50. HOME SERIES 6 OF 8 – HOME SELLERS AND THEIR EXPERIENCE

Home Series 6 of 8

Adrian    00:02

Hello, future millionaires and welcome back to the get rich slow podcast. I’m your host, Adrian   Shermer and I’ve got our CO hosts here, Rob Delevan and Lance Johnson. Good morning, gentlemen.

Rob Delavan   00:11

Good morning, Adrian, [Inaudible 00:19]

Adrian    00:17

I appreciate that, today, we’re gonna kick off with a success story. I’m really excited about this. You guys were telling me about this client you helped recently and I think it’s a good one to kick us off with. So, tell me a little bit about this person you helped?

Rob Delavan   00:37

Yeah, so actually, Lance, I’ll let you do this one, we titled this the Power Team of 12. I think we may have been up or down with a number, it might be more like 15 or 16 but Power team of 12 so tell us how what happen there?

Lance Johnson   00:52

It was going back, the whole idea of us getting together in different offices was to create this one stop shop for clients and Rob and I experienced the client that we actually took a client/friend that we went to Sun River with but the weekend before we went to Sun River, she was walking, I think her dog or just walking with her friend in their location and four houses down, there was an open house on a Sunday morning and so as they were walking, they stopped in it was like the beginning of the open house at 10 or whatever, on a Sunday and they walked in and my client was like, right next to her best friend, four houses down and she was already talking in the financial planning meetings of wanting to move and the house she was in was the one that was post-divorce and all that wasn’t her dream home and so all sudden she walks in and she’s like, she calls him up and says, hey, I remember we did all the planning. I think I found the house. She’s like; I need somebody to help me make an offer because we’ve taken offers today. So, I called up one of Rob’s team members and I think you were somewhere else Rob and one of his team members get out, ran out there, and looked at the home write up an offer literally probably got everything done an hour later. I mean, it was just amazing. She got out of it, on her way back to her house she calls me and she goes meets the clients gets showered up goes out there, hour later makes an offer on this house and obviously at that time this was at I can’t remember exactly, August 21 because we went to Sun River at that time and went out there, one of maybe 15 offers they ended up getting it, she did and then the next weekend, that client Rob ourselves in Sun River are sitting by the pool and she found out that she was the winning bid and now all this stuff has to happen and she’s sitting by the pool and we had to get an inspection done. So, we knew somebody there. We had to get refinancing talking about that. She was buying a home before she sold her home. She was going to do some remodeling, so there was an architect and they need to be involved and then there’s [Inaudible 03:48] and the handyman and Lance Bowles Czar, there was like 12 Different BNI members and she’s sitting at the pool while Rob and I are playing with our kids and tax returns were done how to get that stuff all submitted, statements were submitted from ROI financial and she’s like literally doing this within a two hour, she connected with like 12 people she’s like, this is unbelievable. I literally just had to say yep, go out there, talk to this group and so this team of 12 people, she’s sitting by a pool, negotiating finalizing the house and then setting up the plans of selling our house and remodeling and what it all looks like and she’s like, that’s the easiest transaction I’ve ever done even though it was pretty complex, actually.

Rob Delavan   04:46

There was a lot of moving parts, she knew exactly she was prepared, you know, from a personal finance standpoint and then it was just a matter of knowing the right people and it’s pretty awesome. I mean, that’s like the culmination success story for everything that we’ve been trying to do with, all of our businesses together.

Lance Johnson   05:10

I feel like everything was planned out ahead of time and then it was just, when the right time came, we just call upon the right people and she wasn’t stressed about it she was sitting by the pool, we were there, we stepped in when we needed to step in and told her to call this person and that was pretty impressive. It was the one time where, you know, from start to finish, she ended up not selling a home and then buying one that has its own stresses. But she bought she had enough equity and other monies to secure the loan, get the new house, remodel it and then sell the home at the right time to then ultimately have one home with one mortgage and a lot of moving parts, but other than supply chain scenarios which we really can’t, that’s not our issue but everything went as smoothly as can be and she’s been happy about it.

Rob Delavan   06:22

Tremendous success.

Lance Johnson   06:23

We should have her on a podcast.

Rob Delavan   06:25

Yeah, that’s what I was thinking as we describe this as let’s have her on an episode and we’ll just say interview her start to finish and they might need to be cut up into two or three parts because there’s a lot of story. So, it’s pretty cool but thank you guys for allowing us to share that and back over to Adrian   for upcoming events.

Adrian    06:48

Best place to find events that are related to our podcast and to the businesses that we’re all representatives from ROI-fa.com/events. It’s the portal to everything for us right now and you can find our website links as well to get to our individual businesses if you need our services. In today’s episode, we’re going to be discussing home sellers and their selling experience based on stats received. We use this group a lot. It’s a great source of information, the National Association of Realtors, sometimes abbreviated as NAR and this uses their stats from July 2020 through June 2021. The information provided supplies and understanding from the consumer level of the trends that are transpiring and just a reminder, this is part 6 in our 8 part series on sort of housing market and these trends, Rob, I’m gonna kick it off with you, let’s see here.

Lance Johnson   07:48

Yeah, just so you know the full article is on page 9 of the PowerPoint you can find section titled home sellers and their selling experience and so you can find that on our PowerPoint.

Adrian    08:05

We’ll have this linked here. So, Rob, based on the statistics from the NAR article, the final sales price from July 2020 through June 2021 was a median of 100% of the final listing price, the highest recorded since 2002, do you anticipate this to continue to be a trend?

Rob Delavan   08:30

This is actually a great question because our information through the NAR in this article and so forth is you know always basically looking backwards and the short answer is to a degree, yes and from our my experience since this information came out, which was late 2021 to the beginning of 2022. We’ve seen continued competition, what we’re really talking about is a seller’s market across the country and with that medium 100% of the final listing price that means the average no matter this is across all markets in the US you’re actually selling for full list price which means the dogs on the market right and this is where I’m speaking from my experience is the dogs on the market that really shouldn’t sell are being offset by the ones that are great properties ready to go usually move in ready already updated and so forth that are selling for way over list price. The average being from the article here and the statistics here right at 100% and what we’ve found over the years or a decade and a half that I’ve been working in real estate is the dogs on the market that the crummy houses, if you will. They are all He’s overpriced and what has been happening is the ones that are moving ready and basically the hot commodities on the market, the top 50% or more are looking at selling for way over. So, 100% is a big deal. We haven’t seen that since 2002. We’ve always seen less than 100% but even though we’ve been in a increasing market since, basically 2010-11. So, yes, I anticipate this to continue. No, I don’t anticipate it to continue as much as interest rates change and so forth, which we’ll get into and some continued discussion in this episode. What we’re really dealing with though is wow, we hit that 100% this market has been smoking hot and it really takes a dialed in buyer in a seller’s market to be able to compete and that’s what we’ve been experiencing and we’re still experiencing that and this is late spring, not quite summer of 2022 at the time of recording of this episode.

Adrian    11:14

Yeah, it’s a significant number of our audience who may not understand because they don’t buy or they haven’t yet gotten to that tier of buying and selling houses. You experience this, if you’ve ever tried to sell something online, right? You never sell it for what you list it for. If you go buy a car, you’re not paying the sticker price on the car, there’s always gonna be some negotiation down for the most part unless you’re getting the big hot item of the year. Even jewellery, everything right, there’s that starting price and then there’s normally a negotiation down for the median to hit 100% really means high indicator of how hot iron hot this is for market.

Lance Johnson   11:50

And it will be interesting on this where we’re back to when you look at interest rates, you know, you had the roaring 20s were interest rates, came down to 1950 hit its low point, a four and a half percent and rose for 30 years to 1982 and you were looking at 16, 17, 18% interest rates, then came down to April of 2013 and then bounced around and then recently we got pandemic rates right, to stimulate the economy. Now they’re back up and what happened in 1950 is your grandparents, my grandparents, they stayed in their house for 30 years. As interest rates rose for 30 years why would you want to go in have an increased interest rate, increased house value and so you’re moving to a bigger house but now you’re paying three times the mortgage rate. So, what did they do, they stay put in their house with that low interest rate for 30 years and they just remodeled the house and expanded the house. So, it’ll be interesting to see how that affects us because it’ll be less homes for sale, because people are going to not want to get rid of those 2.5% interest rates and so the supply will be lower, the demand will be greater and so we interesting to see how that if we don’t have a repeat scenario.

Rob Delavan   13:21

Especially with the dampening, if supply goes down and demand stays the same or increases prices go up, but we have a big dampener right now in interest rates, so it’s going to be an interesting, very interesting next few years.

Lance Johnson   13:43

Okay, Rob and Adrian, based on the NAR article 46% of home sellers trade up to a larger home and 28% purchase the same size home, do you believe people are able to access more home due to low interest rates, what are your thoughts there?

Adrian    14:04

It’s a resounding yes, for me for sure. I always find this data really interesting and I’m very excited to see what the next year’s statistics bring to the table for us to be able to look at how the rates actually affected the real world values. But I know at least anecdotally, the clients that I’ve been working with a lot of people were able to upgrade and then have the same payment because they grew equity at the same time. So, they had some money to put down they didn’t have to pay mortgage insurance on the second home, even if it was more home, the amount of equity that they rolled, especially over the last few years. We had a few people gaining six figure numbers over a year, which is historically not the case and shouldn’t be something you expect that you’re gonna buy a house and a year or two later, you’re going to have six figures in equity, but it happened to some people and it gave them it really unlock the power for them to jump 5 or 10 years ahead in what would be the normal cycle of owning real estate. So, it’s a tricky one, I think that the low interest rates, obviously, to me, were a huge determining factor that brought buyers out into the market as well and that was we’re looking at that trend turn itself around, I’ve already had a few of these clients who, they want to sell the house that they bought a year or two ago, because their family changed, they’ve got some sort of personal event that pushes them into the next property and they’re finding that the payment relative to the house is a pretty sizable jump. I’ve got one right now where it’s it was over $1,000 a month and the house that they’re trying to upgrade to was less than $100,000 more, so it’s an interesting problem.

Rob Delavan   15:45

Yeah, I would agree with you, Adrian, with Lance’s question here, they were able to access more home, you know, due to the low interest rates, just the carrying cost with interest rates is affected positively when the rates are lower and as they go up, the carrying cost becomes more expensive. So, I think we’re gonna see some transition there. But looking at those statistics from this NAR article, almost half 46%, they traded up to a larger home, most people upsize. If half the market is doing that, then 20% purchase the same. So, really, that only leaves you my rough math is 25% less, right? Give or take and you’re looking at 25% of the market downsized so you really start getting into what is the supply of homes, our homes like there’s all sorts of different conclusions that you can draw from this data, the bottom line is everybody really wants to know, okay, this was happening in the past. In the future, nobody has a crystal ball, interest rates have risen, we’re in the fives. Now, again, this is late spring of 2022 you know less than in the last two years, at one point we’re at 2.5, give or take. So, I mean, interest rates have had more than doubled. That’s definitely going to create a change in the market. So, that’s where things are gonna get really interesting.

Rob Delavan   17:29

Okay, so the third question, actually, I wanted to pose this to Lance to start us off, with the rising mortgage interest rates, which we talked about going from, you know, in the last couple of years, two and a half and we’re over 5% and cost of living, which is inflation. How are you advising your clients when it comes to selling their home?

Lance Johnson   17:51

Well, that’s a [Inaudible 17:53]

Adrian    17:55

Get your pencils out, audience.

Lance Johnson   17:58

Yeah, there are all sorts of scenarios that come about. So, the first thing I’d say is financial planning here, are you in the future? Is this your forever home, is this the house, you’re going to make a rental? You know, are you going to make this house in the Portland area a rental and you’re gonna go live somewhere else in a more tax advantageous state, a more rural place, you know what I mean? So, do you have to sell the prices are pretty good right now, people can clean up a lot of debt and have make mortgage interest rates and nonevent by consolidating things. So, there is just a lot of, there’s more questions than answers to this question and it really gets down to the individual person scenario of are they living in Portland and are you doing Roth conversions and are you going to move somewhere else in a more rural place and a more tax advantageous state? There’s political issues now, I mean, there’s all that now. So, obviously, with rising interest rates, the return that you have to receive on investments, whether it’s in ROSS or IRA, how do you know you want to pay down debt and free up cash flow? When you’re at 2.5%, geez, that’s free money by the time you look at tax advantageous nest, depending on your situation but if interest rates go up and you’re at 567 percent in the future, that’s better than a bond at that right now, by paying down debt and getting your debt as low as possible. So, I just think you have to look at your performance of investments whether it’s tax free or not and then really, you start to get 567 percent interest rates, you know, there’s a guaranteed rate of return by paying that debt down and freeing up that cash flow. So, just depends on are you in retirement or not, where your assets are? There’s a lot to that question, that’s a very simple question with…

Adrian    20:21

Personal risk aversion

Rob Delavan   20:23

The fun part about that is and you said it multiple times there, you know, depends on where the clients at, I think the biggest thing is, there’s an arc and a lifetime, right? So, we’ve talked about in this episode upsizing your house, well, we didn’t really talk a lot about downsizing the house. So, it’s a very different strategy, when you’re downsizing the markets hot, values are way up, but interest rates are up, it’s a fabulous time to downsize, if your life is conducive to that.

Lance Johnson   20:54

Right, so even though interest rates and blown up in the last you talked about from that June 21, to now so June of 2021, sorry, not June 21, interest rates were two and a half percent, coming out, remember, we got back into a pandemic, it was starting to rise it lowered interest rates and you’re right, I mean, the values of properties have gone astronomical in with, there was a greater demand for homes, to either downsize or whatever change before interest rates went up and so the values of homes went up. Now the interest rates have gone up, you normally see one to two years later, the backlash of that and then all sudden, now, there’s not as many buyers, there’s equal amount or you get one offer and then the first weekend, you put it on the market, you know what I mean? So, it’ll be interesting to see that, but when you can go from a house that you bought a client bought a house for 760 and then 18 months later, sell it for 961, it’s craziness, right? You sell it and downsize or move to a more rural area or a rural area and more tax advantageous in retirement is more conducive to retirement life. Maybe you’re in a position that you don’t have a mortgage and all your debts are gone and that’s a nice position to be going into retirement. So, it just depends on what your stay for life is. I think it’s going to be interesting on this one is how it affects the corporate world. So, in one end, everybody can work remotely and on the other end, just like we experienced, sometimes people are starving for that interaction, facial interaction with people and each business model is going to be different in how they deal with taking care of clients, forcing them to move.

Lance Johnson   23:14

So Rob, you want to wrap up kind of this is your market with home sellers?

Rob Delavan   23:19

Well, yeah, so the final thoughts here are just this, I think the final thoughts on this piece are just this concept of, we’re heading into change and this has been a lot of fun so far as we continue to explore this, this was number six and an eight part series. Seven and eight are coming soon and in the next episode number seven, we’ll be learning about home selling and real estate professionals and the one constant right is change. So, that’s what we all got to deal with.

Lance Johnson   23:57

Just as a point, I mean, our clients have benefited from a rising real estate market above average, especially for Portland area. The market has done extremely well, whether it’s been propped up by stimulus and all that, a 12 year bull market run. It makes a lot easier situations for qualifying for mortgages, it’s safe to say that our clients and ourselves have benefited for getting things done and it probably didn’t take as much work as it will in the future. We’re probably going to have to work twice as hard to get the same results for clients and in some cases, we might not get those returns going forward because we’ve had them in the past, so we just got to be real on setting lower expectations that are still achievable, but like it was nice for a while where house price people are getting higher house prices and higher investment prices to pay for bigger down payments and with lower interest rates and I think there’s gonna be a pain point in the future of it’s not going to be as easy and more planning is going to take place.

Rob Delavan   25:18

Yeah, well, thank you so much, gentlemen, for this, this was a fun one and we’ll look forward to hearing from you guys on the next one episode seven coming soon.