Doh! You Missed Out on a Great House…

If you are thinking about buying a house any time soon, please keep “speed” in mind. No, I am not talking about drugs. By “speed” I mean your ability to react quickly if you happen to come across the house of your dreams. Here are two perfect scenarios where you will almost always lose out:

1. You have a house to sell that is not yet on the market, and you can’t afford to carry two mortgages at once.

2. You go open housing on the weekend and are not actively working with a real estate agent.

In the past two weekends I have seen this happen twice to two different couples. In the first scenario, the couple had just started thinking about moving into a larger home. So they went open housing on Sunday. And they fell in love with a house that is in perfect condition. The sellers of the house want nothing to do with a Hubbard clause, where the buyer has to sell their house before they can actually buy. The potential buyers now have to get their current home on the market pronto and hope that they can secure an offer before someone else comes in and has an offer accepted on their dream home. Chances of this happening are slim to none and, as they say, Slim just left town…

In the second scenario, the buyers were actually working with a real estate agent, just not very actively. They also went to an open house and fell in love with a house. But then they waited 2 days to contact their agent to let them know about it. Unfortunately in the meantime, another offer was accepted on the house. They missed out by about an hour. I am not kidding. And now they are very disappointed.

There are a few morals to these stories.
1. If you are in either of the two categories above and cannot deal with disappointment, please don’t go to open houses on Sundays.

2. If you think you have one iota of interest in a house and are working with an agent, call them immediately. They will go look at the house with you and help you understand if it’s really for you. And if it is, they should be able to help you react quickly enough to at least stand a chance of putting in an offer.

3. If you own a house, think you want to move, and cannot afford to carry two mortgages, at least put your house on the market with the contingency “Sale contingent upon seller finding acceptable housing.” This at least throws your hat in the ring. Otherwise you are just sitting on the sidelines with no real chance.

Hopefully this helps because it’s painful to see disappointed buyers doing “Shoulda, Woulda, Coulda”…

Great Idea! Let's Commit Mortgage Fraud!

I had an agent, “Pat,” contact me this week about one of my listings. Pat’s clients were interested in the house and considering putting in an offer. Pat proceed to ask me how “creative” my clients were. Being left-handed, I’m always open to creativity, so I asked for an explanation of what they had in mind.

Pat gave me some details about how the contract would be structured and then mentioned that the buyers would be looking for my client to cut them a check outside of closing in order to cover repairs on the house. The buyers were short on cash. I told Pat that they were welcome to submit an offer and we would review it. But something just didn’t seem right about Pat’s “creative” deal. Shouldn’t everything should be handled by the closing attorneys and documented on the HUD sheet?

When I got off the phone with Pat, I called a trusted mortgage broker that I use. After explaining the situation, he confirmed that what the agent was suggesting was indeed mortgage fraud. Any payments, credits, etc. need to be called out on the HUD so that the mortgage company knows about them. Anything done outside of closing is illegal because it implies that the house is not really worth the value that the mortgage company is loaning against.

The mortgage broker suggested that Pat might not know that the deal would be illegal. I pointed out the fact that the agent had been in real estate for 15 years, so I was fairly certain that Pat did know that their suggestion was questionable, at best.

The sad part about this situation is that there is likely a way to structure a mortgage so that Pat’s clients can afford the house, legally. If we do actually receive this offer I will be going back to my trusted mortgage person to determine how the deal can be funded so that they can buy the house, and no one is committing fraud.

It’s frustrating to see that this knucklehead is willing to risk their real estate license by playing these games. And how is it ever in your client’s best interests to suggest something illegal to them?

Phew! M-O-B Doesn't Have to Move…

Looks like Max’s Oyster Bar was able to escape a huge rent increase and will be sticking around West Hartford Center after all. Facing a 50% increase in their rental expense after missing a rental agreement deadline, M-O-B averted eviction when a court ruling went in their favor last Friday. So, grab a bowl of New England Clam chowder and some mussels on the half shell and celebrate…

As an aside, this story highlights the importance of reading the details in all contracts you sign and making note of dates that require you to take an action. The consequences could otherwise be very costly.

All Things Martha…

Ah, Martha. I’ll admit it, I subscibe to Martha Stewart’s Living magazine. When my latest issue came today, I salivated over the hydrangeas on the cover, silently cursing my own for not producing one single “snowball” this year. But my brown thumb is a blog post for another day…

As a Realtor, I’m often consulting Martha-media for ideas. How do we stage a room more appropriately? What cosmetic changes can be done cheaply, but help the homeowner add more value for their house sale? How can we remove that stubborn spot on the carpet from one of Junior’s juice incidents? As we all know, Martha is the domestic goddess. Got a problem? Most likely it can be solved with a hot glue gun, some colorful fabric, and a pair of scissors.

But it seems that Martha has taken her domesticity to another level altogether. She (or someone working for her under her brand) is now designing homes. I guess this shouldn’t really be a surprise, seeing that she is the queen of all things “home.” And even less surprising is the fact that her home designs are still selling briskly, even as new home sales across the country are plunging. Here’s an article from the Wall Street Journal describing the phenomenon…

What’s next? That pesky Rachel Ray peddling coffee? Oh wait…

What's the Deal with Rising Mortgage Rates?

Mortgage rates continue to be in the news and are weighing on the minds of some homebuyers. Earlier in the month we looked at the dollar impact of higher rates (http://www.amybergquist.com/blog/2007/06/14/rising-mortgage-interest-rates/). The final result was that the changes we’ve seen over the course of this year (6.25% to 6.75% on a 30 year fixed) have resulted in monthly payments increasing by about $33 for every $100,000 borrowed.

Since that post, rates have stabilized and even come down a little, though there remains a good deal of uncertainty about which way they move next. Rather than speculate on the direction of future rate changes, let’s talk about how mortgage rates are set and why they are changing.

Mortgage rates are set by global financial markets – millions of investors around the world – and the US government. Investors are constantly evaluating the world economy to determine if buying your mortgage is a good investment in terms of risk and return. Since you lock in your mortgage at the time of purchase (or refinance), the rate you pay is what investors feel is the appropriate return for the risk of lending to you. Investors do the day-to-day pricing, but the US government has a big say in the direction and level of rates as they make periodic adjustments to keep the US economy growing at a consistent pace.

Interest rates go up when investors feel that risks are increasing. This year, there have been two main risks that have investors worried; inflation and mortgage lending practices. Inflation is when stuff gets more expensive (for example gasoline). Some inflation is healthy, but if it gets too high the US government starts to raise the Federal Funds rate, which in turn causes all other rates to rise too. The US economy showed signs of inflation during the first half of the year, so investors are concerned that the government might raise rates after holding them steady for over a year.

Mortgage lending practices are the other source of risk, specifically to subprime borrowers (those with poor credit). A sharp rise in the number of homeowners who are late on their mortgage payments has investors worried that they underestimated the risk of the mortgages over the past few years. This has called into question the trustworthiness of the mortgage brokers who wrote the mortgages and led to concerns that all borrowers are more risky than they originally appeared.

Interest rates have stabilized at current levels because there is a large group of investors who think that US government is more likely to lower interest rates than raise them. These investors believe that the US economy is slowing down and headed towards a recession. The government would try to preempt a recession by lowering interest rates in hopes of generating more economic activity.

So that’s the current situation; some believe that rates should be higher, others that rates should be lower. Trying to guess what will happen next doesn’t seem like a very productive activity since even the professional investors disagree. Homebuyers shouldn’t let mortgage rates stop them from participating in the current real estate market because the dollar impact is modest. Although the cost of borrowing money is no longer historically cheap, it is still very reasonable and fluctuating in a narrow range. We should just be glad that it’s not the 1980s, when mortgage rates were at or above 10% for the entire decade, peaking at over 18% in 1981.

See the historical trends for yourself at http://mortgage-x.com/trends.htm. The historical graphs are near the bottom of the page.