Is now the time to… downsize?

As children grow up and move away their parents are hesitant to sell the house that their family has grown up in. The memories are hard to part with, but the house simply isn’t working for them anymore. Add that with the fact that this market has scared the heck out of everyone and there are some empty-nesters that are potentially missing out on an amazing opportunity to grow their wealth, upgrade their living space and live authentically to their current stage of life.

This market shouldn’t scare you, it should invigorate you.

The opportunities that you have are abundant. Receiving more for your home than you ever thought possible opens many doors of possibility to you. What could you do with an extra $40,000 that you weren’t expecting from the sale of your home and not having to make any costly repairs to get your home sold?

Pay off debt? Plunk more money into your retirement savings? Retire now instead of a year from now? Travel the US in an RV? Move to Costa Rica? Backpack Europe while staying only in luxury hotels because you’ve earned it after decades of corporate work? Whatever it is, you do you. Dream your biggest dream and watch the sale of your home carve out the first steps on your next great adventure.

Deciding to sell your home is a big decision, and it could be the start to an even bigger new chapter in your life. Need some additional information on the process or what you could net from the sale before you decide to move forward? I’m happy to help you however I can. A valuation of your home for today’s NC/SC market is always free, and I’m always happy to answer questions over a cup of coffee either in-person or virtually. So call me to get the information that you need to make the best decision for yourself.

How are Realtors actually paid?

It’s the question that everyone has, but they’re too afraid to ask… How are you paid?

I’ve been waivering back and forth on how much I want to reveal in this post and I’ve settled on discussing the mechanics of agent compensation, along with a general personal discussion. It’s important to note that every real estate agent runs their business a bit differently. Much of these differences hinge on personal values and what someone will or won’t do or accept in their business dealings. There will always be someone that is willing to work for free, it’s up to clients to decide what the value of having a knowledgeable agent representing them is and negotiating compensation accordingly. There are good real estate agents and there are bad ones, and we all have our war stories from our time in this career.

Before I move forward in this discussion it’s important for me to CYA from a legal sense and say that everything is a negotiation. If you are hiring someone to do a job for you or represent you in some capacity you need to come to an agreement on compensation with them first and foremost. There are no hard-and-fast rules here, so make it a discussion.

Generally, in a residential transaction the seller’s agent and the buyer’s agent are both compensated by seller. Both the seller and the buyer come to an agreement with their respective representative on compensation, but that fee is generally then covered from the seller’s proceeds from the sale of the home.

The seller decides what they are willing to pay for both their listing agent and for the services of a buyer’s agent in finding and bringing forward a qualified buyer before listing their home. For example, the seller offers to pay 6% of purchase price with 3% going to the listing agent and 3% going to the buyer’s agent. If the buyer’s agent has an agreement with their client for higher than 3% compensation it would be up to the agent to get the additional amount paid to them from the buyer. If the seller only offered 5% of purchase price they could split the compensation 2.5% and 2.5% or they could pay their agent 2% and the buyer’s agent 3%. It’s really however the seller wants to set it up and they discuss this with their agent as part of the listing agreement.

There are some things to keep in-mind if you’re the seller who is deciding compensation. Aside from the normal adage of “you get what you pay for” when it comes to your own representation, if compensation is too low for the buyer’s agent 1) you’re putting the buyer in a tough situation to fund the difference for their representation during an already costly financial transaction and 2) agents may decide not to present your home to their clients. I’m not going to debate the ethical implications of steering a client away from a home for the agent’s personal financial gain. I’m just saying that it’s up to each agent how they choose to run their business, and no, I do not agree with where everyone lands on the ethical spectrum.

With compensation often being a percentage of purchase price, that does mean that higher-priced homes come with higher commissions than lower price point homes. This does not mean that higher price-point homes are more difficult to sell, in my experience it is actually quite the opposite. A $100,000 home is oftentimes much harder to transact because the buyer and seller have less money available for things like repairs, there’s more first-time homebuyers at lower price points and there can be agents who don’t want to deal with lower priced homes.

When closing a higher-priced home, what ends up happening is that the bump in commission dollars ends up helping to float time and expenses spent working on lower price point transactions that need more of my time and attention. It may be because there are more nuances within a specific transaction, more legal hurdles, or simply because a client needs more time to talk through ideas or need to view more homes with me before they’re sure of their decision.

It’s also very natural within the real estate business to spend time working with clients that aren’t ready to buy for whatever reason. Because an agent is only paid if a transaction closes, there are many hours spent meeting and working with clients that simply won’t close. Believe it or not, there are costs associated with showing homes to someone who doesn’t end up buying or selling a home with you in time spent, along with wear-and-tear on your car and the necessary gasoline to get from place to place.

The commission number that you see on the closing statement does not go directly into the agent’s pocket. There are splits to pay to the brokerage firm and any team that an agent may be affiliated with. Then money hits an agent’s bank account, where they must set aside money for their own income taxes and self employment taxes, along with their costs of doing business (insurance, advertisements, supplies, car, office, etc).

Each agent is their own small business owner, so all the risks and rewards of being in business for yourself apply. Sometimes it can be lucrative, sometimes your expenses far outweigh your income, but it’s always worthwhile work if you love it.

Why New Construction is Your New BFF

Prices are high, inventory is low and offers in the market are walking a fine line between homebuying and becoming a Vegas-level professional gambler funded only by your life savings. To say that the market is crazy feels a bit like an understatement these days and Covid has compounded the issue. I’ve seen Realtors take keys out of lockboxes to keep homes their clients are interest in from being shown (that’s a great way to lose your license), and I’ve had a Realtor enter without having scheduled a showing (another way to lose your license) which is technically trespassing and a great way to make the seller really, really angry. So as the buyer, how do you stay above the fray?

Two words: New Construction.

While it can be fraught with it’s own set of difficulties, new construction is a great way to keep out of the trenches of full-out real estate warfare known as the multiple offers situation.

Working with a builder means working with a company so they’ve got a plan to handle roll outs of lots and floorplans. They are held to a higher standard than a residential seller and must abide by equal housing opportunity laws. This means that a kindly worded love letter to the seller are off the table for tactics to win a home. The builder usually has an interest list and any newly available properties are offered to those on the list using a first-come-first-served basis. There’s no way to buy your way to the front of the line and sales staff are salaried meaning that their ability to take a shady financial incentive from a homebuyer is essentially zero.

Furthermore, because the sales staff is a step removed from ownership, they have no incentives to select buyers planning to build more expensive homes. As long as the lot is sold and a house is built, then the sales staff is happy whether the ultimate price of the home is 400,000 or 550,000. Meanwhile, if it was a seller selecting offers there’s a clear winner in that race.

Buying new construction also means that there’s more than one home for sale, so if your first choice of building lot happens to be scooped up, there are still other options for you. If you miss out on a re-sale home there is no true backup plan and your house hunt begins back at square one after losing the bid.

With new construction homes and especially those built by larger companies the pricing is more streamlined. It doesn’t always feel like that when you make what you think is a small tweak in the design showroom and it hits your bottom line hard, but it’s true. Shifts in pricing take a while to take effect in larger companies, so their pricing for an equivalent home on the resale market can actually be substantially less. Also, with multi-state builders pricing is often calculated for an entire region, so whether you’re in a big city or a more rural location you won’t see a tremendous jump in the price to construct a home. The majority of the pricing difference is due to the cost of the land itself and not much else.

Getting on a builder’s VIP list can feel daunting because there might be a ton of names on the list ahead of you, but try not to worry. With so many people looking for homes it’s easy to see a really large interest list but then because of the time required to complete the construction process the majority of those who were originally interested either found a home by other means or decided to exit the homebuying market all together. A lot can happen during the time a community opens and a certain home is ultimately built, so try not to feel discouraged.

If you’re sick of getting beat out in multiple offers, you don’t have a ton a money to put down on a house, or you have a difficult form of financing, then it’s time to look at new construction to see what options might work better for you!

Where are all the basements at?

If you’d like to tell any Charlotte Realtor that you’re relocating from the North without actually telling them that you’re relocating from the North… Just say that you need a home with a basement. As a girl that grew up in the snow belt of New York State, I understand the confusion and the deep longing that some people have for subterranean storage space. However, basements just aren’t really a popular thing here, and quite simply it’s because of science! And they’re cost prohibitive, also due to science.

First, you can find a few basement homes around the area. These are most-often built due to the topography of a building lot. If there’s a large slope in the grading this could be perfect for a walk-out basement, which is the style you’re most likely to see around here.

Frost line and footers

Climate is a huge factor surrounding the great basement debate. When a home is built, for it to be structurally sound the foundation must be secured beneath what’s known as the frost line. This is the depth of the soil that experiences freezing during the winter months. In a colder climate the ground freezes further down, meaning that home structures must be dug deeper to ensure that the freezing and thawing of the ground doesn’t shift the home’s foundation.

A quick google search will tell you how deep an area’s frost line is into the soil. In the area of New York where I grew up the frost line is approximately 48 inches below the surface of the ground. With these homes needing to be anchored 4 feet into the ground, you’re already almost halfway to digging a useable basement as part of the structural requirements. Here in Charlotte, our frost line is only 12 inches down. That’s a lot less digging and a lot less costly to build. Hence, why we have a lot of homes on crawlspace foundations; we don’t need much more than that for a sturdy base to a home.

Ground water depth

Another piece of the climate discussion is the height of what’s known as the water table, which is how close to the surface soil is consistently saturated with water. Here in NC, our water table is relatively close to the surface, which means when you dig something like a basement it’s really, really difficult to keep it dry. I’ve heard someone liken building a basement to trying to build a reversed swimming pool; where you have to make the structure completely waterproof to keep water out of the pool instead of in the pool. The level of waterproofing needed to ensure that there aren’t issues with moisture, mold and mildew in your basement is extensive to say the least.

Soil composition

Here in NC you will see that our soil is a high percentage of red clay. Clay is heavy. Wet clay is even worse. Based on the high water table level discussed above and the clay composition of our soil, basements are REALLY expensive to build.

Given the high cost of constructing a basement, the potential moisture problems that they can harbor and the fact that there is no need for the depth of the support structure in this climate, most homebuyers don’t see value of having a basement and would rather spend that money elsewhere in their home. If you’ve had a basement your whole life you might feel like you’re lacking storage when you look at homes here, but know that you’re also saving money on building costs of your home and you’re dodging potential maintenance issues down the line.

Why Price Isn’t Everything

Charlotte’s real estate market is nutty right now and with very little inventory on the market the chances of a home going into a multiple offers situation is exponentially higher. Especially in price points under 350k, where first time homebuyers are up against investors with deep pockets, all-cash offers, homes on the market only a day (if getting on-market at all) and general real estate debauchery.

Multiple offers. Highest and Best. What does it all really mean for the average homebuyer? Maybe not quite what you think. There’s a lot that goes into a seller selecting an offer from a pile of eager buyers, and it’s not just who offers the highest price (but yes, that’s important too).

Type of Financing

The type of financing that a buyer has can have vast implications when it comes to getting the transaction through to the closing table. FHA and VA loans are guaranteed by the government, but they also require more stringent approval processes. And because they are government-backed these processes can move slower and be more difficult to navigate. Down payment assistance programs can be another caveat within the process. A buyer would be silly not to take free money, but when that money comes with strings and stress for the seller, it might be best foregoing that money with our current market.

Buyer Liquidity aka money in the bank

Buyer liquidity is a natural extension of financing. Certain financing is geared towards helping buyers that don’t have much money to put down on a home. For example, there are VA loans that are 100% financed loans, so the buyer is bringing no money to closing. That’s great for the buyer, but what if the home doesn’t appraise up to the purchase price that’s written on the contract? The lender is only going to lend up to the appraisal price (aka what the home is “worth” in the eyes of the lender) so if the seller knows that the buyers aren’t bringing money for a down payment (or aren’t bringing much) then the likelihood is high that buyers won’t have cash to bring to cover the difference in the appraisal and purchase price. If this can’t get figured out in a timely manner then the buyer will have to terminate the contract.

Which brings us to…

Due Diligence and Earnest Money Deposits

If a buyer needs to terminate a contract the money that they have on the line is their Due Diligence money and potentially their Earnest Money. Whether or not they lose Earnest Money is dependent on when they terminate the contract (during or after the due diligence period) and certain types of financing require the buyer to receive their Earnest Money back if the home does not appraise for the purchase price (I’m talking about FHA and VA loans here).

If any of these termination scenarios were to occur, would the DD and EMD received from the buyer really be enough to compensate for the lost time and the seller having to go back to square one in selling their property? Riskier financing means more DD and EMD is needed to entice the seller to take a chance on the buyer.

Closing Date

Depending on the moving situation that the seller may be in, they may want to move very-very quickly and be done with the sale or they may want to stay in the house a few extra days or weeks to make the move-out process smoother. This can also lead in to the discussion of seller possession after closing. If, for example, the seller needs to sell their home to put money towards a new construction home they’re building they may need to close soon but then they don’t have a place to live until their home is completed and ready for move-in. A closing with seller possession after closing, also known as renting back a house after the sale, may be very-very important to the sellers. There are liability issues with the seller staying in a home they do not own for a period of time, so if this is something you’re interested in doing or offering, make sure you understand what could go wrong.

Buyer and Agent Requests

For the buyer this means other things that are requested as part of the contract. Usually it’s requesting the seller to pay a portion of the buyer’s closing costs, leaving personal property behind like a fridge, washer or dryer, or paying for a one-year home warranty for the buyer.

Requesting closing costs reduces the overall amount of money that the seller receives from the sale, and sellers don’t really like less money. Also, such a request tells the listing agent that the buyer is likely already strapped for cash because they need help paying their closing costs. It’s important to note that closing costs can’t really be financed as part of your loan amount, someone needs to pay them at the closing table. If those expenses are already tough for the buyer to cover are they really going to have money to cover an issue if the home doesn’t appraise? Likely not.

Another thing that goes into decision-making is how the buyer’s agent conducts themselves. I know, it doesn’t sound fair to be judged by someone else’s actions, but if that person is representing you and they aren’t conducting themselves in a professional manner then that’s a problem. If a seller receives two largely identical offers but one has a knowledgeable, communicative, and courteous agent and the other has a trainwreck of an agent, I have to tell the seller because it could impact the buyer’s ability to get things done in a timely and accurate manner, which could cause the buyer to need to terminate the sale.

Seller Preferences. Maybe.

This is where things turn into a grey area. It’s common practice these days for buyers to write personal letters to the sellers explaining why they love the house and why they should choose their offer over any other. Depending on the seller these may work, or they may backfire, so if you’re the buyer be careful! I had a client going through a messy divorce and they got a ton of letters explaining how the buyers saw themselves building their family with their spouse in the home. It was hard to read knowing the circumstances of the seller, who had also planned to grow their family in the home, but life ended up much different than they had expected.

I had another client who got their offer accepted because both the buyer and the seller were veterans. The seller felt so strongly about supporting a fellow veteran that they took a more-difficult VA loan as opposed to a conventional loan.

Seller preferences can get sticky if their preferences could appear to be a violation of fair housing laws. Choices based on the buyer’s race, gender, family status, etc. are highly discouraged by real estate professionals so we’ll try to keep these details out of the discussion if at all possible. When I talk to a seller about selecting an offer and personal details about the buyer are invovled in the submission I forewarn the seller than I will remove photos or information that could violate fair housing. If this is a problem for the seller then we have another issue entirely.