CNN’s “Tips on Cashing in on the Housing Slump”

Earlier this week, CNN Money posted this video highlighting a few ways buyers can make the most of their money in today’s real estate market.

The panel here makes some very valid points about the positive effects of recent housing trends.  For example with mortgage rates so low, buyers that are waiting for prices to drop more should consider what could happen if mortgage rates increase.  If the price drops but the mortgage rate increases, they could very well end up paying more for the house in the end.

Bottom line:  With the long term outlook for buyers right now so good,  it’s never been a better time to invest in a home.

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Inspection Basics

While the majority of real estate sales and purchases include a  physical inspection, it can be a gray area for many people.   Whether you are buying/selling a rehabbed bungalow in Venice, a brand new home in Playa Vista, a tear-down oceanfront home on the Marina Peninsula, there’s a few basics to keep in mind when it comes to your home inspection.

What is it and why do I need one?

According to the California Real Estate Inspection Association (CREIA): “An inspection is a visual examination of the structure and systems of a building.”

As a buyer, it’s important to make sure your agent includes an inspection contingency clause in the real estate contract, which will allow the buyer to proceed based on what the inspection reveals.  As a seller, it can help identify potential problems that were previously unknown.   As the CREIA points out, “Many problems frequently encountered after the buyer moves in, are a routine discovery for a qualified home inspection.”

At the very least, the inspection is a key part of what should be an informed real estate process for everyone involved.

What does it include?

According to the CREIA:

A complete inspection includes a visual examination of the building from top to bottom. The inspector evaluates and reports the condition of the structure, roof, foundation, drainage, plumbing, heating system, central air-conditioning system, visible insulation, walls, windows, and doors. Only those items that are visible and accessible by normal means are included in the report.

What happens if there are problems?

Depending on the type and severity of any discovered problems, the buyer may or may not decide to request that the seller make repairs, and the seller may or may not agree to make them.  For some buyers, its enough just to know what types of maintenance to expect in the future.   Other buyers might feel that the potential maintenance might be too much of a financial burden and opt not to buy the property after all.

Do I need an inspection even if the house is brand new?

A home inspection, advises CREIA, is always a good idea, even if the home is brand new.  As they point out:

No home, regardless of how well it is constructed, is totally free of defects. The construction of a house involves thousands of details, performed at the hands of scores of individuals. No general contractor can possibly oversee every one of these elements, and the very nature of human fallibility dictates that some mistakes and oversights will occur, even when the most talented and best-intentioned tradespeople are involved.

What can I do to maintain my home?

One of the best things homeowners can do to ease the inspection process and minimize property damage is through regular maintenance.    The CREIA offers a number of excellent tips for cost effective home maintenance:

  • Clean both rain gutters and any roof debris and trim back excessive foliage from the exterior siding.
  • Divert all water away from the house (for example, rain-gutter downspouts, sump pump discharge locations, and clean out garage and basement interiors.
  • Clean or replace all furnace filters.
  • Remove grade or mulch from contact with siding (preferable 6-8 inches of clearance).
  • Paint all weathered exterior wood and caulk around trim, chimneys, windows, doors, and all exterior wall penetrations.
  • Make sure all windows and doors are in proper operating condition; replace cracked windowpanes.
  • Replace burned out light bulbs.
  • Make sure all of the plumbing fixtures are in spotless condition (toilets, tubs, showers, sinks) and in proper working order (repair leaks).
  • Provide clear access to both attic and foundation crawl spaces, heating/cooling systems, water heater/s, electrical main and distribution panels and remove the car/s from the garage.
  • And finally, if the house is vacant make sure that all utilities are turned on. Should the water, gas or electric be off at the time of inspection the inspector will not turn them on. Therefore, the inspection process will be incomplete, which may possibly affect the time frame in removing sales contract contingencies.

You can find more commonly asked questions on the FAQ page of CREIA’s website.  For more information about inspections and what to expect, visit CREIA’s Homebuyers/Sellers page, or email us at debraandpat@bermankandel.com.

Study Finds Homeowners Having Trouble Accepting Fallen Values

The New York Times reported on Tuesday that, according to a recent study by Zillow, homeowners are having trouble accepting how much their property’s value has fallen in the years post-real estate bubble burst.

The Zillow study found:

Current sellers who bought their homes in 2007 or later, an analysis of the site’s home listings shows, are overpricing their properties by an average of 14 percent.

Sellers who bought their houses before the bubble, and those who bought during the big run-up in home values, also are overpricing their homes, but not by as much. Those who bought before 2002 are pricing their homes roughly 12 percent over market value

One explanation offered by the study suggests that many sellers who purchased their homes post-2008  feel that they were able to avoid for the most part, the damage done to the housing market, and thus tend to overprice their homes as a result.   Warns, Stan Humphries, Zillow’s chief economist, warns:

Traditionally, people tend to overprice their homes a bit anyway, to allow room for negotiation. But unrealistic overpricing in the current environment means properties stagnate.

One of the overpricing downfalls sellers often make when pricing their home is taking into consideration how much they paid for the home and how much they owe.  This practice does not take into consideration present market conditions, and the market is what determines interest from potential buyers.  As Humphries points out, “The buyer doesn’t care what you paid or what your mortgage is.”

What should you consider when pricing your home?  Sellers should focus mainly on what comparable properties are selling and asking for in your neighborhood.

Full article available here.

Making the Decision to Buy

If you are considering buying a home for the first time, there are a few factors to take under consideration when deciding whether or not you are ready to buy a home.

Stability

  • Renters are subject to rate changes every year.  As a homeowner with a fixed rate mortgage, you will pay the same monthly rate for the whole life of the loan.   You also don’t have to depend on a landlord or management company to address repairs or problems with the property.
  • Owning a home can provide families and communities with more stability.  Some studies suggest a connection between home ownership and higher graduation rates as well as lower crime rates.

Finances

  • Employment.   Are you steadily employed?  If you need a loan, will your employment history qualify you? Do you expect any changes in employment within the next couple years?
  • Credit.  Is your credit good?  Will you be able to afford the monthly payment with your new home?
  • Savings.  Do you have enough savings for a down payment?  Most loan types require a 20% down payment on the property.  Do you have reserve emergency fund set aside?  It’s a smart idea to have at least 6 months worth of reserve in the bank, enough to be able to cover all of your monthly expenses for each month.

Once you decide you’re ready, now is a perfect time to buy a home!

For more info and talk about your options, please feel free to email us at debraandpat@bermankandel.com, or visit our website here.

Short Sale 101: HAFA

One option for sellers facing a short sale situation is the Home Affordable Foreclosure Alternatives (HAFA) program.

“What is HAFA?”

HAFA is a government sponsored program that sets certain standards for the short sale process and provides financial incentives to lenders that participate.

“What are the requirements for HAFA?”

According to MakingHomeAffordable.gov, you must meet the following in order to be eligible:

  1. You live in the home or have lived there in the last 12 months.
  2. You have a documented financial hardship.
  3. You have not purchased a new house within the last 12 months.
  4. Your first mortgage is less than $729,750.
  5. You obtained your mortgage on or before January 1, 2009.
  6. You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.

In addition, California Real Estate magazine reports that to qualify for HAFA, you must also meet these conditions:

  1. The mortgage must be delinquent or near default
  2. The total monthly payment on the mortgage (including principal, interest, property taxes, hazard and flood insurance, condominium association fees, as applicable, and any escrow payment shortage amounts subject to a repayment plan) must be more than 31% of the gross income of all borrowers on that mortgage.
  3. The loan servicer must have already considered the borrower for a HAMP loan modification, and the borrower doesn’t qualify for a trial period plan, did not successfully complete a trial period plan, is delinquent on a HAMP modification by missing at least 2 consecutive payments, or has requested a short sale or a deed-in-lieu.

Unfortunately, there is a long list of eligibility requirements for HAFA .   It’s important to keep in mind also that loan servicers will also have their own written guidelines which will allow them to accept or deny HAFA applications based on such factors as severity of loss involved, local market conditions, the timing of pending foreclosure actions, and borrower’ motivation and cooperation.

For more information about HAFA, as well as other programs, please visit www.makinghomeaffordable.gov/programs/exit-gracefully/Pages/hafa.aspx.

Fannie Mae’s New “Delayed Financing Rule”

If you are purchasing or have recently purchased a home with all cash, there may be some good news for you.  Fannie Mae’s new Delayed Financing Rule will give all cash buyers a new post-purchase financing option.

Under current Fannie Mae regulations, all cash buyers may not apply for a cash-out refinance before 6 months have lapsed.

The Delayed Financing Rule, introduced as part of Fannie Mae’s Selling Guide update SEL-2011-05, home purchasers may now pay all cash for a property, and then immediately take out a mortgage.

According to Fannie Mae, eligibility depends on:

  • The new loan amount is not more than the documented purchase price
  • The purchase transaction was an arms-length transaction.
  • Purchase transaction documented by the HUD-1
  • HUD-1 confirms no mortgage financing was used in purchase transaction
  • Title report confirming there are no liens on the subject property
  • The source of funds for the purchase transaction can be documented
  • Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied

Although intended for real estate investors, you don’t have to be an investor to take advantage of the Delayed Financing Rule.   Mortgage rates, closing schedules, and underwriting process will remain the same as with any cash-out refinance, and no specific fees will be attached to the loan.

Top Mistakes of Sellers

Selling your home can be a tough process, especially in this market.   As a seller, there are certain things you should– and shouldn’t–do to help make the process easier.   RealtyTimes.com recently posted this article, Top Five Mistakes Sellers Make by Phoebe Chongchua, discussing some of the most common mistakes and misconceptions that sellers have about selling their home.

1 – Underestimating Cleaning Up

Tidying up around the house when you know potential buyers will be viewing it can seriously make a world of difference.  First impressions can be everything.  As Chongchua points out, “If you can’t take the time to wipe the grime off the refrigerator doors, tidy up the kids’ rooms, take out the messy diapers, put away the food, and take the dogs out of the house for a while, then you’ll likely find buyers will quickly move on to the next home on their list.”

2 – Lingering During Showings

It can be tempting for sellers to want to hear what feedback potential buyers may have after a showing, or hang around to hear how the open house went.  Generally this is not a good idea: “Sellers who tend to linger during showings often make the buyers uncomfortable. Buyers like to have time to explore the home at their own pace and without feeling any pressure.”  You can always find out all of the details from your agent as soon as the open house or showing is over.  After all, says Chongchua, “That’s what you’re paying your agent for! Let them do their job. Just make sure that your agent has all the home’s selling points and any additional features that make this home standout.”

3 – For Sale By Owner Trap

While many people feel that they’ll be able to do it themselves, selling your home is rarely a by-the-book process.  Indeed, “maybe they can sell their own home, but it likely won’t happen without some headaches. Trained specialists are called ‘experts’ for a reason. An expert real estate agent knows the market, has connections, guides you through the process, negotiates on your behalf, and will make the process of selling your home simpler.”   A great example:  the unqualified buyer.   Without an agent, you may be getting tons of traffic through your home, but it’s not really important if none of them is a serious buyer–“Instead they’re just looking and satisfying their curiosity at your expense. Agents know to ask the right questions to make certain the lookers are truly potential home buyers.”

4 – Not Interviewing Agents

Not all agents are the same, not all will have experience with properties like yours, not all will offer you the same services for the same result.    Oftentimes, “choosing the wrong agent for the job will be a headache and slow the process down. There must be a connection, understanding, and good communication between the seller and the agent.”  You will be much happier in the end if you take the time initially to seek out and interview the top real estate agents in your neighborhood.

5 – Pricing a Home Incorrectly

This is one of the most serious mistakes a seller can make.  Your agent wants you to get the best price for your property just as much as you do.  As Chongchua notes, “Real estate agents see homes every single day. They know the neighborhoods and the comps. They are there to help you understand what homes have sold for in the recent past and what they’ll likely sell for during the current market conditions.”  Get a market evaluation from your agent and have a discussion about what your home is worth.

New Carbon Monoxide Detector Law

As of July 1, 2011, California Senate Bill 183, a law aimed at regulating the installation of Carbon Monoxide detectors, will begin taking effect.  The new law has a couple different elements that will affect the buying and selling process.

What it is:

  1. The first part of the new law requires that, as of July 1, 2011, the Transfer Disclosure Statement disclosure will include a line item regarding the presence or absence of a Carbon Monoxide detector.  This applies to most types of occupied dwellings, from single family homes, to rentals, to condos, etc.   If the property has gas appliances, fireplaces, and/or attached garages, the property must also include a Carbon Monoxide if it’s being sold.
  2. The second part enacts the Carbon Monoxide Poisoning Prevention Act of 2010.  This portion of the law requires that ALL residential properties that are equipped with a fossil fuel burning heater or appliance, fireplace, and/or an attached garage, must be equipped with a Carbon Monoxide detector.  This pertains to all single family homes, and multi-family properties with up to 4 units, whether owner or tenant occupied, regardless of whether or not it’s being sold.

What it means for you:

The new law is a regulation for disclosure, not a regulation for a fix.

As of July 1, 2011, all Single Family Residences must have a Carbon Monoxide detector.  All other types of residential dwellings must have Carbon Monoxide detectors installed by January 1, 2013.

Home Buyers and Sellers will see the new requirement on the Transfer Disclosure Statement.  Sellers will be required to disclosure now the presence or absence of a working Carbon Monoxide detector, starting July 1, 2011.