Real Estate Snippets

Tax Credit: Going Soon

If the homeowner's tax credit is confusing to you, check out this little video.

How to Buy a Bank Owned Home

Thanks to Maureen McCabe from Columbus, Ohio, for finding this satire of today's market!

Housing Inspections

There are inspections and then there are inspections.  The purpose of a housing inspection often impacts what kind of things are "called". 

For instance, the purpose of a point of sale inspection (inspections done by the city so the homeowner can sell their home) is to maintain a minimum standard for the housing in a community.  As a result, city inspectors have different "hot buttons" than an inspector with a different purpose.  Common things called on a point of sale inspection include smoke detectors, missing hand rails, torn screens, broken windows, peeling or chipping paint, backflow preventers on threaded spigots, and GFCI outlets.  If the roof is REALLY bad or the cement is terribly broken, or a fall hazard, those things may be called as well.  Most often the point of sale inspection does not require an existing home to be brought up to today's code.  Many times the point of sale inspection has a simple check list and doesn't delve beyond that.

The buyer's inspection is an entirely different kind of inspection.  The buyer hires a private inspector for their inspection.  The purpose of the buyer's inspection is to find every little picky thing that is wrong with the house so the buyer is aware of the flaws prior to continuing with the purchase.  Because the city is looking for minimum standards and the buyer's inspector is looking for perfection, the two inspections will have some results that are very different and some that overlap. 

Other inspectors who view the home have other purposes.  The appraisor is looking for enough value to guarantee the loan.  The plumbing inspector will be looking for plumbing issues.  The home warranty inspector will only care about the appliances the warranty insures.  An insurance inspector will look at mechanicals and safety issues to find the least amount of risk.  The tax assessor . . . well, we all know the government wants to collect taxes!

FHA Mortgages

FHA mortgages are experiencing a resurgence.  The average home buyer doesn't really understand why that is important or how it impacts them.  A home buyer usually applies for a loan accepting what the loan officer suggests for the loan program.  Seldom does the consumer ask why an FHA loan is suggested over a conventional mortgage.

Whereas I am not a mortgage officer and my explanations are very basic, here are a few characteristics of FHA mortgages.  Knowing a little bit about FHA lending can prepare the buyer for how an FHA loan might impact the transaction.

• An FHA mortgage is insured by the federal government.  There will be a mortgage insurance premium rolled into the buyer's mortgage to cover this insurance.
• Prior to the easy (and sloppy) lending of the feeding frenzy years, FHA mortgages had easier qualifying criteria making it easier for a home buyer with less than perfect credit to obtain a mortgage through FHA programs.
• The minimum down payment with an FHA mortgage is 3% and that amount can be in the form of a gift from a relative, charitable organization, or employer (Some changes have been made to this rule in the Housing and Recovery Act of 2008.).
• Appraisals for FHA mortgages often included "work orders" which had to be completed before the lender would grant the mortgage.  Since FHA buyers often were more "borderline" in their financial strength, FHA wanted to make sure the homes they financed were not going to require extensive repairs which could sabotage the new buyer's successful repayment of the loan.

There are several reasons why an FHA loan could impact the purchase of a home, especially if there is a multiple offer situation or the buyer has chosen a foreclosed or short sale property.  In a multiple offer, an FHA mortgage of identical terms may lose if the other offer is a conventional mortgage.  The fact that qualifying criteria and down payment requirements are less can give the message to the listing agent that an FHA buyer is less strong than a conventional mortgage buyer.  The possibility of work orders being required by the appraisal can decrease the seller's "profit" from their house sale as well.  Sellers who are selling their homes for less than they owe (short sales) are obviously strapped for money and often do not have the funds to make repairs making an FHA buyer less attractive.  Foreclosed properties that are owned by lenders often have deferred maintenance which will be considered as work orders by FHA and lenders are unwilling to spend money to fix a property in which they have already lost money.

Whereas some home sellers are skittish about FHA financing, most are not.  FHA was designed to encourage home ownership, especially for first time buyers.  In today's market with the tightening of mortgage guidelines, FHA mortgages have returned to being a viable option for many buyers.

Short Sales

Short sales have become so common that the shorts have become holey!  They're hardly worthy of news anymore.  Seldom do St. Paul agents ask, "Have you ever done a short sale?" because any active agent has.

Today I got a call from a listing agent.  The agent specializes (she says) in short sales.  Six months ago my clients wrote an offer for one of her listings.  It was a good offer for a short sale.   We only reduced the price by 10%.  Many short sale offers are well below that.  At the time, the listing agent assured us we were the highest offer and the only one the lender was considering. 

We waited . . . and waited . . . and waited . . . and waited . . . and waited . . .  Well, you get the idea.  The time was NOT short, and our patience was getting short!  Finally, my clients liked another home that was for sale by a live person, one who didn't have to get bank approval for the sale.  What a novel idea! 

We gave notice to the short sale listing agent that we needed an acceptance by the end of the week or we would withdraw our offer.  The listing agent disclosed that another higher and better offer had come in and the bank was going to accept that other offer.  My clients moved on to their second choice and moved in 6 weeks ago. 

The short sale agent called today inquiring if my clients were still in the market because the sale had fallen through.  My clients' dream house was once again up for sale.  The agent assured me the lender would be prompt in signing the purchase agreement and moving to close this time around. 

Too bad, so sad.  My clients have already happily moved in to their second choice home.  New paint covers their walls, a jacuzzi tub has been installed, and the kitchen is organized.  The former short sale home is now listed as a pre-foreclosure which means the lender is soon going to be the reluctant owner of another home.  The irony is that the house will probably sell in the future for far less than we offered. 

My clients' take:  "It's funny how stupidity is ultimately self destructive 100% of the time."

My take:  "Short sales make real estate agents short tempered!"

Lead Paint

When writing a purchase agreement for a home built before 1978, a "lead paint disclosure" is required by federal law as part of the purchase agreement.  This disclosure by the seller to the buyer tells whether the seller knows of, or has tested for, lead based paint in the home.  On the disclosure, the buyer is given the opportunity to have a "risk assessment" done on the home and is also given a pamphlet called "Protect Your Family from Lead in Your Home."  The pamphlet instructs how to keep your home safe if it does have lead paint: no sanding, no scraping, and no hot air guns to strip the paint.  The recommended course is to wash to remove anything lose and repaint or encapsulate the painted surface.

Lead assessments were a hot button in the mid '90's.  The City of Minneapolis inspectors did assessments on rental properties throughout the City.  The resultant condemnations created quite a stir among landlords and owners.  In some areas, two-thirds of a block would have the florescent signs of condemnation on the front and back door.  The only way to remove a property from the condemnation list was to remove or "abate" the lead.  In most cases this involved hiring a company to remove or encase the lead without scraping, sanding, or heating the paint. . . a very pricey undertaking involving suits and masks and special equipment.  Some owners of condemned houses actually walked away from them (today's "walking away" from homes is reminiscent of those days) because of the financial impact on their business.  The City eventually realized their "plan" was not working, and today it's less common to see the lead condemnation notices.

In my 15 years of experience, only one property being actively marketed had a lead risk assessment done.  The inspection report was on the counter with the other disclosures at the time of the showings.  Because the emphasis has been on lead paint, it was a surprise to read there was lead in the varnish used on woodwork or in the wallpaper.  Granted the lead levels were much lower for varnish and wallpaper, but the lead was still present.  None of my classes had shared this tidbit of information!

It was a relief to realize I had unwittingly protected myself while removing the many rooms of wallpaper in my lifetime.  Instead of dry peeling the paper, my method had been to thoroughly soak the walls and loosen with a putty knife.  The soaked bits that were scraped off did not become airborne, but were bagged and removed from the home.

Buyers of home built before 1978 should remember to not let their children eat the paint and to keep painted surfaces in good repair, not allowing them to chip and flake.  We older people managed to survive lead paint in all of our homes (Maybe that's why we're so weird!), but as the paint ages, it needs to be kept repainted to maintain its safety.

HUD Houses

At one time the term HUD houses was synonymous for foreclosed properties.  In today's real estate market, HUD houses are a subset of the foreclosure market. When an FHA mortgage is foreclosed, the house securing the mortgage becomes the property of the Housing and Urban Development (HUD). It becomes a HUD house. Years ago these houses comprised the majority of lender owned properties, but in today's market they are in the minority.

Many real estate agents dislike HUD houses.  It's not just because many of them stink!  It's because of the many hoops required to present an offer for a HUD home.  Here are just a few of those hoops:

• In order to present a HUD offer, the broker must be registered with HUD and given an ID number. 
• Even though HUD houses are listed on the MLS, they cannot be entered with the traditional lock box system used in St. Paul.  Each registered broker is given a master key that permits access to the home.  If the broker is not registered, they cannot show the house. 
• Registration has to be done in advance and renewed on a regular basis.  Registration takes several weeks so one cannot choose a HUD home and then register.
• All HUD offers are presented on the web.  The broker's registration ID number permits access to the site.  Many agents are uncomfortable with the online bidding process.
• The purchase agreement is different and has a booklet of instructions as its accompaniment.  Many agents hate having to learn another system to present an offer.
• Whereas HUD houses are listed on the MLS, they are listed for a limited time period.  All offers are submitted within the same 4 days in a silent auction format.  The winner from the simultaneous bid period is the buyer with the highest "net to HUD".  There is no chance to counter offer or outbid another.
• If the agent's buyer wins the simultaneous bids, the original of the purchase agreement and the earnest money check must be overnighted to the proper HUD office. 
• It's dealing with the government and there are NO opportunities for mistakes to be corrected or changes made.  When it's done, it's done!

Do Appliances Come With a Bank Owned House

The St. Paul house is perfect.  There are granite counter tops, wood floors, no holes in the wall, and it's relatively clean.  There are even stainless appliances.  As the buyers prepare to write their offer, they carefully read the MLS listing sheet to make sure nothing has been missed.  The property is bank owned and requires a special purchase agreement, but that isn't unusual.  Even though it's in good shape, it will be sold "as is". 

The more the home buyers study the listing sheet, the more questions arise.  Why are the appliances not included in the listing sheet?  They're in the house.  Was the listing agent lazy or are they not included in the sale?

In the case of a bank owned property, the appliances are not included on the listing sheet, because technically the appliances are not owned by the bank.  If the home owners who defaulted on their mortgage and lost their home, left the appliances in the home, the new buyers will get them, but there will be no bill of sale as proof that the appliance ownership has transferred.  Unlike the house, the foreclosure process does not transfer ownership of the appliances to the bank.  They are just left in the home or abandoned by the former owner.  If appliances are not in the house, the corporate owner usually will not provide appliances.  If they are, the new buyers can consider themselves fortunate (or unfortunate if the appliances are dirty or in awful condition!).

Not listing appliances as included in the sale of foreclosed properties is not laziness on the part of the listing agent.  It is part of the foreclosure process that they are not included in the sale.

Delayed Closing

It was one of those kind of days:  the kind where the schedule is cleared and everything is shifted to other days just in case; the kind where eggshells are underfoot all day and hurdles are leaped; the kind where I'm all dressed up with nowhere to go!  That's what a scheduled closing day feels like when the file did not come out of underwriting in time and everyone is waiting on pins and needles for the file to be delivered for processing.  Because the closing might happen, all parties are ready and waiting.  E-mails and phone calls are exchanged.  Promises are made and apologies follow in their wake when the promises can't be fulfilled.  The buyers' portion already was approved by underwriting.  The St. Paul house was what had to be examined.  The appraisal couldn't be completed until the roof and painting were done, but why does it take the underwriters so long to look at an appraisal?  Two days?!!  Everyone wants to know what's so hard about checking 15 little pages.  The appraisal valued the home at more than the purchase price so what can be the hold-up?  The seller is frantic.  The buyer is impatient.  The agents are frustrated.  The closing company must wait.  It seems an eternity without an answer.  One is tempted to think it might be a power trip.  It certainly isn't because the lender has too many files to process.  This one is NOT a short sale.  It's a traditional slam dunk loan.  Please, someone call and say we can close!

Houses Can Be Tempting Too

It's because a house becomes a home emotionally in a matter of seconds, that it's really important to become pre-qualified for your mortgage and to be shopping for homes that fit your specific criteria.  Falling in love with a home you can't afford or that doesn't fit your needs makes walking away from that home terribly difficult.  All other house candidates will be compared to the one you first loved.  When your real estate agent assigns homework of getting pre-qualified for your mortgage and writing down what you want in a house, take the assignment seriously.  There are many lovely homes out there that might call to your heart strings.  Finagling to purchase a home for more than you wanted to pay or talking yourself into a house that doesn't have the dining room you required, becomes a problem when the house honeymoon is over.  It's tempting to shop indiscriminately but if you purchase one of those too expensive or "not quite right" homes, falling out of love is easy to do!    Financial struggles or serving a family meal on TV trays everyday tarnishes the first love you once felt for the home.  Do your homework.  Stay focused.  Buy what meets your current criteria.  Your love for your first smaller home will prepare you to move up to that bigger dream house of the future.