This week I spoke with a friend in Southern California who has a coming soon listing. It’s a pretty hot listing already. Within a day of the coming soon sign going up in front of the house she had a call from a Realtor who has a client ready to make a full priced offer. To sweeten the deal, the buyer is (verbally thus far) offering to pay commission to their own Realtor, even though the seller had agreed to pay the buyer’s Realtor commission when she signed the listing. If they do make that offer and it's accepted, on the $1.4 million property, that will potentially be $35,000 more proceeds in the seller’s pocket.
Situations like this, hot properties in ascending markets likely to attract multiple offers, will usher in the new era sooner rather than later, where buyers become burdened with their Realtor commissions. I don’t use the word burdened lightly. Coming up with that extra money is going to make the arduous process of buying a home even more challenging. In my personal real estate buying history I’ve purchased three homes, and each time it was a stretch to come up with the cash. I see it all the time with buyers, especially on the lower priced homes where they are putting everything on the line to literally buy into the American dream of home ownership.
When the new commission structure was announced I theorized that the upper end of the market would not feel the impact of commission changes the same way as the more ‘affordable’ homes. Affordable is misleading word in Marin County, where the median home listing was recently reported to be $1.4 million. Keep in mind, if you are fortunate enough to be able to scrape together 20% to purchase a $1.4 property, the mortgage on $1,120,000 at a favorable rate of 6.33% today will mean payments of nearly $7,000/month. And that doesn’t include property tax or insurance! If you are stretching like I did and can only manage 10% down, that mortgage is over $7,800/month!
The thing about Marin County is, there’s a lot of money here. Old money, new money, tech money, stock money, inherited and gifted, we see it all and lots of it. Most buyers are putting more than 20% down. This spring my manager estimated that 40% of transactions in Marin were all cash. In that stratosphere where cash reserves are plentiful, interest rates become far less relevant. The only way to compete against buyers with all cash is to make higher offers on properties, which in turn makes the market even less affordable.
I don’t have many the answers. The only answer I have, the only advice I have to struggling home buyers, is to buy as soon as you are financially able. Prices sometimes come down, but good luck trying to buy on any dip because you might be waiting a long time for the next dip in the market. When I bought the home I currently live in, a friend of mine told me she thought the housing market might see a correction soon. It might not be the right time, she said. We did have a brief pause in the market when interest rates were in the 7-8% range most recently, but now that we are back in the mid to low 6’s the market is humming again. I would not have wanted to wait 7 years to leap at that one ephemeral moment in time when there was a little less competition in the market, but mortgage rates were even more crippling than they are today.
As a homeowner I have benefitted from appreciation on the property. Every month I pay my mortgage, part of it goes to paying down the principal. In that respect having a mortgage is like a forced savings plan, if it’s not interest only payments. Even if you are only paying interest, if you keep the property in decent shape it’s appreciating with the rest of the market. When you do updates, you are increasing the property value while creating a better living environment for yourself. Renting a property offers none of these advantage, plus there is always the risk the homeowner will decide to one day put the house on the market and give tenants notice to leave.
The two main ways to accumulate wealth in America are through the stock market and home ownership. I don’t think buying a house in Marin has ever been easy. It was a struggle for my parents in 1962. It’s been a struggle for me each time this century. The one thing I know though, if you can afford it, buying a home in Marin is always worth it in the long run.
*** Thank you for reading my blog! If you or any of your friends and family ever have any real estate questions, please feel free to contact me at andyfalk2112@yahoo.com or 415-250-8025. I’m always happy to help!