Jay Vorhees at JVM Lending wrote another great blog about Google, and how it can be both a friend and enemy. I have my own story about Google, but I’ll get to that at the end. First, read Jay’s take on why borrowers should beware of Google:
One of the reasons loan officers and borrowers were able to get away with so much fraud prior to the mortgage meltdown was the lack of public records and information in general. That is no longer the case, and borrowers need to be extra careful nowadays because underwriters Google everything – borrowers, employers, self-employed businesses, and even renters.
We recently had a transaction questioned because the borrowers rented out their $500,000 departing residence to a person who already owned a $1.5 million home. The underwriter Googled the name on the rental contract and rightfully wanted to know why the renter would want to downsize into a rental that was much smaller and in a vastly inferior neighborhood.
We had another situation where the borrower was subject to numerous criminal allegations that will likely prevent him from garnering business for his consulting firm (killing the deal), and this too came up with a Google check because it was all over the news.
Underwriters also Google employers to make sure they exist, no longer exist (if the application says a business with losses is closed down), or that public records match what is stated on the loan application. We have had borrowers, for example, claim to not have ownership interest in a business to avoid providing corporate tax returns, but the internet made it clear that they were owners.
Sometimes borrowers try to fool us, and sometimes they are just not careful enough when filling out their loan applications. Either way, they need to be ultra-careful these days because there really is no getting away with anything. In addition, once an underwriter thinks the borrower might be trying to mislead, she will not want to approve the loan under any circumstances because of the risk.
Kristin’s take: This is a great blog. My own Google story is about sellers who Googled the buyer, and some criminal allegations showed up. We only had one buyer, so we accepted the offer, but we figured out from the internet that he wasn’t the most stand-up individual. Sure enough, we had problems closing. They were contingent on the sale of their condo, and that also did not go smoothly, between the two, we were delayed a month. In this situation I had no control over the other parties or the process. In the middle of all this, our buyer went out and bought a vehicle, which changed his debt-to-income ration and had to be paid off with some of the proceeds in addition to a tax lien. It dragged out the process and naturally, the sellers were very frustrated. That was just one of many issues that were not shared with me. If my clients had another offer I believe after their Google search they would have never accepted the buyer but they were prepared for a rocky road; none of us knew how painful it was going to be.
Moral of the story? Always Google, and be prepared to be Googled.
Mortgage Consultant Bob Schwab posed an interesting question on his blog recently: is purchase demand softening? He writes that over the last several years, buyer demand has far exceeded the housing supply. This has led to home prices appreciating by an average of 6.2 percent each year since 2012.
The Foot Traffic Report, Realtors Confidence Index (both National Association of Realtors), The Showing Index (ShowingTime), and The Real Estate Broker Survey (The Z Report by Zelman and Associates) are the four major reports used to measure buyer activity. Three of the four have revealed that the purchase demand may, in fact, be softening:
The Foot Traffic Report
Latest reports say buyer demand remains strong, due to supply and new construction remaining unable to keep up with buyer demand – despite a healthy economy and labor market.
The Showing Index
In July 2018, the Showing Index recorded buyer interest deceleration compared to the previous year for the third month in a row. They think buyer demand is softening.
Realtors Confidence Index
This measure reported slower homebuying activity in July 2018, down from the same month one year ago. It is the fifth straight month they’ve seen a decline, so they agree buyer demand is softening.
The Real Estate Broker Survey
The Z Report also finds buyer demand to be softening, stating that “a level of “pause” has taken hold in many large housing markets.” Their buyer demand rating of 69 (1-100 scale) is above average, but down from 74 last year.
When most of the major measures of buyer activity report that demand is softening…it may just be true. According to Bob, the strong buyers’ market directly after the housing crash was followed by a six-year stretch of a strong sellers’ market. If demand continues to soften and supply begins to grow, as expected, there will be a return to a more neutral market. Though that wouldn’t favor buyers or sellers immediately, it is a better long-term look for real estate.
A direct quote from Bob: The era of cheap money might be coming to an end. Interest rates on mortgages are up three-quarters of one percent in the last year. The Federal Reserve is expected to raise short-term rates one-quarter of one percent at their September meeting and another one-quarter of a percent in December. Come October, bonds will have to stand on their own feet again as the Fed will officially end its “quantitative easing.” There are also some early signs of wage inflation as the unemployment rate continues to improve and businesses struggle to find employees. As I always remind my clients, mortgage rates are still fantastic from a historical perspective. They are still sitting in the mid to high fours. If you are considering buying a home or refinancing a mortgage this would be a great time to make a move.”
And my take: As rates and prices have increased, we are starting to see homes sit on the market longer and sell for less than they did six months ago. It really depends on the home and location. In Parkmead, buyers seem to want single story homes with current updates and a flat yard, as with the sale of 1691 Lilac. We still have an inventory shortage, but buyers are now taking their time, and a shift isn’t necessarily a bad thing. We will see if the lull is seasonal, but it most likely we will see the rate of appreciation slow down and sellers may have to adjust what they believe the value of their home is and buyers may not get as good of a deal as they expected.
Is the housing market going to start shifting in the direction of price reductions at the higher end of the spectrum? According to Zillow Senior Economist Aaron Terrazas, it could happen. Approximately 14 percent of homes for sale underwent price reductions back in June, and most of them happened at the more expensive levels.
Over the last two years, the housing market has tilted sharply in favor of sellers. But this might be an early warning sign that the tide is turning a little bit. Although it’s too soon to officially call this a buyer’s market, this data does indicate that the trends in the housing industry may be normalizing. In speaking to my title rep, Jason Webb at Fidelity, I asked what he is seeing in the industry. His response was that there are currently more contingent offers, homes taking longer to close, and more demands to close escrow. I am personally experiencing all that in one escrow and it is not fun!
In my situation, the sellers have already moved and the buyer (who did not have a contingency on selling their condo) is delayed on it closing by three weeks. It was originally supposed to close by tomorrow. The agent representing the seller of the condo and the buyer on my listing is a rookie agent who has not been great at communicating the status. My sellers are frustrated and gave a demand to close escrow, but it was really to get them to push on the buyers of the condo, as I had no control and no authorization to speak to them.
We will now most likely close in another week on my my clients’ home because the buyer decided to go out and buy a new car. That caused his debt-to-income percentage to be too high, and now the car has to be paid off with proceeds from the sale of his condo. That causes further delays in our closing because the lender needs to see it get paid off. Another interesting component to this was that my clients Google’d the buyer and the results were…surprising. We knew it could be a challenging process, but we didn’t think it would be this much of a wild ride!
I believe we will see more of these types of issues as the market softens and reverts to a better balance. We can’t keep increasing, and it is time for the market to come down off this upward trajectory. There are some positive outcomes to a correction, but it is change and change is hard for most people; especially sellers when they still expect a higher price than their neighbor.
Consultant Bob Schwab has a few interesting thoughts on the difference between the housing market in 2008 and the housing market today. He essentially points out that the landscape of today’s market is radically different than 10 years ago, so comparing the two era’s – even if numbers look similar – is tricky. Here are his thoughts below:
Some are attempting to compare the current housing market to the market leading up to the “boom and bust” that we experienced a decade ago. They look at price appreciation and conclude that we are on a similar trajectory, speeding toward another housing crisis.
However, there is a major difference between the two markets. Last decade, while demand was being artificially created by extremely loose lending standards, a tremendous amount of inventory was coming to the market to satisfy that demand. Below is a graph of the inventory of homes available for sale leading up to the 2008 crash.
A normal market should have approximately 6 months supply of housing inventory. As we can see, that number jumped to over 11 months supply leading up to the housing crisis. When questionable mortgage practices ceased, and demand dried up, there was a glut of inventory on the market which caused prices to drop as there was too much supply and not enough demand.
Today is radically different!
There are those who believe that low mortgage rates have created an artificial demand in the current market. They fear that if mortgage rates continue to rise, some of the current demand will dry up (which is a possibility).
However, if we look at supply again, we can see that the current supply of homes is well below the norm of 6 months.
We will not have a glut of inventory like we did back in 2008 and home values won’t come tumbling down. Instead, if demand weakens, we will return to a normal market (approximately a 6-month supply) with historic levels of appreciation (3.6% annually).
Separate from the Schwab blog, NAR Chief Economist Lawrence Yun says, “It’s important to note that despite the modest year-over-year rise in inventory, the current level is far from what’s needed to satisfy demand levels. Furthermore, it remains to be seen if this modest increase will stick, given the fact that the robust economy is bringing more interested buyers into the market, and new home construction is failing to keep up.”
And First American Chief Economist Mark Fleming says, “Millennials’ lifestyle and economic decisions are some of the main reasons we currently have a lower homeownership rate than expected, based on our Homeownership Progress Index. Yet, it is reasonable to expect homeownership rates to grow as millennials continue to make important decisions, including attaining an education and, later in life, getting married and buying a home.”
Glen Bell, a very analytical realtor in Berkeley, shared some charts with us, which also give additional insights into the disparities in the market:
Bell says he predicts a recession in 2019 or 2020, and that the real estate market will be a minor factor in it. Rising interest rates may offset some buying opportunities. It’s also hard to predict how much tax reform will play into this. Prices continue to rise and might be causing more people in the middle class to flee the Bay Area.
Missy Yost of Inman News wrote an interesting article a while back about buyers being educated regarding which home repairs are actually necessary before finalizing a deal. I’ve re-formatted the original article below, with some of my insight added:
Most buyers and sellers understand that buying and selling a home requires negotiation. You give a little here, and they concede a bit there. But what do you do when you have a buyer who demands unnecessary repairs after a home inspection?
Educating buyers so that they better understand which repairs are necessary and which may annoy the seller enough for the deal to shatter is part of the job of a real estate agent. Here is a list of seven repair requests that buyers should think twice about before making.
1. Easily repaired items under $10
Whole-house inspectors often come back with a list of items that cost under $10 to repair or replace. Save yourself the hassle, and omit these things from the list of requested repairs. If repairs are not related to a safety issue or the breakdown of an expensive system, it’s better to refrain from listing them, if you are asking for a credit, than take them into account by rounding up.
2. Replacement of smoke and carbon monoxide detectors
Sometimes buyers are adamant they want missing smoke detectors or carbon monoxide detectors replaced. Although these are safety items, unless local codes say differently, it is better if the buyer installs the smoke and carbon monoxide indicators after closing. That way, they can make an informed decision on the type of alarms they feel most comfortable using in their new home. Fortunately, in our area, they are required by law to be installed and should be done prior to an appraiser coming out as they have to take pictures of them. If they are not there, the lender will not fund the loan until they have been installed and the appraiser has a picture to confirm.
3. Cosmetic issues in a resale home
Unless the home is brand-new construction, advising your clients against noting uneven paint or stained baseboards on a repair request is a good idea. Normal wear and tear should be expected in any resale home and should be a factor in the original price negotiations. Homes are usually priced for condition and similar homes that have recently sold. Most buyers want a home that is move-in ready, thus why remodeled homes tend to sell at a premium.
4. Repairs related to minor plumbing and electrical issues
Often, a whole-home inspector will list in the report issues with simple electrical and plumbing items such as an upside down outlet, or corrosion on a fitting. Unless the problems cited are a safety concern, a buyer should not list them as a requested repair. Simple issues such as an upside down outlet or a corroded water line to a sink are simple DIY repairs or matters easily handled by a handyman. Outlets that are not GFI’s tend to be common issue in our area. An outlet by water should be GFI – that is a health and safety issue, but for the rest of the outlets – especially if the house is 40 years or older – will not have GFIs, and the cost is about $350.
5. Repair of hairline cracks in the basement or driveway
Concrete expands and contracts naturally, and over time, cracks will occur. As long as the cracks are minor, don’t list them in a request for repairs. However, if the breaks are over a quarter inch, it’s an excellent idea to have a structural inspection. Structural cracks are a whole new ballgame.
6. Outdoor landscaping, porch and fence repairs
These items were visible at the initial showing and will be a factor in the initial offer and negotiations. It’s not a good idea to ask for things that were obvious at the beginning such as sod replacement, fence restoration, loose railings or loose hinges. The exception is if the repair is necessary as part of the loan process such as in an FHA, VA or USDA loan.
7. Replacement of failed seals in windows
Unless the window is under warranty, most sellers will refuse to fix a failed seal. Window seals fail over time with use, and depending on the age of the window seal, failure can be expected. It’s another simple fix, and sometimes you need to choose your battles.
For all items on this list that your buyer would like to have fixed and are not safety or related to the failure of an expensive system can be included in a request for credit at closing. Sellers are more likely to agree to a $300 credit for the buyer to replace 30 $10 items than they will to repair or replace the 30 issues themselves.
…a buyer is not overpaying! Appraisals and market value can be a tricky math problem for buyers to figure out, but that’s why my friend Jay Vorhees from JVM Lending has put together this handy-dandy blog to explain. Take a look below:
When Appraised Value Does Not Equal Market Value
We have a buyer who was convinced she was “overpaying” for her property because her appraisal came in low. But, there were multiple offers for her property that were very close in price to hers, and there are nearby pending sales that are also similar in price. The entire issue has to do with appraisal guidelines. We repeat this often in this blog because the issue comes up so often: appraised value often does not equal market value.
If there are multiple buyers willing to pay $850,000 for a property in an open market, then that property’s market value is $850,000. But, appraisers cannot appraise properties (in most cases) above the highest closed comparable sale in the neighborhood. So, if there are no closed sales above $800,000, that property will usually not appraise for over $800,000.
But, again, that does not mean the above property is not “worth” $850,000. Once this was explained to our buyer, she was no longer concerned about her low appraisal. This is something every buyer needs to understand in a fast-appreciating market where contract prices are tough to support in an appraisal.
This is something I deal with constantly with my own clients. Jay hits the nail on the head here: appraisals may come in lower than expected, but it is not equal to a diminishing value on the property. For more helpful information like this, give me a call! I can talk about real estate all day 😉
No, I don’t mean a bidding war over a guy or girl you love – I mean to buy a house! A love letter, traditionally, may be used for wooing a potential soulmate, but it has its place in the real estate world, too. Especially in the Bay Area, where house prices are absurdly high and most people sell their homes for a significant over-asking price, a letter to the homeowner with a personal touch can make all the difference.
Take this article, for example, which details the story of a local business owner who “won” the rights to buying an adorable cottage against 10 other bidders, despite her offer not being the highest. Of the 11 offers the homeowner received, 8 sent personal letters, and she believed the subject of this article wrote the most touching one. She connected with the homeowner by writing about her dog, who she’d always promised a big yard too and who was nearing the end of its life when she bought.
The seller is quoted as saying that she felt like she knew the buyer before even meeting her, so it put her over the top, even for a slight discount on the final price. I think this is a really awesome, effective tool that can make all the difference in the world! I highly encourage any of my clients to do something similar and write a personal letter to a seller, in the hopes that connecting with them on a personal level will help get the offer accepted.
It may be a bit of a corny strategy, but when you’re pursuing the house of your dreams, why wouldn’t you go all out to get it? It should be pretty easy to dig up a little information on the seller (favorite sports team, pets, etc.) and you can utilize that to your advantage. I know if I were selling my house and a buyer told me they also love skiing and had fostered Weimaraners, I’d probably put that person right at the top of my list!
It is that time of year when the housing market starts to heat up. If you’re one of the homeowners who plan on selling this summer, there’s a lengthy list of must-dos to complete before you actually list. Take a look at the following ideas from Inman, with input from yours truly, on how to make your home more attractive.
1. Spruce up the exterior
This is the first thing your prospective buyers are going to see. They want something with literal curb appeal, and if you have overgrown bushes, peeling paint, dirty windows, or poor lighting, the first impression won’t be very good.
2. Service the heating/cooling system
Home inspectors have to check this anyway, so you might as well beat them to it. Waiting until a buyer makes an offer to service this system may cause issues, so get ahead on it!
3. Check your lightbulbs
Check every single one of them on both the interior and exterior. Make sure they are clean and bright. It is essential to have the home as bright as possible. In my experience, this is a tiny thing that is very noticeable if not addressed.
4. Check all smoke detectors
We’ve all pulled batteries out of our smoke detectors when cooking, but don’t forget to put them back in. Make sure all your detectors are working. A home inspector will ding you if you don’t.
5. Blue tape it
If there are nicks, chips, scratches, etc. in the walls of your house, blue tape it! No buyer wants wear and tear on the interior walls or molding, so make sure the rough areas are marked for repair before you list. My stager blue tapes what needs to be removed, painted or fixed at the staging consult I provide as part of my services.
6. Deep clean and declutter
And we mean deep. If you can, hire a cleaning crew to get a small army of people cleaning every corner and crevice (think baseboards, light switches, etc.) of the house before it goes on the market. And don’t forget to gather all your extra junk and either store elsewhere or donate.
7. Don’t forget the garage
This is often an overlooked space, but prospective buyers will want to see a clean, organized garage. Consider painting the floor or putting an epoxy down. And don’t forget to repair cracks in the ceiling of the garage! Side note, in this area most people store all of the noted blue taped items, just make sure if you do a pest inspection, you do it before you store all your items in the garage.
BONUS! 8. Stage the property
This is my personal addition to the list. There are people who stage homes for a living. They are experts at making a house as attractive as possible to buyers. I can’t recommend having your property staged before listing highly enough! You only get one opportunity to make a first impression!
Once you’re pre-approved, the last thing you want to do is knock yourself out of qualifying range. My friend Jay Vorhees at JVM Lending is a great source on this issue, as he’s seen hundreds of borrowers in this situation. Now, he sends them a list of “actions to avoid” with every pre-approval letter. Heeding his advice will help you at least prevent delays and extra paperwork. Take a look!
1. Do not make large deposits that can’t be explained. When you are trying to qualify, any large deposit – think $500 for a new mattress, or all-cash payments – must be explained. Otherwise, an entire account can become invalid and unusable for qualifying. Always keep a paper trail to make large deposit explanations easier!
2. Do not take on new debt. If you increase your credit card balances, finance a vehicle, or take on debt in another way, your ratios will be impacted and it will reduce your maximum purchase price.
3. Do not take vacation days if you’re paid hourly. A single day off work can push you out of qualifying range if your debt ratios are high and approaching your limit.
4. Do not spend liquid assets. Pre-approval software relies on specific liquid asset levels. So, pre-approval amounts can change if liquid assets are significantly reduced.
5. Do not miss payments on any debts reporting on a credit report. This one is pretty obvious, and you should avoid missing payments anyway, but missing monthly payments that reduce your credit score may also reduce your qualification amount!
6. Do not co-sign for someone else’s debts. That’s a dangerous maneuver anyway, but even if you’re just a co-signer, the debt will show up on your credit report. That makes you responsible for the debt and the payments.
7. Do not file taxes with a tax liability owing, or with less income than in previous years. This mostly applies to self-employed borrowers (especially during tax season). The most recently filed tax returns will be what the qualifying income is based on, and all tax liabilities must be proven paid. JVM recommends that borrowers file an extension when possible if they are making offers during tax season.