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

New front entry = quick sale

-When it comes to purchasing a home, buyers do judge a book by its cover, according to a new survey of real estate agents commissioned by JELD-WEN® Windows & Doors.

The JELD-WEN Real Estate Agent Community Trends (REACT) survey found that curb appeal is essential to getting buyers in the door and fostering a sale. Specifically, 82% of agents said they have had buyers decline to look at the interior of a home based on the exterior appearance.

“This research speaks volumes about the importance of window and door curb appeal when it comes to home sales,” said Elizabeth Souders, product manager with JELD-WEN. “It confirms that windows and doors play a major role in the overall home value.”

Other findings from the REACT survey include:

- 90% of respondents felt a buyer’s first impression of the front entry was important to their ability to sell a home; 91% of agents agreed that a prospect’s impression of a home’s outer shell is equally important as the interior.
- Other than first impressions, real estate agents pointed out the amount of a home’s natural light (75%), overall appearance of windows and doors (71%), energy efficient products (63%) and environmentally friendly materials (29%) helps them appeal to potential homebuyers.
- A majority of agents have used energy efficiency as a selling feature. Two-thirds, 66%, said they have mentioned energy-efficient doors and windows in their listings.

Sixty-five percent of agents in the REACT survey said that the number of buyers looking for universal design features, such as a master bedroom on the main floor, has increased in the last few years.

Given the importance of the front entry in the sale of a home, agents were shown pictures of an average 2,000-square-foot home and asked to estimate its value in their area. When shown the same home with updated entry and garage doors, agents estimated the property to be worth an additional $16,000

5:16 PM - Mar. 27, 2008 - comments {0} - post comment

Sell it fast!

6 Tips for Selling Your Home Fast in Today’s Market

1. Price your home aggressively — Look at the other homes in your neighborhood that have sold in the past three months (except for distressed sales) and price your home below the lowest sales price. If there are active listings in your neighborhood the price you select must also be below that of the most comparable home to yours.

2. Make your home the neighborhood showplace — Updated kitchens and baths are what hook most new home shoppers. Look to install granite countertops, stainless steel appliances, and new ceramic or hardwood floors. Carpets should be as nearly new as possible. Add a new coat of paint to your home’s interior and exterior.

3. Enhance Your Home’s “Curb Appeal” — Avoid the appearance of a “drab” yard by planting colorful flowers in selected locations. Seed or plant sod in areas lacking grass. Make certain the yard is mowed, edged and mulched.

4. Clutter Must Go — Even the most up-to-date house will look disorganized if it is filled with unnecessary furniture. Remove all furniture you do not absolutely need. Also, remove personal items (including family photos and portraits). Prospective buyers want to imagine a house with their own things in it, not yours.

5. Make Certain Your Home is Properly Staged — Consider hiring a professional to “stage” your house before prospective buyers begin coming through your door, especially if your house has been vacant for a while. A professional stager will generally charge between $1,000 and $2,000, and arrange home furnishings so that prospects can more easily envision their own furniture in the house. At the same time, an experienced stager can add a touch of class to your home.

6. Don’t Forget Financial Incentives — Offer buyers’ agents a four percent commission rather than the traditional three percent, along with closing cost assistance to buyers. Closing cost assistance is especially attractive now that credit has tightened significantly and 100% loans are next to impossible to obtain.

Homes that take months to sell often require the asking price to be cut multiple times. Additional costs to the seller include continuing mortgage payments, utilities, taxes and insurance, repairs and other associated costs. Following the six tips outlined above can help to greatly reduce the amount of time it takes to sell a home in today’s market.

12:23 PM - Mar. 23, 2008 - comments {3} - post comment

Moving your car

What are my options for transporting a vehicle?

A vehicle can be moved with your household goods or with a separate auto transport company. To ship your car most efficiently and cost-effectively, it’s important to know about the different shipping techniques, such as open and closed trailers. The model of the car, as well as the intended destination, will help determine the type of trailer you will need.

What is an open trailer? An open trailer is the more popular and frequently used trailer. It carries anywhere from 10-12 vehicles at a time.

Advantage: Open trailers are less expensive than closed trailers. The cost is determined by the weight of the vehicle.

Disadvantage: Open trailers are subject to the elements (i.e. rain, snow, wind, dirt and dust).

What is a closed trailer? A closed trailer is a vehicle that has a covered freight area. It is commonly used for shipping expensive or classic cars that need to be protected. If you wish to protect your car from wind-blown sand and heat, this is your best option.

Advantage: The car is well-protected from the elements of nature.

Disadvantage: Closed trailers cost more. Remember, the cost is determined by the weight of the vehicle.

Is my car insured? The company that transports your vehicle(s) should provide adequate insurance to protect against driver negligence. Ask for a copy of the “Certificate of Insurance” and familiarize yourself with the types of coverage provided. Consult with your current auto insurance agent to determine whether you need supplemental coverage.

Turning your vehicle over to the carrier.

Prior to handing over your car to a driver or transport company, be sure you receive an “Original Inspection Report.” This report provides: pick-up and delivery information, current mileage, and most importantly, shows the condition of your car at time of pick-up (pre-existing scratches and dents, cracked glass/mirrors, general paint condition, etc.).

Accepting your vehicle for delivery.

At the time of delivery, inspect your vehicle thoroughly and compare the condition and mileage against the “Original Inspection Report.” Many transport companies also provide a copy of this report at time of delivery. If there are discrepancies, note them as exceptions and be sure the driver signs it. NEVER accept your vehicle at night if you cannot verify the report condition and without being signed by the driver.

What’s in your trunk?

As of 1990 the Department of Transportation ruled that you may not load any items in a vehicle other than clothing. Auto transporters are not licensed to carry household goods or personal items. Damage to your vehicle due to household goods shifting or breaking is not covered by insurance.

12:41 PM - Mar. 11, 2008 - comments {0} - post comment

Let the foreclosure freeze help you

“The new freeze on foreclosures is the perfect opportunity for everyone who has too much real estate debt or is facing foreclosure or is in foreclosure to take action now and turn a negative money situation into a positive wealth-building opportunity,” says Shemin. “Stop looking at those massive mortgage payments, take advantage of this gift and call your lender right away.”

Shemin, who is himself a real estate multi-millionaire, offers these action steps to take advantage of the foreclosure freeze:

1. Call your lender with the end result you want firmly in mind. Know what you can afford and how much less you want to pay and ask for it.

2. Have back up documentation. Banks and lenders love paperwork. If your home has gone down in value have copies of three comparable sales from the Internet or local realtors. Solid proof can help you favorably renegotiate your loan or interest rate.

3. Prepare a basic financial statement showing your assets and liabilities as proof to the lender of what you can or cannot afford.

4. Try for a short sale agreement. Ask the lender to agree to discount or reduce the debt so the property can be sold below what you owe if you get an offer.

5. Ask about refinancing the loan or lowering payments.

The most important thing is to take action and communicate with the lender immediately. Make sure you are talking to a decision maker, who can make a final decision to change, alter, or modify your loan. Finally, be patient but persistent. Banks and lenders are on overload, recognize that it may take you two or three months and dozens of phone calls to get the result you want. But no matter how long it takes it’s worth it if you can get lower payments or interest rates. You’ll end up with less stress, less debt and more money in your pocket.

12:35 PM - Mar. 9, 2008 - comments {0} - post comment

Consider your landscaping

In this article Peg Guinta, CRP, Projects Director for RIS Consulting Group, gives some guidelines for taking that curb appeal from average to super.

It’s no wonder home staging has gotten a lot of attention lately. Expand interior appeal to a larger buyer group and you may sell the home sooner and for more money.  Companies that track home staging results report that a staged home can potentially reduce selling time by half and improve sales prices by 5% -7%. 

In fact a national survey of 2000 real estate agents conducted by HomeGain in 2003 found that “…moderately priced home improvements, ranging from $80-$2,800 made in preparation for sale actually yield the highest returns when a house is sold.”

So, if broader interior appeal translates to increased economic value, an improved exterior should, too. Because most buyers form opinions ‘at the curb’ - before they even get out of the car - a home’s exterior is a powerful, pre-emptive stage-setter, keeping prospects’ interest intact.

Build Appeal, Build Value

Strategic home preparation is a fundamental consideration in any home marketing tool kit, whether it’s an improved landscape design or basic upkeep and maintenance. Major elements such as landscaping; structural items and architectural features should appear cohesive and well-kept. Visual appeal is sometimes subjective, but balanced and consistent features generally create a pleasing composition.

The good news is-you don’t need a landscape designer to tell you that the foundation plantings need updating. or the front walk is undefined or unwelcoming. And improving selected features will probably cost less than you’d expect. In 2002, the American Nursery & Landscape Association reported that the average amount spent on landscape installation / construction was $3,502. Several sources indicate that this investment cost recovery is high. According to Money Magazine, February, 2000, “A nicely landscaped property can allow owners to recoup 100-200% of their investment at selling time.” Larger landscaping design projects can offer more value but always keep investment cost in line with property values.

Landscaping - An Underused Strategy?

The HomeGain survey also reported that a simple improvement such as ‘landscape & trim’ with a typical cost of $432-$506 can bring an increase in sale price from $1,594 - $1,839 - a 266% average return.

Other sources concur. According to the Gallup Organization, a landscaping project could add anywhere from 7%-15% to a home’s value. A Clemson University study reports slightly more conservative results: homes with “excellent” landscaping can expect a sale price about 6%-7% higher than one with only “good” landscaping.

Buyer appreciation of patios, decks and inviting outdoor living spaces further heighten sales appeal and add real economic value when it’s time to sell. But if expectations are to recover all costs of elaborate projects - sellers beware - because many buyers will not consider a highly personalized project desirable.

At The Front Door

The front entryway is a particularly important area and offers great opportunity to make a statement. It doesn’t matter how tiny the area is - there are lots of tasteful touches that will make an impact without costing much. A simple welcome mat, a wreath on the door, a hanging flower arrangement may be enough. A brass door knocker and kick-plate, and a potted tree on the steps can class up the front door area. Benches, art or antique objects fitting in with the overall house style can add interest and a welcoming appearance.

Consider color in the front entrance, too-could door trim or the front door itself use a color upgrade? Changing front door color is a quick and inexpensive fix to improve curb appeal. Painted a complimentary color to house and trim, doors can add dimension and style instead of receding or even detracting from overall appeal. House numbers, lighting and mailboxes should also be included in design appearance.

“Hardscaping” elements leading to the front door or the front porch itself are other opportunities to improve features that may need a lift. Selection of hardscape materials themselves (i.e., slate, brick, stone, etc.) are style choices that should relate to and complement other property elements.

Driveway, front porches and walkways are items often overlooked that when updated, can make a huge impact. One of the easiest projects to do is create a defined walkway if there is none. This not only adds visual value, but is practical. A walk way should efficiently direct users to the entry and look attractive while doing it; no overgrown grass, shrubs, loose slates or out-of-place bricks on the way to the front door.

The Value of a Tree

A home’s curb appeal has the power to set the stage; it may keep prospects away or draw them in, easily affecting a property’s sale price. Appeal is highly individualistic, but a well-designed and maintained “curbscape” needn’t be cost-prohibitive to improve the home’s sale-ability. If sellers anticipate a curb appeal project for the purpose of resale, remind them that design moderation is best for investment recovery.

For those planning to sell soon, now is the time to consider curb appeal improvements. Even for those not intending to sell right away, consider the value of a tree; based on its maturity it can have an appraisal value of between $1000 to $10,000, according to the Council of Tree and Landscape Appraisers.

12:40 PM - Feb. 26, 2008 - comments {0} - post comment

7 ways to make sure the price is right

“You’ve got to know more than you would have if you’d sold a year ago,” says William Poorvu, professor emeritus at Harvard Business School and author of the upcoming book “Creating and Growing Real Estate Wealth.” “If you want to protect yourself, you have to become knowledgeable.”

1. Recognize that housing markets are local.

Home prices are like the weather — very different in different areas. In many markets, home prices have actually gone up from last year, says Dick Gaylord, president of the National Association of Realtors.

In addition, demand will change depending on the price range and even the neighborhood. What you need to know: What’s the demand for a house like yours in your area?

“You have to look at what’s being sold and at what price,” says Poorvu. “That’s important.”

Look at comparables for similar houses. Study prices and sales for one year ago, six months ago, three months ago and current numbers, says Gaylord.

What are the trends? Are prices going up or down — and by how much? How many days are homes staying on the market? If they are on the market longer, how much of that could be seasonal? In many areas, spring and summer are the busy seasons.

Pay special attention to “the delta between the list price and the sales price,” says Ron Phipps, broker with Phipps Realty in Warwick, R.I. That is, look for a meaningful relationship between list price and sales price. Perhaps most homes are selling for 5% less than the list price.

“An agent who works the market will be in the best position” to find “the tipping point between nice, attractive and interesting — and being sold,” Phipps says. You want to find the point between, “Hey, that’s interesting,” and “It’s too good to pass up.”

2. Analyze who is buying and selling in your market.

What’s your competition? Who are the buyers, and why are they shopping?

Do you live in an area like Phoenix, “a growing market with people coming in,” says Poorvu. Or are you living in an area that doesn’t attract a lot of new residents, where many shoppers are “bottom fishers” who don’t have to buy but are “looking to pick up a bargain,” he says.

Are you competing against a flood of new houses from builders eager to sell, or are you selling a newer home in an area where most of the housing stock is older?

3. Ask the professionals.

When you interview real estate agents, ask about the market conditions for your area and price range.

Specifically, ask about the “absorption rate” says Phipps. What that means: In the current conditions with the current inventory, how long would it take the market to absorb or sell, all the houses on the market?

If the supply is much larger than the demand, ask potential agents how they would “price to offset that inventory,” he says.

4. Know what your house is worth.

Talk to a handful of agents. Get an appraisal from a certified professional appraiser. Look at your comparables. Taken together, that information will give you a pretty good idea of what your home is currently worth.

5. Consider strategic pricing.

Here’s how it works: If prices in your area are dropping 1% each month, and you want to sell within the next three months, you take 3% off your price right off the bat, says Phipps. So if you were going to put your home on the market for $400,000, you set the price at roughly $388,000.

The upside: You’ll have the competitive edge over the guy who’s dropping his price every month, without the air of desperation. Plus, in a market where prices are falling, you’ll make more money if you sell quickly.

The downside: Predicting the market is a tough call, even for the pros. And it’s really difficult to raise the price if your market starts to rebound, Phipps says.

6. Evaluate whether you really have to sell now.

If you want to get the best possible price for your home and the local market is tanking, “see if you can delay the sale,” says Poorvu. Otherwise, in a lot of markets, sellers have “to be willing to accept a pretty good haircut over what they thought their home was worth last year,” he says.

The downside of waiting: The market could decline or your circumstances could change to the point that you might need to sell quickly.

But for situations where the move is optional (or you might be able to rent the property until your local market improves), waiting is a solid option.

Just because you’ve already planted that “for sale” sign doesn’t mean you can’t change your mind if you’re not seeing the interest you anticipated.

“If you know there are no sales or sales are decreasing, and you have the opportunity,” taking it off the market is a decent solution, says Healy. “I think we’re seeing a lot of that.”

7. Assess the market where you plan to buy.

If you’re selling one house and buying another, look at the market where you plan to move. Says Poorvu, “It might be that, with the housing there, it’s a great time to buy.”

1:13 PM - Feb. 18, 2008 - comments {0} - post comment

17 ways to get the Buyer inside the house

Here are some easy, inexpensive fixes that will help create outside appeal and get you one, giant step further to a sale.

1. Paint or stain the front and garage doors, especially if they show any weathering. These are the first visuals where a potential buyer focuses. If garage doors are metal and dented, they may need to be replaced.

2. Any old, basically abandoned sheds or small structures, must be removed, the area graded and the grass replaced.

3. Change any dated, outside light fixtures.

4. Fix that driveway. If it is blacktop, make sure cracks and crumbling areas are dug out and filled and then the whole driveway sealed. If it is cement, have large cracks filled and repaired professionally. The buyer must at least feel they can drive the moving truck in confidently!

5. Make sure landscaping bricks are in their proper placement. Mowing, weed-whipping sometimes moves them and this is something the homeowner rarely notices, but makes the property look unsightly.

6. Fill in bare dirt under large shade trees. Plant shade-tolerant plants in defined planters or groundcover. Landscape properly for that area.

7. All landscaping beds should be cleaned out and updated for the time of year it is in your region. Place new bedding material down.

8. Have trees and bushes pruned and trimmed. If a bush or tree is looking old or about to expire, remove it and replace it with a similar size and type if you can. If there is a tree limb(s) over the roof, have them removed.

9. If the house needs painting and a full paint job is not in the cards; have it touched up professionally in the worst, most visible spots. Paint shutters and fix them if they are hanging crooked. At least this may help get your buyer in the front door, even if they negotiate a full paint job into the sale later.

10. If the house is sided, have it power-washed and have gutters and windows cleaned. Window cleaning inside and out makes the house feel updated and fresh, rather than old and dingy.

11. Make sure grass is in good shape, weeds are removed, trimming done regularly. So many sellers fall down on this job the minute the house is listed, and this is critical to selling a house quickly, especially one where the owners have already moved out. In snowy climates, removal must be done regularly too. If owners have moved out, make sure you have an HWA Home Warranty to re-assure buyers.

12. Keep garbage and recycle containers inside the garage, along with all toys and equipment. Make sure the garage is neat and organized. Painted walls and floors also go a long way in this area and are inexpensive to do.

13. Decks should be washed and repainted or re-sealed; plantings around them cleaned, weed-free and looking good. Patio furniture should be in excellent condition. Even though it is in the backyard, this is the area where the family can envision enjoying the warm days and the new yard.

14. If the roof has missing shingles and they can be replaced inexpensively, this should be done as it may save negotiation over a completely new roof. Roof repair needs and costs should be minor or the homeowner might as well replace the entire roof.

15. If you want to do a bit more, try adding solar lights lining the driveway or installing a more attractive front door with lead glass inserts and replacing plain doorknobs with something more custom.

16. If you have an evening showing, make sure lights are on outside and inside the house. This is warm and inviting.

17. If it’s a holiday season, by all means decorate the home! Just like sugar cookies or vanilla scent on the inside of the house, this really says “it’s a home” and I can see myself enjoying life here! In the least, always have some greenery or flowers for the season on the front step or porch; even a birdbath with a little garden around it says home.

Remember, most home buyers cannot visualize even these simple changes and clean ups in a house and the ones who can, will be looking for a reduced price. So to sell the house at top dollar and quickly, make it “appeal” to the many who will be seeing it rather than the few who are looking for a “fixer upper.” These people know what they want, go after it and need less assistance.

1:03 PM - Feb. 16, 2008 - comments {0} - post comment

It pays to get a pre-inspection done

In most areas it's a buyer's market, so people can be picky. "Most buyers in this market will try to re-negotiate based on the findings of their home inspection. If the seller is unwilling to make repairs or lower the price, they walk away," says Kathleen Kuhn, president and CEO of HouseMaster.

With approximately two million home inspections collectively performed by its franchise offices, HouseMaster noticed a number of conditions that are more likely to scare buyers away. And sellers do not have to stand by with their fingers crossed to secure a fair sale.

"More and more home sellers are getting a pre-listing home inspection that helps identify potential deal-breaking issues before the house is listed on the market," Kuhn says. "This way, sellers can fix problems and worry less about a buyer walking away later in the deal process."

According to Kuhn, the following are "The Fearsome Four" when it comes to real estate deals:

Roofing Concerns: A new homeowner does not want the expense of roof replacement shortly after closing. Many sellers believe that if their roof is not leaking it is in acceptable condition. However, underlying issues can exist.

Electrical Problems: Some panel models were discontinued and might even pose a fire hazard. Although they are straightforward to replace, the potential fire risk can be scary for prospective buyers.

Structural Issues: Fortunately, major structural issues are the least common defect found in homes, but when they do occur, they can be costly to repair. Note that a professional home inspector won't assess the extent of repairs needed when these conditions are found. Structural engineers and other professionals should be consulted to get specifics on the scope of repairs needed.

Synthetic Stucco or Exterior Insulation Finish Systems (EIFS): Overall EIFS can be effective, economical alternatives to traditional stucco. Unfortunately installation issues often lead to trapped moisture behind the siding, causing mold and extensive deterioration. In many cases the siding has to be replaced, often with a different type of siding which can cost tens of thousands of dollars.

"Sellers lose some advantage when they are caught off guard by issues, even minor ones. In a market where every edge counts, sellers can use tools like pre-listing home inspections and repair records to show that they are conscientious and have taken appropriate steps to sell responsibly and competitively," Kuhn says.

8:50 AM - Dec. 18, 2007 - comments {0} - post comment

Don't really want the house to sell? Here's how

Paul Pastore, is a broker with Re/max Achievers in Chandler, Arizona. Here is his take on how Sellers can insure that their homes won't sell.

Here are the top ten ways any seller can practically guarantee their home won't sell:

1. Not serious about selling. A sage once quipped, "Money is only important when you don't want something enough." Real estate expert R.L. Brown said that if half of the 58,000 sellers in Maricopa County (Arizona) removed their for sale signs we would be at normal inventory levels. Actions speak louder than words in this market. Discretionary sellers should wait for a less competitive environment.
   
2. Improper pricing. A home properly priced is half sold. No amount of full color ads, glossy flyers, multiple photos, virtual tours, agent luncheons, Goodyear blimps, pom-pom girls or Saint Joseph statues will compensate for the wrong, timid retail price.
   
3. Not listening to your agent. Attorneys believe if you represent yourself, you have a fool for a client. Doctors don't self-diagnose. Professionals use professionals. Even though most people believe they are experts on raising kids and real estate; full-time, career pros usually know what's best. Listen very carefully.
   
4. Micromanage the marketing. Just because you sold cookware in college, carts in California, or carpeting in Cranston does not qualify you to second-guess your agent. If you had a real estate license years ago, tell your children about the "good old days." Share your concerns and timelines, but leave the details to the listing pro.
   
5. Don't stage the property. Someday shag multi-colored, sculptured carpeting will come back. Whitewashed cabinets, Navajo white walls, linoleum flooring, southwest décor, lots of personal photos and Elvis paintings on black velvet should be removed. And, oh by the way loose the long sideburns.
   
6. Let Fido run loose. Recently, I entered a house and two frisky, friendly black Labs ran to sniff me. Unfortunately, I had light gray dress slacks on that day. Both wet stains lasted for hours. Until that day I didn't realize dogs enjoyed chewing the tassels on expensive loafers.
   
7. Talk to the buyers. Life gets lonely at times. Why not ask the buyers where they grew up? Or how much they qualify for. Tell them about the vacant rental next door. Or, the sex offender who left the area. Maybe they could baby-sit next weekend! Why not share war stories, horror movies or meatloaf recipes?
   
8. Sell personal items. Wow, maybe the buyers want to buy the patio furniture, rotary lawnmower or life size statue of Saint Anthony. You only have four more boxes of Girl Scout cookies to sell. Why not ask for a donation for the March of Dimes, the Humane Society or the local PBS station. Remember the saying, "loose lips sink ships?"
   
9. What's that smell? My house doesn't smell of pet odors, baby diapers, curry powder, garlic, fried fish, coconut incense, cigars, manure, mulch, dairy farms or low tide. The buyer must be confusing my castle with a track home.
   
10. Avoid feedback. What do buyers know anyway? Imagine the fact they don't appreciate my barbed wire fence, heavy duty rebar, backyard bomb shelter, airport runway views, lights from the power plant, hum from the high voltage lines, railroad tremors, scorpion skeletons, termite mud tubes and pet snakes.

3:08 PM - Dec. 10, 2007 - comments {5} - post comment

First time home seller's guide

Kinan Beck of One Source Realty in Austin, TX, has some Real Estate 101 to pass along to first time home sellers.

When it comes time to sell your home, you will likely have a number of questions racing through your head all at once. First, you will be concerned about what you need to do in order to increase your chances of finding someone to buy your home. Second, you will likely feel a bit overwhelmed when selecting your agent. By following a few simple steps, however, you will find that it can actually be quite easy to sell a home for the first time.

Making Your Home Into a House

One of the most important steps you will need to take in order to sell your home is to de-personalize it. When you are shopping to buy a home, you want to find a piece of property you can picture yourself living in. The same holds true for your prospective buyers. Therefore, you don't want them to see the house and you have personalized it. Rather, you want to remove personal items so your potential buyer can see himself living in the home.

In order to de-personalize your house, you should remove knick-knacks and other items of a personal nature. In addition, if you have transformed a bedroom into a music studio, a pet room or something else, you should change it back into a bedroom. Otherwise, potential buyers may have a difficult time seeing the room as something other than what you have turned it into.

Adding Curb Appeal to Your Real Estate

In order to improve your chances of selling your home in a short period of time, you need to take steps to improve the curb appeal. Curb appeal refers to the way the home looks when the person first sees it from the road. In order to improve curb appeal, you might need to invest a bit of cash. But, the investment will be well worth it. Some simple ways to improve curb appeal include:

• add flowers or other landscaping elements to the front of the house,
• apply a fresh coat of exterior paint,
• add shutters, window boxes or other decorative elements to the outside of the house and
• repair any broken windows, hanging address numbers or other noticeable problems.

Each of these improvements are simple and cost less than a few hundred dollars. Yet, taking these steps can increase your profits while also helping you sell the real estate faster.

Picking the Best Real Estate Agent

Your agent is going to play a major role when it comes to selling your home. As such, you want to take care in selecting the agent to work with you. To that end, it is best to interview a few different real estate agents. Don't be suckered into going with the agent who appraises your home at the highest value. Although this may seem as though the agent has your best interest in mind, some will use this tactic in order to win over new clients and will later talk them into lowering their price. Rather, go with the agent who seems to be the most honest and you are the most comfortable with. By taking steps to improve the appearance of your home and by selecting the right real estate agent, it shouldn't take you long at all to sell your house and move into a new place you can now call home

2:30 PM - Nov. 30, 2007 - comments {0} - post comment

Here's what to do to spruce up the house for sale

Home Is Where You Hang Your Hat...Not to Mention a Few Light Fixtures, a Screen Door, and Maybe a New Deck

When the housing market's hot, it seems like just about any remodeling project is a good investment and adds value to your home. But when the market's tight, you want to be more selective about which projects you undertake...and what you expect to gain in return.

If you've been thinking about boosting your home's value or just making your living space more comfortable, the ideas below can help your prioritize your list. So before you start knocking out walls and renovating your roofline, consider these ways to make a difference...cost-effectively!

First Things First. Buyers often decide whether to look at your house before they even get out of the car. Before you spend a lot of time and money remodeling the inside, you may want to look at the outside. Washing windows, repainting trim, planting flowers, and fixing screen doors can make a big difference. For even more impact, you may want to consider replacing your siding or even adding a patio or deck. The added value for these bigger projects won't yield as high of a return on investment, but may help your house stand out. So, weigh your options and ask your Realtor® for advice before starting a big project.

Come On In...Make Yourself at Home. Making a cozy first impression is critical. To make sure your entryway invites people to come in--not turn away--try adding a fresh coat of paint to your foyer or a wicker chair and table outside the door. For even more impact, replace those old light fixtures and update the floor in your entryway.

Sparkle Up That Old Bathroom. Remodeling an old bathroom can make a big impact. For very little money, you can add a new faucet to your sink, a new medicine cabinet on the wall, and even new paint or wallpaper. For a little more, you can update the bathtub, add a double sink, or re-tile the floor.

Even Better: Add a Second Bathroom. Perhaps no improvement makes a bigger impact on your family's comfort and your house's appeal than adding a second bathroom. The number of bathrooms is always a big sticking point for potential buyers, especially families with two or three children. Although adding a bathroom costs more than simply fixing up your old one, it also increases the value of your house more. Plus, having that second bathroom may help you sell your house faster than if it only has one bathroom...an important point to consider in today's market.

Make it Hot in the Kitchen. Renovating an outdated kitchen is practically a sure thing...as long as you don't splurge on extravagant items like hand-painted Italian tile or built-in espresso machines. Instead, focus on the basics: installing new flooring, adding a backsplash and a new coat of paint, re-facing existing cabinets, installing new countertops, and possibly installing new appliances. These go a long way to making a new buyer feel at home.

Remember, start small, work your way up, and always plan ahead. You don't want to get halfway into a renovation only to find that you have to update your entire electrical system or that you forgot to apply for a permit. So, check your local zoning codes before starting any remodeling project. But with a little planning and prioritizing, you can make your house more comfortable and valuable with very little time...and money.

7:30 PM - Nov. 22, 2007 - comments {0} - post comment

You CAN sell your house in the fall

"It's impossible to time any market," said Piero Orsi, president of the Realtor® Association of NorthWest Chicagoland. "Realtors have worked with buyers and sellers in all types of markets and know what changes or improvements can generate the quickest sale at the best price."

A common mistake for sellers as the market slows is to set an unrealistic price for their home. A house that is priced appropriately for the market will be taken more seriously and will sell more quickly than one that's overpriced.

One of the easiest ways to properly price your home is to request a comparative market analysis (CMA), or a report telling you how much your house is worth comparable to other homes sold in the area in the past year. A local Realtor not only has experience with these types of reports, but access to the sales records in your area and can complete this analysis upon request. Once you have a proper price for your home, you can spend some time preparing it for sale.

The changing colors of the fall season can make for a beautiful landscape for a listing. Since most buyers tend to be more inclined to request a showing if a home's exterior is visually appealing, focus some of your time on improvements to your curb appeal and add interior touches. Even small adjustments can make or break a sale.

Here are some quick tips:

- Keep the lawn tidy. Rake up excess leaves that may distract buyers.
- Add some seasonal accents to your home. Hang a fall wreath on the door or place pumpkins on your front porch.
- Consider baking a pie before your open house. Or burn a candle to fill the home with the scent of cinnamon or apples.
- Open blinds and turn on the lights to brighten the home.
- Emphasize your fireplace if you have one. Light a fire if the weather is cool to create a sense of warmth.
- Trim any bushes or trees that might obstruct the view of your home.
- Move pets to another location before showings.

"The value of your home does not depend on the season," said Piero Orsi. "Set a competitive price, familiarize yourself with the current market and be patient. Your sale will follow."

7:18 PM - Nov. 18, 2007 - comments {0} - post comment

Support repeal of "phantom tax"

"NAR is encouraged by today's House Ways and Means Committee vote to adopt this measure and send it to the full House for consideration," said NAR President Pat V. Combs of Grand Rapids, Michigan, and vice president of Coldwell Banker-AJS-Schmidt. "Changing the IRS code for these situations will relieve a tax burden for families who are already in financial distress and are most likely unable to pay additional taxes."

With many families affected by resetting interest rates on subprime mortgages and the ongoing rise in foreclosures, NAR has been working to help more homeowners and their families keep their homes.

"Clearly it is unfair to tax people on phantom income when they most likely have no cash with which to pay that tax," said Combs. "Realtors® don't just sell homes; we build communities, and NAR is committed to efforts that will help make the nightmare of losing a home less burdensome for families."

The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement relieves the borrower of the obligation to pay some portion of his or her debt. If the property is sold at foreclosure or is sold for less than the amount borrowed, that difference is considered income and is subject to the tax.

H.R. 3648 would ensure that any mortgage debt secured by a principal residence will not be taxed. "NAR stands strongly with Chairman Rangel, D-N.Y., and Ranking Member McCrery, R-La. Their relief proposal addresses a fundamental unfairness that affects the lives of those who find themselves in truly unfortunate circumstances. We must all work together to prevent the dream of homeownership from becoming a nightmare," said Combs.

The legislation includes a provision to safeguard against abuses. The provision, similar to one that already exists for commercial real estate owners, would treat commercial and residential property equally. In addition, NAR supports the proposed offset, which tightens the requirements for taking advantage of some tax benefits while retaining all of them.

1:01 PM - Oct. 25, 2007 - comments {1} - post comment

A short course in short sales

Tim Ray from Apollo Mortgages gives us this short course in short sales.

Economic experts have said that the real estate market is not a major factor in the Federal Reserve's true goal of keeping inflation in check – and its recent activity seems to bear this out. By strategically infusing billions of dollars into the banking system and unexpectedly cutting its discount window rate for 30 days, the Fed has clearly attempted to "bail out" the financial and credit markets. The real estate market, however, continues to suffer nearly double the number of foreclosures as it did this time a year ago – one in every 693 US households. In some states, the statistics are even worse, with foreclosures claiming one in every 199 households!

If you or someone you know has an ARM that is scheduled to adjust in 2007 or 2008, please schedule an appointment with a mortgage specialist right away. Don't let a foreclosure or default situation sneak up on you. Remember, even if the Federal Reserve does lower its Fed Funds Rate later this month (which does seem likely), the majority of these ARMs borrowers will not be positively affected or "saved" by this move. For many borrowers, a short sale or a foreclosure will be the only available option.

What is a Short Sale?
A short sale, defined as an "agreement" to allow a home to be sold for less than the amount that is owed, can be a helpful compromise for everyone involved. For debt-ridden homeowners or those who owe more than the house is currently worth, a short sale could save them some of the enormous pain, embarrassment, and major credit challenges associated with bankruptcy and/or foreclosure. For lenders, it helps avoid some of the hassle and expense of seizing and auctioning off delinquent real estate. Lastly, for potential homebuyers and real estate investors, a short sale offers a great opportunity to purchase property at a significant discount in today's tight-fisted credit environment.

And, while short sales are not by any means common or easy, inventory levels of unsold homes are now exceeding a 36-month supply in some parts of the country. Add to that the increasing number of foreclosures, and lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages.

Short Sale Requirements
It's important to note that short sales occur at the sole discretion of the existing lender or servicing company. This is not like negotiating the price of a home under normal circumstances. Would-be buyers need to accept and understand this concept completely prior to entering into any purchase agreement on a short sale transaction. While a buyer and seller may come to some sort of agreement on their own, the lender in a short sale will ultimately have final approval of this legally-binding arrangement.

Remember, lenders are not looking to bail out borrowers who simply overextended themselves during the recent real estate boom. In most cases, a lender will only consider a short sale if a borrower has clearly suffered a serious financial hardship that directly caused him or her to default on the mortgage. This means the loss of a job, a serious illness, or the death of a loved one – something devastating and "unforeseen" that can justify such a state of financial disrepair. If you're a "flipper" with 2 or 3 homes that you weren't able to unload before the market turned, or if you have other assets or income that could easily cover your mortgage debt, it's not likely that a lender will accept a short sale proposal.

A written declaration and supporting documentation demonstrating financial hardship and an inability to make payments will definitely be required by the lender in order to even consider a short sale. This may include pay stubs, tax returns, and liquid asset statements – including those for retirement accounts – among other documentation. In addition, the borrower must be at least 91-days delinquent before a lender will even discuss a short sale.

In some cases, the lender's hands may be tied, depending on how the borrower's loan was sold into the open market through mortgage-backed securities. If the mortgage in question was not sold by the lender, but rather retained in its own portfolio, the lender may have more flexibility. However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department. This is where an experienced real estate professional becomes invaluable to your cause. A good real estate agent has not only successfully negotiated short sales in the past, he or she will also have access to qualified investors who are well-versed in the substantial risk and reward involved in this extremely complex and often drawn out process.

Important Additional Considerations:

• The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the "deficiency" (the difference between the short sale price and the original loan amount) can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.
  
  
• If there are currently multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale.
  
  
• There is no guarantee of success. With several parties involved, it's difficult to please all sides all of the time. Short sales require expert advisors who know precisely what is to happen at every stage.
  
  
• A number of scams resembling short sales currently exist and, because of the obvious intensity of emotion involved with this process, borrowers can quickly become vulnerable to new scams.

In other words, be proactive. If you have an ARM that is scheduled to reset in the near future, or if you're facing foreclosure because of unexpected life events, don't wait until a short sale is your last viable option – and don't count on the Fed to "bail out" the real estate market any time soon.

12:57 PM - Oct. 3, 2007 - comments {0} - post comment

Problems for today's sellers

Steve Harney is a mortgage and real estate expert gives his view on the problems faced by today's sellers.

The days of quick home sales, selling for top dollar and pricing wars on homes are gone.  The challenge is the homeowners' perception of what their home should sell for. As recent as June 2007, a survey by the Boston Consulting Group found that fifty-five percent of American homeowners believe their home is worth more today than it was one year ago. In reality, in many locations, home values have gone down.

Following are the five pricing considerations you need to educate yourself on. By taking these points into consideration when pricing your property, you'll be able to put that sold sign on faster.

1. Increased Inventory

Yes, more houses are for sale right now than in recent years, meaning buyers have a lot more choices and negotiating room. But why are there so many houses for sale today? Because we are witnessing the consequence of a pent-up selling demand. In other words, a lot of sellers waited to list their property because they wanted to catch the top of the market. They waited and waited and waited. Now that they see the market declining, they list their homes in an attempt to still sell at a high price before the market bottoms out. As a result, we have an overabundance of inventory, up approximately thirty-nine percent than at this time last year.

2. Increased Mortgage Rates

News and advertising tells us mortgage rates are at an all-time low, and that's true in a historical context. But short-term, over the past three months, mortgage rates have been increasing. And every time the mortgage rates go up, even a quarter of a percent, a large number of potential buyers are disqualified from the marketplace. Additionally, a number of mortgage companies are going out of business, with American Home Mortgage company - the tenth largest in the country - as the latest to close their doors. Mortgage companies are getting nervous about what's taking place in the mortgage market, and that's making money tighter. When money gets tighter, sellers are affected because buyers have less buying power. Less buying power means fewer home sales. It's as simple as that.

3. Increased Mortgage Restrictions

During the past few years, mortgage companies granted mortgages to just about anyone, including those who couldn't or wouldn't prove their income, those with no down payment and even those with very poor credit. But today, with foreclosures climbing steadily, almost all mortgage companies have re-enacted the tight lending restrictions that were common decades ago. John M. Robbins, Chairman of the Mortgage Bankers Association, says that he's happy about the restrictions, but that this is a strong statement that will help curb abuse and will likely constrain consumer credit choices. Because mortgage companies are nervous about the current real estate market, buyers do need down payments now. A co-signer may not be enough, and credit scores need to be high. Each one of those factors and many more disqualify some people from buying, which in turn affect sellers.

4. Increased Vacancy Rates

During the real estate boom, many people and investors bought spec homes with the hopes of flipping the house for a big profit. Today, vacancy rates on these homes are up over fifty percent. Since most of these people don't want to act as landlords, they have a strong desire to sell the home rather than rent it out. As a result, many are selling these vacant investment properties for rock bottom prices, grudgingly taking a loss. This greatly affects other sellers in the neighborhood, because when one home sells for a low price, it sets a precedent for the other sales to follow suit. With the surrounding comps having low sales prices, the current listings in that same neighborhood decline in value.

5. Increased Foreclosures

Statistics from First American Real Estate Solution show if one house forecloses in a neighborhood, the average house in that neighborhood loses five percent of its value. If eight percent of the houses in the neighborhood foreclose, the value in that neighborhood goes down twenty percent. No one can deny that bank-owned properties drive prices down. Unfortunately, the real estate and mortgage market is now bracing for the tsunami of foreclosures that is expected to hit. According to the web site www.foreclosures.com, three out of every one thousand homeowners have already lost their home to foreclosure in the first half of 2007.

Experts predict that there's going to be a crash of foreclosures over the next two-and-a-half-years of more than two million homes. So if your clients get a flood of foreclosures in their neighborhood, it's going to lower the home values drastically. Additionally, no neighborhood - no matter what the geographic location - is immune from the foreclosure fact. Simply go to http://realestate.yahoo.com/foreclosures to see all the foreclosures in your city or area.

The New Era of Real Estate Sales

The bottom line is if someone wants to sell their home for a decent price, they have to list now - not three months from now and certainly not a year from now. In fact, no one is predicting the market will be back before the end of 2009.

12:45 PM - Oct. 1, 2007 - comments {0} - post comment

Make your house easy to show

Ki Gray is the broker for Escapesomewhere Austin Real Estate in Austin Texas.  He gives the following ideas for Sellers to make their home easier to show.

Many Sellers ask for advice on how to sell their homes. There is the standard good advice... Hire a professional stager to make the home be on the level of a model home. Paint the house. Or install granite in the kitchen to have a little more upgrades than the one down the street for sale. Hire a cleaning service. You can do all kinds of things on the level of presentation. One thing I think many people overlook is making the home accessible and making the showing experience a pleasant one. This is some advice I commonly give Sellers:

1. Try to be inviting to everyone who calls on the house.

It is definitely inconvenient for people to be romping through their daily lives, but it is unfortunately part of selling a home. When someone calls to see the home, I advise something like: "Sure, we were heading to the park, so feel free to look around." Jjust let the potential Buyers feel like they are not bothersome. This helps set the mood of the home being inviting instead of starting off the showing with a feeling of intrusion.

2. Try to leave when the home is being shown (and take any distracting animals).

This seems kind of obvious, but many Sellers still seem to stick around despite the advice. Buyers just do not feel comfortable if someone is there, and they usually rush through the home without spending some time looking at where their furniture will go or how big the closets are. In addition, if they have dogs or animals that would be distracting during the showing experience (i.e. barking or jumping), try to take them with you, or if you are at work, keep them in the backyard. Let the Buyer concentrate on the home.

3. Don't let Sellers give a personal tour of their home.

It is hard for some Sellers to resist sharing their personal experiences, but when it comes down to it, Buyers should daydream about the overall home being theirs, not concentrate on some upgraded sink faucet the Seller installed last week. You want the people to become interested in the home on a personal level, thinking of how they will go about their daily lives in it rather than notice every detail. Noticing every detail will come later.

4. List the house with the easiest showing instructions.

List with easy showing instructions so that the home is accessible without much effort. Sometimes Sellers will need to make appointments due to certain situations like the elderly or newborns. But if possible, have the Buyers phone / leave a message and head to the home. Our MLS system calls it "Call 1st - Go". This makes it possible for anyone to come by, even if they were just driving by and admiring the home. It allows these drive-by people to come in, and the more people that come through, the more chance it will sell.

5. Check on the house cleanliness.

Many Buyers will say that they can imagine beyond a mess, but most cannot. Messy homes end up being distracting from what the home is offering. It is definitely hard to keep a model home look while trying to live in it, but it helps sell the home.  A cleaning service can be a good investment.

In summary, you want as many people looking at your listing as possible and the showing experience to be as comfortable for the Buyers as possible. So, try to make the showing access as easy as possible and keep distractions (like animals, messiness, & even the Sellers presence) to a minimum.

12:18 PM - Sep. 15, 2007 - comments {0} - post comment

Make your relocation easier

Michael Del Duca of Prudential Properties New Jersey has these tips if relocation is in your future:

A new career opportunity sometimes means relocating your family to another city. Careful consideration of various factors, such as your partner’s career, the effect on the children’s educational and recreational activities, and financial constraints all impact the decision to move.

Additional responsibilities crop up when moving to a new home, including getting the house up and running, finding the right school for the kids and getting them acclimated, and getting adjusted to life in a new town. These tasks can be incredibly overwhelming, especially in a new location without the aide of family and friends.

Here are some tips to help relieve the stress of relocation and turn your move into a successful endeavor.

Take your time.  As with all moves, there are so many things you need to do once you relocate into your new home. From dealing with utility companies, to finding a new doctor, to unpacking and decorating the new residence, your to-do list may seem endless. Don’t try to accomplish everything at once. Make a list and divide it into three categories: immediate, secondary and down the road. Set your own timetable because you are the boss of this project and the only person you have to please is yourself.

Get out and meet people.  More than likely, you won’t know many people in your new community. Besides introducing yourself to neighbors, you can find a place of worship, volunteer in a community organization, join a social club or gym, or just say hello to people.

Reevaluate your career goals.  If you had to leave a job behind, check to see if your company offers any employment assistance for relocating partners. Many companies have formal and informal programs, offering as little as resume support to as much as arranging job interviews.  If you’ve desired to make a career change, this could perfect opportunity to do so.  You may even want to consider an entrepreneurial career that you can take anywhere.

Talk to your real estate professional.  Your real estate professional can be a great resource as he or she has a strong understanding of the area you just moved to.  They will have insight on the area’s job market and may be able to give you names of career counselors or just help you feel comfortable in your new surroundings. 

Most importantly, don’t push yourself by setting unrealistic goals. Moving is a process and it will take time for you to get acclimated to your new home and community.  So, make this move not only a golden opportunity for your partner, but for yourself as well.

12:11 PM - Sep. 13, 2007 - comments {0} - post comment

Get rid of the pile of crunchy bugs

The National Association of Exclusive Buyer Agents (NAEBA) recently conducted an online survey of its members to rate the items they found most annoying when searching for a new home with buyers. The results of the survey are revealing, surprising, and sometimes downright weird.

Here are the top five things exclusive buyer’s agents find most annoying when previewing a home:

1. Broken door locks preventing access to the house
2. Pet deposits in the backyard or dirty cat boxes
3. Missing light bulbs in the basement
4. Sellers that ask you to remove shoes and then have wet carpet or dirty floors
5. Having loose stairs on a stairway or missing banisters

Other reported annoyances include:

Low-hanging dining room light fixtures in a vacant home
Closet doors that fall off or are not adjusted properly
Going into a vacant home and hearing animals in the walls
Halloween decorations that are left out
Dangerous children’s toys left out
Dead cars in the driveway or yard
Homes on large lots without a survey or description of the  lot boundaries
Political signs
Graffiti on a home for sale
Dead birds or animals in or around the home

11:55 AM - Aug. 30, 2007 - comments {0} - post comment

Making sense of the current mortgage industry

Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.

Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.

Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.

The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.

What happens next, and what should you do now?

The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.

First, even if you are not presently in the market for a home loan of any type, call me to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?

Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed.

11:33 AM - Aug. 24, 2007 - comments {0} - post comment

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