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Is it time to buy a home yet?

Last year was a slow one for real estate sales but it did start picking up towards the end of the year when buyers started realizing that homes were now affordable. Lot's of bank owned properties being sold 50% less than they sold for just a couple of years ago. If fact, everyone of the homes I sold last year were bank owned, REO properties.

We just went pending on a seller owned COOP I had listed in the Rossmoor retirement community back in 2007 for $180,000, but did not get any offers. We rented it out for one year then put it back on the market in December 2008. The new listing price was $140,000, then reduced to $129,888. This was a property that sold in 2005 for about $300,000. It will close in 15 days.

So what has changed so much that a property would be reduced by more than 50% and still have difficulty selling? It's simple, there were few buyers ready willing or able to purchase in 2007/2008 and the banks did not want to make loans without 20-30% down payment.

Now that interest rates and home prices have dropped to reasonable levels buying just makes a lot more sense than renting. Not to mention the $15,000 tax credit that will be offered very soon.

The majority of my real estate business is representing buyers. We've been writing offers on bank owned (REO's) and have the knowledge and experience you need to make sure you get the best deal possible. As a standard practice we write into the offer that the seller (bank) pays up to 5% of the value of the purchase price towards the buyers closing costs. That even includes buying down points on your new loan's interest rate.

As a example, let's say the loan interest rate is 5%, part of the seller's consession can be used to buy down (points), the loan interest rate to 4.5%. That means the loan payment will be approximately $450 per month per $100,000 borrowed.

Considering the historic lows in interest rates, the availability of reasonably priced homes, banks paying the closing costs and FHA loans with as little as 3% down, it's time to take a look at the benefits of home ownership.

So if you have been thinking of buying a home but have been afraid to do so, now's the time to reconsider. We've been through tough times before but you can be assured that America will survive and prosper. Home prices will stablize when the cost of replacement is more than the cost of existing homes. Do the math to determine if existing home prices in your area are less than the cost to build new. If they are, it's time to seriously consider buying a home. Give me a call if you would like to discuss further. We have many ways to structure a deal that will benefit your needs, not the banks.

Posted by Gene Ward on 02/08/2009 05:07 PM

Comments (2)

first time buyers, home prices, interest rates, bank owned, reo

2 Comments on Is it time to buy a home yet?

FEB

Gene, you really go to bat for your buyers, don't you! Great job negotiating with these lenders on all these REOs. It's complex and time-consuming. My hat's off to you.

Join my new AR group and post your blog at http://activerain.com/groups/virtualoffice

Regina P. Brown

Regina,

I've found a good working formula to insure my client can buy the home they want at the current market value. As you may know a lot of REO properties are priced by BPO and that BPO may have been done several months back. In this market 2-3 months can be a long time. The bank will put the house on the market using the price from that old BPO, so it's usually overpriced. In addition, there can be multiple offers. I tell my buyers not to run from multiple offers but to step up to the plate and win the bidding war so they can get into contract. This works just a well when your offer is the only one.

Here is how I protect my client's interests and get them a home at current market value.;

Prepare an accurate CMA so you and your buyer know the current market value. You need to do this right, so have experience or find someone that does. You want to be within 1% or less of where the appraisal will end up.
Write the offer for whatever amount the bank is asking for, it's usually more than the CMA you created. If you write it for less the bank will always counter you so don't waste your time.
Make sure the offers "Appraisal Contingency" check box is checked. This is very important to protect your client. The client's offer must be contingent on the appraisal.
The offer is subject to Addendum #1. Create addendum #1, write language that states "Seller shall pay up to 5% of the purchase price towards buyers closing costs". Banks can pay for non-recurring and recurring costs. (I ask for 6% but they usually counter back at 5%. Doesn't hurt to ask as one time they did accept 6%. If closing costs are less than 5% the bank will want any remaining funds applied to their net sheet.
To get as much of the 5% as possible have your clients loan broker use any remaining funds, after normal closing costs are deducted, to buy points to reduce the interest rate on the buyers mortgage.
If the bank counters because of multiple offers and ask for your clients best offer, usually this is done verbally, give them whatever you feel is necessary to win the bidding war.
Once you have won the bidding war and are in contract get the appraisal done. If you did a good job on your CMA the appraisal will be about the same. When the appraisal is done send a copy of the appraisal along with addendum #2 stating, "Buyer removes the appraisal contingency subject to the seller reducing the purchase price to the appraised value. All other terms to remain the same."

If effect, what you've done is found your buyer the right home, won the bidding war and protected your clients interest by getting them a home at the current market value. In addition, the bank has paid about 5% of the purchase price towards the buyer's closing costs. As the buyers closing costs are usually 3%-4% max there is 1% ($1,000 per $100,000 of purchase price), left over that can be used to buy points to reduce the buyer's loan interest rate.

This is of course all subject to you educating your buyer's and their approval. You need to explain this process in detail so they know what's going to happen. Make sure to disclose your plan, put it in writing and have the buyer sign it. Make sure they have all the information they need to make informed decisions. You'll guide them through this process and when you are done, they will thank you for a job well done. As all contracts are not the same from one state to the next, make sure you have a througough understanding of this process and discuss it with your broker to insure you are protecting your client.

One last comment, always get all you can out of the banks. After all, they would do the same to you.

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