Archive for Buying Tips
My team has been diligently working on dozens of short sales. Recently we have seen that some of the banks are setting the values and demanding the listing price of the home be much higher than the actual market price of the homes in the area. They claim that the price they are asking for is the appraised value. I am not sure what appraisal company they are using, but there are no offers coming in when the list price is $15,000 less than the “appraised value.” So, I can’t imagine that raising the list price is going to make this any better.
So it begs the question, “Why are banks holding out for higher offers when they currently have an offer to negotiate with?” The answer is simple – banks have insurance. The borrower has typically paid either private mortgage insurance or it is insured through Fannie/Freddie. So rather than accept the lower offer price, they would rather go through the foreclosure process and then collect the insurance on the home.
We are seeing this happen more and more as lenders get appraisals that are really much higher than market. There is little incentive for the bank to accept the true market value when they can collect the insurance premium for closer to the full value of the loan.
The harder part to all of this is that it really just hurts the borrower. Rather than be frank with the borrower and tell them to do a deed in lieu or accept the foreclosure, they are dragging their feet and providing a false hope that they might get it resolved with less impact. In reality, the banks prefer to foreclose, take the insurance money and get the non-performing asset off their balance sheet.
This is why you have seen an increase in the cost of mortgage insurance. More and more lenders are cashing in on their insurance policies and then the cost gets passed through to new borrowers to make up for the losses on previous bad loans.
So, if you are working on a short sale transaction right now and wondering why the bank didn’t accepting your market value offer, now you know!
Mortgage rates are back in the 4 percent range, taken there by the 10-year Treasury note’s drop to 3.42 percent, which has wiped out the whole early-February spike. We have Libya, oil, stocks, housing and the economy to thank, but how those pieces interact is not obvious.
Arriving economic data is obscured by incessant “recovery” cheerleading among business media. Some news is pretty good: both consumer-confidence surveys found three-year highs, which may indicate some hiring.
New claims for unemployment insurance are holding down near 400,000. Every measure of manufacturing is doing well, although scratching in at 15 percent of our economy.
The “wait-a-minutes” are led by today’s downward revision in supposedly corner-turning fourth-quarter 2010 U.S. gross domestic product (from 3.2 percent to 2.8 percent).
Growth? Sure. Self-sustaining, accelerating … not so much.
Wal-Mart’s sales in the last 90-days fell 1.8 percent. Orders for durable goods in January (excluding super-volatile transportation and defense) tanked 6.9 percent. The Chicago Federal Reserve’s January national index rolled to a minus sign.
If you’re in doubt, consider housing. New-home sales dumped 12.6 percent in January. But, the National Association of REALTORS® says sales of existing homes rose 2.7 percent.
A story cooking for months: NAR may have overreported those sales for 10 years or more, high by perhaps a half-million each year vs. CoreLogic (its parent is a title company using real data), and since 2008 resulting in as many as 1.5 million imaginary sales each year.
If existing-home sales are running below 4 million annually instead of above 5 million, then we have rather more trouble with distressed-inventory absorption than we thought. And market buyers and sellers have left the field or been elbowed from it.
On that subject, NAR said only 37 percent of January sales were distressed. CampbellSurveys.com, meanwhile, says the distressed fraction was 44 percent in November, and shot up to 49.6 percent in January (California at 66 percent, Florida at 63 percent, Arizona and Nevada at a whopping 72 percent).
Now, two things not to worry about: inflation and the Middle East.
Inflation comes in a few well-defined forms. The deadly one is the wage-price spiral, which plagued us in the 1970s and can be stopped only by recession.
The U.S. today is impervious to such a spiral because we have near-zero wage growth. In fact, rising oil prices will slow this economy by crowding out other spending. Note that commodity prices have fallen — not following oil, instead anticipating slowdown. Same for stocks.
Other inflation forms include the classic money-printing of Zimbabwe. The Fed’s “quantitative easing” (QE) program does print monetary electrons, but the money cannot make it into wallets because the credit system is still broken. No credit, no money.
The last form, cost-pushed inflation, is temporary — it is not a structural ramp-up in general prices. That’s what this is. Oil is driven by speculators, just as it was in 2008, and all should be reassured that this spike has stopped far short of that run to $150 per barrel.
Middle East … it takes some serious chutzpah to be relaxed about the place. But, concept No. 1: the Middle East nations need to sell oil worse than we need to buy it, no matter who is in charge over there.
Non-oil economies in the Middle East have never developed, and 10-fold growth in population has made ’70s-style embargoes impossible today.
No. 2: Despite U.S. politicans talking about radical Islam, these brave Tunisians, Egyptians, and Libyans are in their streets waving their national flags, not pictures of Osama.
No. 3: Post-revolutionary peoples’ governments, no matter how they may roil and rock, are steadier by far than rotten autocracies, especially in dealings with neighbors. Some go sour (Iran), some are in doubt (Iraq), but dictatorships breed anger and extremism, and dictators need to pick external fights with pretend enemies.
Refounded nations, even while struggling to establish representative government, have stabilizing advantages. The greatest of these: pride at self-liberation won hard.
Here’s some unexpected good news for anybody looking to buy a home in this market, especially first-time home buyers who don’t have much down payment cash on hand: The door to an FHA-insured mortgage just opened a little wider.
With no fanfare or public announcements, two of the largest FHA-approved lenders have backed off their controversial “overlay” requirements on FICO scores (lender overlays are qualification requirements that can be more stringent than FHA’s own requirements). Both Wells Fargo and Quicken Loans confirmed last week that they will now lend to applicants with 580 FICOs and 3.5 percent down payments.
Their revised standards conform in most respects to FHA’s own minimums, and open the agency’s financing to large numbers of buyers whose credit scores have sagged during the recession. Wells Fargo is the largest originator of FHA-insured mortgages; Quicken ranks third, according to industry data.
Along with most other major lenders, both companies previously had insisted on minimum FICOs of 620 for otherwise qualified borrowers seeking 3.5 percent down payment loans. If your score came in even slightly lower, they wouldn’t even look at your application. An estimated one third of Americans now have FICO scores below 620, according to one consumer group’s estimate.
At the beginning of the housing crisis, sellers turned to gimmicky tricks like YouTube love letters about their homes and burying St. Christopher’s figurines upside down in the front yard to try to move their homes off the market. These days, though, many sellers are getting smarter and more strategic, turning the transaction on its head to get buyers off the fence with a phenomenon called the reverse offer.
Usually, the buyer makes an offer for a certain price and on certain terms. A reverse offer goes in the opposite direction: from seller to buyer. In some cases, a seller whose home has been on the market for ages with lots of viewers, but no offers, may enlist their agent to go back and approach several or even all of the buyers who have come to see the property, and make an offer to the buyer. In other scenarios, the seller’s agent extends an offer to a particular buyer who has come to see the property multiple times and seems very interested, but has been hesitant to make an offer.
Reverse offers generally offer to sell the home at a price lower than the list price, and they often sweeten the pot by throwing in added incentives like paying some or all of the buyer’s closing costs, buying down the buyer’s interest rate, paying for HOA dues or fees or even throwing property like flat-screen TVs, cars or other valuables into the deal.
Here are 3 best practices for sellers making reverse offers:
• Give the buyers a short period of time to respond. The whole point of a reverse offer is to create urgency where the buyer currently feels none. Extend a reverse offer with the caveat that it is only good for a day or two, to push the buyers into moving quickly. Similarly, if you have extended the reverse offer to multiple buyers, let them all know that this is the case and that the first buyer to bite takes the house.
• Great candidates for reverse offers include sellers facing lots of competition. If your home is nearly identical to neighboring homes for sale at the same price, or you are struggling to position it competitively with foreclosures and short sales in the area, consider making a reverse offer. A proactive, reverse offer differentiates your house in the minds of home buyers and, again, creates urgency to act on the part of buyers who otherwise have so many homes to choose from that they feel they have all the time, choice and bargaining leverage in the world.
• If one buyer has viewed your home repeatedly, check in with their agent directly before making a reverse offer. Ask your listing agent to contact the broker for any buyers who have made more than one visit to your home, to inquire into what is keeping them on the fence. This will boost the likelihood of making a successful reverse offer by making sure the offer addresses the issues that have made buyers hesitant to pull the trigger.
Critics of the reverse offer express a concern that it may make a seller seem desperate. However, when you talk to home buyers on today’s market, their biggest beef is sellers who are unrealistic and inflexible, not sellers who seem overly motivated to sell.
No serious home buyer gets turned off by a seller who seems willing to go the extra mile to help them solve the problems that are stopping them from buying a home. Also, a reverse offer doesn’t have to chop tens of thousands off the home’s list price to work – a percentage point or two can often do the trick. In any event, sellers who extend a reverse offer don’t limit their options for responding to low-ball offers from the prospective buyer in any way; if the buyer senses desperation and comes back with a low ball offer, the seller can still take it, counter or leave it, just like they would have been able to do before making the reverse offer (but they end up with a buyer, which they didn’t have before the reverse offer).
Interest rates might briefly dip again in the early part of this year, but most economists say that current trends suggest rates will begin a gradual but long-term rise in the spring or summer.
There are several factors behind the expected increase. One is that spending by consumers is finally starting to climb, which is encouraging some companies to borrow millions of dollars to increase production of their goods and services. When manufactures start borrowing money, it puts upward pressure on rates charged to homebuyers and refinancers, because lenders have only a finite amount of cash to lend.
Another key reason for the forecasted rate hikes involves the federal government’s need to finance our nation’s budget deficit. The U. S. gets most of the money needed to fund our various spending programs by selling long-term bonds to foreign countries. Thus, foreign buyers of our bonds today are demanding higher rates on their investments, so those bigger rates that America must offer in order to sell them to other parts of the world are trickling down to local homeowners who want to buy a house or refinance their loan now.
That being said, it would be better to refinance or purchase another home quickly rather than hoping for another drop in mortgage interest rates in the months ahead.
FHA extends suspension of ‘anti-flipping’ rule for another year!
The rule was intended to prevent speculators from defrauding the government, but it also stifled the purchase and renovation of foreclosed homes by legitimate investors.
For years the federal government prohibited the use of Federal Housing Administration mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses – often involving straw buyers and corrupt appraisers – at wildly inflated prices.
One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the “anti-flipping” rule.
Now you can continue to sell to FHA buyers which is huge in today’s lending environment. These are great loans to use for wholesale homes to first time home buyers and for wholesaling pretty houses.
Interest in buying a foreclosed home is on the rise, but so are concerns about the risk involved in the process. In a December survey, it was found that 49 percent of Americans were at least somewhat likely to consider buying a foreclosure, up from 45 percent in May 2010. But the number of US adults who believed there are disadvantages to buying foreclosures had also increased, from 78 percent to 81 percent over the same time frame. Among those folks who had qualms about purchasing a foreclosure, the top concerns were:
- that buying a foreclosure might involve hidden costs,
- that the buying process itself is risky, and
- that the home might continue to lose value, after escrow closes.
While there certainly are risks that run with buying a foreclosed home, the most risky way to do it is also the least common method: at the foreclosure auction itself. Auction buyers often don’t have the opportunity to fully vet the foreclosure to ensure that they are receiving clear title and/or to make sure they’re not getting a lemon. With that said, most foreclosures are resold not at the foreclosure auction, but as an REO (short for Real Estate Owned – by the bank), listed by a real estate broker on the Multiple Listing Service. Here are my Top 4 Tricks and Traps for Foreclosure Buyers:
When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear.
1. As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict “as-is, where-is” basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you’ll be able to get the bank to “fix” the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.
Out of hundreds of foreclosure transactions I have personally been involved in, I have seen exactly four where the bank did agree to do some level of repairs at a buyer’s request. Every one of those times, the repair was to fix a health-and-safety endangering property defect, like a gas-leak or an electrical fritz. And every one of those times, the property defect was highly non-obvious – not something even a diligent buyer could have detected visually prior to making an offer. Maybe another few times I’ve seen a bank agree to a small price reduction due to surprising condition problems. And dozens of times, I’ve seen transactions fall apart or buyers take on the property’s repair costs, when they request repair credits, price reductions or actual repairs from the ban seller.
If a foreclosure you’re considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.
2. The bank speaks no evil. When it comes to real estate disclosures, the fact is, the bank speaks not much of anything! Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property. Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property’s condition. (Before you protest with a “that’s not fair!!” keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)
Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports. But buying a foreclosure ups even that ante, as you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures. Get a property inspection. A pest inspection. A roof inspection. A sewer line inspection. A pool inspection, if you have a pool and care about its condition.
Yes – all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your state’s buyer inspection advisory or similar document (ask your agent), just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.
Some insider tips:
- Vacant foreclosures often have their utilities disconnected. Work with your agent to make sure the utilities get turned on – even for a single day – so that your property inspector can run the water taps, test the stove and dishwasher, see if the water heater and electrical outlets work, and so forth.
- If appliances are there, the bank will probably leave them there, even though they may not have technical “legal” ownership of them, so they may not be included in the contract, like in a “normal” home sale.
- However, the bank will not give you any sort of warranty on appliances, so try to obtain any warranty coverage you want or need elsewhere – from a home warranty company or, potentially, the original manufacturer/retailer.
3. The contract terms, they are a changin’. One thing squarely in the wheelhouses of local real estate pros are local market standard practices. From negotiating practices to which party pays which closing costs, every market is different, and experienced local agents are experts on this information. If you’re buying a foreclosure, though, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms. Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices. When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects. And the bank’s escrow provider might be slow or disorganized. Too bad! The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. Par for the course. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)
When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. It’s not overkill to ask your broker or agent to brief you on the common complications they see in REO transactions. Having realistic expectations may keep you from pulling your hair out. And if the transaction turns out to run smooth as silk? You’ll be pleasantly surprised.
For instance, if you are buying a home in a contingency state, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In “objection” based transactions, you have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date.
If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please – I implore you – READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense.
4. Expect the unexpected.
ORLANDO, Florida (Reuters) – U.S. housing prices overall are expected to hit bottom by spring 2011 and begin a gradual rise in 2012, Frank Nothaft, chief economist and vice president of housing lender Freddie Mac said on Wednesday.
“I do think we’ll see these housing prices bottom out, maybe by the spring,” Nothaft said.
Nothaft presented Freddie Mac’s January 2011 Economic Outlook to reporters at the annual International Builders’ Show in Orlando.
Nothaft predicted that potential home buyers who have been sitting on the sidelines will start to get back into the market. He said this prediction is bolstered by historically low mortgage interest rates and other positive economic indicators, a small drop in the rate of unemployment, increases in purchases of durable goods and a slight slowing of serious delinquencies feeding the glut of foreclosed housing stock.
“This is the time to come in the market if you’ve got the financial resources and wherewithal,” Nothaft said.
If your goal is to sell your home or condo in 2011, here is why you should think of listing it within the next 90 days:
- Interest rates have spiked recently, jumping over 1/2 point in the last several weeks. Such volatility is causing many buyers to act now for fear that rates could climb later in the year. Plus, if rates do go up, the number of buyers who qualify to purchase homes at each price point – including yours – will diminish proportionately.
- If your goal in selling is to trade up to a larger, more deluxe or even smaller property, the time is NOW to take advantage of the widest selection of buying opportunities currently available at below-market values.
- Now is the busiest time of year in our Florida market, with seasonal buyers in town actively combing the market for the unprecendented values they’ve been hearing about all year long in the local, national and international media. That means MORE potential showings to MORE eager and motivated buyers.
- Whatever your true reason is for wanting to sell, once you become a buyer again you too can enjoy today’s unprecedented values.
The best environment for buying or selling in 2011 will likely occur between now and the middle of April. Talk to an agent from Perin Realty & Associates, LLC to explore how you can maximize your buying or selling opportunities by acting NOW and getting ahead of the market!
These past few years haven’t been particularly golden ones for housing. But over the long haul – say, three decades – housing has been golden. Even better than gold, reports Ted Jones, chief economist at the Stewart Title Guaranty Company.
Jones suspects that if asked to name the best long-term investment, most people would probably say gold. And if you considered just the past nine years or so, they would be correct. But if you go back to 1980, he says a house would have been the better place to park your money.
Not counting transaction fees and holding costs, if you bought an ounce of the precious mineral in 1980 and held it until October 2010, you would be ahead 95.5 percent, the economist figures. But if you adjust for inflation, you would have lost almost one-third of your investment. “The value of gold in the last 30 years did not even keep up with inflation”, he says.
But if you had purchased a median-priced existing home in January 1980 and sold it for the median price in October 2010, Jones says that you would have notched a 252 percent gain, again assuming no transaction fees or holding costs. This is despite a 23 percent decline in values since 2006, he points out.
And unlike gold, you would have been able to live in the property, reap the tax deductions for mortgage interest and property taxes, and a nontaxable gain of up to $500,000 when the house was sold.
Even after adjusting for inflation, Jones says housing values are still 18.6 percent to the good over the 30-year period!
