Saturday, February 28, 2009
This would certainly be good advice right now in real estate for those who have owned their homes for quite some time. People who have been in their homes for decades tend to fixate on the high-point of their home’s value – back in the 2004-2006 days (Wow, how can a time that close be called the “good ole days?”) These same people forget that many of them paid maybe $70-80, 000 for their homes back in the 60s or 70s and that now they are worth maybe $200 - 250,000. What they fixate on is the “fact” that it was worth $300-350,000 just a few years ago. Give it up folks! Those days are long gone. Your stock portfolio was worth a lot more back then, too.
So, one has to focus upon what one has left, which may still be a nice home and which could still bring a good price. I use the terms may and could, because so many of those same 60s and 70s homes that I see seem to be stuck in the 60s or 70s. Those were the days of the avocado or “Golden Harvest” bathrooms and appliances in the kitchen. Many are still there today. They were also the days of wood-paneled family rooms, many of which have just been painted over. And then there were those quaint, but fake, wooden beams on the family room ceiling. Of course, the hardwood floors that were usually put in during that era are still covered over by wall-to-wall carpeting.
If the last few sentences above describe your house, then what you have left is worth a lot less than it could be worth. If you have time before you retire and need to, or want to, sell the place, get busy now with updates. Almost every home of the 60s, 70s, and even the 80s, needs major kitchen and bath updates. That may be too expensive for many. At least see if you have hardwood flooring under the wall-to-wall carpeting and expose it, if you do. If the kitchen was done in linoleum, as many were back then; see about putting in a tile floor. At a minimum either paint or reface (or both) the old kitchen cabinets and look into replacing the countertops. Granite would be nice, but there are modern alternatives that might be less expensive. Definitely replace the “Golden Harvest” appliances with stainless steel.
In the family room, bite the bullet and have the paneling taken out, even if it means re-dry walling. You might be able to save the drywall by using one of the thick, paintable wallpapers over it, once the paneling is gone. You could even cut the job in half by wainscoting the lower half of the walls with a modern bead board look paneling. And lose those fake beams from the ceiling. Painting them white to match the ceiling color is not the answer.
Other things that are likely to need attention are the HVAC system, and water heater, the windows, the roof, the driveway and often the exterior landscaping. People who have been in homes for quite a long time tend to get comfortable with things as they are and don’t see them the same way that a potential buyer looks at them. Overgrown shrubs that crowd visitors off the sidewalk in front are common, but ignored by homeowners who always come into the house through the garage. Huge, old trees that haven’t been properly trimmed in years and which drop limbs every time the wind blows are another overlooked item. And that furnace or water heater that has served so well for the last 15-20 years is likely way overdue to be replaced and will just scare off potential buyers.
Now, if all of this sounds like a lot to spend just to get your house ready to eventually sell, well it is; but it’s also money that you really should have been spending all along. Hopefully, you’ll get a few years of service out of it, too, before you sell. You really have the choice of spending the $20-30-40,000 that you’ve been delaying spending on updates and maintenance or taking that amount off your asking price. Potential buyers will make mental lists of all the things that they see that need to be done and assign price tags to them. If the list gets too long or the potential price tag is too high, they’ll just pass on your house and go on to something else.
So, if you are 3-5 years away from retirement start investing in your home and get it ready now for its eventual sale. It is likely that the kids are all gone, so you can more easily put up with some inconveniences, such as being down to one bath for a while or having no kitchen for a week or two. I guess I might change Schuller’s words for this post to say “Always look at what your house could be like, not what it has always been for you.” Get out of that comfort zone that you have created for yourself about the house and look at it as a marketable commodity – then fix the shortcomings of that product. If you need help figuring out what needs to be done, call me and I’ll come out and make recommendations. I may even suggest that we go look at a few houses that have been updated, so that you can more clearly see the differences.
Friday, February 27, 2009
Just recently I had a discussion with a potential seller and he had complied a long list of maintenance items and updates or remodeling projects which he thought had to be done before putting the house on the market. As I mentally tallied up the list I came to the conclusion that it would take him months and thousands of dollars to work his way through that list. He was actually going to try to move the whole mountain before he listed the house.
My advice was to focus upon moving a few of the small stones first and to leave the rest of the mountain for the new owner. He needs to focus upon items that will add to the curb appeal and the first impressions of the house and to get the house as clean and clutter free as possible. Instead of completely remodeling the kitchen, as he had indicated on his list, there are lots of less expensive and less time consuming fix-ups or updates that can be done to an existing kitchen – from re-facing the cabinet doors and putting on new handles to replacing light fixtures and outlet plates and, of course, painting. Even a dated kitchen looks better in a fresh coat of paint.
Doing a complete remodeling job on an outdated kitchen at this point would not be an investment that yields a return. He had other items on his list that also just can’t be justified as one is putting a house on the market, especially a house that will carry a price of less than $100,000. His list of to-do’s could easily have totaled $20-30,000, if they were all contracted out and maybe $10-15,000 if he did them himself. That is money that just will not be recovered in a sale in this current market. Better that he should make the house as it is look it’s best and take some of that money that he might have spent off the asking price. A new owner will want to make his or her own remodeling changes anyway.
I’ve opined here many times before, but it is worth repeating – you should be investing in your house every year, with major investments, like a new kitchen or roof or windows or baths every 5 years. Making those investments as you go along keeps the house up to date and allows you to get some enjoyment out of the improvements, because you aren’t going to get a return on those investments. Certainly, if there are deferred maintenance items that would detract from the value, get those fixed. Drooping gutters, peeling paint, cracks and watermarks on walls and ceilings and many other little things that you’ve learned to live with will be red flags for potential buyers and rightfully so. They cause the buyer to look for other signs of neglect or to look harder for bigger issues. Make your maintenance to-do list and work it off.
Also remember that you’ll never achieve perfection; so, there is little reason to wait until you have everything done before listing. Just keep working the list of to-dos after you get it on the market. I good Realtor (and now you know one) can help you create that list and give you advice on any other things that you can do to enhance the marketability of the house. So, start today by moving that first stone.
Thursday, February 26, 2009
If you are just a little under water on the property, perhaps the new Homeowner Affordability and Stability Plan from the Obama Administration will help. It provides ways for homeowners to refinance loans that are up to 105% of the current value of the home. Go to my site http://www.mishortsales.net/ for more details on that program. My general advice at that site, which I established to give advice and information to those facing foreclosure, is that you should do everything in your power to avoid a short-sale or foreclosure. Those are both bad things that will stay with you and your credit record for a while,although not quite as bad as a bankruptcy.
Basically you should stay as long as you can. Hold out, if you can; and try to do a refinance or workout that will result in payments that you can afford. If life has dealt you a hand that precludes you from holding on, then look at options like making a deed-in-lieu offer to the bank or pursuing a short sale. Both have significant impacts on your credit score, but both have less impact than going through a full foreclosure process or bankruptcy.
The Clash are singing about a persaonal relationship in their song, but you will be deciding upon a course of action that will impact you life for a long time. Go to my http://www.mishortsales.net/ site and read the FAQ section. It is my intention at that site to give you information on every option other than doing a short sale; however, if that is the only option left, then I want you to be fully informed about your choice with it, too.
Wednesday, February 25, 2009
I recall taking a trip inside a cave once with my Indian Guides group, back when my son was young. The cave was one of those that has a stream in it (perhaps a river, but I don’t recall), so we were loaded onto electric motor powered skiffs and taken deep inside the cave on the water. Once there the guide went through an exercise that I shall never forget. He turned off all of the lights that had been used to guide us to that point and let us sit there for a moment. You have never experienced total darkness (see the picture of us on the left) if you have not done something like that. Then to illustrate how far our eyes will adapt to try to provide us some sight, the guide lit a single match in the darkness. We could see everything around us. That single little light was also enough to dispel the panic that had started to set in.
So now I look for that glimmer of hope in the desperate situation that we all find ourselves in these days. Perhaps it is the new Obama administration housing stabilization programs that will provide that little light in all of the current darkness. Perhaps it will be some other spark that takes hold in the market. Certainly something is needed to get us out of the darkness.
All it will take is some small light that allows buyers who have been waiting and trying to see through the gloom to finally feel that now is the time to act. Those few acts of faith in the future will start the ball rolling and it will not take long to gather both momentum and size. There is a huge pent-up demand for housing out there somewhere that needs to be released and then satisfied. Too many people have been waiting too long, trying to see when it would be safe to go buy a house again.
So, without even a visit from Little Mary Sunshine, I am hopeful that we shall see that glimmer of hope soon - a ray of light, even if off in the distance - and that it will grow into a bright glow of renewed faith and confidence in the future by all of those people who have been waiting and watching and hoping and praying for a better day. We’ve been through a tough winter in Michigan, both literally and figuratively and now it’s time for spring and the renewal that comes with every spring. It’s time for that one little hardy plant to push through the snow and proclaim new hope and new life. I’m ready. Let there be light!
Tuesday, February 24, 2009
This time of the year most Realtors are getting calls from homeowners interested in finding an answer to that question. Mostly they are trying to see if it makes sense to fight their recent assessments. Some are trying to see if they might have enough equity in the house to be able to re-finance. And for some it’s just morbid curiosity about how bad of a hit that have taken in this market. There’s also lots of confusion about terms like “market value”, “assessed value”, “taxable value”, “appraised value” and others. The recently received 2009 notifications of changes to the Assessed Value or State Equalized Value (SEV) and the Taxable Value can be confusing.
The Headley Amendment to the Michigan Tax Code has had some unintended and confusing consequences. The Assessed Value or SEV that the Township reports is what their assessor says your home is worth from a tax assessment point of view. Assessors tend to look at the overall neighborhood and to look at things from a replacement cost point of view. Those views tend to hold values up during short-term economic downturns, like what we are in right now; although, even the assessors have had to start lowering values, based upon whole neighborhoods declining in value. Initially assessors didn’t include foreclosed houses that had sold in their calculations, but now they do.
How the Assessed Value and the Taxable Value of a house can get out of hand is a quirk of the Headley Amendment, which allows Assessed Value to float up quickly with the market, but restricts Taxable Value increases to a maximum of 5% per year. In theory the SEV can also float down with the market and when it goes below the Taxable Value the homeowner has a case to make with the local taxing authority for lower taxes. So look at your assessment notice. If your Taxable Value is still lower than your SEV, you really won’t have a case for tax relief. If your SEV and Taxable Value were in sync already both should have gone down this year, given what’s happened in literally every market locally. If your Taxable Value didn’t follow your SEV down, then you’ve got a case to make.
Other “values” that you might hear about are the “appraised value” and the “market value.” The appraised value is usually associated with financing a mortgage and is a reflection of what the bank thinks your property is worth. That drive how much they will lend on it. In the current market that is likely to be a lower number than you’d like, because the banks have to bake in some risk for further value erosion, due to the economy. Banks hire professional appraisers for that task and they do detailed comparisons of your home to homes within a reasonable distance that have sold within the last 3-6 months (they can go out a year if they have to, but they really don’t like to go that far back). Appraisers have to be aware of the market conditions and things such as the foreclosed houses in the neighborhood (sold and on the market), but their methodology is more precise in comparing features and making judgment calls upon the value content of differences between homes.
Finally there is the “market value”, which might be what a market analysis by a Realtor would return to you. I do 5-6 of those a week for people who may be looking to sell their home and are interested in finding out what they would be “worth” on the current market. The best definition that I’ve ever heard for market value is that your house is worth exactly what someone else is willing to pay for it. That’s true. But, what you want when you ask for a market analysis is some idea what that number might be. By the way, that number these days may not be enough to pay off your current mortgage or it may be more than lenders are willing to loan on the house – I’ve had both cases a lot lately, sometimes both at once.
A Realtor doing a Market Analysis (sometimes called a Comparative Market Analysis or Competitive Market Analysis, both shorted to CMA) will look at not only what has sold in the last 3-6 months in your area, but also what is the active competition on the market. He or she will try to find “comps” – comparable homes – to use for the analysis. I prefer to use the work similar homes, because I have seldom been in all of the homes that I might use for the analysis, so making comparisons without seeing them is hard. What I do focus upon is that they have generally the same features and content – number of baths and bedrooms, square footage, garage spaces, basements (and whether they are finished or not), style (ranch, colonial, contemporary), land content, etc. If the home that I’m trying to provide an analysis for is on water, then I have to find other water-oriented homes for the analysis. As I’ve opined here before, really unique houses can be very difficult to analyze for market value, because there are likely no comps.
So, what is your home worth? It depends upon who’s doing the analysis and for what purpose. I can give you a good idea what a good market price for it might be, but you’ll need an appraiser to tell you what it might be worth to a bank and your Township assessor is still gong to have his/her on idea of its worth for tax purposes. So, if you need to know or just want to know what your home may be worth to someone else, give me a call. Just don't shot the messenger, when I tell you what it's worth on today's market.
Monday, February 23, 2009
The key components of the plan are:
1. Government Sponsored Enterprises (GSEs) Refinancing for Up to 4 to 5 Million Responsible Homeowners with GSE loans to Make Their Mortgages More Affordable - That's money going to Fanniw Mae and Freddie Mac
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
Below are links to articles that appeared in the New York Times, based upon NAR Press releases and to the U.S. Treasury site that explains this plan. Basically the plan is trying to shore up the Fannie Mae and Freddie Mac government owned mortgage buyers, as well as providing some direct relief to homeowners who are already over the edge or who may be approaching the edge.
If the plan works as hoped, it will allow som eof the millions of homeowners who have mortgages that have reset to untenable levels or which are about to reset to levels which the homeowner can’t afford, to refinance the loans into longer term, lower cost mortgages. The idea is to stem the tide of new foreclosures. Let’s all hope that it works. Some of these reports may also serve as great insomnia medicine.
Here’s a link to the NAR short, visual version, for those who prefer not to have to read very much.
For more on this story:
Download NAR's Summary on the Homeowner Affordability and Stability Plan> (PDF: 100K)
Visit the U.S. Treasury Department links below for more detailed information:
Executive Summary> (PDF: 47K)
Fact Sheet> (PDF: 65K)
Questions and Answers for Borrowers> (PDF: 55K)
3 Housing Examples> (PDF: 37K)
Let's all hope that this pile of money that the government is spending (and it is your money after all) to try to stabilize the Husein market works. We've likely all seen the rant by the CNBC reporter from the floor of the New York Stock Exchange, railing against bailing out homeowners who made bad decisions. That populist view is easy to agree with; but, it misses the point that we all suffer already for the mistakes that those people made, because their foreclosures drag down our property values, too. It's not throwing good money after bad; it's more throwing good money and hoping it's enough to make a difference.
Sunday, February 22, 2009
As adjustable rate mortgages and a receding economy threaten millions of homeowners with a potential foreclosure, the demand for loan modification is causing many of the former predatory lenders to resurface and setup shop as loan modification providers. "Many of the so called experts are the selfsame perpetrators who originated most of the toxic, or even fraudulent loans in the first place," according to former bank branch manager and loan modification expert Steve Aranda, author of The Complete Guide to Loan Modification. Loan modification is a process by which any homeowner can renegotiate with their current mortgage bank to get their payments or interest rate reduced, and in some cases even obtain a principal reduction in which their mortgage balance is brought down.
A recent report released by Mortgage Asset Research Institute found that mortgage fraud had increased by 45 percent in the second quarter of 2008, as compared to the previous year. And the FBI has reported that the number of mortgage fraud complaints nearly tripled in 2009 as compared to 2005.
Mr. Aranda has launched a new website, www.LoanModificationClub.com , to teach people how to do their own loan modifications, saving thousands of dollars in fees and avoiding the risk of falling victim to loan modification scams. The kit includes a book, video, software, and forms for any borrower to complete their own loan modification themselves. Many of the loan modification scams revolve around up-front fees, according to Aranda. However, unless you are an attorney, an up-front fee cannot be collected after a Notice of Default has been filed. Furthermore, even before the Notice of Default, only companies who have submitted specific documentation to the Department of Real Estate for review are able to collect fees before any services have been rendered, and even then only under specific circumstances.
Aranda estimates as many as 60 percent of all loan modification companies are practicing illegally, often using non-attorney processing companies to negotiate for them without having legal counsel on staff. Numerous companies are scrambling to get into the lucrative loan modification market now; in California alone, there are almost 200 companies legally able to do loan modifications in the state - up from under 30 companies several months ago. Unfortunately, there are also many companies who are not legally able to do loan modifications but who do them anyway, taking advantage of homeowners who are desperate for a solution.
"For homeowners with a problem mortgage, there are actually several options besides loan modification, including forensic audits, short sale, deed-in-lieu of foreclosure, or even a reverse mortgage for seniors over age 62," states Aranda. A forensic audit is a review of the initial loan documents, looking for loan fraud or problems as a means to force a lender to settle and accept better terms. Aranda recommends any homeowner in trouble or expecting a mortgage adjustment should investigate all their options before doing business with anyone advertising loan modification
LoanModificationClub.com provides a complete step-by-step system for any homeowner facing mortgage trouble. The online kit includes a video, e-book, software calculator, and member's-only forum staffed by attorneys and bank employees. There are likley many other Web sites and helpful organizations that distressed homeowners can visit to get help. The key it seems to me is to admit that you need help and then to seek out reputable people, companies or web sites who can give you advice - then take the advice and do something; don't just sit there and let your house be taken away. Visit the blog http://www.keepmyhoouse.com/ as a start.
Saturday, February 21, 2009
“The extensive foreclosure efforts on the part of lenders and government agencies appear to have impacted the January numbers — particularly the Fannie Mae and Freddie Mac moratorium on all foreclosure sales that was extended through the end of January along with Florida’s voluntary 45-day freeze on all new foreclosure actions and scheduling of foreclosure sales that was announced at the beginning of December,” said James J. Saccacio, chief executive officer of RealtyTrac. “January REOs, which represent completed foreclosure sales to the foreclosing lender, were down 15 percent nationwide from the previous month. And in Florida overall foreclosure activity was down 20 percent from the previous month.”
Nevada, California, Arizona posted the top state foreclosure rates
Nevada foreclosure activity in January decreased 4 percent from the previous month, but the state continued to register the nation’s No. 1 foreclosure rate, with one in every 76 housing units receiving a foreclosure filing during the month. Foreclosure filings were reported on 14,444 Nevada properties in January, up 137 percent from January 2008.
California posted the nation’s second highest state foreclosure rate in January, with one in every 173 housing units receiving a foreclosure filing during the month, and Arizona posted the nation’s third highest state foreclosure rate, with one in every 182 housing units receiving a foreclosure filing during the month.
Despite a 20 percent month-over-month drop in foreclosure activity, Florida posted the nation’s fourth highest state foreclosure rate, with one in every 214 housing units receiving a foreclosure filing during the month.
Other states with foreclosure rates ranking among the nation’s 10 highest were Oregon, Illinois, Michigan, Georgia, Idaho and Ohio. You know times are tough when it feels good to be among the “also ran” category. Now the challenge is to get the overhang of foreclosed properties off the market, so that regular houses have a chance to sell again. Some of the upcoming HUD programs to spend Federal money to help make that happen should help.
Who knows, maybe we can fight our way out of the top ten. Wouldn't that be great? For the full report on the January foreclosure rates in all of the states, click here.
Friday, February 20, 2009
"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J. Imagine that, having to actually prove that you can afford the loan - the nerve of these guys!
Gumbinger says home buyers should consider these things before they apply for a loan.
1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase. First time buyers will still get a break and only have to put 5% down with some lenders. FHA borrowers will see the down payment go up from 3% minimum to 3.5%.
2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.” FHA has raised its credit score minimum from 600 to 620 and even then you'll end up paying 1-2 points on the loan up front, just to get a loan. Conventional borrowers at the low end of the credit score scale can just about count on paying 3-4 points, too.
3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration. Even these programs have tightened up and raised both down payment and credit score requirements. there is also the USDA Rural Development program, but that program is rumored to be low or out of funds right now.
4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information. This is a good time of the year to go find records anyway, with tax season upon us. Be sure to save at least 2-3 months worth of pay stubs, credit card bills and other documentation. You should probably get a letter from your employer that states how long you have worked there, too.
5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income (called the back-end ratio by lenders) has historically been important. The new back-end ration for most lenders is now at 41% of the borrowers gross income. That means that your total current monthly debt payments for things like cars, credit cards and any other installment-payments-oriented debt should not exceed 41% of your gross (not net) monthly pay. You don't have to cancel all of your credit cards (in fact that would look bad on the credit report), just get them paid off.
Now if you're a regular Joe who has been consistently keeping your finances in order and have been making your payments on your home and everything else, you may wonder what all of the fuss is about. Well it was a combination of lenders willing to lend to unqualified borrowers and borrowers buying homes that were well above their means that got us into the current housing market meltdown and foreclosure mess. Had these rules been in affect and been actually followed for the last few years we likely would not have had at least the housing industry collapse that lead to the current economic downturn. We may have still seen credit issues leading to a crisis (many believe that a credit card debt meltdown is next on the recession agenda), but housing would have been in better shape and some of the banks that have failed because of bad mortgage debt might have survived.
Some of the content in this post first appeared in Chicago Tribune, in an article written by Mary Umberger, published 02/15/09.
Thursday, February 19, 2009
In this age of credit crunches, subprime mortgages and rising energy costs that make McMansions almost as reviled as Hummers, maybe it was inevitable that a tiny house movement would start to take off. If you're drawing a blank, tiny houses are typically 64 square feet to 774 square feet, and some environmentalists and enthusiasts argue that they're the perfect antidote to our housing problems. After all, it costs less to buy a tiny house -- not to mention furnish, heat and cool it. If you want the simple life, you can't get much simpler than this. We actually have a few homes in Milford that might qualify, since they are in the range of about 600 Sq Ft. If the idea appeals to you, and you think you might want to ditch the idea of living large, here are some things to consider first:
COST - Tiny houses cost a fraction of what a bigger house costs, but the math will still surprise you: $15,000 to $45,000. Others might go as high as $90,000. It depends who
you hire to build your home, what the materials are constructed out of and what amenities you want. But many of the tiny home builders take great pride in their work and argue that the craftsmanship and quality of the materials dictate the higher prices. And while $90,000 may seem astronomical, the homeowner is still making out like a bandit when paying for maintenance costs. Some tiny homebuilders are also increasing the “Green” aspect of tiny homes by building them out of re-claimed materials. Think of the savings when it’s time to re-roof and you only need 2-3 bundles or when you order the 3-4 replacement windows when that time comes.
SAFETY – Although they are about the same size, true tiny houses are not mobile homes, and one could argue that they make a smaller target during a windstorm. It would also likely be easier to exit, in the event of a fire, and one might imagine that they may be somewhat safe from burglars, who are likely to conclude that a tiny home wouldn't have much of value to steal. There's also no chance of a thief sneaking into a tiny house without the owner noticing. And if there's a dog on the property? Fuhgeddaboutit. I suppose the dog may feel right at home in the smallest of these homes. Oops, my bad.
YOUR MINDSET - It sounds like a nice notion, living in a way that makes a smaller footprint on the environment, but one shouldn't rush into this, cautions Michael Janzen, a
40-year-old Sacramento bank executive who has a blog called Tiny House Design and is planning on building a tiny home to move in with his wife and young daughter. But he
recognizes that one tiny home may be too cramped; so he may well wind up doing what is often recommended: live in two, or even three tiny houses. But a tiny house isn't for everyone, which is why Janzen cautions that if anybody is considering the idea, he would first suggest simplifying things before moving. I’ve opined here a couple of times about simplifying your life and getting rid of stuff that you really don’t need. I suppose that if I were going to go tiny for my home I’d also need to jettison a few of the excess pounds that I’m carrying around, so that I’d fit.
SIDE BENEFIT – Perhaps a side benefit might be that Ken and Barbie could be living in the tiny home next to you and you can borrow the Barbie Mobile. Sorry – I couldn’t help myself on that one. My bad, again!
So, if cozy is a word that you’d really like to associate with your home lifestyle, the tiny home may be for you. For more on (and a serious look at) tiny houses go to these links:
Tumbleweed Tiny Houses
Tiny Texas Houses
Tiny Houses Net
Tiny House Designs
Wednesday, February 18, 2009
I can’t tell you how many cold, dark houses for under $50,000 I’ve shown lately. Can you imagine what a $35,000, three-bedroom, one-bath house must be like? Now imagine that someone has stripped it almost clean – no furnace, no hot water heater, no light fixtures and maybe even no toilets or fixtures in the bath and kitchen. It’s generally colder inside the house than outside, lately and if it is after about 6:30 PM it is hard to see anything, because the power is off or all of the light bulbs have been taken.
Now imagine that you’re trying to advise a young couple, who would be struggling to afford the payments on the $35,000 that this place is listed for, about what to do. They see a possible home that needs some work. I see a money pit that likely isn’t habitable unless they put another $10-20K into it (money which they don’t have) and for which they might not be able to get a mortgage (even the FHA home imporvement program wouldn't provide enough to bring some of these places back).
The good that I can see in that day is to be able to talk that young couple out of that particular home and continue to try to find them something that might work. Homes like the one that I just described are best left to investors – people who have the wherewithal to make the necessary repairs before they “flip” them for what will still be a decent price. I may not go home with a paycheck from a sale that night, but I can go home and sleep well, knowing that I did the right thing for my clients.
So for me, the “good” that may end up in any day is good that I make myself, but being honest with myself and my clients, and helping them with buying and selling decisions. If the house sucks and they shouldn’t buy it, I’ll tell give them my opinion. If the would be seller can’t get what he needs and doesn’t have an urgent reason to move, I’ll advise him not to; or, at least, I’ll tell him honestly what his loss Is likely to be. If the listing client won’t or can’t lower his/her price to what the market will bear, I’ll tell them to take it off the market. And for all buyers and sellers I’ll tell them of the foolishness of trying to wait out or time this market. Honesty is not only the best policy, it’s the only policy that makes sense in this market.
As I get older, I’m also reminded of a saying that I’ve heard many times from oldsters over the years – every day that I wake up is a good day. I guess that’s true and it’s up to each of us to make it the best day that it can be.
Tuesday, February 17, 2009
I get a kick out of many of the designations. The National Association of Realtors (NAR) lists 16 designations to which Realtors can achieve certification, from an Accredited Buyer Representative to a Seniors Real Estate Specialist to becoming an ePRO, which supposedly makes you some sort of Internet expert. All of these programs share one feature – you pay someone and sit through some number of classes. In some cases there will be a test at the end to make sure that you have absorbed all of the knowledge and deserve to be admitted to the secret order of the certified whatever group; however, in some the only test is whether your check clears or not.
Now every group that is trying to label itself a “profession”, with professional practitioners, has programs like this or maybe professional groups into which one must somehow earn admittance. In many professions admission is earned through demonstrated performance and experience or through peer review and recommendations. In some, like real estate, it just takes a few bucks and a little time and one can become “Certified” as an expert on almost any aspect of the business. Now, I don’t want readers to think that I’m putting down all designations. There are a few designations sponsored by NAR that do require quite a bit of training and experience to attain, like the GRI (Graduate Realtor Institute) designation, which is sort of like a college level course on real estate. Others, not so much.
In the case above of becoming a Certified Distressed Property Expert, almost anyone who is selling anything these days has become an expert on that, out of necessity. Understanding the paperwork and process involved in dealing with banks on foreclosures or short sales is something that no one could possibly have avoided over the last two years and something that better companies have internal training programs to cover. In fact dealing with distressed properties over the last couple of years probably has left many agents “certifiable” from the experience.
The bottom line on this designation is a $599, two-day course that will let you put the coveted (so they would like you to believe) CDPE designation on your business cards. I can just about hear pitchman Billy Mays shouting – “But wait! There’s more. You get the 180-page guidebook on distressed properties and the forms you’ll need and the disk that the forms come on to take home; plus you get a one-year membership in the prestigious Distressed Property Institute. But wait! This offer isn’t over yet! Not only do you get all that, but because you are a member of a local board, you get a $150 discount on the course. Rush to your phone and call to get the course right now.”
One of the most savvy and trustworthy trainers that I’ve had in this business has nothing but Realtor on his card and told me that all of those designations stacked end-to-end on a card mean nothing if there isn’t experience coupled with skills and integrity in the guy or gal holding the card. I guess if it makes you feel better about yourself to have a bunch of designations on your card, go for it. I’m sure that that will initially impress some potential clients; however, no amount of designations on a business card will cover over forever a lack of skills or experience or integrity. Your own performance over time will be what eventually dictates your success or lack thereof.
Monday, February 16, 2009
Well fans, we appear have driven the car of home ownership over the cliff and we are now in free fall into the abyss of foreclosure; so grab your sole mate and get in one long last hug. The market locally pretty much has stalled out for anything other than foreclosure sales. I thought that there was a glimmer of hope last week, which was the first week in a while where the foreclosure sales fell below 70% of the total sales for the week; however, foreclosure came roaring back this week to account for 16 out of 17 sales in the market that I track – 94%.
That is not the only indicator of the depth and breadth of the problem. I also look at things like the number of views that I get on my regular, owner occupied listings on sites like Realtor.com and on the Visual Tours site where people can view the virtual tours that I post. . For whatever reason the bottom fell out during the first full week of February. My listings were cruising along getting 150-200 hits a week until the first full week in February, when views dropped to less than 50 a week. People just stopped looking at houses that aren’t foreclosures. I suspect that some of this was due to people waiting to see what the Federal Government was going to do with the stimulus package – trying to determine if there would be something in there for them.
I’m trying very hard to find a rainbow in all of this – something to point to as providing hope for better times just ahead; however, all I can see so far is the dead canary in the pit that we’ve dug for ourselves. Many economists and most pundits in the real estate industry are now focusing upon 2010, having already written off 2009. Even normally optimistic (many would say overly so) Lawrence Yun, the economist for the National Association of Realtors (NAR), has not predicted a turn around until late 2009 or early 2010.
So what to do, what to do? If you are a seller and can wait 8-10 years, but all means do so. It will take that long for the market to recover most of the value that you’ve lost. If you are a buyer, what are you waiting for? The market has never been better, with low prices and low mortgage rates at the same time. While prices may continue a downward trend for a while longer, everyone is predicting that mortgage rates will have to turn around and rise soon. So, buy now!
If you are a Realtor and not a member of one of the big REO outfits, find a day-job to tide you over this mess. Hopefully you can find something that will allow you to continue to practice real estate on the side. The fact is that, as Realtors, we are in the car that just went over the cliff – the view is great, but the end isn’t going to be pleasant. I can’t even bring myself to say – enjoy the ride. Where’s Mr. Happy when I need him? I gotta go see Little Mary Sunshine for a fix of happiness.
Sunday, February 15, 2009
1. Mortgage rates will drop, then rise, and finally stabilize
2. Investors will come back into the market in 2009
3. Buyers will jump off the fence and come back into the market
4. Sellers will become creative with alternative ways to add value to their home sale with incentives such as alternative financing, mortgage points buy downs and other innovations.
5. Listing Inventory will go down as the market absorbs inventory
For the full report, which listed 15 predictions for the year, follow this link.
One prediction (at number 7 on her list) caught my eye – Real estate agents will leave the industry in record numbers. We’ve already seen that in 2008 and she predicts it will get worse in 2009. I’ve opined on this Blog in the past that I believe that the industry is changing into one where there will only be big super teams, headed by all-star, big-name Realtors and part-timers who don’t necessarily need to make a living off real estate. Let’s hope I was wrong on that.
There will also be a contraction of the number of real estate agencies, because of the contraction of the number of seasoned agents and the money that they can bring in. A large number of small franchise operations in Michigan (and a few big ones) are hanging on by their fingernails right now (as are a large number of full-time agents). Another bad year will push most of them over the edge and out of business, so don't be surprised if you read about the failure or bankruptcy or take-over of one or two of the "big name" brokerages in this area. We already saw some of that last year and this year will be even tougher for most.
Is all gloom and doom for the industry then? Not really. The industry needed to contract and change. As in any entrepreneurial industry there is a need to weed out the marginal performers, so that the stronger ones can survive and thrive. The good news for those of us who are both dedicated to the business and willing to put in the hours is that this contraction will result in a concentration of the business to those who remain. Instead of 10 part-time agents each somehow getting 1-2 listings, those listings will end up going to the 1-2 full-time agents who are trying to make a living at real estate. At least that’s what I hope will happen.
In the mean time, I’m also shifting much of my attention onto strengthening my Internet presence, which is where most of today’s buyers find their new home and the Realtor that they use to buy it. I’ve started getting real traction from my main Webs sites – http://www.themilfordteam.com/ and http://www.movetomilford.com/ , with several out-of-state buyers who found me on one or the other. Both sites come up high on the results list if you Google Milford Michigan Real Estate or Milford Michigan Realtor. In fact, if you just Google Milford Michigan my Move To Milford site comes up as one of the only real estate sites. I’ve worked hard to make that happen and I am starting to see the payback from all of that work. Try it at home and see what results you get.
Saturday, February 14, 2009
Lots of people are in the position where their homes are worth less than they owe or less than they feel that they can afford to take for them. We are still in a market environment where homes are losing value at a pace of 1 -1.5% per month. The best pundits are predicting (hoping might be a better term to use) that we will see an end to the slide by the end of 2009 or the first part of 2010.
No matter when the housing market turns back to the positive, no one is predicting a rapid recovery of the lost value. Instead we are looking at a decade or more to get back to where values were just 2-3 years ago, if indeed some properties ever recover to that level. The high point that values have fallen from was an artificial, housing-bubble-induced level that may prove to be more than normal appreciation will allow again. I certainly understand the immediate reaction to say, "Well, we'll just wait it out"; however, many of us will be long gone before the homes values that we had (or thought we had) will return.
Here's my advice.
If you are at a life-stage where you had planned to upgrade to a bigger and better house - go for it. The market has never been better for that and you will make up on the buy side what you loose on the sell side.
If you just felt antsy for a move, with no particular motivation (like a job change), then wait a while and see where the market stabilizes. Just don't count on it magically bouncing back to the 2004-5 levels anytime soon.
If you are ready to retire and downsize, go ahead and take a small hit on the sell and buy equation, if the change will make a significant difference in your life or lifestyle. If you've planned and saved and waited all your life to retire and move to wherever, don't put those plans on hold; because, wherever is probably in a down market too and has great bargains on that end. Do it before you get too old to enjoy it. Downsizing is the most painful, because you will take a bigger hit on what you sell than the benefit that you get on what you buy; however, you will likely save enough on the smaller taxes and energy bills and other factors with the smaller place to make up most of that loss fairly quickly
You'll notice that there really isn't an answer that equates to "OK, if I do that, then I won't feel any pain from this downturn." That isn't going to be true for anyone who bought in the last 5-6 years or who need to sell in the next 5-6 years. For homeowners who bought 10-15-20 years ago or longer; you are still going to make more than you paid for the house, sometimes lots more; you just need to let go off the false "value" that you thought was in the house a couple of years ago. You missed that boat, get over it and move on. I didn't buy Microsoft stock when it was first introduced either, but I've stopped beating myself up over that failure.
If you bought in the last 2-3 years, basically you're locked in to a loss that may have wiped out your entire equity and more. If you put 20% down, it's likely all gone and more. If you bought using one of those 80-20 programs with second mortgage (many of them ARMs) then you likely owe much more than the house is now worth. In both cases you'd have to wait maybe 8-10 years just to get back to even and 12-14 years to be in a position to sell at break-even. If you bought a foreclosed house in the last 1-2 years and got a really good price on it, you might be OK, depending upon how much you had to dump into it. That $200,000 house that you picked up for $100,000 an then dumped $40-50,000 into may only be worth $130-140,000 on today's market.
So, is it all doom and gloom? No, but it does require a level of discipline, patience and perseverance that many sellers and buyers just don't have. You cannot rush into either a sell or buy decision in this market. Thorough analysis is required both to set a reasonable sell price or to make a reasoned buying decision. It is also not a time to be doing either without the counsel of a real estate professional. Too many would-be sellers are making the mistake of thinking that they will save by not paying a commission to a listing agent by trying to sell their homes themselves. Their logic is that they can use that difference as their "wiggle-room" on the price. And some buyers have this mistaken belief that they should deal directly with the listing agent or FSBO seller to try to get a better deal. Both are wrong and it can be a costly mistake for both. I'd be happy to explain why, if you call me.
Let me just say this. Homes are selling. Real Estate One sold over 14,000 in this area last year. And there are still good deals out there for buyers. If you get a good Realtor to guide you, either side is do-able, even in this market. On both sides, I always counsel not to get greedy. The greedy seller sets his price too high and doesn't sell and the greedy buyer low balls every deal and never wins the house that he wants. Real estate sales have to be win-win propositions in order to work. Let me help you get that win.
Wednesday, February 11, 2009
I get lots of inspiration and inspirations from Jack Blog. Jack went on to comment about his decision to live a more positive, upbeat life. I’m trying to take that same journey, but every now and then it’s like that old saying about 2 steps forward and 1 step back or maybe in my case more like the itsy-bitsy spider who had a heck of a time getting up the water spout. Every now and then cynicism gets hold of me and washes my little spider out. Oh well, to beat the cliche machine to death, I just have to keep getting back on that bicycle until I learn how to ride.
For me the big just change something challenge has been to get and maintain a positive attitude about things. My wife used to call me Eeyore, after the character in the Winnie the Poo cartoon – the always down and morose donkey (OK maybe I was more of an ass, at times). And of course, I was Mr. Grumpy to Little Mary Sunshine in the office. I didn’t really and overtly mean to be, that was just my nature. So now I’m trying to be more like Mr. Happy, the perpetually up character of T-shirt and cartoon fame. In order to do that, I’ve had to change the way that I think about a lot of things. I’ve also had to embrace the “So What” philosophy that one of my early real estate mentors tried to instill – the ability to let go of the bad things that can happen in this business, by just saying “So What” and letting go of them.
Real estate is a job that can consume whatever time you have to give it and still ask for more. At the end of every day, there are things that I feel like I didn’t get to; many of them probably trivial in the grand scheme of things, but things that I could have done, had I had more time. For the longest time I let that bother me (you might even say, consume me); however, I now realize that most of those things can be done whenever I get around to them and that they are not things that need to be done but rather things that I think I should be doing.
We have some training almost every Tuesday in our weekly meetings and at every session there are lots and lots of ideas discussed about things that we could do at open houses or in cold calling session or in mailings or other marketing ideas. I used to worry that I wasn’t doing ALL of those things, but now I realize that I’m doing a whole bunch of the good things that are discussed and that no one can do it all. We all have to pick and choose which things we can do and which things we are good at doing and then focus on them.
So, I’ve almost stopped worrying about all of the things that I’m not doing. I say almost, because there are some great ideas in these sessions that I need to consider doing and maybe stop doing some of the things that take up all of my time now. I may have to change. I’m already forcing myself to make my prospecting calls on Wednesday nights. Maybe it’s time for other changes or at least how I think about things. Change is good. Change is our friend. Change is good. Change is our friend. Where is my little green dot when I need it? (See Blog of August 12, 2007 for an explanation of that reference)
If you are like me you perhaps have no idea who Mary Englebreit is, so I Googled her. Follow this link to find out who she is and perhaps why quoting her makes any sense at all. Anybody who has published over 150 books deserves to get quoted every now and then.
Tuesday, February 10, 2009
Bills in both the House and Senate would allow bankruptcy court judges to cut - or "cramdown" - the loan balances owed by home owners, plus reduce the interest rate and monthly payments to affordable levels. To qualify, borrowers will need to file for Chapter 13 bankruptcy, agree to a court-supervised household expenditures plan for up to five years, and make at least partial repayments on debts to their creditors.
Not surprisingly, banks and mortgage lenders hotly oppose the whole idea -- and warn that they'll have to raise interest rates on all future borrowers if they can't foreclose to recover what they loaned out.
Though the final version of the legislation still must be negotiated between House and Senate, it's likely it will be passed by the end of February and will come with three key features:
First, only mortgages closed prior to the date of enactment will be covered. I suppose that new mortgage will be helped by other programs and the renewed emphasis on workouts for bad loans.
Second, all delinquent borrowers will need to contact their lenders and inform them of their intention to file for bankruptcy. That will allow lenders to put together their best offer -- including a reduction of the amount owed and the interest rate -- before the borrower actually files. It remains to be seen if the banks will act in their own best interests, as ex-Fed Chairman Alan Greenspan mistakenly thought that they would in the first place, and get more aggressive with loan modification programs.
And third, if there is an increase in the value of the house during the five year bankruptcy period, the lender will be owed some portion of it. Since most economic and housing market forecasters believe that home values will stabilize and start to rise again within the next 2-3 years, the banks should get at least some of their losses back through that provision; although, I don't understand how that provision will work if the place is sold in the next couple of years...maybe the homeowner can't sell.
I think the banks must have invented the word "cramdown" to describe this process hoping that by using such a disgusting analogy it would put legislators off of adopting it. Let's hope that doesn't work. I'm not a big fan of government or courts mandating behavior in people or business; however, when business goes as wrong as it did in the bad loan feeding frenzy of the early 2000's and then drags its feet on loan restructuring and principal modification, something drastic needs to be done. If the bankruptcy courts are the only place where the issue can be forced, then let them do it.
Let's be honest; the idiots who made the bad $200,000 loan on the house that is now only worth $100,000 (and likely was never worth $200,000 anyway) to the buyer that they knew (or should have known) could only afford a $100,000 house, deserve to share the pain with that idiot who bought more house than he could afford in the first place. There were no innocent victims in those transactions and there should be an equal opportunity for all to share the pain. And lest you ask where's the pain for the homeowner who's supposedly getting of the hook here; remember that he is declaring bankruptcy, not a good thing for anyone.
But, hey, that's just my opinion.
Monday, February 9, 2009
One house however stood out, just because of it scale and the elegance that it showed, even in it's current somewhat decrepit state. This home in Grosse Pointe Farms must have been built by a very wealthy person and almost assuredly was a showcase for that wealth at the time. The house sold in 2007 for $1.2 Million and is now listed for sale at less than $400,000 in a foreclosure sale.
The home is advertised as being over 6,000 Sq Ft and it seemed to be bigger as we went through it. It is laid out over four floors, all of them with 9 foot or higher ceilings. It has 7 bedrooms and 5 baths and I think I counted 4 fireplaces, but it may have been 5. The kitchen is actually made up of two rooms, which appeared to have been set up as a food preparation room and a butlers/cooks room that likely also served as a pantry. Of course there was an very large and elegant dining room, as well as a large living room with a huge fireplace off to one side of the foyer. A sitting room or library was on the other side. There is a powder room on this entry level too. Off to the side of that level is one of those drive through covered entrances where one could be dropped off and not get rained upon. The front entrance is a large brick porch.
A very wide and elegant staircase leads to the second floor, where there are four bedrooms and three full baths, one in the master bedroom, one in a guest bedroom and one that is shared between the other two bedrooms. All of the bedrooms are large. Two of the bedrooms - the master and the guest room have balconies.
Up another nice staircase is the ball room, as well as another bath. The ball room takes up most of this floor, but there is also another bedroom at this level, though I suppose it could have been a sitting room off the ball room at one time. The ball room is huge and one can close ones eyes and almost hear the echos of a dance band of that era or a chamber music group. It is easy to imagine 70-80 people or more dancing the night away in the ballroom.
Up the final staircase one encounters the last two bedrooms and yet another bathroom. Along the journey there are various nooks and crannies and little rooms or closets that are left to the imagination as to their purpose or use.
Down in the basement there is one of those huge "spider boilers" that supplied steam for the radiators that still heat the place. Right next to the old coal boiler, which still sits there, is a more modern gas-fired boiler. One can only imagine the cost to heat such a place. Of course all of the windows are the old single pane glass, with storm windows on the outside (which tend to just slow down the cold air as it makes its way into the house.
I've been through the Meadow Brook Hall and a couple of the Ford mansions and now this place. I am always awe-struck at the size and details that are in these places. This mansion has plaster coved ceilings on the entry level that are decorated with plaster medallions - you just don't see that any more. Most of the woodwork is intact; however, someone, (it appears to be the current owner) has replaced or covered over the entry-level fireplace surrounds with what looks like fake Italian stone. They also put granite countertops in the kitchen, or started to anyway. It appears that they ran out of money and the place is now in foreclosure and starting to deteriorate because of neglect and a hard winter. That's really a shame. Someone with deep pockets needs to buy the place and do a thorough and hopefully respectful restoration.
I got a real kick out of finally getting to visit some of the homes in the Grosse Pointes and in Indian Village. Most of the homes that we visited were in the range of 2500-3500 Sq Ft, well kept and many had been nicely modernized, without ruining the charm and elegance that they once embodied. It's a different lifestyle and many of the homes are from a vastly different era, but an era that defined elegance and style in a refined way that has long since been lost. I'm not ready to trade the peaceful ambiance of Milford for the Grosse Pointe lifestyle, even if I could afford it; but I have a better appreciation of why those who can afford it love to live there, too.
In the mean time, don't forget to click on the widget on the left above and give to a worthy cause - the Michigan Special Olymipcs - and support Conne Terova's Polar Plunge!
Saturday, February 7, 2009
The U.S. Senate on Wednesday voted unanimously to approve a home buyer tax credit of $15,000 or up to 10 percent of the purchase price in its version of the stimulus bill. This proposed credit would be available to all home buyers and would not have to be repaid as long as a buyer lives in the house for at least two years. The amendment to the Senate’s economic stimulus package, co-sponsored by Sen. Johnny Isakson (R-Ga. - shown on he left) and Sen. Joe Lieberman (I-Conn. - we've seen enough of him already), offers the credit on purchases from one year of the date of enactment and could be applied to the home buyer’s 2008 taxes.
Isakson, who spent more than 30 years in the real estate business, proposed the tax credit because he’d seen it used effectively to jump-start housing in the 1970s.
“It is rare that we have a road map to success in times of difficulty, but this country has once before realized a housing crisis every bit as bad as the one we have today and economic troubles every bit as dangerous,” Isakson said in a prepared statement Wednesday evening. “We have a pervasive housing problem, and we have a historical precedent that works. I am proud this Senate has joined together, learned from history, and repeated a method that worked by adopting this amendment.”
Dwight Jaffee, a professor of finance and real estate at the Haas School of Business at the University of California, Berkeley, called the 1973-1975 recession the “classic example” of how a direct stimulus to housing demand impacted economic recovery. “Housing led us into this recession, and we really need a stimulus for it to lead us out,” Jaffee said in a statement released by the Fix Housing First coalition, a group of home builders, manufacturers, and others advocating for several housing-related measures, including the tax credit.
According to Jerry Howard, the NAHB's CEO, the amendment’s provision to offer the tax credit for a year from the date of enactment "reflects Sen. Isakson’s in-depth understanding of housing. It gives the people who market housing a chance to ramp this up and put it in its proper perspective in the field.” Depending on the enactment date, it could make the tax credit available well into 2010. (In previous versions, the tax credit was only availble through Dec. 31, 2009.)
Howard also said Thursday that the NAHB's staff is working closely with the Senate offices of Sen. Mitch McConnell (R-Ky.), John Ensign (R-Nev.) and Lamar Alexander (R-Tenn.) on additional amendments that the Fix Housing First Coalition considers crucial to solving the housing crisis. Those include low-interest mortgages for home buyers and additional measures to stem foreclosures.
The National Lumber and Building Material Dealers Association also issued a statement this morning applauding the adoption of the amendment and thanking the senators for their leadership. "We believe, if adopted in the final stimulus package, the tax credit could go a long way toward reviving the housing economy by encouraging more home purchases, creating new jobs, and restoring consumer confidence in the housing market," said NLBMDA President and CEO Michael O'Brien.
The Fix Housing First coalition, which includes the NAHB and NLBMDA, continues to advocate for additional housing stimulus measures, including an amendment that would provide discounted 30-year fixed-rate mortgage financing for eligible home buyers.
In appearances on television news shows, several senators this week expressed support for such an amendment. “We have a 4% mortgage proposal where creditworthy home buyers could buy down their mortgages or save them on the average $5,600 a year,” Sen. McConnell said on Sunday on “Face the Nation.”
So now we have Congressmen and Senators competing to see who can through the most money at the housing problem. I wish them well. Obviously something needs to be done. I do get concerned anytime that Congress gets involved, since they have a tendency to create concrete life rings to throw at problems, with laws that have unintended consequences.
Friday, February 6, 2009
Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value. But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion. When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.
But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so. "Today the spread is worth a half point to a full point on the rate," said Rosenbaum. It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.
That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, which would still save $64 a month, paying for itself in 32 months. Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.
Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it? Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance. And if a buyer could afford to put more than 20% down, it was generally assumed that they should.
The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that." High down payments can be wiped out in severely declining markets.
Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble. "But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline." Locally, I have several clients who have seen their 20-30% down payment equity vanish.
Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better. But that's often a mistake. "We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.
His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited. Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house. It’s also important to have a strong pre-approval letter that says you have been approved by underwriting for a certain amount; rather than a weak pre-qualification letter that basically says “it looks like they might qualify for a mortgage, but we still need to run it through underwriting.
The days of “fog the glass and you get the loan” are long gone and all lenders have increased the credit scores that they are looking for to make loans; however, there is mortgage money available for those with decent credit scores, based on good credit histories. That’s a good thing, since it may keep us from repeating the mistakes of the immediate past. What’s holding things up right now is not the lack of credit so much as the lack of confidence in the economy and concern about job layoffs. That’s something that no amount of change to the mortgage practices can overcome; but now you can be ready and knowledgeable about mortgages when that too passes.
Thursday, February 5, 2009
I've decided to keep the widget for Conne up until after the Polar Plunge, which is scheduled for Feb 21 this year. Please support Conne in her fund raising plunge for the Michigan Special Olympics by pledging what you can. Click on Donate on the widget to pledge.
From the Jack's Winning Words Blog recent comes this sage bit of advice - “No winter lasts forever. No spring skips its turn.” (Hal Borland - well known American author).
Aside from the obvious and literal interpretation about the long, cold and snowy winter that we are experiencing this year, I suspect that both Borland and Jack are metaphorically also commenting upon the economic swoon into which we currently seem locked. It is hard sometimes to heed the "just hang in there" advice that everyone who is positive and upbeat is trying to pass on to the rest of us. My Mr. Grumpy side is fighting hard to come out quite often these days; however, my fate is sealed by my Pollyanna wife at home and Little Mary Sunshine at work. Mr. Happy shall prevail!
I've actually got several clients who have given up looking until the winter breaks and the snow melts. That's because they are looking primarily at foreclosed houses and that can be difficult right now. Most of the foreclosed houses on the market are winterized and are cold and dark, with now heat or power. So, if you can't visit them during the day yo have to have flashlights or just not go into the basements. It's often colder feeling inside than outside.
Still, I have clients who are looking and that's a good thing, even if it is for foreclosed houses. The deals on foreclosures are really great right now and even regular, owner-occupied homes are selling at great prices.
So, if you've been waiting to buy, now is the time to get out there and start looking. The expectations for the local market are that 2009 will be the leveling off and turn-point year for Michigan, with the foreclosure inventory getting sold off and more back towards normal by 2010. You don't want to wait until all of the good foreclosed homes are gone and then get a bad case of the coulda, woulda, shoulda's. Get on your boots and heavy coat and find your flashlights and let's get out there and finds you that dream home!
Wednesday, February 4, 2009
The Milford office has been the number one contributor to the foundation for those charities for three years running. We hold a number of fund raisers throughout the year. In February our office banner is carried by Conne Terova, who also happens to be the driver behind most of our efforts. She volunteered again this year for the Polar Plunge - jumping into the freezing Detroit River. The Polar Plunge supports the Michigan Special Olympics. Last year she did it and the event was held at a venue that allowed the participants to walk into the water. This year it is being held at the Rattlessnake Club and the participants must jump into the river at a point where it is about 9 feet deep. Conne does not swim! Conne is brave and dedicated to this cause.
I have placed the widget above on this site to allow my readers to support these great causes and this brave lady; so, give what you can to support Conne. She has set a quite aggressive goal of collecting over $1,500 in pledges for the plunge this year, up from the $1,000 that she got last year. Let's blow that goal away. The Real Estate One Plungers have been the number one fund raisers for the last couple of years and this year face a strong challenge from the Detroit police department and the Detroit Firefighters, who also support this worth cause. We have a bunch of other Plungers, including Stu Elsea, one of our owners and Vice President of our non-brokerage arms - John Adams Mortgage, Capital Title, InsuranceOne and other service organizations. So help us stay ahead of those groups by supporting Conne.
Tuesday, February 3, 2009
Don't sweat the small stuff
If an electronic device cost less than $200, junk it without further thought. Repairing a relatively inexpensive item like a cordless phone or counter top microwave is not cost-effective. Basically if you can hold it in your hand - throw it out if it breaks.
Contact the manufacturer
If numerous consumers have had the same problem with a relatively new product, the company may offer free repairs or other compensation even if your original warranty has expired. Before you call, look up the year, model and serial number of your machine, which are usually located together on a sticker or a metal plate somewhere on the equipment. To qualify, you may also need to show the manufacturer your original receipt.
Determine life expectancy
The repair-or-replace question is directly tied to how much longer you can expect the product to last. You can get data on the life expectancy of all sorts of home components, from faucets to refrigerators, at the National Association of Home Builders website (nahb.org). Your results may vary, depending on the quality of your model and how religious you've been about routine maintenance.
That said, just because your busted fridge is near or past its life expectancy doesn't necessarily mean it's beyond repair. "These aren't hard-and-fast expiration dates, they're variable," says Scott Brown, an appliance repair technician and former mechanical engineer in New London, N.H. In addition to its age, you need a reliable opinion about whether the item is in good shape and how serious the problem is -- that is, how much you'd pay to fix it. To get one...
Choose the right technician
Appliance and electronics repair people typically charge $50 to $100 to diagnose problems (then credit that amount against the repair bill if you go for the fix). Plumbers, electricians and other tradesmen will generally give you repair quotes for free. But your decision is only as good as their diagnosis of the problem, so get recommendations from savvy friends who have used the repairer before. Or consult Angieslist.com, a consumer rating site that charges $5 to $10 a month for access to thousands of reviews of local service providers.
Always demand a fixed price for any repair so you don't get stuck spending more than the old equipment warrants. If you think you can tackle the problem yourself, check out RepairClinic.com, where you can get free DIY instructions and even order parts.
Run the numbers
Repair folks, of course, tend to be biased toward fixing existing equipment, since that's the service they offer. Then again, life expectancy data are, in many cases, provided by manufacturers, who certainly favor selling new equipment.
Want a third opinion? Try posting your dilemma at Applianceguru.com, an appliance repair forum run by repair tech Brown. As a general guideline, consider replacement if the item is beyond three-quarters of its life expectancy and repairs would cost more than a third of replacement value. In other words, it's probably not worth spending $700 to repair a 10-year-old fridge you could replace for $2,000.
Consider the technology
In a few cases, there may be new bells and whistles that render your old appliance obsolete -- or simply unwanted. For example, it's never worth making major repairs to a top-loading clothes washer, says Brown: "They're such energy and water hogs, the new machine will pay for itself in a few years." Almost any newer, more energy efficient appliance will save you enough in energy costs to tilt things in favor of replacing it; however, the savings need to be weighed against the initial cost.
Conversely, clothes dryers haven't improved much in basic function over the years, although you just might want a new one to match your fancy new washer. In that case, a breakdown may offer the perfect excuse for some enjoyable shopping.
Is DIY even possible any more?
I used to buy mostly Sears appliances and home products (like chain saws or lawn mowers) mainly because I knew that I could get parts for all of them and do the repairs myself. I don’t do that as much any more because so many products have become too sophisticated for the average homeowner to repair or the manufactures have started sealing things up so much that one can even get to what might need to be repaired.
We have become such a “throw away” society that almost anything that breaks is just discarded and replaced (our cars still being the big exception). I always got some pleasure and personal sense of accomplishment out of successfully repairing something, but these days it seems I just get frustrated with how little I can do with anything, especially modern cars. I still own a 1978 MGB and it’s the last car that I’ve owned that I can still work on. Maybe that’s why I still own it.
Monday, February 2, 2009
The debate has raged over their legality and over what happens if a buyer refuses to pay the fee. Recent legal opinions in Michigan would seem to indicate that the fees are not illegal, nor is it illegal for the buyer to cross them out on any contract paperwork and see if the bank will accept the deal without them. Since the banks get nothing from them anyway they usually would still accept the deal. Remember that the Purchase Agreement is a contract between the buyer and the seller. The agents are not parties to the contract. However, the courts have held that if the buyer signed the contract with those fees in place, then he/she is liable for them and cannot disavow them later.
The real controversy comes from the behavior of some of the REO listing agents, if the fees are removed. There are stories of threats not to present offers to the banks or to hold back offers until other, maybe better offers, can be found and presented. Basically the rub is in unethical behavior on the part of some REO listing agents. Most of the discussion has been between buyer agents ranting about what to do about this issue. I recently weighed in on this issue in an agent forum with the thoughts that are below.
I would think that our job, as buyer agents, is to advise the buyer on his/her offer price, advise on any and all addendum's that might be necessary to add to the offer to protect our buyers interests; and, then on any fees or charges that might or might not have the blessing of the bank and might or might not have any bearing on whether the bank will accept the offer.
Our advice might include a warning that some sleazy REO operators add those fees without the bank's knowledge and that those same operators may threaten to hold up submitting the offer if you delete their illegal fees. We can relate the opinions of recent legal challenges to those fees; but the fact remains that the buyer is at risk of those same sleazy operators holding up their offer and submitting others. We would likely have a hard time making a case for damages in a court, if that happened; since there is no transparency in the whole REO process right now.
If the buyer feels strongly about not paying the fee, then let him cross it out and we should go ahead and submit it, as is our duty. If the buyer feels more strongly about getting the house than worrying about a few hundred extra bucks for the REO agent, then leave the fees in the offer and submit it. We’ve done our duty fiduciary duty by informing the buyer of his/her options and about what legal information that you may have. It is not our duty to steer the buyer into a decision, just because we may have our own strong feelings about this sleazy practice.
If that sounds a bit like a cop-out, I suppose it is. The fact is that the whole REO market is like the Wild Wild West of real estate - there are no rules. While normal contract law still applies, there appears to be little in the way of policing of the ethics of the operators in that business and there is absolutely no transparency to the decision making process. One throws an offer into a black hole and waits to see what comes back - a wait that can last days, weeks or months. Much of the time even the listing agent has no idea what the status of the deal is either - where it is, who has seen it and what bank committee has still to pass on it.
What is frustrating for buyers and their agents is that the normal expectations of the seller side are out the window, too. We can’t tell if the listing agent is playing games and holding on to a contract that he/she doesn’t like. We can’t tell if our offer has ever been submitted to the bank or not. We can’t tell if the listing agent has a friend or investor that he/she is sharing information with, so that our offer is somehow just a few dollars less than the winning offer of that friend. All of those sleazy practices appear to be going on in this market and all of it largely unregulated by the normal agencies or authorities that watch over regular owner-occupied real estate transactions. Once a home becomes “bank-owned” all ethical bets are off.
Now this is not to say that the whole REO market is run like that. In fact most of the banks and REO agents run very honest and straightforward operations. But, like any business with few official rules and no policing agencies, there are always marginal operators willing to cut corners or ignore ethics to make a buck. It’s those folks who are causing most of the issues. They likely started this REO fee business, which many other companies have jumped upon. So, apparently this is just another slimy practice that we’ll all have to put up with for a while. Hopefully buyer resistance will force a re-think of this practice.