EP: 0035 - Move-Up Buying with Kate Fadden

Many homeowners have delayed a move-up purchase due to rising interest rates in 2023. In 2024, with rates projected to decline and the higher-end market still soft, this may be a good opportunity to consider a move-up purchase. Kate Fadden is a top-producing broker at JLS Bellingham, and she speaks with Paul Balzotti about the process of move-up buying and some creative ways to make it happen.

00:50 What is move-up buying and what does that look like.

04:18 Snoop Dogg almost buying in Bellingham.

5:55 Real Estate stats that benefit a move-up purchase.

08:25 Timing the market and interest rates.

11:00 The costs of waiting. 

14:44 Realtor cliches about it always being a good time to buy.

20:20 Consolidating debt when doing a move-up purchase.

You can reach Kate at katefadden@johnlscott.com.

Transcript

Hello and welcome to the Bellingham Real Estate Podcast. I'm Paul Balzotti. I'm here with Kate Fadden. Welcome, Kate.

Thanks for having me.

Yes. And today we are talking about move up Buying and we it was your idea to to jump on and talk about this, which I think is a really, really great idea for 2024. It's a it's potentially a great year for move up buying. And we're going to talk about what move of buying is why we think it could be a good time for some people to do so.

And and some tips and some ideas about the move up buying process. So, yeah, let's start out by Kate. Maybe just explain to people what move buying means. And then I want I want you to share, if you will. You know, your experience is, you know, move a buy in helping people move up, buy that kind of thing.

Yeah.

So for those of you who don't know, move up, buying is essentially when you are kind of like upgrading your house. Whether that be location, size, maybe a combination of those things or maybe, you know, amenities that your current home doesn't have. It can be it can be a lot of different things, but essentially kind of bumping your home up to the next level.

I myself was a move up buyer. We we wanted to move to a different location. And so we went through the process and actually made our offer contingent upon selling our house. So we got our offer accepted and then we went ahead and listed our house and were able to get that in our contract and then move forward with the purchase and close simultaneously.

So we did that and it's a great example of a very like traditional way to do move up buying, but different example would be some clients I helped recently. They actually chose to list their house first and even in a hot market felt like that was better, a better option for them. So we listed their house first, got it under contract and, and while we while we had it listed, we were out looking at homes, making contingent offers.

But the way it worked out for them is that they got an offer on their house and then they were able to get an offer accepted on house that they wanted to buy. So kind of some different steps in that process, but the end result is still the same, which is that they got to move to a different location, a bigger house for their growing family and newer house, that kind of thing.

So yeah.

Well, so there's a couple things to unpack there that I want to bring up. So number one, you talked about the two different two of the ways there's three ways to do a move up purchase. One would be and I think people don't always think about all three so that was important that you brought them up. One is, is to to basically wait until you have an offer on your home and then and then buy and then, you know, and in some cases you have to, you know, you end up having to rent for a while because you sold your home first.

Yeah. This, the second way is to do a contingent offer, buying your house first. write The offer contingent on the sale of your home and and then the third we haven't touched on yet is there's like cross collateral and bridge loans. Right where, where you can basically try to pull it all off where you can. Right. The offer non contingent on the sale of your home but still kind of buy first and then sell So there's and not everybody qualifies for those but but more people do than they probably realize would and so yeah and the nice thing and we could touch on this right now briefly is like you know this is a year

where it's, you know, looks like we'll have a strong spring market, but it's not such a hot frenzy market that you couldn't explore all three. Yeah. Whereas in some, you know, there's been periods where, you know, you kind of were forced into one situation or the other to be able to pull it off. But so that's kind of talking about, yeah, there's three ways to do it.

I want to, I want to make sure we touch. On When you did your move about purchase. Yes, I know that you bought on Lake Samish.

Yeah. We're on Lake Sam.

And and a Lake Sammamish expert here we have you have a lake sandwich video, too. And when you bought on Lake Sandwich, you told me that at the time. Well, what year was that? That was like 2000. It was.

2016. So 20.

16. That was right. When all the 502 operations were opening up. Correct. And the reason why that correlates to that is you told me that who might have looked at the same house?

Yes. So the house we bought had been on the market for quite some time. And we were told that Snoop had actually Snoop Dogg, not he I don't think he actually toured it himself, but his one of his people toured it for him. Yeah. Consideration for purchase since he is a partner in a business here in Bellingham.

Did you have one of your people look at the house first to Yeah.

You're looking at her.

Exactly. So Snoop Dogg checked out Snoop.

Past so his was our guests.

Focused on.

His last.

Game game. Yeah. Yeah. It would have been it would have been fun to have Snoop. We are, you know, be local like this, but I'm glad you're there instead. Thanks. So today that and yeah, and I specifically remember that because I remember he was like endorsing or something like at that time a like a 502 shop or something.

So that's funny. So and then that's and then so you've helped other other people with that process and with a lot of success. So let's, let's kind of now jump into why like three of the different reasons why and or I wouldn't just say their why but wise but they're also just avenues to to to move up that that people might not be thinking about.

So starting with kind of just like the just the way the market is set up right now. So right now, statistically, we are we're just under a three month supply. But what's really unique about this particular market, it's not super unique, but it's it's it wasn't the case a couple of years ago where everything there was no inventory at all compared.

To the last couple.

Of years. Yeah. Where we have under a a under a two months supply, under 500,000, a 2.2 months supply under our median price ranges, which is like under 600,000 and walking county under 700,000 and Bellingham. And then as soon as you get over the median price, it jumps over a three month supply. So kind of what explain why that matters to the average, you know, buyer, That's our average buyer or seller that may have a lower priced home and wants to move up.

Yeah. So what that means is essentially if you've got a home in that lower range and you're going to try to sell it right now, there's still a pretty high demand for buyers or, you know, buyers looking in that range. So you're potentially looking at getting still like top dollar for your house. But then when it comes time to shop for your new house in that higher price range, you've got a lot more houses to choose from, potentially creating a scenario where you can get, you know, maybe a better price, a lower price on that home.

And not only that, but probably not competing with as many buyers. And so you're not really going to most likely be looking at, you know, multiple offers, escalation clauses, that kind of a thing.

Yeah. You know, Lennox Scott, our CEO, he calls it getting market price versus getting premium pricing. Yeah. And and what was the term used? It was a different term, but it's the same term, it's the same concept. It's like premium pricing on those lower priced homes, especially this spring. I mean, I think that we already seen, you know, some multiple offers coming back on that lower that lower price range.

The idea of getting multiple offers on a lower priced home and then still be another negotiate. Yeah, that is that's a really unique scenario right now. Yeah that could line up really, really well what else what other reasons could you do you want to touch on as far as like reasons why now would be a good time to move out.

Well, I mean, I think you know, I think the predictions that I've heard anyway on interest rates for the year is I think they're it it's expected that they're going to go down a little bit. But I think really in the grand scheme of things this year, it's looking like they're probably going to be fairly stable. So for people who kind of maybe in the last year have been thinking like, I really want to you know, I want to get that bigger house or I want to live in this other neighborhood or whatever.

And they've held off thinking I'm going to wait for rates to go down. I don't know that this year we're going to see a dramatic drop. So creating that more stable market, I think, makes it a really safe a safe move to make because you're not you know, we're not dealing with the the the rates we were dealing with last year.

So I think that that's one reason why, you know, it makes sense to to explore, you know, going down that path this year versus waiting because we don't know how long it's going to be before rates, you know, have a significant reduction.

Yeah. And I think that and the we had a great lender in for office meeting and they showed us a chart of the cost of waiting. Yeah. And if you are listening or definitely on the video version of this we'll try to share this chart.

Yeah.

And it was based on 800,000 I think.

Yeah. It was based on a purchase of an $800,000 home with a sale I think of a $500,000 home.

Yeah. So and I think that what are the numbers on that. So on $800,000 it was so basically like you have a if you're buying a $800,000 home today and rates were at like 6.75. Is that what it was. So I think it was at 6.75 And then the chart will show if you waited until the home where let's say a year from now.

Yeah, because you're right, rates are probably not going to go down a full year this year potentially. But let's say in a year, year and a half, let's say we're in summer of 2025, rates are at 5.75. Right. And so you're thinking, I'd rather wait till they're at 5.75, because a lot of we all know I mean, we all know that the biggest issue is, is that, you know, if you're sitting on a two or 3% interest rate.

Yeah. You know, Yeah, I hate to give that up. And we were talking about that personally. Yeah. And but, you know, so a lot of people are like, well if it gets in the fives then I'll consider so but there is a cost of waiting, right.

Yeah. I mean think about what does that price with. Or if you're looking at appreciation of that home, that $800,000 home today, a year, year and a half from now you know if if let's say it appreciates, you know, between four and 5% now that that list price on that same home is going to be higher. So although the rates may be lower, you're missing out on that equity that you would have gained in that first year and would essentially have paid for.

Itself in more than that, because now that I'm looking over at the white board and I can read my notes that are in gibberish, what are the notes that I that I had done was, yeah, they had the lender and it should show on that and we should be able to share this. It was something like $4,000. So let's say you lock in on a hundred thousand or a house with $4,000 in a refinance and let's say you have to pay $4,000 in a year for the refinance.

Yeah, you could sit there and go, okay, well, if the rate's 1% lower in a year, that would be a much lower payment. And the payment amount is about $250 less per month. When it's when it's 1% lower. So that whole year, if you bought this year, that whole year, you're going to be over the course of the year, you're going to say you're going to well, you're going to spend three, approximately $3,000 more on a mortgage payment over the next year.

You're also then going to have to refinance in a year for another 4000 or thousand. So so now you're $7,000 more out because you had to pay more this year and refinance in a year. But if the rate is down at 1% in a year, the odds of that 800,000 for a house being up at 840,000 is extremely high.

Right. So if it's a 40 and they cost you $10,000, you're $30,000 ahead. And that's not a realtor lender, you know, pitch. That is like we're sharing that that this chart because we absolutely based on our experience, based on historical experience, believe that this is the real deal on the most likely scenario to go down.

Yeah, absolutely.

And so and what was that you told me another like about the neighbor state or.

There is a national stat that said for every drop in interest rates of 1%, there's like 5 million new buyers or eligible buyers that can come into the market. Now that's on a national level. Of course, it's less for Whatcom County, but still, I mean, I think it's a good example of what happens when rates go down suddenly. Not only do the current buyers that are looking for a home, you know, it helps them because they have more buying power now, but it also creates a scenario where there's all these new buyers who can now afford to buy a house that are now in the market and competing for that that same house that you're competingfor.

Yeah. So essentially that move up purchase that $800,000 purchased that right now we're explaining is a little bit of a soft market still. If rates are in the fives we believe that $800,000 house is going to be a strong market again and and a seller's market again. Correct. And so and so. Yeah. So the idea that it could be $40,000 higher in a year, year and a half, 4% of home appreciation on a $800,000 house is a is not an unrealistic thought at all.

So right and and then and I want to kind of stop here and mention something else so I the last podcast we did one of the one of the clips from the video, I think myself or Vanessa, who was on the podcast, said something about, you know, why right now has has price points where it's potentially a good time to buy where we could, you know, where prices have kind of where we feel like prices have kind of softened a little bit because prices are down slightly year over year.

And why we think, you know, now is a good time to buy in a lot of these price ranges. And and then a comment on the post was like, that's a really unique perspective. Like a realtor saying that now's a good time to buy and and and like while I appreciate that, you know, when we're having these conversations that that always sounds kind of cliche or whatever.

I was also reflecting on that and I was thinking, well, you know, everybody I know, you know, for the last 20 years that has been in the game of like real estate that is like believes in it and is doing it. And and most realtors most realtors are also some of the heaviest investors in real estate, like we own real estate, you know, etc..

And they're the ones who are like growing their wealth. Yeah. That are like making it happen. And a lot of the people on the sidelines that are like that and, you know, no, you know, maybe the person who said that does own real estate. I'm not trying to, you know. Sure. But but it's kind of like the point is, is is that when we're going through all this, it's not like it's not just like as a sales pitch.

It's more like it's more like there is I feel like and I'm I'm assuming you agree that that what happens with a lot of people is, is they kind of have this like they create like a narrative of like kind of fear on like making the doing the things they want to do. And it stops them from from do it like, for example, we're talking about moving up.

This is somebody going from somebody who already owns and helping them consider the possibilities of getting to where they want to be, what they really want to live in. And usually that home also on that, that move up is in a better location. Yeah. Is a more premium neighborhood kind of thing that that's probably going to outperform in the long run, the home that they're in and they're going to be happier.

Right. And so it's not really about I'm getting defensive out of nowhere because I'm just thinking back on this. But I think it's important to point out that we're trying to like give tools and concepts and thoughts to like the process that just you might not be thinking about.

Yeah, I mean, I think that it's I totally agree with what you said, and I think it's hard sometimes to look at a home purchase as like an asset, but that's really what it is. And for most people it is the largest asset that they have. And so if you think about like growing your wealth, you know, what's probably it's probably the number one way the average homeowner in America can grow their wealth is to do a move out purchase.

And yes, it's scary because it affects your bottom line and you know the money you're paying every month. But if you're looking at it from a larger scale, you know, longer term picture, you're you're increasing your long term wealth significantly by making that move. And so I don't know. I don't like the saying no risk, no reward. But in this scenario, that is kind of what we're talking about.

It just depends, I think, on what your comfort level is with risk taking. Right. Like for some people it may feel just more safe and comfortable to stay in the house that they're in and they want to pay it off and that's it. And I totally respect that approach as well. But for people who either need more space or, you know, there's a there's a true need in moving up to a different home.

I just I think that, you know, it's super it's a super smart financial decision. As long as you're buying a house that fits within what's realistic for your your family, your budget and that kind of thing. And that's something I think that's important to have a dialog and something I try to really discuss with with my clients and with, you know, their lender.

And that's why it's really important to have a good team, you know, to to make sure that you're you're talking about all of these things and making sure that the as a buyer, you know, your you are you're feeling educated and confident in the decision that you're you're making.

Yeah. Because you know your first home that you buy there's a lot of trade offs. There's a lot you're like you're sacrificing maybe not only space but location and maybe cosmetically what it looks like. And of course, cosmetics, you can always upgrade over time. But I think what also makes the move up purchase kind of holds people back is, you know, you do have this idea in your head of like what you always wanted to live in or whatever.

And that move up tends to be where the rubber meets the road. It's like, am I going to get, you know, what I've always wanted or whatever? And and then you still have to battle with there's trade offs there too, you know, Like there's still there's there's never, you know, there's like the we, we say that like even when you build what you kind of you basically just did a gut renovation on your like home you could still like a month later be like I wish I would have done this or I wish we you know, there's certain things you'd want to have that like you had constraints on what you do.

And so it's, you know, it's very rare that you truly get like everything you ever wanted. But but you're wanting far less trade offs. And so it is it is a you know, it's something that we don't take lightly in that process. Yeah. But if you at least feel empowered that that it's at least the timing could be good and your eyes are open to the possibilities.

I think like with real estate, it's like one of those things where if you give yourself two or three months to do something, then it may or may not work out. But if you're like, okay, if the right home comes up, I'm ready to go, all those kind of things I have my I've talked to a realtor, my house is like, I got my house 90% fixed up.

It's not 100%, but it's 90%. I could get it ready in a weekend, you know? And now I'm like, I'm going to spend this year really trying to focus on can I find the right home? You know, that's kind of all we're talking about. The last thing I want to mention before we jump off, because you talked about big financial decision risks.

Yeah. You know that there's also the debt consolidation thing, which is not which is not in the picture for everybody, but is an interesting thought, too, Right?

Right. Yeah, yeah, yeah. The and again, we'll put the slides in the the video version of this but which I would encourage people to look at because I think when you look at this, look at the the images, the graphs and the information, it's it's really quite interesting. But anyway yeah, I mean debt consolidation, that was something that the lender brought up as an option and it hadn't really occurred to me either.

But you know, some people may have like, you know, car loan, credit card, what have you that you've got those minimum monthly payments that you've got to make. And the example that they gave is to, you know, do you're doing a move up purchase, so you're buying a home. That's that's more than the home you own. You're selling your current home.

But at that same time, you're also paying off those additional debts and wrapping those into the new loan with the home purchase. And the example they gave, it actually was allowing that person to save a significant amount of money on a monthly basis, because oftentimes those rates are quite a bit higher. I mean, that's obviously not going to be the case for everybody.

But I think it's a great example and something that is important to talk about with with your lender. If if you have some of those additional debts that might it might be helpful to get those paid off at the same time. So yeah.

Yeah. And also the when you if you wrap your debt, essentially when you if you you know, you sell your home, you and then with your new home you wrap you wrap all of those, you know, loans and credit cards into essentially your new mortgage. The mortgage interest is tax deductible in most cases, not for everybody at every income level, but in most cases it's tax deductible and the other interest is not correct.

So that's another another point in there. So yeah, Yeah. So that is I think all the stuff we wanted to share today. Yeah. So then you for listening and watching. Thank you for joining Kate and, and if you are looking to move up I hope you reach out to Kate and she's a fabulous top producing realtor and we're grateful you’re with us.

Great for you joined us today and thank you for watching. Listening, guys.

Thanks.