The Costs of Buying a Home

If you have never purchased a home before, there are a lot of things you probably do not know about the process. Beyond finding that home on your favorite real estate app, what does it actually take to go from scrolling through pictures and daydreaming to getting the keys and moving in?

Sales Price

The one thing everyone sees is the sales price - this is probably something you have even used to put a filter on your search. In different markets, this number may be anywhere to close to what the home sells for, or significantly different. The important thing about this number is that it is determined by the seller. Sure, they may have had a listing agent run data from the neighborhood and give advice on that price, but the sales price is always set by the seller. In the last few years, the sales price listed on a property has often been referred to as the "starting offer" as homes can escalate above list price. As things have settled down a bit, that sales price is closer to reality. In the last month (July '24) the average sold price was 102% of the list price, and yet we are still having instances of intense competition - the highest percent over list price for July was 187%.

Financing

Ok, you've found the home of your dreams, how are you going to pay for it? Have you spoken to a lender? Found out what you can borrow? What are the current rates? What kind of programs do they have that may save you money or allow you to move forward?  What amount of money do you have saved up for the downpayment? Do you need a downpayment? There are programs for very low downpayments (and VA loans with $0 downpayment) but of course, as I'm sure you know, the less you borrow, the lower your mortgage payments will be. The lending process can be very convoluted, and talking to an experienced lender who can explain everything to you early on will make a huge difference in your home buying experience. 

Wait, that's not all - You Need More Money

You don't just need a downpayment to purchase a house, you also need to pay the professionals who provide valuable services to you along the way. The Lender, your Agent, the Home Inspector(s), the Title Company, the HOA if there is one, Insurance... oh, and the Government too. Property, Transfer and Recordation taxes owed to the government along with these other services will all depend on where you are purchasing and are based on the value of the home. These fees (minus any inspections - which are paid at the time of service) will add together to make up what is called "Closing Costs" i.e. the money that needs to be brought to the table on closing day when you take ownership of the home. The Lender and your agent can help you to estimate what these costs will be once you have a budget for your dream home. After closing you'll have movers and utilities to set up, and maybe you've decided to do some work to the home before you move in. All things to consider when saving that nest egg.

Your Guide Through It All

Your real estate agent acts as a sort of "GC" for the buying process. An experienced agent will have references for good vendors for lending, for home inspectors, for contractors, for moving, for title work - vendors they have worked with before and trust to do a good job. This knowledge alone is invaluable and can save you time, energy and stress. They can also be your "concierge service" - your first call when you have a question. Even though a real estate agent isn't a lawyer, lender or a home inspector, they will know where to get the answers you need, whatever your questions may be. A good agent is going to get you through the buying process smoothly and educate you with the knowledge you need to make confident decisions. Your agent's compensation is negotiated when you sign the required-by-law buyers agreement - a document that officially hires an agent to work for you as your personal representative and fiduciary.  This document lays out protections for buyers and also for agents, it has a beginning and extendable end date, and it specifies how your agent will be paid for their service.

How much does Agent Representation Cost?

It varies. I can tell you how much I personally charge for my services, but agents are people with varying skills and varying services. There are discount services who will not be all that I described above - they won't be there for your every call and question and you will be on your own to navigate much of the process that lies outside of showings and writing offers. In fact, you can even choose to be on your own to find homes that fit your needs and write an offer completely unrepresented "fill in the blank" style - no guidance, no explanations of what you are signing - if you so choose. The recent lawsuits against various Real Estate Associations were heavily focused on buyer agent fees and transparency. Here in Maryland, we have had buyer representation and buyer agreements that protect buyers and explain representation for decades, but in some areas of the country, they have only just been mandated to start using buyer agreements as a result of the lawsuits. 

Another result of the lawsuit is to make sure that everyone knows that compensation is negotiable. That doesn't mean agents can't dictate what they charge for their services, it just means it's negotiable.  An article came out in the last week that suggested that buyers should not pay more than 2% to their agent and the industry was left wondering where they got that number, what they were considering when coming up with what fair compensation might be for a real estate agent who has worked with a client for multiple years looking for that perfect home. Have they taken into consideration the years of knowledge and experience a buyer might have access to, the monetary benefits of access to vendors who have been vetted for their professionalism and quality of work? What about the value of having someone who will answer your text at 8pm on a Thursday or 2pm on a Sunday to set your mind at ease about some question that just popped into your head? What other business holds these kinds of working hours? I get a daily e-mail from the singular Leonard Steinberg of Compass and today's message had his own opinion on this very article which in return prompted me to write today's blog. Here is a blurb from his e-mail as food for thought. 

"

The Consumer Federation of America -  a non-profit organization founded in 1968 to advance consumer interests through research, education and advocacy - came out with a bold proclamation recently stating that when negotiating compensation with buyer agents, buyers should settle on a dollar amount that pays buyer agents no more than 2% of a home's sale price. Why 2%? This very well-intentioned organization obviously wishes to bring down home buying costs for the consumer, and who can blame them as wages have not kept up with inflation in areas and the rising costs of everything over the past few decades has driven a big chunk of the US population into further wealth disparity. Could you live off a $20/hour wage before taxes in New York City and pay for health insurance, housing, education, transportation? While baying for 'no more than 2%' buyer commissions, why did they not address the costs agents incur to do business too? Why no limits on those costs? Advertising? Health insurance? Transportation? Technology? Insurance? Legal work? The list goes on. Have they ever promoted a "No more than $_____" for a cab ride? An airplane ticket? A lawsuit? Tips? Are the commissions retail staff get paid disclosed? Surely they have to understand that often the purchase process extends well beyond the obvious, often starting YEARS before a transaction occurs? This narrative perpetuates the myth that agents are paid merely for facilitating a transaction and that ALL that commission lands in their bank accounts without splits, taxes or any expenses. Did they factor all the work agents do that never culminates in a transaction ....or any payment? Commissions are negotiated. They always have been negotiated. Buyers have always had the option to go it alone. Limiting what you pay someone exists almost nowhere else in the US economy - a free market system - so why real estate buyer brokerage commissions? Many of these organizations promote minimum wages for almost all workers: if they are promoting a maximum of 2%, why not a minimum too? What about all the work many agents do that result in ZERO pay? Shouldn't they promote an hourly pay in the event a buyer does not buy? I am asking lots of the questions none in the media seem to be asking: one has to wonder why......?

 "

If you or someone you know is thinking about buying or selling property in Maryland or Northern VA, reach out anytime for a free consultation. 

Why You Should Pay For a Full Service Real Estate Professional

Why I Still Think You Should Buy That House, Even Now.

 

Invest in Yourself by Owning a Home

Are you wondering if it makes sense to buy a home right now? While today’s mortgage rates might seem a bit intimidating, here are two compelling reasons why it still may be a good time to become a homeowner.

Home Values Appreciate over Time

There’s been a lot of confusion around what’s happened with home prices over the past two years. While they did dip ever so slightly in late 2022, this year they’ve been appreciating at a more normal pace, which is good news for the housing market. And while looking at price movement over just a year or two can make you worry prices are usually this unpredictable, history shows in the long run, home values rise (see graph below):

 

Using data from the Federal Reserve for the past 60 years, you can see the overall trend is home prices have climbed quite steadily. Sure, there was an exception around the housing crash of 2008 that caused prices to break the usual trend for a time, but overall, home values have been consistently on the rise.

Increasing home values is one great reason why buying may make more sense than renting. As prices rise, and as you pay down your mortgage, you build equity. Over time, that growing equity gives your net worth a boost.

Rent Keeps Going Up Through the Years

Another reason you may want to consider buying a home instead of renting is the never-ending rent hike. If you've ever felt the pinch of rent increasing year after year, you're not alone. That’s because, rents have climbed steadily over the past six decades (see graph below):

By buying a home, you can lock in your monthly housing costs and bid farewell to those pesky rent hikes. That stability is a game-changer.

In the end, it all boils down to this: your housing payments are an investment, and you've got a choice to make. Do you want to invest in yourself or your landlord?

By becoming a homeowner, you're investing in your own future. When you rent, that’s money you never get back.

When you factor in home values consistently rising, plus the opportunity to get relief from never-ending rent hikes, homeownership can be a path to financial security. As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), states: 

“If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the associated household maintenance expenses, then it makes sense to purchase a home.”

Bottom Line

When it comes down to it, buying a home offers more benefits than renting, even when mortgage rates are high. If you want to avoid increasing rents and take advantage of long-term home price appreciation, let’s connect to go over your options.

Do You Think of Your Home as an Asset, or Just the Place You Live?

 

Owning Your Home Helps You Build Wealth

You may have heard some people say it’s better to rent than buy a home right now. I urge you not to listen. There are definitely situations out there where renting is the way to go, but all of the good reasons to become a homeowner still exist. One of them is that owning a home is typically viewed as a good long-term investment that helps your net worth grow over time.

Homeownership Builds Wealth Regardless of Income Level

You may be surprised to learn homeowners across various income levels have a much higher net worth than renters who make the same amount. Data from First American helps illustrate this point (see graph below):

What makes wealth so much higher for homeowners? A recent article from Realtor.com says:

“Homeownership has long been tied to building wealth—and for good reason. Instead of throwing rent money out the window each month, owning a home allows you to build home equity. And over time, equity can turn your mortgage debt into a sizeable asset.”

Basically, the wealth you accumulate when you own a home has a lot to do with equity. As a homeowner, equity is built up as you pay down your loan and as home prices appreciate over time. Mark Fleming, Chief Economist at First American, explains how this same benefit isn’t true for renters in a recent podcast:

“Renters as non-homeowners gain no wealth benefit as home prices rise. That wealth actually accrues to the landlord.”

Before you decide to sign another rental agreement, now is a good time to think about whether it would be better for you to buy a home instead. The best way to figure out what makes sense for you is to have a conversation with a real estate expert you trust. That professional can talk you through the benefits that come with owning to determine if that’s the right next step for you. 

Bottom Line

If you're not sure whether to keep renting or to buy a home, know that owning a home, no matter how much money you make, can help build your wealth. Let's connect now to get started on the path to homeownership.