Real Estate Investing

Over at Shak & Jill, I mentioned that sometimes Realtors turn down listings.  There are a number of reasons agents say no including bad price, no motivation to sell, and sometimes plain old meanness (on the part of the seller).  But I began thinking about buyers I’ve stopped working with as well, and the reasons why.

1. Does not have the ability to buy.  We always want to find buyers who are ready, willing, and able.  Without that trifecta of goodness all coming together, buying does not happen.  Usually it’s the “able” part that’s the deal breaker.  You can’t have a recent bankruptcy and foreclosure and expect you can walk right into a new home because you now have a “clean” record.  It doesn’t work that way, especially now that mortgage companies are finally stricter about who they lend to.
2. I don’t like working with you if I have to pull the car over for you to throw up since you drank too much the night before.  Yes it happened.  Ultimately, I didn’t fire the buyer and he ended up being a pretty good guy, but he sure got close that day to losing his Realtor.  He was so remorseful and humiliated that I found it in my heart to help him find a home.
3. If you think you’re going to buy a $150,000 home for $60,000, then I’d probably ask to refer you to another agent who specializes in cheap skates.
4. Lookie-Loo.  Sometimes people just want to get in a car and drive and drive and drive all day.  They make me want to drive off a cliff.  Seriously, this goes back to Number One… the “Ready” part of ready, willing, and able.
5. Can’t make a decision.  It’s rare that I break out the ol’ standby - the 80-10-10 Rule - but sometimes it’s necessary.  If you get to the point that you look at dozens of homes without a single offer being written, you need to be reminded that if you LOVE 80% of the home, don’t like 10% but can live with it, hate 10% of it but you can change it, then this house is right for you.  Yes sometimes there is a perfect house, but if it’s perfect someone else already lives there.
6. Unrealistic expectations of craftmanship on inexpensive home.  If you’re buying a home for $150,000, don’t expect a jacuzzi in the bathroom with raining showerheads, tile flown in from Italy, and hand-sewn carpet.
7. The complainer who is never happy.  No sirree, I don’t like people who thrive on criticism rather than focusing on the positive.  While you do want to notice if there are problems in the home so you can be in a good negotiating position, you can be honest with your Realtor and say sometimes that you love it.  We are there to serve YOUR best interests, so don’t go showing your hand to the other agent.  We are there to work with you, for you, on your behalf.

Happy house-hunting!

Homes in default are up 140 percent from 2006.  One-third of all home loans that closed in 2006 were considered subprime loans - or loans given to buyers with a credit score of less than 680.  The number of homes entering into foreclosure is expected to top one million this year, with 60 percent of those being subprime mortgages, according to Freddie Mac.

Yesterday at our sales meeting, a speaker from a title company gave us these facts and figures in an effort to help prepare real estate agents for what is expected to be a flood of short sales.  Why would a lender forgive part of the homeowners debt through a short sale?  Because on average, if a lender puts a home back on the market it will cost $62,000 for them to sell it.  If a lender can stand a loss of just $10,000 they’re in.   Further, many times a lender will offer the seller/homeowner CASH to leave the home in good condition - ranging from $1000 to more than $5000.

A pre-foreclosure sale (PFS) might be an option when a home is worth less than is owed and the homeonwer has demonstrated financial hardship (loss of job, flat out inability to pay because ARM went sky high, medical problem, etc.).  But if a homeowner is in trouble, they’ll hae to submit all required documents proving this information within a very specific time-frame.  If they’re an hour late, the short-sale (or pre-foreclosure sale) could be over before it even begins.  Also for a PFS to work, if there is a second mortgage (a junior lender), they will have to be agreeable to accept little or nothing as a result of the short-sale.

Things You May Not Have Known

Everything is negotiable in a preforeclosure sale!  You may be able to preserve your credit rating - or at least not take a nasty dive - if you negotiate it and if you’re NICE.  The average drop due to a foreclosure is 250 points, the drop to a preforeclosure sale is 100 points.  But if you negotiate how it will be reported, the credit score drop could be as little as 25 points.

If your home does go into a preforeclosure sale, it will have to be appraised.  Ask the lender to pay for the appraisal - they generally will if you just ask.  If you have an escrow account with the lender, be sure also to ask for a refund of your insurance and taxes that have been paid.  Technically, that money should be yours so the mortgage holder should not hold it.  If they resist, talk to a tax or real estate attorney so they can clearly explain your rights.

There may be tax implications if your home is sold as a short-sale.  Uncle Sam considers the $20,000 in loan forgiveness as earnings, so you might owe taxes on the $20,000.  Again, talk to a tax expert for advice about this.

Want to buy?

If you’re interested in buying a short-sale home, the Pensacola Real Estate News site has some great information.  Karl quoted someone from the Active Rain community about short sales,

“Here in Florida many of us agents have been throwing cash and buyers at the short sales to no avail. There are not enough processors.  What I am being told is that they cannot find enough “qualified” people to make decisions and that the board of director’s only meets once or twice a month to make these decisions.”

Do your homework before selling or buying a home through a short sale!

Most excellent photo from the Pensacola site.

Yesterday I talked about exploring the option of a lease-purchaes for my first home when there were no down payment or seller closing cost assistance programs.  Those days may be returning - and more quickly than you think.

Assistance programs are coming to an end on October 1, 2008 thanks to the Housing and Economic Recovery Act of 2008 which was signed into law last week.  Both lenders and Realtors are expecting a spike in home sales as house hunters rush to buy their homes while they can still get help with down payment assistance and seller-paid-closing programs.

Greg Goodman of Countrywide Home Loans recently wrote that some observers believe these programs exploit a loophole in federal housing lending laws by allowing nonprofit organizations to gift mortgage down payments. 

In some ways, these gifts have become a substitute for subprime loans, in that they give builders a way to place first-tine and low-income buyers into homes even when they can’t afford a down payment.

All is not lost for buyers because there are other programs available.  For example, the Tennessee Housing Development Agency still offers grants to buyers when they complete mortgage counseling coursework.

On the other side of the housing bill, the Feds are granting a $7500 tax credit this year.  This seemingly juicy tax break comes with a price, though.  According to AccountingSolver, the money has to be paid back,

The tax credit has to be repaid 2 years after the purchase. At the tax credit of $7500, the resulting average increase in your tax bill for 15 years will be $500.

I voice my agreement with Miranda at Mortgage News,

Um, wow. Maybe first-time homebuyers would be advised to avoid the tax credit after all, and just focus on the interest rate and property tax benefits that are already offered.

Sometimes you should look a gift horse in the mouth.

The message here is if you’re on the fence about buying and you are already approved for a down payment assistance and / or seller assisted closing cost program, then you need to move now to make it happen.  If you delay too long, you may not be able to purchase after October 1st without having your own money saved - and you’ll need from $7000 upwards depending on the price of your home.