PSA About the darn banks

So last I checked, when we get a loan we have to pay PMI- Private Mortgage Insurance. It’s actually a bill that is incurred by the bank, that they pass along to the buyer, and the buyer pays it or else they don’t get their loan. It’s to cover the bank if the buyer defaults and the foreclosed house sells for a loss. Kind of like gap insurance on a car that you purchased- if your car gets totaled and your payout is less than you owe- in comes gap insurance.

Here are my two beefs with this whole PMI thing (two and a half, the fact that the buyer pays it is a little mini-beef).

1) Do you know who pays the difference? The insurance company. Know what happens if (say during a market crash) the insurance company declares bankruptcy? One of two things.

American International Group (AIG) is the largest business insurer in the world. On September 16, 2008, the Federal Reserve agreed to extend an $85 billion bridge loan to keep the insurer from declaring bankruptcy and giving it time to improve its financial position. If it does not, well $85 billion’s not a lot, right?

If it is a smaller insurance company then the state government steps in an covers for it more directly- i.e. pays out it’s claims (although there is a variable cap).

Either way, the final translation is the same: YOU pay for the defaulted mortgage. YOU, the taxpayer. The one who more than likely paid an insurance premium on your own home as well.

2) Well- no big deal right? I mean just say that the market fails- first the house goes into foreclosure and they sell- then the insurance company only has to pay the difference right? That’s not a lot, right? WRONG.

Banks are not managing their properties properly- and why should they? They get the same amount of money either way (actually they might stand to lose a bit by properly managing them, I’m unsure if they’d get reimbursed for that). So they get damaged or run down,  and as a result are selling for Way Way WAY less than the loan. And we are suffering, on several levels for that.

Do something about it. Say something about it. We have a thousand venues for using our voices, let’s get foreclosed property management regulated. There’s another round of foreclosures coming- taxpayers don’t need to pay for them as well.

 

Help, I’ve got two real estate agents!

 

Since today’s market is much more customer driven, this is actually a pretty common occurrence. So- what do you do to gracefully find a way out of this situation, and how do you avoid running into it again?

First off, did you sign a buyer’s agency agreement with one of your realtors? If so come clean IMMEDIATELY with the other. Even if you purchase a home with the other agent, the first will get the commission, and that is terribly unfair. You go to work every day because you expect a paycheck at the end of the week. No matter how much you love your job there’s no way you would be happy if you walked into payroll about your missed pay, and they informed you that it was never coming.

If you have not signed an agency agreement, you have a little more leeway on who you pick, but let them know as soon as possible. Many people think that realtors make big bucks for very little work, but that’s just not the case. The check that you see go out at close gets split with a broker, and goes towards a number of licensing and equipment fees as well- not to mention taxes. And as I mentioned before, with a customer driven market, more and more of an agent’s time is taken up by consumers who may not pay them at the end of the day, so their per hour rate is plummeting.

All in all it’s a horribly uncomfortable situation, but both agents will appreciate your honesty.

How to avoid it happening again? Direct all property inquiries through your real estate agent. It’s fine if you look around online, but please send inquiries to your personal agent, not to the ones listed on the properties. Odds are they are not the listing agent, they are likely a buyer’s agent as well- who will try and help you find your home. They will not find you answers any faster than your current agent, as they will be using exactly the same channels, and you will once again find yourself in the uncomfortable situation of having two employees and only one paycheck.

When to buy a house? RIGHT NOW.

The new market is different. More than ever we have consumers who are going out and doing their homework, looking at homes and using tools like mortgage calculators that are available to them online. That’s awesome, I love when people empower themselves- but it can lead to a false sense of authority on the subject they are studying. I believe this is the case with real estate. Here are the top three assumptions that can lead you into trouble.

1) The price is the most important factor in buying a house– Yeah, it’s a factor, but the mortgage rate is EVEN MORE IMPORTANT.  If the Property drops 4%, but the Mortgage Rate rises from 4.0 to 5.5, you are actually paying an additional 5.1% for your new home! Don’t wait until home prices bottom out to buy your house, take advantage of low interest rates, and save big.

2) A mortgage calculator will tell you your monthly payment– Sometimes it will, some of them offer the option of adding property tax and insurance, but some of them don’t even mention it. Property tax and insurance are really important factors, especially if you are taking out a loan. If an institution is providing capital for your purchase they are going to require that you purchase Private Mortgage Insurance, that you pay Home Owner’s Insurance and, more than likely, will require that you pay your Property Taxes monthly, instead of yearly. Make an informed decision when deciding how large of a loan you can handle- and how much of a monthly payment that translates into.

3) Houses are just going to keep getting cheaper– According to CNN Money, the rich are buying right now. Warren Buffet recently predicted recovery to begin in a year or so and the NAR is reporting an unusually high number of cash sales. These things are good indicators that people are starting to regain confidence- and those who are able are buying. That spells the slow decline of the buyer’s market.

What does this mean to you? The time to buy is now. It’s going to take time to find a home, time to put in an offer, and time to get approved for your loan- and time is slowly starting to work against you.

 

Foreclosures- Hot Deal? Or Hot Mess?

The It word in the real estate community is the F word. Foreclosures. There are a lot of them out there, they’re doing interesting things to the market, and there are a lot more coming. As of March of 2011, there were around 2,000,000 houses late on their mortgage payments (yes, that’s 2 MILLION) 40% of which were delinquent by 12 months or greater.  Foreclosures are going to be a fixture of the market for some time until we get back on track, so we might as well get familiar with them. So- hot deal? Or hot mess?

For the real estate virgins out there, I’ll break it down a bit before I plunge in. I really hope that everyone knows if you buy a home with a loan, then you are using that house to secure the debt. What a lot of people are missing when they look at that equation is the human element. The people who are leaving these homes are not leaving them happily! While you will have the occasional foreclosure in pristine shape, the fact of the matter is that Donna Reed would not have signed a balloon loan (and anyone that perfect is totally repressed so if the hubby lost his job then the eviction might turn into a rendition of The Shining). Expect these properties to be damaged or run down (getting evicted is bad for drywall, and the owners tend to leave with everything- including the kitchen sink). If you do not want a fixer-upper then don’t go looking at foreclosures, you will still get a great deal.

With all the foreclosures out there, lovely homes in great condition are selling for far less than their assessed value- these are the major deals that people without Home Depot memberships are going to want to take advantage of. If you are a seller, resign yourself to the fact that the market is against you, but any losses that you take you will recoup by buying into your next home at a lower price as well. Don’t make the mistake of lowering your price when the market starts to swing back the other way- do it now. If you sell low when things are picking back up, you might wind up getting the worst of both worlds.

This is where your real estate agent comes in. They will be able to tell you what a fair market value is for your home- the best price at which it is most likely to close. Listen to them when they tell you this, they get it scientifically by using comparable homes in your area (unless they are Traci Amick, who is a house whisperer with reportedly psychic powers). If you are a buyer, listen to your real estate agent’s feedback after you describe what you want. If you have told them you don’t want to do a lot of work and they politely let you know that your price range is off- there is a reason for that. You are not going to be purchasing a foreclosure- you will be purchasing a home, from a person, who likely has a mortgage to pay off.

One final note of warning on foreclosures, to all the Tim Allens who are going to fix up what has fallen down with the market (and my hat is off to you, these homes need your help)- please expect about 50 pages of disclaimers with the purchase of your foreclosure, and don’t be intimidated by them. All they are saying is that the bank is done with the house once you buy it. Just make sure that you get it inspected, so you have a realistic idea of what you are getting into.

Why bother with a real estate agent?

Between Zillow and Realtor.com- who needs ’em, right? Wrong! There are a TON of reasons that a licensed agent will turn your search from painful to pleasant, but if you’re anything like me then you have a 30 second attention span- so I’ll just give you the best of.

1)Buying a house involves a lot of laws! Know what happens when you go to court without a lawyer? You Lose! The closing lawyer is there to represent the bank’s interest, not yours- don’t you want someone familiar with real estate law to watch out for you? Don’t get stuck with cows roaming over your land because the property you just bought came with an easement (and no, you can’t legally do anything to stop them if you really did buy a servient estate, so I hope you like cow patties). Don’t agree to pay all the points on your buyer’s loan if you are selling (you just lost roughly your real estate agent’s fee right there). Agents spend a small fortune to get licensed so that YOU don’t have to worry about that kind of thing (ok, so like a large piggy bank, not a small fortune, but still!)

2)An MLS search form is not the same as the real thing! (And if you said “what?” when I said MLS then stop reading and call a broker). A licensed agent is required to pay a monthly fee for a much more detailed search engine than you are privy to. Sure maybe you can find a 4 bedroom for $150,000 on your own, but what if you could have found one with a fireplace for $200 bucks more? Or if you’re not a pyro (then you should be- just kidding) then your agent can pick out 4 beds with hardwood floors, or fenced backyards. Free searches are free for a reason.

3) Buying a house should make you happy! Not stressed. But the truth of the matter is it’s a very involved process, and having someone to help co-ordinate that process, hold your hand during the closing meeting (figuratively of course, a 3% commission only buys so much!) and talk you down from the roof of your crappy corporation’s office when the bank tells you you only qualify for a $100,000 house on your laughable paycheck, can be (in this case quite seriously) a life saver.

It’s true that not every real estate professional is, well, professional (that’s true in every job from retail to construction to modeling)- so definitely get to know them before signing a buyer’s agency/listing agreement. Ask questions and get a good idea of how they conduct business.  If you do that, and you can keep in mind that they are people too and can neither work 24 hours a day nor conjure miracles, then you will find that your real estate experience can be a very enjoyable one.