Tag Archives: values

Debunking the “instant equity” myth

Q: If I buy a home that previously sold for more than $400,000, but I pay only around $200,000, doesn’t that mean I have instant equity?

A: In a word? No.

Here’s the deal. In real estate, we think of equity as the difference between what your home is worth and what you owe on it. It’s the amount of your home’s value that you actually own, after any mortgage or other debts that are secured by the property.

Historically, the way homeowners hoped to build equity in their homes was primarily by paying off their mortgages. However, over the last decade or so, this evolved so that many homeowners expected their primary means of building equity would be by the stratospheric appreciation in home values. If homes simply kept growing in value, then equity would continue to build, as a matter of course.

Given these definitions, technically, the phrase “instant equity” should refer to the difference between what your home is worth at the time of closing and your mortgage balances — i.e., what you owe on it. For most buyers, that would mean their instant equity was the amount they had put down on the home.

However, people typically use the phrase “instant equity” to mean that you’ve bought a home that is worth more than you paid for it (not what you owe on it). It is this use of the phrase that you’re likely getting at.

The fact that the home sold for more than $400,000 at some time in the past (a time near the top of the market six years or so ago, most likely) is entirely irrelevant to your equity position on it now. You might indeed be closing this transaction with instant equity, but if so, that would be because the property is currently worth more than the $200,000 purchase price, not because of what it was worth in a time that is long gone — a mystical fairyland in which banks lent mortgage money without checking on borrowers’ ability to repay it, which ultimately led to a dramatic climb in home prices.

Some would say that whether or not you have instant equity, the fact that the property once sold for $400,000 shows that (a) a buyer was once willing to pay that, and (b) that the property could climb to that price again. These facts are both true, strictly speaking, but do not in any way help you determine whether this particular property is the windfall opportunity that you seem to think it might be.

Here’s why: A home’s value at any given time is what a willing and qualified buyer would be willing and able to pay for it at that time. Today’s market dynamics are simply not comparable to those of yesteryear, so you cannot assume that a buyer on today’s market would pay a top-of-market price for the place.

A buyer could not and would not pay $400,000 on today’s market for that home; if he needed a mortgage to fund the purchase, the bank and appraiser would simply not allow him to do so. And if he were a cash buyer, it just wouldn’t make sense for him to pay such a price, presuming that he could buy another, similar home in the area for closer to $200,000 than $400,000.

The only way for you to know whether you have instant equity in this home, and how much, is to figure out what you believe the property is worth on today’s market, and calculate the difference between whichever of the following you find to be the most relevant for your purposes: (a) the amount of loan indebtedness you have on the property or (b) the amount you paid for the property.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Real estate tips to guard against losing your home

Real estate tips to guard against losing your home

Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don’t want to end up in the same trouble the last generation of homeowners did.

Well, there’s a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.

With that said, though, there is a handful of rules today’s home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:

1. Never a borrower or a lender be. OK, so maybe NEVER is strong, but you’d be surprised at how many foreclosed homeowners actually bought their homes with conservative loans and at low prices many years ago, but got into trouble taking new mortgages and pulling cash out at the top of the market (then not being able to refinance or make the adjusted payment at the bottom).

Today’s home buyers can avoid this fate by starting out their homeowning careers with some ground rules in place around borrowing against their homes.

A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.

Here’s another one: Whatever you do, don’t borrow against your home to lend money to someone else. I’ve seen dozens of homeowners over the years borrow to make an “investment” in a friend’s business or to lend money to a child or a parent. Borrowing against your home’s equity to make an investment in a business you know nothing about is a complete gamble with your home. Don’t do it.

2. Stop financial codependency. Related to the rule of thumb about borrowing to lend is this change of the bad habit of financial codependency.

This comes up most often when homeowners borrow money against their home or tap into their emergency cash cushion (leaving themselves unable to make their mortgage payments if they lose their job, etc.) to help an adult child make their own mortgage payments or bail them out of another crisis situation.

It also comes up where one spouse supports another spouse’s habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Over time, these cases can create the temptation or even desperation to further leverage your home, and can run through a savings account, leaving the homeowner exposed and vulnerable in the face of a temporary disability, job loss or recession.

There are a number of powerful books on the market about how to cease being codependent, but many people struggle to recognize they even have this issue until it’s too late. Here’s a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.

3. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage!

The problem is that once you automate your payments, it’s very easy to fall into the habit of simply ignoring your actual statements — and they may contain information that flags issues before they snowball into serious problems.

One homeowner recently realized that through no fault of her own, and despite never having missed an auto-payment, her home was facing foreclosure — all because the bank had somehow erroneously started crediting her payments to someone else’s mortgage account!

Also, financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will rear their ugly heads and possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.

4. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values. Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you’re qualified to borrow.

So, before you ever speak with a mortgage broker, it’s up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.

Fortunately, an increasing number of are buyers doing this, and actually choosing to buy a home that costs much less than they are technically qualified for.

5. Don’t buy a house to fix a family or psychological problem. Beware of “pulling a geographic” — moving to a new neighborhood or town to try to run from your problems and bad habits.

Experts caution against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, “wherever you go, there you are.” If you have bad habits in Chicago, moving to L.A. doesn’t purge the bad habits — only working on the actual dysfunction itself will do that.

There’s a real estate-specific version of pulling a geographic, which we’ll call “pulling a residential.” This is where people buy a home or buy a new home in an effort to cure a deeper family or psychological issue; sort of like that old (and equally bad) idea of having a baby to try to save your marriage.

If your children are fighting because they lack personal space, that’s one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.

In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Buying is winning the lottery

With the current residential real estate market for buyers in the throngs of a literal feeding frenzy, due to the rising infestation of investor buyers, the buyer looking to buy a home for their family to live in is having massive competition.

While inventory is currently contracting and sales are on the rise, six months from now we will know for sure if the market will be positive–meaning that values will finally be officially on the rise. There are some areas that are seeing an increase in values.

I have several listings that range in the low price ranges of $200’s, to $600K — and  these are seeing multiple offers from investors and owner-occupied buyers.  This makes it tough on the buyer purchasing for a family as a first-time buyer who do not have a lot of money to put down. There are up to 10 offers in a matter of a few days on almost all properties now.

This scenario should continue making this a very frustrating time for the first-time,  FHA government & conventional low down payment, or Military Veteran no down payment buyer. This group has to compete with the “all-cash” and 20%+ down payment conventional loan buyers, who usually win due to the restrictions on condition of property by the government loans like FHA and VA, or the low down conventional investor guidelines.

So, how does the low-money-down buyer get in a position to win the property for the buyer who has to compete with the big money buyer? Make sure you are interviewing your perspective agent on how this process will be handled. In this market, this is necessary not only for sellers, but also for buyers. Repairs or a price reduction in a short sale can be done and I can show you how.

Experience is GOLDEN!! Properties having no equity to several liens, a bankruptcy, etc. will not close with an average or most experienced agents, whether representing a buyer or a seller. I have helped several listing agents while I represent a buyer get the property sold in these scenarios.

Whether buying or selling, you owe it to yourself to call me now. The time is now to buy and you will have the most success and satisfaction with the agent who can maneuver through the maze while leveraging you the best deal. I am here to serve you to make sure you WIN the LOTTERY!

Thank you for reading and God Bless.

Proposed Bill to Speed Up Short Sale Process and Prevent Foreclosure

We all know short sales are not so “short”–but this proposed bill outlined by DSNews.com’s article may speed up the process, while also preventing foreclosure.
 
To avoid losing homes to foreclosure due to long response times for short sale transactions, three senators introduced legislation to speed up the short sale process.  
 
Senators Lisa Murkowski (R-Arkansas), Scott Brown (R-Massachusetts), and Sherrod Brown (D-Ohio) proposed the bill addressing the issue of short sales timelines on February 17. A short sale is a real estate transaction where the homeowner sells the property for less than the unpaid balance with the lender’s approval.
 
“There are neighborhoods across the country full of empty homes and underwater owners that have legitimate offers, but unresponsive banks,” said Murkowski. “What we have here is a failure to communicate. Why don’t we make it easier for Americans trying to participate in the housing market, regardless of whether the answer is ‘yes,’ ‘no’ or ‘maybe?’”
 
The legislation, also known as the Prompt Notification of Short Sale Act, will require a written response from a lender no later than 75 days after receipt of the written request from the buyer.
 
The lender’s response to the buyer must specify acceptance, rejection, a counter offer, need for extension, and an estimation for when a decision will be reached. The servicer will be limited to one extension of no more than 21 days.
 
The bill will also…
 
Read the rest of this article by DSNews.com here: “Proposed Bill to Speed Up Short Sale Process and Prevent Foreclosure“.

Is it a “Happy New Year” for the Housing Market?

Goodbye 2011 & Hello 2012! Is this a Happy New Year?

Is it goodbye to a bad year or hello to the same?  While the economy is still struggling, unemployment slightly better, and real estate showing signs of improvement only to retract its position, I believe the glass is still half full, with an asterisk.

What's in store for 2012's housing market?The holiday season began strong on Thanksgiving weekend, reports are that retailers numbers receded which led to heavy markdowns the week of Christmas. Final numbers are still to come, while job growth is modest, mostly in low-paying sectors like retail and hospitality. This past year also saw an increase in credit card spending for gifts as a result of higher gasoline, food prices, and general inflation.

With mortgage rates still at historic low rates, the housing industry is still struggling with values dropping, even though sales have shown signs of recovery. With more than one in every five borrower still owing more than their home is worth, many homeowners are too pressed to spend on much more than the essentials which leave us to the big question: WHAT SHOULD I DO?

With all predictions expecting more of the same this year as last, there is still and always will be optimism, but each homeowner out there who is still upside-down, either waiting for or in a modification, is so far upside down that they most likely will never recoup the past negative equity in the future.  They are at the same time struggling to make ends meet with just the essentials. Mortgage companies and investors are still holding the belt tight and are not reducing principle for most people waiting for  modifications or who have them–leaving homeowners to finally make that decision that enough is enough.

There are opportunities to purchase and leave your upside-down home, but you would need to act fast. Other opportunities are also available and action now will help you live a life more care-free and stress-free in a fast-paced, ever-uncertain economic time.

Call me now and let’s talk. My direct line of contact is 619-890-3648.

God Bless

Examine Features Now To Sell for a Good Price Later

Home for saleWhen you buy a home, chances are high that you will eventually sell as your life changes over time. In the United States, it’s estimated that homeowners change residences every five to seven years.

So when you are house hunting, it’s important to keep resale value in mind. Some features you may find desirable may not appeal to others when the time comes to put the house on the market. That would hurt both your ability to sell the house and to get a good price.

As you start your search, consider these factors that will affect resale value:

Exterior Features

Location: If you find the property that offers most of the features you are looking for and it’s going for a bargain price, don’t rush into it. There may be a reason the house is selling for a bargain, so carefully consider where the property is located. When you resell, for example, couples with small children are likely to be searching for quiet streets, large yards and proximity to shopping and schools. Rectangular lots generally sell better than oddly shaped or awkwardly situated properties. For many buyers, the determining factor is the neighborhood.  A home in a safe area will always fetch a better price than the same sized home in or near a less desirable neighborhood. In addition to a low crime rate, many buyers are also looking for a high-achieving school system.

Maintenance: A beautifully manicured lawn with landscaping may have curb appeal, but it is likely to be expensive and time consuming to keep up. You may be willing to pay a premium for it but the next buyer may not. A house with little to moderate landscaping generally has the best resale value. More buyers will also choose a home with exteriors, decks or patios that are made of low-maintenance materials.

Swimming pools: Pools can pose resale problems. Safety concerns means families with small children generally avoid them, as do buyers in regions where a pool is used only a few months of the year. Buyers will also be aware of the maintenance pools require. Keep in mind, however, in some upscale neighborhoods a pool is almost considered an essential.

Size: Resale value is also affected by the size of surrounding homes. Don’t buy the largest home in the area — a large house in the midst of smaller houses generally will sell for a lower price than if it is surrounded by homes of a similar size. Conversely, small or medium-size homes near a larger dwelling tend to increase in value.

Interior Features

Bedrooms/bathrooms: Homes with at least three bedrooms usually have good resale value. The price goes up if the master bedroom has its own bathroom. In any case, the home should have at least two bathrooms and they should be updated for resale purposes.
Kitchens: The center of many homes is the kitchen, which makes it the most important room in the house. Look for modern appliances, a large pantry, plenty of cabinets, attractive and spacious counter tops and adequate dining space. If there is a family room or dining room, the kitchen should be nearby.

Storage and space: In general, lots of closets and well-organized storage space will entice buyers, as will plenty of natural light. Walk-in closets add to the appeal, and garages boost resale value, particularly if they fit two cars. A separate laundry room is typically a great resale feature.

Character: One all-important aspect that will help sell a home is its character. A home’s distinctiveness, however subtle, can charm a buyer. Small touches such as granite counter-tops, French doors, an antique fireplace, or a picturesque view through a bay window can often cinch the deal. The more character your home has, the higher the resale value.

When buying a home, it all comes down to this: Purchase a house that suits your immediate needs and desires, but keep an eye on its resale value. You’ll reap the rewards when it’s time to move on.

This article is by BizActions.

Five bright spots in the real estate recession

The real estate market meltdown was much more severe and has lasted much longer than even the most bearish housing market observer would ever have predicted. Rather than values taking a dip, they’ve taken a double dip in many places; and the housing sector drama has infected the job market and the entire world’s economy.

Yet, there are some very shiny silver linings to this whole mess — a handful of ways in which our mindsets, habits, behaviors and approaches to money, mortgage and even life decision-making — have been changed by this real estate market debacle. As I see it, here are the five best things about this housing recession:

1. People now buy for the long term

Even Jeff Lewis, that reality TV house flipper extraordinaire, has declared that he’s tapped out of the flipping business for the foreseeable future, trading in his real estate wheeling and dealing for the design business.

Recently, he mentioned having lost six homes in the real estate market crash.

While Lewis flipped homes as his business, just five years ago, many Americans — homeowners and investors alike — took a short-term view on their homes, buying them with the idea that they could count on refinancing, pulling cash out or even reselling them anytime they wanted, at a profit.
Reality check — those days are gone. Now, buyers know they’d better be prepared to stay put for somewhere between seven and 10 years (shorter in strong local markets, longer in foreclosure hot spots) before they buy if they want to break even. And this is causing them to take mortgages they can afford over time, and make smarter, longer-term choices about the homes they buy.

2. Dysfunctional properties are being weeded out and creatively reused

real estate market recessionMunicipalities like Detroit and Cleveland are demolishing blighted and decrepit properties in dead neighborhoods en masse, intentionally shrinking their cities to match their shrinking populations. These efforts are also eliminating breeding grounds for crime, and focusing resources on the neighborhoods that have a better chance of surviving and thriving in the long term.

In the so-called “slumburbias” of central California, Nevada and Arizona, McMansions are being repurposed into affordable housing for groups of seniors, artist communities and group homes.

3. American housing stock is getting an energy-efficient upgrade

The news would have you believe that every American has lost his or her home, walked away from it, or is now renting by choice. In fact, the vast majority of homeowners have simply decided to stay put.

Instead of selling and moving on up, homeowners are improving the homes they now plan to stay in for a long(er) haul. And this generation of remodeling is focused less on granite and stainless steel, and more on lowering the costs of “operating” the home and taking advantage of tax credits for installing energy-efficient doors, windows, water heaters and more. And while the first-time homebuyer tax credit is a thing of the past, the homeowner tax credits for energy-optimizing upgrades are in effect until the end of this year.

4. People are making more responsible mortgage decisions, and building financial good habits in the process

Buyers are buying far below the maximum purchase prices for which they are approved. They are reading their loan disclosures and documents before they sign them. And, thanks to the stingy mortgage market, they are spending months, even years, in the planning and preparation phases before they buy: paying down their debt; saving up for a down payment (and a cash cushion, so that a job loss wouldn’t be disastrous); being responsible and sparing in their use of credit to optimize their FICO scores; and creating strong financial habits in one fell swoop.

5. Our feelings about debt and equity have been reformed

Americans no longer use their homes like ATMs, to pull out cash, pay off their credit cards and then start the whole overspending cycle over again. Many can’t, because their homes are upside down and cannot be refinanced in any event — much less to pull cash out.

Others have been reality-checked by the recession, and are dealing with their non-mortgage debt the old fashioned way: by ceasing the pattern of spending more than they make, and applying the self-discipline it takes to pay their bills off.

Home equity, in general, is no longer viewed as an inexhaustible source of cash. Rather, we see it as a fluctuating asset to be protected and increased — not so much through the vagaries of the market, but through the hard work of paying the principal balance down. Many of those refinancing into today’s lower rates aren’t doing it to pull cash out, as was the norm at the top of the market; instead, they are refinancing into 15-year loans to pay their homes off sooner than planned, or reducing their required payment so their extra savings can be applied to principal.

Of course, it remains to be seen how lasting these changes will be if and when home prices go up and mortgage guidelines loosen up. But since neither of these things look likely to happen in the short term, hopefully there’s a chance that these behavior shifts will become part of a permanent mindset reset for American housing consumers.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com. ClientDirect.net.