August 15, 2012 Western Los Angeles Home Buying Class


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August 15, 2012 Western Los Angeles Home Buying Class

  1. 1. Redfin’s Home Buyers Class August 15, 2012 Culver City Follow: @RedfinLosAngeles Like: 1 of 51
  2. 2. Agenda ● Overview of purchase process ● Understanding the Market ● Touring ● Mortgages ● Break! ● Choosing an agent ● Redfin as a tool ● Short sales & foreclosures ● ClosingSlide 2 of 51
  3. 3. A Little Bit About Who We Are Redfin is a real estate brokerage that has helped over 20,000 people buy or sell a home; 97% would refer us to a friend. ● Customers, not commissions ● Informed decisions ● The right home for the right price No obligation Get back a portion of our commissionSlide 3 of 51
  4. 4. - Benefits of a MLS (Multiple Listing Service) Powered ● All the homes for sale: 30% more listings ● You see what the agent sees: 4x the data ● Real-time market data: photos, details of just-sold homesSlide 4 of 51
  5. 5. Highlights of Redfin’s Site ● Search by zip code or neighborhood ● Saved searches/instant alerts ● Agent notes ● Download results ● Price your home ● Forums ● Home buying guide ● Home inspection guide ● Any questions about the site?Slide 5 of 51
  6. 6. Redfin Open Book ● Redfin Certified Providers ► Proven track record, vetted by Redfin ● We review every client & post the good, bad, & ugly ● Read real reviews & find a great local team ► Inspectors ► Lenders ► Title Companies ► AttorneysSlide 6 of 51
  7. 7. Redfin Open BookSlide 7 of 51
  8. 8. Understanding the Buying ProcessSlide 8 of 51
  9. 9. Overview of Purchase Process ( more details to follow) ● Information – learn as much as possible about the market, the neighborhood, price trends ● Tour some houses to get a general idea ● Interview Lenders- get pre-approved ● Choose an Agent ● Tour more seriously and find YOUR home ● Mutual Acceptance on your offer ● Home Inspection “Contingency” ● Financing and Appraisal “Contingencies” ● ClosingSlide 9 of 51
  10. 10. Understanding the MarketSlide 10 of 51
  11. 11. Case-Shiller: Los Angeles Area v. 20-City 300.00 Los Angeles 20-City Composite 250.00 200.00 150.00 100.00 50.00 0.00Slide 11 of 55
  12. 12. Case-Shiller – By the Numbers Los Angeles Area Down 3.6% year-over-year Peak was September 2006 Down 41% from peak Currently at July 2009 prices 20-City Composite Down 1.9 year-over-year Peak was July 2006 Down 34% from peak Currently at January 2003 pricesSlide 12 of 51
  13. 13. Los Angeles July Stats for HousesSlide 13 of 51
  14. 14. Culver City July Stats for HousesSlide 14 of 51
  15. 15. Culver City July Stats for HousesSlide 15 of 51
  16. 16. Local Market Trends LOW INVENTORY & MULTIPLE OFFERS Months of Supply – The time it would take to sell through all the homes on the market, given the current pace of sales● Supply of homes is at a five-year low & won’t increase the rest of the year● In a balanced market, Months of Supply is between 5-6 months --- Anything less is a seller’s market● Multiple Offer situations are common across the board in various areas● Multiple offers are not only against 3 or 5 buyers, but more like 10, 20 and sometimes even 30 or more● Rents have been rising, making buying more attractive● Interest rates remain low, making buying attractiveSlide 16 of 51
  17. 17. What other trends are we noticing? Homes are being listed at strategically low prices So properties are selling above list price Base your offer price on comps & trends – NOT on list price Deadlines are being set to accept & review offers Sellers usually review offers after about 7 days on market To give property exposure and create buzz amongst buyers Some buyers are waiving their inspection contingency & appraisal contingencySlide 17 of 51
  18. 18. TouringSlide 18 of 51
  19. 19. How Touring with Redfin Works ● Up to six homes per tour in two hour blocks ● Go on as many tours as you need ● Led by agent or field agent ● Need to be verified ● No obligationSlide 19 of 55
  20. 20. Making the Most of Your Tour 1. Bring a camera, notebook & tape measure 9. Peek into the attic 2. See how much sunlight the place gets 10. Bring a marble or two 3. Check the bathrooms for rot & mold 11. When sharing a wall, make sure it’s thick 4. Look for wavy or discolored wood siding 12. Ignore the appliances and carpets 5. Make sure water spouts drain away from 13. Check the closets house 14. Get the disclosure packet 6. Take stock of storage space 15. Compare the property’s tax records to the 7. Turn off any music playing in house listing details 8. Check for hardwood floorsSlide 20 of 51
  21. 21. Short Sales and Bank OwnedSlide 21 of 51
  22. 22. What is a Short Sale? The owner owes more on the mortgage than the home is worth ● Usually pre-foreclosure, but not always ● Listed for less than what’s owed to the bank ● Requires 1 - 2 banks’ approval (usually 2) ● May have other liens (taxes, utilities, HOA) We Can Help With a Short Sale! ● See short sales with a Redfin agent ● If you want to buy, work with a Redfin agent or a short sale partner agent ● Redfin partner agents work for other brokerages but share Redfin’s commitment to customer service ● Get a 15% commission refundSlide 22 of 51
  23. 23. What is a Bank-Owned Property? ● A foreclosed home owned by a bank or lender ● Standard sale but: ► Verbal negotiations ► Long response times ► Repairs unlikely ► Limited or no disclosures ► Legal addenda may require an attorney ► Banks demand use of their own contracts ► Banks usually use escrow & title company of their choice – they may give buyers incentive for doing thisSlide 23 of 51
  24. 24. Break!Slide 24 of 51
  25. 25. 10-Minute Break 10 mins 5 mins End Let’s Get Started!Slide 25 of 51
  26. 26. MortgagesSlide 26 of 51
  27. 27. Start Shopping for Lenders Compile a list of 3 lenders & brokers Good sources include: ● Redfin Open Book ► Redfin Certified lenders ► Reviews you can trust ● Your real estate agent ● Friends, family & co-workers ● Banks or credit unions you have accounts with ● Beware of out-of-state lenders!Slide 27 of 51
  28. 28. Writing a Winning Offer Use a Redfin Preferred Lender *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders!Slide 28 of 51
  29. 29. Your Lender is part of our Team! Ask your loan officer how they can help you in a competitive situation (shorter contingency period, quick closing?) Request that your Loan Officer be available to speak with the listing agent – To confirm the strength of your pre-approval To verify that they can meet the timeline of your offer Get a preapproval letter with your maximum approval amount, you can customize later if necessary Use a lender with local expertise- in a competitive situation it can be the difference between winning and losing Get full underwriter approval --No pre-qualification letters pleaseSlide 29 of 51
  30. 30. Where Are Rates Headed? Type of Loan August 2, 2012 August 9, 2012 30-Year Fixed 3.55% 3.59% 15-Year Fixed 2.83% 2.84% 5/1 ARM 2.75% 2.77% 1-Year ARM 2.70% 2.65%Slide 30 of 51
  31. 31. Where Are Rates Headed?Slide 31 of 51
  32. 32. Getting Pre-Approved A pre-approval letter is a letter from a bank or a lender estimating how much theyll lend you ● Establishes what you can afford & makes offer process go faster ● What’s the difference between Pre-Approval and Pre-Qualification ● Usually good for 90 days, depends on lender ● Redfin asks that you get pre-approved before your third tour ● Are gift funds involved? ● How much do you have for a down payment? Information needed: ● W-2, two pay-stubs, tax returns, bank statementsSlide 32 of 51
  33. 33. Types of Loans ● Conventional: ► A Higher Down payment (20%+) makes your offer stronger ► Fewer restrictions on home’s condition, assures buyer has good credit ► Fixed or adjustable rates, conforming or non-conforming ● Federal Housing Administration Loan (FHA): ► Always have mortgage insurance ► Buyers need only a 3.5% down payment, Lower credit ok ► Lender may require repairs, longer closing period ► Not all Sellers will Accept FHA, depending on condition of property ● VA Guaranteed Loan: ► Veterans, active duty personnel, reservists/national guard, surviving spouses ► No down paymentSlide 33 of 51
  34. 34. Review Your Financial Situation To Buy or Not to Buy ● Pull credit report, look for errors ● Establish comfort level for monthly payment ● Figure out how much monthly income goes towards debt: 28 – 33% healthy ● Pay down credit balances to 1/3rd ● Don’t open any new lines of credit ● Don’t buy any big ticket items ● Source of money ● Current employment statusSlide 34 of 51
  35. 35. Choosing the Right AgentSlide 35 of 51
  36. 36. Traditional vs. RedfinSlide 36 of 51
  37. 37. What to Ask Any Agent ● Is this your full-time job? ● Familiar with foreclosures or short-sales? ● Where were your last five deals? ● Who else will be working with me? ● When am I committed to working with you? ● Has a client ever filed a complaint? ● How are you paid? ● Can I see some reviews of your work?Slide 37 of 51
  38. 38. Experience With Multiple Offers This occurs when inventory is down and buyer interest is up 5 Tips for Winning in a Bidding War 1. Make the competition eat your dust 2. Get pre-approved with a local lender & get underwriter approval 3. Start the conversation early 4. Write a letter & appeal to the seller 5. Know your limitsSlide 38 of 51
  39. 39. Write a Winning OfferSlide 39 of 51
  40. 40. Let’s Do our Homework! Your agent will call the listing agent, to find out what the sellers situation is & why they are selling What are the sellers’ motivations? Will they need to remain at the property after closing? Do they need a quick sale? Request for copies of disclosures and reports Find out how many disclosure packages have been sent out to other buyers, has there been heavy traffic? Is there an offer due date? How should offers be submitted – via email, drop off at listing office or in person? Build rapport with listing agent and check scouting reportSlide 40 of 51
  41. 41. Offer Price Price & Terms are the King & Queen of Winning, especially in Multiple Offer Situations Study Comparables Understand pricing trends in the area Base your offer on the comparables – not the listing price especially if it is strategically low Determine your maximum price & Know when to Walk Away You can’t control what someone else is willing to pay Calculate payment difference at incremental price points $5,000 more equals $?/month Days on Market Fewer DOM – sellers are less flexible More DOM – sellers are usually more motivated/open to negotiating Know the Sellers Current Loan SituationSlide 41 of 51
  42. 42. Highest & Best In a multiple offer situation you may have only one shot at offering and no opportunity to further negotiate Blind betting – you don’t know what the other offers are What is the maximum price you are willing to pay for this property? How much do you really want this property? Determine your walk away price Go in with your Highest Price and Best Terms right from the startSlide 42 of 51
  43. 43. Get Ready! Documentation Having your finances and other required documents in order prior to making an offer can accelerate the process. Here’s what we’ll need at a minimum to include with your offer: Pre-Approval Letter Not a pre-qualification Proof of Funds Bank statement, 401k, brokerage statement Earnest Money Deposit Check Just a copy (picture, scan or fax)Slide 43 of 51
  44. 44. Earnest Money Deposit 3% is typical in the area A higher EMD shows you are serious buyers and could make the sellers consider your offer more To be submitted to escrow within 3 business days of acceptance The check is cashed, held at escrow & applied to your down payment at closing Refunded if you cancel as a result of a contingency Could be in jeopardy if you cancel after you’ve removed all contingenciesSlide 44 of 51
  45. 45. Add a Personal Touch Including a short letter to the seller and a picture may help the seller connect and consider your offer. Include a bit about you, your family, your profession. Comment on the things you liked about the seller’s home. Send your agent a family photo to include. Won’t help with a bank owned properties or investor sellersSlide 45 of 51
  46. 46. Home Inspection and Other ContingenciesSlide 46 of 51
  47. 47. Other Contingencies TERMS - Understand & offer the terms that seller desires Contingencies protect the buyer and gives the option to negotiate further, or cancel the transaction if no agreement is reached. Inspection Contingency – Typically 7 to 12 days Financing Contingency - Typically 14 to 17 days Appraisal Contingency - Typically 14 to 17 days Shorter contingency periods makes your offer stronger & shows how serious you are as buyers Need a Home Warranty? Seller Rent Back?Slide 47 of 51
  48. 48. Inspections ● We recommend that you have at least a Home Inspection and Pest Inspection ● Cost runs $350 to $1200 depending upon the size of the house ● Your time to evaluate & investigate the property ● What an inspection contingency covers ● Types of inspectionsSlide 48 of 51
  49. 49. Inspections: To Waive or Not To? • Pre-Inspection • Out $300 - $1000 and may not get the house • Timing can be difficult • Seller may not allow • Post-Inspection • May scare sellers – They usually want a truly As-Is sale • Deal can quickly fall apart • What’s reasonable to negotiate further? • Waived Inspection • High Risk • Waiting contingencies is not advisableSlide 49 of 51
  50. 50. CLOSING & POSSESSION Closing - Chat with your lender and see how quick they can close. Flexibility with closing can make a huge difference Take Possession At closing or does the seller need a Rent Back? The seller may needs to stay longer but want to close sooner to have access to the funds Seller pays buyers PITI while occupying the home after settlement Deposit & Rent is held at escrow upon closing Usually a max of 30 days – anything more requires lender approvalSlide 50 of 51
  51. 51. How Redfin Helps Redfin agents close more deals than an average agent, we know the market and how to get the job done. Help determine market price CMA, trends and stats Understand the listing agent’s negotiation style Average discount, market time and offer process Established relationships with listing agents We know what questions to ask, what to say, when to say it Write crisp, clean offer quickly Docusign, electronic offer process Team structure allows agent to focus on writing your offerSlide 51 of 51