Maria Hopkins, Maria Hopkins AssociatesI think many people have underestimated the influence that financing has on the real estate market. Although most people can see how lower rates can lead to higher overall real estate values, the availability of financing or lack of availability is huge.
One of the factors that continues to fuel the market vs. the existence of all kinds of financing programs. VA financing is at an all time high with so many veterans now wanting to buy or refinance and with a VA loan they can borrow 100% and they are so deserving of this benefit. The property itself has to be in pretty good shape or have some repairs done in order to close the loan but it’s not as hard as some think to sell to a veteran. The process has actually less risk of having problems than many of the other financing programs. The recent changes to FHA rules for appraisals after September 14, 2015 has really made that type of financing the most difficult. (This includes USDA loans.) The appraisers now have to inspect a property in great detail like a home inspector and require more repairs to be done. They are liable for ensuring that the condition of the property meets certain standards but because they are not home inspectors or licensed contractors, they are forced to require these professionals to inspect the property and then rely on them partially for the decisions about repairs they will have to require. The appraisal fees therefore have increased for the time and liability. The lenders that can do what they call streamline 203K loans are the best lenders to finance FHA, because they can just switch to this kind of loan if necessary to finance the required repairs.
It is amazing that rates are still so good, yet people think they should wait to buy. For those that still can, this is the greatest time to buy anything. The rates may go up next year which may affect the market. Those of you who are still thinking about it—WHAT ARE YOU WAITING FOR? There are amazing real estate deals out there. Yes—it is time consuming to go looking for them but the payoff can be great.
And for those of you who think they are going to buy and “flip”—be very careful. Many are overpaying for these properties. The costs to renovate are always higher than you think. You must make allowances for those hidden costs. Carrying costs are increasing. You have to figure in the cost of the mortgage for 3, 6 maybe 9 months sometimes, while you are waiting to sell. Better yet –underprice it from the beginning.
The biggest problem that I see is that the real estate agents are not as educated as they need to be to give proper guidance to their sellers and buyers. They do not know enough about financing and how it can affect the real estate transaction. When I give a seminar on the topic, we get maybe 40 people who show up when there should be hundreds. If a deal falls apart because of financing issues, usually there are things that should have been known and dealt with at the negotiating stage and the Realtors just weren’t educated enough to know. During the deal is not the time to learn. Sellers and buyers deserve better. I was a realtor before I was an appraiser and I still am. I just don’t sell anymore unless it involves my own family. So I know how hard real estate agents work, sometimes with no closing at the end. Many things can happen causing a real estate transaction to fall apart. Financing has never been as complicated as it is today and real estate agents, in my opinion, have never been so uneducated. Don’t get me wrong. They try to be, but they don’t even know what they don’t know. The education is not even available fast enough to keep up with the changes.
So we are all learning how financing can create or destroy wealth. It is an integral part of real estate value. And one way or another, history always repeats itself in the real estate market.
Maria Hopkins, SRA, RA, is president of Maria Hopkins Associates, Spencer, Mass.