3 ways Homebuyers kill their OWN real estate deals…

Hello  again!  Below is a great article I read in Inman News that I thought I would share.  I truly see this often….

Got questions – the Caton Team is here to help.  We are a click away – email us at Info@TheCatonTeam.com

 

3 ways homebuyers kill their own real estate deals

Mood of the MarketBy Tara-Nicholle Nelson

I recently bought a couple of spa treatment packages for a friend’s birthday (as much as a gift to myself as to her, to be sure). The package included a pedicure and a massage for the price of the massage, but had a bizarro restriction that required I pick the gift cards up at least one day prior to spa day.

The problem: The spa was across a bridge from my town. Despite my very best calculations, I hit unexpected traffic and it took me an hour’s drive just to pick them up.

It’s a good thing for the spa that I was literally stuck on that bridge, unable to turn around; otherwise, that would have been an undone deal. I was very clear that the value of my hour far exceeded the value of those two “pedis.”

In the end, the conditions I had to surmount to take advantage of the bargain negated the value of the deal — and then some.

And that happens much more frequently than you’d think in the world of real estate. Today’s ridiculously low prices and interest rates, combined, seem like the perfect storm for finding a great deal.

But some buyers run into — or even unwittingly create — circumstances in an effort to cash in on the bargain that deactivate or diminish the full value they otherwise stand to gain from buying at the bottom of the market, for both home prices and interest rates.

Here are three ways homebuyers are defeating their own deals in today’s market:

1. House hunting too long. As many as 60 percent of the homes for sale in some markets are short sales. Many other listings are bank-owned (also known as real estate owned or REO) properties, and those homes tend toward two extremes: terrible condition, or so nice at such a low price they receive multiple offers.

Even the nicer, nondistressed homes on the market can end up in and out of contract over and over again due to appraisal or other lending-related issues.

As a result, it is not at all bizarre to hear homebuyers today say they’ve been house hunting for a year, 18 months, even two or three years. When you house hunt that long, you become susceptible to house hunt fatigue, which causes irrationally extreme overbidding out of sheer exhaustion.

Alternatively, it can cause you to settle for whatever house you can get, even if it doesn’t actually meet your needs — then spend the next 10 years obsessively spending to upgrade, improve, repair and furnish the place to try to make it more like the home you actually wanted.

Both of these outcomes negate and deactivate the bargain you stood to score.

To avoid house hunting too long, it’s uber-important to get and stay clear on the differences between what you want and what you need, and to work with a local real estate professional you trust.

Look to your agent to get and keep your expectations centered in reality, so you can make more strategic decisions throughout your entire house hunt, like house hunting in a price range where you’re likely to both find homes that will work for your life and be successful in your efforts to obtain one.

2. Making lowball offers way too low. Overbidding seems like an obvious way to cancel out the bargain potential of your deal. But making excessively low offers — offers sellers couldn’t afford to take if they wanted to — can have the very same result.

Buyers who think they can operate strictly on the basis of buyer’s market dynamics — without realizing that most sellers will need to make enough to pay off their mortgage or at least receive the fair market value for their home — are cutting off their own noses to spite their faces, all in the name of trying to score an amazing deal.

Note to “lowballers”: If you don’t actually secure the home, the superlow price you offered is no deal at all.

3. Freak-outs, stress, drama and mayhem. Once was, it was mostly the buyers uneducated about the homebuying process who tended to freak out and stress the most, especially at the top of the market. These were the folks who found themselves defeated at every turn by buyers who knew what they were up against and were prepared to make their best offer on their first offer.

Fast forward, and now the norm is for buyers to spend much more time reading up on what to expect, but the inundation of information can create brand new mindset management challenges.

Almost every buyer is stressed about whether they can qualify for a loan, and about buying into a down market. Some buyers try to apply national headlines about home prices being depressed to the superlocal dynamics of their neighborhood market.

This is unwise if you happen to be, for example, trying to buy a home in the boomtown real estate markets of Silicon Valley. Others go the opposite direction and deny that the basic truths about, say, buying a short-sale listing will actually apply to them (attention homebuyers: buying a short sale usually takes a long, long time).

The emotional freak-outs that result from having your expectations shattered, sometimes brutally, in the course of buying a home often lead to panic-based and fear-based decisions, which can be costly in the short and long term. Additionally, the stress itself can take a toll on your ability to be productive at work, and can even impair your relationship with your mate, neither of which are worth any deal you think you stand to strike.

Again, managing your expectations by working with a trusted broker or agent you feel comfortable relying on to understand the market in your neck of the woods and the type of transaction you want to pull off is essential to downgrading the role emotion plays in your real estate decision-making.

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6 Tips for a Successful Loan Modification

Below is a great article I read from Inman News that I thought I would share regarding loan modifications.  Please enjoy…

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6 tips for a successful loan mod

Avoid rookie mistakes when preparing, submitting your document packageMillions of mortgage borrowers who can no longer afford their mortgage payments but can afford a lower payment can avoid foreclosure by getting a modification of their loan contract. While the path to a modification remains torturous, it is not quite as bad as when I wrote addressed the issue in a 2009 column.

Are you unqualified?

It is not possible for borrowers acting on their own to determine whether they qualify for a modification because they don’t have access to all the criteria. Some is kept under wraps by loan servicers. However, borrowers can determine that they are not qualified for a government-supported modification by accessing aquestionnaire provided by the U.S. Treasury Department.

Bear in mind, however, that servicers also offer modifications outside of the government’s program. You might qualify for one even if you don’t meet the government’s requirements.

Compiling the information the servicer wants

The single most important step in obtaining a loan modification is providing the servicer with the exact information the servicer needs to make a decision. Each servicer has its own set of forms that must be completed, and its own requirements for the documentation you must provide.

In my first stab at this problem, I placed the information required by each of the major servicers on my website. Now borrowers can access the DMM Document Wizard, provided at my request by Default Mitigation Management LLC, which is a lot better. Based on your answers to the questions it asks, you will be provided with a customized list of forms you must complete and documents you must provide. It is free and will take the guesswork out of what you need.

Don’t exaggerate your financial shortcomings

Warning: The servicer will examine your statements of income and expenses to determine whether you can afford a reduced payment. Exaggerating your financial weaknesses may open his heart but close his purse, if it makes you appear to be a lost cause.

Assuring accuracy

Having the right form is one thing, but filling it out correctly is something else. Some industry executives estimate that about 95 percent of all packages submitted are incomplete or contain errors. A package with obvious errors may fall to the bottom of the pile, or it may lead the servicer to conclude that you do not qualify for a loan modification when, in fact, you do. Remember what you were taught in second grade: Neatness counts!

In addition:

1. Use a cover sheet that identifies all documents in your package.

2. Write your name and loan number on every page.

Assuring delivery

Preparing an accurate and complete set of documents is one thing, but delivering the package to the servicer is something else. Servicer systems have been overwhelmed by requests for help, and documents routinely get “lost.” You want to minimize the chances of that happening to you.

Using fax or certified mail: Make sure you have the correct contact information. Treasury providesaddresses and fax numbers of every mortgage servicer. Certified mail is more reliable than fax, but neither guarantees prompt attention by the servicer, or even that the documents won’t subsequently be misplaced or lost.

Using the DMM portal: The best way to deliver documents to servicers is to use the DMM portal, available through the DMM Document Wizard by clicking on “Submit,” or visit www.dclmwp.com. I have no financial interest in DMM.

Using the portal, your documents are delivered to the servicer electronically, and the portal then becomes a direct communication channel to the servicer. The servicer uses the portal to acknowledge receipt of your documents and to request additional information or documents. You use the portal to make corrections, to send additional information, and to update yourself on what has been completed and what remains to be done.

Questions by you are automatically directed to the specific employee who can answer them. All communications are time-stamped and remain in the portal as a record of borrower/servicer exchanges.

Unfortunately, not every servicer subscribes to the DMM Portal. The list of those that do is shown on the DMM Wizard.

Follow up, and then follow up again

Because the process of modifying mortgages remains slow and error-prone, you may need to nudge the servicer. If you faxed your documents, you should follow up to make sure the papers haven’t been lost and the case is in an active queue. But even if you use the DMM Portal, you should follow up with the servicer regularly to make sure your application is on track.

By Jack Guttentag
Inman News®

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Shopping for the Best Interest Rates

THE lowest interest rates in decades sound enticing enough, but they are often out of borrowers’ reach.

Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you’re a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in all the advertisements or headlines.

The rates quoted by Freddie Mac and others are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. As its base line, for instance, the Brooklyn Cooperative Federal Credit Union uses rates posted on the Credit Union National Association Web site for New York, according to Daniel Alejandro González, the credit union’s director of lending. Others, like Chase Mortgage, use markers like Treasury yields and agency mortgage-backed securities issued by Fannie Mae.

Consumers who want to try for the lowest rates available need to consider these basic factors.

CREDIT SCORE The ideal borrower has a FICO score of 740 or higher, said Thasunda Brown Duckett, the senior vice president of Chase Mortgage’s East Region. “That puts you in the best place for pricing,” said Ms. Duckett, whose office is based in Manhattan. According to MyFICO.com, borrowers in New York with scores of 760 to 850 could qualify for an annual percentage rate of 3.95 percent on a $500,000 30-year fixed-rate mortgage, while those with scores of 620 to 639 qualify for 5.53 percent.

POINTS The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. “You need to buy points in order to get the best rates at many banks,” Mr. González said. In Freddie Mac’s weekly survey on mortgage rates, points have averaged 0.7 percent on loans in the last year. Points might make sense depending on your financial situation and how long you expect to stay in a home. So ask for a zero point quote, too, and compare.

PROPERTY TYPES If you’re buying a duplex or a four-unit building, your rate will almost certainly be higher. Condominiums may also have a rate premium, especially if they are newer or your down payment is below 25 percent. Lenders charge more if you are not planning to live in the home. Commercial properties like apartment buildings have the highest rates, as they are considered riskier, Mr. González said.

DOWN PAYMENT Ms. Duckett says that borrowers who put down at least 25 percent are more likely to obtain “attractive pricing” at Chase. Lenders offer different breaks on rates if equity is higher, so you should ask what is available.

LOAN LENGTH A lot depends on how long you plan to live in a home. If you’re likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for, say, three to five years, and adjusted afterward, might work best. Also, rates on 15-year fixed-rate loans are lower than those on the 30-year — 0.77 percentage points, on average, last year, according to Freddie Mac. “Some people may not need a 30-year mortgage,” said Jed Kolko, the chief economist of Trulia, the real estate information Web site.

Borrowers may also be able to reduce their mortgage rate when they enter into a “lock-in” agreement with a lender.

“Lenders typically offer a lower rate for a shorter lock period,” Mr. Kolko said.

Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk.

Borrowers must make sure, too, that they consider the entire cost of a home, looking carefully at monthly payment calculations. According to Mr. Kolko, about a third of homeownership costs are in addition to the mortgage — among them property taxes, insurance, maintenance and repairs.

Article Shared via California Association of Realtors Newsletter and the New York Times

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Appraisals – The Hurdle

Finding a home these days is journey in itself.  Getting the home you want is the next headache.  In the last year we’ve seen deals fall apart at the bitter end – over the appraisal.  Realtors take this very seriously.  We do not want overly inflated appraisals that got banks and purchasers in hot water in the past.  We also do not want to see ridiculously low appraisal either – especially in markets where housing is in recovery and values are slowly increasing.  Realtors, their clients and lenders want to see realistic appraisals.
Lately – it is taking banks more than 30 days to close a deal.  Close of escrow periods are extending from the typical 30 day window to 45 days and beyond.  Some deals are falling apart when the appraisal is much too low and neither side will budge on price, or clients are forced to pay the difference if they truly want that particular home – which can be a hot mess.  The Caton Team strives to protect our clients and will guide each buyer or seller through the best course of action – and often times the best course is different for each client.
Ways to avoid this headache.
We are blessed on the San Francisco Peninsula to have a variety of job markets in the Silicon Valley and the Biotech industries. If you’re in the market to purchase a home – The Caton Team highly recommend you work with a LOCAL lender and as professional Realtors we request local appraisers as well.  Appraisal companies have changed dramatically since the boom – and for good reason.  However, when you get an appriser who generally works in Modesto (for instance) they will not have a good grasp on the peninsula market – and often the appraisal come in to low.  The “Appraisal Review” is becoming the norm these days – when the difference is too great – and adds days to the close of escrow window.
The bottom line.  Be smart.  The Caton Team always provides our buyers with a Comparative Market Analysis which is a Realtors version of an appraisal.  We take into account the activity of similar properties in similar areas in s short window of time to determine the value of the home when writing an offer – therefore offering a solid offer with a realistic price.  Recovery of our real estate market will take time – and for those of us fortunate enough to call the San Francisco Peninsula home – we know it will recover.

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Below is an article I’ve found addressing these concerns that I thought I would share with my fellow readers… enjoy.
Aced Out By an Appraisal
Published by Preston Howard

One of the most frustrating things about the new world of real estate finance is the good old fashioned appraisal.

You can have a borrower who makes more money than the amount of the loan that they are requesting with an 800 FICO score and a stellar financial profile. The file can get underwritten and the deal can be the most solid deal that a bank has seen, but no one is safe until the appraisal comes back confirming the value requested. Homeowners who have been through this painstaking process know what I’m talking about. Realtors walk around in doldrums of disgust as their brokerage commissions go up in smoke. Fellow mortgage brokers bury their heads in shame and pain as deal after deal dies at the hands of an appraiser. However, the unfortunate thing is that there appears to be no end in sight.

The reality is that there were many appraisers out there who severely inflated our housing bubble by doling out overly generous values. However, the appraisal flu has spread throughout the ranks of entire armed forces of the appraisal brigade. By and large, conservative appraisers are coming in lower than ever, while aggressive appraisers have become more conservative. Lots of appraisers have quit the business entirely, while others have become property inspectors! Why is this?

Part of the pressure is coming from banks that want more conservative valuations due to enhanced regulatory scrutiny. Other forces at play include an overly abundant inventory of distressed properties. In the past, appraisers made adjustments for distressed sales; but in many markets, this is no longer the case. Given that so many appraisers are no longer making adjustments for distress, valuations are coming in 15-20%. Both instances have stalled the recovery of the housing market. Inexperienced appraisers from 50 miles away are being utilized to value properties in niche, pocket, and specialized markets. Accordingly, market knowledge is overlooked and expertise is left out of the equation. The scant facts are coming in and the effects are damaging. National realtor boards approximate that ten percent of escrows have been killed due to a low valuation. Another twelve percent of transactions are stalled in limbo, while a final eighteen percent have had to return to the negotiating table for a price change.

So, what are we to do? This calamity started when New York governor Mario Cuomo fought hard for the installment of the Home Valuation Code of Conduct (HVCC). Since its inception, mayhem has been unleashed across the real estate industry. What was meant to “protect the consumer” has essentially harmed the consumer, paralyzed our industry at a micro level and the economy at a macro level. Real estate professionals have been mobilizing, and the results have been mediocre at best. With the advent of the Dodd-Frank Financial Reform Bill, the HVCC has seen its “sunset”; however, the low appraisals continue to persist. The one thing that is now allowed is that anyone “with a beneficial interest” in the transaction can contact the appraiser and provide comparable sales to substantiate values. While this sounds promising, many lenders still heed to the rules of HVCC and will not allow brokers or borrowers to contact the appraiser. (Talk about not following the rules). Thankfully, some consumers are taking matters into their own hands. I have encountered homeowners who just so happened to be writers and have profiled the issue in front-page articles in the Los Angeles Time while others have been able to get their woes heralded in The Wall Street Journal. Constituents across the county are lobbying members of Congress and the Senate to draft legislation to change the HVCC. However, I don’t believe that anything major will be done until those in power are denied a loan.

Much like there were the “Friends of Angelo” who got preferential treatment with refinancing with Countrywide (many of which included various Federal lawmakers), the same will most like have to apply in the appraisal industry. When Congressmen, judges, and commissioners start to receive declination letters en masse due to low appraisals, then we will see a shift in the pendulum. I haven’t heard of Ben Bernanke getting a low appraisal on his home or President Obama. However, I do believe that if Max Baucus (Chair of the Senate Finance Committee) gets a low-ball appraisal, then the issue will get traction. If the “Gang of Six” all get forced to the negotiating table due to a low valuation, I have a feeling that our deficit will take a back seat to Senator Coburn and Senator Conrad’s desire to lock in a rate that hasn’t been this low since both gentlemen were in elementary school.

In summary, we are all tired of watching deals go up in smoke over conservative appraisals. It’s a shame to not go forward on a deal with good credit, strong cash flow, and clean collateral when you don’t know if you are at 75% or 85% LTV. Collectively, we need to advocate change and encourage local and national champions to spearhead the issue. Money is being spent, deals are being lost, and tempers are flaring. Enhanced legislation and examination are needed to stop the run away train of low valuation. Therefore, call your member of Congress and express your frustration. If you have access to media, spread the word. Our equity depends on it and ultimately, so does our economy.

Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance.

Republished from Broker Agent Social Network Newsletter. Aug 2011.

HAFA Short Sale Program

When a homeowner is faced with loosing their home or selling it as a short sale – the decisions are difficult and time consuming.  Often the hoop jumping to work with the bank becomes a second job.  If the loan modification didn’t pan out and the mortgage payments will overwhelm the family – selling the home may be the best course of action.  Foreclosure is the last thing anyone wants to face.  And as a Realtor, the last thing I want to see happen to anyone.

The best course of action is to contact the bank and inform them of the situation immediately. That’s where the HAFA program (Home Affordable Foreclosure Alternative) comes in.  HAFA was created to streamline the process and get the homeowner out of the home with provisions to assist them with the sale and conditions to protect them afterwards.

For more information – please visit:

http://www.realtor.org/government_affairs/short_sales_hafa

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HARP Refinance Program Expanded

Got questions about the new HARP Refinance Program?  Clink on the link below to access up to date information.

http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf

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How to Write a Great Offer on a Short Sale Property…

So you’ve found your dream home only to find out it is a short sale.  Nuts.  Now what?

A short sale is a pre-foreclosure property.  Perhaps the seller has stopped paying their mortgage and are in default, or perhaps the seller is on top of paying their mortgage, but are forced to sell when the market is down.  Either way it comes down to one thing – the seller owes more than the home is worth and in order to sell the property free and clear of any liens the seller must ask the bank to take less than they are owed – thus the term short sale.

For a seller to qualify for a short sale they must be in financial distress and prove this to the bank.

For a buyer in requires great patience while the offer package and seller financial documents are reviewed by many many many investors.

Because of the tedious review process – a buyer must be wise when writing their initial offer.

How to write a good offer on a short sale home…

To be frank, when writing an offer on a short sale property you only get one shot.  Once and if the bank accepts the short sale offer – that price is firm.  During the buyers contingency period – if they find out there is an expensive issue – there is no going back to the bank and re-negotiating.  The buyer can either walk away from the deal due to the new information – or the buyer can take a look at their other options on the market and decide what is best for them.  Of course, as your Realtors – the Caton Team will try to renegotiate the price and if an appraisal comes in low – that’s ammo.

The good news – since generally the owners still occupy the home, it is not in too bad of shape and disclosures can be provided up front.

So, how do we write a good offer?  Buyers and their agent will take into consideration the pro’s and con’s of the home and write their best offer after taking a look at comparable properties on the market.  The short sale bank will conduct one or more appraisals of the home and if the buyers offer price is in line with market price – generally the bank will move forward with that offer.

Price is important but sometimes it is not everything.  When writing any offer, a buyer will need to have a bank pre-approval letter, copy of their bank statements and pay checks to show their financial security.  The short sale bank wants to be sure the purchaser is strong.

The terms of the contract are equally important.  Time is always of the essence in Real Estate – it is even a term in the contract.  When dealing with a short sale bank – a buyer and their Realtor have got to think like a bank – that means moving fast when the bank is ready.  Close of Escrow should be a 30 window – shorter if possible.  Longer than 30 days tends to turn the bank away.  As for as contingency periods (time for the buyer to conduct their inspections and appraisal) the short sale bank will give the buyer the standard window of time – generally 10-17 days after acceptance.  Having a tight contingency period will make the short sale bank a bit more happy.  Also, the bank doesn’t move at anyone’s pace except their own – so giving the bank at least 3 months to review the short sale package is acceptable, longer is better if a buyer doesn’t mind.

Now on my end, as the Realtor – I want to make sure I send the bank your offer and all the paperwork by mail instead of fax so the bank has everything it needs and hopefully cutting down on the back and forth.

In the end, a buyer must write THEIR best offer, and whether they get the house or not, be comfortable with their purchase.

Got Questions? – The Caton Team is here to help.  Email us at:

Info@TheCatonTeam.com

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