Finance Tips

As a career Realtor®, I have been helping Denver area consumers buy and sell homes for 30 years.  From the very beginning, I understood that my career choice was based in large part on the American Dream of home ownership.  The Dream is rooted deeply in the American social fabric, and while many capable adults in the United States don’t want to own their residence, most do.  In 2006, residential ownership peaked at over 70%, and today, even with the large number of foreclosures, the number of adults in the United States owning their homes is still 68%+.  The difficulty’s facing the financial industry today will pass.  Most American still want to own their home, and those that are financially capable will continue to do so.  Our definition of that capability has changed in the past 2 years, just as it changed in the early part of the the decade, but most people that want to buy a home will be able to do so again in the near future. 

As of this writing, our political leaders are meeting to craft a plan to bailout the financial industry by absorbing the “bad” home loans.  In the next few days, we will begin to understand just how that plan will work.  The only valid criticism of such a plan is “what took them so long?”.  The questions of just why this crises happened, who was at fault, and where to regulate in the future take a backseat to what to do and when to do it.  When is now, not next week, but right now, while some investor confidence has been restored in corporate value.  And the question of what is being written as I write. Congress will no doubt require regulatory authority to prevent the crises from happening again, but that is the simply the bureaucracy at work and the price that must be paid when the free market does not pay attention to its own well being. Do we need to know the answers to who and what? Yes, because most Americans will want that information to effect closure.  The system will adjust to new regulations, as it always has, and we will move on to other challenges.

The media of course will not tell the story exactly right, so most Americans will not fully understand the “bailout”.  Few people will, even those that craft the plan.  And the short and long term effect is not entirely predictable.  This much is probably true: (1) stopping the bleeding is necessary for the patient, in this case the American economy, to recover, and (2) the Federal budget will actually profit from this “bailout” in the longterm.  Remember, most Americans want to own their home, and will begin to buy as soon as the fear is past and credit is available.  The fact is, there is considerable money available through the FHA to buy homes right now, and Fannie Mae and Freddie Mac are still in business with large Federal infusions of mortgage money. If the market is free to function, then values will begin to rise.

It will take some years for the home market to fully recover the recent loss of value, but it will, in fact, recover.  Americans will continue to buy and sell homes, and Realtors® will be there to help them do it.  Will things be the same? NO! They never are the same, but we will move forward and feel good about ourselves as a country soon enough.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

I received a request from a local attorney on Thursday to investigate a property purchased by a potential client of the attorney. The attorney had received a call from a nice lady living in another state concerned that the incredible investment she purchased in a Metro Denver suburb might be a problem.

The nice lady was receiving advice from a web based investment club, and made the purchase through a local affiliate of the investment club. The local affiliate employed Colorado real estate licensee’s. The claim made on the web site was that this property could be purchased way under market value, creating “instant” equity, and that a lease would be executed creating monthly “cash flow”. The nice lady bought the property site unseen.

P.T. Barnum was quoted as saying “There’s a sucker born every minute”. The World Wide Web has just provided a great new way to fleece the gullible, especially those looking for the fabled “great deal”.

The truly amazing thing about these so called “investment clubs” is their ability to convince otherwise smart people to buy property sight unseen using the internet. The advice from these “club” leaders is that they don’t need Realtors, because a Realtors fee just runs the price up. Some people, when offered the “great deal”, seem to go silly, and seldom seek a second opinion. Gotta grab the deal while it’s hot, can’t wait, or some other sucker will get there first.

People will believe what they want to believe, so I suspect nothing I am writing here will stop the stampede of suckers looking for a deal, but perhaps if I could save one or two people from acting stupid, it’s worth my time to write this, so please consider:

1. Do not buy an “investment property” sight unseen. In the situation presented above, the nice lady bought a really pretty home backing to a busy street that will get busier. Busy streets negatively affect value. Not to mention the 5 foreclosed properties down the street.

2. Always get a second opinion. If nothing else, contact an independent appraiser and pay a fee for a unbiased opinion. $400.00 may save you thousands of dollars.

3. If you are buying sight unseen, have the contract reviewed by an attorney. That may be good advice in many real estate transactions anyway.

4. Make sure you have escape clauses in the contract. Perform “due diligence” during the alloted time.

5. Do not obtain an “owner occupied loan” to buy an investment property. That is known as loan fraud. Participants in a loan fraud can look forward to spending time as a guest of the United States in a B&B in Leavenworth, KS. Many times, to create “cash flow”, the happy investment club lender will create an owner occupied loan on a non-owner occupied property.

6. There are 15,000 Realtors in the Metro Denver area. I suspect there are large numbers of Realtors in your neck of the woods. Every one of those Realtors are looking for a deal, either for themselves, or their investor clients. Why does anyone think that there a “secret” good deals? There aren’t.

A savvy investor can do very well buying real estate. There are no “secret” formulas or super deals. Money is made in real estate today just like it has always been made: Slowly, by people who really take the time to understand the local market and the property they are buying.

I know, you have heard all those testimonials from “investors” that have done really well. OK, understand that there really are a few great deals. They are almost always made by people that have taken the time to really understand the local market. (There is also dumb luck.) There are also “shills” chanting the incredible opportunity offered by the “investment club”. If it sounds too good to be true, take 5 steps back and slow down.

The nice lady noted above was taken advantage of by unscrupulous people that search for nice people that want to believe in the “great deal”. There really is no free lunch.

Lastly. are there good investment clubs? Of course. Any club, individual or company that is operating in an honest and ethical manner will provide verifiable information so a prospect can perform independent due diligence. Don’t be in a hurry, there will always be a deal out there tomorrow.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

The Painful Process

To close out our 4 part series on buying foreclosed property, we will start with a few basic assumptions:

1. You have a pre-approved loan, meaning that subject to an acceptable appraisal you are financially qualified to buy the property you have an agreed to buy with a fully executed contract.

2. You have an agreed contract in hand.

So now you must (hopefully with professional assistance) travel from contract to close. Let’s start with the pre-approved loan. If you wisely selected an experienced local lender with local underwriting and an in-house appraiser, you have a great chance of avoiding difficulties with the mortgage loan. Even so, with a somewhat shaky mortgage market, and with underwriting guidelines changing almost daily, there could be problems with the mortgage loan that are not your fault, or the fault of your lender. You should be certain of your lenders willingness to communicate with you and your Realtor in a timely way. Most unexpected issues can be resolved if everyone involved is communicating.

You will most likely have a contract without the evidence. The “Banks” are notoriously slow in providing the signed contract to their agent. In most cases, the “Banks” will not provide any of the normal state required disclosures, simply because they do not have to. (The exception is the Lead Based Paint Disclosure, required by Federal mandate.) The “Banks” generally respond to your contract offer with a counter proposal that effectively replaces most of the terms you offer. This counter, and/or sometimes a lengthy amendment, must be carefully reviewed by your agent, and perhaps your attorney. The simple fact is; the final contract will heavily favor the “Bank” with regard to the legal technicalities. Negotiating for an acceptable price is just part of the deal. In most cases, the “Bank is not concerned with the timeliness of their requirements, generally taking the position that since you are getting such a great deal, you will put up with their inconsiderate business approach. So, if you want to close on your contract on a specific day or within a certain time frame, you may want to rethink buying a foreclosure. If time is not an issue, press on. (By the way, you have to be timely in your obligations, even if the “Bank” is not. Fair treatment is not part of the rules.)

If the “Bank” agreed to provide you with title insurance, the insurance commitment and subsequent post-closing insurance policy will be provided by the least expensive title insurance company that can deliver the insurance. That does not mean the policy is no good, but it does mean you should investigate the policy underwriter. And good customer service is not part of the deal. From the “Banks” point of view, they are paying for the policy for your benefit, and they don’t care about any lack of service provided to you. (NOTE: if you do not understand title insurance, it’s time to learn.) If an escrow closing agent will be performing the closing for your prospective property, understand that they are working at a low rate pf compensation based on volume. Customer service and timeliness of action is not their concern.

You should (you are foolish if you do not) obtain an inspection of the property. You may need a variety of sub-inspections based on the primary inspection, and you may want a contractor to estimate the cost of needed repairs. While the “Bank” will seldom (OK-never) make repairs, they will at times negotiate a lower price based on major discoveries, such as a broken furnace. The inspection on a foreclosed property is most useful in providing you with an escape if the property has serious condition issues.

If you are obtaining a loan to purchase the foreclosed property, the lender will require an appraisal. Because values on foreclosed property are usually low to begin with, the appraisal will most likely not be a problem, but there are no guarantees. Appraisers are operating in a very conservative manner in light of the present financial situation.

You should be prepared to wait. Even after the entire process is complete and your lender is ready to close, the “Banks” closing system may not be ready for you. The “Bank” will close as soon as it can, and most likely, not at your convenience.

Be Patient. No one can make the system work any faster, and your emotional frustration, while understandable, will not be helpful to anyone involved.

The “Bank” and all of the “Banks” supporting players are running as fast as they can. They really want to close the contract and exchange the non-performing asset (the property) into cash. In most cases, the entire system is simply overwhelmed with a volume that was never expected. And the “Banks” know that the foreclosed property crises will go away a few short years, so it makes no sense financially to build more infrastructure for a short term problem.

In closing you should consider to always work with experienced and knowledgeable professionals, be patient, and educate yourself. Buying a foreclosed property can be a sound financial decision if you take the time to understand both the property and the system.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

So You Want to Buy a Foreclosure - “The Perfect House”, now what?

After intense research and a diligent search, you have located your “perfect” house. A few things should already be in place. The first and most important is your financing. Whether you are obtaining a mortgage loan or have cash, you should have already determined the timing and process involved. Even “cash” is difficult to obtain on short notice (unless you keep it in a mattress, which really is not a good idea). The second is your position as a consumer. You should be represented by a Realtor® who has been providing you with a steady stream of research and counsel. You should have a thorough understanding of the contract, and the process involved with creating a contract proposal and negotiating a successful outcome. What you must now confront is time and competition.

If you somehow thought you were the only one looking for your “perfect” home, I assure you that you have been thinking incorrectly. Consider that the factors that make your “perfect” home are almost certainly shared by others searching right now, just like you. Your “think it over” time has expired, and frankly, you should have been thinking it over all along. After all, that is the point of selecting a trusted Realtor® advisor, securing financing, and researching property and neighborhoods. The problem with waiting is that someone else will step in front of you and you will be back to looking. The reason you want to “think it over” is either a lack of understanding or you need the approval of someone else. If you do not have a complete understanding, then back up to your confusion point and work on gaining understanding. It is really important for your welfare that you understand the entire process, or you will always be fearful of making a bad decision. If you need the approval of someone else, then get them involved from the start. It is not fair to an outside advisor to be expected to step in at critical point and render a quick decision. Under that pressure, most people respond with “NO!” And it is generally true that you do not want to be competing with another buyer. That almost always places the seller in a better position to negotiate a stronger offer.

Your ability to negotiate an acceptable offer on any given property of course depends on you and the seller reaching agreement. The difficulty is always an incomplete understanding of seller. Whether the seller is a private individual, a corporation, or a “bank”, there is simply no way to know what they are thinking. (If you think there are inside deals, you are right, there are, some of which are illegal, and some of which appear to favor the buyer, but in reality, favor the seller. If it seems too good to be true, then it is.)

Negotiating with a private seller is usually fairly straightforward, and a conclusion to the negotiation is usually timely. The time factor here may be days or weeks. Negotiating with a corporation sometimes takes a bit more time then a private sale, and involves much more paperwork, but again is straightforward. You can almost always secure a contract form a corporation in a few days. But you want to buy a “foreclosure”.

If you are trying to negotiate with a seller in a “short sale” position, remember that the “bank” will be involved. It is the “bank” which must approve a “short sale”, because the “bank” is losing money on the sale. Negotiating with a bank to purchase a foreclosed property is anything but straightforward. To begin with, you almost never really know just who the other side is. Most “banks” employ an “asset manager” to actually care for the property and negotiate in their behalf. Most of the people in the asset management company are buried under hundreds of files representing hundreds of properties located all over the United States. They have no knowledge of the property beyond what they see in a file, and worse they do not care. Their interest is plowing through files, settling a few deals, and getting paid. Their interface with the “bank” is systematic, usually by e-mail, and the bottom line is just that which the “bank” needs today. The “bank” is really just a person trying to meet a quota of volume or income. Your offer is important only in reaching those goals. In other words, no one involved on the other side cares a hoot about your offer except as it applies to a greater picture which is constantly evolving. You must have patience. You may not receive a response from the “bank” days or even weeks. Understand, this is not about you; it is about an overworked and inefficient system.

The most important thing to understand and accept is to have patience. If you must have a home in 30 days, you will be better served to buy from a private or corporate seller that can respond easily and is not burdened with an efficient system. If you are determined to take advantage of the foreclosure market, then you must be patient and tolerant of the frustrations of dealing with a dispassionate sector of the market place.

So let’s assume that you have completed a successful negotiation and you are ready to complete the pre-closing process.

In the next article, we will discuss “Surviving the Painful Process”

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content