🎙️🏡 The Market Won’t Stay This Way Forever with Zach Hicks

On the latest episode of the Ben Revak Mortgage Podcast, I’m talking with real estate agent Zach Hicks - Code Residential  about navigating today’s competitive market—especially for seasoned buyers who have seen the market change before.

🏠 Homes are going well over asking, bidding wars are intense, and it’s easy to get emotionally invested in a home that may not make financial sense at its current price point. But the market will change. What goes up eventually comes down, and buyers need to keep the long-term picture in mind.

We also dive into appraisal waivers, appraisal gaps, and what those decisions could mean for the industry down the road. And let’s clear something up: appraisers aren’t the “bad guys.” 😉 They’re an important part of the process, and lenders, agents, buyers, and appraisers all have a role in making sure we’re making smart decisions.

Wisconsin has its own unique market, and we’re well practiced at navigating seller’s markets. But eventually, the pendulum will swing back toward buyers. The question is: will you be prepared when it does?

🎧 Tune in to the Ben Revak Mortgage Podcast on YouTube and Apple Podcasts!

#Mortgage #MortgagePodcast #BenRevakMortgagePodcast #RealEstate #RealEstateAgent #WisconsinRealEstate #WisconsinRealtor #WisconsinMortgage #HomeBuying #HomeBuyers #Appraisal #AppraisalGap #SellerMarket #BuyersMarket #RealEstateMarket #MortgageAdvice 🏡📈🎙️

NMLS 506822 & 1802853 

Transcript

SPEAKER_01 0:00

Built on trust, fueled by kindness, powered by providers. Welcome to the Ben Reback Mortgage Podcast.

SPEAKER_00 0:11

All right, Zach. I know you have a lot of experience working with not just new buyers, but buyers who have second, third home, and you've been doing this for a long time. When you see somebody who is like all gung ho to buy a house and you go and see it and they absolutely love it, and you look at the comps and you're like, I don't even know if this is gonna appreze. Like, yeah, how do you handle that when someone is like already emotionally invested to a house that's not it's priced wrong?

SPEAKER_02 0:38

Yeah. So I talked to my clients a lot about this because one of the things I think that we really need to get right in this market right now is that it's important to remember that this market isn't gonna be a ripping hot seller's market forever. You know, I mean, like that's what everyone's been used to for the last five, 10 years. And so I think just having, you know, obviously showing them the data that I'm seeing is really important, but also just thinking like not about how it's gonna feel to get this house today, but I always try to put it in the perspective of if you call me seven years from now and you're ready to sell, like what's that conversation gonna look like? Because if if you're overpaying today and then three years from now the market starts leveling out, which it's already showing signs of doing, um, early signs, but it's showing signs, you know, then what what's that conversation gonna be like?

SPEAKER_00 1:29

I've seen the same thing. I've seen it leveling out a little bit. Yeah, but I've seen it too where it's like we just we got clear to close yesterday on a house where the listing agent, I really don't know what they were thinking. They listed the house like 150,000 below market value. We wrote like 65,000 over list, yeah, got it, and it appraised higher than the purchase price.

SPEAKER_02 1:52

I literally just had a situation like that happen with another transaction of mine. And I think like I think what you see sometimes is, for example, one neighborhood I saw recently, everything was going $50,000 to $70,000 over asking, and there is a comparable nearby, and the comparable wasn't quite what this house was, and they still listed it beforehand. Part of it is to get the terms, right? Part of it is to get a bidding war. But yeah, I mean, you you always have to do the data deep dive because I I tell my clients all the time, like, we're all just so conditioned that it's a seller's market, and it's definitely a seller's market right now, but like what's gonna happen when you know the music stops, so to speak. Yeah, and it will. I mean, like there's oh it always does.

SPEAKER_00 2:34

It's what goes up must come down.

SPEAKER_02 2:36

Yeah, and like it's so easy. I mean, I've been doing this for 11 years, and so it's been a seller's market the whole time. Yeah, and so there's been people that bought and sold, bought and sold, it's been a seller's market the whole time. But we need to remember, just look back 50 years, it will balance out eventually. And then what? You know?

SPEAKER_00 2:51

Yep, it always does.

SPEAKER_02 2:52

Yeah, for sure.

SPEAKER_00 2:53

Well, that that's one of the things I really like about working with you is like I know that whatever advice you were, and I find this with most agents who have been doing it, I shouldn't say doing it a long time, but most agents who have built a business around referrals over a long time. That's probably a better way to say it, they usually have the best interest of their clients at heart. Totally. And and it comes through in how they do business, how they educate their buyers. And that's one of the things I really appreciate about working with you is that you really take the time to educate your clients so that they're you're slowing them down, you're not letting them make that emotional decision. Yeah, you hear them, but then you also walk them back and like, that's a great I look, I'm glad you love it. Let's talk through the things we need to talk through so that you're making an educated decision.

SPEAKER_02 3:37

And at the end of the day, it's their decision too. So it's like I always tell people, I'm not driving, you're driving as the client. But I will definitely tell you what I think and I will definitely show you the data. I have had times before, I had a couple clients before that said, Look, this, yeah, it's kind of crazy to hear because a lot of people think real estate's such a great investment. They said, Look, this is not an investment to me. I have other investments. Those are my investments. This is my home, this is where my family's gonna leave, live, and you tell me what we need to do to get this house. I said, Okay, well, you know, you might be overpaying by this much. And they say, I don't care. I want that house. Yep. I said, Okay, well, that's a different conversation, but I still need to say my piece. Yep, I still need to like get it all out there and be that advisor for them. But it's still not me making the decision, it's them, you know.

SPEAKER_00 4:24

So yeah, I've seen that a few times, even with first-time buyers, where they'll try to write, they'll they'll want to be super aggressive.

SPEAKER_01 4:30

Yeah.

SPEAKER_00 4:31

And one of the things that I I'm gonna say mindset of letting them make an educated decision. It's their decision. Yes. But my job is to educate them. Yep. And so for a buyer who wants to like waive an appraisal or write an appraisal gap, you know, it's really easy to take the time to model what the financing looks like for both scenarios. Yeah. And when I can show them, here's what it looks like if it appraises, here's what it looks like if it comes in at the full appraisal gap, here's what your payment is for both scenarios, here's what your cash to close is for both scenarios. They can see that side by side. And all of a sudden, it's an easier decision. And sometimes there's virtually no difference. I mean, I had a first-time buyer, um, another one, we just got clear to close earlier this week. They they wrote a $15,000 appraisal gap. First house ever. I think they were at purchase price of maybe um, it was low 300s. I forget the exact number. The only difference if the gap came in at a full $15,000 was $16 a month in my conscience.

SPEAKER_02 5:29

I know. Yeah, so I've done that with a ton of with a ton of clients as well. And I think like the the big thing I find is is running the numbers, you know, every which way and making sure that they understand even like worst-case scenarios. Yeah, but it's crazy how like low the worst case scenario can be sometimes, like what you're talking about. And so like I I think uh a lot of times people hear like $15,000, they're like, oh man, you know, but when you can do those loan modifications, yep. I mean, it's it's a crazy, you know, it's a crazy edge to have in this market.

SPEAKER_00 6:04

Well, and even going from 5% down to 3% down, if they have really good credit or their income is below 80% of the county median, their PMI difference might be, yeah, $15,000, $20 a month. Yeah. And if you can write a gap of even, you know, 2% on a $350,000 purchase, like all of a sudden you're writing a gap of seven grand. The guy next to you wrote the same price with no gap and limited inspection, but you got a limited inspection too. Who are they gonna pick? Yeah, they're absolutely gonna pick yours.

SPEAKER_02 6:33

Here's a question I have for you, and this is something I've been thinking a lot about. Be and it I'm curious to get a lender's perspective. So I feel like in the last really since COVID, like these appra like the aggression on appraisals has been just it's exploded. Like not just a gap, but yeah, fully waiving, because sometimes even if they're financing it, they can fully waive it. Yeah, what do you think that's gonna do to like the whole appraisal process? Because I'm thinking of some deals I've done this year, and you know, we had a low appraisal, but because of the gap or the loan modification we just talked about, like it kind of it still went for the sale price. Like, do you think that the industry might change eventually? Or like, I mean, I just kind of wonder because like our banks gonna be worried about people doing that.

SPEAKER_00 7:20

I don't think banks are worried too much because at the end of the day, what the what the investor is concerned with and the real purpose of the appraisal, what I what I tell buyers is the appraisal is is there to protect you in a sense. Yeah, but if you were paying cash, you would not need to get an appraisal. Sure. You can pay cash whatever you want. True. The real reason for the appraisal is to protect the investor. And there's this thing called risk-based pricing. And because of fair credit laws and how lending has to be done, especially for mortgages, mortgage rates are determined on a fixed set of variables. We can't just decide, like, hey, here's what we're gonna mark your loan up because X, Y, and Z. It's very structured. And so when an appraisal is done, the appraised value in the loan amount creates something called loan to value. It's the loan relative to the value of the collateral, which is the house. And when you have a buyer who says, I'm willing to pay above and beyond that value, we don't care as the lender. Yeah, it doesn't matter. As long as you have the money to bridge that gap, yeah, you can buy it for whatever you want. Yep. But so from an investor, from the lender perspective, I don't see anything really changing. Sure. What I do see frequently though is it puts appraisers in a in a unique spot because the appraiser gets the purchase contract before they go out and do the appraisal. So they're aware that the buyer's already agreed to a gap. Yeah. And so what I usually tell buyers is interesting, yeah, the appraiser's gonna know you agreed to a gap. So if you're gonna write a gap, you need to plan for that gap to come in, the whole gap. Plan for it.

SPEAKER_01 8:51

Totally.

SPEAKER_00 8:51

Yeah. Because if an appraiser looks at comparable sales and they're like, there's something, there's a lot of discretion. There's a lot of discretion in underwriting, there's a lot of discretion in appraising. And so an appraiser could look at a situation if it's really on the fence, do you think they're gonna put their license at risk to appraise it at value when there's a gap in there? Totally. If I'm the appraiser, I'm probably not. I'm gonna say I don't want to, I don't want this deal to die.

SPEAKER_01 9:15

Yeah.

SPEAKER_00 9:15

And that's never something that gets put in the appraisal report, but we're all humans. And that human factor comes into play.

SPEAKER_01 9:22

Yeah.

SPEAKER_00 9:22

And so the advice I give anyone if if you're writing a gap, plan on there being a gap. If it's less than the gap, don't write a check you can't cash. Don't write a check, you're not gonna happily cash. Yeah, make the best offer you can make and still sleep at night.

SPEAKER_02 9:35

I had somebody one time write a pretty large gap appraisal gap.

SPEAKER_00 9:38

Yeah.

SPEAKER_02 9:38

And it appraised out. We were we were good. But he texted me later and he said, Oh, thank God that uh thank god, because like we would have been in trouble then appraisal.

SPEAKER_01 9:49

You didn't tell me that when we wrote the offer. Yeah. So that's always kind of scary to hear after the fact.

SPEAKER_00 9:54

That is, you know, so it was yeah, I well, I had this one. It was uh the one I just mentioned about uh writing, you know, 60 some thousand over list price. They wrote a gap of 55,000 and they made the offer sight unseen on the house.

SPEAKER_02 10:07

Okay, yeah.

SPEAKER_00 10:08

So it was like, I mean, they knew exactly we talked a lot before they wrote the offer. They knew exactly what they were doing. It was an educated decision. It was just a lot, there was several layers of risk to it that aren't seen in a normal transaction. They're out of state. Yeah. They're the the val, I mean, I looked at the comps too before they wrote the offer, and it's like, yeah, they listed it really low. I don't know why they do that, but yeah, they did it. So we're gonna stick to what we know comps are, we're gonna make an aggressive offer based on that, and it all worked out, but it just as easily could have gone the other way. There's no way to know for sure.

SPEAKER_02 10:42

Yeah, I think I I had one recently where I was listing a house and I knew it was gonna be a tricky appraisal because like the entire neighborhood was older, and then this one street had homes like 40 years newer, and so yeah, so those are always tough, right? And I even told my sellers ahead of time I'm like, this is gonna be a tough one on appraisal.

SPEAKER_00 11:02

Was were you selling one of the older homes?

SPEAKER_02 11:04

I was selling one of the newer homes. Oh, the newer homes. So, like obviously, we wanted more money because it was of course, it should be more, but it's just funny how appraisers look at things versus us. And I was definitely doing some adjusting and things like that and trying to triangulate it just right. Yep. And then, you know, I kind of told my seller, I'm like, all right, we might be around this zone. And if we, you know, this is like the top tenth of percentile outcome, then we get something 20k above that number, even. And uh, yeah, it didn't appraise out, but the offer we accepted, you know, gave us the assurances that it didn't matter. And that's that's the main thing because you know, seeing around corners on the listing side, like the longer I've done this, you know, a lot of times you start out, you're working with a lot of buyers first and foremost, and then you're getting listings, and then you're kind of refining your process. And I think like the biggest thing a listing agent can do is see around those corners for their clients. Like, are we gonna have issues on inspection appraisal for this house specifically? It was a beautiful house, and I knew everyone would want it, but it was gonna be about the appraisal because the data just wasn't there, yeah, you know. So we were like heavily weighting that with all so you're looking for an offer with a gap. Totally, or a wave or a wave or a wave or a wave. And I we like and we talk about this before we even go on the market. We say, look, I was like mocking up scenarios. I'm like, if someone writes this, but they have you know a normal appraisal, you know, like we're talking about all these different factors because the range of outcomes on that house, it was just more likely. And the the appraiser even called me. He's like, man, he's like, This is kind of a weird one. I'm like, I know. So, you know, that happens. Did it come in short? It did. It actually, like when the appraiser called me, he was mentioning comps to me. And I mean, for us, it didn't really matter because you know, we accepted an offer that we didn't really have to worry about appraisal, but he he called me and he's like, Yeah, like um, you know, we're I'm gonna be low on this one, and and we kind of had a conversation. He's talking about comps that are you know 80k under our like contract price. I'm like, whoa man, I know that comp, you know, so we're having a conversation. And what I think is cool is like, you know, that I I think a lot of times appraisers actually get a really bad rap in art from us, especially.

SPEAKER_00 13:18

And someone likes to point a finger at them because you know what, they're never around to defend themselves. That's the only reason. Totally. If they were sitting here with us, no one would touch.

SPEAKER_02 13:27

I know, totally. And like, you know, I've I've been at like whatever lunch and learns and stuff where an appraiser comes in. And like when they explain their point of view, it's very interesting. And I think what happens a lot is their point of view and our point of view don't always intersect, and that's when we have issues. But you know, I said to them, I'm like, man, we had you know almost 10 offers on this house, all in this zone. It's like, how do we know that this isn't worth that? He's like, I know he's like, but and then he explains to me, he's like, This is how it works in my world. Yep. He's like, it'll get flagged if I'm like off. You know, he's like, it will get flagged automatically. Yep. And then he's like, and then it essentially gets audited by SSRs. Yep. Yep. And then he and then he says someone else has to audit it. Yep, and it's called a desk review.

SPEAKER_00 14:06

Yeah, so I'm gonna look bad, you know.

SPEAKER_02 14:08

So I'm like, okay. So it's like, you know, sometimes we get upset with the appraisers, but really I think what we need to do as realtors is just actually understand the process. And so when you when you connect those dots, then you say, Well, this is the playing field, what can I do? And it's like, well, I can try to see around that corner for my sellers. I'm like, this might be a problem. So we need to look for, you know, this kind of bucket of terms to to give us the best chance to get you the most money, you know.

SPEAKER_00 14:37

Yeah, yeah, you know, and we had talked earlier about the first-time buyer who's writing a you know a 2% appraisal gap because they were planning on doing 5% down. Yeah, they can make it work at 3% down because the only difference is their PMI cost goes up.

SPEAKER_01 14:50

Yeah.

SPEAKER_00 14:51

The other end of that spectrum is someone who is buying a second home, selling their first home, their starter home, buying their you know, forever home, maybe. They're rolling forward $300,000 in equity because they bought in 2019, yeah, and they've got so much equity built up. They may be able to cover a gap of $100,000 with no impact to financing whatsoever.

SPEAKER_01 15:11

Yep.

SPEAKER_00 15:12

And so there's situations like that where, like you said, they're just like, Zach, get us this house. Yeah, we don't care what it's worth. This is we're gonna be here for the next 40 years. Yeah, it fits, we're in a unique situation. We need this this school district, we need this area, like, do it.

SPEAKER_02 15:29

Yeah, depending, depending on where it is too. I mean, if they have 100K to play with on an appraisal, I mean, they might even, you know, fully waive their appraisal contingency because it usually in those cases when I'm talking through a client with that, it depends on the property. Like if it's a property that's like some you know, one bedroom, you know, 3,000 square foot house be really funky in the country or something, there's not gonna be comps for that. You're you're really more exposed by doing that. But if you're doing something in the city of Milwaukee and there's 25 comparables in the last six months, like surrounding that house, you can triangulate pretty closely. Condos, same thing. They're all like the same floor plan typically. So it's pretty easy to get that dialed in.

SPEAKER_00 16:10

And so yeah, I mean so you can define the margin of safety and be like, look, your financing, and that's where I like helping out. I love when when realtors involve me in that process when it's gonna be a riskier offer. Yeah, because we can see exactly like, hey, you want to write a gap of 100 or waive it entirely. Here's where it needs to appraise at before waving it entirely starts to impact your financing. And so, like you're literally your payment in cash to close is exactly the same unless it appraises 85,000 short. That's when it starts to impact your cash to close. Yep. And buyers look at that and they're like, oh, well, in that case, let's just waive it.

SPEAKER_02 16:46

Yeah.

SPEAKER_00 16:46

And all of a sudden you win over 25 other offers.

SPEAKER_02 16:49

Totally.

SPEAKER_00 16:49

And I agree, I think we're starting to see it not be as crazy, but I don't know, this spring was tough. I I had several where we're one of 15, one of 20.

SPEAKER_02 16:57

Yeah, spring was brutal. I mean, the spring was so competitive. It was awesome to be a seller, but I mean, I feel like I I I keep an eye on the data. I don't really see anywhere in the data that even like explains how hot the spring was comparatively to the other last couple years. Yeah. Um, like inventory was up. Didn't feel like that, you know. But um, but yeah, it was really, really competitive for sure.

SPEAKER_00 17:20

Yeah, it was looking down the road. I know it's hard to predict the future, but I know you're a data guy and you've spent a lot of time looking at data trends. Yeah. In your opinion, what does it look like in 12, 18, 24 months?

SPEAKER_02 17:31

Yeah, I've been thinking a lot more about like the 24 months. I just feel like 12 months can go either way, you know, a war, uh, some weird event, you can just derail. Short term. Yeah. Yeah, short term. So, like two years out, I really think that we might be in a more balanced market. I don't think it's gonna be anything crazy. Like, I don't think it's gonna be a buyer's market. But the last three years, year over year, we have seen increases in inventory. And then when you look at other parts of the country, um, it's it's really swinging that way hard. We're still one of the hotter kind of holdouts in the country.

SPEAKER_00 18:04

We've lagged though, right? Yeah, we've lagged the entire like in the last decade, Milwaukee market is low.

SPEAKER_02 18:09

That's what I keep thinking of. So I keep thinking of like these national realtor groups. I'm a part of people are like, oh man, it's so slow here. Or like I keep reading articles like buyers have the power again. I'm like, not here really yet. So what I keep thinking though is like that will hit us eventually. It just will. The economics with building here are a little bit different than other parts of the country, but it will eventually hit, I think. And and what I'm kind of waiting for is a market like in 2019. If you remember 2019, if you're in that market, it was it was a seller's market, but people didn't have to like wave appraisals, wave inspections. They might come in a little over asking. Um, interest rates, I believe, were like high fours to mid to mid-fives that year. And what I tell people all the time is everybody said at the end of 2019, okay, you know, get ready for 2020 because the Fed's gonna start hiking rates, and that's why mortgage rates went up to all the way to mid-fives, which is really high then. And uh what happened in 2020, you know, they obviously had COVID cut rates to the bone, in my opinion, overcut rates to the bone.

SPEAKER_01 19:16

Oh, yeah.

SPEAKER_02 19:17

And then we're way too slow to re-raise rates. Yep. And it's taken years to like lick our wounds from that.

SPEAKER_00 19:23

It is. I mean, and we're still seeing uh, I think the the solidity in the obscene increase in home values is propped up by that fact because we printed so much money, asset prices had to increase at a at a similar level. Yeah. And that's that's inflation, and that's what happens when you print a bunch of money. Yep. You know, like there's all this extra money floating around now. Guess what? I'm gonna charge you more for my house because I can. Yeah, totally. Because there's someone who will pay it.

SPEAKER_02 19:52

And I hear I hear that a lot too from from some folks. It's like, oh, these sellers are so greedy. These sellers are actually just looking for what the market is determining their house's worth.

SPEAKER_01 20:01

Yeah.

SPEAKER_02 20:02

And and it's really tough from the first-time home buyers. What do you tell first-time home buyers when you sit down with them the first time and you break down numbers for them? I mean, what does that conversation look like?

SPEAKER_00 20:15

Well, I have a I call it a total cost breakdown, but it is just an Excel spreadsheet that I built. Yeah, I think it's I personally, it's like the backbone of my business because it allows any buyer, I customize it to their situation, they can put any purchase price and tax bill into that spreadsheet and it'll show them as close to exact numbers as possible for payment and cash to close.

SPEAKER_01 20:37

Yeah.

SPEAKER_00 20:38

And I had I have a lot of realtors that I work with who they use that with every client before showings because they want to make sure that they're not showing them, you know, if they're going out on a Sunday afternoon, the buyer wants to see eight houses, they want to make sure that the and the houses range from 300 to 450. Right. They want to make sure that all eight of those are within the buyer's range of comfort for payment and cash to close. Yeah. Because I don't want to waste time. Like I know you wouldn't, you don't want to spend seven hours doing showings when you could whittle it down to two hours. Totally. And so that's really what I focus on so that a buyer knows before they ever even get out to see a house exactly what that range of options look like. And then I also, if they do want to talk through the numbers, about half the time, people don't even want to talk through it. They just look at that breakdown, it kind of answers their questions. They never call me. And next I hear, oh, we're under contract. Awesome, let's get rolling.

SPEAKER_02 21:29

Nice.

SPEAKER_00 21:29

But the ones that do want to talk through it, I always try to advise them on like the state of the market. I try to soften it up for you. So when you talk to them, it isn't the first time they've heard about appraisal gaps, writing over list, uh, inspection content, you know, gaps. I don't forget uh limited inspection contingencies where you have a we're not gonna ask for anything over five thousand.

SPEAKER_02 21:51

Yeah, we call it like a gap too. Yeah, inspection gap. Yeah.

SPEAKER_00 21:54

So that's that's really what I focus on when I'm when I'm talking to first time buyers. And Repeat buyers too.

SPEAKER_02 22:01

Yeah. One thing I found uh is that first-time homebuyers obviously don't know what they don't know, but I hear a lot of frustration from first-time homebuyers with just how expensive things have gone uh gotten since uh you know I first got licensed in 2015. Sure. But the other I I think the I think what I tell all those buyers is like you have to get in the game. And I'm I don't want them to just buy anything that they're not happy in. Yeah. But if you look at what real estate does over the long term, like you're gonna win if you get a decent house that is gonna be in an area that's gonna appreciate, at least even modestly, and uh you build out of equity and then maybe they move up or or move to you know two acres like they always dreamed of or whatever it is, you know.

SPEAKER_00 22:50

Well, if you look at real estate over any long time period, like any 10-year period, go find a 10-year period where real estate values dropped. I don't think one exists. I mean, maybe someone can pull the data and prove me wrong, but yeah, uh from what I've seen and the research I've done, I don't think there is a 10-year period where residential real estate values have dropped. Right. And so if you got to live in a house, look at the equity you build in 10 years. Yeah. Look at your acquisition costs relative to and your payment relative to renting. Yeah, like there's zero down programs for first-time buyers. Wita is a great one. If you want to buy a house with zero down and you have good credit and your income is under like $120,000, and you're looking at a house for $300,000, you could buy it with zero down using Wida to do your down payment. Yep. And it's like, what's your payment on that? $2,800? Right. Right. Renting a really nice three-bedroom house, what's that? Yeah. $2,800, $3,000 at least.

SPEAKER_02 23:47

Well, so the thing that I think a lot of people aren't I hear this all the time from from either first-time home buyers or just buyers in general. It's like, oh man, you know, I can't believe a brand new four-bedroom, two and a half bath house was $200,000 in 1998.

SPEAKER_00 24:02

But you feel like they're just parroting their parents, like the right, right.

SPEAKER_02 24:06

I mean it's a bitter molen. It's it's bitter, right? But a lot of times I think what actually people lose sight of is $200,000 in 1998 was a lot of money. You don't realize how inflation works on what we perceive as expensive versus cheap. I mean, look at what a car cost in 1998, a brand new car. It's completely different.

SPEAKER_00 24:27

My parents bought their house brand new in 1990. Let's see, we moved in 2000 six. It was built in 94. It sat for two years, granted, two bedroom, one bath. 1200 square feet. They bought it for $96,000. In 1996, like that's not that, I mean, six, what are we looking at? 30 years? Yeah, 30 years. Yeah. And now what they sell it for? 210, 220? Yeah. So it's like, yeah, it's almost it's over 200% increase in value.

SPEAKER_02 25:02

But here's the thing I'm lived in it for 30 years. I think about this all the time too, is like, so let's say you know you use $2,800. Let's say your mortgage payment was $2,800 a month.

SPEAKER_01 25:12

Yep.

SPEAKER_02 25:13

Like, if you live in that house for 20 years or 30 years, let's say you don't pay it off early, you're just making payments. $2,800 in 15 years. I I get $15 years is a long time. But the point is, is like $2,800 in 15 years is gonna feel like it's $1,800 today. Yes. And so like a lot of people, that's the magic of buying a house.

SPEAKER_01 25:35

Yes.

SPEAKER_02 25:35

Because you have a fixed rate. Yep. Now taxes aren't fixed, insurance can go up a little bit, but the fixed rate versus renting. A lot of people right now they just look at oh, rent it, rent might be $2,500 and my mortgage payment might be $2,800. Yeah, but over 15 years, rent goes here and you stay right here, and then inflation goes up and you're still right here. And that's the magic. And when so when when you know people talk about, oh man, I can't believe that this four-bedroom, two and a half bath, you know, my parents pay $1,100 a month. That's ridiculous. Yeah. A lot of that's been inflation too. And yes, housing prices have gone up a lot. Of course they have. There's no doubt that that is part of the recipe for sure. But also a lot of people lose sight of the inflation aspect, and that's like the easiest bet against the buying versus renting.

SPEAKER_00 26:24

Yeah, it's a double-edged sword because over time debt becomes cheaper through inflation. Yeah. And inflation is built into our financial system. The Fed targets 2% inflation annually. Yeah. Not zero. Not zero. Your target is two percent. So they want to create an environment where inflation is two percent annually. Yep. And then on top of that, you've got the appreciation of the property.

SPEAKER_01 26:45

Yeah.

SPEAKER_00 26:46

So you have an asset that appreciates, you have debt that depreciates over time. As wages increase, your wages will also increase, and you need a place to live. Yeah. It's like it not everyone should buy a house, but for the people that are sitting out there thinking, like, is now the right time? Should I buy? Like the right time is as soon as you're ready. Yeah. Because you're not getting any younger. Yeah. And as time goes on, find any 10-year period in history where home values have dropped.

SPEAKER_02 27:17

Yep. Good luck. I tell people that all the time when we talk about refinancing. I said, like, you have to be able to afford the payment day one. Yep. That should be like a period at the end of that. But yeah, obviously in the next five to ten years, it's highly likely you'll be refinancing not just once, but probably multiple times. So that, you know, again, we did, you know, rent to starts at $2,500. Let's say your mortgage payments $2,800, and then you refinance down in five years, let's say just one time. Yep. Which I think we think it'll be much sooner. But and then what's rent going to be in five years? It's gonna be $3,500. I mean, now you're getting now you're just creaming the rent. It's five years. What's gonna happen in 15 years? So I think a lot of times people say, oh, well, you know, I I read an article, it's like, well, it's officially more expensive in Milwaukee to buy versus rent. Yeah, on the surface, maybe day one, maybe for a certain neighborhood it is, but long term, good luck. Good luck on renting versus buying, because it just the it literally doesn't make sense.

SPEAKER_00 28:19

There's a reason that uh as a at a as a national average, the net worth of homeowners is something like 350,000.

SPEAKER_02 28:26

Yeah, it's like 55 times a rental. It's insane. Yeah, yeah.

SPEAKER_00 28:29

And there it's because a house becomes a forced savings vehicle for you. That's too on top of being a place you that you're gonna live. Like you have a housing cost no matter what. If the cost is, let's say it is even 10 or 20% higher to own versus renting, but you're building equity in an asset that also appreciates that the debt itself is fixed and inflation proof.

SPEAKER_02 28:52

Yes. Like the inflation proof is so important. It's so important. I mean, it's literally locking, you're literally locking your housing cost and kind of saying, like, I mean, aside from some fluctuations on insurance taxes, which which, by the way, if that fluctuates on the owning, it's also going to fluctuate on renting, and it'll just be realized in the rent increase. So it's a zero-sum game, as far as I'm concerned, on that. And then so then you're really talking about it's a just an awesome hedge against inflation. Also, speaking of inflation, when you look at appreciation, real estate almost universally way outpaces inflation. Oh, remember 2022 when, oh yeah, inflation was 9%. Yeah, what did the housing market do? It was like 20%. It was. So I mean, it's that that's a good example. Even like the worst case scenario from inflation, you know, real estate doubled up, doubled it up. You're protected.

SPEAKER_00 29:42

You're protecting it's a way to protect your net worth against something that is built into our financial system, which is inflation.

SPEAKER_02 29:50

Yeah, totally.

SPEAKER_00 29:51

Yeah. One of the things that you mentioned was refinancing, and I give people the same advice. I say, do not buy a house that you can't afford today on the hope that you can refinance next year and lower your payments. Yeah. Because what I see happen frequently is your taxes and insurance might go up next year. And let's say we can refinance and save you $200 a month, but between your insurance and your taxes, your payment went up $100 a month. You're saving $100 a month. But you're saving $100 a month because rates went down. If rates hadn't gone down, your payment would have gone up $100 a month. Yeah. And so do not if you're buying that close to the comfort level of what you can afford versus I can't make my payments and I have to move out and leave my keys on the counter and get foreclosed on, you should not be buying that house.

SPEAKER_02 30:39

Totally. Yeah. If you're too close to the sun, then just don't even go to the house. Don't even know. Or you have to adjust your budget. I mean, I've had conversations with people too who are like, like, okay, we could afford, we, I mean, we were pre-approved, we could buy this house for X, but we wouldn't be able to do anything. And it's like, well, do you want to live that way? I mean, I guess maybe some people do, but it's like, well, don't buy it then, maybe. Yeah, one of the things uh we were talking about earlier. Um, one of the things I'm proudest of is if you look at my client reviews, there's this. I I actually got a referral recently and told them this. There, go look at my reviews. There is a huge uh trend in there that I will talk someone out of buying the wrong house. Yeah, I'm really proud of that because when you're signed as a buyer agent, you know, we're working on the behalf of the buyer as a fiduciary, and um you know it's just coming through a lot from a lot of clients. It's like, hey, you know, Zach actually thought that one was not a good choice for us because X, Y, and Z is still their choice, but that was something that, you know, I the got a referral recently and said, just look at those. And that I I think that speaks my integrity, which I'm really proud of.

SPEAKER_00 31:49

So yeah, same. I I really love I the only review I ask for is a Google review. Yeah, and you go through and read mine, it's the same thing. It's like it's there's a common trend, and it's that we're giving unbiased advice and we also are fiduciaries by law. Yeah, which for anyone who doesn't know, being a fiduciary means that by law, we're required to act in the best interest of our clients. And that's not true for all industries. Um, there's a lot of industries where fiduciary duty does not exist. Yeah, in fact, up until about seven, eight years ago, nine years ago, um, financial advisors were not required to be a fiduciary. And that that was a big change in that industry. And it there's a lot of implications with that. But and and the products that they can sell and how they can sell products that make them more money in lending. I cannot make more money based on the interest rate a client gets. It's against the law. Sure. As a lender, I can't get paid based on how high someone's interest rate is. So our incentive is to help them have a great experience, make educated decisions so that they're happy and they want to work with us again when it comes time to rebuy.

SPEAKER_02 32:57

That's the whole thing, right? Is like, you know, I I met with a prospect recently and they said, Hey, I just want to let you know we do not like being sold. Like, we really don't like a sales y approach. And I said, Look, I said, you know, I'm gonna we're gonna talk about what I can do to help you guys in your search, and you can just let me know if you if we're a good fit or not. And they hired me. And I think like and I think so much of that is um it first of all, when you're when you're kind of divorced from the outcome either way, and you're like, this is what I'm about. Um, are we a good fit? I mean, honestly, also, I know you probably do this too. I'm also looking like if they're a good fit because I don't take every oh yeah, I I don't take every referral on because sometimes we're not a good fit. I mean, I really want to, if someone wants to go down the road and find me get a house, I want to make sure they're listening, like getting pre approved or, you know, actually uh, you know, are coachable and things like that. I mean, sometimes we have um, you know, people that want to look at houses that they can't afford. And it's like, well, I'm not gonna show you that house, like you can't buy the house, you know. So we have those conversations too, and sometimes it just doesn't make sense anymore.