I'm sure we're not unique in our real estate business - strange situations can arise just about anywhere - it just seems that some times we have nothing but "interesting" situations!
One such interesting sale was just closed this past week. It was truly a beautiful home, almost 5,000 square feet and only a few years old. Unlike similar homes closer in to DC in Montgomery County which would have gone well over $1 Million, because this is in a different county and not really in commuting distance, the home sold for under $500,000 - quite a buy! The family who purchased the house were thrilled - they had done their homework, searched for six months or more and found everything they wanted in this home, or so they thought.
One week before closing, as we were contacting utility companies to make the change for our client, we ran into a problem. The gas company couldn't find any records of the property address. Ok, we thought, maybe we have the wrong gas company. So, we contacted the listing agent (the buyer was our client), and asked for the name of the gas company. They contacted the seller and got us the information - only problem was it was not a "natural gas" company, it was a propane company. Our buyer was, understandably, upset. They hadn't seen any propane tank, they had been told (and it was in the listing paperwork) that the house was natural gas, and in fact, natural gas was one of their big criteria!
After calls to the propane company, we discovered that there was no tank on the property, the development had a large holding tank, then the propane was delivered via underground pipes to the individual homes which were all on meters. We got copies of the propane bills for the past year to compare them to natural gas - they were higher to the tune of double or more! The selling agent was at a loss, she had not idea the home was propane and in fact, on looking at other listings - active, sold and under contract in the same development - about half the listings showed the homes were natural gas!
So, here we were, days from closing and as our clients really loved the house, we decided to go back to the seller with an addendum to the contract which, in essence, asked for a credit to cover the increased and unexpected costs and reserved the right to cancel the contract and retrieve our earnest money deposit if an accommodation could not be reached on the grounds of misrepresentation.
We asked for, and received, a $5,000 credit from the sellers - enough to cover the increased costs for a several years and the deal went to closing.
The lesson hear is that there would have been no credit had the heat, cooking and hot water fuel been listed as "other" and the propane delivery system (pretty much the same as regular natural gas) explained. I believe our clients would have still purchased the house had they known in advance. You might wonder how to find fault with the listing agent, her client told her the heat and hot water were "gas" - but if the agent specializes in that area she would know (certainly should know) and if she doesn't, she needs to become familiar with the area, similar homes, etc.
It is quite possible that had the closing taken place and the buyer discovered the situation after the fact, there may have been the basis of a suit against both the seller and the real estate agent!
So, do yourself a favor (as always), go over listing paperwork carefully - go over the MLS listing carefully, go over printed brochures carefully. It is up to you to find any mistakes that could be costly in the end.
As Always BE INFORMED and CHECK BACK HERE OFTEN
Sunday, February 17, 2008
Saturday, February 16, 2008
Great Reading - The Housing Market Over The Years
This was one of the best collection of quotes that I have seen in a while that truly set perspective! Gloom and Doom seems to have been a trend over the years each time there was a dip in the housing market, but as we are aware today, things have always found a way out and upward! So, read these and smile, then pass them along to anyone you'd like - if you are an agent, your clients might like to see these, if you are a homeowner - take heart!
"The prices of houses seems to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
“Houses cost too much for the mass market. Today’s average price is around $8,000—out of reach for two-thirds of all buyers." (Science Digest, April, 1948)
"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs $28,000." (Business Week, September 4, 1969
"The era of easy profits in real estate may be drawing to a close." (Money, January, 1981)
"The golden-age of risk-free run-ups in home prices is gone." (Money, March 1985)
"Most economists agree… [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, 1986)
"Financial planners agree that houses will continue to be a poor investment." (Kiplinger’s Personal Finance, November 1993)
AS ALWAYS, BE INFORMED and CHECK BACK HERE OFTEN
"The prices of houses seems to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
“Houses cost too much for the mass market. Today’s average price is around $8,000—out of reach for two-thirds of all buyers." (Science Digest, April, 1948)
"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs $28,000." (Business Week, September 4, 1969
"The era of easy profits in real estate may be drawing to a close." (Money, January, 1981)
"The golden-age of risk-free run-ups in home prices is gone." (Money, March 1985)
"Most economists agree… [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, 1986)
"Financial planners agree that houses will continue to be a poor investment." (Kiplinger’s Personal Finance, November 1993)
AS ALWAYS, BE INFORMED and CHECK BACK HERE OFTEN
Thursday, February 14, 2008
An Attic Full of Bats, Gloomy Home Inspection
Well, one of the more interesting negotiations we have conducted concluded today. I must warn you that this isn't pretty or for the faint of heart, so feel free not to read this post if you are squeemish in any way!
On a home we sold, the inspection report came back that there was some sort of animal droppings in the attic as well as four xerox box lids with a white powdery substance and it was suggested that it be further investigated. I received a call from the buyer's agent who reported this item and wanted me to speak to the owner to find out what they knew about it. The owner responded that the powder was simply baking soda that he had put in the attic to keep it "dry and fresh" and the droppings were undoubtedly from birds that had gained access through a hole in the sceen covering the end vent and that he had gotten them out and fixed the hole. This sounded reasonable to me until......
I called the buyer's agent to report what I had been told and was greeted with silence. After several seconds, she informed me that it was not bird droppings, it was more like rodent droppings and it was not a small amount, it covered an area at either end of the attic in a path 15 feet long, by three feet wide and was several inches deep and would forward me pictures. She did forward the pictures and decorum dictates that I not publish these pictures here, they're pretty disturbing! I immediately called a pest company that we trust and his immediate answer was BATS! He would go there that day and report back to me.
His report was exactly as he expected, it was bat droppings and there was either a gigantic colony or bats, or more likely, a colony that returned each year over the years and grew in numbers. Ok, so now what? The answer was somewhat surprising. I did not know that bats migrate in the winter for one thing and unlike migratory birds, not ALL bats migrated, some just "wintered" down in the walls. Great! How will we know and what do we do now?
Of course the guano (how the bat droppings are described) is actually a biohazard and the company that cleans up the mess must be appropriately garbed. They inspect as best they can down through the rafters and between studs, they remove insulation and basically try to find any of these guys who have decided to winter there. If they find none, they seal every little nook and cranny (it takes an opening of less than 1" for the bats to find their way in). They fumigate, they disinfect, and whatever else they need to do. They also come back in May when the "flock" or whatever it is you call a whole bunch of bats comes back to be sure they can't get in again, or if they missed any that might be sealed in!
The inspector who went in for us does not do this work himself and recommended a wildlife exterminator who is very professional and very reasonable. Of course we called him also, he went to inspect, and basically reported the same thing. The real surprise came with his price of $625! I was floored, I truly expected more in the range of $2,000 or more. So, we're on for this friday, but I still needed to deal with the buyer's agent.
My call basically started with one of those "good news/bad news" things. The good news was that there were no rats as the prospective buyer feared, and of course, the bad news was the truth. To my amazement, the agent seemed relieved and didn't believe that would be a problem for the buyers, she would get back to us with the home inspection response.
So, the outcome of this was that the buyers are satisfied with the deal as long as we have a licensed company clean and seal the premises as stated. The seller was so relieved that he couldn't thank us enough for our help in resolving this so quickly, so inexpensively, and so positively for him!
By the way, although this is an older house, built in the '50s, it has been completely renovated and is truly a lovely home! Not all buyers would react the same way of course, I don't know how I would have reacted on a purchase. All's well that ends well I guess, but talk about a curveball!
So, I hope you have found this little missive informative if not slightly amusing. I've been too busy this week to write much, but I do promise to follow up with some other home inspection items tomorrow that you might also find quite interesting. It sure has been an unusual week - we are still negotiating the home inspections on two other sales and have just written contracts on two additional purchases. The news may still be quite gloomy but the market has been very brisk for us this month!
As always, BE INFORMED and CHECK BACK HERE OFTEN.... I promise to be more diligent in my writing
Happy Valentine's Day!
On a home we sold, the inspection report came back that there was some sort of animal droppings in the attic as well as four xerox box lids with a white powdery substance and it was suggested that it be further investigated. I received a call from the buyer's agent who reported this item and wanted me to speak to the owner to find out what they knew about it. The owner responded that the powder was simply baking soda that he had put in the attic to keep it "dry and fresh" and the droppings were undoubtedly from birds that had gained access through a hole in the sceen covering the end vent and that he had gotten them out and fixed the hole. This sounded reasonable to me until......
I called the buyer's agent to report what I had been told and was greeted with silence. After several seconds, she informed me that it was not bird droppings, it was more like rodent droppings and it was not a small amount, it covered an area at either end of the attic in a path 15 feet long, by three feet wide and was several inches deep and would forward me pictures. She did forward the pictures and decorum dictates that I not publish these pictures here, they're pretty disturbing! I immediately called a pest company that we trust and his immediate answer was BATS! He would go there that day and report back to me.
His report was exactly as he expected, it was bat droppings and there was either a gigantic colony or bats, or more likely, a colony that returned each year over the years and grew in numbers. Ok, so now what? The answer was somewhat surprising. I did not know that bats migrate in the winter for one thing and unlike migratory birds, not ALL bats migrated, some just "wintered" down in the walls. Great! How will we know and what do we do now?
Of course the guano (how the bat droppings are described) is actually a biohazard and the company that cleans up the mess must be appropriately garbed. They inspect as best they can down through the rafters and between studs, they remove insulation and basically try to find any of these guys who have decided to winter there. If they find none, they seal every little nook and cranny (it takes an opening of less than 1" for the bats to find their way in). They fumigate, they disinfect, and whatever else they need to do. They also come back in May when the "flock" or whatever it is you call a whole bunch of bats comes back to be sure they can't get in again, or if they missed any that might be sealed in!
The inspector who went in for us does not do this work himself and recommended a wildlife exterminator who is very professional and very reasonable. Of course we called him also, he went to inspect, and basically reported the same thing. The real surprise came with his price of $625! I was floored, I truly expected more in the range of $2,000 or more. So, we're on for this friday, but I still needed to deal with the buyer's agent.
My call basically started with one of those "good news/bad news" things. The good news was that there were no rats as the prospective buyer feared, and of course, the bad news was the truth. To my amazement, the agent seemed relieved and didn't believe that would be a problem for the buyers, she would get back to us with the home inspection response.
So, the outcome of this was that the buyers are satisfied with the deal as long as we have a licensed company clean and seal the premises as stated. The seller was so relieved that he couldn't thank us enough for our help in resolving this so quickly, so inexpensively, and so positively for him!
By the way, although this is an older house, built in the '50s, it has been completely renovated and is truly a lovely home! Not all buyers would react the same way of course, I don't know how I would have reacted on a purchase. All's well that ends well I guess, but talk about a curveball!
So, I hope you have found this little missive informative if not slightly amusing. I've been too busy this week to write much, but I do promise to follow up with some other home inspection items tomorrow that you might also find quite interesting. It sure has been an unusual week - we are still negotiating the home inspections on two other sales and have just written contracts on two additional purchases. The news may still be quite gloomy but the market has been very brisk for us this month!
As always, BE INFORMED and CHECK BACK HERE OFTEN.... I promise to be more diligent in my writing
Happy Valentine's Day!
Saturday, February 9, 2008
About Me - Answering your Request!
I have been asked by several readers to write a little more about myself, so this is going to digress from real estate somewhat and cover that. If you could see a picture of me,- you'd see all the typical lines and wrinkles associated with someone who has waved goodbye to 50 a while ago. We all hear things like 60 is the new 40 or some such thing and in some respect I believe that. Of course, it might just be our own view of the world, after all, when I was very young, I thought 30 was pretty much the end of the line! Being among the Baby Boomer generation, it is great to see how active my generation still is.
Maybe even more fun to write about is the fact that I am friends with my grown daughters - not just friendly "mother/daughter" stuff, but really friends. We go out together, we laugh together, last year my middle daughter and I took a cruise to Hawaii for a week with my youngest daughter convinced only one of us was going to make it home (insinuating that we would wind up killing each other after spending a week in such close quarters). Not only was that not the case, but this year we are planning a two week cruise in Europe! Neither of us are "beach" people, we both love to sightsee, we enjoy hitting the happy hours for Cosmos, we both read voraciously late at night, and we never missed a trivia game on board if we weren't out galavanting around the countryside. In fact, we left the ship undefeated trivia champions, having won every contest we entered and came home with 14 Beach Bags (they were obviously giving them as prizes) which we gladly gave to friends and family.
I have three grown daughters, I have been divorced for 15 years. All of my daughters are married - my oldest has a 9 year old daughter, my travelling partner has an 18 year old son and a 6 year old son - my baby is expecting her first child in April! Being the devoted family that we are, we planned our two week cruise for the end of May so that we'd at least be here for the event and a reasonable followup :)
My girls are all friendly, intelligent, kind people with very caustic senses of humor (chips off the old block). Growing up with a single mom doesn't seem to have created much trauma. I, obviously, am very proud of them and enjoy all of our time together!
I intend to continue working for at least another 7 or 8 years, I intend to continue travelling, I intend to sell my own home and downsize a little bit, and I intend to lose another 10 pounds - hope my intentions come to pass!
Maybe even more fun to write about is the fact that I am friends with my grown daughters - not just friendly "mother/daughter" stuff, but really friends. We go out together, we laugh together, last year my middle daughter and I took a cruise to Hawaii for a week with my youngest daughter convinced only one of us was going to make it home (insinuating that we would wind up killing each other after spending a week in such close quarters). Not only was that not the case, but this year we are planning a two week cruise in Europe! Neither of us are "beach" people, we both love to sightsee, we enjoy hitting the happy hours for Cosmos, we both read voraciously late at night, and we never missed a trivia game on board if we weren't out galavanting around the countryside. In fact, we left the ship undefeated trivia champions, having won every contest we entered and came home with 14 Beach Bags (they were obviously giving them as prizes) which we gladly gave to friends and family.
I have three grown daughters, I have been divorced for 15 years. All of my daughters are married - my oldest has a 9 year old daughter, my travelling partner has an 18 year old son and a 6 year old son - my baby is expecting her first child in April! Being the devoted family that we are, we planned our two week cruise for the end of May so that we'd at least be here for the event and a reasonable followup :)
My girls are all friendly, intelligent, kind people with very caustic senses of humor (chips off the old block). Growing up with a single mom doesn't seem to have created much trauma. I, obviously, am very proud of them and enjoy all of our time together!
I intend to continue working for at least another 7 or 8 years, I intend to continue travelling, I intend to sell my own home and downsize a little bit, and I intend to lose another 10 pounds - hope my intentions come to pass!
Two New Contracts - Interesting Negotiations!
The last several days have been extremely hectic, and although I try to write every day, some times it is just impossible, this week being a classic example. In the last few days, we have ratified (all parties have agreed to the terms and signed binding contracts) two contracts on homes we had listed for sale and have had a home inspection response on a home we had listed and signed contracts on last week. All three cases are interesting from the standpoint of what both buyers and sellers can expect when negotiating a sale and the "aftermath" of the initial contract.
Case #1 - this home was almost an identical twin to a home we sold in June of '07 (8 months ago) for $525,000 - several doors down on the same street, both totally renovated to virtually the same specifications. The only difference (besides 8 months) was the the home sold in June was currently lived in (and very nicely decorated) and this home is vacant. Because the owners had already moved, they wanted to set a price that would attract buyers and, hopefully, a quick sale. The original price was set at $465,000 on January 9th. By January 25th we had tracked numerous showings, but no offers and the price was reduced to $447,500 - The Magic Number! We quickly received an offer but it was too low to accept - our counter offer was close to the asking price - a very aggressive price - and the buyer accepted. Good values are still in demand and although offers may come in even lower, all things must be considered. Is there interest in the property, have other agents expressed interest in possibly making an offer, is the offer TOO low to consider - don't forget the home last week with 9 contracts - if we were to offer the property at this price we surely would get multiple offers. Working with a knowledgeable agent is, again, paramount! We presented our counter offer with the details of the comparable sale just doors away at $525,000, we presented our home inspection, we presented our termite inspection, and everyone knew this was a good deal!
Case #2 was an entirely different story. This home was listed in July of 07 at a price of $825,000 against our recommendations of listing under $800. An offer of $750,000 was received early on in the process and, we believe, could easily have been negotiated to at least $775-$780. The seller was in no hurry to sell and countered the offer at full price. Of course, this fell apart. In October, the price was reduced to $789,900 and no further reductions were taken. Although there continued to be good showings, there had been no further offers. We received an offer of $715,000 and countered with a "best and final" of $750,000 which was accepted. By overpricing initially and not negotiating the earlier offer, the seller will realize AT
LEAST $25,000 less - a lesson learned, again!
In the case of the home inspection, what a time we're having with that! This is a relatively new home, completed in January of 06 and rented for one year, the home inspector came up with a list of 107 items! You might think that this house is a disaster - it is not! There are items listed that are actually funny - for instance, the top of one of the doors does not appear to be "fully finished to the extent of the entire door" and the "deadbolt does not open to it's full length". Now, the inspector went so far as to inspect the tops of doors from a ladder and to measure with a tool he carries exactly how deep the deadbolt goes into the frame. Other items that really do not belong on a home inspection list, such as "provide operating instructions and warranty on garbage disposal" were included in this list. The buyer honed the list down to 44 items they would like corrected (none of which are "deal killers" by the way) and we are working on our response. ... I'll give more information on this as we progress.
So, this might help you get an idea of not only what agents do behind the scenes, but some of what buyers and sellers can expect in this strange market.
As always BE INFORMED and CHECK BACK HERE OFTEN
Case #1 - this home was almost an identical twin to a home we sold in June of '07 (8 months ago) for $525,000 - several doors down on the same street, both totally renovated to virtually the same specifications. The only difference (besides 8 months) was the the home sold in June was currently lived in (and very nicely decorated) and this home is vacant. Because the owners had already moved, they wanted to set a price that would attract buyers and, hopefully, a quick sale. The original price was set at $465,000 on January 9th. By January 25th we had tracked numerous showings, but no offers and the price was reduced to $447,500 - The Magic Number! We quickly received an offer but it was too low to accept - our counter offer was close to the asking price - a very aggressive price - and the buyer accepted. Good values are still in demand and although offers may come in even lower, all things must be considered. Is there interest in the property, have other agents expressed interest in possibly making an offer, is the offer TOO low to consider - don't forget the home last week with 9 contracts - if we were to offer the property at this price we surely would get multiple offers. Working with a knowledgeable agent is, again, paramount! We presented our counter offer with the details of the comparable sale just doors away at $525,000, we presented our home inspection, we presented our termite inspection, and everyone knew this was a good deal!
Case #2 was an entirely different story. This home was listed in July of 07 at a price of $825,000 against our recommendations of listing under $800. An offer of $750,000 was received early on in the process and, we believe, could easily have been negotiated to at least $775-$780. The seller was in no hurry to sell and countered the offer at full price. Of course, this fell apart. In October, the price was reduced to $789,900 and no further reductions were taken. Although there continued to be good showings, there had been no further offers. We received an offer of $715,000 and countered with a "best and final" of $750,000 which was accepted. By overpricing initially and not negotiating the earlier offer, the seller will realize AT
LEAST $25,000 less - a lesson learned, again!
In the case of the home inspection, what a time we're having with that! This is a relatively new home, completed in January of 06 and rented for one year, the home inspector came up with a list of 107 items! You might think that this house is a disaster - it is not! There are items listed that are actually funny - for instance, the top of one of the doors does not appear to be "fully finished to the extent of the entire door" and the "deadbolt does not open to it's full length". Now, the inspector went so far as to inspect the tops of doors from a ladder and to measure with a tool he carries exactly how deep the deadbolt goes into the frame. Other items that really do not belong on a home inspection list, such as "provide operating instructions and warranty on garbage disposal" were included in this list. The buyer honed the list down to 44 items they would like corrected (none of which are "deal killers" by the way) and we are working on our response. ... I'll give more information on this as we progress.
So, this might help you get an idea of not only what agents do behind the scenes, but some of what buyers and sellers can expect in this strange market.
As always BE INFORMED and CHECK BACK HERE OFTEN
Tuesday, February 5, 2008
Chevy Chase, Maryland - Wow!
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Chevy Chase, Maryland is certainly one of the premier communities in the greater Metro DC area. As of December 31st, there were 90 homes listed for sale in Chevy Chase, with 27% of these homes priced $1,000,000 - 2,499,999. This past year has shown a reduction of 13.5% of the average sold price (December 2007 vs December 2006)
Average Sold Price: 2007 $ 958,161 - 2006 $ 1,108,262 - 13.54 %
Median Sold Price: 2007 $ 805,000 - 2006 $ 1,050,000 - 23.33 %
Of course, the home prices in Chevy Chase have soared in the past. It is a small, extremely desireable community, which has become a LITTLE more affordable. Of course with the average sale price of $958,161 you get an average house - if you want new, upgraded, larger lots, you truly are at least $1.5 million. But what makes Chevy Chase so special? It is truly beautiful and exclusive. The following is a short history, and some pictures to give you a flavor of the community:
The Town of Chevy Chase is located in Montgomery County, MD, just north of Washington, D.C., with approximately 3000 residents. The Greater Bethesda - Chevy Chase real estate community is home to more than 115,000 people.
In the 1890s, the Chevy Chase Land Company was formed and set the stage for the development of Chevy Chase in the 20th Century. The name can be traced to the Scottish word "chevauchee" which means "border raid," and "chace," meaning hunting grounds. Post-World War I, Chevy Chase saw major development, with incredible growth since the 1990's.
Chevy Chase is a desirable area to work, live and visit, offering quality restaurants, shopping, arts and entertainment. The Bethesda-Chevy Chase area is served by the Metro (subway) system. Just three stops along Metro's Red Line make Chevy Chase easily accessible throughout the D.C. area. Additionally, there are two public bus systems, Metrobus and Ride-On. These buses serve the entire Bethesda, North Bethesda, and Chevy Chase areas.
Sunday, February 3, 2008
Protecting your Vacant Property
Don’t Let Your Vacant Home Sit Unprotected!
One of the things most homeowners do no give much thought to is their insurance when they vacate a property - they just keep paying the premiums and believe they are protected. This is not the case, most homeowners insurance policies do NOT cover homes that are vacant!
If you have a vacant investment property, a home for sale that is vacant, or a home that is vacant due to a renovation project or a delayed move, do yourself a big favor and check with your insurance company.
Of course, there are other things you really must do to protect yourself - make sure the lawn is maintained, ask a neighbor to pick up any newspapers, flyers, etc. that are left in your driveway, mailbox or front stoop. Leave drapes or blinds on the windows and leave lighting that is on timers, particularly upstairs where you can't easily see in the windows. If your home is listed for sale, ask your agent to check the house at least once every week. It's a good idea to leave a note on all doors to ask that the door be locked after opening. Sometimes clients will wander off in different directions and open basement or rear doors, not thinking to lock them and since the agent can't be with everyone all the time, it could go un-noticed and left unlocked. A sign on the front door (or main access door) saying something like "Please be sure all doors are locked before you leave, any problems please call XXX-XXX-XXXX (the phone number of your agent or a neighbor who has a key).
Finally in the MLS listing itself, there are two different areas for remarks - one that only agents see and one that is "internet remarks" that the general public sees. Ask your agent to be sure NOT to say "vacant, show any time" or any reference to vacant in the public remarks!
As they say, an ounce of prevention.........
As always.... BE INFORMED and CHECK BACK HERE OFTEN
Your comments and suggestions would be appreciated.
One of the things most homeowners do no give much thought to is their insurance when they vacate a property - they just keep paying the premiums and believe they are protected. This is not the case, most homeowners insurance policies do NOT cover homes that are vacant!
If you have a vacant investment property, a home for sale that is vacant, or a home that is vacant due to a renovation project or a delayed move, do yourself a big favor and check with your insurance company.
Of course, there are other things you really must do to protect yourself - make sure the lawn is maintained, ask a neighbor to pick up any newspapers, flyers, etc. that are left in your driveway, mailbox or front stoop. Leave drapes or blinds on the windows and leave lighting that is on timers, particularly upstairs where you can't easily see in the windows. If your home is listed for sale, ask your agent to check the house at least once every week. It's a good idea to leave a note on all doors to ask that the door be locked after opening. Sometimes clients will wander off in different directions and open basement or rear doors, not thinking to lock them and since the agent can't be with everyone all the time, it could go un-noticed and left unlocked. A sign on the front door (or main access door) saying something like "Please be sure all doors are locked before you leave, any problems please call XXX-XXX-XXXX (the phone number of your agent or a neighbor who has a key).
Finally in the MLS listing itself, there are two different areas for remarks - one that only agents see and one that is "internet remarks" that the general public sees. Ask your agent to be sure NOT to say "vacant, show any time" or any reference to vacant in the public remarks!
As they say, an ounce of prevention.........
As always.... BE INFORMED and CHECK BACK HERE OFTEN
Your comments and suggestions would be appreciated.
Saturday, February 2, 2008
Living in Bethesda, Maryland - A Great Place to Live!
I thought I might take some time and give a brief description of some of the towns located in Montgomery County, Maryland - one of the most popular living places for people working in the diverse culture of Washington, DC.
In addition to the Metro which zips people around the county and into DC and Virginia, there is a vast public bus system and parks, walking trails, sports complexes - just about everything you might want near where you live. Downtown Bethesda is a pleasure to walk through - restaurants have sidewalk cafe seating, there are bookshops, clothing shops, galleries, just about anything you could want and the atmosphere invites liesurely strolls.
Bethesda, Maryland is an unincorporated area of the Montgomery County real estate market near Washington, D.C., retaining its old-fashioned charm but with a modern flare. The town is named for a local church, The Bethesda Presbyterian Church, built in 1820, but originates from a passage in the New Testament. Residents enjoy an active lifestyle with both small town and urban amenities available.
Some prestigious institutions located in Bethesda are the National Institutes of Health, the Naval Surface Warfare Center, and Bethesda Naval Hospital where many political figures and others have been hospitalized over the years. Also, Bethesda is headquarters to Lockheed Martin Corporation and Marriott International Hotels and Resorts.
Bethesda is famous for its vast and eclectic 200+ restaurant offerings, farmers markets, and fine arts, and as well as for its shopping and nightlife. The Bethesda real estate market area is mostly outside the downtown area, but there still are many Bethesda homes for sale and choices located within walking distance of downtown. Bethesda is a wealthy and well-educated area, named "the best-educated city with a population of 50,000 or more." The outstanding Bethesda public schools get great recognition as well as the many public parks, recreation facilities and cultural events.
I'd be happy to answer questions or post your comments about Bethesda! I will also be describing some of the other towns in upcoming posts - Chevy Chase, Silver Spring, Kensington, Gaithersburg, Germantown and others!
Hope you found this interesting..... as always
BE INFORMED and CHECK BACK HERE OFTEN
In addition to the Metro which zips people around the county and into DC and Virginia, there is a vast public bus system and parks, walking trails, sports complexes - just about everything you might want near where you live. Downtown Bethesda is a pleasure to walk through - restaurants have sidewalk cafe seating, there are bookshops, clothing shops, galleries, just about anything you could want and the atmosphere invites liesurely strolls.
Bethesda, Maryland is an unincorporated area of the Montgomery County real estate market near Washington, D.C., retaining its old-fashioned charm but with a modern flare. The town is named for a local church, The Bethesda Presbyterian Church, built in 1820, but originates from a passage in the New Testament. Residents enjoy an active lifestyle with both small town and urban amenities available.
Some prestigious institutions located in Bethesda are the National Institutes of Health, the Naval Surface Warfare Center, and Bethesda Naval Hospital where many political figures and others have been hospitalized over the years. Also, Bethesda is headquarters to Lockheed Martin Corporation and Marriott International Hotels and Resorts.
Bethesda is famous for its vast and eclectic 200+ restaurant offerings, farmers markets, and fine arts, and as well as for its shopping and nightlife. The Bethesda real estate market area is mostly outside the downtown area, but there still are many Bethesda homes for sale and choices located within walking distance of downtown. Bethesda is a wealthy and well-educated area, named "the best-educated city with a population of 50,000 or more." The outstanding Bethesda public schools get great recognition as well as the many public parks, recreation facilities and cultural events.
I'd be happy to answer questions or post your comments about Bethesda! I will also be describing some of the other towns in upcoming posts - Chevy Chase, Silver Spring, Kensington, Gaithersburg, Germantown and others!
Hope you found this interesting..... as always
BE INFORMED and CHECK BACK HERE OFTEN
Thursday, January 31, 2008
The Importance of Performance!
Every time we sell a property, whether we are the listing agent or the buyer's agent, at the end of the transaction, we sent out a survey with a return envelope and ask our clients to be brutally honest!
As these surveys come in during the year, we read and discuss each one in an effort to continually improve our service to our clients. If you are an agent and you do not do this - YOU SHOULD. If you are a buyer or seller, you might find the questions interesting - they should provide the basis of the type of questions you would ask an agent you are considering using or the type of questions you can ask the references they provide! So here we go.....
The first group of questions ask the respondent to answer with a checkmark under "Excellent", "Very Good", "Good", or "Fair" -
*Ease of getting an appointment
*Timeliness of return phone calls
*Helpfulness to your needs
*Courtesy and friendliness
*Knowledge of real estate
*Overall performance
The second group of questions are merely yes or no answers:
*Do you feel we adequately explained the real estate process and what you could expect during each phase of the process?
*Do you feel we really cared about you and your real estate needs?
*Do you feel we earned our commission?
*Would you use our group to buy or sell a home again?
*Would you feel comfortable recommending our services to your friends and family?
*Can we use you as a reference?
*Are you interested in investment property now or in the future?
We have one rating question that asks "in comparison to other realtors you have worked with, the quality of our group's real estate service is:
Substantially Lower
Moderately Lower
About the same
Moderately higher
Substantially higher
Excellent
We then ask questions with several blank lines following for clients to write comments:
*Why did you choose to work with our group?
*When you think about yoru real estate experience, what stands out most in your mind?
*What could we do to improve our service and provide a more positive real estate experience?
*We like to acknowledge our tem members for a job well done. Please let us know if any member of our team was especially helpful, and how they were helpful.
*Who do you know who could benefit from our service?
So.... how did WE fare this year?
100% of our respondents felt we earned our commission!!!!!
That's really what we strive for - no matter how anyone may answer any of the other questions, if your clients feel you have earned your commission you're doing a great job!
100% of our respondents felt we adequately explained the process during each phase!
100% of our respondents said they would feel comfortable recommending our services to their friends and family!
99% of our respondents said they would use us to buy or sell a home again
99% of our respondents said they felt we really cared about them and their needs
87% of our respondents rated our overall performance at the very highest level and not one survey came back marked less than very good! (just one notch lower).
So, we're doing a great job in a difficult market - survey your clients to keep yourself and your team at the top of their game and for you buyers and sellers, don't feel shy about asking these questions of current clients of any agent you are interviewing!
Thats it for today, as always:
BE INFORMED and CHECK BACK HERE OFTEN
As these surveys come in during the year, we read and discuss each one in an effort to continually improve our service to our clients. If you are an agent and you do not do this - YOU SHOULD. If you are a buyer or seller, you might find the questions interesting - they should provide the basis of the type of questions you would ask an agent you are considering using or the type of questions you can ask the references they provide! So here we go.....
The first group of questions ask the respondent to answer with a checkmark under "Excellent", "Very Good", "Good", or "Fair" -
*Ease of getting an appointment
*Timeliness of return phone calls
*Helpfulness to your needs
*Courtesy and friendliness
*Knowledge of real estate
*Overall performance
The second group of questions are merely yes or no answers:
*Do you feel we adequately explained the real estate process and what you could expect during each phase of the process?
*Do you feel we really cared about you and your real estate needs?
*Do you feel we earned our commission?
*Would you use our group to buy or sell a home again?
*Would you feel comfortable recommending our services to your friends and family?
*Can we use you as a reference?
*Are you interested in investment property now or in the future?
We have one rating question that asks "in comparison to other realtors you have worked with, the quality of our group's real estate service is:
Substantially Lower
Moderately Lower
About the same
Moderately higher
Substantially higher
Excellent
We then ask questions with several blank lines following for clients to write comments:
*Why did you choose to work with our group?
*When you think about yoru real estate experience, what stands out most in your mind?
*What could we do to improve our service and provide a more positive real estate experience?
*We like to acknowledge our tem members for a job well done. Please let us know if any member of our team was especially helpful, and how they were helpful.
*Who do you know who could benefit from our service?
So.... how did WE fare this year?
100% of our respondents felt we earned our commission!!!!!
That's really what we strive for - no matter how anyone may answer any of the other questions, if your clients feel you have earned your commission you're doing a great job!
100% of our respondents felt we adequately explained the process during each phase!
100% of our respondents said they would feel comfortable recommending our services to their friends and family!
99% of our respondents said they would use us to buy or sell a home again
99% of our respondents said they felt we really cared about them and their needs
87% of our respondents rated our overall performance at the very highest level and not one survey came back marked less than very good! (just one notch lower).
So, we're doing a great job in a difficult market - survey your clients to keep yourself and your team at the top of their game and for you buyers and sellers, don't feel shy about asking these questions of current clients of any agent you are interviewing!
Thats it for today, as always:
BE INFORMED and CHECK BACK HERE OFTEN
Wednesday, January 30, 2008
Rate Drops - Mortgages Rise
On speaking today to several mortgage lenders, the 30 year fixed rate mortgage actually went up today after the Fed announced another 50 point rate cut. As I had previously explained, although the average listener hears an interest rate drop and automatically assumes that mortgage rates will fall as well. As an educated consumer, it is important that you understand how these changes might affect you or a client of yours. The following is a great explanation of how this works by Amy Swaney, past president of the Arizona Mortgage Lenders Association.
Many consumers have misconceptions about the FED, and its affect on the long term interest rates. I thought I would give you a crash-course on the truth behind the Fed’s meeting and the affect it has on long-term rates. This may be a refresher course for many, but always good information to review.
The Federal Open Market Committee (FOMC) is a twelve-member committee made up of the seven members of the Board of Governors and five Federal Reserve Bank presidents. It meets eight times per year to determine the near-term direction of monetary policy, such as setting guidelines for the purchase and sale of government securities and setting policy relating to System operations in the foreign exchange markets. The Fed determines interest rate policy at FOMC meetings. The interest rate set by the Fed, the federal funds rate, is the lending rate banks charge each other for the use of overnight funds and it serves as a benchmark for all other rates. A change in the fed funds rate also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks then when they only yield 5 percent. Again, the level of interest rates affects the economy for a higher rate tend to slow activity; and lower rates stimulate activity, a ripple effect that expands into all sectors of the economy.
These changes in monetary policy are now announced immediately after FOMC meetings so many assume that a drop in the discount rate or the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window or the Fed Funds Rate, will automatically translate into a corollary drop in the long term rate. This is inaccurate.
Is a Fed rate cut really good news for long term mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.
How does a change in the monetary policy directly affect consumers? Consumers will see fairly immediate changes in short-term or consumer type loans such as credit cards and Home Equity Line of Credits (HELOCs) as the rate has ties to the Prime Rate. But then how are long-term mortgage rates based?
As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.
That catalyst could be any type of economic, political or global data. Something to consider is that as bond prices rise, interest rates fall. As bond prices fall, interest rates rise including large movements in the Stock Market. This concept is simple if you think in terms of where money comes from. Investors have basically 2 places to put their money; in the stock market or the bond market. Since money is a finite resource, if people are buying stocks, they typically have to pull that money out of the bond market and vice versa, thus they typically move opposite of each other.
As the Nasdaq (Bond Based) moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. In actuality, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.
The reality is that market participants weeks before the meeting announcement speculate about the possibility of an interest rate change at these meetings, and if the outcome is different from expectations, that is truly the only time the rate hike or cut will have a direct impact on the markets, but it usually tends to be short-term and volatility based.
Hope this was informative and helpful.
As Always BE INFORMED and CHECK BACK HERE OFTEN
Many consumers have misconceptions about the FED, and its affect on the long term interest rates. I thought I would give you a crash-course on the truth behind the Fed’s meeting and the affect it has on long-term rates. This may be a refresher course for many, but always good information to review.
The Federal Open Market Committee (FOMC) is a twelve-member committee made up of the seven members of the Board of Governors and five Federal Reserve Bank presidents. It meets eight times per year to determine the near-term direction of monetary policy, such as setting guidelines for the purchase and sale of government securities and setting policy relating to System operations in the foreign exchange markets. The Fed determines interest rate policy at FOMC meetings. The interest rate set by the Fed, the federal funds rate, is the lending rate banks charge each other for the use of overnight funds and it serves as a benchmark for all other rates. A change in the fed funds rate also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks then when they only yield 5 percent. Again, the level of interest rates affects the economy for a higher rate tend to slow activity; and lower rates stimulate activity, a ripple effect that expands into all sectors of the economy.
These changes in monetary policy are now announced immediately after FOMC meetings so many assume that a drop in the discount rate or the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window or the Fed Funds Rate, will automatically translate into a corollary drop in the long term rate. This is inaccurate.
Is a Fed rate cut really good news for long term mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.
How does a change in the monetary policy directly affect consumers? Consumers will see fairly immediate changes in short-term or consumer type loans such as credit cards and Home Equity Line of Credits (HELOCs) as the rate has ties to the Prime Rate. But then how are long-term mortgage rates based?
As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.
That catalyst could be any type of economic, political or global data. Something to consider is that as bond prices rise, interest rates fall. As bond prices fall, interest rates rise including large movements in the Stock Market. This concept is simple if you think in terms of where money comes from. Investors have basically 2 places to put their money; in the stock market or the bond market. Since money is a finite resource, if people are buying stocks, they typically have to pull that money out of the bond market and vice versa, thus they typically move opposite of each other.
As the Nasdaq (Bond Based) moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. In actuality, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.
The reality is that market participants weeks before the meeting announcement speculate about the possibility of an interest rate change at these meetings, and if the outcome is different from expectations, that is truly the only time the rate hike or cut will have a direct impact on the markets, but it usually tends to be short-term and volatility based.
Hope this was informative and helpful.
As Always BE INFORMED and CHECK BACK HERE OFTEN
Tuesday, January 29, 2008
You can't win them all - buyers be ready to move!
Unfortunately, we did not get the house our buyers were bidding on even though we were willing to pay $77,500 over the asking price - an almost 10% premium! There wound up being a total of NINE contracts offered on the property that had been on the market only three days! Although our buyer is disappointed, he understands that we did everything within reason to win the contract and to pay and offer more might not have been in his best interest. So be it. We'll keep looking for another gem in the rough.
After doing yet another evaluation of the property, it appears that the house actually sold for slightly more than it's true value. Having said that, it's true value is really what someone is willing to pay for it so in some regards that IS it's true value. It was very difficult to justify that price when doing comparables, but again, pricing is always somewhat suggestive. On speaking to the listing agent who we happen to know quite well, I asked how they came up with the selling number and her answer was that quite frankly she was somewhat affraid of all the negative news she had been hearing and it was important for the seller to realize a quick sale. It wasn't a brilliant marketing move, it was an effort to realize a quick sale on a good property. Yes, the property was priced slightly under market for the size, condition and neighborhhood, but not THAT much under market - lucky seller!
Again, pricing is everything - but you can't predict the response either - if you price a property on the low end of the scale hoping for a quick sale (and maybe even a bidding war as we had here), you also need to be prepared to accept the low price if only one offer comes in! A tough call on a seller's part.
So in just two days we have had multiple contracts on several properties and we have seen quite an increase in showings on our listings - and it's only January - hopefully the brisk spring market will prove the "nay-sayers" wrong.
As always BE INFORMED and CHECK BACK HERE OFTEN
After doing yet another evaluation of the property, it appears that the house actually sold for slightly more than it's true value. Having said that, it's true value is really what someone is willing to pay for it so in some regards that IS it's true value. It was very difficult to justify that price when doing comparables, but again, pricing is always somewhat suggestive. On speaking to the listing agent who we happen to know quite well, I asked how they came up with the selling number and her answer was that quite frankly she was somewhat affraid of all the negative news she had been hearing and it was important for the seller to realize a quick sale. It wasn't a brilliant marketing move, it was an effort to realize a quick sale on a good property. Yes, the property was priced slightly under market for the size, condition and neighborhhood, but not THAT much under market - lucky seller!
Again, pricing is everything - but you can't predict the response either - if you price a property on the low end of the scale hoping for a quick sale (and maybe even a bidding war as we had here), you also need to be prepared to accept the low price if only one offer comes in! A tough call on a seller's part.
So in just two days we have had multiple contracts on several properties and we have seen quite an increase in showings on our listings - and it's only January - hopefully the brisk spring market will prove the "nay-sayers" wrong.
As always BE INFORMED and CHECK BACK HERE OFTEN
Monday, January 28, 2008
What a Day - Weekend Madness Continues
Well, as promised, the results are in..... we received a second contract on the home before signing off on the contract we had been negotiating since Thursday! The second contract was far from ideal but afforded us the opportunity to let both offering agents know they had competition and that they needed to come up with their "best and final" offer. The result was that the net to the seller increased by almost $18,000 and closing will happen quickly. The first contract was the eventual winner, the buyers really were committed to buying the house - but it was a close call! Again, even in a down market, when you find the house you really want make that offer and get it done quickly!
A second interesting happening today which truly shows how crazy the market can be. We made an offer on a home for a client. The home had been on the market only three days and there were four registered offers as of this afternoon when we made our offer. We offered full price with an escallation of $50,000 more if any other offer was higher. The $50,000 wasn't enough to be the high contract and so we raised our offer another $27,500 - we don't know if that will be enough but that is really the highest we are willing to go on this property. Oh, and the asking price of the house was $825,000 - this property will sell at over $900,000. The agent took a gamble and it has obviously paid off.
This goes to pricing your home - while there are homes on the market for months and months, there are homes still selling in a few days with multiple offers and going over the asking price. This house is probably worth the $900,000, but the gamble came in on generating the interest by offering the home at $825K - about $50,000 under where other agents may have priced the property. They will never know, but in reality had the house been priced at the $900,000 to start I don't believe they would have gotten a full price offer right out of the gate - certainly wouldn't have gotten four offers with escallation clauses!
In making our offer, we compared selling prices of similar homes and felt that $875,000 was a good price for the property. We'll know what happens tomorrow as the seller is out of the country and we won't know the outcome before then. I intend to go back and do a more in-depth analysis of the property and the comparables as well as speaking to several appraisers we know that do extensive work in the neighborhood early in the morning. It will be another interesting experience seeing where this ends up! Again, you'll have to tune in tomorrow to find out the outcome!
As always BE INFORMED and CHECK BACK HERE OFTEN!
A second interesting happening today which truly shows how crazy the market can be. We made an offer on a home for a client. The home had been on the market only three days and there were four registered offers as of this afternoon when we made our offer. We offered full price with an escallation of $50,000 more if any other offer was higher. The $50,000 wasn't enough to be the high contract and so we raised our offer another $27,500 - we don't know if that will be enough but that is really the highest we are willing to go on this property. Oh, and the asking price of the house was $825,000 - this property will sell at over $900,000. The agent took a gamble and it has obviously paid off.
This goes to pricing your home - while there are homes on the market for months and months, there are homes still selling in a few days with multiple offers and going over the asking price. This house is probably worth the $900,000, but the gamble came in on generating the interest by offering the home at $825K - about $50,000 under where other agents may have priced the property. They will never know, but in reality had the house been priced at the $900,000 to start I don't believe they would have gotten a full price offer right out of the gate - certainly wouldn't have gotten four offers with escallation clauses!
In making our offer, we compared selling prices of similar homes and felt that $875,000 was a good price for the property. We'll know what happens tomorrow as the seller is out of the country and we won't know the outcome before then. I intend to go back and do a more in-depth analysis of the property and the comparables as well as speaking to several appraisers we know that do extensive work in the neighborhood early in the morning. It will be another interesting experience seeing where this ends up! Again, you'll have to tune in tomorrow to find out the outcome!
As always BE INFORMED and CHECK BACK HERE OFTEN!
Sunday, January 27, 2008
Weekend Madness - It's Not Over Until It's In Writing!
Since Thursday we have been trying to reach an agreement on a proposed contract. The property has been on the market less than three weeks and although several agents were "hovering" with clients, this was the first written contract we received. What started out as a large difference in asking price and contract price has narrowed to an acceptable level and what was an unacceptable long period of time between contract and settlement has also narrowed to an acceptable level - we have reached a verbal agreement and the seller is meeting in our office tomorrow morning to sign the contract - but it's not over yet.
There have been numerous showings of the property over the weekend and several agents have requested disclosures (the property condition, lead paint and other disclosure forms) necessary to prepare a contract!
Do we have another offer at this time? No. Are we locked in to the contract we have verbally agreed to? No. If there were another offer sitting on our fax or in our email tomorrow morning when the seller arrives is it ethical to then reject the contract the seller verbally accepted?
The ethical question really relates only to our group, the listing agent. We work for the seller and if another, better offer comes in before physically signing the "bird in the hand" we are ethically bound to present the offer to the seller for their consideration.
The ultimate decision rests with the seller, but we are bound by our obligation as the seller's agent to review all the information and advise in their best interest. Obviously if a better offer were received, it would be in the seller's best interest to sign the new contract.
So, we'll see if another offer comes in before signing - and we'll see if they are any better than the offer we have negotiated in good faith. It's a tough situation for a buyer's agent who has worked so hard to put the deal together and it's a tough situation for the first buyer if they lose a house they really wanted at the 11th hour - but it has happened to all of us.
The lesson here is if you find a home you truly want to buy, make a fair and reasonable offer, require a timely response, negotiate in good faith, but don't procrastinate and when a deal is struck get it in writing! It isn't over till it's over - agents may seem pushy by asking for a quick decision, but they are acting in your best interest - we all know what can happen.
We'll all know tomorrow how this shakes out - and I will post it here. This also goes to several of my previous postings, even in a "down" market, when a house is priced properly and shows well, it sells - sometimes even with multiple offers and quite quickly.
As always BE INFORMED and CHECK BACK HERE OFTEN
There have been numerous showings of the property over the weekend and several agents have requested disclosures (the property condition, lead paint and other disclosure forms) necessary to prepare a contract!
Do we have another offer at this time? No. Are we locked in to the contract we have verbally agreed to? No. If there were another offer sitting on our fax or in our email tomorrow morning when the seller arrives is it ethical to then reject the contract the seller verbally accepted?
The ethical question really relates only to our group, the listing agent. We work for the seller and if another, better offer comes in before physically signing the "bird in the hand" we are ethically bound to present the offer to the seller for their consideration.
The ultimate decision rests with the seller, but we are bound by our obligation as the seller's agent to review all the information and advise in their best interest. Obviously if a better offer were received, it would be in the seller's best interest to sign the new contract.
So, we'll see if another offer comes in before signing - and we'll see if they are any better than the offer we have negotiated in good faith. It's a tough situation for a buyer's agent who has worked so hard to put the deal together and it's a tough situation for the first buyer if they lose a house they really wanted at the 11th hour - but it has happened to all of us.
The lesson here is if you find a home you truly want to buy, make a fair and reasonable offer, require a timely response, negotiate in good faith, but don't procrastinate and when a deal is struck get it in writing! It isn't over till it's over - agents may seem pushy by asking for a quick decision, but they are acting in your best interest - we all know what can happen.
We'll all know tomorrow how this shakes out - and I will post it here. This also goes to several of my previous postings, even in a "down" market, when a house is priced properly and shows well, it sells - sometimes even with multiple offers and quite quickly.
As always BE INFORMED and CHECK BACK HERE OFTEN
Saturday, January 26, 2008
So, Andy, You want to be a Real Estate Agent!
I had a conversation with a young man yesterday who has been contemplating getting a real estate salesperson license and jumping into the business. He asked for my advice and so I gave it to him - both barrels. It's not an easy job and it doesn't pay well - at least for a while. It really is starting your own business and as such should be approached the same way you would start any other business - you need information and you need a plan. You also need enough money - there the "start up" expenses of taking required classes, obtaining a license, joining the associations, errors & omissions insurance to name a few. You need money to live on until you start seeing returns on your efforts.
I suggested that he market himself to a successful group as a buyer's agent. By doing this he can be fed leads that he might otherwise not get, and if nothing else, he will gain valuable experience from successful agents.
I know several agents who work part time. One of these agents is an airline pilot with lots of free time to work his second job in real estate. After six months, he had spent approximately $5,000 on expenses that I mentioned above and marketing materials and marketing campains. His first sale came shortly thereafter (the end of his first six months) and he netted $9,000 after his split with the broker. So, six months of effort for $4,000 in income. Now, on the other hand, he also purchased a property at an extremely good price that was headed to foreclosure in partnership with a friend. There was expense in fixing up and marketing, but the sale of the property within the year netted them $40,000 in profit - $20,000 each. He is a dedicated, intelligent individual, he works hard and looks for opportunities!
We have a new buyer's agent with our group. After seven months he has completed one sale, assisted on a second and just wrote his second contract - that translates to about $20,000 in income, give or take a bit. As we head into the spring and sales historically increase (even in a down market), he has the opportunity to do well in his first full year as an agent!
As you can see just from the two examples above (and believe me, they truly are representative samples) it isn't easy to get into real estate sales, and it truly is the lucky agent that can be associated with a top producing team.
Of course, I continued to explain that we all need to pay our dues in this industry - we need to take floor duty (answering incoming calls into the main office hoping for leads) - we need to take as many "fast start" classes we can find - we need to ask more experienced agents for help when necessary - we need to market ourselves to anyone who will listen - we need to be sponges and read, read, read, we need to see every house that comes on the market in the area we want to work, we need to hold open houses for other agents (not a good place to make a sale, but a great place to meet prospective buyers) and we need to get our name out there and recognized. In other words, we need to make a super human effort if we want to become a top producing agent - and we need the personality and stick-to-it mentality it takes to be a successful business owner.
I don't mean to be discouraging - real estate has been good to me. The rewards at the goal line are great - both monetarily and emotionally. I have made great friends, I have had the satisfying experience of helping families into the home of their dreams, I truly enjoy what I do. A good agent will prevail in any type of market - I sometimes think that down markets are nature's way of weeding out the weaker agents!
So, that's my rambling for today - I'm looking for suggestions on topics you would like me to address - so please feel free to comment - I will respond.
As always BE INFORMED and CHECK BACK HERE OFTEN
I suggested that he market himself to a successful group as a buyer's agent. By doing this he can be fed leads that he might otherwise not get, and if nothing else, he will gain valuable experience from successful agents.
I know several agents who work part time. One of these agents is an airline pilot with lots of free time to work his second job in real estate. After six months, he had spent approximately $5,000 on expenses that I mentioned above and marketing materials and marketing campains. His first sale came shortly thereafter (the end of his first six months) and he netted $9,000 after his split with the broker. So, six months of effort for $4,000 in income. Now, on the other hand, he also purchased a property at an extremely good price that was headed to foreclosure in partnership with a friend. There was expense in fixing up and marketing, but the sale of the property within the year netted them $40,000 in profit - $20,000 each. He is a dedicated, intelligent individual, he works hard and looks for opportunities!
We have a new buyer's agent with our group. After seven months he has completed one sale, assisted on a second and just wrote his second contract - that translates to about $20,000 in income, give or take a bit. As we head into the spring and sales historically increase (even in a down market), he has the opportunity to do well in his first full year as an agent!
As you can see just from the two examples above (and believe me, they truly are representative samples) it isn't easy to get into real estate sales, and it truly is the lucky agent that can be associated with a top producing team.
Of course, I continued to explain that we all need to pay our dues in this industry - we need to take floor duty (answering incoming calls into the main office hoping for leads) - we need to take as many "fast start" classes we can find - we need to ask more experienced agents for help when necessary - we need to market ourselves to anyone who will listen - we need to be sponges and read, read, read, we need to see every house that comes on the market in the area we want to work, we need to hold open houses for other agents (not a good place to make a sale, but a great place to meet prospective buyers) and we need to get our name out there and recognized. In other words, we need to make a super human effort if we want to become a top producing agent - and we need the personality and stick-to-it mentality it takes to be a successful business owner.
I don't mean to be discouraging - real estate has been good to me. The rewards at the goal line are great - both monetarily and emotionally. I have made great friends, I have had the satisfying experience of helping families into the home of their dreams, I truly enjoy what I do. A good agent will prevail in any type of market - I sometimes think that down markets are nature's way of weeding out the weaker agents!
So, that's my rambling for today - I'm looking for suggestions on topics you would like me to address - so please feel free to comment - I will respond.
As always BE INFORMED and CHECK BACK HERE OFTEN
Friday, January 25, 2008
Help May Be On The Way - Increase for Conforming Loans
If you are one of many people (especially in our area) that are thinking of buying or if you are one of the owners with a jumbo mortgage that would like to refinance, but jumbo rates are still too high, help may just be on the way.
The following information was just received from a lender we work with quite often (I'll explain in more simple terms following his statement:
"As part of the economic stimulus package, an increase in the conforming limit could now be a reality, at least for a brief period. Congress and President Bush agreed, but have not voted yet, on a 1-yr increase in the conforming loan limit to $730K. There is not a lot of detail yet (there is confusion as to whether the $730K, or $725, is for high cost housing areas, or everywhere, and just what high cost areas are?). Just when mortgage originators everywhere were breaking out the Cold Duck, OFHEO’s director James Lockhart (Office of Federal Housing Enterprise Oversight, who oversees FNMA & FHLMC) issued a statement saying “We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools. Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.”
Now what? Frankly, analysts feel that enactment is possible by mid-February but looks more likely by early March. No large investors will make any policy changes or announcements until the issues are less confusing, or even voted into law. Apparently, the bill would temporarily increase the limit on mortgages Fannie Mae and Freddie Mac may securitize from $417k to up to $730k. In addition, the bill would increase the limit on loans the Federal Housing Administration (FHA) may insure from $362k to $625k. This should help to reduce spreads in the jumbo mortgage market! One estimate mentioned that as many as $400-500 billion in loans could qualify for refinancing. As these loans refinance, it could ease pressure on capital-constrained bank balance sheets. And “temporary” items like this are difficult to rescind after a year, which would also be good news for originators."
So what does this really mean? If this change is made, particularly in high priced areas, loans would be conforming up to $730 - today's rate quoted from Wells Fargo Bank was 5.75% on a conforming loan (loan amount up to $417,000) and 6.876% on a non-conforming loan (jumbo loan) - 1.126% more! That's a big difference! That will enable home buyers to afford a slightly higher priced home, that will enable anyone who currently has a jumbo mortgage at a higher interest rate to refinance!
This is just another encouraging sign that the powers that be are taking steps to ease the home buying and mortgage crunch! If this becomes available as expected, the market just might take that turn we've been waiting for!
Remember BE INFORMED and CHECK BACK HERE OFTEN
The following information was just received from a lender we work with quite often (I'll explain in more simple terms following his statement:
"As part of the economic stimulus package, an increase in the conforming limit could now be a reality, at least for a brief period. Congress and President Bush agreed, but have not voted yet, on a 1-yr increase in the conforming loan limit to $730K. There is not a lot of detail yet (there is confusion as to whether the $730K, or $725, is for high cost housing areas, or everywhere, and just what high cost areas are?). Just when mortgage originators everywhere were breaking out the Cold Duck, OFHEO’s director James Lockhart (Office of Federal Housing Enterprise Oversight, who oversees FNMA & FHLMC) issued a statement saying “We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools. Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.”
Now what? Frankly, analysts feel that enactment is possible by mid-February but looks more likely by early March. No large investors will make any policy changes or announcements until the issues are less confusing, or even voted into law. Apparently, the bill would temporarily increase the limit on mortgages Fannie Mae and Freddie Mac may securitize from $417k to up to $730k. In addition, the bill would increase the limit on loans the Federal Housing Administration (FHA) may insure from $362k to $625k. This should help to reduce spreads in the jumbo mortgage market! One estimate mentioned that as many as $400-500 billion in loans could qualify for refinancing. As these loans refinance, it could ease pressure on capital-constrained bank balance sheets. And “temporary” items like this are difficult to rescind after a year, which would also be good news for originators."
So what does this really mean? If this change is made, particularly in high priced areas, loans would be conforming up to $730 - today's rate quoted from Wells Fargo Bank was 5.75% on a conforming loan (loan amount up to $417,000) and 6.876% on a non-conforming loan (jumbo loan) - 1.126% more! That's a big difference! That will enable home buyers to afford a slightly higher priced home, that will enable anyone who currently has a jumbo mortgage at a higher interest rate to refinance!
This is just another encouraging sign that the powers that be are taking steps to ease the home buying and mortgage crunch! If this becomes available as expected, the market just might take that turn we've been waiting for!
Remember BE INFORMED and CHECK BACK HERE OFTEN
Thursday, January 24, 2008
How Much will $600 or $1200 Mean To You
I read with interest the breaking news today that to stimulate the economy, there is a proposal to rebate $600 to every single taxpayer and $1200 to every married taxpayer filing a joint return. There is talk also of $300 for each dependent child in the household. According to the news report, these checks could be in your mailbox by June of this year. People who did not pay federal income taxes but who had earned income of more than $3,000 would get checks of $300 per individual or $600 per couple. Those who earn up to $75,000 individually or up to $150,000 as a couple will be eligible for the payments according to the report.
So, as a single taxpayer, I would receive a check for $600 and thought about what I would do with this "windfall". Unfortunately, it's not going to pay for a new car, or my dream vacation, so I would probably just deposit the amount into my checking account and it would disappear into the world of bill paying and normal living expenses as do most checks I deposit here. I might just deposit this amount into my savings, after all I hadn't planned on having it and I probably don't make as many deposits into this account as I should.
But what about the rest of my fellow taxpayers who receive this payment? I am sure that to many, this will come as a blessing and pay for something they sorely need and for that I am all in favor.
I do wonder how this will affect the budget deficit and the amount of taxes I will be paying down the road to make up for any shortfalls - this was not mentioned in any of the articles I have so far read. That will be interesting. For now, however, we'll see how this plays out, how the "short term fix" as well as any long term fixes that are yet to come, will be reflected in the economy in general and the hard-hit housing market in specific.
So, my loyal readers, I'd love to hear just how you would spend this unexpected "gift" from Uncle Sam - or if you think it is a good idea or not, too much, too little - whatever, email me!
Remember BE INFORMED and CHECK BACK HERE OFTEN
So, as a single taxpayer, I would receive a check for $600 and thought about what I would do with this "windfall". Unfortunately, it's not going to pay for a new car, or my dream vacation, so I would probably just deposit the amount into my checking account and it would disappear into the world of bill paying and normal living expenses as do most checks I deposit here. I might just deposit this amount into my savings, after all I hadn't planned on having it and I probably don't make as many deposits into this account as I should.
But what about the rest of my fellow taxpayers who receive this payment? I am sure that to many, this will come as a blessing and pay for something they sorely need and for that I am all in favor.
I do wonder how this will affect the budget deficit and the amount of taxes I will be paying down the road to make up for any shortfalls - this was not mentioned in any of the articles I have so far read. That will be interesting. For now, however, we'll see how this plays out, how the "short term fix" as well as any long term fixes that are yet to come, will be reflected in the economy in general and the hard-hit housing market in specific.
So, my loyal readers, I'd love to hear just how you would spend this unexpected "gift" from Uncle Sam - or if you think it is a good idea or not, too much, too little - whatever, email me!
Remember BE INFORMED and CHECK BACK HERE OFTEN
Wednesday, January 23, 2008
Statistics today on How The Market is Changing!
As we normally do in the beginning of each year, we compile the statistics of the business we have done the year before and we prepare a business plan and list of goals for the coming year. Comparing 2007 to 2006, our production was up 26% in the number of homes we sold! Although there has been very little positive media attention to home sales, 2007 was one of the best three years we have had out of the last ten!
Now, 2008 is going to be an interesting year in the housing market. If we take the first three weeks of the year, the numbers so far have been quite dismal. In Washington, DC in the first three weeks of 2007 there were 305 sales of residential properties. Let's compare that to the first three weeks of 2008 where only 165 sales have been completed. There is a very large inventory in Washington of Condo and Co-Op properties so we can wonder if this isn't skewing the numbers slightly - so we move outside of Washington to Montgomery County, Maryland. In 2007 there were 398 Sales compared to 2008 which records only 191 for the same period. The makeup of Montgomery County goes from very high end (inside the beltway in communities such as Chevy Chase and Bethesda) to high density, further out communities of townhouses and condominiums. Keeping that in mind, I looked at Bethesda only to find that 2007 yielded 46 sales in 2007 and 25 sales in 2008.
What does this mean? It means that as slow as home sales were in 2007, right now they have slowed to almost half the numbers in the same period of time! What those numbers do not show, however, is that although sales are down, the number of inquiries from potential buyers has been increasing at an extremely rapid pace. The buyer's agents in our office are swamped with calls and are booked solid with appointments for showings for the entire near term.
So, we're going to keep close watch on these numbers - instead of a monthly basis, we're moving to a weekly basis. We need to keep our buyers ahead of the curve if possible and if the number of sales picks up as quickly as we believe it will in the coming months, the best buys may start disappearing fast (as I mentioned in my post yesterday).
I will post statistics each weekend - number of listings, number of sales, number of contract, days on market, etc., for the Washington, DC metro region - Hope you'll find this helpful!
As always BE PREPARED and CHECK BACK HERE OFTEN
Now, 2008 is going to be an interesting year in the housing market. If we take the first three weeks of the year, the numbers so far have been quite dismal. In Washington, DC in the first three weeks of 2007 there were 305 sales of residential properties. Let's compare that to the first three weeks of 2008 where only 165 sales have been completed. There is a very large inventory in Washington of Condo and Co-Op properties so we can wonder if this isn't skewing the numbers slightly - so we move outside of Washington to Montgomery County, Maryland. In 2007 there were 398 Sales compared to 2008 which records only 191 for the same period. The makeup of Montgomery County goes from very high end (inside the beltway in communities such as Chevy Chase and Bethesda) to high density, further out communities of townhouses and condominiums. Keeping that in mind, I looked at Bethesda only to find that 2007 yielded 46 sales in 2007 and 25 sales in 2008.
What does this mean? It means that as slow as home sales were in 2007, right now they have slowed to almost half the numbers in the same period of time! What those numbers do not show, however, is that although sales are down, the number of inquiries from potential buyers has been increasing at an extremely rapid pace. The buyer's agents in our office are swamped with calls and are booked solid with appointments for showings for the entire near term.
So, we're going to keep close watch on these numbers - instead of a monthly basis, we're moving to a weekly basis. We need to keep our buyers ahead of the curve if possible and if the number of sales picks up as quickly as we believe it will in the coming months, the best buys may start disappearing fast (as I mentioned in my post yesterday).
I will post statistics each weekend - number of listings, number of sales, number of contract, days on market, etc., for the Washington, DC metro region - Hope you'll find this helpful!
As always BE PREPARED and CHECK BACK HERE OFTEN
Tuesday, January 22, 2008
Signs the Market Is Changing - Know When It's Time to Buy!
Lots of potential buyers are out there waiting for the market to "bottom out" - but there really isn't a magic formula, nor will there be news articles that are timely enough for most buyers to take advantage. There are some signs you can watch for and information you can track to identify a turn in the market.
First things first, don't pay attention to the national news! It seems that fear is rampant and fueled by negative press. This tends to keep buyers on the back burner and often times they will miss a great opportunity because of negative press that may not even be relevant to their area of interest!
Next, be ready to buy when you see the home you want! The chance may not come around again so soon!
The signs we, as realtors, look for that a market is turning are:
The number of active listings start to decline. The best homes in the best conditions are selling! And keep in mind that the most desirable homes will leave the market first.
The number of days on market starts going down. This certainly marks a turn in the market, and in a seller's market the prices are going up and the number of choices are going down! At the very least, sellers will stop dropping the prices.
Sold homes go for closer to the listing price. In 2007, home prices dipped for the first time in four decades. With a 1.9 percent decline, homes still sold within 97 percent of listing price. When they get to 98 percent, you need to be ready.
Prices remain firm or rise. Prices are a product of demand. To attract buyers, sellers reduce their prices and offer more incentives. If homes are selling reasonably well, prices won't move downward -- they'll go up.
Incentives disappear. When a market begins to favor sellers, they don't have to do as much to sell homes. Watch new homes and see if builders are still giving away upgrades such as granite kitchens, hardwood floors and closing assistance. If they aren't, times have changed.
You can track many of these numbers yourself. For instance, once a month, at www.gcaar.com (the Greater Capital Area Association of Realtors) publishes all of the statistics for the areas around Washington DC (Maryland & Northern Virginia as well as DC) - this is available to the public at their site. For those of you out of this area, a call to a local real estate office will get you the local association or just google it. Most all area associations make information available to the public. Each month you will see the month over month statistics for number of listings, number of sales, days on market, etc., all the same information we, as realtors, rely on.
Remember, any change in condition will change others, so again -- be ready. Now's the time to buy a better house while prices are low, interest rates are low and inventory is still high.
BE PREPARED and CHECK BACK HERE OFTEN!
First things first, don't pay attention to the national news! It seems that fear is rampant and fueled by negative press. This tends to keep buyers on the back burner and often times they will miss a great opportunity because of negative press that may not even be relevant to their area of interest!
Next, be ready to buy when you see the home you want! The chance may not come around again so soon!
The signs we, as realtors, look for that a market is turning are:
The number of active listings start to decline. The best homes in the best conditions are selling! And keep in mind that the most desirable homes will leave the market first.
The number of days on market starts going down. This certainly marks a turn in the market, and in a seller's market the prices are going up and the number of choices are going down! At the very least, sellers will stop dropping the prices.
Sold homes go for closer to the listing price. In 2007, home prices dipped for the first time in four decades. With a 1.9 percent decline, homes still sold within 97 percent of listing price. When they get to 98 percent, you need to be ready.
Prices remain firm or rise. Prices are a product of demand. To attract buyers, sellers reduce their prices and offer more incentives. If homes are selling reasonably well, prices won't move downward -- they'll go up.
Incentives disappear. When a market begins to favor sellers, they don't have to do as much to sell homes. Watch new homes and see if builders are still giving away upgrades such as granite kitchens, hardwood floors and closing assistance. If they aren't, times have changed.
You can track many of these numbers yourself. For instance, once a month, at www.gcaar.com (the Greater Capital Area Association of Realtors) publishes all of the statistics for the areas around Washington DC (Maryland & Northern Virginia as well as DC) - this is available to the public at their site. For those of you out of this area, a call to a local real estate office will get you the local association or just google it. Most all area associations make information available to the public. Each month you will see the month over month statistics for number of listings, number of sales, days on market, etc., all the same information we, as realtors, rely on.
Remember, any change in condition will change others, so again -- be ready. Now's the time to buy a better house while prices are low, interest rates are low and inventory is still high.
BE PREPARED and CHECK BACK HERE OFTEN!
Monday, January 21, 2008
Costly Mistakes in Marketing Your Property
Once you've done all your homework and listed your house for sale, you are doing yourself harm by not taking an active part in the marketing. Agents should give all copy to the sellers for their review before printing materials or placing ads, and that includes the listing itself in the MLS (multiple listing service) in your area. You know the best features of your home better than anyone and although an experienced agent knows the type of ads that work, the "buzz" words that grab the interest of prospective buyers, there is no-one better than you to know the details of your property.
Let me give you an example of a very costly mistake. Recently a house was listed that was total new construction, built on the original footprint and foundation of a house that was built in the '50s. In the MLS, the year built was automatically added from the tax records and came up as 1950. No amount of description in the remarks and descriptions that the house was built in 2007 can overcome the fact that agents searching for new construction for their prospective buyers will not see your home in the search results! It would have been easy to change the date, but it was overlooked by both the agent and the seller. The items that are automatically filled in when inputting a listing are often overlooked for accuracy and sellers most often focus on the number of bedrooms and baths, upgrades and the written descriptions.
Ask your agent to email you a copy of the listing BEFORE it goes active so that you can go over it carefully. Similarly, your agent should provide you drafts of brochures and print ads before they are actually printed or submitted. Get a list of all websites on which your home will appear and check those as well. It is not unusual when submitting properties to multiple websites that a virtual tour is omitted, a wrong picture is posted, or the copy gets cut off.
Just as you should be extremely particular in how your house shows, you should be extremely particular about the accuracy of all marketing materials. Some websites (such as realtor.com) pick up the information directly from the MLS, however, most others require individual input - and the more times you input information, the more times there is potential for error.
Small mistakes can cost showings - keep in mind that homes are marketed more to agents than to buyers and agents are going to search by very particular criteria - number of bedrooms and bathrooms upstairs, year built, size of lot, school district, proximity of public transportation - so it is important that these be correct!
Hope this was helpful - as always, BE INFORMED and CHECK BACK HERE OFTEN
Let me give you an example of a very costly mistake. Recently a house was listed that was total new construction, built on the original footprint and foundation of a house that was built in the '50s. In the MLS, the year built was automatically added from the tax records and came up as 1950. No amount of description in the remarks and descriptions that the house was built in 2007 can overcome the fact that agents searching for new construction for their prospective buyers will not see your home in the search results! It would have been easy to change the date, but it was overlooked by both the agent and the seller. The items that are automatically filled in when inputting a listing are often overlooked for accuracy and sellers most often focus on the number of bedrooms and baths, upgrades and the written descriptions.
Ask your agent to email you a copy of the listing BEFORE it goes active so that you can go over it carefully. Similarly, your agent should provide you drafts of brochures and print ads before they are actually printed or submitted. Get a list of all websites on which your home will appear and check those as well. It is not unusual when submitting properties to multiple websites that a virtual tour is omitted, a wrong picture is posted, or the copy gets cut off.
Just as you should be extremely particular in how your house shows, you should be extremely particular about the accuracy of all marketing materials. Some websites (such as realtor.com) pick up the information directly from the MLS, however, most others require individual input - and the more times you input information, the more times there is potential for error.
Small mistakes can cost showings - keep in mind that homes are marketed more to agents than to buyers and agents are going to search by very particular criteria - number of bedrooms and bathrooms upstairs, year built, size of lot, school district, proximity of public transportation - so it is important that these be correct!
Hope this was helpful - as always, BE INFORMED and CHECK BACK HERE OFTEN
Saturday, January 19, 2008
SHOPPING FOR A MORTGAGE ON LINE - EVERYTHING YOU NEED TO KNOW!
One of the best articles I have read explaining shopping for a mortgage online was written by Jack Guttentag (you can see more information about Professor Guttentag at the end of the article) and reproduced here with his gracious permission, I'm sure you will find this information of great interest. Although the article was last updated in 2006, the information still applies and should explain everything you need to know to shop for that mortgage online!
This article is on the why, which, and how of shopping for a mortgage on-line: why seek a mortgage this way, which sites are the best, and how do you shop effectively?
Why Shop For a Mortgage On-Line?
Shopping for a mortgage on-line involves finding the best price among the different single-lender web sites that price your mortgage. On-line mortgage shopping offers numerous advantages.
On-Line Prices Are Easier to Find and to Shop
If your loan is priced on a web site, it will be easy to find, and to compare to the quotes on other sites. In contrast, price quotes in the hard copy media are never provided in the detail required by most shoppers and are always out of date. Telephone and email quotes by brokers and loan officers cannot be relied on unless the borrower knows the source and has good reason to believe it is trustworthy.
On-Line Pricing Is Often Better
Lenders acquiring loans through their web sites avoid the costs of maintaining retail lending facilities, including the commissions paid to loan officers. Because of competition among on-line lenders, the cost savings are generally passed on to borrowers. Some sites warn users to expect higher prices if they go off-line.
Price Volatility Is Easier to Manage
The mortgage market is highly volatile. Lenders reset their prices every morning, and sometimes during the day. Unless price quotations from different loan providers are obtained at about the same point in time, they are not comparable.
This is a major problem in off-line shopping because it takes so long to obtain reliable price data. It is not a problem in on-line shopping because on-line price quotations can be quickly refreshed.
You Avoid Price "Low-Balling"
Low-ballers are loan providers who ensnare customers by quoting low prices they have no intention of delivering. The client is informed that the price will be locked at the “market price” prevailing at the time of the lock, but the market price is what the low-baller says it is. Invariably, the lock price is higher than the price quoted to a shopper for the identical loan at the same time.
On-line shoppers are not vulnerable to price low-balling because they can check their price on-line on the lock day. An on-line lender cannot quote different prices to shoppers and lockers.
You Avoid Third Party Settlement Cost Low-Balling
Some loan providers low-ball third party settlement costs, which they can’t be held to because they are “estimates”. Sometimes they do the opposite, marking them up in order to pocket the difference.
These practices usually work off-line, because information on third party costs typically is not provided until the shopper receives the Good Faith Estimate (GFE), which under the rules need not be given them until 3 business days after the lender has received the loan application. The only way to obtain more than one GFE as a check on the estimates is to apply to more than one lender, which is tedious and time-consuming.
In contrast, on-line shoppers can easily collect settlement cost information from multiple lenders at the same time they are shopping lender prices. Having multiple estimates is an excellent defense against low-balling or markups.
You Avoid Lender Fee Low-Balling
Some lenders low-ball their own fees, which under the rules are also considered “estimates”. While points, which are charges expressed as a percent of the loan amount, are included in a price lock, fees specified in dollars are not included. Some lenders deliberately inflate these fees as the borrower moves closer to closing. Home purchasers are the most vulnerable because they can lose the home if they don’t close on time.
This is not a hazard to on-line shoppers, however, because the shopping sites clearly identify their fees and many of them guarantee them. While others don’t explicitly guarantee their fees, displaying them on-line is almost as good, since the lender would have difficulty defending a different number at the closing table.
You Avoid Being Scammed When You Change Your Mind
Shoppers often change their mind about the deal. For example, they decide to switch from a 30-year FRM to a 5-1 ARM, pay points to lower the rate, make a larger down payment, waive escrows, etc. If an off-line loan provider figures that a customer is committed, the price of the new deal may be higher than the price that would be quoted to a new shopper. This cannot be done to an on-line shopper who can check the price of the new loan on-line.
On-Line Shopping Versus Use of Lead Generators
It is instructive to compare on-line shopping with getting a loan through a lead generation site (LGS), such as Lending Tree. LGSs collect information about you, and match it to up to 4 lenders who contact you to make offers. An advantage over shopping single-lender sites is that you only have to enter your financial information once. When you shop on-line, you must enter the information for each site you shop. That is the only advantage of LGSs.
One problem with LGSs is that they do not provide any way to deal with price volatility. If the lenders contact you on different days, their prices are not comparable. Similarly, LGSs do not protect you against low-balling of prices or lender-fees, markups on third party settlement services, or over-charges when you change your mind about the deal.
Yes, the lenders who come to you through a LGS do compete for your loans, but that doesn’t mean that you will win. They may be competing to see who gets the opportunity to scam you.
Caveat: The Weakness of On-Line Shopping
All the advantages of on-line shopping cited above assume the shopper can price his particular deal on the sites being compared. A shopper with a FICO score of 500 who needs stated income documentation and cannot make a down payment, cannot price his loan on-line. If he goes to any of the good sites, he will be routed to a loan officer and has to face all the hazards discussed above that on-line shopping avoids.
But there is one exception. Any shopper who goes to Amerisave.com through my site is guaranteed the same markup off-line as on-line. Both the wholesale price and the markup are shown and guaranteed by Amerisave and by me. This is the first on-line site that reveals the wholesale price to the lender and is monitored for compliance with a fixed-markup rule.
Which Single-Lender Web Sites Are Worth Shopping?
Borrowers who shop for a mortgage on-line, for any of the reasons noted above, should only spend time on sites that price their loan. If a site doesn’t price the type of loan you want, with the features you require, don’t bother with it. You are on-line to shop, not to be seduced into making a phone call.
To help, I recently scored 20 sites for the depth and comprehensiveness of the information provided to shoppers. Of these, I considered 18 worth listing because they had some price functionality and showed all settlement costs.
The two highest ranked sites, http://www.amerisave.com/ and http://www.eloan.com/, meet all my requirements for the designation of Upfront Mortgage Lenders (UML). Among other things, UMLs provide a summary of all the market niches priced by the site, and disclose all the major features of their adjustable rate mortgages (ARMs). The two runners-up, http://www.mortgage.com/ (the site of ABN Amro), and http://www.indymac.com/, did neither, but they did cover many loan types and market niches.
Here is the complete list by score:
Amerisave.com (47)
Eloan.com (46)
Mortgage.com (42)
Indymac.com (37)
Greenpointmortgage.com (32)
Chasehomefinance.com (30)
Mortgage.etrade.com (29)
Charteronedirect.com (29)
Wamuhomeloans.com (26)
Bankofamerica.com (25)
Citimortgage.com (24)
Ditech.com (20)
Wachovia.com (19)
WellsFargo.com\mortgage (19)
Gmacmortgage.com (14)
Homeloancenter.com (14)
Infoloan.com (12)
INGdirect.com (12).
The Scoring System
A site with a higher score is one that prices a larger number of potential transactions, and provides shoppers with the information needed to make decisions. Here are some examples of the scoring system I used:
Mortgage Types and Features Priced by the Site
For every program they price beyond 15 and 30-year fixed-rate conventional loans, a site receives 1 point. This includes different types of ARMs, balloon loans, and FHA/VA loans. They also receive a point for disclosing each important ARM feature.
Down Payment Pricing
A site that allows the user to enter the down payment receives 2 points, and an additional point if the down payment can be less than 5%. If the site uses one down payment in all its pricing, but tells the user what that assumption is, it receives 1 point.
Settlement Cost Disclosures
A site that shows all settlement costs receives 1 point, another point if lender fees are segregated, another point if lender fees are guaranteed, another point if the guarantee includes the appraisal, another point if the guarantee includes the credit report, and 2 additional points if it covers all third party fees.
Rate-Point Options
A site receives 1 point if some of the mortgages are priced with multiple combinations of interest rate and points, an additional point if rates are shown for negative points (rebates), and a point if it explicitly prices no-cost loans.
Strengths in Coverage
11 of the 18 listed sites priced loans on second homes, loans on investment properties, and cash-out refinances. Most sites also priced loans on 2, 3 and 4-unit properties, as well as on condos. There were even 5 sites that priced loans on co-ops, and 3 that priced loans on manufactured homes.
15 of 18 sites priced loans with down payments specified by the shopper (rather than assumed by the site), and in 9 cases down payments could be less than 5%. Most of the 9 allowed zero down on at least some transactions.
17 of 18 sites provided different combinations of interest rate and points on at least some programs, and 14 included negative points (rebates).
All 18 sites showed total settlement costs, 12 segregated lender fees, and 9 explicitly guaranteed lender fees.
Weaknesses in Coverage
While shoppers can find every type of ARM offered on multiple sites, only Amerisave, ELoan and Chase Mortgage (ranked number 5) disclose the index and its current value, the margin, and all rate caps – information needed to make intelligent decisions. If you price an ARM on any other site, you will have to contact them to fill in the blanks.
Except for Amerisave, ELoan and Indy Mac, the sites assume your credit is excellent. Shoppers with scores below 620 cannot yet shop effectively on-line.
On-line shoppers also do best if they can fully document their income and assets. Only 5 sites have a “stated income” option, and none offer “no docs”.
While a lower-ranked site has less coverage, there is always the possibility that it prices your loan and a higher-ranked site does not.
How Do You Shop On-Line?
Here are the steps in using these sites effectively.
1. Decide Whether You Are a Shopper
On-line shopping is not for those who are computer-phobic or mortgage-allergic. If you feel overwhelmed by the complexity of mortgages, and don’t have the time, energy or desire to educate yourself about them, internet shopping is not for you. Select an Upfront Mortgage Broker (UMB) to shop for you.
2. Determine Whether You Qualify For on-Line Shopping
You can’t shop on-line unless your particular deal is priced on-line by at least some lenders. For the most part, this excludes borrowers with poor credit. If you have a credit score below 620, most of the sites will deal with you, but off-line – “Bad credit? Call us”.
Single lender sites vary greatly in the extent of their niche adjustments. The trick is to determine whether the questions posed by a site have captured your particular niche adjustments. If you are buying a two-family house, for example, and you are asked about “Type of Property” with “Two-family house” one possible answer, then you know that they adjust for that.
On-line shoppers also do best if they can fully document their income and assets. Only 5 of the 18 sites have a “stated income” option under which the lender verifies the source but not the amount of income. None price “no-doc” loans.
3. Decide the Mortgage Features You Want
You can’t compare prices of different loan providers accurately unless you can specify exactly what you are shopping for. When you shop for an automobile, you decide beforehand that you want, e.g., a 4-door Toyota Corolla with Bose speaker system 102, red trim, etc. Similarly, when you shop for a mortgage, you should know the type of mortgage you want – whether fixed-rate (FRM) or adjustable rate (ARM), and if the latter, what kind. You should also know your preferred term, points, down payment, lock period, and options including interest-only, prepayment penalty and waiver of escrows.
4. Identify Sites That Price Loans With the Features You Want
I have done most of the spadework for you by developing tables that show the loan coverage of the 18 sites.
For example, you want a 10-year FRM with zero down. The tables show that lenders 1, 2, 3, 7, 9, 10 and 13 offer 10-year FRMs, but of this group, only 1, 2, 3 and 13 also price loans with down payments of less than 5%. Hence, you can concentrate on these four sites.
5. Compare Multiple-Price Quotes From Different Sites
If you are selecting an FRM, you must consider both rate and total lender costs, which includes points and all other lender fees. Assuming you are seeking the best deal on the 10-year FRM from lenders 1, 2, 3 and 13:
a. At lender 2’s site, find the rate that is closest to the number of points you previously decided you wanted to pay.
b. Calculate the dollar value of these points and add it to the lender’s fixed-dollar fees to get the total lender fee for that rate.
c. Now go to lenders 1, 3 and 13 and repeat the process for the same rate. Since lenders usually quote rates in increments of 1/8%, you should be able to find the exact same rate.
d. Holding the rate constant at the 4 sites, the best deal is the one with the lowest total lender fees.
6. Comparing Prices of ARMs
On ARMs with initial rate periods of 3, 5, 7 or 10-years, follow the same procedure. If you are 99% confident you will be out of the house before the end of the initial rate period, take the ARM with the lowest total fees at the same rate.
If you are not sure that you will be out before the end of the initial rate period, you should consider what might happen to the rate at that time. That will depend on the rate index, margin, and rate caps, which may differ between lenders.
It could turn out, for example, that the 5-year ARM with the lowest cost over 5 years leaves you more exposed to higher interest rates after 5 years. In that event, you need to decide whether the cost saving is worth the added risk.
Borrowers who opt for an ARM with an initial rate period of 12 months or less can use much the same technique, but instead of comparing the initial rate, they should compare the index plus margin. At the end of the short initial rate period, the rate is reset at index plus margin, subject to any caps.
If two ARMs are identical but you had to call one lender to obtain information on the margin or caps, select the other.
Copyright Jack Guttentag 2006
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com/
If you find this or any of my posts useful or helpful, please leave comments and suggestions!
As Always - BE INFORMED and CHECK BACK HERE OFTEN
This article is on the why, which, and how of shopping for a mortgage on-line: why seek a mortgage this way, which sites are the best, and how do you shop effectively?
Why Shop For a Mortgage On-Line?
Shopping for a mortgage on-line involves finding the best price among the different single-lender web sites that price your mortgage. On-line mortgage shopping offers numerous advantages.
On-Line Prices Are Easier to Find and to Shop
If your loan is priced on a web site, it will be easy to find, and to compare to the quotes on other sites. In contrast, price quotes in the hard copy media are never provided in the detail required by most shoppers and are always out of date. Telephone and email quotes by brokers and loan officers cannot be relied on unless the borrower knows the source and has good reason to believe it is trustworthy.
On-Line Pricing Is Often Better
Lenders acquiring loans through their web sites avoid the costs of maintaining retail lending facilities, including the commissions paid to loan officers. Because of competition among on-line lenders, the cost savings are generally passed on to borrowers. Some sites warn users to expect higher prices if they go off-line.
Price Volatility Is Easier to Manage
The mortgage market is highly volatile. Lenders reset their prices every morning, and sometimes during the day. Unless price quotations from different loan providers are obtained at about the same point in time, they are not comparable.
This is a major problem in off-line shopping because it takes so long to obtain reliable price data. It is not a problem in on-line shopping because on-line price quotations can be quickly refreshed.
You Avoid Price "Low-Balling"
Low-ballers are loan providers who ensnare customers by quoting low prices they have no intention of delivering. The client is informed that the price will be locked at the “market price” prevailing at the time of the lock, but the market price is what the low-baller says it is. Invariably, the lock price is higher than the price quoted to a shopper for the identical loan at the same time.
On-line shoppers are not vulnerable to price low-balling because they can check their price on-line on the lock day. An on-line lender cannot quote different prices to shoppers and lockers.
You Avoid Third Party Settlement Cost Low-Balling
Some loan providers low-ball third party settlement costs, which they can’t be held to because they are “estimates”. Sometimes they do the opposite, marking them up in order to pocket the difference.
These practices usually work off-line, because information on third party costs typically is not provided until the shopper receives the Good Faith Estimate (GFE), which under the rules need not be given them until 3 business days after the lender has received the loan application. The only way to obtain more than one GFE as a check on the estimates is to apply to more than one lender, which is tedious and time-consuming.
In contrast, on-line shoppers can easily collect settlement cost information from multiple lenders at the same time they are shopping lender prices. Having multiple estimates is an excellent defense against low-balling or markups.
You Avoid Lender Fee Low-Balling
Some lenders low-ball their own fees, which under the rules are also considered “estimates”. While points, which are charges expressed as a percent of the loan amount, are included in a price lock, fees specified in dollars are not included. Some lenders deliberately inflate these fees as the borrower moves closer to closing. Home purchasers are the most vulnerable because they can lose the home if they don’t close on time.
This is not a hazard to on-line shoppers, however, because the shopping sites clearly identify their fees and many of them guarantee them. While others don’t explicitly guarantee their fees, displaying them on-line is almost as good, since the lender would have difficulty defending a different number at the closing table.
You Avoid Being Scammed When You Change Your Mind
Shoppers often change their mind about the deal. For example, they decide to switch from a 30-year FRM to a 5-1 ARM, pay points to lower the rate, make a larger down payment, waive escrows, etc. If an off-line loan provider figures that a customer is committed, the price of the new deal may be higher than the price that would be quoted to a new shopper. This cannot be done to an on-line shopper who can check the price of the new loan on-line.
On-Line Shopping Versus Use of Lead Generators
It is instructive to compare on-line shopping with getting a loan through a lead generation site (LGS), such as Lending Tree. LGSs collect information about you, and match it to up to 4 lenders who contact you to make offers. An advantage over shopping single-lender sites is that you only have to enter your financial information once. When you shop on-line, you must enter the information for each site you shop. That is the only advantage of LGSs.
One problem with LGSs is that they do not provide any way to deal with price volatility. If the lenders contact you on different days, their prices are not comparable. Similarly, LGSs do not protect you against low-balling of prices or lender-fees, markups on third party settlement services, or over-charges when you change your mind about the deal.
Yes, the lenders who come to you through a LGS do compete for your loans, but that doesn’t mean that you will win. They may be competing to see who gets the opportunity to scam you.
Caveat: The Weakness of On-Line Shopping
All the advantages of on-line shopping cited above assume the shopper can price his particular deal on the sites being compared. A shopper with a FICO score of 500 who needs stated income documentation and cannot make a down payment, cannot price his loan on-line. If he goes to any of the good sites, he will be routed to a loan officer and has to face all the hazards discussed above that on-line shopping avoids.
But there is one exception. Any shopper who goes to Amerisave.com through my site is guaranteed the same markup off-line as on-line. Both the wholesale price and the markup are shown and guaranteed by Amerisave and by me. This is the first on-line site that reveals the wholesale price to the lender and is monitored for compliance with a fixed-markup rule.
Which Single-Lender Web Sites Are Worth Shopping?
Borrowers who shop for a mortgage on-line, for any of the reasons noted above, should only spend time on sites that price their loan. If a site doesn’t price the type of loan you want, with the features you require, don’t bother with it. You are on-line to shop, not to be seduced into making a phone call.
To help, I recently scored 20 sites for the depth and comprehensiveness of the information provided to shoppers. Of these, I considered 18 worth listing because they had some price functionality and showed all settlement costs.
The two highest ranked sites, http://www.amerisave.com/ and http://www.eloan.com/, meet all my requirements for the designation of Upfront Mortgage Lenders (UML). Among other things, UMLs provide a summary of all the market niches priced by the site, and disclose all the major features of their adjustable rate mortgages (ARMs). The two runners-up, http://www.mortgage.com/ (the site of ABN Amro), and http://www.indymac.com/, did neither, but they did cover many loan types and market niches.
Here is the complete list by score:
Amerisave.com (47)
Eloan.com (46)
Mortgage.com (42)
Indymac.com (37)
Greenpointmortgage.com (32)
Chasehomefinance.com (30)
Mortgage.etrade.com (29)
Charteronedirect.com (29)
Wamuhomeloans.com (26)
Bankofamerica.com (25)
Citimortgage.com (24)
Ditech.com (20)
Wachovia.com (19)
WellsFargo.com\mortgage (19)
Gmacmortgage.com (14)
Homeloancenter.com (14)
Infoloan.com (12)
INGdirect.com (12).
The Scoring System
A site with a higher score is one that prices a larger number of potential transactions, and provides shoppers with the information needed to make decisions. Here are some examples of the scoring system I used:
Mortgage Types and Features Priced by the Site
For every program they price beyond 15 and 30-year fixed-rate conventional loans, a site receives 1 point. This includes different types of ARMs, balloon loans, and FHA/VA loans. They also receive a point for disclosing each important ARM feature.
Down Payment Pricing
A site that allows the user to enter the down payment receives 2 points, and an additional point if the down payment can be less than 5%. If the site uses one down payment in all its pricing, but tells the user what that assumption is, it receives 1 point.
Settlement Cost Disclosures
A site that shows all settlement costs receives 1 point, another point if lender fees are segregated, another point if lender fees are guaranteed, another point if the guarantee includes the appraisal, another point if the guarantee includes the credit report, and 2 additional points if it covers all third party fees.
Rate-Point Options
A site receives 1 point if some of the mortgages are priced with multiple combinations of interest rate and points, an additional point if rates are shown for negative points (rebates), and a point if it explicitly prices no-cost loans.
Strengths in Coverage
11 of the 18 listed sites priced loans on second homes, loans on investment properties, and cash-out refinances. Most sites also priced loans on 2, 3 and 4-unit properties, as well as on condos. There were even 5 sites that priced loans on co-ops, and 3 that priced loans on manufactured homes.
15 of 18 sites priced loans with down payments specified by the shopper (rather than assumed by the site), and in 9 cases down payments could be less than 5%. Most of the 9 allowed zero down on at least some transactions.
17 of 18 sites provided different combinations of interest rate and points on at least some programs, and 14 included negative points (rebates).
All 18 sites showed total settlement costs, 12 segregated lender fees, and 9 explicitly guaranteed lender fees.
Weaknesses in Coverage
While shoppers can find every type of ARM offered on multiple sites, only Amerisave, ELoan and Chase Mortgage (ranked number 5) disclose the index and its current value, the margin, and all rate caps – information needed to make intelligent decisions. If you price an ARM on any other site, you will have to contact them to fill in the blanks.
Except for Amerisave, ELoan and Indy Mac, the sites assume your credit is excellent. Shoppers with scores below 620 cannot yet shop effectively on-line.
On-line shoppers also do best if they can fully document their income and assets. Only 5 sites have a “stated income” option, and none offer “no docs”.
While a lower-ranked site has less coverage, there is always the possibility that it prices your loan and a higher-ranked site does not.
How Do You Shop On-Line?
Here are the steps in using these sites effectively.
1. Decide Whether You Are a Shopper
On-line shopping is not for those who are computer-phobic or mortgage-allergic. If you feel overwhelmed by the complexity of mortgages, and don’t have the time, energy or desire to educate yourself about them, internet shopping is not for you. Select an Upfront Mortgage Broker (UMB) to shop for you.
2. Determine Whether You Qualify For on-Line Shopping
You can’t shop on-line unless your particular deal is priced on-line by at least some lenders. For the most part, this excludes borrowers with poor credit. If you have a credit score below 620, most of the sites will deal with you, but off-line – “Bad credit? Call us”.
Single lender sites vary greatly in the extent of their niche adjustments. The trick is to determine whether the questions posed by a site have captured your particular niche adjustments. If you are buying a two-family house, for example, and you are asked about “Type of Property” with “Two-family house” one possible answer, then you know that they adjust for that.
On-line shoppers also do best if they can fully document their income and assets. Only 5 of the 18 sites have a “stated income” option under which the lender verifies the source but not the amount of income. None price “no-doc” loans.
3. Decide the Mortgage Features You Want
You can’t compare prices of different loan providers accurately unless you can specify exactly what you are shopping for. When you shop for an automobile, you decide beforehand that you want, e.g., a 4-door Toyota Corolla with Bose speaker system 102, red trim, etc. Similarly, when you shop for a mortgage, you should know the type of mortgage you want – whether fixed-rate (FRM) or adjustable rate (ARM), and if the latter, what kind. You should also know your preferred term, points, down payment, lock period, and options including interest-only, prepayment penalty and waiver of escrows.
4. Identify Sites That Price Loans With the Features You Want
I have done most of the spadework for you by developing tables that show the loan coverage of the 18 sites.
For example, you want a 10-year FRM with zero down. The tables show that lenders 1, 2, 3, 7, 9, 10 and 13 offer 10-year FRMs, but of this group, only 1, 2, 3 and 13 also price loans with down payments of less than 5%. Hence, you can concentrate on these four sites.
5. Compare Multiple-Price Quotes From Different Sites
If you are selecting an FRM, you must consider both rate and total lender costs, which includes points and all other lender fees. Assuming you are seeking the best deal on the 10-year FRM from lenders 1, 2, 3 and 13:
a. At lender 2’s site, find the rate that is closest to the number of points you previously decided you wanted to pay.
b. Calculate the dollar value of these points and add it to the lender’s fixed-dollar fees to get the total lender fee for that rate.
c. Now go to lenders 1, 3 and 13 and repeat the process for the same rate. Since lenders usually quote rates in increments of 1/8%, you should be able to find the exact same rate.
d. Holding the rate constant at the 4 sites, the best deal is the one with the lowest total lender fees.
6. Comparing Prices of ARMs
On ARMs with initial rate periods of 3, 5, 7 or 10-years, follow the same procedure. If you are 99% confident you will be out of the house before the end of the initial rate period, take the ARM with the lowest total fees at the same rate.
If you are not sure that you will be out before the end of the initial rate period, you should consider what might happen to the rate at that time. That will depend on the rate index, margin, and rate caps, which may differ between lenders.
It could turn out, for example, that the 5-year ARM with the lowest cost over 5 years leaves you more exposed to higher interest rates after 5 years. In that event, you need to decide whether the cost saving is worth the added risk.
Borrowers who opt for an ARM with an initial rate period of 12 months or less can use much the same technique, but instead of comparing the initial rate, they should compare the index plus margin. At the end of the short initial rate period, the rate is reset at index plus margin, subject to any caps.
If two ARMs are identical but you had to call one lender to obtain information on the margin or caps, select the other.
Copyright Jack Guttentag 2006
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com/
If you find this or any of my posts useful or helpful, please leave comments and suggestions!
As Always - BE INFORMED and CHECK BACK HERE OFTEN
Taking Apart the Inspection Report
On Friday I received two inspection reports on homes that are getting ready to go on the market. Both are older homes, one has been totally renovated and is vacant, one is occupied. Both inspection reports came in with some items that need action and items that should be left "as is" - but how do you decide what to do and what not to do? Your agent should go through the report with you carefully - remember, electrical, mechanical and plumbing issues need to be taken care of.
On both reports there were notations by the inspector that there were no GFCI (Ground Fault Circuit Interrupt) plugs - these are the plugs that are now required anywhere near water sources like bathrooms and kitchens and trip to avoid electrical shock. In the home that had been renovated in the new bathrooms and the new kitchen these plugs must be installed, in the older home, there is no requirement for the owner to change them. The reason is simple, to change the plugs in the older home is an upgrade - there were no GFCI plugs originally, the old plugs are fine (even the ones that are two pronged!). In the renovated house, when a renovation is done, these plugs must be upgraded - it's comparable to a new build where these are required.
Both inspection reports noted that the grading around the house may not be sloped properly away from the house. Very rarely do we see a report any more that does not mention grading - I'm beginning to believe that more and more inspectors are doing this as a precaution. Both reports also stated that downspouts needed to be routed away from the house. In this item, if there have been water problems in the basement that certainly could be the cause - if water doesn't flow away from the house, it will seep through the foundation and cause these water stains. If there has never been water, grading is not an issue. Routing the downspouts away from the house is as simple as going to your local hardware store and buying some flexible hose extensions, and clamping them on to the end of the downspouts - cheap and easy fix.
Recently, we sold a home that did show water encroachment in the crawl space (there was no basement) and it was definately from grading. At that point, the buyer's agent wanted to call a water remediation company like Sta-Dry to Be-Dry but that would have been a disaster. Most waterproofing companies will not only recommend re-grading but will recommend fixes like French Drains and sump pumps which are extremely expensive to install. We called a landscaping company that also does regrading and got an estimate of $700 to regrade close to the house and an additional $1,100 to remove railroad ties around the flower beds that were starting to deteriorate and replacing them with new treated wood borders. We offered to pay 1/2 of the re-grade ($350) and none of the additional $1,100 as this was an upgrade! Disaster averted and a credit of only $350 to the buyer at closing.
Back to the home inspections. The older house has a slate roof, great roof that lasts up to 50 years, but VERY expensive to replace. The pack portion of the home's roof had been replaced but the front had not. There are missing tiles and the roof is at the end of it's life. We called a roof repair company (they repair only, they do not replace so we don't worry about a roofer telling us the roof needs replacement when in fact it could be repaired). In this case, the roof cannot be repaired. We called a roofer and asked for an estimate of putting an architectural shingle on the front of the roof - the cost $7,500. When the home goes on the market and we have a potential buyer, we will produce the estimates and offer a credit of 1/2 or $3,750. This will become extremely important as if a potential buyer gets estimates for a new slate roof, the cost could go as high as $15-25,000. The roof is not leaking and the buyer will have the option of doing the repair now or waiting until it becomes necessary.
One window was cracked, we leave windows "as is"
One exhaust fan in a bathroom rattles, we leave exhaust fans "as is"
Additional items we leave "as is" are washers and dryers, screens, retaining walls, driveways and sidewalks.
There were "double taps" in the older home - two circuits on one circuit breaker and one electrical plug that did not function. Both of these items must be repaired.
There was one element in the oven that did not work properly, this needs repair as well.
Termite damage was found in the basement of the older home on the bottom of the paneling. The home is being treated for termites and it has been determined that the damage is cosmetic. Luckily this can be "fixed" by the addition of a 6" baseboard around the perimeter. Of course, this too should be done before showing the home. Rather than plant the "seed" in the buyer's mind that the damage could be extensive behind the walls, the treatment is done, the guarantee is written by the termite company and the cosmetic damage is repaired.
When either of these homes get an offer to purchase, we have already protected the seller from the buyer's asking for a long laundry list of repairs. When the contract is signed and the "as is" items are included on the disclosures, no matter what the purchaser's inspector finds, they cannot ask for any of the items we have listed as "as is"
So, again, this goes toward pre-inspection of a property. We continually find that spending a few hundred dollars to have the house pre-inspected invariably saves the seller thousands of dollars down the road. One other point I made in previous postings but will reiterate here is that if the owner is "handy" he/she can do many of these repairs themselves. Once a contract is in place and a buyer requests items be repaired, they will require that the repairs be done by licensed contractors!
Hope this helps, I would be more than happy to answer questions, and welcome your comments.
BE PREPARED and CHECK BACK HERE OFTEN
On both reports there were notations by the inspector that there were no GFCI (Ground Fault Circuit Interrupt) plugs - these are the plugs that are now required anywhere near water sources like bathrooms and kitchens and trip to avoid electrical shock. In the home that had been renovated in the new bathrooms and the new kitchen these plugs must be installed, in the older home, there is no requirement for the owner to change them. The reason is simple, to change the plugs in the older home is an upgrade - there were no GFCI plugs originally, the old plugs are fine (even the ones that are two pronged!). In the renovated house, when a renovation is done, these plugs must be upgraded - it's comparable to a new build where these are required.
Both inspection reports noted that the grading around the house may not be sloped properly away from the house. Very rarely do we see a report any more that does not mention grading - I'm beginning to believe that more and more inspectors are doing this as a precaution. Both reports also stated that downspouts needed to be routed away from the house. In this item, if there have been water problems in the basement that certainly could be the cause - if water doesn't flow away from the house, it will seep through the foundation and cause these water stains. If there has never been water, grading is not an issue. Routing the downspouts away from the house is as simple as going to your local hardware store and buying some flexible hose extensions, and clamping them on to the end of the downspouts - cheap and easy fix.
Recently, we sold a home that did show water encroachment in the crawl space (there was no basement) and it was definately from grading. At that point, the buyer's agent wanted to call a water remediation company like Sta-Dry to Be-Dry but that would have been a disaster. Most waterproofing companies will not only recommend re-grading but will recommend fixes like French Drains and sump pumps which are extremely expensive to install. We called a landscaping company that also does regrading and got an estimate of $700 to regrade close to the house and an additional $1,100 to remove railroad ties around the flower beds that were starting to deteriorate and replacing them with new treated wood borders. We offered to pay 1/2 of the re-grade ($350) and none of the additional $1,100 as this was an upgrade! Disaster averted and a credit of only $350 to the buyer at closing.
Back to the home inspections. The older house has a slate roof, great roof that lasts up to 50 years, but VERY expensive to replace. The pack portion of the home's roof had been replaced but the front had not. There are missing tiles and the roof is at the end of it's life. We called a roof repair company (they repair only, they do not replace so we don't worry about a roofer telling us the roof needs replacement when in fact it could be repaired). In this case, the roof cannot be repaired. We called a roofer and asked for an estimate of putting an architectural shingle on the front of the roof - the cost $7,500. When the home goes on the market and we have a potential buyer, we will produce the estimates and offer a credit of 1/2 or $3,750. This will become extremely important as if a potential buyer gets estimates for a new slate roof, the cost could go as high as $15-25,000. The roof is not leaking and the buyer will have the option of doing the repair now or waiting until it becomes necessary.
One window was cracked, we leave windows "as is"
One exhaust fan in a bathroom rattles, we leave exhaust fans "as is"
Additional items we leave "as is" are washers and dryers, screens, retaining walls, driveways and sidewalks.
There were "double taps" in the older home - two circuits on one circuit breaker and one electrical plug that did not function. Both of these items must be repaired.
There was one element in the oven that did not work properly, this needs repair as well.
Termite damage was found in the basement of the older home on the bottom of the paneling. The home is being treated for termites and it has been determined that the damage is cosmetic. Luckily this can be "fixed" by the addition of a 6" baseboard around the perimeter. Of course, this too should be done before showing the home. Rather than plant the "seed" in the buyer's mind that the damage could be extensive behind the walls, the treatment is done, the guarantee is written by the termite company and the cosmetic damage is repaired.
When either of these homes get an offer to purchase, we have already protected the seller from the buyer's asking for a long laundry list of repairs. When the contract is signed and the "as is" items are included on the disclosures, no matter what the purchaser's inspector finds, they cannot ask for any of the items we have listed as "as is"
So, again, this goes toward pre-inspection of a property. We continually find that spending a few hundred dollars to have the house pre-inspected invariably saves the seller thousands of dollars down the road. One other point I made in previous postings but will reiterate here is that if the owner is "handy" he/she can do many of these repairs themselves. Once a contract is in place and a buyer requests items be repaired, they will require that the repairs be done by licensed contractors!
Hope this helps, I would be more than happy to answer questions, and welcome your comments.
BE PREPARED and CHECK BACK HERE OFTEN
Friday, January 18, 2008
Great Web Sites to Visit
Yesterday I wrote that I would list some of what I consider to be some of the top web sites - some we use ourselves quite often and others we send buyers and sellers to - all are chock full of interesting information! So, in no particular order, here we go:
http://www.bestplaces.com/ - A great place for some great information. Type in a city and state and you can get most any information about that city - The cost of living, schools, crime, climate, homes, even compare it statistically to where you are currently living or where you are considering moving - or just for the fun of it, find out some interesting facts you may not know!
http://www.terrafly.com/ - There are lots of places to go these days for aerial views of neighborhoods, terrafly seems to take this a little further and connects you not only to a zoomable aerial view, but gives lots of information on the area you are looking at, too.
http://www.zillow.com/ - It seems like everyone has seen or heard of Zillow - it's a quick way to get a ballpark on the suggested selling price of the home. I'm sure you'll find this interesting as well, but keep in mind, there are way too many variables for zillow to really nail a price!
http://www.bestplaces.com/ - A great place for some great information. Type in a city and state and you can get most any information about that city - The cost of living, schools, crime, climate, homes, even compare it statistically to where you are currently living or where you are considering moving - or just for the fun of it, find out some interesting facts you may not know!
http://www.terrafly.com/ - There are lots of places to go these days for aerial views of neighborhoods, terrafly seems to take this a little further and connects you not only to a zoomable aerial view, but gives lots of information on the area you are looking at, too.
http://www.zillow.com/ - It seems like everyone has seen or heard of Zillow - it's a quick way to get a ballpark on the suggested selling price of the home. I'm sure you'll find this interesting as well, but keep in mind, there are way too many variables for zillow to really nail a price!
http://factfinder.census.gov/ Billed as "Your source for population, housing, economic, and geographic data" this is a great place to find lots of interesting information!
http://www.mtgprofessor.com This is the most spot-on, easy to follow information anyone considering a mortgage or buying a home should check out!
http://www.reuters.com/ - Don't know where you get your news - there are lots of good sites, but this is a good one for fast breaking and short, concise news reports!
http://www.mapmyrun.com/ - What a great way to find running paths, walking or jogging paths and map them out live on the web!
http://www.kayak.com/ - Lots of places on the web these days to book travel - Travelocity, Priceline, etc., but if you'd like to find the absolute best prices on flights try Kayaking!
And when you're really ready to take off and rest from all the work you've been doing all year long, check out http://www.vacationstogo.com/ for last minute (90 days out) deal on cruises - at the very least, it gives you an idea what the best prices are that you'll find on all the other sites!
So, these are a few of the sites we find helpful and interesting, we've got lots more and I'll add a list each week! If you'd got any you'd like to recommend, please let me know, I'd be happy to share them.
As Always - BE INFORMED and CHECK BACK HERE OFTEN
Thursday, January 17, 2008
Websites We Use All The Time - You'll Like These!
I am compiling a list of websites that we use constantly - sites that are a wealth of information to agents, buyers & sellers - I will start posting my list tomorrow - if you know of any sites that you would like included, please leave me a comment - I'll check the site out and let you know. Thanks.
Be Informed and CHECK BACK HERE OFTEN
Be Informed and CHECK BACK HERE OFTEN
The Hard Facts About Pricing Your Home To Sell
Unfortunately, especially in a slow market, sellers will tend to ask higher prices for their homes, expecting to get lower offers - or want to build in a "cushion" into their asking price so they have room to lower the price if it becomes necessary. This is truly a mistake and very rarely works to the seller's advantage. Here's a good example. Two similar properties in the same neighborhood listed for sale within several months of each other - both homes should have been priced at $700,000 or slightly lower. One seller listed at $700,000 and the home was sold very quickly at full price. The second seller decided to list the house at $739,000 - the house sat with no offers, the price was reduced to $725,000, still no offers and still sat - when the price was reduced to $700,000 (where it should have been in the first place) the house had already been on the market for several months, with several price reductions, and sold for $675,000!
In essence, a home that is listed higher than comparable properties will just help to sell the other homes!
Here are the facts:
A buyer who is seriously looking will soon become very knowledgeable in his or her price range. An unreasonable asking price only discourages the buyer from looking at and considering your property.
Buyers purchase by comparison and a property that is priced above the competition does not compare favorably. Inviting a buyer to make an offer can indicate that a fair price has not been established and the seller is willing to take a lower price.
It is very difficult to obtain a reasonable offer on an overpriced property. The buyer feels he/she should be just as unreasonable as the seller, and so a very low offer, if any, will be written.
Serious buyers look in the price range determined by their down payment and monthly payment ability. Unless your property is priced correctly, the down payment and monthly payment requirements will not be competitive.
If you plan to adjust your price at the time of sale, it is better to adjust the price now and attract serious buyers from the beginning. This often places you in the favorable position of having more than one buyer interested in your property.
By contrast, reasonable offers are much easier to obtain on a reasonably priced property.
It is a mistake to believe that you will get more for a property by asking more. You usually get less because fewer buyers will consider it when it is placed on the market. The right buyers will not see it. The property usually stays on the market so long that it tends to become shopworn.
To obtain proper market exposure, it is an absolute necessity to be competitive in price, terms, and condition with similar properties so yours will sell faster.
You will also have greater peace of mind and less frustration with selling your property.
Price it RIGHT the first time and you can get on with your life!
Anyhow, that's all the time I have right now, I will be happy to address questions, comments, experiences - just leave a comment!
As Always BE PREPARED and CHECK BACK HERE OFTEN
In essence, a home that is listed higher than comparable properties will just help to sell the other homes!
Here are the facts:
A buyer who is seriously looking will soon become very knowledgeable in his or her price range. An unreasonable asking price only discourages the buyer from looking at and considering your property.
Buyers purchase by comparison and a property that is priced above the competition does not compare favorably. Inviting a buyer to make an offer can indicate that a fair price has not been established and the seller is willing to take a lower price.
It is very difficult to obtain a reasonable offer on an overpriced property. The buyer feels he/she should be just as unreasonable as the seller, and so a very low offer, if any, will be written.
Serious buyers look in the price range determined by their down payment and monthly payment ability. Unless your property is priced correctly, the down payment and monthly payment requirements will not be competitive.
If you plan to adjust your price at the time of sale, it is better to adjust the price now and attract serious buyers from the beginning. This often places you in the favorable position of having more than one buyer interested in your property.
By contrast, reasonable offers are much easier to obtain on a reasonably priced property.
It is a mistake to believe that you will get more for a property by asking more. You usually get less because fewer buyers will consider it when it is placed on the market. The right buyers will not see it. The property usually stays on the market so long that it tends to become shopworn.
To obtain proper market exposure, it is an absolute necessity to be competitive in price, terms, and condition with similar properties so yours will sell faster.
You will also have greater peace of mind and less frustration with selling your property.
Price it RIGHT the first time and you can get on with your life!
Anyhow, that's all the time I have right now, I will be happy to address questions, comments, experiences - just leave a comment!
As Always BE PREPARED and CHECK BACK HERE OFTEN
Wednesday, January 16, 2008
Staging to Sell - Design Thinking!
I will admit that Design Thinking was not coined by me - it is a phrase I recently heard that stuck with me. In a slow market buyers are looking for the sun, the moon and the stars in their purchases but are looking for rock bottom prices as well. So often we are asked to walk through a property and make suggestions on what should be done, where "fix up" money is best spent, what would be the best way to "stage" the home.
You, along with your agent, must assume that the potential buyer will not have the imagination to think of a particular area of your home as anything other than how it is currently portrayed. So, you're going to need to help them with their thought process. You're going to need to stage the home to suggest possibilities, not lock the buyer in to how you currently utilize the space.
Of course, de-cluttering is top on the list - make the space look as open and large as possible. De-personalize, too - personal family photos psychologically ties you to the house, and does not allow for the potential buyer to picture his own family there! Clean out closets and cabinets - if they're stuffed full, it's hard to imagine having enough room for their own stuff.
All of these things are sort of "no-brainers" - where the thinking comes in is how to push the imagination of the buyer. If you have a sitting room in the master but it is currently used as a "nursery" it might be a good idea to make some changes there - move the crib into a different room, place some "comfy" reading chairs, maybe a throw, a small book stand - let the potential buyer imagine the little "getaway" in the master suite! If you've got any of those odd sized rooms or rooms that just don't flow easily, a few well-placed items, small tables, chairs, etc - anything that might suggest just how that little oddball space might be used. We use a professional "stager" on some of our listings - she goes through the house and arranges what is already there to suggest uses and show the space to it's fullest. The cost of this service ranges from $200-$500. The $500 cost comes in if she "lends" some small accent pieces to the owner of the property. This is a small price to pay when quite often the result is offers and quite often a higher selling price.
Of course, this also points up the need in this market to hire an experienced agent, and also helps make the point that discount commissions are not going to spend the money that a top agent will spent in marketing a property. It's not all just websites and mailings, it's sometimes the little things people don't even think of at first that makes the difference, like professional staging!
I'll write more in a separate post about photography, virtual tours, etc., and the best use of these tools!
As always
BE INFORMED and CHECK BACK HERE OFTEN
Comments, questions, cudos are always welcome!
You, along with your agent, must assume that the potential buyer will not have the imagination to think of a particular area of your home as anything other than how it is currently portrayed. So, you're going to need to help them with their thought process. You're going to need to stage the home to suggest possibilities, not lock the buyer in to how you currently utilize the space.
Of course, de-cluttering is top on the list - make the space look as open and large as possible. De-personalize, too - personal family photos psychologically ties you to the house, and does not allow for the potential buyer to picture his own family there! Clean out closets and cabinets - if they're stuffed full, it's hard to imagine having enough room for their own stuff.
All of these things are sort of "no-brainers" - where the thinking comes in is how to push the imagination of the buyer. If you have a sitting room in the master but it is currently used as a "nursery" it might be a good idea to make some changes there - move the crib into a different room, place some "comfy" reading chairs, maybe a throw, a small book stand - let the potential buyer imagine the little "getaway" in the master suite! If you've got any of those odd sized rooms or rooms that just don't flow easily, a few well-placed items, small tables, chairs, etc - anything that might suggest just how that little oddball space might be used. We use a professional "stager" on some of our listings - she goes through the house and arranges what is already there to suggest uses and show the space to it's fullest. The cost of this service ranges from $200-$500. The $500 cost comes in if she "lends" some small accent pieces to the owner of the property. This is a small price to pay when quite often the result is offers and quite often a higher selling price.
Of course, this also points up the need in this market to hire an experienced agent, and also helps make the point that discount commissions are not going to spend the money that a top agent will spent in marketing a property. It's not all just websites and mailings, it's sometimes the little things people don't even think of at first that makes the difference, like professional staging!
I'll write more in a separate post about photography, virtual tours, etc., and the best use of these tools!
As always
BE INFORMED and CHECK BACK HERE OFTEN
Comments, questions, cudos are always welcome!
Tuesday, January 15, 2008
Fair Housing - Find Out for Yourself!
We, as agents, are sometimes asked questions that we are prohibited from answering under fair housing and ethics. We have been asked if there are any black families in the neighborhood (by a black family), are there a lot of children in the neighborhood, questions about crime statistics, religions, elderly, etc., etc., etc., just about every question in the book that a potential buyer may ask about a property and/or neighborhood. On the seller's side, we have been asked questions about potential buyers - their age, marital status, children, etc.
Since the Fair Housing Act of 1968, discrimination is no longer allowed in the realm of housing. It is illegal to discriminate against race, color, national origin, sex, family status, or disability. Agents are prohibited from "steering" clients into particular neighborhoods or situations. It is a harsh reality, however, that people discriminate on a regular basis in their own lives - a family with young children may want to live in a neighborhood with other young families with children - an elderly couple may not want to live in a neighborhood with a lot of young children - a family of a particular religion may not want to live in a neighborhood that is predominantly a different religion - same goes for race, same goes for gay couples, same goes for every different type of individual situation you can imagine.
As an ethical agent as well as an agent who wants their clients to buy the home they want, where they want it - we will explain the laws to the potential buyer (and as stated above, sellers as well). What we are not prohibited in doing is to suggest to the buyer to take the time to do their own homework - drive around the neighborhood during the day, the evening and on weekends - see if they feel comfortable with the makeup and the daily activities of the neighborhood themselves. There is nothing to stop a potential buyer from knocking on the neighbor's doors and introducing themselves as a potential buyer - asking whatever questions they would like, there's no restrictions on that!
You're going to make a large investment for a considerable period of time - it is in your best interest, if you are not familiar with the neighborhood to spend the time learning about it!
Don't rely on what an agent may or may not tell you - there are so many restrictions in that area you probably won't get much information anyway - Go find out for yourself, go identify that area you will settle into comfortably for a long time to come!
Since the Fair Housing Act of 1968, discrimination is no longer allowed in the realm of housing. It is illegal to discriminate against race, color, national origin, sex, family status, or disability. Agents are prohibited from "steering" clients into particular neighborhoods or situations. It is a harsh reality, however, that people discriminate on a regular basis in their own lives - a family with young children may want to live in a neighborhood with other young families with children - an elderly couple may not want to live in a neighborhood with a lot of young children - a family of a particular religion may not want to live in a neighborhood that is predominantly a different religion - same goes for race, same goes for gay couples, same goes for every different type of individual situation you can imagine.
As an ethical agent as well as an agent who wants their clients to buy the home they want, where they want it - we will explain the laws to the potential buyer (and as stated above, sellers as well). What we are not prohibited in doing is to suggest to the buyer to take the time to do their own homework - drive around the neighborhood during the day, the evening and on weekends - see if they feel comfortable with the makeup and the daily activities of the neighborhood themselves. There is nothing to stop a potential buyer from knocking on the neighbor's doors and introducing themselves as a potential buyer - asking whatever questions they would like, there's no restrictions on that!
You're going to make a large investment for a considerable period of time - it is in your best interest, if you are not familiar with the neighborhood to spend the time learning about it!
Don't rely on what an agent may or may not tell you - there are so many restrictions in that area you probably won't get much information anyway - Go find out for yourself, go identify that area you will settle into comfortably for a long time to come!
Monday, January 14, 2008
Save A Bundle on Your Mortgage!
Many people do not understand how mortgages work as far as pre-paying. If you can increase your payment during the first few years of your loan, you can save an awful lot of interest and pay your mortgage off early! To understand how this works, you need to ask your lender for an amortization schedule (this is a schedule of how much of your payment goes to principal and how much to interest on a monthly basis) or go out on the web and look for one of the many amortization calculators that are available for free. Let's take a look at how this works:
Although your monthly principal and interest payment stays the same over the 30 years, every time you make a payment the amount you owe is decreased slightly
On a loan of $100,000 at 8% for 30 years, the monthly principal & Interest payment is $733.76 per month. The breakdown of the first five payments is:
Principal Interest Loan Balance
1 67.09 666.67 99932.91
2 67.54 666.22 99865.37
3 67.99 665.77 99797.38
4 68.44 665.32 99728.94
5 68.90 664.86 99660.04
If you pay your $733.76 per months as scheduled, after five payments you will owe $99,660.04. If you pay an additional $67.54 with your first payment, you save $666.22 in interest and your balance is now $99,865.37 - it's like making two payment for the cost of the principal only! If you paid an additional $272.87 (the amount of the principal for payments 2-5) you would save $2,662.17 in interest and you will pay your mortgage off four months earlier than scheduled.
For every additional principal payment you can make, you eliminate one month of payments off the end of the loan and you save 30 years worth of interest on that additional payment amount!
By pre-paying an amount equal to a month's principal does NOT allow you to skip the next scheduled payment - the extra payment is applied directly to the principal and reduces the number of payments at the end of the loan.
As you can imagine - since the amount of principal goes up slightly each month and the amount of interest goes down slightly, paying extra principal at the beginning of the loan reduces your loan the fastest, saves you the most interest, and can be done for a lesser amount than later in the loan when the principal payments are higher!
So, get yourself an amortization schedule - and each time you pay that little bit of extra principal and scratch off the payment due for that extra amount - think kindly of this advice!
I know this may sound a little confusing to some, if you have any questions, please feel free to ask!
As always BE INFORMED and CHECK BACK HERE OFTEN!
Although your monthly principal and interest payment stays the same over the 30 years, every time you make a payment the amount you owe is decreased slightly
On a loan of $100,000 at 8% for 30 years, the monthly principal & Interest payment is $733.76 per month. The breakdown of the first five payments is:
Principal Interest Loan Balance
1 67.09 666.67 99932.91
2 67.54 666.22 99865.37
3 67.99 665.77 99797.38
4 68.44 665.32 99728.94
5 68.90 664.86 99660.04
If you pay your $733.76 per months as scheduled, after five payments you will owe $99,660.04. If you pay an additional $67.54 with your first payment, you save $666.22 in interest and your balance is now $99,865.37 - it's like making two payment for the cost of the principal only! If you paid an additional $272.87 (the amount of the principal for payments 2-5) you would save $2,662.17 in interest and you will pay your mortgage off four months earlier than scheduled.
For every additional principal payment you can make, you eliminate one month of payments off the end of the loan and you save 30 years worth of interest on that additional payment amount!
By pre-paying an amount equal to a month's principal does NOT allow you to skip the next scheduled payment - the extra payment is applied directly to the principal and reduces the number of payments at the end of the loan.
As you can imagine - since the amount of principal goes up slightly each month and the amount of interest goes down slightly, paying extra principal at the beginning of the loan reduces your loan the fastest, saves you the most interest, and can be done for a lesser amount than later in the loan when the principal payments are higher!
So, get yourself an amortization schedule - and each time you pay that little bit of extra principal and scratch off the payment due for that extra amount - think kindly of this advice!
I know this may sound a little confusing to some, if you have any questions, please feel free to ask!
As always BE INFORMED and CHECK BACK HERE OFTEN!
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