What Are Closing Costs?!?! PLUS - March 2022 Housing Market Update & Listener Q&A | HBH Podcast #81

Welcome to 2022 in the craziness in the housing market. If you're ready to buy a home, you probably have a ton of questions because if you're paying attention to the current speed of the market and the rising prices, you definitely want to get those answers and you want to get them quick. Today we're going to go over a few things that buyers ask me about all the time. Today's topics are going to be what are the fees when I buy a home? Also moving date details, the day you get your keys. The most exciting day will I have some crucial information to help you avoid moving day. Horror stories. And the last topic today, love letters to use or not to use. And the secrets that are going to help you win a bidding war and get you the house that you love. Okay, let's do a quick market check in before we jump into the topics. What's happening right now? It's March 2022 as I record this and what's happening with other buyers not only working with me but from all around the country. First, I will give you a quick personal story. Now I have some wonderful clients that bought a new build home in 2014. They actually called me around 2017. Been in the house for three years and they realized their family would soon be growing. We talked about every three months or every six months. Now fast forward to four months ago. The very long story summarized. It goes like this. Phone rings, Sidoni, we're having twins. We need to sell. So I replied, okay, let's see, that's can you guys hang out till February? We'll get the most money on the sale then and we can get you in a new home before June when the mistress here is set to release the twins to the world. Yep, they said. So I did all the marketing, I called all my contacts in real estate that I know all over the place and I even split the listing because someone that I've worked with before, she's a track specialist in that area. And so I was like, that's going to net my people the most money. Because my concern is always my people's bottom line, not mine. 10 offers on the house in just 6 hours on the market, it sold for 50,000 over the list price plus 3 months free rent back. So we started putting offer on new houses, found one we love, got there early, worked the rapport with the listing agent at the open house. Turns out she has a grandkids who are twins. So there was a lot of bonding going on at the open house. We saw a few More houses. And my buyer said, you know what? That first one, that's the one. So they went home. I got back in my car and drove over to meet Ms. Listing Agent, had a personal chat with her. She recognized me immediately when I walked in. You know what she said? She said, it's the twins guy. I asked her questions, was very professional but also personable. And I discovered that not only was the client that was selling that home older and had an emotional attachment to the home, but I found out the agent who I was talking to, she wasn't even from the area. Fast forward to this morning. By taking all that information to presenting a clean and professional offer with full validation of the buyer's finances and by letting the other agent know that me and my team will handle all the details because she doesn't want to, well, then we're going to take a lot off her and her client's plate. So this deal is going to be easy peasy for her. So we got the home, even though her phone was ringing off the hook. So the moral of that story, now more than ever, you need a unicorn realtor to help you in this competitive market. Someone who understands every aspect of the negotiation, not just the schmoozy part, but also how to be a professional and present a professional offer. Truth bomb time. If you want to try and beat the system by doing it yourself or by using one of those discount buyers agents that give kickbacks to the buyers, I can almost guarantee you, you know, almost every circumstance the money that you quote, unquote, save in comparison to having a unicorn represent you. And, and remember, your unicorn is free. It's going to be, what's the phrase? Peanuts. It's going to be peanuts compared to the so called discount from someone giving you a discount or from you trying to do it all by yourself. What I'm trying to tell you is there are ways to set yourself up to win. Where I have stats and data and all kinds of information that shows you how you can beat the system best. And one more current market update, and this one's got a moral, but it sounds a little scary. But don't bum out. You got to wait till the end to hear the moral of the story. Listener wrote in and said, thanks, David, we appreciate the check in. Yeah, the market's bonkers right now. We have our approval and we've seen several places. We haven't put any offers in yet though, because we were informed when we were getting ready to write an offer that they were $80,000 over asking price. With other offers. And that put it way outside our budget. Patience, persistence, perseverance. That has been our motto. Viewing another property tomorrow, hoping it goes well. Appreciate everything though. We love our unicorn team, so we know we're in good hands. A fresh set of new properties each week here in Denver. So definitely keeps us on our toes. So the moral is, yes, homes are going for way over list price. And yeah, you might look at a list price and think you got it, then realize, oh, we do not have 80,000 over that. But if you work the three Ps in the 2022 market, you're going to have better chance. Patience, persistence, perseverance. And whether you're in Denver or Orange county or Portland or anywhere else, all over the US Or Canada, I'm getting reports of new inventory coming out every single week, just like they did in Denver as the winter thaws out and the spring market heats up. Okay, that's your current market update. Let's get to the topics we're going to go over today. Topic number one, what are the fees? When I buy a home, you're going to need your down payment. Now that's zero dollars. If you're military or a veteran, it's called a VA loan. And if you're eligible, you can put zero down or you can put whatever you want down. Also, it doesn't have to be zero, but if you're a veteran, this loan is so bitching, so supremely dope, so buyer favorable, that you gotta figure out a way to use this loan. The rest of us civilians, we can go 3% down, 3.5% down, or whatever you want, 5, 10, 15, 20 or higher. So that's the one cost that you're accounting for. Then on top of your down payment, you also have your closing costs. Then in most states in the US and provinces, up in Canada, you have to put down what we call an earnest money deposit. It's also known as earnest money good faith deposit. And in some states, like in North Carolina, they call it a due diligence fee. And sometimes that's even an extra fee. That's a non refundable fee, allowing the buyer at any time during the due diligence period to bail on it. But their rules and laws are a little bit different. Check with your local unicorn to get your state's laws. Also, the amount of your earnest money, that's your initial deposit once you get accepted on the home. It varies from area to area. But in California, in this competitive market, you best be putting down the max, which is 3% of the sales price. So they want to see that you're serious about it. In most states, the earnest money deposit, it shouldn't be looked at as an extra fee. So so far what you're doing is you're saving before you get ready to buy the house. You're saving up your down payment and, and your closing costs. Now you get the house and you gotta put your earnest money deposit down. But really it should be looked at as the first chunk of your down payment, not as an extra fee. Most of the time what happens is you deposit it into account with on the west coast it's an escrow company and other parts of the country it's title companies or a closing company. And you do that just after the days that you get your offer accepted on the home, that will get cashed and it'll be held by that neutral third party even though you're still in your inspection period. Now should you do your inspections and your due diligence, diligence, and you decide that you're ready to move forward with the home, well then that money stays there and at the closing of your transaction it just gets allocated towards your down payment. So it's not a fee, it's going to count towards your down payment. It's just held as a good faith deposit and it's earmarked to be added to your down payment when you officially decide to buy the home. Okay, so you got your saving for your down payment, saving for your closing costs and then you take from your down payment and you put it into your earnest money deposit. Now you're under contract. Now this is where you have a couple more non refundable fees that are going to happen during your inspection due diligence, buyer beware period, your period where you can still back out of the deal. So that means the fees that are going to happen is you're going to need some cash during the contract period within the first week or so of the acceptance and you're going to pay for these services. They will get done for you. And if you back out of the deal, you don't get refunded. If you decide not to make the purchase. They're your inspection and your appraisal. They both have fees. Now they can vary. Inspections can be 3 to $500 for a general inspection and like 2 to 300 if you're going to do a sewer inspection and for anything extra like a detailed septic, a geological inspection or survey. For that you're going to have to check with your local unicorn Realtor, things are different everywhere. We don't even have septic where I am here in California. Most people in California, they do a general inspection and sometimes they'll throw in the sewer. And if the general inspection calls for more detailed, specialized inspections for areas that have major issues, well then that's up to the buyer to decide if they want to pay for it. And the second money that you pay, cash out of pocket, that is non refundable if you bail on the deal. Your appraisal fee. If you need a loan to buy a home, well then you're going to need an appraisal. This is what the bank uses to verify the value of the home. They only want to issue a loan up to the appraised value and that's done by a neutral third party. So the reason they do it is if you buy the home, you get the keys and then all of a sudden you're dancing in the street celebrating, y' all get hit by a bus. Well then the bank's on the hook for the loan. And that means they're on a hook for whatever the appraised value of the home was. So in other words, you can't just try to beat somebody out by an offer by making your offer $25,000 more than the last person was because the appraisal, that has to match the actual value of the home. And sure, everybody wants to do that. Well, okay, these homes are, sounds like you know, 300, but let's offer 325. You know, it's only an extra, what, $135 a month for the next 30 years. No big deal. Sure, that's no big deal to you. But if you are roadkill the day that you own it. Now the bank owns the home for less of a value than their loan. So unless you waive the appraisal. Please don't tell me you're waiving the appraisal. You know, I understand a lot of people are doing it right now. If you understand it, go for it. Because it might be the only way you can get a home in this crazy market. But that appraisal fee is part of your cash out of pocket. You got to pay for the inspection and you have to pay for the appraisal even if you don't buy the home. And you could be paying anywhere from $450 to maybe $800 for the average first time home buyer. And in most areas, these two items, that's it, those are the expenses for your out of pocket fees. Now it's different everywhere. But that's pretty much kind of the standard you're paying for your inspection and your appraisal. And then we got to come back to your closing costs. This is another one of those questions I get all the time. And for this one I understand why nobody has tried to explain it to you. For 16 years I've been trying to explain this to people. The only one thing I know for sure about closing costs is that if you are a meticulous spreadsheet loving down to the penny shopper, you are going to hate this. So for you super anal peeps, think of the closing costs as a license and registration fee to buy a car. You can't get around it. It's mandatory. Nothing you can do about it. So even if you think there's a cheaper way to do it, well, now you got to get your butt cheeks even more tightened up, lemon juice style. Because there is never an exact amount until the moment that you have to cough up your check. We don't even know what that could be. It could be anywhere from one and a half to two and a half percent. That's what closing costs are. Nobody can give you the exact numbers until you get the actual closing date and until they've had a chance to look at multip multiple different factors that are going to be part of the closing costs. I've seen smoke coming out of the ears of some of my clients when I tell them this, so here's my best suggestion. If your little spreadsheet makes you all warm and comfy when you tuck yourself in at light, prepare for it not to total out because you're going to have one entry with a question mark. Your closing costs. You can put in some numbers, but I'd make them all squiggly and, you know, wavy because they're not real. The uncertainty comes from two sets of fees in the closing costs. The first fees are all set fees. Those are the ones you like, set fees. The second ones are moving part fees that come in many different varieties in every different state and depending on the exact day you close. That's how they calculate them. And they're all related to calendar events. So the technical term for these are non recurring and recurring closing costs. The non recurring closing costs, the set fees. That's going to include your escrow or title or closing company costs and your attorney fees and anything else that has to do with the closing. Depending on where you live, you're also going to have your loan costs or your lender fees freeze. Lenders aren't free guys, your lender fees and if you've decided to do anything funky, any other upfront loan fees, depending on the specific type of loan and options that you chose, even the set fees have some variables in them. Now for the non set fees, the recurring closing costs, the ones related to the calendar on the day that you close, these are the ones no one can calculate until we figure out exactly when you're going to be closing. And that's where it gets really funky. Your first mortgage payment is going to be a prepayment for the remaining days in the month that you close. So if you close near the front of the month, well then you've got to pay, you know, 15, 20 days or so for the rest of the month. So that's a larger number and that's part of your closing costs. But what if you close near the end of the month? Well then it's obviously smaller, which means now you don't have to put as much in, so your closing costs get less. But that's just the beginning. In some states you have to prepay your HOA dues and you also have to prepay your home insurance. It's usually around six months for each. And in some areas you're going to have to pay local taxes or city fees that fall under the prepaid. But it depends on when you fall in the payment calendar of those prepayments. Now the big one, besides where you land on the calendar with your mortgage is your property taxes. If you've got to pay property taxes where you're buying a home, you have to prepay those taxes within the tax calendar. So you could be prepaying five months of taxes, which is going to be a lot. Or if you're getting close to when the next taxes are due, you might only be paying one month ahead of time. So now that can completely jack up your closing costs and raise it by a couple grand or drop it by a couple grand. And all of these fees can't be calculated until you have the exact calendar day that your home's going to close. And you know how, where, exactly when it's going to record with your local county. So the fees to buy a home, they're these earnest money, deposit inspection and appraisal fees and closing costs tada. That's what you're going to need over and above your down payment. So if you're cutting it tight, I'd say just add 3% to your down payment savings or really tight, you could cut it to maybe two and a half depending on the price and the loan that you're going to be using. Second topic, closing day. The most exciting day of the entire process. The one that I have seen crush more excited buyers than I care to remember. Why am I laughing at that? Oh, I'm like that nervous teenager laughing when they know they're about to get busted. There are two big things I want to tell you about closing day. And if you keep these two things at heart, I guarantee you that you'll avoid the horror stories that are out there. So, first thing, people in the real estate industry do their best, I promise you. But I can tell you no matter what they tell you until they actually give you the keys and say, we have recorded this deed. Closing dates fluid. Don't think that is set in stone. If you learn anything from this podcast, closing date is fluid. Now, if you hate the word fluid like you hate the word moist, good. I want you to remember it. I want you to hate this. Never expect to close on the day they told you. Now, if it does happen for you, yay. But do not plan a party on the day that you expect to get your keys. Don't have your parents fly in to meet you and the realtor to open the front door. Don't order a moving truck and have all your belongings packed away. And don't drive across country expecting that you will for sure have a place to unload or, you know, I don't know, sleep. And don't, don't, don't ever have your last day in your apartment be the same day as you were told you're going to get your keys. And it may not be exactly the day they tell you that they hope to close. There are tons of moving parts. Plan an overlap. Enjoy the fun of running around an empty house that you own with nothing in it if you're one of the lucky ones that closes on time on the day everyone else is shooting for. And the second thing about closing dates, Put the utilities in your name before you close. Don't you dare me, you cheapskate. I've been doing this long enough to see some tight wads. Some frugal buyers decided they're not going to change utilities until the very last day in their name because they don't want to spend the money for that extra couple of days only to find out that the seller turned the utilities off, oh, a couple more days early before they moved out because they cleaned up and got out of there. Now, trust me on this one, gang. Sometimes the reconnect fees are hundreds of dollars and it might take one or two weeks before the utility people can get out there. And you're gonna wish that you'd spent the 84 cents a day for that damn water bill. And our third topic of the day is love letters. Now, once it was a great way to sway the minds and hearts of your sellers to get them to choose your offer over everyone else. Or in a less competitive market, when you were the only offer, use your love letter to maybe get a better price or get a better deal on the property. Right. Well, just a heads up, the practice of love letters is currently under some severe scrutiny. It actually has been for a little while, but recently gone into all the way up to state courts, the full system. Anyone got an idea why? Hola, soy Dora. Can you say discrimination? So look, don't shoot the messenger here. I'm simply reporting what has been rumbling for a while now. We have federal judges and state attorneys generals battling out in courts all across the country. And in most states they're actually no longer allowed. The bottom line is by the time you hear this, the laws may have changed. But it seems like this will eventually be deemed illegal everywhere because seller could discriminate based on based on ethnicity, family unit, sexual orientation, age, gender or other information that could be used for or against the certain buyers sellers. In that way, what they will be doing is they'd be violating the fair housing laws in any attempt to connect or not connect with the sellers intentionally or unintentionally, it could be discrimination against others. So the laws are being changed. So the sellers are only going to be judging their offers on merit alone. If you're looking for a way to make your offer appealing because now you're bummed out you can't write a love letter will do that. Make your offer more appealing without the emotional backdoor. Sellers are going to react to things like money, better terms, tighter time frames and stronger commitments to the deal and a strong professional presentation of the offer. And unicorns know how to do that. So have yourself a super bitching professional, respected unicorn realtor who knows how to present a great offer. They also know how to present you well without violating any of the fair housing laws. So looking back on these topics, do me a favor, raise your hand right now if you learned just one thing that you didn't know before you listen to this podcast. Well, if you learn just one thing today, share this podcast with a friend. If more questions come to your head that I didn't answer today, go ahead. Go to how to buy a home.com and ask me yourself. Find more information on Instagram @davidsoni or the how to Buy a Home Podcast. And don't forget to check out the how to Buy a home podcast YouTube channel. Rate and review. Spread the love. And if you still have your hand up right now, what the hell are you doing? Put it down. Keep listening. More episodes, more market updates coming. And if you want a local unicorn to help you with your specific questions, just ask. 2022 has been a challenging year for buyers with more questions than answers, but the podcast has been getting more people connected than ever this year. Because listeners, they're getting empowered and they're connecting with the unicorn who listens to them and answers their questions. And eventually, the unicorn, just like me, tells them the same thing I tell you every week. You can do this. It.