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This week we are posting the best blogs of 2011 by category. We hope you enjoy them as much as you did when we first posted them. – The KCM Crew

The First Question You Should Ask Your Listing Agent

What is the most important thing a seller should look for when hiring a real estate agent to sell their house? We are often asked this question. Is it the size of the company they are licensed with? Is it their marketing program? Their years experience in the business? Should you choose the agent who suggests the highest listing price?

There are many things that should be taken into consideration when hiring someone and giving them the responsibility for selling your home. In our opinion, the most important question you can ask a potential listing agent is a simple one:

Do you truly believe that now is a good time to buy a home?

Why should this matter when hiring someone to SELL your home? Buyers are nervous about purchasing right now. They want to know they are making an intelligent choice. We believe, especially in today’s market, you need to hire someone who realizes that this is one of the best times in American real estate history to buy. If an agent doesn’t believe that, how will they be able to convince a potential buyer to buy your home?

When interviewing a real estate professional, ask them to explain why purchasing a home makes sense today. They should be able to explain it simply and effectively. See how many of the following facts (which should be shared with every potential purchaser) the agent knows:

The Wall Street Journal last week stated:

“With home sales starting to improve, and with prices now possibly forming a bottom, real estate could well be the asset class that represents the best low-risk buying opportunity out there today.”

Donald Trump was just quoted saying:

“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”

John Paulson , a multibillionaire hedge fund operator and the investment genius who made a killing betting against housing a few years ago, is now bullish on residential real estate market. He recently said:

“If you don’t own a home, buy one. If you own one home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.”

A recent Gallup Poll showed that 67% of American’s think that now is a ‘good time’ to buy a home. The Gallup Organization went on to say:

“Overall, there is good reason for most Americans to think now is a good time to buy a house. Interest rates remain near historic lows. Home prices are down sharply, providing many incredible buys.”

The iconic financial paper in this country, the country’s most famous real estate investor, the most successful prognosticator of the housing market and 2/3 of all Americans say now is the time to buy a home. Shouldn’t your agent agree?

Bottom Line

Selling is nothing more than the transference of conviction. How can agents transfer that conviction if they themselves are not convinced? Find a listing agent who truly believes that someone should buy your home – TODAY! This is the single most important thing you should look for in a potential listing agent.

In today’s real estate market, it is easy to get confused. There seems to be an overabundance of information and much of it seems to be conflicting. As an example, we offer you two headlines that appeared within 24 hours of each other last week.

National Delinquency Rate Falls to Lowest Level in Three Years

- Mortgage Bankers Assoc. 11/17/2011

Second Consecutive Increase in First Mortgage Default Rates

- Standard & Poors 11/18/2011

( Remember, foreclosures impact home values and the cost of mortgage money. This makes current delinquency rates an extremely important data point. )

Though these headlines seem to be saying opposite things, both are actually correct. Each report was looking at different data points over different periods of time.

In their article regarding the MBA report, DSNews explains:

“Industry data released Thursday indicates the number of borrowers in the United States behind on their mortgage payments is showing signs of improving. The Mortgage Bankers Association (MBA) reported that the national delinquency rate for residential home loans fell to 7.99 percent in the third quarter.”

In their post, S&P claims:

“First mortgage default rates rose from 1.99% in September to 2.08% in October .”

Bottom Line

Make sure you are dealing with local real estate and mortgage professionals. They will help you and your family decipher the hordes of information available so you can truly understand your best options.

Today, we are again honored to have Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research as our guest blogger. To view other research from FIU, visit http://realestate.fiu.edu/. Dr. Johnson will also be speaking at NAR’s Conference and Expo in Anaheim. For more information click here. - The KCM Crew

On August 10^th, The New York Times reported: “Uncle Sam wants you — to rent a house from Uncle Sam”.  The gist of the story is that the Obama administration is seeking ideas on how to convert the federal government’s inventory of foreclosed properties into rental properties that can be managed by private enterprises or sold in bulk.  The goal here is to stabilize housing markets around the country that are suffering through a wave of foreclosures.  Today, rumors of turning foreclosures into rentals are surfacing again.  Is this a good idea?  If so, how should such a program be organized and managed?  What are some of the potential downfalls of such a program?

To begin with, this is, in general, a good idea for a number of reasons.  First, vacant non-performing assets (empty properties) will begin to provide returns and thus mitigate total eventual losses to lenders and thereby lower the tab to all.  Second, the program should slow down the flood of foreclosed properties and should help stabilize pricing as traditional home sellers will now have fewer foreclosures to compete against.  Third, the program would allow lenders (Fannie, Freddie, and others – perhaps the original lender) to time the selling of foreclosed properties, which would assist in stabilizing the housing markets around the country. 

If turning foreclosures into rental happens, what should not be done?  Renting to the previous owners should not be allowed as this would create significant conflicts of interest, which could easily lead to a deluge of lawsuits resulting in the failure of the program.  Additionally, social engineering should not be allowed.  Let the marketplace decide rent levels.

Where might problems arise from turning foreclosures into rentals?  Though they are very similar, foreclosure laws vary by state.  One general commonality among the various laws is that the lender must mitigate the loss to the previous owner through a timely resale of the property.  These laws can be thought of as the Milton Drysdale deterrent.  It is simply not in the best interest of society to allow lenders to foreclose on property, ride out the tough times, and then resell at a huge profit.  However, these laws never contemplated a situation where foreclosures would be as rampant as they are at present.  Regardless, if the federal government, through Fannie, Freddie, joint ventures with outside investors with Fannie and Freddie, or even the original lenders themselves, becomes a landlord looking for a better environment in which to sell, the likelihood of lawsuits over violations of state foreclosure laws is almost certain.  That is to say, we will probably have “Robo-signing II”.  Thus, the big question is will Congress be willing to back turning foreclosures into rentals with a federal law that overrides state foreclosure statutes. 

Four years ago, I told a graduate audience that banks should get ready to manage property in order to mitigate losses from the coming real estate crisis.  However, state laws would probably prevent this and that federal legislation was needed to allow for lenders to manage and/or re-sell property in a way that balanced market stabilization with mitigating losses to the original owners.  Is turning foreclosures into rentals a good idea?  Yes, the idea is sound.  The only surprise is that it took this long to get around to considering this eventuality.

On Monday, we gave you the links to four different articles that came to the same conclusion: it’s time to buy a home. Today, we want to take a closer look at one of the sources, the JP Morgan’s Market Insights report. Right from the beginning, the paper identifies the greatest challenge in today’s housing market: consumer emotion. They attempt to overcome that emotion with logical reasons why now is the time to buy a home. They break it down to the following.

Price-to-Income Ratio

One measure of housing values is the ratio of personal income to home prices. The report explains where we are today:

“Since 1966, the median price of an existing single family home in the U.S. has varied between 150% and 251% of personal income per household. However, roughly three-quarters of the time it has been in a relatively narrow band between 185% and 230%. In September 2011, the ratio was just 153%, implying that to get back to an average price to income ratio, home prices would have to rise by about 27%.”

Current Mortgage Interest Rates 

With current 30 year mortgage rates, housing payments are at historic lows as compared to personal income.

“During the week of October 7, Freddie Mac reported that mortgage rates had fallen to an average annual level of 3.94%. Assuming the use of a fixed rate mortgage with 20% down, this would make the median mortgage payment on a single family existing home just 6.9% of per household personal income, compared with an average of 14.4% since 1966.” 

Monthly Rent vs. Monthly Mortgage Payment 

Is it less expensive to own a home or rent a home? The answer to this question helps families make the decision whether or not to buy a home. The report explains:

“By the third quarter of this year, we estimate that the implied median mortgage payment had fallen to just 78% of the median asking rent…”   

Bottom Line

The paper comes to the conclusion that now is the time to buy.

“The numbers on housing have an important message for American families today, and particularly younger families setting out on life’s great adventure: Five years ago, at the peak of the home-buying euphoria, it was emphatically a time to rent. Today, when home ownership is depreciated more than ever before, the numbers tell us it is a time to buy.”

We agree.

At a campaign stop in Nevada on Monday, President Obama announced an expansion of the HARP (Home Affordable Refinance Program) which would eliminate the current maximum LTV of 125%. The initiative is being looked at as a way to reward those homeowners who have been good payers of their mortgages but, because of declining home values, they could not take advantage of today’s lower interest rates.

While the actual details on the program will not be released until next month, here’s the buzz:

• It will only pertain to loans currently being serviced by Fannie Mae or Freddie Mac
• Because of the removal of the LTV cap, appraisals may not be required
• With the only qualifying criteria announced being that the last six payments be on time, it is possible that income documentation may be streamlined and credit scores might be more forgiving
• Fees allegedly will be reduced
• Incentives may be offered to people who shorten their repayment time
• It also sounds that the banks may be given some incentive by not holding them liable for the underwater portion of the new loan (a major incentive for sure).

The government is on the hook for these loans already. By lowering the payments (by offering lower rates), they will likely help these loans to continue to perform and make it less likely for the underwater homeowner to walk away.

The original HARP was expected to help 5 million families.  After two years, it has yet to reach 900,000; therefore, estimates ranging from 800,000 to 1.6 million borrowers who may benefit need to be taken with a grain of salt.

Whether the Administration is looking for purely political rhetoric points or not, my advice to underwater homeowners is too keep an eye out for the final guidelines because you just might be able to lower your payments

We are again honored to have Christopher Reale, Director of Short Sale Operations at Lepizzera and Laprocina Title and Escrow Services, as today’s guest blogger. He is an expert on the short sale process and will share his knowledge with us on a regular basis. – The KCM Crew

Short sale success does not stop at educating the seller as to their loss mitigation options and then successfully negotiating with the seller’s bank to accept a short payoff. Today’s complex real estate market warrants more.  Having negotiated over 1000 successful short sales, we have found one aspect of the short sale process that needs serious attention: Educating the buyer regarding the proper short sale procedures

Educating the buyer and setting the correct expectations is imperative to a successful short sale transaction. Nothing is more discouraging than successfully negotiating a short sale only to have the buyers walk from or not be able to close the transaction. The following are some precautionary and educational items to consider which would avoid such buyer fallout. 

Patience is a Virtue

Not every buyer is a short sale buyer.  However, one important characteristic a short sale buyer must have is patience. Setting the proper expectations regarding the time frame of a short sale plays a key role in bringing the short sale to the closing table.  If a buyer is not willing to stay in the transaction for at least 90 days, they are not a short sale buyer. Of course we cannot speak for every circumstance. But, in most cases, the short sale process takes 60-90 days to complete.  For their patience, the buyer will likely earn instant equity. The average short sale, according to the Realty Trac report dated 5/21/11, sells for 79 percent of market value. To that end, a buyer will earn “patience equity” (a term coined by Steve Harney).  

Work with a Lender that Understands the Short Sale Process

The pre-approval process should be the same whether the buyer is being pre- approved to buy a short sale or pre-approved to buy a non-distressed property. This seems like simple advice doesn’t it?  However, from our vast experience negotiating short sales, we have found that 35% of successfully negotiated short sales do not reach the closing table because the buyers financing falls through. We must educate buyers to work with the proper lender who will not only walk them through the mortgage process, but also understands the short sale process. Too many mortgage applications start at the time of short sale approval. Some short sale approvals expire in 10- 15 days from date of issue. In many cases, that is not enough time for a lender to underwrite the file, order title, order appraisal and fund the loan.

A proper pre-approved short sale buyer would be one who is brought through a complete underwriting analysis prior to the short sale offer. This includes full income analysis, full asset analysis and full credit analysis. The ideal lender is one who completes the underwriting procedure and has a credit decision pending clear title and appraisal. The lender should also help in keeping the buyer engaged throughout the process. In a lengthy short sale negotiation, the lender should be proactive in keeping the loan file up to date with recent paystubs, asset documentation etc.  This will ensure the transaction closes on time and without extensions.

Complete Inspections Prior to the Short Sale Approval

This is a confrontational subject but each buyer should be educated to understand that in most cases any major deficiency regarding the condition of the property will not be cured prior to closing. However, in many instances, if the deficiencies are known prior to the start of the short sale negotiation, the short selling bank will be more willing to except a sale price that is discounted deeper to the current market value. It is a challenging task to go back to the bank and ask for a lower sales price when a home inspection that was done after short sale approval showed major deficiencies.

In addition to the home inspection, the lender appraisal can be done prior to the short sale approval.  In most circumstances where the short selling bank’s broker price opinion shows a property value that is much higher than the buyer offer, the lender appraisal can be used to negotiate the value.

We should educate buyers as to the pros and cons of completing the inspections prior to short sale approval.  We understand there is a monetary commitment that would have to be made. Having said that, having the inspections done can save allot of aggravation to the seller and buyer later in the process.

In closing , the above are just a few items to consider when educating the buyer regarding the proper short sale procedures. If we remember to keep the buyer engaged and walk them through the process every step of the way, we will ensure the buyer earns their “patience equity” and the short sale transaction closes.

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If you are in the market to buy a home of your own, you need to ask yourself one question: WHY?

It seems like a simple enough question yet it is not. Experts are predicting that, in many markets, prices will continue to soften (see our blog from yesterday ). That has caused many buyers to stay on the fence of indecision hoping to buy at the optimum time. If the reason you are buying is to do a quick ‘flip’ of the property to make money, waiting most definitely makes sense.

What if the reason you are moving isn’t about finances however. Does it still make sense to delay? That depends on why you are buying. What if your purchase is more about improving the quality of life for you and your family? Or moving into a school district where your child’s talents will be maximized? Or being closer to friends and family? There is a cost to delaying any of these decisions.

We realize everyone wants to make a sound financial decision no matter the actual reason for moving. Delaying in a hope to ‘time’ the market might not make sense however. Forbes.com addressed this issue in an article by John E. Girouard last week:

“Trying to time the housing bottom is as much folly as trying to time stocks or any other investment vehicle. In fact, it’s greater folly because if housing prices do fall further, it’s likely to be because mortgage rates are rising, which would mean that over the long term that slightly lower price you may have paid could end up costing more in carrying costs than you saved.”

He went on to say:

“My answer to those who ask whether now’s the time to buy a house is that the American Dream is and always was alive and well. It has nothing to do with the direction of housing prices but everything to do with your financial situation, income stability, ability to shoulder the costs, and if the home you have your eye on is your version of the American Dream—a home you love that you hope to live in for an extended period.”

Bottom Line

Don’t make buying a home solely a financial decision. Is the real reason you want your own home more important than money? Only you know the answer.