Beginning the Home Buying Process – Part 2

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[photopress:MacCommercial.jpg,full,alignright] The next step in the Home Buying Process is determining how much home you can afford and how much you actually want to spend. When buying your very first property, it is important to note that while a lender may tell you that you can afford a property priced at $350,000, lenders do not actually qualify you based on sale price. It has become common practice for the ease of agents and buyers to quote a sale price. But the actual process qualifies you for a monthly payment that includes Principal + Interest + Taxes + Insurance/HOA Dues.

This is VERY important because a Townhome with very high monthly dues can be more expensive, even though it has a lower price, than a Single Family attached townhome.

There are four townhomes on my desk. Let’s look at these as a real life, current example. Let’s calculate the monthly payment based on 20% down and an interest rate of 6.25%. 20% down is clearly not the norm for a first time homebuyer, but the way to finance the amount of loan on the 20% top portion, varies greatly from one individual to the next. So we are eliminating that factor to make the point that taxes and homeowner dues, can impact the price at which you can purchase, even though your “lender letter” says you qualify at $350,000.

1. Price $315,000 – Taxes $1,559 a year – Dues $310 a month (Condo Townhome)

2. Price $359,000 – Taxes $2,986 a year – Dues $282 a month (Condo Townhome)

3. Price $365,000 – Taxes $2,064 a year – Dues $239 a month (Condo Townhome)

4. Price $375,000 – Taxes $2,460 a year – Dues $75 a month (SFR Townhome)

1. Payment $1,550 + $130 taxes + $310 dues = Total Payment of $1,990

2. Payment of $,1765 + $250 taxes + 280 dues = Total Payment of $2,295

3. Payment of $1,800 + $170 taxes + $240 dues = Total Payment of $2,210

4. Payment of $1,850 + $205 taxes + $75 dues = Total Payment of $2,130

The homes in price order do not follow suit with regard to monthly payment order. The second lowest price has the highest monthly payment.

If the lender qualified you at a purchase price of $350,000 with 20% down at 6.25% using $200 as estimated dues and $200 as estimated taxes, that would translate into qualifying you at a payment of $2,125. Using the real life examples above, you would actually qualify better for the townhome priced at $375,000 than the one priced at $359,000, even though the lender said your max affordability was $350,000.

When you and your agent walk off with a lender letter at $350,000 and buy a townhome or condo at $350,000, but the lender used $200 a month for taxes and the real taxes are $300 a month, and the lender used $200 for monthly dues, but the real dues are $325…the sale can fail on financing issues. Many owners and agents get very angry when the financing fails, but it really falls upon the agent to know the estimate of taxes and dues used by the lender, so they can adjust on a case by case basis before submitting an offer.

Moral of the story is, when a lender hands you a letter saying “you qualify at a purchase price of $350,000”, make sure you know the interest rate, downpayment, taxes and ins./hoa dues the lender used to come up with that number. Then you can adjust, if you are liking a townhome with dues of $425 a month!

We all know that one complex in Bellevue that has high dues and more “Sale Fail Releases” than any other complex in the Seattle area. Now you know why that is happening.

Screaming rent controllers

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Renter, Reader or
User?

Two entirely unrelated shorts today:

We used to have a lot more screaming readers at RCG, but like any good troll, they became bored and moved on. It’s really too bad, because my new favorite do-right-by-your-users-blog tells me that screaming users are good.

Over at AHI, there is a good write up (read: I agree with it) on rent control. If New York wants to benefit all of the poor and not just those who were lucky enough to find and stay in a rent controlled apartment, they should give rent subsidies or a form of the earned income tax credit to those earning under a specific income (New York is expensive – $80,000 a year?).

Speaking of Trojan Horses!

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After reading John Cooks blog, ‘Beware of what you post on Zillow?‘ I started to think, how much is to much??? Much like my last post about the ‘Trojan Horse‘ are we all becoming so connected that it makes sense for the County Assessor to start using these tools as a way to fuel the County. In my case, King County Assessor Scott Noble was even quoted as saying, “the new Zillow service could be used as a tool to make sure that homeowners are paying their “fair share.” If the KC Assessor’s office would have used Zilllow’s Zestimate for the tax assessed value of a home LTD Real Estate just sold they would have almost doubled the tax bill. That would mean from this home alone, $2,601.51 more towards the bottom line. Hopefully Ron Sims doesn’t read this blog post…

I think I am going to keep my home information my own information.

Zillow 2.0 is out – Westlake Village start your photocopiers

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The folks at Zillow have just released an update to their web site (which first launched in February earlier this year). You can find out more details from the Zillow Blog.

The Cool:
One of the coolest features are scrollable heat-maps (frankly, I thought they’d do this, because it’s been on my Zearch 2.0 To-Do List for the past 4 months). So when you zoom around the map view, check “show heat map” check box, zoom out to the city level or higher, and see Zestimate/sq ft color coded all pretty like on the map. This is slick.

[photopress:Zillow.gif,full,centered]

Another thing they’ve done is add is what they call MyZillow. The feature allows users to keep track of their favorite homes from one central location. You can create your own estimate (and make it public), add facts about your home to supplement the public record and compare it to right next to the Zestimate.

The Lame:
The map page now has 3 banner ads it (2 of which were animated). Although, I understand Zillow’s business model is based on the ads, I think they would be better served by having fewer ads. Even realtor.com only has 2 banner ads on it’s major pages. I hope the next release doesn’t have pop-unders and “hit the monkey for a free iPod” ads.

The Deep Thought:
What will happen if disgruntled reators (or hackers) start entering bogus supplemental data into their MyZillow? Will it effect Zestimates negatively?
Anyway, congrats to the Zillow guys for pushing the envelope a little further. It’ll be very interesting to see what version 3.0 holds and see how far Zillow can push that deCarta DDS box that they have sitting in their data-center.

Jeez Louise! Web 2.0

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[photopress:2_1.jpg,full,alignright]We just can’t be the only ones not reporting on this. That’s all I can say. It’s a sad day. Click on every word in Greg’s post for the full scoop heard round the world regarding Redfin and Web 2.0.

Maybe they should have closed for holiday during Glenn’s honeymoon. I never called my office once during my honeymoon…hope Glenn is doing the same and shutting out all forms of communication!

Try this one…it’s quicker.

The Escrow Files: sometimes stuff happens

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[photopress:destroyed_check.JPG,full,centered]
When checks are late to the recipients, escrow tends to sweat. Now we know where this check ended up! Everyone started laughing when we received this 1/6th scale “lost” check in the plastic baggy from the post office. This was shreaded and after a few minutes of taping what we had together and smoothing it out with books, this is what was left!
Note the language on the postal baggy: “We care….we hope this didn’t inconveniece you….” Nah, we enjoy angry customers wondering where their money is. 🙂

A New Kind of Real Estate Company Visited

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A couple of weeks ago I blogged on a new real estate model where I try to match real estate agent strategies to the agent’s personality.  I call the different strategies “games” (www.getstrategic.com/agents).  I’m going to share my progress with you, the highs and the lows to let you know how it is going since there’s no other company that I know of doing this sort of model. It may be like picking a carrot to see how it’s growing. But this carrot is an unknown species. Sticking with this metaphore, the only way I can observe it is to grow it hydroponically in a glass beaker to watch it grow, the glass beaker being this blog!

Here’s what I can share with you so far:

I’ve had the poorest results with the 3 experienced agents I had to let go because they wouldn’t put time into activities that they’d never done before. I think they must have joined because of the word “free leads

Queen Anne Condos

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Isn’t that photo Awesome! I just got an email announcing the Broker’s Open on Tuesday, September 19th from 12 to 2, but I have an appointment here on the Eastside at 1:30.

First Public Open will be September 23rd and September 24th from 11 a.m. to 6 p.m. An amazing array of styles from studios to townhomes and amazing array of prices to go with.

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More info at www.queenannehigh.com Very cool site. You can visit each floor and scroll around the different units and floor plans. The studios start in the “low” $300,000s. They say “townhomes” start in the mid $700,000s. Not sure how you fit a townhome into a High School. Lots of floor plans and prices in between. I think there are 139 units altogether on five floors, plus a furnished rooftop deck with amazing views.

One of only 37 buildings in Seattle on the National Register of Historic Places. Should be worth the trip! I’ll have to catch it at one of the Public Opens.

Queen Anne High School was built in 1909 and the historic photos on the site are well worth visiting. This is a public service announcement, and not an advertisement of a Coldwell Banker listing 🙂

Changes in Appraisal Standards can affect housing prices

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[photopress:down.jpg,thumb,alignright] Very interesting article by Kenneth Harney in Seattle Times today.

Of specific note is this quote from the article, “Some mortgage lenders and relocation companies now expect appraisers to examine a wide range of data they never emphasized during the boom years.”

Last night I had a nice chat with a seller regarding how the appraisal process can negatively impact the price at which his home can sell for, if the purchase is financed.  This is not true of all homes, but it was for his particular home.

When lenders start getting nervous about the future of home prices, they start putting downward pressure on prices, by  requiring that appraisers to be more careful not to overvalue for mortgage funding purposes.  While the “lenders and relocation companies” may be nervous based on something that is not happening in the marketplace of this given house, that nervousness can result in properties not appraising.

When the lender will only fund 80% of what THEY think the property might sell for in the future, the buyer will have to make up the difference in cash, in order for the seller to get the agreed upon price.  If the buyer is not willing to pay that difference in cash, then the house may not be able to sell for “what the market will bear”.