There have been a lot of articles about the current state of distressed properties. I think that this is a very good explanation of what is going on.
From a homeowner/consumer point of view, it is crazy, but from the financial organization's point of view, they will do what makes the most sense for them given the current regulatory environment, without regard to any social cost or hardship for individuals affected.
Banks Playing “Foreclosure Roulette” with Delinquent Homeowners
Bea Garwood has been bracing for foreclosure since May, but she says she's been told three times to expect a sheriff's sale in the next month and it still hasn't happened.
"We really at this point do not know where we are in the process," said Garwood, who lives in Pinckney, Mich. with her husband. "We have no clue. We haven't even heard from Chase bank in three weeks."
The Garwoods may have had a lucky spin in the game that industry analyst Sean O'Toole calls "Foreclosure Roulette."
Banks don't want to recognize losses by having to put homes on the market at foreclosure-sale prices, but they don't want to encourage borrowers to quit making payments either, so, O'Toole believes, they randomly foreclose on some people to prevent widespread "moral hazard." The rest are left hanging with the help of the government's "extend and pretend" approach to the collapse of the housing bubble.
"We just don't have the political appetite to bail homeowners out," said O'Toole, CEO of ForeclosureRadar.com. "On the other hand, we don't have the political appetite to kick them out."
Last year the Garwoods tried to modify the mortgage on their Pinckney, Mich. home under the Obama administration's Home Affordable Modification Program, which is supposed to put eligible borrowers into a three-month trial period before making the modification "permanent" for five years. The Garwoods' trial period dragged on for nine months before they received a letter of rejection in March. They've been waiting anxiously since then for the day they will finally lose their house.
It may be a while. The average foreclosure now takes 469 days, according to Lender Processing Services, whereas it took 319 days at the beginning of 2009. Many industry analysts say that is due to the Troubled Asset Relief Program, HAMP, and federal accounting-rule changes.
"We weakened accounting standards to allow banks to keep non-paying mortgages in their books at full value," wrote economist Dean Baker, co-director of the progressive Center for Economic and Policy
Research. "Banks also know that they are looking at glutted markets right now, so they have little incentive to take possession of a home and then try to sell it. And, the HAMP and other programs mostly delay foreclosures and hand money to banks, instead of keeping people in their homes."
American Banker reported last week that the procrastination on foreclosures could backfire: "With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults."
Of the 1.5 million trial offers made by servicers participating in HAMP, 616,839 have resulted in cancellations, while only 434,716 have resulted in permanent modifications, according to government data released in August. But Treasury officials have said even if a person isn't able to stay in his or her home, HAMP is a success if assists that person in "transitioning with dignity to more suitable housing."
Borrowers rejected from HAMP are sometimes confused, as the Garwoods are, about the reason for their rejection. (Chase has declined to comment on the Garwoods' situation.)
"There's still a lot of uncertainty about why certain homeowners are receiving help in HAMP and others are not," said Diane Standaert, legislative counsel with the Center for Responsible Lending. Standaert said policymakers should consider allowing bankruptcy judges to write down mortgage principal (a process sometimes known as "cramdown"). "I think this new game of casino that lenders and servicers are playing with homeowners...is not going to cut it."
Thursday, September 2, 2010
In Defensive of Home Ownership
I've read several negative articles lately about home ownership, most based on erroneous data and false assumptions. For example, the writer will construct a scenario where current rent is much less than a current mortgage (which is not the case around here) and then throw in the other costs of home ownership, neglecting the forced-savings of paying down the mortgage and the tax breaks involved, etc., which make ownership a better investment - especially over time.
Another article says that stocks appreciate just as much as homes, but neglects to mention the 5 to 1 leverage of a home, which would give 5 times the return as the stocks and the capital gains on home ownership are exempt from taxes, whereas the stock gains are not - another big advantage, etc.
This is a well-balanced article by one of the authors of the famous Case-Shiller index. These academics have be mostly bearish on the housing market prospects for several years, but now Dr Case is coming around to suggesting to good reasons to buy and own a home at this time.
A Dream House After All
By KARL E. CASE
Boston
IF you read the coverage of the latest figures on the sales of existing homes from the National Association of Realtors, you may well have come to the conclusion that the American dream is dead. It is indeed worrisome that sales in July were down 25 percent from a year ago.
But a little perspective is in order.
First, the bad news. What has happened in the housing markets since 2005 is a catastrophe that may take years for our economy to recover from.
Anyone who believed that home prices never fall has learned a tough lesson. The Case-Shiller price indexes released on Tuesday suggest that since their national peak in 2006, home prices have fallen by 29 percent. Some areas of course look better than others. Las Vegas is down 57 percent from its peak and
Phoenix is down 51 percent. On the other hand, Boston is down just 13.5 percent and Dallas only 4.2 percent.
The effect on household wealth has been huge. Data maintained by the Federal Reserve show that the value of residential real estate directly held by households fell to $16.5 trillion in the first quarter of 2010, down from $22.9 trillion in 2006. It has yet to be determined who will end up bearing those losses. The decline in wealth has substantially reduced consumption, stifling the economy.
Depressing, yes — but the end of a dream? Not exactly. I have never quite understood what the American dream really means when it comes to housing. For some people, it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.
Others, however, think the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills. But those kinds of dreams have become nightmares for the millions of foreclosed property owners who have found themselves sliding toward bankruptcy.
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
During this recession the government has been doing even more on behalf of the American dream. It offered a tax credit of $8,000 to first-time buyers, and eventually $6,500 to other qualified buyers. Not only did the Federal Reserve continue to keep the short-term interest rates it sets at essentially zero, it purchased $1.4 trillion in mortgage-backed securities so that lenders could keep mortgage rates low.
Do the math. Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.
In fact, until about two months ago, it looked as if potential buyers were beginning to understand all these advantages and that the market was turning around. By May 2009, housing prices had stopped falling in a majority of the metropolitan areas surveyed in the Case-Shiller index. Sales were also up. In 2008, 4.9 million existing homes were sold. In 2009, the figure rose to 5.2 million; last November, sales hit an annual rate of 6.5 million (a boom-time number). Even new construction showed a pulse.
So, what happened to kill the momentum? For one thing, the first-time buyer credit expired at the end of April. And some longer-term demographic changes may also be affecting the housing market.
In the next several years, the Census Bureau and other demographers project that the number of American households will increase by 1 to 1.5 million each year. With new construction sagging, we should be experiencing a tightening market with low vacancy, as has occurred in every housing cycle since World War II. But instead of falling, vacancy rates remain at near-record levels.
My guess is that the number of households has not been growing as much as projected and may even be falling. We won’t know for certain until the 2010 census is complete. This figure depends on many factors: immigration, emigration, the age distribution of the population and the number of young adults staying at home or doubling up. Unemployment is high, and we know that without jobs people tend to move in with Mom and Dad. And we don’t make immigration easy, even for those with advanced degrees who would be most likely to enter the housing market. None of this bodes well for a quick recovery.
While demographic trends are uncertain, one important reason for the recent downturn is clear: The steady drip of bad news about the economy has sapped the confidence of buyers, sellers and lenders. And there is no understating the importance of expectations and confidence in this industry.
Real estate sales are unlike other financial transactions. You can place a rough inherent value on a stock or bond by looking at fundamentals: a company’s profits, price-to-earnings ratios, quality of its products and management, and so forth. But a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision.
And emotions can change on a dime. To try to track moods and expectations as part of our Case-Shiller data, the economist Robert Shiller and I send out 2,000 questionnaires each year to recent homebuyers in San Francisco, Los Angeles, Milwaukee and Boston, asking them what they think is likely to happen to the value of their houses over the next year.
In 2005, respondents felt on average that prices would rise 9.6 percent. In 2008, they anticipated a small drop. In 2009, the figure turned positive again in all four cities, with an average anticipated gain of 2.2 percent. We have just tabulated this spring’s survey, which found that homebuyers anticipate a gain of 5.2 percent in the next year.
In a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Thus it doesn’t take a change in mood of a large number of buyers to change the overall direction of the market.
This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Karl E. Case is a professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index.
Another article says that stocks appreciate just as much as homes, but neglects to mention the 5 to 1 leverage of a home, which would give 5 times the return as the stocks and the capital gains on home ownership are exempt from taxes, whereas the stock gains are not - another big advantage, etc.
This is a well-balanced article by one of the authors of the famous Case-Shiller index. These academics have be mostly bearish on the housing market prospects for several years, but now Dr Case is coming around to suggesting to good reasons to buy and own a home at this time.
A Dream House After All
By KARL E. CASE
Boston
IF you read the coverage of the latest figures on the sales of existing homes from the National Association of Realtors, you may well have come to the conclusion that the American dream is dead. It is indeed worrisome that sales in July were down 25 percent from a year ago.
But a little perspective is in order.
First, the bad news. What has happened in the housing markets since 2005 is a catastrophe that may take years for our economy to recover from.
Anyone who believed that home prices never fall has learned a tough lesson. The Case-Shiller price indexes released on Tuesday suggest that since their national peak in 2006, home prices have fallen by 29 percent. Some areas of course look better than others. Las Vegas is down 57 percent from its peak and
Phoenix is down 51 percent. On the other hand, Boston is down just 13.5 percent and Dallas only 4.2 percent.
The effect on household wealth has been huge. Data maintained by the Federal Reserve show that the value of residential real estate directly held by households fell to $16.5 trillion in the first quarter of 2010, down from $22.9 trillion in 2006. It has yet to be determined who will end up bearing those losses. The decline in wealth has substantially reduced consumption, stifling the economy.
Depressing, yes — but the end of a dream? Not exactly. I have never quite understood what the American dream really means when it comes to housing. For some people, it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.
Others, however, think the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills. But those kinds of dreams have become nightmares for the millions of foreclosed property owners who have found themselves sliding toward bankruptcy.
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
During this recession the government has been doing even more on behalf of the American dream. It offered a tax credit of $8,000 to first-time buyers, and eventually $6,500 to other qualified buyers. Not only did the Federal Reserve continue to keep the short-term interest rates it sets at essentially zero, it purchased $1.4 trillion in mortgage-backed securities so that lenders could keep mortgage rates low.
Do the math. Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.
In fact, until about two months ago, it looked as if potential buyers were beginning to understand all these advantages and that the market was turning around. By May 2009, housing prices had stopped falling in a majority of the metropolitan areas surveyed in the Case-Shiller index. Sales were also up. In 2008, 4.9 million existing homes were sold. In 2009, the figure rose to 5.2 million; last November, sales hit an annual rate of 6.5 million (a boom-time number). Even new construction showed a pulse.
So, what happened to kill the momentum? For one thing, the first-time buyer credit expired at the end of April. And some longer-term demographic changes may also be affecting the housing market.
In the next several years, the Census Bureau and other demographers project that the number of American households will increase by 1 to 1.5 million each year. With new construction sagging, we should be experiencing a tightening market with low vacancy, as has occurred in every housing cycle since World War II. But instead of falling, vacancy rates remain at near-record levels.
My guess is that the number of households has not been growing as much as projected and may even be falling. We won’t know for certain until the 2010 census is complete. This figure depends on many factors: immigration, emigration, the age distribution of the population and the number of young adults staying at home or doubling up. Unemployment is high, and we know that without jobs people tend to move in with Mom and Dad. And we don’t make immigration easy, even for those with advanced degrees who would be most likely to enter the housing market. None of this bodes well for a quick recovery.
While demographic trends are uncertain, one important reason for the recent downturn is clear: The steady drip of bad news about the economy has sapped the confidence of buyers, sellers and lenders. And there is no understating the importance of expectations and confidence in this industry.
Real estate sales are unlike other financial transactions. You can place a rough inherent value on a stock or bond by looking at fundamentals: a company’s profits, price-to-earnings ratios, quality of its products and management, and so forth. But a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision.
And emotions can change on a dime. To try to track moods and expectations as part of our Case-Shiller data, the economist Robert Shiller and I send out 2,000 questionnaires each year to recent homebuyers in San Francisco, Los Angeles, Milwaukee and Boston, asking them what they think is likely to happen to the value of their houses over the next year.
In 2005, respondents felt on average that prices would rise 9.6 percent. In 2008, they anticipated a small drop. In 2009, the figure turned positive again in all four cities, with an average anticipated gain of 2.2 percent. We have just tabulated this spring’s survey, which found that homebuyers anticipate a gain of 5.2 percent in the next year.
In a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Thus it doesn’t take a change in mood of a large number of buyers to change the overall direction of the market.
This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Karl E. Case is a professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index.
Wednesday, August 4, 2010
Rehabbing for Profit - Now is a Good Time
Here is a good article about rehabbing REOS for Profit
I’ve been looking into this locally. REO means bank owned, but the best deals seem to be at the foreclosure auction sales.
The local scene is somewhat different than what is described in the article. Yes, some people rehab rough homes, keep them and rent them, but others people have been successfully buying homes at auction (for less than the mortgage amount), fixing them up and selling them for a good profit on the open market.
This benefits the market, because rough homes which would not qualify for financing do not come on the market and sell for low prices, the fixed up homes command good current market prices and the new owners are pleased to get homes in good, updated condition at those prices.
I was concerned that the lapse of the home-buyer tax credit might turn the market down. It has hit prices a bit, but not significantly. Fixed up homes at reasonable prices are still selling well.
This article is from a foreclosure listing service. I subscribe to a similar service and get search pre-foreclosure, foreclosure sale and REO listings for you.
Rehabbing REOs for More ROI
By Octavio Nuiry
Staff Writer
Attention foreclosure buyers: Plenty of roughed-up repos are yours for the taking. From the hills of San Francisco, Calif., to the sands of Cape Coral, Fla., repo rehabbers are snagging discounted digs before the sector snaps back. Cash-strapped lenders, anxious to shore up their depleted balance sheets, are slashing prices and accepting lowball offers, according to investors and brokers across the country.
As foreclosures skyrocket, a growing number of investors are becoming enamored with the idea of buying up foreclosed properties, fixing them up, renting them out, getting them to cash flow until the market turns or selling them for a tidy profit.
Consider repo rehabber Jeremy Burgess. Burgess, a 30-year old real estate investor from Washington state who moved to Detroit, Mich., in 2007, is finding real estate gold in Southeastern Michigan. Burgess – who started real estate company Urban Detroit Wholesalers with his wife, Jeanna Kiehle, and partner Jared Pomranky three years ago — buys, renovates, then flips properties wholesale to out-of-state investors or rents them to locals. Since 2007, Burgess has expanded his business despite the bust, closing more than 150 deals. He views the downturn as an opportunity to build his real estate empire and distinguish his firm from others. He typically renovates 12 to 15 properties a month, and is working on seven flips right now.
How does he do it?
Rehabbing Just Right
Burgess uses four filters to home in on prime REO investments: First, he clusters all his purchases in just two ZIP codes – 48235 and 48221 – on the west side of Detroit. Secondly, he seeks neighborhoods where homeownership is 70 percent or higher. Third, he looks for areas where 50 percent of the homeowners earn $35,000 annually or more a year. Finally, he searches for communities where families have two or more kids with at least a secondary education or higher.
"This helps me narrow down my investment," claims Burgess, who buys clean, well-kept, foreclosed homes in good or up-and-coming middle-class neighborhoods. "It allows me to cut out 80 percent of the properties I see."
Burgess said he has four or five real estate agents bird-dogging properties for him, and the leads they generate are sent to his assistant, who he trained how to spot repo gems. Asked what makes a top-notch repo rehabber, Burgess said: "First, you need an awesome team on the ground. Second, a lot of people under-rehab, which gets you 30 to 40 percent less in rents or resale value. And don’t over-rehab."
He buys Detroit foreclosures for a mere $12,000 – and pays all-cash. He and his partner then hire a non-profit group, Motor City Blight Busters, to do the rehab work, saving thousands on labor costs. Motor City hires and trains local laborers to work as apprentices on the job, keeping costs down. Typically he puts $13,000 to $17,000 worth of improvements into each home, replacing the roof, windows, renovating bathrooms, kitchens, adding new light fixtures, new doors, painting and landscaping.
"I have 14 rentals right now," said Burgess, noting that his company can get a 12 to 20 percent return on its investment. "Right now 70 percent of my business is wholesaling foreclosures to out-of-state investors. I have 13 wholesale deals I’m working on now."
He said average rents in Detroit are $800 to $900 a month. Rental properties generate $300 a month each in positive cash flow.
I’ve been looking into this locally. REO means bank owned, but the best deals seem to be at the foreclosure auction sales.
The local scene is somewhat different than what is described in the article. Yes, some people rehab rough homes, keep them and rent them, but others people have been successfully buying homes at auction (for less than the mortgage amount), fixing them up and selling them for a good profit on the open market.
This benefits the market, because rough homes which would not qualify for financing do not come on the market and sell for low prices, the fixed up homes command good current market prices and the new owners are pleased to get homes in good, updated condition at those prices.
I was concerned that the lapse of the home-buyer tax credit might turn the market down. It has hit prices a bit, but not significantly. Fixed up homes at reasonable prices are still selling well.
This article is from a foreclosure listing service. I subscribe to a similar service and get search pre-foreclosure, foreclosure sale and REO listings for you.
Rehabbing REOs for More ROI
By Octavio Nuiry
Staff Writer
Attention foreclosure buyers: Plenty of roughed-up repos are yours for the taking. From the hills of San Francisco, Calif., to the sands of Cape Coral, Fla., repo rehabbers are snagging discounted digs before the sector snaps back. Cash-strapped lenders, anxious to shore up their depleted balance sheets, are slashing prices and accepting lowball offers, according to investors and brokers across the country.
As foreclosures skyrocket, a growing number of investors are becoming enamored with the idea of buying up foreclosed properties, fixing them up, renting them out, getting them to cash flow until the market turns or selling them for a tidy profit.
Consider repo rehabber Jeremy Burgess. Burgess, a 30-year old real estate investor from Washington state who moved to Detroit, Mich., in 2007, is finding real estate gold in Southeastern Michigan. Burgess – who started real estate company Urban Detroit Wholesalers with his wife, Jeanna Kiehle, and partner Jared Pomranky three years ago — buys, renovates, then flips properties wholesale to out-of-state investors or rents them to locals. Since 2007, Burgess has expanded his business despite the bust, closing more than 150 deals. He views the downturn as an opportunity to build his real estate empire and distinguish his firm from others. He typically renovates 12 to 15 properties a month, and is working on seven flips right now.
How does he do it?
Rehabbing Just Right
Burgess uses four filters to home in on prime REO investments: First, he clusters all his purchases in just two ZIP codes – 48235 and 48221 – on the west side of Detroit. Secondly, he seeks neighborhoods where homeownership is 70 percent or higher. Third, he looks for areas where 50 percent of the homeowners earn $35,000 annually or more a year. Finally, he searches for communities where families have two or more kids with at least a secondary education or higher.
"This helps me narrow down my investment," claims Burgess, who buys clean, well-kept, foreclosed homes in good or up-and-coming middle-class neighborhoods. "It allows me to cut out 80 percent of the properties I see."
Burgess said he has four or five real estate agents bird-dogging properties for him, and the leads they generate are sent to his assistant, who he trained how to spot repo gems. Asked what makes a top-notch repo rehabber, Burgess said: "First, you need an awesome team on the ground. Second, a lot of people under-rehab, which gets you 30 to 40 percent less in rents or resale value. And don’t over-rehab."
He buys Detroit foreclosures for a mere $12,000 – and pays all-cash. He and his partner then hire a non-profit group, Motor City Blight Busters, to do the rehab work, saving thousands on labor costs. Motor City hires and trains local laborers to work as apprentices on the job, keeping costs down. Typically he puts $13,000 to $17,000 worth of improvements into each home, replacing the roof, windows, renovating bathrooms, kitchens, adding new light fixtures, new doors, painting and landscaping.
"I have 14 rentals right now," said Burgess, noting that his company can get a 12 to 20 percent return on its investment. "Right now 70 percent of my business is wholesaling foreclosures to out-of-state investors. I have 13 wholesale deals I’m working on now."
He said average rents in Detroit are $800 to $900 a month. Rental properties generate $300 a month each in positive cash flow.
Wednesday, July 14, 2010
Do You Need TO Hire A Buyer's Agent?
Beware! Don’t just call the number of the agent who is advertising a home for sale. They are representing the seller of the property, not you. You can hire your own buyer’s agent (an agent who represents you and your interests) and they will be paid from the sellers anyway. It will not cost you anything and may save you a bundle.
This is an article from the FHA (The Federal Gov.) about when and how to hire a Real Estate agent to represent you when you are looking to purchase property.
Which comes first? The Realtor or the house?
Many times when talking to people about buying a home this question inevitably comes up. Why do I need a real estate agent if I don't have a house picked out? Or why can't I just use the one with the sign in the yard?
Most people tend to rank real estate agents right up there with lawyers and dentists. Ok, maybe not that bad. Perhaps buyers feel they will be pushed into something by the Realtor. Maybe they think there is a special incentive that the Realtor gets by steering a buyer to certain properties. Most of the fears that buyers have about Realtors are just plane false. It could also be due to a lack of basic knowledge on how the process works.
When a property is listed for sale, most of the time the commission that the seller is willing to pay is set. (The common exception to this is HUD Repossessions which we will explain later.) The commission to sell the home is usually around 6% of the sales price. So if you are a buyer and walk into a house for sale without your own Realtor, the Realtor that put the sign in the yard is going to make the entire 6% commission of the sales price. Does he have an incentive to get you to pay the highest price possible? Sure, he works for the seller. The more you pay, the happier his client is. And the more you pay, the higher the commission for the realtor. There are things called dual agency and some other technical stuff, but if your impression is that the seller's realtor has your best interest at heart you are misguided. The seller's Realtor cannot work for both the seller and the buyer at the same time effectively.
If however, you hire your own real estate agent to help negotiate the transaction, then the 6% commission is generally split between the two real estate agents so each Realtor makes 3%. The seller is still paying the same amount regardless of how many Realtors are involved. The big difference here is that your real estate agent's job is to represent your interest only. They want to get the deal done for you! If you are a happy client, you are likely to refer business to them for doing a good job.
Some people might feel that the real estate agent is pushing them to pay a higher price because then they get a higher commission. Rarely would this ever be the case. Let's say the difference in what you want to pay and what you agent is recommending is as much as $10,000. The commission on that increase is only $300. Most agents split that with their real estate broker so they get about $150. Would it be worth $150 in extra income to possibly lose a sale? Remember that the difference was $10,000. Most price differences are usually just a couple of thousand dollars apart.
If you want a real estate agent to work hard for you in finding the perfect home at the right price - you need to be loyal to them. No real estate agent wants to spend hours researching information for a buyer, only to have them go use another real estate agent. One way to show that you are serious about working with an agent is to sign a "Buyers Brokerage Agreement." This document basically states that you will work only with them in finding a house, and if you go off and use another agent without first getting out of the contract, then you owe the agent a commission. You will find that by using this contract you get more time and effort on your agent's part.
However, before you ever sign one of these contracts you want to make sure that this is the real estate agent and brokerage company that you want to work with. You should interview the agent. Ask questions about their typical deals, typical clients, experience, communication style, and anything else you feel is relevant. Remember you are hiring them to work for you.
This is an article from the FHA (The Federal Gov.) about when and how to hire a Real Estate agent to represent you when you are looking to purchase property.
Which comes first? The Realtor or the house?
Many times when talking to people about buying a home this question inevitably comes up. Why do I need a real estate agent if I don't have a house picked out? Or why can't I just use the one with the sign in the yard?
Most people tend to rank real estate agents right up there with lawyers and dentists. Ok, maybe not that bad. Perhaps buyers feel they will be pushed into something by the Realtor. Maybe they think there is a special incentive that the Realtor gets by steering a buyer to certain properties. Most of the fears that buyers have about Realtors are just plane false. It could also be due to a lack of basic knowledge on how the process works.
When a property is listed for sale, most of the time the commission that the seller is willing to pay is set. (The common exception to this is HUD Repossessions which we will explain later.) The commission to sell the home is usually around 6% of the sales price. So if you are a buyer and walk into a house for sale without your own Realtor, the Realtor that put the sign in the yard is going to make the entire 6% commission of the sales price. Does he have an incentive to get you to pay the highest price possible? Sure, he works for the seller. The more you pay, the happier his client is. And the more you pay, the higher the commission for the realtor. There are things called dual agency and some other technical stuff, but if your impression is that the seller's realtor has your best interest at heart you are misguided. The seller's Realtor cannot work for both the seller and the buyer at the same time effectively.
If however, you hire your own real estate agent to help negotiate the transaction, then the 6% commission is generally split between the two real estate agents so each Realtor makes 3%. The seller is still paying the same amount regardless of how many Realtors are involved. The big difference here is that your real estate agent's job is to represent your interest only. They want to get the deal done for you! If you are a happy client, you are likely to refer business to them for doing a good job.
Some people might feel that the real estate agent is pushing them to pay a higher price because then they get a higher commission. Rarely would this ever be the case. Let's say the difference in what you want to pay and what you agent is recommending is as much as $10,000. The commission on that increase is only $300. Most agents split that with their real estate broker so they get about $150. Would it be worth $150 in extra income to possibly lose a sale? Remember that the difference was $10,000. Most price differences are usually just a couple of thousand dollars apart.
If you want a real estate agent to work hard for you in finding the perfect home at the right price - you need to be loyal to them. No real estate agent wants to spend hours researching information for a buyer, only to have them go use another real estate agent. One way to show that you are serious about working with an agent is to sign a "Buyers Brokerage Agreement." This document basically states that you will work only with them in finding a house, and if you go off and use another agent without first getting out of the contract, then you owe the agent a commission. You will find that by using this contract you get more time and effort on your agent's part.
However, before you ever sign one of these contracts you want to make sure that this is the real estate agent and brokerage company that you want to work with. You should interview the agent. Ask questions about their typical deals, typical clients, experience, communication style, and anything else you feel is relevant. Remember you are hiring them to work for you.
Thursday, July 1, 2010
Homebuyer Tax Credit Closing Deadline Extended
Re: NAR Update: Tax Credit Deadline Extended; Flood Insurance Program Reinstated
Dear fellow REALTOR®,
I am happy to report that Congress has passed a bill extending the Homebuyer Tax Credit closing deadline to September 30, 2010. This is a huge win for REALTORS® and homebuyers, and NAR worked closely with members of Congress to make it happen.
The extension applies only to transactions that had ratified contracts in place as of April 30, 2010, and have not yet closed. There will be no gap between June 30 and the date the President signs the bill into law.
Additionally, Congress has extended the National Flood Insurance Program (NFIP) through September 30th. The bill is retroactive and will cover the lapse period from June 1, 2010, to the date the law is enacted. NAR will continue to work with Congress on the NFIP Reform bill, and we will keep you posted on those efforts.
For additional information on both the tax credit deadline and the NFIP, visit Realtor.org/Government_Affairs.
Neither of these bills would have passed without your support. Nearly 83,000 REALTORS® responded to our latest Call for Action, sending more than 250,000 letters to Congress asking them to extend the National Flood Insurance Program. I know many of you also raised your voices in support of extending the tax credit deadline.
Dear fellow REALTOR®,
I am happy to report that Congress has passed a bill extending the Homebuyer Tax Credit closing deadline to September 30, 2010. This is a huge win for REALTORS® and homebuyers, and NAR worked closely with members of Congress to make it happen.
The extension applies only to transactions that had ratified contracts in place as of April 30, 2010, and have not yet closed. There will be no gap between June 30 and the date the President signs the bill into law.
Additionally, Congress has extended the National Flood Insurance Program (NFIP) through September 30th. The bill is retroactive and will cover the lapse period from June 1, 2010, to the date the law is enacted. NAR will continue to work with Congress on the NFIP Reform bill, and we will keep you posted on those efforts.
For additional information on both the tax credit deadline and the NFIP, visit Realtor.org/Government_Affairs.
Neither of these bills would have passed without your support. Nearly 83,000 REALTORS® responded to our latest Call for Action, sending more than 250,000 letters to Congress asking them to extend the National Flood Insurance Program. I know many of you also raised your voices in support of extending the tax credit deadline.
Wednesday, June 30, 2010
Is It The Bottom?
This blog is mostly concerned with the local Sonoma County market, but once in awhile I'll include other information. This is hot off the wires from one of my favorite Real Estate gurus, Adiel Gorel of ICG.
He has been helping people invest in different parts of the country for many years and here are some notes from a recent conference call:
Is it the bottom?
Maybe. Hard to predict precisely, but prices are very far down from peaks and have generally stabilized.
Some homes are selling for far less than construction costs.
Some examples:
$70k to buy .
It would cost $160k to build and would sell with builder’s profit in addition to costs.
Shadow inventory is often talked about. (Bank owned by not on the market.) The area graphs show that they bank owned properties are going down a bit as a % of the total in places like Phoenix.
Financing is the challenge:
Banks could get softer or harder. Too many variables to predict.
Logic and the banks do not co-exist. We may not see the complete picture.
If you own less than 4 properties with loans, you can get a loan
If you own more than 4 properties with loans on them, 25-30% down
or buy with cash, even use retirement account money.
Once banks relax a bit, you can refi. and get your money back
There are some special situations with builder/developer financing.
Cash flow is strong, even with 20% down because of low mortgage interest rates and
Average rental prices have come down 10-15%
Some housing prices have come down up to 70%
Markets:
CA and NY some areas
Love Sacramento market
But little left. Too many investors
Likes diversified economy and bigger areas.
AZ, NV, FL , he likes best
Las Vegas
VA loans with 5% down.
Prices down 75% from peak.
Still good long term demographic projections.
Phoenix
Uptick from 2009
Does not think the new proposed law in AZ will affect it long term.
Still good long term demographic projections.
Florida:
Orlando
$40 to $43 per ft for fairly new homes.
Bank owned properties.
$60k priced homes.
Slightly better than Tampa or Jacksonville, because of better economy due to tourism and conventions (which are starting to come back.)
Still good long term demographic projections.
Atlanta
Non-recourse loans available.
20-22% down, new homes, cash flow. Tenant with option to buy.
Oklahoma City
5 yr loan with 25% down
30 yr loan, 40% down
$50-60k - to 100k
Denver
Some flipping there
A lot of patience and a strong stomach
Other areas,
Like Washington, Idaho, the deals are not generally there. There are some foreclosures, but prices have not come down so much generally.
Dallas has some malaise, not as good bargains. Did not go up so much and has not come down so much.
Still likes single-family homes for most investors.
Duplexes and 4 plexus: be careful of the areas for these.
Apartment buildings
More like operating a business.
Best are 150 to 300 units with onsite managers.
Sometimes smaller complexes are OK if managed by a specialty firm which manages several of these.
Flips:
Does not recommend short term flips as much as longer term:
Safer, but not as quick, to keep for a year or 2.
Buy quality:
Not too fancy areas, but good solid areas with school districts and good value.
You can buy junk for less, but there is more risk.
Existing properties:
Some mods are going through.
Short refis. These are rare.
$5000 fee or 1% of loan
What to do with investment properties currently owned with negative cash flow?
If only $100 to $200 negative and you have good credit to preserve, keep them.
If not, you need to consider individual situations.
Monday, June 28, 2010
Mortgage Rates at 50-year Lows...if you can get them
As this article says, mortgage rates are indeed at historic lows, but.....you need to have cash or a good job and credit to get that great financing.
Local prices are stable to increasing in the lower segment of the market (under $400k) and great discounts are available for some higher priced properties.
It is indeed a great time to buy.....if you can qualify. Give us a call. We work with a couple of great loan people who can do a no-cost evaluation of your situation.
Mortgage rates hit 50-year lows and it likely won't matter
Jun 25th 2010 at 3:00PM
The good news: Mortgage rates dropped to their lowest levels in more than 50 years.
The bad news: You need to have a job and impeccable credit to get them.
The average 30-year fixed loan rate tumbled to 4.69% this week, down from 4.75% last week, Freddie Mac reported. These are the lowest rates since the mortgage giant began keeping records in 1971 and the last time rates were lower was in the 1950s.
Nobody expects the falling rates to matter much. They aren't likely to snap the housing market back to life. And they aren't likely to benefit anyone who is unemployed, underemployed or who has had their credit rating dinged in the recession. Sales of new homes fell 33% after the federal tax credit incentives expired at the end of April and while existing home sales are still showing better numbers, experts say those numbers are being buoyed by the tax credit buyers still in the pipeline and trying to close escrow.
The bad news: You need to have a job and impeccable credit to get them.
The average 30-year fixed loan rate tumbled to 4.69% this week, down from 4.75% last week, Freddie Mac reported. These are the lowest rates since the mortgage giant began keeping records in 1971 and the last time rates were lower was in the 1950s.
Nobody expects the falling rates to matter much. They aren't likely to snap the housing market back to life. And they aren't likely to benefit anyone who is unemployed, underemployed or who has had their credit rating dinged in the recession. Sales of new homes fell 33% after the federal tax credit incentives expired at the end of April and while existing home sales are still showing better numbers, experts say those numbers are being buoyed by the tax credit buyers still in the pipeline and trying to close escrow.
As long as prospective home buyers are worried about their financial well-being and job security, many will be reluctant to take the plunge, Greg McBride, senior financial analyst with Bankrate.com, told MSNBC.
The falling rates are tied to investors nervous about Europe's debt crisis and the global economy and who have shifted their money into safe Treasury bonds. Mortgage rates generally track Treasury bonds.
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