Monday, February 3, 2014

I NEED TO SELL MY HOUSE IN ORDER TO BUY A NEW ONE – WHAT DO I DO FIRST?

Having been in this position, I can empathize with anyone facing this sometimes-tricky scenario.

The first thing to realize is that there is no “perfect answer.”  Variables include the market conditions (Do they favor the buyer or the seller?), motivation (Do you need to move by a certain date – or does the seller?) money (Can you afford to pay two mortgages at the same time?) and availability of alternate housing, if needed (Can you live with friends, family, at a hotel or at a second home while you wait?).

The first thing to accept is that you are both buyer and seller at the same time, and one role will typically have a stronger position than the other.  They are often inversely proportional:  If you can sell at a higher price, you will also be paying relatively more for the new home – a seller’s market.  If you can buy at an attractive price, you probably will be getting less than you might like for your existing home – a buyer’s market.  These are just general observations and they don’t take into account all the possibilities unique to your situation, such as downsizing, upgrading, relocating and so forth.

In my opinion – and in the opinion of most of my colleagues – the preferred situation is that you list your home first and work for a quick, acceptable offer.  If you get a buyer quickly, you would ask the buyer to accept a reasonable contingency that you will find suitable housing by a certain date.  If a buyer loves your home and has no pressing need to leave wherever they are – and if they have no home of their own to sell – this will often be an acceptable contingency.

The alternative is to actively look for a home first.  Once you find the right one, your offer would include a contingency that says your offer is subject to you selling your home.  This is not always an easy proposition.  While a buyer for your home might agree to wait for a while because they really want your home, a seller might not want to wait, not want to assume the risk that you will not sell your home in a timely fashion.  They might worry about the sale being dragged out – or even worse - falling apart.

Here is an illustration of why listing your home first is the best course of action:

We visit a home and you decide that you love the home and want to make an offer.  We make the offer with the contingency that you need to sell your existing home.  The first question from the listing agent, who is representing the buyer’s best interests, will likely be:  “Is the home you need to sell already on the market?”  If the answer is “Yes”, then the next question will be:  “Is it priced right?”  If the price reflects a reasonable number based on current market conditions, the answer will be “Yes.”

The listing agent can easily verify both of these answers by simply viewing the MLS listing.  If each of these questions has a satisfactory answer, your offer might be accepted, but might also include the stipulation for a 48- or 72-hour kick-out clause.  A “kick-out” clause means that the seller will continue to market the property while the buyer (you) tries to sell the existing home.  If the seller finds another suitable buyer, then the seller will give the original buyer (you) 48 or 72 hours to remove the contingency and keep the deal alive – otherwise, the seller will “kick out” the original offer and go with the new purchaser, who will typically be offering better terms (no house to sell, better offer price, a cash offer, etc.)

Why a kick-out clause?  The seller does not want to take the house off the market for an indefinite period of time, losing out on other potential buyers who might offer better terms, while the buyer tries to sell a home.
A seller will be much more likely to agree to such a contingency if they see that your home is actively listed and being shown.  Your agent should be able to articulate why it will sell in a reasonable amount of time (favorable market, limited inventory, unique property features, aggressive price – whatever applies).  Explaining the marketing plan might be convincing enough to put the seller at ease and to get the seller to agree to a reasonable time frame for you to sell your home.  If this occurs, you need to be ready to actively hunt for your new home and to be realistic in your expectations.

I went through this situation in 2004.  I had a nice home and it was listed as we looked for the new home.  The home was located on a rather steep lot.  Many people loved the home but couldn't get past the lack of a level lot.  In the meantime, we had identified a new house that was perfect for our needs.  We did not want to lose the new house.  It was a seller’s market and the seller knew he had the advantage over us.  He would not agree to a contingency for selling the other home.  So what to do?

We were able to demonstrate to the bank that we could afford both mortgages for a few months.  They allowed us to move forward with the new purchase, but we still owned the other home and had to pay the mortgage (and taxes and insurance) on that as well.  The good news:  The existing home sold within 45 days and we were done paying two mortgages very quickly.

In 2014, lending guidelines are stricter than they were in 2004, so any “two-home” scenarios will be subject to close scrutiny by your lender – and might not be allowed at all.

Owning no houses for a while might also be an option.  If you have a place to go – family, friends, a hotel – you could sell your home first and then concentrate all your efforts on finding the perfect home.  This also comes at a cost, because you will have to move twice, store items in a storage facility, potentially pay rent or lodging of some kind and possibly strain personal relationships if the duration of the stay with family or friends becomes extended.

There are still other possibilities.  So-called “bridge loans” might be an option, but are harder to find these days, involve more costs and higher interest rates, and might only be available from “hard money” lenders – you can Google that term for more information.  You might also be able to borrow from relatives or friends.  However, everything has to be formalized, with the proper documents, a payment schedule, a promissory note and so forth.  The days of “informal lending” are gone as far as the lenders and the IRS are concerned.  Maybe a relative is willing to gift you the money – check with an accountant or real estate attorney as well as your lender for the rules governing gifts.  You might also be able to borrow from your retirement plan – check with your plan administrator.  As an example, I have a self-directed 401K and was able to borrow the down payment for a retirement home from that account.  I needed to have all the documents in order and I had to pay the IRA account back each month – both principal and interest – just like a “real” loan.  However, I would much rather pay my retirement account interest than give it to a lender.  The interest goes into the 401K account each month and, in the future, will be treated like any other gain that the account might realize.

At times, people have sold their home and then rented it back from the new owners until a new home is found.  However, new homeowners are often eager to get into their new home, so this might have limited appeal.  Additionally, your attorney might advise against it due to potential liability issues.

So what’s the best option?  Ideally, you list your home for a reasonable price, and then start looking at new homes.  We list your home and actively market it.  Simultaneously, we conduct an aggressive search for the new home.  If you get an acceptable offer from a buyer, your terms will include a contingency stating that, by a certain date, you will have found suitable housing.  (Like the seller of your desired home, the purchaser for your home will not want to wait indefinitely.)  If you can show a seller that you are actively marketing, or that the house has an offer, you are more likely to get the seller to accept a contingency that your home must sell.  The ultimate, ideal goal is to close on both houses on the same day – you close on the home you are selling in the morning and then close on the home you are buying later that same day.

STRATEGY

Here is a good strategy that we can work on together to help define the process and to build reasonable expectations:

First, make sure you have a current pre-approval from a lender.

Next, we review your desired criteria for your new home:  style of home, amenities, commuting distance, location, price range and so forth.  If you start with the end in mind, it is easier to get there.

Then I do a market analysis for you on your current home.  We look at current market conditions, past sales and a host of other things to determine a reasonable expectation of how much you will get for your home.  It is not uncommon for sellers to expect to get more for their home than what it will actually sell for.  Sellers have an emotional attachment and might have invested a lot of time and money into upgrading the home.  However, the only opinion that really counts is what the market says the home is worth.  This is often best determined by looking at recent sales of similar homes.  You, as the seller, will set the price.  I will provide resources to assist you.

Once we have the marketing plan in place for the home to be sold, we list the home and we actively look for the new home.  We look at the inventory of homes that is currently available and that closely matches your desired criteria.  The reality is that every single feature that you desire in a home will probably not be available, unless you have unlimited funds.  So being realistic with expectations is very important.

The alternative is to delay the listing of your current home while we identify the list of potential homes.  Once we have that list, we start looking at the homes with the goal of identifying the top three choices.  When you are satisfied that there are at least a few homes out there that you would be willing to put an offer on, we list your home.  Now this is a dynamic situation because homes come and go all the time.  We have to be persistent in watching the inventory so that we are still checking newly listed homes while keeping an eye on the original “top three” in case they go under agreement.

In the meantime, we work hard to get a speedy and acceptable offer on your current home.  Once you accept an offer, you then make your offer on one of your current “top three” homes.  It’s kind of like getting the choreography of a dance down just right.  The steps – such as agreeing on offers, getting the inspections done and getting the contracts signed - are finessed and timed to make things work to everyone’s satisfaction.

To summarize:  The best choice:  List your property and simultaneously look for the new home.  Sell and buy on the same day – that’s the ideal goal.  A reasonable second choice:  Identify your “top three” available properties that you would be willing to make an offer on and then list your existing home. 

Take comfort in the knowledge that millions of people have successfully worked the process simultaneously – it involves planning, strategy, patience and luck, but it’s certainly workable.  I know – I have done it four times so far!


Monday, January 27, 2014

WHY YOU SHOULD USE A BUYER'S AGENT

When a seller sells a home, s/he is represented by a listing agent and, often times, an attorney.  The lender uses an appraiser and an attorney.  Why then, as a buyer, would you go unrepresented?

Let's look at a few myths/realities:

MYTH:  I don't want to spend a lot of money for a buyer's agent.
REALITY:  There is no charge for this.

MYTH:  I don't want to commit myself.
REALITY:  Why??  Don't you want someone who will commit to you throughout the whole process?  Don't you want someone advocating for you at every step?  Don't you want someone negotiating for you?  Don't you want someone with experience to help you avoid pitfalls?

MYTH:  I can find houses online.
REALITY:  True.  However, finding a home to look at is vastly different from buying a home.  A buyer's agent will guide you through the process and will look out for your best interests.

MYTH:  I can save money if I don't use an agent.
REALITY:  Not likely.  A listing agent and a seller agree on a fee. The listing agent agrees to split that fee with the agent who brings the buyer.  If for some reason, a buyer shows up without representation, the listing agent is happy because s/he will get both sides of the fee - the full fee.  There is no incentive to share any of that with the buyer or to try to convince the seller to reduce the price.  Why would the listing agent negotiate anything on your behalf?  The listing agent has a duty to the seller to get the best price for the property.  If anything, the listing agent might discount the fee for the seller, but there is no incentive to assist the buyer.

MYTH:  I'll just use the seller's agent.
REALITY:  Another reason to ask: Why?  The listing agent treats the seller as a "client."  S/he will treat you as a "customer."  How can the listing agent be loyal to both seller and buyer?  It's an inherent conflict of interest and not something that most people would want.  Does the prosecuting attorney represent both the suspect and the victim?  Does the divorce attorney represent both spouses?  Then why would you want a listing agent to work for you when the full commitment is not there?

For every property, there is only one listing agent (or team).  That makes every other agent a buyer's agent - by default - for that particular property.

You do yourself a big favor when you work with someone who will watch out for you.

If I told you that you were going to get the services of an attorney or plumber or carpenter, and that you would not have to pay a cent for those services, would you take that deal?  Of course you would!  Well, that's the deal you get with a buyer's agent:  All the service and loyalty, with no cost.

Don't go it alone!



Sunday, January 26, 2014

WHAT IS A BUYER'S AGENT and WHAT DO THEY DO?
David Ortiz of the Boston Red Sox is arguably the best designated hitter of all time.  He specializes in one thing:  hitting.  Most players do two things: they hit and they play a position in the field.  He does not play a position in the field (except in rare circumstances).  His main job is to hit.

Contrast Ortiz with someone like teammate Dustin Pedroia.  Pedroia is a great hitter but he is also a great fielder.  He fields and hits - just as most baseball players do.  He is not a "specialist" like Ortiz - he is more of an "all-around" player.

Like Ortiz, some agents work only with sellers or only with buyers.  These agents specialize with one or the other for various reasons.  However, most agents work with both types of clients.  For example, if someone calls me to sell their home, I am as happy to do that as I am to help someone who is buying their first home.  I will also help someone rent their home or help someone find a rental.  These functions - and more - are all components of what would fall under the general job description for most real estate agents.

So what makes me a buyer's agent or a listing agent?  It is a label that applies simply based upon what the situation is.  For example, there is only one agent who is the listing agent for any given home.  That makes every other agent - by default - a buyer's agent for that particular home.

Most people know generally what a listing agent does:  they offer help to the seller in setting a price, they take photos of the home, they market the home through advertising and Open Houses and they help negotiate any offers so that the seller gets the best offer overall.

 

What does a buyer's agent do?  The buyer's agent gives full attention and support to his/her buyers.  The agent advocates for the buyers at every step of the process.  The agent owes the buyers confidentiality, loyalty and all the requisite fiduciary responsibilities.  Here are the major services that the agent provides:
  • Assists buyers with obtaining their loan pre-approval
  • Provides automated e-mail alerts for properties that match the buyers' criteria
  • Schedules private showings for homes of interest
  • Assists buyers with making reasonable offers
  • Negotiates best offer terms for clients
  • Assists clients with selecting home inspector and scheduling inspection
  • Re-negotiates terms of offer, if necessary, based upon inspection results
  • Assists with selection of attorney (if necessary) to review final sales agreement
  • Deals with any unexpected issues that come up along the way
  • Schedules final walk-through prior to closing
  • Attends closing with clients
If you are a buyer, it makes a lot of sense to enlist the help of a buyer's agent - you get all the services and there is no fee!

Friday, January 17, 2014


FORECLOSED VERSUS REGULAR SALES – WHAT ARE THE DIFFERENCES?

Buying a foreclosed or bank-owned home (also referred to REO) often works pretty much the same way as a private sale when it comes to the process.  However, there are differences and here are a few points to keep in mind:

Some banks respond to offers very quickly – sometimes within 24 to 48 hours.  Other banks take much longer.  So if you are willing to pursue a bank-owned property with the potential reward of getting a good deal, patience is truly a virtue.  That said, we can often get a fairly quick answer for many homes - I have had responses as quickly as the same day of the offer!



The banks have their own contract that is used and that contract usually cannot be altered in any way.  In a private sale, you would typically have your attorney review the contract and he or she would sometimes insert additional language or an addendum to further protect you beyond the protection that the standard contract offers.  The seller would do likewise and the two attorneys would normally hash out any changes at their levels.  For a bank-owned home, the bank’s standard contract is used.  It's legal and used all the time - they just don't allow your attorney to make any changes.  In that respect, the contract can favor the bank. 

The time-frames are usually a little different. For example, they might want a purchase and sale agreement signed within 48 hours of acceptance of an offer.  This is different from how we normally do it, which is to sign the purchase and sale agreement after the inspection.  Again, as long as the inspection contingency is still in there, it's not usually an issue.  However, unless you are a contractor or someone who is going to tear down or totally rehab the building, we absolutely want you to have the option to have the inspection and to pull out of the deal if the inspection results reveal things that you are unhappy with and that can't be negotiated with the seller.  The bank’s contract often includes language that says that you will give them notice of any unsatisfactory findings in the inspection report and also give them a chance to remedy the problems.  This can work to your benefit.

Bank-owned homes typically have no seller disclosure.  This could be the same for a private sale as well, but usually a seller will fill out a disclosure form so that you can get an idea of the condition of the house before you do an inspection or make an offer.  Of course, you would go through the house anyway to observe the condition of the home for yourself before making an offer, and you would have an inspection done by a professional after making an offer, but it's always nice to have the seller disclosure form at the beginning.  Bank-owned properties typically never have this.  It's a relatively minor point given that you will be going through the house several times and that you will have the house inspected by a professional.  Moreover, there is no requirement in Massachusetts (as this is written in January 2014) for sellers to provide a disclosure anyway, so many "regular" sales go forward without this either.

Bank-owned properties are usually sold "as is." What this generally means is that if you do the home inspection and there are significant issues that you would typically ask the seller to either correct or give you credit for, the seller of a bank-owned property will not usually entertain any request to repair items or to give a credit for you to fix them.  This would seem contradictory to those contracts that state that the buyer is to give the seller a chance to fix anything found to be deficient in the inspection.  And it is!  A better interpretation of “as is” might be:  Buyer Beware and Conduct Your Own Due Diligence!”

One last point is that if you do not close on the agreed-upon date, the bank can charge you a per diem fee for every day that extends beyond the originally agreed-upon closing date. $100 per day is not unusual.  I have been lucky enough to never seen a bank actually assess this fee in my experience - but they could and they do!  To read about reasons why closing dates get extended, please see my blog article on that topic. 

There might be other differences, so check with your agent and attorney whenever contemplating an offer for a bank-owned property.

Monday, January 6, 2014

HOW TO GET YOUR (REALLY) FREE CREDIT REPORT THREE TIMES EACH YEAR

GET YOUR CREDIT REPORT FREE

Here is some information on free credit reports that might be useful to you:

When considering buying a home - and even as part of an ongoing general financial plan - it is important for us to check our credit reports regularly.  It is generally agreed that at least 25% of consumers have errors on their reports that could adversely affect their credit-worthiness.


Here is a method to do it for free and to do it on a regular basis:

Go to: www.annualcreditreport.com

FREE CREDIT REPORT


NOTE: There are MANY similarly-named sites, including ones with the word "free" in it. They are not really free and usually try to get you to sign up for a credit monitoring service or to pay to see your credit score. You should avoid those sites.

When you go to the site, pick one of the three companies listed: Equifax, Experian or TransUnion.

Fill out the form.  Yes, you will have to enter your SSN, but the site is legitimate.

After you submit the form, you will be able to see your credit report instantly and you can even download it as a PDF file or print it out.

Although you can only get one free report each year from any one company, here's how to get three of them each year for free:

Pick one of the companies. Then, four months from today, pick the second company. Four months from that date, pick the third company. Then you can start over again, beginning next year. By rotating through the three companies every four months, you can keep a pretty vigilant watch over your credit without paying anything for a monitoring service.

These reports will not contain your credit rating score (FICO score). You usually have to pay for this, although when you apply for a loan, the lending institution usually gives you a copy of your scores along with your latest credit report. To get a copy of your score on your own generally costs about $16. You can sometimes get a free score by agreeing to a trial subscription to a monitoring service. This is okay, but remember to cancel within the specified time so that you will not be charged for the subscription - unless you really want it!

Finally, requesting the free credit report through www.annualcreditreport.com will NOT affect your credit score.

Some credit card companies are starting to offer your credit score as part of your cardholder agreement - you can check to see if one of your cards is in this group.

There are also other sites like Quizzle.com, CreditSesame.com and CreditKarma.com that offer free credit reports, free credit scores and free suggestions on how to improve your score.  You can also get them at any time.  These sites require NO credit card information to be given, so check them out and see if you like them!

Sunday, January 5, 2014

THE BEST FIRST STEP IN FINDING A NEW HOME: GET PRE-APPROVED FOR A LOAN!

A PRE-APPROVAL - WHAT IS IT AND WHY GET IT FIRST??

My best first suggestion to clients who are getting ready to start their home search is to get pre-approved.  So what does the informal term "pre-approved" mean?

Realtors use this term all the time, usually asking a potential client:  "Are you pre-approved yet?"




What we really are asking is:  "Have you spoken - at length - with a lender and has that lender, after pulling your credit report and verifying some information, issued you a written document that says you are qualified for a home loan of a certain type and for a certain amount?"

If you have filled out an online form at a lender's site, and then the site spits back a "pre-qualification" notice suggesting that you would qualify for a loan, this is NOT a pre-approval.  These are fine to satisfy your own personal curiosity as to what you might be qualified to borrow, but they are essentially meaningless in terms of demonstrating your ability to qualify for a mortgage.

You want a specific pre-approval from a loan officer who has reviewed your criteria.

It is important to get this FIRST for several reasons:
  • It specifically defines your comfort zone in terms of price.
  • It gives you confidence that you will qualify for a loan.
  • It is better to have this BEFORE you find a home that you really like rather than having to scramble afterwards to get it.
  • It is submitted with any offer to demonstrate to the seller that you can afford whatever it is that you are offering.
  • It also reassures your agent, who is investing time and travel expense to show you homes, that you are not "just looking" and that you have a sincere intention to purchase a home.
A pre-approval should not cost you anything in terms of dollars.  It will typically be considered a "hard" inquiry (made by a lender) as opposed to a "soft" inquiry (such as when you check your own credit score.)  In  that sense, your credit score will be affected slightly - suggestions are that it might drop your score by five points.  For most people, this will not become an issue.  However, discuss this with the potential lender BEFORE they do the credit check to be fully informed.

Once you have the pre-approval, it is usually good for 45-90 days.  If it expires, and not much has changed in terms of your job, income, debt and so forth, renewing the pre-approval is usually an easy process.

Making a request for a pre-approval is easy:  You call a lender and spend a few minutes providing information so that the loan officer can identify you and start the verification process.  Many loan officers are able to issue pre-approvals the same day if you call in the morning - some do it in as little as an hour.

You can contact any bank, lender or credit union that offers home loans to see what programs might be available and what rates are being offered.  I usually offer several recommendations to my clients if they need some names.  These are lenders who I trust and who have demonstrated the ability to close a loan in a predictable and dependable way.

To summarize, applying for a pre-approval is usually an easy and quick process, and almost always the best first step that you can take.




Saturday, January 4, 2014

Welcome to Real Estate 311!  Why 311?? 3-1-1 is the special number that people in many communities can dial to get non-emergency service or information.

This blog provides a similar opportunity:  You can get all kinds of information about real estate here.



Information is power - use it!!

Fran Hart - Real Estate 3-1-1