March 2007 Archives

pfadvice talks about debunking a money myth and perpetuates one of his own. He took issue with someone refinancing to lower their monthly payment, insisting instead that the term of the loan was all important.



His point is understandable in that because folks tend to buy more house than they can really afford, they also tend to obsess about that monthly payment. The solution to this is simple to describe but it takes someone with more savvy and willpower than most to bring it off: don't buy more house than you can afford.



Actually, there is nothing that is all important, but if I had to pick one thing as most important, it would be the tradeoff between interest rate and cost and type of loan. This is always a tradeoff. They're not going to give you a thirty year fixed rate loan a full percent below par for the same price as loan that's adjustable on monthly basis right from the get-go.



If you have a long history of keeping every mortgage loan you take out five years, ten years, or longer, then perhaps it might make sense for you to take out a thirty year fixed rate loan and pay some points. To illustrate, I'm going to pull a table out of an old article of mine because I'm too lazy to do a new one.







rate

5.625

5.750

5.875

6.000

6.125

6.250

6.375

6.500

6.625

6.750

6.875

7.000
discount/rebate

1.750

1.250

0.625

0.250

-0.250

-0.750

-1.250

-1.500

-2.000

-2.250

-2.500

-3.250

cost

$4725.00

$3375.00

$1687.50

$675.00

-$675.00

-$2025.00

-$3375.00

-$4050.00

-$5400.00

-$6075.00

-$6750.00

-$8775.00




Now I'm intentionally using an old table, and rates are higher now. I'm assuming no prepayment penalties, and the third column is cost of discount points (if positive) or how much money you would have gotten in rebate (if negative), assuming the $270,000 loan I usually use by default. Add this to normal closing costs of about $3400 to arrive at the cost of your loan, thus:



(I had to break this table into two parts to get it to display correctly)







Rate

5.625

5.75

5.875

6

6.125

6.25

6.375

6.5

6.625

6.75

6.875

7
Points/Rebate

$4,725.00

$3,375.00

$1,687.50

$675.00

($675.00)

($2,025.00)

($3,375.00)

($4,050.00)

($5,400.00)

($6,075.00)

($6,750.00)

($8,775.00)
Total cost

$8,125.00

$6,775.00

$5,087.50

$4,075.00

$2,725.00

$1,375.00

$25.00

($650.00)

($2,000.00)

($2,675.00)

($3,350.00)

($5,375.00)
New Balance

$278,125.00

$276,775.00

$275,087.50

$274,075.00

$272,725.00

$271,375.00

$270,025.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00
Payment

$1,601.04

$1,615.18

$1,627.25

$1,643.22

$1,657.11

$1,670.90

$1,684.60

$1,706.58

$1,728.84

$1,751.21

$1,773.71

$1,796.32













rate

5.625

5.750

5.875

6.000

6.125

6.250

6.375

6.500

6.625

6.750

6.875

7.000
New Balance

$278,125.00

$276,775.00

$275,087.50

$274,075.00

$272,725.00

$271,375.00

$270,025.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00
Interest*

$1,303.71

$1,326.21

$1,346.78

$1,370.38

$1,392.03

$1,413.41

$1,434.51

$1,462.50

$1,490.63

$1,518.75

$1,546.88

$1,575.00
$saved/month

$130.80

$108.29

$87.73

$64.13

$42.47

$21.10

$0.00

($27.99)

($56.12)

($84.24)

($112.37)

($140.49)
break even

62.11922112

62.5610196

57.99355825

63.54001705

64.15695892

65.17713862

0

0

0

0

0

0






Now, I've modified the results based upon some real world considerations. Point of fact, it's rare to actually get the rebate (typically, the loan provider will pocket anything above what pays your costs), and so I've zeroed out those costs. You take a higher rate, you're just out the extra monthly interest. The fourth column is your new balance, the fifth is your monthly payment. For the second table, I've duplicated rate and new balance for the first two columns, the third is your first month's interest charge (note that this will decrease in subsequent months), the fourth is how much you save per month by having this rate, and the fifth and final column is how long in months it will take you to recover your closing cost via your interest savings as opposed to the cost of the 6.375% loan, which cost a grand total of $25 (actually, this number will be slightly high, as interest savings will increase slowly, as lower rate loans pay more principle in early years).



However, let's look at it as if your current interest rate is 7 percent. Your monthly cost of interest is $1575, there, so let's see how long it takes to actually come out ahead with these various loans.





Rate

5.625

5.75

5.875

6

6.125

6.25

6.375

6.5

6.625

6.75

6.875

7

Loan Cost

$8,125.00

$6,775.00

$5,087.50

$4,075.00

$2,725.00

$1,375.00

$25.00

$0.00

$0.00

$0.00

$0.00

$0.00

New Loan

$278,125.00

$276,775.00

$275,087.50

$274,075.00

$272,725.00

$271,375.00

$270,025.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00

$270,000.00

Saved/month

$271.29

$248.79

$228.22

$204.63

$182.97

$161.59

$140.49

$112.50

$84.38

$56.25

$28.13

$0.00

Breakeven

29.94960403

27.23218959

22.29233587

19.9144777

14.89346561

8.50926672

0.177945838

0

0

0

0

0



In short, since you're recovering costs quickly, it would make sense for folks with a rate of 7 percent to refinance in this situation, no matter how long they have left on their loan. For $25, they can move their interest rate down to 6.375, saving them $140 plus change per month. It's very hard to make an argument that that's not worthwhile. On the other hand, I would have been somewhat leery of choosing the 5.625% loan, as more than fifty percent of everyone has refinanced or sold within two years. On the other hand, I have a solid history of going five years between refinancing, so it makes a certain amount of sense, considered in a vacuum. Considered in light of the real world, rates fluctuate up and down. So I tend to believe that if I don't pay very much for my rate, I'm likely to encounter a situation within a few years where I can move to a lower rate for zero, or almost zero, whereas if I paid the $8125 for the 5.625%, rates would really have to fall a lot before I can improve my situation.



Do not make the mistake of thinking that the remaining term of the loan is more important than it is. You now have (assuming you took the 6.375% loan) $140 more per month in your pocket. It's up to you how you want to spend it. If you want to spend it paying down your loan more quickly, you can do that (providing you don't trigger a prepayment penalty, of course!). Let's say you were two years into your previous loan. Your monthly payment was $1835.00. If you keep making that payment, you'll be done in 288 months; 48 months or 4 full years earlier than you would have been done. So long as you don't trigger the prepayment penalty, you can always pay your loan down faster. Just write the check for the extra dollars and tell the lender that it's extra principal you're paying. I haven't made a minimum payment since the first time I refinanced!



Now some folks focus in on the minimum payment. By doing this, you make the lenders very happy, and likely your credit card companies as well. Not to mention that you are meat on the table for every unethical loan provider out there. It is critical to have a payment that you can afford to make every month, and make on time. But once you have that detail taken care of, look at your interest charges and how long you're likely to keep the loan, not the minimum payment.



Caveat Emptor

UPDATED here

I just went out looking at properties for clients. It's still a very strong buyer's market. From the showing attitudes I got, though, you'd think it was still 2003 and sellers were lords of the earth, not in a buyer's market where competition for buyers is fierce. One wanted two hours notice. Another wanted four. Two others another wanted twenty-four. Another was "make appointment," and one was even "property shown with accepted offer," which added a little humor to my day - but caused me to un-check it from my list of properties to view, and this won't change until that does or the asking price goes so low that my clients can't help but get a deal. Can you say, "Pig in a poke?" I'm pretty certain that's not the message the owners wanted to send, and their listing agent should have explained it to them. You want me to recommend my clients buy something sight unseen, it had better be priced for the worst case scenario. Sixty to seventy percent of comparable properties is about the most I might consider.



Ladies and gentlemen, when I'm scouting properties I want to go now. I have the time now, the properties are on the active list now, which means they are hoping to attract buyers now. If I print a list of fifteen properties to scout, that's because there's something that drew me to them now - not yesterday, not tomorrow. I go scouting where and when I have a need - a buyer's desire - and time. Sometimes this happens on not much notice. Always, there's the possibility the property gets withdrawn, expired, canceled, or goes pending between now and tomorrow. The kinds of properties I'm looking for are susceptible to all of these. I used to try printing out my lists day before - and it wasted so much of my time that I stopped. My time is valuable - I've only got 24 hours per day, same as everyone else. You want my attention in the form of eyeballs and footprints checking out your property, you'll make it easy for me to do so. Do not give me any wasted breath about virtual tours - what I'm looking for usually isn't there. What I'm looking to avoid certainly isn't there. I hope I don't have to explain to anyone reading this about photographic manipulation or a listing agent's descriptions of the property. There is no even vaguely acceptable substitute for physically looking at the property. My buyers are hiring me because they trust my judgment, and they want me to weed out the turkeys before they waste their valuable time. There is nothing so precious to my business as the time my buyers give me to show them good stuff. I have learned the hard way to go out and inspect the property myself before I take my buyers.



So when I can make the time, out I go. I choose them now, and I go now. If I leave the office at noon and have to be back at 3 pm and the optimum route puts me past your place at 1 pm, you're not getting four hour notice. If you want 4 hour notice, I'm not dropping by. I may hit your neighborhood again next week or the week after, but if in the meantime I've found my buyers have found something they like, then they're not in the market any longer and I'm not looking for them - not to mention I've still got the conflicts between the constraints you imposed and my own. One thing I guarantee you is that when a buyer wants to make an offer, it takes a spectacular bargain and a rare agent to say, "But you haven't seen this other one yet," and I'm not going to say it if I haven't seen your property myself, because by saying it, I am risking my credibility to zero beneficial effect should it turn out to not be so spectacular. Furthermore, when you're looking for half a dozen buyers, you have zero time to waste. It takes literally every second I can find, make, beg, borrow, or steal to find good appropriate properties for that many at once.



Whether you realize it or not, showing restrictions are part of the whole attractiveness of the property, and they don't help your case. Every time they cause someone like me to bypass your property, they cost you money in terms of a delayed sale and missing potential buyers. If prospective listing agents do not explain this to you, toss them out. I strongly suggest my listing clients relocate anything so valuable that they're worried about it to someplace where people looking at your property can't get to - Mom's, storage, a safe, any place you consider safe. Anything else that might wander off will cost less than making your house less accessible. With modern lock boxes, a record is made of which agents were in the property, and we're pretty darned careful about our good name - with buyers or without.



If you're so nervous that you're going to have to hover in the background, your property is a lost cause. Been there, done that. I refuse to deal with aggressive sellers or listing agents while I'm discussing a property's virtues and faults with my clients. There is nothing to be gained for either one of us. I don't have a responsibility to either the listing agent or the seller, even though the seller is paying me. I'm not going to be quiet, I'm not going to agree with you, and if I have to wait until later to discuss your property, you can bet I'm going to include overly aggressive sellers among the downsides to this property. It might give me reason to counsel my buyers to do a low ball desperation check. It won't enhance the value of your property in either my eyes or that of my clients.



This is just as much the case for the do it yourself buyer, the "phone the listing agent now" buyer, and any other sort of buyer or person with the attention of prospective buyers. Most folks act now because they want to go now, and if your property is not available to view now, they will go view other properties now. If they find one they like, you missed out. If they don't view your property, they're not going to make a good offer. Every missed opportunity is a potential buyer you're wasting, and right now, good qualified buyers are scarce, at least in my neck of the woods. It doesn't take many missed buyers to make a failed listing, and if it happens, you did it to yourself. By making your property unavailable, you raised the cost of doing business with you higher than the model match down the street with an asking price $10,000 higher. The hoops someone has to jump through to view your property are as much a part of the asking price as the dollar value you put on the listing. Restrictive viewing can cut your traffic and prospects more than adding $20,000 to the list price. Sometimes $40,000, and it can be six figures at the higher end of the market, but I'm aiming this at the average seller. So ask yourself if requiring 4 hour notice is worth that much money to you.



It's not easy to have your home always ready, I know. It's a real pain to always be on guard, never leave something it doesn't belong, never leave dishes in the drain or a full trash can in sight. If you've got a pet, particularly a dog, it's difficult to keep them cleaned up after and confined to the appropriate area every time you leave the house. May The Force Be With You if you've got children, because you're going to have to be a superhero to make it work. But even if your home isn't perfect, better that potential buyers see it in an imperfect state than that they don't see it. Agents like me learn to look past transient stuff like toys on the floor. If the buyers see it imperfect, it's possible they'll make an offer anyway. If it's likely to be a less attractive offer, it's still an offer, and you can choose to accept it, negotiate, or blow it off. Advantage: yours. If they don't see it at all, you're not getting an offer, or at least not any kind of offer worth considering unless you're desperate.



Sales is a game of inches, if not millimeters or microns. Particularly big ticket items like real estate. Sometimes sales are won or lost over incredibly trivial differences - and viewing restrictions are not a trivial difference. It's like the difference between a fourteen foot wall and an open door. Many people can't get over fourteen foot walls at all, others think it's too much effort, and still others see no reason why any effort they do make will be rewarded. So you want to present an open door to all potential buyers. Every little increase in the barriers you put in their way will cause a certain percentage of prospective buyers to not want to bother - and you'll never know if that's the one that would have made the best and highest offer for your property.



Caveat Emptor

Article UPDATED here

I keep talking with people who don't understand that a higher interest rate on a refinance can result in a lower payment. In fact, they don't understand why refinancing tends to lower the payment at all.



Before I go any further, I need to reiterate my standard warning that you should Never Choose A Loan (or a House) Based Upon Payment. There are all kinds of games lenders and loan officers can play to manipulate your apparent payment.



Now, as to why refinancing tends to lower the payment: It's actually very simple: Because you are extending the period of the loan.



Let's say you took out a home loan five years ago for $300,000 at 6% on a thirty year fixed rate basis. Your payment has been $1798.66, and assuming you've just been going along and making minimum payments, you have paid your principal down to $279,163. Even adding $3500 in closing costs into your loan balance, if you refinance again at exactly the same rate, your payment will drop to $1611.72. If you divide the cost by the payment savings, it looks like you break even in less than two years!



However, that isn't a valid calculation. What you're doing is taking a loan with a remaining period of 25 years, adding $3500, and swapping it for a brand new 30 year loan, serving no purpose except to extend the period for which you have borrowed the money by 5 years. Your monthly cost of interest actually goes up, because you owe $3500 more on the new loan at the same rate, not to mention that $3500 in costs! Your total of remaining payments goes up by over $40,000! Even if you keep making the same payments ($1798.66), you have added nine months to your loan! This also leaves aside all kinds of games that can be played with payment in the short term.



Never choose a loan based upon payment. If you will remember this one rule, you will save yourself from more than fifty percent of the traps out there. Loan officers and real estate agents and everything else tend to sell by payment. You do need to be able to afford the payment, and I mean not just now but what it's going to go to in five years. With that said, however, remember the fact that payment can be extended out practically indefinitely. Used to be with credit cards taking 26 years to pay off by minimum payments, you could be paying off a restaurant meal 25 years after the crop it was processed into fertilizer for was harvested, costing you five to ten times the original cost of the meal. The same principle applies for real estate loans. Unless it's a cash out loan, or a higher interest rate, you're likely to cut the payment just based upon the fact that you are extending the term.



I have said this before, but just because they quote you a lower payment to get you to sign up for the loan doesn't mean it'll be that low when you actually go to sign documents. In a case like this, it is very possible for them to conveniently "forget" to tell you about prepaid interest, impound accounts, third party and junk fees, and origination points, all of which will add to the balance on your loan and have the effect of raising the payment reflected upon the final documents. So you sign up expecting your payment to drop by $180 plus, and at final signing, you've paid $10,000 more than they told you about and you are only lowering your payment by $80, but it's all done and it would be wasted effort if you don't sign these final documents, so you do - blissfully unaware that you have actually done something worse than wasting that $13,000 you added to your balance to get your loan done. In fact, you've just added about $75,000 to the actual costs of paying off your property! And the loan company got paid to talk you into this!



If you're not sure if you should refinance, ask yourself "What would happen if I keep making the same payments as now? Would I be done sooner, or would it take longer?" It's hardly a foolproof question, but taking a financial calculator to closing, and plugging the new balance and interest rate reflected on the new loan documents together with your old payment, and seeing whether it results in a quicker payoff, is certainly one good check upon the ability of slick operators to sell you a bill of goods. This doesn't work for cash out or consolidation loan refinances, obviously, but for "rate/term", where the attraction is is simply a lower payment or lower interest rate, it's certainly one question worthy of asking. An answer that's less than your current total doesn't mean it's a smart loan to be doing, but a longer payoff is a pretty universal indicator that it's not.



Refinancing to lower your rate can certainly be a major benefit to you, as I've said before, but you need to crank the numbers to see if it actually helps your situation, as opposed to stretching out your loan term to make it seem like your costs have gone down, when in fact they have done no such thing. With thousands and tens of thousands of dollars on the line, it might even be smart to pay a disinterested expert to run the calculations. Let's say you pay $200 for an hour of their time, which saves you from making that $75,000 mistake I describe above. The downside is you wrote a check for $200. The upside is that you don't end up writing checks for $75,000 more than you needed to. If you understand finance yourself, the computations aren't difficult, and that $40 financial calculator will save you as often as you ask it questions, although you might have to feed it a $2 battery occasionally. If you aren't certain how to do the calculations, or what calculations you need to do, by all means give your accountant a call.



Caveat Emptor

Article UPDATED here

Carnival of Credit Report Stories





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A 9/13 Republican explains how Liberals think



"Rejecting rational thought as a hate crime"



Wow. It's 50 minutes long. And worth every second 100 times over.



I've been thinking about it for a couple hours now, and I have not yet found a contradiction between this and observed fact. I'd like to. If this man's theory is correct, the remedy for the problem is far more difficult than anything previously considered. As long as you have a rational being on the other side of the discussion, as I have long assumed, you have the elements for finding a solution fairly easily. If he is correct, dealing with this problem will take at least a century.



If you can offer something that better explains it, please do. But the alternative explanation will have to withstand examination by evidence at least as well as this one.



Every once in a while, someone has a critical insight which changes the way in which we view the world, and in hindsight, it then becomes so obvious the one thing we cannot understand is how we didn't figure it out earlier. This could be one of them. You can watch the evidence accumulate. You can watch him assembling the elements which led to his realization. And after you have done so, you want to hit your head against the wall for not seeing it earlier.



I don't know that he's right. It takes a lot longer to examine big ticket intellectual items like this. But the correct response is not to reject it out of hand, by demonization, by satire, or just with biting sarcasm. The correct response is to take this conjecture out of its plastic wrapping with an audience that was more than a little predisposed to believe it, and test it with evidence. Does it assist in predicting the results in the real world, or does it hinder? Are there alternative less complex explanations? If this conjecture becomes broken in prolonged contact with the real world, then it is not a useful hypothesis, and should be disregarded. And if, like Darwin's Theory or General Relativity, we do go for an extended period of time without contradiction, then we must consider the likelihood that this is a true statement, no matter how much we would wish otherwise.



Good theories are the ones that don't fail to describe or predict the world after a large number of tests. It's impossible to prove them true, which is why Evolution and General Relativity remain theories more than a century after their first publications, despite millions of tests. A trillion experiments cannot prove them right - but one can prove them wrong, and when you get to the point where enough people have tried proving this one wrong and failed, then and only then does the hypothesis begin attaining a certain degree of credibility.



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There will be a new article tomorrow. This has been one of those weeks. If I hadn't had to wait around for somebody to do something, I would never have had the time to watch that video above.



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I am a member of the human race and a citizen of the United States. It is not acceptable to consider only short term benefit to myself. It is necessary to consider the effects my actions will have upon the country and the world when my children and their children are grown. It is not acceptable to compromise with evil or those who would destroy our civilization. It is necessary to win the incremental victories, for civilizations can fall quickly, but advance only slowly in the most important ways. I may be mistaken, but I will not lie to myself or others, or allow lies and falsehoods to remain unchallenged. Even if I am ignored, I will not remain silent in the face of lies, injustice, or evil. I will not allow myself to be intimidated. Free open debate where all ideas are heard and fully examined and judged upon their merits and disadvantages is the keystone of freedom, but even freedom has its base in the ability and willingness to use force in its own defense. Differing opinions are necessary, but a free society and its members must be able to act even in the face of dissent.

Carnival of Personal Finance



Carnival of Real Estate



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Finally saw 300. From a historical perspective, lots of flaws. However, that's all dross. They got the biggest things not only dead right, but in a way that shows their relevance to today. Wonderful movie, and I give it my highest recommendation. Very gory - I wouldn't take children under about 13, even with parental supervision, but this movie highlights one of the founding legends of Western Civilization. I said legends, but it really happened. If it didn't happen in precisely the way the movie pictured, the movie got all of the most important things right.



How in the world did it get green-lighted by a major Hollywood studio?



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I am a member of the human race and a citizen of the United States. It is not acceptable to consider only short term benefit to myself. It is necessary to consider the effects my actions will have upon the country and the world when my children and their children are grown. It is not acceptable to compromise with evil or those who would destroy our civilization. It is necessary to win the incremental victories, for civilizations can fall quickly, but advance only slowly in the most important ways. I may be mistaken, but I will not lie to myself or others, or allow lies and falsehoods to remain unchallenged. Even if I am ignored, I will not remain silent in the face of lies, injustice, or evil. I will not allow myself to be intimidated. Free open debate where all ideas are heard and fully examined and judged upon their merits and disadvantages is the keystone of freedom, but even freedom has its base in the ability and willingness to use force in its own defense. Differing opinions are necessary, but a free society and its members must be able to act even in the face of dissent.

Continued from Part I



Interview lots of agents. Once again, my experience is that the agents at small independent brokerages tend to be sharper than the ones at large chains, but that's only true in the aggregate, and the large chains do have lots of suckers wandering into their offices, which translates to captive audiences they can direct your way. You may be more likely to get a quick "lay down" sale with large chain, but if you don't, the agents who work the independents will almost always serve your interests better. I know that I speak most strongly against Dual Agency, but that's from a buyer's point of view. If the buyer is silly enough to go in unrepresented, as someone using a dual agent is, that's no skin off your nose. Matter of fact, it's likely to be less skin off your nose. On the other hand, many agents push unqualified buyers on their listing clients precisely because they will get both halves of the commission if it actually closes. Me, I'd want to remove that incentive. Put it into the contract that they agree to do this listing for a flat 3% contingent upon successful close, and if the buyer is unrepresented, I keep the buyer's agent commission, or all except half a percent, reasonable considering the extra work they will do (You don't want them shooing away a sucker, either). This also removes the incentive such agents have to discourage viewings by people they don't represent, sit on offers represented by other agents or not pass them on, or all sorts of other games that get played because they want both halves of the commission. So if they won't agree to work for the listing commission only, I'd advise you to cross them off your list. I'll admit this is guilt by association, but there is no way of telling that any one listing agent won't play any of the games that discourages other agents from bringing their clients to your property, which you want to get sold, and for the best possible price, not to the one who causes your agent to be paid double.



You want an agent who knows where the buyers are, and where the good buyers are. About 70% of people searching for a home start their searches on the internet, but these are not necessarily the best buyers. The ones who look in the internet are looking numbers. The ones who start by driving around your neighborhood want to live in your neighborhood. The ones who start with the monthly shill magazine are usually somewhere in between. The ones who start with the Sunday paper are vary over the spectrum from absolute sucker to moderately savvy, while clumping at the ends of it. And the ones with buyer's agents vary also, depending upon the attitude of that buyer's agent. Some of them (grin) are absolutely the most dedicated to getting the best bang for the buck there is to be had, while other agents' devotion seems to be primarily towards obtaining a large commission check soon. I actually know a couple traps for encouraging the latter sort, but pardon me if I don't share them. Some things a guy's just gotta keep to himself. It's my job!



One of the things you want to use to interview agents is how to stage your property - what to do in order to make it show better. In general, you want it to be uncluttered, have nothing in it you can't live without on a daily basis (if you're living there), and nice clean walkways and lines of sight. All of this makes it feel bigger. Some agents will tell you they hire professional stagers, while others will want to wait until after the listing contract is signed. First off, you're not going to hire the stager if you don't hire the agent. Second, what you're looking for is some evidence they really know what they're doing. It costs me nothing to walk through a property and tell you how to make it more appealing to buyer's and their agents, and it demonstrates product knowledge to someone who has no idea whether I'm the best Realtor ever or the most recent product of Shake and Bake Real Estate School. Before a good agent will do that, however, they're going to ask about your budget in time and money for staging. If your budget is less than a stager costs, it does no good to say they'll hire a stager unless they also pay the stager, in which case you're liable to be reimbursing them if the listing fails. You don't want the agent who pussyfoots around and flatters you - you want the one who tells the bald truth. This is not about flattering your ego - it's about your wallet. If your ego is more important to you than that kind of money, you're looking for the wrong professional - you want a sycophant. Your search for a listing agent is not just a fact check - it's an effort check and, most importantly, an attitude check.



You want to interview an agent for what they're going to do about publicizing your property. Most searches start on the internet, but putting them in MLS automatically or semi-automatically puts them in most of the biggest property sites, including IDX, which is the thing most members of the general public mean when they say MLS. The major difference is that IDX doesn't have information that the general public doesn't need to know, like showing instructions. Many of the larger, national houses for sale sites are based upon local IDXs. There are exceptions. I have a rule here about not mentioning specific providers, so I won't. Over seventy percent of all house hunting searches start on the internet, so even the smaller providers can be worthwhile, but it has to be some website people make a habit of visiting that site for that reason in order to predictably do you good. Agent and Agency websites are not likely a source of good traffic. Searchlight Crusade gets 4000 to 5000 visits most days, and www.danmelson.com averaged 635 this last week - almost 20,000 per month. These are far more than most agency websites, and I got not one contact from my website on my last listing, because that's not why people visit my sites. I did get traffic from the other places I advertised, of course. What I'm saying is that websites under the control of any given agent or agency are not likely to be where people go. I've got an IDX link on my site - but people don't use it that much. Even if it's Major Chain Real Estate, web searchers don't want to make a habit of going there, preferring some place "more comprehensive" or "more neutral." Individual websites such as www.1234mainstreet are a joke for selling a property. Unless they are already looking for your specific property - in which case they'll find it easily anyway - they're not going to find a "Selling my house" website. You're just not going to get very high on more general search terms unless you're darned lucky, or control another high page rank site or two. This is not to say "don't bother." This is simply to say that individual agent, agency, or "selling my house" websites are not something to pin any significant amount of hope on. If I thought www.1234mainstreet.com was worth such hopes and likely to sell the property, it'd make a listing agent's job much easier. You might get lucky - but that's not a bet that's likely to pay off. Kind of like buying a lottery ticket. Someone always gets lucky, but for every lucky schmoe who wins the grand prize, there are forty million poor dumb schmoes out there with worthless paper. The odds for smaller websites selling your property aren't that bad - but they're not great, either. For example: I've had one worthy property on my agent radar for eight months now in case I found a buyer for it, and I just found out it's got a website. Does that website seem like something you want to invest all your hopes in? Didn't think so.



You also want to make sure your agent hits all the relevant dead tree publications. They may not be as powerful as they once were, but paper media is still important, and the buyers from there are often buyers you'd rather have, as opposed to internet junkies. Whatever the prospective agent says they intend to do, insist that it be incorporated into the listing contract if you choose them. You are betting a large amount of money upon their competence, whether you realize it or not. All they have at stake is a paycheck. You have your biggest investment on the line.



One of the reasons why you want to interview multiple agents is pricing advice. Some agents have no clue where the market really is. They'll be happy to take the listing at any vaguely reasonable price you want, or even above. But we know what happens if you overprice a property - it sits unsold. This costs money. Others will tell you it's not worth as much as it is, so they have an easier sale, but you end up short-changed. Others will take the listing at any price you say, but start arguing you to reduce it way earlier than they should. What you want is evidence. You want strong solid examples of recent sales in your market and what's out there available right now - the properties you are competing against for the available buyers. You want someone who is going to compare your property to those with a cold calculating eye. You don't want to be high on the asking price, but you don't want to be low, either. Preferably this someone will be an agent who has actually seen and been in at least some of those other properties before they sold. Compare and contrast. I know it's a lot to ask, but try to step aside from pride of ownership and approach it from a buyer's perspective. Unless you're some kind of a celebrity, the fact that it's yours means nothing to the prospective buyer.



The critical point I'm trying to make is that pricing is not easy, and the pricing discussion should be cause for some real give and take. Pricing discussions without evidence, without serious examination of the property and comparables, and pricing discussions that don't end up with as many good arguments for going lower as for going higher are likely to result in bad pricing decisions. Maybe a couple of agents get hot under the collar. Maybe you do, maybe more than once. So long as it is for the right reasons, this is a good thing. The agent who argues persuasively, even passionately, and with evidence, for setting a different listing price is likely to be a much better agent than one who accepts a listing for whatever price you want. The agent who's too high and mighty to justify their reasoning should be informed that their services are not desired, and in your snootiest English butler accent. Don't choose the agent who promises or agrees to the highest listing price. That's called "buying a listing," and it's a recipe for disaster. Pricing is part science, but part art as well, and it doesn't have to be perfect for an optimum result - just close. What you're looking for here is not only product knowledge, but attitude. The one who cites the most evidence and argues with you the hardest may be the very best agent to list with, even if they are thousands or tens of thousands below other agents. Then again, they may not. It depends upon who displays the most evidence, the most knowledge on the state of your market, and the right attitude. The agent who tells you your property is worth a little less is not your enemy. They may just be lazy, but if they can provide evidence for their contention, that's not the way to bet. They may be your very best friend in the entire world. If the market won't pay a higher price for your property, they are saving you the expense of having the property sit unsold - thousands of dollars. When is the last time one of your friends saved you that kind of money, at the risk of not getting a paycheck? They are risking their paycheck, make no mistake. Because out of every ten price discussions, six people in your shoes won't want to hear it and won't consider hiring them. Takes no small amount of professionalism to tell you anyway, don't you think?



You do want to ask about is whether an agent shows their own listings to their buyer prospects, and why or why not. I'm not talking about the people who call out of the blue about your listing, I'm talking about people they have an existing buyer broker agreement with. I would actually prefer a "no" answer, were I looking for a listing agent, but the reasoning on why is more important. My answer is that I don't unless the sellers are so desperate that they want to price that low. Most of my listings do not, the way things are, need to be priced to attract buyer's agents like me. Therefore, I'll freely admit - to contracted clients - that there are better bargains out there. I don't ever want to let my listings get that desperate that they need to attract my buyers. My job is to sell it for the best possible price as soon as possible, and if it gets that far, I haven't done either half of that job. If all listing agents had this attitude, it'd make life a lot more difficult for buyer's agents. Nor is it my job to be fair to prospective buyers when I'm listing - unless I've already got a contractual obligation towards them. If a prospective listing agent is willing to hose people they have a buyer's agreement with, that's not a good sign for how they're going to behave towards you. But absent that exception, my job as a listing agent is to get the property sold for the best price in the shortest time. I have a listing contract that spells out my responsibility to that owner - and listing contracts conquer all, as far as agent loyalties go. I can refer even my contracted buyers to someone else for negotiations, releasing both of us from obligation, if they're sure they want to put an offer in. I cannot do that for the people I have a listing contract with. Whether you are buying or selling, you should know that the seller has a right to expect the listing agent's absolute loyalty within the confines of the law. They can't lie about the property. They have to tell the truth as they know it. Beyond the reservations set down in the law, their job is to get the most money out of the quickest sale. Period. Anything else translates as a way to hose your listing clients.



No matter how good any one agent sounds, no matter how much pressure they put on you to get you to sign the listing contract right now, don't do it. There's nobody that much better than the competitors. Take your time and make your decision when there's not anybody pushing you. Unless you have a short deadline to sell, you'll come out better. If you do have a short deadline, you might want to be more intensive and more concentrated in your search, but cutting down on the number of agents interviewed is not a good response to the situation. It's even likely to be counter-productive. Don't let the agent's urgency to get the listing infect you or stampede you. Until you hire them, that agent has no reason to hurry. Their motive for building urgency is to stampede you into listing with them. Rhinos stampede. So unless you're a large blundering near-sighted herbivore with small sycophantic hangers-on, don't let yourself be stampeded.



One technique some sellers with plenty of time might consider is the short term listing. Sixty days with an agent to see what kind of traffic they drag in, sixty days for that agent to demonstrate exactly how well they look after your interests. Takes all the pressure out of choosing an agent, right? You can always change to someone else, right?



Wrong. The agents in the area with any kind of a clue are going to know that you've been through 4 agents in the last eight months. There are also complications in when a given buyer may have been introduced to the property, so which agent is entitled to the commission becomes a bone of contention. Most contracts give the agent the commission for ninety days after their listing expired, if they provided the introduction. Meanwhile, you've got someone else who now has an exclusive right to sell. It's bad business for someone to insist upon a commission they haven't earned, but I am continually reminded how many bad businesspersons are out there. If you've got to do it, insist upon some short hold over period of no more than seven days, and don't list it again until that period has expired. It may be overcautious, but it could save you being in the middle of a nasty court fight. Furthermore, this is a tactic that's completely unsuitable for people with a limited time in which to sell. Every time you change the listing agency, the promotion is essentially starting over from scratch. Finally and most importantly, most people suffer inertia. They'll renew that listing contract whether or not the agent has actually done enough to earn their business. Agents know this; that's why they propose the short term listing. It's a trap into which most people are only too happy to fall - the trap of not making a decision, or making it on the cheap, under the guise of postponing the day of reckoning. Most folks are better off getting into all of the issues right up front, and making the difficult choices. If you're really looking hard in the first place, with an eye towards committing yourself, you still may not make absolutely the best choice. But the hard choice will be better than the choice which really isn't a choice, as short term listings are. Why? Because before you commit yourself, you're going to know that agent is at least competent.



Let me go over some of the agents you might meet.



Our old friend Martin MLS figures putting a sign in the yard and the listing in MLS is enough. Most of the searches come off the internet, right? He's right as far as he goes, but that's not how to obtain the buyers who are interested in the property because it's where it is or because of something it has. That's the way you find the buyers who want the lowest price. Furthermore, if listing it on MLS was all there was to it, there would be no reason to pay your agent more than $100 or so. Martin's a rotten agent. I know, because I used to be Martin. Briefly. I know better now.



Tina Teaser uses her listings to make contact with buyers. That's what she really wants. She'll tease you with showings while talking up other properties when you're not there. Unfortunately for you, when yours goes into escrow she doesn't have any other means of attracting buyers, so she doesn't want your property to actually sell. Showings are good, but then she has a whole stable of properties she wants to show them, rather than losing her opening wedge with the buyers who really furnish her income. Unfortunately, there's no easy way to spot Tina. Only a very careful examination of her attitude when you're vetting agents, or watching her in action. If you get dozens of lookers and no offers, something is likely to be wrong. That something could be that you're overpriced, or it could be Tina.



You may remember our old friends Gary and Gladys Gladhand, who get their business by making it seem like a social obligation to give them your listing. Repeat after me: "I don't owe anyone my listing." Now repeat it over and over again until you can look into Gary or Gladys' eyes and demand, "What are you going to do for me?" With that said, Gary and Gladys can be very effective listing agents if they pass all of the attitude tests. That social pressure approach works wonders on most people. Just remember that Gary and Gladys get their pool of suckers from the same social pool you swim in, and aren't always smart enough not to poop where they eat. Most buyers aren't savvy enough to realize what Gary and Gladys did or tried to do - but it only takes one who is. You also need to be concerned about them turning into Sherrie Shark or Tina Teaser.



Billy Buy is remarkably amiable about the list price. Whatever you want to ask, he's certain he can get it. Owners see dollar signs, and sign on the dotted line. For about the first two weeks of the listing contract, you may wonder what he's actually doing. Then he walks in and starts pressuring you to drop the price, after wasting your period of highest interest. Billy's worse than a rotten agent. He's a menace, because after he's "bought" your listing, you're going to have to drop lower than the price you should have set in the first place, in order to attract the same kind of traffic and interest you should have had in the first place - if Billy knows how to attract them, which is highly doubtful. Most Billys make most of their sales after they've gotten the owners to drop price below market. Only way to spot Billy is to have that hard talk about pricing. You may not ID the agent as Billy, but you'll figure out you're wasting your time with him.

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Sherrie Shark is a variation on Billy. She's okay with you setting the price too high, because once you get desperate enough, she or someone she knows will make a low ball offer and turn a flipper's profit on your property. Sherrie regards any offers that do come in for what the property is worth to be poaching on her turf - she earned this payoff fair and square by her lights. Fortunately for her, she can dismiss them as "low balls" - right up to the day she thinks you're desperate enough and springs her trap, Sherrie is also the Agent Most Likely To Pretend Offers Never Happened. Offers come in and go directly from the fax machine to the trash can - if they get printed out in the first place. This happens with just about every agent who wants both halves of the commission, but with Sherrie, it's an automatic reflex. The only way to spot Sherrie is to have all those pricing discussions I mentioned earlier. By the way, you should never sell to your listing agent. They're not a disinterested party. I know of places that advertise they'll buy your property if it doesn't sell. Once you know about agents like Sherrie, you should realize the nature of that trap. If an ethical agent wants to make an offer, they'll refuse the listing in the first place, or wait until you're listed with someone else. If you really want Sherrie's kind of low ball offer, I can bring in any number of people and save you the time and money in between listing with Sherrie and the springing of her trap, and they are even happy to pay my agency commission, so you come out ahead in every way.



Donnie Discounter may actually be the way to go in a voracious seller's market like we had three years ago. Sign in the yard, listing in MLS, and presto! It sells quick and for less commission than you would have paid. Of course, if your property is curb-appeal challenged, or if the market isn't a strong seller's market, Donnie is worse than useless, he'll be a waste of your time of highest interest. Nor will he be a strong advocate on your behalf. He doesn't really understand your market. He's just turning numbers in the computer. He isn't going to help you stage, he isn't going to do much to set your property apart, and he's definitely dependent upon internet based bargain shoppers to get his listings sold. Chances of you getting the highest practical number of dollars in your pocket: Not good. If a property sells for $510,000 full commission, you end up with more money in your pocket than if it sells for $500,000 through Donnie. Strong buyer's specialists love Donnie. He makes their clients so happy!



Sometime during this process, somebody may recommend you just sell it yourself. Possible, I must admit. Some people do a creditable job, if they prepare enough. But not likely. Most people have a deadline that's too short, and won't spend the effort required. They don't have time to prepare and they'll try to shortcut the process, in which case they either sit on the market unsold, or make some buyer's agent very happy. Listing property is a job, and it does take work. I'm learning more with every property. I figure I'll have it completely wired sometime around 2117.



Fannie Friendly isn't particularly hard to spot. She just makes you feel like you're her special friend, and that you'll be essentially kicking a puppy if you tell her know. All she is saying is give guilt a chance. Not really much different than Gary and Gladys Gladhand, except buyers are rarely guilted into buying a property. You've got what is likely to be your biggest asset on the line. Forget guilt, and forget Fannie.



There is something to be said for considering a buyer's specialist. Actually, there's a good deal to be said. However, since I am one, I won't say it. We may not be the absolute strongest listing agents, but we're definitely a long way from the worst. Even if you don't want to hire us, it can be worth a couple hundred dollars to have one of us come in and price the property.



As a closing thought, when you are listing a property, time is not your friend. Even if you have a good long time in which to sell, agents in the area are going to know that property has been on the market forever. The longer it takes to sell, the worse the price. The whole notion of "let's just see if we can get a higher price" is the most common way home owners talk themselves into getting less money than they could, and taking longer to sell, with all of the costs associated with both. If you approach it with the firm idea that you are dealing with one of the biggest investments of your life, and ask the hard questions and take the time to hash out the hard details in the first place, chances are you will end up much happier. Don't allow emotion into the decision, don't allow ego in, don't allow friendship or love or anything else beside what is likely to have the best results for you color your decision. Odds are that you will end up much happier. If you're looking for a guarantee, I can't give it to you. One of the things agents learn is that weird stuff happens. But this is certainly the way the dice will fall the vast majority of the time.



Caveat Emptor



Article UPDATED here

This is the final article in this series, and the most difficult. The reason is very simple: Unlike shopping for buyer's agents or shopping for loans, you have to make a binding choice - it is in your best interest to make a binding choice - before you obtain the result you want. With buyer's agents or loan officers, you can judge by actual results - the bargain properties they show you and the loan they actually deliver when the trust deed is all ready to go. Shopping for an effective listing agent is always a leap of trust. It shouldn't be a huge leap into the unknown, but it's a lot easier to talk a good game than it is to deliver.



Now, the important thought to remember as you read this article and shop for a listing agent is this: You might get what you pay for. You won't get what you don't pay for. Make certain you understand what the level of services provided are by a given agent before you sign on the dotted line, whether their fees are contingent upon a successful sale or are paid up front with no guarantees. I wouldn't sign on the dotted line without compensation being contingent upon a successful sale. If they're not confident enough of their abilities to bet their paycheck, I wouldn't bet on those abilities either. Of course, the contingency commission will be for a higher dollar amount, but ask yourself this: Suppose you got $10,000 for successfully completing a project at work, nothing for failing. Is your motivation to get it done, and get it done sooner, more or less than if you get a flat $5000 in advance whether you complete it successfully or not? Would you be willing to put in more effort? Spend more money? Be more aggressive? I assure you that real estate agents have basically the same motivational attitude as the rest of the world.



Most people do not take sufficient account of the time critical factor: Nothing happens immediately in real estate. If you have ninety days to get the house sold, you've really only got about sixty to get an accepted offer - maybe less. Just because some loan officers make it a religion to get the loan done in 30 days or less doesn't mean it's common. I have seen many articles in financial publications advocating sixty day locks at a minimum, because so many people have been burned by shorter locks. Not only does this waste money, it gives incompetents way too much time to not come up with the loan they talked about. Based upon no other information, I will bet you money that a loan funded in thirty days or less is a better loan than one that takes sixty days or more. I'm not a gambling man. I've just seen enough of the industry to understand that I'll win way more than fifty percent of these bets. The quicker everything moves, the better off everyone is, but even in the most optimistic scenario, this means that if you need the property sold in ninety days, you need an accepted offer within sixty. If you need an accepted offer within sixty days, you need an initial offer you can negotiate within forty-five to fifty days. I just opened Escrow March 21 on a negotiation that started February 7th (all of my responses were same business day, but the other side wasn't nearly so punctual). Forty-two days is definitely on the marathon end of negotiations, but you do need to make allowances for the time it takes. Furthermore, all of your advertising (except MLS and internet) takes anywhere from three days to thirty to appear. So from the time you know you need to sell in 90 days, you may really only have thirty to forty-five days to make it happen.



You need to have figured out what your time frame for selling is. If you need the transaction done in ninety days, we've already seen that you really have about fifty at most to attract a buyer. If you have to sell in thirty days, you really waited too long to list it. If you have to sell in sixty days, you've got maybe three weeks to get an offer. If it's rented with tenants and your cash flow is positive, you don't have a real deadline, but having tenants in a property you're trying to sell raises its own issues. Otherwise, until the whole thing is finished, as in grant deed signed, loan funded, old loan paid off and you get your money and your Reconveyance, you are paying mortgage and property taxes, either insurance or homeowner's dues, and possibly several other monthly fees. To pick lower than typical numbers, on a property in California that you bought for $200,000 and has a loan for that same amount at 6%, that's roughly $1600 per month it's costing in money out of your checking account. Most folks can't add $1600 to their monthly cost of living for very long. A $400,000 property with a $400,000 loan would be roughly $3100. If it doesn't sell before your reserves run out, you've got yourself a real problem.



The absolute first thing people look at is price. If your asking price is more than people are willing to pay for a property of those characteristics in that neighborhood, the buyers and their agents are going to ignore you. In fact, your traffic will largely be governed by the relationship between your asking price and everyone else's, in conjunction with your days on market counter. Price it right in the first place, and you get lots of traffic your first days on the market. Wait until later, and you'll not only miss out on your time of highest interest, you'll have to go lower to attract the same level of interest. So if you've got a short deadline, I'd be careful to price under the market. What's a short deadline? That's determined by how long properties are taking to sell. If it's selling in three days, you're likely to be okay as long as you don't overprice. If the average property is sitting for ninety days or more and you need to have it not just in escrow but sold in ninety, I'd offer it up below the comparables were I you.



Condition can mean a lot more than square footage or number of bedrooms and bathrooms. Sometimes the first thought in my head when I drive up or walk in the door is, "It may be larger, or it may have this or that where the competing property doesn't, but I like the other place more because it looks better." I assure you that I'm not alone, and that "The buyer will be able to spend $20,000 fixing it and have a million dollar property," does not justify a $980,000 price tag in anyone's mind. Get that whole idea out of your head. If you want the money fixing it up is going to bring, do the work yourself. Price the property for its value and condition now. In other words, even if you're right, you have to spend the $20,000, and be the one to deal with the hassle of making it happen yourself, in order to get that $980,000 net. But it's hard to quantify condition. Even most agents don't look at enough properties to be certain. I'm out there looking at a minimum of twenty per week, which means I know what the ones that sold recently looked like, but if you're outside my normal stomping grounds it's going to take me at least two trips looking in your area to figure the optimum listing price. That's a cold hard truth. I see something listed with an agent outside the county or even a different part of the county, the odds are that agent has no clue what they should have listed it at. In urban areas such as San Diego, even a few miles away can be bad news. I'm not certain which is worse: an agent thinking "La Jolla" when the property is in Santee or an agent thinking "Santee" when it's in La Jolla. The former will overprice the property, resulting in the property sitting unsold, and possibly all kinds of unpleasant consequences. The latter will underprice the property, resulting in less money than you could have gotten, and usually way less net. There aren't any rules of thumb you can follow - you just have to know the neighborhoods, and even though these neighborhoods are only fifteen miles apart, anyone who tells you they know both is lying. There's too much for one agent to know. I've lived here essentially my whole life, and it takes me two "fishing trips" to neighborhoods I've known my whole life in order to start really understanding enough about that neighborhood professionally, that I can start spotting which properties are bargains and which are not. The markets change way too fast for anyone to keep track of too much area. I might believe someone could understand the entire Manhattan condo market. Doubt it, but I might, although I'd be more inclined to trust the agent who said they specialize in a smaller area. I wouldn't believe they could understand Brooklyn or the Bronx as well. Where population is less dense, which San Diego definitely is, I'd say about quarter million population, tops. Out in rural areas, probably less than a third of that. I'd want to see something that indicates your neighborhood or area is one the agent really makes a habit of working.



Your time of highest interest is right when your property hits MLS. The vast majority of buyers are out there looking at what hit MLS this week, or today, not what hit six weeks ago. The feelings I hear most buyers articulate is that the good stuff gets found quickly. This is something which is generally true - most of the good stuff does get found quickly - but not universally true. Some of the good stuff slips through under the radar. Some stuff becomes a worthwhile bargain when the seller gets real on the asking price after their deadline to sell has already passed. It may be crazy, but I've heard people talking about blowing off properties that looked like great bargains because they saw that the "Days on Market" counter was too high for their tastes. So you want to keep this in mind. Your agent is required to put your property in as quickly as possible once they have the listing contract, unless you instruct them in writing not to. If your deadline to sell is not looming too quickly, it can be a good thing to delay the actual listing until your longer term advertising is ready to appear! You don't want the advertising to appear first, but the property gets stronger traffic if the "days on market" counter says 4 when the ads appear than it does at 45 when those potentially interested see the ad.



Open houses are worth doing, but not worth doing too often. I want to do one the weekend after a property hits MLS without fail, and before that I want the neighborhood to know there's going to be an open house. When the neighbors bring you a buyer, that's a good way to sell the property for more than the typical MLS searcher. The latter is looking for a bargain. The former wants to live in this neighborhood, and already has a connection to it. I may also do an open house aimed at brokers and agents that first week, during the week, and a caravan is a good idea also - which is another possible reason to delay the listing appearing on MLS if either takes more than a few days to arrange. On the other hand, if there's an open house every weekend at Joe's house, there's no urgency. Many agents do open houses to meet new buyer prospects - that's really why they want a listing. I used to space them about four weeks. Now, I'm most often waiting at least six, and it seems to work better for actually getting interested buyers.



Broker caravans and broker open houses can help also, but the require the agent be willing to actually share the commission with a buyer's agent. If they're not, you're wasting your time, and likely turning off prospective buyers as well. If you can do these the week it hits MLS, you're ahead of the game.



If you're getting the idea that agents shouldn't list more than one property per week, you're getting the right idea. Actually, one listing per week is likely too many to service well in the current market - because if they price it right, the average property is not going to sell in three days. In strong seller's markets where things do sell that quickly, yes, one listing per week is doable. In buyer's markets where things are sitting ninety days and more on average, you are begging to become neglected with a listing per week agent unless you're paying the highest commission to your lister. If someone has more than four to six listings at any one time, I'd cross them off the my list.



Continued in Part II

Article UPDATED here

Congratulations, Democrats! You've just accepted responsibility for defeat.



Ignoring a White House veto threat, lawmakers voted 218-212, mostly along party lines, for a binding war spending bill requiring that combat operations cease before September 2008, or earlier if the Iraqi government does not meet certain requirements. Democrats said it was time to heed the mandate of their election sweep last November, which gave them control of Congress.



Now when are they going to leave Disneyland? Seems like they've been there since at least 1994.



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Anybody want to guess how soon this falls into the memory hole? Census Overstated Number of Uninsured



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15 British sailors seized by Iran





An Iranian naval patrol seized 15 British marines and sailors who had boarded a vessel suspected of smuggling cars off the coast of Iraq, military officials said.





This is one of the ways they send messages that they're not willing to give in, in this case to nuclear sanctions, as well as huffing up public support because they could capture 15 cut-off British sailors. As the article says, they've done this before, parading the captives on Iranian TV. Can you imagine the outrage that would occur if, say, the Guantanamo prisoners were paraded on American TV like that?



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Leong a long shot for top Hong Kong post



Actually, as the article says, he doesn't have a prayer of winning, even if his opponent were to fall over dead. But he has forced a public debate and questioned the government of China in public, two necessary developments.



You don't win political victories by refusing to participate. You win them one step at a time, by showing those in power that you have the power to change things, to remove them from power, then to elect yourself to power. Compromise and incrementalism are necessary parts of the game. I'd be much happier if libertarians in the US understood this half as well as this man in a place that has never known democracy.



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Tick tick tick. Dems Kill Effort to Cut Taxes on Estates



I wonder if the dems realize these are their own big donors they're hurting? Of course, estate tax is essentially a voluntary tax on denial, but there will be effects if we get to the 2011 sunset of the current legislation with no replacement.



I'd rather see AMT indexed to inflation, but I'll take what I can get.



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Home sales rise unexpectedly in Feb.



What did I tell you?



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Sometimes, the little things make a difference. Here's an email I got today with identifying details redacted



Whoever it is that responded to negatively about your website is a fool who can't stand to hear the truth. These are the same people who cover their ears and yell, "I can't hear you la la la lalalalalala" when you quote them a 30 year fixed rate -- and then run for the interest only loan.



I can understand why they can't hear the truth...things are ridiculous in RE in all parts of the country. My little two bedroom condo in the DELETED area is costing me over 4 times my yearly salary! I know that's ridiculous, but that's how it is now when you get a 30 year fixed and you're buying a home when you're single.



Quite simply, I don't think I would have been able to buy my first home with such clear convictions if I didn't find your website. Everything I needed the answer to was found in one of your articles. Every insider detail I was wondering about was made clear by your perspective. And for that, I am thankful.



So to those people who are signing up to be another foreclosure statistic in 4 years because they didn't read your site...I say, "thanks, and tell me when your home is up for auction."





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This is going to be on the bottom of all Links and Minifeatures posts from now on, unless and until I find something better.



I am a member of the human race and a citizen of the United States. It is not acceptable to consider only short term benefit to myself. It is necessary to consider the effects my actions will have upon the country and the world when my children and their children are grown. It is not acceptable to compromise with evil or those who would destroy our civilization. It is necessary to win the incremental victories, for civilizations can fall quickly, but advance only slowly in the most important ways. I may be mistaken, but I will not lie to myself or others, or allow lies and falsehoods to remain unchallenged. Even if I am ignored, I will not remain silent in the face of lies, injustice, or evil. I will not allow myself to be intimidated. Free open debate where all ideas are heard and fully examined and judged upon their merits and disadvantages is the keystone of freedom, but even freedom has its base in the ability and willingness to use force in its own defense. Differing opinions are necessary, but a free society and its members must be able to act even in the face of dissent.

Carnival of Consumer Oriented Real Estate Recommended: Silicon Valley Real Estate (selling strategies)





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Blacks suffer most in U.S. foreclosure surge. Actually, I found a couple other things in the article more telling:





The predatory lenders reach out to those who don't really know, people with a lack of education," said Cassandra Hedges, a black 37-year-old mother of two fighting to stave off foreclosure of the Ohio home she bought three years ago.



"One of the first things my broker asked me was 'How do you know you are ready to buy a house. Have you done any research?' We said 'No'. At that point I think he realized 'Okay I got some people that don't know what the heck they are doing'."





and





Many traditional banks do not run branches in poor minority neighborhoods, creating a vacuum often filled by predatory lenders and unscrupulous brokers, said Stephen Ross, a University of Connecticut economist who studies lending.



When the property market was strong, those brokers could tell borrowers that rising prices meant they could easily remortgage their properties to keep up with payments. But since the market peaked in 2005, millions are struggling to repay those loans. This year, some 1.5 million homeowners will face foreclosure, research firm RealtyTrac estimates.





I am not trying to refute the article's theme that race played a role. What I'm trying to show is how shoddy practices were a necessary component - and you can easily protect yourself against shoddy practices, if you will only try. It's like yanking the pillars out from under the Temple of Shady Real Estate.



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Name this song and the artist:



Spring is here

Spring is here

Life is Skittles

Life is Beer

But I think Spring is the loveliest time of the year, don't you?



Yes I am twisted. Thank you.

Yesterday, I spent several hours showing properties I had found to a couple of investors. One was a lender owned fixer, fairly priced at $440k. It needed carpet, paint, landscaping, and some facade work. The last comparable sale in the neighborhood was $575,000. There was also another lender owned property in a neighborhood where similar properties in good condition were going for $460,000 to $480,000. This one was also pretty fairly priced at $380k. The first one needed maybe $30 to $40k in work, the latter about $20k. It took me a lot of hours to find properties where there was a good profit to be made buying near or even at the asking price in this market. Not enough for these people. They had to put in offers for eighty thousand less. Needless to say, these offers were dead on arrival. Complete waste of my time.



The reason these properties were fairly priced was that the owners had taken a realistic look at the state of the market and the condition of the properties, and decided they wanted to sell the properties sooner, rather than later. They were justifiably upset at the low-ball offers, given that they had actually priced the properties correctly, a rare thing in this market. Even if these people now follow up with a reasonable offer, I have reason to believe that these wells have been poisoned. It's going to take something basically equal to the asking price from these people. They have marked themselves as being unable to be dealt with on a reasonable basis. Other folks might be able to start the negotiations lower, but not them. Maybe not me, either, despite the fact that I was just the agent, making it worse than a complete waste of my time, a likely destroyer of some of my most valuable information - the location of profitable properties.



Low-balls are not the way you acquire the property you've got your heart set on. Low-balls are not the way you acquire property that is already bargain priced. If it is already bargain priced, all you're going to do is deal yourself completely out of the picture, where you could have made a nice profit if you had offered something reasonably close. Low-balls are the way to acquire property where the owner is so desperate, they'll take anything and you can't hardly help but make a profit. Lest you be unclear on this fact, lender owned properties are not good targets for successful low-balls. That lender wants to get rid of the property, but they've always got money, and unless they're facing the regulatory deadline, that offer is going to be rejected 100 percent of the time. If they are facing a regulatory deadline, somebody internal will have already snapped it up.



If you're going to insist upon low-balling, the way I found those properties is not the way to do it. No need to invest time driving around inspecting the properties, or the effort of going into records. Just write an offer. Write lots of offers - no need to be picky. At that price, you'll make a profit if they accept, have no fear. But, if you're going to offer that far below market, you're going to have to kiss a lot of frogs before you find one that's desperate enough to turn into a prince, and most of the frogs are going to be mad. Real quick now: What's your first reaction to being told you're not worth what you think? "You're not a college graduate, you're a high school dropout!" It's more effective to write dozens of offers sight unseen, and give yourself a few days after acceptance for inspections if you're really worried about it. 99 out of 100 will just be angry and insulted, and that's all the further it will go.



You can raise the hit rate, of course, and a good buyer's agent is invaluable for this. But the best targets for this are not those who have priced the property reasonably. Hit the people whose properties have been on the market for a long time because they're overpriced. Best is if they've expired off MLS at least once, and if they've changed listing agencies. Twice is better, more is ideal. Multiple drops in the asking price are also a good indicator of a good time to low ball. Of course, you've got to watch the market over time for that information, because even most MLS registries don't give you this information directly. There is no way around market knowledge, but the way to get a low-ball offer accepted is to be the first under the wire after the the owners realize they are desperate. There is no universal indicator of desperation, or everyone would be doing it. If you're going to do this right, you have to have some things going for you that everyone doesn't - patience and persistence, and the ability to slave away on those offers. It takes as long as it takes, and likely candidates can and will be pulled out of the the available pool at any time. Even if they aren't, the owners can and will simply refuse your offer the vast majority of the time. If you get frustrated, you're doing it wrong. This isn't like being a used car dealer. The marks have an alleged professional on their side. If the listing agent were a real pro, they'd have persuaded them to price it right for the market and condition in the first place, and it would have sold before you got to it, but they're going to be good enough to recognize your desperation check when they see it. In order to consider accepting the offer or even seriously negotiating, the owners have got to have suddenly realized how desperate they are. That's the magic ingredient to getting a low-ball accepted. There is no magic way to telling when this has happened, or everybody would be doing it. Think of yourself as a telemarketer with a very low conversion ratio, but when it does hit, you've got one heck of a paycheck.



Caveat Emptor

UPDATED article here


My husband and I are completely debt free right now. However, we are wanting to buy a house in the future and I see that as quite probably requiring a loan.

What should I do to make sure that we don't get dinged for having no credit? (A problem my husband has had in the past — ended up needing his mother to cosign for him on an auto loan because he chose to go completely credit card less during college after discovering he could not handle them well)

Without open credit, you won't have a score at all. No score, no loan with any regulated lenders - hard money becomes your only option. It's as simple as that. I can get people with horrible credit loans on better terms than I can people with no credit.

In order to get a credit score, you need two open lines of credit. Three is better, because sometimes one will not be reported to one of the three major bureaus. Car loans count. Installment loans count. Those stupid "Pay no interest for twelve months" accounts count, although they really do hurt your credit. But the best thing to have is credit cards, because you usually only apply once and you can then keep them forever, giving you a long average duration of credit. Read my article on Credit Reports: What They Are and How They Work for what goes into a credit score.

What you do for this is go out and apply for two credit cards. Not store cards, unless you can't get regular credit cards. They don't need to be big lines of credit - $500 to $1000 is more than plenty. I have found credit unions to be a good place to send my clients to for this purpose, as San Diego has several excellent large credit unions, at least one of which any resident of the county can join. They may not be absolutely the lowest rate, but they're usually pretty low. Furthermore, the rate doesn't matter if you don't carry a balance, which you shouldn't. More importantly, credit unions usually have fewer gotchas in the fine print, usually no annual fee, and they want their members who want them to have credit cards, so they're more inclined to give members the benefit of the doubt.

Once per month, use each credit card for something small that you would buy whether you had the credit card or not - you'd just pay cash otherwise. No larger than 10% of your total credit line on the card. I usually pay for a meal out at a cheap family restaurant (in the range of $20 to $30 for two adults and two kids). As soon as the bill gets there, write the check and pay it off. Costs you a stamp but it builds your credit. Or you can do online bill pay if you'd rather. I've heard too many horror stories and dealt with their aftermath too often for that to be attractive to me.

If your husband has trouble with cards, keep his copies of your cards in a safe place, and you be the one who goes out and uses them. He still gets the benefits if they're joint cards.

Caveat Emptor

Article UPDATED here

Carnival of Debt Reduction



RINO Sightings Recommended: Don Surber (Exactly how ridiculous Congressman Waxman's Plame hearings are. Read the comments too.), Armies of Liberation (Nepotism, civil war, and religious fanaticism in Yemen)



Here's the leading edge of the problems and cost of persecuting insurance companies by requiring they insure things they did not agree to insure: Homeowners drop insurance after Katrina





Facing soaring premiums or feeling shortchanged by their insurers, a growing number of homeowners and businesses in Louisiana and Mississippi are "going bare," or dropping their coverage altogether, insurance agents and consumer advocates say. Many more are drastically reducing their coverage.





You didn't realize making insurers pay claims for things they didn't insure would raise rates? Insurance doesn't appear out of some hyperspatial vortex. Policy premiums have got to cover claims, in the aggregate. Nor are the insurance companies charities or even utilities. They are entitled to charge enough to make a profit. If not, tell me, who would willingly insure others? Who would invest in an insurance company? They don't get their money by printing it, you know.





Elderly homeowners -- particularly those on fixed incomes and those who have paid off their mortgages -- may be the most likely to go uninsured. Most homeowners don't have that choice, because mortgage companies require borrowers to have insurance. Those whose homes are paid off can drop their policies, unless they are getting government grants or loans that require one.





Really? How utterly predictable.





Many small business owners are feeling the sharpest pinch. The insurer of last resort for many Mississippi homeowners and businesses is the state's "wind pool," and its commercial rates have jumped 268 percent since Katrina.



Tom Simmons, who owns three office buildings in Gulfport, Miss., said he paid $3,070 in premiums for the rental properties before Katrina. Maintaining that level of coverage this year would cost more than $25,000, he said.





Seems the state of Mississippi doesn't get its money by printing it either. It has to charge premiums or tax citizens. Guess what? It's doing both!



All of this is bad, but it's only the first problem. Wait until there is a disaster and people lose everything without insurance because the insurance companies were forced to raise rates, or stopped issuing insurance entirely. It will happen; it's only a matter of when. And when it does happen, the ones responsible will be the people, politicians and judges who drove the insurance companies out by forcing them to pay billions for claims that weren't covered by policies, legal fees for defending their right to not pay claims for items not covered and for which they never charged a penny in premiums.



Now aren't you glad the state of Mississippi socked it to those insurance carriers and forced them to pay flood claims even though their policies didn't cover flood damage?



Too bad the people, politicians, and judges involved will never see the inside of a jail cell. We send business executives to prison for things that don't do a minute fraction of the harm done here.

That was a question I got. The answer is that it shouldn't make a difference, but it does. You see, lenders who work in markets that are less than A paper perform qualification calculations based upon the initial payment, at least until some pending regulations take effect. Furthermore, I'm about 180 degrees from convinced that it's really helping anyone.



Here's how it works and why it works. Less than A paper lenders currently perform their calculations as to whether or not a specific borrower qualifies based only upon the initial payment. Let's say the loan contemplated is an interest only 2/28 at a teaser rate of 6% that's going to jump to 8% in two years when it starts amortizing (even if the underlying index stays exactly where it is), and the loan amount contemplated is $250,000. This makes for a monthly payment of $1250. Because this fits within the guideline Debt to Income Ratio guidelines, usually 50% for sub-prime, they can qualify and get the loan approved. But in two years when the loan adjusts and starts to amortize, the payment jumps to $1866.90. This is not certain, but it's far from the worst case possible. It is what will happen if the financial indexes don't change, and so a good default guess, as nobody knows where the indexes will be in two years. If you know where the indexes will be in two years, please call me. With that knowledge and mine, we can make enough money for our grandchildren to retire on. Guaranteed. Because nobody else knows where the market will be in two years.



So the upshot is that even though the payment is predictably going to increase by essentially fifty percent (49.35) in two years, to a level this particular prospective borrower does not qualify for, this loan will likely be approved under current sub-prime guidelines.



There are banking regulation changes pending to change the qualification procedure, forcing all lenders, rather than only "A paper" ones, to perform their qualification computations based upon the fact that the payments on these loans are certain to increase. These regulations are long overdue in my honest opinion, but they are not in effect as of this writing. Under current guidelines, this loan would be approved. Actually, the directive that forces "A paper" to underwrite these loans based upon the higher payments currently comes from Fannie and Freddie, not the regulators, and is one reason why hybrid ARMS at a lower interest rate are actually harder to qualify for than fixed rate loans in the "A paper" world.



Nor is this 2/28 teaser loan what is generally meant by a "buydown", although it is one of the things the phrase has been misapplied to. A true buydown is a temporary reduction in rate on a fixed rate loan, purchased by means of discount points paid up front. As I explained in the linked article, these buydowns typically cost more than they are really worth to the client in terms of dollars. Indeed, they are most often used in conjunction with VA Loans, where because up to three percent of closing costs over and above purchase price can be rolled into the loan with no money out of the veteran's pockets, the typical veteran sees only the reduction in payments, not the costs, which are real and they did pay, albeit, due to an accounting trick, with money out of their future equity and not with money out of their savings.



However, due to the fact that most people shop houses and loans based upon payment, the reduction in payments makes it look like they can afford a more expensive house than they should in fact buy. That temporary buydown is going to expire, certain as gravity, and the clients are going to end up making those higher payments. There is precisely zero uncertainty about it. If they can't afford them, the bad consequences will still happen, precisely as if the buydown had never been. All of the tricks of the past decade to defuse this were based upon falling interest rates and rapidly rising real estate values. Lest you not understand, these are never acceptable reasons for betting someone else's financial future, as so many agents and loan officers did. If you are a real estate and financial sophisticate who understands the risks, it is one thing to bet your own financial future. It is never acceptable to bet the future of someone else, particularly if they are not an expert, without a frank discussion of those risks and advising them to get the opinions of disinterested experts.



This whole idea of temporary buydowns is bad because it allows the less scrupulous real estate professionals to encourage buyers and borrowers to overextend themselves. Now that the general public is waking up to the downsides of negative amortization loans and stated income loans, these are one of the few remaining ways to make it appear as if people qualify for a more expensive property because of a higher dollar value loan, than they do in fact qualify for by objective consideration of the guidelines. This particular way of pushing the guidelines isn't as extreme as the previously mentioned ones, and doesn't push the bottom line on what they can make it look like people can afford by as much, but if these people could sell people based upon what they really qualify for, they wouldn't be playing these sorts of games with the numbers.



Furthermore, if these folks could really afford the full payments on the loans being contemplated, there are better loans to be doing. Without that interest only rider on the 2/28, I could buy the interest rate down by at least a quarter of a percent on the same loan type. For that matter, I can quite likely get a thirty year fixed rate loan for that same borrower at a lower rate than the 2/28 will jump to in the default case of the underlying indexes going exactly nowhere. For the true temporary buydown, without my borrowers paying those three points of upfront cost, I could cut those borrowers real, permanent rate on that fixed rate loan by at least three quarters of a percent, probably more. Whether even that is worth doing is highly questionable, but at least it's an open question worthy of discussion with a possible case for "yes" that a reasonable person can defend with numbers, not a mathematically certain "no way!" Show me someone who uses buydowns for their clients habitually, and I'll show you a serial financial rapist.



In short, temporary buydowns don't really help anyone, except maybe the seller who can unload their house to someone who shouldn't be able to qualify. Not buyers or borrowers, who are encouraged to stretch beyond their means through their use. Not lenders, brokers, or agents, due to these problems that people were in denial about for a very long time coming home to roost, meaning that those who practice in this manner will very likely be subject to auditors and regulators in the near future.



Caveat Emptor

Article UPDATED here

This is a little harder than shopping for buyer's agents, so congress critters might not be able to do it. But it's nowhere near as tough as high school algebra, so even if you're a politician you can just get your child, grandchild, niece or nephew to help you. High school aged children of your friends would work also. And if you're a politician who doesn't have any friends with children, you've got worse problems than getting the best home loan.



This problem actually breaks into two cases, one where you are looking for a purchase money loan and one where you are looking for a refinance.



For purchase money loans, the first step probably should not be an internet quote shop. Whether it's one of the ones where lenders advertise their lowest rates or one of the ones where you ask for four quotes (and get four hundred companies calling you), neither one of these is likely to be a good use of your time. At this point, you are trying to find out what loans are available to you, and how much of a loan you can afford based upon those loans. What you want is not someone who's trying to sell you their loan, what you want is someone who will tell you what's going on in the loan market right now, and how much you can afford (assuming the rates don't change).



What you need is a good conversation with a loan officer or six. At this stage, you're not willing to sign up for any loan, but you are looking for information that tells you whether or not that loan officer is likely to be a good prospect when you are. Are they willing to take you through the process verbally, and explain the results that they get and how they got them? They should use your salary as a starting point, move through a debt to income ratio and subtract from that your current monthly obligations, to arrive at what your monthly budget is for housing. From there, they can use current interest rates, as well as approximate tax rates and insurance costs, to show how much you can afford per month for housing. I would insist that they perform this computation based upon currently available rates for a fully amortized thirty year fixed rate mortgage with no more than one point of combined origination and discount. If you then want to choose an alternative loan type, and there may be reasons why you want to strongly consider doing so, you nonetheless know that you can afford the loan for the property you are considering, and that you're not getting in over your head with a loan that's going to turn around and bite you.



Now, just because the first loan officer gives you a number you are happy with is no reason to stop shopping. You want to have this same conversation with several different loan officers. The reason is confirmation. There is a large amount of pressure to qualify you for the largest loan possible, especially in the highly priced urban markets where most of the country lives. A little bit of difference can make a lot of difference on the property you think you can afford, which makes it a lot more likely that the average person will come back to them for the loan. They said they could get you a loan for $500,000, while the guy down the street said they could only get you a loan for $470,000. If, by some mysterious coincidence about as rare as gravity or air, these people decide they want to stretch their budget to the maximum or beyond, who do you think most people in that situation will come back to? Most people buy a property at the highest possible end of the range they've been told they can afford. Actually, the most common thing that happens around here is that they'll go back to the people who said they qualified for $500,000 to see if there's any way they can stretch it so that they can qualify for this $530,000 (or $800,000) property they've gotten their hearts set upon.



There are all kinds of incentives for loan officers to inflate pre-qualifications for loans. They get a higher probability of a larger commission check. There aren't any real reasons to give you the real numbers, as opposed to those highly inflated ones, except not wanting you to go through foreclosure and lose the property. The foreclosure thing is months to years away, and not certain, while the commission check is here and now and their benefit, as opposed to your problem. By the way, if you're one of those people who manage to beat the numbers and get through buying a property more expensive than you can afford, you're going to be thinking that loan officer walks on water and is your best friend in the world, because they got the loan through that "nobody else could." This is preposterous, but it's amazing the way that human psychology works, isn't it? With the way prices were climbing in 1996 through 2004, there were an awful lot of loan officers who got used to "betting on the market," and winning, because even if their client could not, in fact, afford the loan, they could refinance on more favorable terms when the rates dropped and the owner's equity went to more than fifty percent due to the general market. And if the rates didn't move by enough to save their house, they could still sell for enough to make what seemed like a mint. The predictable result was that these clients think that these loan officers are wonderful. Unfortunately, that's not the market we have today. That is unlikely to be the market we have at any point in the near future. As a result, you have these same people doing business with these same loan officers today, and losing their shirts as well as their homes.



What you need is to keep going, and keep having these conversations with loan officers. Why? The first one may have been the Marquis of Queensbury, but then again they may have been the Marquis de Sade. What you need is evidence. Evidence of confirmation. Evidence of consistency. Evidence that both they and all of the other loan officers you meet with are performing these pre-qualification upon the basis of sound loan underwriting and rates that are actually available and not too expensive in terms of up front cost, that they are remembering to make allowances for the expenses of property taxes and home owner's insurance, and association dues and Mello Roos and everything else that may be relevant. You're going to pay these things. Prospective loan officers should make appropriate allowances up front, because they're going to be part of what's coming out of your paycheck.



What's a sufficient number of conversations? At least three in any case, but I would keep going until I had talked with loan folks that have at least two or three significantly different approaches to your loan. Negative amortization is right out, of course, and you can cross anyone who suggests one off your list of possible loan providers, but while you should do the calculations of what you can afford based upon a thirty year fixed rate loan, in most markets there are other loans such as a fully amortized 5/1 that are well worth considering, and that will serve most people better in most situations. Every single loan there is has its advantages and disadvantages. The disadvantage to the thirty year fixed is that it is almost always significantly higher rate than other alternatives, and more people than not keep exchanging one thirty year policy of insurance that their rate won't change for another thirty year policy every two years. The question I would like to ask those people is "Why buy the thirty year guarantee in the first place?" Why not buy the three or five or seven year guarantee, if that's all you're going to use? Right now the costs may be very comparable, but the shorter fixed period loans are usually much cheaper.



Similarly, why spend money buying the rate down if you're not likely to keep it long enough to recover the money you spend in the first place? Spending $8000 in points, especially if you roll it into your loan where you're going to have to pay interest on it, may cut your monthly interest charge from $1960 to $1833. However, it takes between six to seven years to break even when you consider interest on the remaining (higher) balance.



It's possible one loan officer will cover several approaches. Much as it pains me to tell you this because I habitually do that, you should still talk to more than one loan officer. You want more than one person's word for one what is available in the way of rates and the costs to get them, and it is always a Trade-off between low rates and high costs. Furthermore, you want confirmation of what loans and rates are available to you. If three or four loan officers independently tell you the same things, you've got a pretty good idea that they're approaching it correctly and giving you real information. The ones that make it up are likely to do base their usually inflated numbers upon different markups and mis-assumptions. Find a financial calculator on the web or buy one or use a spreadsheet, and check their numbers yourself. This is one of the largest sums of money you will be dealing with in one transaction in your life. You owe it to yourself to take the time and do the research to be certain you are getting good information. Due to the fact that real estate loans are very large amounts of money, and the loan transactions are very complex, there are a certain percentage of people in the industry who will use this opportunity to skim money effectively back into their pocket. These amounts of money, quite large by most standards, can be camouflaged under the cover of the much larger amounts of a very complex real estate transaction. Even the most honest loan officer is in the business to make money. This is in almost direct conflict with your desire to get the best loan possible at the lowest costs, but the loan officer who actually delivers the best loan to you has earned every penny of what they make, whatever it is.



Once you have credible, verified data on how much of a property you can afford, then you can start looking for buyer's agents, and actually looking at properties. Keep in touch with loan officers who you might be working with during the shopping process. Why? Rates can change. Actually, rates will change, and the higher up the scale and more highly qualified you are, the more often they tend to change. Sub-prime rate sheets might stay constant for a month or longer, with a modifier that may change or may not. Top of the line "A paper" changes every business day, at a minimum. Maybe not grossly, but it does change. I saw rates on 30 year fixed rate loans with equivalent costs go from about 5.25 to 6.625 in one month during late summer 2003. If you did the math based upon 5.25 and you qualified for $500,000, now you only qualify for about $430,000. That is data that is supremely important to your property hunting. Do not allow a real estate agent to tell you that you can afford more than your real budget. Ever. If they say they can't find all of your desired characteristics within that budget and in your area, ask them for alternative suggestions. Compromising what you want is better than foreclosure. Going without is better than foreclosure. Fire the agent immediately if they won't work within your budget. When you find something you like and have a purchase contract, your procedure becomes very comparable to a refinance. The differences are comparatively small.



For refinances, you have a property already. There is an existing loan that has to be paid off. If you're in a purchase situation, you should already be in contact with several lenders, and you don't really care about any existing loans on the property because they aren't your problem.



But now is the time when you want to do some intensive lender shopping. Furthermore, you really want to compare what everybody has at the same point in time, if it's at all practical. For instance, generally the available rates will be a little bit lower in the middle of the week. They will more often than not be higher on Monday, Friday, and Saturday than they are on Tuesday, Wednesday, and Thursday. This isn't always true, especially if the financial markets are reacting to some large event, but it seems that it happens more often than not.



In a purchase situation, talk to your existing prospects and keep adding others until you get enough of them. For refinances, you want to move quickly in order to be a fair comparison. Whether you are buying or refinancing, ask every one of them this set of questions you should ask prospective loan providers. What you are looking to do at this point is choose who you are going to sign up with. Before you do that, you want to cross-check what every single loan officer tells you with the available evidence. Weigh what you know against what you are told by any given loan provider, and what that loan provider tells you as compared to other loan providers. Most often, the preponderance of the evidence will clearly support the ones you should sign up with.



Now, I know I said this earlier. Not only does it bear repeating as many times as I can find an excuse for, the folks interested only in refinancing might have been skipping ahead. Remember that you can get the a loan officer who's the equivalent of the Marquis of Queensbury, but more of them are closer to the Marquis de Sade, and most will be somewhere in between. All of those quotes, and that nice paperwork like the Good Faith Estimate and Truth in Lending Advisory are basically so much hot air and so much used paper unless they are backed by an effective Loan Quote Guarantee. The bigger the lie they tell you, the more likely it is you will sign up with them. Sure, it's possible you might walk away at document signing, although not likely. If you don't sign up with them, they are guaranteed not to make any money.



There is always a Trade off between rate and cost in real estate loans. It's like gravity. Exactly what the available trade offs are varies over time, and varies from lender to lender at any one time. Remember, that lender can low ball you pretty badly to get you to sign up, and once you sign up, you're not likely to discover that they did low ball you until time to sign documents. By that time, you may have no real choice but to sign the documents you are presented, a fact which many lenders and loan officers are counting on. If the loan they delivered at signing is not exactly the loan they promised at loan lock, the only reason they did not tell you earlier is that they did not want you to have an opportunity to go shop elsewhere. They knew within a week of getting your information. To tell you how endemic this problem is within the industry, let me make a wager: I am not a gambling man, but I'll bet money that I could go into 95 of 100 loan offices chosen at random, audit their 100 most recently funded loans, and find significant discrepancies between the Mortgage Loan Disclosure Statement (or Good Faith Estimate) they got at sign up and the HUD-1 at loan signing in 80 of them. This isn't because they didn't know what the rates would be. They should have locked your loan as soon as you said you wanted it. They knew what the rates were then. Why didn't they lock? Why didn't they tell you what it would really be? The games played are legion, but it's rare that clients emerge better off for them having been played. Furthermore, I am not a gambler. This bet is like the guy who bets even money there will be at least one shared birthday in a group of fifty people, for which the probability is over 97%. The reason many loan providers want a deposit is so they can hold that money hostage for you signing the final documents. Unless no one else can do your loan, I would never even consider putting up a deposit with a lender. What they're telling you by requiring a deposit is that they want you to stop shopping. If they are telling you about a loan that really exists, and their loan prices really are good, there is no reason for a loan to require a deposit. You will pay for the appraisal when it happens, but that's less than a deposit.



The best remedy for this situation, where loan providers can basically say almost anything it might take to get you to sign up, is to sign up for a back up loan, if you can find someone willing to do so. In order to get someone to agree to be a backup provider, you've got to give them a real solid shot at the loan in the first place. Then, once you know who your first choice provider is going to be, go around and ask the other lenders, in order from next best to worst quote, if they think that loan is real and deliverable. If they all say it is, you know that your primary provider has at least quoted you something they might be able to deliver. If they say it's deliverable, follow up by asking why they couldn't beat it or at least meet it. The answers to these two questions should dispel any doubts about why you didn't do business with them.



Most of the time, however, most of the prospective loan providers will say it isn't. After all, they're trying to get you to sign up with them. That's your opening to ask if they'll be your backup provider. After all, if the other quote really isn't deliverable, you'll be signing their paperwork at the end. Every time I've said it's not, I've put my money and time where my mouth was, and every time I've ended up with the loan at the end of the process. For those people who honestly shopped their loans around, this has literally never failed to get me paid for a funded loan, and I've been backup for every category of loan provider from some of the biggest Wall Street banks down to credit unions and other brokers.



You do need to get both sets of paperwork filled out, and do everything necessary so that both loans are ready to go. If you only work on one loan for twenty-eight days of a thirty day lock, only one loan will be ready. The back-up loan is useless to you if it's not ready to go at the same time as the primary. If the back-up is not ready to go at the same time, you're signing the primary loan papers whether they deliver what they said or not. If the primary isn't ready to go, you're signing the back-up's loan papers whether they deliver what they said or not. Signing up for two loans also gives each of the loan officers concrete reason to make certain to deliver your loan on time.



As soon as you have selected your loan providers, lock both loans and order the appraisal. You'll pay an extra fee for having it typed for two loan providers, but that $100 or so is literally the cheapest, most cost-effective insurance policy you can buy. Not having it is likely to cost you thousands of dollars.



Now, on a regular basis, I hear various folk advising people that they can avoid all this by "just picking a large, reputable provider." Nonsense. This is wishful thinking at its worst. "Large reputable providers" will sit you down in a nice comfortable chair in a beautiful office, and lull you with talk of how well they are going to take care of you. Somehow, they manage to deflect the conversation away from exact numbers and exact quotes, let alone quote guarantees. You can't compare loans without specific numbers. Then, this "large reputable company" is going to deliver a loan with a rate that's a quarter of a percent higher and costs you two points more than you could have had, not to mention higher fees - and they'll still be lowballing you! Trusting yourself to a "large reputable company" without the exact same due diligence isn't avoiding the issues of shopping a loan in that jungle out there - it's intentionally delivering yourself into the hands of the head-hunters. These companies do not compete on price. They compete on the basis of serving cattle who want to be comfortable. Serving them up to be slaughtered. On a $400,000 loan, you just wasted $8000 up front, and $1000 per year. Glad you could avoid that hassle, glad to avoid talking to sales people, glad you could avoid taking half a day off work to shop loans? You've paid handsomely for that avoidance. Kind of like committing suicide because somebody might murder you.



The main issue in all of this is finding the loan on the best terms available to you. The main obstacle to that is the fact that lenders can low ball their quotes shamelessly, and it's legal, so it takes some serious research to figure out what is likely to be real from what is not. Once you've done that, it's time to make your choices and get those loans locked in. If the loan isn't locked, the quote doesn't matter - it's not real. It's certainly still possible to get burned, but far less likely, particularly if you sign up for a back up loan and have both loans ready to go. Once the loans are locked, get the paperwork and anything else you need done. Unless there is something external holding the whole process back, such as "Your house isn't going to be finished for two more months," I will bet money that a loan done in thirty days or less is better than one that takes sixty days or longer.



You need to do your due diligence up front. Real estate loan rates change every day, and whatever reason it was that caused you to need or want a loan is almost certainly time critical. For purchases, you've got a purchase contract that's good for only so many days before they'll start charging extensions. For refinances, if it's to get cash out, you have a time critical need for that money, and if you don't get it on time, you're likely to have to pay it out of your checking account or put it on a credit card, if you can. For refinances without cash, just to get a lower rate, those attractive rates are not going to last forever, The one thing I can guarantee is that the available rates are not going to be the same by the time you go to sign documents at the end of the process. If the lender doesn't deliver what they talked about, it's going to cost you a large amount of money. Therefore, you really want to do enough due diligence to give them a reason to actually deliver that loan they talked about in order to get you to sign up.



Caveat Emptor

Article UPDATED here

Consumer Oriented Carnival of Real Estate



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Well, it's not as exciting as repairing an X-Wing in the middle of battle, but the future prospects are a lot more secure: `Star Wars' droid R2-D2 to collect mail



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Want to know an undeniable sign that we are a nation in decline? Benefits for seniors eating up kids' share





As a share of the nation's economy, spending on kids would go from 2.6% to 2.1%. By contrast, spending for adults only in Social Security, Medicare and Medicaid -- the major programs that benefit seniors -- would rise from 7.6% to 9.5% of the economy.





If you don't understand what is wrong with this picture, please go take an introductory economics course.



Dear AARP: I turn 50 in the not too distant future. Save your postage. I am not joining. As I've been watching The Dresden Files on Sunday nights (Check it out if you haven't), there have been a couple of astoundingly dishonest advocacy commercials from you. I realize that you're an advocacy group, but there are limits. Even if it's me you're working on behalf of, I want no part of it.



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Study links sense of humor, survival



Brings a whole new meaning to the joke about "How many feminists does it take to change a light bulb?"



(If you've never heard it, the answer is, "That's NOT funny")



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Sorry, but that's all I've got time for right now. I'm so out of touch with what everybody's written recently that it's not funny. Unfortunately, I'm still in frantic mode, although for mostly good reasons.



On the comments front, the ratio of "real" comments to spam is about 1:4. I'm going to give it a little while longer to improve, but if it stays where it is, I'm going to terminate the experiment of allowing those without comment accounts to leave comments. Of course, once that happens, I'll switch back to comments appearing immediately. If it improves to something approximating 1:1, I'll keep the experiment.

This is really more of an investment related article than mortgage or real estate.



Class-action lawyers pounce in US subprime crisis





"We are considering litigation, no question," he said. "We have already had numerous discussions with some very, very large pension systems throughout the country on this."





I would look into investor lawsuits aimed at the managers who invested in these bonds. There wasn't any shortage of people warning that these were not solid investments. I was one of them. But I guess these managers dominant philosophy was out of, "How to Look Like a Financial Genius for Six Months (and an Idiot Forever)."



On the other side, Bear Stearns profits up, calms subprime jitters



But even that article has a warning:



But in that turmoil is a big opportunity for Bear Stearns and other Wall Street investment banks. Molinaro said he expected to see large, bulk sales of distressed mortgages over the next several months.







Subprime mortgage troubles could still spread pain but probably not recession





"We're seeing a lot of pain. We're not seeing carnage," Costello says.





Subprime alone won't sink Wall Street bankers





Subprime loan business accounts for just 3% of Lehman's revenue, and the current troubles translate into a potential hit to earnings of just 4%, according to an estimate published by Bank of America analyst Michael Hecht. Bear Stearns, which reports its results today, has the largest earnings risk at 5%. But most of the others have an even more trivial 2% earnings exposure, Hecht found.





One editorial I largely agree with:

Mortgage lenders can't claim that no one told them so



And one with it's head largely you-know-where:

Opposing view: The market is working



Spin, spin, spin. Whip the rats faster, we must not be spinning enough.



One thing I fervently hope: This mess results in some industrial strength disclosure requirements for negative amortization and stated income loans. I personally would like to see increased disclosure requirements for ARMs in general, as well as interest only loans. And I'm talking about plain language explanations right up front when people apply for the loans. If you can't sell the loan and the property with a frank discussion of what's going on, you shouldn't be selling either the loan or the property.

I have to admit to being conflicted. The numbers say no. The psychology says yes. Let's examine both.



Most first mortgages out there are between six and seven percent, and tax deductible at a marginal rate of about 28%. If you're one of those folks with something in the low fives or even below, enjoy it while you've got it, because the odds of getting something better when you move to a more expensive home or need to refinance are pretty slim.



I'm going to do the numbers based upon 6 percent, with 28% marginal deductibility. This has limits; to wit if your mortgage interest gets to be low enough that you don't hit the threshold where it is worthwhile to itemize, but instead take the standard deduction, that deductibility didn't do you any good. But above that threshold, which is most people, every dollar in interest you spend gives you back 28 cents. I'm also going to assume a 30 year fully amortized mortgage.



Obviously, you don't want to pay an effective 4.32 percent interest rate for no good reason at all, but this does not take place in a vacuum. If you didn't use that money to pay down your mortgage, you could use it to invest elsewhere. For instance, let's assume you could make 8% net on average if you invested this money elsewhere. This is a reasonable average when you consider ordinary income, capital gains, and possibly a certain amount of tax deferment.



Now, some people might think to add in the difference in interest paid, but that is not correct. The payment is constant. Whatever you didn't pay in interest was already applied to principal. To count it again would be double counting.



Let's say you've got $100 extra per month, and a $400,000 loan. I'm going to go yearly 10 years out, then at 5 year intervals. The median time in a property is about 9 years, which means a whole new set of decisions about which property to buy. This is only a valid experiment so long as all of the starting assumptions stay constant, and when you have a whole new set of decisions about which property to buy and for how much, all of that goes out the window, as it is no longer controlled only by the variables chosen at start. Truth be told, refinancing should probably halt the experiment as well.



For the below, I have just summarized the differences. Extra principal is how much more you've paid the loan down with the extra amount, if you did so. Tax cost is the total tax cost of the interest you didn't pay. Investment is how much the money you'd have if you didn't pay the extra, but socked it away in an investment account. Gain/loss is the net result, positive if you came out ahead by making the payments, negative if you should have invested the money.







Year

1

2

3

4

5

6

7

8

9

10

15

20

25

Extra Prin

$1,233.56

$2,543.20

$3,933.61

$5,409.78

$6,977.00

$8,640.89

$10,407.39

$12,282.85

$14,273.99

$16,387.93

$29,081.87

$46,204.09

$69,299.40

tax cost

$11.12

$43.66

$98.92

$178.31

$283.33

$415.55

$576.64

$768.40

$992.70

$3,218.31

$8,083.64

$16,153.28

$28,545.04

investment

$1,353.29

$2,593.32

$4,180.58

$5,772.56

$7,496.67

$9,363.88

$11,386.07

$13,576.10

$15,947.91

$18,516.57

$34,934.51

$59,394.72

$95,836.66

gain/loss

-$130.86

-$211.07

-$345.89

-$541.09

-$803.00

-$1,138.54

-$1,555.32

-$2,061.65

-$2,666.62

-$3,380.20

-$8,996.28

-$19,472.46

-$37,638.11





As you can see, the numbers come out fairly strongly for not taking the extra and making payments.



However, the psychology says yes. There's a major sense of accomplishment in paying off the property. Furthermore, once you don't owe the money, you've got it in the form of equity, as opposed to cash, which is all too easy to spend. In fact, most folks will fall off either the investment wagon or the extra payments wagon over time. Money you don't owe cannot be called due. If there's a temporary setback in the market, extra payments make it that much less likely you'll ever be upside down or in an impacted equity situation, although you could also apply the cash from the investment account to your equity or to the rest of your finances, to keep from having to do a cash out refinance. Finally, there's the reduced stress from being mortgage free for (in this case) thirty six months earlier, if you are one of those rare people who manages to pay their mortgage off.



Now, I also have a spreadsheet that compares the net financial result between never refinancing, refinancing every 5 years and keeping a target of paying all loans off in 360 months from the time you bought, and refinancing every 5 years but making the minimum payment. In the majority of cases, the last situation comes out better, largely due to the effects of leverage, but leverage is always a two-edged sword. If things go the way you want, it makes them even better. If things don't go the way you want, it makes them even worse. There are lots of folks getting bit hard by over-leveraging real estate right now. The usual numbers say that making larger payments is likely not the best use you have for the money. But there is a certain psychological comfort in owing less and paying off the mortgage sooner, and occasionally, making larger payments might mean you end up able to sell or refinance when you need to, without those potentially nasty consequences of being upside-down.



Caveat Emptor

Article UPDATED here

This is something I probably should have dealt with some time ago.



A seller carryback is when the seller agrees to "carry back" some part of the purchase price themselves. In other words, instead of getting the full sales price of the property (less outstanding liens), the seller accepts a certain amount of the purchase price in the form of a promissory note from the buyer. This note is usually secured by the property, making it a "purchase money" loan for purposes of determining recourse, which means there usually isn't recourse on the buyer. Furthermore, the seller's trust deed is usually in second or third position, behind the primary loan and possibly a secondary loan.



The reason behind doing this is that some buyers cannot qualify for a sufficient loan, or have credit sufficiently bad that no lender is willing to loan them the necessary percentage of the value, considering the down payment they have (usually zero). But in the current environment, every last potential buyer is heavily sought after, and some sellers are willing to do whatever it takes to make the transaction happen. Particularly as being willing and able to do a seller carryback is one tool for being able to get full price from a buyer who needs one.



As an example, let's consider someone with a 520 credit score and less than 5% down payment in the current lending environment. They might be able to get 80% financing full documentation, or perhaps 70% stated income. But all they've got is less than 5. If the seller wants to do business with them, it takes a carryback to make the deal happen. If the buyer needs a carryback, he's got to be willing to meet the seller's terms for making it happen. This gives the seller who is willing and able to do a carryback access to potential buyers that sellers who are unwilling and unable to do so do not have. Furthermore, it gives those sellers who are willing and able to carryback part of the purchase price leverage in negotiations to get a higher price than they otherwise would have. Not every seller has the option of a carryback. Matter of fact, right now relatively few have that ability. The ratio of buyers to sellers is in the high 20s right now locally - but the ratio of buyers to sellers willing and able to do a carryback may be 1:2 or lower.



Lest there be any doubt, a carryback is not something you keep secret. You don't need to shout it from the rooftops, but at a minimum, all of the lenders involved have to be notified in writing as to what's going on, and have to accept it, also in writing. There are some lenders who will not permit them at all, even though their loan takes priority. There are other lenders who will accept them but impose conditions. They are all going to want to see a loan repayment schedule, and include that in debt to income ratio calculations. It may be possible, in theory, for a "silent second" type carryback to be approved, but the lender wants to see something that seller is getting in return for extending financing, and most such loans will not meet the underwriter's "smell test," particularly not in the current loan environment, which has gone within a couple of weeks from being far too permissive to completely paranoid, as the lenders scramble to avoid consequences of years of bad decision-making. Trying to game the system in this environment in order to get a higher debt to income ratio through the system is highly likely to be interpreted as fraud.



I've mentioned that sellers' trust deeds will be occupying second or even third position, which means that in the event of default the loans occupying higher positions are paid in full, before there is one penny paid on the seller's. It therefore behooves sellers to be extraordinarily careful about extending financing, as if the people were able to qualify for the full amount of financing they need with regular lenders, chances are that they would have done so. Furthermore, if the holders of the higher priority trust deeds foreclose, your deed will be wiped out by the action of the trustee's sale. Concrete example: A $500,000 purchase is financed 80/10/10: 80% ($400,000) on a first trust deed, 10% ($50,000) on a conventional second trust deed, and 10% ($50,000) on a seller carryback. The seller discovers that they're in over their head, and even if prices don't recede the property only nets $450,000 at auction. Less the costs of the trustee's sale, that first trust deed gets all of their money (or at least most) the second trust deed might get some of theirs, but there is no way that you're going to see a penny of yours. Even if prices go back to ballooning like they were three years ago and the property is now worth $700,000 after two years, you might not see any of your money unless you go to the trustee's sale armed with cash to defend your interests - just like any other holder of a junior trust deed.



Servicing can be a real issue as well. Do you know the proper way to service that loan in the state you are operating in without missing any i-dottings or t-crossings? If not, you could lose most or possibly even all of your rights under the loan contract. Professional servicing organizations exist, but they 1) cost money that cuts into your margin, and 2) make mistakes anyway, which you are responsible for. Not too long ago I fought and won a battle with an out of state servicing company that was violating California law. If I had wanted to, I could have sued both them and the holder of the note as well as making criminal complaint. Servicing requirements are deadly serious.



With all that said, many sellers right now are in a situation where a carryback means, "Hey, I might get the money, where if I didn't, I definitely wouldn't." If this describes your situation, a carryback might be something you should consider.



Lest you not understand, most sellers want cash, not a loan. It's very hard to use a loan, particularly a private loan of dubious quality, to assist you in buying your next property. You can't just spend a promissory note like you can cash. There are loan buying services out there, but most of the time the amount you get will be heavily discounted, particularly if you cannot document a history of on-time payments and you are in a bad credit situation. It is this fact which sellers who are able to offer carryback financing leverage in order to get better deals.



There are those out there who like carryback financing. Most often, they are real estate sharks. What they are hoping is that they will get their twelve percent for a couple of years, during which time value will go up, and when they turn around and foreclose, having not only been paid their above market interest but also having leveraged that loan into renewed ownership of the property at an appreciated price. Another one of the tricks is to use the existence of the carryback as leverage to get a price significantly above market for the property from desperate buyers who can't get anything else, and as soon as the buyer has made the payments for a few months, sell the note. However, the note buyers have caught on to that little trick, and in the current environment of decreasing or stagnant prices, they are balking at paying full price or anything like it for those notes.



And that's where I'll stop, lest I inadvertently release more scams into the wild. Suffice it to say that there is sufficient potential for abuse in the practice of carrybacks that lenders have become very sensitized to the possibilities, and have taken what they feel are appropriate steps to limit their potential for losses due to the abuses that have taken place in the past.



Caveat Emptor

Article UPDATED here

Carnival of The Capitalists



Carnival of Personal Finance



Carnival of Real Estate



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As I went over a few days ago, I'm in CONDITION: FRANTIC due to jury duty spilling over.



To those agents who are upset because of yesterday's article (here): I do not write this site for agents. I write it for consumers, from their point of view, showing them how to get the best possible bargain. The facts are the facts, and if they offend you because you'll have to work a little harder or make a little less money from someone who reads my articles, well, that is precisely why I write them. I don't hate agents. But this is a consumer oriented site, and my articles will always take the point of view of what is best for the consumer. If you've got reasons that outweigh mine, from the consumer's point of view, I freely acknowledge that I am human and subject to making mistakes. But getting angry at me because you would rather I kept quiet on certain subjects is a waste of your time.



UPDATE: I neglected to mention that I'm finishing up a companion piece on How to Effectively Shop for a Real Estate Loan, tentatively set for Sunday the 18th, and I'm planning one on How to Choose A Listing Agent which I'm hoping to publish on Sunday the 25th. So if you were upset yesterday, plan on having a lot more to be upset about.

Well?



You would be amazed how often I encounter people who are certain they're getting a great deal on this loan that's in process, but they have no idea what that that deal is. All they really know is that their prospective loan provider sure acted like their friend.



Well, excuse me, but have you ever heard of Honest Iago? Any sales person is going to at least pretend to be your friend. The tricks are legion, and they're not evil, in themselves. But it's much easier to betray someone from a position of trust. "Don't worry, I'll take good care of you." Yes, and even better care of your wallet after it's in their pocket. A real friend may ask for your business, but they won't get upset if you can find a better deal somewhere else.



Loans are complex transactions, but there are three main things to know: Type of loan, interest rate, and the total cost to get that loan at that rate. You should be able to remember three things about one of the biggest transactions of your life, right? Beyond that, there's what the costs include, and whether there's a prepayment penalty, both of which are also important. The reason the existence or non-existence of a prepayment penalty is important should be obvious. A very large proportion of people who agree to even two year prepayment penalties end up paying them, and half of seven percent of $400,000 is $14,000 more that loan will cost you down the road. The equivalent of three and a half extra points, for crying out loud!



What it includes is equally important. Does it include appraisal, title, and escrow (or legal fees in those states that still require the use of attorneys)? There are all kinds of fees involved in a loan, but these are the three biggest, and because they are paid to third parties, the law allows the actual dollar amounts to be excluded from quotes. What sounds cheaper: $3022 or "$1405 plus third party fees". In this instance, it works out that they are exactly the same. Similarly, you want to find out if the dollar figure you are being quoted includes the dollar amount of any points you will be charged. Each point is one percent of the final loan amount, so if you've got a $400,000 loan when everything is said and done, you've paid $4000 for every point. If that's two discount points and one of origination, that's $12,000 on top of all the usual fees.



Force them to add in all the costs, and quote you in terms of what the loan amount is going to end up being after rolling all those costs into your loan, if that is what you intend to do. Make them quote your payments based upon that final loan amount, not the base loan amount. Those are the costs you are really going to end up paying, whether or not you wrote a check out of your account to pay them. Those are the payments you're really going to end up making. There are two sorts of mortgage consumers out there: The ones who insist upon understanding what they will really be paying, and suckers. Suckers sometimes stumble across someone who actually gives them a good loan at a good price, but it's blind luck, and far more often, they don't. Furthermore, just because you're not writing a check out of your account doesn't mean you're not paying those costs. You are, and the dollars you spend that way are every bit as real as the dollars left in your grocery bill, even if they are in much larger amounts for mortgage loan fees.



Every time I write an article like this, I get emails that say, "What if I'm doing business with a large reputable company?" Those are some of the worst. Those beautiful buildings, that plush carpet, those beautiful furnishings, those attractive salaries? Your fees are going to pay for those, along with the investor payouts that make that company so attractive to investors. They are competing upon the basis of advertising and reputation, not price, but a loan is not a vehicle. As long as it's on the same terms and conditions, it's exactly the same whether it is from National Megabank or the Bank of Nowhere. And terms and conditions are mostly standardized. The only real exception I'm aware of is the Islamic loan programs. So there is no reason not to force lenders to compete on price.



Now it is another misconception to think that the standard forms you get at the beginning of the transaction mean something. They don't. There are too many games lenders are allowed to play with those. The only way to be reasonably certain that they actually intend to deliver that loan on the terms they tell you about is to get them to give you a written loan quote guarantee, detailing:



-loan type (e.g. "thirty year fixed rate loan")

-interest rate (e.g. 6%)

-total maximum costs including third party fees and points (e.g $3022)

-whether there's a prepayment penalty. Yes or no. Not maybe. Not probably not. Yes or no.

-any conditions upon the guarantee. (almost always, "underwriter approval of the loan as submitted")



There should also be a statement that if they do not deliver the loan as described, they will pay any difference so that the net cost to you does not increase. Once you've got a guarantee with all of this, then and only then can you make a real comparison between loans. Companies that will not guarantee their quotes in writing are telling you that they cannot deliver what they talk about, that they are intentionally low-balling you in order to get you to sign up, and that they will add hundreds to thousands of dollars and quite possibly a higher interest rate when you go to sign the papers. I'm sure that makes you feel all warm and tingly and inclined to use them, right? If they could deliver that loan they are talking about, they would guarantee it. But if they won't guarantee their quote, you have no idea what loan they really intend to deliver. It's only if they will guarantee their quote that their loan can really be compared to other loans.



Loan rates and the prices to get them do change over time. They cannot be locked indefinitely, and the longer the lock, the more expensive the loan. Furthermore, all quote guarantees are going to be subject to locking while the rates are still in effect, which for A paper loans and lenders is no longer than the end of the day. But missing a day of works that costs you $300 to $500 in pay in order to intensively shop loans is likely to save you thousands of dollars.



Now, how to compare loans if one has a lower rate and the other has a higher cost. Figure out the difference in monthly interest charges, and divide the difference in closing costs by the difference in monthly interest. This will give you a break even figure in months. Due to time value of money and other factors such as the loan with higher costs will leave you with a higher balance, and therefore cost you additional interest later after you sell or refinance, add fifteen to twenty percent to this figure. Keeping in mind that most people only keep their loans two to three years, that will tell you if you're getting something worthwhile for that extra money. On the other hand, if the break even time is longer than the fixed period of the loan, you know it isn't.



Finally, it is to be admitted that getting a loan guarantee is the second best thing to make certain you get the loan they tell you about. There is a better one: Apply for a back up loan. If you have two loans ready to go, you're not relying upon the good intentions of one provider, and your choices are not limited to sign that one set of loan documents or you don't get a loan.



Caveat Emptor

Article UPDATED here

This is easy. Much easier than effectively shopping for a loan or a listing agent. So easy that a congresscritter can do it. So easy that congressional leadership can do it.



The only thing possibly moderately difficult to understand is that finding a good Buyer's Agent takes place in two steps, not one.



The first thing to do is figure out your situation. What do you want in a property, and what is your budget? I've written several articles to help you determine your budget, but the one piece of data they are missing, because they have to be, is what the rates that are available to you are. Unless you're sure that you fall into the topmost category - great credit score, no late payments or anything, and you're looking to buy something well beneath what you can prove that you can afford, you can only find this out by having good conversations with several loan officers. Rate advertisements are teasers, aimed at getting you to call, useless in reality. I have never seen one for a loan that 1) actually existed, and 2) that I would consider signing up for, even if I could get paid for it.



Then, make a list of agents you might like to work with. This can certainly include Uncle Bob, your neighbor, or your poker buddy, but you want more than one agent on the list. My experience is that agents at the big chains are (in the aggregate) not up to the standards of the ones working at independent brokerages, but your mileage may vary. Also, I am a Realtor, but that's for reasons completely unrelated to competence or ethics. I'll believe that Realtors are superior to non-Realtors when the boards of Realtors start handing out penalties for non-compliance with the code of ethics that mean something. Ditto all of those little "designations" that have been cooked up to parallel the ones financial planners get. Unlike many financial planning designations, some of which are graduate degrees of one value or another, these are marketing efforts cooked up to fool a gullible public. The qualifications for the real estate designations are laughable in the context of ChFC (Chartered Financial Consultant) and other designations that require five to ten graduate level college courses to attain.



Then, have a good conversation with those agents. The first thing you should ask, on the phone, is whether they require an Exclusive Buyer's Agent Agreement, or whether they will accept a Non-exclusive Buyer's Agent Agreement. If they require an exclusive agreement, that should be the end of the conversation, and cross their name off of your list. If you sign an exclusive agreement, you are locking your business up with that agent. You are putting yourself in their hands completely. The only reason that you should even consider an exclusive agreement is if you are asking for something special that costs money - for instance, expedited foreclosure lists (The free lists are a waste of time, because they're already flooded before you get them. The subjects of the free lists have said, "no" to literally hundreds of others before you even got the list, so unless you've got something very special in the way of an offer, you are wasting your time.)



There is absolutely no good reason not to sign a standard Non-Exclusive Buyer's Agreement. You risk nothing by signing. You lose nothing by signing. You can have any number of them in effect, and as long as you don't sign any exclusive agreements, you're fine. All you do is assure the person whose services you use that if they find and help you purchase the property you like, then they will get paid. The only reason not to sign such an agreement is if you're looking to stiff a good agent who finds you the property you like so that you can use a discounter on the transaction, and that's shooting yourself in the foot. The money you get back is unlikely to be as much as the difference the good agent will make in negotiations, or the trouble the good agent will save you.



One more thing any buyer's agreement you sign should have: An explicit release if they are the listing agent for the property you decide to put an offer on. It is a very bad idea for buyers to accept a dual agent, because the agent has a responsibility to the sellers, but nearly so deep of one to you. They're on the other side. I wouldn't pick a quarterback that played for the opposition, and neither should you. Tell them to pick a side and stay on it, and as they already have a listing agreement, they've already chosen the other side. It's great for them and for the sellers that they've sold the property, but their desire to get paid double does not outweigh your right to representation with responsibility to you and no conflicts with other duties.



Tell them what you want in a property, where you would like to live, and what your budget is. Then ask them if it's a realistic, and see what they say. If they say yes, that's great, but wait until you hear it more than once before you celebrate. Many agents will tell you yes, figuring that it's easier to raise your budget than lower your expectations, especially once you have seen this beautiful property that they "just happen" to know someone who can get the loan for. Nor is this a straight yes/no question. They might tell you an unqualified yes, as desirable properties possessing those characteristics you want are available in that area below your budget. They might tell you that such properties are available, but that they are scarce and you must act expeditiously. They might tell you that you're going to need a fixer to get those characteristics, or that you're likely to need to compromise some of them. Or they might tell you that what you want is sufficiently beyond your budget that an alternative approach is probably called for.



Now, whatever the first agent tells you, don't swallow it whole. Get some evidence. If they show you literature for brand new beautiful properties just being sold out that are less than your budget right where you want to live, that's evidence. If they execute an MLS search and the only things that pop up in your budget are out of area properties being cross-marketed, that's evidence. The worse the news they tell you, the more likely it is to be true. Sales persons do not like to be bearers of bad tidings, especially before their commission is paid. But if they're willing to give you evidence that your expectations need to be adjusted downward, that is evidence that this is probably someone who takes their fiduciary duty seriously, and that is an agent you probably want to work with.



Notice that I said an agent, not the agent. There's a reason for this. Remember that non-exclusive agreement you signed? Remember that I told you it's fine to sign more than one? Here's the good thing about signing more than one: Now you have multiple agents looking for that special property that will make you happy. You won't pay any more for this than for one agent, because they are all competing for your business and the same commission check. This is the stage at which the agents are actually competing for your business, by looking for the property you want. You don't have to decide who gets paid up front. You wait until one of them brings you what you want. Furthermore, the agents will self-select or disqualify themselves to a large extent.



Let's say you signed seven non-exclusive agreements. One is Teresa Top Producer, who slams clients into the first property that's even a rough fit. She'll take you shopping one day, try hard to sell you every property, and get upset if you don't make an offer on the first day. By "try hard to sell" I don't mean anything so crass as the hard sell. What happens is she talks up everything she mentions, very little if any compare and contrast, and whatever she does, no calling your attention to defects or undesirable items. In fact, she'll do her best to distract you or get you to ignore them. For savvy, patient, intelligent buyers, Teresa is not a good fit as an agent, and you're going to realize it after one or two properties. And here's another great thing about the non-exclusive agreement: You just stop working with her, and she's out of the picture!



The second person you sign an agreement with is Martin MLS. Martin does an MLS search, and wants you to go around with him to every property on that list. He sets up an automatic notification to you of every property that fits some basic criteria that gets listed, and he wants to go check out every one with you. Lest you not have figured it out while reading the last two sentences, Martin's approach is basically throw a lot of mud at the wall and hope that if he throws enough, a little bit will stick. Martin may or may not have any real idea of the spread and breadth of your market, and he may or may not be able to recognize a real bargain when it bites him, but he probably has a good idea of the general state of the market. You'll get the same idea pretty quickly by working with Martin, after you see fifteen or twenty properties that seem pretty much to run into one another - except for the ones that are drastically over-priced. You get the idea that working with Martin is not an effective use of your time, and soon, you stop, at which point Martin's out of the picture.



The third person you sign up with is Benny Bump. Benny's got his own unique way of making transactions happen. Actually, it's not at all unique. It's common enough to have a general slang term among Realtors. What Benny does is take you to three or four properties that look like war zones, comparatively speaking. These are not desirable properties on the scale you're using. They fall well short of desirable on one scale or another, and usually on several scales. Then, just as you are despairing of ever finding something you like, Benny Bumps you by showing you this absolutely gorgeous property in perfect condition. "Yes!" you happily cry, having quite predictably come to the conclusion that You Want This One, and you'll Do Whatever It Takes to get it. You may or may not notice right away that the price is way above the budget you stated to Benny, and he's counting on you not caring when he whispers that he knows how to get the loan, or knows someone who can. The vast majority of people who meet Benny will fall for "The Bump", and most of the ones who don't fall for it will not realize what a vicious, unethical trick it is. You, being that one in a hundred or so who is smart enough to realize what he has done, inform Benny that his services are no longer desired.



I have said it before, and I will say it again. You should demand to know the asking price of every single property before you agree to view it, and if the agent can not explain why that property might be obtained within the budget they agreed to work with, that is an offense not only worthy of firing them, but one for which financial prudence demands firing them. You can't fire someone who you've signed an exclusive agreement with except by waiting out the agreed upon period. You can fire someone whom you have signed a non-exclusive agreement at any time by Just. Not. Working. With. Them.



The fourth person you signed with is Rhonda Rebater. Rhonda is a discount agent sits in her office, and waits for you to bring her the property you like to her for negotiations. She'll usually also expect you to meet the appraiser, meet the inspector, etcetera, nor will she shop services for effective value. Quite often, Rhonda has her hand out to these people behind your back. Not necessarily for a lot of money in any one place, but her whole approach to the business is based upon volume. And she does quite a lot of volume, because people who think in terms of cash in their pocket (that rebate of some portion of the buyer's broker's commission that Rhonda gives them back) are her legitimate prey, and they flock to her in droves, like politicians to campaign contributions. If you're savvy enough in the business that the value provided by a good agent is negligible, why don't you get licensed and earn yourself the entire buyer's broker commission? Because Rhonda has little real market knowledge, she's a very weak negotiator on your behalf, and because her business model is predicated upon high volume, she's an awful guardian of your interests as the transaction goes along. So Rhonda may not be precisely out, but she's not likely to go out and find you a real value.



The fifth agreement you signed is with the team of Gary and Gladys Gladhand. Gary and Gladys get their business from social groupings. Gary has a bowling team and a softball team and he's a soccer coach and Gladys is PTA president and girl scout troop leader and organizer of the party circuit. And, of course, their ads are all over the place. "Mr. and Mrs. East Side" on the East Side and "Mr. and Ms. West Side" on the West. Together, their objective is to know enough people, and make certain all of these people know that they are Realtors, that they are always getting referrals from these folk because "of course" they'll use Gladys and Gary, and walk-ins from those stupid enough to believe their advertising. You may have come to them as Uncle Gary and Aunt Gladys, because normally Gary and Gladys don't allow non-exclusive agreements, and they will almost certainly balk at the no dual agency release, even from a relative. Their whole business approach is predicated upon not competing for your business, and locking out the competition so that they don't have to compete by making it a social obligation to do business with them. In point of fact, Gary and Gladys may be decent or good listing agents, but are extremely unlikely to be strong buyer's agents, because all of this schmoozing takes a lot of time that could more productively - from potential buyers' point of view - be spent obtaining market knowledge and finding bargains. Their approach is reasonable on the surface: You want a house and their listing wants to sell a house for too much money and they want to get paid both halves of that commission, so there just isn't any reason not to make everybody happy, is there? But a good buyer's agent is going to be the one that looks at every single property, whether they listed it themselves or not, with a cold, rational, logical mind and clear eyes for comparative value. I don't list many, but I rarely show one of my listings to one of my buyer's clients, because my listings are priced to the market and the situation. This means that while they're not over-priced, they're not the greatest bargains in the market, either. I only need to price low enough to attract people foolish enough to sign an exclusive agreement with one of these problem agents, not to attract a cold, steely-eyed buyer's specialist. Gary and Gladys are going to show you all of their own listings (except the ones that are obviously unsuitable) first, then, all of the listings with other agents in their office that might interest you, and then they are going to start acting an awful lot like Martin MLS: Throw enough mud at the wall, eventually some of it might stick. Are any of these tactics likely to generate a superior value from a buyer's point of view? Not on Planet Earth.



Now, you got really lucky, and beat the odds. Out of the seven you signed up with, you've actually got two agents that are going to do their job by going out and looking for the best values in your current market by actually looking at them and comparing them to each other, from the standpoint of your needs and your desires and your budget. The ratio of these agents in the real world is much lower than that. If you don't have at least a couple agents left on your list when you're done vetting, go out and find more. You can sign any number of non-exclusive agreements, at any time.



When these folks show you a property, they show it to you with context in mind. They're willing to say bad things about every property, not just the ones they don't want to sell you, even though they should only be showing you superior values. They're going to compare and contrast virtues and defects. Lest I be unclear, it is precisely for these virtues that you have been vetting your candidate agents. You can only see real evidence as to whether they are present or absent in action, not during the interview process. Knowing enough to sign a non-exclusive agreement gets you the ability to find the defects in the five agents who didn't do what you wanted, and you didn't need to commit yourself to any of them before you observe them under fire. Instead, you know enough to understand that there is no real need to commit to anyone until you make an offer.



Now, which one of these two agents gets paid? That depends upon which one of them does a better job of finding you the property you want. Best trade-off of those things you want in a property versus price. Of course, you won't be sure exactly what price you can get it for until you go through the negotiations. And it is possible that one of the others really does have something good, if not nearly so likely. In my experience, Martin MLS will eventually get the job done, if you have enough patience or he gets lucky. Rhonda Rebater will be there if you get frustrated enough to take matters into your own hands. And it is possible that Gary and Gladys Gladhand have something you like, but it is unlikely to be a superior value. Teresa Top-Producer and Benny Bump are deadly poison, as far as buyers are concerned, and once you discover this hidden attribute, you should give thanks that nothing you saw with them was attractive to you. But none of these others has gone out and physically looked at all those properties, which gives those two good buyer's agents you did find an unbeatable amount of market knowledge, which they can then turn around and use to your benefit in negotiations. When they can tell you what the bad points in a property are as compared to the other stuff, you have evidence that they can explain it to the agent on the other side of the transaction. Except for those owners who just won't listen to reason because they want their property to be worth more than it is and they are not going to entertain evidence to the contrary, this evidence is powerful stuff, and can make a huge difference on the price you end up paying, even on a property that is legitimately an above average value to start with.



Caveat Emptor


Article UPDATED here



The feeling I have is that something is going on at my daughter's school. She doesn't want to go. She won't talk to me or her mother as to why. So I asked the school secretary to have someone call me as soon as reasonable. Hilda's going so far as to fake illness. Which would be a lot harder to detect if a certain not-quite-seven year old had come to the realization that Parent Cam™ is always on.



She'll figure it out, I'm certain. But not many seven year olds have had that particular revelation. Which is why I want to get not only this, but the issues behind it, dealt with before she's Ferris Buehler's age.



In other words, I'm well aware that she's going to get better at this unless we take steps now.



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Appeals court overturns D.C. gun ban



Dang. There goes Post Office Headquarters.



As if the fact they were breaking the law on a gun count as well as murder, assault with a deadly weapon, assault, etcetera, ever stopped any of the disgruntled ex-postal employees that made that joke fashionable. Besides, it's still illegal to bring a gun into federal government buildings. How many folks do you suppose that actually stops? "I was going to commit mass murder and mass assault, but I better not because I'd be breaking the law that says I can't carry a weapon." The only difference is now there's a possibility that one of those law abiding citizens can return fire if they deem it necessary and beneficial.



Joking aside, this is fantastic news for the law abiding citizens of Washington DC.



And the straining at flies and swallowing camels award goes to:



Judge Karen Henderson dissented, writing that the Second Amendment does not apply to the District of Columbia because it is not a state.





Technically correct, but if the Second Amendment doesn't apply to DC, and the Fourteenth Amendment doesn't apply because it isn't a state, it's going to be kind of hard finding a part of the constitution that does apply.



As an ex-cop who was booted out of the LAPD turns to one who was booted off the Philadelphia force and says, "Let's fly out to DC and violate someone's civil rights. It's cool, man! They can't touch us because the DC Court of Appeals just ruled they don't apply in DC! Maybe we'll get lucky and see Rodney King!"



Okay, reductio ad absurdem moment over. The court didn't rule that way, as she was a dissenting opinion. But my observation that if the fourteenth amendment doesn't apply to DC, neither would a lot of the stuff granting civil rights many folks take for granted. I strongly doubt that was the intent of the framers or authors of later amendments and laws.



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How many articles have you read recently questioning Hillary or Obama? But this sort of thing happens when you're the Republican front-runner. Never too early to bring down the Republican front-runner. New York wonders as Giuliani gains support



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Proposition: The media makes money off of perceptions of extremity. Things are rarely as bad as the media portray them, and rarely as good. Case in point: Home prices: Don't expect quick rebound

There are all sorts of reasons why escrow falls through, but they fall into three main categories. They can best be described as failures of qualification, failures of the property itself, and failures of execution.



Before I get into the main subject matter of the article, I need to define a contingency period. This is a period built into the beginning of the escrow process when one party or the other can walk away without consequences or penalty, usually for a specific reason. For instance, the default on the standard forms here in California is that all offers to purchase are contingent upon the loan for seventeen calendar days after acceptance. If the loan is turned down on the sixteenth day and the buyer notifies the seller that they want out immediately, the seller should allow the deposit to be returned by escrow. If it happened on the nineteenth day, the buyer should be aware that their deposit is likely forfeit. A contingency, just like anything else, is something negotiated as part of the purchase contract. If it's in the contract, you have one. If it's not, you don't, although some states may give buyers certain contingency rights as a matter of law.



Failure to qualify means that something goes astray with the buyer's quest to acquire necessary financing. They cannot qualify for the loan, they do not qualify within the escrow period under the contract, they allow their loan officer to spin all kinds of fairy tales about what the market is doing or likely to be doing when the plain fact of the matter is that the loan officer just can't do the loan on the terms they indicated when the poor unsuspecting consumer signed up. Maybe it existed at one time, or maybe they just hoped it would. In any case, it wasn't locked in and it certainly doesn't exist now, so rather than pay the difference out of their commission, the loan officer delays and hopes for the market or a miracle to save them. Or they told the consumer about a loan they thought they might be able to qualify them for, only to find out they don't, and they're stalling, hoping a better alternative will open up. Fact is, that if a loan officer can't get the loan done in thirty days, I'll bet money they can't do it on the terms stated in the initial documents. Jokers like this are a large part of the reason you should have a back up loan if you can find someone willing. Chances are much better that both loans will be ready to go with a lot fewer games played.



Sometimes it does happen that consumers don't qualify for the loans due to real problems that just don't come up until the file is in underwriting. Since this can cause you to lose your deposit, it's a good idea to ask your loan officer about any potential problems before you make an offer. You know your personal financial situation but you probably don't know what all of the potential disqualifying issues for a lender. The loan officer should know what the issues are that may cause lenders to have difficulty approving your loan, but they don't know your history unless you tell them. Many things that underwriting will catch do not necessarily show up on a loan application or credit report, so if you have an unpaid collection, monthly expenses that might not show up, a lien, a dispute in progress, any issues with your source of income, or anything else in your background that you have any questions about whether it could impact your loan, it's a good idea to ask right upfront, before you get into the process. Sometimes these issues mean that you flat out do not qualify, sometimes they mean that instead of 100 percent financing, you only qualify for 70 percent. Unless you have that extra 30 percent of the purchase price lying around somewhere, the transaction isn't going to fly, and the sooner you find out, the better. A loan officer who can't show you a loan commitment with conditions you can meet before the end of the contingency period is not your friend.



The second category of reasons escrow fails are failures of the property. Some defect is disclosed by the inspection process that the owner does not want to correct or is unable to correct, and the buyer decides that the property is not for them under the circumstances. Mold, termite damage, seepage, damage to the foundation, and all of the other usual suspects fall into this category. Title issues are here also, although they usually become unsolvable when they impact the loan. If the seller can't deliver clear title, the title company won't insure it, the lender won't lend the money, and any rational buyer should want to walk away. Why do you want to give someone money when they are likely not legally entitled to sell you the property?



For defects, both structural and title, providing it was discovered within the contingency period, it's up to the seller to convince the buyer they should still be interested. After the contingency period is over, things are more complicated as there is the possible forfeiture of the deposit to weigh. Good agents that you want to recommend to your friends get out and get the inspections done right away to avoid this issue. Agents that are looking to line their own pocket wait until the contingency period is over before doing so, as this gives the buyer more incentive to stay in the transaction. Let's say you've got a $5000 deposit on the line and seventeen days to remove contingencies, as is the default here in California. Would you rather your agent got an inspector out within a couple of days, or waited three weeks? Keep in mind that you're going to pay the inspector, but that's money you're going to spend regardless. The first possibility means that you find out about potential defects while you can still recover your deposit, while the second possibility means the seller can likely keep that deposit. I know which situation I'd rather be in.



Failures of execution are likely to be because someone messed up. The seller didn't do this. The buyer didn't do that. One agent or the other dropped the ball. The escrow officer didn't do their job. Loan officer failures would be here if loans weren't a whole category on their own. This category covers all the little details in the purchase contract, each of which has to be met before the escrow officer can close the transaction. These failures may or may not be actionable, in the sense of you being able to hold them responsible for their failure. Many times, the escrow officer is used as a whipping post for the failures of other parties, but some escrow officers do screw up big time. Sometimes it takes an outside expert to dissect things dispassionately in order to figure out what went wrong where and whose fault it was, but outside experts cost money, so most of the time everybody just fades into the sunset pointing fingers at each other, unless there's some pretty significant cash involved. The transaction is dead and it's not coming back. Unless there's a good possibility of recovering enough money to make it worthwhile, let it go.



Caveat Emptor

Article UPDATED here

Wow. Just wow. Kevin Aylward of Wizbang! has pursued a precise definition of exactly what C-Span's policy is and will be in regard to its content. He won a very important liberalizing (in the enforcement sense) victory, as detailed in his post detailing the issues and the resolution.



Let all citizens stand and give Kevin a hearty "well done." Doesn't matter if you're left wing, right wing, or somewhere in the mushy middle. Kevin has won a victory for all of us.



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I've started getting referral hits from craig's list in other cities. It seems other folks are using my articles as references to help people understand aspects of the transaction. The plus side is that this is good publicity, not that there is much bad publicity. The minus side is that my income from advertising and donations doesn't pay for the expenses of the site, and this is likely to unbalance it further by increasing my bandwidth bill. Must think about this.



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Observations on Jury Duty



(not guaranteed to be original, or even of merit)



I basically go to downtown San Diego for one reason: Jury duty. I've been called seven times in the nine years since I left government employment, while only twice in the thirteen years before that. One would think that statistically, the government is avoiding calling calling folks they have to pay the salary of. Or, to put it another way, if you want to avoid jury service, work for the government.



Bluetooth has led to a dramatic difference in the dress of the people who wander around talking to voices that only they hear.



Jury service seems designed to force you to sit around without getting productive work done. When they're asking for eveyone's attention on the PA every two minutes and reading a list of three names, your train of thought is always getting interrupted. No biggie if all I'm doing is straight line deduction and awareness. But creative work requires my full attention. Can't they just read all the names of all the people who didn't fill out their jury service form perfectly all at once?



Voir dire needs to be fixed. The number of preemptory challenges the lawyers get is way too many. The jurors are supposed to represent the community, and pre-emptory challenges frustrate that. The lawyers can exclude anyone for any good reason, they only have to get the judge to agree. But given eight or ten pre-emptory challenges, it's not hard to see how they might use them to systematically exclude jurors whose profile might cause them to believe their sympathies ride with the other side. Well, hello! These people are nonetheless members of the community, and should be on juries. Reduce the number of pre-emptory challenges to one per side. Until and unless that's done, of course, the silver lining is that I'll never get picked for a jury. I don't have to lie, shade the truth, or do anything except what I do here, which is tell the truth as I see it. Like clockwork, one lawyer or the other will excuse me as soon as they have the opportunity. I'll bet I can spot the winning case by which lawyer isn't excusing the people with even a portion of a clue.



I'm in voir dire limbo, or even purgatory. Called for a panel at 2pm, it was 3:20 by the time they admitted us to the courtroom and started the process, and this judge either has political aspirations, or is in love with the sound of his own voice. Talk talk talk, and it could be said in a fraction of the number of words. After a little over an hour of this, the one thing I have made up my mind on is that I despise this judge who frivolously has wasted our time with his talking, even though I'd probably like him if we met at a party. But he isn't holding me a captive of the state at a party, and I also strongly suspect oral diarrhea was at least a contributing factor to the inefficiency of the courtroom in getting started. I'm not going to say anything about the case or even whether it's civil or criminal, but there is zero chance of me getting empaneled here. Certain of the questions they have asked indicate that in this particular instance and for at least one of the issues, I have a strong disposition to favor one side. However, they only want the top twenty four jurors to answer at this point in time, and I'm not that high on the list. If the judge hadn't talked the hind end off a donkey, we would likely have gotten far enough in the process to excuse me. The upshot is, I've got to waste at least half the day Monday (not Friday), always a hectic day anyway, coming back only to be told, "You're excused." Nor is there any give in my schedule Monday. I can't just work later. So a lot of stuff that needs to get done on Monday is going to spill over and be late on Tuesday, all because this judge has a recto-cranial inversion. If he didn't, I'd be done with jury service now. As would, I suspect, several others.



I did manage to make a Monty Python joke, sotto voce. At one point another court person interrupted to come in and have the judge a slip of paper. He had by this time said, "I don't know" or "we don't know" enough times to start a drinking game based upon that, if we were able and so inclined. So when he was handed the slip of paper, I asked, just loudly enough to be heard by my neighbors, "What is the terminal velocity of an unladen swallow?" My neighbor on the left had trouble containing himself. "African swallow or european swallow?" would have been better, I admit, but I got my point across.

One of the things I have to deal with on a continuing basis is people calling me because they like something they saw on one of my websites, but they have no intention of doing business with me.



Most common is would be buyers calling me, "Just tell me the address of that Hot Bargain Property." That's not how it works, as I explain in literally every one of those posts. It isn't luck I find those properties. It's dedication and skill. I spend a lot of time looking, not just in MLS, but in public records and physically going out and looking at them. I've spent a lot of time learning what to look for and how to look for it in all three places. Maybe, if I had personal need of their professional services, I might consider a barter - mine for theirs. But in point of fact, I suspect a large percentage of the calls I get of being lazy agents (A receptionist answering the phone in the background saying the name of a certain major chain is a dead giveaway).



There is a reason these properties are of interest. I'm going out and finding properties that are noteworthy bargains, even by the standards of a buyer's markets. If it could be done by any random person with MLS access, anybody who could type realtor.com could do it. I can do it, in large part, because I make a habit of doing it and most others won't. It is work. If George digs a ditch, you don't pay Charlie. You pay George. Same principal here. The reason I'm worth more than the discounter, in terms of what I find, how well I negotiate, and everything else, is a function of all of the work I do that helps me find good properties, spot problems, know the micro-markets I work in, understand what is critical and what is not. If you find the property yourself without any help from me, yes I'll discount my services for negotiation and facilitation because you're not getting the largest part of the value I provide, and I'm not risking the largest source of agent lawsuits. Otherwise, I am providing more value to you than the discounter and am therefore worth more pay. And I'm providing it, not that discounter. I'm not going to give out the locations of the special bargains I find to anyone not willing to work with me. Like I said, George digs a ditch for you, you pay George, not Charlie. You want to pay Charlie, get Charlie to dig the ditch. But in this case, he not only can't, he won't.



Borrowers will call about my Real Loans for Real People. They want to know what lender that's with. Well, I hate to break it to you, but the loan I have is the loan I have. Credit Unions, National Megabank, etecetera may use the phrase "cut out the middleman" to try to get you to avoid brokers, but that's not the way it works. Even if I gave you the name of the lender, very few of them give their loan officers actually get rates as low as brokers from their headquarters. Why? Because they're not paying my overhead, and my clients aren't captive to them. They regard their clients as captive because comparatively few people shop loans effectively. They go to big name lenders, who have no more programs than other lenders, and comparatively little imagination. They may or may not have the most appropriate loan program for a given client. Usually not. Big lenders mostly compete on the basis of name recognition and consumer comfort. A broker may be a middleman, but we function more like discount outlets. And the specific stuff I get is for my clients. If you want it, you've got to be one of them. If you weren't interested, you wouldn't have called.



What I'm trying to get at is this: Trying to cut out the person who provides the value you're interested in is counter-productive. Even if I told you what lender a particular loan was with, rates change at least every day, and it's unlikely they will offer as good a deal through their dedicated loan officers, even if they are the right fit for your loan. Trying to cut out the person whose market knowledge and work enabled them to recognize a bargain means that even if you know what property it is, you're in a weaker position on negotiations. Net result, you get some money back, but you also paid a higher price than you needed to in order to get it. The latter is almost certainly more than the former - probably by a good bit. Once again, if you want George to dig a ditch for you, or if you want George's ditch, pay George, not Charlie. You'll come out better, even if George wants a few bucks more than Charlie. If Charlie's ditch was something you wanted, you wouldn't have needed to get George involved. Chances are, even if you buy Charlie's ditch, you're going to want George to fix it, so the money you paid Charlie is wasted.



Caveat Emptor

Article UPDATED here

I'll keep hitting this and hitting this until everybody understands this critical point.



From email:



First of all, I love your website. It is just a plethora of information for first time buyers like me who wants to be an educated buyer. Although there will be some things that I won't be able to understand completely, I try my best to learn the things I need to and have to.



I am located in DELETED and a first time buyer. We went with DELETED for our lender after shopping around for quite sometime. Our closing date is (23 days from now). There has been tell tale signs that they might be charging us junk fees. Please tell me if this is just my imagination or if I have the right to feel this way. When we got the first Good Faith Estimate from them they listed their lender's fees and all the other fees. Now when we got the paper work to sign begin the loan approval process new fees showed up on the lender's fees. I know this is an estimate but should their fees be constant on all of the Good Faith Estimates? Second, I was told to believe that the rate they will quote us will be based on the middle credit score between the three credit score bureaus. They used the lowest credit score. I am worried that come closing day that new lender fees will pop up on the loan papers and god knows what else. Is there a reason for me to worry about this lender?





Yes, there are reasons to worry about this lender. There are reasons to worry about most lenders. To be perfectly fair, there are reasons to worry about most brokers, as well.



There is a fact that it is critical to understand in order to be a well-informed loan consumer. If you ever lose sight of this fact as a loan consumer, you are likely to be setting yourself up to get rooked. Conned. Taken. Lied to. That fact is that there are all kinds of incentives for loan providers to tell you about a better loan than they can deliver in order to get you to sign up, and there is a huge upside and no real downside to them for telling you about something better than they can really deliver.



Let me haul out a rate and cost sheet for one of my favorite lenders (This sheet will be outdated by the time anyone reads this) and favorite title and escrow companies. If you are buying a $400,000 property with 20% down, then with this lender I can lock and deliver a 30 year fixed rate loan at 6.00% with zero total points to the borrower and total real costs of $3022. That's the grand total in costs. Lender's fees, broker's fees, appraisal, escrow, title, notary, recording, etcetera. For traditional purchases, where everything is like the default ways of doing it, the seller would also pay a $750 escrow fee and a $1253 policy of owner's title insurance. There would be prepaid interest on the loan of $160 for every three days remaining in the month ($53.33 per day), and the costs of an impound account if you wanted that. If you were in my office ready to lock that loan as I write this, that's what I could guarantee in writing to deliver. If you wanted to buy the rate down, I could deliver 5.75% for about 0.8 total points, which translates to about $2600 in dollars. If you wanted to buy it down further, I could deliver 5.50% for 2 points total, or about $6500. That's what's real. I can prove it, because I could write a loan quote guarantee that says if the rate is higher or the cost is more, I pay the difference.



Now, let me illustrate how far it's legal to low-ball. First off, all "third party" fees mysteriously disappear, as do the lender imposed fees, and now I'm quoting total costs of $610 plus four things marked "PFC" on the Good Faith Estimate. If I decide to tell you about those lender imposed fees in order to make it "feel" more real, that changes the costs to $1405, plus, of course, those four pesky PFCs. Or three PFC's plus $1530. Sounds like a lot less than $3022, doesn't it? But it's going to be $3022 PLUS any "junk fees" I try to sneak past you. Make no mistake: You are going to pay for that appraisal, that escrow, and that title insurance policy. It's a fact of life, inflexible as gravity. But I don't have to tell you about it initially.



Now, let's start playing games with the rate, and I must emphasize that these are legal. I would face no penalty for any of them. First off, I can have a legitimate belief that rates are headed downwards, and I could use the rates that include a 15 day lock instead of thirty. A fifteen day lock costs less. So I could tell you that you're actually getting a rebate of an eighth of a point to pay your closing costs. Many loan officers will tell people this. However, when the loan takes twenty-five days to fund, now the clients are paying that eighth of a point due to extension fees. I can actually hit fifteen days most of the time from a standing start if the buyer and seller cooperate, but it's not something I can promise because if they don't cooperate in a timely fashion, there's nothing I can do to force either of them to work faster. So I don't use fifteen day locks.



But that's only the first game. Let's say I think rates are going down, so I don't lock, but I do tell you what I think rates will be when I have to lock, and I tell you that I can do 5.75 for zero points. Once again, I'm thinking the rates will go down that much, and also thinking about getting to use the fifteen day lock. Lest it be unclear to you, my entire justification for this is raw naked optimism. But it's legal raw naked optimism. Actually, in order to cover myself, I'll say one tenth of a point net cost to you for the rate. That way, I haven't told you it's a no points loan when it may not be. By the way, I'm going to do my darnedest to keep a dollar figure from being associated with any points quote. Why? Because 5.5% for $1405 plus "two of those points thingies" sounds an awful lot cheaper to the average person than the real fact that 5.5% will cost them roughly $9500 altogether. Same loan for the same set of facts, but one way of putting it certainly sounds cheaper, doesn't it?



But suppose my raw naked optimism does not come true in the real world. Suppose the rates end up staying where they are now. This is actually better than what often happens, because you get 5.75% delivered for about three quarters of a point, because they don't lock the loan until they're ready to print final documents, and so they can use the fifteen day rate. Pretty cool, eh? You saved about 5% of a point, or roughly $160, off what the quote was. But remember, they did not, in fact, lock your loan. Suppose rates are higher in fifteen days, which is what I really do expect. Let's take a WAG and say that 5.75% gets delivered for 1.2 points, and the loan officer says, "Sorry, that's the best I could do." Now, failing to lock cost you four tenths of a point, or about $1300, and I've seen it much worse than this. In fact, since the loan officer didn't guarantee their quote, they then blow it up to 1.5 points, and they've just put an extra $1000 in their company pocket.



Now, type three games: Don't tell you about the pre-payment penalty they're sneaking in so that they can get paid more. Two year pre-payment penalty gets them roughly $1900 more in the company pocket if they're a broker, $6500 if they're a direct lender. These numbers go up for longer penalties. But when you get transferred in a year and a half, it costs you $6500 extra for that penalty when you have to sell your property. I can even give you a small part of that to make it look like my loan is better than the competition. "Sure, I'll pay for the appraisal," or give you tenth of a point back to reduce closing costs, while hiding this $6500 salami in your loan papers or even coming back after the loan has funded and asking you to sign a prepayment rider "for compliance."



There is a type four game: Games with the loan type. Suppose I tell you about a "thirty year loan at 5.5% for 1 point total." Sounds much better than any of the preceding, right? Except that what I'm talking about is a 5/1 ARM, not a thirty year fixed rate loan, and I'm still able to play all of those type one and type two games with this quote. I could be talking about a 3/1, a 1/1, or even a three month LIBOR loan with those words. Point of fact, I actually can lock, guarantee, and deliver a 5/1 at 5.5% for 1.2 points with a thirty day lock while I'm writing this, and a 5/1 is something you should probably consider very strongly, but it's not the same thing as a thirty year fixed rate loan.



Let's take it up a couple more notches. How does a "Forty year loan at 0.5% with a fixed payment of $735.70" sound, especially when the payment for that 6% thirty year fixed rate loan I talked about is actually $1918.57? Pretty good? And the forty years explains why the payments are so low? Well, congratulations! You've just signed yourself up for a negative amortization loan at a real rate of 8.2% right now, and not fixed at all. The payment is fixed, all right, but the interest rate isn't. Oh, and by the way, if you keep making that payment of $735.70 for three years, you'll owe $59,000 more while under threat of a pre-payment penalty that starts at $10,500 and gets bigger until it expires. Refinance then, and your payment goes to $2272.27 if the same thirty year fixed rate loan is available them. May not be too bad for some folks, but if you couldn't afford the $1918.57 in the first place, why would you think you can afford 20% higher payments than that in three years? I'd say it's more likely that you can afford $1918.57 now than $2272.27 then. But everything I actually told you about that loan was not only legal, but also true.



Enough horror stories for now. What can you do about this? Keep it in mind that the prospective lender has every incentive to play these sorts of games, and very little in the way of concrete incentives not to. People sign up for loans based upon who tells them about the best deal, and if that lender can't get you to sign up, there is an absolute ironclad guarantee that they don't make anything. If that loan officer is paid on commission, and the vast majority of all loan officers are, the choice is probably get money in their pocket or definitely no money in their pocket. But the cold hard fact is that without a written guarantee, none of the initial paperwork means a damned thing. Furthermore, most lenders are quite adept at avoiding giving you a guarantee. "We're a large ethical company that's been in business for 100 years and we honor our commitments." Sounds great, right? But neither a Good Faith Estimate nor a Mortgage Loan Disclosure Statement in California is any kind of a commitment. None of the forms you get at the start of the process is. Both forms say right on them that they are estimates. They could be accurate estimates or they may not be. The only thing that's required to be accurate is the HUD -1 form, and you don't get that, even in preliminary form, until you are signing final loan documents.



Now, some facts and industry statistics to illustrate why the incentives are there to tell you anything it takes to get you signed up. First off, the only universal guarantee in this whole situation is that if you don't sign up with them, they make nothing. Zero. Zilch. Nada. They've got bills they need to pay, same as you do. So you sign up, and they work on your loan for three weeks, and now it's time to sign papers, and they're not quite what you were led to expect. But you don't notice the difference. In fact, industry statistics say that over fifty percent of people don't notice at signing, and a substantial fraction of that never figures it out. I understand why; it wasn't easy for me to learn what's important, and I have an accounting degree. These forms are confusing to the uninitiated. Furthermore, the loan officer keeps you busy with a line of patter, and is talking about how much you're going to enjoy your new home, or what you're going to do with the money you're saving from the lower payment. This makes it more difficult to concentrate on those numbers swimming on that unfamiliar form. Some companies actually train their loan officers in how to distract the victims. I worked for one such company for about a month, until my loans started being ready to close and I discovered what they were up to when they showed me how to distract these people who were putting money in my pocket from how badly they were getting gouged.



Now, let's say you do notice. The situation is not the same situation as when you've signed up. If it's a purchase, you no longer have thirty days to get your loan. Indeed, your loan contingency has expired and you'll not only lose the purchase escrow, but your good faith deposit as well, if you don't sign those loan documents. You've been building up your emotions for the last three weeks thinking you're getting ready to move. You've put in your thirty days notice, you've packed up all your stuff, you've got the moving van reserved and the friends lined up, not to mention that you and your spouse are totally ready and emotionally psyched up to be owners!, and to be moving into this property. Darned few people will not sign purchase loan docs, even if they do notice the discrepancies. Industry statistics say less than 5%.



In a refinance, the motives are not as strong to sign loan documents that are less than it was indicated earlier. Most of the time you've got the house and you've got a loan you could keep, you just thought this one was better. But you've been told about this lower payment, or lower rate, or you need that cash out for your vacation that's starting next week or the remodeling contract that you've already signed. Your loan officer quite likely rolled thirty days of interest into the loan and told you that you would be "skipping a payment" (You never skip a payment, as I've explained many times), and so you've gone and spent the cash on a long weekend in Las Vegas. Now you don't have the money, and if you don't sign these documents, you won't have the money for your payment, never mind the kitchen remodel the contractor has already started or the nonrefundable tickets you put on your credit card. Finally, quite often the lender required a deposit that you're going to lose if you don't sign those loan documents. Industry statistics say that about 80% of refinances who notice major discrepancies in their final documents will sign anyway. All they have to do is sign their name, and it will all be over.



Now, whether you noticed and signed anyway, or didn't notice, you have just rewarded that loan provider for lying about that loan in the first place. They lied, you signed up, they got paid. Wow! It's like a license to print money! Not only that, but if they just play the game a little bit carefully, there's no legal liability or responsibility to you. I should note that there are a significant number of loan providers who do go over the top into illegal territory and liability, but it's not difficult to tell what is for all intents and purposes a huge whopping lie and stay legal (it is slightly more difficult if they're acting as your real estate agent for a purchase as well).



Now, what can you do about this? The absolute smartest thing you can do is apply for a back up loan at the same time you apply for the one you think you're going to actually get. This way, you can use the existence of another loan being ready to go to get leverage your bargaining position into a better deal for you. Now loan officers don't want to be back up providers - unless they think there's a real chance they'll end up with the business. In order to persuade them there is a real chance, for the business, you have to give them a real legitimate shot at being the primary provider. As my article on Getting a Loan Provider to Agree to be a Backup Loan says, if you're already signed up with someone else when you approach a loan officer about being a back up, you should expect to hear something that contains the word, "No." Failing that, I want to be paid something for my work, or I don't want to work. I'll want a deposit that I can keep if you don't do my loan.



The second best thing, which is an excellent supplement to the above, is a written Loan Quote Guarantee. Any quote that's backed up by a real guarantee is much stronger than one that's not. I don't care if the difference is three percent on the rate (and it won't be that high). I'd take the guaranteed quote over the one that isn't guaranteed, every time.



Finally, you can always insist upon answers to the same set of Questions for loan providers before you sign up. They can lie, and they can evade, but they are good and necessary questions to ask.



Caveat Emptor

Article UPDATED here



Anything sound familiar about this article?

Homeowners stuck as lenders cinch standards





"There's a very delicate and difficult balance between getting as many people into houses as you can," Syron says, "and at the same time putting people into houses they can't keep unless home prices are appreciating or interest rates are very low." Hanging in that balance: nearly 400,000 homeowners with subprime ARMs who, like Booker in Chicago, have already missed at least one loan payment and have a lot fewer options now.





June 23, 2005 - July 20, 2005 - September 1, 2005 - October 5, 2005 - November 7, 2005 - December 9, 2005 - December 13,2005 - January 5, 2006 - February 16, 2006 - March 18, 2006 - March 31, 2006 - May 4, 2006 - June 7, 2006 - June 18, 2006 - August 10, 2006 - November 27, 2006 - December 16, 2006



Why are these reporters always showing up to the party only after bodies start piling up? If they had said something earlier, they could have stopped at least a percentage of the ongoing damage.



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March Madness at FMF



Round 2, contests 21-24



My Selections

23: Dave Ramsey is Bad at Math



Round 2, contests 25-28



My votes:

25: Financial Security

27: Buyers Who Don't Want A Buyer's Agent (never too proud to vote for myself)

28: Ten Ways Anyone Can Go to College With Zero Student Loans



Round 2, Posts 29-32



my votes:

30: Ask for a Pay Raise Discussion Instead of Demanding a Raise

32: Does your credit score matter?



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This story about a former Marine was on top of Yahoo! news: Duty, honor and curveballs



Good to the Padres for bringing him to camp. Good publicity in a city with a large military presence, yes. But giving him the opportunity he's earned, despite his injuries, is the right thing to do for all sorts of reasons. I don't care about professional sports games. But when someone does something this right, it needs to be acknowledged.



Here's hoping he's their first 20 game winner.



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National Review's Jonah Goldberg in USA Today on Democratic problems relating to national security.



There is no substitute for Victory. I will support anyone who walks the walk correctly in the War on Terror. And I do mean anyone, especially when their opponent does not. I don't like being a one issue voter, but this issue is that important to the future of all of us. If you don't think the issue is that important, you need to do more research.

There are actually several different kinds of listing agreements. They get their names from the rights conferred when you sign the contract. The vast majority of agreements concluded are either Exclusive Right to Sell or Exclusive Agency.



Exclusive Right To Sell means that no matter who buys the property, that agent will get the listing commission. There is an intelligent reason why most listings are Exclusive Right to Sell: If I can spend all that money and time doing the work to sell your property, and then you can not pay me for it, well, let's just say I'm not going to be so enthusiastic about spending that money and that time if the prospective buyer can then go straight to the seller and I get nothing for my efforts. Some agents won't accept other kinds of listings. Other agents will only do so on a flat, up front fee basis, as opposed to deferring their fee unless and until the property actually sells. If you want a good agent to devote their full energy to selling your property, this is the kind of listing contract for you. If there is one particular person you think might buy direct from you, the owner, that can be handled via an Exclusive Right with Exception, which designates one of more persons who are exceptions to having to pay the agent, but even that is a marginal idea. Yes, it might save you a commission. But it will definitely create some doubt in the agent's mind, and less willingness to spend what they might really need to in order to get a sale made. Better to get a solid yes - or no - from that person who is an exception ahead of time. If they really want the property, they won't have any problem committing saying they want it when you ask them. And you can't sell to more than one person, right? So you shouldn't be wondering about somebody you found when you contact an agent. And before you condemn agents for acting like this, ask yourself how hard you would work at your job in order to maybe get paid, or maybe not.



Exclusive Agency means that you won't pay agent commission if you sell it yourself, but you will pay if they, or some other agent, brings you the buyer. Any agent with a buyer is presumed to have been procured through the listing agent's marketing efforts. Nonetheless, this does allow for random people to knock on your door and buy the property direct from you - despite the fact that the listing agent's efforts were what alerted them to the existence of the property. Since most agents have been burned on this one or know someone who has, few agents want to accept this style of agency without requiring you to at least pay for their efforts, and they are mostly not the top-notch ones. But if you really want to exercise the escape clause in having to pay the agent, count on being on your own through the negotiations and escrow process. A very large proportion of prospective buyers who will go around your agent to negotiate with you directly are sharks, unqualified buyers unable to buy, or possess some other characteristic that's going to cost you a large amount of money, time and frustration.



Limited Service listings are popular with discounters, but they typically do not work on the basis of commission delayed and contingent upon a successful sale. They want their money up front. Cash, check, or, sometimes, charge. Furthermore, the reason they are called limited service listings is because they are not fulfilling all of the services that real estate agents are normally expected to fulfill, and their responsibility to you is also much lower. Might be a good thing to do if you're a former real estate agent who knows how to do it, but the average client doesn't know how much they don't know. The pitch is "save money!" but that's not how it usually works out. When the agent on the other side is a discounter, a good buyer's agent knows that their client is going to end up very happy. The same thing applies when a good listing agent gets someone represented by a commission rebate buyer's agent. One more thing I should mention: A lot of both types make their living by shifting their work onto the full service agent that they presume is going to be on the other side of the transaction. What happens if there is no such full service agent - in other words, if the other side is using a limited service discounter also? The work needs to get done, and neither agent is going to do it. You're going to do it yourself or pay a lawyer - and paying a lawyer to avoid paying a real estate agent full commission is like spending a dollar to save a part of a dime.



Open Listings are listings where there is no single agent that has a right to get paid. Of course, no one has the responsibility to act on the owner's behalf, either. Not to market the property, not to make certain you get the best deal possible, and not to represent your best interests in other ways. Therefore, most agents and discount listing services usually want a flat fee in advance for open listings. It may be small or relatively small, but it's cash upfront. There may or may not be a listed payment to buyer's agents in open listings, and therein lies the horns of a dilemma. You don't list a buyer's agent commission and buyer's agents avoid you because there is nothing in it for all of their hard work. You list a low one, and they're still going to take their buyer's elsewhere. You list a good one, and they'll bring their buyers all right - while working on their buyer's behalf to get them a better deal. Kind of like an arms race, except it's not life or freedom at stake, only money. Still, you just invited a bigger, better equipped army than yours into the fight, on the other side.



Probate is a special purpose listing when the property is being controlled by the estate of someone who died. Probate listings almost always go to full service agents because the probate judges are looking to get the best deal possible. There are often debts and there are almost always tax bills, and there are always heirs looking to get the most money possible. Probate is a real pain to deal with, and it takes forever, because the courts are involved. Nor are they necessarily great deals. For most local probates as of this writing, the court or the heirs have set a minimum bid that's more than the property is worth, because they evaluated the property on the basis of the prices when the owner shuffled off the mortal coil. However, with declining values, they're only hurting themselves. There's one not too far from my office where I had a client it would have been perfect for - except that the minimum bid is at least $40,000 more than the property was worth on the market back then. It had been on the market for a good long while before I found it, and it's still on the market today, more than six months later. If they'd priced it $20,000 lower, it probably would have sold within a month of going on the market. By the time I found it, prices were diverging by $40,000. Now, it's more than that.



There you have them, the major types of listing agreements, their major advantages and drawbacks.



Caveat Emptor

Article UPDATED here

Carnival of Debt Reduction



Carnival of Personal Finance Recommended Ask Mr. Credit Card (0% deals work best for those who don't need them), Real Estate is a business



Carnival of Real Estate (Cool! My second CORE win!) Recommended: Home Inspection Basics, Scents That Keep Your House From Selling Faster



Carnival of the Capitalists Recommended: What's Worse, the AMT or a Recession?, Insureblog (profit motive in insurance coverage)



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More March Madness over at FMF



Round 2 Contests 17-20



My choices:

18: The High Cost of Waiting To Buy A Home

19: It Is Amazing What Some People Will Insure While Ignoring Their Most Important Asset

20: Teaching Kids the Value of a Dollar



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Environmental Republican found a National Geographic Report that may cause a few thousand religious heads to explode.



Anchoress has much more.



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Just to make it clear, Ann Coulter is nobody worth paying attention to, in my opinion. I've said this before. In fact, I don't understand why people continue to pay attention to her. The only motivation I can maybe understand is leftists who want to use her to tar other folks who have reached similar conclusions by different means with guilt by association. Only the universe knows why anyone not left of center pays attention to her. Why is she even invited to things like CPAC? If she wants to show up and pay whatever the admission fee, fine. But don't let her on stage anywhere.



Maybe someday she'll say something worth paying attention to. I'm not holding my breath, and if it ever does happen, she will have severely undermined its credibility by her continuing antics. She'd have to get someone more reasonable and credible, like the Flat Earth Society or Institute for Creation Research, to sponsor her results.



(note to the clue challenged: I consider both of the above organizations to be severely credibility impaired, to say the least)


I have a landlord, that is always harassing me every 2 weeks, for the past 2 years, on the upkeep of the property, and wants to have inspections. Also want me to mail them all their mail. Most of which is Bank stuff. I am fed up, and thinking they are under a Owner Occupied Loan. Is there a way I could find out? And who do I complain to, if I decide to?


It is a misconception to think that just because someone moves out, they can no longer have an owner occupied loan.

In fact, the typical owner occupancy agreement that is required in order to get owner occupied financing is only a twelve month occupancy. When I buy or refinance today, I agree to live in it for twelve months in order to get those rates. After I have met that requirement, I can move out, rent it out, and there is absolutely nothing wrong with it. That loan contract is in effect, I have lived up to all of my obligations as far as owner occupancy, and I can keep that loan as long as I maintain my end of the other parts of the contract.

Now it is possible, as I discovered once upon a time, that if you have an owner occupied loan with lender A, that same lender may refuse to give you another owner occupied loan on a different property. In this case, it was refinance the loan on the other property, or accept a second home loan on property A. But notice how, even then, the lender did not force them to refinance despite the fact that they hadn't lived in the other property for years. They just offered the owner the choice of accepting a slightly less favorable loan or refinancing the existing owner occupied into another occupancy type. Or, being brokers, we could submit the package to another lender. There are circumstances where each of these three possibilities may be the best choice. The lenders do not share this data between each other; indeed, my understanding is that they cannot legally do so. It was only applying for a second owner occupied loans from the same lender that brought this on, and not every lender even does this much. If thirty year fixed rate loans are the only type you ever apply for, it is theoretically possible to legitimately have a new owner occupied loan starting each and every time you have met the minimum time for owner occupancy for the previous lender. In extreme cases, it might be possible to get upwards of twenty owner occupied loans all in force at the same time.

The minimum owner occupancy requirement can be different. One year is by far the most common, but there is no reason that I am aware of why it cannot be longer, if that is what is specified in the contract. However, I do not know of any lenders that require you to refinance or requires you to pay a surcharge if you move out once you have met the required period of owner occupancy specified in your Note.

Caveat Emptor

Article UPDATED here

What Does Escrow Do?

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This is a question that gets asked a lot.



Escrow is nothing more or less than a neutral third party that stands in the middle of a real estate transaction and makes certain all of the i's are dotted and t's are crossed. They make certain that all of the terms of the contract have been met, and then they make certain that everyone who is a party to the transaction gets what is coming to them via the contract.



Many times folks complain about the escrow company or escrow officer, when it's not their fault and the problem lies elsewhere. The escrow company is obligated to make certain all of the terms of the contract have been followed, not just most of them. I've talked before about how if the contract is not accepted exactly as proposed in the most recent modification, you don't have a deal. There cannot be any points of disagreement, or you don't have a purchase contract. Similarly for escrow. Usually problems that the client sees are not the escrow officer's doing, but rather someone else's. Quite often, the person complaining is the person who caused the problem. The escrow officer can't do anything without mutual agreement. If the loan officer doesn't get the loan in a timely fashion, it's not the escrow officer's fault. If the agent doesn't meet the inspector or appraiser so they can get their work done in a timely fashion, it's not the escrow officer's fault. If you can't qualify for the loan, if you have to come up with more money, if you don't get as much money as you thought, it's not the escrow officer's fault. But in many cases, the escrow officer makes a convenient whipping boy for the sins of others.



This is not to say that it's never the escrow officer's fault that something goes wrong, but if one party or the other is not in compliance with the terms of the agreement, the only thing the escrow officer can do is get an amended agreement or get them into compliance. Nonetheless, I have seen many transactions fall apart because the escrow officer was a bozo. The really good escrow officers are like chess masters - several moves ahead of the whole game, and when I find one, I want to use them all of the time. Unfortunately for buyer's agents, the seller is the one with real control over where the escrow transaction goes, and when the seller's agent decides they want to use some bozo, that's probably where it's going. I can do all kinds of things that should move them, but the bottom line is they want to use their broker's pet escrow (who is more likely to be staffed by bozos than any other escrow company, as they've got captive clients), I as the buyer's agent cannot force them to go elsewhere.



As the escrow process moves forward, the escrow officer collects documentation that the various requirements of the contract have been fulfilled. When they have all been fulfilled, the transaction is ready to close and record.



The loan is usually the last thing left hanging after everything else is done. There are a variety of reasons for this, most obvious of which is that the loan's conditions are likely to include everything else being done before the loan funds. Appraisal, grant deed, inspection, etcetera and ad nauseum. When the borrower meets underwriter's guidelines, they go and sign loan documents. Signing loan documents does not mean the loan will fund, and it is a major misapprehension to believe so. It is legitimate to move conditions from prior to docs to prior to funding if doing so serves some interest of the client, such as funding the loan before the rate lock expires. If they go to documents before the client's income and occupational status have been verified, that's an unethical lender looking to lock the client into their loan or none at all. Always demand a copy of outstanding conditions to fund the loan before you sign loan documents.



Once the loan documents are signed is when the real fun begins, because that's when the underwriter takes a step back and the funder steps to the forefront. The loan funder is an employee of the lender who fulfills much the same function as the escrow officer - make sure all of the conditions have been met before they release the money. The loan funder has responsibility only to the lender, though, not the borrower, not the seller, not anyone else. It's their job to ask such questions as when the homeowner's insurance got paid (and where is the proof?), has the final Verification of employment been done (assuming they aren't required to do it themselves), or work out a procedure whereby they get proof that all of this stuff is satisfied before the funds get released. If the loan officer has done their job correctly, the funder is working primarily with the escrow company. If I have to talk to the funder as a loan officer, that's usually a sign I should have worked a little harder earlier on, because my part should be done before the funder gets involved.



Once all of the conditions to fund the loan and close the transaction have been met, the escrow officer records the transaction. In point of fact, it's the title company who usually is set up to record the documents, something they will charge for. Until the transaction is recorded, the lender can pull the funds back. It's not the escrow officer's fault (in most cases) if they do this. It's because something about the borrower's situation changed, and now the lender is unhappy. Only rarely is it caused by a bozo of an escrow officer who doesn't understand what's going on, and tells the funder something that causes the lender to get nervous. Remember, they are loaning a lot of money, and the list of reasons why lenders justifiably get nervous is fairly long, especially as a certain percentage of all mortgage applications are fraudulent.



Once the loan is funded and the transaction recorded, the escrow officer has some final stuff to do. Send out the checks to everyone who's getting one, complete with an accounting of the money. Make certain all charges relating to the transaction are paid, for which they will usually keep a small "pad" for last minute expenses, so that the buyer and seller are likely to see a check a few days later after the escrow officer has made certain everything is paid to the penny. And so ends the transaction, and this article.



Caveat Emptor.



Article UPDATED here



More March Madness over at FMF



Round 2, contests 9-12

My Votes:

9: Avoid 10 Common Debt Reduction Mistakes

11: Why Aren't We All Wealthy (Yet) ?

12: Liberal arts to law school?



Round 2 Contests 13-16



My votes

13: 12 Mistakes to Avoid With Your Retirement Savings Plan

14: Solving Customer Service Problems

15: Why Dave Ramsey's "Drive Free" Theory May Be Flawed



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I think I'm going to wander over to Con-Dor for the rest of the day.

Free Money Finance's March Madness Continues:



Contests 49-56



My votes

51: Sharp Minds Love the Sharpe Ratio

54: Buyers Who Don't Want A Buyer's Agent

55: Ten Ways Anyone Can Go to College With Zero Student Loans



Contests 57-64



My votes

59: Never Choose A Loan (or a House) Based Upon Payment

61: How to enjoy baseball games cheaply



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Gateway Pundit comparing troop casualty rates now with during the Clinton years.



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Below the Beltway has found a website to see if your favorite website is banned in China. Here it is: greatfirewallofchina.org



And I'm not banned. Yet. I think I'll make that one of my goals.



Oooh. And I've just thought of a way (other than mentioning the fact the Mao Tse-Tung killed at least six times as many people as Hitler, and at least twice Stalin's total, making him easily the all time genocide "champion"). If you've got a (non-pornographic) website that is banned, let me know. I'll link you. I may even siteroll you. I've decided to come up with a new siteroll category: Banned by paranoid repressive governments.



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Coyote Blog on jury nullification.



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This reads like something out of The Mouse That Roared:

Swiss Accidentally Invade Liechtenstein




While we're having fun, remember the old joke about "In Arkansas, if you get a divorce, is she still your sister?" Well, here's an actually happened - in Ohio Sex with adult stepdaughter still incest.



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Don Surber on Al Gore vs. manbearpig Al Gore.

Agencies issue subprime guidance: sources





At issue is whether regulators will force lenders to qualify subprime borrowers based on their ability to make the highest possible monthly payments during the life of the loan, instead of the initial lower rate, according to banking experts.





I have more than once likened the current subprime underwriting guidelines to a mutual financial suicide pact. But it's more similar to a game of "russian roulette" in which you keep making money as long as you're in the game, but if that revolver hits the loaded chamber they'll be picking your financial remains out of the wall for decades.



an email I got March 1 from a wholesaler: (identifying information redacted)



Wall Street does not want Subprime loans. As you may already know the subprime market is being hammered and many subprime lenders have gone out of business. Wall Street investors have either stopped buying subprime loans or have substantially increased the yields they require on the loans they purchase. Some of the reluctance to purchase higher risk loans has also effected the Alternative loan market.



Today, I received notices from two investors that they were suspending their purchases of Alt. loans.



Subprime and Alt loans - Watch for these industry changes:



Elimination or, much stricter underwriting guidelines on Stated Income loans for W2 employees.



Raising the FICO and underwriting requirements for all 100% financing. Currently, borrowers with as low as 580 FICOs can find 100% financing; that is likely to be eliminated very soon.



Stricter underwriting requirements for First-Time borrowers. Elimination of underwriting guideline exceptions for Subprime and Alt loans.



If you are working with pre-approved borrowers that require 100% financing or have marginal credit (below 620) those borrowers should be re-qualified to make sure that financing is still available.





Now Alt loans means Alt-A. Specifically, negative amortization loans, the only thing from that market that has a significant share of the loan market. This has got to be one of the most telegraphed financial changes of the last century. This site got at least two hits yesterday from people looking for employment selling these repossessions waiting to happen.



The coming meltdown of the loan industry has got to be the most telegraphed happening in the history of finance. And they could have gotten out by accepting less profit and tightening their underwriting standards, thereby drastically limiting their losses. But the ability to shift the risks to others by selling the loans got them too greedy, and they're getting caught by it as the investors turn around and want to know why this excrement was misrepresented as more worthy than it was.



Subprime is in a world of hurt as well, with the feds wanting them to underwrite the loan according to the payments that the people are going to end up paying, not just the first few payments.



Long and the short is look for a large smoking hole where the lenders who have popularized the shaky lending practices of the last few years used to be.

One more reason why I think this year may surprise a lot of people: this site's visits skyrocketed in February, setting a new monthly record of 138,905 visits. In a 28 day month when real estate is usually dead. Given the nature of my traffic - a large percentage of my visits being search engine hits - this indicates an unusual level of interest in my most common topics.



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Michael Barone on China and India.



I'm of the opinion that India will be the next world superpower. China is likely headed for civil war. The increasing prosperity can only counterbalance repression so long, and when it reaches a certain point, it will become inevitable. Modern society is all about communication, and China's current regime cannot withstand that communication. China's current regime is riding the dragon - their choices are to put on the economic brakes and have the revolt now, or to keep the engine revving and feed the beast that will eventually devour them. Due to the regime's unpopular one child law, younger men outnumber younger women by something approximating 3 to 2. That's a lot of angry young men with no family life, and a very convenient target. They may come out of it stronger in the end, as the United States did from ours, but the civil war is going to set them back quite a ways.



(The only thing that could prevent a Chinese Revolution would be if the regime peaceably abdicated. Not likely)



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This is just too rich: Hans Blix says the West is humiliating Iran.



Methinks this betrays some deep-seated prejudices:



''This is in a way like telling a child, first you will behave and thereafter you will be given your rewards,'' Blix said. ''And this, I think, is humiliating. The Iranians have resisted all the time saying, no, we are willing to talk, we are willing to talk about the suspension of enrichment, but we are not for suspension before the talks.''





Iran is not a child. Not in any sense of the term. They are adults. Felonius adults, but adults, and thinking of them as children is a good way to let yourself in for a series of nuclear attacks. But hey, it's all in good clean fun, right?



The Corner just about sums up talking with Iran.



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VDH's Private Papers notes some history, and lack of foresight.



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I try to keep personalities out of my arguments. In this case, however, it needs to be aired: Patterico notes a truly stunning level of hypocrisy from the leftist master of sock puppets. It really is all about power, and never mind the facts. (via LGF.)



(And I'll leave the "hateful comments" from anonymous right wing-nuts in as useful contrast)



Same topic, different tune: Hot Air and Joy Behar.



While we're at it, Gateway Pundit on the incidence of profanity in left versus right.



And of course, Wizbang on Hillary's doublethink, "I want the credit for the good things my husband did. But don't even think about dinging me for all the screw-ups and scandals." Like, say, the White House Travel Office?



If you can't cite the apparently unending chain of disasters he created, even Jimmy Carter looks like a good President. Of course, examining George Bush by those same standards makes him look like he ranks right up there with George Washington, which is not the case, either. Mr. Bush has risen admirably and under great domestic political adversity to the great challenge of our time, but he's certainly had more than his share of mistakes. On the other hand, history tends to view presidents on how they handled their largest challenge, and I suspect history will be kinder to him than most of his current detractors think. For instance, President Lincoln's civil rights record was excrement, but not many people realize that when looking at the Lincoln Memorial.



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Iowahawk on becoming eco-friendly.



Captain's Quarters upon the sale of ecological indulgences.



Wizbang has more food for thought and comparison.



But it's Classical Values that delivers the thoughtful, logical, and most thoroughly devastating blow.



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Free Money Finance's March Madness continues



Contests 33-40

My choices

33: How Discounting the Value of Your Home Could Keep You Out of Financial Trouble

35: I have a post in the game. I can vote for myself.

37: Introducing the 401(kid)

38: It Is Amazing What Some People Will Insure While Ignoring Their Most Important Asset

39: Teaching Kids the Value of a Dollar (the other post took a lot more work and thought, but this one focuses on something more important)



Contests 41-48

my choices:

43:T-Bill Investment Rate: Is it APR or APY? And What Is Your Taxable Equivalent Yield?

45: Tax Planning

46: Dave Ramsey is Bad at Math



And he's starting Round 2 with the already decided contests from Tuesday.



Round 2, Contests 1-4

My Votes:

1: The Only Free Lunch in Finance - Diversification

2: Getting Rid Of Your Debt Without Worrying About The Latte Factor

4: Tips for Having a Successful Budget

Round 2 Contests 5-8

My votes:

5: Make Multiple Debt Payments Every Month

6: Understanding Your Financial Fortress

8: My post on Why There Is Money in Fixer Properties faces some tough competition. I like mine better, but have to state that I would vote for the competing post to beat anything else in the bracket.



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Armies of Liberation has the statement of a website blocked by Yemeni censors.



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neo-neocon: Strategies for children (Part II): killing them

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