Archive for the 'Contracts' Category
Questions from the Home Buying Workshop
Last weekend I did a Home Buying Workshop at the Connecticut Convention Center in conjunction with the CT Home and Remodeling Show. It was a very interactive discussion, and attendees asked many interesting questions. Here are two questions we covered that will hopefully be relevant to a larger audience:
How do I find out about open houses?
There are a few places to check to find out about the open houses in the Greater Hartford area. The Hartford Courant’s Sunday real estate section is usually a good place to start. It’s easy, however, not everyone gets the Courant.
Online resources are the other main option. Agents should be updating the Multiple Listing Service (MLS) listing for their properties to note the open house. This pushes the data out to websites far and wide. As an example, the Raveis website has a section that lists all the known open houses for the coming weekend (no matter which broker is the listing agent). The Raveis houses actually show the listing agent’s name, while the competitor’s listings are more generic. Since not all agents know to update their MLS listings with information about the open house, you may be able to find out about more opportunities by searching each of the local broker’s websites individually.
Can I have multiple agents?
You officially “have an agent” when you sign a buyer contract. The contract specifies the time period and geographical area that you have hired them to help you with. If you have not signed a contract, then you do not legally have an agent.
With that disclaimer out of the way, can you have two agents at the same time? Yes, you can legally have two agents as long as there is no overlap in the geographical region. However, there are certain times when this makes sense and others when it really doesn’t.
If you are looking in two dramatically different areas, then you should have different agents. The specific question during the seminar was from a buyer looking in Simsbury and Clinton. Although I suppose it’s possible, it’s unlikely that you are going to find a single agent that is truly knowledgeable about two towns so far apart. It would be in your best interest to pick a Simsbury agent and a separate Clinton agent that are each active in the individual town markets. And you should make sure both agents understand your plan.
What doesn’t make sense to me is having two agents help you in a single town, even though it’s possible through careful structuring of the contracts. Buyers sometimes think that getting two agents to compete against each other will get them better service. But the incentives for the agents are to send you as many properties as possible (even if they doesn’t exactly meet your criteria) and then give you the hard sell so that you actually buy one of them. In effect, they’re working for the various sellers since they just want to get a deal done. If they don’t get you to buy with them, then they don’t get paid for all their effort, so they’re more likely pay attention to you sporadically when they are not working with their “real” clients.
That may be your idea of “better service,” but the idea behind hiring a buyer’s agent is to have someone in your corner, looking out for your best interests. Working with a single agent allows them to learn about your preferences and help you find a home that you will truly enjoy. They’ll be more likely to identify concerns with the properties you tour, making sure you have a good sense of both the positives and negatives of the home itself and how it compares to others on the market. And when you get to the negotiations, they’ll be far more comfortable negotiating aggressively because they’ll know that if you can’t reach an agreement on this home that you’re still serious about buying and will continue working with them to find other opportunities. A good buyer’s agent will work just as hard for you, but on a more consistent basis.
If you have things that you’re curious about, please feel free to send questions along via email. We’re always happy to help and there’s a good chance that someone else is wondering the same thing.
Will You Take Advantage of the $8,000 First Time Buyer Credit?
I’ve been working with a lot of first time buyers this year. Many of them have been motivated by the $8,000 first time buyer tax credit that the government is offering. A good number of them have already closed on a property and are set to receive their refund next year when they submit their Federal Income Taxes.
Some of my buyers are still looking though. They are waiting for the right house. Or they found a house and it’s fallen through for inspection reasons, so they’re back out there again. As an aside, this is more common than you’d think; I have 4 buyers looking right now that are in this inspection situation.
Anyway, in order to take advantage of the $8,000 tax credit being offered this year, a first time buyer needs to close on that property on or before November 30, 2009. That gives us approximately 3 months remaining to find a property and close before this opportunity goes away.
Some buyers are asking me if I think there will be a similar program next year. I honestly don’t know. Last year there was a buyer incentive program, but it changed for 2009. I don’t know what next year will bring and if Congress will decide we still need this type of housing stimulus option.
Buyers are also asking me if they should buy this year, simply because of the $8,000 credit. I honestly don’t know that one either. Each person is different, so that needs to be assessed individually.
But what do we need to do if you do want to buy this year and be able to take advantage of the credit? Er, get moving! Closing on a property typically takes anywhere from 30-60 days. That takes into account how long it takes to get a mortgage processed, in addition to giving most sellers enough time to move on to their next place. Working backwards from November 30, that means you should have an accepted contract no later than October 1, 2009.
I would actually recommend trying to have something in place before October 1 though, for a few reasons.
First, mortgages have been taking longer to process recently due to stricter underwriting guidelines, particularly FHA loans, as well as an increased volume. I believe this is only going to get worse in the next few months as a slew of buyers try to jam in a purchase before November 30 and lenders continue to deal with more underwriting guidelines and leaner staff levels.
Second, home inspection issues could cause a delay or the deal to blow up, so you may need to start over.
Third, closing attorneys have limited capacity and good closing attorneys are going to find themselves slammed in November. People normally like to try and close at the end of the month (or the Friday closest to the end of the month) and this tax credit situation is going to only make it worse for November.
If you want to take advantage of the credit, I would recommend trying to close in the middle of November, or sooner, if at all possible. That way if you have problems with your mortgage, there is some wiggle room for you to still get the transaction closed before the end of the month. This would most likely not be possible if you’re scheduling a November 27 or 30 closing and there are issues. And how annoying would it be if you’ve planned to get everything done so you can take advantage of the credit and then you miss the deadline at the very end? Uh, very. So budget enough time if you can.
Happy property hunting!
The Appraisal Dilemma
The real estate appraisal business has been under increased scrutiny in the wake of the national housing bust. An article in today’s Wall Street Journal highlights the current challenges in securing an independent, yet accurate, property valuation.
Appraisals are an important part of a real estate purchase, helping to make sure that the negotiated purchase price is in line with recent comparable sales. Mortgage underwriters require an appraisal so that they can feel comfortable that the loan they extend to the buyer is adequately secured by the underlying property. Essentially, they want to be sure the deal’s Loan-to-Value Ratio is correct.
During the boom times, appraisals were often seen as an unnecessary step. Some mortgage lenders were more interested in writing the loan than in making sure that the home was a solid asset. They knew that the loans were going to be securitized, so the focus was on doing the deal and then handing off the risk to someone else. Unscrupulous mortgage lenders would have go-to appraisers that they could count on to value a property at whatever price was needed to make sure the deal closed. Appraisers were no longer seen as objective, writing reports that supported whatever value was needed by the mortgage lender that hired them.
These days appraisals are taken more seriously by banks and the unscrupulous mortgage lenders are generally out of business. In the meantime, different problems have emerged. The appraisal industry is being pressured to break the direct relationship between mortgage brokers (though not banks) and appraisers. Regulators want to see Appraisal Management Companies (AMCs) in charge of assigning appraisers to deals, hoping to restore objectivity to the process. As of May 1, 2009, Freddie Mac and Fannie Mae adopted the Home Valuation Code of Conduct, effectively creating a national standard for appraisals in single-family mortgages.
The unintended consequence of creating AMCs is that there are increasing complaints about the accuracy of appraisals. The Journal article highlights a number of examples in California where the appraiser assigned to a deal traveled outside of their local area for a job. Because real estate is a local industry, the dynamics of a market can be quite different one town, or even neighborhood, away. An appraiser not familiar with a market’s specific dynamics could assign a wildly inaccurate value to a property, which could unfairly impact the deal.
Local appraisers we have met who receive business from AMCs echo the concerns expressed in the article. They are being asked to travel further for jobs, do more work for each appraisal, and accept less compensation. It’s putting them in a difficult position, challenging their ability to make a living as an appraiser.
The informal solution to the dilemma seems to be to work around the new rules. Lenders that have underwriting capabilities are still able to hire appraisers directly, so many mortgage lenders are not actually impacted. Full-time appraisers with strong reputations are able to fill their schedules with work from the unregulated lenders, allowing them continue on with business as usual. All sides are watching the regulations closely, waiting to see what happens next.
The current direction of the regulatory activity seems to have two possible outcomes. In one scenario the AMCs increase the appraisal fee charged to lenders, which allows them to pass more money through to their appraisers. The higher fee would very likely be passed on to the buyer, adding to the closing costs associated with a home purchase. The other scenario is that appraisers are forced to find second jobs, or new careers entirely. If enough appraisers were forced out of the business, it’s possible that there would be a shortage of appraisal capacity during the busy spring market.
Neither scenario seems particularly attractive, and the regulation itself feels like it is addressing problems that have already been corrected by market forces. Since the new rules are not uniformly applied across all lenders, and workarounds have already been established, perhaps it would be better to roll back the regulation.