As prices fall, homebuyers can weigh agent bonus for even more discounts

Consider making low-ball offers — and giving your agent a financial incentive to make them stick.

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | October 25, 2022

* Article originally posted in Orange County Register on October 20, 2022

Economic conditions are quickly worsening as borrowing costs for cars, credit cards and mortgages are exploding in the name of conquering inflation.

Previously soaring home prices are doing an about face, heading south across California and the nation.

As a result, buyers are getting cold feet just like the early days of the Great Recession.

“I’m not so sure it’s a good time to buy because this home is going to be cheaper six months from now,” buyers said back then and are now saying again.

All-cash competition is largely gone. Overpaying is absolutely gone. First-time buyers, typically with small down payments, have a great opportunity.

But who wants to buy his or her first home in a tanking market?

My advice: You should at least consider it, so long as you’re willing to think outside the box.

During the buying frenzy of the past few years, many realty agents squeezed every last dime from homebuyers on behalf of sellers, closing horribly overpriced property sales — sometimes for 15% to 30% more than comparable properties.

Now, it could be the buyer’s turn.

Consider making low-ball offers, and giving your realty agent an incentive to make them stick.

Here’s how it works: In addition to the seller’s commission, offer your own broker additional compensation for closing your dream home at, say, a 15% or 20% discount.

You offer 1% of the sales price as an incentive for your broker to land you the pre-agreed upon discount. Or agree to bigger incentives for bigger price discounts.

For example, your broker haggles and gets your offer accepted at a below market price of $700,000.

The proof of the fairness of this price is the independent appraisal.

If an independent licensed appraiser values the home at $805,000, you have confirmed the home’s value is 15% higher than the $700,000 contract price. You then pay your realty broker 1% of the price, or $7,000, at closing.

You realized a savings of $98,000 ($105,000 less $7,000).

Do mortgage lenders allow this?

“The short answer is yes,” said Josh Weinberg, president of FirstLine Compliance. “The (closing disclosure) is the final settlement statement and should reflect all charges associated with the transaction and identify who paid for them. The real estate agent’s commission would be shown (there).”

State regulators are good with this too.

“I’m not aware of any law/regulation that would preclude a buyer from (giving) their own agent additional compensation,” said Rick Lopes, assistant commissioner at the California Department of Real Estate. “There may be an issue if it’s a dual agency situation (where one agent represents both the buyer and seller) or if the buyer’s agent is involved in originating the buyer’s loan.”

Realty agents are starving for business in the current market almost as much as mortgage workers. Many will gladly work extra hard for extra compensation.

At some point, mortgage rates will retreat. It could be as soon as 2023.

Just as in the Great Recession, median home prices will find a bottom, flatten and eventually shift to appreciating again.

When that happens, low down payment, first-time buyers will once again be faced with competition from the likes of all-cash buyers.

Freddie Mac rate news: The 30-year fixed rate averaged 6.94%, 2 basis points higher than last week and the highest rate in more than 20 years. The 15-year fixed rate averaged 6.23%, 14 basis points higher than last week.

The Mortgage Bankers Association reported a 4.5% decrease in mortgage applications from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $1,520 less than this week’s payment of $4,280.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.5%, a 15-year conventional at 6.5%, a 30-year conventional at 6.875%, a 30-year conventional high-balance ($647,201 to $970,800) at 7.125% and a 30-year purchase jumbo at 6.375%.

Eye catcher loan of the week: A 30-year adjustable purchase jumbo that’s locked at a 6.25% interest-only rate for the first seven years, without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.