Zillow – Buying a Home? What People of Color Need To Know About Appraisal Gaps | Personal Finance
*Stock Advisor returns as of August 9, 2021
Desiree Jones: Let’s say someone wants for work more toward homeownership today. What should they know about the market and any tips for first time home buyers, especially those from underrepresented communities?
Damien Peters: Yeah. I actually just purchased my own personal home for the first time in 10 years. I always joke that I’ve been buying, I owned houses, and not live in any of them. I finally purchased one of mine earlier this year. Right now, it’s a difficult time to buy a house. Prices are very, very high. We are seeing some changes, like this month where we’re starting to see maybe a little bit of cooling, things may become a little bit easier, but it’s really unclear. Mortgage rates are super low, there’s a lot of demand. Lumber prices and core materials are high so it can be complicated. Houses that would have sat on the market for a month before and now have 18 offers within a weekend and people are literally promising their right foot and first-born children to get into these houses. One thing is to understand the market, understand the areas. Do as much research you can do. Come to the table prepared. Don’t go to your realtor and say like, “I want a house, what should I do?” Google or watch YouTube, or this many resources where you can find out more about the homebuying process. What does it look like, what should I expect, what do lenders look like, what did I need to do to be qualified? One area to really start with is understanding the financing. It’s going to be a waste of everyone’s time to look at million-dollar houses when you’ll only be qualified for a $500,000 house. You want $1 million houses or $10 million houses, but reality. Talking with mortgage lenders upfront, understanding what you’ll qualify for, having them pre-approve you and actually look at your debt, your income so that you can go to the market armed. Now, once you’re searching, be very on top of your search. Getting an app or get several apps that you like such as Zillow (NASDAQ: ZG), Redfin (NASDAQ: RDFN), Homesnap, look at the market constantly, identify the areas that you’re looking into, be unafraid to tell your realtor like, “Hey, I saw a property pop up, we need to go look at it now. Can you call the realtor, you can figure out what’s going on with them? I was actually lucky enough to find my house by looking at a house across the street, I saw a sign but the house wasn’t listed. I asked my realtor to go call that realtor and see what was going on. We then were able to make an offer on the house before it even hit the market and we’re able to negotiate certain terms that we weren’t able to do have we not done that process. Understanding how the home inspection, financial contingencies come into play can really help you craft the best offer for your house to really be competitive compared to other peers. We submitted a letter, for example, with our offer, and I understood the person who was renting the house. I was able to talk to her and her needs about selling the house and really help explain why we would be the people to work with because I was a landlord myself, I’ve done several deals, I could guarantee that I would close quickly. In other cases, I would send pictures of my baby and say like, “Hey, we’re a loving family, we’re going to make this home our own.” These are the things that will help your offer standout against the other 18 offers there. Some things to understand to, especially for African-Americans when you’re going to the housing market. Many of the cities that we live in or that we would target or have communities are oftentimes going be undervalued. The appraisals, and it’s been a problem that’s been highlighted and talked about over the decades. Actually, certain states and counties that have legislation actually aimed to try and help this with coming up, filling in the gap between appraisals. What I mean by this is if you’re going to buy a house for $500,000, at some point someone’s going to appraise the house for a value. If that value comes in under $500,000, typically the bank is going to look at you to make up that difference. And unfortunately, for many African-Americans, the chance of our appraisals coming in lower than the purchase price or coming in lower than what we think or what the market would say is sadly more common to impact us. Being able to look at the recent sales in your neighborhood, understanding what goes into an appraisal and how to negotiate. This may sound bad, but I always tell people, “don’t trust anyone.” It’s not that they necessarily are trying to get you, but oftentimes they don’t know any better, simply following protocols. These things have been baked into the system for a long period of time. Push back on the appraisal if you think it’s unfair. Question the fees on your HUD, the estimated fees that coming through your home share for your home purchase. Talk to your realtor about what are the neighborhoods, what they should be paying for. Also work with the realtor and have them really negotiate and represent you in the process. Unfortunately, some realtors will be really interested in getting the deal done quickly because that’s how they’re paid. They may not be incentivized to sit there and negotiate and argue for the next two weeks to get $15,000, which technically would get them a lower payday and delay the sale. You need to be an advocate for yourself, you need to understand what you’re getting into, and understand the market and be able to navigate these waters because it’s going to be probably the largest purchase that you ever make, it’s going to be something that you’re going to live in for a long period of time, and it has a huge impact on your ability to build net worth and wealth overtime by participating in real estate, the housing market. Those were some tips and tricks, it’s a very competitive time. I think things may slow down, maybe become a little bit easier over the next couple of months, but I have no crystal ball and neither does anyone else, so it’s very hard to tell. But by being competitive, being on top of your game, it can really give yourself the best chance.