That Short Sale is Neither "Short" Nor A "Sale".. Beware!

That Short Sale May Not Be A Good Deal

Lately – I have had many of my clients interested in short sales. I have tried to explain to them that not to be deceived by the name "short sale" because it's quite deceiving. Neither word, "short" or "sale" has any truth to it in this instance. The time a short sale takes is not "short" and it's definitely almost always never a "sale" in the sense of the word that includes a discount or "deal" of some sort.

Short sales take place when values drop and homeowners do not receive enough cash from a buyer to pay off their existing mortgages and think ONLY happens when lenders (the true "owners") agree to accept less than the amount owed to them in exchange for releasing the current homeowner from his/her obligations to the bank.

On the surface, it seems a short-sale buyer is getting a bargain. But, most of the time a buyer would be better off buying a home that is not in default and not a short sale.

Why?

First let me tell you that because agents get paid no matter what kind of sale, they're not going to tell you not to consider a short sale. But in the interest of bringing integrity and honesty back to the real estate industry (where, I feel it is severely needed) I will tell you the truth.

First, the Seller probably paid too much to begin with. If a home sold for $700,000 in 2005 and is now for sale at $500,000, that doesn't mean the buyer is picking up $200,000 of equity for free. It means the seller paid too much in a rising market and now the market has fallen. It means the seller has no equity in the house and each of his mortgage payments has basically been trashed.

Next, the Seller probably borrowed too much against the house. Remember when HELOCs were ALL the rage and people were cashing out to go on trips? Remember those mortgage bankers that told you to refinance and cash out your equity and then you will be able to do it again in six months? What they were NOT counting on was the market crash and as well all know – it crashed. Hard. Years ago, the banks that were eager to lend money in upwardly moving markets – and they even let borrowers to over-encumber (that means owe more than it's worth) the home, meaning the borrower's loan balance exceeded the value of the property. Appraisals are subjective, and not all appraisers will place the same value on a home. Although against the law, some appraisers are pressured by banks to appraise at the amount the home owner wants to borrow.

Next, remember, short sales have strict requirements. Inexperienced or unethical real estate agents might influence a seller into a short sale when the seller doesn't necessarily qualify. The banks require lots of things when determining whether or not to approve a short sale.

Another thing to remember is that, as a rule, homes sell at Fair Market Value. The bank that owns the short sale you are looking at is a highly sophisticated institution and knows exactly how much that home it worth. They will always get a comparative market analysis (something I provide all of my clients when they are considering making offers) to determine the value of a property. If the bank thinks it can make more money by foreclosing, it will not approve a short sale until it sees a profitable transaction for itself. Banks are here to make money – for themselves, not you. The bank will wait until it gets an offer at a price that it is willing to accept, and that price is going to be close to fair market value. If you are lucky enough to be dealing with an approved short sale. That is the minimum price that the bank will accept. Remember, this price has taken months to arrive at along with a lot of research and analysis. You can't haggle the bank into a lower price and you definitely won't get one below market value.

The condition of the home is another factor in considering a short sale. In regular transactions, closing costs, repairs and inspections can be negotiated and often shared between buyer and seller. But in a short sale, because the Bank is paying the closing costs more often than not, they are not going to pay for anything else. These other costs include things like: Suggested repairs disclosed on a home inspection, Pest inspections or work necessary to issue a clear pest report, Roof certifications or roof repairs, Home protection plans for the buyer, and Deferred maintenance. Because lenders rarely will pay for any extras, like a seller would be willing to do, if you want any of those extras, you will pay for them yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, you will probably pay for them out-of-pocket.

When do you want to move? If you are looking at a short sale, you're not looking at a 30-day transaction. Depending on when the Notice of Default was filed, the lender's back-log of foreclosures and how much paperwork the seller has already submitted, it could take anywhere from two weeks to six months to get a response on a purchase offer from a lender. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender. If you need to close escrow by a specific date, lots of luck with that. A short sale home closing process takes an indefinite amount of time. The seller's lender calls the shots, not the buyer nor the buyer's lender. If you are trying to close escrow concurrently with the sale of your home, it might not happen.

The Bank is in charge. Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender's desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinary buyers do not.

These are all things to consider before and when buying a short sale. I'm sure you're thinking it doesn't as good as it seems. Great rule to live by: if it sounds too good to be true, it probably is.

As always, we at Crestico Realty are here to help answer all your questions about real estate. Please visit our website at

http://www.crestico.com for more information regarding this and any other real estate topic.

Communication is Key

Communication is Key

Communication is a word that we often hear but rarely think about. We know it is important and we know we are supposed to do it on a daily basis (like brushing our teeth) but very few of us actually dedicated time and energy to the act of it. Communication becomes particularly important in business relationships, especially your relationship with your real estate agent. You would think a person that sells and buys real estate for individuals would know how to communicate effectively, but as of late, I am coming across many situations that show me that just is not true.

Recently, I had a showing in a popular community with hundreds of homes in the complex. At the gate of the community were over 50 lockboxes holding the keys to the various units that have been listed for sale. I was showing only 5 units that day, and had made contact with over 10 agents in the days preceding the showing day to set up appointments and let the agents know that I would be showing their listings. Of the over 10 phone calls and emails I made and sent, only 5 got back to me in time and 3 still have not contacted me (three weeks later). This was my first tip-off that perhaps these agents are not experts at communication.

Next, on showing day I arrived at the gate where the lockboxes were and proceeded to get the keys for the units I wanted to show. To my utter and absolutely disbelief, I found myself facing lockboxes with no indication of who the agent was or what the unit number was. There were some agents who had taped their business card to the lockbox or used a permanent marker (oddly enough) to write the unit number on the box – but the overwhelming majority were blank. I could not believe this. How does one think he/she can sell a listing if the showing agents and prospective buyers cannot gain access to the unit?! I made a few phone calls, only one of which was answered and finally opened the lockboxes and got the keys. Some of the boxes had multiple units' keys in there with no labels, again! This pattern was beginning to alarm me and my clients finally arrived so I brushed it off and we began our tour.

Now, I had made appointments and given courtesy notice that morning to all of the agents of the units I would be showing. Two of the units were vacant so that was no problem, but the last three still had people living in them. One family I felt particularly bad for, was trying to put their baby to sleep when I rang the doorbell and ended up with a crying infant because their agent had forgotten to tell them that their home would be shown today (by appointment!). Another lady had just gotten out of the shower and was more than shocked and surprised that anyone had made an appointment to see her home.

I write this today to let all you prospective sellers and buyers know to ask your agent about these things and be aware that although you may think your agent is a key communicator, he or she may not be. A communicative and professional agent would have let his or her clients not only know that someone was coming by to see the unit but would also conduct himself/herself in such a professional manner as to make it easy and stress-free for a prospective buyer to want to purchase the home. In this unique market, and in the aftermath of the mortgage crisis, we as real estate agents should work towards reviving the professionalism and integrity of our industry so that we can do our part in this nation's recovery. Recovery starts with one person who changes the image of the unprofessional and shady real estate professional in the mind of just one client who then changes the mind of another and so on.

--
Thank you,
..............................
Mitra Karimi
CRESTICO, INC.
Mitra.Karimi@Crestico.com
Direct: (949) 478-4466 | Fax: (949) 335-0616
DRE. Lic. # 01848917
Office: (877) 880-2929 | Fax: (877) 881-2929 | www.crestico.com
3187 Red Hill Avenue Suite 210 Costa Mesa, CA 92626

PLEASE NOTE: The information contained in this email message is privileged and confidential, and is intended only for the use of the individual named above and others who have been specifically authorized to receive such. If the recipient is not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by return email or telephone and destroy and delete the original email. Thank you

Is Buying Better Than Renting?

Is Buying A Home Still a Good Investment? Lately, many of my colleagues and friends have been asking me whether I think buying real estate is still a good investment. While it may seem like renting a property that is easier to get out of, costs less to maintain and is more easily negotiable to get into is a better choice than dealing with selling agents, competitive cash offers from investors and escrows and taxes; I firmly believe that it is NOT. You may think, "Sure, of course SHE doesn't want us to rent, she wants us to buy - that's how she makes money" so keep reading and decide for yourself.
First we need to define what is considered a "good" investment. There used to be a time when people would see huge returns on their investments, be they in stock, bonds or real estate. In a recession however, all kinds of earnings and returns are diminished. This leaves investors to re-define their idea of a "good" investment. Sometimes, they may consider an investment that does not lose value as a "good" investment, other times nothing less than doubled value would be considered "good." Generally speaking, according to most economic theorists and financial advisors, any investment that is yielding a 5-8% annual return is considered a "good" return. This leads us to a discussion of ROI.

Often you will find people talking about ROI. Historically, ROI (Return On Investment) has been a common method for individuals and companies to measure how "good" of an investment they have made, based on the rate of return that they have enjoyed. When trying to determine whether a particular real estate purchase is a good one - one would need to consider a few things. Real estate's value depends mainly on its location. (I know you've heard it "location, location, location") Often, communities that are built to support big educational institutions or employers (think big name colleges and the neighborhoods close to them, or big factories and suburbs created to house the families of the workers) tend to enjoy more stability in terms of price and rate of return than others, even in times of depression and recession. By looking at the location of the real estate, you will have more information about whether or not it is a good investment. Surveying historical values over time in the area will allow you to see the retention of prices in the area.
Ultimately, as an investor you will need to gather information not only about the property you are considering purchasing, but also the surrounding neighborhood, historical values and proximity of institutions that can contribute to the stability in price. Overall, investing in a home, even at this time in our economy can yield the same (if not better) return as investing in stocks or other types of investments. The key difference would be that you can live in, build a home in, create a family in and achieve your dreams in a piece of real estate whereas a stock certificate can not provide these intrinsically satisfying things for you.

 

Is Buying A Home Still a Good Investment?

Lately, many of my colleagues and friends have been asking me whether I think buying real estate is still a good investment.  While it may seem like renting a property that is easier to get out of, costs less to maintain and is more easily negotiable to get into is a better choice than dealing with selling agents, competitive cash offers from investors and escrows and taxes; I firmly believe that it is NOT.  You may think, “Sure, of course SHE doesn’t want us to rent, she wants us to buy – that’s how she makes money” so keep reading and decide for yourself.

First we need to define what is considered a “good” investment.  There used to be a time when people would see huge returns on their investments, be they in stock, bonds or real estate.  In a recession however, all kinds of earnings and returns are diminished.  This leaves investors to re-define their idea of a “good” investment.  Sometimes, they may consider an investment that does not lose value as a “good” investment, other times nothing less than doubled value would be considered “good.”  Generally speaking, according to most economic theorists and financial advisors, any investment that is yielding a 5-8% annual return is considered a “good” return.  This leads us to a discussion of ROI.

Often you will find people talking about ROI.  Historically, ROI (Return On Investment) has been a common method for individuals and companies to measure how “good” of an investment they have made, based on the rate of return that they have enjoyed.  When trying to determine whether a particular real estate purchase is a good one – one would need to consider a few things.  Real estate’s value depends mainly on its location.  (I know you’re heard it “location, location, location”)  Often, communities that are built to support big educational institutions or employers (think big name colleges and the neighborhoods close to them, or big factories and suburbs created to house the families of the workers) tend to enjoy more stability in terms of price and rate of return than others, even in times of depression and recession.  By looking at the location of the real estate, you will have more information about whether or not it is a good investment.  Surveying historical values over time in the area will allow you to see the retention of prices in the area.

Ultimately, as an investor you will need to gather information not only about the property you are considering purchasing, but also the surrounding neighborhood, historical values and proximity of institutions that can contribute to the stability in price.  Overall, investing in a home, even at this time in our economy can yield the same (if not better) return as investing in stocks or other types of investments.  The key difference would be that you can live in, build a home in, create a family in and achieve your dreams in a piece of real estate whereas a stock certificate can not provide these intrinsically satisfying things for you.

 

Mitra Karimi

Realtor – Broker

Crestico Realty

www.CresticoRealty.com

Something You May Not Know About Loan Modifications

Recently, we have seen a dramatic increase by almost 30 in the number of homeowners' mortgages that have been permanently modified. Almost 25% of the 1.2 million trial modifications that began over a year ago under the Treasury's Home Affordable Modification Program (also known as HAMP) have now been permanently modified.

A problem many of these homeowners have been facing is the inability of the Loan Servicer to verify homeowners' incomes. This is something many people do not understand about the loan modification process. You must have some sort of income before you qualify for a loan modification. Being unemployed with no source of steady income does not automatically qualify you for a modification and in most instances, makes it even harder for you to be able to gain the approval you need to modify your existing mortgage payment.

To combat this problem, beginning later this year on June 1, the HAMP program will now require that ALL modifications be based on VERIFIED income statements. By doing so, the Treasury is effectively guaranteeing that less modifications will be cancelled once the application process has begun.

What this means for homeowners is that they will need income, verified and evidenced before they will be able to qualify for a modification of any sort under the Home Affordable Modification Program. The economy being what it is, it may not be possible for a homeowner to maintain a steady income and when faced with such a situation, will need to seek out other methods of alleviating the burden of a cumbersome mortgage payment. This is when short sales and Deed in lieu of foreclosure options present themselves the next likely means for a homeowner in this situation to explore.

Mitra Karimi

Crestico, Inc.

http://www.crestico.com

mitra.karimi@crestico.com

Five Mistakes You Shouldn't Make As a First Time Homebuyer

Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:

1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased interest rates over the life of the loan.
2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.
3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.
4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.
5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don't budget for it can face a nasty surprise.

Source: CNNMoney.com, Les Christie (04/19/2010)

 

Mitra Karimi

mitra.karimi@crestico.com

http://www.crestico.com

New Home / First Time Buyer Credits in California

The New Home / First-Time Buyer Credits are available only for purchases that close escrow on or after May 1, 2010.

Applying for the 2010 New Home/First-Time Buyer tax credits: Applications must be faxed after escrow closes. The new application will be available by May 1, 2010. We will deny the application if the 2009 form is used or if we receive the 2010 application before May 1, 2010.

General Information: These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. The purchase date is defined as the date escrow closes. Taxpayers may apply for the tax credits if they have entered into a contract before May 1, 2010, as long as escrow closes on or after May 1, 2010.

These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.

Only one tax credit is allowed per taxpayer, and they will be allocated on a first come, first serve basis. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Taxpayers will not be eligible for either tax credit if any of the following apply:

- The taxpayer was allowed a 2009 New Home Credit.

- The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)

- The taxpayer or the taxpayer's spouse/RDP is related to the seller.

- The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New Home Credit: A qualified principal residence, for purposes of the New Home Credit, must:

- Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been "purchased."

- Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.

- Be eligible for the California property tax homeowner's exemption.

- Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

Tax credit allocation:

A Certificate of Allocation will not be issued if:

The seller does not certify the home has never been occupied.

- The Franchise Tax Board does not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

- The Franchise Tax Board receives the application or reservation request after the total tax credits available have been allocated.

First-Time Buyer Credit: A qualified principal residence, for purposes of the First-Time Buyer Credit, must:

- Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been "purchased."

- Be eligible for the California property tax homeowner's exemption.

- Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

A first-time buyer is any individual (and the individual's spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the preceding 3 year period ending on the date of the purchase of the qualified principal residence. If the buyer is married on the date of purchase and either the buyer or the buyer's spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP is not going to be on title.

Tax credit allocation:

A Certificate of Allocation will not be issued if:

- The Franchise Tax Board does not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

- The Franchise Tax Board receives the application after the total tax credits available have been allocated.

Applications: The Franchise Tax Board will accept applications by fax only beginning May 1, 2010. Do not use the 2009 application.

Reservations: Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached, as a reservation will "hold the taxpayer's place in line" until 2 weeks after escrow closes. To reserve a tax credit, the taxpayer and seller need to complete, sign, and fax to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request. Taxpayers who reserve a tax credit still need to fax an application and a copy of the settlement statement within 2 weeks after the close of escrow. Taxpayers may not reserve a tax credit if the contract was entered into before May 1, 2010. We will post the reservation form and details about the process by May 1, 2010.

If you are only applying for the First-Time Buyer Credit, you will not be able to reserve the tax credit before escrow closes.

Claiming the tax credit:

The taxpayer must receive a Certificate of Allocation from the Franchise Tax Board to claim the tax credit on their California personal income tax return. The Certificate of Allocation will state the maximum amount the taxpayer can claim listed by tax year.

The taxpayer should refer to the 2010 New Home / First-Time Buyer Credit Publication for instructions on claiming the tax credit (the publication will be available by December, 2010).

Special rules apply to married/RDP taxpayers filing separately, in which case each spouse/RDP is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.

If the available tax credit exceeds the current year net tax, the unused tax credit may not be carried over to the following tax year.

The tax credit may not reduce regular tax below TMT.

The tax credit is not refundable.

Any disallowance of the tax credit may not be protested or appealed.

 

Mitra Karimi

Crestico, Inc.

mitra.karimi@crestico.com

http://www.crestico.com