"Open House" - Maryland Real Estate Blog

What is a Short Sale and Do I Qualify?

What is a Short Sale

According to the Certified Distressed Property Expert (CDPE) Field Manual a “short sale occurs when: A negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is ‘sold short’.”

In today’s market, mortgage companies are increasingly encouraging and accepting short sales instead of affecting foreclosures. Lenders spend thousands more to foreclose on a property than accepting a short sale. In conjunction with stricter governmental guidelines, mortgage companies are worker harder to increase efficiencies and speed of the short sale process. It is certainly getting better.

Qualifying for a Short Sale

In order to qualify for a short sale a homeowner must first be able to prove a valid financial hardship. Wanting to sell when you owe more than the house is worth does not qualify. Second, the homeowner must not have liquid cash or assets that will pay down the mortgage. There have been cases where the homeowner can cover a portion of the short sale and the lender covers the remaining balance. The short sale process is terribly complicated and requires expertise only gathered through specialized training. A licensed Realtor® with the CDPE designation behind their name is a homeowner’s best chance of closing their short sale and avoiding foreclosure. Contact the author for a CDPE in your area.

A Common Short Sale Myth

Lastly, there have been many reports, both nationally and locally, stating a foreclosure and short sale have the same outcome and effect on a borrower’s credit. That is absolutely NOT TRUE. Click here to see a free copy of our report entitled, “Foreclosure v. Short Sale: A Homeowner’s Consequences”.

Jim Ellis – Re/Max Elite Realty

Jim can be reached at 410.569.4663 or jim.ellis@remax.net.

Your House is Not an ATM

As we near the end of this incredible buyer's market and head into a renewed period of  housing appreciation, there is something I need to get off my chest.

Your house is an investment in your future.  Something that should be nurtured and cherished for years and years.  As your home increases in value over the next several years, make me one promise.  Do not extract equity for trips, cars, paying of credit card debt, or any consumer purchase.  If there is one thing we should all have learned from these last few years of housing decline is that we can never predict the ups and downs of any investment.  During the years of prosperity, leave it alone and enjoy it from a far. 

I've sat down with so many homeowners over the last several years who could not sell their home because they owe more than the house is worth.  Some folks simply bought their house at the top of the market and were victims of the decline.  Others, however, who had bought earlier in the decade or sooner, used their equity for fun.  They were now stuck in a home they no longer wanted or could afford.  Some are sticking it out, many have gone to foreclosure and others sold and had to bring money to the settlement table to satisfy their debt. 

I hope this makes sense!  If not, don't be afraid to ask.

How to be a Victim of the Federal Government While They are Trying to Help You

Let's say you have a 730 credit score, an established credit history, and over $20,000 in cash. Let's say you want to buy a house and are approved to purchase a home over $200,000. Let's say you make an offer on a condo around $150,000 and get a great deal to include all of your closing costs, a reduced price and other favorable terms. You are very excited about the purchase of this home and can't wait for a pre-Christmas settlement.

Then along comes the big intrusive monster; the Federal Government. For the purposes of this blog we will call them Grendel.

The $8,000 tax credit, while a great opportunity for many of my clients, may not be the best way to help the housing problem. I believe we would all be better served if Grendel would make an investment in easing lending guidelines. Obama has asked banks to lend more money, but isn't investing anything into helping them do so. Also, rumors have it that the Federal Housing Administration (FHA), the government organization responsible for backing today's most viable first time home buyer loan, is poised to make lending of their backed mortgages more difficult over the coming months.

In the example above, this buyer was unable to secure a conventional mortgage because the tightening of guidelines didn't allow her to use lottery winnings as part of her required money needed for the transaction. Plan B: We try for an FHA backed mortgage. Because of a complicated and unnecessary red tape scenario with Grendel, my buyer isn't able to purchase this property with that mortgage either.

This is a HIGHLY qualified buyer who can't purchase a home well within her price range. There is something wrong with this picture. Before the housing market will turn around, mortgage guidelines have to be at a place where people who SHOULD be able to buy are able to secure a loan. The housing inventory has been shrinking over the last few months, but it still remains near record levels. Want housing prices to go up again? Then the inventory must be shrunk. Want the inventory to shrink? More potential buyers need to be eligible to receive financing. I'm not suggesting that my two year old be able to get a mortgage (like 2004-2006), but easing the guidelines a little, could have a dramatic effect on getting this market turned around faster.

My two cents . . .

This blog entry was written by Jim Ellis of Re/Max Elite Realty in Baltimore, MD. Jim can be reached at jim.ellis@remax.net.

 

For Sale by Owner or For Sale by Stupid?

Now, now . . .relax.  The title is a perverted ploy to engage your “Access Hollywood” vortex.  You know the part of your brain that various media outlets regularly attempt to intoxicate with persistent negativity and violence?  What would we do if we weren’t Pitt-ed or Spear-ed on a daily basis?  After all, sex, rehab, “accidental” crotch shots, and, as is for this article, insult is what triggers our attention and exploits our twisted minds.  Right?

Digressions . . .

So, if you are one of the for sale by OWNERS (FSBO) out there, un-pucker your lower cheek region and listen up.  It is time to make an informed decision.  Seriously!!

My mission statement is “Work Everyday to Positively Improve and Impact the Lives of Others.”  Therefore, this blog is dedicated to serving the average laypeople, the Joe’s and Jane’s, if you will, of a very dynamic market place; the real estate market.  I have set out on a researching journey, a fact finding mission, to present to those who are or are considering selling your home without the services of a real estate professional; a Realtor^®.  It is my goal to offer very little commentary and present as much fact as possible, so that you, the reader, will have solid information to make an informed decision.

Reason Why Homeowners Chose to Sell on Their Own

Stat - According to the National Association of Realtors’ 2007 Profile of Home Buyers and Sellers, 70% of homeowners who did not know their buyer (not sold to a friend or family member) said the reason they are selling their home on their own is they did not want to pay a commission or fee.  Understandable?  Absolutely!!  If I am selling a $300,000 home and am paying a 6% commission (oh by the way, real estate commissions are 100% negotiable) I am paying a real estate company $18,000.  How that is divided and who takes home what amounts is for a different article but, nevertheless, it is a good chunk of change off of your bottom line.  So what is the catch?  Why doesn’t everybody do it?

The notion that you save money by not hiring a real estate agent is a myth and is upheld year after year by consistent and solid statistics.  In 2007 only 12% of home sellers went it alone.  There has to be a good reason that number is so low.  Now . . . all of the data I found are based on averages.  So that means, that some sellers did better and some did worse. 

Stat - Historically, FSBO’s sell homes 12-20% less than real estate agents.  In 2004, for instance, the average FSBO sales price was 15.4% less than the average Realtor^® sales price.  In 2007, according to the National Association of Realtors, FSBO’s (did not know the buyer) sold at an average price of $207,900 and Realtors®, from the same survey, sold at $240,000.  That means that FSBO’s in 2006-2007 sold their homes 13% lower than those sold by a professional.  So, if you hire a professional, pay the 6% commission, not lose the 13% doing it on your own, then your net gain is 7%, right?

There are a number of reasons this happens.  Buyers who buy from FSBO’s seek them out to negotiate a better deal.  Savvy buyers, investors in particular, know that you are saving on the commission and will exploit that for their own gain.  Go to any bookstore and open a “How To” real estate investment book and you would find, in the first few chapters or so, a section on and the benefits regarding buying investment properties from FSBO’s.  Also, FSBO’s tended to sell lower cost and damaged homes.  Another reason is that FSBO’s are more prevalent in rural areas where home prices are lower.  The main reason, though, is marketing.

How FSBO’s Market Real Estate

Golden rule of real estate marketing – The more people who know your home is available for sale, the better chance you have of selling your home quickly, with competing contracts, at top dollar.

With the internet becoming a mainstream tool for buyers of real estate, web advertising is the way to go.  Stat - Over 80% of buyers start their searches on the internet.  Then at least 80% of your marketing budget should be web ads. Many sites like, Multiple Listing Service and realtor.com (#1 search site), are only available for real estate professionals.  According to FSBO’s in 2007, internet ads were the 5^th most used type of  marketing (behind yard signs, newspaper ads, open houses, and people known to them)  The days of putting a sign in your yard, an ad in the paper, and holding an open house are over.  It’s just not that easy.  Stat – Less than 2% of homes were sold in 2006 due to a combination of a sign in the yard and an open house.  Around 6% of homes were sold due to a newspaper ad.  Many FSBO’s spend hundreds, even thousands of dollars on these marketing pieces to no avail.  There are some FSBO assistance sites out there, but, unfortunately, they don’t get you to the most visited home search sites on the web.

The bottom line is real estate professionals who evaluate and understand the market place, know and understand how to market homes that reach a higher volume of viewers.  More viewers = a better chance to sell faster and for top dollar.

Most Difficult Task for FSBO Sellers

So, the saving money myth isn’t the only problem.   The most difficult task, as reported by FSBO’s, is understanding and performing the paperwork.  I would say that the average contract, with all of the contingencies, disclosures, addenda, loan documents and inspections, totals 80-100 pages.  Additionally, federal, state and local governments have instituted several mandatory disclosures and addenda.  In other words, it is required by law that sellers disclose certain pieces of information at specific times to potential buyers.  Failing to do so could open you to governmental fines, lawsuits, or, in some cases, jail.  A knowledgeable Realtor® understands all of these mandatory items and will help keep you out of trouble and on the right path.

Other Reasons

I could go on and on about various parts of the home selling process and how valuable a Realtor® can be, but you don’t want to read a novel and I’m getting sleepy.  So here is a list of some other duties that a Realtor® does for you:

1. Provide Lock Box
2. Produce Flyers
3. Listed in MLS
4. Listed on homesdatabase.com
5. Digital Photos for Web and Print Ads
6. Homes.com Magazine
7. Homes.com
8. Zillow.com and Craigslist.com
9. Movie like Virtual Tour
10. Realtor.com
11. Write and submit print ads
12. Source for Contractors
13. Visit Property
14. Maintain all Paperwork
15. Deal with Other Agents
16. Schedule Inspections
17. Connections and Networking
18. Business Systems
19. Save you Time
20. Home Repair Efficiency
21. Contract Issues and Resolutions
22. Commit to you Beyond the Transaction
23. Analyze Property Values Monthly
24. Suggest Sales Price
25. Follow-up with Agents and Potential Buyers
26. Receptionist Service for handling showing appointments
27. Negotiate Offers and Contracts
28. Manage Executed Contract to Settlement
29. Staging Walkthrough and Recommendations
30. Build a Unique Property Website
31. Include Property on Agent’s Website
32. Work for Your Best Interest
33. Other Web Ads
34. Submit Magazine Ads
35. Communicate AT LEAST Once a Week
36. Maintain Fiduciary Responsibilities
37. Help you Avoid Liability
38. Help Buy Your Next Home
39. Emotional Guidance
40. Advise when Market Changes
41. Bi-Weekly LIsting Report
42. Commit to a Written Marketing Plan
43. Trusted Advisor

If there is topic of interest in real estate or other related field, let me know, and I’d be happy to research and present an essay or opinion on the matter. . .

Jim can be reached outside of this blog at 410.569.4663, Jim.Ellis@ReMax.net or www.JimEllisHomes.com

Pitfalls of Overpricing Your Home

Overpricing a home is, by far, the number one mistake, in any market, that home sellers make when listing their home.  Real estate professionals are trained to perform comprehensive analysis of your specific house and how it fits in your area. Real estate valuing is an extremely local and specific skill set that takes knowledge and experience to perform.  I suggest always leaning into that expertise when making this very important decision.

There are two main problems with overpricing.  The first problems deals with the amount of showings at the beginning of the listing period.  The first six weeks or so of any listing is the time to shine.  There is market excitement around the listing and the highest volume of showings will occur during this time.  Real estate professionals are, generally speaking, knowledgeable folks.  If your listing is overpriced and the other 20-30 properties for sale in your area are priced right, your home will never get the attention in those critical first few weeks.  So, it sits without any attention, the days on the market mount and you become increasingly frustrated.  Also, you are alienating any buyer who could afford your house at the correct price, but not at the inflated price.

The second problem is centered around the appraisal.  Let's say your house is valued at $300,000 and you are convinced you can get $350,000.  OK, you do get a knucklehead to offer your $350,000 and you are flying high!  You are throwing out one "told you so" after another at your agent.  Here is where it bites you.  Your generous buyer's mortgage company then comes into play.  To protect their interest in the investment, the mortgage company will then send out an appraiser to value the property.  The appraiser will look at the same properties that recently sold as the real estate professional who suggested $300,000 and value it the same.  Guess what?  Mortgage companies do not like to lend more money than the asset is worth.  So they will grant a loan based on 300k not 350k.  That means the buyer has to make the difference up in cash, you have to lower the price, or the deal falls through.  Most buyers in that price range don't have an extra 50k to throw around nor do they want to overpay.  What usually happens is the seller ends up dropping the price to the appraised value of 300k.

In that scenario, you have overpriced the house, reduced your showing volume, alienated any buyer who was approved up to 300k, and ended up selling it, if at all, at the price originally suggested.  In any business, you want to create as much demand to buy your product as possible.  The same holds true for real estate.  Remember, sellers don't cause higher values in real estate.  It is the market and the buyers in that market that push the values.  Price it right and you will sell it quicker and for more money than you would if you overpriced it.  Good luck!

If there is topic in real estate or other related field that interests you, let me know, and I’d be happy to research and present an essay or opinion on the matter. . .

Jim can be reached outside of this blog at 410.569.4663, Jim.Ellis@ReMax.net or www.JimEllisHomes.com

Spring Cleaning Checklist

Below is a check list as published by Realtor Magazine.  Also, don't forget to change the batteries in the smoke detectors and replace the air filter in the furnace.  Maintaining your home every year will cost a few bucks, but the financial consequences of not doing so are immense.   A good spring cleaning every year should be a regular event in maintaining a sound home.    Happy Spring!

• Let the sun in. Make any room look brighter with clean blinds and windows. For a green window cleaner, mix a solution of one part white vinegar to eight parts water, plus a drop or two of liquid dish washing liquid. Spray on and wipe with newspaper to avoid streaks. Washing on a cloudy day also reduces streaking.

• Sniff out smells. Check the drip tray underneath your refrigerator and wash out any standing water from defrosting. Remove inside odors by washing the inside of the fridge with a baking soda and water solution. Boil lemon juice in your microwave and add it to your dishwasher to eliminate bad smells. Also, put the lemon rinds down the disposal. Add activated charcoal in the fridge to keep odors at bay.

• Make your bed better. Vacuum mattresses and box springs, and then rotate and flip over. Do the same for removable furniture cushions. This is also a great time to wash or dry-clean the dust ruffle and mattress pad.

• Clean those coils. Improve energy efficiency by vacuuming grates, coils, and condensers in your furnace, stove, and refrigerator (either underneath or in back). If a vacuum won’t reach, try a rag tied to a yardstick.

• Wash the walls. Grease, smoke, and dust can adhere to walls and make even the best decorating look dingy. Wash walls using a general-purpose cleaner with hot water. Start at the top of the wall to avoid drips and in a corner so that you wash one wall at a time. Rinse the mop head frequently in clean water. And don’t press too hard, because flat latex paint won’t absorb much water.

Enjoy the warming weather.

Jim