Real Estate News and Commentary

September 8, 2010October 5, 2019

The Short Refi program for underwater homeowners

by Dan Krell © 2010

Beginning September 7th, a FHA program to assist “under water” home owners will be available as part of the multi-faceted approach under the Making Home Affordable program (which provides home owners relief opportunities). Many home owners who owe more than the value of their homes have eagerly awaited the announcement of the official start of the FHA “short refinance” program that was originally unveiled on March 26th of this year by HUD and the Department of the Treasury.

Somewhat akin to a short sale, the short refinance is a mortgage refinance when the home’s value is less than the existing mortgage principal balance. Much like the short sale, when the mortgage lender writes down the principal balance to allow the sale to occur, the short refinance depends on the existing mortgage lender to write down the existing loan balance to allow the refinance to be approved.

Although the home owner must qualify for a standard FHA refinance mortgage, other eligibility requirements for the short refinance program include (but are not limited to): the home owner must be in a negative equity position, must be current on the existing mortgage, and occupy the subject property as a primary residence; the existing loan must not be a FHA mortgage; the existing lien holder must write off at least 10% of the existing mortgage principal balance; and any subordinate loans that are not eliminated must subordinate to the new mortgage and cannot exceed a combined loan to value ratio of 115% (although the new FHA mortgage cannot exceed a loan to value ratio of 97.75%).

Home owners who obtained a loan modification may be eligible for this FHA refinance. If the loan modification was obtained through HAMP (Home Affordable Mortgage Program), the loan may be approved after the loan modification is made. If the loan modification is a non-HAMP loan, then the short refinance may be eligible after the home owner has made at least three on-time payments and the loan is current.

Since loss coverage for these loans will originate from funds made available from the Emergency Economic Stabilization Act of 2008 (EESA), the FHA short refinance mortgage program must comply with The Dodd-Frank Wall Street Reform and Consumer Protection Act (which became law July 21, 2010). Home owners applying for this refinance program must certify that they are eligible for the program and have not been convicted in the last ten years of (in connection with a mortgage or real estate transaction) felony, larceny, theft, fraud, forgery, money laundering, and/or tax evasion (SEC. 1481 (d)).

HUD is advising that home owners applying for this program should be counseled about the affects of the program on their credit history and score as well as consulting their tax advisors regarding the cancellation of debt and possible tax consequences.

Although HUD’s analysis predicts that between 500,000 and 1,500,000 home owners will take advantage of the program, critics have stated their doubts and point to the lackluster performance and high rates of recidivism from similar MHA and HAMP programs. Additional criticism on the short refinance program is that although lender involvement is voluntary, success of the program relies on the existing lenders’ participation.

Additional information on the FHA short refinance program can be obtained from the Making Home Affordable program (www.makinghomeaffordable.gov; 888-995-HOPE), as well as participating FHA lenders.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 6, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 2, 2010October 5, 2019

Home renovations reservations

by Dan Krell © 2010

If you’re like the typical home buyer, you’d prefer to purchase a new home. However, most new homes are too big and too expensive. Buying an older home that has been renovated or updated may be a viable alternative. However, renovations and updates can vary in scale and quality; having a sharp eye and a thorough home inspection can assist you in revealing workmanship issues.

If you are considering purchasing a home that has been renovated or updated, the first question you should ask the seller is, “who completed the work?” Additionally, you should ask if there are warranties and if the warranties are transferrable. Many home renovations are completed by reputable, licensed contractors or builders who are familiar with the permitting process as well as building code requirements and sometimes offer a limited warranty.

However, the quality of the renovation/update is often reduced by some contractors who cut corners to save time and money; component installation is frequently the culprit of these problems and may be due to installer inexperience and/or carelessness. Poor workmanship can make the most expensive material look cheap. All identified issues should be pointed out to the seller to be repaired or replaced.

Although you should hire a licensed home inspector to conduct a thorough home inspection, you can sometimes identify quality issues in a renovated/updated home without much effort. The most common workmanship problems noticed by laypeople in a renovated/updated home are in the kitchen, bathrooms, and flooring; identified quality issues may be an indication of other underlying problems.

When looking at a renovated/updated kitchen, check the cabinets and appliances. The cabinets should be securely fastened to the wall; loose or inappropriately secured cabinets indicate a potential problem that could cause the cabinets to come crashing down at a later time. Refrigerator doors should open freely and should not be obstructed by cabinets or walls. The stove should have an anti-tip device installed; this is a safety device that can prevent a hot stove from falling on a child or an unsuspecting adult. The dishwasher should not feel loose and should be secured to the counter; an unsecured dishwasher can “walk” while operating and have the potential to pull plumbing components apart.

If plumbing is not installed properly, leaks can develop and obviously create future problems. Toilets should be firmly secured to the floor; a loose toilet can break the wax seal and result in a leak. Checking the water flow from the faucets may reveal plumbing problems; poorly connected pipes can sometimes be revealed by feeling the pipes under the sink for drips while the faucet is running.

Renovated/updated homes often have new flooring. Poor workmanship can be easily spotted if tiled or wood floors are not flat, even, and square to the walls. The carpet should feel taut; loose carpet is a trip hazard. Although problems in the subfloor cannot be easily detected, red flags should be raised if there are cracked tiles or uneven floors.

Remember that your keen eye is not a substitute for a thorough home inspection; a licensed home inspector should inspect all systems within the home (including plumbing, electrical, HVAC, etc). However, any issues you uncover while viewing a home will not only help you decide on purchasing, but can also assist you in determining your offer.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 30, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

August 26, 2010October 5, 2019

How would you choose your real estate agent?

by Dan Krell © 2010

Buying and selling a home can be one of the most expensive and complex transactions you may undertake in your lifetime. So if you plan to hire a real estate agent to assist you, conventional wisdom dictates that you should interview several. However The National Association of Realtors 2009 Profile of Home Buyers and Sellers (NAR 2009) tells a different story. The profile reveals that the majority of home buyers and sellers surveyed (66% of buyers and 64% of sellers) indicated they hired the agent they first encountered.

Although the logic may seem counter intuitive, the means by which home buyers and sellers encounter their agents may provide an explanation. Both home buyers and sellers reported that the top means of finding their real estate agent was through a referral from a friend or family member. Of those surveyed, 44% of home buyers and 40% of home sellers indicated they relied on someone else’s judgment for their choice of real estate agent; first time home buyers were most reliant on their friends’ and family members’ referrals.

Repeat business was the second most frequent way indicated in choosing a real estate agent; meaning that the home buyer and/or seller hired the agent that assisted them in the past. Oh, the internet was also indicated as a way of finding a real estate agent; however it was not one of the top means. However, more home buyers (10%) indicated they found their agent on the internet compared to sellers (3%).

Regardless of how you find your real estate agent, it is probably a good idea to find out more about them before they list or sell your home. A conversation about their experience, knowledge, and expertise is probably a good way to start. Additionally, knowledge about the local market is extremely important these days as market trends have become hyper-local. Two recent conversations with home owners revealed the importance of understanding hyper-local real estate trends; both discussed how the agent they wanted to hire did not have an understanding of the hyper-local impact which resulted in under-pricing or over-pricing their homes.

Because of the increase in number of transactions requiring specialized knowledge (such as short sales, 1031 exchanges, etc), it is probably a good idea to find out if the agent has the experience (or certification) if your purchase or sale falls in this category.

Although choosing an agent should transcend the “big name” myth, some people still get caught up in the name game. It has been many years since residential real estate has been proprietary, brokers now cooperate with each other to sell homes. Home buyers typically search for homes by characteristics, rather than searching for homes sold by individual brokers. Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire.

If you are considering hiring a real estate team to handle your sale, make sure there is one agent you can call as your point of contact. Questioning the point of contact about their experience and knowledge is also a good idea.

Asking friends and family for referrals as well as calling the agent you previously worked with is a good way to find a real estate agent. However, vetting out potential issues can be achieved by asking the right questions before you hire them.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 23, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

August 18, 2010October 5, 2019

Is now the time to buy a home?

Today’s economy has a lot of people worried about buying a home. So much so that many would-be home buyers continue to sit it out. However, there are home buyers who are jumping into the market because they feel there is value in home ownership regardless of the economy.

So, is it a good time to buy a home? The answer, of course, depends on your circumstances. However, the basic indicators reveal we are at a time when the combination of historically low mortgage rates and low home prices provide an opportunity not only for real estate investors but for home buyers as well.

First, I’m sure you’ve heard that mortgage rates are at historic lows. Yes it is true that many economists forecasted that mortgage rates would increase through 2010 due to an anticipated global economic recovery. However, many now have conceded that the recovery has stalled; the rudimentary explanation is that economic concerns abroad have affected a domestic recovery. Additional economic pressures and volatile markets continue to suppress mortgage rates, such that it has sparked a new refinancing boom.

Second, home prices remain low. Even though the recent S&P/Case-Shiller Home Price Indices (standardandpoors.com) reveal home price increases in fifteen of the twenty composite cities (including the Washing DC metropolitan area) for what may seem to be the first quarter of gains this year, economists remain cautious in saying there is a housing recovery. As median home prices continue to remain relatively low, the National Association of Realtors Home Affordability Index (Realtor.org) indicates that homes continue to be as affordable as they have been in recent years.

Third, the Trulia Rent vs. Buy Index (truliablog.com) indicates that the Baltimore – Washington area rates relatively low in the index (meaning the costs of owning a home is less than renting). The Rent vs. Buy argument has always been hotly debated, even at the height of the seller’s market. There are those who will always say home ownership is more costly than renting (I suppose a broken watch is right twice a day); and let’s face it, home ownership is not for everyone. If you’re questioning the rent vs. buy issue, you can compare rent vs. buy via a “rent calculator” (available on various places on the internet) comparing the costs of home ownership as compared to renting.

Regardless where the housing indicators point, many home buyers are aware of and believe in the intangible advantages of owning a home.

Additionally, some financial talking heads are now talking about these housing indices and touting real estate as an alternative to volatile markets. Even the venerable Stuart Varney has recently been heard saying that buying a home is smart. (Of course I have to provide a disclaimer that I am not offering financial advice and you should consult the usual suspects of professionals and financial experts before you invest in real estate).

The American Dream of home ownership is not dead; it has just been on hiatus. Working hard to save money for a down payment to purchase your own home is on a comeback. And unlike some who might have you believe that buying a home is a “false economy,” those who know genuine value will always look to own their own home regardless of the economy.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 16, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

August 12, 2010October 5, 2019

Truth in advertising: When selling your home, advertise the truth

by Dan Krell © 2010

It is often said that the truth shall set you free, but the truth may also help you sell your home. You might think I’m talking about disclosing material facts (which you should always do), but actually I am referring to how you describe and advertise your home. Accurately describing your home and providing truthful photos may attract actual home buyers who are searching for a home just like yours.

Descriptions of your home in the MLS and other advertisements, as well as photos, are designed to attract home buyers who are searching for the specific features of your home. Home buyers may be attracted by the message you send them, however they will only buy the home that meets their criteria.

You see, searching for homes on the internet is akin to internet dating. Just like internet dating, you want to put your best foot forward. You want the photos to be attractive and your description to be tantalizing. However, distorting photos (or posting photos that are ten or twenty years old) as well as exaggerating your description will most likely make people angry for deceiving them. If you portray your home as something it is not, you are certain to upset home buyers and agents for wasting their time.

Because of its convenience, online virtual tours have become one of the main tools that home buyers use to choose what homes to view in person. As you might imagine, some agents and home sellers are tempted to use digital photo programs to make the homes look better on the internet. Using the “pinch” function to make rooms look larger, they may feel as if they are doing minor photo “touch ups”; but in actuality they may distort what the home looks like. In extreme scenarios, they may cover-up material facts about the home.

Consider telling the truth. For example, if your home is very well maintained but hasn’t been updated since Ronald Reagan was in the White House, then you might consider describing the condition and maintenance of the home rather than saying the home has “updates.” Think about listing the actual number of bedrooms in the home as opposed to listing the number of potential bedrooms if the basement was finished. Additionally, if a queen size bed fits comfortably in the master bedroom; don’t distort the photo to make the bed appear to be a California king size!

If you’re frustrated by having your home on the market for what may seem to be a long time and your home is priced correctly, reconsider how your home is portrayed to home buyers before making a price change (over-pricing your home is a separate issue). Many agents seek price changes as a means to a quick sale; however before lowering the price, have a chat with your agent about how they are describing the home and consider re-taking photos.

Home sellers with whom I have consulted have had positive results once they realized the message they were trying to send to home buyers was not congruent with their home’s characteristics. Remember, a hog in a tuxedo is still a hog; don’t make the home out to be something it is not just to attract home buyers.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 9, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.