Banks have a lot of money
… but they don't have enough money to provide all the funding for loans that they need in order to be profitable without the help of the larger secondary market.
The secondary market is where the primary lender can sell loans and receive a profit in the exchange. The secondary market includes two primary elements: the first is private and the second is governmental.
The recent liquidity issues have come as a result of the secondary market having less interest in purchasing loans from the originating institutions. In order for lenders to offer new loans to new buyers, they have to continually market a portion of their portfolios. If they are not able to resell loans to the secondary market, they quickly lose their ability to issue loans as they will run out of money. Still, there are some originators that are large enough to hold their full portfolio but very few lenders are that large (an example of one that often keeps their loans in house is Wells Fargo).
The reason for the lack of strength in the secondary market relates directly to the probability of default on loans. Even with the various sorts of insurance available, no one wants to own a loan that is going to default. This is even truer in a market with falling home values where the equity buffer is eroding.
The “governmental” side of the secondary market includes the institutions of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac purchase loans from primary lenders and resell them on the secondary market. Their activity accounts for approximately 20% of all US mortgage funds. These two entities are sometimes referred to as “conduits” because of how they function by buying loans and re-marketing them.
The non-governmental or private sector of the secondary market accounts for about 80% of the funds available to back loans. Loans are sold on the secondary private market through many different mechanisms that are owned by a broad range of investors who are looking for reasonably secure investment instruments that have a predefined schedule for repayment.
The main investors in the secondary private market include pension funds, life insurance companies, commercial banks, and thrifts. So what is it that the secondary market purchases? Sometimes they purchase the actual loans, sometimes they purchase pools of mortgage backed securities, and sometimes they purchase bonds that are backed by mortgages.
Contrary to the popular perception, there is no explicit guarantee by the federal government to back Fannie Mae or Freddie Mac. In fact, these are private corporations that are only chartered by the federal government - they are not governmental organizations at all. They are private for profit companies. But, you can bet that Uncle Sam keeps close tabs on them. Have you ever heard of Ginnie Mae? This is a true governmental organization that backs FHA and VA loans. The guarantees of Ginnie Mae are explicit not implicit.
There are upper limits to the loan amounts that Fannie Mae and Freddie Mac are permitted to handle. These limits change from time to time and have been manipulated recently as a mechanism to help stimulate the issuance of loans.
What is that limit? To find out, go to the HUD site at : https://entp.hud.gov/idapp/html/hicostlook.cfm
As long as your loan is below the maximum limits currently available, it is considered to be a conforming loan. If it is above those limits, it is considered to be non-conforming or jumbo loan. There are additional costs for obtaining jumbo or nonconforming loans (including higher interest rates) so it is to your advantage to stay below that limit if possible.
Filed under: Charleston new homes, HUD 1, bank property, mortgage brokers, charleston real estate, charleston home sales, charleston market, mortgages, loans, FHA, VA, PMI
With all the talk in the media about defaults and foreclosures, it’s not a bad idea to have an understanding of how loans are issued and how banks are protected when they issue loans. It is getting harder to get a loan – even for well qualified folks like you.
Clearly, lending can be a risky business. Lenders have no choice but to be careful.
In order to encourage banks to lend money for mortgages, the government provides guarantees through three major lending entities: the FHA, the VA, and the FMHA. In addition to the government guarantees that are available to banks, there is also private mortgage insurance or PMI. As long as the lender has more than 80% of equity exposure, they will require some sort of assurance to guarantee the loan. In other words, until you have 20% equity in your home, you will need private mortgage insurance unless your mortgage is protected through one of those three quasi governmental entities mentioned above.
Mortgage lenders incur losses or have the potential for incurring losses during any default and foreclosure. Lenders issuing loans where the buyer puts down less than 20% require private mortgage insurance for nongovernment backed loans and require that this insurance be paid for by the borrower.
Of course, this will increase your monthly payment by the amount of that insurance premium. Once you reach 20% equity in your home, you are no longer required to pay private mortgage insurance. The 20% figure is the amount that banks have determined, over years of experience, is necessary in order for them to recover the costs of liquidating their residential real estate backed loans (selling your home on the open market) should that need arise (you default).
Government backed loans include FHA from the Federal Housing Administration, the loans guaranteed by the Department of Veteran Affairs or VA, and those backed by the Farmers Home Administration or FMHA. These are not direct lenders but these are entities that provide insurance to protect commercial lenders when they issue loans to borrowers who qualify for one of these agency backed loans. Of course, the big benefit to the borrower is that they are not required to pay for private mortgage insurance or PMI - plus, they may be able to obtain a loan with little or even zero down. There are costs to the borrower when using these agencies - but those costs are usually offset by the benefits.
In a nutshell, the FHA is designed to help low to moderate income people obtain mortgages, the VA offers loans to veterans or active-duty personnel, and they FmHA is designed for people who meet certain income requirements that want to buy in very rural areas.
Note: most offers to purchase will disclose the sort of lending to be sought by the buyer. The seller may factor in the more lengthy process and higher demands on the seller when considering accepting an offer from a buyer using a government-backed loan. Usually it doesn't have a great impact on whether or not the offer will be accepted; but, in markets that are very fast-moving (strong sellers markets) it has been known to create a disincentive for the seller to accept an offer from someone using a government-backed loan.
Filed under: Buyer Information, closing statement, HUD 1, bank property, lenders, mortgage brokers, charleston real estate, charleston mls, charleston home sales, charleston market, charleston homes for sale, mortgages, FHA, VA, PMI
Let’s first eliminate a common misunderstanding. Banks do not GIVE mortgages.
If you have a home with a mortgage, the bank owns the mortgage. How did they get it? You GAVE it to them. Most people say that they are going to get a mortgage when in fact they are really giving a mortgage.
A mortgage is the legal documentation that gives the lender the right to foreclose. If you choose not to pay, the mortgage provides the steps the bank will follow in order to regain their investment by selling your house. It also give the legal power to make that sale happen. When you give a mortgage, you are giving to the lender the right to take away your property if you default.
When you purchase a home and you use a lender, the lender will require some sort of promise from you that you will repay a loan. That promise from you is your “note”. Don't confuse this with the term mortgage. The note is your IOU or promise to pay while the mortgage is the lender’s right to compensation. (Note: A Deed of Trust, for practical purposes, is nearly the same as a mortgage).
You might ask, “… if the bank has a mortgage on my home, do I own my home or does the bank own it? “ That depends on where you live (which state). Who ever owns the title to the property is the owner of the property.
In our state, the state of South Carolina, we are a lien theory state. That is, the homebuyer owns the title to the property at closing (close of escrow); but, the bank places a lien on the property (described in the mortgage language).
There are circumstances in other states where the bank retains title to the property until the entire series of mortgage payments are paid -- at which time the title is issued to the buyer. This can be the case with certain types of governmental owned properties such as those foreclosed on by the VA (VA Repo) and placed on the market for resale. It is possible, in a case like this, that the VA will retain the title to the property until the second loan is re-paid. Also, with certain forms of owner financing, the previous owner may retain title to the property until all payments are completed (example: contract for deed or land contract).
Yes, the bank owns the mortgage on your home. But ... YOU get to live in that beautiful home. You might even own it!
Filed under: Real Estate, Buyer Information, HUD 1, bank property, lenders, mortgage brokers, charleston mls, charleston home sales, charleston market, charleston homes for sale, mortgages, loans
The perfect buyers market is at hand - but it will not last.
Existing home sales have plunged to a 25 year low. The National Association of Realtors reported sales of single-family homes and condominiums dropped by 2.2% in December of 2007 to a seasonally adjusted annual rate of 4.89 million units. Sales fell by 4.6% in the Northeast, 1.7% in the Midwest, 1% in the South and 2.1% in the West. Sales of single-family homes were down 13% and the median price for single-family homes dropped by 1.8% to $217,000. The chief economist for The National Association of Realtors suggested that this was likely the first decline in housing prices for an entire year since the Great Depression.
If you want to buy a home, is it time to act or time to wait? Do you expect prices to decline even more?
ATTENTION SHOPPERS: Now is time to take advantage of one of the best opportunities that we have seen in decades – yes, decades. Real estate is ON SALE now.
If you're considering purchasing a home, it seems hardly even imaginable that there could be a better time to do so. Interest rates are low and may even move lower. The supply of housing is abundant. Builders are offering great deals. And finally, after months of resistance to lowering prices or making concessions, sellers are dropping prices. Sellers of existing homes have come to the realization that they are going to have to relinquish more in negotiations in order to sell their homes. Yes, buyers are now fully in the driver's seat. In addition, while home foreclosures are unfortunate, they present unprecedented opportunities for buyers who are prepared to purchase.
In many ways the housing market is similar to the stock market. We need to react in a similar fashion to its cyclical nature. Attempting to time either market is incredibly difficult. But it is much easy to know when the market is down - and it is down now.
In fact, it may even be better to purchase prior to the bottoming out in the market. Why? Because once the bottoming occurs there is a clear and definite power shift from the buyers back to the sellers. In a bottomed out market, that shift in power is similar to what occurs at the top of the market but in the opposite direction.
That's why, in hindsight, we can see many examples of sellers who sold just prior to the market peak who had amazing leverage with their buyers. They were able to drive the very toughest bargains for their own advantage. They maximized their selling advantage. Now it’s the buyers’ turn to be tough before the tide changes once again.
Is this the bottom? No one knows. Are we close? Probably. Is this an outstanding time to buy... you bet.
It is time to buy!
Chris DeLoach
House Plan Realty - Charleston
843-388-7027
Filed under: For Sale, Buyer Information, Charleston new homes, Dorchester County, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales, time to buy a home, charleston market, charleston homes for sale
• 2,640 sq. ft., 2 bath, 5 bdrm 2 story - 
MLS® $459,900
Hidden Cove, Mount Pleasant - This is a beautiful large 5 bedroom home located in Hidden Cove, one of the most desirable and most convenient neighborhoods in Mt Pleasant just around the corner from the Belle Hall Shopping Center and I-526. Enjoy amenities including a private community boat landing and dock, tennis courts, and a fantastic new pool due to open by Memorial Day 2008. This is a very popular traditional style home plan with a formal living room/ formal dining room arrangement plus a separate family room and eat in kitchen. This home features a large screened back porch (16x16) over-looking an expansive, private back yard. The lot, at about .47 ac, is exceptionally large and has mature landscaping with a generous number of trees - and plenty of room between you and your neighbors! A few notable features include a brick front, irrigation system with well, fireplace with gas logs, gutters, new roof (2007), ceiling fans, built in book cases, recently upgraded smooth top range, hardwood floors in dining room, tile floors in two of the bathrooms, new carpet in the family room, tile counters and tile back splashes in the kitchen, an insulated overhead garage door, plus an amazing storage capacity in the over garage attic space as well as excellent storage in the main portion of the home. This is a great home!
If square footage is important - MEASURE!!
Property information
A growing number of area real estate professionals are daring fate by starting to talk about an imminent market recovery. Yes, the months of pain for sellers may soon give way to a gradual improvement in market balance. Will the recovery be a run away boom? That's not very likely. But most seem to agree that by early next year, the recovery will begin to be noticeable if not quite in full swing.
Here are a few interesting signs that may point to an improving market:
1. From time to time, even in a buyers' market, you may notice prices rising. The statistics for June in Charleston indicated a reversal in price declines, even if just a short term reversal. I am not ready to suggest that this one month reversal will change the negative momentum, but it is a very good sign.
2. Another good sign is in the direction of inventory. If you study the inventory trends month to month in light of the inventory for the same month of last year, you will see something very interesting. With the exception of a slight uptick in May for single family homes, since January, the months on inventory (as a percentage of inventory levels for the same month last year) have been slowly trending downward. This trend is easily obscured if you look at just the raw totals but the trend is there. This trend is even more obvious when you look at the data on condos. The condo market seems to be moving in the direction of inventory equilibrium much faster that the single home market. It may be that sellers of condos have been more ready to accept price adjustments but I suspect it is probably that inventories are falling faster because more condo owners than owners of single family homes are turning to the strengthening rental market as an alternative to selling right now.
3. Looking as sales volume, the news is not as rosy - but there may be a glimmer of hope starting to show. Sales volume is continuing to decline across the region and is about 30% below this time last year. Important: the negative movement was rapid from January through May but there was little change from May to June. This could be the indication of a bottom, a slow stabilization or just a pause. It is a good sign.
4. According to the national Association of Realtors, home prices are expected to recover in 2008 with existing home sales picking up late in 2007 and new home sales rising early in 2008. New home builders will begin limiting new starts which will reduce the upper pressure on inventories. Existing home sales are expected to total 6.11 million this year and 6.37 million in 2008 (which is down from 6.48 million last year). Existing home prices will probably rise nationally in the range of 1.8% in 2008 following a 1.4% decline in 2007. The median new-home price should rise 2.2% next year following a 2.6% drop in 2007.
According to Lawrence Yun, senior economist for the national sensation of Realtors, “Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008."
Realtors like a market with a nice balance of buyers and sellers - where demand and supply are both reasonably strong. For real estate professionals, neither a buyers' market nor a sellers' market are as desirable for the long haul as balance in the market. We refer to a balanced market as a "healthy" market. It looks like we will be heading in this direction soon.
Buyers: If you are looking for the right time to buy, this time may be about as "right" as you will ever see.
Filed under: Real Estate, For Sale, Buyer Information, Seller Information, Selling your home, selling in Charleston, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales
Welcome to a buyers’ market. It has taken at number of months but our area has evolved into a market dominated by the power of the buyer. As a buyer, of course this is great news. As a seller, you may be starting to pace the floor and you may be experiencing a slight sinking feeling. Take a deep breath – it’s almost over.
Now that you've been overwhelmed by the media gloom and doom, let's step back and take a look at where we really are. Good news - it's not so bad after all. There is light at the end of the tunnel.
It is remarkable that everyone knows real estate, equity, has cycles just as any other equity experiences; but, we still seem surprised - even indignant - when the market declines. Yes, there is something a little different about the psychology of real estate - especially when it involves the single family primary residence. Declines are somehow a little more painful here. Still, market ups and downs are the normal, predictable course of things. Expect the market to move up once again ... it will.
If you follow the stock market, you know that the best time to buy is when the market is down because that is when stocks are "on sale". When should you buy homes? Maybe anytime but the best buys are made when the market is down. Still, people love to buy on a rising market whether that is the stock market or the real estate market.
Let me share with you briefly a few positive aspects of the current market. If you are buying a home, you are in an amazingly fortunate (but rare and fleeting) situation. This is a great time to buy – in fact, an incredibly great time to buy! Homes are truly ON SALE! Please, please take advantage of this historic opportunity!!
If you have real estate that you are in no hurry to sell, no problem. Prices will rise again as they always have. If you have to sell, be realistic. It will take longer and you may have to accept less than you would like. If you can wait, it may be a wise move. Try to see the big picture and avoid hitting that panic button.
The situation is driven by nothing more than basic elementary economics. Currently the number of homes that are on the market is poorly balanced against the number of buyers who are in the market. With fewer buyers for available home, every home, in theory at least, will take longer to sell. Today, expect an average of about 90 days on market. If your home is in a newer area competing against ever increasingly aggressive builders, expect it to take even longer.
Sellers: price your home as aggressively as possible when you FIRST list it. Do not list high and slowly reduce your price. It is tempting to try that but you will be missing many of those early shoppers and you may unnecessarily extend the time on market. Plus, you risk having a stale listing that agents avoid showing. The bottom line is that your home is only worth what the buyers will pay TODAY. Tomorrow, it will be different. Be realistic and be patient.
In my opinion, for sellers in the Charleston market, the worst is just about over.
>> For buyers, hurry up -- the big sale will end soon and without notice!
Chris DeLoach, BIC
Search Homes Now
Filed under: Real Estate, Buyer Information, Seller Information, Selling your home, Charleston new homes, selling in Charleston, media coverage, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales
"Chipping Away at Realtors' Six Percent" Lesley Stahl - 60 Minutes May 13, 2007 ( http://www.cbsnews.com/stories/2007/05/11/60minutes/main2790865.shtml)
"Dear Fellow REALTOR®:
I am disappointed and dismayed at the biased story that 60 Minutes aired on Sunday evening. I want to let you know that we've been working to stay on top of this story.
One of the most difficult challenges we face is educating the news media about today's real estate industry. There's no better example than this 60 Minutes show. For more than a year, NAR worked with the producers who put the segment together and offered several spokespersons to be interviewed for the show, including myself. Yet, NAR's voice was strangely and noticeably absent from the segment though CBS gave time to two critics who disagree with our policies on the display of listings on the Internet.
At times, NAR and REALTORS® have often been the subject of less than accurate news coverage. Your association and its professional staff is making every effort to get the REALTOR® message out to the news media. The result is that only a fraction-less than five percent-of the vast news media we receive is negative.
We encourage all of you to contact CBS to voice your concerns -- maybe have some of your satisified customers do the same. Thank you for your support.
Pat V. Combs
President"
My Response -
CBS:
Ahh, another expose on those evil, wealthy, Realtors.
I support public access to MLS data because it is advantageous to both the consumer and to the real estate industry as a whole. It is unfortunate that there is such a disconnect between the media and the reality of the industry. The vast majority of MLS systems are already accessible to the public via a nearly limitless number of independent sites - including mine - all made available by the Realtors who have built the MLS systems and who pay for the operation and maintenance those systems. Each MLS is an independently owned company. Each was originally designed to share listings information among agents so as to improve service delivery to consumers - to make it easier for sellers to sell and for buyers to buy.
The system offered by Redfin is essentially a flat fee service - already common to this industry and already widely available. It, however, is not a free service nor inexpensive for the level of service provided. In most areas, there is at least one company that will be happy to list a home on their local MLS for a flat fee. But, as compared to the professional assistance provided by a flesh and blood Realtor, the Redfin fee for limited service seems reasonable. From what I see, I have no objection to their approach.
However, Redfin does not. "... display(s) for free" as you reported any more than any MLS displays for free. Redfin charges $3000. Most Realtors, providing the same level of minimum service, would be happy to accept $3000 as a listing side fee; but, most consumers want much more from Realtors than just a simple listing - they want hands on help. And remember, that $3000 is just on the listing side. Buyers today want their own representation, too - who will pay for that? Buyers today expect the sellers to cover the buyer's commission costs. Buyers understand that they need their own advocates. Agents for buyers do not work without compensation.
So, the total cost of using a service such as Redfin is likely very close to that of using a local company that is willing to provide the same level of limited services. There is nothing wrong with what Redfin offers; but, if you want more, expect to pay for more. Some companies offer limited service listings while others are always full service. You, as a consumer, already can freely choose the level of service you want. There is no 6% conspiracy. Let me say that again … there is NO 6% conspiracy.
A 6% commission is not, nor has it ever been, a “standard commission“. Certainly CBS realizes that an industry wide set commission rate would be illegal and in violation of Rico and anti-trust laws; thus, the 6% as a set commission DOES NOT exist. In my own market, I see 3%, 4%, 5%, and yes, 6% commissions - plus I see flat listing fees such as those highlighted by the segment. The consumer has many choices. "They charge a 6% commission..." as presented by your program as a standard fee is misleading at best.
Real estate is not a get rich quick business. It is tough, it is expensive, the commissions are competitive, and half of new agents fail to survive past the first year while over 90% are out of the business by their 5th year. It takes real work to get a home sold today. There is so much more involved than just listing - and the liability incurred by agents is huge.
Of the 1,200,000 realtors in the country, only 36,000 of them make more than $50,000 per year - that's just 3%. Realtors in the business for two years or less earned a median of $15,300 per year in 2006. Realtors with three to five years of experience earned $44,200. Of those 10% of Realtors who survive past 5 years, those with six to 15 years in the business earned $64,600. Finally, the heavy hitters with 16 or more years of experience earned a whopping $76,200. How does that compare to professionals of similar experience and attrition?
Yes, attacking Realtors sells well but it hurts consumers as well as Realtors. Give Realtors AND consumers a break - pick on an industry that is actually hurting consumers. There is no shortage of evil doers.
Chris DeLoach, MEd, MAT, ABR
Broker-in-Charge, House Plan Realty, LLC
Charleston, South Carolina
843-270-1272 Toll Free 877-773-9270
Chris@houseplanrealty.com
www.searchSChomes.com
Earnest money is designed to solidify the deal between you and the sellers. It shows you are serious and should give the sellers enough confidence to remove their home from the market just for you.
Earnest money is also the primary "remedy" for the sellers should you default on the purchase. After all, if you default, undoubtedly they will incur expenses and experience the opportunity cost of not having the home available for other potential buyers.
Even so, as a buyer, it is a simple thing to protect yourself from loosing your earnest money should your existing home not sell or for any other reason that you feel is necessary. Stipulating in the offer that, if something either does or does not happen, the buyer is entitled to a full return of earnest money is the way to do this. For example, you can stipulate that, should you not be able to sell your home that you currently own, the sellers will return your earnest money in full. There are limitless numbers of contingencies that you can stipulate in order to ensure your earnest money is returned to you in the event that one of the stipulations either occurs or does not occur.
With all that said, let's talk about the downside of placing contingencies on contract. You, as the buyer, are interested in maximizing the advantage of your position; but, the sellers are also interested in protecting their position by ensuring that they receive the best possible terms and conditions. If the sellers have an agent, as most sellers do, and if that agent is doing his or her job, there will be quite a lot of resistance built into any presentation of contingencies beyond those which are typical for a particular market.
In the Charleston market, typically contingencies include: "contingent upon a satisfactory home inspection"; "contingent upon financing"; and, "contingent upon satisfactory results of a termite inspection". Many other contingencies are used but these are the ones you will see most frequently. In a market like ours where home sales remain strong, although not as strong as previous years, sellers are reluctant to accept any more contingencies than are absolutely necessary.
Once sellers accept any offer, they are precluded from accepting any other offer even if the follow-on offer includes more favorable terms. If they accept an offer with the contingency that the buyer will be able to back out if the sale of the buyer's current home is not successful, the sellers are, in effect, placing the fate of their own closing on whether or not someone else's home closes. Usually, the sellers have no knowledge about the probability of the success of that happening as they have no way of knowing anything about the other sale. They must go on pure faith - not a comforting situation for someone in need of selling.
Plus, they have now removed their home from the market so that other buyers - without contingencies - or buyers who may offer a higher price or other more favorable terms will be unable to purchase the home. Each day that passes, the seller is responsible for all associated expenses for the home. Of course, this is obvious yet many buyers don't take these seller expenses into consideration when they ask sellers to accept contingencies that could delay a closing.
Certain contingencies have a much higher risk to the seller. A contingency based on the sale of a current home is one of those contingencies that does have a high risk. If you extend this out to the ridiculous, think about how this contingency can interfere with a large number of sales simultaneously. If each closing is made contingent upon the sale of another home, and you have a chain of closings tied together with that same stipulation, the failure of one of those multiple closings could result in numerous closing failures as each could be dependent on the other - like a row of dominoes. These situations are rare but they do exist.
From your own perspective, would you want to take an offer on your own home from someone who is not confident enough about the sale of their home to put their earnest money at risk? Would you even want to accept a contract contingent upon the another sale even if you were guaranteed the earnest money as a remedy? I would not if it were my home.
From the standpoint of negotiating to get the best terms for you as a buyer, the more earnest money you offer, the higher the probability that we will be able to negotiate better terms because the seller interprets the higher figure as a higher level of seriousness and a greater degree of confidence on your part that you will be able to go through with the sale. This is true even if you work very hard to protect your earnest money with proper contingencies. Human psychology plays into this as the seller sees a larger number and draws predictable conclusions.
My advice, when it comes earnest money, is that if you really want a certain home, offer a strong earnest-money sum and invoke the minimum number of contingencies necessary to protect your position. If the home you are vying for is a good buy, expect to have competition from other buyers who will also be offering a mix of earnest money and contingencies. If you want your offer to be accepted, find a way to make your offer more appealing than those you are competing against. Offering a higher contract sales price is only one of many strategies to achieve this. Balancing earnest-money and contingencies can be just as salient.
Chris DeLoach, MEd, MAT, ABR, BIC - Realtor
Accredited Buyer Representative - Real Estate Buyer Agency Council
Broker-in-Charge, House Plan Realty, LLC - Charleston, South Carolina
843-270-1272 Toll Free 877-773-9270
Chris@houseplanrealty.com
www.searchSChomes.com
I was involved in the situation recently that illustrates how important it really is to use the right lender. If you have ever been under the impression that a pre-approval letter is a guarantee that a lender will issue a loan, read on.
Two months ago I began working with the client interested in purchasing an investment property to renovate and resell. We located an excellent property in a small-town nearby that needed a lot of repair but held tremendous potential - a true diamond in the rough so to speak.
After some negotiation, an offer was accepted by the attorneys representing the bank that now owned this foreclosed property. Along with the offer we presented a pre-approval letter issued by a local mortgage company that the buyers selected prior to contacting me. The pre-approval letter stated that the client was fully qualified for an amount exceeding the offer price. We were good to go with the loan pending a few minor stipulations relating to additional documentation that would be required from the buyer.
We went through an eight week long process of preparing for closing including multiple inspections and repairs. Three weeks prior to closing, an appraiser was sent to the property by the mortgage company. An appraisal report was issued and the buyer was notified that the appraisal exceeded the contract price. Everything seemed to be fine with the loan so far. There were no indications from the mortgage broker that we should anticipate any issues with moving to closing on time.
In the morning of the day just before the scheduled closing I spoke with the closing attorney and the lender and everyone was in agreement that the closing would be on time and without issues. I contacted the buyer and gave them the good news.
That afternoon, I received a disturbing call from the mortgage broker who told me that, after reviewing the appraisal report (done three weeks prior), the lender scheduled to underwrite the loan now refused to do so because the property did not meet their standards. The rating provided by the appraiser was only "fair" but the lender required a rating of "average" or better.
When I told the buyer of the situation they were devastated. How is it possible that they were pre-approved by the mortgage broker, had multiple property inspections, had some minor property repairs completed, and had received strong assurances from the mortgage broker that everything was fine and still have this occur the day prior to their closing - after eight long weeks of anticipation?
I did not have a good explanation.
Ultimately, the buyers became so frustrated with the entire fiasco that they decided to walk away from the property without even speaking to other lenders. The only thing they received, other than frustration, was a hefty bill from the attorney for services rendered plus out-of-pocket expenses for the inspections that they had paid for. Fortunately, they were able to recover their $5,000 earnest-money deposit from the generous seller - a return of which was not contractually guaranteed.
I relay this incident only because it demonstrates how crucial it is to be sure every professional involved in the closing of your property is competent. Few people understand the complexity of the purchasing process or the number of things that can happen to prevent a closing. In this case, the mortgage company did not even understand the complexity. They were utterly clueless that the sale might be derailed.
The mortgage broker in this case may have had some options that could have possibly saved this closing. They could have sent a separate appraiser to the property to provide a second opinion. They could have offered a different type of loan - one that would allow a "fair" rating and also provide some funding for renovations.
At the very least, the mortgage company should have been able to interpret the impact of the rating weeks prior to closing; thus, saving the buyer time, money, and frustration while allowing the seller to re-market the property to other buyers in a timely fashion.
When you begin the process of selecting a lender, do so with caution. Consider the advantages of using the local lender. Consider the advantages of using a primary lender rather than a mortgage broker. Mortgage brokers can be very good and in most cases have multiple sources from which to access funding. Some are very good at helping buyers who might have difficulty obtaining financing from more conservative primary lenders, such as major banks. Even so, shop more than just rates.
Be very careful about the ability of the lender / mortgage broker to provide a high level service. Interview the lender yourself and ask specifically about their experience and philosophy of customer service. Let them know that you expect accurate communication and complete competence in assisting your Realtor, your closing attorney or title company, and others involved in shepherding the entire process to closing. No one deserves to be blindsided the way this client was blindsided just hours before closing.
Choose your lender with care!
Should you use a discount broker to sell your home?
Competition is usually good for consumers but it has its limits of effectiveness. The rise in the number of discount agents has been directly proportional to the rise in home prices and the speed with which homes have been selling. Rising prices and ease of marketing made discounting more affordable for companies. If it costs less to sell a home, why not pass the savings on to your clients and use those savings to draw new clients by advertising discounts?
The playing field has changed once again.
Homes are no longer selling quickly and prices are no longer rocketing through the roof. Profits per homes sold are diminishing. Discount brokers are beginning to feel the squeeze.
Homes that once sold in days are now taking weeks and months. In order to sell a home now, real estate companies are competing for shrinking number of buyers and huge numbers of new agents. It is becoming much more expensive to market homes and get them sold.
I have a simple suggestion for you as a home seller. Commissions are negotiable. Find the best company and then negotiate the commission. Some homes are easier to sell than others. Some homes have a higher probability to be profitable for the agency you select. Realize that, to get the results you want, the company you work with will need to have some commission flexibility.
Am I suggesting avoiding every discount broker? Not at all - but I am suggesting that you can negotiate commissions with companies with whom you are comfortable - regardless of whether or not those companies are full-service, full commission companies or limited service, discount commission companies. Find a company that you like and work with them on the commissions.
The company you choose should have a good idea of how much it will cost to market your specific home. They should know your market. They should know how much homes are selling for and how fast in your part of town and in your neighborhood. They should have a good idea about how much it will cost them in order to do a good job marketing your home. Because they can estimate their costs of doing business, they should be in a great position to work with you to determine a fair commission to get the results that you want.
Avoid being distracted by advertised commissions. There is so much more that you need to consider.
In making a decision about whether or not to use a discount broker, think about the bottom line. When it comes to selecting someone to help you sell your home, the commission you pay to an effective real estate company could look very small in comparison to the cost of an ineffective marketing campaign or poor negotiations.
During periods of growth, community leaders and citizens struggle over how to manage issues of infrastructure. When communities grow, new schools must be built. New schools are expensive.
Funding for school systems, specifically for building programs, is most often accomplished by raising money through issuing bonds: borrowing the money from bond purchasers and paying that money back over time with interest. It is a system that works well.
When new businesses are built, impact fees are assessed to offset the expense of the added pressure to the local infrastructure. Impact fees can be charged to developers of new home communities as well.
Developers negotiate shared infrastructure expenses required for the expansion of roads, sewage and water systems. These negotiations take place in the normal course of business and these expenses are factored into the cost of new home construction. Occasionally, but less frequently, you will find the cost of school construction included in these infrastructure negotiations. And it should be no surprise that developers and builders will pass their expenses on - they always do.
What if we were to shift the full responsibility for paying for new schools to the new communities in which the schools are to be built? Is this a good idea? Today, our local paper reported that this funding avenue is being considered in Dorchester County.
Dorchester County, well-known for its quality education, has experienced phenomenal growth over the last five years. The popularity of the schools is often cited as one reason for the boom. Schools are becoming crowded. The need for new schools is not up for debate - how to pay for those schools is.
According to figures reported in our local paper, the cost of a new school is about $20 million. For each 1,000 new homes built, just over 300 new students are "generated". The cost per new student for a new school runs about $25,000 - if paid for up front by each of the first 800 students to attend. Of course, that would never happen.
In essence, the funding proposal is to distribute the cost of new school construction across all the homes that are built within the new community. For every 1000 new homes built, in order to pay for the schools, each new home owner will be required to pay just over $8,000 more per home. Of course that $8,000 would be hidden in the base price of the home - not be an obvious, distinguishable fee.
I fully support paying for schools and I support paying enough to build the very best schools; but, this proposal is a bad idea. The problem I see here is one of equity - or rather, with lack of equity. Whether or not you are a supporter of public schools, public schools clearly benefit the economy as a whole. Good schools promote an effective workforce and they attract new employers. Yes, it is a tired point but true.
Under this proposal, the new home owners will continue to bear the burden of supporting the larger county school system, including the costs of school replacement construction and facility maintenance, through their tax dollars. Should owners of new homes be denied the support of the larger community when it comes to facility costs for the schools that their children attend?
A principle reason that the issuance of bonds works well is because bonds are re-paid over a long period of time; thus, distributing the cost for construction. By using these bond issues in an over lapping fashion as new schools are needed, in theory at least, the costs created by the gradual increase in the number of new schools, and in the renovation of older schools, is distributed evenly across the benefited population. After all, school buildings built today are designed to last well over 50 years.
As more scrutiny is applied to this "student impact fee" proposal, I expected it will gradually evaporate. In the event that Dorchester County chooses to move forward with this proposal, a court challenge will almost certainly follow. The proposal is fundamentally unfair and a very bad idea.
Filed under: Real Estate, Buyer Information, Taxes and Summerville, Charleston new homes, new construction, Goose Creek, Hanahan, Moncks Corner, Mt Pleasant, Summerville, New Communities, Dorchester County, Dorchester Schools
For many people, getting ready to close on a new home can be a stressful experience. Some of the stress comes from not knowing what to expect at closing.
Fortunately, in the state of South Carolina, the closing process is usually relatively simple even if not entirely pain-free. An attorney is involved, usually just one, to assist in making sure everyone understands the whole process and to make sure all the "i"s are dotted and the "t"s are crossed as they should be.
Part of the process includes the preparation, by the closing attorney, of a HUD 1 or closing statement. This document is very important because it summarized the costs of closing and the distribution of funds at closing.
When you get your HUD 1, you finally see the "real" the bottom line numbers. Hopefully, there will be no surprises. Expect to see a two page form with the front page summarizing the back page. There will be two columns - one for the seller and one for the buyer.
Among those figures that you will see will be how much, if any, that you will need to bring (in certified funds) to closing. Ideally, you and your Realtor should get a copy of the HUD 1 at least 24 hours in advance so you have the opportunity to review it for accuracy. But, in the real world, often the HUD 1 it is not available until immediately before closing.
At closing, your attorney will explain any questions that you have about your closing statement - and how each of line items has been determined.
Go here for a full explanation of the HUD 1
More and more builders are limiting lot sizes in the Charleston area to about ¼ acre or less. Most buyers want more. Here is a great opportunity to own an almost brand new home on a huge cul-de-sac lot!
(Go here for FULL LISTING)
Located in the popular Tanner Plantation of Hanahan, this beautiful two story home is a rare find. Less than two years old, move right in and enjoy an unbelievable back yard that is fully enclosed with a quality 6 foot privacy fence and a wooden swing set already in place.
Access the back yard on a concrete drive that passes through a gate large enough to accommodate most boats. The patio has been extended several feet so your grill and outdoor furniture fit easily with plenty of room left over. Beautiful grass is simple to maintain with this home's full in-ground sprinkler system. Enjoy your yard as you cook and entertain friends or as you just relax in your hot tub that comes with this home.
Entering the home from the main entry, you pass through a full front porch large enough to accommodate several rocking chairs and already equipped with a hanging wooden swing. This home includes; 9' smooth ceilings downstairs; an entry with hardwood floors; a kitchen equipped with a breakfast area with bay window, maple cabinets, a maple pantry, smooth top stove, built in microwave, recessed can lights, and plenty of counter space including an eat on counter that can accommodate additional seating.
Also downstairs is a formal dining room large enough for a great family gathering; an ample formal living room; and, a large, open family room area. Upstairs the master bedroom is large and has a nice master bath with double sinks, custom mirrored medicine cabinets, a separate shower and garden tub plus a walk in closet.
The upstairs laundry room is conveniently located near all bedrooms and even has cabinets. The two secondary bedrooms include a Jack and Jill bathroom perfect for kids or guests. Also upstairs has a huge bonus room - perfect for a pool table, a computer room, a secondary family room or whatever your imagination might design.
If you are interested in more details, call 843-270-1272. To schedule a showing, call 843-402-7400.
Consider this scenario.
Mr. Sell Right, a well-known buyer’s agent, is driving through your neighborhood on a Saturday morning with his qualified buyer who is anxious to purchase a home. Mr. Sell Right selected two homes in the neighborhood that he felt would be appropriate matches for his buyer client. Mr. Sell Right shows the first home and is on the way to the second home as he passes your house that you recently listed with you best friend and agent.