September 15th, 2007 by George

By Robert J. Bruss
Inman News

You’ve been looking for months for your first home, or you want to upgrade to a nicer home in a better community. It’s a great time to buy a home, everybody tells you.

Finally, you find the ideal home for sale, which has most of what you want (there is no such thing as the “perfect home.”)

But when you sit down with the mortgage lender to go over your income and credit to see if you can obtain the home loan you need, the lender says your FICO (Fair Isaac Corp.) credit score is too low to get an affordable interest rate. A mortgage at 7.5 percent interest is the best he can arrange, but he’s not sure you can qualify for the high payment.

Will you give up, resigned to waiting a year or two before buying a home? Of course not.

You know the house you want to buy has been listed for sale three or four months so the sellers must be anxious. The eager real estate agent phones to ask if you got your mortgage preapproval. You report the bad news that you’re not willing to pay 7.5 percent interest.

Fortunately, you’re working with an experienced realty agent. She suggests renting the house for up to two years until you can improve your FICO score. Then she explains you can lock in the purchase price at today’s market value. “Tell me more” is your swift reply.

WHAT IS A LEASE-OPTION? Your real estate agent then explains a lease-option, also known as “rent to own” in many communities, is a combination rental, sales and finance technique that has been used by thousands of home buyers and sellers.

However, a lease-option is not the same as a lease-purchase, which obligates the buyer to buy, usually within a year or two. With a lease-option, if home prices plummet, the buyer doesn’t have to exercise the option to buy.

Personally, I bought my current residence with a lease-option when I realized I was “cash challenged” without enough money for a down payment. Through my buyer’s agent, I offered the sellers a 12-month lease at $1,500 per month with $10,000 nonrefundable option money. As the vacant house had been listed for sale about six months, I asked for a 100 percent rent credit toward my option purchase price, which was just slightly below the asking price.

After hesitating about 10 days, my sellers accepted, but only for a six-month rental term. I readily agreed. Three days later, I hired a moving van and moved into my new home. About five months later, I exercised my purchase option and took title. At the closing, I received credit against the option price for my $10,000 option money plus the $7,500 total rent paid for five months.

Lease-options work especially well when there is an oversupply of homes listed for sale, such as the current “buyer’s market” in many cities. When a home seller needs someone to pay enough rent to cover the mortgage payment but doesn’t require an immediate cash sale, a lease-option can be ideal.

THERE ARE ALWAYS MORE LEASE-OPTION BUYERS THAN SELLERS. For some unexplained reason, there are usually more “rent to own” buyers than sellers. Having used lease-options to buy and sell houses for almost 30 years, I’ve learned a properly marketed lease-option can solve problems for both buyers and sellers.

The key to lease-option success is the amount of rent credit the tenant will earn each month toward the down payment. Although I negotiated a 100 percent rent credit when I bought my present home, as a seller I usually agree to only a 33 percent rent credit. As a motivated seller, I’ve agreed to 50 and even 100 percent rent credits.

Although the lease-option buyer doesn’t get any income-tax deductions, the buyer’s rent credit is far better, like a “forced savings account.” Of course, if the buyer doesn’t exercise the purchase option, the rent credit plus the option money is forfeited.

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September 15th, 2007 by George

By Lauren Baier Kim - realestatejournal.com

Selling a home in a down market is not unlike hawking ice cream in February.

In this cold real estate climate, there aren’t many people clamoring to buy, leaving home sellers
facing a tough time. Some may go the traditional route and hire a real-estate agent at a full commission to sell their home.

But when the housing market is sluggish and home prices drop, this can be costly: a seller of a $200,000 home could pay $12,000 in real-estate commissions at a 6% rate — cutting even more into homeowners’ potential profits. Also, securing financing for a new home is increasingly difficult for many people.

In a special package of articles this week, RealEstateJournal.com looks at people who’ve sold their homes using a variety of
nontraditional methods:

• A Seattle Internet entrepreneur who posted a “Make Me Move” price of $1.25 million on Zillow.com for his condo and sold his home for close to that price.

• A widow in New Jersey, looking to downsize, swapped her home with neighbors who were looking for more space.

• A CEO decided to auction off his multimillion Florida estate after a long listing period failed to net a buyer.

• A couple who went the “for-sale-by-owner” route and left an expensive Portland, Ore., suburb for a
more affordably priced area in Montana.

• Another couple who got lucky and sold their home at a yard sale.

• Plus, some recent home sellers explain how they sold their home in the current market.

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August 23rd, 2007 by George

From the Wall Street Journal…

With the housing market looking increasingly frail, home builders and real-estate agents are going to new extremes to attract buyers, dangling lavish incentives and slashing prices.

Here are some tips for getting concessions from home builders:

• Buy a finished home: Builders want these off their books.

• Get a preapproval letter: This shows a builder you have financing already in place.

• Close quickly: Wrap up a purchase within 30 days; builders want to sell before the next bank payment is due.

• Avoid contingencies: Don’t make your purchase contingent on selling a home or finding financing.

RealEstateJournal.com offers advice for getting discounts on brand-new homes.

In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance — worth as much as $150,000 on houses priced as high as $2.5 million — for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering “Sizzling Summer Sale Savings” that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake.

“I’d also negotiate a lower price, too,” says Ms. Adams, an agent with Re/Max International Inc. “I just want this house off our books.”

Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars — incentives much richer than builders were offering as recently as six months ago, when the downturn didn’t look as bleak.

Since then, home builders have been hit hard as rising mortgage delinquency rates have made lenders much more reluctant to issue new loans, causing home prices to fall and inventories of unsold homes to rise. In June, new-home sales had fallen more than 40% from their peak two years ago, and more than half a million new houses — nearly eight months of supply — sit in inventory, according to the most recent report from the National Association of Home Builders. Contract cancellations, meanwhile, have hit nearly 30% for some builders.

Things may not get better for a while. The National Association of Realtors said yesterday that new home sales this year were likely to fall 19% from last year, worse than its previous forecast of a 17.7% drop.

Many builders never expected the housing market to fall this far. Now they’re struggling with empty land, too few buyers and an inventory of finished homes that have been sitting empty for months — and some are growing desperate to free the cash locked up in their real estate by enticing the dwindling number of buyers. The latest survey taken by the National Association of Home Builders indicates that 56% of builders are now offering incentives, up from about 45% a year ago.

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August 5th, 2007 by George

In 2006, Money Magazine put together their annual list of the Best Places in the country to live.

Mt. Pleasant, South Carolina came in at number 70 out of the top 100.

View how Mt. Pleasant and Charleston stack up compared to the top 10 here

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August 3rd, 2007 by George

Data from Charleston Trident Association of Realtors.

Median home price is up 5% over 2006 so far in 2007.

Data is year to date as of July 25, 2007.

 

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August 3rd, 2007 by George

Closing the Deal

Here is where you exercise your negotiating muscles

Once you find the house you want, you need to move quickly to make your bid. If you’re working with a buyer’s broker, then get advice from him or her on an initial offer. If you’re working with a seller’s agent, devise the strategy yourself.

Try to line up data on at least three houses that have sold recently in the neighborhood. Calculate the difference between the original list price and the final price of the homes sold.

If the average difference is, say, 5 percent below the asking price, then you know you can make an offer 8 percent to 10 percent below, leaving yourself a little room to negotiate. If you really want the house, don’t lowball. The seller may give up in disgust.

Another factor to consider in determining your bid is whether the trend in recent home sales is up or down over the past year. For instance, if houses a year ago were selling at list, and recent ones are going at 3 percent below, then you might want to sharpen your pencil for your opening bid to just 5 to 8 percent below list.

There’s no foolproof system for negotiating a fair price. Occasionally it’s best to deal directly with the seller yourself. More often it’s better to work exclusively through intermediaries. In general, don’t let the other side begin to believe you are negotiating in bad faith or being deceptive — any deal you eventually reach has to involve trust on both sides.

Be creative about finding ways to satisfy the seller’s needs. For instance, ask if the seller would throw in kitchen and laundry appliances if you meet his price — or take them away in exchange for a lower price. Remember, too, that your leverage depends on the pace of the market. In a slow market, you’ve got muscle; in a hot market, you may have none at all.

Once you reach a mutually acceptable price, the seller’s agent will draw up an offer to purchase that includes an estimated closing date (usually 45 to 60 days from acceptance of the offer).

Have your lawyer or buyers agent review this document to make sure the deal is contingent upon:

1. your obtaining a mortgage;

2. a home inspection that shows no significant defects (make sure you’re clear on the definition of “significant”);

3. a guarantee that you may conduct a walk-through inspection 24 hours before closing. This last clause allows you to check the home after the sellers have moved out so that you have time to negotiate payment for repairs, just in case the movers cause any damage, or that big living room sofa was hiding a hole in the floor.

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July 29th, 2007 by George

The Hunt

Now it’s time to hit the pavement, or Web, in search of a new home
Your first step here is to figure out what city or neighborhood you want to live in. (Remember the old saw about “location, location, location.”)

For overall demographics and data on metropolitan areas, you can visit a city site like CNNMoney.com’s annual Best Places to Live list. For more detailed neighborhood information, check out sites like dontrenew.com, Yahoo! Real Estate, Homepages.com or NeighborhoodScout for comprehensive school and demographic information on a number of communities. Look for signs of economic vitality: a mixture of young families and older couples, low unemployment and good incomes.

Pay special attention to districts with good schools (high teacher-student ratios and graduation rates are among the hallmarks), even if you don’t have school-age children. When it comes time to sell, you’ll find that a strong school system is a major advantage in helping your home retain or gain value.

Try also to get an idea about the real estate market in the area. For example, if homes are selling close to or even above the asking price, that shows the area is desirable. Try Homegain.com, which is free, or Dataquick.com, which is available only to paid subscribers, to check out recent home sales.

Your real estate agent may also be able to show you listings. Incidentally, if you have the flexibility, consider doing your house hunt in the off-season — meaning, generally, the colder months of the year. You’ll have less competition and sellers may be more willing to negotiate.
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July 29th, 2007 by George

Picking a Team

Don’t buy a home without professional help

With all the tools and advice available today ranging from books and magazines to online advice like this lesson - it would be possible for you to buy your home almost completely without the aid of real estate professionals.

That’s not necessarily recommended. The housing market, like politics, is basically local, and each state, city, and even neighborhood has a thicket of local laws or customs that you need to understand. For that, it helps to have a team of professionals to guide you.

You might want to start by finding an agent who can represent your interests in the search. This is not as simple as it sounds. Sure, 85 percent of sellers list their homes through an agent - but those agents are working for the seller, not you. They’re paid based on a percentage, usually 5 to 7 percent of the purchase price, so their interest will be in getting you to pay more.

What you need is what’s known as an “exclusive buyer agent.” Sometimes buyer agents are paid directly by you, on an hourly or contracted fee. Other times they split the commission that the seller’s agent gets upon sale. A buyer’s representative has the same access to homes for sale that a seller’s agent does, but his or her allegiance is supposed to be only to you.

To complicate matters, there are hybrid agencies called either single-agency or dual-agency brokers. In both cases, an individual agent in the firm may represent either sellers or buyers, sometimes both, in the same transaction. Potential conflicts of interest abound in this situation, so if you are seeking a buyer agent but no exclusive buyer agent is available, make sure to ask the agent about conflicts of interest.

There are now about a dozen Web sites that help connect buyers with buyers agents, among them dontrenew.com, HomeGain.com, House.com, RealEstate.com and Reply.com.
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July 28th, 2007 by George

Getting the Money Right

For most people, buying a house involves a double financial whammy.

First you have to assemble a pile of cash for the down payment and closing costs. Then you must convince a bank to lend you an even more staggering sum - generally 80 percent or more of the purchase price.

So your first step, even before you start the actual hunt for a property, should be to get your financial house in order.

Start with your credit

Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. Among other things, they show whether you are habitually late with payments and whether you have run into serious credit problems in the past.

A credit score is a number calculated by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports.

A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know your credit scores. Try Fair Isaac’s MyFICO.com, which charges upwards of $50 for all three reports and scores.

Errors are not uncommon. If you find any, you must contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer.

Know what you can afford

Next, you need to determine how much house you can afford. You can start with one of the Web’s many calculators. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that’s in your league.

The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
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July 28th, 2007 by George

Are You Ready to Own

Home ownership means you no longer pay monthly rent for the roof over your head. You can do what you want with your house (within reason). When you leave, you can sell it to recoup the purchase price and - with any luck - earn a profit too.

But don’t kid yourself. home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.

So before going any further, consider whether your lifestyle and finances make homebuying a smart move.

TIP: High costs mean you should be prepared to say put. Except in a roaring real estate market, it usually doesn’t make sense to buy a home you’ll own for less than three or four years. Reason: the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money, you’ll pay capital gains taxes if you’re in the house less than two years.

So ask yourself if you can really stay put for that long. Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school?

TIP: It may make more sense to rent On the financial side, one key question is whether it costs more, on average, to rent or own in your area. The rule of thumb is that if you pay 35 percent less in rent than you would for owning - including the monthly mortgage, property taxes, and any homeowner’s fees - then it’s smarter to continue renting.

Only if all those answers still point towards owning should you proceed to the next step - getting the money right.

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