Obama Mortgage Plan

The Obama administration is rolling out new efforts to keep borrowers in their homes. Although this plan will likely take a few months to be fully implemented, it may help those of you who have previously been left out in the cold.

Unlike many other refinancing plans, this plan rewards payment and high credit scores. People availing themselves of this plan will need to be current on their loans and have credit scores of over 500. You will also need to owe more on your home than it is currently worth. The plan is to write down the principal of the loan by at least 10%. (Source: WSJ pg. A5 3/27/10)

Homeowners who do not qualify but are staying in their homes should see a benefit once they decide to sell their homes. The intended effect is to stave off foreclosures. Foreclosures decimate values of comparable homes by reducing appraised values and comparative market analyses (CMAs). If appraisers and real estate agents remain with their current formulas, principal write-downs should have no impact on neighboring homes, as both appraisals and CMAs are based largely on sold comparables. (A foreclosure would be included, yet there is no sale with a principal write-down, so these homes would be excluded entirely.)

My suggestion is that anyone who thinks they may qualify for this program should contact their lenders, accountants, financial planners and/or attorneys to further vet the details and timing of this plan.

Open House Preparation

As discussed in my last entry, your first course of action when marketing a property is to determine who your target market will be and to make the property most appealing to that audience. Regardless of whether you are selling a fixer-upper, a pristine property, or something in the middle, open house preparation is not to be overlooked. There are dual objectives when preparing for an open house: maximizing the attractiveness of the property while minimizing safety concerns.

The exterior grounds should be well maintained. Remove any snow and debris from walkways and driveways. Spread sand and/or salt where appropriate. Make sure the lawn is well manicured.

As for the interior, you want to keep paths of traffic free of any clutter. Clean thoroughly, including: dishes, sinks, counters, tubs, showers, mirrors, walls, floors and fixtures. These steps will make the property more attractive, while minimizing the likelihood of injury to invitees.

Equally as important as aesthetics is aroma. To the extent possible, pet and smoke odors should be eliminated. If you like to bake, do so just prior to the open house to make the home smell inviting. In the alternative (or in conjunction), air fresheners and candles make a property smell fresher and create a nice ambiance. (Lit candles should be kept high and out of the reach of children.)

Remember, even the most qualified real estate professional needs a fighting chance when trying to sell your property. Anything that draws attention away from the selling features of the home does you and your agent a disservice.

While open houses can be an effective marketing tool, they, like anything else, have their downside:

Theft can be an issue, so remove valuables, or store them in secure locations. In addition, check to make sure that doors and windows are secure after an open house. Although I have never had a related issue arise (knock on wood), we have all heard stories of items being stolen and/or doors and windows being unlocked for later access. At a successful open house, there will be numerous parties walking through the property at any time and an agent cannot possibly keep an eye on every person throughout the event.

Finally, remember that all marketing is most effective at the inception of the listing. This is when your property will garner most interest, so be sure to take advantage of that window by presenting your property in the best light possible.

As always, for further discussion on this or any other real estate matters, contact me at 978-423-9309 (cell) or via email to john@jw-realestate.com.

Preparing Properties for Sale

As of this date, the tax credit for home purchases (see prior entries) has not been extended and a property must be under agreement in writing no later than April 30, 2010 to take advantage of the credit. This means many of you should be preparing to market your homes. With that said, “fixer uppers” and pristine properties are currently in demand. If you have a property in dire need of repair, make a decision. Either leave the property as is (with minor cosmetic improvements), or invest the time, effort and/or money necessary to transform the property into “move in” condition.

As much as the term is over-used, enhancing “curb appeal” is generally the most effective use of funds:

• Landscaping and outside painting are the most cost-effective upgrades you can make to a property. Landscaping must take into account your target market. For smaller/less expensive homes, focus on ease of upkeep (mulch, stone, perennials, etc.). Higher-end properties (where landscapers will likely be employed) may benefit from more ornate landscaping.
• Driveways should be in good repair, while taking into consideration materials used for driveways of surrounding homes.
• Exterior painting must be clean, neat and in conformity with the neighborhood.
• The roof must be weather-tight and aesthetically pleasing.

Once the exterior features of your property have been maximized, only then should you begin interior upgrades:

• Interior painting adds more value per dollar spent than any other interior improvement. Remember, painting is 90% preparation. What that means is caulking, puttying, patching and sanding are of the utmost importance. (If you do not know how to do these things, hire a professional; it is money well spent.) When it comes to the actual painting, use a semi-gloss on the trim and a satin finish on the walls (these terms may vary, depending on the brand of paint you use. The store clerk should know what you need.)
• If your floors are wood and covered with carpet, expose them. Wood floors should be restored. It is relatively inexpensive. If there are stains or other imperfections, and they can be covered with area rugs or furniture, it’s fine to do so, but make potential buyers aware of the defects. There is a difference between presenting a property in the best light and intentionally hiding flaws.
• For properties that are not marketed as fixer-uppers, the kitchens and bathrooms must be pristine. For higher-end properties, the counters should be composed of a solid surface (many people refer to this as Corian, which is actually a brand name) or granite and the floors are generally expected to be tile or wood.
• Thin out cabinets and closets, leaving only matching settings if possible. This presents well and gives the appearance that there is ample cabinet space. The same goes for closets. Remove 60% of your clothes, and buyers will come away with the sense that there is ample closet space.

Feel free to contact me any time (john@jw-realestate.com or 978-423-9309) for more ideas or for a no-obligation market analysis of your Massachusetts or New Hampshire property.

Anticipating the Market

Economic indicators, and signs of the real estate market in particular, are everywhere. All you need to do is look closely and then extrapolate on what you see.

Are people spending money and, if so, on what? (Consumer staples, luxury products, travel, etc.) Where are they spending? (Home Depot, Marshalls, Tiffany, etc.) What about business spending? (Infrastructure, employees, office equipment, etc.) Where are interest rates? What interest rates are being discussed? Are we going into a period of inflation, deflation or stagflation? Which political party has the momentum and on what platform?

Today's focus: new home construction and government subsidies as they relate to you as a prospective seller.

Many of the national home builders are gearing up for a flurry of activity in the next few months. In fact, even after being caught with excessive inventory at the end of the last real estate boom in 2007, these companies are starting to build spec houses again in anticipation of an early spring market. (Source: WSJ page B1, 2/10/10)

The rush, of course, is predicated on the need for buyers to have a signed contract in place as of April 30, 2010, in order to take advantage of the tax credit. Now let's extrapolate.

If these developers - who follow real estatet market trends and are experts on market cycles - are confident enough in the tax credit's effect to start building without buyers in place, shouldn't you, as a seller, take this into account? After all, many of the large developers teetered on the verge of bankruptcy as the bubble burst and have been extremely cautious since.

What I take from the above is that developers are both excited about the early spring market and concerned by the dearth of activity that will likely follow the expiration of the tax credit. (By the way, I see no indication that the credit will be extended.) With that said, if you need to sell a property any time soon, strongly consider following the lead of the professionals. Do your best to have your property on the market in time to take advantage of the credit. The lower the price point of the property you are trying to sell, the greater effect the credit will likely have.

As always, feel free to contact me any time via e-mail (john@jw-realestate.com) or cell phone (978-423-9309) with any questions regarding your real estate needs.

Bank Owned Properties

As mentioned in prior entries, REO (Real Estate Owned), bank owned and lender owned are all interchangeable terms which simply mean that the bank/lender owns the real estate. These properties present a tremendous opportunity for buyers, but are also fraught with uncertainty.

As opposed to short sales and auctions, lender owned properties' prices are certain, as they have been set by the lender. Therefore, although a property may sell above asking price, you can be fairly certain that, so long as no one is bidding against you, the lender will accept a full price offer with reasonable terms. Moreover, lenders generally price properties reasonably from the start, and periodically reduce prices as time goes on.

Remember that the lender is not emotionally involved and has no interest in being in the business of selling homes. Also keep in mind that the lender is looking for a quick closing, so the sooner the closing date, the better in any offer. (In some instances, lenders will offer incentives if you finance through them.) Although the opportunity to close quickly on these distressed homes at a bargain price is appealing, there are issues to consider with the process, due diligence and disclosure.

Each lender instructs the listing broker on how to proceed in selling the proprty. The lender will generally demand that the parties follow their procedure and that no changes be made to their documents. Therefore, contingencies are limited. Although you are generally allowed a home inspection, these homes are often in disrepair and/or winterized, so the inspection may be of limited value. As the lenders know very little about these properties, they will be sold "as is" with no warranties and/or representations.

In short, as a general rule, lender owned properties are "fixer uppers" and best suited for savvy investors, or home buyers with some construction background, intending to build "sweat equity." Most lender owned properties have been foreclosed on. That being said, a disgruntled (and financially troubled) homeowner has lost this property to the lender. The homeowner often destroys the home and strips it of fixtures and materials prior to being evicted, so be sure you know what you are getting into prior to buying a bank owned property. With that said, if you are the right type of buyer and conduct your due diligence, lender owned properties can be extremely rewarding investments.

As always, feel free to contact me via email to john@jw-realestate.com or via cell (978-423-9309).

Foreclosure Auctions

The short sale process (see prior entry) is meant to stave off a foreclosure by the lender in first position (generally the "first mortgage"). With that said, if the short sale process fails, at some point and time that lender will go forward with the foreclosure. In order to clear title and eliminate any liens of lower priority (second mortgages, equity lines, etc.), the lender must cause an auction to be held - commonly known as a "foreclosure auction."

In my opinion, the foreclosure auction is a riskier proposition than the short sale process, or buying a property which is bank owned. In many cases, bidders not allowed entrance to the propety. The interior could be in any condition, but odds are the property has been destroyed. Owners who lose their properties at auction are not happy and quite often destroy the home and/or remove everything from faucets to flooring. In addition, the information provided by the auctioneer is not guaranteed and cannot be relied upon to be accurate. The onus is on the bidder to do his/her due diligence to verify the title, easements, right of ways and what liens will stay with the property (generally government liens and, in some states, back condo fees). This lack of knowledge, combined with the kinetic pace at which these auctions are conducted, often causes the unsophisticated bidder to grossly overpay for properties.

Notwithstanding the above, if a bidder does his/her due diligence, foreclosure auctions present an opportunity to create instant equity. My advice is to go to the auction with a maximum bid in mind, so as not to get caught up in the frenzy that the auction process creates. Real estate professionals are useful in detemining property value and a reasonable maximum bid price. They can also point you in the right direction as to researching the title and potential liens that run with the property.

As an aside, keep in mind that the lender will normally set a minimum price and send an agent to bid on the property until that minimum price is met. If no buyer outbids the lender, the lender will then take title and eventually sell the property as bank owned.

Please feel free to contact me with any questions or comments via cell at 978-423-9309, or e-mail at john@jw-realestate.com.

Short Sales

From a procedural perspective, when examining distressed properties, or what many refer to as "foreclosures", the first opportunity to arise is the short sale. A short sale is when a seller cannot expect to sell at a reasonable price without being left with a deficit once all costs associated with the sale are paid. Thus, the property is marketed with the intent to negotiate down the debt once an offer has beeen accepted. This means a sale will be "subject to third party approval". In my opinion, this is the most flawed process of the three opportunities (short sales, foreclosure auctions and bank owned) presented by distressed properties. However, there is upside with respect to due diligence.

(For purposes of this discussion, I will assume only one third party exists, but keep in mind there can be several and all must agree to release their security interests and accept less than the amount to which they are entitled.)

In the vast majority of instances, the third party has given no indication as to the amount they are prepared to accept for payment. Moreover, offers are accepted contingent upon third party approval. With that said, a buyer can offer over the asking price and have the offer accepted, only to be informed at a later date that the third party is unwilling to consent to the sale. From a timing perspective, most third parties take, at minimum, 60 to 90 days to respond, during which time a prospective buyer is left in limbo.

The benefit of a third party sale - as opposed to auctions and bank owned sales - is that a buyer generally has the same due diligence opportunities as a buyer would have in a traditional sale. By due diligence, I mean thorough walk-throughs (including inspections), as well as gathering of the seller's first-hand knowledge relating to the property through conversations with the seller and/or the seller's agent. Written seller's disclosures may also be available which inform a buyer as to what the seller knows about the property condition (roof, heating, electric, foundation, etc.).

To summarize, the short sale process presents a great value purchasing opportunity with minimal risk. It is most suited for investors, or home buyers with no time constraints. Any buyer who is purchasing a home to live in and needs to meet a definitive timeline should avoid short sales at all costs.

Significant Distinctions

Over the last week or so, I have been seeing many articles and receiving inquiries which blur the distinctions between types of sales and/or ownership interests. Here are certain distinctions which may eliminate some confusion.

An auction is a way to facilitate a sale and has no bearing on who owns the property. Any party who owns a property, or a lien holder (usually the holder of a mortgage, or a government entity) may cause a property to be auctioned. Most auctions garnering attention today are being caused by holders of liens through the foreclosure process.

A short sale is subject to third party approval and involves a process wherein a homeowner tries to negotiate with the lender(s) to take accept less than what is owed on the loan(s). Thus, any sale needs to be approved by one or more third parties (lenders and/or lien holders).

REO (Real Estate Owned), bank owned and lender owned are synonymous terms which mean that a bank and/or lender owns the property. This almost always results from a mortgage default and a foreclosure auction wherein the lender has bought back the property at auction, thus clearing title and eliminating any loans in second position (of lower priority). In some instances, a lender will take ownership in lieu of a foreclosure at the request of the property owner.

(It is my understanding that many people are using the term "foreclosures" as a catch-all and this is where some of the confusion lies. By way of example,  "I want to buy a foreclosure" or "My friend is making a ton of money in foreclosed homes.")

Both short sales and REO's are most often handled by real estate brokers such as myself and the process is similar to the purchase of any other home listed for sale with a broker.  Auctions may or may not involve real estate brokers and, depending on the circumstance, you could have the option of being represented by a broker without adding costs to the transaction.

All of the above ownership interests and/or sales procedures present opportunities and pitfalls for potential buyers too numerous and detailed to delve into here. However, if in the interim you have any questions, do not hesitate to contact me (john@jw-realestate.com or 978-423-9309).

Happy Thanksgiving!

Here is something to chew on besides that drumstick...

As you are probably aware, the upcoming few months pose the greatest obstacle to sellers from a purely cyclical perspective. Think of the process from a common-sense approach. Who wants to travel from town to town and house to house in the middle of winter? The question is rhetorical, but the answer is: nobody! It is miserable outside...snow...cold. People are out straight...holidays...school vacation...

That is why only motivated sellers and serious buyers are normally out there in the market during the tail end of November, December and January. However, this season may deviate from the norm, as the extension and expansion of the tax credit (see prior post) should create a sense of urgency for many buyers.

My thought is that those of you who are thinking of waiting for the spring market to put your properties up for sale - while normally the prudent course of action - will be making a mistake given the time constraints of the tax credit. Moreover, as confident as I was that this extension would be enacted (see prior posts), I am equally confident that the credit will not be extended further. If it is extended, it will be limited in scope as compared to its current form so as to be phased out over time.

For those of you interested in statistical data for Massachusetts (Source: Massachusetts Association of Realtors 10/24/09), read on.

October sales numbers, year over year:

Single family home and condominium sales were both up 17-18%
Single family home selling prices decreased 2.4%
Condominium selling prices decreased 4%

Inventory on market, October 31, 2009 as compared to October 31, 2008:

Both single family home and condomium inventory decreased to just over 7 months from slightly over 10 months.

As always, feel free to contact me at your convenience with regard to any real estate needs.

Chance of a Lifetime!

For those of you who do not know me personally, I am not one to overstate the importance of things. With that said, the fact that a new homebuyer tax credit was enacted Friday is a tremendous win for anyone looking to buy or sell a home.

For buyers who qualify, it cannot possibly get any better than this: a significant tax credit to buy a home at a time when interest rates and home prices are at historic lows.

For sellers, buyers should be coming out of the woodwork to take advatage of this opportunity. The fact that the credit - although at a slightly reduced rate - now applies to current homeowners should open the market considerably for new purchases.

If you are even considering buying and/or selling a home, I urge you to click here for a detailed breakdown of the new credit promulgated by the Massachusetts Association of REALTORS. As always, for any real estate needs, please contact me at 978-423-9309 (cell) or john@jw-realestate.com.