Short Sales and Electronic Signatures

I was so excited to see electronic signatures become acceptable in Georgia. In the comfort of my home I can fill out contracts, email them to clients for signatures, and have them returned to me via email. NO MORE PAPER! Now lets talk short sales. I happily sent two separate banks two purchase and sale agreements. What lending institution would not be happy to receive an offer on their distressed property? In both cases the bank rejected the offers because of the purchase and sale agreements. They would not accept electronic signatures! If we wanted to use these contracts we would have to fill out additional paperwork that required regular signatures! I was back to paper! So much for a good idea.

The Proper Use of a Home Inspection

Last week I attended a CE course given by a local home inspection company. The teacher, a home inspector, is a mechanical engineer. He has had extensive experience with large engineering firms that inspect large structures. Yes very qualified! We spent a full three hours looking at pictures of homes that were “repaired” by their owners. This included garden hose used as a gas line, welcome mats used on a home for shingles, light switches in a shower, and mdf boards used to hold up a floor joist. Very creative! I have not personally had the pleasure of seeing these type of “repairs” on homes that I have listed or sold. I hope that my streak stays alive! The main part of our class was a discussion about home inspectors and their relationship with the home buyer and the real estate agent. This relationship has become strained with the home inspection becoming a source of conflict between the seller and buyer. Specifically most home inspectors are missing “the forest through the trees”. Is a squeaky gate an item that must be put on a home inspection report? Is a reminder to change out the air condition filters an item to include on the report? Is it imperative to highlight deck rails on a 1987 home that are 3 inches too short if they are compared to a 2013 building code? Heaven forbid we do not have mention of the “lack of GFCI breaker in the Kitchen” on a home built 25 years ago. (We have a standing bet on how many times the GFCI breaker would be mentioned in an inspection report. After 7 years 100%) The problem is that our home sellers (still a buyer’s market) have dropped price to rock bottom only to be confronted with a list of items that the buyer wants repaired prior to moving into the home. The issue is that this list of items that the buyer wants repaired are not items that “have” to be repaired or cause a “major structural defect” to the home. I pushed our teacher hard to ask his inspectors to be more big picture when it comes to inspections. I ask that their inspectors take the time to give an overall assessment, from a structural point of view, of the home. The inspector needs to clarify what he or she feels has to be done vs what needs to be done. The buyer needs to keep the whole deal in perspective when putting together a “laundry list” of must need items that are really more of a like to have items. The buyer needs to look at the age of the home and the present condition of the home. Homes have a lot of moving parts, are exposed to the elements, and do age over time. Any home has maintenance that must be done on a continual basis. The perfect home does not exist.

We Learn From Our Clients: The Art of Negotiations!

A great part of this job is the ability to learn from our clients.
Our last education involved the art of negotiations. The ironic thing is that as much experience as my client had in sales negotiations ultimately the deal fell through.
We received an offer from the buyer’s agent. This buyer had been in the home numerous times but had a very difficult time making a decision on whether to put an offer on the home or another property. After a lot of assistance from her family, agent, and financial planner the buyer placed an offer on the home. We were $50,000 apart 89% of asking price.
We can safely say that 95+% of our negotiations involve a counteroffer from the seller, and one possibly two additional counteroffers from the buyer to settle on the price. Our seller had planned on that strategy.
Before we presented the counteroffer the seller asked me for my opinion. This is where I “choked”. I gave a two minute speech discussing everything except my immediate opinion on the counteroffer. Finally I composed myself. I told the buyer that we represent him and wanted the best offer as possible. However based on the fact that we have the most re sales in this neighborhood, and know the local market, I said I would take the offer. Obviously he did not agree.
The counteroffer was submitted. The buyer declined the offer and would not go above her original asking price. I took the email response from the buyer’s agent and forwarded it to my seller. We were so far apart that I assumed the offer was dead.
This is where I made mistakes.
• I assumed the offer was completely dead. (We were $25,000 apart)
• I emailed the buyer’s agent response and did not follow up immediately with a phone call
• My buyer expressed his disappointment in the fact that the buyer would not negotiate.
• My buyer wanted to meet in person to discuss further options. I did not pursue that.
• I did not know my buyer’s selling ultimate goal. (Actually he had told me his goal but later the immediate goal had changed)
My seller called me. I thought he was going to fire me.
Instead he gave me some feedback, a lot of criticism, and advice on how to handle negotiations in the future. I thanked him. He then told me he had a different goal and to offer a price $10000 over the buyer’s original offer price. That was a solid counteroffer.
We presented the new and improved counteroffer with a great sense of optimism.
The buyer would not budge off of her original offer and the deal died!
Items we told our seller after this event.
• We have buyers who put in an offer and do not want to negotiate. To them it is all business and they will move on to the next property.
• This is a buyer’s market. You gamble when you are priced too high and make a counteroffer that is still too high!
• Based on the appreciation of properties in the South (1.8% according to NAR) was this deal worth losing for $10,000? Actually we had it down to $5000 apart with some concessions. A year from now your net on the home will be about the same (appreciation minus operating cost)
• We have lost offers in the past from buyers who would not continue to negotiate. We lost one sale over $9000 three years ago! This $600,000 home is currently being rented and is worth around $450,000.
• We are in the trenches on a daily basis. We give you our pricing opinion on your home based on lots of research and experience. We know the market!
• We cannot change the market!

In the end we learned how to better respond to our clients. We hope that our clients will listen to us as well. We are the ones in the trenches!

BEFORE YOU SAY NO TO A DEAL READ THIS EMAIL!

This is an email that we sent to our 5 offers. These offers were received over the weekend. After some of the less than enthusiastic responses we received we wanted to give our clients more information on how to deal with offers. Here is our email below.





Barb and I have been busy. In the last five days we have presented 5 offers.



All of you who have received these offers have something in common: You have recently had some major changes in your life. This includes divorce, the death of a loved one, health issues, or other factors.



The offers we presented to all of you have been met with great senses of disappointment, frustration, and in some cases, anger. The first point from Barb and I is this: Don’t shoot the messenger! In our opinion every offer is a starting point.



Before you counter these offers I want to offer another way to look at them. This is as a result of my recent experience with the sale of a family condo in Florida.



• A condo was purchased in Florida in 2007 by my family and my parents

• The down payment was from the profit of our previously sold condo and some inheritance money

• We purchased the condo to enjoy not as an investment

• In 5 years the price declined 50% !!!!!

• We sold the condo at the end of 2011, and went to closing with a very large amount of cash!



How did we arrive at the conclusion that we had to sell at such a large loss!

• Family-My Dad had turned 80 and did not want to continue paying monthly payments!

• Recovery of funds! There was no possible way that the property would appreciate to the point where we would recover our investment

• Cost! There is always cost with operating the property that do not go away. This includes utilities, condo fees, repairs, and possible assessments!

• Better investment choices for the money! We could take the monthly payments, condo fees, and utility money and invest in areas where we would receive a higher return.

• We had to be honest about the situation and make a hard decision.



According to the National Association of Realtors, the average home price in the South went up 1.8% over the past year (median home price is $138,100).



Take the price of the offer that was presented on your home. Now increase the value of the offer 1.8% a year. Take that value, subtract HOA dues,taxes,maintenance,and utilities. Now look at how much more money you would gain by waiting another year to sell the home.



Example: Home offer of $350,000 in our neighborhood Chestatee



Year 2013 Home is worth $356,300 (1.8% price increase)



Cost of running the home for year 2013: $1000 HOA dues, $1200 in lawn maintenance, $1200 for utilities, $378 for higher real estate commission, and??? for repairs.



Your net increase is $2522 (assuming no repairs)



I ran the same numbers on our condo. I let it go up 2.5% a year, figured in the operating cost, and came to this conclusion. Not only did I not make any of our loss, in year 4, I started to lose even more money!



There are a few things Barb and I have learned in 7 year of real estate.

• We do not control the market

• Real estate is very emotional for both the buyer and seller

• Life changes (jobs, marriage ,kids, divorce, job change, retirement) despite the market

• There are times when you have to do a thorough analysis of your situation using numbers not emotion!

Want to Build a Home: Bring Cash!

Want to build a home? Better bring cash!



We have been working on information for a client concerning a construction loan. If you have not tried to acquire a construction loan in a while you are in for a rude awakening.



For a lot and home totaling approximately $420,000 we found out the following:
•The lot has to be purchased usually for cash.
•There is no longer temp to perm loans
•Therefore two closings occur
•Requires 30% down payment
•Takes 30-45 days to close
•Buyer and bank determine draws
•Monthly interest payments are made on the draws as they compound on a daily average balance (will amount to approximately $12000)
•Need to have 10% in reserves for possible overages
•Once the home is completed the bank will proceed with making a loan on the house. Problems have occurred when the home does not appraise due to price per square footage being higher then resale properties. Some folks have had to put down additional monies down due to low appraisals.
•In order for the builder to be approved by any bank the builder needs to provide: builder's license, proof of liability insurance, and letters of reference.



We had numerous discussions with banks big and small in the Atlanta area. A lot of the institutions were no longer interested in doing construction loans. Their reasons were the same: As long as resale prices remain low, and foreclosures continue to appear, it will be difficult to get a solid appraisal on a new home.

If you are an individual debating whether to build or buy a resale do your research

The 3.8% Tax

The National Association of Realtors has put together a publication entitled: "The 3.8% Tax Real Estate Scenarios and Examples".



Some of the highlights of the publication:
•This tax will go into effect on January 1, 2013
•The tax will not be imposed on all real estate transactions
•A 3.8% tax will be imposed on some, not all, income from interest dividents, rent (less capital loss) and capital gains (less capital losses)
•The tax will be on AGI over $200,000 for a single filer and $250,000 for a couple filing jointly.



The publication has various scenarios that show what the potential, if any, tax that might be paid on a real estate transaction.



There have been a lot of rumors on this new rule. The National Assocaition or Realtors publication does a great job of laying those rumors to rest.

Foreclosure Relief from The Federal Government

The US Attorney General has announced a plan to help homeowners, who are underwater on their mortgages, get relief.

Before you start doing “the wave” there are a couple of items you need to know:
• Your loan must be owned by one of five banks: Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and Ally Financial
• You will need to be delinquent on your payments, threat of foreclosure, and mortgage is more than the home’s current value

If you qualify then this program will reduce the amount of principal on your mortgage. Numbers range from $15,000 to $20,000 in principal reduction.

Overall Freddie Mac, Fannie Mae, own approximately 46% of the nation’s mortgages (including mine!). This means that the plan will be offered to a small amount of homeowners.

In my opinion: In my neighborhood (an hour north of Atlanta) I have seen multiple foreclosures in the past few years. Matter of fact there are another four that are available at this time. The reasons for these foreclosures were varied: Loss of a job, builders losing their companies, divorces, and one neighbor convicted for federal mail fraud! While their home were in short sale, and then ultimately advertised for foreclosure, I looked at the debt acquired on their homes. The numbers, in some cases, were astonishing! Multiple mortgages in excess of 110% of the purchase of the home. One homeowner had over $1 million dollar in loans on his home (the home sold in foreclosure for approximately $390,000). My take on my local foreclosure market is this: The majority of folks I knew had a lot of debt in the good times and was always on the edge. No program would help them stay in their home. It appears that the quicker we can clean out the foreclosures in my neighborhood then the quicker we can return to some sense of a normal real estate market. $20,000 reductions on my neighbor’s loan principal will not

MOLD! A Four Letter Word

I bring up the subject of mold because we just dealt with this situation. Please read our prior blog entitled "We Know What We Are Doing".

What I have learned about mold is that the very word sounds off alarm bells with most people. Realtors have placed mold with synthetic stucco and for sale by owner as terms we hate to discuss.

Here is what I will say about mold:
•Take the time to check your homeowners insurance to see if you have mold coverage
•If you suspect mold in your home call at least three certified experts to discuss optionos.
•Do not try to treat the mold yourself.


Very simple advice but words that my partner Barb and I had to put into practice recently (again read our previous blog).

We know what we are doing!

I have had to emphasize this point for many years: THIS IS OUR PROFESSION.

My partner Barb and I have had the pleasure to work with many well educated, business savvy, experienced clients. Some of them have bought and sold more houses than I have!

However after 7 years of success in this real estate market we can say with confidence that we know what we are doing.

Recently we had a client who was dealing with a possible mold issue in a home that he was lease/purchasing. A water leak occurred in the bathroom (nail in a pipe). The homeowner sent out an insurance adjuster who made a report. The homeowner next sent out a plumber and contractor to fix some of the items but not everything in the adjuster's's report.

In the interim our client's son, who is 4, had been sick for over four months! Possible mold in the home and how it relates to their son's illness.

Once the "M" word was mentioned my partner Barb and I took this to a higher level.

We asked our clients to not talk to the current homeowner and let us discuss options. Our client, who had lease/purchased the home, wanted to work this situation out with the homeowner but nothing was being accomplished.

Reviewing our GAR contract with our broker, we looked at possible options.

After a professional mold certified inspector filed his report we were at our next step.

Barb and I then advised our client to discuss all options with an attorney.

The contract was to be terminated pending a final walk through by the current owner, our client, and my partner Barb present.

Needless to say the current owner did not welcome my partner Barb with open arms. They proceeded to make a lot of comments and accusations, some rather harsh, at her. She had to listen to these irrational comments because she represented her clients.


Moral of our story: A lot of us thinks we can do everything our self. Whether it is working on our car, our house, investing our savings, doing our taxes, buying our houses there are times when we need to use a professional.

Barb and I pride ourselves on our knowledge, integrity, and hard work. All we ask is that our clients let us "watch their backs".

The Payroll Tax and the Increase for Mortgage Fees

Another tax is going to be implemented on real estate starting January 1st.

In order to cover the two month "payroll tax holiday" fees will be increased on government backed mortgages from Fannie Mae and Freddie Mac.

The fee will be an additional 0.1 "surcharge" paid monthly on mortgages from both government backed institutions.

A typical $200,000 mortgage will see an approximate increase of $17 per month.

The Payroll Tax is used to fund Social Security. A two month "tax holiday" will take around $33 billion dollars away from the Social Security Trust Fund.

Bottom line: There is not free ride. Regardless of your political affiliation one thing stays the same: Somebody has to pay!

GAR Contract Changes for 2012

We just completed our 2012 GAR (Georgia Association of Realtors) contract class.

Every year we go through this class as GAR continually refines our contracts. Every change helps our buyers and sellers and the amount of protection we offer them in their real estate transaction.

The biggest change to the GAR contracts is in reference to access to the actual contracts. Starting this month there some new procedures in place.

Real estate agents, who are members of the National association of Realtors and GAR, will continue to have full access to all GAR forms.

However if an agent is not a member of GAR, they will have to pay an annual subscription fee in order to access the GAR contracts.

The last option is that an agent can us non GAR contracts that will be available on both of the Atlanta area listing services FMLS and GAMLS. As this time those contracts will be available on a limited basis.

Bottom line: Real Estate agents in the state of Georgia are not required to be a member of the GAR or NAR. The Wells Team, of The Norton Agency, chooses to be members of these very important organizations. NAR provides us with a code of ethics, access to information, and training that allows us to provide the best service possible. Full access to the GAR contracts just solidifies our position a little more.

Obama Health Care Plan and Real Estate Tax

I just received an email from my Dad about a real estate tax that would be part of the Obama Health Care plan.

Beginning January 1, 2013, ObamaCare imposes a 3.8% Medicare tax on unearned income of “high-income” taxpayers which could apply to proceeds from the sale of single family homes, townhouses, co-ops, condominiums, and even rental income, depending on your individual circumstances and any capital gains tax exclusions. Importantly, the “high income” thresholds are not indexed for inflation so will reach increasing numbers of middle-class taxpayers over time.

I have attached two links to the National Association of Realtors website. One link provides details on the tax with the other providing the position of the National Association of Realtors concerning this subject.


http://www.realtor.org/small_business_health_coverage.nsf/pages/health_ref_faq_med_tax?opendocument

http://www.realtor.org/small_business_health_coverage.nsf/Pages/health_ref_faq_advocacy?OpenDocument

This provision has been discussed since late 2010 but is worth revisiting. Please familiarize yourself with this tax provision.

Bottom line: Regardless of your political views if you want to have a federal program you have to find the money to pay for it!

2012 Real Estate Predicitions? NONE!

After seven years in the real estate industry it would be safe to say that we have an idea what is going on in our local real estate market.

Instead of making bold 2012 real estate predictions I have decided to decline.

Why?

Because every other real estate agent, real estate company, and professional organization has already published theirs! My clients have read some of them but not many.

So my crystal ball stays in the closet with my ouija board, rabbits foot, and all other prognosticating devices that I own.

All I tell my clients is to be realistic and hope for a 2012 that was better than 2011.



Happy New Year to all!

I have to Practice what I Preach

It is easy to give advice to clients, friends, and family when it does not directly affect you.
In this situation I had to practice what I preached.

My family has owned a condo in Florida for over five years. We bought this condo to enjoy with our family not as an investment.

Then the housing market collapsed. The result: The market value of the property went down by 53%

After three attempts at a short sale, loan modifications, and refinancing, we were at a crossroads. Do we continue to put money into the property or cut our losses and move on?

It is easy to tell your clients to cut their losses, take money to closing, and move on. It is easy to tell your clients to run spreadsheets, do a cost anaylsis, and see if the property will return a positive investment.


Now it was time for me to take my own advice. I ran the spreadsheets, did the cost analysis, and conferred with my financial planner, and accountant. The answer was the same: Sell the property, take the loss, and move on!

I did not like the answer. I spent countless hours rationalizing why I should keep the condo. We enjoyed it, the beach was wonderful, and it gave us a chance to relax. Unfortunately those are not raitonal reasons.

I will be closing on the sale of the condo by the end of the year. The monetary loss is going to hurt and hurt badly. But in the long run it was the only solution.

The next time I give advice about losing money on the sale of a home it will come from the voice of experience.

They Took the Doors

This market continues to amaze us. It forces people into irrational behavior. Take the case of the latest home to go into foreclosure in my neighborhood. The home had been for sale approximately two years. A custom built home with upgraded appliances, light fixtures, and a pair of handmade antique front doors.

Needless to say the home was advertised for foreclosure at the beginning of December. Our team put a short sale offer on the home two weeks before it was to go into foreclosure. At that point the "owners" had taken the appliances, and changed out the light fixtures. We pressed ahead with the short sale offer despite the changes they had made.

Then they came back to us and said that they were taking the doors! What do you mean they are taking the doors! The same doors that they had advertised for two years as part of the home had suddenly become a "wedding present". The sellers had now laid claim to the doors.

After some tense negotiations the sellers agreed to leave the doors with the home. However after all that work the lender declined our short sale offer. The home was then foreclosed on the following. It happened on a Tuesday. I bet you will never guess what happened Tuesday night? Yes you guessed it. The doors disappeared. They were replaced by two standard metal doors.

My question to all of you is this: When you build, or buy a home, do you buy the doors, light fixtures, and appliances for cash and place them in the house or are they paid for by the mortgage? I will bet that all of the items are part of the mortgage. If the lender paid for all of these items then why do sellers feel it is their right to take these items out of the home?

Has this housing market killed our integrity?

Water Levels at lake Lanier

For all of us "locals", we are all very familiar with Lake Lanier and its ever changing water levels.

As of today Lake Lanier was down over 14 feet!

What does that have to do with a real estate agent who sells Lake Lanier property? I think you know the answer.

We had been working with a client for over six months. We had showed them Lake Lanier property and knew their desire to live in our area. We were waiting for them to sell their Florida home.

You probably know how this turned out. Our clients had sold their Florida home however I did not hear from them. I made the phone call that I dread making. When they answered the phone they apologized for not keeping in touch but they were going to buy a home at Lake Oconee!

Regardless of the outcome we always take the high road. We wished them the best of luck.

They are moving to an area that is double the distance from their grandchildren in Atlanta. They are moving to an area that is more rural with less to do. But they were moving to a lake where the water level stays constant.

Lake Oconee is run by a power company. They keep the level constant. Lake Lanier is run by the Army Corp of Engineers.

The priorities of Lake Lanier are flood control, water supply for Atlanta, enforcement of the Endangered Species Act, among the many. Boating, recreation, and real estate are at the bottom.

As residents of the lake, boat owners, and real estate agents, we always knew the priorities. However this does not make the situation any easier.

As we continue to have water wars with Alabama and Florida over the lake, have a growing population, and put more strains on the infrastructure, we will continue to see this situation every other year.

An unfortunate situation that is caught up in local and national politics. The solutions are attainable but they need to be implemented not discussed.

Until them we will keep losing customers.

When Do I File the Deed?

After six years I still learn something new everyday!

I have a client who is buying a home from a seller who purchased the home on the courthouse steps. The seller, with his investment group, paid cash for the property.

As we finalized the agreement with the seller we did negotiate with one disadvantage. We did not know what the seller paid for the home. Why? Because the seller had not filed the deed with the county!

After we finalized the agreement I brought up this point with the seller. The seller waited to file the deed because he did not want any potential buyers to know how much he paid for the home.

This seller has purchased numerous foreclosure homes in the North Atlanta area. After he purchases a home he does what he feels is needed to ready the home for sale. Obviously repairs and upgrades cost money and are taken in account when he prices the home.

The problem in the past is that potential buyers look up the home on the tax records, see what the seller paid for the home, and offer a slightly higher amount. There is no regard for repairs or upgrades made to the home. In many cases he has been offered $5000 to $10,000 more than what he paid for a property!

So this seller holds the deed as long as he can.

Of course once our deal is finalized the deed needs to be filed. If it is not filed the lender will not approve the deal and the lawyer cannot do a credible title search.

An interesting strategy in this crazy market!

Top Trends from The Norton Agency

We had the opportunity to attend The Norton Agency Advanced Seminar last week. Our President, Frank Norton Jr, gave us a lot of statistics, information, and trends for the national and local real estate market.



Top ten trends, for our area, as identified by The Norton Agency

Expect no upward swing (in regards to prices)
Foreclosures have run their course in Georgia
Lending is invisible (more lending alternatives)
Cash is piled up on the sidelines (folks in a holding pattern)
Value price is in
Healthcare sector is pumping
Agriculture is back (demand for small farms)
Function before glamour (in regards to a home)
Rampant uncertainity is paralyzing!
We are on the edge of a centennial investment opportunity!
With interest rates being the lowest since 1930, owning a home being cheaper than renting, and low pricing, this could very easily be the best opportunity we will have in our lifetime! Take advantage of it!

Frustration with Appraisals!

I know every agent in this country is feeling the same pain that I feel when it comes to appraisals!

At my weekly Rotary Club meeting I had a friend share his frustration. He recently had his home appraised for refinancing.

His frustration was in the fact that, in his opinion, the appraiser had no idea about the details of the home. When my friend had his home built he spared no expense. Extra insulation, upgraded hardwoods, top of the line fixtures, counter-tops, and extra energy efficiencies throughout.

In a normal market all of these upgrades would weigh on the price of the home. In this market all bets are off!

I told my friend that my home was appraised for $50,000 less than I paid for it in 2001! I have put in a new Kitchen, new Master Bathroom, and screened in the porch! My reward? $50,000 in lower value!

What I saw on my appraisal is that a home is rated excellent, good, fair, or poor. A higher rating is the most you can expect and I do not know how much that adds or subtracts to the value of the home.

Bottom line: I told my friend that I agree with him. Until the appraisers take more factors into account when appraising a home, our values will stay the same

Extension of HUD Property Flipping Exemption

A couple of points:

The FHA is extending the availability of the temporary waiver of its regulation that prohibits the use of FHA financing to purchase single family properties that are being resold within 90 days of the previous acquisition, until December 31, 2011


To use an FHA loan on a home that is being flipped: All transactions must be an arms-length transaction. The home cannot have a pattern of previous flipping activity as evidenced by multiple title transfers within the last 12 months. The property must be marketed open and fairly. If the property is being sold for more than 20% of what the seller purchased the home then an appraisal must be done. Also an inspection must be performed.


If you have a client buying or selling a foreclosure property a knowledge of this directive will help especially if an FHA mortgage is involved.

Check with your lender to verify the current rule changes.

Overall this will give you some additional options with FHA financing.

(HUD Docket No. FR-5397-N-03)