News & Views on Real Estate

Whew! That was a close one! Good thing that bail out failed - it almost wiped out the entire housing industry!

Only in the United States Congress can a plan to destroy the housing industry and credit markets be called a "rescue" plan. It's almost as farcical as calling  "card check" bill that effectively kills secret voting for unions a "secret ballot bill." Far more troubling, however, is the fact that the elements of the plan are laid out - in plain sight - for everyone to see and think about.

Why, then, does the real estate industry and average homeowner, not see the danger?

Set aside for a moment what "caused" the current financial crisis. Let's assume there's a lot of blame to go around: Stupid investment banks that didn't assess the risk of securitized mortgages. Political shenanigans for "affordable" housing through two lending institutions that thought they didn't have to actually check if borrowers could repay their loans. And a Federal Reserve that forgot to control inflation - and devalued the dollar - which is how homes, as commodities, are primarily priced.

How about the entire issue of Americans spending way beyond their means for a decade? Taking out home equity for plasma TVs, cars, remodelling, trips around the world - all consumption, no production. Oh, but never mind.

The issue is what to do "now." For starters, the only reason there's a "rush" to do a bailout is because there's a Presidential election coming up. In reality, private investment isn't sitting too far off on the sidelines. Warren Buffet put $5 billion in to the market yesterday and today, even though Washington Mutual "failed" it didn't "collapse." Bank of America had plenty of private capital cash - and a willingness to spend it. Consider it a private bailout.

The danger lies in the rush to do the proposed Government bailout. Injecting a trillion dollars - the real cost of $700 billion - cannot have only good effects. And the most likely - and ironic - negative effect is that the bailout will ultimately destroy the housing industry.

If Fannie and Freddie's business practices weren't a stab in the heart of the concepts of "credit worthiness" and "equity" in the American financial system, then the "bailout" will simply twist the knife until the housing industry dies. What's at stake here isn't the banking system; it's the fundamental basis of savings in our economy: home ownership.

Home ownership is the most common and primary "investment vehicle" for consumer savings. The bailout will destroy that investment for millions of Americans, today and tomorrow. Consider the "other investment" most Americans believed the Government was making on their behalf: Social Security. Essentially, it's worthless because the "assets" used to create its value are declining, as the number of American workers paying for each retiree declines. The same will happen to the mortgage "assets" held by the Government: Just because they suddenly own them doesn't mean they won't continue to decline. In fact, most of the provisions of the bailout bill will hasten - not slow - the pace of falling home prices.

Since the bill will transfer control of millions of American's basic investment vehicles - their home equity - to the Federal Treasurer, the result will be to ultimately push private lending out of the housing industry entirely. When that happens, the housing industry effectively becomes nationalized  - since the only lenders left will be Government-backed (through "equity" shares) banks. Without lending choices, sales will slow to a crawl and the housing industry - including REALTORS, inspectors, appraisers, builders and countless other associated industries - will likely shrink too. Without lending, the economy shrinks.

And just about everything in the bailout bill is designed to discourage - not expand - private lending. For example:

• Foreclosure Prevention is a major provision of the bill. While distressed "renters in homeowners' clothing" may find this comforting, it should more properly be called "Contract Abrogation" authority. The provision would allow judges to - at their own whims - change the terms, conditions and value of a mortgage owed to a lender. If you want to kill lending entirely, then eliminate the law of contracts. Make lenders fear that their contracts might be abrogated or adjusted at any time by a judge who takes pity on a homeowner but never the lender who provided the means for their purchase - and the cost of mortgages will soar. Lenders might reasonably decide to stop lending to individuals at all. They have lots of other ways to make money, rather than risk a capricious legal system. Within the housing industry, builder financing will disappear, too. Why would a builder risk investing in new development, marketing it, and providing financing to the buyers  - when a court could decide at any time to lower the value or payment terms? Robin Hood would be proud.

• Executive Compensation oversight is not just vindictive, it will slow the pace of the mortgage industry's growth. Limiting compensation simply pushes smart people out of the contention for the hard jobs of running a bank. Capping salaries in the finance industry means smart financiers will become executives in other industries. Lending will be left to political appointees. And we all know how well that worked out at Fannie Mae and Freddie Mac.

• Equity Stakes in exchange for Fed money sounds like a great idea. When Warren Buffet bought shares of Goldman this week, he ended up with "equity" in the company. If the Government buys mortgages from failing banks, shouldn't it also get a stake? When a private individual invests in a company, it's called equity. When a government uses taxpayer money, it's called "nationalization." If the Government has equity in the banking industry, it simply has more control. For any indications on how a nationalized lending system will work out, refer back to Fannie and Freddie.

• An Oversight Board to keep an eye on the Treasurer of the United States also sounds like a good idea. In fact, it has been tried for decades - in command-economies like North Korea and Communist China. Let one department of government - and some un-elected bureaucrats - start throwing around a trillion dollars, and you'll be creating more bubbles than a Lawrence Welk show. The Fed already tried this once - by inflating the money supply. Now it will try again with a trillion taxpayer dollars injected into the economy. It's still inflation of the money supply, which means devaluation of the housing industry. Rather than printing money or loose credit lending, the Fed will take it directly from taxpayers disposable income. It has to come from somewhere - which means more taxes - leaving only enough money left over for lower-cost housing. That's called "renting." And there's no housing industry when nobody can afford to actually buy a house.

Home owners should be terrified of the bailout plan. By destroying the lending industry - or making mortgages too expensive. When contracts become tentative, lenders will dramatically increase the interest required to take the risk; which will decrease the number of people who will qualify to repay the loans; which will freeze home-ownership to it's existing levels for years, if not decades. We have already seen frozen neighborhoods across America, where people can't afford to sell and nobody willing to buy.

REALTORS should be panicked: As a the new major equity partner in the lending business - Government will be involved in even more real estate transactions (if not the majority) bringing with them a vast array of government provisions for closing. Perhaps one provision will be capped commissions for REALTORS? Why not cap those along with executive pay? Already today FHA is flexing its muscle, setting standards for inspection and appraisal that the average homeowner cannot meet with enough money remaining for a down-payment on their next home.

Builders - who are essentially financiers who make a profit through housing investment and sales - will simply shift their capital to other markets, like commodities or overseas development where their property rights will be respected under the law, not judicial discretion.

The bailout plan is the exact opposite of what has to happen to correct the economic downturn. Adding more money to an inflation-weakened economy is no worse than devaluing the dollar or printing more of it. Buying distressed mortgages can only be called buying "assets" by Government accounting standards; if they were really worth something, more private equity would be out there snapping it up. Undermining contract law and abrogating lenders' rights to repayment on behalf of "distressed" homeowners will only mean more bank failures - as banks will be unable to recover the money due to them, with which they create jobs and pay employees. The cycle will only accellerate, eviscerating the lending industry, scaring the sidelined-buyers into waiting even further, discouraging foreign investment in what was once considered the safest place to invest: a country of (contract) laws, not of (judicial or political) men.

Now is that any way to bail out the housing industry?

- M

Any agents out there frustrated because their clients got caught up in the "Lending Tree, When Banks Compete You Win?" Well, as many of you know, that is a crock. Great marketing slogan though!

"When Banks Compete, You LOSE!" Too many times these internet lenders screw my clients. They get suckered into these fake rates and promises, and they repeatedly drop the ball. Why?

1. FAKE RATES! The rates they quote are below cost, so they WIN, just to change the terms when it is too late to turn back.
2. NO ACCOUNTABILITY. If they screw you, what the hell do they care? What, YOU won't use them again? Big whoop. You are a number. If 60% close, they are fine with that.

The problem with many consumers is what alternative do they have? They can't trust the Realtor right? All of those damn ABAs Affiliated Business Arrangements (semi-illegal kickbacks).

Well all I can do is vow that I don't have a ABA, and I don't take kickbacks. And now, they have to watch this video...

By the way, I mentioned Lending Tree in this video BEFORE I found out that the client found his lender through... Lending Tree! Coincidence? I think not.

This video will be followed shortly with the ACTUAL pissed off customers anti-testimonial.

I know we can't REQUIRE our lender, but what can we do to make sure they don't walk into a nightmare? Charge them more if a problem comes up. Consider it "overtime?"

Have a client that wants to use some random bank, send them this link.

Frank
Broker FranklyRealty.com

I just found this too. Kinda dead on!

I wonder how a Seattle Realtor must feel when his buyer breathlessly tells him this: "And I'm pre-approved with a great mortgage broker I found online! IN California".

Does the Realtor fake-smile while secretly knowing he will soon be SLEEPLESS IN SEATTLE? Does he attempt to refer the client to a local mortgage professional instead?  Or is it best to shut up and buck up... because after all, you shouldn't interfere with the client's choice of mortgage broker? 

And if real estate really is LOCAL, what is the allure of taking the "LOCAL" part out of the financing end of the transaction, anyway?  Is it because we are trained to believe that EVERYTHING is cheaper/better/ smarter if bought online from some distant location?

Just because the Internet makes it possible to do business in another state does not mean it is better. Getting a mortgage is more than AN EXCHANGE OF DOCUMENTS.

You see, there are distinct advantages when the buying of real estate and the financing real estate are handled as one big ball of wax. When Realtor and mortgage professional are acting on behalf of the client like a finely oiled machine, the client has the best chance of a smooth, successful close.

It isn't impossible to have a finely oiled transaction with a far flung mortgage broker. But it's more difficult. And who doesn't need every possible advantage in this market?

Here are the TOP TEN reasons that THINKING LOCAL will work in your favor when choosing a mortgage professional:

1. TEAMWORK: It is far easier for your Realtor and mortgage professional to bond when they work in the same market, and are familiar with how business is conducted in their neck of the woods. This is huge. 

2. UNDERSTANDING VALUES: It is an advantage for your mortgage broker to know and understand LOCAL property values. Why? She orders the appraisal from the appraiser, and will be the one discussing appraiser conditions and valuation with the lender.

3. LOCAL TESTIMONIALS You can read testimonials online. Or you can call up someone in your area that has actually used the local mortgage broker and get a direct referral. 

1.  
2. 4. MORTGAGE COMPANY IS A PLACE IN YOUR COMMUNITY, NOT A WEB ADDRESS: You can drive into the parking lot and go into the building. You can look around and get a feel for who they are and how they conduct business.  It is nice to know you are supporting a local company, and nice to know who they are. 

 5.  MORTGAGE BROKER IS A FACE AND A NEIGHBOR, NOT  JUST AN E MAIL ADDRESS: E-mail has its place. But it will not replace sitting down and have the freedom to ask questions, and crunch numbers with a real live human being.

6. ABILITY TO HAND CARRY DOCUMENTS AND PROVIDE WET SIGNATURES: In the brave new world of fully documented loans, LOTS of documentation is required. More than you want to fax. More than you want to e-mail. More than you want to scan. Snail mail? Please.

7. MORTGAGE BROKER WILL BE AT THE CLOSING TABLE: Everytime I tell someone I will be there when they sign the final docs I can hear a little sigh of relief. You may not ask a single question, or you may ask 20 questions. But you won't leave the closing table without understanding how your new mortgage works with your mortgage broker there.

8. MORTGAGE BROKER WILL BE THERE AFTER THE LOAN CLOSES: You can't invite the online company to your house warming, or expect to call them up regarding changes in the local real estate market, and how this impacts your mortgage. 

9. MORTGAGE BROKER HAS A VESTED INTEREST IN DOING A GOOD JOB NOT ONLY FOR YOU, BUT FOR THE REALTOR AS WELL: Mortgage brokers get business from Realtors. The mortgage broker that is local is interested in impressing the Realtor so he can maintain his ability to get future business from that Realtor. This works in your favor.

10. LOCAL KNOWLEDGE OF APPRAISERS, TITLE COMPANIES, INSURANCE AGENTS, INSPECTORS AND CONTRACTORS:  What if lender requires flood insurance? Your mortgage broker knows who to call. What if out of area lender selects an appraiser that is not familiar with the area where you are buying your home?  Every mortgage person has a stable full of vendors that are needed to quickly solve problems as they arise.

You can take the loan out of the neighborhood. But you can't take the neighborhood out of the loan.

Think local.

Written by J. J. Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area

 

                                                 * * * *  HARD CORE REAL ESTATE TALK  * * * *

FAX THE OFFER TO 222-555-8888.  YOU WILL BE NOTIFIED OF ANY DECISIONS IN 2-8 WEEKS.

Over the past year, we've read many posts by real estate agents and brokers detailing their frustration trying to SELL foreclosure or short sale listings.

LET'S SET THE STAGE.

• Buyer is fully approved for more than the list price.
• Buyer is non-contingent and ready to take possession.
• House has been on the market for more than 6 months.
• House has been reduced in price from $379,900 to $299,000.

Buyer's Agent has a few questions about the existence of other offers and tries to contact the listing agent.  Buyer's Agent gets Listing Agent's voice mail with the instruction:  "Fax offers to 222-555-8888.  You will be notified in 2-8 weeks of any decisions.

BUYER'S AGENT WRITES AN OFFER FOR THE BUYER AND FAXES IT TO THE LISTING AGENT FOLLOWING THE INSTRUCTIONS IN THE MLS LISTING. 

• Buyer waits 3 days and calls his agent. 
• Buyer:  "Have you heard anything?" 
• Agent:  "No, the agent says it may take weeks to get an answer."
• Buyer:  "Call the listing agent and tell them that if we don't hear something in 24 hours, we'll buy something else."
• Agent:  "I'll do that and get back to you."

AGENT CALLS LISTING AGENT AND LEAVES THE MESSAGE THAT THE BUYER IS WAITING 24 HOURS FOR A RESPONSE OR THEY WILL BUY SOMETHING ELSE. 

No response from listing agent in 5 days after leaving many telephone messages.  Buyer instructs his agent to withdraw the offer and show him other properties, IF the buyer's agent is lucky.  Often, a buyer will hold his agent responsible and move to another buyer's agent.  This is one of the reasons so many experienced buyer's agent decline to work with buyers who include foreclosures in their search for a home to buy.

The above is a "worst case" scenario.  But, the result is the same in that the property has been listed for months, has lost significant value and there is a viable buyer and offer on the table that goes nowhere.

WHY DIDN'T THE LISTING AGENT RESPOND TO THE BUYER'S AGENT'S CONTACTS?  Because the listing agent:

The listing agents has no authority to negotiate for the bank.

The listing agents has no management authority to do anything other than transmit the buyers contract offer.

The listing agent has many listings from the same mortgage company and would be bogged down all day on the phone if they took a personal contact approach.

The listing agent has given the foreclosure listings low priority because the mortgage company listings pay far less than consumer listings.

WHY DOESN'T THE MORTGAGE COMPANY THAT FORECLOSED ON THE PROPERTY ACT IN WAYS THAT WOULD MAKE THESE PROPERTIES MOVE FASTER??

BECAUSE THEY DO NOT KNOW WHAT THEY ARE DOING!!

The mortgage company employee that is in control of the portfolio of foreclosures,

• is NOT a real estate agent, real estate broker,
• has never sold real estate,
• has no understand of the real estate market,
• does not have any experience negotiating real estate sales,
• is a salaried employee and will receive a pay check no matter when the properties in their portfolio sell or for how much.
• final decisions for price, terms and conditions for ratified contracts is not in the authority of the loss mitigation clerk communicating with the listing agent.
• final decisions on contract approvals are often scheduled weekly or bi-weekly by committee. 

The primary reason these transactions are so difficult for the buyers agents, buyers and listing agents is because the neither the mortgage company nor their representatives communicating with the listing agents have no experience selling real estate.

Real estate agents and brokers sell a lot of real estate.  We know how to manage a real estate transaction.  We also know that the bank or mortgage company property owners have no experience or knowledge about selling real estate and getting the contract to the settlement table. 

• They have never been to real estate school.
• They do not have a real estate license.
• They have never showed a home to buyers.
• They have never written an offer for a buyer.
• They do not understand the industry standards for real estate brokerage.
• They do not understand that "time is of the essense" when selling homes.
• They have never presented a contract to a seller.
• They have no understanding of the real estate market.
• They do not understand the limitations of the "as is" clause.
• They have no knowledge of real estate brokerage.
• They have no knowledge of condition or inspections.
• They have no understanding of disclosure.
• They have no understanding of presenting offers, counters timely.
• They get paid whether or not the contract closes.

The skill sets required for employees of the mortgage companies for loss mitigation representatives are not transferable to real estate sales or real estate brokerage. 

FACT:   BANKS AND MORTGAGE COMPANIES DO NOT KNOW HOW TO SELL REAL ESTATE.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

Hello Friends, I always love waking up to chaos in the market first thing Monday mornings. I drive my wife nuts when I turn on the TV at 445 and there is headline news like there was this morning with our major investment company shakeups. Please watch the video for more detail as it is a long explanation but basically the Feds stepped in this weekend as moderators to try and save investment bank giants, Lehman Brothers and Merrill Lynch on the verge of collapse. Apparently Bank of America found Merrill Lynch to be the more stable of the two and purchased ML for $50 billion dollars. This is a very interesting turn of events knowing B of A just purchased the failing mortgage giant, Countrywide earlier this year. A lot of analysts are curious to know how B of A is confident in the stability of their assets and reserves when the losses are still rolling. The silver lining in this dark cloud is that mortgage backed securities loved this news. MBS' are up 75 basis points this morning, add that to the gains from last week after the Freddie and Fannie take over, we are up nearly 200 basis points. That equals 2 discount points or $6000 on a $300,000 loan, so big numbers. We are seeing 3 1/2 year lows now for mortgage rates. Between the housing price adjustment in or communities and mortgage rates at all time lows, tip for the day. :) buy, buy, buy! Be Blessed! Travis

One of the best lessons I've learnt in Real Estate came from a client.   I was advising her to wait for a better offer, one that I knew I could get her.  She said no, time is money and for every day the property stays on the market, money is lost.  ...Say no more; I got it!

 

Obviously the banks haven't had any such tutor.  They have absolutely no understanding about the relationship between time and money.  I thought it was only happening with short sales, where the 2-6 months closings seem to be the norm.  

 

Two days ago I brought one of the top banks a cash offer to close in 7 days on one of their REO's.  They accepted the offer, but they moved the closing date to 60 days later.  SAY WHAT??????????????????  Let me see if I understand this:  my Buyer has CASH, and he wants to close NOW and the Seller (the Bank) says:  "I don't have time to take your money NOW; you'll have to wait till I get good and ready to take your money?"

 

I'm still scratching my head...  Please help me!  What am I missing here? 

 

Mirela Monte, Your Myrtle Beach Real Estate Connection                                           Join The Optimist Group!

This Capital Tax Code change caught me by surprise as I just learned about it.  I had not heard anything about it and perhaps other real estate professionals are in the same situation.  In the past I have had numerous clients that have used this section of the IRS code and several that are currently taking advantage of the code (including myself) but will now be affected as this goes into effect January 1, 2009.  Unfortunately there is nothing preventative that can be done.  A synopsis of the Internal Revenue Code follows:

A Modification of Internal Revenue Code §121

The federal government recently heightened the restrictions for those who seek to exclude capital gains on the sale of real property held as a primary residence under IRC §121.  This legislation will go into effect on January 1, 2009.

IRC §121, also known as the 121 exclusion, permits homeowners upon the sale of real estate they have owned and lived in as their primary residence to exclude up to $250,000 of the capital gains ($500,000 for a married couple filing jointly) that would have otherwise been recognized.  To qualify for this exclusion the real estate sold must be, or have been, the primary residence and lived in by the taxpayer for any two of the last five years.  Certain exceptions apply for the two year "lived in" requirement.  Taxpayers can take advantage of the 121 exclusion once every two years.

The careful utilization of the 121 exclusion has permitted taxpayers to implement strategies to take full advantage of its benefits.  Such examples include:

• A taxpayer acquires investment property, not purchased as part of a 1031 exchange, and then converts the investment property into their primary residence.  The taxpayer, after living in the property for at least two years, may sell the property and take the full 121 exclusion.

• A taxpayer acquires investment property as part of a 1031 exchange and then converts the investment property into their primary residence.  In order to take advantage of the 121 exclusion the taxpayer must live in the property for at least two years and additionally must have owned the property for at least five years. 

The latest change to IRC §121 restricts a taxpayer from taking the full 121 exclusion for periods of "non-qualified" use prior to it being held as their primary residence.  Non-qualified use is any use of the property other than as a primary residence (i.e. second home, vacation home, rental).  A "qualified" use is then, by default, any period in which the property is held as a primary residence. 

Upon the sale of the property, the capital gains attributable to the Non-qualified time period prior to its conversion to a primary residence is no longer excludable.  Any periods of Non-qualified use after conversion to a primary residence is not counted against the taxpayer, as long they would otherwise qualify for the 121 exclusion.

The allocation of capital gains between the Qualified and Non-qualified periods involves a simple fraction that takes the total capital gains associated with the sale and divides that amount between the respective periods.  The Qualified period represents the amount of the capital gains that can be excluded and is determined by the number of years the property was held as the primary residence over the total years of ownership.  The Non-qualified period represents the amount of capital gains that can no longer be excluded and is calculated using the same fraction, the number of years held in Non-qualified use over the total years of ownership.  Keep in mind, any Non-qualified periods after the conversion of the property to a primary residence is not counted against the taxpayer.

For example, a taxpayer acquired real property in January of 2009 and owned the property for eight years.  The property was held for investment for the first six years.  It was then converted to the primary residence for the last two years of ownership.  Of the total capital gains associated with the sale only one-quarter (2/8) can now be excluded under the 121 exclusion.  The remaining three-quarters (6/8) can no longer be excluded as they are allocated to the Non-qualified period.

These changes will undoubtedly impact those that have acquired investment property and intend to change the character of the property to their primary residence in order to take full advantage of the 121 exclusion. "

I have discovered how aggrieved homeowners can turn the tables on home warranty companies and beat them at their own game. Please share this with everyone you know.

I'm an attorney and after having a problem with my home warranty company, American Home Shield, I decided to investigate whether other homeowners had experienced the same or a similar problem. What I found were web sites devoted to consumer complaints on which numerous homeowners had recounted incidents of fraud, deception, and rip-offs by their home warranty company. I also found a blog written by a former American Home Shield employee and another written by a former plumber for a home warranty company. Both recounted situations that would not pass the "smell test" in a court of law.

I also investigated lawsuits that had been filed against American Home Shield in Georgia, which is where I live. I found about 15 cases. The majority of cases had been filed in small claims court. As I reviewed the cases, I discovered that none of the cases had been litigated. In every instance, the case had been settled to the Plaintiff's satisfaction although the details of each settlement were not part of the case file. With the knowledge that all cases had been settled to the homeowners' satisfaction, I realized that American Home Shield would settle with an aggrieved homeowner before allowing a case to go to trial. My conclusion is that the only thing aggrieved homeowners need to do to beat home warranty companies at their own game is to file suit. The last thing American Home Shield wants to do is litigate a homeowner's claim and the reasons are obvious to me.

The most obvious reason American Home Shield would not want to litigate a claim is that in most instances, the cost to American Home Shield to settle a claim would be less than the cost to litigate. The average amount of a claim in the cases I found was $3,800.00. Two were for less than $1,000.00 and only one was for more than $10,000.00. I'm sure far more than the 15 homeowners who have filed lawsuits in Georgia have had their claims denied. American Home Shield wins when a claim is denied and the homeowner does not sue, which is exactly what American Home Shield is counting on homeowners not doing.

Another reason American Home Shield does not want to litigate is because the company does not want to have to defend its craftily drafted contract or its questionable business practices, which is exactly what it would have to do if a case went to trial. American Home Shield also does not want such information to become public knowledge, which is also likely to happen. Additionally, a judge or a jury would also be hard pressed to return a verdict favorable to a company that engages in questionable business practices.

 

The final reason American Home Shield does not want to litigate is because a lawsuit actually places American Home Shield in a precarious situation. American Home Shield would have a difficult time defending any claim by a homeowner because the company has no first hand knowledge about the claim; it would need the testimony of the service contractor who, for its own reasons, may be less than eager to testify. The only knowledge American Home Shield has is what the company has been told by the service contractor. And any testimony from American Home Shield about what it was told by the service contractor is hearsay and not admissible in court.

To defend a claim, American Home Shield would need to subpoena the service contractor who actually made the diagnosis to testify about the claim. If the homeowner has done his/her homework, he/she would subpoena witnesses who could dispute the witnesses for American Home Shield. The homeowner should subpoena one or more service companies who had been called either for a second opinion or to make the actual repairs to dispute the testimony of the American Home Shield service contractor. The homeowner might also consider locating one or more other aggrieved homeowners to testify about their problem with American Home Shield. Another good witnesses for the homeowner to subpoena would be a former service contractor for the home warranty company or a former employee of a service contractor.

Since American Home Shield has at least three significant reasons why it does not want to litigate, the best and easiest way an aggrieved homeowner can beat American Home Shield at their own game (and most likely any other home warranty company) is to file suit. The one thing for an aggrieved homeowner to keep in mind is that if he/she does not sue, the home warranty company will win. But if he/she sues, the homeowner will most likely win. And that is how an aggrieved homeowner can beat American Home Shield at their own game.

My advice to aggrieved homeowners is not to stress over a denied claim, the denial of a situation as an emergency, repeated "band-aid repairs," or a delay in authorization or in the repair of an item. I would also advise a homeowner not to waste time arguing with American Home Shield but to set a reasonable deadline for the appropriate action. Upon expiration of the deadline without receiving satisfaction from American Home Shield, the homeowner should then proceed as if they did not have a home warranty and then sue American Home Shield for reimbursement. The homeowner should also remember to document every action or inaction by both himself/herself and American Home Shield. Although the disadvantage to the homeowner is initially having to pay for the repairs, the advantage is that the homeowner can choose the service contractor and the brands and quality of products. I won't guarantee all aggrieved homeowners will prevail every time but I have good reason to believe most aggrieved homeowners will prevail the majority of time.

For aggrieved homeowners whose claims were denied at sometime in the past, you may still be able to sue for reimbursement. To make that determination, the homeowner needs to research the statute of limitation for suing on a contract in their state. In any event, a homeowner should be safe filing suit for a claim that was denied during the past twelve (12) months.

Within the next six months, instead of reading homeowner's stories about being scammed and ripped off by their home warranty company, I want to read stories about how homeowners turned the tables and beat their home warranty company at their own game.

If anyone has any questions, I can be contacted at LegalCohen@aol.com.

Good luck.

 

Several days ago, I wrote Everyone and Their Cousin is a REALTOR -- Is That Really True? It Might Be in Some States! detailing the reality about the number of REALTORS per capita around the country.  In Virginia, we have one REALTOR per 213 people.

One of the most frequent questions asked on that blog post was how much business does each agent transact per year and many commenters suggested that a large number of REALTORS do very little business each year, leaving real estate sales up to the 80/20 rule.  20 percent of agents conducting 80% of the sales.

I decided to look a little closer at how the pie is split up in Northern Virginia.

The membership of the Northern Virginia Association of REALTORS (NVAR) stands at approximately 11,574 REALTORS. 

For 2007, there were 19,363 home sales totalling $10,463,391,838 of volume in the area covered by NVAR (Arlington County, Fairfax County, Alexandria City, Falls Church City, Fairfax City).

Here's a breakdown:

Consider that each home sale has two sides of the transaction and most frequently involves a REALTOR on each side of the transaction.  Thus, there were a total of 38,726 transaction sides to be divided amongst the REALTOR population.

38,726 divided by 11,574 = 3.34 transaction sides/Northern Virginia REALTOR

The average Northern Virginia home sales price in 2007 was $540,380, equating to about $1.8 million in sales per REALTOR.

A few things to consider:

• The membership of NVAR was likely larger in 2007 than the current membership.
  
• Many homes that sold in Northern Virginia could have had the buyers and/or sellers represented by REALTORS who are not members of NVAR.  They could be members of the Dulles Area Association of REALTORS, the Greater Capital Area Association of REALTORS, the Prince William Association of REALTORS, or other associations.
  
• Many REALTORS completed many more than 3.34 transaction sides.

Thus, it is likely that the average amount of transaction sides/Northern Virginia REALTOR was much lower than the above numbers.

Interesting things to consider when choosing a REALTOR.  It's not necessarily crucial to choose a REALTOR who sells dozens and dozens of homes each year and operates with an enormous team of backup support.  However, I'd suggest finding a REALTOR who does some business -- something more than the small average seen above.

An agent who sells one home every 4 months is just not properly equipped for advising you in today's market.  At RE/MAX Allegiance, our average agent sells 12 homes a year.

Ready to buy or sell in Northern Virginia?  Make sure you make the right choice.

Contact Brian Block, REALTOR/Attorney, RE/MAX Allegiance: Licensed in Virginia & Washington D.C. (703) 626-0715. If you are interested in purchasing or selling a property in Northern Virginia including Arlington County, Alexandria City, Annandale, Burke, D.C., Fairfax County, Falls Church City, Lorton, Springfield, Washington D.C., contact Brian today.

 

We broke the news about the eventual reinstatement of Nehemiah Down Payment Assistance Program, back in August and way ahead of Inman News, on Bloodhound Blog.  How did we know where this was headed?  We talked to lenders rather than the charitable organizations. We talked to lenders because we know the Golden Rule; he with the gold makes the rules.

The largest lenders in our nation were consulted when Chairman Frank and Secretary Preston were playing political chicken.  Reinstating a program makes no practical sense if you can't get lenders to lend.  In fact, statistics from the largest loan servicers and originators will weigh heavily in the ultimate decision.  The biggest loan servicers and loan originators found some interesting facts about credit scoring and loan performance.

These large loan servicers said that seller-assisted down payment assistance programs were defaulting at 2-3 times the normal, acceptable default rate.  I can't verify that; the data aren't published but that's what the senior credit officers at our nation's largest loan originators tell me.  More importantly, that's what the large loan servicers have been telling Congress (and HUD) for the past year.  The fear of an unacceptable default rate drove HUD to speculate that the increased defaults could bankrupt the FHA insurance system...so they screamed.

I reported that Chairman Barney Frank was holding risk-based pricing as a chit for the ultimate reinstatement of seller-assisted down payment assistance programs.  He had to get the lenders to play ball.  The largest lenders, then, are the most-likely candidates to determine the viability of these programs.

What the lenders learned, when they ran modeling tests, was that the performance of these loans improved EXPONENTIALLY when a minimum credit score was introduced, along with strict adherence to the debt-to-income ratio.  A miimum credit score of 680 reduced the default rate below the acceptable universe for FHA loans.  A minimum credit score of 620 dramatically reduced the default rate but it was statistically indeterminate if it was acceptable.

Jeff Belonger queried about this yesterday:

• Borrowers with credit scores from 620 to 680 could be subject to higher insurance premiums. (I personally wouldn't have a problem with this)
• Borrowers with credit scores below 620 would be banned from using the down payment assistance program until mid 2009. ( I truly think that we could improve on this one. First off, why down to 620?  Secondly, even people with credit scores of 570 or such can still have decent credit, under FHA's credit guidelines.

The answer to Jeff's questions are "that's what the large lenders want".  They want that 680 minimum because they KNOW the default rate is acceptable there.  They want to phase in the 620 minimum because the data are inconclusive about the performance at the lower credit score threshold.  They spurn the 570 credit scores because allowing them will bankrupt the HUD insurance fund...and NOBODY wants that.

Getting lenders to lend is the answer to the mortgage liquidity crunch.  Enacting legislation does no good if the lenders won't play ball.  Remember the golden rule; he with the gold makes the rules.

If you're interested in the new minimum loan guidelines that we expect the saved down payment assistance programs to have, you might attend our free teleconference next week.  Sean Purcell and I will discuss these developments next Monday, at 4PM PST, on Bloodhound Blog Radio.  We’ll give you a heads-up on what the credit-score minimums and debt-to-income requirements might look like.

                                  * * * *   HARD CORE REAL ESTATE TALK  * * * *

GOOD GRIEF!  What's all the whining about?  All the government did when they became the conservators of Fannie (and Freddie) was what the public and lenders across the nation (not to mention foreign investors) always relied on the government doing, paying the bond holders of MBSs if Fannie and Freddie failed to do so.   

Fannie Mae Mission

"We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

Fannie Mae has a federal charter and operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America."

MBS:  Bonds backed by interests in a pool of mortgages.  The income from these bonds comes from the cash flow from the mortgage pools. 

NEWS FLASH:  When home owners default on their mortgage payments, the underlying bond ceases to pay the bond holders. 

THE LIFE OF A MORTGAGE BACKED SECURITY: 

The chronology from 2004 to 2007.

Consumer decides to buy a home.

Consumer borrows money with an ARM starting at 4.5% to buy home.

Consumer secures loan with a mortgage on home.

Mortgage company lends money.

Mortgage company "pools" many mortgages and sells them to Fannie.

Fannie bundles many mortgages, chops them up into small pieces and sells the pieces as bonds.

As the home owner makes their mortgage payments, the cash flow from many mortgages provides cash flow to the owners of the MBSs or bonds. 

Consumer's ARM mortgage resets to 6.5%

Consumer defaults on mortgage payments.

The "cash flow" from mortgage repayments to MBS bond holders is reduced. 

The income to MBS bond holders is reduced.

Fannie and Freddie continue to make payments on the MBSs.

Fannie and Freddie run out of money. 

The government does what the market had always relied on the government doing.  They took over the BMS payments to the bond holders. 

Fannie will continue to buy mortgages with money from the government. 

The mortgage companies will continue to lend money knowing that they can sell the loans to Fannie and Freddie.

The consumer will continue to buy homes because they can continue to borrow money.

The "risk premium" on interest rates may be reduced and interest rates may be reduced. 

So, what's all the angst about?  All the government did was what Fannie and Freddie and the investment banks and the consumer and the lenders and the rest of the world relied on the government doing.

The government bailed Fannie and Freddie out and will send the bill to the American tax payer.

The first invoice was this week with the promise of $5,000,000,000 as the first installment. 

Courtesy, Lenn Harley, Broker, Lenn Harley, 800-711-7988.

 

It all started with a story in The New York Times, ominously titled "What's Lurking in Your Countertop?" The article recounted the tale of a New Jersey homeowner who had recently learned that the granite in her kitchen countertops was emitting radiation at 10 times the level of other areas in her house. Seems the granite contained high levels of uranium, which is radioactive and releases radon gas as it ages.

Yikes!

Although the article acknowledged that "health physicists and radiation experts agree that most granite countertops emit radiation and radon at extremely low levels," it also stated that "with increasing regularity in recent months, the Environmental Protection Agency has been receiving calls from radon inspectors as well as from concerned homeowners about granite countertops with radiation measurements several times above background levels [meaning that which we're typically exposed to day-in and day-out]."

Since then, the news that granite countertops may be hazardous to your health has been spreading like wildfire. I heard the story on The Today Show last Friday. It has also appeared on CBS's Early Show, on countless local TV news programs, in a number of print publications and in a slew of blogs like this one. There's even a You Tube instructional video that explains how to test for radon in your countertops.

The controversy has actually been percolating for quite some time. Last year, the Marble Institute of America was concerned enough about the growing granite brouhaha (which they blamed on their competitors) to issue a "Technical Bulletin" addressing many of the questions.

But you know what this really means? It means the days of the ubiquitous granite countertop/stainless appliance package are numbered. At least, we can only hope so; it's getting tough to tell one kitchen from the next.

In other words, it's time for the next It Kitchen Concept to catch on. What that will be in Central Oregon, I'm not sure. But here are a few possibilities:

Teak Countertops. The appeal: Teak is an extremely durable tropical hardwood that can stand up to a kitchen's tough challenges. A renewable wood product that appeals to the "green" consumer, it stores carbon, permanently removing it from the atmosphere (the teak comes from sustainably grown, legally harvested plantations, according to Proteak).

Glass Countertops. The appeal (according to Ezineseeker.com): The fact that glass is non-porous means that it's stainproof and hygienic. Glass kitchen countertops are shaped all in one piece so there are no seams and can withstand heat up to about 700 degrees without cracking.

Bio Glass Countertops. The appeal: Made from 100 percent recycled glass, Bio Glass countertops are also fully recyclable (white and light green slabs contain 100 percent pre-consumer recycled glass; brown contains 100 percent post-consumer recycled glass). Bio Glass is manufactured in Europe from recycled wine bottles, stem ware, drinking cups and water bottles. A nonporous surface, it withstands scratches and stains and can be cleaned with standard glass cleaner or soap and water.

Recycled Paper Countertops. The appeal (according to PaperStone, a composite product made from recycled paper and proprietary, petroleum-free phenolic resins made from raw materials like cashew nut shell liquid): It's durable, easy to clean, very abrasion resistant, absorbs very little water and is very fire resistant.

Bamboo Countertops. The appeal (according to styleathome.com): Bamboo grows much more quickly than hardwood yet it has a lot of the same advantages as woods such as oak or maple. In fact, according to Totally Bamboo, which produces bamboo countertops, it's 16  percent harder than maple and is the best choice for durable countertop surfaces. A grass that grows to a harvestable height between three to five years, bamboo doesn't require replanting and has an extensive root system that replenishes itself, making it one of the most renewable resources known. 

Granted, these are just a few of the more recent options out there. What trends are you seeing in your neighborhood?

 

About the Author:
Lisa Broadwater is a Central Oregon-based real estate professional who specializes in listing
and selling homes, especially in Sisters, Tumalo, Redmond and Bend. If you'd like to learn more
about Central Oregon, please visit http://www.centraloregonhome4you.com/.

Have you ever seen this.  An agent takes a listing on Wednesday.  instead of putting it on to MLS,  they keep it to themselves but they have time to put an Open House ad in the newspaper and get a sign ordered.  If they don't double end it themselves over the weekend,  they will put it on MLS. In a hot market,  they have a good chance of being the buyers agent. 

If you see this,  you should file a Grievance with your Association.

I must not have been clear.  I have received several answers to this Blog saying that the Seller can instruct the agent to hold it off the market.  I agree.  I was talking about the agent who doesn't tell the seller and delays putting it on MLS so they have a chance to sell it themselves.  This is a breach of fiduciary duty since the best way to get a competitive offer is to let the rest of the real estate community have a shot at the listing

OK, there is supposed to be a declining market in Washington, DC.  Really?  You coulda' fooled me!  During August, I was involved on the losing side of a couple of bidding wars.  Declining market?  And it looks like September is starting off with yet another one.  But whether the market is totally hot or stone cold, there will always be a few hot listings.

This week in Washington, a favorite colleague has a hot new listing.  Since she put it on Tuesday's brokers' tour, it has been crawling with local agents and their clients  The seller did everything right.  It's a totally fabulous house with just about the best staging job I've ever seen.  The owner has moved out, and it's on lockbox and easy to show.  And the agent he selected has decades of experience and has a wonderful reputation for professionalism. 

This listing is generating the kind of excitement we haven't seen since about 2006!  And it got me to ask myself, what's the best way to make the most of this kind of situation?

Timing is crucial. 

When do you put the listing on the computer?  I usually place it on MRIS on Friday afternoon, making it easily accessible to agents (electronic lockbox, no need to call) with a Sunday Open House.  In this case, the listing showed up on Tuesday in time for the broker tour.

When do you look at offers?  If the house goes into your multiple listing information on a Friday, agents and buyers don't seem to mind waiting until Monday or Tuesday for contract presentations.  Waiting longer than that can get tricky.  If it goes on early in the week, say Monday or Tuesday, people can get a little pissy if they make an offer and you don't do anything with it for a week.  It seems that anything more than four or five days gives them just a little bit too long to think about it.  But taking something that comes in before the house is properly exposed to the market may not be the best thing either.  Still, in the markets that most of us have today, unless it's been deliberately under-priced, it's probably best to apply the old "bird in the hand" thing and deal with offers as they come in.

A Cautionary Tale - when the market was going nuts a few years ago, there was a stunning condo in Georgetown that went on the market on a Monday morning.  The price was a little lower than what less fabulous places were welling for.  There were traffic jams in front of the building from agents and buyers trying to find even a fire hydrant parking place - one of them being mine.  I called the agent to register an offer, and she said the presentation would be a week from the following Thursday at her office.  I was totally annoyed.  My buyer decided to wait it out.

On the designated date, I showed up with three offers:  one full priced, one full priced with an escalator clause, and a third over full price and a huge escalator clause.  And I was the only agent there.  The agent, and more important, the agent's client, were stunned that there was only one offer, and of course the one I pulled out of my briefcase was the full price, no escalator clause.  I could hear words that sounded a bit harsh coming from the seller, and at settlement he asked that the listing agent be barred from the room. 

If waiting too long in a fast market is a bad idea, in a slow market it could be fatal.

Moral of the Story:  

In every market, there are houses that sit and there are houses that are hot.  If you are selling and your house is hot, thank your lucky stars.  Thank your talented real estate agent.  And don't get greedy.  Don't get cocky.

RERUN   *  RECYCLE  *   SECOND TIME AROUND  *  BACK ISSUES  *   IN CASE YOU MISSED THEM

With the interest in Short Sales and our everyday frustration, this one was intended to be helpful to agents.

 REAL ESTATE AGENTS DO NOT HAVE SPECIAL POWERS. WE ARE NOT SAVIORS. SOME FOLKS JUST CAN'T BE HELPED BY A SHORT SALE OR A REALTOR®

 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 This one was about showing respect for our peers

NOT GETTING THE RESPECT OF YOUR PEERS? YOU'RE NOT ALONE

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

RESPA reform and affiliated entities.

HUD IS INCAPABLE OF PROTECTING THE CONSUMER WITH RESPA REFORM

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

What do you mean, they don't qualify.

MORTGAGE COMPANIES AREN'T NIT-PICKING. THEY DON'T HAVE ANY MONEY.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

You may not want those foreclosure listings.

ATTENTION LISTING AGENTS AND BROKERS - YOU MUST READ THIS! WANT REO LISTINGS? BE CAREFUL WHAT YOU ASK FOR!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 

Insight into how government often works.

HOW THE BANKS GOT INTO REAL ESTATE. A CHRONOLOGY OF A CATASTROPHE                       

 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

How to cause a run on a bank that you would like to see closed.

INDYMAC and SCHUMER. A BANK WITH QUESTIONABLE LINEAGE AND A SENATOR with QUESTIONABLE JUDGMENT

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Listing agents need to recognize when a listing could be dangerous to their financial health. 

Hey, Hey, Make Your Day!! Turn That Listing Down!

 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

I am sure many of us have seen scenarios where buyers and sellers have moving trucks packed and people literally sleeping on couches or even on the floor waiting for a loan to fund and then for everything to blow up at the last minute?....AAARRGGGGGHHH!!!!

Often times, I have had deals brought to me after being submitted to several other lenders where supposedly either the borrower didn't qualify or something was wrong with the property and, of course, the parties involved didn't find out about the problems until the 11^th hour.

One recent instance happened to a buyer whose file was submitted to 8 different lenders and had been denied for one reason or another despite the buyer having near 800 credit scores and very high monthly income. You would think that after going through 8 different lenders that there would be no hope for this transaction. However, I was able to close the deal in a couple of weeks and it took that long mainly because or main processor had just gone on maternity leave and processing was a little short handed at the time.

Why do these deals blow up like this? How is it possible to have a loan denied by many different lenders and then get approved so quickly when the right lender is found?

1.  The wild and crazy mortgage market of late. With so many changes in the mortgage market in the past year, many lenders have changed their guidelines because the loans that previously were possible are no longer saleable in the secondary market. Consequently, if investors are unwilling to buy those loans, then banks may not be willing to keep those loans in their portfolio. Thus, the tightening of guidelines. Sometimes, some of these lenders have not been communicating very promptly these changes to the loan officers in the trenches and they don't find out about the changes until the last minute

2.  The Mortgage Consultant (or lack thereof). He or she may be quick to assume that the deal meets  guidelines and even issues a pre-approval letter and assures the buyer that everything is fine. These types of loan officers are what I call Spaghetti LO's because their approach is to throw the file against the wall and if it sticks then, great, but if not, then too bad.

Knowledgeable and professional Mortgage Consultants will "pre-underwrite" their file upfront before submitting it to underwriting. This means that they will tear a file apart to identify anything that may be a red flag or might be a concern and address it and find a solution so that when the file is submitted to underwriting, he or she is confident that the bases are covered. However, nothing is guaranteed until the funds are sent to escrow (attorney in some states), the funds are distributed, and the transaction recorded at the county.

3.  The word, "loan approval" is used too loosely. Many have expressed with frustration, "but the lender had already issued a loan approval." Underwriters will commonly issue a loan approval, but if some requirements are outstanding, then it would be a conditional approval, which means that the loan has been approved subject to conditions being met. One of them is the appraisal. If a problem arises based on the appraisal report, then the approval is not valid. This could explain why in some cases a lender, or many times the loan officer, may say that the loan is approved, but then after the appraisal report comes in, problems arise and the deal is dead.

If an appraisal has not been done or the report has not been submitted to underwriting, then we as Mortgage Consultants should not be telling the parties involved that the loan has received a final approval. We should explain that the approval is conditional and that one of the conditions is that the appraisal report will not show any problems.

4.  Misunderstanding of the meaning of a locked loan. Others have expressed, "I thought the loan was locked." The process of locking an interest rate commitment for a certain period and at a particular price is completely independent of underwriting and approving a loan. Having a locked interest rate only insures that if the loan is approved, then it will be delivered using the pricing that appeared on the rate sheet on that day for the period requested (i.e. 30, 45, or 60 days). It is possible to have a locked loan and at the same time have it denied by underwriting. Therefore, if a loan officer promises a buyer that their loan is approved based on a rate lock, then they are either not telling the whole truth or have no knowledge of how the process works.

5.  Overconfidence in local lenders. You might think that if a Mortgage Consultant is out of the area or state, then he or she will not be as trustworthy or knowledgeable. Although surely comepetent local lenders exist, a lender being located out of the area doesn't necessarily mean there will be problems since local appraisers and escrow are always used. I have done many loans out of my area and out of state (I can lend in all 50 states) and have not had a problem due to the distance or being out of the area.

Even if a lender were located in the area, he or she still must pick up the phone (or send out e-mail) and coordinate everything. There isn't too much of a difference between doing that in his or her backyard or in another state. If local appraisers and escrow staff are handling the work that absolutely needs to be done locally, everything should work out fine as has been the case when for many of us that have done out of area or out of state deals. If any problems should arise, most of the time they are the types of problems that would have come up even if the lender would have been local. However, sometimes deals have blown up because the local lender did not have the expertise necessary to close the loan.

Of course, this is not an exhaustive list of reasons why deals blow up at the last minute, but they may be some of the most common reasons and factors that come up when it does happen.

Do anyone have any other reasons to add to this list?

 

While it is admirable that parents want to look out for their kids, they are nothing short of a train wreck when they are out looking at homes.

My buyers are all excited to buy a home we looked at. We have negotiated to an acceptable price, a bit higher than they wanted but doable. Now they want their parents to see the home.

At first everything was going ok, the father was telling the son  be sure to ask for the snowblower, be sure to ask for the dehumidifier, thought he was going to ask for the pots and pans. At this point nothing deal breaking, until we got outside.

As soon as he saw the deck he went into immediate over bearing parent mode. "If I was a building inspector I would condemn this deck." "I dont think they can sell the house with this deck the way it is, this could cost thousands to fix."

The deck is a 15 x 25 deck with pressure treated wood, metal brackets on every joist and plenty of support underneath. His issue were cracks in the supports which are very common in pressure treated supports.

To combat the damage, I did not argue with him there as you can never win against the parents and if you do you still lose in the end. I contacted my contractor for a quote to replace all 4 posts and it came in at $450, a far cry from thousands.

I then advised them that we should wait for the offer to get accepted and then see what the home inspector says as we are not carpenters and we can not make an accurate assessment of the condition of the deck. They have agreed and we are moving forward.

My advice is never try to duke it out on the spot. Wait for them to be long gone and discuss with your buyers the next day. Emphasise with the issues brought forward, but remind the buyers in the end it is there decision and while their parents input is valued it must be weighed with your desire for the home and a home inspection.

When working as a buyer agent, I have a standard talk with all buyers as they prepare for an offer.  I suggest that we give the house a hard look to find things that might come up during a home inspection.  Obviously, I do not try to "play" home inspector, but I do try to point out the obvious (I.e. curled shingles, windows that have a broken seal or do not open close). 

Then, I tell them that it is not ethical to try to renegotiate the price after the inspection unless something comes to our attention that is structurally or mechanically unsafe or beyond the layperson's ability to identify during a walkthrough.  For example, we recently inspected a home that had a newer heating system.  Since it was August, the inspector had to turn it on and run a series of tests.  After testing, we found that there were problems and asked the seller to have them fixed by a professional.  On the other hand, we did not "go back to the well" for door jams that were kicked in and broken.

On another recently closed deal, the buyers renegotiated several thousand dollars off the price for items that "might break."  I honestly felt that the negotiated amount had been decided before the inspection even began ... I think some people enter the home inspection as a "Phase II of Negotiating."

This is not my style; I don't think it's fair to the seller or an ethical strategy.  In fact, one of the agents in my office has the seller sign a release before each inspection.  If the buyer "nickel and dimes" the seller after the negotiation, the release is immediately sent.  (He claims that it has never been signed and returned.) 

Please share your thoughts and how you have played either side of this game.

Best,

Mike

Did you know that banks are continuing to contribute daily to the declining market?  Even though they have tightened their belts in terms of loaning new money, I see them squander their investors' money on a very regular basis.  Here's how:

The Short Sale

At this point, short sales are about 2/3rds of my business so I am working with them quite regularly.  Time after time, I counsel my client on how to put in a good offer to the bank while also protecting their equity position in case the market continues to decline.  As a basic rule of thumb, it makes a lot of sense for a bank to accept an offer that is about 10% below current market value.

The Bank's Response

For a while, banks seemed to "get it" when it came to their position in these transactions and the bank's response would be either to accept the offer as submitted or counter with a number that better met their criteria.  That works because it gives the buyer an opportunity to accept the counter, counter back, or simply walk away from the transaction if the bank is trying to pull them higher than their best offer.

Lately, however, I am watching many banks reject offers outright (even at amounts that they had previously accepted on the same property).  With no opportunity to respond, the buyer is left either randomly increasing their offer in hopes that the bank will accept or simply walking away.  Most buyers opt for the latter.

The Money Wasting Part

On the surface, it may look like the bank is actually protecting their investors' money by employing these tactics.  However, the money wasting part comes after they reject the offer.  They then foreclose on the homeowner, spend around $30,000 or so on the foreclosure and turn around and list the property on the market at well below the price that my clients had offered on the short sale.  This is an obvious waste of money on that particular transaction, but it gets worse!

Pushing the Market Down

Here's the bad part.  When a bank or several banks perform this way repeatedly, they are effectively pushing the market down in that neighborhood.  Let's say a home sells as a foreclosure at $30,000 less than the rest of the market.  One house like that might not affect market values, but the problem is that this happens repeatedly.  The buyer of the next short sale in that neighborhood now uses the foreclosed home as a comparable and offers even less than before.  The bank rejects the offer, forecloses, and then sells at a price even lower.  Can you see where this is headed?  Eventually, it pulls the values down in the entire neighborhood because the gap between the price of the distressed properties and non-distressed properties is too great.  To compete, even non-distressed homeowners must lower their prices.

I'm all for buyers getting the best deal and declining prices are good for that in a sense.  However, with this sort of activity some buyers are leery of even making offers because they are concerned about what the value of the home will be a year from now.  Fortunately in Tucson this is not happening in every neighborhood, but there are pockets where I see this and wonder when the banks are going to see the big picture.

I'm one of the few home inspectors who will do re-inspections, and I do it for several reasons:

1. Home owners can work on their own properties, but they still must do repairs correctly. Too often I find that the Seller stated that repairs were made, but they were not made properly.
2. Home owners often will hire the least expensive person to make the repairs, which might also mean that he is the least qualified.
3. A repair person might come out to repair, say, the water heater, and damage the furnace which is right next to the water heater.
4. Everyone has to start somewhere in their chosen profession, so the person coming out to do the repairs might have just been hired yesterday.
5. Repairs that are usually out of sight, out of mind, such as in the attic or under the house, quite often are not done, notwithstanding what the Seller states. There can be several reasons for this, of which the two most common are (a) the Seller actually didn't have the repairs done, and
   (b) the Seller had the repairs done but the repairperson also believed in the "out of sight, out of mind principle" and didn't do them, or didn't do them properly.

  Attic repairs

If my Client moves in and finds conditions later on, Sellers and Realtors often say, "Your home inspector must have missed that," when, in fact, one of the above five items is what actually occured. It's highly unlikely that the Seller, or the Buyer, or either of the two Realtors, are going to crawl up in the attic or under the house to see if the repairs were done, and even if they did, how would they know if the repairs were done properly?

With so many things that can go wrong with repairs, the best person to check on those repairs is the third-party person who noted that they needed to be done in the first place: your home inspector!