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Patient buyer gets $35,000 discount waiting out overconfident seller


By Jeff Lazerson


What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary 

From Freddie Mac’s weekly survey: The 30-year fixed averaged 4.35 percent, unchanged from last week. The 15-year fixed rate averaged 3.78 percent, down one basis point from last week.

The Mortgage Bankers Association reported a 5.3 percent increase in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $23 higher than this week’s payment of $2,411.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at a zero point cost: A 15-year FHA (up to $431,250 in the Inland Empire, up to $484,350 in Los Angeles and Orange Counties) at 3.50 percent, a 30-year FHA at 3.75 percent, a 15-year conventional at 3.625 percent, a 30-year conventional at 4.125 percent, a 30-year FHA high-balance (from $484,351 to $726,525 in L.A. and Orange counties) at 4.0 percent, a 15-year conventional high-balance (also $484,351 to $726,525) at 3.875 percent, a 30-year conventional high-balance at 4.25 percent , a 15-year jumbo (over $726,525) at 4.0 percent and a 30-year jumbo at 4.75 percent.

What I think: Earlier this week, CoreLogic announced a 17 percent drop in Southern California home sales in Januarycompared to one year ago. And, almost 20 percent fewer homes sold in January compared to December.

If you are an informed and patient home shopper, and you plan on holding your home for five or more years, I say nonsense to these falling home sale numbers.

Consider my client whom I will nickname Patient Perry.

Late last summer, Mr. Perry found a Laguna Niguel home that really caught his eye. He made an offer and went into escrow. All was good until the estimated value of the appraisal report fell short of the sales price. Patient Perry and the seller could not come to terms on a price reduction. Escrow cancelled.

Some months later, Patient Perry went back and made another offer on the same property and this time the deal stuck. We closed in January.

Between the sales price and closing costs, Patient Perry paid $35,000 or roughly 4 percent less than he would have had the original offer stuck.

Indeed, Southern California property values have soared over the last several years.

More recently, and in addition to the sales volume drop, home prices are flattening or even dropping. Yet, many real estate listing agents and home sellers won’t acknowledge these facts — as evidenced by increased price reduction trends, longer average days on market and cancelled listings.

Even fix-and-flip trends are down. Last year, Los Angeles County, Riverside County and San Bernardino County all experienced lower numbers of property flippers than the previous year. Nationally, 2018 showed a seven-year low in property flipper volume, according to Christine Stricker of Attom Data Solutions.

My takeaways for buyers in this declining market are:

  1. Be very clear in your mind as to the fair market value of the home you are considering. Use a real estate agent gifted at drilling down and comparing property values.
  2. Don’t be afraid to low-ball the offer as a first step. The sellers’ counter-offer will speak volumes as to where the seller is willing to land.
  3. Do not use the listing agent to represent you. It’s simply impossible for a listing agent to get the highest price for the seller and get you the lowest price as the buyer. And, this is no longer a sellers’ market where you might have previously been afraid your offer would not even get presented if the agent couldn’t double-end the deal.
  4. If something is getting stuck in the negotiations that don’t make any sense to you — or you are suspecting one of the agents isn’t providing the straight story — don’t be afraid to contact the seller directly, principal to principal.
  5. Along with your loan pre-approval, shop for your escrow and title companies ahead of time. Realty-company owned and realty-company affiliated settlement providers tend to be more expensive in my experience. Require the seller to use your service providers (unless the seller’s providers are willing to match your providers’ prices).

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Jeff Lazerson - Mortgage Columnist since 2011