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The Importance of Choosing the Right Lender

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In October, new lending rules were put into place.  As a result, most lenders who aren’t always on top of their game were exposed without the education and systems in place to handle what was coming.

The evidence of the inability for many lenders to handle the new rules came in the form of extra long closing times.  Industry experts warned everyone to prepare for closings of up to 45 days or even more.  Gone were the 30 day closings, or so it seemed it would be.

However, some lenders simply got it right, and continue to get it right, providing much better service to the buyer, closing in the more familiar 30-day time-line.

There are two questions you should start with when you’re looking for a lender, aside from “do you like the loan officer.”

  1. Are you a mortgage banker, or a mortgage broker?Mortgage brokers hunt for banks for you, and then pass off the work to those lenders.  You have very little connection to the lender, and very little influence over whether or not they’ll make it difficult for you to meet critical contract deadlines
  2. What is your average closing time-frame now that TRID is in place?Loans can still close in 30 days.  Find a lender who can fund their own deals and who has complete control over the decision making process.  Make sure they’re local, and that you can actually meet them face to face to develop a real relationship with them.

One company that I have worked with in the past that I would recommend all day long is VIP Mortgage.  So far, I have developed a relationship with two of their loan officers, and both of them stand tall in their industry as reliable, hard-working characters that have your best interests in mind, and who know their stuff.

If you’re looking for someone to help you get started with the home-buying process, give one of them a call today!

Ryan Halldorson

Individual Licenses National: 216632 | AZ: 0911658 | CA: DBO216632

8388 E Hartford Dr, Ste 100
Scottsdale, AZ 85255

Office: 602-793-7204Fax: 602-288-9415

Price is Negotiated on the Front End

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There are many points along the residential real estate transaction that are open for negotiation.  One misconception that many buyers may have is that they can go in with a higher price than their competition to beat them, then use the inspection period to bring the sales price down by leveraging the repairs against the seller.

Here’s the thing.  While the sales price can be modified at any point by agreement (i.e. on an addendum), your offer/counter-offer time-line expires when the seller signs the offer.  All you have now are contingencies to let you back out of the purchase.  So, you, as the buyer, have very little say over the price after you’ve inspected the home.  What you do have is the right (depending upon the contract terms) to cancel the contract and walk away with your earnest deposit.

When a home needs repairs, you have one opportunity prior to the end of the inspection period to make the seller aware of what you disapprove of, both warranted, and non-warranted items (remember, some items are to be fixed per the Seller Warranty regardless.)  This notification is done using a document called the [download id=”56411″].

Often a buyer might use language such as, “Seller to credit buyer $5000.00 in lieu of repairs.”

This is a red flag for lenders.  Lenders don’t want to see anything about repairs, because they don’t want to lend on a property that may have liabilities.  Credits are typically handled on the front end, prior to reaching an agreement on the sale price.  But, if there is language added that says something to the effect of “Seller to credit Buyer $5000.00,” the BINSR is NOT the place to do it.  This must be done on an addendum, and even that can pose problems, because the credits provided by the seller can only cover closing costs.  So, if the seller is willing to provide a $5,000 credit, they might as well lower the price by $5,000.

Let’s use a buyer under contract at $200,000 with a seller who agreed to pay 3% towards closing costs as an example.  The seller is allowing $6,000 to be allocated to the buyer’s closing costs.  During the inspection period, the seller elects to credit the buyer $5000.00 instead of repairing the disapproved items that the Buyer points out.  Now we have $11,000 in credits, but closing costs won’t be that high, so we have nowhere to put that money, except back into the seller’s pocket.

While the buyer may be attempting to use the BINSR to leverage a price reduction, the BINSR is designed to be used to notify the seller of disapproved items.  Nothing more.

Until a buyer receives a response from the Seller regarding their intentions after being notified of disapproved items, they have only two options.  1.  Either continue with closing without any repairs being completed, or 2. bail out and receive the earnest funds back from bondsman denver co and start searching again.

The outcome of the inspection contingency is going to vary depending on market conditions.  If it’s a Seller’s market, there may be multiple offers on the property, in which case the buyer has less leverage throughout the entire transaction.

Don’t bank on repairs to lower the price of the home you intend to purchase.  It can be done, but it’s the Seller who holds the ball.  If the seller is desperate to sell, then they may simply lower the price, rather than go back on the market, but if they have multiple offers, then they may be willing to close at a higher price with another buyer without making concessions.

 

 

 

 

 

Property Appreciation Over the Past 14 Years

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California_home_Prices

We all know that we experienced what economists would call an “anomaly” between 2004 and 2011, and as a result, thousands of people who were adversely affected by it have developed a particular point of view concerning the value of real estate and it’s viability as an investment.  Remember that time?  Prices shot through the roof, then the whole market “crashed.”

Savvy investors understand that their wealth is built over time, and strange occurrences in the market can be averaged over time to reflect common, long-term patterns.

You may often hear from real estate agents that the average rate of appreciation in the Greater Phoenix Metro Area ranges between 4-7% annually.  That doesn’t apply in every area of the valley, but that’s why they call it an average.

Appreciation is calculated year over year using a rather complicated formula.  Determine a single year’s appreciation is simple, but in order to figure out a pattern of growth over a long period of time dating back many years, this formula must be applied.

A Sampling of One Area of Scottsdale

The area I’ve chosen to highlight lies between Hayden Road and Pima Road, South of McDonald, and North of Chaparral Road.  It contains approximately 2,636 parcels according to the tax records, which are public.

In this area, from the year 2000 through the end of 2014, there were 1,132 closed sales recorded in the Arizona MLS, starting with an average price per square foot in the year 2000 of $87.16 through a final average price per square foot of $172.13 in 2014.

Remember, individual home values should not be calculated based solely on price per square foot.  There are many variables that will improve or hurt the value of an individual home.

Through the mortgage crisis, the highest average $/Foot was in November of 2005 at $223.00, but despite the massive bubble that we all lived through, over the past 14 years, the average rate of real estate appreciation rounds out at 4.98% annually.

Despite the chaos, we have found a relatively normal appreciation rate based on past performance.  This is an important number because it is the number any investor would use to determine what the potential future value of a home might be worth (sans the crystal ball that we all have in our back pocket.)

This average can only be applied to the area that I’ve sampled.  It’s not general.  It’s specific.  It takes time to calculate this information, but it’s important to know what to expect when you compare the value of your home to the current rate of inflation.

Your investment in real estate starts with your equity in the property you own.  Whether you pay cash for a property and own 100% of the home or you make payments whereby a portion of your payment is added to your equity, you can apply an average rate of appreciation to that equity to forecast what it will be worth in the future.

If there’s an area you’d like to have analyzed, I’ll be happy to do that for you.  Contact me today.

Calculating Rate of Appreciation

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Real estate goes up in value, for the most part.  True, there are reasons that values can fall, as we’ve seen in the past, but overall, as long as the property is in an area that is not adversely affected by some sort of uncommon variable, then it will gradually increase in value at varying rates.

When you read about the rate of appreciation for a given area, make sure that the source of the information is properly calculating the numbers you’re looking at.  It’s very easy to paint a picture that doesn’t truly represent what’s happening.

I’ll give you an example.

Let’s say in the year 2015, you purchase a home for $100,000.  In 2016, you sell that home for $200,000.  It would be safe to say that year over year your home appreciated 100%.  It wouldn’t, however, be safe to say that month over month your home appreciated by 8.33% (100% divided by 12.)  Why?  Because appreciation is a compounding calculation.

If your home which you purchased in 2015 for $100,000 was worth $150,000 in 5 years, a 50% increase, it’s possible to make an error in calculation by saying that the average rate of return for the area over that 5 year period was 10% per year, but that’s not correct.

The actual rate of return is a much more complicated formula.  In fact, it looks something like this:

R = 100 × ((EndingValue ÷ StartingValue)(1/period) − 1)

…where Period = years, months, weeks, or whatever you choose.

So, for our calculation on this 5 year period for a huge guide on sharpening knives, we would find that the actual annual rate of appreciation is roughly 8.45%, not 10%.  Let’s proof the calculation, adding the 1 before the rate to include the starting value in each result.

$100,000 X 1.0845 = $108450.00 (Year 1)

$108450.00 X 1.0845 = $117614.03 (Year 2)

$117614.03 X 1.0845 = $127,552.41 (Year 3)

$127,552.41 X 1.0845 = $138,330.59 (Year 4)

$138,330.59 X 1.0845 = $150,019.52 (Year 5).

The variable that changes the rate of return is obviously the amount of time that you calculate, and what period you are calculating (yearly, monthly, weekly, etc.)

So you can see that someone could easily lead you astray in determining your annual appreciation rate.  Sure, estimating 10% per year in our example would only be 1.55% off, but when you’re talking about compounding values with real estate, there’s not much room for error when it comes down to the bottom line, especially when you’re considering a given area as a potential investment for your future.

 

 

How Much Should a Short Sale Cost?

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What could be worse, in times of financial hardship, than receiving news from your real estate agent that his or her services will cost you, out of pocket, before any work begins?

Now that would be adding insult to injury.

In a normal real estate transaction, the cost to sell a home is typically on the shoulders of the home-owner who has hired a listing agent to market the home.  A rate is negotiated, and the resulting fees are split evenly between the listing broker, and the selling broker, and these fees are drawn from the proceeds of the sale of the home at closing.

A short sale is a different beast altogether, because it’s assumed that the homeowner has fallen on hard times; specifically that they owe more on the house than it will sell for (see the article “What Does It Mean to Be Upside Down in Your House”)  When the amount you get at sale is less than what is owed, the seller either needs to come to the table with cash out of pocket to bridge the gap, which most cannot do, or seek out the approval of the lender to release the property for less than is owed.  Sometimes the lender will ask the seller to sign a personal note for the difference.  This is commonly asked, but rarely agreed to.  This happens all day long and for good reason.  Banks aren’t in the real estate business.  They’re in the money business.

The prime time  for a short sale to be approved by a lender is when it’s clear to the lender that the home is headed for foreclosure, or there’s an inevitable need to sell due to other unforeseen circumstances.

In the event of a short sale, whereby the seller has no money left over when the house sells, how do the REALTORS® receive compensation for their work?

That’s easy.  Fees are built into the transaction and paid for by the lender releasing the note.  The banks know that it takes time and expertise to properly sell a home, and since they aren’t in the real estate business, they’re more than happy to partner with REALTORS® to ensure the job gets done.  Selling your home short of what you owe lightens the blow on the property values in the neighborhood which is an additional plus for the banks, as they may own multiple properties near your home.  Save one, save many.

So, on a house that sells for $120,000.00 that has a payoff of $150,000.00, the bank will subtract the broker fees and closing costs from the final sales price, resulting in an even lower net payment to the bank.  In this example, it’s possible that the bank will only receive a payment of $105,000.00, maybe more, maybe less.  It all depends on what they’re willing to take.

What this ultimately means is that you, the home-owner, receive top notch professional representation at ZERO OUT OF POCKET COST to you.

There are implicit associated costs when you sell your house for less than you owe, but they come in the form of a temporarily affected credit rating, and potential tax consequences.  The impact upon your credit score if you foreclose is far greater than if you sell short.  What does zero cost mean to you?

It means my services are completely free of charge to you.

But what if we don’t want our credit to be affected?

The only way to protect your credit from the effects of a short sale (which are far less damaging than foreclosure), is to sell the home and cover the difference between what it sells for and what you owe, so the lender will report your account as “Paid in Full.”  Either cash at sale or a note for the deficiency will accomplish this.

If you have any questions about the process of preventing foreclosure, whether you’re just now considering it might be a possibility, or you’ve already received a Notice of Trustee sale, please contact me today: (602) 312-3262

Five Reasons to Avoid Foreclosure

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Experiencing foreclosure is an extremely emotional event in one’s life. It ranks in the top 5 most-traumatic things that can happen to an individual. The ramifications of foreclosure reach much further than most people understand. Here are the top five reasons why avoiding foreclosure is the best choice you can make:

Disclosure

For the rest of your life, you will always have to disclose that you have been through a foreclosure.  When you fill out any application that asks whether or not you’ve been through a foreclosure, you’ll find that the only options are YES, or NO.  You will be required to answer truthfully in order to avoid being involved in mortgage fraud.

Credit Score

When your bank repossesses your home, your credit score can drop by 300 points or more.  It takes a long time to repair your credit history, and this will surely knock you into a no-qualify position financially.  Not only that, but it will affect other service providers that you may have, and could affect your future employment.  Some insurance companies check your credit score and use that as a measurement of risk.  Your rates could sky-rocket as a result.  You can be assured that your credit card rates will also be raised the next time your creditors check your credit status.  All of that can be extremely costly down the road.

Permanent

Foreclosure is a permanent event.  You cannot have a foreclosure removed from a credit history report.  In fact, the only information you have have modified on your credit history is data that is considered an error.  All other events will remain on your report for a long time.  A foreclosure will stick with YOU forever, even if it disappears from your report.  You will always be obligated to report it if asked on a legal document.

Security Clearance

If you work in an industry that requires security clearance to do your job, such as the military, or other high level security jobs, you will be at risk of losing that clearance.  In most cases, when people lose their clearance, they lose their job.  Foreclosure can lead you to unemployment.

Job Hunting

There are plenty of companies who run your credit history report when you apply for a job.  If your record is tarnished by a foreclosure, your future employer may consider this when they compare you to another candidate with a clean record.  You want to remain as marketable as you can, so having a foreclosure will impact your ability to find new work.

There is a clear difference between living with foreclosure and moving forward without it.  I can help you prevent it through the process of a short sale.  Contact me today for more information.

  1. For the REST OF YOUR LIFE, you will ALWAYS have to disclose that you have been through a foreclosure when you apply for a mortgage.
  2. Your credit score will drop by up to, and perhaps more than 300 points.  Credit scores are being reviewed by insurance companies and other service providers to assess risk and determine what they’re going to charge you.  In EVERY CASE, a low credit score costs more than NO credit score or a high credit score.
  3. It is virtually impossible to reverse or repair your credit report and the foreclosure will remain on your record for up to 10 years.  Regardless of the length that it remains on your credit report,