There’s Two Sides to the Real Estate Burst Bubble Story

Looking around we see information about real estate foreclosures, short-sales, and borrowers defaulting on loans. There is article after article on the Internet, in the newspaper, and on TV. It’s not just about the first-time buyer, either.

The “Real Estate Guru” at Real Estate Investing Blog posted an item about a real estate investor in Las Vegas reporting that he feels forced to walk away from 16 homes he bought and financed just two years ago.

The Guru’s article source was the Real Estate Journal, a blog posting from The Wall Street Journal.

That’s one side of the story.

I know another side.

A couple I know, let’s call them Ray and Edna, had a house with 2 mortgages, 7 credit cards, brand new cars and new furniture. They couldn’t keep up with the payments when they were both employed and Ray supplemented with side jobs. They didn’t lose any jobs, and there wasn’t a disaster in their lives, but for their own reasons they walked away. The bank foreclosed on the home. The creditors nagged. They declared bankruptcy.

That was eight years ago. In that eight years, Ray and Edna have paid cash for everything. They bought many money orders and certified checks. They bought used cars and paid cash for repairs. They rented an apartment closer to their jobs. They ate at relatives houses many times, and never went to a restaurant. They are not addicted to Starbucks.

I could go on and on about what people without credit do. The point is that people without credit can do. They can survive. Having money problems and being in over your head is not a death sentence. It’s tough – no doubt about that. But Ray and Edna picked up the pieces of their shattered lives and moved on.

Today, eight years later, Ray and Edna sought the advice of a mortgage lender about what they would have to do to be homeowners again.

The lender checked their credit score and informed Ray and Edna that they had a score of zero. That’s right, their score was a big fat nothing. They not only don’t have anything bad on their report, they don’t have anything good on it either. The lender told them that they need to get some credit in order to get ready to get a mortgage. He wants them to get one credit card, probably through the bank where their checking account is. He also wants them to buy a car. New cars are being sold at really good prices right now because it’s the end of the model year and there’s a huge amount of inventory that hasn’t sold this year. Financing is available at really good rates, even for people with zero credit scores.

Once Ray and Edna have established the two accounts, credit card and car, they need to make regular and timely payments for 8 to 12 months. Then, and only then, will they be ready to look at buying a house.

A little more work and they will be homeowners again. This time they know more about money and about mortgages, and about being responsible when it comes to money. It was a hard lesson, but they learned it well.

If you are just starting your money lessons, here’s a little more encouragement. It takes seven years to have bankruptcy and foreclosure to clear off your credit record. That’s a long time. But it’s not endless.

Think about what you were doing seven years ago. Where did you live? What were you being paid at your job? Who were your friends? Now that you think about it, doesn’t seven years seem short? It is. And you, too, can get through it.

Don’t do it alone, but get started.

"Buy-Down" as a Seller Incentive

Sellers are looking for ways to get their homes sold. The first thing they do is reduce the price. Sellers also pay for all repairs, especially the Section 1 items from the Termite Report. There can be an allowance for new carpet, or bathroom remodeling. There’s also the NRCC (Non-Recurring Closing Costs) category where Sellers pay for the costs of the buyer’s financing.

Sometimes they stop there. We’re here to tell you that there might be something else Sellers can offer. What we’re talking about here is an interest rate buy-down. This is one of the things New Home Sellers use to stimulate activity when sales start to slow down at their new subdivisions. However, individual Sellers rarely turn to buy-downs as a sales stimulus. Not because the move doesn’t work for them, but because their real estate agent doesn’t realize the option is available, and doesn’t advise them of the option.

A buy-down is a tactic where the Seller pays the buyer’s lender money to lower the Buyer’s interest rate on the new loan. Although the rate can be bought down for the life of the mortgage, it is common to have Sellers buy down the rate for the first two or three years of the mortgage.

Buy-downs are not part of a strong Sellers Market. After all, who needs them when potential buyers are knocking down doors to become home owners? But, now that we are in a Buyers Market, buy-downs have returned.

Lew Sichelman writes in a special article to The Chronicle, “The object of a temporary buy-down is to bring the initial rate down to a point where the buyer can either qualify for financing or can’t resist the lower monthly payment.”

Sichelman goes on to point out that buy-downs usually come in two versions: The “3-2-1 Model,” where the rate is bought down by the Sellers to three percentage points below the market for the first year, two points for the second year, and one point for the third year. The second model is the “2-1 Model,” works the same way except the rate is bought down by two percentage points in the first year and one point for the second year. A third version is a permanent one in which the rate is bought down just enough to make the property purchasable, for the entire life of the loan.

Once the buy-down period ends the rate returns to where it would have been had there been no reduction.

To see Sichelman’s complete article click here.
Here’s another opinion by Henry Savage.

Your real estate agent should be able to talk to you about Buy-Down options, whether you are selling or buying, or both.

What the Heck is a Short Sale?

As we have all read and heard and seen, real estate is not normal these days. Today’s real estate market is a great value for home buyers. There is currently a 15 month inventory of homes available in Silicon Valley. Life goes on and buyers need to move, or want to upgrade, but they must sell their current homes first, and homes are sitting on the market for a long time.
In addition, foreclosures are at a record high. However, there is this thing called a “Short Sale” that isn’t a foreclosure, and isn’t just listing and selling a house by the owners. It is our experience that most people don’t know what a Short Sale is, so here is the scoop.

Basically, a Short Sale is the sale of a property for less than what is owed on it, Owners do this by obtaining permission from all the secured creditors to complete this kind of transaction, and transfer clear title to a new owner (purchaser). When lenders agree to a Short Sale it means the lender is accepting less than the total amount due, and will transfer clear title to a purchaser. Not all lenders will accept short sales, or discounted payoffs, especially if it would make more financial sense to foreclose.

Short Sales leave the homeowner/borrower free of debt when the sale closes. However, they also leave with no money in hand to move on to the next home – no down payment, and not even money for first and last months rent and security deposit if the seller now has to rent.

Another thing Short Sale Sellers should be aware of is that the IRS will consider debt forgiveness as income. As an example, the owner owes $789,000 on the home. They get agreement from the lender that it can only sell now for $725,000. The home gets put on the market and is sold for $719,000. There is a forgiveness from the borrower(s) for $70,000. The IRS will consider the $70,000 as income in the year of the sale.

Short Sales appear on the owner’s credit history for three years. That’s less than the seven years for a foreclosure, but it still has a long-lasting effect on credit.

There’s lots to do in a Short Sale, but of the utmost importance is that the owner keep in contact with the lender. The owner should also have an experienced real estate agent to represent them in this complicated transaction.

Here’s a couple of links to Short Sale information:

About.com: Short Sales in Real Estate - How to Handle Real Estate Short Sales

eHow.com: How to Do a Short Sale

Real Estate Journal.com: Short Sale May Be an Option WhenMortgage Debt Looms Too Large

Losing your home can be very emotional and most people don’t want to face up to the reality until foreclosure sets in. Our recommendation is to talk to your lender. If you cannot pick up the phone and call the lender, then at the very least, call Team Patereau. We can help you get started on this very difficult project.

The Stats

For those of you who like statistics (with pictures) here are some about Gilroy:

Number of Real Estate Transactions in 95020 by Quarter

Real Estate Trends in 5020

Statistics aren’t my favorite thing because they are able to be manipulated. However, the numbers are very important to many people, so I provide them.

What does it mean? To me it means that if you want to sell your house, you have to put a price on it that will attract a buyer. If you want to buy a house, you have to offer enough to get the seller to say OK.

What does it mean to you?

Garlic Festival Time

We had another Garlic Festival in Gilroy last week-end. It’s always on the last week-end of July, Friday through Sunday.

Everything was great about the festival for us. Team Patereau works all three days. I work at the Gourmet Alley Beer Booth, selling beer tickers. Rick works at the Gilroy Rotary Wine Pavillion, a shift each day. One of us takes home dinner.

The festival showcases Gilroy and the wonderful, friendly and giving people who live here. So many volunteers, so much goodwill in the wind.

My favorites this year were:

• The weather! It was not too hot, and when it did get hot there was an occasional breeze to move the air around.


• The people. Everyone I met and saw was pleasant and having fun.


• The Kids Area, who, by the way, sponsored the “Kidsapalooza Talent Competition” for the first time, and which was won by Team Patereau’s granddaughter, Madigan!!!

If the Garlic Festival hasn’t been your thing in the past, I highly recommend you try it. It’s just the best festival ever!

Photo by Bill Strange, Official Garlic Festival Photographer

The OTHER Offer

As I mentioned Monday, Team Patereau received two offers on two different listings last week-end. The first one I bragged about on Monday. Now let me tell you about the OTHER offer.

The listing is a single family home in San Jose’s Eastside. It’s a 3 bedroom, 1½ bath, 49-year old home. In our promotional material we describe it as, “FIXER!” (That’s all capital letters, and an exclamation point added for emphasis.) It’s been on the market since February. From that you can assume that the property has been a challenge.

Finally, with two “Price Corrections” (reductions) we received an actual written offer. Phew! Team Patereau celebrates. Then we read the offer.

Offer Details:

• Offer Purchase Price is $450,000


• Good Faith Deposit is $4,500


• First Loan is $360,000


• Second Loan is $90,000


• Buyer gets Good Faith Deposit of $4,500 back at close of escrow


• Buyer wants Seller to credit Buyer at close of escrow $13,500.


• Buyer is one individual person


• Buyer intends to occupy the property as his personal residence


• Preliminary Loan Approval letter from lender enclosed with offer indicates Buyer approved for 100% loan.
  

Things we know from discussing the offer with the agent who wrote it and the lender who wrote the Preliminary Loan Approval letter:

• Buyer does not intend to occupy the property as his personal residence. He intends to “Flip” it.


• Buyer did not give a check for $4,500 to agent for the Good Faith Deposit.


• Real Estate Company that wrote the offer is tied closely with the Lender who wrote the Preliminary Loan Approval Letter (same broker).
  

Translation:
Buyer is a “Flipper,” probably a contractor who is not going to be out of pocket any money to acquire the property, found a lender to give him a “Preliminary Loan Approval” letter for a 100% loan package, and there is no copy of the check for the Good Faith Deposit enclosed with the offer, and the agent indicated (after several unreturned phone calls and a final call threatening to call his broker) that he never got a check from the buyer and the buyer has recently indicated he doesn’t intend to give a check.

The agent who wrote this offer is committing fraud, the potential buyer who signed this offer is also committing fraud, and the lender indicating that they will do a 100% financing package for a non-primary-residence fixer is almost committing fraud, but we’ll leave it at lying, shall we.

In the contract words, page one, INITIAL DEPOSIT, the words are: “Buyer has given a deposit in the amount of $4,500 to the agent submitting the offer…”
The buyer didn’t give it and the agent didn’t receive it. That’s fraud.

Same page, contract words are “Buyer intends… to occupy the property as Buyer’s primary residence.”
The buyer doesn’t. He told the agent he doesn’t, he told the lender he doesn’t, and the agent and the lender told Team Patereau that he doesn’t. That’s fraud.

I recently read about fraud in a blog entry written by Bryant Tutas, titled, “You Want My Sellers to do What?” Bryant’s sample of fraud was overt and obvious to even the least experienced real estate licensee.

The fraud in the offer on Team Patereau’s listing was a more covert, or subtle, form of fraud. It happens fairly regularly in a market like we have in this area, and it gets blamed on "hungry agents" and "starving realtor syndrome." This is the kind of thing that real estate licensees protect their clients from. This is why a real estate agent is a really good idea for every real estate transaction.

Needless to say, when Team Patereau went over the offer details with the Seller, the offer was rejected. So, if you know of anyone who wants to buy a fixer in East San Jose, California, Team Patereau can be reached at 408-981-2799. I’d put in a picture here, but my previous post indicated that if there isn’t anything good to show about the property, don’t show a picture. This property needs a buyer with VISION. Enough said.

SPECIAL NOTE TO AGENT WHO WROTE THIS OFFER:
Fraud is when you lie. Don’t lie, not even when you really, really, really need to get a deal going. Don’t lie to your client, don’t lie to other agents, and don’t put lies down in an offer.

SPECIAL NOTE TO LOAN OFFICER WHO WROTE THIS PRELIMINARY LOAN APPROVAL LETTER:
Fraud is when you lie. Don’t lie, not even when you really, really, really need to get a deal going. Don’t lie to your client, don’t lie to other agents, and don’t put lies down in a loan approval letter.

Technology WANT vs. NEED

I really want one of the new iPhones from Apple.

There, I’ve declared it to the world.

It turns out that there are benefits for a real estate agent, like me, to have an iPhone. Thank you OMUOTO for helping me begin to justify this business investment. He really did a better job of justifying why my customers would want an iPhone in his article for vflyer Blogsight, but I was able to pick out two components where I might benefit:

1. The phone part – duh!


2. GPS – a real estate agent needs to be able to get to and from new places.

Do I need it? Need – there’s a word to get the defined. I looked it up at the Meriam-Webster online dictionary. The verb form of the word, under definition 2 could be usable for me here. The phrase, “a physiological or psychological requirement for the well-being of an organism,” looks like it might apply to me.

As a matter of fact, I think that it absolutely does apply to me.

So long for now. I’m going shopping!

Offers, Offers Everywhere

It’s Monday morning and I’m feeling like an accomplished real estate agent today. Team Patereau has received offers on two of our listings!

Having listings is great. Receiving offers on those listings is tantamount to a miracle in today’s market in Gilroy.

Reflecting on what moved potential buyers to take action on these listings, Team Patereau decided that it is a combination of things, number one being price. But other elements had to be just right, too.

On the residential listing in Gilroy the property had several things going for it in addition to price: location, decorating/showabality and curb appeal. We had worked with the sellers to get the home in showing condition, and the seller had worked very hard to do everything we recommended. The house is beautiful, and in general very showable. However, there was a need to de-clutter and de-personalize the home. We gave them almost the same advice that Kate Hart gave in her blog posting, “5 Things Buyers Should Never See in Your Listings.”

I can’t tell you how wonderful it is to get a client who takes our advice, but it’s even more gratifying when they have taken our advice and we actually get results from it in the form of an offer.

If you’re thinking of selling, or, as was the case for our client, if you're getting transferred and need to sell in a short timeframe, give Team Patereau a call. We’ll work with you to make your property the best it can be, and price it right to get action. Remember, homes get bought and sold even in slow markets.

Bad Pics, A Few More

I just can’t resist doing a few more bad real estate pictures - because they’re there.

Just to be clear, bad real estate pictures is not my original idea. Athol claims that right. That’s all right by me because she posts one picture a day, and there are just too many for her to keep up with. I won’t be doing a series, and I’ll try to make this my last post on the topic, but, as stated before, there are just too many, and new pictures are coming up all the time.

Hot Topic: Real Estate Listing Pictures

I had a new listing last week to get on the MLS, so I took some pictures. I get nervous about pictures because I’m not a photographer, so I run everything through a photo editor program and hope to get the best exposed and cropped piece of the house that I can. It turns out there are a lot of really bad real estate pictures posted around the internet. Once I discovered that, I looked with interest at the bad picture postings – and I’m very relieved to say that no Team Patereau photos were posted!

There’s a great blog posting about Rules for Real Estate Photography, and I think it is good information for me, an agent, as well as you – a seller/potential seller. If you’re a buyer/potential buyer, get what you can from the photos, but plan on visiting the home before you make your final decision.

The rules state that not every room is “photographable.” Bedrooms without any architectural interest, just square rooms with the seller’s furniture, don’t make good photo statements about the house. The only thing they show is what the seller has done with the room, and all that stuff is going to move with the seller.

Same goes for bathrooms, but even more so. However, the author, Athol, states in Rule Nine of Good Real Estate Photos, “Show that it’s not nasty.” Bathrooms are very difficult to photograph because they are small, confined rooms with great big mirrors to reflect the flash, or the reflection of the photographer with a camera in their face. If I can get around the mirror thing, I’ll put in a bathroom picture, but I have to say I really don’t like to do it. After I’ve got a good Front, Close-Up Front, Living Room, Dining Room, Family Room, Kitchen, Back, Another Back, possibly the Master Bedroom, and any Special Feature, then, and only then, will put in a Bathroom picture. But, I’ll never, and I mean never, put in a picture of a bathroom with the toilet lid up. It never ceases to shock me when I see an MLS picture of a bathroom with the toilet lid up.

Here are some bad pictures from currently "Active" Gilroy listings, in the specific category of my pet peeve, "Open Toilet Lid."

There were many more bad pictures, but I've spent enough time on this. I assure you that if you choose me for your agent, I will not post a bad picture. I will take plenty of them, I just won't post them.