Why it may be a really good time to be a borrower

You may have heard of the wild events at the Consumer Financial Protection Bureau (CFPB) recently. My friend Jay Vorhees of JVM Lending had a few words to say about it on his blog, the main points of which are summarized below:

The departing director of the CFPB, Richard Condray, named his deputy, Leandra English, to be his successor. President Trump named his own acting director, Mick Mulvaney. Both claimed to be head of the CFPB, and English sued to nullify Trump’s appointment, but lost.

So, from a real estate perspective, this is what it means for the industry. The CFPB is extremely powerful and was created by the Dodd-Frank Legislation in 2010. It is funded by the Fed and mostly outside the control of Congress. So, the CFPB is well known for being aggressive in auditing and fining, even when offenses had no effect on borrowers.

On that note, Mulvaney – Trump’s appointment – has been openly anti-CFPB, and will likely try to roll back some of the agency’s enforcement efforts. If this holds true, there are two takeaways, or perspectives:

  1. A strong CFPB is necessary to keep the mortgage industry in check and avoid another meltdown like in 2008. It can be countered by pointing out that there are already other factors in place to prevent those abuses, including scrutiny from agencies such as HUD and state agencies.
  2. Lenders and loan officers spend an inordinate amount of time and money to make sure they never endure a CFPB investigation. These efforts often do little to help consumers, and only increase the overall costs of obtaining financing.

A weaker CFPB could result in more free time for lenders and loan officers, and lower borrowing costs for consumers.

Fannie Mae and Freddie Mac also announced their 2018 loan limits, which went up significantly. The “Low Balance” limit for a one-unit property jumped from $424,100 to $453,100 and the “High Balance” limit increased from $636,150 to $679,650.

These jumps allow more borrowers to take advantage of conforming loan guidelines when buying properties in areas with increasing home prices. Combine this with the CFPB appointment, and we may be looking at an incredibly good time to be a borrower!

Also, note the Fed is most likely going to raise interest rates on the 13th and then again in the first quarter of 2018. The market has already taken it into account, and we might see rates drop slightly after the 13th.

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Are millennials looking for homes or glorified dog houses?

Everyone loves dogs! I love my dog! You love your dogs, too! It seems that millennials especially like their dogs, as a recent Time article explained that “space for a dog” is the third-most common reason cited by millennials for buying a home in today’s market.

What really struck me about the article is this: “space for a dog” is listed ahead of “children” or “marriage” as reasons for purchasing a home. It came in only behind “more living space” and “building equity.”

Now, isn’t that interesting?  We know millennials are getting married later and having fewer children than previous generations, and the housing market has become so expensive across the county that it prices out people who have spent money on marriages and providing for children, but it’s still surprising to see it behind a reason like “space for a dog.”

The rental market prices have also skyrocketed, which makes me think that millennials would rather pay a mortgage in some cases and have their own home with ample room for their four-legged friends, than pay a monthly rent in properties with strict pet policies.

I guess you can always buy a home first, let your dog break it in, and then bring in a partner and children! Whatever works! It’s just funny to see the difference between their generation and mine, and why they pursue home-buying.

How the tax bill potentially will affect homeowners

This past weekend, the GOP passed its tax plan along party lines, despite heavy opposition against it in CA. I was wondering how the new plan might affect homeowners, and my friend Jay Vorhees at JVM Lending had the perfect answer. See his summary below!

The bill has a provision to cap the mortgage interest deduction to loan amounts of $500,000 or less. To be clear, borrowers will not be ineligible for the mortgage interest deduction if they owe more than $500,000; borrowers will only be able to deduct interest that accrues against $500,000 of their mortgage, no matter how large it is. Here are some observations:

1. Only 5% of all mortgages are over $500,000. And the vast majority of them are in California. Hence, it is unlikely that we Californians will get a lot of sympathy from middle America. But this also explains why there is so much concern in California.

2. How much will it actually hurt borrowers? For a $1 million home (not a lot in coastal California) with 20% down, a borrower will have an $800,000 mortgage. This means that $300,000 of that debt will be ineligible for the mortgage interest tax deduction. If the interest rate is 4%, the borrower will not be able to deduct $12,000 of interest from his or her income for tax purposes. If that same borrower is in a 40.5% combined tax bracket (33% Federal, and 7.5% State), he or she will lose $4,860 in direct tax savings. That is real money for anyone.

3. Current borrowers will be grandfathered, meaning they will be able to continue to deduct interest against a $1 million mortgage (or $1.1 million if they have an equity line). This provision will likely hurt inventory, as this will create another disincentive to sell. 

4. Standard Deduction Doubling: This is the bigger issue for real estate in general, as most lenders and Realtors aggressively sell the tax benefits from buying a house. If the Standard Deduction for married couples doubles to $24,000, most taxpayers will not be eligible to take advantage of the mortgage interest deduction (it would only make sense if their mortgage interest and other itemized items exceeded $24,000; a $500,000 loan at 4% would only accrue $20,000 of interest). 

5. The real estate lobby is extremely powerful. This is the biggest factor of all. The real estate lobby (that includes builders) is exceptionally powerful, and most of the lobby is opposed to the above-referenced provisions.

I always find Jay’s perspectives insightful with helpful information. Jay wrote this prior to the bill being passed by the Senate. Now that it has been passed, here are a few of my own observations:

  1.  There is a lot of jockeying of blame between the two parties (status quo).
  2.  If it was so negative, why did the Senate Bill get passed so quickly?
  3. The Senate and House will now go back and forth on all the details to get final approval before it goes to President Trump. Changes can still be made or it could possibly fall apart.
  4. Back to Jay’s last point – there is a very strong lobby that still can push change.
  5. I see this continues creating a disincentive for people to sell. It used to be that on average people moved every 7 years; that number has now increased to approximately every 20 years, thus the continued low inventory.

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Why buyers don’t always take the highest offer

You might be surprised to hear that sellers don’t always take the highest offer on their properties. It would be logical to get the most bang for your back, but as this article outlines, there are more factors at play in today’s market.

In that specific example, the seller and their agent took a middle offer because it was all-cash, and that was the only way to ensure the deal would go through without having to worry if the appraisal would come in. They sacrificed a bit on the price (possibly) to make sure the house got sold.

From a seller’s perspective, taking a lower offer could be for any number of reasons. It could be because they want to counter up a lower offer because they have better financing or somebody waives the appraisal contingency. It could be because the letter they received from the prospective buyer was so engaging that they wanted those people to own the home, regardless of the price difference. It could even be because they’ve met the buyer and their family and just felt a connection to them.

From a buyer’s perspective, this means there’s an opening in the modern real estate market. If you don’t have the highest offer, you’re not always on the outside looking in. If you put more of a sincere, human touch on your pitch to buy the house, sellers might be more likely to sell to you!

It goes both ways. Real estate transactions involve a lot of paperwork, money and bartering. But when it comes down to it, having the human touch that a buyer seeks might be all you really need to leapfrog other offers and land the house of your dreams!

A great listing agent will go over all the pros and cons of each offer and provide reasons why one offer may be better, and give recommendations on counter strategies. At the end of the day, it is always the seller’s choice on who they choose to buy their home if they have more than one offer.

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Never let a buyer take possession before closing

Picture this: the odds and ends of a real estate transaction you’re involved with are taking longer than expected to tie up. Whether it be a miscommunication between the realtors, legal issues, or uncontrollable circumstances, you just want the home to close escrow.

So, you have already moved out and agree to let the buyer move in over the weekend since you will be closing on Monday or Tuesday. Even though the final forms have been signed, you won’t close for a few more days. You figure, “Heck, whats the harm?”

Oops. What if there is a financial or legal issue that crops up? Worst of all, what if the new buyer starts making changes to the home and they – or someone they hire – gets hurt on the property before it is officially theirs? What happens if there is a fire? I know of one situation where the seller allowed the buyers to put their belongings in the garage and there was something flammable and it started a house fire. Do you think those buyers still bought the house?  No, the sale did not close and the seller was left dealing with a mess and no house to sell.

Now that is a heap of trouble, tripped up by a tangle of confusing liability. What you thought was an act of goodwill has just turned the final few steps of the transaction into an absolute nightmare!

Even if this scenario seems unlikely, it is still possible. And that is reason enough to never let a buyer take possession of a property before the closing is completed. Crazier things have happened!

A realtor’s job is to protect the interests of their clients and a good agent will counsel you against having a buyer or their belongings in your property prior to the transfer of title.
If you think you might want to buy or sell in the near future, feel free to reach out to me for an organized, knowledgeable, friendly ally in the real estate process! You can always reach me at my website under the contact tab at www.kristinlanham.com.

Selling a home without an agent is risky!

When you sell a home, you don’t need a real estate agent, just like you don’t need a lawyer when facing criminal charges. You can, if you want to, represent yourself in a court of law, and you can always put your home up for sale by owner (FSBO).

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But, it’s an extremely risky proposition. As outlined in this Inman article, there are many things to consider when putting a home up FSBO. Here are eight things, summarized from said Inman article, that sellers risk when they don’t have a realtor representing them:

1. Knowledge

Realtors are professionals in this business. They have expansive knowledge of the complicated home-buying and selling processes, possess loads of helpful data, and have large networks of people who can help minimize the difficulties that arise.

2. Time

The non-realtor probably doesn’t realize how many hours are put into any given home, buy or sell. Real estate agents are available for clients around the clock, on a whim, and can confidently and smoothly quell any concerns by potential home buyers.

3. Presentation

Preparation is essential to selling a home – what buyers see when they walk through the door will determine if your home sells. Agents can prepare the finest details and have stagers, professional photographers and others who will help make the space beautiful.

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4. Marketing

Anyone can draw up a “For Sale” poster, but realtors will design, distribute and widely market the home to a huge number of potential buyers. Realtors can access predictive analysis and promote to those demographics on social media. Also, they know just what to write to draw interest.

5. Negotiation experience

If you’re doing FSBO, what do you do when you actually receive an offer? There’s a purchase agreement to be discussed, price negotiations to be had, and so on. Realtors will make sure you don’t get screwed by a buyer, and that you only incur costs you’re supposed to pay.

6. Inspection and repair know-how 

One of the most important parts of any real estate transaction is knowing which inspections to expect and how to get them done. This is where the realtor’s web of resources comes in handy again – he or she should be able to provide repair people to fix anything discovered in an inspection.

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7. Transaction management

Once a home is in contract with a buyer, there are more steps to close the deal. Realtors can make sure the right people are contacted to handle the closing, appraise the property, repair anything found in inspections and anything else to follow up on.

8. Closing finesse

There are expectations upon closing a property. Non-realtors probably don’t understand what the buyers expect, in terms of when move-in/move-out occurs, the condition one should leave their home in, or what to do if a last-minute issue arises. Realtors do know, and they are worth the time and money to ensure your sale is in good hands.

FSBO’s may be intriguing to the cheap and/or self-confident, but the small savings on a realtor’s commission is not worth the hassle that comes with navigating such a difficult process without professional help, and often a house sells for less than what it would have with an agent even after the commission has been paid.

On that note, there’s a reason I do what I do! I’d love to help you buy or sell a home. Please reach out any time for information regarding the current, local real estate market!

Open House: 4391 Pembroke Dr. (Concord)

The Kristin Lanham Team has another beautiful home going on the market – this one is in Concord, on Pembroke Dr. Take a look at some of the pictures below, and swing by for a peek at our Open House this weekend!
 
The home is a cozy, mid-century charmer with a serene, quiet backyard. There is room for an RV or a boat, which includes a spa and storage shed, all surrounded by professional landscaping and lots of plants and flowers.
An open concept makes it warm and welcoming. The updated kitchen with its expansive island is the centerpiece for family gatherings and additional storage. The open-beamed ceilings add to the interior charm. There are stylish updated bathrooms, dual-pane windows, lots of natural light and great flow from outdoor to indoor for entertaining.
 
This house has been meticulously loved – an updated, warm interior and a vibrant backyard planted specifically to attract hummingbirds, butterfiles, and bees.  A perfect place to call home!
Come take a look at the Open House this weekend from 1-4 p.m. on both Saturday (9/9) and Sunday (9/10)!
3 bedrooms | 2 baths | 1250 sq. ft. |.17 acre lot
Offered at $580,000
To take a virtual tour of 4391 Pembroke Dr., click HERE!

What is the most expensive zip code in CA?

If you had to guess which California city has the most expensive real estate, what would you say? San Francisco, maybe? Certain parts of Los Angeles – remember the show 90210?
Watkins-Cartan House, 98 Alejandra Ave., Atherton, CA
Nope, the honor goes to the 94027 zip code – Atherton, CA. For those not familiar, Atherton is right above Palo Alto and the average cost of a home there is…wait for it…$6.17 million. According to Zillow, home values in Atherton reached a low point in summer 2009, dipping below $3 million.
I asked my friend Jay Vorhees of JVM Lending what kind of average income would be necessary to afford a home in Atherton at 25 percent and 50 percent down.
Given that the average income in Atherton is about $250,000, I was wondering how exactly a median home price of $6.17 million was affordable there! Here’s his assessment:
Assuming no consumer debt, a 4.0% rate and a 42% debt ratio, with 25% down, PITI would be about $29,000 per month (rounded). This would require $69,000 of monthly income or $828,000 annually.
With 50% down, PITI would be about $22,000 per month (rounded). This would require about $52,500 of monthly income or $630,000 annually.
So how does the average income earner in that area afford Atherton? Most likely people have had these homes for years, thus the lower income. For new purchases, stock options from IPOs are not usually included in your annual income, thus allowing the the nouveau riche of Silicon Valley to buy with cash or put 50% or more down.

How do appraisers value a property?

Our friend Jay Vorhees at JVM Lending has posted another great blog recently about appraisers. I have taken some liberty with his original blog and modified it to some of my personal experiences. Check it out below!

Lenders are not ever allowed to communicate directly with appraisers. They are only allowed to order appraisals through an Appraisal Management Company, which in turn contacts the appraiser. This arose out of the mortgage meltdown in the efforts to prevent fraud.  Overall, I think it hurt the buyer because the cost of appraisals rose.

Realtors, however, can communicate directly with appraisers and I highly recommend that they do so.  I meet the appraiser at the home, provide them with the comps I used to come up with the list price and let them know how many offers I had and the offer price of them.  It is important to be nice, and not tell them ‘how’ to do their job, but provide them with data that they may not have.

Below is the criteria appraisers use for Comparable Sales Data guidelines.

1. Size: Comps need to be within 20% of the size of the subject property. For example, they usually cannot use a 1,300 square foot comp for a 1,000 square foot subject property. Likewise, they cannot use a 700 square foot comp for a 1,000 square foot property.

2. Distance: Comps need to be within one mile of the subject property, and not over any major barriers like a freeway or a river.

3. Same Town/City: Comps need to be in the same city as the subject property in most cases, even if the comp is less than a block from the subject property.

4. Closed: Comps need to have closed in the last 90 days. Pending sales and listings are not acceptable.

5. Lot Size: Lot sizes must be accounted for too. If the subject property is on a small lot of 6,000 square feet, for example, a comp and a 12,000 square foot lot will have to be downwardly adjusted significantly in most cases.

6. Adverse Influences: If the subject is on a busy street or abuts a school, a freeway or an industrial area, valid comps will need to have similar adverse influences or they will make adjustments to equalize the value.

7. Bracketing Comps: Valid comps need to “bracket” the appraised value. Hence, at least one comp needs to be priced higher than the appraised value, and one should be priced lower.

At the end of the day. Appraisals are still subjective based on the appraiser’s interpretation and experience. Most of the time they are trying to do their best, and as markets shift, they have to adjust. They do not always have some inside information about a neighboring sale or a credit and if you can make their job a bit easier, I find everybody’s job becomes a bit easier.

I should also note that Mortgage Bankers have AMC – Appraisal Management Companies, where they can cherry pick the appraisers that are in the pool, even though they can’t talk to them about value.  These are usually much better than the big banks and that is a whole other story that only frustrates me….

Open House at 10 Stugun Ct. (Pleasant Hill) today and tomorrow!

Are you a family with kids looking for a new Bay Area home? Check out this spacious Valhalla North property, located walking distance from Valhalla Elementary!

It’s situated on a cozy court and has a massive, naturally-shaded hillside deck with a perfect view of Mt. Diablo. This home will adapt to changing needs – whether you have a small, growing family or one that spans multiple generations. The five bedrooms and three bathrooms will do the trick.

Downstairs, you have one large bedroom with a full bath that can serve as a master suite. Add to that newer stamped concrete, recessed lighting, plantation shutters, updated baths and ample storage, and you’ve got a winner here in Pleasant Hill.

You can check out a virtual tour of the home here.

Come swing by our Open House at 10 Stugun Court in Pleasant Hill from 1-4 p.m. both today (Saturday, 8/26) and tomorrow!