With Terry Story, a 28-year veteran with Coldwell Banker located in Boca Raton, FL
Unison HomeBuyer Benefits for Buyers
As Story explains, the Unison HomeBuyer Program has taken off in the past few years as a popular way for home buyers to gain access to debt free funds to apply towards the down payment portion of their mortgage. Instead of offering a 10% down payment, a home buyer utilizing the Unison HomeBuyer Program can increase their offer to 20% of the property’s price. This enables buyers to sidestep the private mortgage insurance program they would otherwise have to pay into, a decent savings in and of itself. It also frees up funds for the buyer to make improvements to their new home, which naturally has knock-on benefits for other industries. Unison typically provides up to half of the down payment required on a home in combination with conventional conforming, super conforming or jumbo loans. The cash provided is an investment, not a loan, so there are no monthly payments or interest. Instead, the company hopes to earn a return on its investment by sharing in the appreciation when the home owner eventually sells or the home owner buys out the agreement. If the home value decreases, Unison also shares in the loss.
Rising Rents + Stagnant Income = Higher Rental Evictions
Next, Terry turns our attention to an unsettling and broad-based trend in rental markets: spiking eviction rates. The fundamental problem is a disconnect between rising rents— up 66% since 2001—and a much more modest rise in income—around 35%. A huge number of renters are paying a greater portion of their income, the so-called “housing burden,” towards rent. This, of course, puts many renters in a more vulnerable position, perhaps one expensive medical bill or job loss away from eviction and possibly homelessness.
Disclosures, Inspections & Repairs
Wrapping up this week’s conversation, Steve and Terry talk about negotiations between home sellers and buyers on issues related to required disclosures and inspections and necessary vs. optional repairs. Before closing a home sale, current owners are bound by law to disclose everything they know about problems with the property, a process that goes hand in hand with required inspections. Buyers are then given a window of time to propose repairs to any important issues identified in disclosures or inspections. Negotiations can break down and even threaten the closing if both sides are unable to come to an agreement on what needs to be fixed and how much it should cost. Terry mentions a novel approach to resolving some of these disagreements: Instead of renegotiating the sale price, or delaying the close until all repairs are complete and re-inspected, a seller might offer a “monetary credit” to the buyer, which the latter can then use to address repairs on their own time.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Round Up. This is the time every single week, we get together with noted real estate agent, Terry Story. Terry Story is a 28-year veteran with Coldwell Banker, located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Yeah, let’s get started here and to do that I need to find my papers. (laughter) There’s a new program out there of individuals and even companies now, helping mostly first-time buyers with their down payments. Tell us about that.
Terry Story: Yeah, this is really interesting concept. It’s helping somebody in the front end. The process simply is giving home buyers money toward their down payment. The thing is, they don’t expect to get it back in a monthly payment or even as interest, as long as the buyer lives in the home. Basically, what they’re looking to do is they lend the money, they give you the money as a down payment, and when you go to sell the house, that’s the time that you repay them. Part of that, not only are you going to repay them back the money that they lent …or gave you, if you will…they’re going to share in that equity on the backside.
Steve Pomeranz: Yeah, so they’re not really asking for anything to be paid while you’re living in the house, but they want a piece of the possible capital appreciation at the end?
Terry Story: This also is a strong indication, if you have programs out there like this, Steve, it’s telling you that the investors are thinking the market is going to continue to grow and the equity, so that the housing market is healthy because if this was not a healthy market, I don’t see programs like this happening. The company … one of the first companies to do this is a company called “First REX.”
Steve Pomeranz: That’s REX, not wrecks.
Terry Story: Right, right. First REX.
Steve Pomeranz: Now called Unison. The benefit to the new home buyer too is, if they give you enough, let’s say you only had enough for a 10% down payment. You’re going to have to pay private mortgage insurance which would be added to your principle and interest payment, but if you can put down 20%, you’re no longer responsible for that.
Terry Story: That’s right.
Steve Pomeranz: That added extra money could save you a fairly significant monthly expense. Also, Terry, I think that this would be very good in hot areas or, at least, places where there’s a long term trend of rising prices, like maybe …
Terry Story: Sure, and the other thing is if a person can hold onto their own money, then they can put the money into the house. Let’s say you do a program like this, and now you’ve got the extra 10,000 that you were going to put as a down payment, you can put it in the house. Update the kitchen, or what have you.
Steve Pomeranz: Yeah, that makes a lot of sense. Again, as an investor, if I were investing in something like this, I’d want to be pretty sure that I’m in a rising market that’s got some sustainability because I won’t have control over how long the people live in the house, so my rate of return is going to be partially how much I make at the end. Divided, really, by the number of years that I had the money outstanding. It’s kind of risky for the investor.
Terry Story: Sure.
Steve Pomeranz: You better be in a hot market.
Terry Story: If you’re 80 years old, I don’t think I would invest on somebody taking a thirty-year mortgage, planning to stay thirty years. (laughter)
Steve Pomeranz: Well, you know, there’s an old saying that it’s the 80 … the 90-year-olds that should be buying thirty-year bonds because, you know, they’re not going to be around anyway, and it’s really the 30-year- old that should not be buying. In investment world, it may be a little bit different.
Let’s change gears here. You know, we often think about eviction, which is a devastating event to happen to people, occurring with homes that … where the mortgages can’t be paid, but we’re starting to see a rise in evictions with rentals. Tell us about that.
Terry Story: Yeah, we do. According to Red Fin research they … what they’ve noticed is an estimated 2.7 million people were evicted from their rentals in 2015, and they’re seeing this starting to increase. They’re blaming it on the high costs of renting. The rents, actually, I don’t know if you realize this Steve, but they’ve gone up 66% since 2000.
Steve Pomeranz: Wow.
Terry Story: Which is really high. If you think about it household incomes, on the other hand, have gone up by 35%. There’s a lot … your rent is rising greater than the incomes. Of course, when that happens, you have an unbalanced situation. More than half of the renters today are spending more than 30% of their income just on rent. Then, if anything, of course, happens, they lose their job … they can’t afford those payments. We’re seeing the increase in evictions and rentals.
Steve Pomeranz: Which means that at some point there should be pressure on the rental market. If more and more people cannot afford it, then the market dynamic should take over and rent increases should abate.
Terry Story: Sure.
Steve Pomeranz: I don’t think … I know in this area we’re really not seeing that yet.
Terry Story: That’s right, and it’s really harmful to the families because evicted families …they’ll be excluded from programs such as Section 8 voucher programs. It’s important for them not to find themselves in this situation.
Steve Pomeranz: Yeah, so be careful out there. Also, I’ve got to ask a real estate pro question here, “We fell in love with a home and have it under contracted affair, but it’s a slightly high price. The inspection report highlighted a ton of issues, none of which was revealed in the contracts seller disclosure form. I thought the seller would need to reveal this information to any future buyers, so I’m suggesting he sell it to us for a discount. Is this how it works?” By the way, this is from Gary Singer from the Sun Sentinel in … down here in South Florida. How does that work?
Terry Story: Sure. Well, here’s reality. The sellers fill out a seller’s disclosure and they have to answer the questions honestly, to the best of their ability, what they know about the property. A lot of things you don’t have to disclose that are readily available to the naked eye, but, for example, if you know that you had mold, things that aren’t readily observable to a buyer, those are the items that are written on a seller’s disclosure. When you do an inspection, Steve, there’s a whole host of little minor things that they’re going to find. You’ve paid a professional to seek out trouble. We’re not talking about little things. We’re talking about the large items. If a seller is aware of something of significant nature, they absolutely do need to disclose it.
Now, in this particular case, this is what will happen. If there was a large item that wasn’t discovered … let’s say a roof leak, nobody knew there was a roof leak. It’s not disclosed. This is the time when the buyer can say, “Hey, Mr. Seller, I know you didn’t know you have a roof leak, I still want to buy your house. Let’s work together in finding a solution.” The best solution is for the seller to just give the buyer a credit for the cost of repair.
Steve Pomeranz: When you say a credit … hang on, you’re talking about a reduction in the price or …
Terry Story: A monetary credit.
Steve Pomeranz: …Putting some money aside in escrow?
Terry Story: No, my recommendation would be to give a monetary credit. When an inspection is done, they put a price. They might say $1000-$1500 to repair that cost, so give the buyer that monetary credit at closing so that they can go ahead and take care of it. If you don’t, and now the seller decides, “I’m not going to sell it to you, Mr. Buyer, I’m going to go sell it to somebody else.” This is the time that the seller is going to have a disclosure problem because he now knows he has a leak and it’s not readily available because you don’t see water stains. This is something that the seller does, indeed, have to disclose.
Steve Pomeranz: Yeah, so he’s not avoiding the problem, he’s actually just transferring the problem to a new set of buyers.
Terry Story: That’s right.
Steve Pomeranz: You’ve got the buyer, they’re interested …
Terry Story: Make it happen.
Steve Pomeranz: Yeah, make the financial consideration and get it done.
Terry Story: Now, I have a situation right now where the deal just fell apart. The buyer wants $20,000 towards a moisture problem. Well, this is the buyer’s opinion of what it would cost to repair. The reality, it’s probably more like a $3,000 item, so the seller is going to back down on this contract. Now, the seller has to remediate this problem and disclose that there had been a problem. I don’t think, in this particular case, that I’m just describing now, it’s that big of a deal because I don’t think the problem is as big of a deal as it may appear to be, but it’s not a $20,000 problem. In this case, the seller probably is better off taking care of the problem, disclosing it, and selling to somebody else.
Steve Pomeranz: You’ve heard it right here. This is Terry Story. This is our Real Estate Round Up segment and to hear more and get in touch with Terry, or rather to find out more about here, go to Terrystory.com.
Terry Story: Thanks for having me, Steve.