- The ultimate bearer of responsibility for managing a buyer's purchasing range is the buyer, followed closely by the lender.
A Miami real estate agent wants to close her sales, but she is worried about the trend of local buyers who are purchasing homes beyond their means.
The numbers don’t lie, and they are a little scary. South Florida mortgage delinquency rates skyrocketed in November 2017 — nearly double from a year prior — according to analytics provider CoreLogic.
In addition, 53 percent of Miami cost-burdened households pay more than 30 percent of their income on housing, and 30 percent of extremely cost-burdened households pay more than 50 percent of their income on housing, according to the Shimberg Center for Housing Studies at the University of Florida.
We think of these statistics affecting “other” people, but I am hearing from friends and past clients who are struggling; especially from the impact of Hurricane Irma last year.
It has me doing some true soul-searching about the role agents and brokers play in educating buyers about fiscal responsibility. The housing and mortgage meltdown was only 10 years ago, and although lending guidelines are much tighter now, I still see people getting loans that simply do not make sense.
With costs going up and wages staying relatively flat, don’t we have an obligation to advise our clients to be extremely conservative with their housing dollar, even at the cost of a “dream house” for them, and a lower commission for us?
Thank goodness for agents like this, who genuinely care about their clients’ overall well-being and happiness. Those mortgage numbers are certainly eye-opening, and the real estate community should do a better job at — a macro level — of educating buyers about home affordability.
However, when it comes to safeguarding the mortgage and determining affordability, the buck ultimately stops not with the agent, the broker or even the banker.
It is definitively the buyers’ responsibility to manage their finances and accept a loan they can afford under a variety of circumstances. There is enough information out there for intelligent people to properly educate themselves and make important decisions with which they can live.
Next up on my personal “responsibility pecking order” in this case would be the lender. It is the bank’s responsibility to carefully review a prospect’s income and credit history, educate a buyer about how the lending process works and pre-approve an amount that makes sense for all parties.
The agents’ primary responsibility is to help facilitate a sale, and their only source of information on a buyer’s price range is the opinion of the buyers themselves and a lender’s pre-approval letter. (Honestly, what else does the agent have to go on?)
Agents can and do recommend favored lenders, but the affordability question is out of their hands once the mortgage applications are submitted.
Obviously, there may be cases where “reading the tea leaves” may require some common sense interjecting about affordability. For example, with so much uncertainty about the oil industry, agents in parts of Texas should probably advise their clients to exercise caution, as should agents whose clients have multiple children preparing to attend college.
With that being said, I still encourage my agents to advise their clients to buy the “most” house they can — within reason.
According to my colleague David Demarchena, a loan officer and branch manager of CrossCountry Mortgage in Miami, “Interest rates have been rising, but are still way below the historical average of 8 percent. As the economy continues to improve, rates are only expected to increase. I would say it’s still a great time to take advantage of financing before the rates get any higher, but you better act quickly.”
Also, because most of our lives are spent in our homes, we should treat ourselves and be comfortable.
How to meet halfway
Mortgage delinquency can affect anyone at any time, from a wide range of racial and socio-economic backgrounds. In a 2010 report, the non-profit, non-partisan Center for Responsible Lending found that “…the majority (an estimated 56 percent) of families who lost homes were non-Hispanic and white, but African-American and Latino families were disproportionately affected relative to their share of mortgage originations.”
The report went on to say: “Even if foreclosures represented nothing more than a one-time cost only to the families involved, these findings would be troubling. But the costs are extensive, multifaceted and long-term, extending far beyond individual families to their neighbors, communities, cities and states.”
In other words, home affordability, or the lack thereof, is a broad societal problem, and real estate professionals must share in the burden of reducing it.
Brokers can help by inviting lenders and financial professionals to provide “real time” education to agents on mortgage trends and products suited to a wide variety of financial situations.
Agents can be proactive by sharing this information with their clients and by keeping an eye out for warning signs that a client is “reaching” for a home beyond their means. Additional training may be necessary for ways to communicate these red flags to prospective buyers.
Anthony is the broker-owner of RE/MAX Advance Realty in South Miami and Kendall, leading the activities of more than 170 agents. He is also a working Realtor who sells more than 125 homes a year. In 2017, the Greater Miami Chamber of Commerce honored him with the R.E.A.L. award in the category of “Real Estate Broker – Residential.”