steve's White Mountain Blog

When developers want to preserve the price of homes for future sales and appraisals, offering to buy down the rate is a great way to add value for the buyer.

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Are any of you working with a motivated seller??   

   **** Of course you are!!!****

If we were in a large room full of realtors and I asked that question I think there would be a lot of agents raising their hands!

With the tremendous amount of inventory on the market for buyers to choose from, it’s important for sellers to get creative in order to attract buyers.  My favorite quote is, “The definition of insanity is trying the same thing over and over again and expecting different results”.  If you are sticking to the same old techniques in trying to motivate sellers, you may find your listings are not moving quite as fast as you would prefer.

I would like to offer you a different way of attracting more buyers.  Why not have your sellers offer a permanent rate buy down?  Actually, this concept is really not different at all.   This is something that sellers have always been able to do.  However, I don’t see a lot of sellers doing it!

Consider this scenario:

$250,000 selling price

Down payment of 20%

Loan amount of $200,000

Hypothetical rate on a conventional 30 yr fixed rate mortgage is 4.250% with 0 Points.

What if you could offer QUALIFIED buyers of one of your listings a 30 year fixed rate of 3.750% with 0 Points?  Well, you can!  Here’s how…

By offering a prospective buyer a seller funded, permanent rate buy down.  Here’s how it works.  Let’s say the cost to buy down the interest rate from 4.250% to 3.750% is 2 Points (2% of the loan amount = $4,000). 

Conventional lending guidelines allow a seller to pay up to 6% of a borrower’s non-recurring closing costs.  (Min. down payment must be = to 10% If less than 10%, max. contribution is 3%).  A seller could potentially offer a lower rate if they agree to pay additional points, as long as it is within the max. seller contributions of 6%. 

Before you do a price reduction, why not offer a permanent rate buy down?  The benefits of doing this are:

1)      You preserve the sales price for future comps

2)      You earn more commission since the price has not dropped

3)      The seller is happy since they were able to sell their home for more money

4)      The buyer is happy since they saved thousands of dollars in interest over the life of their loan

  At first glance the monthly savings may not look like much.  But if you look at how much a buyer could save if they applied that monthly savings to paying off the principal! The savings are staggering and the payoff of the note is complete 25% sooner.

Agents often assist in maintaining better prices in a short sale scenario than the banks alternative method of property disposal…yes I’m taking about the-

F-bomb.

A Foreclosure is the selling of a stigmatized asset…not the negotiation with a lender for forgiveness. More to the point: If my seller has a third party approval sale (a euphemism for a short sale) I’m going to try my level best to get my client his properties true market value. When his lender has effectively killed the deal by delaying the process to the point where the buyer bails and moves on. Then the bank eventually forecloses on my client.

Here are some hard numbers on a recent scenario: A property owner owes $180,000 of his home, we have determined the current value to be in the range of $155- $160,000.

A short sale offer (subject to lender acceptance) at $157,000 is presented to the lien holder. We supply a blood and stool sample from the seller, and put the buyer through a battery of circus obstacles…but get no where for months. The lender drops the F-Bomb- Foreclosure, an Auction in the driveway, neighbors standing on their door steps muttering “their but for the grace of God go I”.But wait A wild card Bidder from out of the blue with a good faith check of $5,000 in hand and the ability to close in 30 days…stands ready and in a strong and clear voice says I bid $140,000. The bank says $188,623.43

And gavel meeting wood…we are done for the day folks nothing more to see here go back to your homes this is not your concern (or is it?).

Fast forward a month…The property is now listed for sale by the lender at $125,000

The foreclosure attorney, the auctioneer, a winterization company, and the new listing agent have been or will be paid from the proceeds of this sale. Assuming;

The house goes at asking price vs. my short sale offer- the bank will get $32,000 less than the buyers offered plus additional legal proceedings to deal with the foreclosure.

And let us not forget the seller client…their credit is worse off with the foreclosure on their record. We were offering their lender the option to accept a short sale that would have netted them about $40,000 more…than the path they chose to take.

This harms the neighborhood values and if I have done a reasonable job illustrating my point…it hurts our seller clients and the real estate market in general moving forward.  A short sale can be current market value…a Foreclosure very rarely is.

I handled my very first short sale back in 1991 the sellers called their bank asked for forgiveness and leniency on the outstanding principle balance of their loan. I provided several comps to prove the asset being sold was not a sufficient value to pay off the mortgage note. A few phone calls and a quick bank meeting with the branch officers and it was settled. The simple approval is a thing of the past…each loan in default since that first short sale I did 19 years ago has taken on much more on a arduous task. Bill Gassett who works out of the Mestrowest Massachusetts area sums up the process in great detail. Bill was kind enough to allow me to be-blog his fine work.

 If you are contemplating a short-sale in the White mountain of New Hampshire I will be glad to help get you through the process. Steve Loynd – Alpine Lakes Realty.

The Treasury Department’s plan for short Sales

In an effort to reduce paperwork and shorten the short sale process, Mortgage companies will have to approve terms and minimum listing price before the property goes on the market. The Government is providing the guide lines, strict deadlines and specific documents for the short sale process, and mortgage companies will receive $1,000 to cover administrative costs.

To qualify for the new guidelines:

*The property must be a primary residence.

*The owner is delinquent or is likely to default

*The loan is for less than $729,705 and was made before January 1^st of 2009.

*The borrowers total monthly mortgage payment exceeds 31% of their before tax income.

The Government feels the plan will streamline the process between mortgage holder, buyer seller and real estate agent. Some of the short falls the Government hasn’t taken in to account are, the Mortgage Companies don’t have to put this program in place until April 5 2010. The program is voluntary for the second mortgage holders (who will be given up to $3,000 to release their claims) but who in near 50% of all short sales are holding seconds or home equity loans on these troubled properties. And of course Government programs look great on paper but how do you require uniform compliance?

Uniform Hardship and financial documents will make it easier on the industry, but whom and how quickly will mortgage companies voluntarily comply with the Governments wish list is anyone’s guess?

I Pass this sign a on my way to work every day...you have to watch out for the huge lumbering creatures they are too big to miss, to slow to get out of the way and to dumb to know they are in the high speed lane.

Whenever I read “Government rules unveiled to shorten the short sale process” I naturally think more Red Tape will slow down the already slow process, Am I a cynic or are you all hoping for mortgage company compliance and closings in 30 days?