Jon Grauman
Appearances
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
And then we identify the property, determine whether or not they're offering a commission or a portion of the commission and who's paying it. It all gets sort of thrown into the pot now. That was like a big word sandwich I just threw at you. It was a lot of information, but that's the gist of it. We have to stop a few more times along the way, dot a couple more I's, cross a couple more T's.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Ultimately, we're getting to the same place. There's just so much misinformation. There's so many misnomers still out there that, you know, my approach to this right now is educate, don't defend, right? There's a lot of fear, but that fear can be alleviated with facts. So it's just a matter of explaining to people. Like I sit down with people and I go, well, I heard commissions are now negotiable.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Commissions have always been negotiable. That's not new. It's just that you read the sensationalized headline of an article but didn't go a little bit deeper. Or someone that says the commissions can't be financed. It's like, well, commissions can't be financed independently, but they've always been financed as part of the purchase price. That's why it's always been baked into the purchase price.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So again, it's a lot of just educating at this point.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, that's probably it, is that people just, that's, look, that was the basis of the whole case was this argument of collusion, that as an industry, we were holding the line saying the fee is X, 3%, 2.5%, and not saying the fee's negotiable, we charge X. That's the basis of the whole argument.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I'm actually not allowed to say it. Oh. That's the whole point, is that if I state it in any type of public forum or anything like that, then it could be argued that, again, they've made so many ridiculous arguments of collusion and so forth that, like... All I'm, I guess, legally allowed to say now is it's negotiable. Now, I can sit down with a private client and say, this is what my fee is.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
This is what I charge. Right. Which I'll just share with you is just a standard like industry standard fee. No more, no less. And then we have to go approach the listing agent on each respective property and see what they're offering, which will oftentimes be tied to the merits of the offer. You make a good offer. We'll pay a commission. You make it. I say shit.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Great. Make a shitty offer. Then, you know, perhaps they're not going to be as amenable to paying your commission.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Customarily, historically, the commission has always been paid for in the past by the seller.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It could, sure. It absolutely could. So let's say that you have a homeowner, we'll call him Joe Schmo, and he's selling his house at 123 Main Street for a million dollars. And he says, you know what? I read this article the other day in, you know,
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I was listening to this amazing podcast, and my takeaway was I don't have to pay commissions anymore, which, by the way, is the way a lot of people are hearing and reading this. Okay, so, Mr. Seller, that's true. You're not required to pay the commission. However... Let's look at what other listings are available in your market right now and whether or not they're offering a commission.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Because what you don't want to do is put yourself at a competitive disadvantage relative to what else is on the market. Now, if you don't want to pay the commission, that's okay. Again, that's your prerogative. But commissions have always been baked into the purchase price. So if you're not willing to pay, let's say, 2.5%, which would be $25,000 on that million-dollar sale...
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
then the offer may come in at 975 because the buyer now has to pay that fee directly to their broker. So if you're not covering it, they're going to. In other words, you pull one lever, you pull one down, the other one goes up, it's all connected. You're paying for it somehow. this all works out fine as long as everyone's rowing in the same direction.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Meaning as long as everyone understands that basic principle that like it's being paid for one way or another, then it's fine. It's when a seller says, well, I'm not paying for it and I still want my million dollars for the house. It's like, boom. Look, Joe, Joe, come on, Joe. I mean, look, I get people want what they want. You know, my daughter wants a pony.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That doesn't mean she's going to get one. Like people just need to understand the basic sort of principles and concepts of how this has worked because there's a reason behind it. But, you know, this notion that like, well, the buyers have to pay commissions now. The buyers have always paid commissions.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Sellers are technically the ones that maybe distribute it, but the buyer is the only one that comes to the table with money at the closing. So technically, it's actually the buyer that's paid it. And the buyer has been able to finance it because it's baked into the purchase price and because they're borrowing a percentage of the purchase price.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So again, if people start dissecting that too much, then the levy starts to break.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, it depends on the price. Oftentimes in middle America where you're dealing with lower prices, it could be 6%. In higher price point markets like Los Angeles and New York, it's sometimes generally 5%. And once you get north of, say, $10 million, sometimes you'll see it be 4%, 2% to each side.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Which again was the whole point that was made in that case is that it needed to be clear. There needed to be more transparency in how brokers got paid because buyer's agents were able to sit down with people and be like, my fee is free because the seller pays for it. And it's like, but it's not. It's not free because it's baked into the price and therefore the price is inflated to account for it.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So again, they wanted it to be more clear. So to me, this is where you separate the men from the boys or the... women from the girls, is an agent's ability to articulate their unique value proposition. Now they need to be able to really come in and justify what they charge and how they earn it. And I'll just say that not all agents are created equally. I embrace this opportunity because
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
respectfully and with all the humility in the world, I think I'm a cut above most of the agents in this industry where there's such a low bar for entry.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I welcome the opportunity to have these conversations. I think others will struggle.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Oh, great.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It would definitely have an impact, but maybe not in the way that people would just ordinarily think. These are people that play an instrumental part in the workforce, and that's where I see the biggest issue is gonna be in construction, is that if there were mass deportation, what you're gonna see is
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
a massive slowdown in construction, which will likely equate to a substantial increase in labor costs because you're just gonna have less labor to draw from and less affordable labor to draw from. So in a housing market that's already suffering from a lack of inventory and high construction costs, that would be, you know, adding insult to injury.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That would really be kind of like pouring gasoline on the fire. So I'm concerned in that respect. I'm also concerned in the respect of, you know, again, many of these undocumented immigrants are not homeowners, but they're renters. And I think you could see a significant adjustment to rental values if thousands of them by the droves were deported. And I think that would be bad for landlords.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But, you know, again... I don't want to get too political about it.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
A thousand percent. That's exactly right. Again, it's going to slow down the construction process and drive up the price, which is good for nobody. Right. These people play a vital role in our society and our workforce in terms of the jobs that they do. You know, look, they're not here to eat our dogs and cats. So I clearly have my feelings about this and I'll just leave it there.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Wow. No one's asked me that question. What policy do I think would make housing more affordable?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
There's no question that affordable housing is, I think, at the core of a lot of these conversations. And that just goes into building costs, right? You got a lot of developers out there, particularly in LA, and that's my markets. That's all I can really speak to intelligently.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
that have moved away from luxury spec homes because there's less demand and not as active of a market for it, and really moved towards trying to crack the code on affordable housing. But it's a tough code to crack, going back to all the things that we just said. The cost of debt has gone up, right? More than double from where it was a couple of years ago.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
The cost of labor went up, the cost of materials went up. but the cost of land or property values have more or less stabilized. So there's been no adjustment for it, which means that it's really hard for these deals to pencil.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Now, the government, at least here in Los Angeles and California, and I imagine several other markets around the country, are offering tremendous incentives to contractors and builders that are willing to do affordable housing. It's just a question of how do you do it? So I think what you're going to see is a pretty big shift over to modular homes.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Modular homes, which always had a sort of negative outlook stigma and connotation of like a mobile home. It's not the same. A modular home is a home that is constructed prefab.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Let's say it's a little bit better than that. Again, like there's, you know, varying versions of everything. But I have a lot of clients that have, you know, gone headfirst into this because if you look at it, first of all, it's a more efficient way to build a house. You don't have an inspector that's going to come out 18 different times throughout the construction process.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You have an inspector that comes to the factory once. They inspect it. They sign off on it. Great. Let's manufacture a thousand of them. They are fire resistant. They are wind resistant up to 180 miles an hour. So they can do much better in the face of a hurricane or a tornado. They do have their limitations, right?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
They have height limitations because if you exceed a certain height, it can't fit in the storage container that it needs to ship across the country, across the world. It can't fit under a freeway overpass, right? These are homes that we're not gonna see going up Coldwater Canyon or Benedict Canyon because they just don't fit there. But in other parts of,
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
even LA and certainly the country, there's a real place for this. And you can fabricate them at a fraction of the cost in a fraction of the time. So there are real big government contracts out there that I think a lot of developers are trying to figure out how do I crack the code in modular development to position themselves for those contracts and to be able to actually fix the housing crisis.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Some, some of it's made in China, some of it's made in other parts of, let's say, Asia. There are several factories in the United States. My understanding, and I say that very clearly so that like, please fact check this, but like what I've heard is that they're on average roughly about 30% more than if you're shipping it from, let's say, Asia.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Are they nice?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
100%.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah. If you want to go to Ann Sachs and buy your tile at $30 a square foot or you want to go to Home Depot and buy it at $3 a square foot, what you make of it is entirely up to you. But essentially, it's just a shell.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I don't know that I could pick because it's such, I don't know I can make that generalization across so many different markets across such a large country. I would say that in general, though, the housing market's just kind of stuck in neutral at the moment. We've seen the first rate cut, which is great. The fever broke, right? At least like that part's behind us.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yep.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You know, I think initially it may just have been a reaction to high prices. But that said, I think that it's not a short term thing. I think that these are new evolving business models that are going to create more access and affordability for people. And it's part of a new ecosystem that we're entering into.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Much like the work from home model was in reaction to COVID, it's clearly something that's here to stay. So I think that between what's happening just within the real estate industry alone, what's happening within the affordability and inventory crisis, this industry is ripe for disruption.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
There are going to be some major moves made in the next 12 to 24 months that are really going to flip this industry on its head. And these are some of the models that are going to play a part in that.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, I think it will be.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, I'll give you a more real-world example. I personally own a home in Napa, which is my happy place, that I have a one-eighth fractional ownership in because that gives me six weeks of use out of the year. I couldn't use it more than six weeks if I wanted to. I don't have that much time. But... It's a home that I'll just say I wouldn't have been able to afford on my own.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But by virtue of having this fractional ownership, I'm able to have the use and enjoyment of this really amazing estate up there. And I think you'll see more models like that in the future.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Sure, yes, a fancier timeshare. Different versions of fractional ownership that allow more accessibility to people.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You should be legitimately scared. This is the greatest existential threat to real estate. It's not interest rates. It's not supply and demand. It's climate change. Climate change is the greatest threat to real estate, period, full stop, particularly in the coastal markets that are the luxury markets and the most expensive markets, of course.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It hasn't really had any meaningful impact on mortgage interest rates, right? So it hasn't offered that impact. affordability that people are looking for to be able to start coming off the sidelines and reengaging. And mostly it's just this palpable sense of hesitation and uncertainty in face of the upcoming election.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I mean, obviously, you look at just the tragedies that happened in Florida this year, which happen every year, by the way. How long is it before one of those storms comes sweeping through Miami? Miami has been the biggest winner in the last three years of real estate in the United States. So much wealth has flocked down there.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
What happens when, not if, when one of those storms comes through the center of Miami and demolishes that real estate? Like, it's...
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That's exactly right. That's exactly. They're no longer once in a lifetime. And that's just, again, unfortunately, sadly, that's the new world that we live in. But the ability to get insurance as it relates to that, which is a requirement of a loan if you're getting a mortgage, is going to be a major factor. And at some point, I have to imagine,
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Not to suggest that the government has all the answers because they certainly don't. I imagine there's going to have to be more government intervention, government subsidies, more things like California Fair Plan here in California, which have their limitations and ceilings on their coverage.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But there's going to have to be more things like that in the future because insurance companies that are pulling out of these markets are creating a greater monopoly for the ones that are still staying.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Correct. So I don't know that I have any specific advice on how to budget for it, depending on whether it's in a high fire zone, flood zone, wind zone, et cetera. I would just say, don't judge the book by its cover in terms of, oh, I like this house and this is what it's going to cost me based on this mortgage calculator.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
dive deeper, get in touch with an insurance broker immediately upon identifying that property and start to really kind of flush that out and understand what those options are, what those premiums are, what the coverage is.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
There have been many instances, horror stories, I'm sure you've heard about, with people that have existing coverage getting a call from State Farm saying, we've tripled your coverage. Or we've denied it, we've canceled it. So it's gonna be a major factor that I would just say, try to get in front of as quickly as possible.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
We constantly ask about it, but it's not as simple as you would think. Oftentimes the thought process is, oh, you're with State Farm. Sorry to keep picking on State Farm, but like you're with them. Great. We would love to have that coverage. Just because they're insuring the current owner doesn't mean they're going to insure you and doesn't mean they're going to insure you at the same price.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That's the big thing is that most people just don't want to make big life decisions in the face of uncertainty. And this election has created so much uncertainty in all the markets, capital markets, housing markets, and so forth that everyone right now is just kind of taking this, I just want to wait and see approach. And that has resulted in a pretty stagnant market.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So we've tried that approach. And a lot of times it's like, yeah, no, they don't want to renew it or it's going to be double the price. So again, what the existing homeowner has doesn't really play a factor in what you can get.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You just need to get with a qualified insurance broker, which if you're working with a good agent, they should have a great referral for you and start having those conversations with them.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That's it. You just need to understand what your options are.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Fugazi?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Is that Yiddish or is that like, is it Italian?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Is it Fugazi?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Okay.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
BRRRR. So many new terms and expressions you're using on me. As opposed to?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Give me the burr again.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Buy, renovate, rent.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Like buy a property where there's value add opportunities, renovate to add that value, which thus should increase your equity, and then refinance based on that equity because you'll have a lower LTV and hopefully a lower mortgage payment, or a lower interest rate and a lower mortgage payment, and then use that leverage to go buy more.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, I mean, that's the sort of basics of real estate investment.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I'm gonna say neither, but worth looking at.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
No, totally different. So, okay, so mortgages, this is just this might be a snooze fest for some people, but, and I only know all this by the way, because I was a mortgage broker for eight years. That's why I can speak this language fairly fluently, is that mortgages are amortized over a certain period of time. It's generally 30 years. That's why people know of a 30 year fixed.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
If it's amortized over 40 years, it just means that the amortization period gets spread out further and thus the payments along the way are smaller.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But you're absolutely paying more interest in the long run, but you have a shorter payment, a lower payment in the short term, which is what matters to most people. Conversely, if you have a 15 year, you're paying it back in half the time. So if you're flush with cash and you can afford the significantly higher payment, great.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You're going to save a tremendous amount in interest over that 15 year period. Tremendous. But your payments can be significantly higher. So whether or not you can afford it is, you know, case by case.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I would say that meeting with a mortgage broker early in the home buying process is critical because what they're going to do is they're going to take this very blurry picture and help bring it into focus. One of the things they'll do is they're going to look at your credit.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So if your credit is, I think to use your very technical term, then yes, they should hopefully have a credit repair specialist that they can refer you to. It can be dicey in terms of what they can actually do, how quickly they can improve it. And there's no guarantee, right? There's three different credit bureaus.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
And if you pay off this line or pay down that line, how much it affects your credit, they don't know until they rerun it. So if you have things that need to be fixed up in your credit, yes, a mortgage broker by proxy can put you in touch with someone that could potentially help you with it.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
The mortgage broker's fees? Generally. Generally, there's a commission that's paid or a percentage of that loan that then gets paid to them. But you can also buy down the rate where perhaps you pay more to get a lower interest rate, but then maybe they have to charge you a point. So it's like anything. There's levers, right?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
If it's 6% with their compensation being paid for by the bank, maybe you can get it down to 5.75, but then you have to pay a point.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Ooh, that's just a question of leverage. And that goes back to, again, your very technical term of BRRRR. I counted for all the Rs there. Where the whole principle in real estate investing is to, again, buy something, create value, add equity, increase your loan to value position, and then leverage that to go buy more. You could apply that same principle to a HELOC. I would just say, be careful.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You don't want to get in over your head. And most lenders won't allow you to do that anymore anyways, meaning that they keep the LTV requirements very low or rather very high on the HELOCs so that they don't allow you to be able to over leverage on them. But yes, borrowing against to go buy more, you know, I would say reward favors the bold.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yes, it's pretty simple. So when the Fed lowers rates, what they're lowering is or when they change rates, what they're changing is the federal fund rate. That is essentially the overnight rate at which banks can loan money to and from one another.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Buy a foreclosed home?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
These questions are so much more nuanced than truth or trend. First of all, to buy a foreclosed home, like either the court steps or at auction, you have to have cash. So unless you have a big pile of cash to use, if you need to get a mortgage, you're not buying that foreclosed home. You're not getting that, you know, that savings. You're not realizing that savings or discount.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
What will happen is they'll try to sell it again, either like the court steps or at auction.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Well, I mean, not technically outside, but, you know, they'll try it like there will be a court date set, a sale date, and you can either buy it there or you can buy it at auction. And potentially you could realize a significant savings in doing so. You're buying it non-contingent. You have no opportunity to inspect the house, look under the hood, kick the tires. You're paying all cash.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Few people can play that game. If they're unable to sell it there, then they hire a broker and they try to sell it at whatever the market value is to try to recoup their, you know, whatever their losses are on it.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, that's true.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I remember this. Okay, John, as you know, I end all my episodes by asking for one tip listeners can take straight to the bank.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Can you share one thing people can do to help navigate this crazy real estate market? Oh boy. I probably have given you the same answer. I think three times, if you've asked me the same question, which I don't remember, don't go it alone. And I think I, as I'm saying that I'm having some deja vu, so I may have given the same answer. Don't go it alone. You're not meant to be a real estate expert.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That's, that's why I exist. That's why I have a job. So please don't take it away from me. You know, it's the way, it's the reason that financial advisors have a job, right? Like I, I, I keep tabs on my investment portfolio. I don't manage it. I know what I know. I know what I don't know. These are challenging times. They're uncertain times.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It does not have a direct correlation to mortgage rates unless we're talking about a second mortgage like a home equity line of credit, which is directly tied to the prime index, which is tied to what the Fed does. But mortgage interest rates are going to be based on much broader economic policies like inflation and the demand for bonds.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
And I think, as I said before, all real estate agents are not created equally. There's about 1.3 million in the United States right now, which just as an interesting stat, there's about 900,000 listings available for sale. So there's more real estate agents in this country than there are.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Wait, say that again?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
There are roughly about 900,000 homes available for sale relative to 1.3 million agents in the United States. There are more agents in this country than there are active listings available. And that's up significantly. We were down at around 400,000 active listings a year ago.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
We saw a 70, 75% drop-off from what we had experienced previously, but that drop-off was from an anomaly, which was COVID times. What we really need to be doing is fairly comparing it to the 2019 market, not the 2021 market. But that's a whole nother story, and that's not answering your question. So yeah, I think it's really important.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Actually, I'll give you one other stat as it relates to this, because it does tie in. 50% of all agents sold one house or less last year. 70% sold five houses or less last year. Align yourself with someone that's a true professional in what they do in everything, real estate, investment, whatever, because that's who you need to help sort of steward you through this process.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So we haven't really seen much of an impact on mortgage rates. They are certainly lower today than they were, say, a year ago. But they haven't gotten into that zone where I think people are going to really be motivated to start to reengage. To me, that needs to have a five handle on it. And while some mortgages are now starting to be priced in the high fives. Really?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yeah, no, I'm definitely seeing that, particularly on the arms, seven-year arms, 10-year arms, not so much on the 30-year fixed. But we are starting to see rates in the low sixes, high fives. It's not enough, again, especially in the face of an upcoming election to get people off the sidelines yet. But we're finally going in the right direction.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I think by all accounts, we could argue that we are at the bottom of the J curve and on our way towards an ascent. It's just a question of how long it's going to take us to get there.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
No. Arms are adjustable rate mortgages that are tied to certain indexes like the LIBOR index. That operates separately from the prime index. The prime index is tied directly to what the Fed does, right? So if you have a home equity line of credit and the Fed lowers their rates by a quarter of a percent, next month, your mortgage statement will reflect that quarter of a percent.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
arms are going to be tied to again perhaps like the libor index and it's going to be fixed for whatever that period of time is so if you have a seven year arm it means it's fixed for seven years but amortized over 30. so at the end of that seven year period it will adjust to wherever that index is plus whatever margin the bank establishes which is generally around two and a quarter or two and a half percent so for those people that locked in arms a few years ago that perhaps may have been a little bit short-sighted and not locking in longer
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
they could potentially have a rude awakening here when it adjusts.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It flows slower and there isn't sort of a direct lineage of it, right? There's also other different factors, again, like the demand for treasury bonds and so forth, which is not really a part of that equation, but factors in. So look, it's obviously, it's not black or white. It would be awesome if it were, but it's a little bit more nuanced than that.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
The main point is that just relative to where inflation currently sits and where the economy sits, we haven't seen that huge adjustment in rates yet. And the reality is we may not, right? We're not going back to the days of 3% and 4% interest rates. That was an anomaly tied to a global pandemic.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But it would be great if we could get rates to settle somewhere in the low to mid fives for a sustainable period that people could adjust to that new norm and feel like they were motivated and encouraged to get back into the market. And also, I said that almost as it only pertains to buyers. It pertains to sellers equally as much, right?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Sellers that feel like they have these golden handcuffs that are tying them to these 2% and 3% interest rates, but want to make a move. Either they want more space or they got a job relocation or whatever it may be. You know, the leap from three to five or five and a half is a lot more palatable than a leap from 3% to 7%. I know, they're squatting on their own houses.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It's been a real challenge in terms of freeing up inventory.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
You can follow the treasury as an indicator for sure. But in terms of actually understanding how that equates and correlates to mortgage rates, reach out to your local mortgage broker. That's the simplest way to do it.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Like Christmas morning.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Potentially. What do you think? I don't know. You know, again, there's so much uncertainty right now. The jobs report in September, which was a favorable report, doesn't lend towards faster rate cuts. It actually shows that perhaps the economy is more stable and we don't need to cut rates as quickly. So it'll be interesting to see what they do.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Ultimately, we're gonna need, I think, several rate cuts in our rear view before we really get to the point where the market starts humming again. My hope is that that all sort of coincides with as we ramp our way into the spring selling season, which is always the most optimal time of the year.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
And we have that ramp where if you look at it and go, this could really line up very well here where we have time for a few more rate cuts and all of that kind of ramps at the same time with the spring selling season and the market is really sort of poised to take off.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Let's go.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Well, again, we just established it's not directly correlated. So I think that while before, I'm sure that there's various different graphs that you can show wherein you can look at what the correlation has been between the Fed fund rate and mortgage interest rates. I think what we're experiencing right now
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
coming out of this historically high inflationary period is going to differentiate a little bit from that.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Yes, I think that's right. And you're hoping that will happen or how do you think that's going to I think that I mean, look, the Fed came out at what was it, I guess, the end of last year and said they were anticipating anywhere between four to six cuts this year. And, you know, we just saw the first cut.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So I know that they've talked about potentially reducing the federal funds rate by two percentage points next year. That would be tremendous if that happens. But we've seen in the past that it may veer off from that course. And I just don't know. Again, my feeling is that the housing market, the capital markets, they all benefit from obviously lower interest rates.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
And I think that those markets are chomping at the bit and so poised to take off. I think that I'm very, let me put it this way. I'm uncertain of what the next 60 to 90 days might look like. I'm very bullish on what the next six to nine months are going to look like.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Okay, how so?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I agree with that. I think it'll be more measured, which it should have been from the beginning, right? If we look at the sort of reverse of this and how quickly interest rates climbed, it was the fastest and highest spike in history in such a short period of time. Why weren't they raising them a quarter per quarter? Just gradually ease our way into that.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
The reality is I think that they got greedy. Things were too good for too long. And then they had to make more of a drastic correction. And, you know, that's just the world that we live in right now is sort of drastic extremes as the pendulum swings from one side to the other. But it's not good for markets.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Those are both great questions. And I think it's first important to just distinguish the difference between those two questions because they're two entirely separate issues. So it hasn't really affected the market because it's not meant to affect the market. These are internal policy changes that relate to the way we as real estate agents operate within our industry.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
not how it's going to affect home values and home prices and the housing market in general. So that's one point. In terms of how it's affected the real estate industry, I think it's just new territory for everybody. I think everybody is really just in a place where they're trying to figure out, you know, is this... Is this the new world order or is this just business as usual?
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Ultimately, what it really is, is a more circuitous route to the same destination, right? It's in most instances, I'm finding that it is still the seller that is paying the commission to both sides. It's just structured a little bit differently today. So the simplest way to explain this is that as a result of the NIR settlement, there were a couple of situations.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
specific policy changes that went into effect. One of them is that agents are no longer allowed to advertise the commission that is being offered to the cooperating broker, i.e. the buyer's agent, via the MLS, which is somewhat ironic because that was one of the reasons the MLS was initially established, was actually to have a place to hold that information. It's no longer allowed to be there.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
It does not mean that commissions can't still be offered there. It just can't be advertised. And the reason why they implemented that was to try to guard against something called steering. Because there was an argument made during the court case that some agents, some bad actors, let's say, in middle America were steering their clients towards listings that were offering higher commissions.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
Now, that doesn't really play in a market like L.A. where I live and work because... It's about matchmaking. I've never once ever even thought about directing a client to a listing that's offering more commission and that somehow I was gonna make that the right house for them. It's about finding the right house for them and then the commission is dealt with separately.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
That's not my job. My job is to never try to sell someone on what should or shouldn't feel like the right home for them. That's a personal decision that they have to come to on their own. My job is to help negotiate the best deal for them, to help be a steward that guides them through this very foreign process. But I've never... Let me put it this way.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
I've taught clients out of buying many more homes than I've ever attempted to talk a client into buying. A lot of times it's like, trust me, this isn't the right house for you. There will be others. But I've never said like, you have to buy this. That's just not...
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
No, no. So there's a lot of faults with these new policies. One of them is it is now somewhat, I guess, counter-productively created a different kind of steering, where now agents are gonna call the listing agent and say, are you offering a commission on this listing? And if the listing agent says no, oftentimes the buyer's agent's gonna say, well, I'm not gonna show this property then.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
So while they implemented this new policy to try to guard against steering, it simply created a different kind of steering, perhaps a worse kind. The second policy change that I would say is most significant is that buyers are now required to enter into a buyer agency agreement with their broker. Well, before buyers could go out there sort of using whomever they want.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
They now need to have an established agreement with their agent, with their broker. And that agreement needs to state specifically how much that buyer's agent is going to make.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
The sort of nonsensical part of this is that you're sitting down with a client, a buyer, to enter into the agreement and establish how much you're gonna make before you've identified a property and determine whether or not that property is offering a commission. So again, there's a lot about this that, in my opinion, does not make sense. I don't think it was particularly well thought out.
Money Rehab with Nicole Lapin
How Real Estate is Reacting to the Election, Interest Rates, the NAR Lawsuit and Climate Change
But what will happen is I'm sitting down with you. Okay, we're gonna go look for a house. We're gonna agree that my commission can be up to this amount because within the agreement, you can make less, but you can never make more. Right. So I have to set what the maximum amount is that I can make. Then we go out looking and it might take a week. It might take a month. It might take years.