Author Archives: ARDELL

About ARDELL

ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 34+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

FHA – Is it “assumable”?

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FHA – Whether you are an owner deciding whether to sell or refinance, or a buyer in today’s real estate market, talk with a lender about “assumable” provisions of the mortgage.

While no one can see into the future, we can see into the past.  I don’t think anyone will be surprised that we may be looking back on today, from some year in the future, at dramatically lower interest rates. Most are expecting interest rates to be 7% or more, a few years from now.  Most are expecting home prices to stay down and flat for some years to come.  That means the cost of selling will be hard to recoup, and finding a buyer for the home you are trying to sell will not improve greatly from where we are today.

IF the buyer of your home 3 or more years from now, can assume your lower interest rate mortgage of today, that will be a selling feature.  It happened before in the last recession, and it will happen again.  The buyer will still have to qualify.  The buyer will have to come up with the difference between the sale price and the loan they are assuming from you that has a lower interest rate (so don’t go overboard with downpayment on an FHA loan).

To the best of my knowledge, most if not all, conventional loans are NOT assumable.  Most, if not all, FHA and VA loans ARE assumable.  I’m sure Rhonda will chime in here and give us the scoop on that.

This weekend I was speaking with a young man who may be eligible to refinance his home and stay in it, though he is worried about possibly losing his job and having to sell in the next couple of years.  I told him to try converting to an FHA loan when he does his refinance, keep the LTV as low as possible, and make sure there is an assumable feature.

I am a real estate agent, and not a lender.  All I know is that if he tries to sell two years from now and interest rates are 7%, and he has an assumable mortgage at 5.5% or below, that could be of great help in a future market with more sellers than buyers.

Speak with an attorney about the potential downside of a “purchase money loan” vs. a refinance, in the event of future default, before refinancing an original purchase mortgage. More on that in one of my other posts of the day.

Mortgage Interest is paid “in arrears”

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For Home Buyers: This means the first payment is usually a month later than you expect it to be.

For Home Sellers: This means your mortgage “payoff” is going to be higher than you expect it to be.

This is one of the small issues that often surprises people when they are buyng and selling homes.  Often sellers will think the payoff is wrong, because it is higher than the principal balance on their most recent mortgage payment statement.  Often buyers will be worried about paying rent and a mortgage payment for the month after their close date, and are surprised that the first mortgage payment is a month later.

Basically all “mortgage interest is paid in arrears” means is that your March 1 payment, pays February’s interest on your loan.  Your April 1 payment pays your March interest.

For a buyer, if your closing is February 26th, your first mortgage payment is due on April 1st, and that will include all of the interest for the month of March. (February’s interest per day from closing to month end is paid AT closing)

For a seller, if your closing is Feburary 26th and your principal balance is $362,000 and your monthly payment is $2,800 including taxes and insurance, your payoff may be more like $363,500.

I was preparing some numbers for a client with a March close, and decided to post this for anyone having similar questions.

$8,000 Homebuyer Tax Credit

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Looks like the $8,000 Home Buyer Tax Credit is now signed, sealed and delivered.

Update: Everything you wanted to know about the 2009 home purchase $8,000 credit. (There is a similar link below for the 2008 $7,500 loan/credit)

Zillow reports it is a FULL $8,000 credit, even if the buyers total tax liability is less than that amount. “Buyers may not have owned a home for the past three years to qualify.”

CNN Reports That you can get your $8,000 faster by claiming it on your 2008 Return (or amended return if you have already filed), even though to qualify for this $8,000 non-refundable credit, you have to buy a house between 1/1/2009 and 11/30/2009

There is an income limit of $75,000 for single people and $150,000 for couples, though there are reports that people making over the limit might be able to get a partial credit.

If anyone has any details on the partial credit for people earning over the limits, please do let us know. Update: This answer is in the link at the top of this post.

For people who bought between 4/9/08 and 12/31/08

I don’t see any news so far that there are any changes for people who bought in 2008.

Trading Houses instead of “cramdown”

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Sometimes a solution that seems obvious to me, is not talked about at all.  So I’d like to throw this out there for what it’s worth. Let’s say a lender approved someone for a $650,000 loan back in 2006, BUT using sound ratios and current mortgage rates, they really only qualify at $500,000. 

Instead of the taxpayers paying $150,000 to “cramdown” the mortgage to $500,000 to help them stay in a house they shouldnt have bought in the first place, why not do a “do over”? Have the lender give them the $500,000 mortgage they should have given them in the first place, but on a different house?  Add a requirement that they most move to and buy a house of someone else who got in over their head. Seems simple to me. Just go back and do it correctly.

Have the people move to a house at today’s reduced prices, that they actually qualify to live in.  Then sell the more expensive house OR play “musical houses” by moving someone who should have had a loan of $650,000 into their house.  Move everyone around into pre-foreclsoure houses at the prices they can actually afford.  Then only sell the ones left at the end.

There’s a lot of talk about “the house of cards”…well let’s reshuffle the deck and deal again.  Move people to the house they should have bought in the first place, instead of having bunches of vacant bank owned properties.  Better than the taxpayer helping them live in a house they couldn’t afford in the first place.

Wouldn’t work for everyone. But this solution added to loan mods and some other solutions, just might work in areas over-run with foreclosures and bank owned properpties.

Buyers: Write Your OWN "Seller Disclosure Form"

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It amazes me that buyers and buyer’s agents don’t sit down and write their own addendum to the Seller Disclosure Form.  In the hot market it likely would have scared the seller, and lost you the house in mulitple offers.  But this is a Buyer’s Market!  Where are the changes as we shift from seller’s market to buyer’s market?

My number one piece of advice for buyers and buyer’s agents today would be to supplement the Seller Disclosure Forms with some REAL questions you would like answered by the seller.

You know the forms at best run up the middle between seller’s interests and buyer’s interests.  You know the forms are geared to “a smooth transaction” and closing for the agents and all parties.  So why do you accept their questions on the form as being all you need to ask and know?

I’ve written a skazillion posts over the last three years on what buyers need to know that no one tells them.  Not the seller.  Not the agent.  Not the home inspector.  Why not put these questions in as an addendum to the things you want the seller to tell you?

Recent comments from Jerry the Seller who wants to keep the buyer’s Earnest Money, are the impetus for this post this morning.  Read the comments of Jerry the Seller and weigh in…should the buyer get their Earnest Money back…or should Jerry get to keep it?

Be smart buyers!!!  Write down the questions YOU want answered, and make the offer contingent on your getting and reviewing those answers.  Don’t merely rely on the questions someone else deemed “enough” for you to know.

Are you making your client homeless?

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I’ve been wanting to warn sellers and seller’s agents about this for the last 10 days or so.  Courtney’s new post is a great lead in to this added consideration for sellers and listing agents.

CAN YOU BUY THAT HOUSE, WHEN YOUR HOUSE SELLS?

Having had the benefit of working in a market exactly like this one, back in NJ/PA in 1992 or so, I think this warning will be timely advice for many.

When an agent is called to sell a house, they touch on the subject of “Where are you going to go when this house sells?” But most often the antennae of the agent is focusing on whether you will also be buying a house with them, or if they can get a referral fee by referring you to an out of area agent (usually 25% of the commission.)

WARNING TO SELLERS: IT IS VERY HARD TO GET A MORTGAGE.  In the last market like this, many sellers assumed that since they had a HUGE downpayment, they didn’t have to worry about qualifying for a mortgage on the house that they were planning to buy.  NOT SO!

Having 50% down and little income could leave you homeless, as NWMLS does not permit “provisional” listings.  There’s no turning back.

Here’s how it usually “plays out”:

1) Seller doesn’t want to look at homes until their house has a contract. With houses sometimes sitting on market for well over 100 days, looking at what you will buy when your house sells is often put off until you have an actual buyer for the home.

2) Once the contract is signed around, the seller goes out and makes an offer on a house they are buying with 30% to 50% down.

3) Often the seller and the agent for the seller of the home they are buying are so impressed with the big downpayment, everyone all the way around assumes that someone with that large of a downpayment can get a mortgage.

REMEMBER:  The buyer of a home has a legal out phase lasting about 10 days, but the seller does not have a legal out phase if they can’t get a house to go TO.

Often you can’t just go to the buyer and say, “Sorry.  I can’t buy a house so you can’t have mine.”

So to listing agents, I know you want that listing, and your are primarily interested in getting the seller to sign that listing contract.  But be careful that you are not making your clients homeless. If they are people living on a fixed income, saying they are planning to buy, part loan, your ears should perk up.  Make sure they check with a lender as to getting that loan…before you sell their house out from under them.

We are often in the business of “GETTING PEOPLE FROM HERE TO THERE” moreso than simply “selling houses”.  Don’t leave your seller’s homeless, as you walk off to the bank to cash your commission check for “selling their house”.

Sunday Night Stats – At Bottom

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Many buyers are waiting for the $15,000 tax credit for homebuyers in 2009 to be signed into law, as well they should.  This will continue to keep the volume stats down through the month of February as to closings. If the bill is signed by the 16th of February or so, as expected, you will begin to see volume pick up in March. 

The other thing that buyers have been waiting for, are signs that prices are “at bottom”.  While median prices for King County continue to slide as short sales and foreclosures continue to impact sold prices Countywide, we are seeing two emerging trends as to “bottom”.  20% for non-distressed property and almost but not quite 40% for distressed property, more like 37%.

Who determines “bottom” as to prices?  Sellers and real estate agents would love to control prices, but the buyers of homes ultimately control home prices.  While we wouldn’t expect to see prices bottom with continued bad news as to layoffs, buyers are consistently calling the bottom at 20% under peak pricing for non-distressed property.

The odd thing about the stats on this is that it doesn’t seem to matter how long the property is on market.  If it takes the seller 800 days on market to get to 20% under peak prices, the property sells.  If it takes the seller 65 days to get to 20% under peak prices, the property sells.  In several cases when the property gets to 20% under peak prices, there is more than one offer.  BUT rarely do those offers push the price much under the 20% under peak range.

Exception seems to be when the homes sold at peak values did not have remodeled kitchens and baths, but the property sold today does have a remodeled kitchen and baths, and possibly an addition as well.  In those cases, the sales can be as high as 11% to 14% under peak pricing.

Because every neighborhood has a different peak value, and peak MPPSF, you can’t do whole zip codes or a whole County using median statistics.  You have to find the peak price in each neighborhood for each house sold, and calculate the % off peak of the sale.  A tedious chore.

House #1 – Redmond – peak pricing $249 MPPSF – Home sold at $210 PSF, 16% under peak with a remodeled kitchen of 8 years ago.  The odd thing about this house is that in September through January, this home sat on market at 16% under peak, after first trying only 5% under peak for over 200 days.  Once the market determined the price was not going to reduce further and reach 20% under peak…it sold anyway.  This is not the norm and if the kitchen remodel had been more recent, it may have sold a bit higher and faster.

House #2 – Bellevue – Peak pricing $1.5M – this property sat on market for well over 700 days.  The minute it reached 20% under peak it sold.  This would not seem like a basis in and of itself, for calling bottom at 20% under peak.  But when you see house after house going from not sold to sold when it hits the same price point of 20% under peak, the buyers speak in unison.

House #3 – Peak pricing $1,059,000 – This is a sad one.  More than 4 buyers called this one at 20% under peak at roughly $850,000.  Unfortunately it is a short sale and the lienholder would not approve the sale price at 20% under peak, even with several multiple offers all in the same price range.  How much more proof of value to do need then several buyers in a market like this all calling current value at the same place?  This one will likely go to foreclosure and end up selling for even less than 20% under market.  Still…the buyers called the price of 20% under market the acceptable level.

House #4 – Seattle 98103 – peak pricing $425,000 – Asking price at 20% under market sold – this one was unusual as the opening asking price was 20% under market…it sold immediately…in less than a week.  Doesn’t seem to matter if the seller takes over 700 days or 1 day to get to 20% under market…it still sells either way.  This consistent price point of 20% under peak turning a property from ‘for sale ‘”to “sold”, gives us a price at which buyers determine, bottom has been achieved.

House #5 – Seattle 98115 – peak pricing $800,000 – sold when asking price reduced to 20% under peak.  This is a sad one because the owner started out at well OVER peak pricing.  Hard to believe that someone was thinking prices would actually be going up from mid 2007.  But the end result was consistent with the other properties, and a buyer made an offer when the price was within 20% under peak prices.

There are some houses selling for less than 20% under peak. There are many, many houses for sale with asking prices that are much higher than 20% under peak.  But unless it is a distressed property or an especially miserable location or condition, there are NO houses sitting on market without an offer ,where the seller is asking  20% under peak pricing.

I don’t “call bottom” nor do sellers or any real estate agent.  The buyers call bottom.  And when they consistently respond to an asking price of 20% under peak by bringing an offer…the buyers are calling bottom.  

It’s very hard for a seller to price his house at 20% under peak pricing, even if he bought it 15 years ago for much less that that.  Now it seems equally hard for buyers to see a house at 20% under peak…and pass it by.

“At bottom” has nothing to do with more activity.  “At bottom” does not help real estate agents sell MORE houses, as most sellers are not ready to price at this point that buyers have determined is the price at which they will buy.  When a given price point not only guarantees a sale, but brings multiple offers consistently at the same price point…buyers as a whole determine that “comfort zone” of pricing.  Now sellers collectively have to agree with them…or not.

Buyer Beware!!! – $8,000 Tax Credit?

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UPDATE: signed and passed 2/17 at $8,000. See more details here.

Original post below does not indicate the change to “must not have owned a home during the last 3 years” which was added to the final bill before it was passed.

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If you are currently in the process of buying a house, be aware that there is a $15,000  ($8,000) Tax Credit in the new stimulus bill which may, or may not, pass tonight. Then it has to be signed, hopefully by President’s Day they are saying.  Then we have to watch the effective date closely “for homes closed on or after ?” Likely that will be on or after the day the bill is signed, which presumably will be some time during the month of February.

Just a day or so ago an RCG reader asked if she could take the old credit on this return, and she bought ONE DAY too early to get the credit!  Aaaargh…you don’t want that to be you, especially since this credit in this stimulus package is not a loan and is doubled (as of last night) to $15,000 as it stands right now!

That’s a lot of moolah to forfeit by closing one day too early!

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There are a lot of discussions all over the internet, the news and Twitter about the pros and cons of this, but very few warning buyers who are currently in escrow or looking at houses today!  Watch this closely, and sellers should be prepared to move the close date a day or two, if needed.  NO ONE wants to be responsible for a buyer losing out on a $15,000 (an $8,000) credit!

This is like every SELLER getting a $15,000 (an $8,000) price reduction, complements of Uncle Sam and President Obama!  Big NEWS for both buyers AND sellers of homes. Watch the news VERY closely in the coming days.