5 Mortgage Misconceptions Set Straight

Looking for a home loan? Get your facts straight so you can proceed with confidence.

Getting a mortgage can be a breeze or a slog, depending on what you know about the process. To get organized and set your expectations properly, let’s debunk some common mortgage myths.

1. Lenders use your best credit scores

If you’re applying for a mortgage jointly with a co-borrower, logic suggests that your lender would use the highest credit score between both of you.

However, lenders take the middle of three credit scores (from Equifax, TransUnion and Experian) for each borrower, and then use the lowest score between both borrowers’ “middle scores.”

So, if you had a middle score of 780, and your co-borrower had a middle score of 660, most lenders would qualify and approve you using the 660 credit score.

Rates are tied to credit scores, so in this example, your rate would be based on the 660 credit score, which would push your rate up significantly — or potentially even make you ineligible for the loan.

There are exceptions to this lowest-case-credit-score rule. Most notably, if you have the higher credit score and are also the higher earner, some lenders will allow your higher credit score on the file — but this is mostly for jumbo loans above $417,000.

Ask your lender about exceptions if you have credit score disparity between co-borrowers, but know that these exceptions are rare.

2. The rate you’re quoted is the rate you’ll get

Unless you’re locking in a rate at the moment it’s quoted, that rate quote can change. Rates are tied to daily trading of mortgage bonds, so most lenders’ rates change throughout each day.

Refinancers can often lock a rate when it’s quoted — as long as you’ve given your lender enough information and documentation to determine if you qualify for the quoted rate.

You typically receive a quote when you’re beginning your pre-approval process, but a rate lock runs with a borrower and a property. So until you’ve found a home to buy, you can’t lock your rate. And while you’re home shopping, rates will be changing daily, so you’ll need updated quotes from your lender throughout your home shopping process.

Rate quotes also come with an annual percentage rate (APR), which is a federally required disclosure that shows what your rate would be if all loan fees are incorporated into the rate.

This can make you think that APR is the rate you’ll get, but your loan payment will always be based on your locked rate, and the APR is just a disclosure to help you understand fees.

3. Fixed-rate mortgages are always better than adjustable-rate mortgages

After the 2008 financial crisis, many borrowers started preferring 30-year fixed loans. For good reason too: The rate and payment on a 30-year fixed loan can never change. But the longer the rate is fixed for, the higher the rate.

So before settling on a 30-year fixed, ask yourself this question: How long am I going to own this home (or keep the loan) for?

Suppose the answer is five years. If you got a five-year adjustable rate mortgage (ARM) instead of a 30-year fixed, your rate would be about .875 percent lower. On a $200,000 loan, you’d save $146 per month in interest by taking the five-year ARM. On a $600,000 loan, the monthly interest cost savings is $438.

To optimize your home financing, peg the loan term as closely as you can to your expected time horizon in the home.

4. Real estate agents don’t care which lender you use

A federal law enacted in 1974 called the Real Estate Settlement Procedures Act (RESPA) prohibits lenders and real estate agents from paying each other fees to refer customers to each other. So as a mortgage shopper, you’re always free to use any lender you choose.

But real estate agents who would represent you as a buyer do care which lender you use. They’ll often suggest that you use a local lender who’s experienced with your area’s nuances, such as local taxation rules, settlement procedures and appraisal methodologies.

These areas are all part of the loan process and can delay or kill deals if a nonlocal lender isn’t experienced enough to handle them.

Likewise, real estate agents representing sellers on homes you’re interested in will often prioritize purchase offers based on the quality of loan approvals. Local lenders who are known and respected by listing agents give your purchase offers more credibility.

5. Mortgage insurance is always required if you put less than 20 percent down

Mortgage insurance is a lender-risk premium placed on many home loans when you’re putting less than 20 percent down. In short, it means your total monthly housing cost is higher. But you can buy a home with less than 20 percent down and avoid mortgage insurance.

The most common way to do this is with a combination first and second mortgage — often called a piggyback — where the first mortgage is capped at 80 percent of the home’s value, and the second mortgage is for the balance of what you want to finance.

Related:

Originally published January 12, 2016.

Source: zillow.com

Competing Against Multiple Offers on a House

For every piece of property on the real estate market, there could be anywhere from zero to infinite buyers who are hoping to call it home. OK, “infinite” is a stretch, but multiple-offer scenarios can be common when the race is on to purchase a new home.

Which house hunter comes out with keys in hand, however, depends on many circumstances.

Whether it’s a hot seller’s market or a slowly simmering buyer’s market, knowing how to handle a multiple-offer situation can help homebuyers beat out the competition.

Multiple Offers in a Seller’s Market

A seller’s market means the demand for houses is greater than the supply for sale, causing home prices to increase and often giving sellers a serious advantage.

It can get pretty competitive for those who need to buy a house, and multiple offers on a house become the new norm.

Seller’s markets and their state of multiple offers can happen for a few reasons:

•   More houses typically go up for sale during peak homebuying season in the summer, so seller’s markets are more common in the winter when inventory is low.
•   Cities that see steady population growth and increased job opportunities often experience a higher demand for housing, leading to multiple interested buyers making offers on limited inventory.
•   A decrease in interest rates could mean more people are able to qualify for mortgages, causing an uptick in homebuyers that might work to the seller’s advantage. More interested parties can mean more negotiation power.

Multiple Offers in a Buyer’s Market

In a buyer’s market, there’s a greater number of houses than buyers demanding them. In this case, homebuyers can be more selective about their terms, and sellers might have to compete with one another to be the most sought-after house on the block.

In a buyer’s market, house hunters typically have more negotiating power. The number of offers on the table is usually lower than in a seller’s market, and the winning bid is often lower than the listing price.

Are Buyers’ Agents Aware of Other Offers?

Unless house hunters are buying a house without an agent, there are certain cases where the buyer’s agent could be tipped off to other offers on the house.

A lot of it depends on the strategy of the sellers’ agent and whether it’s designed to stir up a bidding war with obscurity or transparency. Either way, the sellers and their agent could choose to:

•   Not disclose whether or not other buyers have made offers on the property.
•   Disclose the fact that there are other offers, but give no further transparency about how many or how much they’re offering.
•   Disclose the number of competing offers and their exact terms and/or amounts.

It’s up to the sellers and their agent to decide which strategy works best for their situation and, according to the National Association of Realtors® 2020 Code of Ethics & Standards of Practice, only with seller approval can an agent disclose the existence of other offers to potential buyers.

How Do Multiple Offers Affect a Home Appraisal?

After all that energy is expended trying to beat out other buyers, what happens in the event of an all-out bidding war? Some buyers may be tempted to keep increasing their offer to one-up the competition. Unfortunately, this could lead to drastically overpaying for the house.

In these cases, buyers can add an appraisal contingency to their offer, asserting that the appraised value of the property must meet or exceed the price they agreed to pay for it or they can walk away from the deal without losing their deposit.

But what about in competitive seller’s markets when making contingencies could mean losing the deal? In those cases, buyers might have to put down extra money to bridge the gap between what their lender is willing to give and what they offered.

How Can Buyers Beat Other Offers on a House?

There are a few things homebuyers can do to improve their odds of winning when there are multiple offers on a house, though certain tactics may vary based on the local real estate market or specific circumstances.

A Sizable Earnest Money Deposit

Earnest money is a deposit made to the sellers that serves as the buyers’ good faith gesture to purchase the house, typically while they work on getting their full financing in order.

The amount of the earnest money deposit generally ranges between 1% and 2% of the purchase price, but in hot housing markets, it could go up to 5% to 10% of the home’s sale price.

By offering on the higher end of the spectrum, homebuyers can beat out contenders who offer less attractive earnest money deposits.

Best and Final Offer

Going into a multiple-offer situation and expecting a negotiation can be tricky. It’s typically suggested that buyers go in with their strongest offer, one they can still live with if they lose to a contender—aka they know they gave it their all.

In some cases, sellers deliberately list the home for less than comparable sales in the area in an attempt to stir up a bidding war. By going in with their highest offers, buyers could end up paying what the house is actually worth while still winning the deal.

All-Cash Offer

By offering to pay cash upfront for the property, homebuyers effectively eliminate the need for third party (lender) involvement in the transaction.

This can be appealing to sellers who are looking to streamline the sale.

Waived Contingencies

Whether it’s offering the sellers extra time to move out, waiving the home inspection, or ensuring that their current residence is sold before making an offer, potential homebuyers can gain wiggle room when they start to waive contingencies.

Contingencies are conditions that must be met in order to close on a house. If they’re not met, the buyers can back out of the deal without losing their earnest money deposit.

By waiving certain contingencies, buyers show that they’re willing to take on a level of risk to close the deal. This can be appealing to some sellers.

Signs of Sincerity and Respect

Because many sellers have nostalgia for their home, buyers who show sincerity, respect, and sentiment may score extra points.

By writing a letter that lays out what they love about the home and engaging in positive interactions with the sellers and their agent, buyers can put themselves in a more favorable light that could lead to winning in a multiple-offer situation.

An Offer of Extra Time to Move

In some cases, sellers might appreciate (or even require) a bit of a buffer between the closing date and when they formally move out of the house.

By offering them a few extra days post-closing without asking for compensation, flexible buyers can get ahead of contenders who might have stricter buyer possession policies.

A Mortgage Pre-Approval Letter

Most offers are submitted with a lender-drafted letter that indicates the purchasers are pre-qualified for a loan.

A pre-approval letter can take it a step further by showing that the buyers are able to procure borrowed funds after deep financial, background, and credit history screening.

Pre-approval signifies to some sellers that the buyers can put their money where their mouth is, lessening the possibility of future financing falling through.

Kick-Starting the Homebuying Process

One way for house hunters to get a leg up in the homebuying process is by ensuring that their home loans are secured in advance.

With competitive rates, exclusive discounts, and help when you need it, SoFi mortgage loans make the first part of competing against multiple offers a whole lot easier.

Get a leg up and find your rate in two minutes.


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Source: sofi.com

In the Market? Here’s What You Should Know About Contingencies

Home contingencies are aspects of home purchase contracts that protect buyers or sellers by establishing conditions that must be met before the purchase can be completed. There are a variety of contingencies that can be included in a contract; some required by third parties, and others potentially created by the buyer. While sellers in the current market prefer to have little to no contingencies, the vast majority of purchase contracts do include them, so here’s a primer to help you navigate any that come your way!

Financing Contingency

The most common type of contingency in a real estate contract is the financing contingency. While the number of homes that sold for cash more than doubled over the last 10 years, the majority of home purchases — 87% of them, in fact— are still financed through mortgage loans.

Why is this important? Because most real estate contracts provide a contingency clause that states the contract is binding only if the buyer is approved for the loan. If a contract is written as cash, in most cases, the financing contingency is removed.

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Why Does The Financing Contingency Exist?

This contingency exists to protect the buyer. If a buyer submits a winning offer, but can’t get approved for a loan to follow through with the purchase, this clause can protect the buyer from potential legal or financial ramifications.

Tip: Homeowners can, and should, request to see a buyer’s prequalification letter before accepting their offer.

Home Sale Contingency

For many repeat homebuyers, they must sell a property in order to afford a new home. Whether they’re relocating for work, moving to a larger home, or moving to a more rural area, 38% of home buyers in a recent survey reported using funds from a previous home to purchase a new one. This is where a home sale contingency comes into play; this clause states that the buyer must first sell their current home before they can proceed with purchasing a new one.

Why Does This Contingency Exist?

This is another contingency that exists to protect the buyer. If their current home sale doesn’t close, this clause can protect the buyer from being forced to purchase the new home. In other words, they can back out of the new home contract without consequence. Keep in mind that in a seller’s market, this type of contingency offer is less desirable to sellers; in fact,  they may rule out your offer completely if this is included.

TIP: In many situations, homeowners can negotiate escape clauses for the home sale which would allow them to solicit other offers and potentially bump the current buyer out of the picture.

Home Inspection Contingency

Not only is it common, it’s also wise to include a home inspection contingency in any offer. Whether it’s a new home or an existing home, there is no such thing as a flawless house. Home inspections can uncover hidden problems, detect deferred maintenance issues that may be costly down the road, or make the home less desirable to purchase completely. A home inspection contingency essentially states that the purchase of a home is dependent on the results from the home inspection.

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Why Does This Contingency Exist?

Whether it’s a roof in need of replacement or an unsafe fireplace, homebuyers need to know the maintenance and safety issues of the properties they’re interested in purchasing. If a home inspection report reveals significant (or scary!) findings, this protects the buyer from the financial burden that repairs would require. This is why agents will tell you it’s never a good idea for a home to be purchased without a home inspection contingency.

TIP: The findings from the report can usually be used to negotiate repairs or financial concessions from the seller.

Sight-Unseen Contingency

Especially during sellers markets, it’s not uncommon for a home to have dozens of showings within the first couple of days of listing. This breakneck pace can create a scenario in which homebuyers may not be able to coordinate their schedules to get a timely showing appointment. To help prevent missing out on the chance to buy a home, buyers in this situation will sometimes make offers on the home, sight unseen.

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There’s no sugarcoating it…this is a high-risk strategy with ample opportunity for negative consequences. However, if this strategy is used, many real estate agents will add a sight- unseen contingency to their offer. This contingency states that the offer for purchase is dependent on the buyer’s viewing of, and satisfaction with, the property.

Why Does This Contingency Exist?

In a market with shrinking inventory, desperate buyers want a fighting chance at a hot property; in some cases, that can only exist by submitting an offer before they can see it in person.

TIP: Sight unseen offers are also high risk to the seller. If you include this contingency in your offer, try to keep other seller requests to a minimum. 

Why Contingencies Can Be Positive

In a seller’s market, buyers may feel the pressure to remove as many contingencies as possible in order to compete. But, it’s important to remember that contingencies are actually safeguards in place to prevent buyer remorse, expensive future repairs, or financial calamity. It’s always crucial for buyers to hire a seasoned real estate agent who can advocate for their best interests, negotiate and strategize in safe and competitive ways, and advises them of the risks of each decision.

Looking to Buy? Don’t Go it Alone!

The homebuying process is a complex one, but that doesn’t mean you’re left with all the heavy lifting. Find your dream home and a local agent on Homes.com, then visit our “How to Buy” section for all the step-by-step insights for a smooth process.


Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com

Are the Low Mortgage Rates a Home Buyer Trap?

Despite a slight uptick this week, mortgage rates are still pretty much rock bottom, and unarguably at ridiculously low levels.

This has sparked yet another refinance boom, with mortgage application volume rising to its highest point since May 2009, per the latest data dump from the Mortgage Bankers Association.

This is great news for existing homeowners with plenty of home equity looking to refinance to a lower rate. It’s also working out nicely for those who don’t have equity thanks to programs like HARP 2.0.

All in all, it’s a gift to these borrowers who are experiencing some serious monthly mortgage payment relief.

But what about new and prospective home buyers?

Are People Buying Because of the Low Rates?

With rates this low, you have to wonder if it’s all a big trap (whether intentional or not) to lure would-be buyers off the sidelines and into the game.

If you’ve followed the housing market lately, at least in certain regions of the country, such as Los Angeles, homes are speeding into pending status just days after being listed.

In fact, many are pending just one or two days after being listed. It’s looking like a serious seller’s market, though obviously a very unconventional one.

The low rates have increased affordability so much that a new pool of buyers has essentially been created, which has facilitated both standard and short sales.

Again, great news for those who have waited very patiently to sell their homes; many can finally do so!

And perhaps even better for the housing/mortgage market, with seemingly bad loans being replaced with better ones.

Heck, I’m even seeing a ton of flips that are actually selling for a tidy profit. I thought flips were dead?

Reminder of the Homebuyer Tax Credit

But it all seems reminiscent of the boost seen with the now infamous homebuyer tax credit.

That “free money” created a short-lived, yet steep run-up in home prices as first-time home buyers came out in droves.

Just a short time later, it became clear that those who purchased a home did so at a premium, and their tax credit was quickly eclipsed by a larger loss in home value.

If you take a look at this home price chart, you’ll see how the homebuyer tax credit stoked demand, but its effect was clearly fleeting.

In fact, those who purchased before the tax credit expiration were actually worse off compared to those who bought later on.

To bring it all together, home prices were pumped up as a result, similar to what we may be seeing with the record low mortgage rates.

With rates so low, homeowners and their clever real estate agents probably feel they can list their homes for more than they could have six months ago.

And the whole “it’s never been a better time to buy” adage is back.

Economy Still in Disarray

The big problem is that the economy is still a huge mess, with the European crisis hanging over our heads, and domestic unemployment still far from unresolved.

Then there are the millions of homes in the process of foreclosure, or knocking at its door.

So is this artificial stimulus actually going to help the real estate market long-term, or is it just another quick fix with no staying power?

My gut tells me that this recent run-up in prices and virtual 180 in consumer sentiment is bad news.

Getting into a bidding war over a house just months after no one was interested seems really fishy.

Additionally, all these calls of a “housing bottom” are concerning as well. You always have to wonder when every single media outlet (including your local news channel) is claiming that the worst is behind us.

Of course, the low rates have led to lower mortgage payments, even with the recent home price increases factored in.

So there’s some serious power behind those rates. The question is will you be able to buy a home next year at an even better price with a similar (or even lower) interest rate?

Read more: Home prices vs. mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Stock Analyst Accuracy – Why Ratings Can Be Wrong & When to Listen

The stock market is a complex machine made up of intricate technologies, financial experts, and investors.

Some of the most highly-regarded experts on Wall Street are the research analysts who spend their days looking into opportunities in the stock market. These analysts make their money by sharing their opinions about what they believe will happen in the future.

Knowing that successful investing is born in research, many beginner investors make the decision to blindly follow the opinions of analysts rather than doing their own research when making investment decisions.

This is a very dangerous activity. Here’s why.

What Do Stock Market Research Analysts Do?

Research analysts — also called investment analysts, securities analysts, equity analysts, sell-side analysts, or financial analysts — are financial professionals charged with analyzing the financial stability and potential for growth of publicly traded companies.

Research analysts look into company metrics like historic revenue growth and earnings growth. They also dive into market conditions.

For example, if the company being analyzed is in the computer gaming industry, the analyst researches how large that industry is, how fast it’s growing, and what percentage of the industry the company has tapped into.

Once their research is complete, research analysts make predictions, including:

  • Earnings Per Share (EPS). Stock market analysts will attempt to predict the earnings per share (EPS) that companies they follow will produce. EPS divides the total net income generated in any given period by the number of shares of the company in existence.
  • Revenue. Research analysts also take a stab at predicting how much revenue the company will generate over the next year. Investors pay close attention to revenue because when revenue grows, it shows that sales are increasing, helps to increase profit margins, and ultimately leads to increased profitability for the company.
  • Share Price. Finally, research analysts make an attempt to predict what the price of the stock will become over the next year. This statistic is known as the price target.

Stock market analysts also make recommendations and providing ratings, generally including:

  • Buy. A buy rating, sometimes called an Outperform or Overweight rating, insinuates that buying the stock at the current share price is a good deal. This rating means the analyst believes that the stock has the potential to produce gains that outperform the overall stock market’s returns in the next 12 months.
  • Hold. A hold rating, sometimes called a Market Perform or Equal Weight rating, suggests the stock is likely to perform in line with the overall stock market. Analysts don’t believe that you’re going to earn returns any larger than the average across the market but believe that growth is still likely ahead.
  • Sell. The sell rating, also called the Underperform or Underweight rating, is a recommendation that investors avoid the stock if they don’t already own it and sell it if they do. This rating means that the analyst believes the stock’s performance will lag compared to the stock market as a whole, and purchasing of the stock could lead to losses.

Why You Shouldn’t Blindly Follow the Opinions of Research Analysts

With predictions surrounding earnings per share, revenue, and share price, coupled with ratings from research analysts, many newcomers believe the research legwork has been done for them, deciding to dive into any stock analysts deem to be a strong investment opportunity.

After all, isn’t that the analysts’ job? Why put the time into researching something that the professionals have already analyzed?

There are plenty of reasons to research your own investment opportunities rather than blindly following analysts. While research analysts are highly paid experts that have a knack for making decisions in the stock market, their opinions often can’t be trusted as the basis for objective investing decisions, as you’ll see below.

1. A Vested Interest

Research analysts don’t make predictions on stocks for the pure joy of helping investors. They have to make their six-figure salaries somewhere. As a result, these analysts often work for:

  • Brokerages. Although regulatory authorities are supposed to keep sell-side analyst opinions as far away from brokerages as possible in order to maintain objectivity in the investing process, that doesn’t seem to be happening. Brokerages often make investment recommendations based on the research provided by their analysts. This often creates a bias, with analysts recommending stocks that are best for their employers rather than the investors their employers serve.
  • Mutual Funds, ETFs, and Index Funds. Analyst opinions have the ability to move the market. A positive opinion about a company can send a stock soaring while a negative opinion can cause sharp declines. Mutual funds and many exchange-traded funds (ETFs) employ research analysts, which gives the analyst a vested interest in forming an opinion about a stock that’s in the best interest of the fund’s portfolio, and not always an unbiased depiction of what to expect from the stock.
  • Hedge Funds. The Big Short Squeeze involving GameStop, AMC, and several other stocks outlined the battle between hedge funds and retail investors. However, some of the research analysts most trusted by retail investors happen to work for the hedge funds that bet against them. Again, the analysts’ employment at hedge funds creates a potential bias when making predictions about trending tickers.

The bottom line is that research analysts aren’t working for you. Who they work for can create biases that make their work unreliable at best; the average retail investor simply shouldn’t trust them.

2. Analysts Are Highly Inaccurate

You would think financial professionals who spend their lives analyzing opportunities in the stock market would be pretty good at what they do. You might be surprised to learn that the average stock market analyst isn’t nearly as accurate as you may think.

Here are the stats analysts don’t want you to know, courtesy of FactSet.com:

  • Historic Performance: The majority of publicly traded companies listed on the S&P 500 beat analyst expectations when reporting financial results, and this percentage is growing quickly.
  • EPS Surprise: In the fourth quarter of 2020, 81% of companies listed on the S&P 500 reported a positive EPS surprise, meaning that these companies beat analyst expectations. That’s a huge miss on a key valuation metric used by most investors.
  • Revenue: In the fourth quarter of 2020, 79% of companies listed on the S&P 500 beat analyst expectations in terms of revenue.

Those are staggering statistics that show the highly paid research analysts who are expected to be pretty accurate had up to an 81% failure rate. If your investment advisor admitted to being wrong 81% of the time, would you continue to pay them to manage your investment portfolio?

3. Misleading Predictions Artificially Inflate Success Rates

Unfortunately, Wall Street doesn’t gauge the success of Wall Street analysts based on the accuracy of their EPS, revenue, or share price predictions. Research analyst success is gauged solely on their ratings system. What percentage of buy-rated stocks grew, and what percentage of sell-rated stocks fell?

Analysts use this incomplete view to their advantage, artificially inflating their success rate.

For example, say an analyst has a buy rating on a stock and expects earnings per share will come in at $0.50 on revenue of $50 million for the quarter. They know that when companies beat analyst expectations, investors react in positive ways.

So the analyst may make a public prediction that the company will report earnings of $0.45 per share on $47 million in revenue. These publicly stated estimates leave room for error and then some.

When the company reports its financial results, it is more likely to beat expectations than it would be if the analyst had shared their true opinion.

Moreover, as a result of the beat expectations, the stock is more likely to climb, making the analyst’s buy rating more likely to be placed in the books as an accurate one.

4. Stock Price Predictions Are Only Good for One Year

Building wealth in the stock market is a long-term process. Most successful investors invest with a time horizon measured in decades.

However, research analysts only follow 12-month time frames. A stock with a great outlook in the short term may be a horrible long-term investment.

Moreover, short-term predictions in the stock market are exposed to the short-term volatility that’s become the norm, making them highly unreliable. After all, stock market analysts can’t predict major events that may cause short-term volatility.

One of the best examples of this is the COVID-19 pandemic.

An analyst may have seen great promise in a well-run and profitable travel company in May of 2019, with no sign that a pandemic was coming that would grind most travel to a halt. The analyst may have expected strong revenues and earnings over the next year, coupled with incredible share price growth.

By the end of the 12-month time frame, the analyst would have been way off. In May of 2020, travel stocks were having a horrible time. Almost nobody could expect a travel stock to have a great year when half the country is locked down.

Many of these stocks saw a strong recovery as 2020 came to a close and travel restrictions eased, but the research analyst’s view doesn’t go any farther than the 12-month mark.

So was the analyst right or wrong for liking the travel stock in May 2019? This example demonstrates why the short-term nature of analysts’ predictions makes them pretty unreliable.

5. Research Analysts Are More Likely to Rate a Stock a Buy Than a Sell

The vested interest research analysts often have in the stocks they cover clearly comes out when you look into the statistics of the ratings they provide.

According to FactSet, there were 11,147 analyst ratings on S&P 500 companies as of December 31, 2017. Here’s how the total universe of analyst ratings broke down:

  • Buy Ratings: 49.5%
  • Hold Ratings: 45.3%
  • Sell Ratings: 5.2%

Sure, it’s true that more publicly traded companies do well than fail. However, you’d be right to question whether 94.8% of stocks are worth buying or holding.

Moreover, it’s impossible for 49.5% of stocks to outperform the market, 45.3% of stocks to trade in line with market performance, and just 5.2% of stocks to underperform the market. The numbers just don’t add up.


Wall Street Analysts Have Their Place

Although it’s never a good idea to blindly follow anyone into an investment, including research analysts, these analysts do have their place. For all their shortcomings, here’s how research analysts can provide valuable insights to everyday retail investors:

1. As a Source of Validation for Your Own Research

Hopefully, by now, you know that you should do your own due diligence before you invest in a company. However, it’s nice to have some way to validate your research.

Analyst opinions are a great way to do that.

Sure, analyst predictions aren’t always accurate, but if you’ve done your own research and believe that a stock is going to rise in value, it’s a good idea to look into what percentage of analysts rate the stock a buy.

If the overwhelming opinion among analysts is a buy rating, chances are you’re on the right track with your research.

TipRanks is a free way to go about seeing how many analysts cover a stock and what their overall opinion on the stock is.

2. As a Clear Red Flag on Stocks In Trouble

Analysts generally have a bias when it comes to stocks they cover, and they tend to rate stocks in a positive way. As such, if the vast majority of analysts that cover a particular stock rate it a sell, that acts as a big red flag that something is wrong with the company.

Sure, you don’t want to blindly follow analysts into a fire, but you also shouldn’t ignore blatant warnings that a stock is likely to fall. If lots of analysts are heading for the exits, they might be smelling smoke.

3. As a Gauge of Popularity Among Investors

Analysts don’t tend to waste their time researching stocks that nobody’s interested in. Instead, they want their research to be read and their name to be seen.

As a result, you can use the number of analysts that cover a stock to gauge that stock’s popularity. After all, the more popular a stock is, the more liquid an investment in it becomes.

For example, consider the following:

  • Amazon.com (AMZN). Amazon.com has 31 analysts covering the stock, all of which rate it a Buy. This suggests that an investment in Amazon.com would be a highly liquid one — there are lots of buyers for it on the market — because the stock has garnered quite a bit of positive coverage.
  • Tesla (TSLA). 29 analysts are weighing in on Tesla stock, with seven Buy ratings, seven Sell ratings, and 15 hold ratings. Once again, the high level of analyst coverage suggests that an investment in Tesla would be highly liquid.
  • Gevo (GEVO). Gevo, on the other hand, has two analysts covering it, both of whom rate it a Buy. Although the ratings and opinions are positive, the lack of widespread analyst coverage suggests that the stock is less popular than Amazon.com or Tesla, and thus, less liquid. That means you may have a harder time finding a buyer to pay your asking price if you decide you want to sell your shares.

The simple fact is that it takes investors to move the stock market. If nobody’s buying or selling, prices aren’t going up or down.

As such, the popularity of a stock you’re considering investing in should play into your decision to invest.


Final Word

This article admittedly has been critical of stock market analysts. The fact is, professional analysts are human beings who make their best efforts to succeed in their careers, just like you. They’re not bad people, but their interests aren’t always aligned with yours.

Interests among two conflicting parties rarely align; that’s why nothing gets done in Congress. Nonetheless, each party plays an important role, with analysts and retail investors essentially representing separate parties in the case in the stock market.

The bottom line is that nobody is going to hold your best interest as highly as you will. As such, you shouldn’t trust anyone’s opinion more than your own when it comes to your money. Instead, do your own research and look to experts to validate your own educated opinions.

Source: moneycrashers.com

You May Have Missed the Housing Bottom, But Not the Mortgage Rate Bottom

Posted on May 15th, 2012

Over the past several months, it has become somewhat clear (insert gigantic grain of salt here) that home prices may have bottomed last year, at least in some areas of the country.

While it’s still too early to say so definitively, it looks like some homes were snatched up at rock-bottom prices a year ago.

These same homes are now valued quite a bit higher, and recent comparable sales are backing up the numbers.

Of course, some are also calling it a “mini bubble,” otherwise known as a fake recovery, spurred on in part by the record low mortgage rates.

But only time will tell…

[Tips for first-time home buyers.]

You Missed the Bottom

Perhaps you’re kicking yourself, thinking you could have purchased that same house for a lot less a year ago.

Yep, you were all set to time the bottom, and seemingly out of thin air, it came and went, and you were none the wiser.

How did that happen? You were watching home prices on a weekly basis, looking at recent sales, surveying market conditions. How could you have missed it?

Well, they always say that timing the market bottom is near impossible, partially because you only know it has actually hit bottom when it’s too late.

So did you mess up? Did you miss your chance to get the steal of the century? Not quite.

[Are mortgage rates negotiable?]

Have Mortgage Rates Bottomed?

For much of the first half of 2011, mortgage rates on the popular 30-year fixed stood around 4.75%.

While this may have seemed like the “bottom for mortgage rates,” they now sit around a percentage point lower, which most people would have never guessed in a million years.

That’s right; today you can snag a 30-year fixed for around 3.75%, which is pretty much unheard of.

And who knows, rates could fall even lower over time, though the more they drop, the less upside there is for lower rates.

You certainly shouldn’t bank on rates slipping any lower because then you’re falling into the same “timing the bottom” trap.

All that said, let’s do the math to see what the difference is using a real world scenario, assuming the home buyer is putting 20% down.

2011 Home price: $475,000
2011 Mortgage rate: 4.75%
2011 Mortgage payment: $1982.26
Total interest paid: $333,613.60

2012 Home price: $520,000
2012 Mortgage rate: 3.75%
2012 Mortgage payment: $1926.56
Total interest paid: $277,561.60

Wait just a minute here. Those who missed the housing bottom are actually ending up with a lower mortgage payment?

While not significantly lower, it’s still roughly $50 cheaper each month to buy the same house today, and results in $56,000 in interest savings throughout the life of the loan (yes, the down payment is slightly higher).

Who would have thought that? Turns out you didn’t necessarily miss out, assuming you are financing the deal via a mortgage, which most of us are.

Put simply, even though you may have missed the housing market bottom, whether by choice or accident, waiting may have actually paid off.

Read more: Home prices vs. mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

5 Myths (and 5 Truths) About Selling Your Home

True or false: All real estate advice is good advice. (Hint: It depends.)

Everyone has advice about the real estate market, but not all of that unsolicited information is true. So when it comes time to list your home, you’ll need to separate fact from fiction.

Below we’ve identified the top five real estate myths — and debunked them so you can hop on the fast track to selling your property.

1. I need to redo my kitchen and bathroom before selling

Truth: While kitchens and bathrooms can increase the value of a home, you won’t get a large return on investment if you do a major renovation just before selling.

Minor renovations, on the other hand, may help you sell your home for a higher price. New countertops or new appliances may be just the kind of bait you need to reel in a buyer. Check out comparable listings in your neighborhood, and see what work you need to do to compete in the market.

2. My home’s exterior isn’t as important as the interior

Truth: Home buyers often make snap judgments based simply on a home’s exterior, so curb appeal is very important.

“A lot of buyers search online or drive by properties before they even enlist my services,” says Bic DeCaro, a real estate agent at Westgate Realty Group in Falls Church, Virginia. “If the yard is cluttered or the driveway is all broken up, there’s a chance they won’t ever enter the house — they’ll just keep driving.”

The good news is that it doesn’t cost a bundle to improve your home’s exterior. Start by cutting the grass, trimming the hedges and clearing away any clutter. Then, for less than $50, you could put up new house numbers, paint the front door, plant some flowers or install a new, more stylish porch light.

3. If my house is clean, I don’t need to stage it

Truth: Tidy is a good first step, but professional home stagers have raised the bar. Tossing dirty laundry in the closet and sweeping the front steps just aren’t enough anymore.

Stagers make homes appeal to a broad range of tastes. They can skillfully identify ways to highlight your home’s best features and compensate for its shortcomings. For example, they might recommend removing blinds from a window with a great view or replacing a double bed with a twin to make a bedroom look bigger.

Of course, you don’t have to hire a professional stager. But if you don’t, be ready to use some of their tactics to get your home ready for sale — especially if staging is a trend where you live. An unstaged house will pale when compared to others on the market.

4. Granite and stainless steel appliances are old news

Truth: The majority of home shoppers still want granite counters and stainless steel appliances. Quartz, marble and concrete counters also have wide appeal.

“Most shoppers just want to steer away from anything that looks dated,” says Dru Bloomfield, a real estate agent with Platinum Living Realty in Scottsdale, Arizona. “When you a design a space, you need to decide if you’re doing it for yourself or for resale potential.”

She suggests that if you’re not planning to move anytime soon, decorate how you’d like. But if you’re planning to put your home on the market within the next couple of years, stick to elements with mass appeal.

“I recently sold a house where the kitchen had been remodeled 12 years ago, and everybody thought it had just been done because the owners had chosen timeless elements: dark maple cabinets, granite counters and stainless steel appliances.”

5. Home shoppers can ignore paint colors they don’t like

Truth: Moving is a lot of work, and while many home buyers realize they could take on the task of painting walls, they simply don’t want to.

That’s why one of the most important things you can do to update your home is apply a fresh coat of neutral paint. Neutral colors also help a property stand out in online photographs, which is where most potential buyers will get their first impression of your property.

Hiring a professional to paint the interior of a 2,000-square-foot house will cost about $3,000 to $6,000, depending on labor costs in your region. You could buy the paint and do the job yourself for $300 to $500. Either way, if a fresh coat of paint helps your home stand out in a crowded market, it’s probably a worthwhile investment.

Related:

Originally published April 1, 2014.

Source: zillow.com

3 Things to Do When Your Neighbors List Their Home for Sale

The sign just went up next door. How does your neighbor’s impending sale affect you?

Most people think their real estate concerns end once they’ve closed on and moved into their new homes. But when a neighbor’s house goes on the market, there can be some important implications for you.

Here are some tips for staying real estate aware.

1. Document important disclosure items

For the most part, good fences make good neighbors. But sometimes the folks on the other side of the fence don’t cooperate, and unresolved neighbor conflicts tend to arise when one of the homes goes on the market.

Have a property line dispute? Or an issue with a broken fence and you want the new buyer to know about it? While sellers in most states have a duty to disclose issues to potential buyers, not all areas require this.

Do your new neighbor-to-be a favor and alert the seller’s agent to anything the buyer needs to know about your neighbor’s property.

2. See things differently

Open houses allow buyers to spend some time exploring a home, but these events also present you with a chance to see your home from your neighbor’s perspective.

Once at a busy open house in San Francisco’s Noe Valley neighborhood, an open house visitor made a somewhat obvious beeline for the back of the house. He immediately got on the phone and started talking with someone about where he was standing, giving orders to move left and right.

It turned out this visitor lived in the home behind, and he was checking to see the neighbor’s view into his home.

The open house is your chance to check your home’s paint job from the neighbor’s yard or simply to see your home from a different perspective.

3. Know and learn the market in real time

Typical sellers claim and save their home online, but they also keep searches going after the fact. Why? To keep tabs on the market, see the comps and have a real-time sense of what’s happening nearby.

Just like when you were a buyer, knowing about the area and types of homes in the market is a good move for any homeowner. Take a neighboring home for sale as an opportunity to see what the market bears. You can also learn about the latest trends in home design.

Speaking to a real estate agent can keep you informed of changes to property taxes or how assessments are changing in your town. A smart real estate agent, working their listing, will be an incredible resource to would-be clients down the road. Leverage their experience when your neighbor sells.

Take note when your neighbor goes to sell their home. It’s not just a time to nose around, but to document, inspect or learn from the home sale. Some homes get listed once in a lifetime — take advantage of the opportunity.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published October 31, 2016.

Source: zillow.com

5 Things to Do Before and After Closing

Your journey doesn’t end on closing day. Here are some next steps to consider before you actually move in.

You’ve been house shopping for months or even years. You’ve endured a series of offers, property disclosures, inspections and reports. Finally, after so much excitement, stress and anxiety, the house hunt has come to an end.

But the story isn’t over yet. Here are some next steps to consider before you actually move in.

1. Plan renovations well in advance

Rarely does a buyer get a place that’s move-in ready. By the time you’ve signed a contract, you have lots of ideas about how you’ll live in the home, how you’ll customize it and what work needs to be done.

If the place needs work, don’t wait until you’ve closed to engage a professional. Either at your final walkthrough or during a private appointment, get the proper contractors in the house and start collecting bids for necessary work. If possible, have floor sanding, painting or small fix-it work done before you move in. Real estate agents work with all kinds of tradespeople, so they’re often a great resource for referrals. 

2. Set up the utilities

Some people assume the utilities will work once they walk in. While many utility companies have grace periods (the days between when the seller cancels service and the new owner calls), you can’t always assume this will be the case. If you have an out-of-town seller, they may have canceled services the day they knew all contingencies were removed. In this instance, the grace period likely lapsed, and you may be stuck dealing with the electric company, waiting for an appointment or just being without power when you really want to start painting, fixing or cleaning.

The best plan is to call the utility companies and get service set up well before closing. If they haven’t received cancellation notice from the seller, let the seller know to take care of that.

3. Change the locks

Assume that everyone has a set of keys to your new home. The seller’s real estate agent likely gave copies to their assistant, a painter, a stager or even another agent at some point during the listing period. That’s why the first person you should call after getting the keys is a locksmith.

4. Hire a cleaning crew

There’s nothing worse than showing up with the movers, dozens of boxes and your personal belongings only to discover the seller hasn’t had the place cleaned.

Assume the worst and get a professional cleaning crew in there the minute after closing. Even if the seller did clean, they may have done a poor job. You want to start life in your new home with a clean slate. The bones of the place will be sparkling clean, and you won’t be scrambling to get cleaners in while the home is in a state of unpacking disarray.

5. Have a handyperson, contractor or designer on call

Moving involves the kind of stuff you wouldn’t wish on your worst enemy. Things like aligning your framed artwork, centering the couch in the living room or getting the large rug set up in the master bedroom can drive you crazy.

While it may seem like a luxury, investing a few hundred dollars in hiring someone to help with these tasks will save time and potentially relieve you of a giant headache.

Thinking ahead is the way to go

As your closing date draws near, you’re probably exhausted. But taking a little extra time to plan ahead will save you time, money and stress — and make the move into your new home so much more satisfying.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow. Originally published February 2013.

Source: zillow.com