Before sale sign goes up

For Sale

Written by
ERIC RUTH

Once upon a time, when the housing market was cruising in overdrive, folks could sell their house even when it was in disrepair. Or dirty. Or even overpriced.

Those mile-a-minute days are a memory now. In their place stands a battle-toughened market, and a heightened sense that sellers must now do more, try more, work more to get a contract signed.

That’s especially true as peak season for home sales approaches; families typically work to find a springtime deal that will allow a summer move. Sellers who have done their homework — literally – will get out of the gate ahead of rivals, real estate professionals say.

Proper preparations demand far more than a coat of paint or a cleanup, but are also far more financially rewarding when the deal is done.

All brokers are not equal

How should you hire a broker? Very methodically, as it turns out.

The U.S. Department of Housing and Urban Development recommends speaking with a minimum of two or three candidates from different agencies, asking each the same questions: How long have you sold homes, and for how long in this area? What’s your commission, and how would you market my house? Will you coordinate meetings with buyers? Can you give me some names and numbers of your past clients?

Consumer Reports recommends visiting candidates’ open houses to see how well they pull things together. How’s their manner? Their presentation? Even their breath?

Be realistic about asking price

Remember all those news stories about how real estate prices have fallen? So will potential buyers.
Be realistic about pricing your home, because if it’s listed too high, it very likely won’t sell — even if you lower the price later, Realtors say.

“The price that you introduce to the brokerage community initially is the one that’s going to stick in their head,” said Steve Storti, senior vice president of marketing for Prudential Fox & Roach. “It’s a killer, because it chills the agents from showing your house.”

Ask your Realtor for a market report showing what similar houses have sold for. Visit open houses in your price range to see what you’re up against. Check websites like Zillow and HomeGain for comparisons.

In the end, it will pay. Research by the Keller Williams real estate firm shows that sellers who listed their home at the price the agent originally recommended sold the home 38 days faster. Buyers don’t think solely about total price. Sellers can increase their deal’s appeal by offering to cover part of the closing costs — an especially attractive extra for first-time buyers.

Or, consider offering a warranty against problems with certain systems and appliances for the first year. Warranties range from from $250 to around $400, according to Consumer Reports, which recommends warranty firms such as American Home Shield and First American Home Buyers Protection Corp.

Inspection report can be a help

Buyers frequently hire home inspectors to check over homes before closing — but it’s something that can benefit sellers too.

With a home inspection report in hand, sellers can target key problem spots for repair. Later on, when open house days arrive, potential buyers will feel more at ease seeing that glowing inspection report — along with receipts for any repairs — on the dining room table.

It’s obvious things should be fixed up and cleaned up before those potential buyers start rolling in. It’s not always obvious to sellers how to “stage” their home so that it shows in the best light.

“I think people are very surprised when they hear all the things that need to be done,” said Theresa Vallier Minichiello, who owns Stage Right! Home Staging in Hockessin. “They can’t understand the necessity of making an investment in a house they’re getting ready to sell.”

Staging professionals are often willing to charge only for how much help you can afford — so long as you’re willing to take on the remainder of work yourself. “It doesn’t have to be this huge financial investment. If people will invest their time, they’re not going to have to invest their money,” she said.

A consultation with Minichiello is $199, and she says a full staging averages about $1,500. In her field, she said, one fact holds true: The cost of staging your home will always be less than the price reduction that would be needed without it.

Just because your house is listed doesn’t mean you should sit back and wait. Stay active in the sales process — promote the house through online social media networks like Facebook, Twitter and LinkedIn.

And keep an eye on the listing — a photo showing your home nestled in a foot of snow may imply it has languished on the market to buyers who see it in the summer.

Once you’ve managed the process as well as you can, go away — the last thing buyers will want to do is tour your house with you and your family in it.

97% loan-to-value Conventional loan with NO PMI?

If you are shopping for a home, then you are undoubtedly looking for the best mortgage deal to finance the most important purchase in your life. Perhaps you have read about 97% loan-to-value (LTV) conventional loans with NO PMI (private mortgage insurance), and thought “No PMI, this is a really good deal.” Some mortgage companies call it the “FHA loan buster”; a lower down payment loan than FHA with NO up-front PMI and NO monthly PMI! All of the advantages of a FHA loan, but no worries of FHA-related issues during the appraisal.

Beware when considering a conventional loan with these terms. The interest rate on this type of loan is generally much, much higher than your standard conventional loan. Most likely, you will pay much more in interest over the term of the loan as opposed to the PMI in a standard conventional loan. You can pay down the mortgage to 80% LTV to remove the PMI in your conventional loan, but you will always be stuck with a high interest rate in a no-PMI conventional loan.

Do you want the best deal and the most options for your next mortgage? Please contact me and I will put you in touch with the best mortgage professionals for the job. I work with an excellent network of professionals who work hard to get the job done at the best deal for my clients.

New Guidance from FHA Regarding Collection Accounts

For case numbers assigned on or after April 1, 2012, FHA will require that collection accounts with a total outstanding balance equal to or greater than $1,000 be resolved. The borrower must either pay the account(s) in full with verified funds or provide evidence that they have entered into payment arrangements with the creditor(s) with a minimum of six* months verified payments (i.e. “paid as agreed”). The payment arranged must be included in the calculation of the borrower’s DTI.

Note: Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts.

FHA continues to require judgments to be paid off. An exception to the payoff of a court-ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments with a minimum of six* months payments made according to the agreement. The monthly payment must be included in the borrower’s debt-to-income ratio.

3 reasons to list home with a local agent

REThink Real Estate

By Tara-Nicholle Nelson
Inman News®

Q: Is it best to list with a local real estate agent (in the immediate area) who knows your community rather than one in another part of the metro area?

I’m in the Murphy/Plano area of the Dallas/Fort Worth metroplex and have been listed with an agent in the McKinney area for five months, and it doesn’t seem to be working out. I would love to hear your thoughts. –P.A. in Texas

A: I’m a proponent of listing with an agent with as deep a local knowledge and relationship base as possible. With buying, things can be a little bit different — especially if you are relocating and looking at a wide range of areas.

Unless you’re house hunting in a super-specialized neighborhood or for a unique property type, like a Manhattan co-op, any buyer’s agent from the general area can get familiar with a neighborhood in that region pretty quickly if he or she is up to speed on the basics of doing deals in an area.

When it comes to selling, though, it’s quite a bit tougher, especially on today’s tough-to-sell market where pricing and marketing nuances (along with vendor, lender and inspector relationships, and contacts with buyer’s brokers and buyers themselves) are crucial to get homes sold.

Before we get into the details of what a local specialist has that another agent might not, though, I do want to say this: I don’t know your local market, but in many areas of the country even the most local, smartest, most aggressive, best-marketing listing agent might not be able to move a home in five months or less. Frankly, the best agent cannot move an overpriced or poorly prepared home.

And the fact is that nonlocal, specialist agents do provide sound advice on pricing, preparation, marketing and strategy to sellers every single day across the country. So, while a local-area specialist might have a leg up on another agent based on relationships and insider knowledge, that is no guarantee that he or she will be superior to the agent you have right now.

So, before you go through the upheaval of finding another agent, ask yourself:

  • Do the challenges you have with your current agent actually have anything to do with her relative “outsider-dom”?
  • Has your current agent given you any advice on getting your home sold that you have failed to follow (i.e., cut the price, clear the clutter, hire a stager, etc.)?

If you are not following your current agent’s advice, then you should think twice before firing her because your home hasn’t sold. Hiring another agent will not resolve your problem if your home is still overpriced or underprepared.

So, assuming you are willing to do everything within your power to price and prepare your home fairly, here are some of the considerations that tilt my general opinion in favor of a local listing agent vs. an agent from outside the area:

1. Local agents may have insider marketing knowledge. In certain neighborhoods in my town, for example, the standard practice is to:

  • List a home midweek.
  • Hold it open for brokers only on Thursday — and advertise those on agent-only fliers.
  • Not allow it to be shown otherwise until the Sunday open house.
  • Hold it open for two Sundays.
  • Take offers the Tuesday or Wednesday following the second open house.

Agents from surrounding areas could probably guess at some but not all of these things, but often they don’t. And that lack of insider knowledge might actually prevent out-of-the-area agents from getting the fullest exposure for their listings.

For example, if you just took the first offer that came in, you might forgo the offer of a local buyer who was expecting to have two weekends to get to the place.

2. Local agents may have relationships outsiders don’t. They may know the other agents in town, and be able to market the property to them casually, as they run into them in the grocery store or at local meetings, in a way that (a) works and (b) an agent from outside the area cannot. They also will have the built-in marketing channel of being able to market to agents inside their own office — not to mention the buyers they represent.

Finally, local agents might know the inspectors, appraisers, even lenders (i.e., all the pros who have to work together to close a deal) and have a relationship of trust with them that a stranger does not.

And that includes being able to find contractors or other vendors who will do repair work at better prices or on better terms than they would offer to a stranger.

3. Local agents might have a leg up on pricing. Possibly the strongest argument for working with a local listing agent is that they know what local buyers want, care about and deprioritize. That means they understand local pricing nuances better, having worked with local buyers, and having viewed and/or sold recent homes nearby.

You don’t have to have been in the market long to understand that photos can be misleading and that location nuances weigh heavily on the prices that buyers are willing to pay, so the history of having actually been to and inside the comparable sold listings — rather than just having seen them online, can be critically important to understanding how comparable they are to your home, and how your home should be priced accordingly.

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

6 truths about no-cost mortgages

While buyers avoid overcharges, they also pay a higher interest rate

By Jack Guttentag
Inman News®

“Is shopping for a no-cost mortgage a good strategy in today’s market?”

No-cost mortgages are relatively easy to shop because of their simplicity, and this is as true today as it was when I last visited the question in 2004. Greater simplicity increases the likelihood of finding a better deal or avoiding a worse one. Yet borrowers who expect to have their mortgage for a long time may be ill-served by a no-cost mortgage and would do well to consider an alternative strategy.

What are no-cost mortgages?

A no-cost mortgage is one on which the lender pays the borrower’s settlement costs, including the mortgage broker’s fee if there is one, with the following exceptions:

  • Per diem interest, which is interest from the closing date to the first day of the following month;
  • Escrows for taxes and insurance, which are borrower funds set aside to assure payment of the borrower’s future obligations;
  • Homeowners insurance;
  • Owner’s title insurance;
  • Transfer taxes charged by governmental entities.

Don’t confuse no-cost with no-cash

This is one of the worst mistakes a borrower can make. “No-cash” means the borrower does not have to pay the settlement costs at closing, but the lender doesn’t pay them either. The costs are added to the loan balance, so the borrower pays them over time, with interest.

Borrowers pay a higher interest rate on a no-cost mortgage

No-cost mortgages don’t eliminate costs to the borrower; they convert them from costs paid upfront to costs paid over time in the interest rate. The lender finds that rate by estimating the costs for which he would be responsible, and then finding the interest rate that justifies paying those costs.

For example, Doe is borrowing $200,000 on a 30-year fixed-rate loan. The lender’s price schedule on this loan includes the following quotes: 4.25 percent with zero points; 4 percent with 1.5 points; and 4.75 percent with a 2.125-point rebate. Points are upfront payments — one point is equal to 1 percent of the loan amount. Borrowers pay points to the lender, but lenders credit borrowers for rebates.

Let’s assume Doe wants a no-cost loan. The lender calculates that it would cost $4,000 to assume responsibility for the settlement costs Doe would otherwise pay, including the lender’s own fixed-dollar fee. He thus charges Doe 4.75 percent for a no-cost loan. The rebate of 2.125 points at 4.75 percent is $4,250 on a $200,000 loan, or enough to cover the $4,000.

No-cost mortgages help protect against being overcharged

In selecting a loan provider, borrowers typically shop for rate and points, ignoring other settlement costs. They usually find out about these costs after they submit an application, and then they receive “estimates” that are subject to change. This provides lenders with opportunities to pad their own fees and mark up those of third parties.

When responding to a borrower inquiring about a no-cost loan, however, lenders do not have that luxury. A borrower shopping for a no-cost loan has only one price to consider — the interest rate — and lenders have to assume that they are being rate-shopped. The rates they quote, therefore, are likely to cover their true costs, which could be well below the costs faced by borrowers who don’t go the no-cost route.

No-cost loans can also limit broker fees

On no-cost loans that go through brokers, the broker’s fee is an additional cost that must be covered by the rate. This can limit broker fees because lenders cap the rebates they are prepared to offer for higher interest rates.

A study of brokered loans by Susan Woodward some years ago showed that total settlement costs including broker fees were $1,500 lower on no-cost than on other loans. While no breakdowns were available, it is likely that most if not all of the $1,500 saved was a result of lower broker fees.

Borrowers with long time horizons might do better with a different strategy

The benefit of the no-cost loan stems from the ability to avoid overcharges by shopping a simpler transaction. However, the cost of the higher interest rate on the no-cost loan mounts over time, and at some point the costs will exceed the benefit. If overcharges can be avoided, a borrower with a long time horizon will do better paying higher settlement costs in order to get a lower interest rate.

Such borrowers need an alternative strategy that will both assure competitive pricing and allow them to select the combination of upfront costs and interest rate that provides the lowest cost over their time horizon. Such a strategy can now be executed on my website, www.mtgprofessor.com.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Exercising lease option during foreclosure

If tenants still want to buy, they must play by new rules

By Benny Kass
Inman News®

DEAR BENNY: We have been renting a house with an option to buy for two years now. We recently learned from mail the bank has sent that the property was listed for foreclosure. (No, we have not opened the letters addressed to the owners, but they are from the bank that holds the mortgage and they have been coming every two weeks addressed to both lien holders.) We also received a letter from an attorney indicating that the property was listed for foreclosure.

So it appears that the landlord has not been paying the mortgage. Is there anything we can do at this point?

I feel as though we are being ripped off if we are paying rent on time every month but the owner is pocketing the money. If the owner can’t pay the mortgage, what happens to our deposit and our option to buy next year? –Juan

DEAR JUAN: Why do you think you are getting “ripped off”? Are you using the house? Are you enjoying living there? I would assume the answer is “yes” because you are still interested in buying. No one is taking advantage of you, so I don’t agree that someone is “ripping you off.”

But I do agree that you have the right to inquire about your security deposit as well as your right to buy.

Here’s my suggestion: Before you stop paying the monthly rent, talk with your landlord. I doubt that he really wants to be foreclosed upon, and if you are interested — and able — to buy the house now, that might be a win-win for everyone. You may be able to buy at a bargain price, and the landlord won’t have a foreclosure impacting his credit standing.

Then, regardless of what the landlord says, you should contact the attorney who sent you a letter. Explain your position and see if the attorney can get you in contact with an appropriate, authorized representative of the lender. Unfortunately, too many foreclosure attorneys take the position that they are “hired guns” for the lender, and refuse to get involved, even if only to give you the name of an appropriate representative.

Basically, if you are interested in buying, you are looking for a short sale. You may want to get a real estate agent/broker to assist, as they should know the process. However, the owner/landlord will have to agree.

Finally, to answer your two questions: (1) Will you be able to buy? That depends on the lender, as discussed above. (2) What about your security deposit? Generally, most deposits are the equivalent of one month’s rent. If you know that you will actually have to move, I would just withhold the last month’s rent. I know this technically violates the terms of your lease, but you clearly want to protect your assets. Of course, if there is damage to the house caused by you or your family, that will be your responsibility.

Keep in mind, however, that even if the house is foreclosed upon, whoever ends up owning the property (either the lender itself or a third party) may still want you to stay on as a tenant.

DEAR BENNY: I read the response from your column, by a real estate broker for time shares, with tremendous interest. You did not post the name because you did not want your column to be used as advertising. I do respect that and understand that. I am wondering however, if you would be willing to share that name with me. I’ve been looking for a reputable time-share broker for years and I certainly would not hold you responsible for anything should I contact that person. –Elaine

DEAR ELAINE: I am sorry, but I will not provide such information. There are two reasons: (1) First, I don’t believe it is my role to provide free advertising to anyone; and (2) second, I really don’t know if that broker is honest.

I receive numerous emails from brokers (or companies) claiming they have experience in selling time shares. When I check them out on the Internet, I find that some of them have either been cited by a state agency for fraud/misrepresentation or have a negative rating from the Better Business Bureau.

DEAR BENNY: I am 74. Recently, I have been contemplating paying off my condo mortgage. The remainder is $98,000 at 6 percent. Can you help me through this? On the surface it seems like a good idea, but I’m not aware of all the particulars. I am in good health and will not need the $98,000 in the near future. –Dee Dee

DEAR DEE DEE: That is an excellent question, but not easy to answer. There are many factors that you should consider.

You say you will not need the money “in the near future.” But what about the “far future”? You are a young 74-year-old in good health. Will you need the money when you are 80, 90 or even 100?

Can you take advantage of the tax benefits associated with the mortgage interest you pay, which you will lose if you pay off the loan?

Over the years, I have represented too many clients who were “house rich but cash poor.” What’s the real advantage of having the house free and clear? Or turn this around: What’s the disadvantage of having a mortgage? If and when you die, does it really matter to your heirs whether you have a condo free and clear of a mortgage? I don’t think so.

In my opinion, assuming you can qualify for a refinance loan, you should contact your current lender and see if it will reduce the interest rate. You are currently paying 6 percent, but interest rates (as of this writing) are hovering around 4 percent.

If you can refinance, I submit you will accomplish your objectives as well as my concerns.

And whether or not you refinance, there is a compromise position. Every month, add a little extra money when you pay your mortgage. That will reduce the loan principal, and shorten the term of your loan. If you do this, however, make sure you note on your check and on the payment coupon that this is “extra principal.”

DEAR BENNY: Due to the death of my former husband, I find myself owning a rental cottage with my two children. Due to the tough real estate market, and also family sentiment, the kids (ages 20 and 24) and I want to hold on to it as a rental property at least for a couple of years. I fully understand that co-owning property with children is not recommended, but the real estate market and the family memories for now make our decision.

We will have the property retitled. As 50 percent owner can I require some sort of property use agreement for the kids (who’ll each own 25 percent) and me to sign? I want to avoid the family cottage from becoming a hotbed of nightlife or other misuse. And if some sort of property use agreement is done, who does that for us: a real estate or estate attorney? –Cyndi

DEAR CYNDI: Yes, you can enter into a property use agreement with your two children, and a real estate attorney can assist you. It’s no different from the co-ownership agreements I draft for unmarried clients.

But let me ask you a question: Why do you have to put them on title? As you know, in general I do not think it’s a good idea, primarily for the tax consequences.

You should go on title on your own, but prepare a last will and testament giving your two sons the property on your death. You indicated that this might be a rental property. If so, shouldn’t you keep all of the rental income?

And you further indicated that you might sell in a couple of years. Again, why complicate title, so that you don’t have to get your son’s consent for any such sale?

My suggestion: Put the house in your name, and if your kids want to use it, spell out the rules and regulations. You may even want to charge them a security deposit just in case there is any damage caused by them or their guests.

Incidentally, you should also check with your tax adviser to see whether there would be any taxable consequences to you should you decide to add your sons on title. The Internal Revenue Service might consider that to be a gift.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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