Tim Bradford - AMMCorp.net

Listing agents get asked all the time by prospective home sellers:  What is my home worth?

While this may sound like a vague answer and sellers do not want to hear this:  Your home is worth whatever a buyer is willing to pay for it.

The seller can choose to disagree with a buyer's viewpoint, and keep their home on the market until the market (one buyer) meets your expectations, and sometimes it works if you wait long enough (sometimes years), but sometimes this strategy does not work.

While there are many ways to look at initial asking prices and potential sales prices, such as (not an exclusive list by all means):

• Recent comparable home sales
• Current competition
• Analyzing the above via:
  o   Square footage
  o   # bedrooms & # bathrooms
  o   Age
  o   Geographic proximity
  o   Condition, features

There are many variables that may, should and oftentimes does influence pricing (initial and potential sales price) which sellers and listing agents do not often discuss, or discuss in detail as much as they should.  These variables create complexity, uncertainty and can conflict with each other.  A good listing agent takes all of this into account and should be able to put it into context for a seller after conducting both a thorough review of the property itself as well as a thorough interview with the seller(s):

• Absorption Rates - community and individual sub-market
• Months Supply of Inventory
• Sub-market Trends - positive, neutral, negative
• Seller's true motivation
• Seller's timing requirements
• Occupied or vacant
• Design, décor
• Functional obsolescence
• Age of major components (roof, windows, furnace, AC, kitchen, baths, flooring)
• Condition of adjoining properties
• Smells - Cats, dogs, smoking in the home
• Cleanliness of home
• How easy will it be to show the home
• Seasonal fluctuations -- Time of the year the property enters the market
• Quality of the marketing - or lack thereof.  Describing the features and benefits has a huge impact.  Exceptional digital photography is key.  Exposure via website syndication, and a host of other technology related tasks.
• Evaluation - Are there any obstacles that would prevent a sale and/or have an impact on your sales price?  What can be done to eliminate or minimize these obstacles?
• Home Staging - Will the home be staged or placed on the market as-is?
• Room Re-Design/Re-purpose & Renovation - If buyer expectations are high today regarding condition, and the seller has some financial flexibility, a better way to protect a seller's financial bottom line is to make cosmetic or real improvements versus having a price reduction(s) to affect a sale.  How could this be accomplished? Cost? Timing?
• Negotiating Expertise - The negotiating expertise of the agent is key.
• Cost Effective Resources - Repairing/remedying home inspection items, radon, Point of Sale (POS), etc., can impact a sellers' financial position.
• Commission - This impacts a seller's financial bottom line.
• Is your home outside the norm of your neighborhood - largest home? 3 bedrooms in a 4 bedroom neighborhood?  1^st home in a huge development?  Siding when most homes are brick? 

While you as a seller may not want to wrap your brain around all these concepts in detail, it is important that you know that these concepts do exist, that they should be factored into every conversation regarding price and length of time on the market, and any agent you are contemplating  to represent you -- should be able to connect the dots for you so you can make a well-informed and educated decision regarding the single-most important aspect of selling your home.

A related and follow-on question often asked is: How long will it take to sell my home?

While this is a valid question, and looking in the rear-view mirror, one can guesstimate based on prior sales how long it will take by looking at both averages, and the closest comparable homes.  This too is a guesstimate as some of the above bullets will influence the answer to this question.

Think all listing agents are alike?  Interview 3-5 agents and see how an agent stacks up to the above criteria (which is by no means an exhaustive list) and you will quickly see qualitative and quantitative differences in the expertise an individual agent possesses and demonstrates.

Choose your listing agent wisely!  Your ultimate success (or lack thereof) as well as your financial position in the transaction largely depends on it!

 

Important Point to remember -

Never assume that conventional mortgages are cheaper than FHA mortgages if you are putting 20% down, just because you have no mortgage insurance.

I just received a referral from Katerina Gasset the other day who wants all buyers to be approved on her bank owned properties by someone that she trusts, even if that borrower is going to use their choice of lender. The borrower must have told me that she wanted the best rate 3 times. This was up most on her mind and I don't think she heard anything else that I stated. Well, I received an e-mail today from Katerina, from the realtor that has the buyers, telling us that they went with her first choice. This is someone that the borrower trusts and who is friends with on a certain level apparently. Her credit scores are above 700, yet her husbands credit scores are around 634 and 637. Here is the sad pathetic part when speaking to the borrower. I asked her if the loan officer had her husband's credit scores and she said no, she only told him hers. OUCH - rut row !!!!  First off, no loan officer shouldn't be quoting interest rates without at least knowing the borrowers credit scores, all borrowers involved.

 

 

FHA loans have been the main source of financing in the last 6 months. What I hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage and the real estate industries. The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 2 years should have been FHA mortgages, not subprime. And that is a hard core fact.

 

To compound this, so many said just because you had a conventional loan, you had the better loan. This was not always true when putting 3.5 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in many cases, will be the best mortgage for you. But here is the kicker, in this scenario that I am about to share with you, even with 20% down, the FHA loan is cheaper for you, even in the short term. And because of today's rates and market conditions, paying points might be better than ever before.

 

 

So you could argue the fact that this is just my opinion, that FHA mortgages in many cases would be better for you. True, even though I have over 16 years of experience as a loan officer in the mortgage industry. But numbers don't lie. Let me show you.....

The example below is based on a $460,000 purchase price with 20% down. One reason why conventional rates are a little higher and cost more pooints in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 720, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 637 and I will still show in this example that FHA loans are cheaper, even with 20% down.  

 

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. And many lenders can't do FHA loans under 620. I can still do them down to 600.***

 

Type of Mortgage	Conventional Loan	FHA Loan
Purchase Price	$460,000	$460,000
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Interest Rate with points	5.50% & 3.625 points	4.50% & 1.794 points
Principal & Interest Payments	$2,089.46	$1,897.23
Mortgage Insurance	N/A – Zero $	$153.33
Total Mortgage Payment w/ P&I and mortgage insurance	$2,089.46	$2,050.56
Monthly Savings		$38.44

Disclaimer :  These rates are examples, but the spread shown in the example is real. To compare this scenario apples to apples, it couldn't be done because of the large pricing hit on the credit scores for conventional loans. In this scenario, there are no lender fees, just points. The conventional rate and points also includes the penalty for the 637 credit score, which is 3 points.

 

Some of you might be saying that you will be adding $6,440.00 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. This is correct and I don't want to confuse you with more numbers and charts. But here is a quick breakdown. Here is a break down of the costs for the both scenarios.

 

Costs of the mortgage	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Points for the rate & penalty	0.625 + 3.0 = 3.625 points	1.794 points
Cost in dollars for the points	$13,340.00	$6,653.00
Difference in costs	$6,687.00 more than FHA
Upfront MIP added to loan	N/A	$6,440.00
Monthly Savings on Mtg payment		$38.44
New Mtg payment – MIP paid in cash	$2,089.46	$2,017.93
Monthly savings with No MIP financed		$71.53

 

As you can see, there are a few different ways to look at this. To compare apples to apples on the upfront mortgage insurance, let's pay it off in cash, using the same monies that you were using to buy the conventional rate. As you can see you still save $237 out of pocket on the FHA loan and now $71.53 a month, even with mortgage insurance.

My advice?  Don't pay the UPMIP, because you will still have a lower mortgage payment and keep in mind, you also have a tax write off on the higher loan amount. One more important fact that even many loan officers don't know. The monthly mortgage insurance on the FHA loan will fall off in 5 years. When this happens, your savings is now increased to $191.77 a month.

 

Lastly, here is one more comparison to show what happens to your principal on the FHA loan scenario compared to the conventional scenario.

 

Principal Balance	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Remaining Principal after 3 years	$252,273.59	$255,473.11
Remaining Principal after 5 years	$340,255.24	$341,336.83
Remaining Principal after 7 years	$326,842.79	$325,861.41

As you can see here, it would take about 6 1/2 years to recoup the upfront mortgage insurance if you included it on the new mortgage. But don't forget that you put $6,687.00 in your pocket because the FHA loan was cheaper in points.

 

If you ever have any questions about FHA loans and comparisons, please don't hesitate to call me or e-mail me.  jbelonger@ihmci.com

 

 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

BUYING A BANK OWNED HOME

 

Buying a bank owned home is a popular trend, especially here in the Cleveland area. Local home buyers are hearing about the great "deals" people are getting across the country and want to get in on the action. National media have also been feeding this frenzy. While buying a bank owned home may be a great option, there are also pitfalls that buyers may not be aware of. Here are some pros and cons of buying a bank owned home.

 

PROS

*     Buying Below Market Value - This is the most popular reason for wanting to purchase a bank owned property.

*     Less Competition - Especially on a home that needs work. A lot of buyers don't have the necessary funds to both finance AND fix up a property. Buyers with sufficient money are a rare commodity today and may find little competition when bidding on a bank owned home that needs improvements.

*     Opportunity To Buy In A Desirable Area - Bank owned homes give some people a chance to buy into a community that they would otherwise not be able to afford.

*     Sweat Equity - Contractors or buyers who are very "handy" can do much of the needed improvements themselves, thus creating instant equity when improving a bank owned home.

*     An Alternative To Building - Many buyers who don't want the hassle of building a home from scratch find this as a viable alternative, especially in high-end suburbs. Buyers can purchase a bank owned home that has the desired space and floor plan, but may be a little "rough" and make it everything they want.

CONS

*     Bank Owned Homes Usually Need Work - These homes have been neglected for a long time and often need money put into them. If you are looking for a home in "move-in" condition, a bank owned home probably isn't for you.

*     Investment Of Time - In addition to money, a lot of time needs to be put into a bank owned home. In some cases, it is like taking on a second full time job.

*     The Unknown - There is limited information about a bank owned home available to a buyer.

*     Financing Issues - Some lenders won't give a loan on a bank owned home that isn't in decent condition. Therefore, the only way to purchase some of them is cash, which is a big hurdle for many buyers.

*     Competition - There are a lot of buyers who want to buy a bank owned home, especially one that is in great condition. Nice bank owned homes priced well don't last long and often get multiple offers.

 THE REALITY

While buying a bank owned home seems like an easy  thing to do, and a good investment, there are a lot of misconceptions. Many buyers think they will be getting the bargain of a lifetime when buying a bank owned home. However, you can expect to realistically purchase one for about 5-20% below market value. A deal, perhaps, a steal, not usually. The really good ones often sell at or near market value.

There are a lot of risks involved as well. Unless you have experience buying and fixing up homes, most buyers don't know how to properly calculate the amount of money needed to properly improve a home. This often leads to the financial downfall of many, espcially first-time buyers. 

Additionally, many buyers purchase a bank owned home without having their own agent. This comes from the "getting a deal" mentality that many buyers have. They mistakenly think that working directly with the listing agent will help get them an even better deal, which is not true. The listing agent works for the seller, not the buyer. Buying a bank owned home can be a much more complicated transaction than a tradtional purchase and without a buyers agent, a buyer is putting themselves at risk.

A bank owned home can provide a buyer with a fantastic opportunity to get the home of their dreams at a great price, provided they know what they are getting into. If you are seriously considering buying a bank owned home, consider the pros and cons to make sure it is the right thing for you. 

Click below to read more articles about bank owned homes in the Cleveland area:

Bank Owned Homes In Orange School District

Bank Owned Homes In Solon

Bank Owned Homes In Beachwood

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About The Authors:

Dan and Amy Schuman reside in the Eastern suburbs of Cleveland and have experience helping buyers purchase a bank owned property. They are relocation specialists and work extensively with buyers and sellers who are relocating in or out of the area.

The Schuman Team also specializes in luxury homes and are members of the Luxury Home Consultants of Keller Williams Realty Greater Cleveland and of the prestigious Institute for Luxury Home Marketing,the premier independent authority in training and certification for real estate agents working in the luxury home market.

If you are looking to buy or sell a home in Bainbridge,Beachwood, Moreland Hills, Orange, Pepper Pike, Solon or the surrounding Eastern suburbs of Cleveland, please contact the Schuman Team as they would be happy to show you why people love working with them.

To see all homes currently on the market in the Cleveland Ohio area, click here. For a personal consultation or to speak directly to The Schuman Team, call 216-346-3235.

Check out the award-winning website, www.schumanteam.com .

 or CLICK HERE to visit the Schuman Team blog and then save it as one of your favorites.

All content is the property of The Schuman Team and may not be duplicated or used without their written consent. ©2009

 

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