If not now, when? Making it happen for first-time buyers

by Melanie Kalmar


Under ideal circumstances, purchasing a home for the first time is daunting. Add a pandemic to an already competitive marketplace, made up of rising home prices and low inventory, and the obstacle course becomes downright forbidding.

Still, it most certainly can be done. Although COVID-19 may make it necessary to meet with clients virtually rather than in person, you don’t need to sit next to each other to scroll the MLS together or watch a video showing of a property. You can share screens and communicate as if you were actually there. Since the majority of first-time buyers are millennials who grew up with technology, this new way of conducting business comes naturally to them.

Also in this issue

Helping renters become buyers in today’s market

Trends Chicagoland brokers are seeing with first-time homebuyers

How informed, empathetic lenders and agents can make the difference for first-timers facing a chaotic market

First-time buyer seminars in the age of COVID-19

In essence, those who excel at guiding first-time buyers through the transaction process and making deals happen, especially during a pandemic, can secure clients for a lifetime. That’s something the experts in this story, who regularly assist entry-level buyers, know well. Like them, you can learn how to help new clients overcome issues that threaten to hold them back from the marketplace, present the rent-versus-buy paradox and answer newbies’ most frequently asked questions.

Making the most of buyer consultations

Carol Weiskirch, a broker associate with Baird & Warner, has a set process for her first meeting with new buyers, but her overall goal is to become acquainted with clients and learn what is important to them in a home. She also finds out their motivation for moving and timeline as well as how they prefer to communicate.

“I truly enjoy every aspect of working with new buyers,” Weiskirch said. “New buyers are generally very excited to start the process, and they are open to learning new information.” Before the meeting ends, she explains the process of purchasing a home, presents the essential Baird & Warner agreements and disclosures for them to sign, and sends them off with a gift bag.

Taking away the mystery

In Ed Grochowiak’s opinion, understanding how to finance a mortgage should be common knowledge and required curriculum during senior year of high school or in college. But, of course, it’s not. Indeed, the most common question first-time buyers ask him and his sister and business partner Megan is: How does a mortgage work?

To answer it, the two Realtors and land development specialists with Groho Group at Sergio & Banks Real Estate connect clients directly to the source: lenders. They also host occasional real estate seminars — which they’ve been conducting virtually of late, due to pandemic-related stay-at-home orders — that include everyone involved in the transaction process: attorneys, mortgage lenders, inspectors and insurance agents. The professionals explain their roles in the transaction, and attendees are encouraged to submit questions in advance in order to make the best use of their time and get their specific needs addressed.

Ed thinks of this as an ongoing process that results in empowered clients. “If you are teaching them, they can come to a decision by themselves,” he said. “It’s about providing that education along the way.”

The journey for Tony Mattar’s new buyers usually starts with a question about how much money they need for a down payment.

“A lot of times people have that 20% number in their head from when their parents were buying a home 20 or 30 years ago,” said Mattar, co-founder and managing broker of HomeCo Chicago. “You can buy for as little as 3.5% down, due in large part to interest rates being where they are now.” He also makes sure buyers understand they don’t have to pay him upfront; his commission comes out of proceeds from the sale.

Another common concern new buyers have is timing their purchase with the end of their lease. Mattar always explains to them that there is more flexibility than going from rental to rental, since the mortgage is paid in arrears. And if there is an issue getting dates to line up, Mattar has contingency plans to help smooth the way. “A lot of times, you find homes prior to the end of a lease,” he said. “We support them through finding subtenants for apartments, because sometimes your dream home isn’t going to wait for you.”

Still, once Mattar’s new buyers are educated on the process, they might realize they are not ready to transition from renting to buying until they improve their credit score, save more money for a down payment or solve other problems to make purchasing a home easier. In those instances, he stays in touch and resumes working with them as soon as the timing is right.

The first question Weiskirch’s new buyers ask is, “When do I obtain a preapproval letter?” Her answer is: before they start looking at properties. “The preapproval letter contains the price point and type of loan buyers are approved for,” she said. “If they find a home they would like to put an offer on, the preapproval letter is needed to write the terms of the contract as well as accompany the offer.”

New buyers also want to know the total cost of purchasing a home. To keep it simple, Weiskirch has compiled a list of 10 costs associated with purchasing a home that she covers during the buyer’s consultation, because many of those expenses can be added to a mortgage. In addition, the costs vary based on the type of loan they receive or if they purchase with cash. The list includes: down payment; mortgage payment, which includes principal and interest as well as mortgage insurance with some loans; taxes; closing costs; inspection; homeowners insurance; buyer’s attorney fee; appraisal; HOA fees, if applicable; and moving costs.

Pros and cons of buying versus renting

Weiskirch uses a simple pros and cons worksheet to help clients decide if it makes sense for them to buy a home right now. However, she believes that, in the long run, it’s better to be a homeowner. She often explains to first-timers that homeownership builds equity and wealth over time and comes with tax advantages, pride in ownership, freedom to update and remodel, and the likelihood that real estate will appreciate over time.

On the downside, owning a home means families and individuals are less flexible when it comes to moving, responsible for purchases and repairs, and need to pay new bills such as property taxes, homeowners insurance and maintenance costs. While renting offers the relative monetary predictability of a lease, those monthly payments help the landlord build equity, not the renter. Furthermore, rent tends to increase over time, there may restrictions on pets or decorating, and landlords may decide to sell the property without consulting tenants.

Ed Grochowiak noted that there’s a tipping point in this calculation, when rental payments exceed mortgage costs. “With rising rents on a year-to-year basis — Chicago doesn’t have a rent cap like New York — millennials will specifically be moving into this market,” he said.

Happily ever after

The novel coronavirus outbreak has caused some hiccups for new buyers, but generally nothing that a savvy agent can’t solve. Mattar was able to give two separate buyers a leg up shortly after the first shelter-in-place order became effective and caused a slight decrease in inventory. He did video showings for them and encouraged his clients to put in offers before doing a walk-through.

“If they came in and hated it, we could’ve gotten out of the deal,” he said. “Waiting to see it only stands for them to potentially miss out on the property that they like.” The strategy worked; both deals closed.

One unforeseen consequence of the pandemic was the cancellation of weddings. It is a turn of events that has brought couples to the Grochowiaks’ office, as renters choose to use money originally earmarked for the big day to finance a home. While missing out on celebrations may be sad, Megan noted that the timing benefits their clients. “Buyers purchasing in COVID-19 are getting ahead of the game,” she said. “Whereas, they might be priced out once the stay-at-home order is lifted because of multiple bidding wars when people rush back to market.”

Still, not everyone predicts the same outcome during these uncertain times. Prior to the pandemic, Weiskirch saw buyers experiencing the bidding up of prices on turnkey homes attractive to millennials looking to avoid home improvement projects. Now many of those desirable properties are on temporary status or are no longer active on the market. Once the selling season opens up again, Weiskirch anticipates buyers will be cautious, waiting to see how the economy and home prices fare before jumping into homeownership.

Overall, Mattar doesn’t expect to see longer-term changes in homebuying resulting from COVID-19. “There will still be first-time buyers out there looking for homes,” he said. “Buyers have tremendous purchasing power right now. Everyone needs a place to live, especially a place to live that they’d like to be quarantined in.”

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