This week’s little noticed but important news

It was a busy week for news in the financial world, but there is one little piece of news that could have a positive impact for a lot of people. This bit of news is a rule change by FHA that if people have completed a short sale of their home in which they made all their payments, they can immediately get a loan for another home.

Up until now, someone in this situation who wanted to sell and buy another house they would have needed to wait two years from the time they sold their house in order to buy another house. Pretty much their only option during that two year period would have been to rent a home. This is a likely explanation why new listings are down almost 25% from a year ago, many people are just holding off because they owe too much on their homes. At the same time, pending sales are up almost 30% August 2010 to August 2011 so the market is definitely changing!

One of my goals is to reach homeowners who are in this 25% who may owe more than their homes are worth, yet would like to sell their home and move for reasons that are other than financial. The reasons for wanting to move are often just regular life changes such as a growing family or if the kids are grown and it’s time to scale down. These are victims of the housing downturn that did everything right and have maintained good employment.

A critical factor in doing this successfully is to work with an agent and negotiator who are experts in negotiating short sales. Many agents mistakenly believe that “negotiating” short sales doesn’t really involve negotiating at all, that it is really just a paperwork function of waiting for an answer from the bank. In fact, it definitely involves negotiating. We constantly push for ways to get to a yes, and in difficult situations reconsider strategies to work towards the best possible outcome for the client.

Two videos on our “short sale videos” website tab are this one where we discuss the role actual negotiating plays in short sales,

Video: Do We Negotiate With the Bank or Wait For An Answer

and this second one where we point out that it’s not necessary to be in a dire financial situation in order to complete a short sale. Actually, unfortunately sometimes depending on the lender it is necessary to be in a bad financial situation, but that can quickly be determined up front before you go to the trouble of putting your home on the market.

What Will Happen To My Savings

If you are considering a move, call or email anytime and we can find the best solution for you.


--Ward Spears
503-522-8269
wspears@equitygroup.com

Let the Healing Begin







Danger by Michal Marcol

  Over the past few years as I’ve worked with home sellers who find themselves in the position of needing to short sell their homes, there is one common mistake that is the most troubling, and unnecessary. This mistake is that many people drain all their savings before deciding to sell a home they can’t afford.


The scenario often goes something like this. One or both spouses get a cut in pay at work, or one of them loses their job. Maybe there is commission based employment, and it has just been harder to make money. All along, they hope that things will turn around, and the house that was maybe a stretch to get into a few years back, is now completely unrealistic to hold on to for the long term. They don’t want to admit it, and as a result, their savings gets depleted and eventually disappears. Finally, when their bank account is down to zero, they stop making their house payment, not out of choice but because there was nothing left for a payment.


Maybe a way to look at it would be like a mountain climber, who pre-determines a turnaround time before things get too sketchy up on the mountain. After a certain time in the day, conditions will be expected to deteriorate just too much to safely continue. Once the clock gets to that turnaround time, the climber heads back, even though the summit may not have been reached. In the same way, a homeowner who is experiencing a financial shortfall might pre-determine that when their savings drops to a certain level, it’s time to sell the house and move on. This way, they’ll have time to investigate their options, other ways to make money, or perhaps a loan modification.


Don’t be too emotional when facing a financial shortfall. Take some quiet moments and consider your options. Make investigating your options like your second job. Many people have successfully been able to obtain good loan modifications with their lender, that can definitely be worth a try. You can still short sell your house while you have money in the bank, you don’t need to be down to zero to do a short sale. I’ve never met anyone who is glad they spent all their money on house payments before finally deciding to take action. Start early, when you start sooner you’ll be done sooner, you’ll be glad you took action.

Short Sale Negotiator Joins My Team

With the increase of short sales in real estate market, I’ve decided the best way to serve my clients is to add a dedicated “short sale negotiator” to my team. Some agents I have worked with on short sales have had dedicated short sale negotiators on their team as well, but they are often unresponsive and sometimes grouchy about their position. Thankfully, I have found someone who is enthusiastic and passionate about helping people who owe too much on their homes but would still like to sell. This way I can do what I do best which is to sell property and the negotiator can do what he does best which is to work with lenders.

If you’re wondering what the term “short sale” means, it occurs when an owner wants or needs to sell property, they owe more than the home is worth, and are unable or unwilling to make up the shortfall.


With this new addition to my team, I am able to add a new service.  I can now give someone a realistic outlook of what a short sale will look like for their situation before they ever commit to getting started, since the situation for each client is unique. Many agents reflexively tell people, “first you need to have late payments”. Fortunately, that is not always true. In fact, every short sale experience is different depending on which bank services the loan, which investor holds the loan, and what type of loan it is. For example, the outcome of a short sale on a loan that was used to purchase a home is often very different from a loan that resulted from a refinance.


If you think you may owe more than your home is worth the first step is to check your loan statements to see how much you owe. Next, call me to find out how much your home is worth. If you owe more than it’s worth, with a little research I can provide a reasonable idea of what the outcome of a short sale will be.


For example, I recently met with a couple who is bursting out of their condo because they just had a second child. They both have good steady employment, but not a lot in savings. With a little research I was able to learn that they wouldn’t need to destroy their credit in order to do a short sale, (which is not always the case). Obviously, they were relieved and I’m putting their condo on the market this month.


If you have any questions about any of this please contact me anytime by phone or email. In stressful times it’s always good to be able to talk to someone who understands how things work.Ward Spears
503-522-8269
wspears@equitygroup.com

Handling A Short Sale Things to Watch For

Handling a Short Sale

Things to watch for when making a short sale offer

(extremely boring reading unless you’re actually considering buying a home!)

What is a short sale?

A short sale occurs anytime a home seller owes more on the house than they’re able to sell it for and they are unable (or unwilling) to come up with the difference.  Key Factor: in order to get the deal done, a negotiation needs to occur with the seller’s bank rather than just with the seller.  

Who handles the negotiation?

The negotiation occurs between the seller and the lender.  The seller often uses the services of their real estate agent or another third party to handle some portion of the negotiations for them. Key Factor:  Since the buyer is uninvolved in the negotiations, they are at the mercy of the listing agent’s diligence in handling the negotiations.  It is important to get an idea how comfortable the listing agent is with handling short sale transactions, and how familiar they are with the process.

Are there degrees of complexity to this type of transaction?

Yes.  Many factors can contribute to the complexity of the negotiations.  This largely depends on the history of the property and the financial condition of the seller.  The easiest type of short sale transactions are those where there is just one loan and the home was owner occupied.  The timeline can be extended if there are multiple loans on the property, many people have two home loans on one house.  With two loans (referred to as a “first” and a “second” loan) it is not unusual for the second loan to settle for as little as 10% of the loan amount, but it all depends on how the bank evaluates the value, the second won’t settle for that little if the value of the property is such that a higher amount is justified.  

Super complex short sales can occur if the seller is in extreme financial hardship.  For example if there are substantial unpaid credit card bills, these amounts can be attached to the house as additional liens.  Each lien holder in this case needs to be dealt with.  There can also be judgments from attorneys and other liens that need to be negotiated.  If the value of the property is such that more than a few of these liens cannot be paid in full, closing such a transaction through a short sale can be very difficult.  There is a good chance this property will one day become bank owned, and all these additional liens will no longer be attached to the property.  

Here are some basic categories of short sales:

a.  First position, purchase money loan – This is the ideal situation for a seller, these are normally non-recourse loans in Oregon, so the bank cannot pursue the borrower for a deficiency.  This is more complicated if there is mortgage insurance, sometimes the mortgage insurance company isn’t very willing to take the loss, and they can be more difficult to work with. 

b.  Second loans, especially equity lines of credit – Often the bank feels as though you spent the money on consumer goods, even if this isn’t true.  These can be more challenging to negotiate a full satisfaction.  The difference between good negotiating and accepting the bank’s settlement can really impact the sellers future if they have this type of loan.

c.  Investment property loans – Rents have dropped in many areas, some investors who are over-encumbered on their rental properties have fallen behind on the loan payments.  Investment property loans are recourse loans.  These can be challenging loans to negotiate, depending on the banks involved, and it is critical to have experts working on your behalf.  

What is an expected timeline

This varies from bank to bank, but a typical timeline would be 90 -120 days to bank approval.  Sometimes, the bank says it will go fast and it doesn’t take too long, maybe 60 days.  Other times, the bank says it will take a long time and they do it quickly.  Still other times, the bank says it will take forever and it does take forever.  If you want to get a house through the short sale process you need to be patient.  

Occasionally I see “approved” short sale, what is that?

It means the bank has approved a price at which a sale can close quickly.  Your agent will need to check with the listing agent to find out just what that price is, it may not be the list price.  This is becoming less common.

I need to sell my house before I can get qualified for a loan to purchase, what should I do?

You should consider selling your house first, especially if you’re open to buying a short sale property.  Even if you choose a home in which the seller has equity, you’ll be taken more seriously if you’ve sold your current home.  

Things to Watch For

Real Estate changes rapidly, here are a few things to watch out for in today’s market

1.  Overpromising agents – Are they really going to do what they say?

2.  Low cash offers – This may sound like a good strategy, but for nearly all banks the bottom line is really what matters.  Approved financing with a minimal down payment is nearly always just as good as a cash offer.  Many buyers believe they may be able to get an extreme discount with a cash offer, but this is rarely the case.    

3.  Non-standard forms – These need to be reviewed by an attorney.  Standard real estate forms have been agonized over by many attorneys, it is best to stay with that when possible.  

4.  Conflicts of interest – Does the listing agent have an affiliation with the short sale negotiator?  You need someone who is looking out for you, not someone whose negotiations will lead to unexpected negative consequences down the road.

5.  Your agent is affiliated with a mainstream real estate company – With this, your agent is much more likely to be informed on the latest changes in the distressed property market and will have the resources to deal with the situation should something unforeseen arise. Also, your agent is more likely to have connections with many other successful, full time agents, increasing the likelihood your home will sell in a timely manner.  This is important because your agent will be able to better troubleshoot challenging situations and decide on the best solution minimizing delays.

The Next Step

You have some good information, now what?

The best next step is to meet with me and put together a plan.  First, I will set you up with a good lender.  The lender will work with you to determine a budget for your home purchase and you’ll come away with a price range within which you can look.  

Next, sit down with your agent and decide what homes you like best within that price range.  Decide on criteria for your next house so not only will you probably do your own online looking, but your agent can as well.  During the meeting you can look to see how many of the homes you’re interested in are short sales, bank owned, or auction houses, and you can do some quick research together to decide what the situation is with each one of them.  That way when you actually go look at homes you can weigh the potential troubles of each home with how much you like the homes, and decide which properties to make offers on after taking all these factors into account.  

--Ward Spears

(503) 522-8269

© Copyright 2011 Ward Spears | Principal Broker | Re/Max Equity Group

Are you choosing the right agent?

A few ways an agent’s approach can affect the outcome of your transaction. Agent – Someone who acts on behalf of another person.
As a Real Estate Agent works on their client’s behalf naturally trust is needed; the principal (buyer or seller) needs to be able to trust their real estate agent. This is true now more than ever, the real estate market is more complex than it’s ever been, there are more laws, lender rules, and sellers in all different situations. Not only that, buyers can be in all different situations as well, some might be completely ready, others could just need a few tweaks to their financial situation in order to be ready.

It’s natural that many people nowadays need good information before proceeding with their real estate move. Of course, if the client owns a house and has equity in it, they often just want to know what the market is like, how much they can sell their house for, and how long it might take. Asking what the market is like is a totally fair question, we all hear a lot of things on the news… how much of it is true?

The questions and answers are just as serious when the client owes more than their home is worth. There are many options for people in this situation, it’s important that people know what they are. Just as in an equity situation, the client’s choice of agent is absolutely critical, the agents ethics and approach to business is very likely to make a big difference in the outcome for the client and their family.
Hard Seller vs. Consultative

Most importantly, is the agent a hard-seller or is there a more consultative approach? If the agent is more of a hard-seller, then you’re most likely going to hear the solution that is in the agent’s best short term interest, not your best interest. An agent’s interests and a client’s interests do not always conveniently align. In a perfect world an agent would almost always prefer to have a closing or a listing occur as quickly as possible. However, sometimes selling quickly is not necessarily in a prospective client’s best interest, they might prefer to stay in their home if possible.

One way to easily determine whether or not an agent has your best interests at heart is to bring up the subject of loan modifications, if the agent can speak knowledgably without being dismissive of the subject then there is a good chance you’re working with an agent who is committed to being well informed and honest. Many times I’ve been to short sale seminars where the speaker is very dismissive of loan modifications “they almost never happen” they say. However, the speaker is almost always selling something that has to do with short sales, naturally they will be dismissive of the loan modification option. Likewise, it is not in the agent’s best short term interest if you prefer to stay in your home and decide not to sell but instead work for a loan modification that could take six months. Most agents would prefer that you list your home, even though it could be a short sale (meaning that more is owed than it’s worth).

The hard-selling vs. consultative approach is also important for those who have equity. Often I hear stories from sellers about an offer coming in low, and their agent pressures them to take it, even though it might not be in their interest to do so. In this instance it is wildly important that the clients feel they can trust their agent. It can be difficult for a client to know if an agent is pressuring them or if the agent really does believe that the offer represents the best that client will be able to sell the house for. Hopefully the seller’s agent is able to give solid reasons to take, or not take the offer, but it still comes down to trust.
A commitment to keep learning

Another important factor is if your agent constantly works to stay up to date with the latest news in the real estate world, or is the agent just along for the ride? Just a few years ago it was easy for agents just to work with a few clients at a time, before long there would be a transaction, and money often came pretty easy for agents. For the most part this is no longer true, agents need to work a lot harder to make money, yet some agents still use the same take-it-easy approach. This same take-it-easy agent is unlikely to be current on the latest information.

Not to say that all agents who are dismissive of loan modifications are lazy or full of selfish intent, they may just not be up to date with the facts. As agents, we don’t get paid to help with loan modifications, we’re not even licensed to do them. However, we should be able to know when a modification makes sense and to point someone in the right direction.
Short term vs Long term approach

Remember above I pointed out that it may be in the agent’s best “short term” interest to give helpful consultations to their clients. From a selfish perspective, the hard selling approach could seem like the right way to go at least in the short term. However, there is self interest in the consultative approach as well, it’s just a longer term view. Suppose an agent meets with a client who at the beginning of the meeting is ready to sign a listing contract and start the short sale process, why on earth would the listing agent provide any other guidance? The only possible reason is that the consultative agent has two goals, one is to have a steady income, and the other is to be the Trusted Advisor for their clients. To have this perspective, an agent would need to assume that honest straightforward advice will motivate their clients to spread the word about the agent among their friends and family.

The results of a hard selling approach may result in the single transaction and the clients could even be satisfied enough to tell a friend about that agent. However, the longer term approach of the Trusted Advisor type of agent will almost certainly result in clients who are better advocates. The key then is to be a Trusted Advisor type of agent who can also sell when the time is right. For example maybe someone calls to see a listing represented by the Trusted Advisor agent, in this case some sales skill can really pay off! Therefore, the ability to have a balanced approach is really the best way.

Client Confidentiality

Client Confidentiality


In real estate deals there is an agency pamphlet that Oregon agents are required to hand to their clients, there are several bullet points, one of which is to keep their client’s information confidential. Unfortunately, I see this important tenet of agency violated constantly.


The point about confidentiality is item number nine on the list of agent duties in the pamphlet. All the prior duties can, in my opinion, be summed up by: Do your best for your client as their agent, tell your client what you know, work on their behalf, and don’t pretend you know something when you really don’t. It’s all pretty simple. Yet somehow this seems to fall apart for a lot of agents when it comes to item number nine, the duty to maintain your client’s confidential information.


The following are a few examples.


Earlier this fall I was representing a buyer, and discussing a property of interest with a well-known listing agent. This home was not listed as a short sale, there was no indication of distress. The other agent offers up: “this seller is in such financial difficulty, he is just having a really hard time focusing on keeping the property in showing condition”. Well that was interesting, I had *no clue* this was a distressed sale, but I sure did after that comment. If my client had decided to open up negotiations on this sale this information would have definitely factored in to their offer.


Another example occurred recently when I was representing a seller, and a cash offer had just come in. To show proof of funds, to prove the ability to purchase the property, the buyer’s agent offers the closing statement from the property the buyer recently sold. The closing statement showed the “cash to seller” from that transaction was far in excess of the amount needed to purchase my client’s property. Worse yet, the offer to us was written at a low price, but armed with this handy bit of information from the buyer’s agent we knew just how important an amount like $25,000 might be to that buyer (not that important!). Based on the information we wrote a counter offer with confidence and shockingly (ahem) the transaction went together just fine.


What should my colleagues have done differently to better represent their clients? In the first case, *don’t say anything at all!*. So many agents talk incessantly, it seems they sometimes don’t realize the importance of what they are saying. Does your agent have the “gift of gab”, as they say? Are you sure it’s a “gift”? It may not be when it comes to your confidential information.


In the second case, the client would have been much better represented if the buyer had gone to their banker for a letter stating that the amount required for the offer was available in their account. This tactic would have left the seller with doubts as to whether or not the buyer even *could* go higher, let alone whether or not the buyer had plenty of excess cash! It would have been much more likely that the seller’s counter offer would not have been so bold but more accommodating.


Finally, there is a third example that is even more tragic than the other two. Again, I was showing a house to a buyer client. After the showing, when the listing agent followed up with me for feedback I explained that my clients liked the house, and it was near the top of their list. “Oh good” she said, “because these people really need the money, they have serious health problems and really need to sell.” Ouch. I felt really bad for her clients, who else might she have told! My client didn’t end up choosing that home, but in the event they did I would have had the duty *by law* to share that information with them! Again, on this listing there was absolutely no indication of distress other than what the listing agent verbally shared with me.


Are you absolutely certain your agent is not sharing your confidential information with the world? If you’re already in an agency relationship, you might want to ask your agent their thoughts on this subject. If you’re not currently in an agency relationship, you might want to choose an agent that is sensitive to these issues when you’re considering which agent to work with.


--Ward Spears
(503) 522-8269
wspears@equitygroup.com
www.Portlandrealestate.net

If you’re thinking of selling your house:


Many news reports lately have hinted at an improving national real estate market, and things have definitely improved. Of course, real estate is a local thing, market challenges in another part of the country have little bearing on our market.


In fact, things have definitely improved here locally. Comparing October 2008 to October 2009 pending sales have increased 64% and closed sales are up 37%. Another number that’s nice to see is that the inventory of unsold homes is down to 6 ½ months down from the peak of 19.2 months back in January this year.


However, there are some storm clouds on the horizon. Take a look at this chart.
The chart shows the adjustable rate mortgages that have reset in the recent past, and those that are resetting in the coming few years. Fortunately, we’re through the big wave of subprime mortgage resets that was responsible for many of the difficulties in the market over the last year or two.


On the other hand, the next wave of mortgage resets is a whole different variety. The largest wave is a beast known as the Option Arm, called such because the borrower has four payment options when they send in their money every month. Two of the choices are usually never considered, those payments made consistently will pay off the mortgage in 15 or 30 years. The third choice only pays the interest, with no principle, and the last choice is actually a very small payment that causes the loan balance to increase every month. At some point, this choice is no longer available, people need to start paying the principle down and the minimum payment goes up dramatically.


The orange colored bars are Alt-A mortgages. These loans were made to people with good credit, but usually unverified income. This situation isn’t as dire if their loan adjusts into a low interest rate environment, but the rate is likely to continue adjusting on an annual basis, which were typical loan terms for that type of loan.


What does this mean? Well the nastiness really drops off right around Christmas of 2011 and into Groundhog day of 2012. So, we’re probably going to have downward pressure on prices into next year, with the reprieve we’re experiencing now benefitting from the home buyer tax credits and low mortgage rates. It seems unlikely the low rates and tax credits could go on forever (they won’t). My conclusion? If you’re thinking of selling, you should probably get started now, prices are unlikely to be any higher in two years. If you’re thinking of buying, the opportunities will probably last another couple years.




--- Ward Spears