Wednesday, October 22, 2008
Losses are Part of Doing Business
Dear Sue,
After 42 days of inspections and contingency removals, our escrow close date was just 3 days away. My agent called and told me that the buyer’s lender reneged on their loan approval and that the buyer was unable to go ahead with the purchase of our home. Our agent said that we couldn’t keep the deposit because the loan contingency was kept in place until the loan funded!
This doesn’t seem right. We have de-staged and packed up a lot of our belongings. We are living in a sea of boxes and have scheduled the mover. The market has changed a lot in the last month and our home is probably going to be harder to sell now. Shouldn’t we be able to keep at least some of the deposit as compensation for all of our trouble?
Furious Fran
Dear Fran,
Anyone would be frustrated! In today’s market it is really difficult to get a buyer. To have a buyer only to lose him is very disheartening. Unfortunately suffering a loss is part of doing business. You can minimize losses but it is impossible to eliminate them. It’s a part of life. It’s important that you pick up and move on!
The volatile stock market, negative press and general anxiety about the world’s financial instability along with tighter lending practices and struggling lending institutions are all contributing to the last minute “escrow surprises.” Until the close, a transaction today is fragile, especially if the down payment is less than 20 percent.
I talked to an agent recently who had a transaction where the buyer and seller were in total agreement. The transaction failed when the appraisal didn’t come in at the contract price. Lenders are extremely conservative in a transitional market.
When it was a seller’s market, the sellers were in charge. They got their price and their terms. Sellers ruled because they could. If a buyer didn’t agree, the seller moved on to the next buyer in line.
In today’s buyer’s market, the exact opposite is true. Buyers rule. Buyers are keeping their financing contingencies in place until the loan is funded. For them it makes sense because of the mortgage lenders unpredictability. As the market improves sellers will be less willing to accept this contingency. At some point buyers will have to become more competitive and submit offers with fewer contingencies. That is how free markets operate.
If the buyer checked the loan contingency to remain in effect until the loan has funded, you have no rights to the deposit. You might consider countering out the loan clause in your next offer. If the buyer refuses you might consider asking the buyer to forfeit a part of the deposit. Who knows, the buyer may agree to a compromise.
Understanding the nature of today’s market is a matter of good Home $$s and Sense.
After 42 days of inspections and contingency removals, our escrow close date was just 3 days away. My agent called and told me that the buyer’s lender reneged on their loan approval and that the buyer was unable to go ahead with the purchase of our home. Our agent said that we couldn’t keep the deposit because the loan contingency was kept in place until the loan funded!
This doesn’t seem right. We have de-staged and packed up a lot of our belongings. We are living in a sea of boxes and have scheduled the mover. The market has changed a lot in the last month and our home is probably going to be harder to sell now. Shouldn’t we be able to keep at least some of the deposit as compensation for all of our trouble?
Furious Fran
Dear Fran,
Anyone would be frustrated! In today’s market it is really difficult to get a buyer. To have a buyer only to lose him is very disheartening. Unfortunately suffering a loss is part of doing business. You can minimize losses but it is impossible to eliminate them. It’s a part of life. It’s important that you pick up and move on!
The volatile stock market, negative press and general anxiety about the world’s financial instability along with tighter lending practices and struggling lending institutions are all contributing to the last minute “escrow surprises.” Until the close, a transaction today is fragile, especially if the down payment is less than 20 percent.
I talked to an agent recently who had a transaction where the buyer and seller were in total agreement. The transaction failed when the appraisal didn’t come in at the contract price. Lenders are extremely conservative in a transitional market.
When it was a seller’s market, the sellers were in charge. They got their price and their terms. Sellers ruled because they could. If a buyer didn’t agree, the seller moved on to the next buyer in line.
In today’s buyer’s market, the exact opposite is true. Buyers rule. Buyers are keeping their financing contingencies in place until the loan is funded. For them it makes sense because of the mortgage lenders unpredictability. As the market improves sellers will be less willing to accept this contingency. At some point buyers will have to become more competitive and submit offers with fewer contingencies. That is how free markets operate.
If the buyer checked the loan contingency to remain in effect until the loan has funded, you have no rights to the deposit. You might consider countering out the loan clause in your next offer. If the buyer refuses you might consider asking the buyer to forfeit a part of the deposit. Who knows, the buyer may agree to a compromise.
Understanding the nature of today’s market is a matter of good Home $$s and Sense.
Wednesday, October 8, 2008
How Will Stock Market Plunge Affect Local Real Estate Market?
Dear Sue
How do you think the falling stock market is going to affect our local real estate market?
Worried Will
Dear Will
Historically, when people pull their money out of the stock market, they buy real estate. I believe that it will continue to be the case.
Cash flow from rental properties has been a reliable source of income because it is based on people’s basic need for shelter. While the value of the asset (the building) may fluctuate the cash flow generally remains steady. Because the rents are tied to inflation, the cash flow keeps up with the current cost of living. This can be a huge advantage when planning for retirement.
Real estate investments also have tremendous tax advantages such as depreciation, interest expense and other “write-offs.” These expenses add to ones return on the investment.
Today prices and interest rates are low! The lower the cost of the investment the higher the potential for return on the investment.
One of my recent clients observed that unlike the vaporous quality of stocks one can always stand on the ground of real estate.
When America settles down and Wall Street has a chance to “right-size” and stabilize itself, we will be back in business. This credit crisis didn’t happen over night and there is no quick fix.
The federal rescue plan hasn’t had time to work. The latest stock market plunge is a direct result of impatience. We are a nation of instant gratification. Americans want everything fast, from cars to food to Internet access to profits. As my mother always says, “Get your hands off the pot, you have to let it cook!”
We are experiencing the breakdown before the breakthrough. Many investors will soon put their money back in the stock market. My money is in real estate because it is a matter of Good Home $$s and Sense.
How do you think the falling stock market is going to affect our local real estate market?
Worried Will
Dear Will
Historically, when people pull their money out of the stock market, they buy real estate. I believe that it will continue to be the case.
Cash flow from rental properties has been a reliable source of income because it is based on people’s basic need for shelter. While the value of the asset (the building) may fluctuate the cash flow generally remains steady. Because the rents are tied to inflation, the cash flow keeps up with the current cost of living. This can be a huge advantage when planning for retirement.
Real estate investments also have tremendous tax advantages such as depreciation, interest expense and other “write-offs.” These expenses add to ones return on the investment.
Today prices and interest rates are low! The lower the cost of the investment the higher the potential for return on the investment.
One of my recent clients observed that unlike the vaporous quality of stocks one can always stand on the ground of real estate.
When America settles down and Wall Street has a chance to “right-size” and stabilize itself, we will be back in business. This credit crisis didn’t happen over night and there is no quick fix.
The federal rescue plan hasn’t had time to work. The latest stock market plunge is a direct result of impatience. We are a nation of instant gratification. Americans want everything fast, from cars to food to Internet access to profits. As my mother always says, “Get your hands off the pot, you have to let it cook!”
We are experiencing the breakdown before the breakthrough. Many investors will soon put their money back in the stock market. My money is in real estate because it is a matter of Good Home $$s and Sense.
Many Affordable Loan Options Still Available
Dear Sue,
I read your article last week with great interest and amusement. How do you expect anyone to buy “locally” if you can’t even get a mortgage loan today?
Are you suggesting that everyone with cash go out and buy a house? What about the rest of us who have to borrow?
Skeptical Skip
Dear Skip
I am glad you were entertained!
I called Ryan Rivera of Goldmine Financial and asked him if there were any loans available. He laughed and said that the news media was grossly exaggerating the tight money supply. As a matter of fact he said that a client was due in his office to fill out a loan application in a few minutes.
So, in the short time he had, I asked him if he was having trouble getting money to lend. I also asked him how much the current minimum down payment required was and if interest rates were high.
Ryan said there was plenty of money and he had no trouble with its availability. There are several loan programs available. He told me that it was very simple to get a loan. There is only one caveat. The borrower must qualify. He had loans that required as little as 3% down and the money could be borrowed or gifted. Interest rates have been fluctuating between 5 7/8 to 6.5%. As we speak they are 6.25%.
A conventional loan requires a minimum of 20% down. Because the larger down payment creates a lower loan to value ratio, it does not require mortgage insurance (which is equal to .55 percent of the loan amount.) Conventional loans also have another advantage because they are quicker to process. The Fannie Mae (yes, she’s still alive and well) approved automated desktop approval and funding system makes the process quicker.
“Half of my clients are going FHA,” Ryan explained. “If you are buying a home as your residence, FHA requires a minimum of 3% down.” If one is buying an investment property through FHA a 10% down payment is required.
Those funds can be from a credit card, a loan or gift from family, friends or even your church. FHA does not want the funds to come from anyone involved in the sale of the property being financed.
FHA has recently raised its local borrowing limits to $580,000. While mortgage insurance is required for an FHA loan, it is relatively inexpensive.
The low down payment allows one to buy a home or investment property without having to use very much of their own money. All FHA loans are federally insured, meaning that the federal government covers any defaults.
FHA has several loan programs including “rehab loans.” These loans have been coming in handy for buyers of foreclosed properties that have been vandalized and/or stripped. FHA also has “energy loans” that will finance insulation, dual pane windows, energy efficient appliances including central heating and air conditioning.
Skip, if you are interested in purchasing in today’s incredibly affordable market I would suggest calling your local lender, it’s a Matter of Good Home $$s and Sense.
I read your article last week with great interest and amusement. How do you expect anyone to buy “locally” if you can’t even get a mortgage loan today?
Are you suggesting that everyone with cash go out and buy a house? What about the rest of us who have to borrow?
Skeptical Skip
Dear Skip
I am glad you were entertained!
I called Ryan Rivera of Goldmine Financial and asked him if there were any loans available. He laughed and said that the news media was grossly exaggerating the tight money supply. As a matter of fact he said that a client was due in his office to fill out a loan application in a few minutes.
So, in the short time he had, I asked him if he was having trouble getting money to lend. I also asked him how much the current minimum down payment required was and if interest rates were high.
Ryan said there was plenty of money and he had no trouble with its availability. There are several loan programs available. He told me that it was very simple to get a loan. There is only one caveat. The borrower must qualify. He had loans that required as little as 3% down and the money could be borrowed or gifted. Interest rates have been fluctuating between 5 7/8 to 6.5%. As we speak they are 6.25%.
A conventional loan requires a minimum of 20% down. Because the larger down payment creates a lower loan to value ratio, it does not require mortgage insurance (which is equal to .55 percent of the loan amount.) Conventional loans also have another advantage because they are quicker to process. The Fannie Mae (yes, she’s still alive and well) approved automated desktop approval and funding system makes the process quicker.
“Half of my clients are going FHA,” Ryan explained. “If you are buying a home as your residence, FHA requires a minimum of 3% down.” If one is buying an investment property through FHA a 10% down payment is required.
Those funds can be from a credit card, a loan or gift from family, friends or even your church. FHA does not want the funds to come from anyone involved in the sale of the property being financed.
FHA has recently raised its local borrowing limits to $580,000. While mortgage insurance is required for an FHA loan, it is relatively inexpensive.
The low down payment allows one to buy a home or investment property without having to use very much of their own money. All FHA loans are federally insured, meaning that the federal government covers any defaults.
FHA has several loan programs including “rehab loans.” These loans have been coming in handy for buyers of foreclosed properties that have been vandalized and/or stripped. FHA also has “energy loans” that will finance insulation, dual pane windows, energy efficient appliances including central heating and air conditioning.
Skip, if you are interested in purchasing in today’s incredibly affordable market I would suggest calling your local lender, it’s a Matter of Good Home $$s and Sense.
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