house

Question of the Day: Pre-Approvals on Short Sales

May 9, 2012 By Jon Griffith Leave a Comment

My apologies to a recent visitor who I missed in chat . Their question was:

Is there a particular type of loan that is most likely to receive a pre-approval price without an offer?

The real answer to this question is that Pre-Approvals don’t really exist. Each lender is different, each loan servicer is different, and each investor is different. The type of loan really has no bearing on whether or not an investor will evaluate a property prior to there being evidence of home owner distress. Sometimes lenders will tell the home owner what price to list the house at, but this is extremely rare. So rare, it’s not worth thinking about.

Until your creditor has evidence that you are in financial distress (missed payments, application for loan modification, etc.) they have no reason to put any effort into a solution for you. Truth be told, any “solution for you” is really a method by which the bank will attempt to collect as much money as possible before losing you and your secured asset.

The best way to kick off the short sale approval process with your lender is to present them with all of the facts, including a valid offer, all at the same time. It’s like serving a tennis ball. Whack it in their direction with conviction and facts (like, this ball is traveling fast and if you don’t react you’ll miss it) and they’ll have to respond in order to minimize their losses. That’s something they are interested in doing.

The type of loan product that you originally secured has absolutely no bearing on whether or not your home should be approved for a short sale or not. What it CAN affect are the potential legal and tax implications as a result of an approval.

So essentially, no. There is no particular type of loan that is more likely to receive a “pre-approval” over another.

Filed Under: Short Sales Tagged With: approval, home, house, short sale

Pocket Listings

March 22, 2012 By Jon Griffith Leave a Comment

Sometimes a home owner will hire a real estate agent to sell a house as a pocket listing. This means that the home won’t be advertised on the MLS. It happens when an agent may have a buyer for a home before the property needs any marketing, and ultimately saves time and effort which equates to savings.

In a market like today’s market, if I have a buyer who is eager to buy and a seller who hasn’t yet listed their home with me, I might connect them together, take the listing, and then facilitate the transaction, never having to publish the property on the MLS. In some cases, the nature of the pocket listing (it’s called a pocket listing because the brokerage has it in their back pocket, so to speak) is such that it remains off the MLS for a specific period of time before being published. These details are all negotiated at the time that the listing employment contract is created.

Often the house is added to the MLS while there is already interest in it, and sometimes offers have already been written for the property based on the connections that the listing agent had prior to publishing the house for sale.

When this happens the house goes on the market, but can, regardless of the showing instructions (such as 48 hours notice for tenants) already be under contract before anyone gets to see it. Ultimately it’s in the best interest of the seller to expose the property to as many people as possible to generate backup interest.

Today, this can be frustrating, because new listings don’t seem to be all that new.

Filed Under: Buying A Home Tagged With: home, house, MLS, property

Short Sale Basics Part Two: The Offer

December 16, 2011 By Jon Griffith Leave a Comment

(This is part 2 of 5 of the short series entitled Short Sale Basics)

The Offer

When a house goes on the market and someone makes an offer, if that offer is less than the seller owes on their mortgage, then you have a problem. You have a short sale. You are going to need to ask your bank if they will accept an amount “short” of what you owe them. There is a very methodical way to go about this process as a result of miles and miles of red tape surrounding the processing of the transaction that is different for each and every lender, and each and every investor holding a note or notes on your house. That is why you hire someone who is experienced. Not every real estate agent knows how to do short sales the right way.

The bank does not determine what an acceptable sales price is. Period. The buyer and the seller determine the sales price. The important resulting number is the net payoff to your lender after all costs have been calculated.

Filed Under: Real Estate Basics, Short Sales Tagged With: house, note, payoff, Short Sale Basics

Good Money After Bad

November 2, 2011 By Jon Griffith Leave a Comment

Come on! Seriously. You work WAY too hard every day for your money to be throwing it away.

If you are upside down in your house, you owe it to yourself to calculate the long term ramifications. The point of home ownership is a) to have a place to live that’s paid for, b) to build wealth and security for your family, c) to invest and generate cash flow.

As it is, with a 30 year mortgage, your total cost of ownership is much higher than the purchase price of the home. Many people consider a mortgage a forced savings account because part of the monthly payment reduces the total amount owed on the house and becomes equity. If you look at it this way, you also have to realize that during the first 15 years, MORE of your payment, in fact MOST of your payment is paid to the bank in the form of interest and is not “saved.” Your money hardly starts working for you until the latter 15 years.

Let’s look at a simple example.

Bob and Judy purchase a home for $250,000 at 6% over 30 years. Their monthly payment is about $1500.00 per month, and after 30 years, the total amount of interest paid reaches $289,500, making the total cost of ownership, not including deferred maintenance, $539,500. IF the house increases in value over those 30 years by 4% annually, at the end of 30 years, it should be worth approximately $810,000, yielding a gain of $270,500. If you divide the gain by the total cost, you get the investment gain, which is 50.1%. If my math serves me correctly, 50.1% over 30 years is 1.67% annually.

A 1.67% annual gain is not enough to outpace inflation. All things considered, Bob and Judy have a paid for home now, and they don’t have to worry about foreclosure, but the opportunity cost is just too great. Bob and Judy paid more in interest to the bank than the purchase price of the house. How much hard work does that represent? Ugh…it makes me sick to see so much potential thrown out the window.

The example I just outlined is a good standalone argument against 30 year fixed mortgages as it is. But what happens when you purchase a home and the value drops by 50%, which is exactly what happened in Phoenix in recent years.

Well, Bob and Judy’s original 30 year note would still yield the same numbers and at the end of the loan they would have paid a total of $539,500 as I outlined above, but in this case, they would have lost 50% of the original purchase price only 4 years into their 30 year term (2008-2012). What they had originally paid $250,000 for is now worth $125,000.

If over the next 25 years remaining on their mortgage, their home increases in value by 4% annually, at the end of the 30 year mortgage, their home might be worth $333,000 and they will have paid out $539,000 for a total LOSS of $206,000.

Is this all starting to become clear?

There’s a point during the loan term at which your house value and the amount remaining on your note will break even, but it’s at a little more than 10 years in. So for those 10 years you can count your payment as rent to yourself. It disappears. What you really have to pay attention to is the total cost by the end of the 30 year term.

So what’s the point? The point is that it’s time for you to take a look at your current situation and weigh them against your long term plans and the possibility of the unexpected rainy days changing your path. If you know for certain that you’ll be living in your house or owning the home for the entire 30 year term, then the worst that could happen is you’d lose a truck load of money, but you’d have a paid for home. If, however, there’s ANY remote possibility that you would need to move for any reason whatsoever before your house is worth more than you owe, then you need to recognize that every penny you spend on your house now is good money after bad.

In other words, if you don’t choose to short sell your house now, you may be forced to later. Really consider whether or not this is a possibility and then don’t delay on course correcting now.

Regardless of whether or not you choose to remedy your financial situation by paying off your note or short sell your home, you need to take inventory of your financial situation so you can plan your next steps.

Filed Under: Short Sales Tagged With: cost, home, house, ownership

Digital Signatures are Treated Like The Plague

August 10, 2011 By Jon Griffith Leave a Comment

There’s no helping the banking community out of their pit of ignorance. (Sorry, was that too much editorialization?) Let’s rewind. Banks structure their organizations such that each department is completely oblivious to each other, and moreover, the way business is done in the real world.

E-mail. Digital Signatures. E-mail. Did I mention E-mail?

Digital signatures have been legal for a long time, and we use them every day to ratify contracts between two parties. In the case of a short sale, the bank’s involvement goes no further than a contingency on the contract. They aren’t a party to the transaction. They aren’t liable for anything that has to do with the sale of the house. They aren’t involved in any of the details of the sale of the house, AT ALL.

What they ARE involved in is the settlement of debt for which the house has been pledged, which has nothing to do with the agreement between the buyer and the seller.

So why is it then, that many banks are rejecting contracts that are legally ratified between a buyer and a seller because of the “type of pen” that was used. Face it, digital signatures are a modern replacement for pen and paper (which, by the way, is extremely easy to scan, photoshop, and forge.) It’s much more difficult to forge a digital signature than it is to forge a handwritten signature.

So the question goes out to all of you out there in the banking world. Why, if you aren’t a party to the sales contract, are you rejecting offers that are completely legal, just because you didn’t like the method by which it was made legal?

Comments are welcome here. :)

Filed Under: Bank Antics Tagged With: buyer, contract, digital signatures, house

Who Prices a Short Sale?

July 19, 2011 By Jon Griffith Leave a Comment

Inspiration for this article comes from a recent conversation I had with another agent about a short sale listing that hasn’t received any offers because the seller is emotionally attached to the house and won’t lower the price.

Guys, you’ve got to hear me on this one. Just like any other real estate offering, the owner is responsible for setting the price, but it’s our job to advise them. The seller is who prices a short sale. Short sales, like any other property, can be priced wherever you choose.

You could price a $400,000 home for $200,000 and sell it for $200,000. You might neet to spend some time in a padded cell for a while, but the bottom line is, you can ask whatever you wish. You could ask $800,000 for a home worth only $300,000. You’ll never see an offer, but you can do that.

Will you get what you ask? Not necessarily. And furthermore, if you don’t own your home outright, what you ask may be less than what you owe, in which case you would a) need to cover the difference out of pocket, or b) appeal to your lender for a short sale.

Short Sale Pricing

If you can’t cover the spread, you’re a short sale candidate, and you must learn to remove yourself from the emotional attachment to your home and price the property to sell.

Think about it! You’re not going to make more money when you sell it, so why would you resist pricing your home at a market value that will actually draw offers.

Filed Under: Short Sales Tagged With: home, house, property, Short Sale Pricing

What Would an $80,000 House Really Cost?

July 5, 2011 By Jon Griffith Leave a Comment

There are no simple answers to this question. When you buy a house, you incur all types of costs depending on your particular circumstances.

Some of those costs could be loan origination fees, title insurance, home warranty, escrow fees, document fees, HOA transfer fees, etc. These are all up-front costs, some of which can be rolled into your loan, some of which cannot.

If you pay cash for your $80,000 home, you’ll still be paying a small amount above $80,000.

Now, if you think of cost in the way that you should be thinking of cost, you’ll be considering the actual cost of owning the home, which would include not only out of pocket expenses, but also long term costs, recurring costs, and opportunity costs.

Long Term Costs

If you’re purchasing on a loan, then you need to look at an amortization schedule which shows you the total amount of interest paid to the bank. Add that to $80,000. Now, project a potential increase in property value over time (which cannot accurately be predicted) and combine all of the numbers to see if you break even, or if you’re ahead of the game.

Recurring Costs

Deferred maintenance is a part of life. You WILL need to replace expensive parts of your house over the life of the home. You’ll need a new roof, new fascia boards, a new water heater, new appliances, air conditioner, you name it.

Opportunity Costs

This is probably the hardest to calculate. Opportunity costs are the losses you would incur had you done something else with your time or money. This can really only be measured after the fact, or loosely projected up front.

As you can see, the question asked is much more difficult to answer than one would expect, especially if you’re used to considering only what the monthly payment will be.

Filed Under: Buying A Home, Real Estate Finances Tagged With: cost, home, house, opportunity

Paid By The Seller

June 15, 2011 By Jon Griffith Leave a Comment

Yet another quick article that outlines one of the basics in buying a home.

When you buy a car, you also pay tax, license fees, document fees, and registration. These are all one-time costs. Some of them are paid up front, and some can be rolled into your loan.

The same goes for a house. When you purchase a home, the following out of pocket costs are the most common:

Downpayment – how much you can bring to the table to reduce the total loan amount.
Mortgage Insurance – a premium required when financing through an FHA loan paid up front.
Title Insurance – to insure your home has clear title when you purchase it. You don’t want some strange problem with the property down the line. Title makes sure that there are no cloudy issues to cause future problems.
Home Warranty – a policy that helps cover potential repairs on specific parts of your house.
Loan closing costs
HOA Transfer Fees
etc., etc.

The bottom line is this. When you buy property, you have to have something on hand to cover some of these costs. BUT, some of these costs can be covered by the seller.

In order to reduce the cash-out-of-pocket-burden, sometimes some of these costs can be paid for at closing out of the money that the seller is receiving. A typical transaction may include a percentage of the sales price towards closing costs. For instance, you could be purchasing an $80,000 condo with an FHA loan which requires only 3.5% down ($2,800) and you might ask for 3% of the purchase price to be paid towards closing costs by the seller.

It’s a negotiable component of the contract and it’s not always going to be acceptable by the seller, but at least it’s worth a shot. Either way, you should probably have the amount you’re asking for tucked away just in case the seller doesn’t agree.

Filed Under: Buying A Home Tagged With: FHA, home, house, property