How and Why CASH Infusion Fuels a Housing Recovery

housing recovery Removing the Must Appraise Clause.

BEFORE you as a buyer of a home agree to “remove the must appraise clause” you need to know that means more cash from you the buyer of an undetermined amount. You also need to know the Finance Contingency does not usually cover not having enough Cash to Close.

Cash bridges the gap between Appraised Value and Sold Price in a Housing Recovery. 2012 not so much. Early 2013 we are seeing “remove must appraise clause” as a condition of acceptance in multiple offers more so than last year. I did see a few last year. Mostly flip houses with a huge change in price from “bought at foreclosure” to 3 months later “sold as flipped house” at almost twice the price as the flipper just paid for it.

This year removing the “must appraise clause” in most all upwardly mobile neighborhoods has become a given.

Sellers are not necessarily choosing highest offer in multiple offers, unless that highest offer also is all cash with no must appraise clause OR the buyer is willing to fund the appreciation with cash.

Because this is so very common right now, and will continue to be so through at least this season into August, people need to know what that means.

LENDERS are not supposed to Fund a Housing Recovery.
THAT is WHY we had a Real Estate “Bubble”.

Lenders bridging the gap between Appraised Value based on “comps” and what a buyer is willing to pay for a house, is a lot of stale air…a bubble. Appreciation fueled by cash from the home buyer is a more stable and historically common form of funding home price appreciation.

Agents get mad when a house doesn’t appraise. That’s just crazy thinking. Let’s take a look at an example as to why that is. Let’s assume the homes are equal in all ways in the example below.

Asking Price – $500,000.00

Last home sold in neighborhood – $485,000
House before that sold – $470,000
House before that sold – $460,000

$500,000 Asking Price house goes into multiple offers and sells at $515,000.

Buyer is putting 20% down. 20% down of WHAT? Buyer thinks he is putting down 20% down of the Purchase Price. BUT the lender says they will fund 80% of Appraised Value or Purchase Price…whichever is LESS.

Very important to understand that your 20% down plus The Lender’s 80% does not equal 100% of the Purchase Price when the market is rising.

If the house appraises at $475,000 in the example above, and the Purchase Price is $515,000, then the lender will loan 80% of $475,000 or $380,000. The buyer’s 20% of the purchase price is $103,000.

$380,000 80% of Appraised Value + $103,000 20% of Purchase Price equals $483,000 and not $515,000. The GAP is $32,000. That means the buyer has to bring $135,000 downpayment to the table vs $103,000. He needs to bring 20% of the purchase price PLUS the difference between 80% of appraised value and his 20% of Purchase Price.

That $$$ difference between what the buyer intended to pay as “20% down of $515,000” and the 80% of Appraised Value that the Lender is willing to lend IS “The Housing Recovery”

That “Housing Recovery” needs to be fueled with an additional cash infusion by the buyer of the home, NOT additional loaned funds as part of the mortgage.

People are asking if this is another “Housing Bubble”. All Market Appreciation does not create a “bubble”. Appreciation fueled by lenders is a bubble. Appreciation fueled with hard cash dollars from the buyer is market appreciation. BOTH can be lost when the market goes down.

No one can tell you what prices will be in 5 years or 10 years or 15 years when it is time for you to move on and sell your house. The only issue is IF the market at the time you sell creates a negative result between what you paid and what you sell for, is that lost money your money or the bank’s money?

In the future, based on cash fueling the recovery vs lenders fueling the recovery, the negative result will not create short sales and foreclosures to the same degree that it did after “The Bubble Years”.

Appraisers can take the comps and deduct from the result if they want to cover the lenders better. They can STICK WITH the actual comps. They can be instructed to add x% for a rising market. In the Bubble Years they added x% for a rising market PER HOUSE vs PER YEAR! That is where they went terribly wrong. Instead of adding 5% for a year…they added 5% to every house! Consequently 6 sales in 4 months created appreciation of 6 times 5% or 30% increase in 4 months. THAT was “The Bubble”.

Yes buyers are ticked off when they have to pay more than Appraised Value with cash infusion. BUT historically that is the ONLY way for a market to appreciate…without creating a new Housing Bubble.

Lenders should not fund appreciation of the Housing Market. Lenders should not stretch to “The Sky’s the Limit” appraisals and loans. Hopefully that is a lesson learned in The Bubble Years that will not repeat itself moving forward.

BEFORE in the heat of multiple offers you say YES! to removing the must appraise clause or Bridging the GAP between 80% of Appraised Value and your 20% down, KNOW what that means. It means you need more money…or be willing to lose your Earnest Money if you don’t have enough to bridge that gap.

How much more money do you need? No one knows…until the appraisal comes in. You DON’T know that number on the day you decide to win in multiple offers, by pulling that “must appraise” clause.

BUYER BEWARE time.

Upcoming Changes to FHA Mortgages

In a recent press release, HUD has announced several changes coming soon to FHA mortgages. FHA mortgages are popular with home buyers because they allow for lower down payments (currently as low as 3.5%) and FHA mortgages tend to be more flexible with credit scoring and debt-to-income ratios. Another reason why home buyers may lean towards is an FHA mortgage in the greater Seattle area is because the allowed loan amount for a single family dwelling is $567,500 compared to $506,000 with a conforming mortgage.

Upcoming changes to FHA mortgages include:

  • FHA annual mortgage insurance (paid in the monthly mortgage payment) will increase by 10 basis points on FHA loans. FHA jumbos (loan amounts of $417,001 to $567,500 in King County) will see an increase of 5 basis points. This is effective with case numbers issued April 1, 2013 and later. 
  • FHA mortgage insurance to be permanent.  FHA mortgage insurance on loans with case numbers issued April 1, 2013 or later will have mortgage insurance on the life of the loan. FHA mortgage insurance on loans with case numbers issued prior to June 3, 2013 will still have their mortgage insurance terminate once it meets 78% loan to value and 60 payments have been made.
  • FHA annual mortgage insurance on 15 year amortized mortgages to be 45 basis points effective with case numbers issued June 3, 2013 and later.  Currently FHA mortgages with 15 year terms do not have annual mortgage insurance.
  • Manual underwriting for borrowers with credit scores below 620 and debt to income ratios exceeding 43%. This basically means that even if the automated underwriting system issues an approval – a borrower meeting this criteria will still need to have a human underwriter review the complete application and decide if she wants to sign their name to it.  I believe at our company, our lowest credit score we will accept for an FHA loan is 640.  This goes into effect with case numbers issued April 1, 2013 and later.
  • Minimum down payment to increase on FHA Jumbo mortgages to 5%.  Currently FHA jumbos have a minimum down payment requirement of 3.5%. In King, Snohomish and Pierce Counties, FHA loan amounts between $417,001 and $567,500 are considered to be FHA Jumbo. A mortgagee letter has not been issued yet (as of the publishing of this post) as to when this will happen.

The increases to FHA annual mortgage insurance premiums will not impact FHA streamlined refinances IF the existing underlying FHA mortgage was endorsed by HUD prior to June 1, 2009.   These lucky home owners still qualify for reduced FHA mortgage insurance premiums.

These changes are in effort to help bolster FHA’s capital reserves.  From HUD’s press release:

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante.  “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

If you have been considering buying or refinancing using an FHA insured mortgage and have the ability to beat the April 1, 2013 date when many of the changes are taking place, I encourage you to do so!  FHA case numbers are issued after a bona fide application is in place. If you are in an FHA transaction during the April 1 date, you will want to confirm with your mortgage professional that you have an FHA case number.

 

Selling Your Home – 15 Good Photos

Gone are the days when you can advertise “must see!” to sell your home, as if people have to come into your house as the first step in the home buying process. You can scream that from the roof top all you want, but unless you have a location that would cause anyone and everyone to come to and into your home, it’s all about the photos.

So where do your start? You start with The Three Basics – Paint -Floorings – Clean

Home For Sale

Once you have your walls and floors together (see post linked above) you move to taking your “test photos”. Once you know which angles will end up in the 15 Photo Display, then you stage those “photo areas”. because it’s all about the 15 mls photos!

rkit

The cost to stage the above townhome was $2,500 BUT I staged it myself within the cost of Listing the home. I used that $2,500 as follows. $1,500 to refinish those now gleaming, satin finish hardwood floors on the main floor and $1,000 to have the place painted. We also put in all new carpet and the $1,000 to paint was for the main pro painter and did not include the prep-tape-helper. I use a painter who let’s me bring the “helper” myself, to save on cost.

Of course there are whole HGTV shows devoted to ALL of the steps that lead to FIFTEEN GREAT MLS PHOTOS.

I just try to give you a snapshot of the process…one blog post at a time. Both of the above homes are recent. The top one closed in December of 2012. The lower photos are of a Pending townhome over in The U-District. The top one sold in 1 day, the lower one in 2 days. The top one took SEVEN WEEKS to get ready for market. The lower one about THREE WEEKS.

So “SOLD IN ONE DAY” took from September 7th to October 25, 2013 to get it ready to list…and sold on October 26th as to Offer and Acceptance. The lower one “SOLD IN TWO DAYS” took from January 6, 2013 to Jan. 26 to get it ready to list…and sold on Jan. 28 as to Offer and Acceptance.

A few recent real life examples…to give you an idea of what it takes to get your house from Day One to SOLD.

Jillayne Schlicke Made Inman’s 100 Most Influential List!

schlicke_jillayne

A huge congratulations to our very own Jillayne Schlicke on making this year’s list of the 100 Most influential Real Estate Leaders!

Here’s how they describe her:

Jillayne Schlicke is a researcher, writer and educator who advocates that real estate and mortgage industry professionals maintain a high level of training and ethical standards. As CEO of CE Forward Inc., Schlicke teaches continuing education courses and conducts convention workshops and keynote presentations for the real estate and mortgage industries. She’s also the founder and executive director for The National Association of Mortgage Fiduciaries, which seeks to help the industry prepare for the emergence of fiduciary duties by raising ethical standards, creating a framework for industry …

2013 Mortgage Loan Limits for King County

rate changesThe 2013 mortgage loan limits for the  greater Seattle area are for the most part, the same as 2012.  The following loan limits apply for homes located in King, Snohomish or Pierce Counties.

Conforming:

1 Unit: $506,000

2 Unit: $647,750

3 Unit: $783,000

4 Unit: $973,100

FHA:

1 Unit: $567,500

2 Unit: $726,500

3 Unit: $878,150

4 Unit: $1,091,351

VA:  

$500,000.

NOTE: Technically speaking, VA loans do not have a “limit”. $500,000 is the highest loan amount for a “zero down” VA loan. If a qualified Veteran wishes to buy a home priced above $500,000, the down payment will be 25% of the difference between the sales price/appraised value (lowest of the two) and $500,000.  For example, a $600,000 sales price would have a down payment of $25,000 ($600,000 less $500,000 = $100,000 x 25% = $25,000).

You can find a complete list of loan limits by county for homes located in Washington state in the “footer” of my blog.

Teaching Realtor Clock Hour Classes in Washington State: Getting Started

I’m writing this post because I am often asked how to get started teaching Realtor clock hour classes.  There are a million ways to answer this question.  Do you want to know what the state requirements are? I can easily point you in the direction of Washington State’s required forms but the form won’t tell you how to get up and running. This form will tell you how to get yourself approved as an instructor.  Getting up and running is a different question and that’s the question I will answer in this post.  I have found that the best way to help people is to start at the end.

What’s your end game? Do you want to teach Realtor clock hour classes because you want to make a lot of money? Maybe you don’t care about the money because you have some other job where you already make pretty good money but instead want to use the classes as a way to get in front of Realtors so you can show them how awesome you are…so they will refer business to you.  I have found the latter to be the most common reason why people want to begin teaching Realtor clock hour classes. But let’s talk about money first.

Money

There isn’t a whole lot of money in teaching live classes because…well…because there are so many vendors who are willing to teach low quality CE classes for free.  There are also many large companies willing to send one of their full time employees to teach classes and at conventions for free. These instructors have full time jobs in management, sales, law, tech, etc., and teach classes or at conventions as a public relations maneuver for free, or for a very, very low fee. There’s a word for it. I call it sales-ucation.  Big conventions only pull out big paychecks for the big name draw convention speakers.  I’m assuming you’re not a big name convention keynote speaker if you’re reading this article so I’m going to tell a secret to the rest of you who are not sales-ucation speakers.  There always IS a budget of some sort and they always WILL pay you something—if you ask.

Money, continued
Three Puzzle Pieces: Teaching, Writing, Warm Butts

If you are looking to teach Realtors as a career, AND you can write your own classes you’re on your way. The last piece of the puzzle will be—how are you going to get warm butts in chairs?  You need to be able to do all three: Teach a kick-ass awesome class, constantly write new material, and have a marketing machine that delivers students into the classroom.  Most people who want to teach….want to teach and that’s it.  They want to walk into a classroom filled with students and walk out with a paycheck.  If that’s all you want to do, your value to a real estate school is really, really low.  But that’s okay, and there are real estate schools out there who may hire you but don’t expect to be paid much per hour or per class.

Vendors and The Numbers Game

Maybe you’re a vendor and…well, now don’t be offended if I call you a vendor.  You might be thinking…..I’m a loan originator! I’m an appraiser! I’m an attorney! I’m an escrow officer!  I hate to be the one to break the news to you but to a Realtor you’re just another vendor. Check your ego over there on the edge of the computer screen and don’t get offended if I call you a vendor.  So vendors typically want to use the classroom as a way to grow their business.  It’s a numbers game.  You get in front of X number of Realtors each month will translate into X number of referrals which will translate into X number of leads which will translate into X number of deals which will translate into X number of closed transactions which, on average, will net you X number of before-tax dollars per month.

This is a great strategy and it is doomed to fail. I will hire no one to work at my company if all Realtors are to you is a dollar sign or a lead in a grand master plan. People aren’t objects.  Students aren’t there to be used and even if you (please don’t) teach your class for free, the Realtors are still paying with their time.  Their time is valuable and if all you are doing is a sales song and dance about how much you know and how awesome you are you will fail.  This is what gives Realtor clock hour classes a bad name.  Instructors are in the classroom to help people learn.  They are not there to sell.

Magic is Mystery

So here’s the magic. As a vendor, I know you want deals. Everybody knows you want deals but if you go in there with your deal-wanting pants on, everybody’s going to know it. Instead, you need to approach teaching like a good book.  Nobody goes right to the end of a good book to find out what happened. It’s a mystery. That’s what makes reading so enjoyable.  If you really want to find success in the classroom, and by success I mean meeting your math goals in the previous paragraph, you need to let go of the outcome and instead focus on teaching an awesome, kick-ass class.  A class better than any class they’ve ever had from your competitor.  If you teach an awesome class, they will call you. You get to pick and choose who you want to work with. That’s right. At the end of a 4 hour class, you will know which Realtors you want to work with and which Realtors you don’t want to work with.

The Good News

Title insurance, mortgage lending, home inspections, escrow, all of these vendors have reputations for delivering “free” classes that are god-awful boring. That’s the good news. The bar for free vendor classes has been set terribly low.  All you have to do is to teach even a marginally decent class and they’ll think it’s the best class they’ve ever taken.

So what’s the difference between a god-awful boring class and a kick-ass awesome class? A class where the instructor DOES NOT lecture.

It’s Hard But It’s Also Easy

The most difficult thing for most all clock hour instructors to get their heads wrapped around is that your mouth doesn’t have to be moving the entire time. Unless you attended a fancy prep school in your younger days, most of us attended school where the teacher did most of the talking and we think we have to do that to teach Realtors.  That “teacher knows everything” archetype is embedded in our psyche.  That’s not what adult learners want from their clock hour instructors. Adult learners want to get involved with their learning and that means you don’t have to be the one talking all the time.  This is hard but also easy.

Step 1

The first step is to get into the right Instructor Development Workshop.  Find out who is in charge of the workshop, who is teaching it, how long they’ve been teaching Realtor clock hour classes and how familiar they are with the facilitation model of adult learning.  There are many IDWs out there.  Some are cheaper than others, some are online. You do get what you pay for. Shop around and ask questions.  Will the instructor answer all your questions about getting up and running during the workshop? Will the instructor help you fill out your state-required paperwork? Will the instructor give you the opportunity to try out the facilitation style of learning so you can get a feel for how it really works?  Find the very, very best Realtor clock hour instructor you know who teaches a lot of interactive, fun classes and ask that person for a recommendation on where to take an IDW.

Step 2

The second step is to figure out if you’re a writer.  If you don’t know how to write classes, don’t want to write classes, or don’t have time to write, then you’ll need to hook up with a real estate school that already has classes written that you can use but remember, no school is going to let you teach their material for free. There will always be a fee involved but you can let the students pay that fee if you don’t want to pay it.  Real estate schools like mine can also help you write something completely unique and brand new.  The class must be written to allow the instructor to give the students lots of things to do. The old-style class just gives the instructor lots of things to SAY.  That is a recipe for a boring class.   Just mailing a set of powerpoint slides to the Dept of Licensing won’t cut it. They want specific learning objectives. Real estate schools know how to write classes that the Dept of Licensing will approve.

Step 3

The third step is to figure out how you’re going to get warm butts in chairs.  The easiest way vendors think they will meet this goal is to offer free classes.  Unfortunately when you teach for free you are telling the Realtors what you have to teach them has no value.  Unless YOU own the real estate school and you own your own courses, you OR the students will be paying another real estate school a fee to use their school and courses. Having your own school is also an option but you still haven’t solved the warm butts in chairs problem.  So until then, make a list of possible marketing partners such as a local Association of Realtors or other vendors that also sell to Realtors.  Whatever real estate school you’ll be working with can also help you with marketing ideas.  You can have a great class and know how to teach an interactive class and then end up with nobody showing up.  The marketing piece is crucial to meeting your goals. Marketing takes time and money.  Just sending out a flyer to your email database of 500 Realtors might net you 5 students. If all you have is emails, you need BIG numbers to net 10 students.  If you don’t even have a database of Realtors you’ll need to buy one or partner with someone who has one.

Other Options

In closing, teaching Realtor clock hour classes is a big time commitment.  Not everyone can meet that time commitment, but they still want to attempt to meet their goals. Another option, without actually taking the time commitment needed to be an instructor, is to just sponsor a clock hour class through your local Realtor association. You bring in some healthy food like fruit and protein bars (can we ditch the donuts and muffins and bagels? All those simple carbs are increasing the LDL cholesterol levels of Realtors as I write this.  Enough of that crap already) and then you have a few moments to address the audience.  This is an option for you to create some face time but that’s all it is. Most vendors don’t stay for the whole class.  Drop and go is the status quo and I’m sure the ROI is not very high.  But it DOES make you feel like you’re accomplishing something if a “feeling” is the goal.

Think about your endgame and if you’ve decided to become an instructor, go back and read Step 1.

 

Impact of Fiscal Cliff Agreement on Homeowners?

housing and fiscal cliff

There was so much fear mongering going on about “The Fiscal Cliff” it was starting to feel like being tied to a chair and being forced to watch The Shower Scene from Psycho. The stock market rallied up in response to it just being OVER WITH! But should we just be happy that it’s over with? Did the final agreement impact homeowners?

Doug Tingvall of RE-LAW sent me a quick synopsis of how the deal impacts homeowners “for now”. I asked him to post it publicly as I think it might be of interest to homeowners and homebuyers. I don’t see much in there that is alarming or even much of a change, but maybe I’m missing something. Read Doug Tingvall’s full synopsis HERE

While Doug’s Article does not seem to have a place to ask questions or post a comment, if you have questions you can post them here and I will see if Doug has some time to answer them for you.

The summary is worth a quick read and many thanks to Doug Tingvall for sending it over to us.

Seattle Real Estate – Where does the TV go?

I like this first picture of a TV placed in a main floor or lower level bedroom because honestly, here in Seattle, this is often the case. In fact this particular photo reminds me of the house I sold for Dustin Luther, the owner of Rain City Guide, a few years back.

The light streaming in from the left reminds me of the french doors he had leading out to the deck and yard. I sold a similar home with french doors out from the bedroom on the main level over in Phinney back in 2005 or so.

If you are buying a reasonably priced home in Seattle vs on The Eastside, the above photo likely represents what “a family room” will look like, given homes built in the early 1900’s didn’t have real “Family Rooms” or even Formal Living Rooms and Formal Dining Rooms to a large extent.

The next photo cracks me up as it reminds of the time when high ceilings, loads of windows and lots of natural light was first added to “The Family Room” and it was renamed “The GREAT Room”. I remember John Orobono saying to me, “Ardell, we love our new house, but I have to hide in the closet with a TV to watch the football game, because there is too much glare on the TV during the daytime”.

Of course they make “low or no glare” TV screens now to assist with this “problem”.

Over the Thanksgiving Holiday I was playing Just Dance 4 at my daughter Tina’s. This lower placement in the photo below is likely more common for today’s family that plays games on their TV and watches “TV” on their laptops. 🙂

The above picture reminds me of my friend Kevin Tomlinson of South Beach Florida as it has that monochrome austerity with a bold splash of color that he favors as to Interior Design.

So back to the original question “Where Does the TV Go?” Well…builders…NOT over the fireplace!

Home Prices in Redmond Washington

I was running some stats the other day for Kirkland, Bellevue and Redmond home prices and the graph below came out a bit oddly, as if all prices are trending to 200 to 207 per square foot. I say “oddly” because some went UP to there while others went DOWN to there.

That is not to say that median home price within these various Elementary School boundaries of Rockwell, Mann, Einstein, Alcott and Audubon are all running together. In fact there is quite a variance as shown in the graph below.

As noted in my original post the numbers are graphed from low to high in this manner vs to start from zero…which would show the flatter market consequence, would not permit you to see the actual numbers one on top of the other, so I caused them to spread more dramatically only for the ease of reading the underlying data detail.

Rockwell Elementary…very consistent as would be expected given its “close in” location to Redmond Town Center and the general lack of new construction of single family homes within its borders.

Mann elementary still one of the best “bargain” areas relatively speaking and when lucky enough to find a good house there like the one my clients purchased between 2 and 3 years ago, within the timeframe of the charts, Mann continues to be one of the best places to get a home at a fair price that is not too far out.

Einstein…well the fluctuation there is greater for a few reasons some of which have to do with the school and some of which has to do with the decline from “new” to “used” and the turnover of homes too quickly back 2 or 3 years ago causing the dip. But looks like it is recovering nicely from all that.

Alcott and Audubon tell the story of people being willing to go a bit further out to get a newerish house, as in not built in the 60s or 70s, with a large yard at a reasonable price. Clearly 98053 and Sammamish have both been the surprise change in market conditions in 2012. Even though “close in” is still preferred, the willingness to go out further for good house and great school like this one my client’s purchased this year with more land than being closer in was definitely a game changer in 2012 for Redmond.
********
Required Disclosure – Stats in the post and the charts and graphs herein are not compiled, verified or published by The Northwest Multiple Listing Service.

On a cumulative and median basis, prices are trending slightly up in the 3% to 6% range. But that is not to suggest that buyers need to panic, or sellers should be getting overly optimistic, as to potential sold prices.

Yours truly will have a painting at Bumbershoot

I’m very honored to have been included in this years Seattle Bumbershoot.  I recently started painting earlier this year for a hobby. I had (have) no expectations where my paintings may take me – it’s all just for fun.

What is especially fun is to be asked to participate in this year’s Bumbershoot festival at the Seattle Center by Marlow Harris.  Marlow, along with her husband, Jo David, are curating an exhibit to tribute the 50th anniversary of Elvis at the World Fair in Seattle…. Elvistravagaza.

When I dropped off my painting at Marlow’s home, I was blown away by the vast array of the artwork.  Other (I say other as if I’m one of them) artist were drooling….knowing of the other artist…which, I will admit here, I was clueless.. probably after seeing my painting, you might say I’m clueless too!

IF you want to see the artist work for FREE, you can do so on Friday, August 31, 2012…..after that, you’ll need to pay the price of the ticket to Bumbershoot ($45 – $50 a day).

UPDATE 9/3/2012 9:00 AM:  Today is your last chance to see Elvistravaganza, which includes my painting, at Bumbershoot.  The painting is being auctioned with proceeds benefiting Cafe Racer Love and as of yesterday, when I was at Bumbershoot, the bidding was up to $400!  If you’re interested in placing a bid, please contact Marlow Harris ASAP.