The Shifting Desires of Home Buyers

2012 in review

The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

600 people reached the top of Mt. Everest in 2012. This blog got about 2,600 views in 2012. If every person who reached the top of Mt. Everest viewed this blog, it would have taken 4 years to get that many views.

Click here to see the complete report.

What to do when an appraisal comes in below the selling price

By Katherine Reynolds Lewis, Published: December 14

When Stefan and Jennifer Hull beat out other interested buyers for a four-bedroom, two-bathroom Cape Cod house in Bethesda, they felt sure they’d gotten a bargain at $759,200. They were shocked when their lender’s appraiser valued the home at only $744,000.Because of the low appraisal, their bank would only give them a $595,200 mortgage, instead of the $607,360 they’d been approved for initially. The Hulls said they didn’t believe the home was worth the lower appraisal amount — it turned out that the appraiser compared their home only to other Cape Cod-style houses, some more than a mile away, while ignoring closer-in comparable sales — so they pulled an extra $9,960 from their savings to make up the gap. The seller agreed to lower the price to $757,000, which was the next highest competing offer for the home.

“We were none too pleased,” said Stefan Hull. “If you look in the area, there was nothing selling under what we had purchased it for, for the same square footage, and we had a nicer house. When we saw the houses he compared it with, we said, ‘You’ve got to be kidding us.’ ”As the real estate market heats up and prices continue to recover from the 2008 housing crash, more home buyers and sellers are likely to encounter the problem of an appraisal that is lower than the agreed-upon sale price. After all, appraisals must be based on recently settled transactions, and in a rising market those past transactions are likely to be lower in price. Whether you’re a seller or a buyer, it’s important to understand the risks involved around low appraisals — and the options available to you.“Whenever you have an increasing market, and in certain pockets we have that now, appraisers’ hands may be stuck,” said Traci Levine, a realty agent with Long & Foster in Bethesda. “They go by past history and not future sales.”Moreover, because of new restrictions on the relationship between lenders and appraisers — aimed at curbing the appraisal abuse that contributed to the housing bubble — buyers and their mortgage representatives have less control over the process. Lenders simply order an appraisal from a list of approved appraisal companies, and a third party directs the individual to perform the appraisal.“I’m all for not having an appraiser in your back pocket, but to be able to actually pick appraisers that live in the area would be a major differentiator,” Hull said. “They have no idea where these guys are coming from. That hurts the overall housing market.”One of the contributing problems is the growth in appraisal management companies, which may award appraisals based on low cost rather than the expertise and skill of the appraiser, said Sara Stephens, president of the Appraisal Institute, the largest professional association for real estate appraisers.“In some cases, cheap and quick is certainly the mantra, and not professional experience and understanding of the market,” Stephens said. “That’s a real issue for a lot of buyers and sellers going forward.”Preventing a low appraisal

Still, there are a few steps that sellers can take to prevent an inappropriately low appraisal. “There are a lot of agents who just give the appraiser a one-day code to their lockbox,” Levine said. “I take appraisals very seriously. I always meet appraisers at the property and I bring the most relevant comps. They don’t have to take them, but most do.”

Because of the new third-party rules, the appraiser who is assigning a value to your home may not be from the immediate area. It can help to inform that person of the quality of the school district or the amenities in the local neighborhood, as well as improvements to the property as compared with other recent sales in the area.

“A competent real estate agent will generally prepare a list of comps or market sales analysis. They’ll provide information to the appraiser to justify the valuation,” said Ken Vogel, a broker at Vogel Realty Inc. and a real estate lawyer. “Most appraisers will tell you they do welcome the input from agents. The assumption is that the agent is familiar with this house in the neighborhood, whereas the appraiser has a wider geographic area.”

 Arlington appraiser Linda Braley suggested preparing a package of information for the appraiser on your home that includes the plat or condo documents, while also including data on comparable houses and any improvements you’ve made that should influence the value of your home.

“Information packaged well is usually very well received,” said Braley, who advises agents not to insist on meeting the appraiser at a home because of the scheduling challenge it can pose.Appraisals come into play for mortgage refinancings as well. James Cole, a government employee and father of two preschoolers, said he thought everything was going smoothly with the refinancing on his Herndon home, which he and his wife bought out of foreclosure in 2008. But Fannie Mae flagged the appraisal as suspiciously low and ordered it to be reviewed, during which time the rate lock for the Coles’ refinancing expired. The transaction is in limbo as the Coles wait for the results of the review.“It’s certainly an emotional roller coaster,” Cole said. “My biggest concern is they do their field review and declare significantly less, which would affect our refinance to the point where it may not be worth refinancing. I feel like we’re upstanding citizens and we pay on time and I’m hoping to save some extra money.”Good appraisers recognize the expertise of real estate agents in knowing whether one house in the neighborhood has a bumped-out dining room or a certain apartment in a condominium complex has a kitchen upgrade, said Ed Downs, an agent at Weichert Realtors in Washington.“When they’ve got a problem getting something to appraise to value, they’ll look through the comparables and call the listing agent and say, ‘Is there something I don’t know?’ I’ve fielded more calls this year from appraisers and they’re remarkably grateful in those circumstances,” Downs said. “We all want the transaction to go smoothly and 99 percent of the appraisers out there and 99 percent of the agents want to do the right thing and have no agenda.”Options if an appraisal is lowDespite all the best efforts of the agents involved, sometimes an appraisal will come in low. At that point, the buyer has four options:●Negotiate a lower sales price.

●Dispute the appraisal with the original lender.

●Get a fresh appraisal with a new lender.

●Make up the difference in the mortgage amount from savings.

 Lenders’ hands are tied when it comes to the size of a mortgage, which is typically pegged at 80 percent of the property’s value, said Skip Clasper, a private mortgage banker with Wells Fargo in Washington. Because the bank always represents the buyer, the lender’s first choice would be to negotiate a lower purchase price.

In this situation, buyers must be careful to avoid letting any appraisal contingency expire, or they’d be locked into the transaction, regardless of the size of the mortgage their bank approves. Generally, sellers will grant an extension of that contingency deadline so there’s time to negotiate or challenge the appraisal. If not, the buyer has the right to walk away from the contract under the appraisal contingency. This is especially important given the longer lead times needed for an appraisal as the market gets busier.“I can usually make it work, but it does take some negotiation and back and forth,” said Judi LaMorte, a Fairfax Center real estate agent with Long & Foster. LaMorte recently represented the seller of a five-bedroom, five-bathroom Colonial in Fairfax with nearly 4,500 square feet, not including the finished walk-out basement. The appraisal came back at $1 million, well below the $1.165 million contract.“I really fought the appraiser a lot and saw a lot of erroneous things on his appraisal,” she said. “However, the purchaser came up to $1.128 million, and the seller agreed.”If negotiations fail, lenders may be willing to reevaluate the appraisal. Wells Fargo would be open to a modified appraisal, if compelling information is presented that justifies a higher value, Clasper said.Home buyers should certainly ask to see the appraisal report, which is their right, Stephens said. Make sure all the data are correct, such as the total square footage and the number of bedrooms, bathrooms and garages. “If all those things check out, I would get in a car and check on the comparable sales, and make sure they are in the same market and have the same characteristics as the home you’re trying to buy or sell,” she said.Note whether there are professional designations after the appraiser’s name, or whether two names are listed on the report, which can often indicate that the appraisal itself was conducted by a trainee or an appraiser with a bare-bones license, Braley said.Evers & Co. Real Estate in the District recently sold a renovated Chevy Chase, Md., farmhouse for $1.54 million, after a bidding war raised the price from the $1.495 million listing. The initial appraiser — who drove in from Baltimore — valued the home at $1.45 million, but the sellers refused to renegotiate. When the buyers challenged the appraisal, their bank ordered a fresh appraisal, and a competing lender ordered an appraisal of its own. Both new appraisals came back at the sales price.“My people felt confident that we could keep the sale where it was because there were two people that wanted the house,” said Laura McCaffrey, the listing agent with Evers & Co. “The buyers were upset, but they still really wanted the house.”

However, government-backed mortgages have special restrictions. Appraisals for loans backed by the Veterans Administration or the Federal Housing Administration stick with a property for six months, meaning you can’t just get a fresh appraisal or switch lenders to start with a clean slate.

If negotiations fail and the low appraisal stands, the buyer may be left with no option but to pay the difference — or to walk away under an appraisal contingency in the sales contract.

“In a minority of cases, you’ve got a buyer with an extraordinary amount of money and they say I’ll just write a check for a larger amount of money,” said Carter Ferrington, an associate broker and agent for Vogel Realty. “More likely, the buyer sends a form that gives the seller the option to lower the price or cancel the sale.”

Ultimately, homeowners benefit from the improved, more impartial appraisal process, said Wells Fargo’s Clasper. “There’s more regulation that’s involved, but across the country it’s served to be a benefit to the industry generally,” he said.

Katherine Reynolds Lewis is a freelance writer.

NEWS FLASH

Call your member of congress today to protect the mortgage interest deduction
Congress, as part of negotiations on avoiding the “Fiscal Cliff,” has made direct references to “closing loopholes” and “limiting deductions” as a way to raise revenues. Clearly, the mortgage interest deduction is high on this list of revenue raisers.

Losing the mortgage interest deduction will disproportionately affect the middle class because a larger proportion of the middle class takes the deduction. In California 89% of those who took the mortgage interest deduction earned less than $200,000. Losing the deduction would cost the average California taxpayer over $3,900.

What you can do to help:

Call Congress. First and foremost, we are urging the public to get involved by calling Congress to ask that the mortgage interest deduction be preserved. The public may reach Congress by calling 202-224-3121.

The Capitol switchboard operator will help callers identify their member of Congress and connect them.

The public can reach Congress by calling (202) 224-3121.

Monday-Friday from 9 a.m. – 6 p.m., Eastern Time.

Get the word out. Many people seem to be blissfully unaware that their mortgage interest deduction is in danger. Please do the following to make sure that the message spreads.

Forward this message to your family, friends, and clients.

1. Post this information on your personal and office websites and blogs.
2. Share this information on Facebook and urge others to share it as well.
3. Tweet about it on Twitter and urge others to retweet. Use the hashtag: #keepthemid.
4. Link to the following web page: www.KeepTheMID.com.  This site has information about contacting Congress, more information on the MID, and links to articles.
5. As you see new information and articles, share these on all your social networking sites.

Watch and share this video about preserving the MID.

U.S. housing market’s fragile recovery

John Gittelsohn and Prashant Gopal

Published 5:05 p.m., Thursday, November 29, 2012

Stockton has the highest U.S. foreclosure rate. It also has a housing shortage.

The number of homes for sale in the city fell 42 percent in October from a year earlier. Listings routinely attract multiple offers. Prices are on the rise.

When banks pulled back on foreclosures two years ago following a government investigation into allegations of faulty practices, market researchers, academics and Wall Street analysts said that a surge of delinquent homes would deluge the U.S. market once lenders resolved the claims and worked through backlog, driving down prices for years to come.

In fact, the flood failed to materialize, even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of properties for sale shrank to the fewest in a decade, prices appreciated at the fastest pace since 2005, and the gradual healing of the housing market helped boost consumer confidence and the economy.

“We don’t have enough homes now to meet the needs of the market,” Paul Jacobson, a Stockton native and real estate broker for 22 years, said as he cruised the city’s northern fringe, where suburbia meets farmland. “People see a foreclosed home for sale in this area and they’re going to jump on it.”

Banks have stepped up foreclosure alternatives to avoid legal challenges. They’re forgiving debt, modifying payment plans and approving short sales that allow homeowners to sell for less than they owe.

Help from feds

The federal government is also helping to stem the crisis. Expanded loan-modification programs have gained traction, and the Federal Reserve has kept bank interest rates near zero. Investors including Blackstone Group and Colony Capital are purchasing thousands of foreclosed homes in bulk before they even hit the market, further limiting new supply.

With the unemployment rate also coming down, concerns are fading that a deluge in foreclosures will destabilize the housing market as it recovers from a six-year slump.

“Many of us, myself included, feared a wave of foreclosures when the settlement came,” said Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School. “I was wrong.”

Slowing the foreclosure process has allowed banks to avoid booking losses on non-performing loans, said Joshua Rosner, an analyst with Graham Fisher. “The goal all along – from the banks, the servicers and the government – was sort of to slow-walk the whole thing, bleed it through over time,” he said.

The strategy may be paying off. An index of pending home resales climbed 5.2 percent in October, exceeding the highest estimate in a Bloomberg survey of economists, figures from the National Association of Realtors showed Thursday.

Median prices up

The median price of an existing home sold last month jumped 11 percent from a year earlier to $178,600, the steepest annual increase since November 2005, according to the group. The number of previously owned homes on the market in October fell 1.4 percent to 2.14 million, the fewest since December 2002.

“In hindsight, by delaying and prolonging the foreclosure process, that gave the market time to stabilize and get back on its feet,” said Daren Blomquist, vice president of RealtyTrac, which warned a year ago of a “new set of incoming foreclosure waves.” “Maybe bureaucracy is actually helping, in this case, to diffuse the impact of the foreclosures. Talk about unintended consequences.”

The so-called shadow inventory of pending foreclosures, which may be larger than the visible supply of previously owned homes for sale, is shrinking as new defaults decline and banks work through their backlog of bad loans. Home loans that were more than 90 days late or in the foreclosure process, a proxy for the shadow inventory, fell to 7.03 percent of properties with a mortgage in the third quarter, the lowest share since 2008.

Changes to Obama’s loan-modification program had the biggest impact on reducing pending foreclosures since late 2010 by creating a template that lenders followed, Wachter said. That included incentives to compensate loan servicers for reducing principal on loans for delinquent borrowers.

Transformative steps

“The loan modifications were successful in this new wave,” she said. “Transformative steps were being put into place in the loan modification process. I underestimated how transformative those reforms would be.”

Since the February settlement, the five largest U.S. mortgage servicers provided loan relief to 309,385 borrowers, including trial plans, according to a report by Joseph Smith, monitor of the deal. Almost 22,000 borrowers had principal forgiveness totaling $2.55 billion. The companies, which include Bank of America and JPMorgan Chase, agreed to short sales for 113,000 borrowers for another $13.1 billion in principal write downs, Smith’s report said.

The settlement helped stabilize prices, in part, by encouraging alternatives to foreclosures, including principal forgiveness and short sales, said Nela Richardson, senior economic analyst with Bloomberg Government. Modified loans have a high default rate and may eventually show up as foreclosures or short sales, she said.

“In this sense, I think the shadow inventory is still looming but it does not look like it will come out of the shadows all at once,” Richardson said. “Rather, properties will trickle out into the market.”

The inventory of potential foreclosures remains a threat across the U.S. and could depress home values, especially if the economy slows, said Robert Shiller, an economics professor at Yale University. “I’m still worried about home price declines,” he said. “It’s funny how people have so much confidence in the recovery. History shows that these markets are hard to predict.”

In Stockton, the foreclosure crisis is easing after a plunge in home values that has left prices down 60 percent from a 2006 peak.

One in 67 of Stockton’s households received a foreclosure filing in the third quarter, the highest rate of any U.S. metropolitan area with a population of more than 200,000, according to RealtyTrac. The number of filings of default, auction or repossession fell 21 percent from a year earlier.

Changes to Obama’s loan-modification program had the biggest impact on reducing pending foreclosures since late 2010 by creating a template that lenders followed, Wachter said. That included incentives to compensate loan servicers for reducing principal on loans for delinquent borrowers.

pgopal2@bloomberg.net

Read more: http://www.sfgate.com/realestate/article/U-S-housing-market-s-fragile-recovery-4078737.php#ixzz2Eh3DkkDg

Factoring in Commuting Costs

The New York Times

By LISA PREVOST

Published: November 22, 2012

MORTGAGE lenders do not figure in a household’s likely commuting costs when weighing loan applications, but a recent study suggests that borrowers of moderate means would be smart to calculate these costs themselves before buying.

The study, published in October by the Center for Housing Policy and the Center for Neighborhood Technology, looked at transportation and housing costs in the 25 largest metropolitan areas. It found that transportation costs rose faster than incomes in every area over the last decade.

That has added to the financial burden shouldered by moderate-income homeowners, defined as households earning 50 to 100 percent of a metropolitan area’s median income. Transportation consumes 30 percent of their income, on average. Add housing costs to that and the combined cost burden rises to 72 percent.

“The impact is larger for moderate-income households,” said Jeffrey Lubell, the executive director of the Center for Housing Policy in Washington, “because everyone needs to get where they need to go and the fixed costs are the same for everyone. The lower you go down the income stream, the more transportation costs loom as a very big expense.”

The study also found that some metropolitan areas generally considered more affordable than New York become less so after transportation is figured in. For example in Houston, where housing development is more sprawling, transportation consumes 32 percent of income, compared with 22 percent in New York, which has a more robust transit system.

Mortgage underwriters sometimes look at a home’s location relative to where the buyer works, but in most cases a long distance between the two is an issue only if it suggests that the buyer isn’t actually going to live in the house, said W. Thomas Kelly, the president of Investors Home Mortgage, a subsidiary of Investors Bank in Millburn, N.J. Commuting costs vary too much to be figured into qualifying ratios, Mr. Kelly said, adding, “How do I say to a borrower, you don’t qualify because you live too far away from work?”

Scott Bernstein, the president of the Center for Neighborhood Technology in Chicago, argues that transportation costs are quantifiable enough that they ought to be factored into underwriting. And they were, during the first half of the last decade, in an experiment the center conducted jointly with Fannie Mae. Called a “Location-Efficient Mortgage,” the product was a contrasting proposition to the “drive till you qualify” strategy of finding an affordable home. The mortgage compensated borrowers applying to buy in areas with lots of transportation choices, and close to jobs and amenities.

“The bottom line for the borrower was that the location-efficient value would get taken into the underwriting ratio so that it would allow for more borrowing capacity for this income level,” Mr. Bernstein said.

Tested in a handful of markets before 2007, the mortgages were issued to about 2,000 borrowers and, based on the center’s evaluation of a representative sample, showed a very low default rate. But the experiment ended with the mortgage market collapse.

Or, as Mr. Bernstein put it, “The experiment was successful, and the patient died.”

Now the center is working with the Department of Housing and Urban Development on an online affordability calculator that will allow people to look by location at what their likely housing costs, with transportation, would be nationwide.

“Housing counselors can also use it to help coach people on how to pick locations, and it could help developers get a competitive advantage,” Mr. Bernstein said.

The national calculator could be ready by year’s end. Another calculator developed by the center, called Abogo (abogo.cnt.org), lets people plug in an address and find out what a typical household in that area spends on transportation.

A version of this article appeared in print on November 25, 2012, on page RE5 of the New York edition with the headline: Factoring In Commuting Costs.

Should You Buy a Home During the Holidays?

Written by

Lily Leung

6 a.m., Dec. 1, 2012

Once Thanksgiving is over, the real estate world starts to wind down for the holidays and it typically reawakens after the Times Square ball drops and resolutions come to life.

But if you’re a potential homebuyer who’s prepared to close in today’s competitive market, you may want to keep shopping while everyone’s waiting for spring, some real estate agents suggest.

That advice may be especially relevant this year for consumers who have repeatedly lost out on deals because of a limited and continually decreasing supply of homes, but remain persistent. Buying intensity typically cools down at the start of fall through early January, which could increase the odds for those with more patience.

Home sales have increased from October to November only four times since 1988, when DataQuick began to track home sales and prices locally.

In the other years, transactions have fallen from anywhere between 0.2 percent and nearly 26 percent. Home listings have dropped off from 3 percent to 11 percent during those months in the past three years.

“During Christmas, people will be focused on the holidays and nothing really happens,” said Ken Pecus, co-founder of San Diego-based Ascent Real Estate and 20-plus-year real estate veteran.

“The first week of January, the new mindset kicks in, resolutions kick in, and in the second and third week, people look at their taxes, and almost overnight, by the end of January, you have almost twice the buyers in the market,” Pecus added.

Would-be buyers historically have bowed out during the winter season because they are overwhelmed by holiday spending and commitments. There’s also the aversion of moving in the middle of a school year. Consumer interest typically picks back up again in the New Year and peaks in the spring.

Certain buyers may be well-served to buy during the winter because of sellers who must move because of:

• A job change or transfer.

•  The possible sunsetting of the Mortgage Forgiveness Debt Relief Act, said Donna Sanfilippo, president of the San Diego Association of Realtors. The potential expiration of the law, which lets certain home sellers get tax relief on mortgage debt forgiven by lenders, has pushed home sellers scrambling to list and short sell their homes before the end of the year.

In some cases though, the rush to do that is unwarranted. Consult a tax pro to determine if short selling is right for you.

•  The fact they’ve been waiting to sell their home for a long time and need to buy something quickly. If you can wait a little longer to sell your home and want to maximize your profit, then wait until the peak spring months.

Even with the expected holiday homebuying slowdown, buyers should know that the inventory level may still be a challenge.

Right now, there are more than 4,700 active listings in the county, down 11 percent from October and down more than half from the same time a year ago, based on numbers from the San Diego Association of Realtors. The current level marks at least a three-year low.

Buyers also may deal with the challenges of bidding against cash buyers and investors, who can look more attractive than traditional buyers.

Their share of the homebuying market has remained strong. Almost 28 percent of total homes sold in October were purchased by absentee buyers, many of whom are investors. That’s up from 27 percent logged a year ago and in September.

Hovering near the peak, almost one-third of buyers bought with cash in October.

“I’m expecting 60 to 70 people at my open house,” said San Diego Realtor Miguel Contreras before a recent Wednesday showing at a property in La Mesa. “The property is a fixer, so it’s mostly investors.”

Contreras, who worked during Thanksgiving week, said he’ll make himself available throughout the holidays to cater to what he expects to be a continued interest from investors, cash buyers and traditional buyers.

The same goes for Cherilyn Jones, another local real estate agent. Last week, she was preparing for two new listings to come online. Her most common clients are first-time homebuyers and investors.

“The investors have not slowed down,” Jones said. “We get holiday freeze, but not for investor clients. It’s hard to find them properties because their criteria is very, very specific … and the deals are not as good as they used to be.”