Clarity Around Closing Costs Comes With Transparency From the Start

Eric Bramlett — Fri, 05 May 2023 14:03:26 +0000

As all agents know, regardless of locale, sky high mortgage costs are keeping many buyers out of the market. However, alleviation may be coming as home prices are expected to decline a bit this year (yet supply will stay low) and mortgage rates are projected to drop some next year. Still, buyer closing costs can vary wildly, elevate quickly and be difficult to understand – no matter the economic situation. Educating buyers early in the buying process on rates, home price fluctuations and broader closing costs paves the way for a smoother home-buying process and helps them anticipate things that seemingly add up in the path to closing.

Lender Fees a Sizable Chunk

A good way to break it down for buyers is by costliest fees, which is almost always the lender fees. Agents can guide clients to reputable lenders who will work closely with them to find the best fit for their financial situation. These can range from 0%-2% of the purchase price, and the same lender may offer different fee structures depending on loan specifics. A decision buyers must often make is whether they want a higher interest rate with lower fees or a lower interest rate with higher fees. Since interest rates increased substantially in Q2/Q3 2022, buyers are now considering rate buydowns, which cause these fees to go up beyond 2% and even to 3%-4%.

Prepaid Expenses and Escrow

Next are prepaid expenses, which can appear as closing fees but are actually expenses buyers pay no matter what like property taxes and insurance. Best to prepare buyers early for these expenses and pay through a popular escrow account. This strategy will ensure that there are no surprises to the buyers and no misunderstandings as to what these fees are. Other closing costs include things like escrow fees and appraisal fees. These vary depending on location and other factors, but they’re generally not a significant expense.

Negotiating Who Pays

One essential step upfront is determining which party will pay the broker fee. The broker fee is historically paid by the seller, but in rare cases, the buyer may absorb this cost. There is a lengthy class-action lawsuit against the National Association of Realtors that could considerably disrupt this situation by requiring that buyers compensate their agent while sellers compensate their agent.

One thing that buyers may not realize is that they can also negotiate to have the seller pay some or all of their closing costs, yet, this can come at the expense of a higher home purchase price – essentially “rolling these fees into” the price of the home. For instance, instead of asking for $5,000 off the price of a home, the seller pays $5,000 in fees. The total cost to the buyer is the same. It’s essential to work with an agent who understands the pros and cons of these approaches and determine the best transactional strategy.

Clarity Comes with Expertise

Buyer closing costs can seem complicated, but with the right guidance and education, buyers and their agents can navigate the process successfully. Ultimately, working with a real estate agent who has experience in the local market will help ensure there are no surprises during the closing process around fees and costs, even amidst our country’s changing real estate financial landscape.

Eric Bramlett

Eric Bramlett is the owner of Bramlett Residential, a top performing real estate brokerage in Austin, Texas. Widely regarded as an industry innovator, Eric has developed new systems and proprietary technologies to help his agents gain efficiencies and become industry leaders. Eric is a multi-year Austin Business Journal Residential Real Estate award winner and has career production in the top 1% of agents in the United States.

Myth-Busting the Value of Solar Panels in Real Estate Sales

Eric Bramlett — Wed, 12 Apr 2023 22:31:39 +0000

Homeowners reap significant savings from solar, often as much as mortgage costs. Why aren’t we telling them?

Conventional wisdom in the real estate industry is that homeowners with solar panels will not see a return on their investment – ever. But agents should refuse to accept this and, instead, learn to market a home’s solar panels to prospective buyers not just around clean energy but around the significant cost savings – something that seems to be forgotten.

The Cycle of Misinformation

Agents are taught that solar panels have a 0% return from appraisers. Solar panels are not commonplace (yet) so it’s often an edge case when agents have to price a home with solar panels. Because there are relatively few properties to use as comps, agents turn to appraisers who educate them that “solar panels have a 0% return.” This is a self-perpetuating cycle because agents educate other agents on what they have learned, who then instruct sellers and buyers on other homes for sale: “Solar panels have zero value on a residential property.”

The Reality: Reduced Cost of Home Ownership

The reality is that solar panels significantly reduce a homeowner’s cost of home ownership. Yet the problem remains that agents focus too much on the cost to install the system, rather than the amount of money the system will save the homeowner. The cost to own a home not only consists of PITI (mortgage, taxes and insurance), but also energy, water and maintenance. Since solar panels reduce or eliminate a homeowner’s energy cost, they significantly reduce cost of ownership.

For example, one of our firm’s clients in Austin, TX, installed solar panels and their calculations are that they reduce cost of ownership by $400/month. This is a larger system than the average at 13kW, so this system has above-average results, but the average system in the United States should save consumers $67 to $323 per month, according to EnergySave.

Stop the Cycle with Accurate Calculations and Effective Marketing

An agent should ask themselves, how can I best market these solar panels? By converting energy into cost of ownership savings and converting cost savings into a mortgage equivalent.

Let’s consider our client’s home. Our brokerage, Bramlett Residential, serves the Austin, TX, market. The average home in Austin is roughly $650,000. The average home in Austin with a solar electric system similar to our client’s will have the cost of ownership of a $585,000 home. When mortgage rates go down (and we all hope they do) the comparable cost of ownership savings go up. On average, their solar panels will save $400 per month in energy costs. $400 per month at 6.5% is just under a $65,000 mortgage, so their solar panels will save the next buyer $65,000 in purchasing power. If/when mortgage rates drop to 4%, the cost savings are comparable to $85,000 in purchasing power, so lower rates means a greater cost of ownership savings!

Yet our brokerage recommends sellers price their solar-powered homes comparably to homes without solar. The reason is, while the value is clearly there, the education to the broader market is not – yet. We recommend that, instead, agents highlight the cost savings in the marketing remarks that are syndicated across all real estate portals.

Our solar marketing package includes a PDF that highlights the solar home and the cost savings, along with the calculations that get us to those savings. We upload that PDF to the MLS and mention it in agent remarks. We also leave a hard copy at the home and include a digital copy in the listing photos online.

At our brokerage, we have leveraged these steps to get multiple offers and sold prices far above asking. By appealing to the buyer’s wallet, it becomes more palatable for the person to pay a higher price when the baked-in cost savings from solar panels have been well communicated.

Marketing Solar Cost Savings Must Become Commonplace

As weather becomes more severe across the United States and electrical grids more vulnerable, interest in solar power will continue to rise amongst consumers. This is an opportunity for brokerages to adopt these marketing strategies and commit to making them commonplace so that buyers understand and accept not only the significant cost savings, but also the opportunity to tap a clean energy source.