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With Terry Story, a 28-year veteran\xa0with Coldwell Banker located in Boca Raton, FL
Terry Story joins Steve for their weekly confab about the latest news from real estate markets.\xa0 This week they discuss REX agreements, a new program pioneered by the FirstREX company which allows first-time home buyers to borrow money towards increasing their initial down payment, which in turn has a number of advantages for buyers, and, of course, some advantages for lenders as well.\xa0 They then turn their attention to rising eviction rates in rental markets around the country.\xa0 The trend is alarming to many, not least of which are renters in locales where home prices continue to gain altitude.\xa0 Finally, Steve and Terry discuss the often thorny pre-closing negotiations between home sellers and buyers over required disclosures, inspections, and the cost of repairs.
REX Agreement Benefits for Buyers and Lenders
As Story explains, REX agreements have taken off in the past few years as a popular way for cash-strapped home buyers to borrow funds to apply towards the down payment portion of their mortgage.\xa0 Instead of offering a 10% down payment, a REX agreement can provide the cash to increase that to 20% of the property's price.\xa0 This enables buyers to sidestep the private mortgage insurance program they would otherwise have to pay into, a decent savings in and of itself.\xa0 It also frees up funds for the buyer to make improvements to their new home, which naturally has knock-on benefits for other industries. The REX homebuyer program (underpinned by the REX agreement between homebuyer and lender) is not only offered without an accompanying annual interest rate, it also defers repayment of the loan until the house is re-sold.\xa0 Instead of a steady stream of income, the down payment lender takes an equity position in the home which is only actualized when the home is sold again or when the mortgage is paid off. The lender, in most cases, does ultimately get paid more than their initial loan, but that amount floats depending on the home's appreciation.\xa0 These REX agreements are not without risk for the lender, which is why they tend to get made more often in local markets which are seen to have good long-term prospects for stable and rising home prices.
Rising Rents + Stagnant Income = Higher Rental Evictions
Next, Terry turns our attention to an unsettling and broad-based trend in rental markets: spiking eviction rates.\xa0 The fundamental problem is a disconnect between rising rents\u2014 up 66% since 2001\u2014and a much more modest rise in income\u2014around 35%.\xa0 A huge number of renters are paying a greater portion of their income, the so-called \u201chousing burden,\u201d towards rent.\xa0 This, of course, puts many renters in a more vulnerable position, perhaps one expensive medical bill or job loss away from eviction and possibly homelessness.
Disclosures, Inspections & Repairs
Wrapping up this week's conversation, Steve and Terry talk about negotiations between home sellers and buyers on issues related to required disclosures and inspections and necessary vs. optional repairs. Before closing a home sale, current owners are bound by law to disclose everything they know about problems with the property, a process that goes hand in hand with required inspections. Buyers are then given a window of time to propose repairs to any important issues identified in disclosures or inspections.\xa0 Negotiations can break down and even threaten the closing if both sides are unable to come to an agreement on what needs to be fixed and how much it should cost.\xa0 Terry mentions a novel approach to resolving some of these disagreements: Instead of renegotiating the sale price, or delaying the close until all repairs are complete and re-inspected, a seller might offer a \u201cmonetary credit\u201d to the buyer, which the latter can then use to address repairs on their own time.