Open Homes & Pre-Approval (With Andrew Leggett of RAMS Home Loans)
Open Homes & Pre-Approval (With Andrew Leggett of RAMS Home Loans)
Andrew: As to what happened with Tony, where he's met someone at the open home, collected a fair bit of data, contacted me--I just happened to be in the office when he rang me so I could get a servicing calculator--so affordability and we notified that client of their borrowing capacity that afternoon.
Going once... going twice... SOLD! You're listening to The Property Pod!
Aaron: All right, guys! Welcome back to The Property Pod, your weekly engagement into real estate here in the Hobart marketplace. I'm your host, Aaron Horne, and it is a pleasure to bring in episode 102! It's so fun being able to say that we're in the hundreds--it's just unfathomable. [John agrees] I am your host, Aaron, and I am joined, as always, by Patrick Berry [Patrick: Hello, everyone!] and John McGregor! [John: Mummy!]
Aaron: What's happening, bud? How's things? What's happening in the world of real estate here in Hobart?
John: In real estate in Hobart, oh well... I think the conversation still hasn't changed too much where we've done six appraisals over the last two days and the same challenges from young through old is what next and a lot of people are having a really hard time answering that because it's just a real challenge if they want to move sideways, there's just not many people, you know, properties coming on. But it does even in our office included, it looks like there is a big surge of new properties going to be coming over the next couple of months which is pretty common right up to the lead of next this year so hopefully that allows a lot more opportunities than otherwise hasn't been.
Aaron: No, it does seem to be going gangbusters out there. You, guys, have been really busy. I feel like just looking through my media house stuff, we've had our busiest months in records but I think that is just an example of how things are going here at 4one4. Can you…
Patrick: You, guys, are correct as I think Sebastian and I worked and did 33 shoots last month, so that's over one a day which is just ridiculously large for the media team.
Aaron: Well, when you put that into context as well, you know, we don't work weekends so there's less days…
Patrick: All right! Two a day! [laughter] Is that what you want to hear, mate?
Aaron: I just want you to know that we're out there doing all these shoots and along with that, we're still here recording podcasts so we're still getting everything out, but no look, I want to big up the 4one4 Team. It's amazing kind of how active you guys are and the energy that's going in and out of this place and just growing and building.
Patrick: Well, I'm on leave at the end of this week and it seems like the boys and Susan and Laura are in for a massive month this month as well, so it doesn't sound like it's going to slow down anytime soon which is great.
Aaron: Yeah, talk is that they're going for a record while you're away, they shouldn't really.
Patrick: Yeah, I heard that they're trying to smash the highest sales record of the existence of 4one4 while I'm not here but jokes on them because I've already added two to the book, I'm going to add one more before I leave, so I still count! [laughter]
Aaron: Well, look. Things are going crazy; things are building and as John has alluded to, it's kind of crazy you're going to open homes--you're kind of finding places that you want to get into but you don't know what to do next. so we've brought in longtime friend of the show, Andrew Leggett of RAMS to come and chat with us again. Thanks for coming in, Andrew! It's so good to see you back in the studio.
Andrew: Thanks very much for having me, guys. That's always a pleasure!
Aaron: No, it's great to have you in. We were just saying off air before that you've kind of gone through the gamut of the whole pod like you started with us like episode nine, did we work out, it was?
Andrew: Yeah, I think it was number nine.
Aaron: Yeah and from there, because that was like we recorded way back in the Nether regions kind of the sales pit when this was just like a silly idea to maybe try and make... What was it? 13 was our death number. We thought if we got past 13, [Andrew agrees] we'd have made it. You were there at episode nine. You're kind of an unknown quantity and now you're back for the ride, you've recorded in here, we did a Zoom episode as well, so you've kind of recorded in every iteration of the pod.
Andrew: We have I think the COVID one was definitely one of the favorite ones, though.
Aaron: Yes, well yeah, the whole world... yeah, well everybody-- I think me and Pat were at the far ends of this tiny little room at 1.5 we'd measured to make sure that we were safe and John was at his office, so yeah, it's amazing how far we've come.
John: Oh I could think of it next one, now you're gonna have to be at a live podcast with a live audience. That'll be the next one, Andrew.
Andrew: I'm sort of on location... [John agrees]
Patrick: I thought we could do like a weatherman type report. [John agrees] Andrew can be: "I'm outside of the open home" [laughter]
Aaron: Well, that's not as silly as it sounds, boys. Because one of the reasons I got Andrew, we were chatting just recently about how him or his dad, the Directors at RAMS, have been attending some of our open homes recently. Do you want to talk to that, Andrew, and just kind of let everybody know what's been happening over the last kind of month of open homes here with 4one4?
Andrew: Yeah, so over the last four weeks, we, the RAMS Team, have been attending the Saturday Open Homes just to sort of try and catch the people that are starting to enter the market that haven't even thought about finance at that particular point because pre-approvals are a really big thing and I'm sure you, boys, can attest if you're fielding offers, you want to see someone that's ticked off.
John: Oh, absolutely.
Patrick: For sure. I think that's our biggest problem at the moment is that, you know, I had an open home two weeks ago, and there was 46 groups through I think in the time I was there and just been able to try to figure out who are the best people to talk to, who unfortunately, some of the people that came, they just had not even had conversations with the bank, just decided they wanted to buy a house and they thought they could spend up to x because they've used an online calculator. So that puts them, unfortunately, sort of down the pecking order as far as qualified buyers go when we're trying to weed out who's a better buyer over another one when it comes to offers.
John: Absolutely! And the language you use is really important because part of our job, obviously, as well is enabling those people not to make a bad decision and a rush decision, so when they're submitting contracts where we... there was a great example with your... Tony, was it? When we had Lutana, there was a young couple who had already submitted two offers on other properties and I just asked them, "has anyone gone through the standard conditions with you yet?" and they said, "oh no" it's like well, "how about we spend 15 minutes and actually... you know, so you can understand what the hell you're actually signing" and then before that, though, they'd actually spent some time with your dad just having a little last sort of conversations which gave them a little bit more confidence in proceeding with this process and yeah, it's scary to see like even with access to all this stuff, there are people who are still just flying in blind and once you, if you're having that conversation with an owner around, well, what's this purchase's situation can we have confidence in that contract? And we just have to say, "no" if there's no background research, that purchase has been made.
Andrew: Exactly. Whereas I'm sure if you have a customer that's come to you with a conditional approval, and the only outstanding conditions are subject to valuation and seeing a contract, that's going to hold weight with the vendor, isn't it?
John: Yeah, exactly... exactly.
Aaron: Well, let's go into this pre-approval thing. I know we've kind of talked about it before and if you want to go back and listen to the episode nine that we discussed feel free to but we've got you in again, Andrew, can we just go over pre-approval and how it actually works? It's basically kind of like the almost guarantee of how much you can borrow? Is that kind of…
Andrew: Yeah, in a nutshell.
Aaron: What if we just put it in these bad boys' inverted commas in the air and just say it's almost a guarantee of how much you can get. It involves completing the home loan application process before you found the property of your dreams, kind of getting ready to go, so rather than kind of finding the beautiful place and then realizing it's way out of my bracket, this is a way of being like I'm locked and loaded I'm ready to go.
Andrew: Ready to roll. Yeah, so the process would be to have a customer come in and we verify the full financial situation. So we look at employment income credit checks and make sure that they do actually have enough deposit to cover the purchase and the purchase costs.
Patrick: And what is a deposit these days? Like what do people need to have saved when it comes to buying a house? Is there a certain percentage or is there flexibility as far as that goes?
Andrew: Not so much a certain percentage of a purchase price but they need to have enough deposit on the loan to be able to capitalize their mortgage insurance if they're borrowing at the top end, so the maximum lends are 95% including that mortgage insurance premium, so you're looking at about eight or nine percent deposit in [Patrick agrees] to keep it at that 95 and then an additional five to seven percent to cover your stamp duty legal fees and all the other little critters that pop up along the way.
Aaron: So when you say critters that pop up, like let's... I've actually got a real world example that we could probably discuss. We won't use names or anything like that, but I had a friend who recently asked, "who can you recommend for services of this kind?" I said, "Andrew Leggett, RAMS." You may have gone to school with him if this is the same person that I'm trying to lead you down the path of you know what I'm talking about.
Andrew: Yep, I'm getting it.
Aaron: Yeah, you get one and put them down. So let's say this person, they've recently returned to Australia from working overseas, they've kind of gone through all the gamut of things. Are some of these critters you're talking about like kind of returning from elsewhere you've got to follow up all their finances internationally etc.?
Andrew: Yep, exactly right. And yeah, without knowing names in this one…
Aaron: I'm sure he's listening so [Andrew: probably] shout out to... [Andrew: hello] hello, you! [laughter]
Patrick: So, we've narrowed it down to a guy. [laughter]
Aaron: Why are you guys so good?
Patrick: ...and he came back to Australia. I'm gonna work this out.
Aaron: He doesn't work for AZO, it's all good.
Patrick: Yeah, and we only have seven listeners so... [laughter] Many people have to go through.
Andrew: We have some elimination here, who is it? Uh yeah, so back on track... [laughter] Yeah, return back to Australia, he's got a very very solid job, fantastic qualification, so very well educated, but his time frame in the employment didn't quite tick the criteria, so this is one of the little gremlins. So based on the overall strength of the application, I've gone off to our Credit Department and said, "hey, are we able to have a look at this based on the fact of x, y, and z" and yeah, the Credit Manager came back and said, "yeah, definitely get an application together" so we're now--I'm in the process of of getting these this couple pre-approved and so though we will be able to hit the market with an approval, just subject to evaluation.
Aaron: Yeah, excellent. And I guess that's kind of where I was trying to lead the things was like the critters might pop up but it's worth reaching out to somebody in the field that is an expert rather than just jumping on your calculators online to say, "oh we can earn this much"
Andrew: "we can borrow x..." [Aaron agrees] and the other good thing is we've spent three or four days to get rid of that critter whereas if we were to live in an actual live application on a 21-day finance clause, that's you know three or four days, that's gone.
Aaron: And then is that where it's throwing to you guys where you don't have the confidence to be able to say like, "ah, we really don't know if this couple is the best offer as we're not sure that they're fully pre-approved" [John: absolutely]
Patrick: Yeah and like for me, at the moment, because there are so many people wanting to make offers, trying to get that extra information out of somebody, and get a better understanding as to their financial position--what they're trying to borrow. I think the worst thing somebody can do in a contract at the moment, it really annoys the absolute rubbish out of me, is when purchasers write sufficient funds to complete the sale. That tells me nothing about what your financial situation is. Now, they've done it because some other agent told them just to write that down and they've gone now down 20 offers so I've just been trying to re-educate a lot of my buyers recently that that's not going to win you a deal because if someone's got buying a $500,000 house and they put that they're borrowing $250,000 down and you might be only borrowing $200,000 but you put sufficient funds, I don't know that. So then, all of a sudden, your contract is sitting lower even though, technically, you might be the better so I think as well just trying to get people to give us as much info as possible and to get prepared as much as they can is what's going to help them win an offer in this marketplace so pre-approvals, giving that type of information on a contract. I had somebody the other day give me their bank statements and a freaking life story and a family photo to say, "here's my complete package" [laughter] so that definitely helps.
Aaron: I guess, is that something like it's so competitive out there at the moment that kind of anything that can get you that little like you having the photo or the story like, I know I've talked about it before, but the story of working in the outback when I bought my place discussing that with the owners. They were just like, "ah like yes, like we've connected!" Like you build that emotional bridge. [everybody agrees] So if someone's doing that, it's the same with this kind of financial side of things, like if you've got all your details and all your ducks in a line, it is so much more beneficial than kind of the what-ifs of this person or that person.
John: And ultimately, there is a part of this which is negotiation and last night, there was a a client who was intending to buy a house of her family and we were going through this process because she was the first time she'd actually asked anyone for this advice and she said, "oh this is what I'm hoping to do'' and I went that's probably going to be the worst approach for the negotiation this one because they are... from what I could observe with my limited information, they were all about money and so trying to pull an emotional heart string was is not going to be effective at all. I said, "the only way that you could actually make this work for you, is we've got to organise a formal valuation and you've got to play the numbers and you've got to make it look like you buying it without going to market is going to be the most attractive monetary option for them." She's like, "okay, I got it." And with that then, she needs to go down the road of making sure that she can limit her time frame, get evaluation, showcase that with the valuation minus the selling fees, or just do a full numbers negotiation because pulling the heartstrings isn't going to work. However in like... as Patrick described in a lot of estate sales or where people really do legitimately just want to see a nice x, you know, whatever they want, the story really does matter, photos can matter, a story can matter, and unfortunately, you don't know what you're going into when you are buying but you still need to ensure that you can understand your situation as strong as you can and that's why we're hooking up with organizing the pre-approval to really understand your financial position is essential because sometimes, story isn't going to matter; number--know money talks. And being able to strengthen your contract as best as you can by
seeking your advice first is vital--it's vital. [everybody agrees] One thing that struck me with that example you, boys, were talking about before...
Aaron: Oh yeah, that mystery person?
John: That's right. So the gremlin was the idea that he had not had sufficient enough time in his new job. So, if you hadn't had time to do that during the pre-approval phase, would that actually have been harder to manage under the pressure? I mean, time frame aside, is it harder to manage that process when you've got an active contract versus just doing the homework beforehand?
Andrew: Oh, it is. So if they were live and signed a contract and came to me and I said, "yeah, it's sweet. We'll get it in" and then that pops up from credit side saying, "hey, this guy's not been in the job long enough" and I go back to the customer and say, "we're going to need to collect all the supporting documentation to mitigate the fact you haven't been in your job long enough." It's an extra stressor for our customer puts the pressure on your side with the vendor and might lead to needing an extension and finance period, so it's just so much better to pick up on these little things before the fact, get it done, so we can submit a quality application through to our Credit Department.
John: Definitely! And what's the average time frame it takes to organize one of these things-- from sitting down at the desk. What would be an average time frame to get pre-approval really?
Andrew: Okay, so for mystery man, we caught up last week, we'll sign off on the application form on Friday morning, and that'll be live in the system come Monday afternoon.
Aaron: So yeah, so that's where my next question was going to lead in time frame, so you've shown up at the open homes the select ones that we're having like you guys had your the Wilfred Coffee van, was that the one in Lutana that day? And then yeah, also, like kind of adding to the tool set is yourself or your father or someone from the RAMS Team there, what can we expect like if you're--if I'm showing up and I'm ill prepared, is it just kind of an introduction kind of moment or can we kind of get the ball rolling straight away on that?
Andrew: It could be both. So, it could just be a fact of just a quick conversation with someone and I've got the RAMS name out there, they've got my contact details, and they think, "hmm... yeah, I need a second opinion here." So they might get in contact or it might be on the complete polar opposite as to what happened with Tony where he's met someone at the open home, collected a fair bit of data, contacted me--I just happened to be in the office when he rang me, so I could get a servicing calculator--so affordability, and we notified that client of their borrowing capacity that afternoon.
Aaron: Yeah, so yeah. In the modern world, it can literally be like, "I'm not sure what I'm after but we've had the introduction and now, we can kind of... by the afternoon, we've got a really good idea of where we're at sort of thing." So yeah, you can find out if you've found a home that you love and you're chatting with someone yourself there by the afternoon you know if you're in a good position to move forward with that one or keep looking at the next open home. [Andrew agrees] Yeah, awesome.
John: What about... so in our cases as homeowners, that's obviously the first-time buyer, but what about those of us that are either looking for an investment or are upsizing for example, does the pre-approval process look the same in that situation?
Andrew: Certainly does. So there would just be an additional condition on the approval. So let's say, for instance, you've come to me and you say, "I'm going to sell this, I want to buy another one but I need to make sure that I can do this because I don't want to sell it and then find out oh I can't actually buy anything else." [John agrees] You've sold your house that's gone, so with this, we'd have a conditional approval which would be subject to confirmation of sale on yours, an unconditional contract or an unconditional approval. It might have even already settled, we could then tick that off. So we know the funds are coming through to the other side for when you purchase your new one.
John: Right. So, what we're referring to then would be the deposit being used on the new loan coming from the previous sale?
Andrew: Yeah, from your sale proceeds.
John: Yep, and so the pre-approval then is noting that look yes this is all pre-approved when the settlement or the unconditional contract on the sale of your existing home.
Andrew: Yep, and the term you touched on investors, now this is just where it could get a little bit curly and come back to the point you raised where a contractor might say sufficient funds. Someone might be using the equity in their own occupier to borrow a hundred hundred and five percent of purchase price on the investment, so that's where "sufficient funds" could come into play and it's pretty ambiguous--you just don't know what's sufficient funds, but it made no... I'm guessing on a contract, if you were to see a purchase price of 400 and they're borrowing 420, you'd be thinking, "hang on, how are they doing this?"
Patrick: Well, that's what I was about to say to you where that is just described where they borrow 105%, at least when they put that on there, that's a red flag for us to find out extra info. And then from that, we can learn, "oh, you already own three other investment properties and you own one or two of them outright" okay, well that's not going to be a problem. So therefore then, that's not an issue but we discover that by them putting that they're borrowing 100%
or they're trying to borrow 420 and a $400,000 sale. When they just put sufficient funds, we have no idea what it is and sometimes, we'll bring people up and they're happy to exchange it and explain why they've done that. Other times people will just say, "oh, that's because that's what the other agent told me to put on it, so that's what I've always put on it" and I think that, you know, some agents will take the extra step like I know John and Aaron and myself and Sam the other day, we'll ring back and try to improve all the offers, but there would be agents out there if you're putting sufficient funds, you're just going to the bottom of the pile and they don't even ring you back and you've missed out on that property. So if you're only given one opportunity to make it look the best it can, it's not always about price. Sometimes, there's just separate wording that you could do on the contract that might improve the likelihood of you getting the place.
John: It's like just the ambiguity of it's like, "oh, that one just looks like it's hard work stuff."
Patrick: Yeah, if an investor put borrowing, you know, 110%, we're going to ask why and then we're going to discover that oh well, that's not a problem because they've got 90% equity in that place in Bridgewater that's gone up $200,000 in two years so… that should be right.
John: That makes perfect sense. Well, actually with that, to expand on that point then, if you are doing sufficient to purchase with an investor, can a letter of pre-approval still be the same if you wanted to strengthen your offer in negotiation?
Andrew: It would, definitely.
Aaron: Can you explain that to me, sorry?
Andrew: That's alright.
Aaron: Just in Layman's terms.
Andrew: Same sort of process as the first home buyer, it's a conditional approval to purchase an investment property and it's just going to be subject to valuation on the owner occupy plus the one that's being purchased.
Aaron: Yeah, it didn't help. [laughter]
Patrick: All right, like you're not in the market to buy at the moment.
John: I suppose as you could say, well look, say you wanted to buy an investment property and you don't want to use any cash...
Aaron: Yep, so the equity in my home... [John agrees] Gotcha!
John: So the idea being is that the pre-approval would be for you saying yep you've got enough equity in your home to buy a property up to x.
Andrew: And the way we work that out is we take the valuation of your property, plus it to the valuation or the purchase price of the one you're going to buy, take the balance. [Patrick: mega value] The balance that you currently owe and plus that to what you're going to borrow, [Aaron agrees] we look at the overall position.
Aaron: I like the way you've overrolled all of that, Andrew, that was...
Patrick: That cartoon character where all the power rangers connect together to create the mega monster--
Aaron: --the megazord.
Patrick: Yeah [laughter] that's the mega loan.
Aaron: I'll take that, I'll take that.
Andrew: That's not just... that's not the only way that it can be structured for an investment purchase. So say for instance, you come and say, "hey, I want to buy another one, but I want to take the equity that I have in my existing up to let's say 80% and I want that
cash." So I want to put the actual cash towards the purchase and I don't want the two properties linked in any way shape or form... something we could do, so an increase on the current lending, get the cash put--the cash in the bank, and then you've got your 20% deposit funds to complete for you for your next loan. [everybody agrees]
Patrick: So, I could spend it on toys like I always do when I talk to you. [laughter] That's where my cash goes.
Andrew: I was quite impressed with that. It's so off topic but that's quite impressive.
John: I think one thing that's important with that, though, is that from, I suppose, a practitioner's perspective, we're taking it back to our clients getting that information from a pre-approval standpoint be it as if you are a first-time buyer, you're moving sideways, or you're investing, does help and it actually is relevant in every step and having that conversation with your first matters.
Andrew: Yep, that's right!
Aaron: No, I think that's perfect and look, we have made light of a few little topics in here,
but this is a serious business, we're playing with big numbers and yeah, building that overall Megazord but it's amazing having a relationship with yourself or a friendship as well where we can kind of reach out and just be like, "Hey, mate! Can you give us a hand with this?" or if people that we know *wink wink* are looking into it as well, you're there to help out. It's amazing having RAMS on our side and it's awesome having you, guys, come to the open homes and kind of meeting potential clients for you or clients for us [Andrew: exactly] and being able to team up that way.
John: Absolutely. Thanks again, mate!
Andrew: Thank you very much!
Aaron: Always a pleasure, my friend. We will catch you in a few, actually, Pat's away, so we'll probably have to call you up and we'll have....
Andrew: I'll sit for Pat...
Aaron: Yeah, we might have to get you in in the next few weeks. Oh good! Thank you so much for coming in, bud! Yeah, we'll probably see you in the next few weeks because we will be looking for people to talk to us [laughter] but yeah... And if anyone's out there at the open homes and you see Tony or Andrew or anyone else from the team at RAMS, yeah pop in say good day, they're very friendly people and yeah, they're here to help.
Andrew: Yeah, we're not there to put the hard still on anyone. We're just there to help.
Aaron: Love it, mate! Awesome! See you, guys! All right!
[extro & disclaimer]
You have been listening to The Property Pod, recorded and edited by 4one4 Media House in conjunction with 4one4 Property Co. This podcast is general information only and the thoughts and views expressed are the opinion of our panel and listeners should always seek to use their own investigation into any topic we discussed to ensure they fully understand their own situation. It does not constitute and should not be relied on as purchasing, selling, financial, or investment advice or recommendations, expressed or implied, and it should not be used as an invitation to take up any agent or investment services. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice.