Real estate agents are used to focusing on “location, location, location,” but for the last several months the main thing on agents’ minds has been “low inventory, low inventory, low inventory.”
Sellers worried about finding new homes have been reluctant to list their current homes, and record-low interest rates have inspired homeowners to refinance rather than sell. At the 2021 Modern Real Estate Summit, Amber Kovarik from Guild Mortgage explained how her team is using a “move-up strategy” to turn refi customers into move-up buyers. Agents can work with lenders to provide this service to their clients.
“This is a strategy we’ve been using with great success with our clients. We had been talking to so many clients about the opportunity to refinance. In a lot of cases, the conversation is, ‘OK, client, here’s your numbers on a refinance. Let us know if this is something you want to do,’” Kovarik said “But we decided to take it a step further. When a client comes to us asking about a refinance, we make sure and say, ‘Hey, client, just curious: Is the home you’re in right now the long-term home? Does it meet your current needs and desires? Do you have any interest in potentially looking to move up into a different home? Because I don’t think I’ve ever seen a better opportunity to release the equity that you have built up in your home and transfer it into a different home that better meets your needs.’”
If the clients seem interested, Kovarik and her team use the move-up strategy to walk the homeowners through a total cost analysis of their current home. She provided an example of how the math can work out for a certain set of buyers her company worked with.
“They were at 4.25 [percent interest rate], with a monthly payment of $2,177. On a refinance at the time, we would have been able to lower their interest rate by 1%, which was creating almost $400 a month in savings for them. But the husband was now working from home. He was working out of the bedroom and it was not the ideal situation,” she said.
Kovarik said her team calculated that the move-up strategy plus about $100,000 should be able to get this couple a home with an office. Her team was able to qualify the clients to buy a new home before they sold their currently owned home. The couple borrowed against their 401(k) to get a 5% down payment, and the approximate monthly payment on their new $575,000 home (with an office) came to $3,104.
“This was creating a payment that was $927 higher than their current monthly payment. But what I was able to show them was that after they sell their home, buy the new home and move into it, now their Realtor is going to go sell their previous home releasing all the equity they’ve built up,” she said. “And in this case, they had about $150,000 that they could put into this new home purchase. So after the sale, we put the additional principal against the loan that we just closed, and we lowered that loan amount down to right about $424,000, which gave them a new monthly payment of $2,404.”
In the end, Kovarik’s move-up strategy got this couple into a new home that better met their needs for $227 more than they were paying on their previous home.
“And we’re reminding clients that the equity they have in their home is like Monopoly money: It can come and it can go,” she said. “There’s no guarantee that $150,000 was going to stay in there forever.”
Speaking of guarantees, there’s also no guarantee that the housing market will remain this hot forever. Many sellers who have been watching their home value skyrocket over the last few years are waiting to list because they think waiting will get them a higher final sales price.
But according to the Home Buying Institute, now is the time to sell. Interest rates and home values could begin to shift toward the “center” later this year, HBI predicts. Continued increasing home prices could dampen demand going forward, netting sellers less in the end, while planned development and construction could create inventory growth and could give buyers more options.
Remind sellers that mortgage rates are continuing to rise—30-year mortgage rates topped out at 3.18% at the beginning of April, and dropped back down to around 3.04% (on average) by mid-month—which will also affect buyers’ buying power.
Now is an excellent time to buy a home, according to industry analysts, and using data from the move-up strategy process to illustrate to homeowners how they can use existing equity to better their living situation without too much personal investment could help you find clients in the current market.