North Phoenix Agent Blog

This is the 4th in a series about buying metro Phoenix area short sales and lender owned homes.

 Photo credit to I Can Has Cheezburger

Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales are a spanking good deal. 

See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures.  Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience. 

ORGANIZATION - Getting the Deal Closed
Now you’ve got an accepted offer on the short sale or lender owned home of your dreams, what about closing the deal? Banks usually want you to close within 30 days of their acceptance. Sometimes they take their sweet time sending you the acceptance, thereby eating up some of your 30 days and some of your inspection period.

Get cracking! Are you working with a full time, professional Realtor who’s ‘got people’ and can get a home inspection, roof inspection, A/C inspection and mold inspection done inside of 4 business days if necessary? You’ve got no worries. Working with your sister in law’s cousin who does real estate on the side? Or working without a Realtor? You’ve got a challenge on your hands. Whatever you do, don’t miss the deadline for the end of the inspection period.

Most banks will do no repairs. Even if the pool is green and the front porch is falling off, you’re buying it as is. Over Fourth of July weekend I spoke with a loan processor who told me she had personally done a loan for a Buyer purchasing a short sale from HSBC bank. They’d done a bunch of repairs before the closing, and even did some repairs the Buyer didn’t specifically request. This is exceptionally rare. Inspect it till you drop and expect it to be as-is on closing day.

Most banks also make you sign an addendum that removes most of the Buyer protections in the contract, institutes some additional Seller (bank) protections, and generally tilts the contract heavily in their favor.

If you’re paying cash, you should know that your purchase funds must be immediately available on the closing day. Cashier’s checks are acceptable. Wire transfers in US funds are acceptable. Canadian funds and checks drawn on Canadian banks are not acceptable. We don’t discriminate against Canadians per se, because generally no foreign funds are acceptable.

Be aware that due to the USA Patriot Act and other federal regulations since September 11th, wire transfers take a long time to transit the federal wire system. I’ve seen wires take 8+ hours. Plan on having your wired funds arrive at the title office the day before closing. Expect a wire fee of about $25 to $75. Expect a currency exchange fee of about $15, if you’re using foreign currency. I’ve been told by a very trusted and experienced title officer that she can’t get anyone to tell her who collects that $15 fee and she has never had success at making that fee disappear.

Almost every bank imposes daily late fees if the Buyer holds up the closing. These are usually in the area of $100 per day. Getting a loan to buy the home? Make sure your lender has the loan documents at the title office at least a week or two in advance of the closing date. No sense taking chances and accruing hefty late fees. if you’re out of town when the closing occurs, there will be FedEx shipping transit time to consider, so get loan docs to title early. Also, now is not the time to help your sister’s kid who’s just got in to home mortgages. Send your nephew a gift card and use a mortgage pro.

Buyer Lessons

1. Play by the bank’s rules.
2. Conduct multiple inspections
3. Make sure loan documents arrive early
4. Send wire transfers early

 Related Posts:

• How to Buy Short Sales/Lender Owned Homes, Part 1
• How to Buy Short Sales/Lender Owned Homes, Part 2
• How to Buy Short Sales/Lender Owned Homes, Part 3
• I Got a Notice of Trustee’s Sale. Now What?

The home inpsection process explained, in plain English. Of course, this applies only in metro Phoenix where I work.

During the Due Diligence Period (usually the first 10 days after contract is signed by both parties and delivered to both parties), Buyer may do any and all inspections she wants. A general home inspection by a licensed professional is a great start. This gives the Buyer a once-over of all the home’s working systems: plumbing, electrical, A/C, roof, and so forth.

If the general inspection turns up anything odd, or if the Buyer has concerns about specific items, she can do additional inspections. Sometimes calling in a roofer, A/C contractor, electrician or plumber is a good idea. Please note that general home inspections usually do not include home entertainmnet sound systems, security systems, and the home automation systems that are all the rage in luxury homes these days, whereby you can monitor your home security system over the Internet while you vacation in Cannes.

During the inspection (or Due Diligence) process, the Buyer retains the absolute right to back out of the purchase for any reason and be refunded their Earnest Money.

Buyers, after your inspections are complete, you’ll have 3 options:

1. Accept the home As Is
2. Back out and take your Earnest Money with you
3. Give the Seller a list of repairs you require and give him a chance to fix them all

Sellers, you will now have 3 options:

1. Fix everything – Buyer is now legally bound to complete the purchase
2. Fix nothing – Buyer now decides whether to accept the property As Is or walk away with Earnest Money in hand
3. Fix some things – Buyer now has the choice to accept the property with the repairs Seller’s willing to make, or walk away with Earnest Money in hand

Please note that there is no step in here for re-negotiating the purchase price! The purchase price and the repairs are separate issues, negotiated separately, and are totally unrelated. Sometimes, some Sellers may choose to offer a credit to the Buyer in lieu of making some or all of the requested repairs. The Seller is not bound to offer a credit and Buyer may not ask for a credit in lieu of repairs, regardless of the inspection findings.  If a credit is offered, the amount is negotiable.

Please also note that there are time-sensitive deadlines involved in this process. First, Buyers’ requests for repairs must be submitted by 11:59 PM local time on the last day of the Due Diligence Period. You do this on a form called a BINSR (Buyer’s Inspection Notice and Seller’s Response). Buyer - missed your deadline? You just bought the house As Is.

Second, the Seller has 5 days to respond to the BINSR using the rest of the same form. Upon receipt of the Seller’s response, the Buyer will have 3 days in which to submit her reply about whether she’ll take the house with the repairs the Seller’s willing to make, if any.

What if the Seller doesn’t reply to the Buyer’s BINSR? The Buyer must assume the Seller intends to sell the home As Is. The Buyer has 3 days from the date the Seller’s response to her BINSR was originally due in which to decide whether to complete the purchase (which we now know will not have any repairs done on it) and submit that decision in writing to the Seller using the rest of the rest of the BINSR form.

Confused yet? This is a great example of why it’s SO critical to hire a professional, full-time Realtor. This isn’t rocket science, but it is the sort of situation where mistakes can be so monumentally costly that it’s best to hire someone who’s job it is to do this all day, every day, and carries insurance to protect you and themselves against mistakes. To err is human nature, to buy real estate without a professional Realtor is just silly.

Please see these related posts

1. Backing Out of a Purchase Might Be Costly
2. Due Diligence Period Defined
3. The Phoenix Real Estate Guy on Escrows and Home Inspections

I have a client looking for a deal on a home at The Boulders. But like so many potential buyers today, he’s been told by friends and the media that he can get a steal, so he’s half convinced he wants to offer 60% under asking price on a bunch of houses at once — the first seller to accept is the winner of his purchase.  Okayfine.

Being in the trenches daily, I’m here to tell you that 99.9% of sellers are not going to react well to an offer that’s 60% below their asking price. Buyers shouldn’t expect to buy houses at 40 cents on the dollar. Maybe you can do this on a few short sales but be prepared to wait 2 to 4 months for the bank to approve your offer, if they ever do.

So to help this buyer see what’s really going on, I created a spreadsheet for him of market data in the area. It shows home sales in the Boulders since Jan 1 2007, including the initial asking price, the final list price, the days on market and the list to sales price ratios.

Since I’ve been lax lately about blog posts, I’m making my work for that buyer into today’s post. Interested in prices at The Boulders? Look no further.  Homes for sale at The Boulders are here, or email me and I’ll add you to the list of folks who get this data pushed to them daily.

Sale price history at The Boulders is here > > >(click to enlarge, use ‘back’ button to return to this article).

The NPR radio show Marketplace reported this morning that home sales jumped 2.09% in February. Analysts had expected another month of slumping sales volumes; it would have been the 7th in a row. At the same time the number of homes sold increased, the prices for those homes decreased. NPR surmises this is probably a function of more home sellers getting realistic and dropping their asking price.

There’s so much data in our local MLS that I can’t crunch enough numbers to support the above theory. I rely on Realtor John Wake for most of my stats; he’s a whiz at that number crunching.

I keep my eye on the anecdotal data. My favorite title officers say that January & February were booming months for closings. My favorite in-house lender Kristi Collins of Coldwell Banker Home Loans (602-750-8594) agrees. Me too. I was swamped from Novembver through the end of February.

It’s quiet now. I think it’s the calm before the storm. In a good way, of course. I think that late spring and summer will be the workhorse months in metro Phoenix. We’ll burn through inventory, get rid of the homes in the MLS that shouldn’t be there, and sell some great homes at realistic prices to investors and first time buyers. 

Rates are still historically low. I locked a buyer at 5.81% for a 30-year fixed rate mortgage on Friday last week. Rates bounced up again to 6.125% this morning. But compared to the 17% and 18% that was common in the early 1980’s that a bargain.

The sellers left on the market these days are anxious to get sold. They’ll agree to pay closing costs, help first timers gather a down payment. We’re even hearing talk of sellers helping to buy down mortgage rates.

Calm before the storm or beginning of the end? Time will tell.

Attention home buyers:  did you know that if you back out of a home purchase you could be risking more than just your Earnest Money?

The key to how much Buyers risk by backing out is the timing.

Most buyers know they can back out of a home purchase during the inspection (Due Diligence) period without penalty. You fill out a form stating why you’re walking, and you walk, Earnest Money in hand.

But what if the Buyers get cold feet at the last minute? What if they just don’t want to buy the house anymore? Let’s assume the Buyer’s loan was approved, the house appraised for at least the purchase price, and there’s nothing materially wrong with the home. The Buyers just felt a little icy about the toes. This is known as a breach of contract, and it can be quite expensive.

In that case, the Buyers could potentially lose a good deal more than just the Earnest Money. Lines 275 to 282 of the AAR Purchase Contract say: “In the event of a breach of Contract, the non-breaching party may cancel this Contract and/or proceed against the breaching party in any claim or remedy that the non-breaching party may have in law or equity….  In the case of the Seller, becasue it would be difficult to fix actual damages in the event of the Buyer’s breach, the Earnest Money may be deemed a reasonable estimate of daages and Seller may, at the Seller’s option, accept the Earnest Money as Seller’s sole right to damages….”

Read that carefully again: the Sellers may take Earnest Money in lieu of damages. But they might choose to ignore the Earnest Money and pursue the Buyers for actual damages.  Actual damages could involve mortgage payments, carrying costs like heating & cooling expenses, the increased marketing costs associated with putting the house back on the market, mediator or attorney fees, and the like. 

In today’s market where most Valley homes are depreciating at about 1/2% to 1% per month, the Seller’s loss could be quite high. If it took 3 months to find the Buyer who’s now backing out, it could take many more to find a new buyer. And the new buyer will likely pay less for the home because time has passed and the market has slipped a little further.

In our current correcting market, it’s not impossible to believe a Seller could get angry enough to consider mediation or a lawsuit. Buyers: make sure that any cold feet you get happen before the expiration of your inspection period!

Don’t Get Old Trying to Save a Down Payment!

AmeriDream is a fantastic resource for first time buyers who are having trouble saving the downpayment on house. With price appreciation like we’ve seen in the past few years, even 3% of a home purchase price can be extraordinarily difficult for first timers to save.

(For those who like my writing style, read on. If you just want to cut to the chase, scroll down to below the smiley face.)

Three percent of the median home price in the metro Phoenix area is about $8,000. Plus buyers need another $2,000 to $4,000 for closing costs. It’s super important to have some savings leftover after the housewarming party for unforseen home emergencies, which pop up like those Whack A Mole games at the arcade. Then, it’d be nice to have some money to cover a few cosmetic upgrades once you’re in the house - like maybe switching out the lighting fixtures from 1973 - ’cause the median metro Phoenix price of $263,000 doesn’t buy granite counters and stainless steel appliances in this town. All in all, you’re gonna need about $10,000 or $15,000 grand to do it right. Sure, you could skate by with the bare minimum savings, but being house poor leads to lots of dinners based on ramen noodles.

How in the heck are first  timer homebuyers supposed to save up all this money?! You could do what my cousin in Pennsylvania did. He lived with his mother in law for 3 years while he (an architect) and his wife (a loan processor) saved pennies. They accumulated $40,000 at  the end of the three years. Bought a house and six months later my cousin saved his marriage by refinancing to pull out a little equity. He used it to “help” send his mother in law to far away Florida.

Or, you could rely on AmeriDream. Here’s how it works. Federal housing law allow 5 types of people/organizations to gift down payment money to a home buyer. Sellers are expressly banned from gifting down payment money to buyers. Group 1 is parents. Parents are allowed to gift money to kids. (There’s 4 other categories: government entity, religious organization, 1 I can never remember, and the 1 below).

There’s a lovely little loophole in federal law which allows a non profit agency to gift down payment money to buyers. Somewhere back in the 1990’s a couple of nonprofits appeared and did just that. Nehemiah Corp is the other one I’m aware of.

These nonprofits set up a neat little triangle, so to speak, between the seller, the buyer, and themselves. The seller agrees to make a “donation” to the nonprofit org in the amount of the buyer’s needed down payment, plus a small administrative fee that’s usually about $300. The nonprofit turns aroun and “gifts” the down payment (minus their admin fee) to the buyer. The title/escrow company coordinates it all after the Realtors write it all up in nice legalese. And it’s all totally legal, tested by dozens of lawsuits. Most recently, last October HUD sued AmeriDream and got their shirts handed to them in federal district court.

AmeriDream claims to have given out over $400 million in down payment assistance grants which translates into over $14 billion in housing. Nehemiah says they’ve given out over $999 million in grants. I love this country!

If you’re a buyer who wants to use a down payment assistance program, ask around until you find a Realtor and a lender who done these types of deals before. There’s only a little extra paperwork involved, but the deal goes a whole lot smoother if “your people” know how to explain it to the seller properly. Hmmm…. I’m a Realtor who’s done AmeriDream deals. Nehemiah Corp too. Hmmm….

The Due Diligence Period in a home purchase contract is the time during which the buyer conducts any and all inspections of the home that she/he chooses.

The Due Diligence used to be called the Inspection Period. Most agents and home buyers/sellers still call it that. The AAR changed the terminology to Due Diligence when they overhauled the language in the purchase contract in May 2005.

Legally, buyers can pretty much take the house apart brick by brick and inspect it all, as long as they put it all back together again the same way it was. Practically speaking, most buyers get a general home inspection and often a termite inspection. Some add a roof inspection, a pool/spa inspection, a mold inspection, and maybe an inspection of the heating & cooling systems.

Buyers usually pay for their own inspections (although who pays is technically and legally negotiable). Almost all inspectors require payment up front. Termite inspectors are the one exception. I’ve worked with many termite inspection companies that take payment out of the escrow funds when the house closes.

Typically, the Due Diligence Period lasts for 10 calendar days, although buyer and seller may negotiate for more or less. It’s important to note that the Due Diligence Period — and all contract time periods — are counted on calendar days. Weekends count. Holidays count. The Due Diligence Period begins on the first full day after the contract is signed by both parties and delivered to both.

After the Due Diligence Period ends, the buyer and seller have a chance to negotiate again over which recommended and/or requested home repairs are completed.

Apparently, it IS true that nobody NEGOTIATES home purchase contracts on Christmas Day.

Real estate is filled with pithy sayings, old legends, and rules of thumb. I’m sure most professions are the same. One of the old sayings in real estate is that “nobody buys a house during the holidays!”

BTW, I hope I didn’t upset any non-Christians with my title. It’s getting so hard these days not to upset somebody or another. It’s just that “At Christmas” fits better visually in my title bar than “During The Holidays”.  Nothing more.

So, is it true that nobody buys or sells real estate during the holidays? I hope some of my readers — espeically those who read but don’t comment regularly — will help me refute this “truth”.

I’ll start: today, Christmas Eve, I’m inking 2 deals. They’re smallish, so I’m not bragging here. Just trying to say that we should all take myths about real estate with a grain of salt.

Everybody else? Tell your story of buying or selling a home during the holidays.

I’m in a cranky mood this afternoon, because I spent a full hour on the phone with a client’s lender trying to get an agreement that will help her avoid foreclosure. (see yesterday’s entry)I call the lender to tell them that the current payment ($1461 a month) is unaffordable, and can’t we work out an agreement where the loan is re-financed for 40 years instead of 30? I explain that as the neighborhood Real Estate expert who’s sold homes just like these for the past 3 years, I’m here to say you, Mr. Lender, will lose at least $75,000 if you issue the foreclosure notice and we short sale it.  So can’t we work together to do something that results in a payment the homeowner can afford?

I’m thinking this is a reasonable plan: the lender avoids a huge write off and gets 10 years of extra interest payments, the homeowner gets to keep her home at a payment she can afford. Certainly not the lender’s first choice, but a reasonable alternative if they’re at least a little creative and progressive.

They turned me down flat. Wouldn’t even discuss it. Also wouldn’t discuss any other plan. No forbearance, no alternate arrangements, they won’t try to refinance her…. You want to hear the lender’s brilliant plan? The homeowner should send an extra $862 per month for 4 months, and then she can go back to her regular $1461 a month payment and everything will be fine. Oh, and for a limited time only, because you’re such a good customer, we’ll ding your credit rating every month with a late code on the extra-big payment.   

What the heck kind of plan is that? If she can’t afford the current $1461 a month, what makes you think she’s got $2323 a month? You think she’s going to Vegas every weekend with an additional $862 and she just “forgot” to send to you?! Sheesh!

So all’s I’m sayin’ is, if you’re even a day behind on your mortgage payment, call your lender. If you think this isn’t a once and done fluke of a situation, call. If it might be a whole month late, or if some emergency came up, or if you just can’t afford the payments… call right now. Don’t wait until you’re 3 months behind like my client did. The banks just don’t have a lot of wiggle room to negotiate another deal if you’ve left it go for months. Call today. Please.

Related Posts:

1. REO, Foreclosure, Short Sale - What’s the Difference?
2. I Got a Notice of Trustee’s Sale, Now What?