Know that buyers are less willing to take on fix-up work
By Dian
HymerA listing that is advertised as an "as is" sale can be a put-off to buyers. They might assume that something is wrong with the property that will cost a lot to repair. If they have little free time or money, they might decide before even taking a look that this isn't the house for them.
An "as is" sale can mean a number of different things. So, before you dismiss a listing as unsuitable, find out what "as is" means. It could mean that the property is part of the estate of someone who died. In some states, such properties are sold in their "as is" condition and without warranty in order to protect the heirs who might know nothing about the property.
Let's say you inherited your aunt's farm in Lassen County, Calif. You were there once when you were a kid, but haven't seen it since. You are not in a position to make any disclosures about the property. In this case, "as is" means the seller knows little if anything about the property. The property could be in wonderful condition or not depending on how well it was maintained over the years. "As is" doesn't necessarily mean there is a problem.
When a bank forecloses on a property, the sale is usually an "as is" sale. As with an estate sale, the bank might know nothing about the condition of the property. It's up to the buyers to satisfy themselves before buying. Homeowners who let their homes go into foreclosure because they can't afford to make the mortgage payments also might not have enough money to keep the home well maintained.
HOUSE HUNTING TIP: Don't skimp on inspections if you're going to buy a foreclosure property. You may need to inspect the property -- with the owner's permission -- before you make an offer. But, it is money well spent even if the deal doesn't go through if it keeps you from buying a property that needs more work than you can afford to pay for.
"As is" can have a much more benign connotation. For example, in California, most sales are made "as is" subject to the buyers' right to inspect the property. In this case, "as is" tells you nothing about the property except that the sellers won't warrant the condition. Buyers are encouraged to have the property inspected by professionals. And, they are usually able to withdraw from a purchase contract without penalty if they don't approve the inspections.
However, for a buyer to be protected in this situation, an inspection contingency that gives the buyers the right to withdraw without losing their deposit money needs to be included in the purchase contract.
Be aware that offers made on foreclosures or probate properties that require court confirmation often need to be contingency-free. There could be severe legal consequences if you back out of such a contract. Consult with a knowledgeable real estate attorney before considering backing out of a contingency-free contract.
Several years ago, when the market favored sellers and was highly competitive, some buyers made offers without any contingencies. Often in these cases, sellers had
presale inspection reports available for buyers to review before they made an offer. The market was so frenzied that buyers often bought "as is" with respect to work that needed to be done. Many of these buyers stretched to buy and didn't have the resources to have the work done. With the change in the market, today's buyers probably won't be willing to take on the work "as is" without a price concession.
THE CLOSING: Sellers will be in a better position to sell in today's market if they have the work done before they put their homes on the market.
Borrowed by our
friends at top producer
Fannie, Freddie may have to tiptoe into 'jumbo light' market
By Matt Carter
Inman NewsWhile Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week (see Inman News
story).
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs).
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit.
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.
Estimated conforming loan limit increases
Metropolitan area
Median price Q3 '07
Estimated new limit
Anaheim-Santa Ana, Calif.
$700,700
$729,750
L.A.-Long Beach-Santa Ana, Calif.
$588,400
$729,750
San Diego-Carlsbad-San Marcos, Calif.
$589,300
$729,750
San Francisco-Oakland-Fremont, Calif.
$825,400
$729,750
San Jose-Sunnyvale-Santa Clara, Calif.
$852,500
$729,750
Riverside-San Bernardino-Ontario, Calif.
$377,000
$471,250
Sacramento-Arden-Arcade-Roseville, Calif.
$335,700
$419,625
Barnstable Town, Mass.
$400,600
$500,750
Boston-Cambridge-Quincy, Mass.
$414,700
$518,375
Boulder, Colo.
$367,500
$459,375
Bridgeport-Stamford-Norwalk, Conn.
$491,100
$613,875
Miami-Fort Lauderdale-Miami Beach, Fla.
$346,800
$433,500
New York-Northern N.J.-Long Island, N.Y./N.J.
$476,100
$595,125
New York-Wayne-White Plains, N.Y.
$550,900
$688,625
Edison, N.J.
$391,800
$489,750
Nassau-Suffolk, N.Y.
$470,000
$587,500
Newark-Union, N.J./Penn.
$459,700
$574,625
Seattle-Tacoma-Bellevue, Wash.
$394,700
$493,375
Wash. D.C.-Arlington-Alexandria, Va./Md./W.V.
$438,000
$547,500
Source: National Association of Realtors, Stanford Group
*barrowed from our friends at Topproducer
New technology creates data that are tough to refute By Bernice Ross
Inman News
Persuading sellers to be realistic is a consistent challenge for any real estate agent, especially in a slowing or a declining market. Recent technological innovations make this much easier than ever before.
In previous columns, I have discussed how to use rate-of-absorption numbers to help sellers be more realistic about the probability of selling their home. For example, if there are eight months of inventory on the market, the probability that a seller will sell in any given month is 12.5 percent. The probability that the seller will not sell is 87.5 percent. Consequently, sellers who want to place their properties under contract must position their property in the marketplace where they will be in the best 12.5 percent in terms of value, which is a combination of condition and price. If not, their listing will sit on the market until it expires or until they lower their price sufficiently to motivate a buyer to purchase it.
One of the tried and true strategies from the past was created by the late Lee Coats who wrote much of the training for Coldwell Banker. Lee invented the "pricing line." If you haven't worked with this approach, it's extremely effective. The system is fairly simple. Imagine a page with three different charts that resemble rulers marked in 1/4-inch segments. The top chart has the "recently sold" properties. Record each property that has sold on this pricing line. On the second chart, record the properties that are currently for sale. Finally, on the third chart you record the properties that did not sell. The sellers can quickly see the range of the most recent sales, what the current competition is, as well as how much higher priced the expired listings were as compared to those listings that sold. When you show the seller the listings that are currently available, the closing question is, "Where do you want to be in line?" When properties have comparable amenities, it's easy to demonstrate that the lower-priced listings usually sell more quickly.
A company called ScatterGramPricing.com has now automated the pricing-line process. Agents simply enter the sales data and the computer generates the charts. The company also offers a true scattergram (a graph that allows you to plot the relationship between two different variables as a straight line.) While there are a number of statistical programs that do this, this particular program is designed specifically for the real estate industry. Agents enter the data and the computer does the rest. The most relevant chart to plot is the relationship between square footage and price. This is another way to help sellers be more realistic about pricing because you can visually demonstrate where their property falls as compared to the competition. Typically, the lower the price per square foot that a property is, the more quickly it will sell.
A third approach in helping sellers to be more realistic works best after you have taken the listing. This approach involves tracking how many visitors or hits that you are receiving from various Web sites where your listing appears. Until recently these data were expensive and hard to obtain. Now Point2Agent provides this as part of its suite of Web site products at no charge. Agents fill out a brief form and the Point2 software generates a template Web site. Once agents create the site, they can upload their listings. From there, they have the option of syndicating their listings to more than 30 different sites, including GoogleBase, Yahoo Classifieds, Trulia, craigslist and a host of others. The great news is that this system then tracks the number of visitors that each listing receives from each of the sites where the listing is syndicated.
When sellers are being unrealistic about their price, it's extremely powerful to print out the charts that show exactly how much traffic has come from each site. It's common for a listing to be viewed hundreds if not thousands of times from exposure on so many sites.
Whether or not you elect to use Point2, placing your listing on craigslist.com may be the most important marketing step that you can take to reach today's Web consumer. Anecdotal reports from numerous blogs indicate that consumers are finding and purchasing homes that are posted on craigslist. The traffic reports from Point2 (their tool tracks how many hits their Web sites receive from craigslist.com) and from RealEstateShows.com confirm these anecdotal reports. The traffic from craigslist dwarfs the amount of traffic coming from other sites.
If you want to realistically price your listings, the rate of absorption, pricing line and scattergrams are excellent visual aids. If you're are in need of a price reduction, posting your listing on Point2 and then monitoring the traffic provides you with a strong piece of data that the seller will have a hard time refuting. When a listing has been viewed more than 1,000 times on the Web and there have been no offers, it's a pretty safe bet that the price needs to be reduced.
Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of "Waging War on Real Estate's Discounters" and "Who's the Best Person to Sell My House?" Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.
** this article was borrowed from our friends at top producer
