Real estate radio with Matt and Jim.
The annual tradition of Rick Moore hosting us (Matt and Jim) to talk about the Charlottesville area real estate market, national trends, and Rick getting (kindly) annoyed at my answering “it depends” to most of his questions. We covered a lot of ground; an hour of radio is a long time, and candidly, I think this was a great discussion and conversation.
Listen to the podcast now at Charlottesville Podcasting Network.
Some of the topics we discussed
- Top Challenges for Builders: Cost/Availability of Labor in 2019 & 2020
- Market data and reports
- My favorite mortgage calculator
- The Newsday report on Realtors, discrimination, and steering
- Rocket Mortgage and other big online lenders
- How’s the market?
- Student loan debt, the Bank of Mom and Dad, Student debt has kept home ownership out of reach for 400,000 young families, Fed reports
- This is how presidential elections really affect home sales
- Common sense underwriting (listen to this; it makes sense)
- Fiber internet in Nelson County vs Albemarle County – Firefly and CVEC
- Considering commuting costs in Charlottesville and Albemarle
- Consider life in that new location
- Appraisal waivers – a result of automated underwriting
- Is a recession coming?
- Amazon Rings being hacked
- Shopping for discrimination
Transcription
Jim’s note: please forgive the transcription errors.
Rick:
Good morning everybody. Thanks for listening. Today we’re going to do local real estate and our economy. A good friends and regular guest Matt Hodges, Presidential Bank Mortgage.
Matt:
Good morning, Rick.
Rick:
Thanks for coming back and Jim Duncan Nest Realty.
Jim:
Hey, Rick, how are you?
Rick:
I’m doing well. Thank you, gentlemen, for returning for what’s become a regular show.
Jim:
Annual tradition.
Rick:
Yes. I’ve got us down as a local realty in the economy. We always seem to stretch that a little bit. We’d to talk about what’s going on in Charlottesville and Albemarle and surrounding counties about housing, what’s going on, how to buy a house, things to look for. I’ve got some other interesting things on the list today. Hopefully, listeners will be as fascinated as I’ve become when you guys are in here teaching me what’s going on in the world of real estate. One of the things that I always have to ask questions about and I’m going to start with this, Jim, I think you sent me this is, I have no idea what the micromarket is.
Rick:
One of the things that you sent a question is, focusing on your micromarket. When you go to buy a house, and I’m out there trying to shop for a new house and I can’t decide, or I know what kind of house I’m looking for. I need a three bedroom, two bathroom, et cetera, et cetera. What in the world is the micromarket?
Micro Markets
Jim:
Well, it’s easy. The micromarket is your specific band, if you will. You’re looking for the three bed, two bath, no, 300 to 350 house. Whereas when you look at the stats we have for last year, the broader stats are an indicator of the market, but I think they’re somewhat meaningless and deceptive for the individual buyers. If you look at the Albemarle County for last year, 1936 homes sold in Albemarle, which is up a little bit from 1884 in 2018. Okay, great. Median price was 376 and was up from three plexi down from 388 the previous year. I think that what I mean by micromarket is, focus on three bedroom, no four bedroom, two and a half bath, 350 to 450 in Forest Lakes. That’s your band that you care about.
Jim:
Looking at the Albemarle County stats, the Charlottesville – Albemarle MSA stats, state or national, those are indicators of what may be happening in the market, but they’re not reflective of your market. There’s some properties in the city that go under contract in 18, 36 hours. Those are lumped into the same stats with the property with acreage in X part of Albemarle County that’s been sitting on the market for 187 days. When you look at the broad stats, those are both lumped into the same numbers. When I tell my buyers and my sellers, “Look at what’s relevant and important to you,” because you can go online and see all the numbers, but the question that I coach my clients through is, “What does this mean to you?” Because I think that when you look at the broad stuff, it can get confusing and can make it less of a focused search.
Rick:
How do I find that information? Who breaks it down into that much detail?
Jim:
I do. I think any competent professional, a real estate agent is going to be able to help that buyer or seller look at their micromarket. I think that, the way I practice is, we focus on that narrow band of what’s important to that that client. I think that it’s important for the client to know what they don’t know or acknowledge that they don’t know everything and they need somebody to guide them through that.
Jim:
There are also people who take the time to figure out exactly what they’re looking for and focus on that. I’ve said for years that, since my job, if you will, moved away from finding homes, I help the people to determine what they want. The people who are my clients are looking for homes, I joke kind of, but I think that they don’t work because all they do is sit in their office and search Zillow for homes that come on the market. That’s all they seem to do. Those people know their micromarket, they know their band of homes, as well, if not better than the person representing them because they’re completely focused on finding their next house. My takeaway from my clients is, you can look at all the information, my job is to help you determine what the relevant information is for where you are in your life search or sale of a home.
Rick:
It’s Jim Duncan from Nest Realty. Matt Hodges Presidential Bank Mortgage, is there a micro market, tablet of something that I don’t know about in the mortgage area?
Matt:
Well, in a sense there is because when we talk to clients about what their needs and their wants are, we try to define down to what they are looking for. I had a client call me recently and said, “Look, I’ve already looked at a bunch of properties that fit the number of bedrooms, it was four, number of baths.” I was like, “Okay, so what type of property are you looking for? A single family, a townhouse, a condo?” She’s, “I don’t care.” I was like, “Well, that’s going to make it really hard to find your property, just defining it by micro, micro, micro.
Rick:
Right. A condo is the same thing as what a horse farm is.
Matt:
indeed. I pressed her that she actually needed to maybe broaden that micro up a little bit, but make it specific to what she’s looking for. We see it, we’re definitely having to help the client, narrow down their focus so that they search what is relevant for what they want to purchase.
Jim:
Well Matt, to add on to that, from my position representing people, are there different loan products, that they should be focusing on because when I have clients come in and they say, “I have X to put down,” they look might be looking at VA or FHA or conventional or interest-only or there’s a whole slew of loan products out there.
Differing Loan Products
Matt:
Yeah, indeed there are and the loan products that are available as you go to a lower down payment, have income restrictions, almost always. VA does not, but you have to be a veteran to qualify for that. VHDA, USDA, Fannie and Freddie is 3% down program. They all have an income restriction. It could be based on where you live or just an overall number. We definitely talk to clients about what their down payment desire is, what they can afford, what they earn, so that we know what programs to fit them into or provide as an option.
Jim:
No, it’s something that people come to me they say, “I’ve been looking, again, typical on Zillow. I’ve been looking on Zillow, their mortgage calculator. It looks like I can afford this.” I’m like, “Okay, great. Did you factor in property taxes and insurance?”
Matt:
Indeed, the online calculators are Justin and Early Guidepost, but it does not give you the richer feel. For example, homeowners association dues are never accounted for.
Rick:
Yeah, yeah.
Matt:
Yeah. You need to have that discussion with the client too. If you’re going to be buying a townhouse, realize, that can be anywhere from $70, maybe $150 a month in extra fees.
Online vs local lenders
Rick:
Again, our guests today, Matt Hodges, Jim Duncan, as we talk about the real estate market. Matt, you mentioned Fannie and Freddie and other mortgage options. I’m going to ask you about a couple that I guess are true competitors, but you see their ads all the time. Tell me a little about Rocket Mortgage and Quicken mortgage because they certainly make themselves seem as like, “Come online, press a button, get your mortgage,” as opposed to Presidential Bank Mortgage, which is, “Come on into our office, let me put my arm around you and show you. Let’s take our time and let me make you a true customer and walk you through this.”
Matt:
Sure there are competitors out there to our business and they have different models on how they propose to succeed in the world. One of those models, as you mentioned, is totally automated. It’s based on the consumer keying in accurate data into a website and then getting a result back that works for them. It does not work all the time. It’s garbage in, garbage out, if you’ve heard that phrase before. It often takes the loan officer to assess what the bigger picture is. For someone who’s self employed often, they’re only thinking about what they gross every year and not what their net income is after their expenses. The information that’s keyed in could be very wrong.
Matt:
The other thing that we see with online applications like this, and companies that do a ton of advertising, and I believe the company you are referencing is, doing significant advertising around that big event, a couple weeks ago, surrounding football. They spend a lot of money in advertising and if you look at their fine print, their interest rates tend to be inflated. The consumer, the smart consumer also needs to do their due diligence and not just jump to something that looks easy.
Rick:
Actually, I think the owner of one of those companies makes enough money that he owns a pro basketball team. Obviously, there’s a lot of profit in owning one of those companies. Jim, you talked about Zillow. Another company that does its thing. It has its own issues with being there. It’s designed to be a realtor of its own, correct?
Jim:
Yes and no. They provide pretty much everything except for real estate representation. Again, 10 years ago, when they came around, 12 years ago, a lot of real estate agents saw them as the opposition and the devil and that’s the worst thing ever. I like it. I think that that’s where my clients are searching. That’s where the information is and a lot of times. It’s something that I embrace. I know that they’re going to use it. They don’t really spend any time saying, “Don’t use Zillow for whatever reason,” I say, “I know you’re going to use it, but they have Zillow.”
Jim:
It’s the search place, for saving homes, uploading videos, mortgage. They have Zillow offers now in a lot of markets, which is a whole another realm of the real estate marketplace. It’s a tool that’s out there that I think the wise person is going to use it. I tell my folks that it may not be the place to get the best information, but, again, it’s like the online calculators. It’s a place on the internet that can provide some good information, but with anything you need to vet it and verify that the information is accurate.
How is the market?
Rick:
Well, how is the market right now? Is it, are we selling a lot of homes compared to last year, the year before? Are there more homes on the market fewer, homes on the market? What’s going on?
Jim:
It depends.
Rick:
We get that every year from you. Got it.
Jim:
It does.
Rick:
I feel like we should record that and just play it back. I don’t need Jim Duncan here, Matt. Please come play the recordings from Jim.
Matt:
When Jim’s finished. I’m going to give more of a bold prediction.
Rick:
Okay.
Matt:
Yeah.
Jim:
I think the market is fine. The market’s been good for a lot of people for the last 10 years. I think we have-
Rick:
For a lot of people, are those the same people or everybody else?
Jim:
I think it depends. I think that people who are looking for a home, that’s three bedrooms, two and a half baths, it’s in a great location, that is under $250K or $275K or $300K, it’s a really difficult market. I think that the ones who are looking for stuff that’s $500K to $800,000 in the county or the city, they have a fair amount to choose from. I think that it depends on what you’re looking for. I think that people were looking at the city center or the immediate urban ring, who wants walkability, they want a free parking, they want a garage, they want a yard, it’s, that house that people like, is going to go fast if it’s presented well and marketed well. I think that the challenge we’ve seen in the last 10 years, frankly, is we don’t have enough inventory to satisfy demand.
Jim:
We look at the numbers in the city sale for last year, in 2018, 607 homes sold, in 2019, 565 sold. I think that’s largely driven by the fact that, there just aren’t enough homes in the city of Charlottesville to satisfy the demand that’s out there.
Rick:
Is there a particular reason for that? Is everybody happy here? Everybody is staying and nothing’s been put on the market? I know I’ve asked this question before, more homes are being turned into AirBnB rather than being sold or rented? Is that because homes are being rented rather than sold? Where are we going with this?
Jim:
Again, in a non-flippant way, I’ll tell you where we’re going in 18 months and we have hindsight. To address what your question is about, there are a lot of reasons why there are fewer homes in the market. One is, people if they bought their house for $300,000 10 years ago, and they could sell it today for 425 or 450, or whatever that number is, and they want to stay, where are they’re going to go? That next house could be 650 or 700, which is a hell of a leap. I think that it’s something that people look at where they are, and they say, “I want to move. This house doesn’t suit me as much as it did 10 years ago, but I think that there’s nowhere for me to go.”
Jim:
What a lot of times you’re seeing is that, a lot of it is in the city. People bought that house 10 years ago for 325, they could move and spend six or seven or they can spend 150 to renovate and add an addition and they’re choosing to stay. That means that those people are going to be happier in that location, but that’s one fewer house that’s going to come on the market. It’s difficult to look at and say there’s any one reason, but I think there’s a combination of reasons why fewer homes are coming on the market. A lot of it is, people are staying. They’re just happier. They choose instead, they have job stability, they’ve life stability and they moved when the kids were two and four, and 10 years later, they’re 12 and 14. Why would they move if they’re happy where they are?
Jim:
You’ve seen nationally the trends are or used to. When I started practicing 2001, people would stay in their houses between three and five years. Then the crashing happened. Now, I think you’re looking at people nationally, they’re staying in their houses for closer to nine, to 11 years. Every year that people stay in their houses for longer, that’s another house that’s not coming in the market. Then you look at what’s replacing that, is new construction. In our market, new construction is not inexpensive.
Rick:
When you say new construction and Matt I’ll bring you in on this, are we talking about new homes? Or is this all those apartment and condo setup that we’re talking about, just in the city just outside of the city?
New construction, inventory, student loans, trades
Matt:
Well, so new construction is delineated between single family and multi-family. Multi-family includes apartments as well. We look just at the single family component. The amount of homes being built nationwide is significantly down from the average since the 60s, when a million and a half houses were built every single year. We’ve been well below that, we can’t keep up the demand at this point. There’s not enough, I would guess skilled trades, to build enough houses to keep up with that demand. Part of the issue, right now is, the supply is lacking for that reason and it forces upward pressure. Right? It’s a supply and demand equation.
Jim:
Yeah, man, I think that. Again, if you can look at the new construction numbers, again, I’ll use the county for last year, medium price in 2019 for everything in the county, was 376. Median price for new construction was 457. That’s a significant data. There’s oftentimes going to be the choice between buying, or selling or renting. I think that there’s not enough new construction, a lot of it is, localities are, it is expensive to build a house in Charlottesville or Albemarle. I think Matt touched on something about, I think we could get into, is the lack of skilled labor. There’s been a real push in the last 10 20, 30 years of, people are choosing to go to college and incur significant debt and you are not replacing the skilled trades in the labor to build these houses. Again, it’s a supply and demand. If you’ve got fewer people who are building the houses, those houses can become more expensive because the laborers is more valuable.
Rick:
Again, our guests today, Jim Duncan from Nest Realty, you can find more info on nestrealty.com and then go /jimduncan. You can find Matt Hodges, Presidential Bank Mortgage, go to presidentialbankmortgage.com. We’re talking about local real estate and the economy today with two of them. Hang tight, we’ll be right back.
Rick:
I’m back in action here with Matt and Jim to talk about local real estate. You were talking about the skilled labor and people going to college. Right? Let’s get a question. Students going to college are racking up the debt. Do you think that increased student loan debt is going to reduce the number of people who can afford to buy a house? Because when you go to buy a house, and then you need to go to get a mortgage, and you have a much larger debt bubble, and the folks at the mortgage company say, “I’m sorry, I can’t give you a loan or I can give you a loan, but it needs to be at this interest rate,” where do we stand with something that?
Matt:
Okay, so first, as a loan officer, it’s incumbent on me to look at a full debt load that a client has including student loans.
Rick:
I understand that and that’s why I bring this up.
Matt:
The second point, though is-
Rick:
I’m not blaming you.
Jim:
It’s my fault. It’s all my fault.
Matt:
We do not penalize though in terms of interest rate for student loans. It’s really just, do you qualify for X number? Or you need to be x minus $10,000, what have you.
Rick:
Okay. Good. Thanks for explaining.
Matt:
No problem.
Jim:
Do you factor in the 150 grand of debt that they have for majority of month?
Matt:
Yeah. That’s one of the key factors, is the qualification for student loans now has become complicated. It’s not just the number that’s on the credit report, or if it says deferred and there’s no number it’s not that. We have to do calculations for a minimum amount of repayment. It doesn’t matter what the student loan on the credit report says. We have to then do additional calculations and it could be much worse than the number printed on the credit report.
Rick:
Jim, you’ve got an entire generation, will they even consider buying a house, knowing that they have this debt on their back and going, “Gosh, I’ve got to pay this off. Do I want to have this too?” know me?
Jim:
I think it’s using the term shift is ever used because every year I’ve been practicing, it’s been another shift. I’m seeing that a lot of my clients are being more overt about their payment of student loans, whereas before, 10 years ago, I want to say it was less of an issue, but they were quieter about it. I’m 44, so anybody under 30 is a kid. If you had a kid who graduated college, and they got $130,000 of debt, $160,000 of debt from undergrad, that’s going to significantly delay when they can buy a house and they might qualify, but they might not want to qualify. I think that it’s something that you look at, they’ve got their student loan payment, car payment, insurance and that’s a lot of outlay every month.
Matt:
Financial Education is huge. Just last night, my wife and I were discussing with our 15-year old, she’s a ninth grader, the fact that student loan debt is an important piece of the puzzle, and ways to mitigate that so that it’s not a weighing upon you into the future after you graduate. We had just frank discussions about student loans last night out of nowhere, which was fantastic as a family.
Rick:
I’m just curious and I realize we can’t. There’s no way to say it will be this number, but if you had four out of 100 individuals two decades ago, three decades ago and 70 of them might have bought a house. I’m curious as to how many might buy a house. Now with this many student loans, are we talking about 50? Are we talking about 30? I’m just curious as to what the percentage loss might be going down with this as long as there’s no way to do that. As a realtor, as someone working in the mortgage industry, we’re going to lose realtors, people leaving because there’s so many fewer houses to sell, and because now there might be fewer buyers.
Jim:
I think that there’s no way to answer that. Yeah, I think that one thing though is, there are so many things that factor into that question. We got on average 5 million homes sell every year. It’s been that way for decades. So I think it’s a zero sum game. If Matt does more loans than the lender over here, that lender over here might not stay in business. If I sell a house, that’s a house another agent is not going to sell. I think everything depends on what that particular scenario is for that person coming out of college with that debt.
Jim:
One thing that we’re seeing, I’ll put this, when we do the story, the National Association of Realtors economists are phenomenal. There’s a story a couple weeks ago that came out and says that, the Bank of mom and dad. One third of first time home buyers use help from friends or family to purchase a home in the last year.
Matt:
Absolutely.
Jim:
Again, it’s a huge conversation that transfers generational wealth. Now, there’s a significant portion of the previous generation that is able to loan money or give to their kids… give, yes, that’s it.
Matt:
I always give.
Jim:
Annual loans.
Matt:
You could voluntarily repay it with a gift.
Jim:
If you feel like it.
Matt:
Exactly.
Jim:
They give money to their kids to buy a house. I think that that’s something that is a significant thing when you look at the number of people who are buying houses, particularly first time home buyers who look to the parents to buy a house.
Matt:
Rick, your point I think is much bigger than we have time to cover today, but it has to do with schools, and guidance counselors, and teachers and parents all driving kids on a track to go to four-year college. We are missing kids in the trades, who can earn a very good living in plumbing, in carpentry, in welding and electrical with an apprenticeship that’s paid for and have no student loan debt and immediately be able to buy a house because they don’t have any debt burden carrying on their backs.
Jim:
I think that it is absolutely insane to funnel every kid from high school into a four-year degree college. I had a very different college education. I went to VMI. If I went to a real school, which I think that I was 18 years, it was a great education, but, “Gosh, I’ll get my butt kicked for four years.” If I’d gone to a real four-year degree school, I was 18 years old. I had no idea what I wanted to do. I think you’ve got a generation of kids, 17 18, 19 years old, going to college, and they’ve got no clue. All they know is that, they signed to borrow 50 grand a year, or whatever it is.
Matt:
I was so fortunate because when I was 19 I actually knew what I wanted to do. I went into McIntyre School of Commerce, and I took real estate finance from one of the best professors around and it was exactly what I needed.
Jim:
You knew you want to be a lender?
Matt:
I knew I wanted to be in real estate, in finance, I didn’t know exactly, but John in that class didn’t speak to me.
Jim:
Right. I think that’s an anomaly-
Matt:
Right. No. I agree.
Jim:
… to get out High School and say, “I want to do this.” And then actually do this, whatever that is. Again, I think, Rick, the student loan conversation, something is not going away forever, if you will, because these schools are expensive, they get more expensive every year, and the debt burden gets more expensive every year. These kids are coming out and they’ve got 100 grand, there’s going to take them-
Matt:
Certain presidential candidates have some plans to do there.
Jim:
I’m not even going to have that conversation.
Matt:
All right, okay, Okay.
Jim:
We don’t have enough burden, or time or patience.
Rick:
That’s probably true unless we wanted to hang out for multiple Sundays in a row. We are talking with Jim Duncan, Nest Realty, Matt Hodges, Presidential Bank Mortgage, to talk about real estate and the economy and not much on politics today. Matt, you had sent me something to talk about common sense underwriting.
Matt:
Yeah.
Rick:
I didn’t know that that was a thing to share.
Common Sense Underwriting
Matt:
It sometimes is sometimes you can break through the weight of what Fannie Mae and Freddie Mac and Ginnie Mae says, “You’ve got to manage through a process.
Rick:
Which Ginnie?
Matt:
Ginnie is the government entity that underwrites for FHA loans and for VA loans, so non-conventional.
Rick:
I knew the answer, but I didn’t know whether they have a good job.
Matt:
Yeah. Underwriting tries to find solutions within the existing guidelines that were published in order to get somebody approved. Right? We’re not trying to get around anything, but we’re trying to find those paths. Sometimes Fannie Mae has a past that’s better than Freddie Mac. For example, if someone’s self-employed for only one year, you might be able to get a one-year tax return, whereas Freddie might just do two years. There’s different paths to follow for different clients. On occasion, you’ve got to move outside of that and do a loan that is non-QM. A qualified mortgage fits the guidelines for Fannie and Freddie.
Matt:
One of the things that our company does and not just us, we’re not unique in this, other companies do too, but we’ll do ATR loans. That’s ability to repay at ATRs in short, but not necessarily qualified mortgage. That could be for a unique situation where, and this is one that closed this week, someone who was self-employed for a number of years in the same line of work and then goes into an employment situation, but no salary, 100% commission. It doesn’t fit. Fannie and Freddie doesn’t understand how that works.
Matt:
After a year, we know that that client is going to be approvable. They’d like to buy now. We think that they’re a pretty good bet. They’ve got high credit scores, they’ve got reserves left in the bank, their debt to income ratios look good. We might take a risk on somebody like that because it makes sense. Not always. This is going to be a unique situation that fits guidelines.
Rick:
Fascinating. It goes back to that, what you said earlier about garbage in garbage out for the website-related things where you don’t get your arm put around you and says, “Come on in and let’s talk. Let me be your friend while we do the paperwork.”
Matt:
In this instance, it was the bank president plus two others who did want approval. It was my underwriter in Glen Allen who did a second approval and it was the lead underwriter for the bank that did the third approval. All of them had to agree that this was a reasonable deal to do.
Fiber in Albemarle and Nelson Counties
Rick:
Jim, one of the things I read about in preparation for today’s show was that, there have been a noticeable percentage of sales in the area in Nelson County, versus the true worlds of Albemarle county because of high speed internet access being more available in Nelson.
Jim:
It’s crazy. Right? Nelson County has better fiber availability than does Albemarle County. I have clients who are moving, hopefully, into Nelson county in part because of Firefly, which is the provider. It’s a partnership with CVEC, the Central Virginia Electric Cooperative, that they are rolling out fiber to all CVEC customers with the availability to all CVEC customers which is amazing. They’re a lot of my client, I wouldn’t make this number up, but with 18% to 23.5% of my clients work out of the house. People need it from Netflix. Yeah, yeah, it’s reasonably high percentage where everybody needs “Netflix and Amazon” and all this stuff. For people who work out of the house, they need high speed internet.
Rick:
Is that co-located over the power lines?
Jim:
It runs, at least, parallel with them. The one I’m looking at is, once we get the place under construction and we get a meter in place from CVEC, then Firefly will come in and provide the node for the internet. Yeah. I think that having high speed internet is something that is, it’s a clear economic benefit for the people who live there, obviously, but for the locality as well to be able to attract people who are going to work out of the house. Yeah, it’s astonishing how much better the fiber is in the rural parts of Nelson county versus Albemarle County, which is sad to say is negligent in providing this sort of program. Again, for me it’s an amazing thing to be able to tell my clients is that, “If you go into Nelson, at least in the parts where they have the nodes, you can get you can get high speed internet.”
Rick:
You talked about going into Nelson County, and Albemarle. Do you have discussions with customers about to commute to your work, not for those obviously who work at home? Can you share conversation with folks about the length to where you work, “If you buy this house, where you’re going to work, the length of your drive, the traffic because here you’ll be driving with the crowd versus against the crowd. You see that driveway, snow issues that you should think about.” Et cetera.
Jim:
Oh, absolutely, man, I think so. Backing up one step, everything you just said is why when someone comes to show house, I’m cold. I advise them to rent for a year because it’s way easier to get a new lease than it is to sell a house that you bought inadvisedly. Absolutely, I think that it’s important that people consider all of those things. It’s easy to do the math. If you’re 45 minutes out from your job, and that’s an hour and an hour and half every day, first, there’s the value of your time, time matters. There’s also gas, wear and tear on the car, delayed fees for daycare, if that’s the thing.
Jim:
The short answer is, throughout history, civilizations like to be within 20%, 25% with their home base. I think that’s important, when I put people through the exercise of, “Pretend you’re living here. Do the drive from this house to your work at all hours of the day, particularly at peak hours. Pretend that you’re you’re making that left turn out of the house in the mornings against traffic. Think about if you want to come home for lunch and see the kids, if you have kids, or walk the dog or take a 20-minute nap.” Whatever those things are. I tell all my buyers that I’m fairly confident that we can find a house that’s going to be fine.
Jim:
You’ll find your four bedrooms, two and a half baths with a kitchen and bathrooms and whatever. The house is fine. It’s the getting to the house, and leaving the house and what your friends are like around you in that neighborhood, if you’re doing a neighborhood, that matter the most. I think that it’s important I try to pull people out of the, “I need this house.” That’s a factor in the algorithm, if you will, when they’re looking at, “Will we be happy here? And “Will we be happy here in seven years?” Because I had a client years ago, she didn’t buy anything, thankfully, but she’s 23, 24 years old. I wouldn’t try to talk her out of anything, but I tried to provide the information to her.
Jim:
The second time she came in, she came in with her parents. I’ll never forget this. We’re sitting at the conference room in Nest, and I’m on one side of table, the three of them on the other side, and the mom looks at the girl and says, “If you buy this house, you’re going to be stuck for five years.” You could see the color drain from her face in the realization of, “Oh dear God. I’m so used to moving every nine months or 12 months and now you’re telling me I’m going to be in this place for five years minimum.” She didn’t buy. I think that was the right decision for her, but sometimes it’s important to have that that voice of reason, if you will, of life experience, which is frightening links, sometimes I’m that voice of reason, that says, “You need to think about this. You think about life here for two months, 12 months 19 months and then make a good decision.” Yes, is the short answer.
Rick:
All right. Our guests today, again, Matt Hodges Presidential Bank Mortgage and Jim Duncan from Nest Realty as we talk about local real estate and the economy around it. Hang tight, we’ll be right back. We’re back with a gentleman for the day, Jim Duncan, Matt Hodges.
Rick:
Matt, one of the items that you wanted to make sure we brought up today was appraisal waivers. I have to tell you, I don’t know what appraisal waivers are.
Speaker 1:
Best things and sliced bread.
Rick:
Well, I prefer pita bread.
Jim:
Naan. Naan is good. I’m hungry.
Speaker 1:
Let me inform you. An appraisal waiver is a result of automated underwriting, so a fancy word for saying, “I’ve taken somebody’s loan application and put it into Fannie Mae or Freddie Mac’s system.” And that system has said, “Yeah, we like this buyer, collect pay stubs and bank statements. Oh, and by the way, we agree that the value that you keyed into your system is accurate and we’re not going to require that you get an independent third party appraisal to validate the sales prices house or for refinance the projected value of the house.”
Rick:
Huh. Okay. Is that a good thing or a bad thing?
Matt:
Is it?
Jim:
It depends.
Matt:
Exactly.
Rick:
Why is that a surprise in there too?
Matt:
On a refinance, it streamlines the process it, lowers costs.
Rick:
First of all, what is an appraisal cost?
Matt:
Appraisal is about $500.
Rick:
That would come out of my pocket as a buyer, which I’m probably not going to pay you right now. I’m probably-
Matt:
You are actually. On application, they’re going to pay us the appraisal cost.
Rick:
Okay. Good thing or bad thing to have it waived?
Matt:
Again, on a refinance, I think it’s a reasonable thing, because it streamlines the process, someone’s already paying their bills on time. Right? They’re just wanting to get a lower payment, and have more disposable cash, put more money back in the economy, save money, whatever the case it might be.
Rick:
How do you know if whether or not the house has been trashed?
Matt:
Woooooh, that’s a good one. We don’t.
Rick:
Not from the bank?
Matt:
Yeah, we have no idea.
Rick:
I come from an area that’s flood prone. How do you know whether or not the house has had some serious issues? I guess you would know whether or not the house had been truly flooded. How do you know if the house has been cared for?
Matt:
Yeah, we don’t. It’s a good point because an appraisal is validating that it’s a safe place to live, first and foremost.
Rick:
They could have a roof that needs building.
Matt:
Right. Broken windows, HVAC system, not pushing hot air, it could have trip hazards in the house because the carpets coming up. Lots of things could be wrong. You’re right.
Jim:
I almost fell down a house yesterday. Downstairs, I tripped on the top of the stairs. Now, but it depends. If I’m representing a buyer, I want that appraisal, because I want to have validation from the bank, from a third party, that they are protected, they don’t have a thing.
Rick:
That’s a sale.
Matt:
Right. It exists. It exists on purchases.
Rick:
I would think that every sale should have one, if I was buying a house.
Jim:
Well, it depends on how confident you are. As a buyer, if you have the information in front of you, and you say, “I know that and my buyers know what they’re doing once we’re finished, and they know it’s worth no more than 375 and they’re paying 367 or whatever, they know that it’s worth that and the appraisal for them.”
Rick:
That’s true, I would go-
Jim:
Hang on, hang on. Shit. I don’t disagree, but they feel comfortable with that and they’re okay with that waiver.
Rick:
Yeah, but you’re shaking your head when you turn around and out the room with them, you’re shaking your head.
Jim:
If I have the seller, and we get a contract from and it’s the house on the contract, and I hear there’s an appraisal waiver, awesome because that’s one less contingency that, representing the seller, we need to deal with.
Rick:
Right, but that’s the seller but as the buyer, you’re like, “Come on people you’re-”
Jim:
Well, that’s why I’m saying it depends on your perspective. When we get questions in the office, I’m going to say, “I have this thing.” My first question is, “Who do I represent? The buyer or the seller?”
Matt:
Here’s what Fannie says, “A small percentage of purchase loans qualify for appraisal waiver offer, and borrowers always have the choice to obtain an appraisal. You’re not required to use the waiver. It has to also be a property that has an existing appraisal in its system.” Fannie Mae has to have already seen this property at some point in the past.
Jim:
I did not know that.
Matt:
Yep, it’s a requirement. Is it a good thing or a bad thing? It’s a thing and clients are told about that opportunity and told about the risks benefits and then they can make an informed decision.
Jim:
If they feel comfortable as informed buyers that they’re paying a fair value, why not say 500 bucks?
Matt:
You’ve got a buyer/seller listing agent, selling agent. At minimum, those four people have agreed upon what this house is worth with a contract.
Jim:
In our market, I feel very comfortable saying this that, the agents with whom I work and the lenders with whom I work, are all above board. I don’t have any concerns. Other markets, I remember from the crash, there was some funky stuff going on. I don’t see that, I didn’t see that then in our market and I don’t see that now in our market. You have people who are advocating for their clients effectively, and the buyers pay the least money, and the sellers trying to get the most and you usually have agents on the other side who represent your clients. Well, through that process, you reach fair market value.
Rick:
Yeah, but now people are probably waiving it because there’s a half dozen other people trying to get the house.
Jim:
Well, they do that. A lot of times in cash transactions, there’s no appraisal at all. I’m seeing some instances in our market where you’re seeing cash offers, and you’re also seeing people waiving home inspections, which is terrifying.
Rick:
Oh, Gosh.
Matt:
I’d much rather have a realtors opinion on value than waiving inspection.
Jim:
Oh, yeah. I’ve been able to-
Matt:
Inspection as a four-hour long process. It digs into the house.
Speaker 1:
It’s 400 bucks, 600 bucks. It’s the best money you’ll ever spend. Yeah. If anybody takes anything away from this show, please be really considerate, if you’re thinking about waiving that home inspection, representationally as a buyer, I hate it. As a seller, Awesome.
Are we going to have a recession (soon)?
Rick:
Jim Duncan, Matt Hodges here to talk about local real estate. Gentlemen, many economists believe that a recession is coming. Do you think it’s going to happen in 2020? Whether it happens in 2020, how would it affect the real estate and mortgage industry?
Jim:
I said, I was in A conference in the last week of January.
Rick:
That’s a real estate?
Jim:
Real estate conference in New York. One economist, there was saying that he’s predicting a recession in 2022. Others are saying, “We’re fine for a couple years.” and Others are saying, “It’s going to stay strong for an indefinite amount of time.” Again, I’ve been doing this since 2001, maximum a little bit longer. The market will shift at some point. It has to. Nothing is going to go up or go down in perpetuity.
Matt:
This is the longest economic expansion in our country’s history.
Jim:
Matt, it’s going to shift and we’ll deal with it. We were talking about the recent recession three years ago, and one of my colleagues said, “We represent buyers during the crash and we’ve represented sellers during the crash.” The market’s going to be where the market is. I think it’s, people need to make choices today, if they’re buying or selling, to try and build in life stability, if at all possible, so that when that shift happens, they’re best able to weather the storm.
Matt:
Excuse me. Recessions are only visible six months out. Two quarters after its occurred, that’s when you know you are in a recession. Okay, so it’s a back looking. It will not happen in 2020. 2021, is probably a 50% chance. By 2022, probably a much higher percentage chance of a recession. Real estate is local, all real estate is local. Our market is so insulated by large employers specifically UVA, that we tend to work through those challenges better than other markets do.
Jim:
We hope.
Matt:
Historically.
Jim:
No, Matt, we do, we do. It goes back to where we started the conversation about micromarkets. Well, when a shift happens, pay attention to what’s happening in the short-term on market. Pay attention to the micromarkets there because, again, during the crash 12 years ago, you’ve seen these headlines about Phoenix and Las Vegas and Miami it’s like, yeah, it sucks for them, but that’s not us. It leads into the psychology of the buyers, and sellers and consumers, more than anything else that’s relevant to our market.
Matt:
We were on the Scooby Doo roller coaster versus the big bad wolf.
Jim:
One of that is fun.
Matt:
Middle hills.
Jim:
In deed think that will be gone, I think.
Rick:
Our guests today, Matt Hodges from Presidential Bank Mortgage and Jim Duncan from Nest Realty. One of the things that I have on my list here is privacy and those ring doorbells. Jim how many of those do you see when you take people looking for homes?
Jim:
A lot. In the MLS, there’s a disclosure, checkbox, recording device, yes or no. It’s a gray area. I would argue that a ring doorbell, the record you, is a recording device.
Rick:
Those got hacked. Right? Just for a quick explanation, they haven’t all been hacked, but some of them got hacked so that people elsewhere in the world could see into your home and see what was going on at your house.
Jim:
Right. Some argue that, because they are only motion activated, they’re not always recording, so it’s not a recording device. I think it’s like a live radio show, when I’m in a house, I assume I’m being recorded by somebody, which I think is fair and reasonable. Now, Matt, I think there’s something that people need to be mindful of when they’re walking through a house as buyers, that if they say, “I had this house, which really smells,” and the seller’s recording them, maybe they get used against them in negotiations of, “I don’t like these people because they think my house stinks.”
Jim:
I think it’s something that, the houses that have Alexis in them or the Google thing or the Apple Home, there’s things you could walk into a house and order, toilet paper, which I’ve heard of that happening in other parts of the country. People showing houses are ordering you 30 things of toilet paper, which a 13-year old may think is hysterical. The professional me says, “No, it’s awful.”
Matt:
We’re all giggling.
Jim:
Yeah. I think that, for anybody being mindful of recording devices in the house. I think that. Again, it’s, everything gets hacked eventually. If you have one of those try and you change the password from the default password. It’s not hard.
Newsday investigation, discrimination, lender and Realtor roles and responsibilities
Rick:
I also saw where there was a Newsday investigation recently. I guess it wasn’t recently, but it was published. It was a three-year investigation.
Matt:
Yeah.
Rick:
Matt, you mentioned that your business gets shopped.
Matt:
Oh, every loan officer gets shopped.
Rick:
Can we talk about those together and what getting shopped is and a little bit about the investigation?
Matt:
Sure. Yeah, yeah. Getting shopped basically means that, you are providing consistent responses and assistance to any group of people, any person that calls you, that inquires about mortgage lending, that you’re being consistent in your approach back to them and not in a discriminatory mode, moving down one path towards a certain neighborhood, or a different down payment amount, or making assumptions about someone’s credit score, or providing or not providing information as requested because you feel that it will lead to a small loan amount or extra time doing a loan.
Rick:
Or you’re not judging someone based on their last name.
Matt:
Or their voice.
Rick:
Or their voice.
Matt:
Correct.
Rick:
Or something like that.
Matt:
Yeah. It’s pretty easy, usually, to spot the shoppers, and sometimes I’ve called them on it.
Rick:
How is it easy is it to do that?
Matt:
Well, the most common way to find out is to ask him, which realtor referred you to me? They stumble and don’t have that ready as part of their script back to me. Yeah.
Jim:
Yeah. From my perspective, the Newsday thing, it was a three-year investigation, I believe in New Jersey. It was tested. It was a fantastic investigation in that it was done correctly and well. What it did is, it looked at, they shopped, a black person and a white person both went to the same agent, same everything else except for their race. They recorded all these things. We’ll put a link up on when this things get posted.
Jim:
Short story is that, there is disparate treatment amongst many of those realtors, where one person, one race was treated differently than someone of another race. Things were said differently to one than another. We don’t have time to get into the depth of what happened there. The takeaway for me, as we talk about within Nest and colleagues around the country, as realtors we have a phenomenal responsibility to treat people equally. I don’t say fairly because I think fair is arbitrary. Now, 16-year old daughter’s fair is different than my 26-year old daughter’s. It’s different than Matt’s fair, but treat everybody the same. I tell people that I don’t discriminate because it’s neither nice, profitable or legal, in that order.
Jim:
It’s something that this investigation, I encourage everybody to read it and spend time. For the realtors who listen to this, think about what you say because we have a terrifying responsibility to not lead people wrong. There are parts of the country that the people were saying things. They’d say something to Matt say, “You don’t really want to go to this neighborhood. If you do, go to the grocery store at 10:00 at night and get diapers.” Just to see what you think, which the person was leading into, “It’s a crime-ridden area, you being this race shouldn’t go there.” One agent was recorded saying, “I can’t tell you what schools to go to because that’s steering.” I think of a different way. I use the word educate, to help you make a decision to go to the right schools.
Jim:
Again, it shook every person I know because you say things off hand. 10 years ago, 12 years ago, I would have said, “Drive through the neighborhood and look for kids.” That’s inherently discriminate against those who don’t have kids. I think three, four or five times that’s what I say to my clients, so it’s not misconstrued and so it’s not something that is the wrong thing to say. I think it’s incumbent on everybody to read this story in this investigation and watch the videos. Again, as realtors think about what we say because it has life altering impact on people’s lives.
Jim:
We have just a tremendous responsibility to not just talk about it, but call each other out. If I hear, not Matt, with Matt to colleague, and Matt says something that I overhear and I think is the wrong thing to say, Probably not right there, but have that dialogue with him later of, when you tell people, “This is the best school district.” That’s not something I say because best school district, one, is completely dependent on who the kid is or the family is. Two, it can be easily construed if it’s X race or Y race.
Jim:
I say, here’s a place where we can get information on the schools, and I want you to rent for a year and make friends and ask them about what the best schools are for your kid because every school is different. Every kid is different. There’s no best or worst in my opinion. Yeah. The Newsday story, it was a tremendous feat of journalism, they should get pivots or whatever else because it was a remarkably eye opening look into the world of real estate practice.
Jim:
Again, it’s something that we have, I said this a lot, we have a responsibility as practitioners, to just not do the wrong thing because you can put a family in this side of town that is their race and they could have had a positive or negative impact for the rest of their lives and their kids lives and generational effect of how these people live. Yeah, it’s something that, it shook us to our core and we’re very thoughtful about what we say. Thanks for that.
Rick:
We’re going to finish up on that because that’s amazing. Our guests today Jim Duncan from Nest Realty and Matt Hodges, from Presidential Bank Mortgage. Gentlemen, thank you so much for being here.
Matt:
Rick, always a pleasure.
Jim:
Thanks, Rick.
