Do your homework before you move!

7 questions for your next real estate agent

Beth Braverman, Money, May 9, 2012, link

Even as the real estate market perks up, you need a savvy agent to nail the sale. To find one, ask these questions.Even as the real estate market perks up, you need a savvy agent to nail the sale. To find one, ask these questions.

(MONEY Magazine) — After four years of sleepy sales during the traditionally busy spring and summer homebuying seasons, real estate experts are forecasting a pickup.

Record home affordability combined with a stronger economy may bring out bargain-hunting buyers and lure sellers who have been sitting on the sidelines. Already sales this winter were the highest since 2007.

If you’re tempted to host or frequent an open house this year, keep in mind that navigating this market is not for the faint of heart. Sellers still face tepid demand in many areas and competition from banks unloading foreclosures and other distressed properties; buyers must grapple with tight credit.

Pairing up with the right real estate agent can help you close the deal at the price you want. To make a good match, gather referrals, check reviews on sites like Zillow, Yelp, and Angie’s List, and pose these questions:

For buyers and sellers

How long was your drive over here?

The less time the better. The crash has slimmed the ranks of agents (National Association of Realtors membership is down 26% from 2006); those who are left have more years on the job (a median of 12, up from seven). But not all experience is equal — you want a realtor with hyperlocal knowledge, if not a home nearby.

“If the agent hasn’t closed deals on homes in your neighborhood recently, that could be a red flag,” says Ginger Wilcox, head of industry marketing at Trulia.

Your ideal agent should be able to say off the top of her head how long homes in the area have been listed and why they have or haven’t sold. If you haven’t seen the agent’s name on local FOR SALE signs, keep looking.

Can you tell me about your last three deals?

The description of the people and places should sound like you and what you’re selling or buying. The marketing approach varies for a million-dollar listing and a fixer-upper. Investors and first-time buyers have different criteria. And when you’re scooping up a short sale or foreclosure — or buying with all cash — you need an agent who has negotiated with a bank or cleared the legal hurdles before.

For sellers

What’s your URL?

Almost 90% of buyers shop online for a home, says the NAR. You want a realtor with his own homepage, as well as detailed and photo-filled listings on major real estate sites (Zillow, Trulia, Realtor.com).

“Photos are really important to buyers,” says Dorchester, Mass., realtor Julie Simmons, “and as a seller you want to have as many as you can.”

While you’re vetting the site, dig deeper. Lots of homes with multiple price cuts could be a sign that the realtor isn’t pricing them properly. What you want to see are homes that have been for sale for less than the norm in your area (ask other realtors what’s typical).

What’s your batting average?

Make sure a realtor is making sales, not just scooping up listings. Ask how many of his homes he closed on last year. There’s no one right answer, especially in a slow market, but it’s another data point for comparing agents.

Am I crazy to ask this much?

Probably. “In some cases sellers are not going to like what they hear,” says Denise Riordan, an agent in Montclair, N.J.

 

Don’t jump at the highest asking price. Better to get a frank assessment of changes you need to make and a price that would make buyers bite. Then verify by asking to see stats on comparable sales and the methodology behind the estimate.

What is this going to cost me?

The commission, paid by the seller and split by the buyer’s and seller’s agents, is traditionally 6% of the sale price. With homes sitting on the market for nearly 16 weeks, a listing agent who has to put in four months or more of work may not want to budge. But even now you can get it down to about 5% (your agent will typically still split it fifty-fifty and specify that on the listing). One way to bargain: Use the agent to buy your next home.

For buyers

Can you let me in on any secrets?

The home you’d really like may not be listed — sellers take homes off the market when buyers are scarce; others don’t want to advertise for privacy reasons. The most connected agents know the homes that aren’t officially on the market but whose owners would sell, says Steven Berkowitz, CEO of Move Inc. For the most options, find an agent who has the scoop.

Going solo

You’ll save plenty, but only 10% of sellers bypassed an agent last year.

The costs of going it on your own include:

  • MLS listing for six months — $300
  • Appraisal for pricing help — $450
  • Consultation with stager — $350
  • Lawyer to draw up contract — $550

Versus a 5% commission on a $300,000 home – $7,500

Net savings — $5,850

The Low-Down on Foreclosures

Foreclosures are tale of 2 legal systems

Nonjudicial foreclosure states see most improvement

Inman News, May 1, 2012, link

<a href="http://www.shutterstock.com/pic.mhtml?id=48041785">Gavel</a> image via Shutterstock.Gavel image via Shutterstock.

Trends in serious delinquencies and foreclosures continue to be a tale of two legal systems.

According to loan data aggregator CoreLogic, in the 24 states where courts handle the foreclosure process, 13 saw foreclosure inventory rates increase in March when compared to a year ago. In contrast, the percentage of homes in the foreclosure process during March posted annual increases in only three of 26 nonjudicial foreclosure states.

The picture was much the same for serious delinquencies of 90 days or more — 15 of 24 judicial foreclosure states saw an annual increase in serious delinquency rates during March, compared with just five of 26 nonjudicial foreclosure states.

“Nonjudicial foreclosure markets like Nevada, Arizona and California are experiencing significant improvements in their shares of delinquent borrowers,” said CoreLogic Chief Economist Mark Fleming in a statement. “Some judicial foreclosure states are also improving, like Florida, but not to the extent of nonjudicial markets.”

Nine out of 10 states with the highest foreclosure inventory rates were judicial foreclosure states: Florida (12.1 percent), New Jersey (6.6 percent), Illinois (5.4 percent), New York (4.9 percent), Connecticut (4.5 percent), Maine (4.4 percent), Hawaii (4.3 percent), South Carolina (3.8 percent) and Indiana (3.5 percent).

The exception was Nevada, a nonjudicial foreclosure state with a 4.9 percent foreclosure inventory rate, the fourth highest in the nation. The three nonjudicial foreclosure states that saw increases in foreclosure inventory rates were Oregon (up 0.4 percent, to 3.1 percent), Mississippi (up 0.2 percent, to 2.8 percent), and North Carolina (up 0.4 percent, to 2.6 percent). Washington D.C., also saw foreclosure inventory rates climb by 0.2 percent, to 2.5 percent.

Nationally, CoreLogic said about 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in some stage of the foreclosure process during March, compared with 1.5 million homes at the same time a year ago.

CoreLogic counted 852,591 completed foreclosures in the 12 months ending in March,  and 3.5 million since the start of the financial crisis in September 2008.

Lenders don’t repossess or sell every home that begins the foreclosure process — some borrowers are able to get current on their loans again, or negotiate a short sale or loan modification.

Loan servicers grew their inventory of “real estate owned” or REO properties more slowly, as the pace of REO sales picked up. CoreLogic calculated the “distressed clearing ratio”  — REO sales divided by completed foreclosures — as 0.81 in March, up from 0.76 in February. The higher the distressed clearing ratio, the faster the pace of REO sales relative to completed foreclosures.

Compared to a year ago, the number of completed foreclosures has slowed,” said CoreLogic CEO Anand Nallathambi. “Since the foreclosure inventory is also coming down, this suggests that loan modifications, short sales, deeds-in-lieu are increasingly being used as an alternative to foreclosures to clear distressed assets in our communities,” as some industry observers had predicted would happen in the aftermath of the robo-signing settlement.

Among the top 100 metro markets by population, 35 showed an increase in the year-over-year foreclosure inventory rate in March 2012.

Foreclosure inventory rates for select markets, March 2012

Geographic area Foreclosure inventory rate Year-over-year change in foreclosure inventory Completed foreclosures, last 12 months
U.S. 3.40% -0.10% 852,591
Tampa-St. Petersburg-Clearwater, Fla. 12.50% 0.70% 11,586
Orlando-Kissimmee-Sanford, Fla. 12.40% -0.40% 10,899
Nassau-Suffolk, N.Y. 6.60% 0.90% 689
Chicago-Joliet-Naperville, Ill. 6.40% 0.50% 15,038
New York-White Plains-Wayne, N.Y.-N.J. 5.50% 0.40% 838
Edison-New Brunswick, N.J. 5.40% 0.40% 471
Riverside-San Bernardino-Ontario, Calif. 3.40% -1.00% 29,758
Baltimore-Towson, Md. 3.10% 0.60% 1,264
Phoenix-Mesa-Glendale, Ariz. 2.80% -1.50% 43,789
Philadelphia, Pa. 2.80% 0.30% 4,243
Atlanta-Sandy Springs-Marietta, Ga. 2.60% -0.50% 39,801
Los Angeles-Long Beach-Glendale, Calif. 2.50% -0.50% 24,427
Portland-Vancouver-Hillsboro, Ore.-Wash. 2.50% 0.10% 5,916
Sacramento-Arden-Arcade-Roseville, Calif. 2.50% -0.70% 15,051
Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va. 2.30% -0.10% 7,042
Oakland-Fremont-Hayward, Calif. 2.10% -0.60% 11,693
San Diego-Carlsbad-San Marcos, Calif. 2.00% -0.40% 9,405
Santa Ana-Anaheim-Irvine, Calif. 2.00% -0.20% 6,726
Minneapolis-St. Paul-Bloomington, Minn.-Wisc. 1.90% -0.30% 11,864
St. Louis, Mo.-Ill. 1.80% 0.00% 9,354
Warren-Troy-Farmington Hills, Mich. 1.70% -0.80% 14,655
Houston-Sugar Land-Baytown, Texas 1.60% -0.10% 16,845
Dallas-Plano-Irving, Texas 1.50% 0.00% 11,596
Seattle-Bellevue-Everett, Wash. 1.50% -0.90% 8,187
Denver-Aurora-Broomfield, Colo. 1.40% -0.40% 10,117

Source: CoreLogic, March 2012.

The Market – By the Numbers…

Vacant Units Decline but so does Homeownership

Jann Swanson, Mortgage News Daily, April 30 2012, link

Vacancy rates for both owner-occupied and rental properties dropped to new recent lows in the first quarter of 2012 according to data released by the U.S. Census Bureau on Monday.  The rental vacancy rate dropped below 9 percent for the first time since the second quarter of 2002 and the homeowner rate was the lowest since the first quarter of 2006.

Rental vacancies were at a rate of 8.8 percent compared to 9.4 percent in the fourth quarter of 2011 and 9.7 percent in the first quarter of 2011.  The rate of homeowner vacancies was 2.2 percent compared to 2.3 percent in the previous quarter and 2.6 percent in the first quarter of 2011.  This is the lowest that vacancy rate has been since the first quarter of 2006 when it was 2.1 percent.

There are an estimated 132.1 million housing units in the U.S., an increase of 486,000 since the first quarter of 2011.  Of these, 114,122 are occupied, one million more than a year earlier and 19.0 million are vacant, down just over one -half million.  At the same time the number of owner occupied houses also decreased by a half million from 75.1 million in Q1 2011 to 74.6 million.

Of vacant housing units 14.4 million or 10.6 percent are considered year-round housing and of those, 4.1 million units are for rent, 2.0 million are for sale and 7.4 million are being held off the market about half for occasional use by the owner or a non-arms length occupant.

Homeownership rates declined again in the first quarter consistent with the pattern of most quarters since the rate peaked at 69.0 percent in the third quarter of 2006.  The current rate is 65.4 percent, down from 66.0 percent in the fourth quarter and 66.4 percent in the first quarter of 2011.   Homeownership declined across all age groups and all ethnic groups covered in the study.

While the declining vacancy rates have been reflected in increasing rental prices, the same is not true for home sale prices.  The median asking rent for vacant units in the first quarter was $721, up from $712 in the previous quarter and $683 one year earlier.  The median asking sales price for vacant units in the first quarter was $133,700, down from $133,800 in Q4 and $143,700 in Q1.

Rental vacancy rates declined in three of the four regions on an annual basis.  Only in the Northeast did the rate increase from 6.8 percent in the first quarter of 2011 to 7.8 percent in the first quarter of 2012.  In the Midwest the new rate was 9.3 percent compared to 10.2 percent; the South was down from 12.5 percent to ‘10.8 percent and in the West the rate declined from 7.3 percent to 6.3 percent.  The rate also declined both inside and outside of Metropolitan Statistical areas.

Homeowner vacancy rates declined in all four regions, from 2.2 percent to 1.8 percent in the Northeast, 2.7 percent to 2.1 percent in the Midwest, 2.8 percent to 2.4 percent in the South, and 2.4 percent to 2.0 percent in the West.  Homeowner vacancies were down inside MSAs but increased 3 basis points to 2.6 percent outside of MSAs.

Shorter may be better…

Benefits of 15-year mortgage hard to beat

Why those lured by smaller payments on 30-year loan should reconsider

Jack Guttentag, Inman News,  April 30, 2012, link

<a href="http://www.shutterstock.com/pic.mhtml?id=3601160" target=blank>Cash and real estate image</a> via Shutterstock.Cash and real estate image via Shutterstock.

The case for 15-year fixed-rate mortgages has never been stronger because, in the post-crisis market, the rate advantage over the 30-year has never been larger. The rate advantage is about 0.875 percent, whereas prior to the crisis, it was 0.375 percent to 0.5 percent.

Consider two $100,000 loans, one a 15-year at 3.125 percent and the other a 30-year at 4 percent. The respective payments are $696.61 and 477.42. After 15 years, the borrower with the 15-year loan has paid $39,454 more but is out of debt whereas the borrower with the 30-year loan still owes $64,543.

But there is a counterargument. A disciplined borrower can choose the 30-year loan and invest the difference in payment between the 30- and the 15-year loans, in that way offsetting the higher interest rate on the 30-year loan. Some financial planners recommend this approach to their clients as part of a program to build wealth faster.

The challenge in making such a program work is that the rate of return on the invested cash flow must exceed the rate on the 30-year loan by an amount that depends on how much higher the 30-year rate is than the 15-year rate.

For example, in 2006 when I first looked into this issue, I used rates of 6 percent and 5.625 percent on the 30- and 15-year loans. I found that over a 15-year period, the cash flow savings had to yield 7 percent, or 1 percent more than the rate on the 30-year loan, to just offset the higher interest rate on the 30-year loan. This can be termed the break-even return on the cash flows. To come out ahead, the borrower has to earn a return above the break-even return.

I recently repeated the exercise using rates of 4 percent on the 30-year loan and 3.125 percent on the 15-year. With these rates, the break-even return is 6.15 percent, or 2.15 percent higher than the rate on the 30-year loan. The larger rate spread between the 15- and 30-year loans increases the difficulty of developing a profitable reinvestment strategy.

The challenge looms even larger if the borrower holds the mortgage for less than the 15 years I assumed. The break-even rate is higher over shorter periods because the difference in the rate at which the 15- and the 30-year loans pay down the balance is largest at the outset and declines over time. The shorter the period, the higher the reinvestment rate must be to offset the larger difference in balance reduction.

Average mortgage life today is somewhere between five and 10 years. At 10 years the break-even rate rises to 8.02 percent, and at five years, it jumps to 13.69 percent — a whopping 9.69 percent above the rate on the 30-year loan.

These calculations assume that the borrower makes a down payment of 20 percent or more. If the down payment is less than 20 percent, the borrower must pay for mortgage insurance, and the premiums are higher on the 30-year loan.

For example, if you put down 5 percent and pay standard insurance premiums, the break-even rate rises from 6.15 percent to 7.01 percent over 15 years, from 8.02 percent to 9.56 percent over 10 years, and from 13.69 percent to 16.88 percent over five years. Note: All the break-even rates shown above are derived from calculator 15b on my website.

These required returns are forbiddingly high for any borrower who would invest the cash flow savings by acquiring financial assets. There is no way a borrower can earn such returns without taking very large risks. Most borrowers probably fall into this category.

But there are some borrowers for whom the cash flow reinvestment strategy might make sense. One is the borrower who is eligible for but not currently utilizing IRA, 401(k) or other qualified tax-deductible or tax-deferred plans. Borrowers who use their cash flow savings to invest in these vehicles, who would not do so otherwise, can earn a very high rate of return because of the tax benefits. If the borrower’s employer makes matching contributions, the return is even higher.

A second category of borrowers who can earn a very high rate of return are those with high-cost debt. A borrower paying 18 percent on credit card balances earns a return of 18 percent by paying down the balances.

In my 2006 article on this topic, I argued that borrowers who have not fully exploited all tax-advantaged investments, or who have high-rate credit card balances, are unlikely to have the iron discipline required to invest the cash flow savings on their mortgage month after month. But the financial planners who wrote me argued that they have developed special plans for borrowers in such situations that provide the discipline that is required. But until I see such plans along with evidence that they work, I will remain skeptical.

Reversing attitudes on reverse mortgages…

Reverse mortgage not just a ‘last resort’

How blending product with other investments can boost retirement income

By Tom Kelly, Inman News, Wednesday, April 18, 2012, link

<a href="http://www.shutterstock.com/gallery-308029p1.html" target=blank>Money image</a> via Shutterstock.Money image via Shutterstock.

The number of Americans 65 and older who continue to work  has risen in the past decade. The unexpected rise can be traced to a variety of  factors, including shell-shocked retirement accounts, falling interest rates on  savings tools, fewer company pension plans, and the inability to save.Many of these people have raced to take part-time  employment, and baseball spring-training facilities are a prime example. There  were seniors selling tickets, programs, hot dogs and popcorn, plus acting as  ushers and parking lot directors in nearly all of the recently completed Cactus  and Grapefruit League games.

The goal of this age cohort is to supplement their Social  Security payments and portfolio securities (such as 401(k) and individual  retirement accounts) so that they won’t run out of money before they die. What  other sources might be available?

Barry H. Sachs, a real estate tax attorney in San Francisco, and Stephen R. Sachs, professor emeritus in  economics at the University   of Connecticut,  researched ways to further enhance a senior’s finances by adding home equity  via a reverse mortgage. In a recently published study, the authors found that a  reverse mortgage can be powerful tool when used within a coordinated strategy  rather than a “last resort” after exhausting the securities  portfolio.

The model shows that the retiree’s residual net worth  (portfolio plus home equity) after 30 years is about twice as likely to be  greater when an active strategy is used than when a conventional strategy is  used.

“It’s so important that financial planners have begun  to ask the question about what’s possible with reverse mortgages,” said  Martin J. Taylor, president of Bellevue, Wash.-based Stay In-Home, a reverse  mortgage lender. “While they have often been known for solving desperate  situations, they have a variety of uses in long-term financial planning.”

What Sachs and Sachs have done is to compare three  strategies for the use of home equity via a reverse mortgage to increase the  safe maximum initial rate of retirement income withdrawals. The commonly  accepted “safemax” begins with a first year’s withdrawal equal to  4-4.25 percent of the initial portfolio value. Subsequent years’ withdrawals  then continue at the same dollar amount each year, adjusted only for inflation.  Since many retirees have found the safemax uncomfortably limiting, Sachs and  Sachs calculated greater percentages in some examples.

The strategies:

(1) The conventional, passive strategy of using the reverse  mortgage as a last resort after exhausting the securities portfolio.

(2) A coordinated strategy under which the credit line is  drawn upon according to a formula designed to maximize portfolio recovery after  negative investment returns.

(3) Drawing upon the reverse mortgage credit line first,  until exhausted.

The authors found “substantial increases” in the  cash flow survival probability when the active strategies are used as compared  with the results when the conventional strategy is used. For example, the  30-year cash flow survival probability for an initial withdrawal rate of 6  percent is only 55 percent when the conventional strategy is used, but is close  to 90 percent when the coordinated strategy is used.

So, how is the reverse mortgage best blended together with  other investments? In a nutshell, it’s a basic algorithm:

At the end of each year, the investment performance of the  account during that year is determined. If the performance was positive, the  next year’s income withdrawal is from the account. If the performance was  negative, the next year’s income withdrawal is from the reverse mortgage credit  line.

According to the study, this spares the account any drain  when it is down because of its investment performance. It also leaves the  account more assets to recover in subsequent up years. This is done in the  early years of retirement, so the account grows before the reverse mortgage  credit line is exhausted.

The authors emphasize that a reverse mortgage is not  necessarily a useful vehicle for every retiree who has substantial home equity.  A retiree whose primary source of retirement income is a securities portfolio  and who also has substantial home equity must decide early in retirement  whether to live within the safemax limit set by his or her portfolio. This  decision is a fundamental component of overall retirement planning.

Watchdogs are watching your interests…

US watchdog targets discriminatory lending

By Reuters, April 18, 2012, link

The new U.S. consumer financial watchdog said on Wednesday it will aggressively pursue discriminatory lending practices, including those that may not be intentional but wind up penalizing minorities or women.

The Consumer Financial Protection Bureau on Wednesday sent a notice to banks and other lenders emphasizing that enforcing anti-discrimination laws is a priority.

The agency has also drawn up a tip sheet to help borrowers determine if they are being discriminated against that will be posted on its website.

“Our economy is in the process of recovering from the worst financial crisis since the Great Depression,” CFPB Director Richard Cordray said in remarks prepared for a speech to the National Community Reinvestment Coalition, which focuses on lending discrimination. “We cannot afford to tolerate practices that either price out or cut off segments of the population – such as women, the elderly, or communities of color – from the credit markets.”

The agency emphasized that it views discrimination as going beyond practices that are obviously designed to treat minorities and women differently.

If a lending policy over time results in any group being treated differently, even if that is not the intent, the agency will crack down on the lender, Cordray said.

“It is important to recognize that this subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era,” he said.

As an example Cordray offered a scenario in which lending officers have wide discretion to determine interest rates and fees for borrowers, resulting in minority groups or women being charged more.

The agency, which was created by the 2010 Dodd-Frank law to police lending products like credit cards and mortgages, also said it would pursue practices that result in a lower availability of loan products for minorities or women.

The agency has been heralded by supporters as an antidote to the lending abuses that occurred in the run up to the 2007-2009 financial crisis.

Banks have been wary of the new watchdog, warning that too many restrictions will constrain lending and prevent many consumers from being able to get loans for buying a home or other products.

Cordray on Wednesday again emphasized his point that the agency can help banks through its power to oversee competing lenders that had not previously been overseen by a federal regulator.

“The bureau will be supervising these entities in a tough but fair manner to single out the silent pickpocket and stop discrimination in its tracks,” he said.