Speaker 1: 0:03

Hello everyone and thank you for tuning into the Real Estate Shop educational platform, episode two, the go-to destination for expert insights in the dynamic world of real estate. I'm Ari Petronelli, your host, and a real estate agent based in sunny Southern California. Today we are going to delve into the intricate realm of property valuation and mortgages and how they relate to one another. Today we are joined by my good friend, jack Skovgard, a mortgage broker with almost a decade of experience, and he works with United American Mortgage. Thank you for coming, jack.

Speaker 2: 0:39

Thank you, happy to be here. Thank you, jack, for coming.

Speaker 1: 0:42

We are also joined by our seasoned appraiser, marcus Espinoza, who has an MAI, sra, asaccim with 25 years of his professional experience in appraisals.

Speaker 3: 0:58

Thank you.

Speaker 1: 1:01

Let's just. I have actually quite a few questions. I just kind of wanted to go in right away. But, jack, can you explain the role of property valuation in the mortgage approval process and how does it impact the loan amount a buyer can qualify for?

Speaker 2: 1:13

Yeah, that answer is pretty simple. The valuation of the property directly determines how much the lender is going to loan to the client. The lender is always going to take the lesser of the appraised value or the loan amount or the purchase price in a purchase, and so if the valuation comes in less than the agreed upon purchase price, that's what the lender is going to lend on, and then the buyers and agents are going to have to go back to the negotiating table to either try and negotiate that price down or the client is going to have to come up with the gap in the funds needed between the appraised value and the purchase price.

Speaker 1: 1:53

So they may just have to come up with more cash then.

Speaker 2: 1:55

Yeah, which can be a big deal in this market.

Speaker 1: 1:58

Absolutely.

Speaker 2: 1:59

As things are more expensive these days. If your valuation comes in $25,000 less than what you agreed upon to buy the property, then that's additional 25K you're coming up out of pocket that you might have had set aside for updates, repairs, getting into the home, furnishing the home.

Speaker 1: 2:22

And so this question can really both of you, but what are some of the key factors that influence the valuation of a property, and how do these factors vary across different types of real estate?

Speaker 2: 2:33

I'm glad we're with an appraiser today, because I look at these reports all the time and I can tell you what I see them calculate within the report, but I feel like you're going to know exactly.

Speaker 3: 2:44

Yeah, so I mean your first question. I mean I saw several different possible solutions. You, being a realtor, you can go back and renegotiate and get that $25,000 carved off or a rebuttal. Lenders like to use the word rebuttal and say, hey, we're going to rebut this appraisal. I think we're missing something here. And it gives the lender or it gives the borrower or it gives anybody to present an argument to the appraiser and the appraiser can take that in consideration. And so I also see that.

Speaker 3: 3:19

But yeah, I mean, when it comes down to what's going on in the marketplace, it's always moving and we just like we're in a place right now where there's high interest rates and that's impacting value. And that's what's impacting value in today's market is interest rates, and it's not bad Historically speaking. I mean I look at your face and I get your face and you know, sometimes I look at myself in the mirror very seldomly and I say, okay, well, we've never seen rates, you know, that much higher in our, you know in our adult life. But you know interest rates are pretty close to what historic norms have been, and it's just that because since 2000, interest rates have always been so historically low, that just became the norm for the last 23 years and so that's what everybody's expecting. So when we got, you know, these, these interest rates hikes, it's impacted everything. It's impacted the workflow here, you know, for appraisers. I'm sure probably impacted your input at both.

Speaker 2: 4:19

Yeah, both you know, both you know so, yeah, I would imagine lack of inventory is also affecting the valuation of homes. The you know the problem with interest rates being higher. You know interest, they are what they are. The market is what it is. The real issue is that home values have increased at a substantially faster pace than household income has. So, although interest rates may be somewhat relative to interest rates in the past, or somewhat norm, it's much more difficult to afford that mortgage than it was, you know, 15, 20 years ago when 8% rates were the same.

Speaker 3: 5:00

Yeah, and he. That was a good thing that you mentioned about inventory. I mean, from what I hear, from talking to different investors and buyers and sellers, and it's just like people that are there, people are not willing to sell. So if I'm going to go sell my property that I'm already in a 4% interest rate or even a 3% interest rate. They don't feel comfortable selling their home, relocating and then picking up a 7% interest rate.

Speaker 3: 5:24

Absolutely, and so that's, that's, that is what I hear the reason for, you know, low inventory and You're absolutely right.

Speaker 2: 5:32

I mean we're behind on building as well. I know that builders went through a lot of restrictions in the past and then COVID shut down a lot of buildings, so building new homes is substantially behind schedule. So there's that's increasingly adding to the lack of inventory. And then you're absolutely right, there's got to be a really good why to move. You know you either have an expanding family, you need larger space, you are retiring and leaving the state. You know a lot of people leaving California going to more affordable states where they can sell here by cash elsewhere and have the same size home or larger and maybe have a little land.

Speaker 1: 6:11

Yeah, the people that are locked in and they're really good rates. There's no reason to really move except like, exactly like what you said.

Speaker 2: 6:19

Yeah.

Speaker 1: 6:20

So that kind of took care of another question. So in your experience, Jack, what are some common misconceptions that clients have about property valuations and how do you address them?

Speaker 2: 6:35

I get a little bit of feedback from clients in terms of, like the appraisal, valuation. So I don't. I would say the biggest misconception is you know, I just spent $20,000 on my yard. Why am I? Why am I not? You know, why isn't that value in my home? You know, I think some clients think the curb appeal, the back yard, although it is a attractive feature to new buyers to walk in and not see a yard full of dirt, it doesn't really add to the valuation of the property as my experience, as much as they would think, you know, as much as they've personally committed to the project and that's 100% right.

Speaker 3: 7:17

And what that does is I spend $20,000 on my yard. I mean that actually probably expedite the sale, but it doesn't really give the value that they're looking for. I just spent $20,000. Well, guess what? You know, you just sold your house a lot quicker because you spent $20,000. So those are the things that I hear when it comes to that.

Speaker 2: 7:37

One last project and the new homeowner has to do coming in. But I think would you agree maybe the most important rooms to be spending that money on, or the kitchen, the bathrooms and necessary updated fixtures, you know, new electrical, that sort of stuff really goes. New plumbing it was a long way.

Speaker 3: 7:55

Yes, that's. That's been historically the case and it remains the case, so yeah.

Speaker 1: 8:00

So, with the rise of remote work, do you anticipate any shifts in the housing preferences or property values in certain regions, and how would this affect the mortgage industry?

Speaker 2: 8:10

Hard for me to speak to the property values in certain regions. I feel like some of my real estate partners would have a better understanding of comps in certain certain areas, but I do know I did see someone post a map recently of metropolitan locations around the country that had the largest increase in value in 2023 and they weren't in California. I have a pair of clients right now that are remote workers and we're looking around Long Beach. You know from one of them's from Long Beach looking to stay here close to family and then kind of seeing how far their dollar went here. And now, because they're remote, they're really outdoorsy they're looking in Idaho now. You know it's another state that our companies licensed in and we can help them.

Speaker 2: 9:01

You know we can help clients move almost anywhere in the country right now and for them that's a really exciting prospect that they can keep their mortgage payment at a level that's comfortable with that for themselves, getting a home that's probably larger than they would get here with a little bit of land and not have to compromise on their lifestyle. You know, they they the other pair of that that partnership is from South Africa. They love to travel. They love, you know that's a big, important aspect of their life, and they're young, they're not ready to give that up. And so I think the more people that are remote workers and are open to living elsewhere may start to migrate to places where homeownership is a possibility. You know, they can kind of have that comfortability, that homestead, and then still continue to live life the way that they want.

Speaker 3: 9:53

Yeah, I mean it isn't that is impacting other areas of a different real estate types, like office, for example. Office is getting hit hard, you know, because of that reason, so it's going to be interesting to see what happens over time.

Speaker 1: 10:09

How can mortgage brokers adapt to changes in the real estate market to better serve their clients?

Speaker 2: 10:14

I think adding more products to the I mean, you know, more arrows in the quiver right, more access to lending, is the answer to that. Not everybody is a cookie cutter client who fits for a full dock. You know, 15 year, 20 year, 30 year, conventional fixed or arm product there are.

Speaker 2: 10:40

I think, especially after COVID, we're entering an era where a lot of people have become business owners. A lot of people have started their own businesses and or are trying to grow those businesses and it's somewhat difficult to run a business and qualify for financing. You know it's expensive to launch a business and generally there's a lot of business expenses that go into that and you don't show a lot of income on paper, right. So having access to alternative doc or non QM products, like our company has, allows profit and loss only loans, bank statement only loans, a lot of investor products that show no income, dscr, debt service coverage ratio, loans that allow investors to use the income coming in from a property to buy something. And I'm seeing a lot of folks continue to rent actually for their primary residence and look into investing in second homes and short term rentals or investment property you know, full investment properties.

Speaker 1: 11:47

So finding more avenues to get people the money that they're looking to borrow within a qualified setting is the answer you know, I know that both of you are homeowners, and so what financial preparations should first time home buyers make before entering the market, aside from saving for a down payment?

Speaker 2: 12:08

I have all of my clients go through a like a pros and cons checklist of owning property. I don't think property ownership is for everyone. You have to really want it. You want to. You have to want to be a homeowner, especially in this market, and owning a home carries weight for different people. Some people really want that safe haven this is my home place and others look at their home as a investment, long term investment. Part of those can bleed over into one another. But looking at what your finances look like right now, what your spending looks like, what your savings looks like and what your income looks like and where that income is going, and having a budget worked out, helps you understand what might need to change in your life to make homeownership a reality In this market.

Speaker 2: 13:04

If you're going from renting to owning, your monthly housing expenses going up there's no, there's no question about it. Yeah there, there once was a time where there was a safe argument to make about. You know, could you own it for the same amount that you were renting? That is long gone, and so it's a choice to get into making a higher housing expense payment, and there are some things that are going to have to fall down by the wayside to make that happen. You know what are your future goals look like?

Speaker 2: 13:34

You know, do you have the foresight to kind of see that once you own a home you are building equity over time, especially in a place here like Southern California? You know you are naturally building equity over time. You are paying down alone and is that increase in value for the property kind of offsetting the higher expense you're paying or the mortgage, as opposed to continuing to rent and pay somebody else's mortgage? So learning what your, what your bills are, what you're willing to give up and not give up like the clients I previously mentioned who weren't willing to give up travel, you know, figuring that out helps people get prepared to make that plunge into homeownership.

Speaker 3: 14:20

Yeah, yeah, yeah. And I and I believe there's a good misconception out there that if I, if, if I stop renting, I could just, you know there, yeah, it does go up as soon as you go into into home owning. But you know, yeah to, I mean it's just, it's pretty much right, vanilla, I mean, I mean you just got to. For me it's like you know work harder if you're a PE teacher, you know, maybe you know go out and you know, do some coaching on private coaching on the side. You can save money that way. There's several ways you can save money. But you know, just to kind of veer a little bit off of home owning, I would encourage people, I mean I'm gonna. I'm mostly commercial appraiser. 90% of my work, 95% of my work is commercial valuation, so I'm more on the investment side. If I was to encourage somebody to go out and buy, make their first purchase, it would not be a house. You asked 98% of the US population what's the greatest investment you made? Always in my house. But the other 2% are out there buying income, producing property. You get a return on and you get a return of investment, not just a return on. So you know, and you don't see that money in a single family home. You know you go out and you buy, you live there. Yet it's comfort and it's, you know, great. I mean you.

Speaker 3: 15:36

Obviously it depends what your motives are. If you're, you know your family, you want to provide a home and you want to have pride of ownership and do whatever you want. What's your real estate? That's, that's the key. You know, buy yourself a house if that's your biggest motivation.

Speaker 3: 15:49

But on your but, on your first purchase, you know maybe you might have a three-year-old and you can live in an apartment with a three-year-old. I mean so you can delay that. I mean there's so many, there's so many financing opportunities for people to go out and buy an apartment building, for example. You know, buy a duplex, buy a triplex. I would start off with a fourplex and then work your way down to a triplex and two units and then a single family. Now you have, you know, real estate holdings and you know, when you retire, now you have an income stream when you're retired from real estate, and so that would be my first purchase would be looking into taking advantage of an FHA program and buying a four unit apartment building. They still lend on four units, or is it three units now?

Speaker 2: 16:42

Yeah, they lend on one through four units. There's different qualifying factors when you get into triplexes and quadplexes. But I mean you make a great point. I have a client signing docs today who bought a duplex here in Long Beach on an FHA loan. And to further that point there have been new guideline changes that are going to allow buyers to put 5% down on multi unit properties for conventional loans, whereas previously that was 15, 20, right, you know, percent down at a minimum and that's going to allow.

Speaker 2: 17:17

You know if you're comfortable getting into that income producing property first living in a apartment style home in Long Beach here actually there's quite a few like duplexes and triplexes that are still somewhat removed from each other. You know separate, separate properties. You still feel like you're living in a home, even though you've bought a multi unit property, and having that ability to get in, have some income offsetting your mortgage payment and you know, eventually move. But to keep that property in your portfolio is paramount, you know it's. You can't get a better opportunity to grow your generational wealth and set something aside for your retirement than building that portfolio.

Speaker 1: 18:04

Can you outline the main types of mortgage products available for new homeowners and what factors should they consider when choosing the most suitable option?

Speaker 2: 18:12

Yeah, I mean the standard loans that you hear the most about are conventional FHA, va loans that's kind of like you know, right down the middle Fannie Freddie and government sponsored loans. Fha is not a first time home buyer loan program. That's kind of a common misconception. But it is one of the easier loans to get to use as a first time home buyer because it allows as little as three and a half percent down. There are as little as three percent down options, home ready, home possible programs that do have, you know, income qualifying limitations.

Speaker 2: 18:50

I've got lenders that offer, you know, grant programs. I have one that just did a webinar with the other day that's offering up to $15,000 for home buyers and it's not exclusive to first time home buyers. But if you buy a property in certain census tracts where they're trying to lend to low income or moderate income census tract communities, you can qualify for a grant program. You know, to put some money down. So depending on the qualifications of the new buyer, depending on the scenario of the purchase, how fast it has to happen, how competitive the situation is, a lot of these factors come into play in terms of setting somebody a new buyer up with success at the right lender, you know, with the right pricing and the right product.

Speaker 3: 19:45

So to testify with Jack is saying that actually happened to me. I went out and bought a house, bought another house and then bought another house, but the first two houses I sold and so I only had one house. So I was like God, I want an FHA loan, how do I get one? But I couldn't get one because I already have a house. So a unique thing happened to me is I started working in downtown LA and it was horrible. So we got a condo out there and I rented my house out. So when I rented the house out, I was living in a rented condo in downtown LA for some time and I was generating income from the single family house. So what I did is I went and I also applied for apartments in LA and for an FHA loan. I got the FHA loan so you can get an FHA loan. You know it's not just for first time buyers.

Speaker 2: 20:36

Right. Generally you can't have two FHA loans. That's the main factor. They're not meant to be an investor avenue to own property. But you can own multiple properties and acquire an FHA loan. So as long as the property you're leaving is under conventional loan VA loan even you can then utilize an FHA loan on a new home. So it's a good avenue to kind of hopscotch into new properties with smaller down payments if you work on saving the funds. Because as long as you buy the property and then FHA and then refinance it before moving on to your next property, you can continue to use an FHA property to get into your new primary residence. It has to be your primary residence that you're living in with that FHA loan. I like that.

Speaker 1: 21:26

Yeah, that's really great information.

Speaker 2: 21:29

Here in Long Beach, you know, with new ADU laws constantly coming up and people looking to take advantage of that and expand on the properties, this kind of goes hand in hand with those multi-unit properties we're talking about first time home buyers trying to get into. My clients just recently bought that. They're signing docs on that duplex today and the reason they went for this property is because it's got space for an ADU as well, so they're looking to put a third unit on there. In your experience evaluating properties like, how do you see the new properties popping up with the ADUs and how does valuation coming into consideration for those with so limited comps to compare them to?

Speaker 3: 22:08

Yes, yes, thank you, jack. Yes, so I think okay. So in the appraisal process, the first thing we look at is what is the appraisal problem? And when we're appraising an asset that has an ADU, we have to ask ourselves, as appraisers, who is the lender, because each lender has different scenarios on how they identify what an ADU is or if I'm not going to give value for it. So, for example, fannie Mae, they land on single families with an ADU. They do not land on two units with an ADU. They do not land on three units with an ADU. Freddie Mac does, but Fannie Mae doesn't. So Fannie Mae and Freddie, they pretty much talk to each other and they're pretty close, but that's how they differ.

Speaker 3: 23:00

So when you have an appraiser going out to appraise a property, the first question that an appraiser should ask where is this loan going? And so If you're doing a VA loan, there's another set of guidelines for it. So it's identifying what the appraisal problem is. I'm not saying that there's not other lenders out there that will lend differently, because they will. But if you want to take advantage of those agencies, those government-sponsored agencies, and get the great terms, then they have their own guidelines and that's why appraisers look at it differently.

Speaker 1: 23:40

So, give it the current economic climate and market trends, how do you foresee the future of real estate market? Are there specific factors that you believe will have a significant impact? And I know this is kind of more of like a real estate aging question, but I would love to get a lender and appraisers insight.

Speaker 2: 24:00

Yeah, I think, if I heard that question correctly.

Speaker 2: 24:03

What comes to mind is kind of what we mentioned previously about there being low inventory right now in this market and value of properties being higher.

Speaker 2: 24:12

Because of that, the current, like the future, market of real estate, especially in this area, will be, I would say, substantially affected when interest rates eventually start to come down. When that time comes, there's a lot of buyers who either pushed out of the market because they couldn't qualify for what they wanted to qualify for with rates going up, and unwilling to compromise on different types of properties or different locations. There are still buyers out there who are buying properties that are listed. They may not be getting 20 offers of property now or substantially above asking, but there are people who still want to buy and still qualify to buy when interest rates come down even remotely. All those buyers who are sitting on the edge of the pool right now are going to jump in and the market's going to be flooded with buyers again trying to take advantage of what they feel is the opportunity they've been waiting for and that's going to push values of properties even higher. We're going to see people asking over and the desire for those properties is going to be high.

Speaker 3: 25:21

Yeah.

Speaker 1: 25:22

Just like what we saw a few years ago. I mean, it was wild.

Speaker 2: 25:28

Yeah, covid coming out of COVID, a worldwide scare of any amount Generally pushes people into making life decisions and trying to kind of reevaluating their life and changing what they want. And a lot of people wanted home ownership. A lot of people wanted property elsewhere, outside cities. We saw a lot of people moving. We saw a lot of remote work because of transition, because of that and people not going back from remote work. People would rather leave a job that's trying to bring them back into the office, then look for another job that will offer them that remote option. I think people have just kind of figured out this is what I want. This made me think about what I want and now I'm not going to compromise.

Speaker 3: 26:20

Some of the things I've seen or talked to different investors. When it comes down to the interest rates coming down, I don't think a hundred basis points is going to be enough for people to like get out and go out and refinance, because they're probably still sitting in a better loan at that point. But even if there was to bring it down from where they're existing now let's say they're in a seven and it's going to bring it down to, you know, six and a half or even a six I think you're going to get a refinance boom when it gets down to the 200 basis points below what they are now, and I think that's when a lot of work is going to come in. A lot of movement in real estate is going to be expanding.

Speaker 2: 27:01

That's yeah, those are definitely there's got to be a substantial enough movement in the market to warrant refinancing Right. A refinance is a transaction. It's a cost. It costs money to do so and you want to make sure that the money you're spending to do so is warranted by the savings that you're getting from the rate in the market.

Speaker 1: 27:21

Do you guys have any questions for each other, Are you? Yeah?

Speaker 3: 27:24

actually, you know, one of the things that I hear about just from borrowers is just like there's always a I'm not going to say always, but it seems like one of the biggest setbacks that borrowers have what lenders is like there's always a delay. You know like, oh, we're going to close on Thursday, and then Thursday does become Saturday, or well, you're going to close on Saturday, it comes the next Monday and then it continues and you know, it seems like they're like lagging like about three weeks, and that's what it seems like I hear a lot of borrowers complain about. I mean, do you see that in the market, or I don't see it in my market.

Speaker 2: 28:02

I see people having experiences like that with other lenders and then you know, when they come to me or there's a lot of information on the internet to you know people read about the home buying experience or refinance experience and they have experience with us. You know myself and other lenders that United American mortgage and they're like, wow, I didn't know, like I heard, it was going to be so much worse. And really what is involved in that is setting proper expectations and open communication. You know there's a there's a timeline it takes to process paperwork and process alone and the client is an important part of that. You know how fast can they provide us documentation and conditions we need to clear at a lender. So, having an open avenue of communication, all my clients have my cell phone number. You know we're constantly texting throughout the week, phone calls. I try and make it very easy for my clients to reach me because when you're dealing with one of the largest financial purchases, one of the largest assets in your life, wouldn't you want to be able to reach the person who's helping you manage that transaction? Is this stressful time? I would, yeah, so yeah, I make sure people have access to me and that we're constantly talking about the process. You know, here is here's what we have left to clear in terms of conditions. Here's what the underwriter is looking for. Here is what the lender needs to do to be able to meet Fannie Freddie FHA VA guidelines, to be able to package and sell that loan on the secondary market. You know it's not simply just lenders or banks saying, okay, we're going to, we're going to lend you this money. You know they are a business as well. They have to make sure that that loan is properly underwritten so they can sell it and continue to lend money Right.

Speaker 2: 29:50

And I think educating people in that process opens up the conversation. You're not kind of like kept in the dark on the side about what's happening with your loan process or your lending. My goal for all my clients is to have them be as educated as me about their loan by the time they're done. Now they may not retain all the information that I'm telling them, but we can be sure that I'm walking them through exactly what's going on. And I think some lenders are either afraid to be openly communicative with with their clients, especially if something isn't going right. I think being open about what's not going right is and how you're going to solve it. Coming to the table with the solution is important and finding a way to bring the client into the conversation so that they don't feel like again they're in the dark.

Speaker 2: 30:47

So the delays it's really at lender by lender basis and the only thing that might cause a delay is something popping like there should be, there really shouldn't be a week to week delay.

Speaker 2: 30:59

If you have a kind of an idea, guideline of when you're landing the plane on this transaction, you know, if you know what conditions you're trying to clear, you know the turn times it takes for a lender to review and clear those conditions. If you know the turn times from when you get clear to close on a loan and then it takes for getting clear, to close, to get docs, you know final documents assigned and then if you know how long it takes to sign final docs and to fund and to record. Here in LA County we can't fund and record on the same day. We got to fund one day, record the next day for closing, right, that's different in Orange County. Orange County you can fund and record on the same day. So when you have that timeline built out and you're setting proper expectations and you're delivering that information of how long it takes for certain things to do, then the client isn't sitting at home thinking why isn't my loan closed yet? What's going on?

Speaker 1: 31:53

I actually have quite a few friends that have worked with you, jack, and they I mean they love you. They have and I think that you actually probably are pretty close with those clients still to this day.

Speaker 2: 32:03

Yeah, absolutely. Like I said, everyone has my phone number, everyone has the cell cell number. I am in an age of communication where we're used to getting information quickly and we prefer to have responses quickly. I find that like it doesn't bother me that you know my clients can text me at any, any and all times of the day. I they understand that in the beginning I set an expectation that if I'm not available I'll text you back and say hey, can we chat? You know this is an emergency, or can we chat tomorrow morning at 9am or is, or give me an hour I happen to be free and I'll jump on the phone and chat with you because I I work with people who work nine to fives, for the most part Right. So it's very hard to do a job and also buy a home and collect documentation and schedule phone calls while you're in the middle of your job that you're trying to do. So a lot of my business is done outside of that nine to five time frame or on the weekends.

Speaker 2: 33:06

And again, you don't get that type of service with a bank or credit union. You know when they close at four and you're like Well, looks like I won't get answers until tomorrow morning. That's a good point.

Speaker 1: 33:18

I will put Jack's information in the comments below, just if anyone would like to reach out to him. But I think that might wrap up our Thank you. Our second episode.

Speaker 3: 33:28

All right, yeah, thank you so much.

Speaker 2: 33:30

This was fun. Yeah, happy to do this. I love talking about real estate and financing.

Speaker 1: 33:36

Yeah, clearly very good at it.