We are in a very active real estate market - lots of inventory, reasonable prices...and many buyers wanting to take the plunge. Herein is information that will bring you into the market from a point of strength...but it might burst a few bubbles. This post addresses California markets in Los Angeles and Orange County only, however you may find similar situations in your area.
Real estate markets are local, not national. You can probably find a great home in Virginia for $150K, but a great home in California might cost you double that. Know the values in your market. A great way to do this is searching online.
Realtors (agents) work on a commission basis. We are paid by the seller, and only when your escrow closes. It is a violation of state law to receive payment in any manner not prescribed in the listing contract and MLS postings. All expenses we incur as a result of selling you a property - insurance, professional licenses, auto and other expenses - are borne by us alone. You will spend a lot of time with your agent during the course of your home acquisition. You not only need to feel comfortable with your agent's personality, but confident in his/her skills and abilities. By the way, the difference between an agent and a Realtor is slight. Both have passed state mandated courses for licensure, however the name "realtor" is trademarked and designates membership in national, state and local professional organizations. Generally, this membership is incumbent with greater access to a knowledge base - training, networking, etc.
Asking a Realtor for a list of properties so you can look "on your own" is like calling your doctor to ask why you hurt. It's all about the examination. Window shopping is great for buying clothing or appliances, but with real estate, it is a waste of time for all concerned. Primarily, looking at homes without knowing your price point or desired features is of little benefit to you. You need to have access to the property, as few sellers greet the public when their home is on the market. And they want to see only qualified buyers. Then there is the trespassing issue, if you are viewing a home without proper permission. (Again, perusing listings online is a better way to start your home search if you are not ready to take the plunge.)
Realtors consider a buyer a client once they have consulted with them. This includes discussing your ability to purchase and how we can help. It usually starts with an introductory phone call stating your interest and followed up with a face-to-face meeting (or cell to cell if you are out of the area). Sometimes it is through a meeting at an open house. In almost 15 years in this business, I have never sold a property without this consultation, though often the buyer's criteria changes - especially once we get out in the field and they see how the inventory matches or misses their initial desires.
For the reasons already discussed as well as for security reasons, Realtors do not have the habit of meeting you in the field to show a property if you have not already become acquainted.
Many buyers fit into the FHA financing niche. It requires a lower down payment, the program tolerates lower FICO scores and less than stellar credit and it's often a super alternative for first time buyers. But there are lending guidelines - of mutual benefit. In a market heavy with foreclosures and few sellers wanting to make repairs, buyers need to be familiar with FHA condition guidelines. Even if you are a super handyman or DIY person, if a property does not qualify FHA due to condition - and that includes additions not installed in a "workman like" manner or without permits - FHA will not insure your loan. Yes, there is the 203K program that states funds are set aside for repairs and this may work for you, but it may not. Basically, the bank won't lend on a home that's falling down or unsafe for habitation. This also applies to most conventional financing.
Foreclosure and short sale listings comprise, on average, about 50% of the listed inventory in the Los Angeles market - this can shift neighborhood to neighborhood or even street to street. A foreclosure is the result of the bank repossessing the home due to the homeowner's default. A short sale means that the homeowner is marketing the property for less than is owed to the bank. It is ultimately the bank's decision, not the seller's, to accept the transaction as a short sale. Generally, a short sale means the seller has some hardship, is behind in payments and on the way to foreclosure. As foreclosure is often more expensive for the bank, short sale is a good option. However, the bank's decision usually does not come quickly. I have waited months for a reply, only to find that the bank would not accept my client's offer. It is important that buyers who write offers for short sales stay in the market - looking, writing offers - to increase your chances of having an offer accepted. Which brings up another point...
Well priced properties in good condition that look good to you also look good to the hundreds of other buyers in your same predicament. You will have competition. Two things to remember: (a) the seller wants to sell for the best price/terms and (b) most homes sell within 95% of the listed price. You and your Realtor should know the neighborhood statistics before writing an offer. If a property is a "good deal" - and good deal is a subjective term, as it can relate to the home itself or area amenities that increase perceived value - know that the property will receive a lot of attention from buyers who see the home the way you do.
Investor buyers are very active these days. Their goal may be to buy a fixer, repair it and return to market in excellent condition, or to keep the property as a rental. I have both types of investors in my client base and this has actually helped my buyers who loved a home that was ineligible for FHA financing. The investor bought it, repaired and sold it to them. This is a win-win but doesn't happen often. Timing is everything.
In this market, you will kiss a lot of frogs before you find the home that matters most to you. As it is said to be one of the most stressful life experiences, your approach to home buying should be smart, safe and tenacious. Know your limitations. Know your wants and needs. Dress casually with good, comfortable shoes and leave the kids at home until you figure out how the process works for you. Keep your energy up, keep an open mind, keep smiling and have fun with it!
Wednesday, June 23, 2010
Sunday, June 20, 2010
You can't make your house payment. What are you going to do?
This is a tough economy. Some of us are making it through, some of us not. In the beginning of what we are now calling the "bubble burst", mortgage defaults were said to be primarily the result of adjusted interest rates increasing payments to the extent that homeowners could not afford them. Some borrowers didn't realize how the adjustable rates would affect them, others just thought they'd be in a better place when the increases kicked in. As the economy worsened, job losses took hold of those borrowers who, up to that point, were managing to get by. As the decline continued, a lot of us had trouble "treading water".
Foreclosures were swift in the beginning - say 2008. As the numbers increased, let's face it, the banks simply couldn't keep up. It is not uncommon to hear of a homeowner who hasn't made a payment for a year or more. As government sanctions and programs change or new ones are introduced, the banks are not so quick to pull the trigger. The bank's hesitation is your opportunity to create an exit strategy. Think about these ideas:
1. If you haven't opened a dialog with your lender regarding loan modification, why are you waiting? The problem is not going away. When my office gets a bank listing and I do the research, I am amazed to find that about 50% of the time, the homeowner didn't try to sell or make any movements to avoid foreclosure. The result is that they lost their home and it may take years before their credit recovers. Bad credit affects your ability to rent a home, to get a job...or buy another home.
2. If you have attempted a loan modification and it didn't work out, try again. Bank's are known to change policies quickly. What didn't work this month may work next month.
3. If a reduction in income makes you ineligible for a loan modification, list the home at market price. The bank will either accept this as a short sale - less costly for the bank - or go for full blown foreclosure - more costly for the bank and usually netting the same result, price-wise. The big difference is, with a short sale you have some control over what happens to your life. And though your credit gets beaten up a bit, recovery is easier. This is not going to cost you anything, by the way. The bank pays the real estate commissions and closing costs. It is a virtually painless exit strategy.
4. Once you have an offer for your home and providing you are eligible on the income front, ask the bank to consider modifying the loan - for you - at market price. This works. It's a bummer for the person who wrote the offer to buy your home but hey, we're in survival mode here. What you have done is prove with the offer what the home is worth and challenged the bank to step up to the plate - for you. Did I tell you this works? I know - I did it.
5. If none of these tips work for your situation - and granted, "situations" vary substantially - you can still do the short sale and move on with your life. In a couple of years, provided you've kept your other credit in check, you can buy again.
6. As with any market, many solutions present themselves but one has to be careful. You'll want to discuss new options with qualified individuals - your Realtor, mortgage company or attorney. The latest solution that I think is viable comes from investor groups that buy non-performing loans and re-writes them. Income qualifying is a big part of the scenario, credit is not a large issue. The loan is bought at market price. Interest rates are typically higher than market. The bottom line, though, is that you get to keep your home. This solution is not for everyone. But it works.
There is a contingent of homeowners that are just bummed that the market has declined. Some feel as if they deserve a modification because "everybody's doing it". They have the ability to make their payments and have petitioned the banks for loan modifications. Let me be clear about my experience with loan modifications: successful modifications involve borrowers with a hardship. A decline in value is not in itself a hardship (that comes into play when other hardship criterion are met). Not having enough money to go to the beauty shop or on a great vacation is not a hardship. Having more than one home and trying to modify one of the mortgages is not typically viewed as a hardship. Attempting to subsist on less income due to job loss, injury or illness is a hardship and if you ask nicely, your bank will work with you. I believe the low point is the past and prices are holding...for now. It's a good time to explore your options.
I have several strategies for how to best navigate the maze called today's market opportunities. Call me if you need my assistance. 562-572-9870
Foreclosures were swift in the beginning - say 2008. As the numbers increased, let's face it, the banks simply couldn't keep up. It is not uncommon to hear of a homeowner who hasn't made a payment for a year or more. As government sanctions and programs change or new ones are introduced, the banks are not so quick to pull the trigger. The bank's hesitation is your opportunity to create an exit strategy. Think about these ideas:
1. If you haven't opened a dialog with your lender regarding loan modification, why are you waiting? The problem is not going away. When my office gets a bank listing and I do the research, I am amazed to find that about 50% of the time, the homeowner didn't try to sell or make any movements to avoid foreclosure. The result is that they lost their home and it may take years before their credit recovers. Bad credit affects your ability to rent a home, to get a job...or buy another home.
2. If you have attempted a loan modification and it didn't work out, try again. Bank's are known to change policies quickly. What didn't work this month may work next month.
3. If a reduction in income makes you ineligible for a loan modification, list the home at market price. The bank will either accept this as a short sale - less costly for the bank - or go for full blown foreclosure - more costly for the bank and usually netting the same result, price-wise. The big difference is, with a short sale you have some control over what happens to your life. And though your credit gets beaten up a bit, recovery is easier. This is not going to cost you anything, by the way. The bank pays the real estate commissions and closing costs. It is a virtually painless exit strategy.
4. Once you have an offer for your home and providing you are eligible on the income front, ask the bank to consider modifying the loan - for you - at market price. This works. It's a bummer for the person who wrote the offer to buy your home but hey, we're in survival mode here. What you have done is prove with the offer what the home is worth and challenged the bank to step up to the plate - for you. Did I tell you this works? I know - I did it.
5. If none of these tips work for your situation - and granted, "situations" vary substantially - you can still do the short sale and move on with your life. In a couple of years, provided you've kept your other credit in check, you can buy again.
6. As with any market, many solutions present themselves but one has to be careful. You'll want to discuss new options with qualified individuals - your Realtor, mortgage company or attorney. The latest solution that I think is viable comes from investor groups that buy non-performing loans and re-writes them. Income qualifying is a big part of the scenario, credit is not a large issue. The loan is bought at market price. Interest rates are typically higher than market. The bottom line, though, is that you get to keep your home. This solution is not for everyone. But it works.
There is a contingent of homeowners that are just bummed that the market has declined. Some feel as if they deserve a modification because "everybody's doing it". They have the ability to make their payments and have petitioned the banks for loan modifications. Let me be clear about my experience with loan modifications: successful modifications involve borrowers with a hardship. A decline in value is not in itself a hardship (that comes into play when other hardship criterion are met). Not having enough money to go to the beauty shop or on a great vacation is not a hardship. Having more than one home and trying to modify one of the mortgages is not typically viewed as a hardship. Attempting to subsist on less income due to job loss, injury or illness is a hardship and if you ask nicely, your bank will work with you. I believe the low point is the past and prices are holding...for now. It's a good time to explore your options.
I have several strategies for how to best navigate the maze called today's market opportunities. Call me if you need my assistance. 562-572-9870
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