Residential Real Estate in SW Washington State

Residential Real Estate Services with Passion, Integrity, Knowledge

Whether You Rent or Buy, Either Way You’re Paying a Mortgage!

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There are some people who have not purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize, however, that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.

As Entrepreneur Magazine, a premier source for small business, explained in their article, “12 Practical Steps to Getting Rich”:

While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.

Christina Boyle, Senior Vice President and head of the Single-Family Sales & Relationship Management organization at Freddie Mac, explains another benefit of securing a mortgage as opposed to paying rent:

With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.

As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person building that equity.

Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.22% last week.

Bottom Line
Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.

Okay, Should You Sell … and Buy in 2012?

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sitting on fence-flicker by michaelkuhn_picsLike many, you may have been sitting impatiently on the fence for the last three years hoping for a miracle that would allow you to sell your existing home without sacrificing too much more equity … and buy at today’s price and interest rate.

At least once a week I get a call from a previous client or someone “just checking out the market,” wanting to do exactly that. And, who absolutely wouldn’t want to buy a house with the bargains out there??!!

Let me try to help you make a bit of sense out of this type of scenario.

The latest statistics from the Office of Federal Housing Economic Oversight (OFHEO) and Federal Housing Finance Agency (FHFA) indicate that home prices in Washington State, overall, lost approximately 8.67% from the end of 3rd quarter 2010 through 3rd quarter 2011, but gained 111.07% for the 20 year period ending 3rd quarter 2011. Okay .. math … 111.07% divided by 20 years = 5.55% a year appreciation!

Now, assuming that housing prices are getting to the bottom end of their free-fall, let’s also assume that housing prices will continue to appreciate overall at a safe rate of about 5% a year for the next 20 years. There’s still going to be some skidding when reviewed on the short term, but remember that real estate is a long term investment — 10-20 years.

Continuing with assumptions, let’s presume that housing prices in Washington State might fall another 7-8% over 2012 (I think that sounds like a bit much, but my crystal ball is a bit cloudy, so who knows? Note, that The Housing Predictor anticipates an approximate drop in the Seattle area of about 5.1%.)

So … your current house valued today at, say $250,000, might be worth approximately $230,000 or maybe $235,000 by year end. Yikes … another nosebleed of $15,000-$20,000. Perhaps you owe approximately $150,000-$200,000 … and you’re paying around 6% in interest on your mortgage. (Quick math … $200k at 6% = principal & interest payment is approximately $1,200 a month – but you’re paying more than that because you haven’t refinanced since 2008 and your house was worth more and your loan was bigger. I’m guessing you’re probably paying around $1,600 a month principal and interest.)

You want a bigger house, different neighborhood, lower interest rates. And you can buy that for, say, $275,000-$300,000 at today’s prices. At the end of the year (assuming you wait until next December), those houses might be priced at $255,000-$280,000.

Let’s look at what that means to your pocketbook by comparing interest rates.

Right now, rates are sitting right around 4%. They move around a bit … but let’s say 4% just for talking sake.

Analysts have been surprised that rates have stayed as low as they are, so let’s presume they go back up to 5%. If you buy in January rather than waiting until next December, your purchase might look like this:

 

   

Today’s Price

  

Price at End of 2012

Purchase Price

  

$275,000

-7%

$255,000

Down Payment

20%

($55,000)

20%

($51,000)

Amount Financed

  

$220,000

  

$204,000

Principal & Interest Payment

4%

$1,050.30

5%

$1,095.12

Interesting … buying now at a higher price still saves about $45 a month over waiting until year end and paying a bit more in interest.

Now, let’s look back at that historical trend for appreciation. Conservatively, let’s say that  house gains in value 5% a year overall for 20 years.

Therefore, if you buy a house today at $275,000, twenty years from now at 5% a year (hmmmm, 100% increase), historically, that house could be worth approximately $550,000. Plan to keep the house 10 years? How about approximately $412,500?

Should you sell … and buy new in 2012?  “I” think so; personally I expect prices to start to rise in 2013. But, of course it has to make sense to you. If you plan to buy a home and believe you’ll be able to stay in it for 10 years or more, then absolutely.

If your overall payment on a replacement home is within your budget, you have the funds to close the sale of your old home and a new one, then let’s get going while rates are amazing and prices are too!

*man on fence graphic thanks to Flickr, Michael Kuhn

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!

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.

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

Get Paid $6,500 to Buy a Home!

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Repeat or Move-Up Home Buyer — Get Paid $6,500 to Buy a Home!!

Repeat or Move-Up Home Buyer Tax Credit Eligibility Requirements:
  • Buyers must have owned and lived in their previous home for five consecutive years out of the last eight years and purchase a replacement primary home.
  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.  Applies to homes priced at $800,000 or less.
  • The tax credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010.  In cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies for the tax credit provided the sale is completed (closed) by June 30, 2010.
  • Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
Top 5 Reasons it is a Great Time for Repeat and/or Move-Up Buyers To Purchase a Home:
  1. You are buying a home today that doesn’t have inflated equity
  2. You don’t have to sell your current home to qualify for the Tax Credit (although you would need to qualify for both house payments, if applicable)
  3. You have sellers willing to pay your closing costs and possibly buy-down already great interest rates
  4. You are in the first true “Buyers” Market in nearly 8 years and have the largest selection of homes in 15 years
  5. The current downturn in house pricing as well as low interest rates could allow you to buy homes in neighborhoods that were out of reach two years ago
With rates at an all time low, inventory at an all time high, and a $6,500 tax credit…it’s a GREAT time to buy another home!  Call or email me today to take the first step!
Thanks to Michelle Coolidge of Cobalt Mortgage for this information!