Speaker 1: 0:00

Welcome to the First Time Home Buyers Podcast. I'm your host, philip Mastroianni. Today we're exploring the 2025 real estate landscape, focusing on interest rates, changes to buyer agent commissions and insurance considerations, most specifically in California and Florida. Joining me is my wife, monica, an experienced real estate agent based right here in Southern California, happy to assist anyone in the area with their real estate needs. So welcome, monica.

Speaker 2: 0:28

It's a pleasure to be here.

Speaker 1: 0:29

Let's dive into interest rates first. Going into the new year, there have been some major changes. According to Fannie Mae, economists predict that mortgage rates will remain above 6% throughout 2025, with some forecasts suggest rates could average around 6.4% for a 30-year fixed mortgage. What implications does this have for first-time homebuyers, Monica?

Speaker 2: 0:54

So high interest rates can significantly impact a buyer's purchasing power. Higher rates usually mean increased monthly mortgage payments, which can limit the price range of homes that buyers can afford. This scenario can often lead to increased competition for lower-priced homes, potentially driving up those prices in that segment.

Speaker 1: 1:10

That's a crucial point. Higher interest rates may result in fewer buyers in certain markets and price points. However, it also means that many current homeowners who previously secured lower interest rates might be a little more reluctant to sell, as moving into a higher rate mortgage may not make financial sense.

Speaker 2: 1:29

Absolutely, phil. This dynamic can usually lead to a tighter housing inventory, as potential sellers choose to stay put to maintain their lower mortgage terms that they already have. So for buyers, it's essential to focus on purchasing a home within a sustainable budget that they already have laid out, without relying on those potential future rate drops, as we cannot be 100% certain on when and if they will drop again.

Speaker 1: 1:52

Exactly that sound advice. Given the current interest rate environment, buyers should consider long-term affordability and ensure that their mortgage payments fit comfortably within their financial plans.

Speaker 2: 2:03

Exactly, and although the prediction for the new year is higher rates, it's not something that you, as buyers, should be afraid to tackle. So from a realtor standpoint, we can explore different options to help buyers out, like buying down the interest rate, for example. This usually involves paying an upfront fee to secure a lower rate for you guys, which can reduce monthly payments over the life of the loan. You, as the buyer, can bring in extra funds that go towards that rate buy down, or the sellers could potentially help with that too. In fact, I've even negotiated seller concessions of up to $20,000, which my buyers have used towards those closing costs or rate buy downs. Using seller concessions in this way can definitely help make homeownership more affordable. It's not a guarantee that every seller will agree to those seller concessions to buy down the rate or go towards closing costs, but I like to explore those options when I can for you guys as buyers.

Speaker 1: 2:56

By focusing on long-term affordability and yeah, exactly, exploring options like rate buy-downs, you can better navigate the challenges posed by these higher interest rates. So, moving on to commission changes, as of August 17, 2024, new rules have altered traditional commission structures. Sellers are no longer automatically responsible for paying both their agents and buyers. Agents, commissions Buyers now need to negotiate and agree upon their agent's fees up front. So, monica, how does this shift impact our listeners?

Speaker 2: 3:33

This change introduces greater transparency into the transaction process. Buyers should now have a clear understanding of the services that their agent provides and should provide and any associated costs with anything that they do. This is usually discussed at your first meeting or two with the agent. Each agent is different on how their fees work, so keep that in mind. Now, with the greater transparency in the transaction, if you find a home that you like, but as a buyer or the sellers don't have the funds to pay for the buyer's agent's commission, then the buyer's agent may have to walk away from you as their client because they can't work for free. This means that you as buyers may need to budget for these expenses separately, which could affect buyers' overall purchasing budget. These are nationwide changes. Specifically in California, another change that is happening is that, as a buyer, you should be signing something that states that you are being represented by a specific agent or brokerage. In California it's called the buyer broker agreement. It might be different in other states, so keep that in mind.

Speaker 2: 4:38

This document just means that you have agreed to a certain rate with the agent for their commission. Should a seller not be able to pay for the buyer's agent commission, you will be responsible to pay this at the closing table. This also means that you have agreed that this agent is solely your agent for a specific amount of time. This is really important to know as buyers, because now during open houses, you as buyers are required to sign in, especially here in California. On that sign-in sheet you will need to say if you're being represented by somebody already. You should not be signing more than one broker agreement, because you may be held liable to pay for more than one agent's commission if you get into escrow on a home where more than one agent has an agreement with you. So make sure you do your research and find the most compatible agent for you. You just want to make sure that you have somebody who will be there at all showings with you and will help you with the process every step of the way, including explaining these documents to you.

Speaker 1: 5:37

So does that mean sellers can no longer contribute to the buyer agent's commission?

Speaker 2: 5:42

No, not necessarily. The sellers can still offer to pay a portion or all of the buyer's agent's commission, but this must be explicitly negotiated and agreed upon by all parties involved in the offer. It's no longer an automatic inclusion in the listing, though, so the buyer's agent will have to ask for it when they write up the offer for the buyers. The seller can accept to pay all of the buyer's agent's commission or they can pay a part of the commission. So, for example, if a buyer's agent requests 3% commission from the seller in the buyer's offer but the seller can only do 2%, then the agent can either take that 2% commission being offered by the seller and making it so that the buyers do not have to pay that commission, or they can take that 2% from the seller and potentially request the other 1% from the buyer. So you would be held liable for that 1% commission to your agent.

Speaker 1: 6:40

And that's all something that you would then be discussing ahead of time, before even making these offers right.

Speaker 2: 6:47

Oh, absolutely, I would 100% do that at the very beginning, especially in, like, the first meeting or second meeting. Don't let it go past that second meeting without having that discussion.

Speaker 1: 6:58

Okay, so how should buyers approach this new responsibility?

Speaker 2: 7:02

So, along with having those open discussions with agents about their fees and services, it's essential to understand what you're paying for as buyers, to ensure that the agent's expertise aligns with your needs.

Speaker 2: 7:13

If the seller is not willing to, or just financially can't afford to, pay for the buyer's agent commission, then the buyers can either find another home that their agent can represent them on, or they can move forward with submitting an offer on their own, if they do in fact love that home, but their agent can't work for free, so they have to do it alone or be duly represented by the listing side, which in my opinion, is not the best scenario because both sides can't be properly represented.

Speaker 2: 7:41

So you as buyers want an agent who will show up to open houses with you, be willing to drive to show homes, communicate continuously with you, have patience and explain the home buying process to you. Like I say over and over again, it's not like buying a pair of shoes. It's presumably the most important and biggest purchase that you will ever make. But in turn, you should recognize that as a buyer's agent, that agent doesn't get paid until you close escrow. So if they are showing you lots of homes or driving very far or providing you with pertinent information, then they are really working for that commission.

Speaker 1: 8:14

It's great info. Now I want to turn our attention away from the commission side of things and to insurance considerations, particularly in California and Florida. Both states face challenges due to recent natural disasters leading to higher premiums and coverages. In California, recent regulatory changes allowed insurers to use forward-looking catastrophe modeling for rate setting, aiming to stabilize the home insurance market. But what should buyers in these states be aware of?

Speaker 2: 8:48

Great question, phil. Natural disasters like the wildfires here in California and hurricanes in Florida have made home insurance both more expensive and harder to obtain. Buyers should be prepared for higher premiums, especially in high-risk areas. It's crucial to research the insurance options early in the home buying process, just so you guys can avoid unexpected costs.

Speaker 1: 9:09

What specific steps should our listeners take to mitigate these challenges?

Speaker 2: 9:16

So first, definitely consider the location carefully.

Speaker 2: 9:20

The homes in higher risk areas are going to have higher insurance costs. You and your agent should discuss certain areas that are higher risks and have them even run the financial aspects with the lender before submitting an offer. You should ask your realtor to avoid looking at any homes in higher risk areas if you know that your budget just doesn't align for higher insurance rates. Once you have purchased a home, you should invest in home improvements that can reduce risk, such as fire-resistant materials or hurricane shutters, all of which might qualify you for discounts through those insurance companies. And, lastly, work with an insurance broker who understands the local market and can help you find the best coverage options. Your realtor and your lender should be able to help by giving you additional information on insurances that can potentially help.

Speaker 2: 10:07

However, it is your responsibility as the buyer to also do your own research on insurance companies in the areas you are looking in. Just as a side note, in California, once you are in escrow on a home, there will be a process of ordering an NHD report, the document that's going to inform you buyers of a property's natural and environmental hazard, and if the home is considered at risk, it's required part of real estate transactions in California for both residential and commercial properties, and sellers must provide that NHD report to the buyers during the escrow process. Once the buyers have received that, they have three days to review the report and decide whether to proceed with the purchase. In case it is in a high-risk zone, you want to be well aware of it.

Speaker 1: 10:53

Yeah, and that's really great advice. One thing to also consider is that even if you're not in a high risk area, but you border one, that can change, and so that's something to take into consideration. If across the street is a high risk area that you're looking to move into, that doesn't guarantee that yours isn't going to change in a few years from now. So something to take into consideration as part of your budgeting.

Speaker 2: 11:17

And also one last thing too don't necessarily let the high risk factors be a deterring factor of the home. If it's a home that you absolutely love, make sure that you account for those high risk insurances. If that's a home that you absolutely want to be into, then discuss that with your realtor and move forward with it if you can and love it if you can and love it Exactly.

Speaker 1: 11:45

And again, this may give you an extra leverage point in negotiating. If it is in a higher risk area and they're not getting as many offers, you may be able to leverage that into seller concessions to lower your interest rate, which would offset the higher insurance costs. So there's lots of different things to consider. Now just any final thoughts for our first-time homebuyer listeners navigating this 2025 market.

Speaker 2: 12:06

I just have a few key thoughts to share. Stay informed and be proactive. In whatever stage you are in the homebuying process, it's never too early or too late to do your research. The real estate landscape is evolving and being prepared will help you make these hard decisions. Make sure to speak with your professionals who can guide your specific circumstances and needs, and definitely don't hesitate to ask questions throughout this process. It's so important that you guys, as buyers, find an agent and a lender who's willing to walk you through the process and explain all that hard stuff to you. It's also extremely important to be realistic with your goals, so make sure that you have a rough idea of what you're looking for, know the areas you wish to be in and know your budget. It's extremely essential that you know your absolute max inside that budget and make sure to communicate that with your lender and your realtor.

Speaker 2: 12:58

We aren't the ones paying for your mortgage and your other bills, so you need to know what you can afford. So be prepared in your budget that you may now need to account for your realtor's commission or you may have to choose to not use them if the seller or you cannot afford them. No one wants to work for free guys, so be sure to factor in these fees and possible higher insurance fees so that you are financially prepared. All of this is something that your realtor and lender should be speaking to you about. And, lastly, the home buying process can definitely move quickly, so it's essential to be prepared. Be ready to move quickly when you find a home. If you offer on that home and then you get into escrow right away, if you find one right away, it can be as little as 30 days until you are moving. So be realistic about your needs and wants before starting your search to make it easier on yourself. Find the areas that are compatible with work or your commute, and just start by speaking with a lender to kick off that process, so that you know what your budget absolutely is and what you can prepare for all those fees that are needed. Something to think about, too, is if you are renting and still have a long time left on your lease, take into consideration that you may have to budget to pay to break your lease or to cover a potential overlap in a mortgage and a rent at the same time.

Speaker 2: 14:13

Sometimes you just find that home right away and you definitely don't wanna miss an opportunity to move forward on it. My personal thought is if you can go for it, definitely go for it. So being prepared financially helps. Personally, as a realtor, I have helped my clients with longer escrows or getting them a seller rent back, in which the seller rents back the home at market value for a short period of time and that's allowed for a smaller overlap period for the buyers financially, which works out perfect. That's not something that is always available, so definitely make sure to bring that up with your agent. If you need a little extra time and by setting a budget you can focus on homes within your price range to avoid any unnecessary disappointment. Again, don't hesitate to ask any questions that you may have. The more informed you guys are, the more confident and comfortable you're going to feel throughout this home buying journey.

Speaker 1: 15:03

Monica, thank you so much for coming on the show.

Speaker 2: 15:13

And how can people get a hold of you if maybe they are in the Southern California area and would like to ask you some questions? Sure.1-395-1848. And my email address is monica at homesmmcom, so M-O-N-I-C-A at H-O-M-E-S-M-Mcom.

Speaker 1: 15:39

And again thank you so much and listeners stay tuned for more episodes.