Central Valley Real Estate

Are There Any Good, Competent Agents in Modesto?

I am a member of Trulia Voices, which is a forum where individuals can ask real estate questions to other members and get their responses. I saw a question today that I really liked, and wanted to post both it and my response. It is a common concern on buyers minds, and also is a reflection of our (again) changing market. Enjoy...

Trulia Voices--Modesto
Question:

are there any good, competent agents in modest, ca that know their areas and that will honestly tell you how?
i am not sure how many, but my gut feeling is that our current realtor is telling us that just to get a higher commission. also he never seems to be able to find the houses. i have to either plug in the address to my gps or i have to have my husband drive while i figure out the map. i am sooooooooooooooo frustrated!! can you tell??

My Answer:

While even the best of agents don't know every street in town like the back of their hand, your frustration comes through clearly. In my opinion, the years of experience don't by themselves dictate who is competent and who is not. Rather, it's the diligence and commitment they give to their profession, to the market, and to their clients. And unfortunately, there are a very large percentage of agents who don't seem to match the expectations of the very clients that they should be guiding and representing. So I totally feel your pain. That is much of the reason I became an agent; I felt I could do a better job than the agent on my first house.

The market is changing quickly, and I'm seeing it happen right before my eyes. And I don't know if this is the answer you're looking for (and it all depends on the situation and specifics), but as an agent that frequently works as a seller's agent representing bank-owned homes, I see the kinds of offers that buyers make on my homes, and they sometimes vary widely. And I also talk to agents frequently who express their frustration to me about how their client didn't want to make a sufficiently high offer to get the house. And guess what happens? The buyer makes the offer they want to make, and they lose the house to someone else who was wiling to pay a higher price. And with prices being as low as they are right now, there are more buyers out there than you may suspect. More buyers means more competition, and more competition means more homes sell more quickly and with multiple offers and (often times) for above the asking price! This may sound strange given the constant headlines you see and hear, but it is nonetheless true. I've had five homes go into contract this week, and four of them were with multiple offers and above the asking price.

To explore the possibility of the agent just saying something to "get a higher commission." For every $10,000 higher of an offer that you may make, a typical 3% commission is $300, and that's before splitting it with the broker and paying taxes. So there's really not much incentive for the buyer's agent to get the client to bump up their offer--it may really only be another $100-$200 in their pocket. You might fear the agent is just trying to push you into the first house you see to make the commission EASY, but I doubt it's to "get a higher commission."

Then there's the possibility you really do have an incompetent or unethical agent. There are some out there--more than I'd like to admit. One of the best ways to determine that for yourself is by getting a second or third opinion, just as you might do on a health concern. (Like the time my first visit to a new dentist who told me I had 12 cavities. I got a second opinion from another dentist who said I had none at all.) That is probably the best way to put your mind at ease. I would encourage you to speak to a couple of other agents that are referred to you through friends, family or coworkers. Be upfront with those other agents and make it clear you are currently working with another agent at the time, but that you just want to hear another perspective. Once they know the sales game is off, it removes the temptation to tell you what they think you want to hear.

If you wish to contact me for a second opinion, I'd be happy to talk with you. I think we'd get along great. Just so you know, I won't be trying to win your business, as I don't have time available to take on new buyer clients at the moment. I have a great buyer's agent who works with me, but that'd be your call. I'm happy to just be a resource, because you need to put your mind at ease. A home purchase is way too big of a purchase decision for you to be struggling with this kind of doubt.

I wish you the best,
Aaron Lewis
The Lewis Team at Prudential California Realty
209-633-2727 direct
http://www.weworkharder.com

What's It Like To Buy A "Short Sale?"

Below is a wonderful article written by Carolyn Said from the San Francisco Chronicle, published on August 12, 2007. It talks about what to expect when attempting to buy a "short sale." The two things that stuck out to me were: (1) expect it to take a long, long time; longer than you think, even when you think you're being patient, and (2) the bank is still looking for as reasonable of a price as possible. Don't expect a yes, especially a quick yes, if you are making a low-ball offer on a short sale.

After reading, please comment with your experiences with short sales. Are they worth dealing with, in your opinion?

Buying Homes Through Short Sales Can Lead To Long Waits

Carolyn Said, Chronicle Staff Writer
Sunday, August 12, 2007

Jamie Schmitt and Valerie Azinheira liked the two-bedroom house in San Francisco's Merced Heights. It was near a nice park where their 3-year-old son, Gabriel, could play. They made a no-contingency offer for the full $629,000 listing price on June 20.

Then they waited. And waited. And, well, waited some more.

It took a full five weeks to find out whether their offer was accepted. (It was.)

The offer "just fell into the abyss," said Schmitt, 38, a handyman/remodeler who also lends his expertise to several fix-it shows on the Home & Garden TV Network.

That's because the couple was buying in what's called a "short sale," in which a house sells for less than - or "short" of - what is owed on the mortgage. Almost unknown for the past two decades, short sales are making a comeback as a way out for cash-strapped homeowners who can't keep up on their mortgage payments.

Ordinarily the person selling a home gets to decide on offers. But in a short sale, the mortgage holder holds all the cards. Because that lender will be taking a loss, it may choose to turn down short-sale offers, and instead allow a property to go through foreclosure.

Even though Schmitt and Azinheira paid the full asking price on their home, the previous owner owed $685,000 on the mortgage - and had spent heavily on rehabbing the house. The owner originally listed the house for $720,000, but in the softening market, had to keep dropping the price to less than she owed.

Buying from a gargantuan financial institution means numerous roadblocks.

"It was like the seller wasn't even there," Schmitt said. "They were being pushed off to one side, and this big bank was coming in and being the seller."

Stuart Wilson, an agent with Paragon Real Estate Group, who represented the couple, said he finally galvanized a decision by telling the listing agent that his buyers had lost confidence the sale would close and planned to withdraw from the contract if they didn't get lender approval by July 25. "That did the trick," he said. "We got approval that day."

A prior buyer had grown impatient with the protracted wait and bailed.

Wilson agreed that it is frustrating dealing with lenders in short sales.

"The lenders (seem) not prepared to act in a timely, resolved and professional fashion on a short sale," he said. "They just don't get it that they have to get rid of this property, that every day they have it costs them more money. They are overloaded, overburdened, confused, unable to deal."

Schmitt and Azinheira have a month-to-month rental so they could wait for a decision. But for buyers who need to move quickly, such as people who just sold a home, a short sale would be more difficult.

Two increasingly common factors converge to create the circumstances for a short sale:

-- Homeowners have no equity or negative equity. Generally that's because they bought with 100 percent financing (or took out extra loans after buying) and the house is worth less than they paid for it.

-- The homeowner can't make the payments. These days that's probably because an adjustable-rate mortgage has reset at a higher rate, perhaps adding hundreds of dollars onto the monthly payment. In the first half of this year, lenders sent 14,426 notices of default to Bay Area homeowners for missing mortgage payments, according to DataQuick Information Services. An untold additional number may be scraping to make payments but eventually will fall behind.

For beleaguered homeowners, a short sale is better for their credit rating than going through a foreclosure. Still, they may end up owing extra taxes on the deal. In many cases, if you owe $600,000 on your mortgage and the lender allows a short sale for $500,000, the IRS expects you to pay taxes as if you "earned" the $100,000 forgiven on the loan. Legislation is pending in Congress that could change that rule.

For buyers, short sales may yield some bargains, albeit minor ones. Banks are not in the business of giving away money, so they want to be assured that short-sale properties are going for their true market value. Still, short-sale properties are priced to move. And they do have the advantage of weeding out competing buyers who don't have the stamina to go through the process.

For banks, short sales represent a way to cut their losses on a soured mortgage more quickly than going through the protracted foreclosure process. But that doesn't mean banks are enthusiastic about short sales - or even familiar with them.

"Eleven years ago when I got my license, we were in a market similar to now and short sales were more common," said Janice Spencer, a broker-owner of Windermere Signature Collection in Antioch. "Banks would preapprove them. Now it's been so long that we've had such a good market, banks are not set up to deal with them. The longer we're in this (soft) market, banks will realize they have to step up to the plate."

The listing agents for short-sale properties are required to disclose that the homes are being sold "subject to lender approval" or that they are a short sale. That information generally shows up only in parts of the MLS reserved for real estate agents, such as the "confidential remarks" section or the line for "special assessments and other disclosures," Spencer said. Less often, it may be in the "public remarks" section that consumers can view.

Spencer said about a third to a half of the homes for sale in her area of Antioch, Oakley, Brentwood, Discovery Bay, Pittsburg and Bay Point are short sales or foreclosures. She has represented buyers who made offers on short-sale properties only to walk away when they could not get a response from the lender.

Why are lenders reluctant to agree to short sales?

"Lenders and mortgage servicers consider (short sales) a necessary evil, but it obviously involves a loss for them," said Guy Cecala, publisher of Inside Mortgage Finance, a newsletter in Bethesda, Md.

The biggest stumbling block, Cecala said, is that two-thirds of all mortgages in the United States are owned by Wall Street investors. The banks that "service" loans - collecting the mortgage payments - cannot decide about short sales. That adds in a layer of complexity.

Banking giant Chase services $500 billion of home mortgages for other institutions. Chase spokesman Tom Kelly said Chase seeks approval from the investors who own a mortgage when a short sale is requested. It takes 45 to 60 days to get a decision, and each investor has separate rules about how it handles short sales, he said.

One key consideration is making sure a short-sale home is going for fair market value, as determined by an independent appraiser.

"We want to make sure the person isn't selling to someone they know" in a sweetheart deal, Kelly said. "We are protecting the investor who owns the loans."

Jay Brinkmann, vice president of research and economics at the Mortgage Bankers Association in Washington, echoed that concern.

"You have to watch to make sure (the seller) isn't cutting their brother-in-law a deal," he said.

Brinkmann said another consideration for lenders is how far along a house is in the multi-month foreclosure process.

Foreclosures cost banks easily $30,000 to $40,000, including the missed mortgage payments, fix-up costs for neglected property, legal and filing fees, and various carrying costs, he said.

"If the bank has already incurred most of the expenses and is ready to foreclose anyway, it will say, 'We're not going to save anything here (with a short sale),' " Brinkmann said.

Terry Baldwin, a Realtor with Zip Realty specializing in the East Bay, has represented the buyer in five different short-sale deals. He said he's seen it take as long as 16 weeks to get an answer from the bank.

Baldwin advises his clients in short sales not to expect that a lowball offer will get results.

"As a buyer, I think you can get a fair price going with the asking price," he said. "Bankers do not really want to have the property; they want to have a fair price." In fact, he said there is less room for negotiation in a short sale, because the seller is "a person in another state with paperwork 1 foot thick."

Systems engineer Scott Werntz, 39, is house hunting now in Antioch and Brentwood, working with Baldwin. He would be happy if a short sale or foreclosure meant that he got a better deal.

Werntz said he's seen prices fall dramatically since he started looking in January.

"There are so many (houses for sale), and it's slowed so much, that I think I'm safe purchasing something now," he said. "While I feel bad for the people who are losing their houses, I also have to look out for No. 1 and do what I have to do to find a place for myself and my son."

Glossary

-- Short sale. In real estate, a property being sold for less than ("short of") what is owed on the mortgage. Sometimes called "preforeclosure" sales in ads. While it is marketed by the homeowner, ultimately the decision on selling is up to the mortgage holder (or holders).

-- Foreclosure property. Often called "bank-owned" or "REO" (which stands for "real estate owned"), this refers to a property that has been repossessed by a bank through foreclosure.

E-mail Carolyn Said at csaid@sfchronicle.com.

Innovative mortgage production combo

I’m writing to expose you to a unique combination of two mortgage products that together can save you over $150,000 over the life of the loan, while still minimizing your payment and paying it off sooner than 30 years. Huh? Let me explain.

Bi-Weekly Payments

You may have heard of this one before. Many banks allow you to split one large monthly mortgage payment into two “half payments.” (You should not be charged a fee beyond a couple of hundred dollars at most to enroll in this program at your bank; Wells Fargo does it free.) By making 26 half payments in a year, you actually make 13 full payments instead of 12. Over time, this can add up to thousands of dollars saved in interest charges and a significant reduction in the life of their mortgage. In particular, this works great for homeowners who receive biweekly checks and can therefore budget half a monthly mortgage payment very easily.

40-Year Mortgage

The concept behind the 40-year mortgage is straightforward enough: by spreading the payments over a longer amount of time, each monthly payment is lower. That’s the upside to a 40-year loan. The downside is that, over the life of the loan you would end up paying more interest (if you really kept the loan that long, which rarely happens). Other than the 40-year term, the loan is exactly the same as a standard 30-year loan in that your payments cover both principal and interest. This is NOT an interest-only or negative-amortization loan.

Combining the Two

While many people like the lower payments offered by the 40-year loan, others feel uncomfortable about the length of the loan and about how slow it is to repay off their principal amount. But when you combine a 40-year loan with bi-weekly payments, here are the great benefits:

1. Monthly      payments are lower than with a standard 30-year mortgage.
2. (A      little) less interest is paid over the life of the loan than with a      standard 30-year mortgage.
3. The      term (length) of the loan could end up being only approximately 29      years—less than a 30 year loan (depending on the mortgage amount).
4. Your      payments are fully amortized, meaning you are covering the interest and      paying down your principal every month.

See the table below. I know that Wells Fargo offers this product, though it is likely that others do too.

View this photo

Disclaimers:

The 6.876% (7.019% APR) rate assumes a 20% down payment on a loan amount of $250,000 with a 40-year term. The monthly principal and interest payment for this example would be $1,530.93. The results assume total points of 1% plus an estimated $1,700 in additional closing costs and prepaid finance charges. If the down payment is less than 20%, mortgage insurance may be needed and could increase the monthly payment and APR.

Option ARMs: pay less now (and a lot more later)

Have you been getting the same letters of solicitation in the mail as I have? It would be hard to avoid their banner ads so obnoxiously displayed on the many over-commercialized real estate websites. With taglines such as “1% interest rate loans” or “lower your mortgage payment by 50 percent” or “get a $300,000 mortgage for as less than $900/month,” they are among the most seductive of mortgage offerings you’ll see.

What is an Option ARM?

An “Option ARM” loan (option adjustable rate mortgage) or “neg-am” (negative amortization) loan, as they are sometimes referred to in the industry, works like this: borrowers are often given four payment options each month. They can pay enough to cover the principal and interest for a 15 year term, or for a 30 year term, or make an interest only payment. Or, they can make a minimum payment that doesn’t even cover all the interest that is due. Just like making the minimum payment only on a credit card balance, the unpaid interest is added to the principal, so the borrower ends up owing more as each month goes by. The technically accurate and politically correct term for this occurrence is “negative amortization,” though I think a more accurate description for it is “going in the hole more every month.” It’s nice to have options, isn’t it?

No Options Now…

Monthly payments are calculated with an artificially low interest rate of 1% to 3%. The actual rate the borrower is responsible for is much higher—often 7.5% to 10%. It can also change monthly, depending on the index it is tied to. Simply put, the unpaid interest is tacked onto the principal, so that your total debt increases monthly. Once the balance has climbed by 10% or 15% (or in five years, whichever occurs first), the loan and payments are reset and the new balance is amortized (spread out evenly) over the remaining life of the 30 year term. At this point, the new “minimum” required payment can explode to more than twice the original minimum required payment.

This may not be much of a concern if you have $300,000 of equity in your property, a loan balance of $150,000 or so, and you are a self-employed professional or small business owner with a varying monthly income and you have the discipline to make bigger payments when the money comes in. The problem is, those types of situations are rare. Most Option ARM holders are cash-strapped borrowers used them to buy bigger homes than they would otherwise have gotten, or first-time homebuyers who used them to buy a home at all.

In my opinion, this is one of many small factors that caused the spike and the more recent decline we are now seeing in real estate prices. With temptingly low minimum payments, the Option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have perhaps otherwise lasted. For a time, it seemed almost anyone could afford a home—at least in the short term. Now, with prices not exploding like they were, and with payments for many option ARM payments due to suddenly reset soon (though some of the first already have), more cash-strapped homeowners are trying to sell their homes as a way to get out of their precarious situation.

Stay tuned; in upcoming posts I’ll address what to do if you’re in this situation.

Creative Financing

What Is "Creative Financing?"
What we consider "normal" financing today, was at one time considered creative, or at least out of the norm. For example, Federal Housing Administration (FHA) loans in the 1950's allowed people to buy homes with as little as 3 percent down, with the loan guaranteed by the federal government. Then came private mortgage insurance (PMI), where insurance companies companies charged a monthly insurance premium to insure the amount of the loan in excess of 80 percent loan-to-value. Lenders then began avoiding PMI by offering 80-10-10 or 80-15-5 loans, with a smaller down payment and what amounted to an equity line of credit.

The reality is that the phrase "Location, location, location" is not accurate. In a hot market, homes in terrible locations sell. In slow markets, homes in great locations can sit on the market for months. A more accurate phrase should be, "Location, Price, Terms, and Condition." Note that 3 of the 4 items can be adjusted... all but location. Do sellers enjoy hearing "Reduce the price?" Of course not. Whenever possible, alternatives can and should be sought out.

Interest Rate Buy-Down
One method of helping a buyer is to "buy down" the interest rate. A buyer can reduce the interest rate that he pays at the beginning of the loan, as well as the qualifying rate, by paying a fee to the lender, (giving them their interest in advance). They can pay this fee themselves, or it can be paid by a seller. In other words, it may be beneficial for a seller to pay $10,000 in fees for the buyer rather than dropping his price by $30,000. That kind of price drop will normally not help more buyers qualify for a loan, while a buy-down will. Contact your mortgage broker for more information on buy-downs.

Lease Options or Equity Share
Lease options and equity sharing are alternatives if the seller either doesn't need to sell his property, or may not need all of the proceeds immediately, but don't want to make two mortgage payments.

A lease with an option to purchase creates a situation where a potential buyer wants to buy, but for some reason cannot do so right away. The seller with accept a sizable deposit (option money) for the right to purchase the property at a pre-established price. The buyer usually agrees to make payments that are in excess of the fair market rent. If the buyer exercises his option in a timely manner, the option money and the portion in excess of fair market rent will get applied to the buyer's down payment. If the buyer fails to exercise the option, the seller retains all of the funds paid, and the sales contract is terminated. As you can imagine, this can turn into a nightmare if the buyer cannot exercise the option. Unfortunately, that is what happens in about 95 percent of the cases. If you are considering a lease option possibility, be sure you get the appropriate advice from your real estate professional.

Equity sharing is where you accept less than the fair market value (80 to 90 percent), in exchange for continued partial ownership in the property. For example, the buyer may be able to afford the sellers home with a 90 percent loan, but does not have the 10 percent down payment. The buyer obtains the 90 percent loan, all proceeds of the transaction are paid to the seller, and the seller retains 50 percent ownership in the equity over the 100 percent value. The buyer has the option of buying out the seller's interest after three years, and they must do so within five years or the property gets sold and the proceeds distributed. Even if the seller needs all of his money, a third-party investor could be brought in for the additional down payment under the same terms. Equity share transactions should be supported by a written contract between the buyer and the equity share partner detailing all of the terms, obligations, the remedies for default and finally details of the final distribution and determination of the buy-out amount. Again, you will want to seek professional real estate advice for this type of arrangement.

Seller Carry Back
Another way is to have the seller carry back a second mortgage, secured by the property. Imagine that a home is on the market for $800,000 and just doesn't sell. The seller reduces the price to $780,000 and then to $760,000 before it finally sells. If he could sell it for $800,000 by carrying a 10% second mortgage, he is only reducing his immediate cash receipt by $40,000 while still entitled to receive full price plus interest. He also makes the property more affordable to more potential buyers. The seller could even sell the note at a discount, and receive his cash immediately. This reduction would be less the price decrease.

These methods can be complicated, and you should be careful when you use them. But they can often be the way for a buyer to get into a better property (or a property at all!) and a way for a seller to preserve a better sales price.

4 Top Reasons to Buy Now (and a warning)

The situation here keeps getting better for home buyers... Yes, I said better. Here's why:

1. Record-high supply of homes for sale. The number of homes for sale in the Stanislaus County area, for example, is approaching levels not seen since the early 1990s.
2. Sellers are getting more motivated every day.  Many of them—either because they were stubborn or because their agent wasn’t giving them the true (albeit sometimes harsh) reality of the situation—started out with prices that were too high. They just wanted to try something higher in the beginning. These sellers have no seen that those higher prices were indeed too high, so they are now reducing. As of now (Sept. 2006) some of these homes that have been up for sale for several months already have reduced their prices to the lowest price they can go.
3. Record-low demand, i.e. little to no competition from other buyers. This point cannot be emphasized enough! The housing market is the perfect economics example of the power of supply and demand. Right now there is record-high supply and record-low demand. From Econ 101 we know that creates declining prices, and that's exactly what's going on right now.
4. Interest rates keep going down. OK, so you can’t get 5.25% interest on a 30-year fixed loan right now. But you can get about 6%, and that’s pretty darn good from a historical perspective. The historical average is 8%. And depending on the loan program, you can often get even less than 6%. You just need to be working with a good Realtor and a good loan officer, and you’d be amazed at the concessions you can get from a seller to produce a killer rate (think <5%) WITHOUT being an option-ARM.

 

And A Warning…

Many people I talk to say, "I'm just waiting for prices to keep coming down." However, it is important to understand that this will only occur to a certain point.  I will use sarcasm to illustrate.  Why buy as soon as next year? Why not wait until 2009? Maybe the same house can be had for only $80,000! In other words, prices will come down until they hit a resistance point from sellers. I have had several seller clients who had initially told me that they had to sell, that there was no option, that they would have to take what they can get, etc. However, after having a disappointing experience with their home on the market without receiving any acceptable offers they have taken their property off the market and either refinanced it or rented it out.

My point here is that if sellers’ best option is a price that low enough, they will just not sell the property at all. That is the point of resistance. Sure, not all sellers will have the luxury of not selling the property, but more people than you would think somehow find a way to preserve their ownership in the property if the price drops too far down.

Therefore, waiting to buy is only productive up to a certain point. Once the sellers who ABSOLUTELY HAVE TO SELL are worked out of this adjustment period, the rest will find a way to not sell the property at all. So though it is a buyer’s market, the price only goes down as far as each individual seller will allow it to. And as more and more sellers take their property off the market rather than keep dropping the price, those amazing opportunities that exist right now begin to evaporate until the market comes back into balance.

So if you have been watching a couple of homes drop in price and are thinking that the longer you hold out the lower the price will be, that is only true to a point. So if the price on a home you like looks really good to you, I don’t recommend waiting for it to go even lower. The risk is that you miss the chance to buy it at all, because it goes off the market. And believe me, the next time those homes go back up for sale in a year or two, they will not be asking a lower price or even the same price. The majority of sellers are offering their best pricing right now, so now is likely the best time to act, especially if you plan to be in the home for some time.

“It’s time IN the market that matters, not timING the market.”