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April 2008

Thinking of a short sale?

Tim Harris and Julie Harris are the founders ofHarris Real Estate University.  The nations largest online University for Realtors and real estate investors. Here are their top 10 short sale questions - and answers.

Number 10

I can't make my house payments, but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score...is a short sale right for me?

Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.

Number 9

If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?

The mortgage insurance is not there for your protection, just the mortgage lender's.

Number 8

Do I have to have my home "Approved" by the lender prior to offering it for sale as a short sale?

No. Technically speaking there is no such thing as being "Short Sale Approved." The actual approval only happens with an accepted offer.

Number 7

I just missed a payment and I know I will miss more...how long does the foreclosure process take and is there time to do a short sale?

The foreclosure process takes differing times depending on your state.  In the Midwest a foreclosure can take over a year. In California its taking 6+ months.  Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.

Number 6

Will I still have to pay property taxes if I do a short sale?

Property taxes will always have to be paid as part of any accepted short sale. Whether it's you or the lender, it depends on their policies and the specific agreement you reach while negotiating the short sale.

Number 5

I owe more than my home is worth and I can't make the payment. Do I have to somehow qualify for a short sale?

The simple answer is NO. If someone can't make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.

Number 4

Do I have to pay income taxes...I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me...the seller...is this true?

It WAS true, now it's not. Consult your Tax Attorney or Qualified CPA.  Very recently the tax law was modified and now most people who do a short sale will have no taxes due.

Number 3

How do you, my listing agent get paid...who pays your commission?

The bank will pay the commission along with all the other usual closing costs.

Number 2

Do I have to miss a payment to do a Short Sale?

No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.

Number 1

I want to do a short sale and have a 2nd mortgage, does this make me ineligible?

7:51 PM - Apr. 30, 2008 - comments {3} - post comment

Keep mold from your home

In the wake of this winter’s major meltdown, and with spring’s rainy season at our doorsteps, excessive household moisture exposure and water damage could cause mold to take hold in your home.

Follow these five simple tips to stave off mold in your home:

Check: Do a thorough inspection of your home from top to bottom and inside/outside. Look for damaged shingles, a warped window pane or cracked foundation mortar - spots where moisture could seep into your home.

Shovel: If you still have snow surrounding your home, shovel it away from the point where the ground meets the structure and dig it out of your basement window wells.

Inspect: Take a walk around your home to see if your gutter is intact and to make sure downspouts are pointing away from your house to deliver water away from the structure.

Test: A properly sloped and surfaced driveway will keep puddles to a minimum and draw water away from your home. Test this by pouring a small amount of water on your driveway to see how it slopes.

Treat: Consider using an eco-friendly mold-fighting solution to eliminate any existing indoor mold and prevent mold growth - particularly in areas prone to excess moisture (e.g., bathrooms, basements, laundry rooms, attics, etc.).

These tips are intended to be a first line of defense against the development of mold in your home. Following these steps - and reducing the amount of indoor moisture and humidity in your home - will help safeguard against the threat of mold.

“One of the hazards of excessive moisture in a home is the growth of mold,” says Eric Green, president of Siamons International, makers of Concrobium Mold Control. “Indoor mold can result in costly repairs and, more importantly, family health issues - it’s been linked to allergies, asthma and other respiratory issues, particularly among infants and the elderly. Failing to pay attention to water issues this spring could affect your bank account and your health.

7:45 PM - Apr. 28, 2008 - comments {0} - post comment

Journal to help made decisions

When confronted with a decision, there is clearly no better way to consider our options, determine the potential, or contemplate our feelings than writing it down. Keeping a journal is as simple as this nursery rhyme; we need no more than a pen and paper to chronicle our life journey according to Kim Ades, MBA, president of Opening Doors and Frame of Mind Coaching

The words that we write in our journals have the power to transform our lives; from confronting our battles, personal demons and deep dark secrets to exploring and exposing our fantasies, dreams, hopes and aspirations. Writing allows us to envision the kinds of miracles and joys we’d love to see come into our world. It allows us to reframe our life experiences by giving us a forum in which to express and redirect our thoughts. When we write, we engage in a very different process-one that is experiential. When we write down our thoughts, feelings, or desires, we allow them to come to life. In the written word, our dreams and goals become tangible, are validated, and are more valuable.

Oprah Winfrey is a huge advocate of journaling, and has even featured the process on her show. For years, Oprah dreamed of creating her own television network. In fact, she says, “In 1992, I wrote in my journal that I had a vision of creating my own network…,” and in January, she announced that she was partnering with the Discovery Channel to launch OWN-the Oprah Winfrey Network. Writing is a powerful, powerful tool to visualize and manifest our dreams.

Do we need any more proof of the power of writing?

Studies have proven that top performers use the tool of writing to fuel their careers and fulfill their dreams. Therefore, consider these five benefits of journaling:

1. Writing provides a vehicle by which we can let go of the things that are clouding our thoughts and getting in our way. It provides a way for us to gain a heightened awareness of our thoughts and actions. It’s personal; there is no judgment; it is true and authentic; and the only commentary comes from us.

2. Writing in a journal allows us to connect to our inner voice, and provides us with a clean slate on which we can chart a path, plot, plan, envision, create, and explore the possibilities in our lives.

3. The act of journaling allows us to reflect, step back and look at our lives, and consider our past, present and future thoughts and dreams. A journal gives us the perspective to switch tracks-to see what is working for us and what is not and make changes.

4. The act of writing invites us to engage our imagination, and as such, taps into a very powerful resource. We start to design, craft, and write the story of our life the way we would like it to be. It calls us to take action.

5. Writing is the vehicle that allows us to get from where we are now to where we want to be. As we do this, we are actually creating a shift in our mind, and that shift starts to attract and draw the things that we want in our lives toward us.

To keep a journal is to gain insight into ourselves. It’s the place to plan a spectacular menu, bake a sumptuous pie and set the mood for our vision. Indeed, a place to make it rain.

7:29 PM - Apr. 26, 2008 - comments {0} - post comment

Home pricing considerations

Jenson notes, “Listings reach the greatest proportion of potential buyers within the initial days and weeks after hitting the market. If a property is overpriced early on, it will be dismissed - or outright missed - by prospective buyers and may result in price reductions that will reflect poorly on the listing. Overpriced properties languish on the market, and most end up selling at a lower price than would have been realized had it been priced properly in the first place.”

To help would-be sellers foster maximum profits with their real estate transaction, Jenson offers these insights on the various elements that must be considered when establishing a fair, competitive and marketable sale price for a home:

1. Square footage: Total square footage is an important consideration when establishing a home’s sale price, but this is usually just a starting point for buyers who will use it to narrow down the field, but make an actual purchase decision based on many other factors. There are some general rules of thumb to know when considering a home’s price per square foot, such as smaller homes generally get a higher price/foot than large homes, and single stories will sell for a higher price/foot than a two story.

2. Location within community: Homes that back up to a busy street get, on average, 10-20% less than homes elsewhere in a neighborhood. Anticipate this type of obstacle and factor it into the original sale price to avoid inevitable price reductions down the road, which reflect poorly on the listing and will likely cause it to sell at a lower price than would have been realized had it been priced properly at the onset. Quiet cul-de sacs, golf or water frontage, lots that offer privacy are value adds that can certainly justify a higher sale price than other homes in a community - or be leveraged as an advantage against competing listings.

3. Views…or lack thereof: Whether it is the ocean, a downtown skyline, the mountains, water or some other desirable landscape, buyers are willing to pay a premium for views and a home should be priced accordingly. Just be realistic. A view that can only be had by standing on the counter from the second story looking out the window to the left simply doesn’t count, and it’s inadvisable to dupe a prospective buyer by adding this to the listing’s MLS description.

4. Upgrades and features: It’s a simple formula: upgrades = sold. For a home to sell quickly and for the price desired, it must be “finished” with as many structural and interior design upgrades as possible…and nothing’s too small to leverage in establishing a home’s price point. From crown molding to faux paining to door handles and cabinet handles/knobs with modern finishes, to more obvious upgrades such as appliances, window, counter, cabinet and floor treatments, to swimming pools and surround sound wiring…any functional or beautification enhancement to a home are considerations in establishing its true value and strategic sale price.

5. Community amenities: Guard-gated communities or those with amenities such as a clubhouse, swimming pool and/or fitness center are also elements that often raise a home’s price per square foot. When pricing a home without these benefits, know whether you are competing against other homes that do offer such value adds so that you can price your home as aggressively and competitively as possible.

6. Comparable sales: Price your home referencing sold comparables -price per square footage of other homes that have already sold in your community - up to 3-months old maximum, as looking beyond 3-months is simply not a realistic portrayal of current market conditions and may steer you in a wrong direction. It’s also as important to compare your listing to active competing listings - homes currently for sale, which is the best tool for honing an effective pricing strategy - particularly for highly motivated sellers.

7. Professional appraisal: Sellers often frown on the idea of paying for an appraisal before there’s even an offer on the table, but doing so is actually one of the most important things a seller can do in pricing a home relative to current market conditions. Want to sell the home quickly? Price it at or below the appraised value as buyers are educated, are shopping deals, and will recognize your fair price and be more apt to pay it with less haggling.

8. Current mortgage conditions: The current mortgage market has tightened its proverbial belt and many lenders now require higher credit scores coupled with higher down payments, which can cash strap a buyer who will most definitely be holding out for the best deal possible. Every seller naturally wants to get the most money for his or her product, but a savvy seller will understand the mortgage industry’s impact on the buyer and will price accordingly.

12:26 PM - Apr. 24, 2008 - comments {0} - post comment

Ideas for that tax rebate

So before you buy that wide-screen TV you have your eye on or plan that long-awaited trip to Bermuda, take five minutes to read these five tips that might help your financial health now and into the future.

1.) Pay off debt: Take the opportunity to either pay off your credit card or at the very least pay off most of it with your refund. Then make a pledge to pay your credit card in full each month. Remember, if you can’t pay for it, you can’t afford it. The longer you delay, the more you owe. For example if you owe $2,000 on your credit card at an interest rate of 18% and pay only $35.00 a month, it will take you more than 10 years to pay it off!

2.) Save it for a rainy day: Everyone should have a rainy day fund that totals three months of his or her yearly salary. If you don’t have one, open a savings account, money market or certificate of deposit and start one.

3.) Start an education fund: The College Board estimates that the cost of tuition alone for private and public schools rose more than 6% from 2007 to 2008. Get the jump on educating your children by opening a 529 with your refund. If you place $2,500 in a 529 Plan at a rate of 7%, and add a $2,500 refund each year, you will have approximately $67,220 in 15 years.

4.) Save for retirement: Consider putting your refund in a Roth IRA for the 2008 tax year. If you open an IRA at a rate of 7% at the age of 35 and add your $2,500 refund each year, you will have $271,713 when you turn 65.

5.) Make an extra mortgage payment: Take your refund and make an extra payment. Just write on your payment slip that you are paying additional principal. If you pay an extra $600 each year on a 30-year, $100,000 mortgage at 6 % interest, you can save $25,000 in interest and cut the term of the mortgage by six years.

12:23 PM - Apr. 22, 2008 - comments {0} - post comment

Don't forget the yard

Brad Staggs, HGTVPro.com and DIY show producer and host, and a licensed contractor, offers tips for homeowners preparing to sell their home. “The most important thing is to update the most visible areas, common gathering rooms like the den and kitchen. But don’t forget the front and back yards. Prime home-buying season coincides with spring and summer, and that first impression, your home’s curb appeal, can make all the difference."

1. Molding: icing on the cake.

“It’s amazing the difference a little bit of decorative wood molding can make,” says Staggs. “Frame out a picture window, add deep crown molding to a high ceiling, even a simple chair rail in a guest bathroom changes the entire look of a room.”

2. Front porch first impressions.

Your front porch is often the first thing a potential homebuyer will see. According to Staggs, it should be in perfect shape. “Add a fresh coat of paint to brighten the front of your house. Nice wooden Adirondack-style chairs are welcoming, especially when enhanced by bright flowers in colorful pots. You want your porch to signal the start of something wonderful!”

3. Look behind you.

Don’t neglect the backyard! Outdoor living spaces grow in popularity each year. Impress potential home buyers with a backyard to die for: overflowing garden boxes, some nice wooden outdoor furniture, a charming gazebo and perhaps a new deck. “Spend a few weekends dressing up your backyard before everything blooms,” suggests Staggs.

4. Floor them.

Nothing says “welcome home” like the feel of smooth real wood floors. Easily installed and completely affordable, wood floors enhance any decorating style and evoke immediate “ahhhhs” from guests in your home.

5. Add a visual surprise.

“Find something cool to add to a room in your home, a little visual pop no one will expect,” suggests Staggs. “Like adding beadboard panels to a kitchen island, then painting it a funky accent color.”

Staggs also offers his thoughts on choosing appropriate building materials. “As a consumer, the most important thing you can do is buy sustainable. Choose natural building products, those that truly fit the definition of “green.” One of my favorite materials to use in any home improvement project is Southern Pine. It’s real wood, so it’s not just strong and beautiful, it’s also recyclable. Southern Pine in the U.S. comes from well-managed and well-maintained forests; forests that are in better health now than they were a century ago!”

12:20 PM - Apr. 20, 2008 - comments {0} - post comment

Things to do to get the best mortgage

“There is an excess of housing inventory right now and that makes it a good time for buyers to get into the market. Lower prices mean lower monthly payments, but before prospective buyers jump in, there are some key things they need to know about getting a mortgage right now,” he says.

6 Essentials to Look For Include:

1. Use a down payment — Consumers will see better loan terms if they can put at least 5% down. “Each 5% increment will help,” according to Brown, “so put as much down as you can and speak to a loan professional for specifics on various scenarios. Zero down payment programs have all but disappeared, although FHA and conforming 3% down programs still exist. Even with a small amount down, buying compares favorably to renting.”

2. Shop the right way for interest rates — “Fees are critical, as they affect your overall cost, so don’t go by interest rates alone,” adds Brown. “An interest rate that sounds higher may include no fees, while another is lower but includes fees that may make the actual financing cost higher, so be sure to have it spelled out for you.” Lenders are required to provide a Good Faith Estimate of all costs, and consumers are advised to check it carefully against the HUD-1 Settlement Statement to make sure there are no “surprise” charges or other fees. MortgageAnswersFast.com provides consumers detailed explanations of how to analyze Good Faith Estimates to ensure borrowers find the lowest total loan cost.

3. Be wary of advertising — The airwaves are full of advertisements trying to entice consumers into a mortgage because the Federal Reserve has cut interest rates claiming “rates will never be lower.” In actuality, long-term fixed interest rates for mortgages are tied to bonds called mortgage backed securities (MBS) and the prices investors are willing to pay for them, Brown explains. “The Fed does not control long-term fixed interest rates for mortgages. There may be some impact on adjustable rates, but seldom to the extent that advertisers would have you believe. So borrowers should research mortgage rates rather than simply believe false advertising claims.”

4. Think about paying more for your house — “It might sound crazy,” Brown says, “but by paying more for your home you might actually wind up paying less for the transaction. Here’s how: instead of negotiating the sale price down by a certain dollar amount, ask the seller to pay for the costs to “buy down” the interest rate on the loan. The monthly payment can be reduced substantially, saving cash flow in the short run while increasing your principal balance in the long term. Seller funds can also be used to buy out PMI,” Brown explains. “Your mortgage professional can help you calculate the actual savings.”

5. Know your PMI options — PMI, or Private Mortgage Insurance, protects the lender from losses incurred after default when foreclosing on a property. If a borrower has less than 20% down on a conventional conforming mortgage, they must pay PMI, with rates that can vary based on credit score. “Borrowers typically pay PMI monthly,” according to Brown, “but there are other options, including lender-paid mortgage insurance, in which premium is added into the interest rate of the loan. There are other options that allow a smaller fee at closing without raising the rate, and sellers can also pay the fee at closing, which sometimes can be a condition of the sale.” For more detail on these sometimes confusing alternatives, he recommends that borrowers check with their mortgage professional.

6. Improve credit scores — Credit scores have always been important, but never more than today, especially for borrowers with less than 20% as a down payment. Small differences in score can mean big differences in interest rates or fees, so consumers should do everything they can to show their credit in its best light. “Do not close out credit card accounts, but instead distribute the balances as evenly as possible and use old cards every few months to keep them active,” Brown says. “Check your credit report for errors and get them corrected, and get rid of liens and charge offs, if you have any, and resolve any late payments. All these will have a quick and positive effect on your credit score.” Even people with great credit scores as high as 720 may pay a penalty based upon recently changed guidelines. “Credit repair is not just for people who have credit problems,” he adds. “Most people don’t realize they can optimize their score using a few simple techniques.”

12:14 PM - Apr. 18, 2008 - comments {0} - post comment

Outdoor safety

12:09 PM - Apr. 16, 2008 - comments {0} - post comment

A spring cleaning check list

 Angie’s List, a provider of ratings and reviews of local service companies, went to the experts to develop a list to help the veteran maintainers, as well as those still in the dark, keep up with the house this season.

The first step to Spring cleaning is making a list of which areas of your home need to be freshened up.

- Experts recommend a professional carpet cleaning every 12 to 18 months. Schedule an appointment with carpet cleaners now to cut down on your wait time.
- Check your gutters. Professionals recommend gutter cleaning in the spring and the fall. Clogged gutters can lead to water damage.
- Use a garden hose to remove the film left by dirty snow and rain from your siding and deck. Attach a soft-bristled, long-handled car brush to the hose for some extra help. Use a mild cleanser to get those tough-to-clean spots.
- Remove wet leaves and debris from your deck, front porch and around your house on a regular basis. Allowing the debris to accumulate can trap water, lead to staining or mold build-up, as well as create an ideal environment for termites.

Home Maintenance

Snow, ice and wind can wreak havoc on your home, so be sure to go over the structures in early spring. Finding damage early will increase your chances of getting an early repair, as many home improvement companies begin their busy seasons this time of year.

- Scrutinize your crawl space for water accumulation or excessive moisture, and keep an eye out for water damage on the sub-floor and joists beneath the kitchen, bathroom and laundry areas.
- Give your roof a “once-over” for damage inflicted during the winter. Depending on the style and pitch of your roof, you may want to use a ladder and a pair of binoculars to look for missing or broken shingles and other damage. If you don’t feel comfortable on a ladder, call a professional before the busy season begins.
- Check the weather stripping around doors and windows. The winter season may have caused some damage. Also remove any storm windows and replace with screens.
- Check the valve where water enters your house, outdoor faucets and valves to toilets, bathroom and kitchen sinks. Turn each off and on several times to identify any leaks.

Outdoor Maintenance

By preparing for outdoor projects early, homeowners can get a jump on things like landscaping - but don’t forget about your driveway! Water that seeps into your driveway can freeze, causing cracks and other damage.

- Talk with your landscaper or local garden center about the best way to enrich your soil for the types of plants in your yard. Proper fertilization can keep your soil and your plants in great shape throughout the year.
- If you’ve postponed tool care, now is a good time to get in the garage and take a closer look at your garden equipment. Does the mower need serviced? It’s a good idea to call now. Garden service companies will get busy in the next couple of months. Don’t forget to clean and sharpen other garden tools as well.
- Spring is a good time to examine your asphalt driveway’s surface for damage. Regular resealing is the best way to protect the surface and keep it in good shape. If you’re planning to hire a professional to seal the driveway, summer is peak time of year - so call now to get on their schedule.

Start with the entry door. Paint or replace and take notice of missing screens or old storm doors. Add a new mailbox, lighting fixture, or address to add a new feel. Clean up the garage and landscaping.

Appliance Maintenance

Regular maintenance on major home appliances can help to ensure their efficiency and lifespan.

- Get your air conditioner serviced. Technicians can test your air conditioner as long as the temperature is above 60 degrees. Call now to get on their schedule before the first warm days of spring.
- Clean and lubricate hinges, rollers and tracks on garage doors with a light household oil - don’t use petroleum-based lubricants. You can call a professional to take care of this, as well as service the opener mechanism itself. Don’t attempt to service the opener mechanism yourself. Your garage door opener can be one of the most dangerous appliances around your house.
- Get your water heater serviced. Maintained properly, water heaters will last for years and deliver gallon after gallon of hot water. Left alone, they’ll quickly lose efficiency, sucking dollars out of your wallet with every degree of heat.
- Spring rains are just around the corner, so be sure your sump pump works properly. To test, fill the sump pit with water and go outside to make sure the pump is actually discharging water. You can also eliminate any build-up in the system by pouring white vinegar through the unit.

Home Projects

You may have already received your tax return. A recent poll found that 25% of Angie’s List members plan on using their tax checks to invest in home repairs. Some investments will have a better return than others, so choose your projects wisely.

Clean out closets and cabinets providing as much empty space as possible. When preparing to sell, pack away all personal items including photos. The emptier your home, the larger it appears. Buy a new bed in a bag for your bedrooms. Dust everything including the basement.

Freshen the home by airing it out thoroughly and sanitizing baseboards, woodwork, floors and lighting fixtures.

- The roof, furnace and water heater, won’t garner great returns, but are expected to be in good shape. Proper home maintenance saves you money on a daily basis and positions you well for a sale.
- Kitchen and bath renovations are expensive but great investments if you are going to be in your house at least five more years. They’re also the rooms buyers pay the most attention to and can make or break your sale.
- Turning attics and basements into livable space, or adding decks, can bring a better return than adding square footage, and the upfront costs aren’t nearly as exorbitant. Finishing touches matter, though. Wall-to-wall carpeting and drywall in a basement will bring a lot more than cheap paneling and a drop-in ceiling.

A clean home is desired as it reflects the owner’s level of activity when it comes to maintenance and keeping up with the property. A lot of these tips are cheap and some even free. When done properly, your home should now give you the feeling of checking into a hotel; decorated, yet depersonalized and clean!

3:51 PM - Apr. 14, 2008 - comments {0} - post comment

Why now is a good time to buy

About Inventory

FACT: The housing market is undergoing a natural cyclical correction. It’s impossible to ignore the ongoing news surrounding the downturn of the housing cycle. The recent “housing boom,” which lasted from 2001 to 2005, was caused by low interest rates and a rapid increase in property valuations, resulting in high numbers of renters opting to buy. Three factors caused this decade’s housing boom to spiral upward:

1) A run-up in home-price valuations that spurred a high sense of urgency in home buying and selling.
2) Poor lending practices, which caused many home buyers to secure loans that they ultimately couldn’t afford over the long term.
3) Speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return on investment.

Like the dot-com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision. This has caused an overall slowdown in the marketplace.

The National Association of Realtors’ chief economist, Lawrence Yun, projects that nationally, the “median existing-home price will drop about 1.7% this year. This is a small, minor adjustment after a strong run-up in housing prices.”

True, the number of homes sold in 2007 will have dropped from the year before, but 2007 is still among the highest years on record, with numbers of sales for both 2007 and 2008 projected to be even higher than the levels seen in 2002.

However, with homes taking longer to sell, the number of homes on the market has grown. In markets like California and Arizona where homes are taking much longer to sell than the 11-month national average, this has caused a glut in the marketplace.

In the Pacific Northwest, where the inventory of homes on the market ranges from seven to 10.5 months as of November 2007, this equates to good news for buyers who have more homes at more price ranges from which to choose.

About Mortgages

FACT: Low mortgage rates give buyers more house for their dollar.

With the 30-year fixed rate hovering between 6-7%-a 45-year low-qualified buyers continue to have access to incredibly low interest rates. This means that although housing prices have risen, monthly mortgage payments remain reasonable for those who look at real estate as a long-term investment. For example, today if a buyer secured a 6.5% interest rate on a 30-year fixed loan for a $300,000 home (with no money down), the monthly mortgage payment would be $1,896.20. In 1991, the same monthly mortgage payment would have bought a house worth only $230,492 when mortgage rates were 9.25%. In 1982, when the 30-year fixed rate was 14.6%, the same payment would have bought a house worth only $151,657.

FACT: Heavy speculation and overbuilding result in an increase in foreclosures when prices go down.

The media has been focusing on the hardest-hit areas of the country that have seen a dramatic downturn in the market: California, Nevada, Florida and Arizona. Over the past five years, these markets have experienced an abundance of new housing, a rise in investment properties and a rise in prices that was high above the national average.

Now that home prices are starting to drop and stabilize, the areas that went through a building frenzy and experienced the largest price increases are suffering a heavy devaluation in home prices, which in turn has caused homeowners to foreclose on loans.

Those suffering the most in California, Nevada and Florida are far above the national average of foreclosure with one out of every 325, 152 and 282 homes in foreclosure, respectively. Washington, Oregon and Idaho are well below the national average of one in every 617 homes in foreclosures because fewer home buyers in the Pacific Northwest opted for subprime mortgages and because home values have continued to steadily appreciate.

Washington has seen one in 1,072 homes in foreclosure, and Oregon and Idaho have one in 1,275 and 893, respectively.

FACT: Subprime borrowers get a reality check.

Then there are the problems that are affecting subprime borrowers: those who are considered at a higher mortgage risk due to a past history of bankruptcy, delinquent loan payments and low credit scores. During the last number of years, some home buyers in the U.S. qualified only for these riskier subprime loans to fund the American dream.

But, again, unlike the media’s portrayal, the reality is that subprime loans comprise only 9% of total loans nationwide and of those 9%, less than 11% of those subprime ARM and fixed borrowers have defaulted on their loans. The Pacific Northwest stands apart as its own micro-market, with more home buyers qualifying for prime loans. Homeowners in the Northwest have been able to successfully sell their homes for a profit or refinance to pay off their subprime loans.

Real Estate Cycles and Economics

FACT: Over the long-term, real estate has always appreciated in value.

The continuing appreciation of homes in the Northwest is not an anomaly. Real estate has always been one of the most solid investments in the U.S, because, after all, people always need a place to live. Real estate has less volatility than the stock market and over the historical long-term it remains a guaranteed return-on-investment. Take this example from NAR’s Yun: If a buyer were to put down $10,000 for a down payment on a “typically priced home in the United States at a typical appreciation rate of 5%…(he/she) would see a return of $110,300 after 10 years. The same $10,000 invested in the stock market appreciating 10% annually will result in $23,600.”

As history has shown, for those who choose to keep their home for six to 10 years (and not flip for a quick profit) real estate investments do pay off, and pay off well. In fact, what we’re seeing now is a repeat of a housing cycle we’ve seen before. In the early 1980s and 1990s, some areas of the country experienced the worst downturn they had seen in the last 25 years, which were caused by localized economic weaknesses and loss of jobs while on a nationwide average, others, including the Pacific Northwest were barely affected at all. But even those areas that were hit the hardest in the past experienced a historic uptick in prices, and then a continuing long-term appreciation.

3:47 PM - Apr. 12, 2008 - comments {0} - post comment

A tough approach to solving the housing crisis

 Lyle Martin is one of the original founders of Assist-2-Sell Inc.  His ideas on what to do about the current housing crisis will surely generate some discussion.

While U.S. Federal Reserve rate cuts and the economic stimulus package are helpful, they aren't enough to bring the economy back from the brink of recession.  Some mortgage lenders' decision to temporarily suspend the foreclosure process through "Project Lifeline" is encouraging, but more drastic steps need to be taken to help a housing market that is obviously in trouble.

Few would disagree that the explosive growth in the housing market (prices and inventory) over the past several years was stimulated by lenders providing easy financing.  As is typical with most major purchases, as financing becomes more affordable, an increase in demand will follow. 

While it is easy to blame "subprime" lenders, that serves no useful purpose.  In essence, they were simply satisfying a demand.  When a homeowner gets in over their head, shouldn't they be held responsible?  Shouldn't they have taken the time to understand what they were signing? 

In reality, they are no more to blame than those who got caught up in the "dot com" stock speculating.  Who wasn't tempted to jump on board what appeared to be a never ending booming stock market?  Watching home prices soar and the potential for homeownership start to escape the reach of the average consumer, who can blame people for jumping onboard before they were left behind? 

Just like the stock market appeared to have no ceiling, the housing "bubble" appeared immune to bursting.  Hindsight is 20/20 but just like the experts were unable to predict the crash of the housing market—and yes, it is a crash—no one is able to predict the recovery.  Of course there will be a recovery.  Will it be in six months, two years, or 10 years?  The United States' fragile economy cannot afford to wait for the market to self correct.  The market was driven up by some creative artificial influences, and it is going to take some of that same creativity to get it back on track.

Roll Back Home Prices

Today's artificially inflated home prices need to be adjusted back down to a value more in line with the value of the dollar, adjusted for inflation.  This means rolling back prices to where they were at before "funny money" flooded the market.  Since home appreciation is not consistent in every area of the country, roll back will not be consistent.  In some markets, very little price appreciation was experienced.  Those areas don't need to undergo a big adjustment.  Other areas are even seeing normal appreciation.  Some areas, like most of Florida, California, Arizona, and Nevada, need major adjustments.  They need to look at rolling back to pre-2003 prices, maybe even earlier.

Tough but necessary medicine.  Lenders are already accepting this reality as they write off billions in loan losses and sell off foreclosed homes or negotiate short sales.  Rather than have homeowners walk away from their homes, why not invite a compromise?  Forgive a significant amount of the loan balance—essentially re-setting the loan more in alignment with the new value of the home—and let them keep the home.

Promote Responsible Homeownership

Give people willing to take on the responsibilities associated with homeownership some extra help.  Yes, the responsibilities of homeownership.  Let's not make it so easy for first time homebuyers.  Their first home may not be their dream home but whatever happened to delayed gratification?  First time homebuyers need to be encouraged to start small and work their way up. 

The government can play an important role by creating a new type of tax free savings account for first time homebuyers who want to save money for a down payment and closing costs.  Money put into the account should be exempt from income tax.  For example, if $10,000 is set aside in the account over a period of time, then the $10,000 (and all accrued interest) is not subject to income tax.  Watch how fast people save up a down payment.  Financial institutions will benefit from this influx of new savings, creating another source for mortgages besides Wall Street.  Homebuyers will appreciate their investment more when some of their hard-earned dollars are put in as part of the purchase. 

Extend Relief to Other Related Industries  

The housing-related industries that are indirectly feeling the impact of the current housing market also need to be helped.  Builders, landscapers, home improvement businesses, etc.  Offer existing homeowners tax incentives for improving their homes.  There is a lot of work that is needed on a lot of homes.  New roofs, newer, more energy efficient heating and cooling systems, energy efficient windows, insulation, etc.  This can help businesses as well as the environment.

Don't Forget Rentals

Investing in rental real estate helps provide housing for those not interested or perhaps unable to purchase their own home.  Increase tax benefits for improving existing properties and eliminate passive income limitations.  Reintroduce the tax saving incentive of accelerated depreciation.  Shorten the depreciable lifetime on properties.  Loosen up the 1031 exchange rules to allow more time to move between investments. 

Emphasize Responsible Spending

In addition to not saving, many are struggling just to make minimum payments on their credit cards.  Consumers need help getting a better handle on their debt.  First, remove the temptation.  Restrict the deductibility of home equity loans used for consumer debt. The deductibility of home equity loans was just too tempting for people.  They borrowed against their hard earned equity to finance cars and home entertainment systems.  Financing cars for 30 years has got to stop.  Restore usury rates.  The rates people are paying on consumer debt are unconscionable.  When payday loan stores outnumber McDonald's, it is a sign a crisis is looming.

People need to be taught about more real world financial issues.  Start in high school, maybe earlier.  Kids need to understand that CDs don't just play music.  To help people get unburied, restore for a limited time period, the tax deduction on existing consumer interest (such as credit card and auto loan interest). 

Encourage True Savings

Motivate people to save.  Look what happened in 1974 when Congress enacted the Employee Retirement Income Security Act (ERISA).  This Act created the Individual Retirement Account (IRA).  It started out simple and was overwhelmingly successful.  For many, it resulted in their first savings account ever!  Trillions of dollars in assets have been accumulated and IRAs represent the largest component of the U.S. retirement market.  With private sector businesses unable to provide the retirement programs, along with the challenges faced by Social Security, more attention needs to be paid to improving this system.  Boost contributions to IRAs by restoring tax deductible contributions to IRAs for everyone.

The consequences of continuing on the same course can only be the same results.  One definition of insanity is doing the same thing and expecting different results.  The Fed lowering interest rates time and again is not going to fix this problem.  The Fed rate could be lowered to zero and people still would not be able to afford to buy a home or make payments on the home they already own.  Sending small checks to millions of people failed before.  Why would it work now?  These challenging times demand real solutions.  Not Band-Aids.

7:30 PM - Apr. 10, 2008 - comments {0} - post comment

Consider a pre-listing inspection

Dan Steward, President, joined Pillar To Post as President in 2004.  He suggests a pre-listing home inspection might help everyone to a shorter, smoother closing.

Not so long ago, home sellers were being bombarded with multiple offers. They didn't have to worry much about the condition of a home in order to ensure a smooth and quick sales transaction. In today's market, realtors are creating new strategies and are working even more closely with home sellers to sell homes quickly for top dollar. The biggest development in this area is realtors advising sellers to schedule a home inspection prior to putting their homes on the market.

A prelisting home inspection—one that is paid for by the seller or in some instances by the selling agent before a house is put on the market—plays a large part in a buyer's decision to buy. It signals openness about the shape of the house and omits the possibility of unpleasant surprises that could potentially slow the sales transactions and bring the price down. In addition, realtors who require or recommend prelisting home inspections give their client's homes a marketing edge.

These inspections also give the discriminating buyer upfront information on the condition of the home, and in some cases, a preemptive seller's inspection means that repairs, such as a dripping faucet or roof leaks, will likely be fixed. The report also signifies to buyers that the sellers made all efforts to sell the house and cared about selling to somebody who was going to be satisfied with the condition of the home and the repairs made to it. With their own report, sellers can choose, for example, to spend a few hundred dollars fixing a faulty electrical problem that might otherwise result in a claim for thousands off the home price.

Some of the multiple benefits of recommending that a seller conduct a prelisting home inspection include the financial advantage for home sellers to make important repairs. Should a buyer request a specific repair as part of the sale agreement, the seller could easily be placed in the position of having that repair done at the last minute at a higher cost. Alternatively, if that buyer opted to negotiate the price downward due to a repair left undone, they may face typical decreases such as for every $1 of identified repairs, buyers ask at least double or triple that in a price reduction.

Savvy home sellers who, for example, learn through home inspection that portions of the roof need repair may opt to repair that section immediately. Paying $5,000 for the repair is far more enticing than reducing the asking price by $10,000 or more. Buyers typically expect a $2 to $3 price discount for every $1 worth of defects turned up by their inspector.

Most buyers think that buying a home is going to be a lengthy, complicated, and stressful process potentially lasting for months. The prelisting home inspection reduces the stress inherent in such a major transaction as all parties quickly gain a thorough knowledge of the home through a full written home inspection report.

It also reduces time spent on the negotiation process, as all information on the home is given upfront to the buyer. This limits the potential of any surprises and tells to the buyer that problems may have been found and were repaired so the house is in the best condition possible.

Prelisting home inspections are no longer a rarity; instead, they're becoming a valuable part of any seller's marketing. It's estimated that the number of homeowners choosing to conduct a Prelisting home inspection has increased to 85% in the last one to two years.

7:26 PM - Apr. 8, 2008 - comments {0} - post comment

Foreclosure 101

Foreclosures are hitting record numbers across the country. To assist homeowners, FrontDoor.com, a new real estate website powered by HGTV, is offering a foreclosure guide that provides much needed resources to successfully navigate and understand today’s complex real estate market.

1) Foreclosure is a process, not a thing.

People often misuse the term “foreclosure.” Foreclosure is a series of events, not a state of being. Lenders don’t foreclose on homeowners; they foreclose on property.

2) The foreclosure process has four phases. The terms and length of each phase vary by state.

Your rights and options as a homeowner vary depending on the stage your home is in and the state you live in. Know what laws apply to you. For instance, if you’ve missed three mortgage payments or less, you typically have a little time to work with your lender to “cure” the default. In many states, you have until the auction date to get your payments up-to-date.

3) A difficult financial situation doesn’t have to lead to foreclosure.
There are several steps you can take to avoid foreclosure if your loan is about to adjust, you lose your job or otherwise anticipate that you might miss mortgage payments. For instance, if your ARM reset will double your mortgage payments, show your lender documentation of your income and debts to make a convincing case for a loan modification.

4) The mortgage lender is not eager to take your house away.

Lenders are not in the business of managing real estate, so they would rather work with homeowners to keep them in the house. And with the growing number of defaults across the country, your lender may be more open to cutting a deal.

5) You can sell your home immediately when foreclosure is looming.

Even if you live in a tough market, being aggressive and keeping your home in good condition can help you get a speedy sale.

6) All is not lost once you get a notice of default.

If you’ve missed more than three mortgage payments, you still have some alternatives for stopping the foreclosure process.

7) A short sale is better than going through foreclosure.

Lenders don’t typically forgive mortgages, but in a market with lots of inventory, they would rather see the house sold for less than the mortgage, than deal with trying to sell it themselves.

8) Foreclosure has major legal, tax and credit consequences.

Foreclosure will heavily impact your ability to borrow money in the future, so make sure you’ve exhausted all other options first.

9) Buying a foreclosure property doesn’t always mean you’ll get a bargain.

Your buying strategy depends on the stage of foreclosure the property is in and the state you live in. Finding a turnkey property in the foreclosure market is rare. Oftentimes, the home will need some renovation. Crunch the numbers first to make sure you really are getting a deal.

10) Understanding your mortgage can help you avoid foreclosure.

Many homeowners who end up in foreclosure say they were unaware of some crucial pieces of information about their mortgage. Read all the loan documents, ask questions and consult with an attorney if you can.

6:58 PM - Apr. 6, 2008 - comments {1} - post comment

What to look for when inspecting a home

Being a homeowner comes with its own set of challenges, particularly as it relates to home maintenance. The American Society of Home Inspectors (ASHI) recognizes that geography is a significant contributor to maintenance issues and encourages homeowners to familiarize themselves with common issues in their region.

“At ASHI, we work closely with our members to identify maintenance issues and track regional defects that plague homeowners,” said Brion Grant, 2008 ASHI president. “By discussing these issues in real time and sharing valuable information, our members are able to stay on top of their game and identify potential problem areas that others may miss.”

While some maintenance issues, such as poor drainage, leaky roofs and old plumbing are common to all areas of the country, others are driven by geography, climate, weather conditions and the quality of the contractor who built or renovated the home. Below is a snapshot of prevalent maintenance issues homeowners should look for. Homeowners who need help evaluating these issues can contact an ASHI Certified Inspector:

Regional Defects in the Northeast

Framing issues are a top concern in the northeast region of the United States, particularly underframing, which is the presence of undersized and/or over-spaced beams in a home’s framework.*

Fire retardant-treated (FRT) plywood, often found in attics, is an issue in newer homes in the Northeast, especially in town homes. When the plywood reacts to high temperatures it becomes structurally unsound and can crumble, which can be a safety hazard for anyone inspecting or walking on a roof.

Faulty HVAC systems, in older homes with modern heating equipment, are a common problem for homeowners in the Northeast. Condensation can form in older chimneys that weren’t designed for low-flue gas temperatures and cause water stains, efflorescence and deterioration of the chimney. In extreme cases, the chimney may even collapse.*

Regional Defects in the Southeast

In this warmer region, roofs are top-of-mind for inspectors and homeowners alike. The sun and heat deteriorate materials more quickly than in other parts of the country. Roofs that typically have a 30-year life expectancy may only last 15 years in Florida.

Termites are also a big issue in this region. In the Southeast, the rule of thumb is that if your house is 20 years old, you probably have termites, or you’ve had them in the past. Homeowners should be on the lookout for subterranean termites and flying dry wood termites.

Regional Defects in the Midwest

Water intrusion is a common issue for homeowners in the Midwest. Wood rot is very common in trim and siding. The prevalence of basements in this region also makes it a hot spot for water intrusion.*

Plumbing issues are also prevalent. It’s not uncommon to see water heaters serving as both a furnace and water heater. Issues arise, however, when plumbers forget to attach venting fixtures or drains when new water heaters are installed.*

Decks are another area of concern. This widely enjoyed add-on can be attached incorrectly when built by eager Do-It-Yourselfers.

Regional Defects in the Northwest

Moisture intrusion impacted by drainage systems, exterior flashing components and exterior grading is a top concern in the Northwest, particularly as it may result in wet basements and crawl spaces.

Topography also impacts homeowners in the region. Because of heavy rainfall, homeowners who live in houses built on slopes should contact a geotechnical engineer, or similar expert, to identify potential settlement issues.*

Regional Defects in the Southwest

Homes in the desert Southwest also suffer from specific maintenance issues caused by the sun, particularly issues with the longevity of roofs, vinyl windows and siding.

Upward structural pressure caused by water build-up under the foundation is also an issue in the Southwest, a result of expansive soil.

“Our goal is to empower homeowners and give them the opportunity to understand their home and common maintenance issues affecting their region,” said Grant. “Many of these issues, if left unexamined, could undermine the condition and possibly compromise the safety of the home and its occupants.”

6:39 PM - Apr. 4, 2008 - comments {0} - post comment

Neither a borrower or a lender be

Ever have a friend or family member ask for a loan? It can be awkward, and for many the knee-jerk reaction is to just pull out the checkbook. But having the funds available to extend a loan is often not the point when it comes to lending money... it's knowing when or if you will ever receive your hard earned funds back.

According to a Federal Reserve survey, over 8% of Americans have loans that have been extended to friends and family. By some estimates, these loans total a whopping $89 billion and an eyebrow-raising default rate of 14%, versus just 1% for those who borrow from a bank. So before you decide to play banker with your friends and family, consider these steps to help avoid a potentially ugly situation.

Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. It has been said that "quick to borrow is always slow to pay." So while you want to show compassion for the friend or family member and tell them you would like to help, explain that you need a few days to review your financial situation and make a decision. Perhaps another solution will come to them in the meantime.

Just Say No. If possible, try to avoid lending the money. Statistics suggest that the risk of not getting repaid is very high, which could be damaging to your relationship. HOWEVER... before you blurt out a blunt "NO," consider the amount requested, provide an explanation that will not hurt your relationship, and offer to help in a non-financial way. Or consider giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms, and removes the potentially heated issue of non-repayment.

Be Specific. If you do decide to extend a loan, sit down with your friend or family member and set expectations. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, even the penalty that will be incurred should a payment be missed.

Get It In Writing. Always put the terms in writing. Seven out of ten personal loans are not put in writing... but again, consider the markedly higher default rate of non-documented loans. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings. Promissory notes can be purchased online at www.nolo.com for a reasonable price. If the loan is large or complex it may be most beneficial to have an attorney draw up an agreement. Make sure the loan papers are filed away in a safe location, and then keep good records.

One important note, if the loan is in excess of $10,000 or the money will finance income-producing activities, the IRS expects you to charge a certain amount of interest...and claim it as taxable income, of course. To find the current rates, visit www.irs.gov and search for AFR (Applicable Federal Rates). You can also contact your trusted CPA for advice.

6:29 PM - Apr. 2, 2008 - comments {0} - post comment

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