(Are We) Oil and Water?

In a comment to a post on Financing Contingencies, Reba baited Craig and I to write a post on the uncommon relationships between real estate agent and attorney.   She said,

“Maybe it’s worth another blog post to discuss why some agents seem to feel that they are diametrically opposed to attorneys when it comes to real estate transactions. I constantly hear people say “if an attorney gets involved this deal is dead

Biliruben's House – $639,950

Hello everyone! Welcome to Biliruben’s new home.

Now don’t get excited, because Biliruben doesn’t want to sell this beautiful home.  He loves it.  It is over 3,000 square feet.  It has four bedrooms and two and a half baths.  A fabulous new gourmet kitchen with maple cabinetry and granite countertops.  A MASTER suite of which Biliruben himself is the master, oversized bedroom with a full five piece bath including a jacuzzi tub. 

How’d I do Bili?  Close?

[photopress:outside.jpg,full,alignleft][photopress:kit_1.jpg,full,alignright][photopress:liv.jpg,full,alignleft][photopress:bath_1.jpg,full,alignright]

Watch Out Below!

While I-pods are a great way to catch up on the numerous webinars posted during working hours, they can be a bit dangerous when the listener removes themselves from the world around them. Let me give you a little example of what I mean by this.

Last weekend, my son and his pregnant (yes, I’m proud!) wife needed my husband’s (Randy) assistance updating his 1/2 bath prior to listing his home for sale.  Here’s the setup: 2 story bungalow with a basement. 2nd story bathroom directly above main floor bath using same waste pipe that drain straight down into waste pipe in basement floor. Becuase 2nd floor bath had pvc pipe and basement had the old cast iron, the best thing to do was replace the whole pipe at the same time. So, of course, they pulled the waste pipe out of the main floor bath, disconnecting the 2nd story bath from the waste pipe in the basement. All’s well and Randy is getting ready to reinstall from the 2nd floor waste to the basement by handing the pipe down to son Ryan in the basement. [photopress:ryan_and_randy_in_the_shit_hole.jpg,thumb,alignright]Great great plan, all is going well, but my lecture was over, I removed my headphones, and ran up the stairs to use the only operating bathroom in the house except that, you guessed it, one flush and whoosh, down thru the 1st floor bath directly into the face of my darling son Ryan, bounced off him and onto his computer and everything on the desk that he was working on!

 The moral of the story is: Don’t visit your son! 

ARDELL on "Where is the 2007 Market heading?"

My prediction has been, that the 2007 Market will be similar to the market of 2006, that being strong and upwardly mobile.  Not necessarily as strong as 2005, when interest rates were lower, but on an even keel with, or better than, last year.

To determine momentum of the market, I look at absorption issues, and reduce the study to a somewhat predictable and mainstream market segment.  To keep apples to apples, I target that portion of the market with the highest number of sales in a year’s time.  The results are almost startling, with regard to upward momentum since the first of the year, and even better than I expected to see. 

Where “in escrow”, which is both STI and Pending, is much higher than “for sale” and/or closed in January 07, the forward momentum of the market is strongest.

Seattle has too many new properties not reflected in the stats (i.e.”1 of 8 townhomes”), as does high end.  I am using the market segment I find is best for prediction purposes using the MLS, that being Redmond (98052 only), Bellevue, Kirkland and Bothell (98011 only).  I am also using “up to $650,000” as that is the segment with the most properties changing hands in a year’s time, based on the stats I did on a running basis last year.

I also use this market segment because I can readily visualise the properties involved, and so my conclusions are more valid than areas like Tacoma or Snohomish or even all of King County.  The segment I use, accounts for both strongest and weaker markets and “residential” vs. condo.

98052 – Redmond – 37 residential for sale, 40 in escrow and 18 closed in Jan. 07; 44 condos for sale, 69 in escrow and 19 closed in Jan. 07.

98011 – Bothell – 40 residential for sale, 37 in escrow and 18 closed in Jan. 07; 15 condos for sale, 28 in escrow and 15 closed in Jan. 07

98034 –  Kirkland – 35 residential for sale, 29 in escrow and 27 closed in Jan. 07; 32 condos for sale, 37 in escrow and 25 closed in Jan. 07

98033 – Kirkland “proper” – 23 residential for sale, 15 in escrow and 19 closed in Jan. 06; 50 condos for sale, 62 in escrow and 21 closed in Jan. 07

98004 – Bellevue – 4 residential for sale, 2 in escrow and 1 closed in Jan. 07; 27 condos for sale, 21 in escrow and 8 closed in Jan. 07

98005 – Bellevue – 5 residential for sale, 4 in escrow and 2 closed in Jan. 07; 14 residential for sale, 40 in escrow and 8 closed in Jan. 07.

98006 – Bellevue – 17 residential for sale, 13 in escrow and 9 closed in Jan. 07; 20 condos for sale, 14 in escrow and 6 closed in Jan. 07

98007 – Bellevue – 5 residential for sale, 9 in escrow and 5 closed in Jan. 07; 6 condos for sale, 12 in escrow and 16 closed in Jan. 07

98008 – Bellevue – 18 residential for sale, 20 in escrow and 11 closed in Jan. 07; 1 condo for sale, 4 in escrow and 4 closed in Jan. 07

98005 is a bit skewed, as Woodbridge and Oasis are long escrows, so 40 in escrow is not reflective of a less than 30 day market activity.  New construction in escrow will always throw off momentum stats.  That is why I don’t do the high end this way when I am looking for “people’s recent decision to purchase” forward momentum.  There is some of that in others, but not as much as in 98005.

I also break it down this way, so people can see where they might most likely find a single family home priced under $650,000, or where they might most likely find a condo at an entry level price.  The highest numbers will equal the highest ongoing availability, or whether you are looking “for a needle in a haystack” in that area.

2007?  If you list it, price it well, it looks good and is priced under $650,000…it WILL sell.

Getting Dirty with Your Feed Reader

Because I talk so extensively about reading other bloggers and using a feed reader in general in the Online Marketing Seminar, I decided to post about that topic over on the Seminar blog so that attendees can have one place to go to “get started” with a feed reader. However, some RCG readers may find this information interesting! 🙂

Tightening Lending Standards: A market conundrum

What will lending standards look like 6 mos. or a year from now? Will lenders with more stringent qualifying standards be a drag on the market? At minimum, it will change the complexion of the pool of buyers. Some ramifications of tighter standards that come to mind:

  • reduces ability of consumers with credit blemishes to purchase a home as easily as before.
  • it may take longer for loans to be pushed through, because
  • borrowers may have to provide more verifiable documentation.
  • lenders may look more carefully at appraisals and implement other safeguards to reduce fraud.
  • reducing the probablity of those buying a home with questionable credit from getting into financial trouble (which leads to distressed properties which leads to downward pressure of prices)
  • a more stable and credit seasoned pool of borrowers, leads to stable and healthy markets.
  • housing affordability becomes much more tied to economic fundamentals vs speculation and artificial housing appreciation.

Over the last three years or so, qualifying for a mortage has been absurdly easy. There is no doubt about it. When my wife and I bought our first house (670 sq ft) in Ballard, I barely qualified for an FHA ARM. I think the underwriters were cringing and looking away when they stamped it “approved.” We had to provide bank statements, two yrs. of tax returns and more.

Today, borrowers with average to low credit scores could get a loan with virtually little oversight. What program buyers qualified for largely depended upon borrowers credit scores. In the end, it really came down to the interest rate you were going to pay. It was never a matter of “if” you could get a loan, rather, it came down to the interest rate and program you were placed in.

A conundrum

In hindsight, most first time homebuyers that closed their purchase transactions though our escrow office put little to nothing down over the last three years. It is still going on today, but not nearly at the tempo that our office experienced in all of 2005 through summer of 2006. First time home buyers drive the market, providing impetus for sellers to move up into a home that suits their current lifestyle. For many, that meant moving to new construction housing. If the first time buyer market slows, everything down stream slows as well.

Through my direct discussion with loan officers, some have indicated that lenders are scrutinizing transactions more carefully. One indicated that a recent appraisal was required to add more comparable homes and provide interior photos of the subject property being purchased.

WMC, a large national lender and a wholly owned subsidiary of GE Finance (my spouse has now informed me that WMC is no longer, but is now taking the GE name) is slated to eliminate all 100% financing with borrowers having FICO scores below 700. Further, they are financing first time home buyers (FTHB’s) at a 95% cap. I take this to mean that FTHB’s will need a 5% down payment. This is quite the turnaround from the loose lending standards we have seen.

If lending standards tighten with or without government intervention, certainly it will have an impact on the ability of buyers with marginal credit to become a homeowner. Those with existing mortgages may find it more difficult to refinance. I can’t help but think of all the 100% financed borrower transactions our office has closed—borrowers that may not have qualified (nor closed) if these guidelines were in place today. In 2005, that meant 71% of our purchase/sale business would have never existed as it did (hard swallow).

Generally, with sales trending slower than in months past, stricter qualifying standards may have enough impact to slow sales further. I hope it does not, but I don’t see the alternative as being realistic. The upside is that the pool of homebuyers may move towards more traditional mortgage products, such as fixed rates. More stringent qualifying standards is a good thing for the market long-term, even if the short-term prognosis is discomfort.

$100,000 for the "no show" agent

[photopress:thecast_biopict_jerry.gif,thumb,alignright]Joe asked: Ardell, I was wondering if you would care to comment on the Jerry Seinfeld case.

Thanks Joe, for the opportunity to sort out this “No Commission for You!” case. It’s a shame Seinfeld is no longer on TV, as this would make a great episode where they could play the “No Soup for You!” Soup Nazi theme in a different light.

There are a lot of missing facts in the linked story, so I have to expand the information first.

Gist of the Story:

The Seinfelds used a personal manager to view property with the agent, before they themselves viewed property.

From September of 2004, the Seinfeld’s real estate agent showed various properties to their representative.

In January of 2005 the agent showed the property the Seinfelds eventually purchased, to the personal representative of the Seinfeld’s.

On February 11, 2005 the agent again showed the property, to both the personal representative, AND Mrs. Seinfeld.

Then came the Sabbath, that same night, and the agent was not available for a 24 hour period either by phone or in person. That happened to be the day Jerry wanted to see it and he went there and struck a deal with the owner direct.

Seinfeld refused to pay the agent because she was unavailable for the 24 hour period he was ready to go, see and buy.

Joe,

My thoughts are that the agent should have had someone covering for her during her “24 hour shutdown”. It’s not like it was an unforeseen emergency, like she was rushed to the hospital. This “I don’t work on the Sabbath” is a weekly event. No reason she can’t hire someone to answer her calls, and someone to show property for her, during those 24 hour time periods.

I can see a buyer not wanting to risk losing a property during that time. What if there were another offer that day? Should a buyer lose a house so an agent can take a day off? Or should the agent provide a back up number for them, like a doctor would.

So I do fault the agent for not having a back up person. But it would appear from the facts that the agent was entitled to the commission, and the Seinfelds would not have lost the property, had they waited until Sunday.

New seminar in Los Angeles this week…

Last time I ran a seminar with Russ Cofano, I mentioned that I was considering creating a new seminar by slightly adjusting the topic… Instead of the seminar being “all about blogging”, or a “bloginar”, I really wanted to focus on the bringing an understanding to how online technologies are radically changing the industry and how agents can not only adapt, but thrive in this new environment.

After a few conversations about this idea with Errol Samuelson of Top Producer, he also showed a huge amount of excitement in the idea and offered to organize, promote and sponsor the entire thing. The result is that this next Tuesday and Wednesday I’ll be giving the new presentation (50% how the competition is changing the industry, 50% how agents can use online technologies to build up their online brand) in Los Angeles. We have tentative dates set for the end of the month in both Oakland and Seattle (to be announced soon) and assuming the seminars are well received, there’s no reason I couldn’t travel around the entire country giving advice to agents on how to enhance their existing business with social networking technologies.

If you are in the LA area, then consider visiting the seminar website to sign up (or the blog I created for the seminar). The event has already been picked up by both Greg and Brian, and from the comments on both sites, it looks like there should be more than a few people from ActiveRain and the RE.net in attendance! 🙂

Hope to see you there!

APR: Just One Part of the Mortgage Machine

One of the reasons why we have the federal Truth in Lending Act (TILA) was to help consumers gather enough information to make an informed decision on the cost of a mortgage loan.

Annual Percentage Rate, or APR is defined as the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options.

TILA directs lenders to compute their APR using the actuarial method OR the US method. “Either method is fine,” says mortgage industry consultant Gordon Schlicke, “and both are very long, complex math equations if done by hand.” Today, we all use computer software pre-programmed to compute APR.  The actuarial method and the U.S. method will result in different APRs. This is fine because TILA allows for variances in APRs: .125 (1/8)% on fixed rate products and .25 (1/4)% on adjustable rate products.

The APR is computed on the amount financed, which is the loan amount LESS prepaid finance charges.

HUD provides suggestions for how to define prepaids.  However, our federal government also understands that different areas of the country have different local customs and lending practices so HUD allows each lender to choose how they define prepaids, but ONLY if the lender receives legal counsel to that effect.  So, for example, Lender X wants to define prepaids in their own way.  They receive legal counsel in the form of a letter on file as to how they are defining prepaids based on local custom.

So we started with a great federal law intended to help consumers become better informed as to how much a loan will cost the consumer. What we end up with is a wide variety of ways to compute APR, all of which are allowable.

Shopping for loans only using APR is a mistake. Shopping for a mortgage loan and only focusing on one piece of a mortgage loan is a mistake.  Consumers who only focus on the note rate or monthly payment and who ignore the other many moving parts of a mortgage are very easy consumers to take advantage of.  Until higher standards are in place regulating the ethical conduct of mortgage loan originators, at minimum, a consumer ought take a look at the whole picture of a mortgage loan and how it works, from the perspective of a traditional fixed rate mortgage before deciding how a mortgage product fits in with a consumer’s tolerance for risk and the tax advantages of the many, many creative mortgage products being sold in today’s market beyond the traditional fixed rate products.

Consumers, when shopping for a mortgage, don’t focus only on ONE of these pieces, instead look at the whole machine:

Monthly payment

Loan product

APR

Closing costs

The originating lending institution

The institution to which your loan will be sold

The ancillary service costs including appraisal, title credit, escrow, and so forth

And finally, the individual people working inside these institutions providing all these services most notably, your mortgage loan originator.

Obtain a Good Faith Estimate from at least three types of institutions: your favorite local bank, a mortgage broker, and a credit union. If anyone out there from a licensed consumer finance company can make a case for why you ought to be on my list of recommended institutions, please enlighten us via posting a response. 

2012 update: That last sentence was part of the original 2007 blog post when we were seeing large, national predatory lending cases at consumer finance companies such as Household Finance and Ameriquest.  With state and federal law changes, many mortgage broker loan originators have switched over from working under a mortgage broker to….the consumer finance company licensing system. We could also refer to these types of companies as “non-depository lenders,” or “non-bank lenders.”  They loan mortgage money but do not offer checking and savings.  These non-bank lenders now make up a huge market share of all the companies originating mortgage loans.  All companies lending mortgage money must follow the Truth in Lending Act: mortgage brokers, non-depository lenders, and depository banks.  Obtain a GFE from a mortgage broker, a bank, and a non-depository lender (sometimes they like to refer to themselves as “mortgage bankers” but mortgage lenders is a better description, IMO.)

Consumer’s: slow down and take the time to meet your loan originators in person. An initial F2F meeting will help you gather valuable data as to how your loan process is going to go.  Remember, an institution or a loan originator offering the lowest rate, lowest APR or lowest payment does not always mean this is the best choice.  If it sounds to good to be true, IT IS. Trust your instincts and your rational mind.