get into another home?

Pete: Yeah. Keep staying.

Dan: They don't want to pay.I mean, there's nothing wrong with renting. I mean, it serves very...

Pete: For sure.

Dan: Good purpose, but when you're renting, you're truly paying 100% interest. Yes, rates right now are high, but renting is 100% interest.

Pete: Right. If we did have a crash, and we need the inventory for a crash, where the inventory came from last time in 2007 was sellers. But now today if someone sells, they're not selling and renting. They're gonna sell and buy. So does that create or take away from inventory? It's a cancellation.

Dan: It's a cancellation. It's neutral.

Pete: Yeah. Because they're selling, and then they're buying. So they're not really adding inventory. And we need the inventory for a crash. So where's the inventory going to come from? 

Dan: To answer your question, it's not going to come from anywhere, Pete. I mean, we'd need builders building a lot of homes with surplus.

Pete: Yeah. So, to come back to the original question, the advice that you have for first-time home buyers is to take the opportunity.

Dan: That's right.

Pete: If you can.

Dan: Yeah. I think you can find a good opportunity. I'm always a buyer. There's always a deal to be had.

Pete: Nice. That's good.

Dan: That's the mentality everyone should have, you know? 

Pete: Yeah. This leads me to a point. I wanted to touch a little bit on your story and about how... We talked about how you got into the real estate business and when you became a realtor. Were you a homeowner when you got into the real estate market as a realtor? 

Dan: No, no.

Pete: So I know there's your story; I was going to see if you could just share your story of how you bought your first house because I think it's a very interesting story that is fun to hear.

Dan: Yeah. Yeah. It kind of stems from everything that you were just sharing. Try to figure out how you can qualify. So, if you can get to that point. First, think in the early stage; you have to make that decision. You have to want to be able to own a home for one reason or another. So, figure out how you want a home. I can't answer that question for everybody, but I knew I wanted to be a homeowner. Once I established that, I was thinking about, okay, how am I going to purchase a home? So I just started saving. I said, okay, well, this is my monthly expenses, so this is how much I have to spend to live. And then I started thinking about, okay, if this is what my monthly expenses are, how much more extra can I put away in the bank and save on top of that? And then I set a goal of, okay, I'm just going to save what I can and put away what I can, and then I'll wait for an opportunity, essentially.

Pete: I think that's huge. I think that's huge. Because of a lot of first-time home buyers, my story's a little bit different. I didn't save; I saved a little bit, but I didn't set a goal in mind and then hit that goal. What happened to me was an emotional deal. I saw the house, and I was like, oh my gosh, I have to have that house. It was cheap at the time. This is back in 2001, and it was a brand new home for $130,000.

Dan: I remember that in Anderson, the new construction.

Pete: Yeah. Ravenwood. Yeah. And so I saw this house, and I wanted it, so I made this decision to. For me, it was emotional, yours was more logical, more methodical. Which is great. I mean, I think that's how it should be. I should have been saving, you know? So I think that's great advice for first-time home buyers. Set a goal, and start saving.

Dan: Yeah. Not all of my purchases were that way too. When the right opportunity presents itself, are you prepared? I think that's the takeaway. But it does start with a dream. It's in line with what we want to accomplish. But you're right. At the end of the day, I would say a majority of the properties I have purchased were more of an opportunity, just there. I don't know when it's going to hit. And then all of a sudden, the deal is there, and it's like, whoa. And then the first thing I do is I check to see if I have. Do I have the resources for that when the deal's there? And I can tell you nine times I don't. But one time out of 10, I do.

Pete: You know, I've been watching this and staying up to date on this credit card debt. For car payments now, the average car payment is about $900 a month, $800-$900 a month. If you want to go buy a new car, Dan, it's $900 a month-ish for a new car. Credit card debt has just reached over a trillion dollars.

Dan: That's huge.

Pete: So I think this is very important advice, and I appreciate you telling that, because if you're a first time home buyer, and if you're wanting to purchase a new home, that credit card debt, it takes work. You know? And we can definitely help you if you do have credit card debt. We help our customers by teaching them how to get rid of it, how to maximize their credit score, and how to really change that course.

Dan: Yeah. This is. Pete, this is where I really love what you do, 'cause I remember for the last however many years I'd run into people and everyone has a different situation, but a lot of times it's hard for people to know how to map out a plan. And I just, I can't even remember how many people, I'd say it'd be a good place for you to start to learn where you're at. And then let's create a plan for you. Go talk to so and so, Peter, or others. This is where I really appreciate what you do.

Pete: Thank you.

Dan: Because you really can help people understand where they are and help them make a plan. And it would come back around all the time. I'd send someone to you, and then six months later you'd say, okay, Dan, they're ready to go. They just left the office. They hit the plan.

Pete: Target Yeah.

Dan: They got across the finish line. Now it's time to find a house. They get to go shopping. How cool is that? 

Pete: That's one, Dan, I can tell you when that happens, I mean, I get so much joy from meeting with a family, going over their whol history of life, of income and credit and everything, and really helping them and sitting down and helping them. And the ones that actually do take the time to listen and to do the things, they come back, it brings so much joy to me.

Dan: It's awesome.

Pete: It's life-changing.

Dan: Yeah, you're changing their course. It's pretty cool. Keep up the good work.

Pete: Thanks Dan, I appreciate that.

Pete: Thank you. Cool. Well, thanks a lot, Dan. Anything else? Any last thoughts on advice for first-time home buyers? 

Dan: Yeah, there's a lot of opportunity out there. Find those good deals. Always be a buyer even if it's your first time. Map out a plan. Just...

Pete: I like it.

Dan: Create a plan and talk to Pete.

Pete: Nice.

Dan: He'll help you map that plan out to a T. He'll tell you exactly where you are and exactly where you need to go.

Pete: So if we do have potential sellers or buyers, how can someone get ahold of you if they wanted to get in touch with you? 

Dan: Yeah, they can call me on my cell phone or email me. They can Google me. They can find me.

Pete: Okay. Cool. Well, thank you, Dan. Appreciate it.

Dan: Yeah. Thanks for having me on, Pete.