New Builds Hide Costs: The Mortgage Truth About Builder Buydowns and Higher Property Taxes

Zach P Smith (00:00)
Yeah, absolutely. And I think you bring up a great point because there’s really been a shift. know, Remax just recently got bought and Remax is a huge company here in Colorado. And, they got bought out by an online presence. You know, there’s a lot of our industry that’s going to online, less personal interaction. You do everything on an app, everything on a phone, you know, and, you know, all the predictions are saying that guys like you and me are going to be extinct in 10 years because everybody’s going to pull their phone out.

Dylan Silver (02:00)
Hey folks, welcome back to the show. Today we’re joined by Zach Smith, owner of Chariot Financial, based in the greater Denver Metro, which is a lending and finance company, Chariot Financial, and they’re focused on helping clients navigate real estate financing solutions. Zach has completed many deals over the past year through a combination of building relationships and helping clients gain access to capital in a changing market. Zach, thanks for joining us here today.

Zach P Smith (02:30)
Yeah, pleasure to be here.

Dylan Silver (02:31)
Now, lending has changed dramatically over the last few years. Is it more challenging or less challenging to get a home

compared to three years ago?

Zach P Smith (02:42)
Well, honestly, think lending’s always boiled down to three things, you know, and it’s all about risk assessment, right? So ⁓ we’re going to be looking at the same three things, income, assets and credit. So none of that’s changed over the years. You know, it’s all about determining what kind of risk factor someone is when they’re qualifying. The one thing that has shifted is the interest rate environment. You know, for example, back in 2020, there was a, I think, 392,000 mortgage people in the market because the business was just

Falling out of the sky, know, the rates were real low, people were, I’m going to get into lending, you know, was really, really easy. Then the rates went up sharply, you know, quite precipitously. And what had happened was is that ⁓ people got out of the industry, which I kind of thought was, you know, like a thinning of the herd, so to speak. But, you know, fast forward four or five years, you know, there’s about 90,000 of us here in the market. So if you put 10 of us in a room, there’s only about three of us left.

in regards to the mortgage industry. So it has shifted in that sense,

Dylan Silver (03:43)
Now, for folks who are looking at becoming homeowners, there’s certainly a lot of, I would say, wind behind the sails in new construction. And that seems to be where a lot of, especially in the Sun Belt, I’m in Texas, and I know Denver is a different market, but there does seem to be at least some similarities if you compare Denver to us versus us to the East Coast or to the coasts, right? ⁓ Do you tend to… ⁓

Zach P Smith (03:57)
Mm-hmm. Mm-hmm.

Sure, sure.

Dylan Silver (04:11)
see new construction as a way for first time home buyers to get into the market, including in your market in the greater Denver area.

Zach P Smith (04:19)
Well, new construction is kind of tricky. You know, I worked for a home builder for several years and that’s where I really cut my teeth on getting a lot of experience in the mortgage industry. The thing about home building, I don’t know if this is the case in Texas, but it certainly is here in Colorado, is that, you know, in 2008, a lot of these home builders lost their shirt. You know, they had all this land that they had developed and then all of a sudden overnight the market was gone.

And they said, you know what, we lost a lot of money during 2008. We’re not going to do that again. So what they did was they partnered up with the counties and said, Hey, let’s become friends. So what they did was they started these Metro districts. And what Metro districts do is they, the County comes in and fronts the bill to develop some of the land. So we’re talking sewers, electrical, you know, streets, all that stuff. And it helps out the builder because the builder doesn’t get

caught like they did in 2008 with all this land that they developed and all this stuff that they put into the development.

But the trade off is, is that new builds have much, much higher taxes. So we’re talking like three times higher. Now, the big thing that a lot of new builds have died, I’m not saying this is good or bad, but you know, the big thing that they’ve done to entice people to purchase is these temporary buy downs, the three, two, one buy downs, the two, one buy down.

Personally, I’m not a huge fan of those, but does it sell homes? Yeah, because people are walking in, I got a 3 % interest rate. Well, no, didn’t. The way they structured it was they set an account on the side that you don’t have access to, and they’re siphoning money each month from that account so that it’ll make up for that 3 % interest rate. So I think that on the outside, it’s definitely something that is a way to drive

homeownership, especially with some of the three to one buy downs that they offer. But I don’t know, there’s a lot of pros and cons to a new build. But I think the biggest ⁓ con for the new build is the increase in taxes. mean, because we’re talking like three times higher than what you’d get on an existing residence.

Dylan Silver (07:17)
is six in one hand, dozen in the other, right? Now, when we look at buying pre-owned, you do in many cases see at least the sentiment is, okay, well, this isn’t gonna have a builder warranty and what issues is it going to come with? And that’s somewhat of a concern for anybody, but especially first time home buyers who may be looking at this as their forever home, or they may be looking at this as their starter home.

Zach P Smith (07:21)
Yeah.

Yeah. Yeah.

Mm-hmm.

Dylan Silver (07:47)
But if we can get a little bit granular and talk about like entry pricing of homes in your market where you’re at, you know, if someone is looking for, you know, let’s say a 1200 to 1500 or 1700 square foot home, what might they be looking at price point wise for an entry level home in your market?

Zach P Smith (08:00)
Mm-hmm.

I would say anywhere from 425 on the low end to 550, 600.

Dylan Silver (08:09)
Okay, yeah, if I’m comparing that to where I’m at in the greater Austin Metro, it just depends, right? If I’m looking in Austin itself, that would probably be ⁓ right about there. But then I know if I go outside of Austin, not even that far, but within striking distance of an hour, you can find homes that are pretty darn close to 200,000. saw a

Zach P Smith (08:18)
Mm-hmm.

Yeah.

Dylan Silver (08:30)
⁓ a build from a corporate builder nationally that was offering $180,000, which was shocking even to me. I’m curious to get your perspective on some of the trends that I see between Texas and Colorado. So you’re in greater Denver area, I’m in Texas. I see a lot of people coming ⁓ from Texas to Denver. Do you feel that up there as well, that kind of migration from Texas to Colorado?

Zach P Smith (08:33)
Mm-hmm.

yeah.

Mm-hmm.

Well, you know, it’s funny. was just talking to one of my agents about this. know, this last year was the first year that Colorado had more people moving out than they had moving in. Now it was only about 11,000. The thing with Colorado is it’s become a little bit expensive for people to the cost of housing has been increased over the last few years. And ⁓ so, I mean, we do see a lot of that as far as people migrating into Colorado, but

I just thought it was interesting that ⁓ this was the first year that more people moved out. The market’s been pretty stagnant here in Denver as of late. For example, one of the deals we’re working on now is in Colorado Springs, which is a really heavy military area. Well, they’re having a lot of issues with short sales down there because VA loans, VA, if you pay that funding fee, it’s another 2 to 3%.

that they’re going to add on top of the 100 % financing. So VA is actually going on the hook for 102.15 or 103.3 % on that funding fee. So they’re actually funding the loan over and above 100 % financing. now that the market has slowed a bit, now we’re having to negotiate with banks to do short sales and things like that.

Dylan Silver (10:51)
You know, that’s an interesting ⁓ niche of brokerage. actually took a resource certification is what it’s called through NAR ⁓ to understand short sales. And one of the things that I frankly can say, having taken that course is, know, you can read a book about a short sale, but then actually doing it is another thing entirely, right? And then also the bank may want to almost have a pre-existing relationship with you to know that

Zach P Smith (10:59)
Mm-hmm. Mm-hmm.

Absolutely.

Yes.

Dylan Silver (11:17)
you know, they can they can trust what you’re doing. And so as you’re seeing these short sales trend transpire, are you seeing a lot of the same faces like agents who are maybe specializing in this and that type of thing? Or is this a lot of people learning on the fly?

Zach P Smith (11:33)
You know, I think it’s a mixed bag. know, there’s definitely people who, and you know, that’s the thing about real estate and business in general, you know, there’s one constant in life and that’s change. So knowing when to pivot is vitally important for any of us in this industry. And I honestly, I probably wouldn’t be talking to you right now if I didn’t understand that, because when rates went up, you know, we had to find new ways to generate business. I had to sharpen my pencil a little bit, you know, I had to get, you know, develop new skills and things like that.

But yeah, I would say it’s a mixed bag. mean, there’s definitely people who specialize in that, but there’s also folks who are just getting a listing, know, folks are moving out of town and we got to sell the house and okay, it’s a short sale. This should be fun. Let’s try it out.

Dylan Silver (12:17)
You know what’s interesting is you talk about people who have to relocate, know, military or just folks in general government, or it doesn’t matter what you’re doing, but having to relocate on a timeframe, that’s a tough position to be in. Like, I mean, if you’re having a short sale on a timeframe because you’re moving effectively and you got to decide what to do here, I actually don’t know how that would work out.

Zach P Smith (12:21)
Mm-hmm.

yeah. yeah.

Mm-hmm.

Dylan Silver (12:42)
but I’m imagining that it’s not easy on the sellers, it’s not easy on the bank, it’s not easy on the realtor, and everyone’s trying to walk their way through this, hey, what do we do? And so if you’re seeing more of this happening, I mean, that’s a sign that something is afoot in Colorado Springs and in that market, right?

Zach P Smith (12:46)
Nah.

Yeah.

Yeah, absolutely. And I think you bring up a great point because there’s really been a shift. know, Remax just recently got bought and Remax is a huge company here in Colorado. And, they got bought out by an online presence. You know, there’s a lot of our industry that’s going to online, less personal interaction. You do everything on an app, everything on a phone, you know, and, you know, all the predictions are saying that guys like you and me are going to be extinct in 10 years because everybody’s going to pull their phone out.

doing transactions, but could you imagine walking yourself through a situation like a short sale with nobody to talk to except your phone? I really believe that ⁓ the personal face-to-face agents and mortgage people, I still think that there’s an inherent and ⁓ strong desire to work with someone that you can call up, pick up the phone and call and you’re not going to become a number or something like that.

So that’s been ⁓ something that I think is gonna be a big shift. And well, not so much a big shift, but I think we’re just coming back to the fact that there’s a lot of moving parts in real estate transactions. You need someone that you know, that you like, and that you trust to be there in your corner.

Dylan Silver (14:13)
Yeah, and I would like to actually get a little granular talking about the face to face component of securing financing, right? As a realtor, you know, the first question that any of us really are going to ask is, know, do you have a pre approval? Are you working with a lender before we start showing properties in many cases? Or, you know, some people might show the property, but that’s going to be the next thing that they’re going to do is try to get them some way to go. Now, what I have noticed both

Zach P Smith (14:17)
even.

Mm-hmm.

Yeah, sure.

Yeah,

Dylan Silver (14:39)
from my personal experience applying for a mortgage, trying to get a pre-approval, and then also working with clients is that you can have two lenders literally working for the same company or the same builder with the same access to the information and have two wildly different client experiences.

Zach P Smith (14:56)
Mm-hmm.

Mm-hmm.

Yes, yes.

Dylan Silver (15:03)
As someone

who’s in this space and you mentioned the face to face component of this a little bit, can you break down why that happens?

Zach P Smith (15:51)
Well, I think it’s, we’re all, ⁓ you know, but there’s so much we don’t have control over, you know, in this world and just, you know, walking through it and whatnot. But what we do have control over is our business practices and what we decide every day we wake up, you know, we look ourselves in the mirror. Why am I doing what I’m doing? What’s my why? You know, what, how do you develop that purpose? You know, and I think that those of us who’ve really

dove into the customer service experience have, know, for instance, my business is a hundred percent word of mouth. I don’t do any advertising. You know, I’m still one of those old fashioned guys that’ll, you know, meet with you and shake your hand. You know, if you call, you’re not going to get my secretary or anything you’re going to get me. So, I think that it’s just a matter of priorities and just a matter of, ⁓ you know, where people are placing their.

their attention. And those of us who, I truly in my heart of hearts, I want the best. I’m the Napoleon Hill guy. If I can help enough other people succeed, well, by golly, I might succeed. And the thing about word of mouth business is that I have an investment in my clients. I have an investment in a sacred contract that says if somebody referred someone to me, I’m going to take care of them and I’m going to do the best that I can.

And by doing that and showing up for people every day in that way, it brings purpose to what I do because then I can help them fulfill their wishes and help them grow and their family prosper. Not everybody sees it like that. Some people are just like showing up and, I got another client. know, they don’t see the long-term vision. And those that don’t see the long-term vision or maybe don’t have a vision at all, it’s kind of like a ship without a rudder. know, they’re just…

So when the downturn happens, those are the first people that go because their hearts not in it. You know, if you put your heart into something that you can’t hide it, you know, there’s that unspoken ⁓ force that is, ⁓ you know, permeating all of your actions and everything that you want to do with folks. So I think that’s why, you know, ⁓ you have different experiences is people just have different priorities and sometimes a priority isn’t their client.

Dylan Silver (18:07)
You know, the mortgage professional truly is a huge

service to the community because they’re helping create homeowners, which effectively is helping create families and the community itself, the identity of the community of itself. Sometimes that’s overlooked when we talk about the role of agents and lenders in all of this. People look at it as a transactional, hey, I’m helping this person get into a home. But if you look at the…

Zach P Smith (18:29)
Yeah. Yeah.

Dylan Silver (18:38)
down the line effects of what home ownership really does for people. You’re really building community when you’re helping people into these homes. We are coming up on time here though, Zach. Any new projects that you’re working on and then also anything you’d like to mention directly to our audience.

Zach P Smith (18:43)
Yes, yes.

Mm-hmm.

Yeah, you know, I’m trying to, you know, just like everybody, you know, we’re trying to meet our clients where we’re at, where they’re at and where is everybody these days, you know, right, got their phone right in their face. So, you know, all of us are trying to build our social media or podcasts and trying to reach our clients where they’re at. And unfortunately, that’s fortunately, maybe unfortunately, it’s kind of a double edge, but they’re on social media. So I would encourage everybody to

Look us up on Instagram and you can follow us @ChariotsOfMortgage ⁓ On Instagram, that’s our handle. So instead of Chariots Of Fire. It’s @ChariotsOfMortgage so if you want to keep up with Chariot financial and what we’re doing we do a lot of events. We do a lot of fun stuff You know, like we just brought in like this live jazz trio and

We just had an event at this place. guy has like snow cats in his garage and stuff. I we do all kinds of fun stuff and I focus a lot on education to ⁓ educate agents through the Department of Regulatory Agencies and things like that. So yeah, you can keep up with us @ChariotsOfMortgage on Instagram.