On the Market

I've Moved!

2010-06-11T07:53:00.002-04:00

I've moved the blog over to a (what I hope to be) more robust platform.

Be sure to visit and change your bookmarks.

The new address can be found here:

Buying a Bank Owned Home

2010-06-02T10:18:00.002-04:00

There are several different types of distressed properties that buyers should be aware of. They include Short Sales, Sheriff Sales, Estate Sales, and Bank Owned Properties.

Bank Owned Properties (commonly referred to as "REOs" or Real Estate Owned) are exactly what they sound like they would be--homes owned by banks.

The last step of the foreclosure process is a public sale of the home at the county courthouse. This is known as a sheriff's sale. In most cases the lender that is foreclosing on the borrower will take possession of the property.

After taking possession, the bank has any personal property left by the previous owners removed from the property, orders an appraisal to determine the value, and hires a local real estate agent to list the property for sale.

Generally, bank owned / REO properties are priced somewhat lower what than a traditional property would be because the banks would prefer to sell the homes quickly. From the time of taking possession of the home and reselling it, the bank has carrying costs which include taxes, maintenance, and utilities which they would like to minimize. This presents some leverage for buyers trying to negotiate a lower than asking purchase price.

Buying a bank owned / REO property is a lot safer than purchasing a home directly from a sheriff sale. With bank owned properties, buyers will get the home free of any liens and with clear title just like they would with a traditional sale.

The downside is most banks have a mandatory addendum that must be attached to any agreement of sale for the property. These addenda usually include provisions that the house be sold "as-is". In other words, a prospective buyer can have a home inspection performed, but as a result of the inspection, they can either take it or leave it--there is no negotiating repairs, credits, or a reduced price after the agreement of sale is accepted.

Often, bank owned / REO properties will be "winterized". This means the water to the home has been shut off and pipes drained to prevent water damage in cold weather. If a buyer wishes to perform an inspection on the plumbing system, they will be responsible to "de-winterizing" and then "re-winterizing" the home.

In some cases, the bank will also require buyers to pay the full amount of transfer tax or other closing costs traditionally paid by sellers including tax certifications or use and occupancy inspections.

Since they are listed with real estate agents, bank Owned / REO properties are available on the MLS (multiple listing service) just as traditional properties are. Most of the time, there isn't any identifying criteria to differentiate them from a normal sale, so be sure to ask your agent to point them out for you. Since they are on the MLS, there isn't any reason to sign up with a website or pay for any special "bank owned property lists".

If the repairs needed to the home are within your comfort level and you have a strong real estate agent to negotiate the price, bank owned / REO properties can present a great opportunity.

Neighborhood Spotlight: Gwynedale

2010-05-31T12:13:00.005-04:00

Gwynedale is a community located in Upper Gwynedd Township that was built in the late 1980s / early 1990s. The development consists of 178 townhomes that have 3 bedrooms, 2 ½ bathrooms, a full basement and a 1 car garage.

View Gwynedale in a larger map

There is a homeowners association that maintains the common areas, which include tennis courts. The association fee assessed to homeowners is $700/year and that covers the common area maintenance as well as lawn care and snow removal.

At the time that this article was written, there was 1 home listed for sale in Gwynedale.

The following is a brief history of sales in Gwynedale:

Year	Homes Sold	Median Price
2010*	7	$289,900
2009	8	$292,000
2008	17	$290,000
2007	15	$305,000
2006	15	$310,000

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Neighborhood Spotlight: Charter Oaks

2010-05-31T11:57:00.002-04:00

Charter Oaks is a community located in Upper Gywnedd Township that was built in the mid 1990s. The development consists of 42 single family homes that mostly have 4 bedrooms, 2 ½ bathrooms, a full basement and a 2 car garage.

View Charter Oaks in a larger map

At the time that this article was written, there were no homes listed for sale in Charter Oaks.

The following is a brief history of sales in Charter Oaks:

Year	Homes Sold	Median Price
2010*	0	$ -
2009	2	$482,500
2008	0	$ -
2007	0	$ -
2006	1	$750,000

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Mortgage Rate Update

2010-05-28T10:09:00.002-04:00

This week's survey of lenders performed by Bankrate.com shows the national average for a 30 year fixed rate mortgage has fallen to 4.92% from 4.96% last week. The mortgages in the survey had an average of 0.42 discount and origination points. Last year at this time, the average rate was 5.45% and a month ago it was 5.21%

Neighborhood Spotlight: Stonegate

2010-05-26T11:46:00.005-04:00

Stonegate is a community located in Upper Gywnedd Township that was built in the mid 1990s. The development consists of 188 townhomes that each have 3 bedrooms, 2 ½ bathrooms, a full basement and a 1 car garage.

View Stonegate in a larger map

The community has a home owners association that oversees the management of the common areas in the neighborhood which includes open space, tennis courts, and a children's playground. The association assesses a fee of $179/quarter to residents for the common area maintenance that also includes trash service.

There are currently 5 homes for sale in Stonegate, and they range in asking price from $264,900 to $294,900.

The following is a brief history of sales in Stonegate:

Year	Homes Sold	Median Price
2010*	6	$268,500
2009	7	$250,000
2008	17	$271,000
2007	15	$273,000
2006	20	$274,950

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Creative Ways of Marketing Your Home: Seller Incentives

2010-05-25T11:33:00.001-04:00

With inventory on the rise and the expiration of the homebuyer tax credit, sellers will have to be increasingly creative in coming up with ways to differentiate their home from the competition.

It's true that you can sell anything at the right price, but sometimes just lowering the asking price isn't necessarily the best tactic.

Imagine for a moment you have your Gywnedale townhome for sale and there are 5 other listings for sale in the neighborhood located in Upper Gywnedd Township just outside of Lansdale. All of the homes are fairly similar to yours- 3 bedrooms, 2 ½ baths, 1 car garage – and they're all asking between $310k and $315k – right in line with your price of $310k.

The comparables (homes in the neighborhood that have recently sold) are telling you that your asking price is in the ballpark of where it should be, but there just isn't that much activity.

One option would be to lower your asking price, perhaps to the $300k for your current price of $310k. At that price your home would be a steal compared to the other homes for sale in the neighborhood and would most likely get an offer before any of the other listings.

The other option is to get creative-- Offer an incentive to a buyer that creates a higher perception of value than what a simple price reduction would.

For example, you could advertise that with an acceptable agreement you'll buy a discount point to lower the buyer's interest rate or pay for the buyer's first year of property taxes and association fees.

In reality you're giving up a lot less than you would have with a $10,000 price reduction, but most buyers won't see it that way. Buyers will look at these incentives and think, "wow, I'm getting something for free with this house, I can't pass up this opportunity!" They won't even consider the actual value of the incentive.

Another good idea is to attach a deadline to be eligible for the incentive. Something like "for acceptable offers received by (30 days from now), seller will…" is fairly successful in planting a sense of urgency upon potential buyers.

It's important to remember that for incentives to be effective, that home has to be properly positioned in the market to begin with. A buyer won't care if you're giving them a free year's worth of taxes if your home is priced $25k above the competition.

Homes that are listed in the bottom third of the price range and are in the top third of condition amongst the competition are selling the quickest, but adding an incentive to a buyer can get you to the settlement table faster and with more money than the typical price reduction.

Mortgage Rate Update

2010-05-21T09:53:00.002-04:00

The weekly survey performed by BankRate.com has revealed that the national average for 30 year fixed rate mortgages has fallen to 4.96%, down from 5.07% last week. The mortgages in the survey had an average total of .5 discount and origination points. Last year at this time, the average mortgage rate was 5.24% and a month ago it was 5.22%

Getting Some Help with Closing Costs

2010-05-20T10:41:00.001-04:00

Recently, I've been working with a lot of first time home buyers trying to take advantage of the homeownership stimulus tax credit. One common trait of this segment of the market is the lack of a lot of cash to put towards the transaction. Unlike a "move up" buyer who is selling a home and using the proceeds from that sale towards their next purchase, the typical first time buyer is usually scraping money together from savings in order to buy their first home.

Though the seller typically pays the Realtor's commission in a real estate transaction, the buyer still has fairly significant closing costs. These include, but are not limited to: title insurance premiums and fees, transfer tax, mortgage fees, tax escrows, and recording and notary fees. In the average transaction, these could easily add up to 4 or 5 percent of the sales price of the home. Add those costs to the down payment, which for an FHA mortgage is a minimum of 3.5%, and buyers are looking at a pretty scary number due at closing.

Fortunately, there is something known as a Seller's Assist that can be used as a tool to essentially finance some of the buyer's closing costs.

Here's a scenario using round numbers for the sake of making it easy to understand:

John and Mary are first time buyers and have been looking at houses and they finally found one they really like. The seller is asking $100k, the house is really worth $95k, and the seller would take $92k for it.

They have two basic options (and a million variations, but let's just look at the two main ones here)

Offer the seller $92k
or
Offer the seller $95k and ask for a $3k seller assist

In both cases, the seller will net the same amount of money ($92k), but in the second instance the buyers will receive a $3k credit to apply towards their closing costs. Their mortgage will be based off of the $95k, so their monthly payment will be a bit higher, but they will have to come up with less cash to go to settlement on the home.

Typically lenders will allow a seller's assist up to a maximum of 6% of the purchase price, not to exceed closing costs. Essentially, that means a buyer cannot get cash back at closing. If a buyer negotiates a seller's assist greater than what their closing costs will be, they can however increase their closing costs to be able to receive the full amount of the seller assist.

Now you're probably thinking; why on earth would a buyer want to increase their closing costs, why not just reduce the assist to the exact amount? Well, the answer is pretty simple. A buyer could buy "discount points" from the lender to bring down their interest rate on the loan.

Now the buyer is using the seller assist as a means to finance closing costs and bring down the interest rate of the loan. So even though the mortgaged amount will be a bit higher with the seller assist option, the payment could possibly be the same, if not lower than that option with no assist, and the buyer has put less cash into the home.

The exact purchase price offered and the amount of a seller assist asked for will vary depending on the buyer's particular financial situation. Be sure that you understand all the options and have explored several different scenarios before entering into an agreement of sale.

This Month in Real Estate (US) : May 2010

2010-05-17T12:39:00.000-04:00

April Market Statistics for residential properties.

2010-05-17T11:16:00.003-04:00

What is a 'Short Sale?'

2010-05-13T14:09:00.000-04:00

Buyers often ask me if I have access to short sale listings, yet few understand exactly what a short sale is. A short sale, in real estate terms, is simply when the seller’s proceeds from the sale are insufficient to pay off loan on the property.

Here’s a real life example. At the height of the real estate boom, John and Mary bought a home for $300,000 and took out a mortgage for $275,000. In the past few months, John has lost his job and Mary is facing medical issues. Due to their financial situation, John and Mary have been unable to make their mortgage payments and are now facing foreclosure. In an attempt to get out of their situation, they’ve decided to sell the house. Unfortunately, the house they paid $300,000 for 5 years ago is now worth $250,000.

After closing costs, there will not be enough money to pay off the mortgage.
John and Mary have two choices: they could bring money to closing to cover the short fall (but if they had that money, they probably wouldn’t be in this situation to begin with) or they could negotiate with the lender to accept less than what is owed to satisfy the loan (sell the house short).

Whether or not a lender will accept a short sale will depend on several factors. The owner’s financial situation, attempts at other remedies (loan modifications for example), how much they are proposing to sell the house for in comparison to the appraised value, and the differential between the proposed payoff amount and the actual payoff amount are all considered. Recently, the government introduced incentives to get lenders to approve more short sales which have helped the process somewhat. However, depending on the particular lender (and I won’t name names here), the process can be dragged out for months and there are a lot of hoops to jump through.

So are short sales a “good deal” for buyers? Well, they can be.

Lender’s have guidelines that establish how much of a loss they are will to take with short sales and they will only accept the loss if it makes financial sense for them to do so. A buyer must consider the probable appraised value of the house, the seller’s payoff amount, how far along the house is in the foreclosure process amongst other things when constructing an offer that’s a good deal for them and at the same time has a high likely hood of getting approved by the lender.

The approval process itself is also a consideration of the buyer. I’ve had short sale deals that have gotten approved in a matter of days and others that have taken months. A person going into a short sale transaction should be aware that it’s likely they will be waiting for quite some time waiting for a “yes or no” from the seller’s lender. Some buyers might want to exclude short sale listings from their search all together if they are on a timeline and need to be in their new home by a certain date.

As the real estate market correction continues to unfold, it’s likely that more and more home buyers and sellers will be involved in a short sale transaction. It’s important for everyone involved to be educated about the process and understand what it means to them.