Tips for Home Sellers: Choosing an Agent

So now that I've spent some time giving tips for consumers looking to buy a home, I will devote my next few post to providing advice for sellers.  Even though the market is dominated by foreclosures and short sales, which are significantly discounted compared to a traditional sale, it still could be the right time to sell.  There are a lot of buyers out there, with great credit, looking for a new home.  Many buyers don’t want to have to deal with the headache or drama associated with foreclosures and short sales so they prefer to buy a non-distressed home, even if they have to pay more for it.

The first step in selling your home, is selecting a Realtor.  A good Realtor can be one of the most important parts of selling your home.  They will provide you will information regarding current market conditions and where you should price your home.  They can also provide referrals to staging and moving companies.

You want to look for an agent who is active and knowledgeable in your area.  It is also common to use the same agent you used when you first purchased the home, provided you are happy with their service.  As with selecting an agent for the buying process, you want to make sure you are comfortable with him or her.  Does the agent answer your questions sufficiently? How quickly do they respond to your phone calls? These are the types of questions to ask yourself.

What it really comes down to, is you want an agent whom you are comfortable with and who will best market your property.  There are many marketing venues when it comes to real estate and your agent should utilize a lot of them.  The best agents will use, MLS, virtual tours, social media, craigslist and a few listing web sites.  The key is to make your property as visible as possible.  The more people who see your how, the more likely you will sell it quickly and for your asking price.  They should also follow up with agents who showed the home and ask for their input on the price, staging and condition of the home.

Remember, what you don’t want is a “yes man”.  You agent should have an extensive knowledge of the market and the industry, and they should know more than you.  Therefore, listen to their suggestions.  They want to sell your home just as much as you do and they know what works and what doesn't.

Next time I will go over what pre-marketing is and what you should be doing during that process.  Take care and remember, good things come to those who make it happen!

Home Buying Tips: Part 3

Hello Everyone, I hope you all had a great Holiday break and New Year. Now that we are back to the grind, I will continue with tips for home buyers. If you remember, my last two posts went over getting started and finding the right home. Today, I will talk about what to do once you find the right house. This includes the inspections and making an offer.

Having an inspection is a very important part of the home buying process. It is one of the ways you “the buyer” can protect yourself from any problems with the functionality or construction of the home. The primary purpose of the inspection is to check and estimate the cost to repair any issues with pests, water, foundation and all other aspects of construction. If there a major problem is discovered, the inspector may recommend a more specific inspection of that area.

You also need to consider if the home is in a flood plain. Your Realtor will answer this question for you and if it is, you will be required to purchase flood insurance. If you are near, but not in a flood plain, you still should consider buying flood insurance because floods are typically not covered in basic home owners insurance. Other factors you want to consider are probability of natural disasters, zoning laws, and building codes. These are all questions your real estate agent should be able assist you with. Some states, including California, require the seller give a natural hazards disclosure statement to buyers which covers earthquakes, floods, wildfires and dams.

It is important that you have the inspection done before you make an offer, because once your offer is accepted, it is legally binding. If you do not have an inspection done before the offer, you need to make sure your offer contains an “inspection contingency”. This allows you to pull out of the sale if the inspection finds any major problems. I’ll go offers and contingencies next.

Making an offer is not a difficult process, but it’s not as easy and telling the seller you will buy the house for the asking price. There is a specific format and all offers should include the following:

Complete legal description of the property

·         Move-in date

·         Closing date

·         Amount of deposit

·         Down payment amount and financing details

·         Purchase price

·         Time period for which the offer is valid

·         Details of the offer

The legal description of the property is not just the address. It describes the specific parcel of land and how it was accounted for in county’s map and usually contains the property’s Assessor Parcel Number (APN). The move-in date is the day you wish to occupy the home and the closing date is the day ownership is legally transferred.

Your deposit is a sum of money, included with the offer, which you give to the seller to show you are “serious” about buying the home. It is usually 1 to 5 percent of the purchase price. If your offer is accepted, the deposit becomes part of your down payment. If it is rejected, then the deposit is returned to you. The down payment amount and full purchase price need to be included as well. Most banks want to see a 20% down payment, but there is no “mandatory standard” so it is always negotiable.

The details sections will include any contingencies regarding the offer/purchase. Contingencies are items which must be fulfilled by either party or the agreement can be terminated. There are a wide variety of contingences, but some of the major ones involve inspections, financing, and the purchase/sale of other homes. An example of the purchase contingency would be if the seller only wanted to sell if they found a new home to buy. Sale contingencies would be used if the buyer didn’t want to buy the home unless they can sell their other home.

Determining the purchase price and contingencies are the hardest parts of making an offer and this is when it is good to have a knowledgeable agent. They will know what similar homes are selling for in similar areas and how different types of financing affect the price. The amount of time the home has been on the market affects the price, as well. Usually, sellers will accept an offer which is lower than the list price, if the home has been for sale for a long time. Your agent will help you decided what contingencies are necessary, as each situation is different.

Remember, once an offer is accepted, it is legally binding. Meaning, if you submit an offer and it is accepted by the seller and all contingencies are fulfilled, you are legally bound to purchase the house. If you back out of the sale, your deposit may be forfeited to the seller and you may be liable for any losses incurred by the seller, seller’s agent, and/or your agent as a result of cancelling the agreement.

I hope this provided some good information for you and as always, if you have any questions or comments, leave them below. Take care and see you next week.

Home Buying Tips: Part 2

In continuation from last week, today’s blog will be tips for the home buying process. Let’s talk about how to find the right home for you!

When looking for a place to live, it is important to consider the community. You should pick a community that corresponds to your family’s needs. Do you have children? If yes, you would probably want to live in a good school district. How close to the freeway or public transportation do you want to be? Do you want to live in a busy area or a more quiet setting? These are the types of questions you need to ask yourself. When you are considering a neighborhood, take a look around it and talk to the people who live there. You will be surprised how much useful information they can divulge.

Eventually, you will find a home you like and schedule a showing. When you are walking through the house, ask yourself:

·         Is there enough space for the present and the future?

·         Do you like the floor plan?

·         Is the yard what you want?

·         Do all the appliances work?

·         Does the home look to be in good condition?

·         Is it the right number of bed and bath rooms?

·         Will all your furniture fit? (Both in size and style)

It is important to find out what appliances and fixtures will be left and what the sellers are taking with them. Also, you want to picture (and possibly see) the home in different weather and times of day. This is the best way to really understand the home and the neighborhood. You don’t want to face any surprises after you are in contract.

When viewing homes, you should take a lot of pictures. You should capture the inside, outside, all the rooms and the yard. Also keep an eye out for anything you think may be an issue. If you don’t get all the pictures you want the first time, you can always go back for a second look. Also, ask your realtor for his/her professional opinion -they are a great resource.

Searching for the right home can be a long and daunting process. There is no set “magic number” of homes you should look at before you make your decision. You just need to keep looking until you find what you want. On average, you can expect to see between 10 and 20 homes before you find the right one. The best way to streamline the process is to make sure your agent knows everything that is important to you. This will ensure that you don’t waste time looking at places you know you don’t like.

I hope this makes your home buying process a little easier. Next week I will go over what to do once you found the home you want.

As always, feel free to ask a question or leave a comment below. Have great rest of the week!

Short Sale Information 3 of 4

Here is part 3 of 4 of my short sale information blog. It is about the licensing requirements and questions 12-15. Enjoy.

III.  Licensing Requirements for Short Sales

Q 12.  What is a short sale consultant?

A  A short sale consultant is someone who advises on short sales.  Depending on the agreement between the parties involved, the typical short sale consultant assists a homeowner or listing agent to prepare a short sale application package, submit it to the homeowner’s lender, and negotiate with the lender on the homeowner’s behalf to approve the short sale.

Q 13.  Does a short sale consultant have to be a real estate licensee?

A  Yes.  Generally, if a short sale consultant negotiates real estate loans or performs services for borrowers or lenders, both the short sale consultant and the short sale consulting company must be properly licensed with the California Department of Real Estate (DRE).  More specifically, unless an exemption applies, a real estate license is required for someone who, for compensation or in expectation of compensation, does or negotiates to do any of the following acts on behalf of another:

•  Solicits borrowers or lenders for loans secured by real property;

•  Negotiates loans secured by real property;

•  Performs services for borrowers, lenders or note holders for loans secured by real property; or

•  Collects payments for loans secured by real property.

(Cal. Bus. & Prof. Code § 10131(d).)

To check someone’s license status with the DRE, go to its Web site at http://www2.dre.ca.gov/PublicASP/pplinfo.asp.

Certain exemptions to the licensing laws may apply.  For example, a real estate license is not required if someone merely performs clerical or administrative services, such as assembling a short sale package as long as final determination as to its completeness is made by the broker (see 10 Cal. Code of Reg. § 2841 which lists other permissible clerical activities).  For other exemptions to the licensing laws, see C.A.R.’s legal articles, Licensing Guide for REALTORS® and Licensing Chart for REALTORS®.

Q 14.  Can a licensed short sale consultant collect an advance fee?

A  No, unless certain requirements are met.  An advance fee is a fee charged upfront for services not yet performed.  An advance fee is broadly defined to include a fee claimed, demanded, charged, received, collected or contracted from a principal for negotiating real estate loans (Cal. Bus. & Prof. Code § 10026).  Among other things, no less than ten calendar days before collecting an advance fee, a real estate broker must submit to the DRE the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code of Reg. § 2970).  Furthermore, if a Notice of Default has been recorded against a property involving one-to-four owner occupied residential units, an advance fee is prohibited for foreclosure-related consulting services under the foreclosure consultant law (Cal. Civ. Code § 2945 et seq.).  For a list of real estate brokers who have received “no objection” letters for their advance fee agreements, go to the DRE Web site at http://www.dre.ca.gov/mlb_adv_fees_list.html.

Q 15.  If a real estate broker collects an advance fee, does it have to be handled in a special way?

A  Yes.  A real estate broker who collects an advance fee must deposit it in a trust account with a bank or other recognized depository.  Amounts may not be withdrawn for the agent’s behalf until actually expended for the benefit of the principal or five days after a verified accounting as specified is mailed to the principal in compliance with Section 2972 of Title 10 of the California Code of Regulations.  (Cal. Bus. & Prof. Code § 10146.)


Remember to leave a comment or ask a question below. Happy Veterans Day. See you next week!

Short Sale Information

Here is the second part of last week’s blog. It covers the effects of short sales on the borrowers. Questions 7 – 11.

II.  Effect On Borrowers of Short Sales

Q  7.  Does a short sale adversely affect a defaulting borrower's credit rating?

A  Yes.  Lenders will report the short sale as being settled for less than the full balance.  This would show up on the borrower's credit report as a negative mark for seven years.  (Cal. Civ. Code § 1785.13.)

Q  8.  Suppose the borrower is late with his/her mortgage payments, causing the lender to begin the foreclosure process by filing a notice of default. Before the foreclosure sale occurs, the borrower pays the lender what is owed on the note. Could these activities appear on the borrower's credit report?

A  Yes. The lender can report to a credit bureau receipt of any payments made 30, 60, 90 or more days after their due date. This may appear on a borrower's credit report as a "foreclosure in process," "foreclosure proceedings," "current was 30," or in some other way. Any such terms, or other similar reporting comments, harm that individual's overall credit rating.

Q   9.  Is the method by which lenders report a short sale a negotiable item?

A  Typically, no.  The short sale is usually reported to credit reporting agencies as settled for less than the full balance. However, a borrower may try to negotiate this at the time the short sale is being arranged.

Q   10.  Are there any special risks to borrowers when negotiating a short sale with their lender?

A  Yes.  In particular, REALTORS® who assist borrowers should be aware and warn their clients of one particular risk.  If the borrower was less than completely honest when using the stated income method in applying for the loan, this information may become apparent to the lender when the documentation listed in Question 17 (such as tax returns and paycheck stubs) are submitted to the lender in the application for short sale approval.  This may put the borrower at great risk of potential liability for their dishonesty. 

Q  11.  Are there any tax effects of a short sale?

A  Yes. The tax implications for the borrower could be so significant that a short sale would not be in the borrower's best interest.  Before a short sale is contemplated, it is strongly recommended that the borrower seek the advice of a professional tax advisor.

Generally speaking, any relief of indebtedness from a short sale, regardless of whether the loan is a recourse or nonrecourse loan, is taxed as ordinary income. There are, however, some exceptions to this rule that may benefit a taxpayer involved in a short sale.  For more information on the tax implications of short sales, see the CAR legal article, Taxation of Foreclosures, Deeds in Lieu of Foreclosure, and Short Sales.

Next week will cover the licensing requirements for short sales. Don’t forget to leave a comment below.

How much house can you buy

One of the major problems in the mortgage industry today is, most potential home buyers over estimate how much home they can afford. I will discuss how your bank evaluates your income and how you can use what the banks use to figure out how much you can spend.

The two major ratios that banks use to determine how much you can afford are the debt to income ratio and the housing expense to income ratio.  The later is calculated by dividing your estimated monthly housing payment by your gross monthly income.  Your estimated monthly housing payment includes the payment of principal, interest, taxes and insurance. This number is expressed as a percentage.

Your debt to income ratio is similar to the housing expense to income ratio, except it includes all your reoccurring debt.  This includes credit cards, auto loans, child support, and any other debts which have a monthly payment.  Most lenders, for conventional loans, those which are not government sponsored want a debt to income ratio under 38% and a housing expense to income ratio less than 30%.  However, these numbers are only guidelines.  Many compensating factors, such as net worth, credit score, and the ability to make a large down payment will allow for higher ratios.

The other factors you need to consider are your down payment amount and closing costs.  Your down payment is mostly your decision and should be based on how much you feel comfortable with.  One of the benefits of a large down payment is you the lower your loan amount to value ratio, the lower your interest rate will be.  The loan to value ratio is calculated by dividing the total loan amount by the appraised value of the home (or the sale price, whichever is lower).  If your LTV is over 80%, you will need private mortgage insurance, which will add to your monthly payment. Your closing costs usually add up to about 2% to 3% of the sale price.  Closing costs are paid at the close of escrow and is due on top of your down payment.

Now let’s do an example.

Say you, the buyer, make $15/hour and you work 40 hours a week.  To find your gross monthly income (income before taxes) we will multiply your hourly wage by your hours per week then by weeks in a year and finally divide by months in a year.

                $15 X 40hours = $600 per week

                $600 X 52weeks = $31,200 per year

                $31,200 / 12months = $2,600 per month

Your gross monthly income is $2,600

Let’s apply the 30% rule to your housing expense to income ratio.

                $2,600 X .3 = $780

This means, to have a hosing expense to income ratio of 30%, your maximum monthly house payment cannot exceed $780.

Now let’s do the same for your debt to income ratio, DTI.  Say you have an auto loan which you pay $150 per month, a credit card with a minimum payment of $50 and no other reoccurring debt.  If we add that to your $780 house payment, we get $980.

                $980 / $2,600 = .38 or 38%

As you can see, you would meet the guidelines for the ratios. However, if you had more debt, say child support, you would not qualify and you would probably need an extensive down payment or impeccable credit to get the loan.

Now we can find out how much you can spend on the house.  Say market interest rates are at 5%, using your $780 per month payment with a 30 year fixed rate mortgage and a financial calculator; we find your maximum loan amount to be about $145,000.  Now that you know how much of a loan you can get, you just need to figure out how much of a down payment you can make.  This completely depends on your comfort level and your funds available.  Most banks like an 80% loan to value ratio, and you should too.  Because private mortgage is required for any loan with a LTV of over 80%, you can save a lot of money by paying more up front.  Therefore, if you use an 80% LTV, you can buy an $180,000 house.  If you can’t manage to make the large $35,000 down payment, you can always have a higher LTV and just pay mortgage insurance.

This just briefly touches on how banks determine what you can afford, but it is good to know. If you have more questions about what I presented here, feel free to leave a comment or give us a call at (800) 741-3710. I’ll have a new article for you next week and I will definitely be touching on this subject again.