U r b a n T r e k k e r

Buyers Rushing to the Finish Line.. to Claim the $8k Tax Credit

For No. Va., NVAR June stats shows that total number of homes sold up 14.16% from 1,900 to 2,169 homes. Year-to-date homes sales up 11.87% from 8,014 to 8,965 homes. Homes under contracts up 17.12% from 2,103 to 2,463 homes. Still wonder why multiple contracts are back? Here are the indicators.

• Inventory indicator down 36% is at 3.5 months down from 5.49 months last year. 
• Active listings down 27% from 10,440 to 7,617 homes.

DC is a different market than N. Va. According to GCAAR, DC condo sales, up 2.8% from 247 to 254 units. However, year-to-date sales still down -18.1% from 1,324 to 1,084 units. Though, listings declined 4.3% from last year. For detached and townhomes sales is better. It's up 20.8% from 269 to 325 homes. On year-to-date is up 4.2% from 1,357 to 1,414 homes.

Buyers are out there snapping properties left and right. First-time buyers primo motivation: To claim the $8,000 credit.

139 days (4.5 months) to go before the deadline to claim the $8,000 tax credit. Deadline is November 30, 2009. You MUST go to closing on or before 11/30/09 to claim the credit or lose it. Unfortunately, a tax credit kinda - use it - or lose it. There's no way around it. This year's tax credit is different than 2008 credit in which buyers have to pay back the loan in 15 years. For 2009 credit, it's free. No payback.

Speaking about timing. In real estate, 'time is of the essence.' Timing is very important. And 4.5 months is not a long time in real estate. It normally takes 45-60 days from ratification of sales contract to closing. This is only for regular sale and bank-owned properties. Short-sale, who knows? Your guess is as good as mine. It could be as short as 4 weeks or as long as 6 months or maybe even longer. However, lenders are faster now to turn around short-sale approval.

A typical planning, scheduling (short-cut) to get the house you want, goes like this.

I. Previewing homes: 4-6 weeks.

The more inventory the better. The less, uhm - a problem with timing there.

II. Once you know what you want to buy, depends on the type of sale it make take time to get to ratified contract.

a. Short-sale waiting for lender to approve the sale: 4 weeks (the shortest time) to 3 months (or maybe longer)

b. Foreclosure: once accepted, bank ratifies contract 1 week to 2 weeks.

In this market, many buyers are going after the under $400k homes. If you're one of them, I got news for you: Multiple contracts, contract date deadline (when contract must be submitted by such and such date and time) - is the norm. Even for short-sale properties! The higher the price range, the less competition you have. Prepare for extra time, in case you got into the bidding wars. You can read stories about multiple contracts here, and here.

III. Lender approval process: a minimum of 1 month.

In 2005, lenders can approve the loan in a blink! Now? It's a different story. A lender once told me "FHA is in the long .. " Gone are short approvals. Appraisal, is part of the approval process. If your appraisal comes in lower than your offer, you got 3 options: 1) either proceed at whatever 'modified' loan you qualify, 2) seller lowers the price, or 3) void contract. This appraisal thing deserve another post. Because it's a game change.

Even if you are "remotely" thinking about it, we're talking about 2-4 months process from where we are today. Which isn't much time left, really. And you know what, you don't want to wait till the last minute. Because things do happen. Even if your lender is ready to go, sellers' lender might not. We have a case right now, where lender told the settlement company, it may take up to 4 days to turn around the payoff package up from the normal 4 hours turn around! The thing is, you don't want to get into the last minute scenario to be told 'uhm, we're not ready to close" by anyone's (seller or buyer) lender.

Oh one more thing, say you have no money for down payment, but your credit score is good (min. 620). In Virginia, you can get help from VHDA that will advance you the "$8,000" credit for your down payment. (the financing process via VHDA may take longer). How about closing costs? That's something that you can always ask the seller to contribute.

So, get your b*** out there, now .. before it's too late..

More Short Sale (on the Market) than Foreclosure

If MRIS data is any indication, distressed properties trending short-sale could be a big threat for regular sellers. Regular sellers have a hard time competing with distressed properties owners, especially if these properties are priced way below the norm for that hood. On the flip side, this kind of condition represents opportunity for buyers. For the most part, short-sale properties tend to be in much better shape than foreclosures, especially if there are people still living in it, either owners or tenants. And short-sale and foreclosure are competitively priced.

From the resale front, this month market conditions for distressed properties weighs in more towards short-sale than foreclosure. That means many more 'underwater homeowners' are quickly trying 'to get out' from their situation. A recent study finds that no owners would default on a loan if they see their home equity drop only by 10%. However, 17% of household would default (walk away) even if they can afford to pay their mortgage, if their home values fall 50%. Unfortunately, in some pockets of our neighborhoods, prices have fallen below 50%.

Here's the data I extracted from  MRIS.

Active listings for NVAR market (Arlington, Alex., Falls Church, and all of Fairfax)

Total listings         4,507

Foreclosure        221  (4.9% of all listings)

under $500k       182

over $500k         39

Short-sale       601  (13.33% of all listings)

under $500k       491

over $500k        112 

Under contract            1,966

(total short-sale doesn't add up to 601 - something is missing here.. oh well)

You can see from the data, definitely the number of short-sale properties on the market crush foreclosures.

Here's the numbers for Prince William county, that used to be 'the' place to find foreclosure. Look at this stat. It's competitive with their adjacent neighborhoods north of I-95 (above).

Total listings 1,870

Foreclosure      96

Short-sale   239

Moreover, distressed properties over at Northern Virginia, on average carries higher price tags than at PW. Over in Fairfax, you can find homes on foreclosure list goes from $52k, condo in Alexandria - all the way - to $2.4M, a mansion in McLean. What striking is one-fifth of short-sale properties, are properties over $1M! Those custom built homes are on the market now at reduced price. Even a new home (never been lived) built by an architect over in my neck of the woods, is short-sale. This was a tear down. Think the architect got caught in the downturn..

Washington DC:

Total listings   2,523

Foreclosure 158          (6.2% of total listings)

under $500k 154

over $500k      4

Short-sale 168 (6.6% of total listings)

under $500k 152

over $500k   16

Under contract 93

I think for the lenders, short-sale is cheaper than going foreclosure. I heard sometime before from a lawyer, that foreclosure proceeding costs lenders on average $60k. (will be higher in some big cities).

How to Fix Mold

Mold is a common problem you find in distressed properties (bank-owned and the like), esp. if properties been on the market for a while. Most likely is these properties are vacant.

Here is a quickie way to trouble shoot mold..

Home Inspection and its Consequences - for Buyers

 Given the current market conditions, (where we have a combination of regular sales, short-sales, and foreclosures) there are two types of sales contracts floating around, whether it has a "home inspection contingency" or not. A home inspection could be a contingency (condition) in a home purchase that has to be statisfied (and lifted) when the work is completed.

Pre-2006, there's a high percentage of buyers skipped home inspection because they wanted to win the bid - of owning a house. In Realtor's lingo, at that time agents would tell the listing agents "we have a clean contract." Meaning no contingencies (financing, appraisal and home inspection). However, times have changed since then. Post-2006, home inspection becomes the norm again.

Then distressed properties flooded the market. With these kinds of properties, you are buying properties As-Is. There are different consequences to the sales. (disclaimer: am not a legal professional so what am going to discuss here only to illustrate examples)

What is a home inspection?

From our friend at Wikipedia.

A home inspection is a non-invasive examination of the condition of a home, often in connection with the sale of that home. This is carried out by a home inspector, who usually has special equipment and training to carry out such inspections. A home inspection report is then issued by the home inspector. Many home inspectors use home inspection software.

An inspector will check the roof, basement, heating system, water heater, air-conditioning system, structure, plumbing, electrical, and many other aspects of buildings looking for improper building practices, those items that require extensive repairs, items that are general maintenance issues, as well as some fire and safety issues. Home owners or home buyers often use a home inspection service before selling or buying their houses. A home inspector conducts a thorough examination of a home to detect any potential systems or components requiring attention. A home owner receives a detailed report of the condition of his/her home so that he/she can plan for needed repairs and upgrades when it is time to make them.

Here's what typically you find inside a home inspection report:

• structural condition and basement
• electrical, plumbing, hot water heater, heating and air conditioning
• quality, condition, and life expectancy of major systems
• general interior, including ceilings, walls, floors, windows, insulation and ventilation
• kitchen and appliances
• general interior, including roof, gutter, chimney, drainage, grading

In other words, a home inspector only check those 'accessible' areas of the building and is limited to visual observation. Depending on the size of a property, a home inspection may take a couple of hours.

Buying a home with home inspection

When buying a home with a home inspection contingency, your agent will include a Home Inspection and Radon Contingency form. The language is legalese. (we're using regional form for DC-MD-VA jurisdictions, so it's a standardized form)

Basically what it says in the contract: a) you have a deadline to meet or send Seller the report before deadline, and b) utilities have to be on. Make sure you understand the utilities have to be on - covers only when you do regular sales - with a home inspection contingency. Because buying As-Is have different consequences.

Once you do home inspection, now what?

You and your agent will go over the home inspection report and come up with a list of things (part of the inspection) needed to be fixed. Once you and your agent decided what items from Property Condition and come up with a list, your agent will send your request to the Seller via the listing agent. When Sellers received the request to fix some things, they have so many days (you decide) to either: 1) yes, will fix it therefore will counter your offer, 2) no we don't want to, sorry, or 3) we decided not to respond (silence is golden?). 

Then what usually happened behind the scene, when Seller responded: Two Realtors representing buyers and sellers - negotiate the deal. And the dialogue goes back and forth until both parties agree to a term/ solution to remove the contingency.

If a Seller decided to give no say, or no respond, then deal is off...unless you're willing to pick up the tab.

The game changes when you're buying an As-Is property. The paragraph from sales contract on As-Is property condition.

The Property is sold in its "As Is" physical condition, to be determined as of the - contract date, date of home inspection, settlement or other. The Seller makes no representation or warranty, express or implied, as to the condition of the Property or any equipment or system contained therein. The Seller will have no obligation to make repairs to the electrical, plumbing, heating, air conditioning, or any mechanical system, equipment or fixture. Smoke detectors will be installed and functioning as required by the laws or regulations or the appropriate jurisdiction. (emphasis added)

Most of the distressed properties on market are for sale under this As-Is condition. For bank-owned or REOs, most likely the properties are winterized (utilities turned off). Reading the paragraph, all the Seller has to do is to make sure that the smoke detectors are on. That's it. Nothing in the paragraph says that the utilities have to be on. If you want to do a home inspection, you will have to pay yourself - to de-winterized the property - so your home inspection guy can come in and do the work.

So, between regular sales and distressed sales - with respect to home inspection - each type of transaction exposes to different risks and consequences. One on hand, when you don't have to do home inspection you save a couple hundred bucks to thousand dollars (depending on the sales price and size of the property) on this expenses. On the other hand, if you want to do it, it may save you thousands of dollars down the road, because you know what's coming ahead - and you can do something about it. Like buying a home warranty.

Weekly Roundup

Mortgage Insurers to the Rescue?

Homeowners in trouble may find help from an unlikely source: their private mortgage insurance company. Typically, homeowners turn to nonprofit housing counseling services or even paid "mortgage fixers" (not a good idea) to help them renegotiate better, more affordable terms on their mortgage. But the credit crunch and the large numbers of folks in need of financial help have caused those avenues to clog up.

The Anytime Homebuyer Tax Credit

A new bill introduced in the House Thursday, HR  2801 or Home Ownership Moves the Economy (HOME) Act of 2009, aims to make the current $8,000 first-time home buyer tax credit available to literally anyone that purchases a primary residence through the end of 2010.

Upwardly Mobile Homes

When it comes to real estate, the trailer park gets a bad rap. But some designers think that this forsaken corner of the market is worthy of reevaluation—and even resuscitation.

Bank Repossessions Surge, More Foreclosures Hit Market

Expect more foreclosed properties to hit the market. The number of U.S. properties for which a foreclosure filing was received rose 18% in May from a year earlier, according to numbers released by RealtyTrac on Wednesday, as bank repossessions surged in several states outside the Sun Belt, which has so far borne the brunt of foreclosures.

Jon and Kate Plus Eight's Real Estate Stress

As if Jon and Kate Gosselin didn’t have enough to worry about already (rumors of marital infidelity, aggressive paparazzi, national media scrutiny, and, oh, eight kids) they can now tack on an extra stressor: the sluggish real estate market.

10 ways to turnoff a homebuyer

What a difference a couple of years makes. Back in 2007, homebuyers would beg to purchase your house. They would even bid more than the asking price for the privilege to do so.

Q&A: How can I estimate how much roofing we need?

We're planning to replace our roof later this summer and want to get some ballpark estimates from a number of pros. How can I estimate how much roofing we'll need? Knowing how much roofing material you'll need will make it easier to compare bids from contractors.

Wright for Real People: A Family Restores Frank Lloyd Wright's Famed First House

Restoring an architectural treasure is a formidable task, and Steve Sikora and Lynette Erickson-Sikora knew the challenges they would face when they bought Frank Lloyd Wright’s dilapidated 1934 Malcolm Willey House in Minneapolis in 2002.

LOCAL NEWS FROM AROUND WASHINGTON DC REGION

• National Harbor to cyclists, pedestrians: Drop dead [Greater Greater Washington]
• Secretary paints dire transportation picture [Fairfax Times]
• Virginia gets $17.5 M to rehabilitate foreclosed homes [Virginia Business]
• Hill residents hear Hine proposal [Wash Biz Journal]
• Foreclosures soar in Maryland suburbs [DC Examiner]
• Spotsy VRE service would take years [Fredericksburg.com]
• Metro receives first $17 million in stimulus money [WTOP]
• First LEED Platinum House [DC Metrocentric]
• Room and Board Finally Buys the 14th and T Building [DCist]

What is Seller Subsidy?

The last I checked, we are still in a buyer's market. So these days is pretty common to see buyers got some sort of seller subsidy or closing cost assistance. (Whatever term you want to use, it has the same meaning)

What qualifies as seller subsidy? Here is the paragraph on the subsidy from regional contract (DC, MD, VA). (Paragraph 10 for conventional financing).

Based on the financing terms specified in this Contract, Seller with pay at Settlement  $-------- (whatever amount or percentage of sales price)  toward Purchaser's charges, (including but not limited to loan origination fees, discount fees, buy down or subsidy fees, prepaids or other charges as allowed by the lender). Purchaser will pay all remaining Purchaser's charges. If applicable, Purchaser will pay insurance required by lender. It is Purchaser's responsibility to confirm this with his lender, if applicable, that the entire credit provided herein may be utilized. If lender prohibits Seller from the payment of any portion of this credit, then said credit shall be reduced to the amount allowed by the lender. 

Got hung up on some terms? Terms explained.

The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points also may be called loan origination fees, maximum loan charges, loan discount or discount points.

A typical amount of assistance is 3% of sales price, though a few lenders allow it to 6%. If you're buying a $400,000 home, you can ask up to $12,000 for seller's credit. It doesn't mean that you're going to get it. You're just ask, okay. It's worth the asking. (Yes, you can also ask banks when buying foreclosure).

Seller's subsidy is a 'negotiable' item. What comes next in money-related-thing in a transaction is: 'Home inspection.' If you're doing home inspection, and sellers know that they might get hit with some repairs on the house, you won't get the full amount. Unless a) sellers are desperate, or b) sit on decent profit margin (after expenses). 

It depends on the type of loan you're financing the purchase with - if you ask for subsidy - it's important to ask your lender before hand the max. amount. Lender is a gate keeper in this case.

Oh one more thing. The funds credited at settlement from the seller (on your behalf) either you use it - or - lose it. If you asked more than you need, you will lose the rest. The balance goes back to the seller. So if you asked and received $12,000 credit from seller, but at the end of the day your expenses are not more than $10,000 - seller will get back the $2,000 at closing.

Weekly Roundup

The Low Down on Listing Home Inspection Costs

Question: I have been looking for a house. I was driving in an area that I like and noticed a house I had long admired had just gone up for sale. I called the listing Realtor, viewed the house and made an offer which was accepted.

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The Summer Home Bust

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Mortgage crisis robbing seniors of golden years

Howard Weiss is 77 and scared. This year, the semiretired distributor from Phoenix ran into financial problems and stopped making his mortgage payments. He was told his home was scheduled for a foreclosure auction in May.

8 'freebies' for new-home buyers

Rhonda Duffy, owner of Duffy Realty in Atlanta, says a builder's whole career could rest on whether he or she sells one house.

The Psychology of Short Sales by Tanta, April 2008

As CR mentions in his essay on housing supply in this issue, plenty of markets are seeing very large segments of for-sale inventory coming in the form of short sale listings. Yet completed short sales remain a small segment of actual “distressed sales” or final dispositions of “worked out” loans.

Programmable thermostats are no longer part of the federal Energy Star program

The U.S. Environmental Protection Agency recently announced that it will suspend its Energy Star specification for programmable thermostats effective December 31, 2009. Any models manufactured after that date cannot bear the Energy Star label; manufacturers will have several months to update their Web sites and promotional material.

FROM AROUND THE WASHINGTON DC REGION:

• Chevy Chase to hold informational, public hearings on purple line [Gazette.net]
• Getting Closer to Confirmation of the Real World House [DCist]
• Beware: Decks Could Soon be Counted as Lot Coverage [Historic Vienna]
• Wiehle avenue development approved [Fairfax Times]
• Local Area Has Its Share of Virginia's Wealthiest [Gazette]
• Greater Washington Initiative: Region's economy to shrink in 2009 [Washington Biz Journal]
• Virginia changes mortgage regulations to fight fraud [Virginia Business]
• Is McMansion era over? [Virginia Business]
• The Cash That's Left [Washington Post]

Foreclosure Goes Upscale: Business Week

The second wave of foreclosures? Mortgage Bankers Association report pointed to that prime loans no longer immune to foreclosures. And then there is this:

According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months' worth of demand at the current rate of sales. That's four times the rate of oversupply in the housing market as a whole.

[via Business Week]

Time to buy? 

Is your Condo on "FHA-Approved" List?

I had this conversation with a lender about FHA approved condos. Yes, condos specifically. Because if you're financing your purchase with FHA loan you want to know this info in advance - before - making an offer if the condo is FHA approved. If you're going with conventional loan, you are okay.

This is the website where you can check whether the condo is FHA-approved or not. On this website you can do search by name, location, or status.

Financing Trends

Northern Virginia

NVAR region, from 18,598 total "all" (single family, townhouse, condo) sales in 2008, here is the breakdown:

Conventional: 12322

FHA: 3480

VA: 1011

Washington DC

From 5563 total sales in 2008:

Conventional: 3875

FHA:  754

VA: 37

You see, FHA takes big chunk of home buying in our area.

So bookmark this website, for your reference:

https://entp.hud.gov/idapp/html/condlook.cfm

It helps if you are a seller too. Because part of the promotion, you can say that 'the building is FHA-approved.' It expands the pool of buyers for your condo. 

For Washington DC region, look for lisf of condominiums under the Washington DC field office.

The "Monetization" of $8,000 Credit for Downpayment Use, Not Straightforward

I re-read HUD Sec. Donovan's announcement on the $8,000 credit that can be rolled into downpayment. When it comes to application of this credit as downpayment it sounds a little bit complicated. 

The language, via HUD.

"Home buyers using FHA-approved lenders can apply tax credit to their down payment in excess of 3.5% of appraised value or their closing costs, which can help lower interest rate."

--

"...under the terms of of today's announcement, lenders now can monetize the tax credit use as additional down payment, or for other closing costs."

- emphasis added

If I understand this correctly, this sounds like you can 'monetize' the $8,000 anticipated tax credit above the '3.5 percent' down payment required by FHA. The common sense behind this is if you have more than 3.5% of DP available to you, you can either a) put more towards DP or b) buy point/s - both to reduce your monthly payment. 

Qualifying first-time home buyers only receive a tax credit up to $8,000, depending on the amount of the mortgage. And those who apply for an FHA mortgage can only access these funds after filing the year’s tax return.

In the meantime, however, home buyers financing through state Housing Finance Agencies (HFAs) “and certain non-profits” can use the anticipated tax credit amount via secondary financing provided by the HFA or non-profit, according to HUD’s announcement.

(via Housing Wire)

There's more info buried in the mortgagee letter (9-15), which says "the second lien may not exceed the total needed for the down payment, closing costs and prepaid expenses." Sounds like they're talking about short-term loan. Furthermore, only certain agencies qualified to purchase the credit from you, buyers. Agencies that can purchase the tax credit are FHA-approved mortgagees and FHA-approved non-profit orgs as well as Federal, state, and local governments.

My take on the whole thing is: Leave it to the lender. A lender should know better. After all they're the one that can sell the loans back to FHA. (If their loans can't pass FHA smell test, too bad).