Westcoe Realtors, Riverside, California… While everyone is very aware of the changes that have occurred in the financial markets due to the subprime mess (translation..a bunch of loans made to people who probably shouldn’t have been lent that much money in the first place), it now appears that some legislators and bankers are speaking out of both sides of their mouths.  Specifically, there is both acknowledgement of the bad lending practices that caused all this “mortgage meltdown”, but the beginnings of some rumbling that the new regulations for borrowers are “too tight…making it too hard for some people to borrow money to purchase or refinance a home.”  Wow…amazing.  Talk about crying wolf.  It takes a lot of nerve to complain that financing is getting “too hard” when easy financing is what caused our problems in the first place.

So…let those of us that deal with real estate and financing every day be very clear here. 

FINANCING IS EASY TO OBTAIN…BUT YOU MAY ACTUALLY NEED TO LOOK LIKE YOU CAN MAKE THE PAYMENTS.

We hate to be sarcastic here, but everyone in this business knows that unbelievably loose loan practices the past two years of the housing boom was a joke.  Loans of 100% of the value of the home were being made to people who never had to prove their ability to handle the subsequent payments.  No income verification…no savings verification…no check stubs, etc.  They were called “stated income” loans (as in…state what your income is and we will put it down on the application…no questions asked), and all you needed to get one was a decent credit score.  It was like letting a diabetic loose in a candy store and telling them it will be OK.  Borrowers stretched further than they should because the “candy” was so readily available, and the process was justified by the assumption that housing prices would always go up,  so what was the problem? 

Well, we all know now what the problem is making housing loans to borrowers who may not be able to make the payments.  Which brings us to the housing financing that exists today…right now…on August 20, 2008.

Housing financing is doing just fine, thank you, because some sanity has returned to the financing arena.  No longer can someone get a whopping loan on just their word…they actually have to prove that the payment they will inherit with this new loan is “doable” on their current income.  Fancy that.  The lenders are also checking on the existing debt and payments the borrower has to make sure that with their existing payments, the new loan payment is affordable.  In essence, the lenders are now doing what they should have been doing all along.  It does not seem unreasonable that a lending institution should make sure that the money they lend is affordable to the people they lend it to.  Naturally, no loan is totally safe, because no one can predict what the future holds (divorce, loss of job, huge medical expenses, etc.)…but barring the unforeseen, it is totally reasonable for the lender to make sure that the borrower can make the new loan payments.

And what has this done to borrowers ability to get a loan?  NOTHING.  Those people who can afford a loan can still get one very easily.  However, those people who cannot afford the new loan will find that their “candy” store is closed.  Very simple, very traditional, and very acceptable…because we are all seeing the catastrophic results when a housing boom is in reality a lending boom based upon empty promises and “stretched” documentation.

In the end, there are plenty of good, solid loan programs that require minimal financing to qualified buyers…and new, safe and sane programs are being created daily…so try to ignore the press when they begin to tout that the current “financing crisis” is pricing people out of buying.  On the contrary, the current financing sanity is making home ownership possible for everyone who can afford it…and isn’t that what the banking world should be doing?

Westcoe Realtors, Riverside California…In a statistics class in college, the professor constantly expounded on the power of statistics and numbers…and their potential to either tell the truth, or cloud the truth.  Which way they went depended on who was doing the telling, and what they wanted to say. 

For example, he used an advertisement that was prevalent at the time to show us what he meant…”Nothing has been found to be more effective at relieving your headache than Bayer Aspirin.” (Please, Bayer users…I am not bashing here, just repeating an example).  This ad had been a Bayer slogan for a number of years, and to the untrained, it certainly implied that Bayer aspirin was the best at relieving your headache.  However, what the slogan said specifically was…”nothing has been found to be more effective…”.  In reality, what the statistics showed was that all leading brands of aspirin were the same at relieving headaches!  Hence, nothing was more effective than Bayer because they were all the same!

I bring this up today because last night on the national news, there was a big story about foreclosures (what else is new…the press has been fanning these flames for months).  In this story, the lead was…”In July, foreclosures were up over 57% as the housing market continues to slide.”..and then they flashed some eye-grabbing graphics to show the viewing public how dastardly this news was, and how badly we should all feel.  However, only if you looked real hard, did you see that this increase was comparing July of 2008 with July of 2007!   Please…a year is an eternity in this industry, and comparing anything in 2007 to 2008 is like comparing your weekend boat to a 2500 passenger cruise liner…that dog just won’t hunt.

If you want accurate data on the real estate market, then you must compare last month with this month, or at worst, last quarter to the current quarter.  To go back a full year is ridiculous.  The sub-prime mess didn’t hit until August of 2007, and even that took a few months to sort out how bad it was going to be.  However, as we have said many times, the news media is in business to either sell papers or increase viewership…and simply stating that the real estate market has leveled out and perhaps reached a status quot is not going to make their headlines, much less entice some snappy graphics.

So what about the more accurate statistics?  What the news could have told you is that sales for the past 6 months (at least in the Riverside area) have increased steadily since the first of the year.  Through June of 2008, the number of sales has been as follows:

January          154           February        221               March          317         April           368

May                 445          June                428

See what I mean?  As I also noted in previous blogs, our available inventory has remained steady during this same 6 month period at between 2698 to 2837…hardly the signs of a “sky-is-falling” mentality.  If our market was truly as bad as the news would have you believe, units sales would be falling, and available inventory would be rising…neither of which is happening. 

 In the end, we obviously have no control over what the media says or does…but YOU do have control over what you hear, and what you understand.  Our point is simply that much of what is said needs further analysis to get the real, clear picture…and if you can’t get this clear picture from your favorite newspaper, magazine, TV news, etc., then call us…at least we can tell you what is happening here locally. 

And we promise not to slant the statistics!

Westcoe Realtors, Riverside California…While most everyone can readily acknowledge the changes that have occurred in our real estate market over the past 18 months, there seems to be a lot of conversation these days about current home prices.  Specifically, will prices go lower, or are we at or near the bottom now?  Well, in the entry level market (homes priced below $300,000), based upon what our agents see, while we feel that  there may be 3-4% left in the eventual pricing decline, the rate of decline has really leveled off, and in many cases, has reached bottom.  In the price ranges above this $300,000 range, there is still some room to adjust, but for today, we will discuss the entry level market…we will get to the higher price range market later this week. 

So…here are a few facts that should let you know what is happening now, and therefore what we can expect in the future…at least as we see it from a very busy real estate company located in Riverside, California.

Fact #1…The lower prices have made homes affordable again for people who were priced out of the previous escalating real estate market.  For example (and keeping it simple), assume a family annual income of $70,000, with no huge monthly bills.  The monthly payment this family could qualify for is approximately $1,945…which translates to a fixed rate, 30 year loan of around $310,000.  Today, a sales price of $310,000 gets this family a very nice home in a very nice area…3 years ago, they would have been lucky to find anything at all, much less something nice.  Think of all the teachers, police, fire, nurses, civil servants, etc. who have good jobs with good incomes that were relegated to the sidelines when the pricing was sky-high…they are back in the real estate market now in full force.

Fact#2…Supply and Demand.  If you remember nothing else from your high school economics class, remember this…supply and demand rules over all else.  Right now, we have a very balanced entry level market of supply and demand.  Yes…we all hear about the massive amount of repos hitting the market, but what we hear less about is the massive number of buyers who are now able to buy.  In the past 8 months, the total number of properties for sale in the Riverside area has fluctuated less than 10%.  This means that for all those repos coming for sale, there are an equal number of buyers who are buying them.  Supply and Demand…you cannot argue with these forces.

Fact #3…Unit Sales.  During the ‘hey-day” of the previous out of control market (roughly 2001-2006), our office here at Westcoe averaged about 120 sales per month.  In the real estate business, that is a lot of homes sold every month…and certainly not the norm for a real estate office.  No matter if our office represented the buyer or seller, there were about 120 homes per month that we sold.  Care to know what it is now…in this “horrible” real estate market?  About 110 per month!  Granted, the prices are much lower, but essentially the same number of unit sales indicates that there was a massive “pent-up” demand that is only now being satisfied.  Supply and Demand works every time.

Fact #4…Multiple Offers.  There is no reason prices need to fall further because the well priced homes are eliciting multiple offers on a regular basis.  Think about it…if you had 5 homes to sell (banks wish the number was this low), and they were all relatively the same size, etc…and the first one brought you multiple offers at your listed price, why in the world would you lower the next 4?  Hence, the bottom has been found for many properties in many locations.  Sure, some people (and banks too) are still trying to get too much for their homes, and they may need to drop their price to get the sale…but the bottom level has been discovered.  Think of it like fishing.  If you see all the fish are at the 50 foot deep level, some people may insist on fishing at the higher level of 40 feet, but the smart ones will get to 50 feet…with no need to go lower to find the fish!  The fish are at 50 feet…not 40, and not 60.

Fact #5…NO ONE RINGS A BELL AT THE BOTTOM OF THE MARKET.  In our business, the only way to tell if you are truly at the bottom of the pricing market is when prices begin to go back up.  If you wait for the media to let you know the market has changed for the better, good luck…they are always at least 4-6 months behind what is actually happening in the trenches.  Don’t wait to look back and see what you should have done…do it now…for smart money, throughout history, has always gone counter-culture to what mainstream America is being told by the media.

The choice is yours…but hopefully the facts above will make the best choice of action obvious, and take the fear out of your real estate purchasing decision.

Westcoe Realtors, Riverside California…With all the attention and conversation that bank owned properties are currently getting in our real estate marketplace, one can understand why a singular, individual seller may be feeling a little like the red-headed stepchild.  All anyone ever hears anymore is repo, repo, repo.  Well, what about a “normal” seller? Is there room in our market for just an average seller who simply wants to sell their home at a reasonable price?

The answer is resounding “you bet…absolutely.”  In fact, many buyers and agents are searching for you…so don’t despair, and let me explain why you, the normal, non-foreclosure, not-behind-in-your-payments seller has a better chance than many banks to find your perfect buyer.

If you glance back at the last month or so of writings on this blog, you will notice two things:  1)  that there is a lot of focus on bank owned properties, and 2) that there are more hassles and frustrations associated with trying to purchase a repo than there are jellybeans in a jar.  We have chronicled here the numerous challenges in working with a repo…and all of these challenges come from overworked people all the way down the line in the process.  In the end, for every sale, there are multiple buyers and agents who are massively frustrated at the process….frustrated enough to jump at the chance to avoid this “meat-market’ of repos and find a normal seller with which to do business.

As a home owner, there is no doubt that your equity has taken a large hit the past 18 months or so…but that water has been spilled, and there is nothing anyone can do about it at this point.  However, if you are willing to understand the issues that will affect your home, you can take control of your real estate destiny and get your home sold if that is what you desire.  Yes, you will need to compete with the banks, but you still have opportunities that they do not.  Please read on.

First, understand that while all the repos on the market will affect your asking price, YOU DO NOT HAVE TO COMPETE WITH THEM DOLLAR FOR DOLLAR.  Yes, buyers are looking for a “good deal/value” in their purchasing decision, and naturally the discounted price the banks ask for their homes will influence what you can do.  You can’t blame the buyer…they want the most bang for their buck.  You do the same thing when you shop as well…we all do.    However, understand that not all buyers want what the banks are offering.

Second, as a general rule, my guess is that approximately 70-75% of all bank repos need some type of repair.  Some of the properties, at best, simply need carpet, paint, and general cleaning…but many of them require massive repairs, construction, new kitchens, baths, etc.  Understand that these properties are generally priced accordingly, but they only have appeal to those individuals who can do these repairs…and whether the repairs are done yourself or hired out, they take money and time.  That’s fine, but not all buyers have the money or time to spare.

Also, when the home is in such a state of disrepair, appraisals can be tough to get…it is a real Catch-22.  The new bank will require the work to be done prior to making a loan on this “money-pit”, but the work cannot be done by the buyer until they own the home. This dilemma is faced by agents every day, with no easy way around this stalemate…and all of the above helps you, the individual seller.

SO…you now want to sell your home…which may be the identical floor plan (or similar enough) to the “repo, money pit” down the street, but you are concerned that you will need to sell at the same price.  Well, do not despair, because you have some advantages that the bank does not.

Understand that while the price the bank sets on the similar repo home will affect you to a degree, YOU HAVE EVERY RIGHT TO EXPECT A HIGHER SALES PRICE FOR THE CONDITION OF YOUR HOME.  Assuming your home is in good shape, you will get more for it for a variety of reasons.

First, the only cash the buyer will need is what they need to obtain the new loan…they will not need a boatload of extra cash to make the home habitable.  This is huge, since most people do not have a lot of extra cash just laying around for a major rehab project.

Second, the buyer you are trying to attract will PREFER your home to the repo needing all the work.  All of us are handy to some degree, but there is a big difference between repairing a sprinkler line and having to basically rebuild an entire home.  Everyone knows a home improvement project usually takes more time and money than originally thought.

Third, you are a live human being that can give the prospective buyer an answer to any question in a reasonable time frame.  Your transaction can get negotiated in hours instead of days, and escrow can get opened in days instead of weeks…not to mention that you can actually close when you are supposed to, and not weeks late.  In short, you represent to both the buyer and their agent a simplicity and lack if frustration that is absolutely not available in the repo sale.  Do not underestimate how important this has now become in our marketplace. 

In the past 6 months, the repo world has become such a nightmare that many agents and their clients would much rather prefer to do business with a normal seller….and while this preference does not necessarily add dollars to the value of the sellers home, it does mean that given a relative equal valuement of the homes (remember, equal valuement, not necessarily equal price), the buyer will choose the individual seller almost every time.

 In the end, no one can escape the affect the repos have had on the declining pricing of real estate.  However, this does not mean that non-bank owned sellers cannot sell.  On the contrary, the normal seller has a wonderful chance to sell if they are simply reasonable about the value of their home…so hang-in-there all you normal sellers…there is a light at the end of the tunnel.

Westcoe Realtors, Riverside California…As we have mentioned repeatedly in this blog, dealing with bank owned properties is currently a way of life in the real estate business.  Their inventory accounts for a massive percentage of the available properties for sale, and therefore, in the travels a buyer must endure to purchase a home, chances are that at some point, those travels will lead to writing an offer on a bank owned property.

 This blog has also consistently outlined some of the issues a buyer of bank owned properties must cope with when attempting to work with a bank.  Poor communication, lengthy time delays, and multiple offers are only a few of the areas we have chronicled in this space…but today, we need to add one phrase to your repotoire that has become commonplace in many REO transactions..and that phrase is “highest and best.”

While every bank is different, there are many common denominators amongst them all with regards on how they handle offers on their properties.  As we have mentioned previously, multiple offers are quite common these days on the well priced REO properties.  As a result of all these offers, what the buyer has essentially wandered into is an auction…in that the lender is like every seller…they want the most they can get for their property.  Therefore, when there are multiple offers, the lender will encourage a bidding process that may drive the price up even higher.  Keep in mind that so many of the lender properties are priced so far below the market that there is often plenty of room on the upside to raise the price and still offer the buyer a good value.

So…what is the lender procedure to encourage an ultimate bidding war amongst all the buyers?  Easy…the lender will simply counteroffer some or all of the offers with multiple counteroffers…and each counteroffer will simply tell the buyer to resubmit their offered price with their “best and final” price.  In essence, what they are saying is that if you, the buyer, have a higher price you will pay for this home, now is the time to put it on paper because we are going to sell this property to the person who will pay the most for it.  The lender does not care who got there first, or how many thousands you may have already overbid the property…they want to make sure that they get the highest price possible. 

In their defense, they are losing tens to sometimes over one hundred thousand dollars on this transaction, so it is hard to blame them…but that does not make it any easier on you if you are the buyer they now want to squeeze as much as they can.  This process is highly frustrating for everyone involved…buyer, agent, etc…but it will not go away any time soon, so we all must adjust to it’s place in our transactions.

When presented with this “best and final” counteroffer, what should you do?  Stay put, walk away, increase your offer…what?  Well, while we would love to answer that for you, ultimately the decision is yours to make, because you are the one who will need to live with the consequences.  As a general rule, we can offer the following:

1.  Don’t walk away, because you will probably be in the same boat with whatever home you try to purchase next.  Swallow your desire to scream at the lender, and stay logical.

2.  When you first make an offer, be prepared in your mind for the possibility that you may not be through…even if you have already offered more than the list price.  Have your agent run complete comps on your possible new home, and figure out if you still have some room above what you have submitted…just in case.

3.  DO NOT GET CUTE AND SUBMIT A VERY LOW OFFER SO YOU CAN SAVE YOUR BEST PRICE FOR LATER…YOU MAY NEVER GET THE CHANCE.  If your offer is too low, the bank may simply not include you in their counteroffers because they will think you are not serious.  Also, sometimes the listing agent representing the bank is instructed by the bank to only give the “best and final” counter to the top 3, or 4, or 5 etc. offers, and simply ignore the rest until the top ones have answered.  So…if you get too cute, you may not even make the first ”cut.” 

4.  Be emotional about which home you are buying…but be logical about how much you can afford to pay.  You have a maximum amount of money you can spend…so stick to it.  There is only so much money to go around every month, so once you logically figure out what your maximum price can be, then so be it.  If the home is bid higher than you can afford, then move on to the next one.

5.  Lastly, hang-in-there…this is not an easy process.  As long as you are willing to understand the hoops the lender may ask you to jump through, then relax.  It may be a hassle, but it will get you where you need to go if you just remain patient.

In the end, as we have mentioned many times, while this process can be frustrating, the end justifies the extra steps the bank requires.  If you are constantly getting beat out on the homes you are attempting to acquire, then chances are you need to reassess your commitment to the overbidding process that is now happening on almost all well priced REO’s.  For now, you will more than likely pay more than the bank’s listing price…but if you maintain some prospective, then you will eventually prevail.  Trust me…owning your new home will be well worth the process.

Westcoe Realtors, Riverside California…Our local paper the Press Enterprise ran a story on the front page yesterday declaring that another wave of delinquencies has been reported by lenders across the country…leading to the assumption that these delinquencies will lead to another round of foreclosures in the near future.  Reportedly, the loans now behind in payments are not sub-prime loans, but the loans that were given to borrowers with better credit than those people who received the sub-prime loans.

The reason that I quote this information is that this article totally supports the information that is being passed to our Repo agents here at Westcoe.  The bottom line is that this Repo dominated real estate market is not going away anytime soon, and as we have stated many times on this real estate blog, potential buyers must come to grips with the necessary patience and fortitude to purchase a bank owned property. 

Off the record, the lenders our agents work with (and we represent many, many lenders) have indicated that they, the lenders, anticipate a continuation of the huge volume of repossessed properties that have been flooding our marketplace for the past year.  This new round of foreclosures will show an increase in homes taken from sellers who may have normal loans (as opposed to those with hinky, sub-prime adjustable loans) but have fallen victim to economic job woes.  Hence, this cycle of repossessed homes being sold to buyers who can now afford them will not end any time soon.

What does all this mean? 

Well, as a buyer, it means that there will continue to be a large volume of inventory from which to choose.  The prices will not decrease much, if at all, because there are so many people who were priced out of the real estate market the last few years that are now back in, that the demand is still pretty strong.  As we have said repeatedly in this blog, multiple offers are the new way of repo life, and that does not appear to be changing.  Therefore, there is no pressure for prices to fall any lower as the good properties will continue to sell at a very rapid pace.

For sellers…well, it will be more of the same.  The banks are the 800 lb gorilla in the room, and as they go, so go the rest of us.  Being totally objective here, we must be honest in remembering that sellers had it their way for almost 7 years, so don’t expect these buyers who can now afford a home to shed too many tears for sellers.  Any individual seller who wants to sell will generally find a very active market…but the sales price will still have to bear up under the influence of the bank owned properties.  Those of you who shop at Wal-Mart, Costco, E-bay, etc. understand the lure of a good price…and today’s home buyers are no different.

The end result is that markets come and markets go…it’s just that this market will not be going anywhere soon.

Westcoe Realtors, Riverside California…A quick note to just keep everyone on the same page with regards to purchasing a bank owned property in our Riverside area.  It is really important that every potential purchaser understands the following, since it can either make or break your purchase and subsequent escrow.  Failure to fully “get” the following will simply lead to massive frustration on the buyers part, and potentially missing out on the best home purchasing market we have seen in over a decade.

Simply put…YOUR MARKET FOR WELL PRICED REPOS IS HOTTER THAN ANY MARKET WE HAVE EVER SEEN, AND UNLESS YOU ARE PREPARED TO COMPETE WITH THE MULTITUDE OF OTHER REPO BUYERS ON YOUR OFFER TO PURCHASE, THESE GREAT BUYS WILL PASS YOU BY.

I don’t care what the newspaper, radio, or late night TV may be telling you about the real estate market, but here in the greater Riverside area, all of our agents working with bank repos are receiving multitudes of offers on most of their well priced repos…and by multiple offers, I mean approximately 10 offers (on average…some considerably more, some less) on each property.  It is a feeding frenzy at the entry level pricing range, and unless you are prepared to “step-up to the plate” when you make your offer, you are destined to see other buyers get the property you want.

What we mean by this is the following:

1.  On the well priced repos, the price is already discounted relative to other properties on the market…YOU CANNOT CUT THE BANK LOWER JUST BECAUSE IT IS A REPO.  The banks aren’t stupid in this area, and you will get killed by other buyers who understand this concept.  Save your “price cutting” for the repos that are overpriced…the well priced ones need to be accepted at their face value.

2.  Offering full price but asking the bank to pay thousands in costs is not a full price offer.  The bank works on net dollars, and trust me…they know the difference between a full price offer, and a full price offer where the buyer is asking for $10,000 in costs.  Like I said…if the bank is smart enough to price the home well, they are smart enough to pass on your $10,000 request for loan costs.

3.  BE PREPARED TO OVERBID ON REALLY WELL PRICED PROPERTIES.  As noted earlier, when there is an average of 10 offers on a property, someone is going to bid over the list price to get the property.  In many cases, banks are deliberately pricing some homes lower than what the market will bear to encourage competitive bidding by buyers…so don’t get locked into the list price as the ultimate price.  Have your agent run comparable sales for the home, and if that data shows the property for sale is worth more than the list price, then so be it….you may have to pay more than the list price.

4.  Psychologically, you must get past the thinking that this is a down market and therefore you can wield a big sword when it comes to buying a home.  That may be true in the upper range price levels, BUT IN THE LOWER PRICE RANGE, THIS PRICING DECLINE HAS MADE HOUSING AFFORDABLE AGAIN FOR A LOT OF PEOPLE…YOUR COMPETITION.  Think about it…10 buyers and 1 seller…what do you think the seller is going to do?  Of course…they will take the highest offer from the most well qualified buyer.

5. Lastly, if you are freaking out that you are paying too much for the home, remember the following two things:  1) Take a look at what your potential new neighbors paid for their home a few years ago if you think the current repo price is too high…and 2) in 5 years you will laugh at feeling like you paid too much for your home.  This market is no different from other markets…they all rebound eventually.

Good luck, and if you really “get” the above, you will find your house purchasing process much more sane and less stressful…if you don’t “get” the above, then prepare yourself for a long and frustrating process…because the ones who do understand what is happening will continue to buy the houses you want.

Westcoe Realtors, Riverside California…The new housing bill that has just been signed into law this morning by President Bush contains many interesting elements…elements that have been designed to help people who have been affected by the current downturn of the housing market.  However, there are a couple of “catches” that have not yet been reported by the mainstream press (wow…there is a new thought…the press has only part of the story) that everyone who may consider using this bill should know.  Specifically, I will discuss the two main components of the bill that will affect the most people:  The FHA loan rescue for troubled homeowners, and the $7,500 Tax Credit for first time home buyers.

FHA HOME LOAN RESCUE…

BASIC IDEA…to have FHA help homeowners who wish to refinance out of their high-rate loans into a fixed, 30 year loan payment at today’s current rates.

COMPONENTS OF THIS PLAN

1.  The loan you want to replace has to have been originated before January 1, 2008.

2.  The property in question must be your residence…no helping investors on their rental properties.

3.  As of March 1, 2008, your existing loan payment on the loan you want to get rid of must be at least 31% of your monthly household income.  For example, if your household income is $4,500 per month, then your house payment MUST be at least $1,395 per month.  It can be higher, but not lower.  It cannot be lower than that because the government feels if it is lower than 31% of your monthly income, then you should have been able to afford the payment in the first place.

4.  FHA will only finance 90% OF THE CURRENT VALUE OF THE HOME.  Again, for example, if you owe $375,000 on your loan(s), and the current value of your home is now $300,000, then FHA will only lend $270,000 for your new loan ($270,000 is 90% of the current value of $300,000).  That means your existing lender must agree to waive/lose the difference between your new loan and the old loan…in this example, $105,000.  If your existing lender will not do this, then you cannot refinance.  The theory here is that your existing lender would rather lose the $105,000 than foreclose, which in many cases would cost them more than the $105,000.  Your existing lender must also agree to pay a 3% loan origination fee to FHA…which in our example above, would be $8,100 (the 3% is calculated on your new loan amount of $270,000.)

The above are the basics of the FHA refinance program…BUT THERE IS ONE ADDITIONAL ASPECT TO THIS REFINANCING THAT HAS YET TO BE REPORTED BY ALMOST EVERYONE…AND THAT IS THE FOLLOWING:

5.  If you get the new FHA loan above, THEN IF YOU SELL YOUR HOME WITHIN 5 YEARS, YOU WILL HAVE TO PAY FROM 50% TO 100% OF ANY MONEY YOU MAKE ON THE SALE OF THE HOUSE.  The idea here is that if the government is going to bail you out, and your existing lender is going to lose/waive/forgive the money necessary for you to get your new loan, then the government does not want you selling at a profit anytime soon.  So…if you are going to go down this road, you better stay put, or you cannot make any money if your home value rises in the next 5 years.

$7,500 TAX CREDIT FOR FIRST TIME HOME BUYERS…

BASIC IDEA…To help first time buyers get a new home at what are now more affordable prices.  Understand that at tax credit is much better than a tax deduction.  A tax deduction simply lowers your income by the amount of the deduction…a tax credit lets you take that amount right off the taxes you owe.

COMPONENTS OF THIS PLAN

1.  The first time home you are buying must be your primary residence…no rentals.

2.  Tax credit will be 10% of the sales price of your new home, or $7,500, whichever is smaller.

3.  A single individual cannot make more than $75,000 annual income, or the credit begins to phase out.  If a single individual makes $90,000 or more, there is no tax credit available at all.  For married couples, the numbers double to $150,000 and $180,000.

 The above represents the basics of the tax credit program, BUT AS IN THE FHA REFINANCE PROGRAM, THERE IS ONE ASPECT TO THIS TAX CREDIT PROGRAM THAT HAS YET TO BE REPORTED BY THE MEDIA…and that is as follows:

4.  If you qualify and receive a tax credit for the purchase of a new home, YOU WILL BE REQUIRED TO PAY BACK THE TAX CREDIT TO THE GOVERNMENT OVER THE NEXT 5 YEARS IN EQUAL INSTALLMENTS.  That means that instead of receiving an actual tax credit, you are basically getting an interest free loan that is to be repaid on an annual basis.  There is no “free” with this program…just some help to get you started now…help that will be repaid over the next 5 years.

In the end, whether you want to use any of the provisions described here or not, all we care about is that you truly understand what you are agreeing to do…because failure to fully understand all aspects of real estate financing are what got many people into the situation they now face.  Good communication between you and your new lender is critical in this process. 

Good luck, and let us know if you have any questions.  There will lots of bugs to work out as this legislation gets implemented at the street level, but we will help you in any way we can.

Westcoe Realtors, Riverside California…Ok…so I couldn’ t let a recent article in the local Press Enterprise go without comment, but sometimes, does it seem like the entire world has lost it’s mind?

The upshot of the article was that some bank repo properties (and individual sellers too) are spray painting their brown, dead lawns green with the hope that this will look better and lead to a faster sale.  It is noted that this has become a common practice for football fields with poor turf, or some golf courses with dormant grass (dormant=brown) and is done to make them look better from a distance…or when television is involved.  I suppose that may be justified when looking on your TV screen or from the nosebleed seats at a large football stadium, but at a house for sale?

Call me crazy, but who does anyone think they are fooling?  Dead grass is dead grass, whether the color is brown or green.  Also, does anyone think that the potential new buyer will not notice the dead grass has been painted?  I can see it now….”Look honey, new plush grass…this is great!”  You’ve got to be kidding here…not to mention the disclosures that would need to be made.

The bottom line is that this is one of those really ridiculous ideas that people who know nothing about marketing a home latch onto in a bad sellers market as the “magic pill” that will somehow get their home sold.  What a shame that someone actually thinks this will work.   Your home is not on TV, and is not 300 yards away from the buyer.  Your buyer will certainly walk-up your walkway, and unless they are clueless, they will see the lawn is dead.  What’s worse, since the dead lawn will be readily apparent, chances are they will begin to wonder what else has been “camouflaged”, and they may become suspect for anything else that may be hidden from them.  I would.

So…take it from someone who has been in this business for over 30 years…let this new “idea” die like the lawn.  Go natural, and green the lawn the old fashioned way.  Like I said…call me crazy.

Westcoe Realtors, Riverside California…Since the inception of this blog, there have been numerous postings regarding the pitfalls and frustrations associated with the attempt to purchase any form of REO or Short Sale listing.  It’s not that we at Westcoe are against a buyer trying to buy a home that is owned by a bank (or in the case of a short sale, possible owned by a bank soon) because we do it every day.  However, success goes to the prepared, especially at this time in our market.

So…why the quick update?  To remind you again of the following points.

SHORT SALES

1.  Remember, you’ve got nothing.  In most cases, the listing price means nothing.  It is just a number many times invented by the seller or listing agent to merely get the ball rolling.  Your offer is just a beginning point since the lender will not even consider how low they will go on their losses without an offer in front of them.  Your offer starts the conversation, but rarely finishes it.

2.  You may be a guinea pig.  Your offer forces the lender to give some type of answer, at which point another buyer can swoop in for a few thousand dollars more and purchase the home.  How can this happen?  BECAUSE IN MANY CASES, THE BANK AND SELLER HAVE ONLY VERBALLY AGREED TO TAKE YOUR LOW OFFER, AND THEN THEY DELAY IN GETTING YOU THE SIGNED CONTRACT…AND THIS DELAY ALLOWS ANOTHER BUYER TO WRITE A HIGHER OFFER THE BANK CAN ACCEPT SINCE YOUR VERBAL CONTRACT IS NOT BINDING…and who wants to sue the bank to prove your point anyway.  Remember #1 above…potentially, you’ve got nothing.  This stinks as a business practice, but we have experienced it numerous times.

3.  Do not forget that it can take weeks or months to get an answer from the lender…and no matter how much you push the listing agent, they have no control.  Also understand that while you are waiting around for your answer, the foreclosure process is still proceeding…which means it is not unusual for the property to go to foreclosure sale while you are trying to buy it!  Stupid…yes, but such is the nature of many lenders these days.  Their departments do not talk to each other, and as a result, the sale happens.  Remember…you’ve got nothing.

All of the above have happened to buyers represented by Westcoe Realtors in the past 10 days.  All of them knew the possibility of this type of “shenanigans” happening, but that does not ease the frustration when it happens.  Sorry…but you’ve got nothing until the lender has approved, IN WRITING,  the acceptance of your offer.

REO PROPERTIES

We cannot emphasize enough the enormous communication problems that are involved in an REO purchase.  Every single facet of the sellers side of the transaction is so grossly overloaded that communication is almost impossible.  Whether it be the lender, the asset manager, the listing agent, the listing agent’s staff, the escrow officer mandated by the bank that owns the property, or the title company also mandated by the bank, communication is the worst I have seen in my 31 years in this business…and this problem is not going to rectify itself anytime soon. 

IT IS HORRIBLE, UNPROFESSIONAL, AND BRUTAL ON EVERYONE INVOLVED…but with all due respect, you need to deal with it or don’t purchase a repo.  We cannot change it and we cannot control it…we can only control how we respond to the situation.

SO…when purchasing a bank owned property, take a deep breath, let this cumbersome process run it’s course, and release some of your control issues to the Real Estate Gods…because if you don’t, the resulting frustrations will eat you alive.

In the end, both of the above properties can be purchased and close escrow…we at Westcoe do it over 100 times per month for our clients.  However, forewarned is forearmed, and we want you to understand what is involved…because in most cases, if you are looking for the good deals, you will have to go through the banks to get them.

Hang tough, and let us buffer your purchasing process.  Trust me, we are good at it, and can help you get where you are trying to go.