Buying and Selling: August 2016 Archives

Minimum

Time was, a few short years ago, when I could reliably do a purchase money loan in two and a half weeks. That has now changed. There are three separate delays of one to two weeks that have been built into the process since then. I can usually get purchase loans done in 45 days - but it's not a solid bet.

The first delay is due to the Home Valuation Code of Conduct. I keep hearing rumors of repeal and efforts to repeal, but it's still there. Loan officers no longer have any control over the appraiser - who it is or who it isn't. Net result: the appraisal gets done when it gets done. Three days used to be a very long time. Now, I might get it in three days if I put a rush on it and am very lucky. Seven to ten is about what I expect, and if it's fifteen, that's what it is. Neither I nor any other loan officer has any control - or working relationship - with appraisers any longer. The appraisal is now a source for at least 20 times the problems it was a few years ago, and the new standards didn't stop what they hoped they would stop, but hey, this is the result of government work we're talking about here. The politicians got paid to create a new way to make more money off the system - mostly off consumers - and they did so.

I should also mention that where lenders would formerly accept loan packages with a pending appraisal, and even grant underwriter approval on them with a "prior to docs" condition for an acceptable appraisal, they are now generally requiring the appraisal be in the loan package before they will accept the package. Why? Because it didn't take them long to figure out how many problems the appraisal was now causing. Why should they do all that work when it's so likely the appraisal will render the whole thing moot?

The second delay has to do with underwriting. To cut right to the point, the current underwriting environment is super-paranoid. Underwriters are encouraged to dig for reasons you might not qualify. The lenders are judged and paid by the secondary loan market based in part upon default rates. If you've been paying attention, you know that there have been an awful lot of defaults lately. The lenders are determined to get the default rates down. Wall Street adds its own nonsense to the mix - many of the secondary market buyers have added requirements to the mortgages they will consider buying. Since the lender wants to be able sell these mortgage anywhere, they add all the requirements to their loan underwriting. Net result: Lots of delays to get to your file, extra hoops to qualify when they do look at it, and a very high proportion of rejected loans - many for absolute nonsensical reasons.

The third delay has to do with more direct government nonsense - Regulation Z and redisclosure of APR. Specifically, changes to the rules arising out of Dodd-Frank and a couple other congressional actions that claim to have been for the consumer but were in fact made to advantage large campaign contributors. There isn't a lender out there that doesn't force a recalculation and redisclosure of APR with a mandatory regulatory 7 day delay built in before you can actually sign loan documents. If they don't, they can be sued - but if they do they are legally covered - even if the old number was closer to what the correct answer is. Furthermore they can generate lock extension fees out of it, while incurring no costs. Nor is this the only possible delay caused by new government regulation - but this one hits Every. Single. Loan. Other potential regulatory delays can add three additional weeks to the time it takes to get your loan.

If I do my job correctly and manage everything just right, I can and usually do close loans in six weeks or a little less - those that aren't rejected in unpredictable ways, that is. However, that's a far cry from three weeks it used to be, and there are things beyond my control that can kick it over the 45 day mark. Furthermore, I have one of the lowest average closing times out there - the industry average is better than half again mine and a lot of the high volume places are more than double that 45 days it takes the good ones.

When I'm wearing my Realtor hat, I really hate this (actually I hate it as a loan officer too), but it's the way things are. I tell my buyers to write a 60 day escrow period into the contract. I'd rather the offer be rejected upfront due to the escrow period than have it accepted and lose the deposit when the buyers can't perform on time because the loan isn't ready. On the rare occasions I list one, I tell my sellers it's going to take sixty days for any buyers to qualify for a loan, and while the all cash buyer is certainly nice, restricting yourself to all cash offers will result in a lower sales price and less money to the seller. Furthermore, an offer written that includes both a loan and a shorter escrow period is a red flag in no uncertain terms that there is something wrong with the agent. Any agent who hasn't figured out that the 30 day escrow isn't going to work by now (at least for purchases with a loan involved) is incompetent or actively plotting something. There really is no third option. Sometimes I can tell which right off the bat, other times I need to call the agent. So if there is a loan needed to consummate, plan on a 60 day escrow for your purchase or sale of residential real estate.

Caveat Emptor

With housing prices having crashed in most of the higher cost areas of the country, many people who were formerly priced completely out of the market have become interested once again in purchasing property. The drawback is that because lenders are scared of zero down payment programs right now, if you haven't got a down payment you are just as solidly locked out of property as if you could not afford the payment. So I thought I'd go over the down payment requirements for purchasing real estate. Keep in mind as you read that these are minimums. If you have more of a down payment, that's better. You cut the amount you need to borrow, thereby cutting the payment and increasing affordability still more, and you also likely improve the loan you are eligible for.

More mortgage insurance companies are becoming willing to go 95% loan to value ratio, but the catch is they want to see at least a decent credit score (680+, with the best rates not coming until 740 or so) and a slightly lower debt to income ratio than if you had a larger down payment. If this isn't you, I would plan on having 10% of the purchase price for a down payment with conventional conforming loans - especially if you want to split your loan to avoid PMI. On a $400,000 property, 10% is $40,000, which is quite a chunk of change for most folks. This is the "no government involvement necessary" loan, up to $417,000 of loan amount (not purchase price, a critical distinction to make!). If you're putting 10% down on a $450,000 property, what you have is a conventional loan amount - $405,000 - not nonconforming, but a full on conforming loan, assuming you qualify on the basis of credit score debt to income ratio and loan to value ratio.

95% financing for conventional loans has become more available, making it more likely to work. When all that's available is one program from one lender, it can be withdrawn at any time, or you can fail to qualify, and that's it. Things that only one lender offers can vanish at any time, and there is no Plan B. If that lender pulls the program while we're in escrow, that's not Monopoly Money my clients are risking. But when there's multiple lenders and a couple different insurers, that's less likely to vanish like faerie gold. 5% of $400,000 is $20,000, which is a lot easier to get than $40,000.

FHA loans now require a 3.5% down payment as opposed to 3%. On a $400,000 property, that's $14,000. On the plus side, the funding fee (Currently 1.75 points) can now be added back in to the loan amount, yielding a 98.25% loan to value ratio when everything is said and done, but you need a 3.5% actual down payment or the deal is off. Furthermore, they have a financing insurance charge of 0.5 or 0.55% on top of your note rate, but better to pay the charge and get the loan you need than not pay the charge and not get the loan.

VA loans really have become the magic bullet. Not only do they not require a down payment at all, but closing costs of the loan (including the VA Funding Fee, if it applies) can be rolled into the loan on top of the purchase price. Furthermore, there's no financing insurance charge, and only very minimal loan adjustments, if any at all.

The good news, to counterbalance the increased down payment requirements, is that prices are much lower. The bad news is that if you wait for the lenders to lower down payment requirements again, prices will be much higher then. You see, it's the difficulty in finding people who can get a down payment that is partially fueling the fall in prices. They're not going to stay this low when that changes.

So how do you take advantage now? Where can you get the money for a down payment quickly?

I'll skim over the obvious and simple candidates: Savings, investment accounts, sell some of your stuff. If you have a spare Ferrari lying around you're not using, that's probably a peachy down payment for just about anything. Just because folks were all wanting to buy without a down payment, to the point where it became unusual for folks to actually have a down payment there for several years, does not mean that doing so is in any way mandatory. But if you are in one of these categories, you probably don't need to hear me tell you that money you have stashed away could be used for a down payment for the purchase of real estate. I'll bet you can figure it out on your own.

So let's look at the non-obvious ways.

Let's start at the least painful, at least personally: Retirement accounts. The tax code allows you to withdraw up to $10,000 from certain IRAs for the purpose of a down payment (talk with your accountant for details). Put two spouses together, and you've got $20,000. That may have been only 3% when properties were $600,000, but when the property is $300,000, $20,000 is almost 7 percent - more than enough for an FHA loan or even traditional financing now that PMI companies are back at 95% financing.

Second option: 401k and its siblings and cousins 403b, 401b, 457, etcetera. These are group retirement plans where you cannot withdraw the contributions for so long as you work for the company, government, or non-profit. But the majority of these have plan documents that allow those who have previously contributed to take out loans from their balance in the plan and repay those loans from future contributions. Let's say you've contributed $30,000 which has grown to $50,000. The mechanics do vary, but if you take a $30,000 loan and repay it $200 every two weeks from your normal 401 contribution, that's mostly a wash in most cases. Be careful for rules on interest rate charged and method of repayment, but the federal government's Thrift Savings Plan (among many other employer sponsored plans) allows loans for this purpose. Meanwhile, your original contributions may even continue growing. Once again, it depends upon your plan document and everything it lays out. There is a drawback: If you leave that employer, the loan may become immediately due and payable, or it may be converted into a heavily taxed withdrawal. Again, consult an accountant for details

If your family (or your spouse's family) wants to give you a gift for the down payment, that works. FHA rules specifically allow up to a 6% gift from family members, VA rules are similar even though they don't require a down payment, and even conventional lenders make it easy enough to use family gifts for a down payment. This may seem like a no-brainer, but many times Junior wants so much to do it on their own without help, that they refuse to see a very obvious solution even though it is the best and most painless way under the circumstances. You can always save up the money to pay them back even though it was a gift. Just because it's a gift doesn't mean you can't give them a gift back later; it just means that it cannot be a loan masquerading as a gift.

Many locally based first time buyer programs exist. There programs lend (not grant) you the money for a down payment. In some cases, 20% or more of the purchase price. Most of these take the form of a "silent second" mortgage where there are no payments due, and it you hang onto the property for a certain amount of time, the loans can even be forgiven. The drawbacks are several, but the usual elephant in the room is that these programs run out of money at Warp Speed every time they get a new allocation. I've heard of people who had tried three, four or more times at intervals separated by six months and still couldn't get into these programs due to budget limitations. It can be very difficult to get in on these programs. I applied for one back in April for some clients. Despite the fact that we were less than two weeks out of the starting gate from when the budget allocation had been received, there was nothing left in the program. So even though your loan person may be eager to participate in such a program, the fact that your application is competing with those of many other people may preclude it actually happening.

The final possibility is a personal loan. These can be either from banks and credit unions issuing a fully underwritten loan with market rate interest, or from family members deciding to make a below-market rate loan based upon the fact that they like you. Lenders take a truly large number of precautions to prevent the down payment money from being borrowed unbeknownst to them, but a fully disclosed personal loan, not secured against the title of the property, is perfectly acceptable in most cases. If does impact debt to income ratio, because you've got to make payments on the personal loan as well as the real estate loan, so it does constrict what you could conceivably afford in the way of purchase price. On the other hand, it does put the purchase money in your bank account today, when you need it, rather than two years from now, when there is an excellent chance prices will be much higher by then.

So there you have them, half a dozen possible ways to get a down payment quickly, while it really makes a difference to the home you can afford the payments for because prices are down. Which they are, in part, because people with down payments available to them are so difficult to find. If you need a down payment to buy and neither these not any other method of acquiring one will work, you're just going to have to wait it out until the guidelines are relaxed, or until you do manage to save up the money for the required down payment.

Caveat Emptor

Original article here

Got this search:
"should I get a buyer's agent if I've already found a house"

The answer is almost certainly yes, but I am going to examine both the pros and cons. Full disclosure: This is most of what I do for a living.

The con is fairly simple. If the seller isn't paying a buyer's agent, they may be willing to sell more cheaply. Then again, they may not. One of the reasons people sell For Sale By Owner is that they're a little too greedy. Even if they have a seller's agent, their listing contract may call for them to keep the buyer's agent's commission if the selling agent sells the property without a buyer's agent involved, and this may cause them to be willing to sell more cheaply. They are under no obligation to do so, however - and without someone who knows the market on your side, the difference in price and terms of the agreement you could get with a buyer's agent is almost certainly more than this difference.

Many think the buyer's agent's job is to say, "Here is the living room." That's like saying the president's job is to look impressive. Sure, most presidents do look impressive and I do say "here is the living room," where it's applicable and something causes me to think my buyer may not have figured it out for themselves. Nor is it about looking in the MLS and my connections to find my buyer a property they like. It's not even about making showing appointments with listing agents and occupants.

My real job as a buyer's agent is to find you the best property for your needs under your constraints and get you the best possible bargain on it while making certain that the seller and their agent aren't hiding anything.

Many folks call the seller's agents and use them as their agent. This is what is known as a mistake. That seller's agent has a listing agreement telling them and the seller what the responsibilities of the agent are to the seller. They may or may not sign a representation agreement with the buyer. If they don't sign one, all of their explicit legal responsibilities are to the seller. They are working for the seller, not for you, and they have a contractual obligation to sell that property at the highest possible price as well as financial motivation in that their commission will be larger. The buyer's interests do not enter into it. Perhaps they do an excellent job of representing your interests anyway, but the odds are against it. Their legal responsibilities are essentially limited to "don't tell any lies and don't practice law without a license." While I was working for the FAA, we found out about an agent who had made a real good living for a while as a seller's agent and how he had done it: By telling everybody he showed a house in the area to that the airport was going to close. Ladies and Gentlemen of the jury, that airport land was dedicated solely to aviation usages by an Act of Congress, and if the county had wanted to close the airport (they didn't; they were making enough money to pay for every airport in the county there, and socking up a huge fund if they ever figured out something else aviation related to spend it on), they would have had to have paid back tens of billions of dollars to the federal government. We got a call from one of his victims one busy Saturday, who asked, "When is this airport scheduled to close?" We advised him that any proposed closure was news to us, and explained the preceding to the gentleman.

Even if the seller's agent does sign a representation agreement with you, in approximately thirty percent of transactions (from my experience) a situation arises where the best interests of the buyer and the best interests of the seller collide, in addition to the unavoidable issue of their interest are diametrically opposed on price. When this happens, no matter what they do, an agent representing both sides is stuck on the horns of a dilemma. If they do A for the seller, they are violating the best interests of the buyer. If they do B for the buyer, they are violating the best interests of the seller. Here's a hint as to which way they are going to jump in the event of conflicting interests: If they violate the seller's interests, they don't have a transaction at all. If you don't buy, they can always sell it to someone else, but if they lose the listing agreement, they are completely out in the cold.

Before I even point a property out to you, or if you find it surf the internet and ask, "What do you think?" I am evaluating the property for fitness, suitability, affordability, how it stacks up to other properties on offer, how many other properties are on offer, and what the details of the property likely mean in the way of potential problem issues. Just a for minor example, a property built in 1975 has to be concerned about both lead-based paint and asbestos; a property built in 1990 still has those worries but to a far lesser extent, as most building stocks with those concerns were long gone, and a property built in 2005 is more likely built over Jimmy Hoffa's final resting place than a repository for asbestos and lead based paint (it could happen, but the odds are long against it). I am not an inspector or a tester, but I can and do alert my clients to safety and environmental issues, potential repair bills, and all sorts of other items before we've made an initial offer. "Best thing you could do with this building is 'accidentally' run a bulldozer through it," is something I told a client in a few weeks ago, in the context of telling him the value, if any, was the land less the cost of demolition and haul-away. Initially built almost 100 years ago and haphazardly added to as well as obviously not in compliance with code, my client would have been facing the possibility of the county condemning the building as unsafe, and quite frankly, I didn't think anyone would insure it outside FAIR requirements. You're not likely to get that kind of talk from a seller's agent. Instead you get words like "charming," "funky!" and the ever popular phrase "needs a little TLC!". If you have a buyer's agent, the sucker they're looking for shouldn't be you. You might decide you want the property anyway, but you'll be aware of the issues going in to negotiations. Most importantly, if the sellers aren't going to be reasonable, you have someone who should be willing to tell you when to walk away. A listing agent cannot do that.

When it comes to the offer, a seller's agent is looking to get the highest possible price. Period. They don't care if you could buy a better property for less elsewhere, their responsibility to the seller and desire for a larger paycheck are in perfect alignment. A buyer's agent is responsible to you, and whereas buyer's agents get paid based upon the sales price, same as the seller's agents, they at least have a legal responsibility to do their best for you. If there are any complaints, a seller's agent can take refuge in the fact that it is their primary duty to get the best possible terms (i.e. highest possible price) for the property. The buyer's agent has no such shelter. Which would you rather have as your representative?

Buyer's Agents do not usually cost you, the buyer, any extra money. I'm sure there are exceptions, but I've never run into one. Both the Exclusive and Nonexclusive Buyer's Agent Agreements used by California Association of Realtors state, in the absence of additional agreement, that any commissions paid out of the "cooperating brokers" amount on the MLS count against the buyer's obligation to the representing agent. This is typically agreed to be two percent in California, and I don't know the last time I saw a residential MLS listing offering less than that to the buyer's agent. The way the transaction is structured is that the selling agent gets the entire commission, but agrees via the listing contract and MLS to share a certain portion with the buyer's agent, if the buyer has one. Good buyer's agents typically beat the price down significantly more than two percent, especially in the current market. I am equipped to do value battle with that seller's agent in ways that members of the general public are not, and whereas it's true they don't have to negotiate with my clients, they've got to sell the property to someone. It's not like the real estate fairy is magically going to convert this property to cash.

If there's something you should know about a property, the buyer's agent makes certain the question gets asked and the answer disclosed to you. This eliminates a lot of potential surprises down the road.

Finally the agent knows how to respond to unexpected or unusual situations. They should know how to deal with little niggling details that aren't quite cookie-cutter. None of these issues are common individually, but when you look at the entire transaction, most real estate sales have at least one such issue. Many of these look minor or even insignificant to those who don't understand the implications, but can amount to tens of thousands of dollars in repair, or even things that make property not suitable for the purpose people want to buy it for. At least 80% of the people who tell me how well they did without an agent also tell me something that informs any working agent that in reality they got taken - and that's without me so much as seeing the property or even the listing page.

In short, buyer's agents are the professional on your side, they typically do not cost you any additional money, they usually save you a significant chunk on negotiations, and if you have one, you're more likely to find out about potential problems with the property before you buy.

Caveat Emptor

Original here

This is a reprint from an older article that talks about a very important distinction between an agent doing well for themselves versus doing well for their clients. It originally ran in August 2005.

Every day I pass by another real estate office where the agent has a big banner outside "I SOLD 101 HOMES IN 2004!"

This is what is called a production metric, and this one sounds fairly impressive at first glance, right? However, all that says is that they sold 101 homes, and cashed 101 commission checks, meaning their bottom line had a very good year. It doesn't make much difference to their paycheck whether the property sold quickly and for a good price. If it takes an extra six months to sell, all that does is push the paycheck into next year. More importantly, if it sells for only 90% of what they could have gotten, they still get 90% of that paycheck, as opposed to nothing. Makes one heck of a difference to the client, as that 10% could be most of their equity - the check they're counting on to help them buy their next property - or even all of it.

The question I want to ask is how good the price was for the seller. Anybody can sell homes quickly by pricing them 10% under the market. Last year's market was a hot seller's market. In some neighborhoods, a monkey could have sold it for $20,000 over the asking price.

Is there a generally available "did you sell it for a good price?" metric? Not really. The best I can come up with for a listing agent is whether the appraiser has difficulty getting value to support the sales price so the loan can fund. If the appraisal comes in less than the sale price, the loan will be based off of the appraised value, rather than sale value, and so whereas this is always a difficult situation to be in, that your sale in in this situation says that your agent really did get you a good price. It's comparatively rare, and with the buyer's market we have now, practically non-existent (at the update, it's common but for a completely different reason). But if the appraisal comes in close to the sales price, that says something good about the price. If the spread is appraisal forty percent higher than purchase price (like one property I recently represented the buyers on), not so much - but it does imply your buyer's agent did a heck of a job. Unfortunately for the sellers, the buyers aren't going to tell the sellers about the appraisal unless the value is lower than the agreed upon purchase price.

Production metrics of this nature are easy to game. When I worked in the financial planning business, the metric used was GDC - Gross Dealer Compensation. How much your firm got paid because of your work. Problem was, it always has two components: how much business you really brought in, and how much turnover there is in your clients accounts. I know people who work at the "no load" fund houses, also. That's their metric as well.

It's a good metric to have. Firms that don't get paid enough, don't stay in business. But, as a consumer, it's not precisely the sort of metric you want your financial planner to be judged on, and neither of these components measures anything important to you. Actually, I take that back. If there's a high ratio of turnover in the client account, it's always bad. There's always the temptation to call an existing client and sell them the "hot new investment" than it is to generate new business. If I was shopping for a planner, I'd look for a low ratio of Gross Dealer Compensation to total assets under management.

Matter of fact, there really isn't a metric in the investment world to measure how good an investment person is on any objective scale. What I'd really like to know is something like the return on investment of their lowest 25 percent of clients and highest 25 percent of clients, and compare that with market averages and each other. This would tell me things like "How much (of any gain or loss) is the environment of the market, and how much is them?" and "Are they giving consistent advice?" (Low spread = yes, high spread = no). And not one firm I'm aware of computes this information. Not to pull any punches, what they are all set up to reward is sales ability, not investment genius.

The same goes for real estate. Everybody is focused upon volume, when what's really important to the client is "How good a job did you do with the ones you got?" Not only does using the "volume of business" metric and pretending it's important help the established firms build a moat around their business, it distracts potential clients from what's really important: How good of a deal they are likely to get as individuals. There are any number of production metrics in real estate, but none the nature of "Did Agent A's selling clients get the best price?", or on the purchase side "Did Agent B's buyer clients pay no more than they needed to?"

Nonetheless, here are a couple of other ideas. If everything I sell is bought by real estate agents acting for themselves, it's not a good sign. The average real estate agent is buying property because the price is below market. They think they can re-sell for a profit, and it's usually not a little one. They're probably not interested in the property that doesn't have immediate equity built in.

If everything I sell is back on the market within a few months for a higher price, that's also not a good sign. That also means it was probably priced below the market.

The agent I talked about at the beginning of this article? I picked up a flyer listing about a third of those sales (thirty-two). Then I went to Multiple Listing Service and did a little search. Over half (18) were back on the market within 6 months for much higher prices. Almost forty percent (12) of total number of new owners identified themselves as being owned by licensed real estate agents on the listing. Seven have been subsequently resold for at least a 10% profit, closing within three months of the original sale, even in what became a softening market. Only three are still active. The rest have sold, all at a significant profit, even in what became a much softer market at the time.

So now tell me, does this agent's claim of "101 houses sold" seem like something that should make you want to do business with them?

Didn't think so.

Caveat Emptor

Original article here

I went out looking at properties for clients. From the showing attitudes I got, 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 despite it being in the property. 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 require 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 hurt your sales price. 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 damned 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. People aren't looking for a reason to buy your property - they're looking for reasons not to buy your property and "They wouldn't let me see it" is one of the best by any rational measure.

By making your property unavailable, you are raising 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 out of place, 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 at all. Agents like me learn to look past transient stuff like toys on the floor, and to help their buyers do so as well. 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

Original article here

I got a phone call from some out of state relatives looking to buy their first home. They want to buy a lender-owned property, but the only loan they have the down payment for is FHA. FHA has a few requirements that other loans don't about property functionality. It has to do with what they see as reasonable protection both for them and for people they lend to. One of those requirements is that if there is an air conditioner, it must work. It doesn't have to be able to actually cool the house, but it must function. The one in the property my relatives are interested in doesn't. Not only does it not work, it's been torn apart in order to sell the copper wiring inside. There is a loan that the FHA does that is aimed at this situation, called a 203k, but the sellers - a bank - are insisting upon a 21 day escrow. In blunt terms: Not Gonna Happen. I used to be able to reliably fund purchase money loans in less than 3 weeks. Dodd-Frank, however, has added at least 3 weeks to that, and government type loans take even longer.

Their alleged agent has made a suggestion: Pay to fix the air conditioner themselves, prior to purchase, so they can do a regular FHA loan. I have a suggestion for her, but it's not family friendly.

I do have to admit, it might work. But that's not the way to bet. Let's say they pay to fix the air conditioner, and escrow falls apart for any other reason. That money is simply gone. No realistic recourse is possible. If the equity was there to support recourse, the equity would be there to support the owner fixing it themselves. That's what should happen.

Escrows are falling apart these days for all kinds of nonsensical reasons, none of which agents or loan officers can prevent. Most of them have to do with underwriter paranoia on the loan. Because Wall Street has been so thoroughly burned by bad mortgage loans they are inserting extra requirements into loan underwriting. Furthermore, loan underwriters have become the lender's internal whipping boys so they have become extremely reluctant to pass anything that might strike them as a little bit out of the ordinary. Problem is, almost everyone has something out of the ordinary going on with their finances. It's the way things are. Net result: lots of loans denied for no reason the loan officer could have predicted.

Perhaps the inspection reveals more things wrong with the property. The seller obviously doesn't have the money to fix them, so the buyer has a choice between walking away - leaving their repair money behind - or accepting further defects and repair bills.

Perhaps something in the disclosures is a reason why the buyers decide they don't want the property. Maybe someone died there. Maybe someone was killed there. Maybe something related to religion pops up. Again, they're out any repair money they spend.

Things that need fixing on a property are the owner's problem - period. They are responsible for bringing the property into the condition required - not the buyers. If the sellers cannot or will not do this, that property is not one these buyers should consider. Similarly, if the buyers need a loan where the sellers are demanding things that preclude that loan, that particular property might as well be 100 times the price and located on the moon - it's not going to happen.

If there's a necessary repair that the buyers are willing to accept the property without the sellers making that repair - and their lender has no problems with it - that's perfectly fine, so long as everyone knows about it, it's fully disclosed and agreed to, etcetera. I have never seen a situation where such a needed repair didn't impact the price by more than the cost of the needed repair, but that's what negotiations are for. The bottom line is: Buyers should never spend money to repair a problem that belongs to someone else.

Caveat Emptor