Residential Real Estate in SW Washington State

Residential Real Estate Services with Passion, Integrity, Knowledge

Keeping Transactions on Course is a Bit Like Herding Chickens

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My family is new to the world of chicken-keeping. Funny busy noisy creatures those chickens. But inclined to running all over the place when attempting to direct them from one place to another. Block one bird from running off course, then look around and another one has doubled back and is heading back to the pen … or off to dig up a worm in a totally different area of the yard.

Kind of like keeping real estate transactions on course. Sometimes it takes a lot of arm waiving and shirt flapping to keep everyone moving in the same direction from start to finish. But persistence does pay off. Sometimes you have to pick one chicken up and carry it to the final destination. Seems like I’ve done that in my real estate career just a few times! Well, I guess I haven’t actually picked up any clients and carried them around, although sometimes it felt like it!

The business of real estate is hard work. It takes perserverance, tenacity, professionalism, exacting and timely actions, smiling personality, and a  lot of arm waiving and shirt flapping as well.

Maybe my career in real estate has trained me well for chicken-keeping! Or maybe it’s the other way around. Give me a call if you ever need someone to herd your real estate transaction through from start to finish.

 

Being a Buyer’s Agent Requires Amazing Knowledge

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Being a Buyer’s Agent … that broker who assists buyers find their dream house and guides them through to closing of their purchase … requires an amazing amount of knowledge in today’s market.

Just a few years ago, being a buyer’s agent essentially involved locating and assisting a buyer in writing an offer, carrying it around to all parties involved and shepherding the transaction through to closing, whereupon the golden keys were given and the buyer became the happy owner of their new house. (Yes, I know there was more, but essentially.)

While those steps are still in place with an “upgrade” to their practical application, the amount of knowledge necessary now to guide a buyer through to making the actual offer is enormous.

 

For example, short sales abound in most parts of the country. At the very least, the Buyer’s Agent must

  • Have knowledge of the steps involved in making an offer,
  • Determine whether the asking price is reasonable compared to the likelihood of the seller receiving approval,
  • Research and determine how many liens might exist against the property,
  • Research whether a foreclosure is imminent,
  • Determine whether other offers were made on the property previously and why they might have failed,
  • Consider the experience of the person/firm handling the short sale negotiations
  • Determine who will pay for the short sale negotiation
  • And make an educated thought about whether or not this sale is likely to close.

Now on to bank-owned or REO properties. A few pertinent considerations for the agent:

  • Which Bank owns the property
  • Is the property owned by Freddie Mac, Fannie Mae … is it a HUD home?
  • What are the offer procedures for those types of properties?
  • What’s the likelihood that the Buyer’s approved financing is appropriate for the type of ownership (for example, a VA loan isn’t particularly appropriate for a HUD-owned property)
  • What bank addendums are needed to make an offer? Do they override the existing MLS forms?
  • Can the normal MLS forms be used in making an offer?

And then there’s the house itself:

  • Is it likely that the property will qualify for the type of financing for which the Buyer has been approved? For example, if the buyer hopes to use an FHA loan … are there obvious defects that may need repair before the purchase can be completed? (let alone those that the appraiser might note)
  • Or … suppose the Buyer is looking at a property that will require a Rehab loan. Hmmmm, what type? An FHA 203(k)? Or what about HomePath Renovation or some of the other specific loans sponsored by a municipality?
  • And then, roughly, will the renovations be more than the Buyer can afford? Or more than, say, an FHA 203(k) StreamLine loan might allow?
  • Is that LP siding?
  • Does that roof look like it’ll pass the 5-year test?

    • 

And so on …

The agent with whom a Buyer works needs an enormous amount of knowledge just to bring a appropriately written offer to the Seller. — An amazing amount of knowledge!

What Kind of a Buyer are You?

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Talking with prospective buyer clients every week involves having frank discussions about how they see themselves reaching their new house goals. Listening to them describe the sort of house they want along with how they see themselves living in the home, the neighborhood and location, helps set up a relationship that describes how a buying transaction will proceed.

Some folks are emotional buyers. They drive into a neighborhood, walk into a house and instantly fall in love. THIS is the house. The sofa goes there. The kids can set up the WII there. The stand mixer fits perfectly into that corner of the kitchen counter. They walk away from the house emotionally invested, talking about the colors of the walls … that sort of thing. These emotional buyers aren’t the best ones to introduce to short sales, where the offer they make may be rejected by the bank two or three or four months down the road. They crash hard when things don’t work out and it’s a bit more difficult to rally them to taking the next step forward.

Some folks are all about the money. They just want a good deal. They see themselves selling the house quickly – perhaps in months; perhaps in just a few years — and adding to their nest egg or retirement fund or stepping up to another house. They can fix it up. They see themselves re-doing the kitchen, or recarpeting the stairs. The “house” isn’t as important to them as their ability to make some money. They also feel it’s imperative to make a low offer and perhaps get every penny paid in closing costs. These can be good Buyers to introduce to foreclosure properties and maybe to short sales if they can make offers on several houses and wait out the process.

Other folks are just barely able to qualify for a mortgage. They desperately want a house before they get shut out in some way. They have a dream of home ownership, but know that they really can’t afford their perfect vision, so they look for the “fixer.” And yet that fixer is an unrealistic purchase for them. It needs a lot of work, won’t easily qualify for a loan, isn’t in their financing geographic area (such as for USDA loans), etc. These Buyers need education. They need to see lots and lots of houses to understand the market and what their money will buy and how they might finance it. They’re often emotional buyers too, but reality needs to sit in before offers make sense. These folks are often good bank-owned, Freddie, Fannie, or HUD-owned house buyers, especially where the house has had some basic repairs made with an eye towards livability.

 

Some buyers, especially move-up to the next house buyers, want their buying experience to be as hassle-free as possible. They may have a young family that tags along at every showing. The kids run through the house picking out their bedrooms. They’re emotional buyers as well, but grounded in the reality of looking for a well-priced home. They want a house that’s been loved. Sometimes they want new construction with all the pretty bells and whistles. They may want some space to spread out. They often have a good list of “wants” and “must haves.” These are good candidates for homes that are seller-owned and not short sales.

 

Finally, there’s the “down-sizing” buyer. Often they’ve had a large house, which could be fully paid for, and now want a place with less maintenance, smaller footprint, and quiet. Money is important to them as they don’t want to spend the entire gain from the sale of their previous home on a new one. They want a good deal and a comfortable home. These Buyers can good prospects for bank-owned sorts of homes where the necessary fix-up isn’t huge, along with private seller sorts of homes where the seller is moving up. Sometimes they’re good candidates for that manufactured home on an acre or so. Sometimes they’re perfect candidates for a condomium.

 

Of course, many folks feel that they fall into a mix of these buying styles. As an agent, it sometimes takes a while to “get it right.” Helping you identify how you see yourself proceeding through a transaction can greatly simplify and shorten the house search and increase your satisfaction with the buying process. It’s all part of getting to know you!

So … What IS a Buyer Agency Agreement?

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In a previous post, I wrote a bit about why a Buyer Agency Agreement is important and how a Buyer / Broker relationship might occur. I also indicated that, as a rule, I require a Buyer Agency Agreement to work with Buyers.

So what, exactly, does a Buyer Agency Agreement obligate a Buyer to do? Likewise, what does it obligate the Broker to do?

Here are the essentials of a typical Buyer Agency Agreement:

  • Appoints a specific Broker (agent, salesperson—ME!) to work with you, but also creates an agency association with the Firm with whom the Broker works. It helps you understand that, not only are you represented by your specific selling Broker, but also by the Firm with whom the Broker has association.
  • It asks you to acknowledge receipt of the Law of Real Estate Agency pamphlet, which specifically sets out laws by which a Broker works in the State of Washington.
  • Sets out whether or not your relationship with the Broker governs any home you purchase in a given area and time frame, or whether your relationship is only for those homes in which the Broker participates (shows) you. It also clarifies what happens if you buy a home the Broker showed you after the term of the Buyer agreement has passed?
  • Allows the Broker to work as a dual agent in a transaction where the Broker represents the seller as their listing Broker, and you as their selling Broker.
  • Specifies exactly how and how much the Broker is paid. Your Broker may agree to only accept what the Seller has agreed to pay through the listing agreement the Seller has with their listing Broker. But …
    • What happens if the Seller’s contribution to the Broker’s compensation is minimal or insufficient to pay for all of the services a Broker must perform in a transaction? … or …
    • What happens in For Sale By Owner properties? Agency law in the State says that a broker doesn’t have to show you or pursue properties for you if there’s no compensation involved – but wouldn’t you as a Buyer still want representation by a trusted advisor? (After signing a Buyer Agency Agreement with me, I’ll represent you in a For Sale by Owner transaction, unless the seller is in a distress situation.)
  • Possibly one of the most important points in the agreement clarifies what the Broker will do in a Distressed Property Conveyance – one where you wish to participate in a distressed property transaction where the Seller will remain in the home after your purchase is complete, or will somehow gain in the transaction through retention of an interest in the property or will benefit from resale of the property.

In short … as with any critically important matter, you want the assurance that you are working with a professional who understands the laws governing real estate transactions and who will fully and competently represent your interests, and your interests alone (unless you agree to work within a dual agency situation).

Working With Buyers — That Scary Buyer Agency Agreement

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I love working with Buyers. The excitement of shopping for houses, seeing homes through their eyes, and the ultimate gratification everyone has when the transaction closes and move-in day occurs! It just doesn’t get much better than that!!

But working with Buyers is a tremendous amount of work. There’s a lot of stress involved, a myriad of big and little steps, lots of time on the phone, on the computer, in the car. Sometimes several offers are written and negotiated before an offer is ever accepted by a seller. In today’s world of bank-owned homes, short sale properties, pre-foreclosures, government-owned houses, the work can be difficult, exacting, and LENGTHY!

And I LOVE it!

Sometimes one of the trickiest negotiating points when working with Buyers begins early in the relationship between the Buyer and their Broker. After all, there’s often a presumption of loyalty very early on. You trust that the Broker will work with your best interests at heart … and the Broker trusts that you’ll use them to complete your home purchase.

Often a Buyer initially contacts the Broker asking to see that perfect house – you know, the one they’ve just driven by and it’s exactly what they want. Or the house on the internet with great pictures, or a great price, or a great neighborhood, or whatever.

So the Buyer calls the Broker. Could be the listing broker, could be a broker used by their best friend, or could be a broker for whom they’ve seen some advertising, found on the Web, or whatever.

The best Brokers start by doing a bit of careful screening prior to meeting a prospective Buyer at a home. The screening has a couple of purposes: Is the Buyer qualified to buy? Have they been looking long? Who have they worked with in the past? Are they working with an agent already? And, subtly, do they sound trustworthy? Should I take another agent/hubby/wife with me?

After agreeing to meet, whether it’s at the office for a prescreening, down the street at the local coffee shop, or at a home that’s just too good to delay, it’s typically a careful and somewhat cautious first date. Sometimes the first date is a lengthy phone call where everyone asks and answers a fair amount of questions. It’s a good way to see if there’s a fit – can the Buyer work with the Broker? Can the Broker work with the Buyer? Is there a formation of trust beginning to occur?

I’ve also found that there’s usually a whole portfolio of information the Buyers should receive prior to jumping in to make an offer on a home – sample contracts, definitions of terms, how the process works, a few legal documents including a copy of the Law of Real Estate Agency and a Buyer Agency Agreement. We’ll have a frank discussion about money matters as well. It’s important to me to learn what exactly what you can afford and how we should structure any sort of an offer to purchase. It’s important to you to learn how I get paid and by whom. It’s an important step to forming a trusted relationship between a professional (the Broker) and the Buyer.

Now, I won’t necessarily ask you to sign a Buyer Agency Agreement the first time we meet. YOU need to see if you can work with me as well. But I do request official formation of an agency relationship through acceptance of the Agreement at the conclusion of either the first or second showing session, after you’ve had some time to digest whether you like my working style, whether you trust me to represent your best interests, and, as well, whether I feel we can work together well as a team. Terms are negotiable, of course, but endorsement of the Agreement as we move forward will be necessary.

Follow the link here for more information about what’s in a basic Buyer Agency Agreement.

Flood Maps Affect Home Sales and Purchases

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One of the requirements to obtaining and maintaining a mortgage or loan on your home is that it be adequately insured against unexpected disasters. It’s important to know that damage from floods or landslides are not typically included in normal homeowner insurance policies.

Evaluation of whether a home resides within a flood plain is part of the consideration in obtaining affordable homeowner’s insurance. This can affect the ability of a buyer to fulfill the terms of their purchase contract, as expensive insurance may negatively impact that buyer’s ability to qualify for the purchase of the home.

Similarly, the requirement that flood insurance be obtained can negatively impact the Seller’s ability to sell a home. A home that’s not insurable, or one that has what appear to be excessively high premiums, can be difficult to sell to anyone that must finance their purchase, limiting prospective buyers to cash only or seller-carried contracts.

In most purchase contracts in which I participate, I recommend that the buyer include a provision that their annual homeowner insurance premium be no more than 1/2 of 1% of the purchase price. Generally that’s doable, unless the home happens to reside in an area designated as residing in a flood plain — then prices skyrocket as the prospective homeowner must also negotiate flood insurance.

As geology, improvements to land, and technology change,  flood maps are updated by FEMA (Federal Emergency Management Agency). Your home, which previously was not within a flood prone area, may be now … or, conversely, perhaps it is no longer, affecting your  insurance rates.

In incorporated and unincorporated King County, those flood maps have recently been re-drawn and can now be viewed during one of the three public meetings listed below. Additionally, you can review the new King County flood maps online, obtain more information about these public meetings, and review the flood insurance studies by visiting the King County Preliminary Flood Insurance page.

City of Auburn
Wednesday, January 26, 2011
6 – 8:00 P.M.
Dick Scobee Elementary School
1031 14th Street NE, Auburn, WA 98002
253-931-4984

City of Renton
Thursday, January 27, 2011
6 – 8:00 P.M.
Renton City Hall
Council Chambers – 7th Floor
1055 S. Grady Way, Renton, WA 98057
425-430-6400

City of Kent
Monday, February 7, 2011
6 – 8:00 P.M.
Kent Senior Activity Center
600 E. Smith Street, Kent, WA 98030
253-856-5150

Additional information about flood insurance in Washington State can be found at the Office of the Insurance Commissioner.

Finally, be sure to periodically review the terms of your homeowner insurance policy. It’s critically important that you know exactly what is … and what is not … covered on your policy. Damage from flood waters, earthquakes, or extra coverage for all that nifty personal computing equipment you own, may require extra attention in the form of insurance riders.

 

For help with your homeowner insurance needs, please let me know and I’ll be delighted to refer you to an outstanding insurance professional.

FHA Mortgage Insurance Changes & How They May Impact a Sale

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FHA loan billboard
http://www.flickr.com/photos/thetruthabout/4041556932/


You may have heard that costs surrounding FHA loans is changing in October, reducing the dollar amount needed at closing for Upfront Mortgage Insurance, while increasing the monthly portion of mortgage insurance that is added to a homeowner’s payment.

If you have previously been approved for an FHA loan but haven’t yet found a home, you’ll want to be sure to factor in the larger payment requirement into your budget, along with contacting your home loan advisor to be sure that your preapproval is still valid for the higher payment amount. You may also want to consult with your advisor to see if a different mortgage program might now be more attractive.

If you are a Seller, you may be expecting to contribute towards a Buyer’s closing costs, which are dropping considerably when the Buyer uses an FHA loan. In the past, I’ve suggested to a Seller that the buyer’s closing costs could easily total 3-4% of the purchase price. With the 1.25% drop in upfront mortgage insurance, contribution towards closing costs may be less hurtful towards your net amount at closing, thus perhaps becoming an attractive marketing tool.

Monthly Mortgage Insurance for FHA Increases October 4th:  For FHA case numbers that are assigned after October 4th, FHA will

  • decrease the Upfront Mortgage Insurance premium from 2.25% to 1.0%. 
  • increase the monthly mortgage insurance premium from .50%- .55% to .85% – .90%, depending on the combined loan to value.

My trusted Mortgage Advisor sent along this chart to help you understand how this will affect a homebuyer’s mortgage:

Sale Price

Increase in Payment

Decrease in Upfront MIP

$250,000

$54.17

$3015.63

$350,000

$75.85

$4422.03

$450,000

$97.62

$5428.48

$550,000

$118.53

$6588.87

Investor Alert: FHA Financing for “Flipped” Houses

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In mid-January, 2010, the Department of Housing and Urban Development (HUD) issued a temporary waiver (good until February 1, 2011, or until extended or withdrawn) to give FHA borrowers the ability of obtaining an FHA-insured mortgage on a home that was purchased less than 90 days previous. What this means is that a Buyer can use FHA financing for a home which was bought by an investor less than 90 days before, then repaired or rehabbed.

On its surface, it would seem as though this waiver would be greatly beneficial to investors. After all, an investor needs to purchase a real bargain house, do some repairs, and then re-sell the home as quickly as possible for a profit.

In my experience, most investors look for the original purchase to be no more than 70% of its repaired value, with 50-60% (or even less) preferred. Considering that the cost of buying and then selling a home can easily run approximately 10% of its resale value, that there are costs of borrowing funds for purchase, and, of course, the necessary costs of repair, an investment home must be sold for far more than 120% of the investor’s purchase price.

It’s also important to bear in mind that many buyers (if not most) are also looking for homes that are a bargain … and are using FHA financing to secure their purchase.

So .. where this gets difficult is that there is a 20% variance to the flip rule for homes being resold within 90 days of an investor’s acquisition of the property:

* If the home is being sold for no more than 120% of its purchase price, then flipping guidelines do not apply.

* If the home is being sold for more than 20% above its purchase price, then the Buyer’s lender will require an independent home inspection, selected by the lender and likely paid for by the Buyer (OUCH!), and

* The Lender must justify the loan value by acquiring support documentation of the increased value or TWO appraisals, and

* Even if an appraiser doesn’t find the need for a repair, a lender can require that any issues revealed by a home inspection be fixed prior to closing!

A home inspection in the hands of an underwriter can be problematic. Every home requires some repair–no home is perfect. In a typical transaction, Buyers and Sellers often agree to financial adjustments rather than repair. Underwriters aren’t necessarily equipped to interpret the findings presented on a written inspection report, and an transaction otherwise acceptable to a Buyer and Seller may be stalled or cancelled.

Finally, in most transactions, the Buyer pays for the appraisal of the property they wish to purchase, used to assure their lender that the value of the home is at least equal to the amount of the loan. With the requirement that a flipped home sold for more than 120% of its investment purchase price, the Buyer may be required to pay for two appraisals, which further impacts the Buyer’s closing costs. In today’s buyer-driven market, remember also, that the Seller is very frequently asked to pay all or some of the Buyer’s closing costs.

Click to read the HUD Waiver of Requirements for FHA loans, then be sure to factor in these additional requirements that may be impactful of your desire for a quick resale of your investment property.

There is NOT a 3.8% Sales Tax on All Home Sales Starting in 2013!

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Over the last several weeks I’ve had a number of clients and contacts email me with a “Is This True?” question about the rumor of a 3.8% “sales tax” to be added to the sale of a home after 2012. With the passing of President Obama’s Health Care bill, some people are digging deep for every possible reason to cause panic and mayhem.

Last night I received yet another forwarded copy of this message. I’ve copied the message in the three bordered sections that follow. My response is below.


Subject: REAL ESTATE SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill)

 

This excerpt from the Healthcare Reform bill has been grossly misstated. There is a 3.8% tax that will be imposed beginning in 2013 (if not repealed before them … and it’s under discussion) … but it’s not on the gross amount of a sale.

In fact, this provision has  been so widely misunderstood and misquoted, that the National Association of Realtors produced a Question and Answer publication to expressly discuss the matter. Be sure to expressly study questions 8-10. Click to read the publication.

Essentially, it’s like this:

A 3.8% tax will be imposed on high income earners (single earners with Adjusted Gross Income (AGI) over $200k, couples with AGI over $250k); that sell property realizing a gain over $250k (single) or $500k (joint filers). So .. if you’re married with AGI over $250k, and you sell a piece of property with a gain over $500k, you’ll pay a 3.8% tax on the gain, not the entire sales price.

I’m not a tax expert and can’t speak to computation of AGI, but I suspect that there will be some fairly extensive calculations involved to minimize AGI.


 


Buy Now? … or Wait?

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I bought my first home in the mid-’70’s, and then bought again in about 1983. Even though interest rates were “obscene,” (seems like ours was somewhere around 17.5%) somehow we managed to make it work. Builders and sellers routinely bought down rates and prices were considerably lower.

I was reminded of this fact this morning when receiving a marketing piece by one of my favorite statistical companies, Estate of Mind. Simple little graphs like this one provide such a powerful visual guide of just how far interest rates have dropped and the resulting impact in purchasing power.

Now, granted, $1,500 was certainly a lot more money in the pocket in 1981 than it is now … and a home at just over $100,000 at least compared with the the $300,000 home in today’s market. (That cute little 3 bed/1.75 bath 1300 square foot house we bought at $89k is now worth about $250k.)

But what this graph does show is, on the short term, that $1,500 at today’s phenominal interest rates will buy more now than it will as interest rates rise. I wish this chart included an overlay that showed the average interest with reasonably comparable terms year by year … but the cart was free and helps get the point across — Buying at lower rates buys more house!

For a full size copy of this chart, click here.