Tiered Real Estate Blog – Reality in Realty

There are millions of Americans who are short selling (selling their home for less than they owe) their homes or losing them to foreclosure.  Frequently we are asked two questions: Will anyone rent to me? and Will I ever get to buy a home again?  The answer to both of those questions is yes!

First, the rental market is thriving.  The reason is because when someone leaves their house due to short sale or foreclosure (or giving it back to the bank), they need a place to live and no bank is going to give a loan immediately after losing their current home.  So they need to rent.  Anyone who rents has to understand that if a perspective renter had good credit and a substantial amount of money to put down, they wouldn’t be a renter!  They would take advantage of the good mortgage rates and cheap homes and buy!  While that isn’t always the case (there are instances where it makes more sense for someone to rent than to buy, like constantly relocating for work) it is an overwhelming majority of the time.  Armed with that knowledge, landlords understand that most people who are going to apply to rent have bad credit and everyone needs a place to live.  Most landlords will certainly consider (and most will rent to) people who have lost their homes.

What about buying?  Before the current market conditions took hold, bad financial items on your credit (like foreclosures and bankruptcies) would make someone largely unable to buy a home for 7-10 years.  However, it has become so prevalent today that it isn’t financially reasonable to assume that banks will (or can) wait that long.  Their is talk that 10 million homes could be sold either through foreclosure or short sale (and that doesn’t include the number of bankruptcies that are out there).  If banks told 10 million families that they couldn’t buy a home for 7-10 years, what would that do to their bottom lines?  There are too many people who can make too much money for the banks for the banks to simply tell them all ‘no’.  What we expect to see is that banks will make people sit on the sidelines for a couple of years to prove that they have their finances in order.  Then when they apply for a loan, they can show the bank that they are in control of their money and can truly afford a modest home and banks are going to accept those people.

If for some reason the banks decide that they are not, it can be expected that the government will step in and expand the FHA program even further than it already is so that they can back loans to make sure that the money starts flowing in the economy.

The bottom line is that 10 million families have too much potential profit for banks to pass on.  If you lose your home or short sell your home, done worry.  Get your financial house in order and then in a couple of a years you should be able to get back into home ownership.

If you are struggling, need to sell or rent or if you are the person looking to buy, let one of the great agents at Tiered Real Estate help you!

If you are a watcher of the stock market you will notice that many times the market will undergo a “correction.”  This usually happens when stock prices race up to a high level.  Then investors will sell stocks to pull out profit and the prices fall.  Hence, a “correction” in the market.

Real estate appears to be going through a “correction” as well.  Prices raced up to a high level and then many sold off and took out profit from their homes.  Like most corrections they tend to drop considerably lower and then start climbing back up and there are swerves along the way.  Think about driving your car.  If you are sliding and you turn into the skid (like you are supposed to), your car will turn and you may have to make another small correction or two to be back to going straight again.  We have been experiencing a drop and there have been some ‘swerves’ where prices have increased and market times have dropped, while there have also been areas where prices have again decreased and market times risen.

Unfortunately, housing is not like the stock market in terms of expedience.  You can’t call a broker and sell your house today like you could sell a stock.  Sales in real estate take time and even if you had a buyer today for your home, it would take a minimum of a few days (for a cash transaction) to several months (for a short sale).

So what happens when the prices start to drop and everyone else decides they want to get out?  You end up with the current market and creative, new ways of getting rid of homes.  We have short sales (where owners sell for less than they owe) and foreclosures (where the bank takes the home back from the owners).   These are both part of the current market correction.  Anyone in the stock market will tell you that it cannot go straight up forever.  There will be ups and downs along the way.  To accommodate this correction, the banks had to either find ways to let people pay significantly less on homes they owed, or they had to find ways to get people out of their homes and let market forces (supply & demand) take over.

So while many people fret over the number of short sales and foreclosures and many worry about the stigma of short sales and foreclosures (either on them or their neighborhood), everyone should realize that this is part of the market correction and largely is going to be universal throughout the market.  That means that every neighborhood should experience the same issues.   In fact, we should realize that many homeowners are taking advantage of the current situation and leaving their homes intentionally so they can set themselves up for a better future.  Homeowners who are constantly struggling to tread water are realizing that they don’t want to live like this for the next 2, 5 or 10 years and are better off leaving now and realigning their finances and saving for the future.

Once we get through this correction (which will take longer than a stock market correction because of the time it takes to buy and sell real estate), hopefully everyone will have taken prudent steps to firm up their finances and prepare for a better tomorrow.

The news (and real estate market) is full of stories about “short sales,” but we find that most people don’t understand what that means.  Simply stated, short selling is selling for less than is owed to the bank.

Why would a bank want to do this?  Because it actually saves them money.  If a bank is forced to foreclose on a house, there are costs involved.  First, they have to pay attorneys to handle the foreclosure process.  Next, they have to pay for items like property taxes and unpaid water bills (water bills in our area are attached to the home, while electric and gas bills are tied to the homeowner).  Then there are the holding costs.  Someone has to pay the bills while the home is waiting to be sold to someone else.  Finally, there are the accounting issues that make any home that is six months behind a detriment to their books and no longer an asset.  These factors can cost the banks tens of thousands of dollars.  Some estimates say that the bank loses $50,000 – $100,000 on EACH home that they have to take to foreclosure.  So short selling is a very good option for the bank.

Why would homeowners want to short sell their home?  While the homeowner’s credit will still suffer if they sell their home as a short sale, the studies have shown that their credit recovers faster and doesn’t drop quite as dramatically as those who let their homes go to foreclosure.  In addition, the new HAFA program allows homeowners to walk away with $1,500 in their pocket, so they get something for selling their home.  Finally, all of the expenses with selling are covered by the bank.  During a typical sale, homeowners would have to be concerned with the property taxes, commissions, attorney fees, etc., but during a short sale, the bank pays all of these costs!

Why is this good for buyers?  Buyers can find “deals” in the marketplace.  In addition, if a homeowner is selling a home as a short sale, then they are more likely to keep the home in good condition (whereas some homeowners do not take care of their home if the bank forecloses on them).  Many short sales are “move-in ready” for a new buyer.  Finally, a buyer has a ‘friend’ in the transaction.  Any homeowner that is short selling their home is eager to work with buyers and generally wants to help them succeed.  Instead of negotiations taking place between home buyer and seller (and sometimes it gets to be an adversarial process), the sellers are willing to accept any offer that will get them out of their mortgage.  They want buyers to succeed!

The entire picture is not completely ‘rosy’ though.  There is paperwork involved for the seller and the process generally is extended over several months.  This is simply due to the volume of homes that are in trouble.  The larger the bank, the more loans they have to deal with, the longer it takes for them to handle the large volume.  This can make the process frustrating for some.  In addition, homeowners have to be certain that they will be absolved of all of their mortgage debt when the home is sold.  Some lenders will try to hold the sellers to the difference in cost.  The best advice is to make sure that you have a good attorney representing you when working with a short sale (realistically, it is always a good idea to have a good attorney representing you when buying or selling any home!)

If you are interested in selling your home as a ‘short sale’ or if you are looking to pick up one of these deals in the market, contact one of the professionals at Tiered Real Estate.  We will be glad to help you!

Previously the government was running a program to try and help homeowners who were caught “upside down” (who owe more than their home is worth) in the market.  Despite their best intentions, this program was a failure.  It was reported that 9 out of 10 people whom the program was intended for did not get help!  As a result, they introduced the HAFA program.

HAFA stands for “Home Affordable Foreclosure Alternative” program.  It opens the door to a lot of people who need help.  It makes it easier to qualify for help (one of the biggest problems previously).  For those who still do not qualify, or who choose to short sell their home, it provides $1,500 at closing to help them get started at their next residence (most likely a rental).  This was intended to both help get the homeowner established and to motivate them to short sell their home because there is time and effort involved.

If you are struggling, please ask your lender about the HAFA program and find out if you qualify.  It can help you save your home or help you get started at your next home.  If you are looking to short sell your home, contact one of the agents at Tiered Real Estate who will be happy to help you.

The government has been running their home buyer credit program for quite some time.  While they did extend the credit before, it looks like there will be no extension this time.  What does this mean for you?

If you are a home seller, the best time to be on the market is right now.  Any delay could cost you a huge number of buyers who are motivated by the credit.

If you are a home buyer, you should be shopping now.  While there will still be great deals after the credit has expired, why not take advantage of free money from the government?

This credit is good both for first time home buyers and for those who are buying a home and have lived in their current residence at least 5 years.  First time home buyers get up to $8,000 while those who are buying another home get up to $6,500.  Be sure to consult your tax professional to find out how much you can qualify for.

If you are interested in buying or selling, contact one of the real estate professionals at Tiered Real Estate.

There has been significant discussion about extending the home buyer tax credit.  The speculation has been wide ranging from doubling the credit to extending it to all home buyers.  While neither of these seems to be financially plausible, there seems to finally be a consensus on what will happen.  The Wall Street Journal posted this discussion about the extension.

While some of the details are subject to change between now and the vote by Congress, one thing should be clear, this is not going to stay around forever.  In fact, buyers should feel fortunate that it is going to be extended at all.  Many congressmen opposed extending the credit due to the cost.  If you are considering buying a home, consider this a blessing and an expiring benefit.  Take advantage of it now while you have the chance!  You should expect that this is going to be gone by the middle of 2010.

If you are interested in buying or selling a home, contact one of the great agents at Tiered Real Estate and we will be happy to help you!  If you need to know if you can qualify for a loan (or how much home you can afford) then contact Mike Vrba at Cherry Creek mortgage.

My attention was recently drawn to an article (click here to read the article) that while it is several months old, it is still one of the most popular online.   The article discusses signs the housing market is starting to recover.  This is a very good sign for the economy overall since housing is a ‘leading indicator‘ or the economy (i.e. it is one of the first to move up or down to indicate which way the economy may be moving).

In particular, I noticed several things that lead me to believe that housing has reached its bottom and is finally turning around.

First, last winter there was an enormous number of cash transactions.  What does this mean?  After sitting on the sidelines for a long time, investors (basically anyone who had cash to invest) decided that they couldn’t wait any longer.  Simply, it was too great of a risk to wait because they saw that the market was extremely low and the best deals may start to disappear.  Since that time, there has been a steady flow of cash transaction as more and more investors return to (or start in) the housing market.

Second, on occasion, I provide market information to banks.  For the first time in several years, I had to report areas of increasing values, increasing number of sales and a reduction in inventory.  Inventory is simply the name used for the number of homes on the market.  As little as two years ago, some areas had four times as many homes for sale as sold in the previous 6 months.  This means that if no homes came on the market for 2 years (4 times the amount x 6 months) then we would finally exhaust the inventory.  That is an awful ratio in housing.  Two year market time is not something that any homeowner wants to face when selling their home (this is part of the cycle that leads to dropping prices… high supply +  low demand = drop in price to sell your home before another).

Finally, the simplest (while the most subjective) reason is simply the activity that we have experienced.  As the market was free-falling, the number of inquiries and phone calls also went into a free-fall.  Not only have those levels stabilized, they have increased.  Again, buyers are competing for homes that are great deals.  No longer can we casually make an offer and expect to have it taken.  While we certainly do make offers of all shapes and sizes, nothing is a ‘sure-thing’ any longer.

What does this mean for you?  If you are a home owner who wants to sell or refinance their home, then good news!  Everything is starting to come back and buyers are looking.  Values are slowly (and not in all areas) starting to increase.  If you are potential home buyer, it means that you shouldn’t wait on the sidelines and hope that you can squeeze out another 5%-10% decrease in price.  Go out and look at homes and if you find something you like, negotiate.  Use your buying power to get a decrease in price, don’t hope for a price drop that doesn’t look likely to happen.

If you are interested in buying or selling a home, contact one of the great agents at Tiered Real Estate where we will be glad to help you with all of your home buying and selling needs!

In a previous post we discussed how you should approach you bank for help whether or not you are behind in your payments and start working with them right away. Many people have followed our advice and it has been difficult for everyone. A recent article discussed just how bad it is.

There are 2.7 million borrowers who are currently 2 months or more behind in their payments (according to the Treasury Department), yet offers have only been extended to 400,000 of those borrowers. That is a terribly low 14.8%. Only 235,000 of those have entered into some sort of agreement with their lender. This works out to less than 9% of the homeowners who need help are actually receiving it!

Before you start packing your boxes and swearing off your lender, we have some good news for you. We have been working with several homeowners who are part of the 2.7 million who are behind (not to mention several who are in trouble but not behind). One family in particular talked to their lender, filled out stacks of paperwork, talked on the phone and were rejected. While most would wash their hands and say “I’m done”, they persisted. They reapplied. They made more phone calls. They filled out more paperwork. They succeeded and received a loan modification!

The old adage appears to be true in the modern era. If at first the bank rejects you, don’t give up. Apply again! Truthfully, the banks don’t want to own your home and if all 2.5 million homes that are in trouble (and not receiving help) end up going through foreclosure, the banks will keep the market in the doldrums for years to come. In addition, the government is trying to help the economy and get the banks to use the programs they have implemented. Keep trying! You never know when a modification will be available for you.

If you need help figuring out your home’s value or if you want to sell your home, contact one of the great agents at Tiered Real Estate and we will be happy to help you!

Have you ever heard of a Mortgage Credit Certificate (MCC)? Wikipedia states that it is “a certificate issued by certain state or local governments that allows a taxpayer to claim a tax credit for some portion of the mortgage interest paid during a given tax year.” Simply a tax credit for interest paid on your mortgage.

This is a credit (and not a deduction) so it is money that goes right into your pocket! There are rules regarding these of course and they are not available in all areas. Be sure to inquire about the availability of an MCC for you from your tax professional (your mortgage broker might have some information as well)! This simple inquiry could get you thousands of dollars in some areas!

Looking for a good tax professional or mortgage broker?  Contact one of the great agents at Tiered Real Estate and we will be happy to provide you with recommendations!

There has been an active campaign telling renters that they are throwing away their money renting and that they should buy a home. The skeptics have said that this is just propaganda by real estate agents who are desperately trying to make a sale any way possible. BusinessWeek.com examined the cost of renting and compared it with the cost of owning a home.

While there are costs associated with owning a home (the general maintenance and upkeep) what BusinessWeek.com found was that the costs in the areas examined were exceptionally close and, in many cases, owning was even cheaper than renting! In addition, this does not factor in any appreciation that owning a home can provide. While it does not appear that there will be significant appreciation in the short term, the market has always increased in the long term and staying in a home can provide you with additional profit that renting can never provide.

If you are considering buying a home and tired of paying your landlord’s mortgage, contact one of the great agents at Tiered Real Estate and let us help you find a home. Don’t forget that if you are a first time home buyer, you may qualify for an $8,000 credit from the government!