Ask Ben Belack #2: Top Real Estate Q&A's You Need to Know
Question #1: Should I get a 30-year fixed or interest-only and what's the difference?
Well, just like most businesses that offer an array of products, so do banks. I would say most of your parents will say to get a 30-year fixed and lock it in, but the truth of the matter is your principal, the loan amount, is not tax-deductible. And if you know that you're moving in the next few years, why would you try to pay principal down anyway? And on top of that, loans are fully amortized. They will give you the same monthly payment every month, and then a small portion of it is the principal in the beginning, and then the rest is interest. As time goes on, it shifts. So towards the end of the loan, it's principal and only a little portion of that is interest. So for me, I know I'm likely moving in seven years, and I want to be able to have as much tax shelter as possible. And if you ask any lender, they're going to say the same thing that I would, which is interest-only.
Question #2: Why do I need a buyer's agent if I can work directly with the listing agent?
A lot of people think this gives them leverage or that the agent representing the seller may give them a credit back towards their compensation since they're representing both sides. Look, the truth of the matter is, the agent representing the seller met them first, and it's really hard to act in a dual fiduciary responsibility (I can tell you because I've done it many times and it's tough). How do you grind down one side or the other when you're also supposed to be protecting them? You end up becoming Switzerland, and it's really a tough seat. So what I would say is that a buyer's agent’s job is not just to show you places and to collect a commission. It is their job to advocate for you, provide you with a list of inspectors (in our case in California that includes geologists, structural engineers it's not just a general inspection), help you identify red flags in the seller disclosures or on the title report and maybe refer you an attorney that can be reviewing all of these items for you. They should be a concierge of the transaction and advocating on your behalf. And to be honest, I just represented a buyer on a house that was listed for $4 million that we negotiated down to $3.3 million. Had this person gone directly to the seller's agent, this would have never happened. We knew how to create a compelling argument to get the seller down, and I think that right there, aside from buyer's agents being free, is argument enough.
Question #3: How do I know if a property is a good investment?
This is such an awesome question. I always encourage people to think about how they feel when they walk in? Does it give them concern or pause that it's a pretty vertical floor plan, it's three stories or the view is of the neighbor’s roof? These types of human responses to properties will always remain, so it's really important to think about that. The other thing that I would say you should consider, and this is a tip that I give my buyers. Oftentimes, first-time buyers are stretching so hard to just get into the market, they usually buy a three to five-year house. They're in a neighborhood that's great, but it's only two bedrooms. So in three to five years, they're going to be forced to move just by the natural progression of how life goes. If you can stretch to a seven to ten-year house, something where you can see yourself in for the long haul, no matter how the market ebbs and flows up and down, there will always be a larger buyer group looking for a seven to ten-year house. So whatever that means to you in your local market, seven to ten-year houses are more insulated and protected from market fluctuations.
Question #4: How much can we expect to negotiate on a property that's been on the market for a few months or more, or its market equivalent?
Generally, when we talk to sellers, and we say "if we have not received any offers within the average days on market after we've deployed a multi-pronged marketing plan, then we should be reducing by at least 8%." Generally speaking, the market will bear an offer within 7% or so. Some agents would even say to buy it within 9%. If the market thought that this was worth within 7% or so of the price, we would have seen an offer, so we're going to recommend an eight percent reduction (some agents would even recommend ten percent in our market.) With that said, as a buyer knowing that if you see that days on market creeping lower or it's a good house with bad photos, you should know that you have some leverage there. You should have your agent ask the listing agent if they've received any offers or what the activity has been like. That can inform your starting point. But yes if the listing has been on for a few months, I think you should start at least 10% below the asking price and see how it goes.