Finally, the wave of inventory shortages that has swept the country for several years has made it to Connecticut. In our case, years of not building new product, and a delayed generation of first-time homebuyers has combined to create a scarcity of homes for sale in South
Central Connecticut. That means that those looking are jumping on whatever new listings there are, and causing immediate offers to occur on many homes. And we all know what that leads to--multiple offers!
Maybe surprisingly, many real estate professionals find markets like that as stressful as, or even more stressful than, poorer markets,where nothing is selling and sellers are unhappy and sometimes demanding. In the markets where inventory is scarce, people are forced to make quick decisions on offers, both making and accepting them, and that is difficult as well. Buyers may get caught up in the thrill of the chase, or may start to bid high in order to stay in the game, often after losing other bidding wars. This creates a feeding frenzy, maybe not quite like tulips in Holland hundreds of years ago, but the same idea on a smaller platform. Buyers drive prices up with bidding wars, sometimes using escalator clauses, which I will discuss in another column. Sellers may counter more than one buyer, and then have to be careful not to sell a home twice; alternatively, they may accept an early offer, then regret it, and try to accept another one later, by getting out of the first one. Negotiations on inspections and mortgage delays are complicated by backup offers in the wings, and will change the dynamics of any discussion. That can leave buyers in a situation that they either can't afford, or didn't really want as much as they thought they did. Both scenarios lead to unhappiness down the road.
If you are a seller, think in advance about the number you will accept, and don't be a pig. Take that offer if and when it comes along, and don't negotiate with more than one person at a time. If you are a buyer, decide how high you will go up front, and don't get sucked into going up, if you can't afford it. Don't then think that you deserve to ask for the moon during inspections, because you may have paid more than you expected. If all of these guidelines are followed, then both parties should be happy--the sellers with a quick and successful sale, and the buyers with a happy new home.
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
Wednesday, April 17, 2019
Monday, November 26, 2018
Renegotiation is the New Normal
Sellers may be surprised, and not particularly happy, to learn that today, more often than not, the sales price listed on the first contract signed is not the same as the sales price at the closing. It's just a fact of life for us now, because so many issues can arise between the accepted offer and the final transaction that occurs.
Inspections come right after the offer is signed, and today's buyers are likely to expect that everything that gets pointed out as an issue in any inspections will be paid for by the sellers. That wasn't the case years ago, when buyers viewed work to be done as something that they were taking on in the purchase, unless the problems were structural. Although the sellers don't always agree to every item, especially when it involves questions of taste and preference, but they often are asked to give money back.
Mortgages now can also provide for funds from the seller. Various programs differ greatly, but there is a range of items, from inspections to closing costs, that banks and mortgage companies may allow the buyers to have paid by the sellers, and that range goes up to 6% of the mortgage amount on the high end. While everything must be disclosed in the closing documents, it can prove to be an additional hit to the sellers.
Appraisals, usually ordered for the lender, can cause changes, if the home does not appraise for the amount being requested in a mortgage. If the sellers can't pay the difference, the sellers might decide to lower the price. This, as with money toward inspection items, is less likely to occur if there are backup offers that could be accepted, if the buyers do not want to leave the contract price alone.
Finally, things that break or go wrong between the time of the accepted offer and the closing are the responsibility of the sellers, and, while it doesn't happen that commonly, the reason for the preclosing walkthrough is to make sure that the home is in the same condition as when it went under contract.
Although this list may strike fear in the hearts of sellers, the real lesson is that you shouldn't be angry or unprepared with an answer if any of these items are raised. Once you know that there can be bumps along the way, it's easier to accept changes, or at least consider them rationally.
Inspections come right after the offer is signed, and today's buyers are likely to expect that everything that gets pointed out as an issue in any inspections will be paid for by the sellers. That wasn't the case years ago, when buyers viewed work to be done as something that they were taking on in the purchase, unless the problems were structural. Although the sellers don't always agree to every item, especially when it involves questions of taste and preference, but they often are asked to give money back.
Mortgages now can also provide for funds from the seller. Various programs differ greatly, but there is a range of items, from inspections to closing costs, that banks and mortgage companies may allow the buyers to have paid by the sellers, and that range goes up to 6% of the mortgage amount on the high end. While everything must be disclosed in the closing documents, it can prove to be an additional hit to the sellers.
Appraisals, usually ordered for the lender, can cause changes, if the home does not appraise for the amount being requested in a mortgage. If the sellers can't pay the difference, the sellers might decide to lower the price. This, as with money toward inspection items, is less likely to occur if there are backup offers that could be accepted, if the buyers do not want to leave the contract price alone.
Finally, things that break or go wrong between the time of the accepted offer and the closing are the responsibility of the sellers, and, while it doesn't happen that commonly, the reason for the preclosing walkthrough is to make sure that the home is in the same condition as when it went under contract.
Although this list may strike fear in the hearts of sellers, the real lesson is that you shouldn't be angry or unprepared with an answer if any of these items are raised. Once you know that there can be bumps along the way, it's easier to accept changes, or at least consider them rationally.
Monday, March 5, 2018
Be Prepared to Jump
One of the toughest things for us to combat over the past few years has been the sense that buyers have had, that they can take all the time they want to, while making decisions. It seemed to many that, not only would the same property be available, but that others that might be as good or better would come along all the time. That made it difficult to put transactions together.
Now we seem to be joining the rest of the country in having low inventory. In many price ranges, there simply isn't enough available to satisfy the demand. This is particularly true at the first-time homebuyer price points. In some places around the country, time on the market is measured in hours, or perhaps in days. We're not used to that here, to say the least.
Buyers need to get ready to make decisions on homes that they see, before others make offers, or at the same time. It helps to have a list of things that must be true about a new home you would buy, in order of how important each item is. It's also really useful to rank each home as you see it, and, while remembering that nothing is perfect, to eliminate any that do not bump off any of your current top three choices.
Sometimes, it can be crucial to have someone on hand to evaluate changes or additions that you would require, and get a price right away. Arranging inspections quickly can also give you an advantage, as well of course as a prequalification. The most important factor, however, is your own willingness to pull the trigger. More people regret not making an offer in time, than they do those that they make.
This is the point at which I come back to one of my favorite pieces of advice: Bid the amount that you would be unhappy to hear that it sold for, to someone else. That's your true estimate of the property's value to you. And be prepared to come to that number in relatively short order. That's becoming more important every day in our current market.
Now we seem to be joining the rest of the country in having low inventory. In many price ranges, there simply isn't enough available to satisfy the demand. This is particularly true at the first-time homebuyer price points. In some places around the country, time on the market is measured in hours, or perhaps in days. We're not used to that here, to say the least.
Buyers need to get ready to make decisions on homes that they see, before others make offers, or at the same time. It helps to have a list of things that must be true about a new home you would buy, in order of how important each item is. It's also really useful to rank each home as you see it, and, while remembering that nothing is perfect, to eliminate any that do not bump off any of your current top three choices.
Sometimes, it can be crucial to have someone on hand to evaluate changes or additions that you would require, and get a price right away. Arranging inspections quickly can also give you an advantage, as well of course as a prequalification. The most important factor, however, is your own willingness to pull the trigger. More people regret not making an offer in time, than they do those that they make.
This is the point at which I come back to one of my favorite pieces of advice: Bid the amount that you would be unhappy to hear that it sold for, to someone else. That's your true estimate of the property's value to you. And be prepared to come to that number in relatively short order. That's becoming more important every day in our current market.
Tuesday, January 27, 2015
Real Estate, The Fed, and You
The Chairwoman of the Federal Reserve has been making serious noises about raising the cost of funds, and causing interest rates to rise at long last. Although the timing is not certain, it does seem clear that rising rates should start by the middle of this year. Obviously, that is big news for real estate, since mortgage rates direct affect sales of properties; as the cost of monthly ownership goes up, people can afford to pay less for the home or building, and the number of people who can qualify at all goes down. Clearly, although there are broad signs of economic improvement across most of the country, the Fed is worried about disturbing the fragile real estate recovery, and rightly so. However, rates have been so low for so long that there seems to be no other alternative, so the question is simply when it will happen.
The funny thing about the effect of rising mortgage rates on real estate is that buyers don't seem to be spurred by talk of rising rates. Until rates actually go up--then they rush to act. Therefore, in a way, rates going up will help us, since our problem locally is that languishing prices have caused buyers to hesitate and dither, since they don't seem to be worried that anything they are considering will get sold while they are on hold. Once they see the consequences of having waited, they begin to feel some urgency. And that causes bidding wars, competition, and, ultimately, rising prices. The buyers then face a double whammy, of rising mortgage costs and increased sales prices. So why don't they act before this begins to happen? Only specialists in consumer behavior know!
The funny thing about the effect of rising mortgage rates on real estate is that buyers don't seem to be spurred by talk of rising rates. Until rates actually go up--then they rush to act. Therefore, in a way, rates going up will help us, since our problem locally is that languishing prices have caused buyers to hesitate and dither, since they don't seem to be worried that anything they are considering will get sold while they are on hold. Once they see the consequences of having waited, they begin to feel some urgency. And that causes bidding wars, competition, and, ultimately, rising prices. The buyers then face a double whammy, of rising mortgage costs and increased sales prices. So why don't they act before this begins to happen? Only specialists in consumer behavior know!
Tuesday, July 1, 2014
Do the Math
There is a famous aphorism that says that there is no certainty in life, except for death and taxes. Taxes turn out to be a big factor in the purchase of property, although we don't really see the certainty involved. Yes, taxes go up over time, but do they go up at the same rate in every city and town? Are they phased in the same way everywhere? Are the same services included? Are the school systems comparable?
People buying property care a lot about what the taxes are, since what they are really basing affordability on is the amount of the monthly payment of mortgage, interest, insurance, and taxes. While they may know the first two calculations, if they get a fixed-rate mortgage, they tend to overvalue the current information available, and overrate the problem of uncertainty going forward, about all kinds of things. For instance, if you take money out of your savings to purchase a home, and those savings were in the stock market, what are you giving up as an alternative return? You don't know what the stock market will do over the long haul, although you do know that, like real estate, it's generally cyclical. If you buy rather than rent, will the price of your home increase over the period that you own it? Again, you don't know, although that is usually true, especially if you hold it for a long enough time, and if you buy when prices are not at a peak. Will your housing needs remain stable for the foreseeable future? "Foreseeable" would seem to imply that you know what they will be, but life has a way of throwing curve balls, be it a new job, an illness or injury, another child or children, an aging relative, or any number of other variables. You can't know up front what the market will be like when you sell. If you wait to buy, will prices and mortgage rates hold steady? Although we can't know, it's not likely, especially if you wait for a long time. How quickly will rents rise, especially in New Haven, the country's tightest rental market?
I could go on and on, but I've made my point. So, what's a person to do? One of the best things I learned in business school was how to make a decision tree. Since this column does not include a tutorial in econometrics, I'll simplify. Make a list of the uncertainties, then put them each in either the "Buy Now" column, or the "Buy Later" column, depending upon which way they are each likely to lead you. Try to quantify the general risk of each one in monetary terms (e.g., interest rates go up 1% vs. taxes go up 8%), and you will get an idea of what the math tells you. You should, of course, factor in your own particular risk aversion factor (that is, how much uncertainty will bother you), but the numbers will tell you something. If you find yourself arguing with the numbers, you will be telling yourself something that way, because you will be revealing your gut instinct. Whatever you decide, it's time to go with that, and act.
People buying property care a lot about what the taxes are, since what they are really basing affordability on is the amount of the monthly payment of mortgage, interest, insurance, and taxes. While they may know the first two calculations, if they get a fixed-rate mortgage, they tend to overvalue the current information available, and overrate the problem of uncertainty going forward, about all kinds of things. For instance, if you take money out of your savings to purchase a home, and those savings were in the stock market, what are you giving up as an alternative return? You don't know what the stock market will do over the long haul, although you do know that, like real estate, it's generally cyclical. If you buy rather than rent, will the price of your home increase over the period that you own it? Again, you don't know, although that is usually true, especially if you hold it for a long enough time, and if you buy when prices are not at a peak. Will your housing needs remain stable for the foreseeable future? "Foreseeable" would seem to imply that you know what they will be, but life has a way of throwing curve balls, be it a new job, an illness or injury, another child or children, an aging relative, or any number of other variables. You can't know up front what the market will be like when you sell. If you wait to buy, will prices and mortgage rates hold steady? Although we can't know, it's not likely, especially if you wait for a long time. How quickly will rents rise, especially in New Haven, the country's tightest rental market?
I could go on and on, but I've made my point. So, what's a person to do? One of the best things I learned in business school was how to make a decision tree. Since this column does not include a tutorial in econometrics, I'll simplify. Make a list of the uncertainties, then put them each in either the "Buy Now" column, or the "Buy Later" column, depending upon which way they are each likely to lead you. Try to quantify the general risk of each one in monetary terms (e.g., interest rates go up 1% vs. taxes go up 8%), and you will get an idea of what the math tells you. You should, of course, factor in your own particular risk aversion factor (that is, how much uncertainty will bother you), but the numbers will tell you something. If you find yourself arguing with the numbers, you will be telling yourself something that way, because you will be revealing your gut instinct. Whatever you decide, it's time to go with that, and act.
Wednesday, May 28, 2014
Counting Down (or Up) to June 2006 Levels
Although the real estate market everywhere is on the mend, we in Connecticut are proceeding toward normal at a slower pace. The high for prices in our region occurred in June 2006. At last report, our median sales price was still 23% below that peak. Since most of the country is within sight of their previous high, people in our area are among the lucky few who can continue to buy at lower prices. Even if you are selling, those who are trading up would gain more from buying at those levels than they would lose from selling at current prices. When you combine the present cost of mortgages with the sales figures, it remains a great time to buy.
And there's even one more factor in include, which improves even further the current climate, and that's the state of the Greater New Haven rental market. We have the lowest vacancy rate in the country right now, and that tilts the equation even more toward the buying side. Rental rates have gone up 50% in the period where sales prices have declined 23%, making us one of the clearest examples across the United States of a place where rent vs.buy decisions are so stark. So don't kick yourself later. Do it now--buy that property!
And there's even one more factor in include, which improves even further the current climate, and that's the state of the Greater New Haven rental market. We have the lowest vacancy rate in the country right now, and that tilts the equation even more toward the buying side. Rental rates have gone up 50% in the period where sales prices have declined 23%, making us one of the clearest examples across the United States of a place where rent vs.buy decisions are so stark. So don't kick yourself later. Do it now--buy that property!
Wednesday, March 27, 2013
Escalating Offers
So my last blog was about the return of multiple offers, a sure sign of an improving market, but now there's a new twist, and one we've rarely seen before. It's call an "escalating offer", and essentially it says that the offerer will exceed any other offer made on the property, sometimes up to an amount certain, and usually for a specific amount over the other offer. For example, if the home is listed for $550,000, I might offer $5,000 over any other offer, up to $600,000.
These escalators are problematic, legally and ethically. If I'm the listing agent, I can't exercise your higher bid without proving to you what the other offer is. Does that violate the privacy of the first buyer? Also, how do we know what makes a better offer? Will you also match the mortgage, inspection, and closing clauses? If the first offerer responds in kind, don't you now have an advantage, since you know what the terms of the first offer are?
Additionally, if I am the listing agent, acting on behalf of the seller, shouldn't I be assuming that your offer is for the highest amount that you'll go? So, if you say you'll match up to $600,000, and an offer needs a fixed price to be legal, wouldn't that be the only fixed amount you've indicated? So isn't your offer really $600,000, since you've indicated that that's how high you'll go to get the property?
All of these questions are food for thought, and likely to be settled over time through a combination of convention and controversy. In the meantime, however, I just wanted to make readers aware of the newest trend in real estate offers. And show you how complicated it is!
These escalators are problematic, legally and ethically. If I'm the listing agent, I can't exercise your higher bid without proving to you what the other offer is. Does that violate the privacy of the first buyer? Also, how do we know what makes a better offer? Will you also match the mortgage, inspection, and closing clauses? If the first offerer responds in kind, don't you now have an advantage, since you know what the terms of the first offer are?
Additionally, if I am the listing agent, acting on behalf of the seller, shouldn't I be assuming that your offer is for the highest amount that you'll go? So, if you say you'll match up to $600,000, and an offer needs a fixed price to be legal, wouldn't that be the only fixed amount you've indicated? So isn't your offer really $600,000, since you've indicated that that's how high you'll go to get the property?
All of these questions are food for thought, and likely to be settled over time through a combination of convention and controversy. In the meantime, however, I just wanted to make readers aware of the newest trend in real estate offers. And show you how complicated it is!
Tuesday, May 8, 2012
Lots of Cash
Many more real estate sales lately are for cash. While it's true everywhere in the country, it's particularly true in Connecticut. Can you guess the percentage of people who close with cash? If you guessed 39%, you're right!
While that seems like a lot, and it is, it makes some sense when it's so cumbersome to fill out the paperwork for a mortgage, and when the restrictions are so much tighter. I suspect that some number of those buyers later apply for, and receive, mortgages, especially with rates so low (although they're certainly not losing much in the way of interest on cash, and they don't have a great deal of stability in the stock market).
When there is no mortgage, the closings often happen much sooner. We see people closing in a couple of weeks, once all the inspections are finished. Getting a mortgage later really speeds the process up.
One tricky question, however, is how to know whether the buyer is serious and qualified, without the help of the mortgage qualification letter. It seems strange, but it's sometimes easier to believe that someone is really going to buy if they are borrowing the money, than when they say that they have it in the bank. Not a bad issue to have, I guess, but it has been arising more frequently. The danger of real damage is less, however, when the closing is quick. Nothing's perfect, but cash is king!
While that seems like a lot, and it is, it makes some sense when it's so cumbersome to fill out the paperwork for a mortgage, and when the restrictions are so much tighter. I suspect that some number of those buyers later apply for, and receive, mortgages, especially with rates so low (although they're certainly not losing much in the way of interest on cash, and they don't have a great deal of stability in the stock market).
When there is no mortgage, the closings often happen much sooner. We see people closing in a couple of weeks, once all the inspections are finished. Getting a mortgage later really speeds the process up.
One tricky question, however, is how to know whether the buyer is serious and qualified, without the help of the mortgage qualification letter. It seems strange, but it's sometimes easier to believe that someone is really going to buy if they are borrowing the money, than when they say that they have it in the bank. Not a bad issue to have, I guess, but it has been arising more frequently. The danger of real damage is less, however, when the closing is quick. Nothing's perfect, but cash is king!
Tuesday, March 6, 2012
First-time Buyers
There are lots of first-time buyers in the market now, and they are driving the action. It's clear that it's harder to get a mortgage now than it was when those of us who are older bought our first homes, and the qualification standards are stiffer, even though rates are lower.
Because they are buying for the first time, they are often more hesitant to buy in situations where they might not feel comfortable. Therefore, they often request more in the way of repairs, tests, and allowances for improvements. In addition, having buyers ask for contributions to closing costs is a trend that we have seen in increasing numbers. Sellers should not be insulted, since first-time buyers have no history, so no way of knowing that such a proposition might seem aggressive.
Since beginning buyers often look at more options, open houses have been very popular. There may also be more repeat showings, with relatives and friends coming to weigh in on the potential purchase. The closing can take longer as well, since documentation requests may be unfamiliar and take more time to fulfill.
Whatever the downsides, there is a great upside: They are very motivated to buy and own their own homes, and they are out there!
Because they are buying for the first time, they are often more hesitant to buy in situations where they might not feel comfortable. Therefore, they often request more in the way of repairs, tests, and allowances for improvements. In addition, having buyers ask for contributions to closing costs is a trend that we have seen in increasing numbers. Sellers should not be insulted, since first-time buyers have no history, so no way of knowing that such a proposition might seem aggressive.
Since beginning buyers often look at more options, open houses have been very popular. There may also be more repeat showings, with relatives and friends coming to weigh in on the potential purchase. The closing can take longer as well, since documentation requests may be unfamiliar and take more time to fulfill.
Whatever the downsides, there is a great upside: They are very motivated to buy and own their own homes, and they are out there!
Tuesday, November 29, 2011
Seller Concessions
One of the new realities of the current real estate market is that buyers often ask for concessions, monetary and otherwise, from sellers. It used to be that they asked for things to be included or fixed, based on the inspection. Now, they also may ask for the seller to pay some or all of the closing costs. This is often so that the purchase price is higher, and allows them to qualify for a higher mortgage amount.
We have seen some issues at the closing with these requests. The sellers don't always seem to realize that the purchase price will be the basis for the conveyance tax, the land records, and the commission. It's the amount at the top of the sales contract that governs all those amounts. We, for instance, have other brokers to pay in almost all cases. Sometimes it's a referral, sometimes a co-broke, either inside or outside the company. The commission offered is on the full amount, and we are responsible for it, whether or not the seller made concessions. While I understand why sellers wouldn't always like that, I don't see the difference between a concession made in cash or at closing from a concession made during inspections or even during negotiations. It happens, and it isn't our fault. And we shouldn't have to take the co-broke commission difference out of our pocket.
There are a lot of ways to get upset during the length of a sales transaction. But, please, don't shoot the messenger. We're trying to help.
We have seen some issues at the closing with these requests. The sellers don't always seem to realize that the purchase price will be the basis for the conveyance tax, the land records, and the commission. It's the amount at the top of the sales contract that governs all those amounts. We, for instance, have other brokers to pay in almost all cases. Sometimes it's a referral, sometimes a co-broke, either inside or outside the company. The commission offered is on the full amount, and we are responsible for it, whether or not the seller made concessions. While I understand why sellers wouldn't always like that, I don't see the difference between a concession made in cash or at closing from a concession made during inspections or even during negotiations. It happens, and it isn't our fault. And we shouldn't have to take the co-broke commission difference out of our pocket.
There are a lot of ways to get upset during the length of a sales transaction. But, please, don't shoot the messenger. We're trying to help.
Tuesday, December 14, 2010
Rate Rise Alert
We've been talking about this for months, but it's finally happening. Interest rates are going up. The latest rates are almost half a percent higher than they were a couple of months ago. What does this mean?
First of all, the cost of owning a home with a mortgage goes up when the interest rates rise, meaning that fewer people can afford to purchase a home. It also indicates that, in most cases, buyers can afford to pay less for the same home, since they will qualify for a lower mortgage amount. In a buyers' market, which we are in now, that burden falls on the seller in large part. So, if you are selling, you will almost always receive less for your home when interest rates are higher.
In the larger sense, it could also mean that we are past the bottom of the market. Mortgage rates generally start to rise when things are starting to improve. Some of that is a signal from the stock and bond market that inflation could be a worry, and part is that the government will stop holding rates down if demand increases.
So, just as people often try to time buying an airline ticket to wait as long as possible to buy a non-refundable ticket at the lowest price, and frequently hesitate just a little too long (as I recently did....), you may already have waited past the point where you should have bought that property. Just don't wait any longer. Once things start to turn around, prices can move quickly. Consider this your warning!
First of all, the cost of owning a home with a mortgage goes up when the interest rates rise, meaning that fewer people can afford to purchase a home. It also indicates that, in most cases, buyers can afford to pay less for the same home, since they will qualify for a lower mortgage amount. In a buyers' market, which we are in now, that burden falls on the seller in large part. So, if you are selling, you will almost always receive less for your home when interest rates are higher.
In the larger sense, it could also mean that we are past the bottom of the market. Mortgage rates generally start to rise when things are starting to improve. Some of that is a signal from the stock and bond market that inflation could be a worry, and part is that the government will stop holding rates down if demand increases.
So, just as people often try to time buying an airline ticket to wait as long as possible to buy a non-refundable ticket at the lowest price, and frequently hesitate just a little too long (as I recently did....), you may already have waited past the point where you should have bought that property. Just don't wait any longer. Once things start to turn around, prices can move quickly. Consider this your warning!
Wednesday, November 3, 2010
Home for the Holidays
This is the second of my annual posts. It's another one that is often the same, although this year I might even being writing it a little earlier than usual. It's time to remind those who want to close out the year by finishing a move that we have arrived at the eleventh hour.
By the time a buyer makes an offer, gets it accepted, does his/her inspection, obtains a mortgage and insurance, and closes the property, it will be the end of December. And that's if nothing goes really wrong.
The buying process has always contained some amount of sturm und drang, and there may be a little back and forth negotiation after the inspection results, but it is the mortgage process where the time frames have drastically changed. People who have not financed or refinanced recently will be shocked at the current level of documentation required for getting a mortgage. Often, they even spend time arguing about whether something is necessary--not worth your time, if you try--and it may take some time to produce all that is needed. The appraisal process can also take longer, especially since the low rates mean that there is a great deal of refinancing work being done at the banks now.
Even insurance is more complicated than it used to be. I remember the days when you could call on the day of the closing and get a binder. No more. Flood insurance in particular seems to slow up some transactions, where it is required.
The final point to keep in mind is that the holiday season is often a vacation time and/or a busy time for attorneys. Buyers have to plan ahead a little more to get things closed at the very end of the year.
There's my annual warning, so now it's time to get going!
By the time a buyer makes an offer, gets it accepted, does his/her inspection, obtains a mortgage and insurance, and closes the property, it will be the end of December. And that's if nothing goes really wrong.
The buying process has always contained some amount of sturm und drang, and there may be a little back and forth negotiation after the inspection results, but it is the mortgage process where the time frames have drastically changed. People who have not financed or refinanced recently will be shocked at the current level of documentation required for getting a mortgage. Often, they even spend time arguing about whether something is necessary--not worth your time, if you try--and it may take some time to produce all that is needed. The appraisal process can also take longer, especially since the low rates mean that there is a great deal of refinancing work being done at the banks now.
Even insurance is more complicated than it used to be. I remember the days when you could call on the day of the closing and get a binder. No more. Flood insurance in particular seems to slow up some transactions, where it is required.
The final point to keep in mind is that the holiday season is often a vacation time and/or a busy time for attorneys. Buyers have to plan ahead a little more to get things closed at the very end of the year.
There's my annual warning, so now it's time to get going!
Thursday, October 21, 2010
Back From Boise
I just returned from Idaho, where the national group of independent real estate companies to which I belong was meeting, and I can report that it's scary out there. We have all cut costs, and are continuing to cut costs, finding new businesses and new ways of doing business, and changing our organizations to adapt to a changing world. No one thinks that it's going to get easier in the next couple of years.
We are probably not that different from owners in many industries. When you look at the stock market, it may seem as though times are better, since many are reporting higher earnings. However, when you examine things more closely, most of the improvement comes from cutting costs and laying off employees, not from raising revenues. Especially when you get to smaller companies, that strategy has its limitations. As one member of our group reminded us, you cannot save your way to prosperity.
While the whole country is affected, it's a good time to be in the Midwest. Those in that area say that it's because what doesn't go way up doesn't come way down, and that may be so. Everyone agreed, though, that some ways in which we traditionally made our profits--traditional brokerage, relocation, and commercial sales--are all suffering, and people are increasingly looking to new sources of income--mortgage, property management, and insurance (which, ironically, was fairly recently thought not to be much of a moneymaker for real estate). Short sales continue to affect all parts of the country, with the Midwest again being better than Nevada and other hard-hit markets.
We talked about the trends, the harsh realities, and the future of our industry. Afterward, we adjourned to do the only thing we could then think to do--drink!
We are probably not that different from owners in many industries. When you look at the stock market, it may seem as though times are better, since many are reporting higher earnings. However, when you examine things more closely, most of the improvement comes from cutting costs and laying off employees, not from raising revenues. Especially when you get to smaller companies, that strategy has its limitations. As one member of our group reminded us, you cannot save your way to prosperity.
While the whole country is affected, it's a good time to be in the Midwest. Those in that area say that it's because what doesn't go way up doesn't come way down, and that may be so. Everyone agreed, though, that some ways in which we traditionally made our profits--traditional brokerage, relocation, and commercial sales--are all suffering, and people are increasingly looking to new sources of income--mortgage, property management, and insurance (which, ironically, was fairly recently thought not to be much of a moneymaker for real estate). Short sales continue to affect all parts of the country, with the Midwest again being better than Nevada and other hard-hit markets.
We talked about the trends, the harsh realities, and the future of our industry. Afterward, we adjourned to do the only thing we could then think to do--drink!
Monday, June 7, 2010
Buyer Brokerage Again
It's time to explain buyer brokerage again. The real estate business has changed a great deal over the years, and buyers don't always understand the changes. It is similar in many ways to the medical field, where privacy concerns have led to the HIPAA law, requiring patients to sign documents each and every time that they see a physician. Even lawyers have gone in this direction; a client must now sign a retainer agreement before any work on his or her behalf can begin.
Well, we have those rules as well. When you begin to work with an agent, he or she is required, at the first significant contact, to present representation forms. Although we are allowed to take you into our own listings, that is because, in those cases, we represent the seller. We cannot take you into someone else's listing without having buyer brokerage. If we do, we don't have to be paid. Would you work at your job without knowing whether you are going to get a check?
These rules are also for your protection. If we don't represent you, we cannot tell you things that it would be in your interest to know. For instance, we are only supposed to tell you the listed price without a buyer brokerage agreement, not what we think you should offer or what we think the property is actually worth. The current regulations arose out of a genuine feeling that everyone deserves his or her own agent, looking out for his or her own interests. Almost all of the time, the seller still pays the commissions to both agents--that's because the seller is the one with the cash, since buyers cannot roll commissions into the mortgage amount. However, even that will probably change some day.
In the meantime, be kind to your agent who asks you to sign a form that you didn't used to have to sign. He or she is just trying to do his or her job in the best possible way, and to help you get all the information you need to make a good decision.
Well, we have those rules as well. When you begin to work with an agent, he or she is required, at the first significant contact, to present representation forms. Although we are allowed to take you into our own listings, that is because, in those cases, we represent the seller. We cannot take you into someone else's listing without having buyer brokerage. If we do, we don't have to be paid. Would you work at your job without knowing whether you are going to get a check?
These rules are also for your protection. If we don't represent you, we cannot tell you things that it would be in your interest to know. For instance, we are only supposed to tell you the listed price without a buyer brokerage agreement, not what we think you should offer or what we think the property is actually worth. The current regulations arose out of a genuine feeling that everyone deserves his or her own agent, looking out for his or her own interests. Almost all of the time, the seller still pays the commissions to both agents--that's because the seller is the one with the cash, since buyers cannot roll commissions into the mortgage amount. However, even that will probably change some day.
In the meantime, be kind to your agent who asks you to sign a form that you didn't used to have to sign. He or she is just trying to do his or her job in the best possible way, and to help you get all the information you need to make a good decision.
Tuesday, December 1, 2009
Last Call
The Wall Street Journal had an article about buying a house for your child for Christmas. I guess it's appropriate that such an article would be in the WSJ, but it's an interesting idea and deserves some thought!
However, for the average person, it's time to think about buying a property as a holiday gift for yourself. If you hurry, and really move on the mortgage and the inspections, you might even get in for the New Year's celebration. We bought our current house that way. We signed the contract around Thanksgiving, and moved in the weekend before New Year's Day. We even thought of the purchase as a present to ourselves, since, at the time, it was our second home. Many people now do that--buying a vacation home now, with the idea that you might retire to it, is increasingly common with baby boomers. After all, how many socks and sweaters do you need? Putting all the gift money together, and doing something big with it, is likely to be the present that you remember--and enjoy--longest of all.
However, for the average person, it's time to think about buying a property as a holiday gift for yourself. If you hurry, and really move on the mortgage and the inspections, you might even get in for the New Year's celebration. We bought our current house that way. We signed the contract around Thanksgiving, and moved in the weekend before New Year's Day. We even thought of the purchase as a present to ourselves, since, at the time, it was our second home. Many people now do that--buying a vacation home now, with the idea that you might retire to it, is increasingly common with baby boomers. After all, how many socks and sweaters do you need? Putting all the gift money together, and doing something big with it, is likely to be the present that you remember--and enjoy--longest of all.
Wednesday, September 2, 2009
Countdown for Tax Savings
We were talking about the $8000 first-time homebuyer's credit this morning, and figuring out the timeline for the deadline of December 1, 2009. Given the time it takes to get a mortgage and close, we think that a safe deadline for purchase would be October 15th, 2009. That means that anyone who wants to take advantage of the tax credit must buy within the next six weeks!
We further realized that many people (including most of us) have lots of questions about exactly who qualifies and for what, so it's worth talking to an accountant or doing some research on the Web. Many more people qualify than one might expect. Also, the type of property is broader than just single-family homes. I don't want to put in too many details, since that would imply that I know all the answers. I learned in business school, however, that the important thing in life is to know the right questions, and then find someone who knows the answers. That advice may be worth what you just paid for it, but I think you should think about whether anyone in your family might qualify. I'm thinking that parents may want to help their kids purchase homes in the next six weeks.
When the tax credit is combined with positive real estate news--like the article in today's Wall Street Journal, saying that now is the time to buy---we're looking forward to a very busy fall season!
We further realized that many people (including most of us) have lots of questions about exactly who qualifies and for what, so it's worth talking to an accountant or doing some research on the Web. Many more people qualify than one might expect. Also, the type of property is broader than just single-family homes. I don't want to put in too many details, since that would imply that I know all the answers. I learned in business school, however, that the important thing in life is to know the right questions, and then find someone who knows the answers. That advice may be worth what you just paid for it, but I think you should think about whether anyone in your family might qualify. I'm thinking that parents may want to help their kids purchase homes in the next six weeks.
When the tax credit is combined with positive real estate news--like the article in today's Wall Street Journal, saying that now is the time to buy---we're looking forward to a very busy fall season!
Saturday, April 18, 2009
Appraisals
Now that consumer confidence has risen back to the point it was when Lehman Brothers failed, and the spring market has begun, we're starting to see some action. The new problem is that the houses under contract are not always "appraising out". That means that, when a buyer goes to get a mortgage, how much the bank will lend depends not only upon his or her credit score and income, but on an appraisal ordered by the bank before granting the loan. Most banks have an approved list of independent appraisers, who are sent out to examine properties with mortgage applications, and value them by comparing them to other similar properties that have recently sold. Therein lies the rub. What's a comparable property? What if nothing nearby has recently sold? What if the appraiser is from out of the area, and doesn't know which streets or neighborhoods are considered prime? All of those factors come into play, and sometimes the appraiser goes back to the bank with a value far below the sales price, even when there have been multiple offers of around the same amount on the property (which almost guarantees that the sales price is at least very close to the true value, since no buyer knows what another is offering).
When that happens, one of three things usually occurs: the bank orders another appraisal, which differs, and its internal processes allow the loan to go forward at the requested amount; the buyer backs out, due to inability to get a mortgage, and the property goes back on the market; or the parties renegotiate the sales price downward. In the current market, any of the three can happen. On a hot property, the first alternative is most likely. If the buyer does back out, it often sells again just as quickly. As Realtors, we hate to see the sale fall through, in part because someone looking won't necessarily know why it's back on the market, and it may decrease the desirability of the property (of course, to be honest, it also means that we are selling it twice for the same fee). This is particularly infuriating when we believe that the appraiser made a mistake. Some banks are more interested than others in taking a second look, and often local banks are more confident of values within their smaller footprint.
Whatever happens, it's just another bump along the road of selling property in today's market.
When that happens, one of three things usually occurs: the bank orders another appraisal, which differs, and its internal processes allow the loan to go forward at the requested amount; the buyer backs out, due to inability to get a mortgage, and the property goes back on the market; or the parties renegotiate the sales price downward. In the current market, any of the three can happen. On a hot property, the first alternative is most likely. If the buyer does back out, it often sells again just as quickly. As Realtors, we hate to see the sale fall through, in part because someone looking won't necessarily know why it's back on the market, and it may decrease the desirability of the property (of course, to be honest, it also means that we are selling it twice for the same fee). This is particularly infuriating when we believe that the appraiser made a mistake. Some banks are more interested than others in taking a second look, and often local banks are more confident of values within their smaller footprint.
Whatever happens, it's just another bump along the road of selling property in today's market.
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