Category Archives: General

How to Find Short Sales in the MLS

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It’s important for real estate agents to track the percentage of listings where the homeowner is in financial distress as well as REOs (real estate owned), compared to the overall number of listings in a given market area. When short sales, pre-foreclosures, and bank-owned property make up a larger percentage of the overall available number of homes for sale, this has a downward effect on home values in that area. Yes, neighbordhood to neighborhood there “may” not be any short sales or bank-owned listings…today.  However, we are on an upward trend with foreclosures and watching what’s ahead can help home sellers make good decisions about how to choose a more agressive listing price if they are truly motivated to sell. We’ve done some research in the past on this. Galen wrote a post about search terms that work on Estately.  A few months ago I taught a Short Sale class in Snohomish County and an agent remarked that he had a buyer in a specific price range, I believe it was between $200K and $250K and he was looking for home in Everett, North to Marysville. He said ALL the listings in that price range and area were short sales with only one exception. Yikes! More short sales and bank-owned REOs mean more downward pressure on home values as the short sales that don’t close turn in to REOs and banks bring more and more REOs on the market. At this time, searching for short sales is not an option on the public-side MLS (Multiple Listing Service) per rule. Perhaps this is because the commission is paid by the seller and many believe it’s not in the sellers best interest to disclose the short sale status because that may draw low-ball offers. Now that we’re in a buyer’s market, perhaps home sellers and voting members of the MLS rules board would see that it’s in everyone’s best interest to attract the right kind of buyer. Investors have poured into California scooping up low end REOs because the sales price is low enough to allow for the home to be rented for enough to cover the mortgage payment long term. At some point, when Seattle area prices are more in line with rents, investors will want to search for short sales and REOs here.   Until then, by doing keyword searches we can also keep track of possible “ghost inventory” (REOs being held off the market by the banks) making an appearance here in the Seattle market. 

Here are some possible short sale and REO search terms to use besides just “short sale” and “REO.”

foreclosure
preforeclosure
pre-foreclosure
short payoff
motivated seller
subject to lender approval
bank approval needed

bank owned
corporate seller
corporate owner
vacant
no repairs
fixer
instant equity

What search terms should we add to the list?

Sellers are “leaving money on the table”

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If you have been out looking at homes for sale since the first of the year, you will clearly see that sellers are NOT all on the same page.

I deal primarily in property North and East of Downtown Seattle, so I do not speak for Tacoma, Renton, Auburn, Federal Way, Kent or South Seattle.  The lower priced single family homes I am seeing are in Kenmore, Bothell parts of Kirkland, Lake Forest Park , Shoreline and the lower part of Snohomish County.

I am seeing two groups of “seller thinking”:

1)  The first group of sellers are over-priced with meticulously maintained, clean, “updated” and sometimes staged homes. 

2) The second group of sellers have more realistic asking prices, but they are not even bothering to clean up the dishes in the sink for a showing.

Many of the sellers who are bothering to  clean and stage their homes, are also asking more for their homes than they should be in today’s market. By the time a seller gets to the price where they feel they are “giving the home away”, they don’t want to put any effort into its condition.  They are thinking that at THIS ridiculously low price (in their opinion) the buyer should “suck up” much, but that is NOT the case. 

It’s a buyer’s market, and buyers want it ALL.  They want a good price, a home they can move into without much work, AND they want a cleaner inspection at the end of the day than they expected in the higher priced hot market.

“Fair Market Value is the price at which neither party is exceedingly happy.”

There is always a lot of crying and whining in a Buyer’s Market. Sellers aren’t happy at the prices they are getting.  Buyers are walking away from the home inspection because there is a squeak in the floor, or because the bathtub needs some caulk.

Sellers, remember that people who are choosing to buy right now are very afraid of the future.  Pulling the trigger on a purchase is terrifying, even if they are getting “a screaming deal”.  The reality is that you have to do ALL the things you would be doing to get a great price.  Forking out money for professional staging may not be in the picture for many sellers, but do the best you can with what you have to work with.

1) Dirty homes with pet odors sell for less, always.  It doesn’t matter that you “reduced your price by 20% from peak”.  A dirty, smelly house is going to sell for less…in any market.

2) Stacking all of your belongings into the garage, because you don’t want to pay for storage in this economy, is not the way to go.  See if your friends can each take a portion of the items you want to store.  Better yet, get rid of things you know you won’t be moving with you when your home does sell. Not being able to go into the garage because it is filled to the brim with crap, is not going to help your home sell.

3) Thinking you are NOT going to address ANY items that come up in the home inspection, because you were pinned to the mat on sale price, makes NO sense.  Just because you accepted a lower price than you wanted, does not make the inspection phase any different. You can scream “AS-IS” all day long…that won’t keep a buyer in escrow if the home inspection reveals items that need to be addressed. Staying in escrow is just as important as getting into escrow. Refusing  to address minor repair items could cost you dearly in the long run, when you later sell your home for even less.

You have to work at least as hard, and sometimes even harder, in a difficult economy.  This is true of both workers generally, and sellers of homes. Getting less doesn’t cut you any slack in terms of the effort you must expend.

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.

Notes from WAMP’s Meeting on Home Valuation Code of Conduct

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This morning I attended  Washington Association of Mortgage Professionals (WAMB) meeting in Bellevue to learn more about the Home Valuation Code of Conduct (HVCC) which will dramatically impact conventional appraisals.   It was a somber room of fellow mortgage brokers and correspondent lenders along with the panel of various representatives from the industry.  

In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages.  Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York  Attorney General Cuomo investigated.   Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.

Lisa Goldsmith from Amtrust Bank discussed how they’re going to comply with HVCC beginning around April.  Amtrust will treat mortgage brokers and correspondent lenders the same.  

  • When the loan is registered with Amtrust, they will provide an AVM (an unreliable estimation of value IMO).  This is the only chance the mortgage originator has to decide whether or not they should proceed with the appraisal order.
  • The order is placed with an Appraisal Management Company (AMC).
  • A copy of the appraisal is sent to both the borrower and the mortgage originator.

The mortgage broker will have no idea who the appraiser is until the appraisal is delivered.  Correspondent lenders may be able to order appraisals as long as they meet the HVCC (and I’m sure they’re a huge risk of buy-backs if correspondents opt for this route).   In fact, mortgage originators (if paid commission) may not communicate with the appraiser.  

A big issue is portability of the appraisal.   If for some reason, a broker starts with a lender, like Amtrust, and then decides during the process they want to switch to another lender, Amtrust holds the appraisal.  The consumer has all ready shelled out $400-$500 to one lender.  It will be up to Amtrust to release the appraisal (if this is even acceptable) or another appraisal may need to be issued if the loan is switched.  The power is not with the consumer and it’s not with the mortgage broker.

Quality is a huge concern as well.  One mortgage originator stated that he currently has an issue with an appraisal that was provided via an AMC for a waterfront single family residence.  What he received was an appraisal with 6 comparable properties–4 of them were condos!    Second appraisals can be requested when it’s a question of quality–they cannot be done for “value shopping”.

It gets better…Fannie Mae amended guidelines earlier this year allowing appraisal management companies to be owned by lenders!   

“The lender’s ownership of or affiliation with an appraisal management company is no longer restricted.  However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”

From Appraisal Press:

“In it’s current form, the HVCC discriminates against appraisers by (a) effectively requiring lenders to engage appraisers through appraisal management companies, which retain 40-50% of the fees paid by lenders, reduce competition as a result of industry consolidation, and deteriorate appraisal quality by forcing veteran appraisers from the workforce, and (b) creating an artificial preference for automated valuation models, which will result in fewer appraisals, reduced market transparency and the danger of increased in-house lender abuses.  The HVCC will deprive consumers of their right to obtain independent, quality appraisals.

So let me get this straight… banks and lenders can own or have ownership interest in appraisal management companies.  The AMCs (possibly owned by banks/lenders) can select which appraisers make their list AND they will reduce the appraisers incomes in an all ready challenging market.   Who regulates the AMCs?  

NAMB’s fighting HVCC and I don’t always support all of NAMBs views…I have to agree with them here.   Once again, instead of dealing with the offenders, industries are in the process of being punished wiped out.

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.

What will they say in 20 years about today's new homes?

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rcg1When I look at new construction for sale I often wonder if the architect and the builder ever spoke or better yet, if the architect or the builder would ever live in the house they designed/built (I am a builder). I seem to be asking myself that question even more lately as I tour homes built from about 2005+.

I wonder, besides the financial crisis, what will this era’s theme of houses be?
It will for sure be about townhomes, but (on average) I am afraid it will also equate to poorly designed and constructed too.

I was touring a home today that made me wonder if the builder ever asked the question, “where will the couch go

Is Excise Tax Payable on Short Sale Debt Forgiveness?

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The Washington State Department of Revenue (DOR) seems to think so.  Background: At an Escrow Association of Washington (EAW) meeting on Nov 13, 2008, Mel Kirpes and Steve Bren from  WA DOR spoke at a regional dinner meeting where it was announced that when there is a short sale, the DOR considers the debt forgiven as additional consideration above the contracted sales price between the parties and that the DOR will be pursuing the home seller for payment of the excise tax. (Reference is a EAW letter dated Nov 25, 2008 from EAW Director Cindi L. Holstrom)
Naturally this had a chilling effect amongst escrow officers.  The DOR responded on Dec 12, 2008 in a letter from Gilbert Brewer, Assnt Director of the DOR:

RCW 82.45 imposes an excise tax on the sale of real estate unless specifically exempt from statute. “The measure of the tax is based on the total selling price of the property conveyed. The incidence of the tax is usually on the seller.  However, if the tax is not paid in full, the tax (together with any interest and penalties) becomes a lien on the real property. This is mandated by RCW 82.45.030 …which defines “selling price” as the “true and fair value of the property conveyed.” If a property has been conveyed in an arm’s length transaction between unrelated persons for a valuable consideration, a rebuttable presumption exists that the selling price is equal to the total consideration paid or contracted to be paid to the transferor, or to another for the transferor’s benefit….”total consideration paid or contracted” to be paid as including “money or anything of value, paid or delivered or contracted to be paid or delivered in return for the sale, and shall include the amount of any lien, mortgage, contrat, indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of the sale.”

Since there is an exemption from real estate excise tax in the event of foreclosure or a deed in lieu of foreclosure (see WAC 458-61A-208) this DOR opinion may unfortunately motivate homeowners to consider foreclosure a more viable option. Perhaps the home seller’s Realtor can negotiate with the lender to pay for the additional excise tax lien as well.  However, then that extra amount paid by the lender may also be subject to excise tax.
The Seattle King Co Assoc of Realtors and Washington Realtors believes DOR’s position is incorrect and problematic.  On Jan 8, 2009, The Northwest Multiple Listing Association posted a notice to their real estate agent members as follows:

“RCW 18.86 requires agents to advise their clients to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.  This duty exists in every transaction but is particularly important in short sale transactions where unique legal and tax issues exist.”

We’ve been saying the same on RCG for many years now. Short sales are way more complex for real estate agents than the average transaction and homeowners are best served when they have retained their own legal counsel to help them understand the lender paperwork as well as this current DOR trainwreck. You may be thinking, “homeowners in financial distress can’t afford an attorney.” However, some attorneys offer low cost options for homeowners facing foreclosure.

UPDATE
January 13, 2009
Department of Revenue: “After receiving extensive input from interested stakeholders and industry representatives about the nature of these transactions, we have carefully reconsidered how real estate excise tax statutes apply to these unique transactions [short sales]….we now see that these short sales are distinguishable from other transactions involving the forgiveness of debt because the seller negotiates separately with the lender for any debt reduction/forgiveness, apart from the actual purchase and sale of the property.  As a result, the loan forgiveness is not “paid or delivered in return for the sale” of the property, as required by RCW 82.45.030.”   Margaret J. Partlow, Senior Policy Counsel, Dept of Revenue. 

(Hat tip Rhonda Porter and Kary Krismer.)

Translation: We are not going to require sellers to pay excise tax on the debt forgiveness  with a short sale.

40 representatives from escrow, title, real estate, attorney, and short sale faciliator companies showed up in Olympia to help educate the Dept of Revenue. Thank you, Escrow Association of Washington, for bringing this to our attention and taking on the state head to head.