Make it easy on yourself

This for those of you that are frustrated in your attempts to buy a home.

In the first week of July a couple was referred to me to help them find a home. They had been looking for over six months and couldn’t find the right home or couldn’t win in in a multiple offer scenario. They were very frustrated and about to give up when I spoke with them. They were interested in a particular home in a specific neighborhood.

When I inquired about the property it was already in escrow so I had a discussion with the buyers and learned exactly what they wanted in their ideal home and to establish mutual respect and trust. I started looking for a home that matched their needs and within a few days I found one that looked good. We went to see it and it was exactly what they wanted in the exact neighborhood.

We put together a letter from the buyers to the sellers and presented an offer just a little over the list price because the comparable sales supported the list price and maybe a little higher. We presented the offer only to find that there was another offer on the property and the sellers were going to decide which offer they were going to go with. The buyers were heartbroken because they thought their offer was not the best offer because they were only putting down 5% on a $945,000 purchase. I told them not to give up yet I had chatted with the selling agent and found that the decisive factor was commitment to close and the letter they had written and my conversations with the listing agent gave my buyers the edge even though their offer was lower and had a much lower down payment.

The seller did decide to go with us. The appraisal came in $15,000 higher than the purchase price. We had few issues with the inspection but the seller and their agent were great to work with and we were able to get everything addressed to the buyers’ satisfaction and closed 38 days after the day we first spoke and they moved in last weekend.

No matter how many hours you spend on the internet you cannot match the decades of experience I provide you. So make it easy for you and your family, put me to work for you today.

Community of Interest

I recently read about how congressional districts were to be determined and it included a provision for gerrymandering, if there was a community of interest that could be created.  That means for specific group of people it is okay to draw boundaries that would enable that group to have a permanent majority of the voting populace.  On the face of it that makes the policy biased in favor of a race, ethnicity, or religion that petitions for special treatment.  That is completely and absolutely in conflict with the premise this nation was founded on, the Declaration of independence, and the Constitution.  The motto of the United States is “E Pluribus Unum” “from many one”. We are a mixture of all nationalities, religions, and ethnicities working together for individual freedom and prosperity.  There is no person, group, or nation that is perfect.  America from its inception has led the world in striving to find the perfect form of government.  Our nation has grown wealthy and powerful because it is based on undivided free people working together to achieve common goals.  While never perfect it has always been the best in the world in providing opportunity for self improvement and gaining financial wealth.  A congressional district based on a community of interest would create a division among American people creating either a privileged or disenfranchised populace within that district or in nearby districts.  America is an incredibly strong nation because of our diversity.  Anything that seeks to divide us or pit one American against another should be viewed as an attack against the nation and each of its citizens regardless of the source.   As a Realtor® I enjoy the opportunity to see the rewards afforded by different peoples working and living together and vibrancy pervasive in a diverse evolving neighborhood.  Don’t let some committee put you or your fellow Americans in a box.  We have one Community of Interest, the United States of America.

Procrastination Costs Homebuyers

Last year Orange County California potential home buyers were advised that waiting could come with a high cost. There were estimates that those costs would come in an increase in home prices and interest rates effecting monthly mortgage payments and annual tax bills. Many were very cautious about the jumping into the market but some were willing to take the leap.

Now, a year later the numbers are in.

Change over last 12 months
Interest Rate 6/30/2012 3.60%
Interest Rate 6/30/2013 4.50%
Interest Rate % increase 25%

Cost Per Square Foot Increase
6/30/2012 $275
6/30/2013 $312
Annual Increase 13.50%

Change on a $500,000 home
2012 $500,000
2013 $567,500

$ increase
Mortgage Payment
2012 $27,279
2013 $34,505
Difference $7,227

Taxes
2012 $6,250
2013 $7,094
Difference $844

Actual Total Annual Cost increase $8,070

The annual cost increase continues until the homeowner pays off the mortgage or sells the home. This partially explains why the demand for homes has stayed strong in spite of mortgage rate increases and home prices rising.

Waiting will continue to have a price.

If you look at the projected annual increase over the next 12 months using conservative home price increases forecasts and a .5% interest rate increase (remember we have seen an increase of over 1.2% in the last 5 months) you would find that the projected annual cost increase would be $6,423. The combined cost of waiting over a two year period adds up to an increase in home ownership of a $500,000 home in excess of $1,100 per month.

The procrastinator could have purchased a home in the $650,000 price range in 2012 for what a 2012 $500,000 home will cost in 2014.

While it is hard to predict with absolute certainty what is going to happen in happen with the economy, home prices, and interest rates, a majority of Realtors, and mortgage lenders had a high level of confidence that homes prices were on the rise throughout 2012 and that interest rate increases would follow.

The consensus is that the prices and interest rates will continue to rise especially in light of the fact that the cost of home ownership is approximately 11% less than renting and that rental costs will continue to go up but by buying the homeowner can lock into a fixed costs of housing. The demand is still outpacing supply so the days of multiple offers for attractive properties are far from over.

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Short Sale Surprise

The list of things that can go wrong in a short sale just got longer. There is a long list of things that can go wrong in a normal sale and a Realtor’s job is to manage the sale process so that our clients are protected as well as possible from annoying delays and deal killers. Short sales have always been a quantum leap up from the standard sale in regard to the number of annoying delays and deal killers. Apparently, there is one more issue that can be a deal killer or a long delay.

To set the stage you have to understand a little of the background of loan servicing in today’s world. Large Banks have, by various means, been obtaining huge portfolios of loans to service from now defunct loan servicers or loan servicers that have gotten out of the market of loan servicing of loans. Many of the loans in the portfolio are or will be become non-performing loans that then are turned over to the loss mitigation department to try to resolve the delinquency prior to foreclosure. Loan modifications are a long confusing, complicated process that generally leads to a short sale. In many cases, the property owner will list the property for sale as a short sale while still under consideration for a loan modification in order to set the stage for a principal reduction in the modification. At this point, I can start the list of the things that can and will go wrong for a transaction specific to short sales.

The biggest problem is short sellers who are not really sellers. The owner is listing the property to delay foreclosure until they can bring the loan current, get the loan modification they want, save up enough money to move, or just stall as long as possible. A good indication of a serious short seller is a vacant property in relatively good condition with the utilities on.

A major deal killer issue is junior liens – if the junior will not negotiate a greatly reduced payoff the property cannot be sold because a new lender will not make a loan on or accept a property loan as a junior lienholder. The only way to clear junior liens that will not negotiate is to foreclose on the property giving the junior lienholders the option to buy-out the senior lienholders to protect their interest. This rarely happens because the in most cases the senior lienholders are owed more than the property market value. The property will go to foreclosure and then has a new owner who generally replaces the initial Realtor with their Realtor to sell the property and the property comes back on the market after a few months of processing by the new owner. Therefore, in making an offer on a short sale one of the first things the buyer’s agent should do is get a copy of the Title report to make sure that there is not a problem junior lienholder. Among the problem junior lienholders the most problematic are private lenders, judgment holders, HOAs, and local government agencies.

The list price is nowhere near the market value. The listing agent listed the property at a price to get offers so that they can get the short sale process going.  Many lenders no longer require an offer to
begin short sale processing but agents still have a tendency to list low to get the property sold because there is no motivation for the seller or the agent to get the highest price the market will allow since the only benefit is to the agent and it is only a nominally higher commission. The property is listed at $300,000 and the lender appraisal for the short sale approval comes in at $375,000 so the deal is dead unless the buyer wants to come up to the $375,000 price. Generally, the agent and the buyer walk away from the deal frustrated and very unhappy.

Non-arm’s length transactions. Short sales are supposed to be to unrelated or affiliated parties so as a buyer or an agent for a buyer you are in competition with other buyers on an even playing field. If the listing agent has the opportunity to represent both sides then a higher offer where the listing agent only represents one side would be at a disadvantage. The other issue that could make it difficult to compete fairly is a situation where a friend or relative that appears to be unrelated but in actuality is working in concert with the seller to keep control of the property with a large principal reduction and better financing terms. An unscrupulous agent will discourage showings or offers to make sure that the only offers presented to the lender are well below the real market value

Substandard Property Condition may result the buyers lender requiring repairs prior to close that the seller will not make so the buyer may have to gamble that the sale will go through if they make the needed repairs before the transfer of possession.

The negotiator with the lender as to the sale price is the listing agent not the buyer’s agent; the buyers have no control or even information about the communication between the lender and the listing agent about the sale price. Clearly, the listing agent does not represent the buyer and has no motivation to get the best price for the buyer.

The lender sells the property at auction even though there is an accepted offer with the lender in process for a short sale.

And Now the newest annoying delay or deal killer. The lender sells off the serving rights to the mortgage to a smaller servicing company in order to avoid the payment of a previously agreed upon payment to the seller for moving out of the property promptly and leaving it in good condition. The seller agreed to spend the money to continue to maintain the property, leave expensive fixtures and furnishings, and keep the utilities on during the sale process generally resulting in a hgher sale price. The seller had to have had a reasonable hardship to qualify for the move-out money and now that is being taken away from them at the last minute.   They will in most cases refuse to close until the issue is resolved or they can find a way to offset the loss of the money. This is another case in a short sale where there is a major issue that is not the fault of the buyer but it is still their problem.

As a business model for Realtors, short sale listings offer a lot of income but for agents who are compassionate and empathetic with their buyer clients it is just too emotionally draining. Let us keep the faith that the economy will continue to improve and that the short sales will rapidly become relegated to the past

 

 

To Buy or Not To Buy, that is the question

Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them?

How appropriate this question is in these troubled times. Most people don’t know what to do. Some basic information about the current economy makes it very clear what is the right course. Let’s start with a cliche that demonstrates a good concept. The best one for this situation is “buy on fear and sell on greed”. This means the best time to buy is when most people are afraid to and the best time to sell is when everyone is buying out greed for higher profits. When an emotional state is overlain on the market cycle you can better understand this concept.

Now consider the issue of home affordability. Affordability is the combination of interest rates and home prices to determine when is the best time to buy a home. If prices go down but interest rates rise, it could mean an actual increase in monthly cost. Prices would need to come down 10% to make up for a one percent increase in mortgage rates. You could decide to wait on your purchase based solely on price. However, if you think that interest rates could increase in the near future, it probably makes more sense to purchase now.

Let’s forget about the economics for a minute and consider the home you will be living in for the next few years or even decades. Do you want to have a wide selection of homes to consider so that you can get a home that really fits your needs and life style? Do you remember just a few years ago when there were more buyers than there were homes. Many buyers settled for something that did not meet their needs other than the fact that they could buy it if they acted very quickly and met all the demands of the seller. Is that the way you want to buy a home? Wouldn’t you rather have a willing and motivated seller of home that met all your needs? Your home is the center of your life and your family first, and an investment second. Which do you think is smarter, Christmas shopping on Christmas Eve after all the best gifts have been sold or in November or early December when there is a good selection to choose from?

I heard somebody say that the luckiest homeowners were the ones that needed to buy a home at the right time in the cycle. They didn’t have to think about whether or not it was a good time to buy a home they just did it because their family needed to buy at that time. The good thing about a home as an asset is that no matter what you point in the cycle you buy, if you keep it through a complete cycle it will most likely be worth more than you paid for it.

So if you need to buy a home, rest easy and decide what you want in your new home and go out and buy it. It will be easier than you think.

Your Garmin or Your Wife

Our family has been on an adventure for the last 5 years moving from state to state to follow a business career. With all the new places we were always trying to figure out where we were and how to get where we wanted to be. When GPS products came out to replace the paper maps (remember trying to refold them) and map books, we thought it was a great concept. Now we have one in each car. My wife has the deluxe model that routes her around the traffic problems. These devices offer a plethora (a wonderful word, meaning almost countless, I learned from El Guapo while watching the Three Amigos) of options and settings. One of the most enjoyable is choosing the voice. My wife chose a male voice with a British accent and named him Mo Bill or Bill. Bill seems to be a loyal and effective guide for her. I chose a female voice also with a British accent. I didn’t name mine because I didn’t want my wife to worry about me developing a relationship. I think my device must have felt slighted and ever since has been very effective in making sure that I did not get to my selected destination without numerous detours. Her favorite trick is telling me in her clipped accent that I need to turn right without saying exactly where just as I am approaching a street that could be the correct street, when in fact it is not the right street and there is no easy way to get back on course. Last night she really got me good. She blurted out “turn right” just as I came to a street just before the one I really wanted. Being used to instant and complete obedience to female commands (in spite of what my wife thinks) I turned right and quickly heard the dreaded word “recalculating” that indicates that she had gotten me again. This time she really got me good because as tried to get back on track I found that the next entrance to the freeway I wanted was currently under construction and closed. So I wandered around for a few minutes before figuring out how to get on the freeway I wanted. Another favorite trick of hers is the “make a u-turn” command. She usually uses this one when she senses that I am wondering if I should have turned left when I turned right. So in order to get back on course I usually spend a few minutes wandering around and a strange neighborhood only to find that she meant that I should have continued quite a distance before making the u-turn in order to get to a location on the other side of a divided road with no direct access. For the most part her directions are correct it is just how, when, and what she says that seems to get me lost. This is definitely crossing into the realm of things only my wife should be able to do. I did not have a problem getting lost when I used paper maps or even with the map programs on my PDA, it seems to be only with this female avatar that directs my car. Maybe I should break down and give her a name and hope my wife understands.

Changes in Short Sale Rules by Laurie Moore-Moore

Forget What You Know about Short Sales – The Rules Just Changed
Published on Monday, September 14, 2009, 8:23 PM Last Update: 15 hour(s) ago by Laurie Moore-Moore
Category: All Articles » REO’s and Foreclosures
There’s an old saying, “It’s not always what you don’t know that hurts you, it’s what you know for sure that isn’t so.”

Agents currently working the short sale market may soon find themselves in this situation. What we’ve been taught about how to do successful short sales will soon work against us and our sellers, because the government just changed all the rules with the new Making Home Affordable (MHA) program. We must do things differently. Very differently,

The Making Home Affordable program is being managed by Treasury and Fannie Mae. It covers more than 85% of mortgage loans, including loans owned or guaranteed by Fannie Mae or Freddie Mac, FHA loans, and loans managed by about 50 of the major servicers. For these loans, the new MHA policies and processes are mandatory.

Good news and bad news
There’s good news and there’s bad news associated with the MHA changes. The good news is that it is actually an attempt to simplify and standardize the short sale process, rules and paperwork. The bad news is that there are tens of thousands of loss mitigators out there who have to be trained before the new program will be implemented in a consistent way. So right now, implementation is patchy at best.

Making sure it is implemented
To speed up the implementation, Freddie Mac has been tapped to audit servicers’ files and fine servicers who aren’t using the new MHA process. With this “big stick” and some financial incentives, the program should pick up speed.

It’s mandatory
Realtors who want to close short sales will need to learn the new MHA rules, guidelines and use the new standard forms. And, yikes! Things are really different under Making Home Affordable. There are some small differences based on whose loan it is, but in general, here are just three key changes:

Some of the changes in how you’ll do business
Change #1: There are clearly defined steps which the servicer’s loss mitigator must follow in sequence when a loan is in default (or imminent default ). If attempted refinancing or a loan modification do not work — then and only then — will a loss mitigator consider the possibility of a short sale. This is the only time during the loss mitigation process when a short sale will be a possibility. The loss mitigator will use a specific net present value formula to determine if the lender/investor will net more from a short sale than from a foreclosure. The decision is strictly a financial one. This means the short sale attempt will be approved in advance if it is financially to the lender’s advantage.

Change #2: You will continue to list with the seller, but the loss mitigator sets the price and the listing term. The listing term can range from as few as 90 days to as long as 365 days. The servicer/lender still must accept the contract which your seller has approved.

Change #3: Good news! Fannie Mae’s Servicing Guide Announcement #09-03 clearly says there is to be no negotiation of short sale commissions. “..closing of pre-foreclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to the level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6% of the sales price of the property in aggregate.” In other words, if you’ve negotiated a listing fee with the seller, the servicer/lender may not ask you to reduce that fee.

Important work — helping homeowners in distress
This should give you a quick idea of how significant the changes are for the short sale process. In short sales there is a lot more to know, so if you are helping homeowners in financial distress avoid foreclosure, you’ll want to learn all you can about the Making Home Affordable program. This is important work and I’d encourage you to — Get Involved. Get Trained. Get to Work. America’s homeowners need you.

Editor’s Note: Get up to speed on the new short sale process, better assist your clients in financial distress, and position yourself for more success through this new online course with Laurie Moore-Moore. Endorsed by Broker Agent.

Laurie Moore-Moore is CEO of The Institute for Luxury Home Marketing and co-founder of its new division, The Center for Asset Preservation. For information on the industry’s first and only comprehensive training (live and online) on Short Sales under the new Making Home Affordable program, click here.

Upcoming Changes in the Residential Real Estate Market 10/12/2009

The Federal Tax credit for first time home buyers will expire on December 1, 2009. That means that unless the sale is completed prior to that date there is no tax credit available. Since many closings are taking more than 30 days new homebuyers wanting to receive the tax credit should open escrow no later than October 15th to have high probability of closing before the December 1st deadline.
Temporary High Loan Limit for conforming loans through Fannie Mae will expire at the end of this year. That means loans originated after 2009 will be governed by the permanent high loan limit which in Orange County is $625,000. So currently a 20% down payment loan could be on a property up to $910,000. When the High Loan Limit resets to the permanent level next year the most a 20% down payment loan would work for is $780,000. This may have the effect of pushing home prices in the $800,000 to $900,000 down a little.
The FHA has experienced significant drains on its cash resources and in order to slow the depletion is tightening credit criteria and trying numerous ways to increase the quality and decrease the number of loans it is guaranteeing. Among the changes are the way Homeowners Associations are evaluated for inclusion on the approved list, changing the appraisal procedures, and increasing the restrictions on FHA lenders and brokers.
Next March the number of loans through Fannie Mae, Freddie Mac and the FHA will drop significantly due to lack of capital for those programs. This will create an opportunity for private lenders to reenter the secondary loan market after years of being unable to compete with the government programs because of the low cost of funds the government programs enjoyed. This opportunity for the private investors to participate will be marked by a significant increase in rates because the private investors are not subsidized by the taxpayers.
I expect that we will see continued and accelerating inflation of the next few years. This inflationary pressure will cause interest rates and possibly property values to rise. The improvement in the economy will also contribute to the increase in home prices and home mortgage rates.

Inflation 11/15/2007

It is my belief that there is a significant potential for the current trend of the dollar losing value to continue and accelerate.  The dollar is now, for the first time, lower in value than the Canadian Dollar and has lost 60% of its value when compared to the Euro.  We are in the early stages of a run against the dollar by foreign investors.  Solid commodities have increased in value as measured by the dollar value significantly over the last few years and continue at an accelerating pace.  

 It is not an opinion that the US dollar is losing value against gold or other solid liquid commodities it is a fact.  It is not an opinion that the US dollar will drop further in value as measured against other currencies and solid commodities if a sell off of the dollar continues and accelerates as it most likely will. 

The only way the US dollar could stabilize and regain value would be if the US government were to keep taxation at the current level or lower it further and then cut the budget to the point where the expenses of government were at least 10% less than actual prior year revenue and keep the budget at 90% of actual prior year revenue for at least 10 years.  That time period may be enough to significantly reduce the national debt with a strong growing economy that would result in investor and consumer confidence, lower interest costs on the debt, greater tax revenues, and a lagging growth in government spending.  Sounds great, won’t happen. 

 It is my opinion that we are in a recession and will go into a depression within the next 24-36 months.  We have a government that is increasingly socialistic.  There has been an organized program to create a mindset in the US citizens to be tolerant and supportive of socialistic concepts and governing methods for over 80 years.  In the 1930’s Roosevelt instituted a number of very socialistic programs to try and get the country out of the depression.  The socialists have praised those programs and claimed success when in fact just the opposite was true those programs lengthened and deepened the depression.  What got us out of the depression was the reduction to near elimination of all the socialist programs and the result oriented can do attitude that arose during WWII.  Socialism cannot function where there is accountability and a clear focus on a stated result.  The first solutions to be tried in the next depression will be more extreme versions of the programs instituted during the Roosevelt administration and then either an external war or an internal war will occur.  An external war could result as enemies decide that we are weak and ready for the taking, our government decides that they need a war to send potential internal anti-socialist enemies off to defend our nation and to take the focus of the people off of the problems in government.  An internal war could possibly occur if the anti-socialists coalesce and act before an external war is declared.  It would be a war because the socialist will control or have neutralized most if not all of the weapons and military forces that might oppose them.     

 Putting aside all the political issues, one question looms large.   How does a normal family survive the economic turmoil ahead? 

 In an inflationary period money rapidly loses value against the goods and services a consumer needs.  Today a loaf of bread is $3 next week it is $4.  Wage and salary income do not increase as quickly as the cost of goods and services.  Short sale cycle commission incomes may keep pace with inflation depending on the goods or services but existing tax rate levels will cut into the rising income levels of commission workers negating some of the increased income. Year end bonuses will have little or no value.  Based on this premise the ordinary family must move its income earning methods away from or augment the stable income sources that have been relied on in the past.  Pure wage and salary earners both in the private and public sectors will be hurt the worst.  Military personnel or others who receive food and housing as part of their income will be somewhat sheltered.   Direct selling producers of food commodities (small farmers) will be sheltered.  Indirect sellers of food and other necessary commodities will be sheltered to a lesser extent. 

 Stocks and bonds for the most part will have little or no value as income producers during an inflationary depression. 

 In all this doom and gloom there is an incredible opportunity.  Families that are willing to work hard can choose a path that may ensure long-lasting financial success.  There are commodities that keep pace with or even outpace inflation and hyper-inflation.  In inflationary periods existing debts are paid with dollars of lesser value.  If those dollars were earned prior to the inflation there is no gain, if the dollars are earned just prior to making the payments there is no gain.  If you borrowed the money at a fixed rate to make the payments at a rate that is less than the rate of inflation you would probably have a gain.  If you bought gold or another solid liquid commodity and sold it as needed or even better borrowed against it at a rate that is lower than the combination of the inflation rate and the debt rate, you would have a gain and an asset that increases at an equal or greater rate than that of inflation.

 Steps to protect your financial position:

 1.      Adjust your income so that it is tied to the absolute value of what you produce

              a.      Take commission position or renegotiate your method of compensation

2.     Sell volatile investments (stocks, bonds, to a lesser extent residential & commercial real estate)

3.     Buy absolute value commodities (gold, silver, agricultural real estate, businesses providing absolute value goods and services)

4.     Eliminate the need for a cash position by setting up line of credit secured by gold or other absolute commodity

            a.     This will reduce the value lost to inflation while providing availability of cash when needed

5.    To be very safe keep total personal debt ceiling at 80% of absolute value commodities and make sure that your debt service does not exceed 25% of your absolute income.

6.     Move debt away from you by forming corporations and trusts

               a.     These can be more safely leveraged at a higher rate

7.      Move non-cash liquid assets closer to you

8.     Live in or have second home in non-metropolitan area, preferably warmer agricultural area.

9.     Develop trusted  reliable sources for food, water, health care, fuel and other essential goods and services

9/9/2009 Broker Preview

Today there were four nice properties on tour in North Tustin
2042 Inwood was in a very nice neighborhood conveniently located for freeway and shopping access at the base of the hills of Lemon Heights. This home had distressed brick flooring throughout the common areas. The kitchen and baths are updated and there is a nice pool with rock and water features. I think it is slightly overpriced based on the age, location, and size. There are newer homes with more features at lower prices.
9731 Rangeview – This a large home on a great large lot with partial views, high ceilings and great family room kitchen combination. The home was built in 1959 with later additions that don’t flow very well. The home feels a little choppy and in spite of having quite a few upgrades still needs some work around the edges.
1902 Skyline – In the hills of Lemon Heights but no views. Blindingly yellow but paint can be changed. Quite a few well-done upgrades Good pool and patio. 8 car garage with courtyard leading to home or garage. Very warm feeling about the home if you like yellow.
11501 Vista Mar – more distressed brick in some but not all the common areas.   Incredible views from the living areas and front patios. dipping pool and spa in the front and very nice hardscape patio in the rear.   Good end of cul-de-sac location in the hills of Lemon Heights. Well maintained property inside and out but lacks grass yard.