Avoiding Closing Derailment

Like a train, a transaction can get derailed at any point on the track. A closing can be hit by a clouded title, a home not appraising for value, a rapid change in interest rates, an undisclosed credit or income issue, or one of countless other unanticipated issues.

Choke points cause delays and delays cause all kinds of problems for buyers, sellers, and agents. Moving plans get thrown into disarray. Interim housing or early-possession requests become necessary. Contingency plans need to be thrown together. Nerves get jangled. The resulting situation can be a nightmare even for the most seasoned agent, and a productivity killer as well.

Eighty percent of the problems in closing transactions fall into three basic areas. Stay on the lookout for these problems and solutions to steer your transactions clear of as much trouble as possible:

1. Documentation and verification: Lenders needs to assemble considerable paperwork and complete dozens of documents based on information submitted by the loan applicants. Then they need to verify all information for accuracy by checking the applicant’s employment status, funds on deposit, and income level. The document preparation and information verification process takes time. Counsel your buyers that if they fail to submit the required information on a timely basis, or if they turn it in piecemeal and bit-by-bit, delays are certain to result.

2. Repairs, repairs, repairs: This is a chokepoint that good advance planning can avert. When you are representing the seller, state clearly in writing that only lender-required repairs will be done. If you don’t, you leave the sellers open to the risk that the buyer will come back with a laundry list of items.

A lender-required note usually limits repairs to structural, mechanical, or health and safety issues – with not a word about nicks in a wall or non-matching door knobs.

Also consider writing a dollar limit for repairs into the initial contract. The number isn’t etched in stone, but it will help keep a lid on the potential amount for which your seller is responsible. The buyers may still refuse to lift the home inspection contingency until additional lender-required issues are dealt with, but the limit will help most of your sellers most of the time.

3. Underwriting of the buyer’s loan: This is the stickiest of all closing choke points because the underwriter has complete power to approve the loan, approve the loan with additional conditions, or suspend the file until certain conditions are met, in which case the borrower starts the underwriting process all over again.

Underwriters check to make sure that the loan meets guidelines for debt ratio, loan-to-value ratio, credit score, employment history, and other qualifications. They also evaluate the loan based on whether it can be bundled with others in a big loan package that can be sold to Fannie Mae, Freddie Mac, or another entity that buys mortgages.

Very few lending institutions hold their loans to maturity. Most write loans, realize profits through origination fees, document preparation fees, and margins on basis points, and then sell the loans within 30 to 60 days, recouping the loan amount to sell again as part of the next loan deal.

If the underwriter approves a loan that can’t be resold, then the lending institution has to keep the loan in its portfolio. If that situation occurs too often, and too many loans can’t be resold, the lending institution runs out of money to loan, driving it out of business.

Of all the choke points in a transaction, the underwriting process can cause the biggest delays. Expect that there will be times when underwriters slow things down with requests for second appraisals or additional documentation of value, especially if the home is in a high price range. Once you clear the hurdle, the documents can be drawn and sent to closing.

For more information go to www.phillyrealestateinformation.com

What Makes First-Time Buyers Tick?

Last winter, when the housing market had cooled and it seemed the only real estate news was bad news, the experts said the market recovery would be lead by first-time buyers.

Like stalled credit, the cycle of buyers and sellers grinds to a halt when first-time buyers disengage. It’s like sand in the gears of the real estate market.”

But then came what’s been called “the perfect storm” for first-timers: houses became more affordable and interest rates dropped to near historically low levels. And first-time buyers came back to the market.

By March, Coldwell Banker reported that entry-level purchasers are now the engine driving home-buying activity in almost every major area in the US. All markets from coast-to-coast are ripe for a reawakening as the weather warms up. First-time buyers seem more acclimatized to economic factors, even though the barrage of bad news continues to flow. Those who are secure in their jobs, have accumulated good down payments, and have acceptable credit ratings are continuing to venture forward, undeterred by tighter lending criteria.

In May, first-time buyers were back in force and with them the beginning of the market recovery. While these consumers appreciate government incentives such as tax credits, greater Registered Retirement Savings Plan deduction limits and rebates on home renovations, it is markedly improved affordability that is proving to be the powerful drawing card.

Coldwell Banker correctly predicted that the activity at the low end of the housing market would kick-start sales in the mid and upper levels of the market as well, to the point that now it looks like 2010 will be one of the best years on record for resale real estate in the US.

So first-time buyers are getting credit for helping the country avoid a longer real estate slump, which has prompted some companies in the financial services industry to take a closer look at what first-timers are thinking about these days. According to a TD Bank study, there is a “marked difference” between the attitudes of today’s 18-34 year-old buyer and that of people aged 55+ when they were first-time buyers of the same age.

Just over half of today’s first-time buyers say they feel financially ready to buy a home, while only 37 percent of the other generations felt ready when they made the decision to buy. However, more than a third of today’s buyers say they couldn’t buy a home without the help of their family (compared to 16 percent of those 55+), and 27 percent of the 18-34 year-olds said they received money as a gift or borrowed from friends and family to buy their home. Only 10 percent of the older generations had financial help from friends and family.

For those 55 and older, paying off the mortgage was the top priority after moving in, but only 49 percent of the new generation of first-timers cites it as the top priority. Renovation work may be top of mind, because 48 percent of new first-time buyers are purchasing houses that are more than 21 years old, and 35 percent said they intend to renovate them.

When shopping for a mortgage, younger buyers shop around more. The older generations tended to stick with their own bank where they were already customers (62 percent), compared to 36 percent of the 18-34 group.

There are so many different options available now, and easier access to information with the use of the Internet, that it’s no wonder today’s first-time homebuyer shops around a bit more. Thirty years ago when people were looking for financing, they usually had limited choices. Now there are many options to explore with your bank including a variety of fixed-rate mortgages, variable-rate mortgages, and even green mortgages for buyers who want to lessen their footprint on the environment. Most of the recent first-timers bought a home in the city (64 percent, compared to 50 percent of the 55+ group), and most bought a house rather than a condo, even in the city.

About a third of the 18-34 year-olds ended up paying more for their home than they initially planned, while just 18 percent of the older generations said they spent more than they intended.

A different survey, highlights the real reason why first-time buyers are motivated to buy. Eighty-four percent of first-timers agreed with the statement that owning a home provides a greater sense of emotional well-being and security.

Eighty-five percent said that even though homeownership may mean more work and effort, they would rather own than rent. Eighty-eight percent in the survey said they would feel more financially secure owning their own home.

For more information go to www.phillyrealestateinformation.com

10 Factors Most Likely to Influence Your Sale

Every one of these items you get on your side of the ledger moves you closer to a sale. Every item on which an owner is unwilling or unable to make a concession on moves you further away from a sale. Just remember whose side you are on!

1. Price the property between WHOLESALE and RETAIL.

2. Be willing to consider offers based on VA/FHA terms. Government terms can give buyers a head start on the ability to afford a home.

3. Allow the property to be shown without an appointment! That’s a nuisance,
but not as bad as being on the market unsold!!

4. Please be gone whenever a prospective buyer– accompanied by a Realtor wants to see the house. And STAY gone until there gone! Buyers need to “try it on for size”, but they can’t do that as long as you’re there. If you are at home, try to keep a low profile. Be friendly but do not force conversation.

5. Eliminate any barrier to a free flow of traffic in the property: Bulky or extra furniture, house plants that stick out into traffic ways, toys or clothes not put away or beds not made, etc. This all slows down traffic and makes rooms look smaller and darker. Turn down televisions and stereos. Let the sun shine in! Pull back curtains and drapes, open up shades. Turn on lights in the evening both inside and outside!

6. Watch dogs that provide so much security that no one can see the property without a death wish are a problem. How much security do you really need? Try to keep them out of the way.

7. Your Realtor is on your side and won’t get paid until you get happy. Advice from a professional is useless unless you take it!

8. Look at the front of your house. Size it up objectively and critically (that’s asking a lot of any homeowner!) QUESTION: if a buyer who didn’t already love you pulled up in front, would the appearance pull them inside?

9. Make any and all recommended improvements with an eye toward neutral marketing (won’t clash with anyone’s taste or furniture color).

10. Be willing to consider ANY offer at ANY time. Remember, you are always the final judge of what’s accepted and what’s not.