by Matt Carter | Aug 12, 2024 | Industry, News Feed
Despite an ever-changing housing market, second homeownership is still attainable for buyers looking for a home to make lasting memories with their loved ones — thanks to a variety of financing options, stabilizing interest rates and the new model of LLC co-ownership. As a real estate agent, you can play a crucial role in educating your clients about these opportunities and providing them with the right resources.
Second home hidden expenses
When shopping for an ideal second home, it’s essential for buyers to look beyond the property’s list price and monthly mortgage payments. Owning a second home comes with additional financial responsibilities. Help your clients budget for:
- Home furnishings and essentials
- Homeowners insurance
- Property taxes
- Utilities
- Maintenance and upkeep
- HOA dues
Exploring financing options
There are several options for financing a second home or vacation property, each with unique benefits and considerations:
- Conventional mortgage loan: This is a good choice if your clients have limited assets and prefer not to use equity from their primary residence. Note that second-home mortgages often have more stringent requirements.
- Cash or cryptocurrency: Paying with cash allows for a mortgage-free purchase or a sizable down payment, reducing the amount financed and lowering monthly payments.
- Home equity line of credit (HELOC): Clients can use the equity in their primary residence to open a revolving line of credit for their second home. HELOCs typically offer lower variable interest rates but can impact credit scores due to large equity access.
- Home equity loan: This is similar to a HELOC but offers a fixed interest rate and a lump sum payout. Repayment occurs in monthly installments, like a conventional mortgage.
- Cash-out refinance: Refinancing the primary mortgage for more than the remaining principal amount allows clients to use the extra cash for a second home. This option is beneficial if current interest rates are lower than those on the existing mortgage.
Key differences in second home mortgages
While financing a second home shares many steps with a primary home mortgage, there are crucial differences your clients should know about.
- Loan limitations: FHA and VA loans are exclusive to primary residences. Clients will need a conventional loan for a second home purchase.
- Larger down payment: At a minimum down payment on a second home generally starts at 10 percent, depending on your credit score, and is typically 25 percent or more.
- Higher credit score requirements: A minimum credit score of 640 is usually required, though higher down payments can offset lower credit scores.
- Higher interest rates: Second home loans often have higher interest rates due to increased lender risk. Clients should be prepared for this when planning their budget.
Defining the second home
The classification of a second home as a “vacation home” versus an “investment property” significantly impacts loan requirements. Vacation homes generally face more relaxed requirements.
Once your clients find the perfect second home, the pre-approval and financing process begins. Pre-approval might take longer due to stricter criteria, but the overall process from offer acceptance to closing typically takes 30 to 45 days.
Financing options for co-ownership
Co-ownership enables multiple individuals to purchase property together and share usage rights. Because each party is only responsible for a portion of the full purchase price, co-ownership can be a practical way to purchase and own an asset like a vacation home that might be too expensive on your own.
Financing options for co-ownership overlap with the options available for buying a whole home, but requirements may be different for this alternative type of ownership.
Pacaso’s competitive integrated financing
Together with our banking partners, Pacaso offers flexible ways to own a luxury vacation home, with integrated financing options, including rates as low as 5 percent and zero down at closing. The approval process is straightforward and fast, and can be completed in a few days to a week once all documents are provided. Explore Pacaso homes that qualify for special financing today.
By understanding these aspects of financing, you can better educate your clients and help them make informed decisions, ensuring a smooth and successful buying experience.
by Devon Broderick | Aug 10, 2024 | Industry, News Feed
Inman Connect is moving from Las Vegas to San Diego in 2025 and it’ll be bigger, better and bolder than ever before. Join us for Inman Connect San Diego on July 30-Aug. 1, 2025 with the brightest minds in real estate to shape the future of the industry. Reserve your spot today for an exclusive discount.
In 2012, at the ripe age of 28, I had the bright idea to open my own real estate brokerage just as the country was emerging from the greatest real estate recession in modern history. I rented a swanky storefront office on the main street running through Downtown Orlando.
Today, Mainframe Real Estate is one of Central Florida’s top brokerages. When people ask, “Why did you open your own brokerage?” I tell them the truth: I was young and naive.
I’ve given advice to many who have asked about opening their own brokerage, and I’ve encouraged almost all of them not to do it.
Opening a brokerage seems like the next natural step in a successful real estate career. Truly though — it’s the biggest backward step most could probably take. Here’s why.
Pick a poor reason
There are two main reasons someone might want to open a brokerage. First, they are naive, though maybe not young, and completely underestimate the complexities involved.
The other reason is ego. They think they can do it better as their own boss, want to have complete control of their brand, and don’t want to be held accountable to anyone. You might guess someone would open their own brokerage to make more money, but that would fall under the category of being naive.
If you think owning a brokerage means being your own boss, that is a naive assumption too. Now, you are under the command of every agent you hire.
Especially at the beginning, each agent who joins will come with a new list of requests, and you’ll quickly realize how much it takes to keep everyone happy. Ultimately, being a business owner means everyone else is your boss, and you’re accountable to more people now than ever. A true leader is always last after the needs of everyone else are met.
Master of never done
Being young and naive, I didn’t realize that opening a business is creating a monster. It grows arms and legs and ugly heads. It eats your money and ravages your time.
Just when you think you checked something off your list, four more things get added to it. As soon as you think you’re about to become profitable, you desperately need to hire more support staff. As your business grows, so do your problems. It’s impossible to simplify things as the organization becomes increasingly complex and expensive to operate.
If you’re successful, you’ll eventually have the support staff to delegate responsibilities and reclaim your sanity. If you can’t, you’ll drown in a quagmire of projects and tasks that aren’t your strengths or producing profit.
Every business owner must have a grasp on every aspect of the business: operating procedures, marketing, branding, accounting, technology and more.
As a small business owner, you can’t ignore any of these things and should become a semi-expert in all of them. If you can’t comprehend how every aspect of your company functions, then you surely can’t grow and scale. Most agents don’t excel in all of these vital functions, and if they open a brokerage without these skills, everyone in the organization will suffer.
If someone insists that they absolutely will open their own brokerage, then I provide the most serious yet counterintuitive advice imaginable: Don’t hire agents or open an office.
Those are the two things that are emblematic of having a successful brokerage but will kick-start the never-ending list of expenses and growing pains. If you must open a brokerage, don’t go big. Go tiny!
Agents come, stay and go
If you thought prospecting for home sales was grueling, welcome to the most unfortunate part of being a broker: Recruiting. Convincing new and inexperienced agents to join your company might be easy, but the training and turnover will be tortuous.
Persuading experienced and producing agents to join your company is challenging, even with the best value proposition in town. Making a career change is a high-stakes consideration, and it doesn’t happen quickly most of the time. Because recruiting is the lifeblood of a brokerage, this very slow sales cycle can be far more discouraging than the fast-paced nature of real estate sales.
Once you start hiring, keeping a healthy culture at an office is more important than anything else. Happy agents are complacent agents. It’s the perfect recipe for retention. However, keeping a wide range of personalities happy at once is a challenge that almost nobody is educated to handle.
As a broker, you soon discover that you’re more of a politician and therapist, managing egos and emotions more often than transactions.
If you’ve ever felt like a buyer has sucker-punched you with betrayal, it won’t compare to that of a die-hard loyal agent and long-time friend leaving your company. You can pour your heart, soul and trade secrets into the people you care about, but it doesn’t mean they will stay forever.
Go big, but why try?
When it comes to opening your own brokerage, I say go tiny, go big — or go home. If you’re going big, good luck.
Understand that on your first day in business, you are competing against goliaths in the industry who have incredibly established brands, technology, processes, recruiting strategies and more.
You are starting from scratch. How will you compete against the endless army of competitors? What’s your value proposition for hiring agents? Going from zero to hero is a treacherous journey, but what’s your end goal anyway?
Commission compression is a reality for the modern real estate brokerage model. Many brokerages compete solely on their ability to be cheap. If a brokerage isn’t cheap, it must provide extraordinary value. If it is cheap, it needs a huge volume of agents and transactions. Either way, every broker is competing in a landscape with endless cheap models in a seeming race to the bottom.
Regarding your end goal, consider that the landscape of mergers and acquisitions with real estate companies has completely changed in the past decade.
Large brokerages are less often purchasing their competitors and more likely to acquire just their competitor’s top agents with sign-on bonuses and bribes. Brokerages don’t necessarily purchase their competitors anymore; they try to gut them instead.
It hasn’t been close to happening yet in real estate, but if we have a disruption to the equivalent of Amazon or Netflix, the traditional industry could be devastated in a short period of time.
If you’re looking for a powerful exit strategy by selling your brokerage in the future, you might now be nervous about the untold number of years it can take to grow and how quickly it could possibly collapse, either by innovation or ruthless competitors.
Finding success
Of course, there are success stories of opening a brokerage, but most are not. Most are stories of dysfunctional small businesses where the owner thinks everything is fine, but everyone else disagrees or is oblivious to how much better it could be.
I have seen single-agent brokerages be successful, but they invest time into things they shouldn’t and aren’t fully equipped in an increasingly competitive industry. I’ve also seen teams open brokerages with success, but building an infrastructure for a multiperson organization overnight is impossible, and it will be painful.
Team-style brokerages require even more support and systems than a traditional brokerage, including dedicated staff, more robust lead processes, hands-on meetings and more.
What’s my definition of success? Simplicity. Being in command of your work-life balance while creating the income you want is the highest level of success, in my opinion. Opening a brokerage is a long and windy path to get to this version of success.
Consider all of the other ways you could find success. Maybe it’s through scaling and simplifying a powerful real estate sales business. It could be by investing in real estate and creating a portfolio that generates passive income for you in the future. It could be chasing your other passions that bring you more fulfillment than showing homes on the weekend.
A realistic conclusion
Despite my pessimism, which I call realism, I want it to be known that I have no regrets either. My office has some of the best agents in the region, which helps make it fulfilling.
More importantly, we have developed our own technology and have a powerful intellectual property portfolio. If it weren’t for our tech, which allows me to be creative, I probably would have shifted gears a long time ago and transitioned into something else. Like most real estate agents have a hard time absolutely loving what they do, you would feel almost the same about being a broker. So why do it?
The wisest thing you can do is learn from the mistakes of others, especially when it comes to long-term career decisions that are hard to reverse. You might expect me to end with a hopeful note, suggesting that you could be the one to successfully open a brokerage. Statistically speaking, that’s unlikely.
But perhaps you are the exception — the one with the talent and drive. Maybe you’re the one with the resilience to outsmart the competition, create a profitable brokerage and maintain a great work-life balance.
Maybe.
But before you dive in, ask yourself if you’re being just a little bit naive.
Sean Frank is the founder and CEO of Mainframe Real Estate in Florida. Connect with him on Instagram and LinkedIn.
by Lillian Dickerson | Aug 10, 2024 | Industry, News Feed
The Consumer Federation of America raised eyebrows and hackles with its advice to pay only the equivalent of a 2 percent commission for both real estate purchases and sales.
Inman Connect is moving from Las Vegas to San Diego in 2025 and it’ll be bigger, better, and bolder than ever before. Join us for Inman Connect San Diego on July 30-Aug. 1, 2025 with the brightest minds in real estate to shape the future of the industry. Reserve your spot today for an exclusive discount.
Each week on The Download, Inman’s Christy Murdock takes a deeper look at the top-read stories of the week to give you what you’ll need to meet Monday head-on. This week: The Consumer Federation of America raised eyebrows and hackles with its advice to pay only the equivalent of a 2 percent commission for both real estate purchases and sales.
In recent years, real estate professionals have been inundated on all sides with the suggestion that they’re overpaid, underqualified and failing at their fiduciary duty to clients. Words like “collusion” and “conspiracy” have been thrown around, triggering anger, grief and disbelief throughout the industry.
Now, as the aftermath of commission lawsuits and subsequent settlements rolls on, and as we near the Aug. 17 implementation of the terms of the National Association of Realtors (NAR) settlement in particular, we’re starting to get into the nitty-gritty of the impact on agents and brokers. That means looking at what will actually happen to commissions in the days, weeks, months and years ahead.
EXTRA: Average buyer’s agent commission has fallen since NAR settlement
When NAR’s settlement was first announced, reactions ranged from relief that the uncertainty of ongoing litigation was over to anger at the new normal that would result. One popular refrain was that with commission negotiations normalized, agents would actually make more under the changing paradigm, negotiating higher commissions to reflect their unique value proposition.
Now, that optimistic take is looking less likely.
Last week, the Consumer Federation of America (CFA) laid out advice for buyers and sellers to help them negotiate their agents’ commissions and save money throughout the transaction. They advised buyers not to agree to pay an agent just to see a home, but rather to sign a touring agreement with no financial obligation instead.
Most controversially, they advised consumers to set a goal of 2 percent or less in dollar terms for representation.
Asked how CFA arrived at that 2 percent figure, CFA Senior Fellow Stephen Brobeck told Inman’s Andrea Brambila, “The 2 percent or less is my best judgment as a realistic goal most homesellers and buyers could aspire to and attain. Already in some markets, most buyer agents are charging 2 percent (but listing agents are unfairly charging more).”
The consumer watchdog organization also offered guidelines for vetting an agent, including working with a broker instead of an agent, checking out reviews on sites like Zillow and Realtor.com, and asking for contract forms and proposed terms upfront so that they have more opportunity to review them and ask questions.
EXTRA: What’s changed since NAR struck its deal: Client Pipeline Tracker
Mad as hell at the idea of a 2 percent commission? You’re not alone (just check out the comments on that story), but it’s vital to gain a 360-degree view of what’s being said from every perspective. That allows you to understand your options and avoid being caught flat-footed at your next buyer consultation or listing interview.
To deal with the uncertainty and frustration, you have two choices: scream into the void or rethink business as usual. That may mean adding leverage with technology, a team or a virtual assistant. It almost certainly means changing the way you talk with your buyers and sellers. In addition, it will require you to rethink the way you work and reset your expectations.
Every week, Inman contributors offer an array of ideas to inform, inspire and empower you to shut out the noise and keep moving forward. Here’s the latest:
by Darryl Davis | Aug 9, 2024 | Industry, News Feed
Cloud banking software provider maintains steady growth in consumer banking revenue, while reversing the decline in its main line of business of providing services to mortgage lenders.
Inman Connect is moving from Las Vegas to San Diego in 2025 and it’ll be bigger, better, and bolder than ever before. Join us for Inman Connect San Diego on July 30-Aug. 1, 2025 with the brightest minds in real estate to shape the future of the industry. Reserve your spot today for an exclusive discount.
Cloud banking software provider Blend Labs Inc. managed to grow both its mortgage and consumer banking businesses during the second quarter, trimming its net loss by 53 percent from a year ago to $19.4 million.
While not a dramatic improvement from the company’s $20.7 million Q1 net loss, Blend now has a longer runway to become profitable, having secured a $150 million cash injection in April from Austin, Texas-based private equity firm Haveli Investments. Blend used the money to pay off the debt it took on to get into the title insurance business by acquiring Title365 in 2021.
Blend’s second quarter results exceeded analysts’ earnings and revenue expectations, and shares in Blend gained 23 percent Friday to close at $3.30. Shares in Blend, which in the last year have changed hands for as little as $1.03 and as much as $4.14, hit an all-time low of 53 cents on May 5, 2023.
“The second quarter marked another strong quarter for Blend, as we signed several important deals with new customers across mortgage and consumer banking,” Blend CEO Nima Ghamsari said in a statement. “Despite continued pressures on the mortgage industry, we’re excited about the new investments we made in the Blend Platform and the success we achieved in expanding our relationships with key customers through their increased adoption of our add-on products.”
At $40.5 million, Q2 revenue was down 5 percent from a year ago but up 16 percent from $34.9 million in Q1. Blend said it expects Q3 revenue of $39.5 million to $43.5 million.
Ghamsari said that guidance doesn’t take into consideration the fact that mortgage rates have fallen dramatically and could continue to do so.
“Mortgage rates hit their lowest level since April 2023 earlier this week, and we’re already starting to see this show up in our business through application activity levels,” Ghamsari said on a call with investment analysts. “While I’d say it’s too early for us to tell how this is going to convert into fundings or revenue … it’s an encouraging signal as we look into the second half of the year.”
Growth in consumer banking and mortgage suites
Source: Blend investor presentation.
During the second quarter, Blend maintained the steady growth in revenue it’s realized from consumer banking, which was up 37 percent from a year ago to $8 million. At the same time, it was able to reverse the decline in revenue in its main line of business — providing services to mortgage lenders.
After helping lenders handle 1.8 million mortgage transactions in 2021, Blend saw mortgage transaction volume plummet by 32 percent in 2022, to 1.23 million, and by another 35 percent in 2023, to 805,000.
Blend’s mortgage suite generated $18.5 million in Q2 revenue, up 22 from Q1 but down 17 percent from a year ago. Blend’s title segment generated another $11.8 million in Q2 revenue.
Blend attributed the quarterly growth in mortgage revenue to the addition of “several new mortgage customers,” including Horizon Bank, and to existing customers signing up to use a broader set of services.
More revenue from each mortgage handled
Blend offers a suite of products that lenders can pick and choose from to support the loan origination process, including data collection, verification checks, product selection, pricing, pre-approvals, disclosures delivery and signing closing documents.
As its mortgage clients take advantage of more of these add-on products, the “economic value” of each mortgage loan that Blend helps process has grown by more than 40 percent in the last 2 1/2 years — from $69 at the beginning of 2022, to $97 in Q2 2024.
“Customers are recognizing the benefit of applying our technology throughout the home buying process, and we’re delivering more value as adoption and utilization of our attached products continue to rise,” Ghamsari said, noting that Blend’s remote online notarization solution is “a particular area of strength that I’m excited about.”
“Customers are already completing hundreds of these high-value closings each month,” Ghamsari said. “This may not seem like a lot, given the scale of our business and the scale of the mortgage industry. But we’re just getting started, and we expect these volumes to ramp up as the solution gets rolled to more elbow-eligible loans and more customers.”
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Email Matt Carter
by Maris Callahan Messervey | Aug 9, 2024 | Industry, News Feed
There is a good deal of feature overlap between the Lofty and Firepoint, with both providing the market website creation and content management, AI assistants and lead generation and oversight. However, Lofty ventures into transaction management, omnichannel lead-gen and as of recently, property management.
Innovation is in our DNA at Inman — that’s why we’re excited about August’s Technology and Innovation Month. We’ll kick it off by celebrating the companies and individuals pushing the industry forward with an expanded slate of Inman Innovator Awards at Inman Connect Las Vegas. Then, we’ll continue to celebrate the brightest minds in real estate all month long.
Real estate CRM company Firepoint has been acquired by Lofty.
An Aug. 7 press release announced the deal without detailing terms.
“Firepoint CEO Dave Crumby sought a top industry partner to help transition his customers to a new platform. Specifically, an innovative end-to-end platform, purpose-built for today’s real estate professionals,” the release stated.
There is a good deal of feature overlap between Lofty and Firepoint, with both providing the market website creation and content management, AI assistants and lead generation and oversight. However, Lofty ventures into transaction management, omnichannel lead-gen and as of recently, property management.
Joe Chen is Lofty’s CEO and said the deal was in part about continuing to make technology “a cornerstone” to agent and brokerage success.
“From our inception, we have been committed to both innovative technology and serving the needs of real estate professionals,” Chen said. “Relying on our platform, today’s hard-working agents are empowered to more easily overcome market challenges and effectively grow their business. We happily welcome Firepoint customers to our community.”
The release said that Firepoint customers will be immediately able to move accounts to Lofty at no additional cost.
“Our customers have always been our number one priority and as we close the chapter on Firepoint, we are confident the capable and dedicated team at Lofty will take good care of our agents,” said Dave Crumbly, Firepoint’s CEO, in the release. “We are grateful to the team for generously welcoming our agents into the Lofty family and keeping their needs top of mind.”
Lofty launched in 2016 primarily as a CRM, then known as Chime, offering an array of marketing tools, business acquisition features and other forms of transaction support. It made several strategic partnerships along the way to scale in areas where clients needed additional insight and continued to grow alongside its industry colleagues, like Lone Wolf, Inside Real Estate and Follow Up Boss. Initially targeting agents and individual brokerages, Lofty delivered an enterprise solution in 2022 to help stay in stride with the market.
It also has a customer-facing mobile application, Closely. The company is also the primary third-party technology partner of fast-growing Real.
Agent-created Firepoint was reviewed by Inman in 2019, earning four stars for its contemporary website designs and lead activity tracking, among other features.
In 2020, Firepoint merged with another CRM, Realvolve.
Email Craig Rowe
