Inman New – National Home Prices

The year-over-year inventory was down 21.8%; and as we’ve discussed efore, sales prices typically begin to rise a few months after the inventory drops.  Referring to the drop in inventory, economist Lawrence Yun said in the article: “We now have broad shortages of lower-priced homes in much of the country, with very tight supply in Western states for homes through the middle price ranges. This is good news for many sellers who wish to list now, or for those waiting for prices to improve.”  We haven’t gotten there yet, but this is another step towards the environment shifting to more of a seller’s market.  We’re even starting to see multiple offers on regular resales (non-bank-owned properties).

We always get a lot of questions on the differences between regular resales, short sales, and REO’s (bank-owned properties); so I recently wrote two articles detailing the differences.  If you’re interested, you can read them here:

Real Estate Categories: Resales, Short Sales, and Foreclosures – Part 1

Real Estate Categories: Resales, Short Sales, and Foreclosures – Part 2

Finally, here’s a link to this weekend’s “What’s Up at 7000ft”.  Don’t forget the Big Bear Climb leg of the Amgen Tour of CA is this Friday, May 18th.  This is going to be one of the biggest cycling events of the year with International coverage!

whats-up-5-11-12

Have a wonderful weekend and “Happy Mother’s Day!” to all of our beautiful moms out there!!

As I mentioned, banks seem to be doing what they can to speed up the short sale process.  Also, according to an article in last week’s L.A. Times by Kenneth R. Harney, Fannie Mae and Freddie Mac are getting more involved in the process. “Starting in June, when you want to do a short sale to shed your mortgage and avoid foreclosure, you may not have to wait for months to hear back from your bank when you submit an offer from a potential purchaser.If your loan is owned or securitized by either of the dominant conventional mortgage market players – Fannie Mae or Freddie Mac – you can expect a response within 30 business days, with a final decision taking no more than 60 days. If you don’t hear back during the first 30 days, the bank will be required to send you weekly updates telling you precisely where the holdups are and when they are likely to be resolved.  Banks and loan servicers that don’t comply will face monetary and other penalties. The mandatory timelines, which real estate and mortgage industry experts say should help speed up what traditionally has been a glacial process, are being imposed by the Federal Housing Finance Agency, the regulatory overseer of Fannie and Freddie in conservatorship.”

This is great news for a process that has here-to-date been VERY slow, ineffective, and confusing.  Stay tuned for further updates; but in the meantime, I hope this article has been helpful in understanding the difference between regular resales, REO’s, and short sales.  As always, don’t hesitate to call or email with any questions.

Coming next: “How to Get a Great Deal on an REO (foreclosure property)”

77 Sold:

XPROP – Multi Row View

214 Pending/Contingent:

XPROP – Multi Row View

Also, here is this weekend’s edition of “What’s Up at 7000ft”.  Highlights include the Cinco de May Concert at Meadow Park’s Swim Beach, the MS Walk at North Shore Elementary, Nature Walks at the Big Bear Discovery Center, and Animal Feeding Tours at the Moonridge Zoo.

Whats Up 5-4-12

Finally, one of the most frequently asked questions we get involves the differences between real estate in the Lake Arrowhead area and the Big Bear Lake area; so I wrote a recent blog article, which you can find here, if you are interested:

What Are the Differences Between Lake Arrowhead and Big Bear Real Estate?

Have a great weekend and Happy Cinco de Mayo!

Until 4 or 5 years ago, most people had never even heard of a short sale and very few still understand exactly how they work.  I think part of this is the banks’ fault because they try to keep the procedure shrouded in some mystery to avoid having to do too many of them.  Until very recently, they wouldn’t even tell the sellers what price they would actually accept until they had an offer on the table (and then it still took 2 or 3 months to find out).  This is what has lead to the wide disparity usually seen between the list price and actual market value.  Because the sellers (and their agents) usually don’t know what price the bank will actually accept, they will list it at a very low “teaser price” with the caveat “actual sales price subject to lender approval”.  To give an example, if the sellers bought the property in 2006 at the peak of the market for $500K, that house is probably worth around $300K in today’s market.  The short sale agent will often list that house at $200K in hopes of getting multiple offers and submitting the “highest and best” offer to the bank for approval.  Chances are VERY low that the bank will actually accept an offer of $200K on this property because for them it is all subject to a formula which calculates what the house is worth in the current market, what their holding costs would be if they took it all the way through the foreclosure process, and what their sales costs would be when they eventually sold it as an REO.  I went to a short sale seminar about two years ago which was put on by a former Loss Mitigator at IndyMac Bank.  According to him, if the formula told him they could make one penny more as a short sale. it would be approved; but if it said they would make one penny more as an REO, the short sale would be denied.  This is why a typical short sale takes a total of about 4-6 months from when the offer is first submitted.  When that first offer comes in, the bank needs to assign an Asset Manager to the file.  When that eventually happens, the Asset manager will order a BPO (Broker price opinion) and/or an appraisal to be done to determine the true market value.  This usually takes several weeks for them to get the report(s) back and start inputting the values (including current market appreciation or depreciation) into the formula.  Depending on the bank, there can also be several levels of Asset managers you have to go though (we did one two years ago with a former Countrywide loan that had 3 levels of Asset Managers that needed to approve the file and it took an average of 5 weeks each). There are also other factors that need to be considered in a short sale (for example, the owners need to prove some sort of hardship, i.e. health problems, lost job, etc to even qualify).

Most buyers get tired of waiting at some point during the process and find another home (either regular resale or REO) that they can close in 30-45 days.  This is why you will sometimes see a property listed as an “approved short sale”.  The differences between a standard short sale and an approved short sale are night and day.  With an approved short sale, the sellers actually know what price the bank will accept (usually because it has gone through the above process, but the buyer moved on to something else and the bank has already approved a price).  In the example above with the property listed at $200K, it would not be unusual for 3 or more offers to come in and the seller to submit the highest (let’s say $250K) to the bank for approval.  After 2 or 3 months, the bank comes back and says “we won’t accept the $250K, but we will accept $285K”.  It is now an approved short sale at $285K.  Many buyers will ask “how do I know if a short sale listing is approved?”.  The answer is easy.  It will say it all over the listing.  As I mentioned, it is a HUGE difference to have an approved short sale versus just some teaser price the seller threw out there in order to get offers and the listing agent will make sure that the new listing says “APPROVED”.

To be continued…

1. Lower mortgage payments – When you put a large amount down, the overall loan is smaller.  A smaller loan means your monthly payments will be much lower.
2. Increased commitment to mortgage – History has shown that people who put down a large payment on a home purchase are more likely to pay the loan rather than go in to default.
3. Much better chance of getting approved for mortgage – Considering the changes in mortgage lending and the tighter restrictions, most lenders are looking at every loan very carefully.  Having a large down payment gives you a much better chance of getting approved for the loan.
4. Better rate on the mortgage – Interest rates are determined based on risk.  A loan that is 95% of the value of the home is riskier than a loan that is 80% of the home’s value.  Therefore you should get a slightly better rate when paying 20% down.
5. Equity from the start – Most home owners have to wait 5 years or longer to see any significant buildup of equity in their home.  However, putting down a large amount gives you instant equity.  This can be a cushion for you if the market should take a downturn.  On the upside, if the homes appreciate well, you will be in a great position to sell and move up, if you desire.
6. Waive the PMI – Private Mortgage Insurance (PMI) has been a thorn in the side of many home owners.  This is insurance mandated by lenders that helps to cover the lender in the event the home is foreclosed.  The insurance does not protect the buyer in any way.  This insurance is required for any loan that is more than 80% of the home’s value.  The PMI can be waived with a 20% down payment, saving the homeowner a considerable amount.
7. Teaches you to save – This is probably the biggest advantage of putting down such a large amount.  It takes dedication, discipline and sacrifice to save up a large sum of money.  It will teach you to effectively manage your money and understand the importance of having a comfortable cushion in savings.  Once you have purchased the home the money skills you learned during the saving process will help you save and prepare for maintenance, repairs and renovations on the home.

Saving such a large amount may seem impossible for some people.  However, it really is quite doable with a good plan and reasonable expectations. Putting this kind of plan in action can truly change the way a person views money and put them in a better financial position for years to come.

Larry Chandler is a freelance writer for Ulster County Real Estate located in southern New York.