Searchlight Crusade

Carnival of Personal Finance

Carnival of Real Estate

Death toll in China earthquake up to nearly 9,000

Xinhua said 80 percent of the buildings had collapsed in Sichuan province's Beichuan county after the quake, raising fears that the overall death toll could increase sharply.

Fare thee well Irena Sendler. You will be missed.

Saved thousands of children from the Warsaw Ghetto, was caught and tortured by the Nazis, and still believed she should have done more?

People like her show you precisely how small one's own accomplishments are.

Army Corps says Condition of many levees a mystery

And it's not just a problem along the Mississippi and Missouri, either. The Sacramento River delta probably has more people at risk than any other per square mile.

Obama defends his patriotism, quarrels with McCain

"At a time when we're facing the largest homecoming since the Second World War," Obama said of veterans returning from Iraq and Afghanistan, "the true test of our patriotism is whether we will serve our returning heroes as well as they've served us."

Talk about ignoring the elephant in the phone booth! Yes, I'd like to see veteran's benefits augmented, but when Obama's "pull the troops out right away" encourages our enemies to stay in the game a little longer so they can win when we leave after he's elected, he's getting our troops killed. Good news, Ms. Soldier's Widow! Your husband would be eligible for increased benefits if he was alive! Great news, Johnny and Jenny Orphan! Your daddy would get better care, if I hadn't caused him to get killed! (end sarcasm). President Bush still meets with families of service members killed in action. How many have you met, Mr. "Give the military benefits with one hand while getting them killed with the other"? Oh, and how about stop trying to tie funding for the troops to all sorts of unrelated projects, Mr. Earmark? Finally, the VA regs and bureaucracy as as bad as they are because that's the way Congress wrote the law. You want to tame the VA bureaucracy? You have the ability to introduce such a bill, Mr. Obama. By the way, you might talk with someone about how closely our enemies do pay attention to US Politics. You might learn something.

Oh, and by the way, he's not correct about McCain failing to back improved veteran's benefits, either:

McCain's campaign said the Arizona senator backs a Republican alternative that is better because it enhances benefits for those who stay longer in the military, thereby encouraging recruitment and retention of troops.

They say familiarity breeds contempt. The more familiar I am with Barack Obama, the more I think he's a case in point. I still think he'd be a great guy to chat with - so long as I keep my hand on my wallet. Because every time he says something, he reminds me of the old lawyer's game of straining at flies and swallowing camels.

Technology Gets Cocky Department: MIT students show power of open cell phone systems

A Yemeni journalist

Thank you very much for this campaign, which comes in the context of the overall values that we believe, and they punish us when we believe those values and adopt them. I do not want to talk about myself, but rather the environment that we live in and suffering we endure from the inconsistency between what the authorities announce about democracy and freedoms, and what happens when we believe in those same things, democracy and freedoms.

They want us to practice our rights as they understand them, but we do it ideally. The regime said that democracy is the way of ruling, but when we try to practice our rights within this concept, criticizing the way that the regime governs and how they act, then they deal with us in a way that has no relation to democracy. They deal with us as outlaws. They use all of the state's resources to attack anyone who has any opinions not corresponding with their opinions, and to attack those who even discuss their way of ruling.

What I am suffering and facing is part of the price I and many others pay for the democracy and freedom we hope to achieve in the future. At least we are preparing for a healthy environment that we want the next generation to live in. We believe that democracy and freedom have an expensive price, and this is a part of that price.

However that doesn't mean we will keep silent and bend, as it is the price. We will refuse injustice peacefully. Solidarity is a way to enhance new civil values which support the democracy we will make with our sacrifice and with the support of others. We pay the price of the freedom for ourselves and for the generations after us. Again, thank you very much for your help and support.

Abdulkarim al-Khaiwani
10/5/08
Sana'a, Yemen

Armies of Liberation has a petition to save his life. They want to sentence him to death for criticizing Yemen's dung-ball of a president. It can't do any harm to take thirty seconds to sign.

We in the United States are obscenely wealthy not just economically, but politically. Let's help others get rich too!

Depressing: Gag on 2nd Amendment Is City's Aim in Guns Suit

The general public may not understand this, but the most critical parts of a listing agent's job all take place before the property hits the market.

The most important responsibility of an agent who wants to successfully list property is one of those. No, it isn't the pricing discussion, although it's closely related and usually done at the same time. It's educating the owner as to what a good offer for their property would be.

The weaker the overall market, the more important this is. In a strong seller's market, if you blow off a good offer, you're likely to get another almost as good. In a buyer's market like most of the country today, telling a good offer to get lost is a great way to lose money. I'm paid on commission. Believe me folks, I'd like to be able to get two million dollars for a not particularly attractive five hundred square foot condo in "the 'Hood" . The fact is that buyers look for the best property at the lowest price. You can try to sell a property for more than it's worth, but it's not going to happen, and trying is the best way I know of to fail to sell at all, or to be forced to sell for a lot less than you could have gotten, and have to pay the carrying costs for the property for a much longer time than if you know a good offer when you see it.

You can't really have the pricing discussion until the owner understands what a good offer would be. The correct asking price is central to a successful transaction. People look at properties based upon asking price, and you are competing with other properties of roughly the same asking price. If you ask too much, your property will be competing out of its league. The people who are looking for something in that price range will have superior alternatives. If the choice is your property or, for the same asking price, a freshly remodeled house with an extra bedroom and bathroom and a lot that's twice as big in a better location, which do you think the average buyer is going to make an offer on? Ladies and Gentlemen, even if your own mother is looking for a property and knows you need to sell, that's going to be a hard sale for your property. On the other side, if you're not asking enough, people will line up to buy, but then you (and your agent) end up with less money in your pocket, and that's not going to make anyone happy except the buyer.

Furthermore, you've got to understand the market you're trying to sell in. In a strong seller's market, you can probably afford blow off offers below a certain threshold. In a strong buyer's market, you need to try and work with anything even vaguely in the right ballpark, to see if you can talk them into something more in line with reality.

Some agents won't do this. They'll either accept whatever the owner wants to ask or even actually inflate the asking price. This is called "buying a listing," because owners who don't know any better get dollar signs in their eyes and sign up with that agent. It isn't really "buying" anything - it's more like a candidate's insincere campaign promises to repeal laws of economics. Anybody old enough to vote should know better than to believe this, but it works, for the same reason Nigerian 419 scamsters are driving around in Ferraris: People want to believe in easy money. In point of fact, as I have written before, this actually sabotages any chance of actually getting the best possible price. Your time of highest interest is right when it hits the market, and the longer the property is on the market, the lower the sales price is likely to be, and when you over-price real estate, you're not only going to end up getting less money in the end, but you'll have to pay carrying costs for the property for a longer period of time. In short, this approach reliably costs sellers money. Large amounts of money. There is no reason but greed and ignorance to do this, but many rotten agents make a very good living conning people who don't know any better. One of the reasons why bargains are hard to find is that the definite majority of the listings out there have been the victim of such an agent. The property isn't going to sell for that price, or anything like that price, but by over-promising on the listing price, they get a signed listing contract, and when all these properties eventually sell for tens of thousands less than they really could have gotten, that agent even looks like a "top producer."

Waiting until the property is on the market is too late. Everybody has already seen that initial asking price. Not to mention the owner still believes the nonsense they've been sold in the above paragraph. Waiting until you have an offer is definitely too late. The agent has been telling them up until this very moment to expect tens of thousands of dollars more, and now the agent is going to try to talk them into accepting what really is a good offer? Not likely to work, and not good for the relationship even if it does. Furthermore, one of the things you learn in this business is that the first offer you get is more likely than not to be the best. Oh, it's not rare or even that uncommon for a better offer to come later, but the most typical pattern is for each subsequent offer to be successively lower. And now you've lost what is likely to be the best offer you're going to get because your agent couldn't explain to you what a good offer was? Run that one by me again: Why are agents supposedly getting paid? I get paid for listings because I really do know how to sell them more quickly and for a higher price than any "for sale by owner". But why in the world would you want to pay someone who doesn't do that, and makes the sale take longer and causes you to have to settle for a lower price? I understand why it happens. I just can't understand why people would want to, other than a combination of ignorance, laziness and greed. Somebody once said, "Too bad ignorance isn't painful." Ignorance is painful, but it's financial pain, and the kind most of those burned by it never realize they felt, because they couldn't recognize the symptoms, and they have no idea how much better they could have done.

For a successful listing that's going to fetch an optimum sale, understanding what a good offer looks like, so the owners know how to react when they get it, and setting the correct asking price so that you do get such an offer, is critical. Failing to do so will put you in that group of people who don't get what they could have for the property, and since you don't understand how and why the problem happened, you're likely to repeat it every time you decide to sell a property. When the market rises rapidly for many years, as the San Diego area among many others did, you can even delude yourself into believing that you were "successful." But when the market returns to something more closely approximating normality, believe me when I tell you you that you'll find out in a hurry that you weren't as successful as you thought.

Caveat Emptor

A while ago I wrote an article called, "What Happens When You Can't Make Your Real Estate Loan Payment." This is kind of a continuation of that, as I got a search that asked, "What is necessary to persuade a bank to accept a short payoff on a mortgage"

Poverty. In a word, poverty. You have to persuade the bank that this is the best possible deal they are going to get. You can't make the payments, and if they foreclose they will get less money.

A "short sale" or short payoff is defined as a sale where the proceeds from the sale will not cover the secured obligations of the owner. The cash they will receive from the sale is "short" of the necessary amount. The house is no longer worth what they paid for it.

When I originally wrote this article, I was looking ahead. There were more and more of these happening, but the big wave had yet to hit. That wave is now here, and in some areas, the peak may even be past. There are always people that lost their good job and can't get a replacement nearly as good. But there were also people that were put into too much house, and approved for too much loan, suddenly discovering their situation was not sustainable because they suddenly couldn't make the payments. Unscrupulous agents that wanted a bigger commission, loan officers going along, and nobody acting like they were responsible for the consequences to their clients. My concern for lenders who do stated income and negative amortization loans (and a lot of loans that are both!) is kind of minimal. Okay, it's very minimal. Like nonexistent smallest violin in the world playing "My Heart Cries For Thee" level sympathy. I forecast that many lenders were going to go through bad times, using a forecasting method that's about as mysterious as falling rocks.

On the other hand, for the people who were led into these transactions by agents with a fiduciary responsibility towards them, I have great heaping loads of sympathy and I'll do anything I can to help. Yes, they're theoretically responsible adults, but when the universe and everyone is telling them all the things that buyers were told these last couple of years, it's understandable. Sure there's a greed component in many cases but when they're told by both loan officers and the real estate agents that they "wouldn't have qualified for the loan if you couldn't afford it," they are being betrayed by the same people who are supposed to be professionals looking out for their interests. I really do suggest finding a good lawyer to these folks, as those agents who did this to them (and their brokerages) better have had insurance which said lawyer can sue to recover money they never should have been out.

I'm going to sketch it out in broad terms, but there are a lot of tricks to the trade. Short sales are not something to try "For Sale By Owner," or even with a discount agent.

First off, you need to draw a coherent picture of the loan payment being unaffordable. If you were on a negative amortization approaching recast, or hybrid ARM (usually interest only for the fixed period) that is now ready to adjust, you're facing a much higher payments. Even if you were able to afford the minimum payment before, now you can't and you've decided to sell for what you can get before it bankrupts you to no good purpose because you're going to lose the house anyway. You're going to have to prove you can't afford your loan, of course, the bank isn't just going to accept your word, but several late payments or a rolling sixty day late that looks headed for ninety have been known to be persuasive. Nonetheless, there are a lot of tacks that you don't want to take. Remember, lenders want to be repaid and they've got a couple of pretty powerful sticks to shake at you. They are not going to agree to sacrifice money merely because to make the payments would be uncomfortable for you. You're going to have to persuade them it's impossible.

Second, you're going to have to persuade the lender that this is the best possible price that you are going to get, and that even if they think they'll get more by going through foreclosure, it will be more than offset by what they'll lose through the expenses involved. Not to mention that they might end up owning the property, which they don't want to do because then they have to spend more money selling it.

Third, you've got to be on the ball about the transaction itself. All the ducks have to be in the row from the start, which is when you approach the lender with a provisional transaction. If they're not, the lender is just not going to go through the process of approving a short sale until they are. Since this takes time, it has the effect of dragging out the transaction. Every missed deadline means the lender will look at the whole thing again, possibly changing their mind about approving the short sale. You need a qualified buyer. Furthermore, most short sale buyers end up bailing out of the transaction at some point, most often because they don't think it's going to get approved on terms that are acceptable to them. You need a full service listing agent who knows what they're doing to prevent this from happening.

Fourth, just be prepared for the fact that the lender is not only not going to approve the transaction if you get any money, but that they're also going to send you a form 1099 after it is all done. This form 1099 will report income for you from forgiveness of debt. This is taxable income! (There is now temporary federal legislation in place changing this)! Many agents eager to make a sale will not tell the sellers this, and when you get right down to it, there is no legal requirement to do so, but I've always thought this was one of the ways to tell a good agent from a not-so-good one. It does seem like something you should be told about before you've got the 1099 form in your mailbox, right? At that point, you are stuck with all of the consequences, where if you had known before, you might not have been so complacent. It is to be noted I've been made aware of ways to circumvent the "no money to the owner" requirement, but they are FRAUD, as in go to jail for a while and be a convicted felon for the rest of your life FRAUD. It can be tempting, but committing fraud is one of the most effective ways I know to make a bad situation worse.

For the buyer, short sales can seem attractive for any number of reasons. Typically the seller is in a situation where they have to sell, and everyone knows it. The option of waiting for a better offer really isn't on the table if what you're offering is anything like reasonable. They can't bluff you, they should know that bluffing you is a waste of effort, and somebody should have explained to them that they really just want out now (and why this is so) before it gets worse. What's not to like? The answer is the fact that there's a third party with veto power over the transaction. The sellers don't have must motivation to bargain hard because they're not getting any money anyway, but many lenders are stuck in the land of Denial.

Your competition will also make things difficult. Because people think there's fast money to be made, these folks are the target of "flippers" everywhere. The large city, highly inflated markets more so than most. A couple weeks before I originally wrote this, we put one on the market and got three ugly low-ball offers within 48 hours, and this is part of why you need an agent to sell one. Remember, the seller isn't getting any money, but they are going to get a 1099 form that says they have to pay taxes. Don't you think most folks would rather it was for less money, and therefore, less taxes, instead of more? The more money the lender loses, the higher your liability. Had any one of the three made a better offer in the first place, they would have gotten the property at a price to make a profit, but they had to prove how rapacious they were, or something. As it was, we jawboned the first three vultures and two other, later entries, into a quasi-decent price, with minimal later tax obligation to our seller, and (eventually) got the lender involved to see reason.

In summation, "short sales" are a way to cut your losses for sellers, and a way to maybe get a good price for buyers, but you have to know how to convince the lenders to accept them, and how not to overplay your bargaining position, lest you get left out in the cold.

However, lenders are basically in denial for a variety of reasons, and they do not want to admit that their underwriting was at fault for lending more than the property was likely to be worth. For that reason, short sales are a long hard slog right now, and many times lenders are rejecting the transaction no matter how much sense it makes. So be advised before you even start that this is an uphill battle, and if the listing agent is not on top of the game, you may be wasting your time making an offer. Quite often, the lender simply says no - that they're not going to accept this transaction unless someone comes up with more money to make them happy.

Caveat Emptor

Original here

Myanmar seizes UN aid supplies, 'not ready' to let in US

Myanmar's military leaders seized aid shipments headed for cyclone survivors and told the top U.S. diplomat there Friday that they're not ready to let in American aid workers despite warnings the country is on the verge of a medical catastrophe.

The country is already flooded, and they're expecting another 4 inches of rain this week. Millions are without basic supplies, and putrefying corpses are going to spread disease. What wonderful people. Oh, and the chinese government shares the blame for propping the junta up.

US official: 1 shipment to be allowed to Myanmar

The governing military junta in Myanmar has agreed to allow a single U.S. cargo aircraft to bring in relief supplies for victims of a devastating cyclone, the Bush administration said Friday.

One planeload is better than nothing, but a single C-130 load of food isn't going to make much of a difference. Oh, it'll stop a few hundred from starving for a few days, but when you're talking about potentially millions of cyclone victims, that's not going to go very far. (the sixty to a hundred thousand you hear about are the ones that are missing or known to be dead. That doesn't count the far larger number of people cut off from food and water)

As a swordfighting duel, it's slapstick at best, but the video of these two gymnasts with lightsabers is cool.

How Oil Lubricates Our Enemies

It's not reality, it's Scrappleface. But humor sometimes conceals a deeper truth.

Neville Chamberlain, without the umbrella

Obama pwned

Via Instapundit, Meet the New Trough, Same as the Old Trough

(This is a reprint from December 15, 2006)

Drew over at zillow asked me to do a short little Q & A piece for them. It went up a few days ago, and I thought I'd post my original piece here as well.

What are some online resources consumers should be using to find loan rate information?

None that are any good, as in the sense of providing good relevant information that's applicable to specific cases. There are many loan quote forums that will quote you a rate. They quote you a low rate or a low payment to get you to contact them - and that's all that it is, a teaser. I have literally gone right down the line in two different comparative quote forums, contacting every company and asking for quotes that comply with the standards they are supposed to quote to. Not one company was even prepared to quote me what they were advertising. Nor did the forums themselves do anything when I complained - they are not interested in policing the quotes, as to do so risks losing some hefty income when the companies quit subscribing to their service. The few companies that advertise honest rates that are really available have given up on those forums in disgust - they attract clients in other ways.

Unpopular as this truth may be, you need to shop live loan officers and have real conversations and ask a lot of hard-nosed questions. Here is a list of Questions You Should Ask Prospective Loan Providers. If you want to suggest any additions to this list, I'd love to know.

What should a 1st time home buyer look for when comparing and contrasting loans?

1) Make certain you are really comparing the same type of loan. Asking about the industry standard name for the type of loan contemplated helps. Even if you don't know what it means, the other loan officers you talk to will. 2) There is always a trade off between rate and cost for the same type of loan. One lender's trade offs will be different than another lender's, but you always have a range of choices, even with the same lender. Just because one loan has a lower rate or lower payment doesn't make it a better loan. Find out the total cost of getting that rate, and figure out how long it will take you to recover costs via the lower interest rate. Given how often most people refinance, a higher rate with a higher payment but lower costs is often the better bargain. There is no sense in paying four points for a loan you are only likely to keep for two years.

What is the biggest mistake you see 1st time home buyers make?

Three most common disasters: 1) Buying or wanting a more expensive property than they can afford. Any competent loan officer can get you a loan that you can not afford, but you still have to face the consequences later, and these consequences can be well buried. Find out what you can really afford with a sustainable loan, and stick to it. Settling for a lesser property is much smarter than buying something you cannot afford. 2) Not shopping around for services. Even if you trust your brother in law the real estate agent, or your sister in law the loan officer, shopping around gives them concrete reason to stay honest. The worst mess I ever cleaned up was caused by someone's favorite uncle trying to make too much money, and the niece was blissfully unaware until her husband brought me into it - six weeks after it should have closed. 3) Believing that because someone puts some numbers onto a Good Faith Estimate (Mortgage Loan Disclosure Statement in California) that they intend to deliver that loan on those terms. This is, unfortunately, not the case in the industry at large. If they do not guarantee their quote in writing, the Good Faith Estimate (or Mortgage Loan Disclosure Statement) is garbage, along with all of the other standard forms that you get with it. The only form that the law requires to be accurate is the HUD-1, which you do not get, even in preliminary form, until the loan is closing. Big national lending institution everyone has heard of? Doesn't mean a thing. Ask the hard questions, and do not permit yourself to be distracted.

When do 50 year mortgages make sense?

Perversely, rates on 40 year amortizations are usually comparable to interest only, and fifty year amortization rates are usually higher. Nor are any of the these usually a good choice for a purchase money loan. All three are strong indicators that you are trying to buy too expensive a property for your budget. See Common Mistake Number One above.

What do you think about Adjustable Rate Mortgages (ARMs)?

I am a big fan of certain ARMs in most markets. Most of the time, a fully amortized 5/1 ARM will be at least one full percent lower on the rate than a comparably expensive thirty year fixed, and the vast majority of people refinance within five years anyway. Why pay for thirty years worth of insurance that your rate won't change when you're likely to let the lender off the hook within a few years anyway? With that said, however, right now (late November 2006) the spread in rate is only about a quarter of a percent or less between a 5/1 ARM and a thirty year fixed - and at the low cost end of the spectrum, the thirty year fixed may actually be less expensive for the same rate, so I'm recommending thirty year fixed rate loans quite a bit right now.

(In May 2008, the spread between thirty year fixed and 5/1 ARMs is back up between half and three-quarters of a percent, meaning people who are psychologically comfortable should probably consider a 5/1)

Is there a certain number people should be looking at when determining if they should refinance?

Forget payment. With no other information to go on, I would bet that someone trying to get you to refinance based upon a low payment was pushing a bad loan, and probably low-balling the payment as well.

Once again, you've got to have a good conversation with the loan officer. Look at the money you will save from the lower interest rate - the interest charges to a loan. If you're saving half a percent on a $400,000 loan, that's $2000 per year. Compare this to the cost, and how long the rate is good for - or how long you're likely to keep it, whichever is less. If the cost is zero - and true zero cost loans do exist - you're ahead from day one. However, if it costs you $12,000, it's going to take you six years to break even, and most folks will never keep the same loan six years in their lives. Since there is no way to know for sure unless your prospective lender will guarantee the quote as to rate, total cost, and type of loan, you need to go in to final signing with the idea firmly in your mind that unless they can show both the cost and the benefit, you're going to walk out without signing. Indeed, many companies are very adept at pretending costs don't exist, and hiding costs at closing. Industry statistics: over half of all potential borrowers won't even notice discrepancies at closing, and of the ones who do, eight to nine out of ten will just sign anyway. This rewards people who lie to get you to sign up. Haul out the HUD-1 form at closing and make certain it conforms to what you were told when you applied. Most don't, and the loan officer knew it wouldn't when you signed up. Read the Note carefully also, before you sign.

More questions? I'd love to answer them! Contact me and ask!

Caveat Emptor

Original here

There's an old literary tradition that cautions the reader to "Be careful what you ask for. You may get it."

Many real estate purchase offers are good illustrations of that principle.

The rule followed by good agents is, "Never make an offer that you wouldn't be pleased to have accepted, exactly like it is." An Offer is a legal term. You're making an offer to fulfill these terms if the seller will. By simply signing the offer in acceptance, the other side can create a binding document with legal force, and at least potentially sue for specific performance. Specific performance is more often used by buyers than sellers, but it is available to both. An offered and accepted purchase contract is roughly equivalent to creating both a "call" for the buyer and a "put" for the seller in options trading. The seller has a right to insist the buyer buy, and the buyer has a right to insist that the seller sell, on these specific terms.

Usually, there are things discovered about the property while in escrow. It just isn't cost effective for prospective buyers to perform an inspection prior to obtaining a contract, and sellers should be mindful of the fact that subsequent discovery can void the purchase contract with an inspection contingency. On the other hand, I can't imagine a buyer insane enough not to build an inspection contingency into the contract. No matter how great a deal they may think they're getting at first, the whole contract is subject to a revaluation if the inspection uncovers major defects. I'd prefer to negotiate repairs or compensation rather than flush the transaction, whether I'm a buyer's agent or listing agent, but if the other side isn't going to be reasonable, sometimes it's necessary to walk. On the other hand, if the sellers have developed remorse and aren't reasonable but the buyer wants to proceed, the buyers can force the sellers to perform by being willing to accept the original contract, as written.

The buyer usually has protection from the various contingencies in the contract - loan, appraisal, inspection, disclosures. But these have a specific limited duration, the sellers (via their agent) can insist the contingencies be removed in a timely fashion, and once they are gone, that buyer is as naked as the seller. Indeed, one of the marks of a good listing agent is being on the ball about contingency removals. Usually, it's the deposit rather than specific performance that the seller goes after because the reason the buyer wants out is it turns out they can't qualify for the necessary loan. Suing for specific performance in such instances is like demanding that men gestate and birth fifty percent of all babies. It's a physical impossibility that isn't going to happen. Sorry ladies, and sellers also. But the deposit money, and any other money in escrow, can be at risk.

Nor is that the limit of the seller's recourse. I'm not a lawyer, so talk to one, but damages certainly seem possible. Many lender owned addenda demand them if certain conditions are met.

The ultimate risk of a poorly written purchase offer, however, is that it leaves the buyer with a property that isn't worth what they paid for it.

It happens, particularly with large deposits. Buyers get into situations where they have a choice of buying or losing that cash deposit they worked so hard for. Even when the latter is clearly the least bad situation, many people, understanding the value of the cash they worked to save rather more clearly than the value of the payments they haven't made yet, will choose to consummate the transaction. They end up with an unmarketable property where they are obligated to make the payments on the loan, property taxes, and insurance. Since most folks are extremely happy to get a 2 percent deposit, this obligates you to 50 times that much by paying attention to immediate cash rather than the overall situation. Plus interest on the loan and property taxes. Ouch. Not a situation you want to be in.

There is a reason for each of the standard contingencies in a sale contract, and you can ask for others in the initial negotiations if you have a specific reason to be concerned. I just closed one where we negotiated an engineering report contingency because I had real concerns about the stability of the property (It was fine. But better my client spends $600 up front than spends half a million dollars for a property that's in danger of falling over). Standard contingencies can also be waived, creating a stronger, more definite offer. I'd be very careful about waiving them, and I always make certain the client understands the implications in writing. There are valid reasons to waive each and every one of the standard contingencies, but it is always a risk, and it can bite. The way I explain it is that it will bite, if you do enough of them - only nobody knows how many "enough" is.

If a buyer is giving up something that the standard contract gives them, there should always be something they're getting in return. If the seller isn't willing to do that, we're obviously making an offer on the wrong property. The same applies the other way around to sellers. One more way agents with good market knowledge serve their clients interests. "Yes, that model match sold for $X last month. But that seller gave the buyer 6% for loan costs, paid all the closing costs, and a twenty percent carryback as well. My client has a twenty percent down payment, doesn't need anything for loan costs, and is offering to pay half of all closing costs. When was the last time you saw all of that?" Every single one of those differences means money in that seller's pocket - money that should mean corresponding money my buyer doesn't have to pay in the form of purchase price.

Purchase price translates into property taxes for the buyer, and can mean exceeding statutory exclusions for the seller (i.e. they end up owing income tax, or at least having to pay an accountant to prove that they don't). The bottom line is that because the seller is getting things of value that the other seller didn't, they should be willing to give up something in the way of purchase price. If they're not, we're talking to the wrong seller and they're talking to the wrong prospective buyer. We want someone who's willing to see reason, he wants that prospective buyer who needs all that extra money from them to make the transaction happen (maybe). I think such a seller is barking mad, but that's their prerogative. It's a free country. They're entitled to lose their potential transaction.

Another thing that a poorly written offer can do is "poison the well." The other side gets so angry about the offer (usually the price part of the offer) that when the prospective buyer comes back with something better, they aren't interested. Happens. Sometimes it's justified, sometimes it isn't. If you're not emotionally attached to the property, no big deal. If it's the one you've got your heart set upon, prepare to make major amends in the form of concessions in order to bring them to the table. Hair shirts and heartfelt apologies are not likely to work. You've set a warning flag in the owner's mind or the listing agent's, and they're going to want something extra to deal with you because they're expecting a repeat of the behavior.

A poorly written offer can also leave you stuck doing something you don't want to, or can't. Suppose you need a contingency for sale of your own property, but neglected to include one in your offer. Bad news. Now you're looking at the transaction falling out, with consequences for the deposit, or renegotiation, and that seller is going to want a goodie of their own for giving you what you need. Renegotiation is also subject to issues from deterioration of mutual trust, as the other side starts wondering precisely how much of the contract you intend to live up to. It should be expected that the inspections are going to raise some negotiation issues, even in "as is" sales. That's life with asymmetrical information - which is basically every real estate transaction. But try to avoid anything else as a reason to renegotiate.

This is by no means an exhaustive list of the dangers. With real estate, the answer to the question "What can go wrong?" is usually, "The mind boggles."* Purchase offers are probably the most noteworthy example of that principle. A poorly written, or poorly considered purchase offer can mean you're stuck with a situation you can't carry through on, and it can cost you anything up to the full purchase price of the property, and perhaps more than that.

Caveat Emptor

*Thanks to Robert Lynn Aspirin and Aahz

FYI: Fannie and Freddie have changed things a bit, and now the temporary Jumbo Conforming Loan rates have dropped like a rock, to the point where there's only a quarter to a half point difference in cost between them and regular conforming at the same rate. Now that will make a difference for full doc borrowers. Stated Income is non-conforming, and those rates are still significantly higher. I've said all along that Jumbo borrowers were suffering by association with stated income, due to the fact that both traditionally used the same rate table for A paper borrowers. Now that Jumbo Conforming loans have broken that association, the rates (up to the new limit) have dropped. This is about as surprising as gravity.

Rudy Giuliani interviewed about the differences between John McCain and Barack Obama's likely judicial appointments. I agree with Mr. Giuliani on all counts, and that's why I'd rather have John McCain's Supreme Court picks than Barack Obama's.

Cindy McCain says she'll never release her tax returns

Sen. McCain is routinely is ranked among the richest lawmakers in Congress, but he and his wife have kept their finances separate throughout their marriage. A prenuptial agreement left much of the family's assets in Cindy McCain's name.

Translation into English: It's not his money, but hers. She isn't running for office. First Lady is not an elected position. She will appear nowhere on the ballot. It's his decision-making, not hers, that we're voting on.

This isn't a recent phenomenon, for the election. This has been the status quo for 28 years. It's not his money.

Any hopes of a Russian democracy or republic are officially dead: Putin takes Yeltsin's pen _ and much of the president's power _ to new job as Russian premier

Burma has refused US Aid for the Cyclone victims

Pentagon not warm to idea of Myanmar aid drop

Asked if it would not be helpful to victims for the U.S. to drop supplies, Mullen said: "We could. Typically, though, it's sovereign airspace and you'd need their permission to fly in that airspace."

"It's all tied to sovereignty, which we respect whether it's on the ground or in the air," Mullen said.

Entering the airspace of a sovereign country makes the aircraft liable to be shot down, should the Burmese junta so desire. I don't think they would - the international outcry that would result might be the one thing that shames the Chinese government into stopping their support - but legally, they could. The status of our air crews would be "invaders", and I don't think this falls under the heading of what they signed up for. It would be one thing if we had the desire to use force to overthrow the junta, if Congress had declared war, etcetera, but that is not the case.

Two more casualties of the drug war: a documentary about the case of Cory Maye

I've dealt with this subject before. I'm sorry for Officer Jones and his family. The fact remains that he messed up, and lost his life to a citizen protecting himself from what he had every reason to believe was a home invasion.

Volokh Conspiracy on the Duke Rape Hoax and the behavior of the "Group of 88" professors.

If they can't simply face the truth, they should put down their shovels and stop digging.

Damning.

Every once in a while, the subject of assumable loans comes up. An assumable loan is one where the owner of a property has the ability to pass the loan along with the property in a sale. In other words, if they sell a property with a $200,000 assumable loan on it, by assuming the loan, the buyer only has to come up with the difference between that $200,000 and the purchase price. The $200,000 loan is a constant of the situation.

About the only loan that generally has an assumption feature is the VA loan. There are other loans out there that are assumable, but it's a matter of company policy of the lender funding the loan.

Just because a loan is assumable does not mean that any person is acceptable to assume such a loan. The lender has the right to approve or disapprove a loan assumption. The way to bet is that any prospective borrower is going to have to qualify under loan guidelines at least as stringent as the original loan. Mind you, if the rate is higher than the current market, the lender is likely to be somewhat forgiving, but if the rate is lower than current market, the lender has an incentive not to approve the assumption. They may approve it anyway, if the rate still beats the active return on the secondary market. But given the latitude to make their own decision, it's not exactly amazing how often everyone will usually follow their economic best interest.

Even after an assumption gets approved, the original borrower is not off the hook. I don't think I've ever heard of an assumption where there was no recourse to the original borrower. The VA loan has full recourse to the original borrower (and their VA guarantee) for a minimum of two years. This means that those original borrowers aren't going to be able to get another VA loan for at least two years, or at least that they're limited by the amount of their overall VA limit tied up in the assumed loan.

Other than VA loans, loans where there is an assumable option are generally a little higher than the non-assumable competition in terms of the tradeoff between loan rate and costs. This is because assumability is a feature with value. They're giving you something that has value the competition does not - they want some value in return. It's generally not a huge difference, but in the absence of someone asking for an assumable loan, I generally presume lower rate/cost tradeoff is more important to my clients, and I can't remember the last time a wholesaler with assumable loans won that battle.

Now there is a concrete value to having an assumable loan. Particularly in markets like today in much of the country, they are one more way to get the property sold, and sold at a better price. After all, you have a feature that few other sellers have. The offer to allow someone to assume your loan can help certain kinds of buyers who may not be able to qualify otherwise, It's a narrow niche, but it does exist, and the ability to have any niche of potential buyers to yourself is valuable in a slow market. This doesn't say you can ask for way more than the property is worth, it says that you have a tool to lure certain types of buyer, and have a tool to move negotiations in the direction you'd like them to go once there is an offer.

Caveat Emptor

I'm a lot less happy about this one than the one two weeks ago. On the one hand, nothing that came in was so obviously inappropriate that I had to ridicule it in the SPAM section. On the other hand, only four entries came in where the information they contained actually outweighed the nonsense and just plain bad information, and several were link chumming. This is pathetic.

The guidelines for this carnival.

As always, I arranged the entries that met guidelines into three levels, based upon originality, usefulness to the consumer, and how much thought and effort and research went into an entry.

STRONGLY RECOMMENDED

There were no strongly recommended entries this time.

RECOMMENDED

Tallahassee Real Estate Blog The "No Brainer" Investment. I do question some of the numbers and assumptions, and they just wouldn't work in many areas of the country, but it's a worthwhile idea.

Why Buyers Should Avoid Short Sales

MET GUIDELINES

50 Year Mortgages - A Compound Interest Nightmare. I agree about the fifty year mortgage, However, sacrificing other investments to pay the property off in 15 years (or 10) isn't very smart either. Haul out a calculator and or spreadsheet and do the math.

How to Make Sure this is your Dream Home: 7 Practical Tips The numbers in tip number four are flat out wrong, at least for the US, but it's still a good point.

SPAM AND OTHER RIDICULOUS SUBMISSIONS

Blessedly, there were none of these submissions this week, although one submission praising Negative Amortization loans almost got the super-special treatment. I've written many times about the downsides of the Negative Amortization loan, and it's extremely difficult to construct a scenario where it actually benefits a prospective borrower.

For those who might object to the treatment their submission received, the relevant information has been in the guidelines since before submissions were being accepted for this carnival. Having been told to read the guidelines, you willingly submitted these posts. Live with it.

Consumer Focused Carnival of Real Estate will return in two weeks (May 21st, 2008), here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be May 19th.

I forgot to submit to any carnivals this week but Real Estate Undressed was kind enough to pick two of my articles for best of April.

And of course, Consumer Focused Carnival of Real Estate will be here tomorrow

Hugo Chavez busted: Via Instapundit, Interpol confirms authenticity of Raúl Reyes's computer files

Gateway Pundit has a list of other stuff that was found by the raid.

Armies of Liberation:

If Saudi Arabia pardoned 9/11 highjacker Mohammed Atta while imprisoning a completely innocent journalist on terrorism charges, the US would be in an uproar. But that's exactly what is going on in Yemen. The USS Cole bombers are free. My good friend, the journalist al-Khaiwani, is on trial in terrorism court. Sentencing is May 21.

Who should MDs let die in a pandemic? Report offers answers

Feel good, happy answers. And people are complaining that this report is too hard, too cruel?

Wikipedia on the last pandemic, the Spanish flu

The Spanish flu lasted from March 1918 to June 1920,[1] spreading even to the Arctic and remote Pacific islands. It is estimated that anywhere from 20 to 100 million people were killed worldwide,[2][3] more than double the number killed in World War I.[4] This extraordinary toll resulted from the extremely high infection rate of up to 50% and the extreme severity of the symptoms, suspected to be caused by cytokine storms.

and

The global mortality rate from the 1918/1919 pandemic is not known, but is estimated at 2.5 to 5% of the human population, with 20% or more of the world population suffering from the disease to some extent. Influenza may have killed as many as 25 million in its first 25 weeks (in contrast, AIDS killed 25 million in its first 25 years). Older estimates say it killed 40-50 million people[8] while current estimates say 50 million to 100 million people worldwide were killed.[9] This pandemic has been described as "the greatest medical holocaust in history" and may have killed more people than the Black Death.[10]

San Diego County has 3 million people now. 20% is 600,000 in this county alone. Roughly seven and a half million sick people in California, sixty million in the United States, 1.3 billionworldwide. If it's anything like past epidemics, the medical professions will be among the hardest hit. And they're proposing to limit triage to

"_People older than 85.

_Those with severe trauma, which could include critical injuries from car crashes and shootings.

_Severely burned patients older than 60.

_Those with severe mental impairment, which could include advanced Alzheimer's disease.

_Those with a severe chronic disease, such as advanced heart failure, lung disease or poorly controlled diabetes.

Furthermore, the closer packed and more mobile a population is, the faster such a disease will spread. Maybe such tactics would be effective if an immediate quarantine clamped down on all travel and all shipments, but in these days of the global economy, I'm more than a little skeptical of that happening. My guess is that by the time quarantines are ordered, the reach of any such disease will already be global, and humanitarian impulses will insure that it goes global if our leaders do react in time.

You tell me if such measures are likely to be enough in such a case. Remember, it would probably hit basically everywhere at once, which means there isn't anywhere with resources to spare to help other areas.

Public health law expert Lawrence Gostin of Georgetown University called the report an important initiative but also "a political minefield and a legal minefield."

Yep. I imagine the medical profession in the US will be greatly reviled in the aftermath. It won't be just, and it won't be fair, but the (remaining) lawyers would clean up in that aftermath. But I would like for there to be an aftermath, something that's far less likely if our medical professionals and political class aren't mentally ready for what is only a matter of time. The Spanish Flu was a fairly weak pandemic, despite having killed at least twice as many people as World War I. Black Death of the 1340s killed at least thirty percent, and was far slower to spread. I don't think our society could withstand 25% losses basically, and even 15 percent would be questionable.

McCain castigates Obama on judges

Republican John McCain criticized Democratic rival Barack Obama for voting against John Roberts as U.S. chief justice

This is a good way to campaign against Obama: on his record. Things that he has done. Not as good as campaigning on the good things John McCain has done and intends to do, but who are we kidding? There hasn't been a Presidential campaign in my lifetime that didn't go negative. Given that it's going negative (and Obama has previously launched salvos at John McCain) I'd like for the negative stuff to be focused on what the opponent has actually done.

The AP article says that this is reaching out to the Christian Right. Maybe so, but I'm emphatically not a Christian, and I approve of Chief Justice Roberts, and Samuel Alito as well. I'd much rather have another justice in the mold of those two than a Ginsberg or Stevens, and the next presidential term is probably going to see three new justices selected. Were Obama elected, I expect that his choices would be disastrous for the economy, as a Ginsberg would be about the least harmful he might nominate.

The USA Today article on the same speech is a little more neutral:

The Republican presidential candidate said Roberts and Alito would be his models for judicial nominations, contrasting them with "activist judges" who would rather make laws than interpret them.

"With a presumption that would have amazed the framers of our Constitution, and legal reasoning that would have mystified them, federal judges today issue rulings and opinions on policy questions that should be decided democratically," McCain said during a speech in Winston-Salem, N.C.

While I'm on an elections kick, Wizbang has an article on Obama's associates, and his judgment (or lack thereof) in choosing them.

I am not making this up: Study shows breast-fed children are smarter

Zimbabwe observers question presidential results

The opposition says Tsvangirai won the election outright and has ended Mugabe's 28 year rule over the once prosperous country whose economy is now in ruins.

ZESN accused ruling party members of beating observers and called on police to stop the attacks.

Mugabe wants to fabricate the need for a run off, which will give him the opportunity to fabricate enough supporters (and intimidate enough opponents) to stay in power.

Official results confirm Bolivian province's autonomy win

With 34 percent of ballots counted Monday, the autonomy statute claimed the support of 84.1 percent of voters, while 15.7 percent opposed it, Santa Cruz's electoral court announced. Exit polls released Sunday night showed the autonomy statute winning as much as 85 percent of the province's nearly 570,000 valid votes.

Eighty-five percent?! That's right at the limits for believability.

Shows if you want your people united, act like a communist nutjob and befriend other communist nutjobs. Works every time. Unfortunately for your agenda, it works against you.

This article is for sellers who want to put their property on the market priced too high "just to see if we can get it."

I know where sellers get it. A lot of people are out there hyping the notion that getting a higher price is a function of patience. It isn't. It's a matter of being worth a higher price. The higher priced your property, the lower the percentage of the population that can afford your property and therefore, it takes longer to sell higher end properties. But the notion that getting a better price for your property is a matter of patience is wishful thinking.

I keep telling people, if you want to be a successful seller, think like a buyer (The opposite also applies).

Here's what buyers do: They look for the most attractive property that best suits their individual needs at the lowest possible price.

Buyers are quite conscious of the fact that there are other buyers out there, and they want - very strongly - to harness the collective brain-power of those other buyers. As I had quite forcefully driven home to me recently, one of the things that buyers want out of listing services is "days on market." It wasn't a surprise to me, but the vehemence of the feeling certainly reinforced my understanding. I've written many times about the selling your property quickly and for the best possible price, and the effects of not adhering to that strategy. Buyers don't want to "waste" their time with picked over remains that nobody else liked, hence their rather strong focus on the variable of "time on market". It's incorrect, but that's the way the average buyer sees it. Kind of like the produce and meat sections of the supermarket at closing time. I cannot recall the last time a gateway client sent me an email about a property that had been on the market as much as two weeks - and at least 90% (maybe 99%) of them came onto the market within the last day or two.

So what happens when you put your property on the market over-priced? You might get showings, but when your buyers look at competing properties, they get a better deal - more of what they need and want for the same price - by buying those other properties. Therefore, they will make offers on those other properties - not yours.

Within a short period of time - usually a month or less - the showings will trail off. That pesky "time on market" counter. Buyers aren't interested in what's been picked over and rejected - they want fresh offerings, just like at the supermarket. There are any number of methods of gaming the time "time on market" counter to fool the buyers. Let me ask you: Would all these methods even exist if it wasn't important to buyers? Heck, no! (Enforcement of measures against that gaming is getting stronger, by the way).

Once your property is on the market, it's effectively a depreciating asset, thanks to that "days on market" counter. It may not be as time critical as the fresh seafood counter, but it's a matter of how quickly it loses how much of its value, not whether it does. I'm typing this on May 5 - it you're looking at a fridge full of milk cartons, would you be looking for the one that expires May 7th, May 12th, or May 17th? People are so used to doing this that they don't even realize they're doing it or that it may not be appropriate in this context. But right, wrong, or indifferent, they do this. Pretending otherwise doesn't make it so.

There is one way to refresh that interest in your property, and it's the same way that the grocery store does it. What's the feature of the "day old bread" table that people remember? Sometimes a grocer will have a place for meat or fish that's older than ideal as well, and they use exactly the same principle: lower the price.

At this stage, you've got to lower your price to compete with the other "day old bread," and to get a successful sale at this point, you've got to be priced like day old bread. This means significantly less than you could have gotten in the first place. Nobody buys day old English Muffins for a dollar when there's fresh ones sitting right next to them for that dollar, and it's not like people can't tell they're day old. So in order to sell those day old English Muffins, the store marks them down to fifty cents. The same principle will work to sell a property that's been on the market too long. Even though the discount isn't as steep, proportionally speaking, it's still cost you a large amount of money to put your property on the market overpriced. People still buy day old bread - just not for the same price as the stuff the drive delivered fresh this morning. Not to mention those carrying costs for a property. The fact is, putting your property on the market over-priced costs you thousands to tens of thousands of dollars. The longer it takes you to see the light, the worse it gets.

I've been writing all of this as if asking price was implicitly equivalent to sales price, which is not the case, but the relationship between the two is beyond the scope of this article (or any other article I'm likely to write here). Suffice to say that asking price is a representation by the seller of a sales price they would be pleased to accept.

But the buyer's perception of value diminishes with time on market, regardless of whether or not there is any merit to that viewpoint. In general, there is not, but it's kind of like believing in communism or social security or single payer health care, to construct a "Christmas Carol Ghost" parallel (disaster past, disaster present, and disaster yet to come). Doesn't matter how much nonsense it is - if enough people believe in it, it's going to be the law of the land until enough people change their mind or the whole system falls apart. Since the time between adoption and abolishment is longer than most property owners can hold onto that property, this means you might as well treat it as a fact of life, because from the point of view of a seller, it is.

You can avoid this issue by pricing the property correctly in the first place, and correct pricing should be a difficult discussion if your prospective listing agent is any good. If the pricing discussion isn't difficult, were I in your shoes I'd take that as a strong warning sign and tell that agent that their services are not desired.

Caveat Emptor

Cold Hard Fact for today: The average Real Estate Agent or Loan Officer is not motivated to tell you that you can't afford your property.

For the agent you are trying to talk people out of a property after they have already fallen in love with it, and then the argument becomes, "Why did you show it to me?". Let's face it, if it's higher in price, it should have features that lower priced properties do not, and it should have fewer things that consumers do not want. Indeed, one of the easiest and most common ways unethical real estate agents sell properties is by showing you several lower priced properties, fixers which lack those attractive extras, then show you the blinged out immaculate property while whispering sweet nothings like, "I can show you how you can afford the payments!" (which is not the same as being able to afford the property!)

All agents learn that by telling the client "no," or anything that sounds like "no," they are likely to lose that business. Good ones know that putting a client into something beyond their budget is a good way to have the transaction come back to haunt them. But for most, the temptation of the easy sale that made itself if too strong. They want that commission check. Nothing wrong with commission checks. If they provide real value to the client, they are a way of showing the world that you have done something valuable, same as a doctor, carpenter, or computer programmer. It's when you use your position of trust to sabotage them that problems start - and you should experience problems. Many agents have not been around long enough to understand flat or declining markets. In truth, I wasn't in the business the last time we had one, either. But I am old enough to remember, and careful enough by nature that I refuse to assume that a rapidly rising market will save my bacon, as many agents have become used to.

And for the foreseeable future, rapidly rising markets are unlikely to save anybody's bacon, because the market isn't going to be rising rapidly until this inventory has cleared. Inventory is high, long term rates are set to rise, and we're just seeing a wave of problems caused by over-the-top practices of the last few years. I think we're past the price decline locally, at least as far as properties that are actually selling, but conditions aren't there for a return to the market we had most of the last decade.

Lest you be wondering, the loan officer is even more unlikely to counsel you on whether you can really afford the property. Between Stated Income, Negative Amortization Loans, and loans that are both of these, you can get anybody with an income and a not too putrid credit score into the property. In fact, I heard some real howls of outrage from certain brokers when lenders tightened their recourse on brokers in 2006. Even so, the paycheck is now and certain, the risk of default vague and indefinite, and for most loan officers, there's another concern as well.

You see, most loan officers cultivate some friends who are real estate agents, and that's how they get their business. That agent brings them business because they have a history of getting the loan through, so that agent gets paid. Sometimes they may have their hand out for a referral fee as well, but the important thing for you to know as a consumer is that referral you get from an agent to a loan officer has nothing to do with how great their rates are, and everything to do with how creative they are in getting some sort of loan approved so that agent gets paid for the house they sold. Tell just one prospect who has made an offer on their dream house that there is an issue with being able to really afford that loan, and the word will get around the real estate community in no time. Result: For causing one agent to not get paid, Joe Loan Officer not only will not get any referrals from them in the future, if the client does find Joe Loan Officer on their own, the agents are going to do their best to talk them away from Joe, who, from their point of view, "stole their paycheck" by telling the client that they really could not afford the loan that was necessary to make the transaction work! Even if they took that transaction to some other loan officer who got it closed, Jane Realtor doesn't want her clients to have anything to do with Joe, lest she lose another potential commission check!

So what can you, the consumer, do about this? Well, I can't tell you all about the special cases, and I lack the programming capability to embed a spreadsheet and loan calculator. But I can give you some good general rules of comparison, and guidelines laid down by lenders as to whether or not you can actually afford that loan.

Start with your total monthly gross income. Assuming you printed this out, write that number here:

Notes:
A: use fully indexed rate for qualification purposes. This means the underlying index plus the margin after it adjusts, assuming current values.

B: If interest only, use fully amortized rate for qualification purposes.

Any four function calculator will do this much. Now this is the largest number you will qualify with. As you should be able to see, it's more difficult to qualify for A paper, even though that is where you want to be. But we're not done. This is total housing and debt service, the so-called "back end ratio." So from that number, you need to subtract your monthly debt service: Car payments and other installments, and minimum credit card payments. You pay this much already. You obviously cannot afford to pay it out for housing also!

So add up your credit card, car payment, and other monthly debt obligations. Subtract it from your numbers for back end ratios, computed above. This will give you a set of five numbers that tells what you can afford for housing costs, depending upon how far you want to go. But we're not done! This is total cost of housing; the so-called "PITI payment." It includes not only principal and interest on the loan, but also property taxes, homeowner's insurance, Condominium Association dues, and Mello-Roos assessment districts (or their equivalent outside of California, if applicable). So from this, you need to subtract all of the known stuff or stuff you can make a close approximation on, like Association dues and insurance and taxes, to arrive at how much of a loan you can afford. Please note that for Negative Amortization Loans, loan officers may use the minimum payment for qualification, but you are still being charged the real interest rate! Still, it should become obvious as to why Negative Amortization loans were so popular in high priced areas. Not only would the lenders pay between 3.5 to 4 percent commission for them, not only do they allow lower payments to be quoted, but they make it look like you qualify for a bigger loan than you can afford, which means the real estate agent gets a bigger commission from selling you a more expensive property, and the loan officer gets paid more, also, because now you have applied for a larger loan! I have heard every rationalization under the sun from loan officers and real estate agents on this score, but they are still inappropriate for the vast majority of people who have them. I can get a better interest rate on a better loan for less cost, every time, but then I have to tell the client about the full amount they are really being charged every month, and they might have to content themselves with a less expensive property, meaning that real estate agent is going to have to do some real work. Go out onto the web and look for some loan calculators (Auto loans use slightly different assumptions, so don't use those calculators), or if you have a financial calculator, use it! Use the real interest rates that are available, and if the number you get comes out much higher than your quoted payment, they are trying to snooker you with a negative amortization loan. There is no magic about loans, and a healthy skepticism will help you prevent problems from happening in the first place.

Now add the down payment you intend to make to the loan you can afford, and that tells you whether or not you can afford the property.

Caveat Emptor

Original here

Short answer: It almost certainly won't sell!

The first thing that happens is that when it goes onto the Multiple Listing Service, all the agents who see it know that it's overpriced. Even on the public part of MLS, the members of the public who see it wonder, "Are the walls gold-plated or something?"

The first thing you want when you put a property on the market is for everybody who is looking for a property of that nature to come and see it. Overpricing it is the best way I know of to cut down drastically on the level of interest. If they don't come see it, people are not going to make offers. Most particularly, they will not make good offers if they don't come see it. If they do come see it, they are going to be expecting something better, and disappointed people don't make good offers, if they make one at all. That high asking price communicates that this property has something above and beyond the what it really does. If it doesn't, they're going to wonder what in the heck you and your agent were thinking. They're going to go away shaking their heads at the waste of their time. If they make an offer, it will be a desperation check.

The agents in the area are going to avoid the property, also. They know what similar properties are going for. Why should they try to sell yours for $10,000, $25,000, $50,000 above market comparables? Yes, they'll make a little more if they do sell it, but it's much easier to sell a property that is a real bargain. I'd rather sell sell a real bargain at $400,000 than an over-priced turkey for $450,000. The difference in compensation isn't that much, and I'll work much harder, and I'll lose most prospects by trying. I try to sell them an over-priced turkey looking for the sucker of the year, and a large proportion of clients won't want to work with me any more. I can make the commission off of a $400,000 sale, or I can lose the client by trying for $450,000. If they can afford $450,000, I can find them a better property at the same price. Happy clients bring me more clients for free, and as any real estate agent or loan officer can tell you, getting potential clients in the door is the hardest and most expensive part of the business. I assure you that every real estate agent who has been in the business more than about three hours knows this. If you were priced right, I might have shown that client your property, but you weren't, and so I didn't. When you over-priced the property, you either placed yourself beyond their budget, or where I can find something better for the same price.

Furthermore, overpriced real estate tells me that not only does the listing agent not know what they are doing and does not know what appropriate pricing is, but also that the seller likely does not have their head in the right place as to what the property is worth. Six months or a year down the line, it's time to make a low-ball offer and see if you're desperate yet. And if you needed to sell in ninety days, you will be. Right now, if I bring in a client who offers what the property is really worth, that's so much wasted time on my part and that of my buyer prospect, because I'm fighting two people with their heads stuck in the Land of Wishful Thinking, and I cannot force either one of you to listen to reason. Six or twelve months down the line, the seller usually has to listen, as carrying costs have killed their bank account.

If people do come see your over-priced property, most of them won't make an offer. Most people don't look at just one property, even if they like yours. They may not look at enough properties, but they will look at more than one before they write an offer for anything. And since they have seen at least one other property, unless it's as overpriced as yours is, they're not going to make a good offer on yours. Many times, it may falsely communicate to them that the other property is a heck of a good bargain, and you just sold that other property, for which that other property's owner and listing agent surely thank you.

By over-pricing the property, not only do you set yourself up for all of this, but you miss the period of highest interest in your property, which is right after it hits the market, tapering off after about a month. One of the hardest, most pernicious ideas for a good agent to fight is the idea of putting it on the market over-priced "just to see" if they can get thousands of dollars more than comparable properties are selling for. The other is the concept of "bargaining room." Not only are you unlikely to get more than the market comps, but by over-pricing the property during the period of initial interest, the owners have almost certainly frightened away potential buyers who might well have offered market value if the property was priced correctly. Nor do these people come back later. They're looking at the stuff that hit the market this week, not four, six, or ten months ago. The agents in the area remember that it sat on the market for six months even if you somehow manage to get the days on market counter reset. Result: You have to lower the price further than the price you could have gotten in the first place to attract interest, and you paid carrying costs for those months as well. Foot. Bullet. No assembly required, because you did it to yourself. If you had a need to sell by a certain time, or for the best price, it's not going to happen.

Indeed, several months out, you'll start getting those low-ballers I talked about earlier. They really do want to buy your property, but they won't offer anything like what you might have gotten earlier, because your property isn't worth that much to them. It's no secret that just waiting a little while on over-priced property is one of the best ways to get a bargain that there is. Most people put the property up for sale because they have a reason they want it sold. Most of those reasons are time-sensitive, and many are time critical. Wait until the deadline looms, or has passed, and the seller has no bargaining strength. I don't care how much "bargaining room" you gave yourself. Bargaining room is nothing. Bargaining strength is everything. When your best alternative is losing the property to foreclosure, you have no strength. If you won't deal, these folks will wait until the lender owns it. It's all the same to them, but it isn't to you.

Until recently, with prices falling, the appraisal wasn't quite the problem it usually is for over-priced real estate. But usually, if you actually do win the lottery - and the odds you are facing really are in that league - and your listing agent sells it to the Sucker of the Year for more than the comparables, the appraisal isn't going to support the sales price. This means they can't finance the full sales price, and the Suckers of the Year are even less likely than other people to have the money for a down payment. I've said this more than once, but I it is rate for a first time buyer to have a significant down payment. Even people who aren't first time buyers usually want to buy with as little down as possible, and you've just boosted the amount they have to come up with out of their pocket if they want your property - not to mention that most purchase contracts these days have appraisal contingencies built in. Even with prices falling, many appraisals are falling short. A couple of nitwits recently put the house I grew up in on the market for 630,000! I took a look for grins and giggles. The owners have gussied up the back yard a little, but other than that it's the same as I remember. No way is that appraisal coming in even if they do find the Sucker of the Year to make an offer, so the Suckers of the Year have to front all those thousands of dollars to make the transaction work, and Suckers of the Year are just that - suckers. The chances of them having that kind of money sitting around where nobody else has conned them out of it are miniscule, to say the least. The only alternative I'm aware of is a seller carryback, and there are some real issues and problems with those. Meanwhile, of course, you are stuck in escrow with them and the clock is ticking and they may have grounds for a lawsuit if you are not careful. Even if they don't, they may sue you anyway, and tie up the title until the court gets around to ruling, or until the arbitration hearing and all of the appeals are over.

In short, over-pricing your property is the best way I know of to get yourself very frustrated, waste time, and end up forced to accept an offer that's less than you could have gotten if you had simply priced the property correctly in the first place.

Caveat Emptor

Original here

One of the things that has a lot of issues is any transaction between related people. Actually, this is not limited to purely family transactions, but applies also to transfers among partnerships and their partners, corporations and their officers.

The market theory holding that the value of a property is what is agreed to between a willing buyer and a willing seller is subject to the proviso that neither buyer nor seller has a reason to inflate or deflate what the property is worth to them. If the parties are related, there is an obvious reason to think that this may not necessarily be the case. Parents do things for their children all the time, siblings for each other, and as you're probably aware if you work in corporate America, major stockholders, investors, and executives often manipulate corporate versus personal transactions for less than wholesome reasons. Partnerships do the darnedest things, as well.

The issue, as far as the lender goes, is that they are trying to safeguard their money. Lending is a risk based business, and the lender wants to know that they are not taking more of a risk than they intend to when they take on this loan.

Let's say Jane Jones is CEO of SuperColossal Corporation. She wants to manipulate her compensation, so she has SuperColossal sell her property for half its real value.

Now this is actually okay by most lenders, if not securities regulators, IRS agents, et al. The loan is based upon the purchase price, the appraisal comes in double the purchase amount, and the lender assumes less risk than they price the loan for. Remember, the property is valued based upon LCM: Lower of Cost (purchase price) or Market value. When market value comes in high, the lender is covered. What isn't so cool is if Jane Jones sells SuperColossal the property back at twice its value. If the corporation gets a loan for 75 percent of value, that's at least a third of the lender's money they're not going to get back in case of default, which becomes likely when Jane is fired and the new CEO asks why they are paying the loan when they owe half again what the property is worth.

Needless to say, the lenders want to guard against that. Many lenders will not do related party transactions, period. For the ones that do, they will want to be very careful on the appraisal, which has now become their only guard against getting into an indefensible position. Many times, lenders may require related party transactions to go through certain appraisers, they may require in house appraisers, they may require multiple appraisals, and they may require that there be no contact between principals and appraisers. Whatever their required precautions, they need to be followed, as failing to do so will cause the loan to be rejected.

I'm going over this to make a point. Many lenders have other requirements as well. Some may require full documentation only, others require that the loans have full recourse (they can come after you legally if they lose money). Each and every lender creates their own policy, and if your transaction is between related parties, it is probably more important to inquire about related party transfer policy and requirements than it is to get a good rate at a competitive price. Not much use having a great quote if you can't meet the lender's requirements. Even worse if it causes you to waste time with a lender whose requirements you cannot meet, and now your deadline for the transaction is here and you don't have a loan, and so cannot complete the transaction.

Caveat Emptor

Original here

Value of college tuition is called into question

The US ranks first in expenditure per student, and dead last in percentage of students completing their degree. I'd say that's prima facie evidence that the taxpayer is getting rooked. Even when I was first in college, it was very difficult for students to get the required courses to graduate in the presumptive time (four years), and it's getting worse.

Dude, Where's My Recession?

Before you declare a recession, as many economic pundits have, shouldn't the economy, well, actually recess a bit--if only for a quarter?

Fear and panic grab attention and sell news. Furthermore, making people believe there is a recession is as good electorally for the party out of power (that would be the Democrats, which constitute over 90% of all media related personnel), as an actual recession. In 1996, AP and the New York Times were favoring Bill Clinton, and trumpeting worse numbers than today's as being very good.

I have this mental image of your least favorite Democratic candidate intoning in a Marvin the Martian style whine: "The media promised me a recession. There should have been a large economy shattering recession."

Can't seem to find the relevant scene online, but here's a .wav file of the relevant phrase.

But case in point: Employers cut fewer jobs in April, jobless rate falls

Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.

When I took economics in college, we called this "expansion" or "growth" instead of "It's not as bad as we told you it was."

The unemployment rate, derived from a different statistical survey than the payroll figures, fell to 5 percent from 5.1 percent in March. That survey showed more people finding employment than those who didn't.

Translation: This good news helps people we don't want to help in the election, so watch us pull all the caveats we can out of our, er, hat!

buried way down in the article, more good news:

In other economic news, the Commerce Department reported that orders to U.S. factories rose a bigger-than-expected 1.4 percent in March, after two straight months of declines.

and

On the jobs front, construction companies slashed 61,000 positions in April. Manufacturers cut 46,000 and retailers got rid of 27,000. Those losses were eclipsed by job gains in education and health care, professional and business services, the government and elsewhere.

And then they close with all the insinuating rhetoric they can saying that things are awful. Textbook hit piece.

My opinion? The Fed should have held fast rather than cutting rates this week, and it's pretty likely that the need for rate cuts is past. Just try not raising things too far and too fast when it become obvious the economy has turned.

Yeah, Wright

So, was Obama sincere? Did he spent 20 years as an intimate of Wright and a parishioner of his church without ever having an inkling that the guy is a wacko hatemonger?

If so, can you think of anything more terrifying than sending such a naïf to the White House while there's a war on?

Read The Whole Thing

Why white Zimbabwean farmers plan to stay in Nigeria

Quite a commentary on Robert Mugabe and Zimbabwe's failure, as well as a cautionary tale for would-be wealth confiscators here and elsewhere.

Getting to Know John McCain

More here.

HT Don Surber