Category Archives: Market Reports

5 Tips to Secure a Successful Short Sale

Short sales have become the only way out for some sellers who owe more on their mortgages than their houses are worth. For struggling borrowers, it’s a chance to avoid foreclosure.

While helpful, short sales can be stressful, time-consuming and may lead to harsh consequences if not done properly.

Many sellers think the biggest challenge they face in a short sale is persuading the lender to take a haircut and allow the property to sell for less than the mortgage balance. That’s only the first step.

Here are five tips you must know when short selling your home.

Choose an agent experienced in short sales

If you needed heart surgery, would you put your life in the hands of a surgeon whose first surgery would be on you? Probably not.

The same applies to your financial life. Hire a real estate agent experienced in short sales.

Ads of real estate agents who claim to be short-sale specialists are widespread these days. But some of these agents have closed only a handful of short-sale deals. Many have taken short-sale courses and are certified in selling distressed properties. That’s not enough; certifications help, but nothing counts more than experience.

Interview agents, ask how many short sales they’ve closed and ask to talk to some of their clients.

A short sale is a time-consuming transaction and can take months to close. You want an agent who will stay on top of the game until the deal is closed.

Understand potential consequences of short sale

Underwater sellers are so anxious to get rid of their mortgage payments, they often don’t think about what comes after the sale. Then, months or even years later, they receive a collection letter for the difference between what the house sold for and what was owed on the mortgage.

Laws vary by state, but many states allow lenders to go after that balance once a short sale or foreclosure is completed. That’s why it’s crucial for borrowers to understand whether the lender agrees to waive the deficiency, or the balance that will be left on the loan after the sale. This needs to be discussed verbally and represented in documents. It shouldn’t come as a surprise.

One way to avoid a deficiency judgment is to do the short sale through the Home Affordable Foreclosure Alternatives program, or HAFA. Lenders who approve short sales through this federal program have to release the borrower from a potential deficiency judgment.

Lenders are not obligated to approve HAFA short sales. They may choose to do the short sale based on their own internal rules and the guidelines set by loan investors. In that case, it’s really up to the lender to decide whether it will pursue the deficiency against the borrower.

You can negotiate your way out of deficiency

When negotiating a short sale, many lenders don’t voluntarily offer to release you of liability on the remaining balance of your loan – at least not for free. But you can ask to negotiate a waiver.

Some lenders may ask you to sign a promissory note for at least a small portion of the balance, usually cents on the dollar, or they may ask for a lump sum. Sellers often are outraged when first presented this settlement offer; they sometimes forget they actually borrowed that money.

In many cases, it is usually worth paying upfront to avoid future headaches. There is a price attached to the waiver of deficiency, but most of them are very tiny.

Talk to an attorney

Real estate agents who are experienced in short sales can coordinate the transaction with the bank and tell you what to expect of the process, but remember they are not lawyers.

Most of the people who do short sales are doing it through the Realtors or people who claim to be short-sales specialists. But there are many issues that borrowers need to discuss that cannot be discussed with a short-sale specialist.

Those issues range from potential tax implications to protecting other assets the borrower may own if the lender tries to collect the balance of the loan in the future.

If you don’t understand the contract you are signing or the potential consequences of a short sale, you should consult with a lawyer.

Keep up with HOA payments

If you are thinking about short selling your home, don’t stop paying your homeowners association dues. The fees can turn into a snowball and kill the sale, even if the buyer is willing to pay for the delinquent dues at closing.

In short sales, there are a few problems that money cannot fix. In a regular sale or even with foreclosures, the seller or the bank pays any past dues owed to the HOA at closing so the buyer gets clear title of the property. But in a short sale, the seller’s lender wants to get every penny out of the transaction.

Plus, you want to make sure the association is able to maintain the common areas so your house is sellable. A short-sale property needs to be maintained. The power needs to be on; the grass needs to be cut. You don’t want your home to look like a foreclosure.

Tips for Buying a Foreclosed Home

Buying a foreclosed home is a little different from buying a typical resale.

In many cases:

  • Only 1 real estate agent is involved.
  • The seller wants a preapproval letter from a lender before accepting an offer.
  • There is little, if any, room for negotiation.
  • The home comes as-is, and it’s up to the buyer to pay for repairs.

On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.

foreclosure

Buying a foreclosure is definitely a bit of a grind. You’re getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want.  If you’re considering buying a foreclosed home, here are some tips that may ease the process.

Get a realty broker and a lender

The first 2 steps in buying a foreclosure should happen almost simultaneously: Find a real estate broker who works directly with banks that own foreclosed homes and get a preapproval from a lender.

A good way to start searching is to first visit any site with a database of foreclosed homes. You also could look at a local real estate website that lets you filter the results to see only foreclosures. You might find the acronym REO, which means “real estate owned” (owned by a bank, that is). This signifies that a home has been through foreclosure and the lender is selling it.

Get a broker on your side

The goal of combing through foreclosure listings is not to find a house; it’s to find an agent. Banks usually hire one or a few real estate brokers to handle their REO properties in a market. In a lot of cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent. That way, the commission doesn’t have to be split between 2 brokers.

Most of these Realtors have a long-term relationship with these banks, and they know of listings that haven’t even come on the list yet. Call them about the listings that you’re interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database.

Such a request might not always pan out. In places where thousands of foreclosed properties are for sale, you might not get much one-on-one attention from overloaded agents. To prove that you’re serious about buying, meet with the lender right before or after you meet with the agent.

Get a preapproval letter

preapprovedUnless you plan to pay cash, you’ll need a recent preapproval letter from a lender. The letter will describe how much money you can borrow, based upon the lender’s assessment of your credit score and income.

Consider your financing options before you make an offer.  All too often, a buyer wants to find the house first, and then they think they’ll work out the financing. But a really good deal on a bank-owned home will go quickly, and the buyer won’t necessarily have time to try to work out the financing afterward.

Some first-time buyers make the mistake of assuming that the bank selling the home will also finance the mortgage as part of the deal. Banks view this as a totally separate transaction, so don’t assume it will be included. The people in the bank’s REO department are not loan officers. They are getting rid of bad assets.

Pricing depends on sales pace

There’s no rule of thumb on what the bank’s bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or “comps.”

You have to look at the comps in today’s current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Other times it’s priced too high, and you can come in lower. However, be reasonable with your offer.  If it’s unreasonably lower than the listed price (as much as half price), your offer won’t be taken seriously.

Don’t expect a repair discount

repairsKeep in mind that foreclosed houses generally are sold as-is. That means that you shouldn’t expect to get a discount to compensate for repairs. Consider a house listed for $200,000. All the comps are $200,000, but the home will need to be repainted, re-carpeted and treated for mold damage. Despite the impending repairs, a client’s request to take $15,000 off the price to cover the costs will be denied.

You should also look at the absorption rate for your product class, meaning you should find out how quickly comparable houses are selling. In foreclosure, a 3,500-square-foot house with a pool in a gated community might sell within days or hours, whereas more modest homes might sit on the market for weeks. Or vice versa, depending on market conditions.

If homes in your product class are selling swiftly, the best advice on a bank-owned property is to come in at your highest and best, unless the property has been sitting on the market forever with no activity. If you’re going to be upset because you would have gone $5,000 more, but you lost the property, just bid the higher price in the first place to ensure your chances.

Find tradespeople ASAP

Because repairs are almost inevitable with foreclosed houses, it is recommended that you get to know tradespeople who can assess and repair damage from pests, mold and leaks. Assume that the air conditioning needs to be fixed, and possibly the heating system, too.

It all sounds daunting. But at least you don’t have to wait for the owner to move out of the house.

The Rules

rules3.pngThe profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.

Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.

Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.

1. Invest now to get more in the future.
    Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.

2. Real estate is an IDEAL investment.
    IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage.

3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range.
    This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.

4. Location, location, location.
    The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.

5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold.
    These three distinct strategies involve big differences in acquisition, management and taxation.

6. Know where your profit is coming from before you invest.
The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.

7. Profit starts with purchase.
Buying the property below market value builds profit into the investment initially.

8. Risk is directly proportionate to the reward involved.
    An investment that has a high degree of upside also will have considerable downside possible.

9. Avoid functional obsolescence unless you have a plan before you buy.
    The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.

10. Good property + good tenant + good management = great investment.
These are three solid components for a successful investment.

11. Problems left unresolved have a tendency to get worse.
    It is generally cheaper in time or money to fix a problem earlier rather than later.

If you’d like more information about the opportunities in our market, contact me.

Lafayette Real Estate Market Report: March 2014

The numbers are in for the first quarter of 2014. Home sales and pending home sales are on the rise in Lafayette and Acadiana, as is usually the case in the spring.

Lafayette and Acadiana home sales first quarter 2014

Home sales pending in Lafayette and Acadiana

Meanwhile, our inventory of homes available is still having a hard time keeping up with the demand. This seems to have been the story these past few months as our market shifted into a seller’s market.

Homes for sale in Lafayette and Acadiana

If you have been thinking about selling your home, now is a great time to do so. If you are in the market to buy a home or an investment property, be prepared to have some competition as we are seeing multiple offer situations, especially in the city of Lafayette.

Whether you are in the market to buy or sell a home, or invest in real estate, contact us today. You’ll be glad you did!

Category Archives: Market Reports

5 Tips to Secure a Successful Short Sale

Short sales have become the only way out for some sellers who owe more on their mortgages than their houses are worth. For struggling borrowers, it’s a chance to avoid foreclosure.

While helpful, short sales can be stressful, time-consuming and may lead to harsh consequences if not done properly.

Many sellers think the biggest challenge they face in a short sale is persuading the lender to take a haircut and allow the property to sell for less than the mortgage balance. That’s only the first step.

Here are five tips you must know when short selling your home.

Choose an agent experienced in short sales

If you needed heart surgery, would you put your life in the hands of a surgeon whose first surgery would be on you? Probably not.

The same applies to your financial life. Hire a real estate agent experienced in short sales.

Ads of real estate agents who claim to be short-sale specialists are widespread these days. But some of these agents have closed only a handful of short-sale deals. Many have taken short-sale courses and are certified in selling distressed properties. That’s not enough; certifications help, but nothing counts more than experience.

Interview agents, ask how many short sales they’ve closed and ask to talk to some of their clients.

A short sale is a time-consuming transaction and can take months to close. You want an agent who will stay on top of the game until the deal is closed.

Understand potential consequences of short sale

Underwater sellers are so anxious to get rid of their mortgage payments, they often don’t think about what comes after the sale. Then, months or even years later, they receive a collection letter for the difference between what the house sold for and what was owed on the mortgage.

Laws vary by state, but many states allow lenders to go after that balance once a short sale or foreclosure is completed. That’s why it’s crucial for borrowers to understand whether the lender agrees to waive the deficiency, or the balance that will be left on the loan after the sale. This needs to be discussed verbally and represented in documents. It shouldn’t come as a surprise.

One way to avoid a deficiency judgment is to do the short sale through the Home Affordable Foreclosure Alternatives program, or HAFA. Lenders who approve short sales through this federal program have to release the borrower from a potential deficiency judgment.

Lenders are not obligated to approve HAFA short sales. They may choose to do the short sale based on their own internal rules and the guidelines set by loan investors. In that case, it’s really up to the lender to decide whether it will pursue the deficiency against the borrower.

You can negotiate your way out of deficiency

When negotiating a short sale, many lenders don’t voluntarily offer to release you of liability on the remaining balance of your loan – at least not for free. But you can ask to negotiate a waiver.

Some lenders may ask you to sign a promissory note for at least a small portion of the balance, usually cents on the dollar, or they may ask for a lump sum. Sellers often are outraged when first presented this settlement offer; they sometimes forget they actually borrowed that money.

In many cases, it is usually worth paying upfront to avoid future headaches. There is a price attached to the waiver of deficiency, but most of them are very tiny.

Talk to an attorney

Real estate agents who are experienced in short sales can coordinate the transaction with the bank and tell you what to expect of the process, but remember they are not lawyers.

Most of the people who do short sales are doing it through the Realtors or people who claim to be short-sales specialists. But there are many issues that borrowers need to discuss that cannot be discussed with a short-sale specialist.

Those issues range from potential tax implications to protecting other assets the borrower may own if the lender tries to collect the balance of the loan in the future.

If you don’t understand the contract you are signing or the potential consequences of a short sale, you should consult with a lawyer.

Keep up with HOA payments

If you are thinking about short selling your home, don’t stop paying your homeowners association dues. The fees can turn into a snowball and kill the sale, even if the buyer is willing to pay for the delinquent dues at closing.

In short sales, there are a few problems that money cannot fix. In a regular sale or even with foreclosures, the seller or the bank pays any past dues owed to the HOA at closing so the buyer gets clear title of the property. But in a short sale, the seller’s lender wants to get every penny out of the transaction.

Plus, you want to make sure the association is able to maintain the common areas so your house is sellable. A short-sale property needs to be maintained. The power needs to be on; the grass needs to be cut. You don’t want your home to look like a foreclosure.

Tips for Buying a Foreclosed Home

Buying a foreclosed home is a little different from buying a typical resale.

In many cases:

  • Only 1 real estate agent is involved.
  • The seller wants a preapproval letter from a lender before accepting an offer.
  • There is little, if any, room for negotiation.
  • The home comes as-is, and it’s up to the buyer to pay for repairs.

On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.

foreclosure

Buying a foreclosure is definitely a bit of a grind. You’re getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want.  If you’re considering buying a foreclosed home, here are some tips that may ease the process.

Get a realty broker and a lender

The first 2 steps in buying a foreclosure should happen almost simultaneously: Find a real estate broker who works directly with banks that own foreclosed homes and get a preapproval from a lender.

A good way to start searching is to first visit any site with a database of foreclosed homes. You also could look at a local real estate website that lets you filter the results to see only foreclosures. You might find the acronym REO, which means “real estate owned” (owned by a bank, that is). This signifies that a home has been through foreclosure and the lender is selling it.

Get a broker on your side

The goal of combing through foreclosure listings is not to find a house; it’s to find an agent. Banks usually hire one or a few real estate brokers to handle their REO properties in a market. In a lot of cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent. That way, the commission doesn’t have to be split between 2 brokers.

Most of these Realtors have a long-term relationship with these banks, and they know of listings that haven’t even come on the list yet. Call them about the listings that you’re interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database.

Such a request might not always pan out. In places where thousands of foreclosed properties are for sale, you might not get much one-on-one attention from overloaded agents. To prove that you’re serious about buying, meet with the lender right before or after you meet with the agent.

Get a preapproval letter

preapprovedUnless you plan to pay cash, you’ll need a recent preapproval letter from a lender. The letter will describe how much money you can borrow, based upon the lender’s assessment of your credit score and income.

Consider your financing options before you make an offer.  All too often, a buyer wants to find the house first, and then they think they’ll work out the financing. But a really good deal on a bank-owned home will go quickly, and the buyer won’t necessarily have time to try to work out the financing afterward.

Some first-time buyers make the mistake of assuming that the bank selling the home will also finance the mortgage as part of the deal. Banks view this as a totally separate transaction, so don’t assume it will be included. The people in the bank’s REO department are not loan officers. They are getting rid of bad assets.

Pricing depends on sales pace

There’s no rule of thumb on what the bank’s bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or “comps.”

You have to look at the comps in today’s current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Other times it’s priced too high, and you can come in lower. However, be reasonable with your offer.  If it’s unreasonably lower than the listed price (as much as half price), your offer won’t be taken seriously.

Don’t expect a repair discount

repairsKeep in mind that foreclosed houses generally are sold as-is. That means that you shouldn’t expect to get a discount to compensate for repairs. Consider a house listed for $200,000. All the comps are $200,000, but the home will need to be repainted, re-carpeted and treated for mold damage. Despite the impending repairs, a client’s request to take $15,000 off the price to cover the costs will be denied.

You should also look at the absorption rate for your product class, meaning you should find out how quickly comparable houses are selling. In foreclosure, a 3,500-square-foot house with a pool in a gated community might sell within days or hours, whereas more modest homes might sit on the market for weeks. Or vice versa, depending on market conditions.

If homes in your product class are selling swiftly, the best advice on a bank-owned property is to come in at your highest and best, unless the property has been sitting on the market forever with no activity. If you’re going to be upset because you would have gone $5,000 more, but you lost the property, just bid the higher price in the first place to ensure your chances.

Find tradespeople ASAP

Because repairs are almost inevitable with foreclosed houses, it is recommended that you get to know tradespeople who can assess and repair damage from pests, mold and leaks. Assume that the air conditioning needs to be fixed, and possibly the heating system, too.

It all sounds daunting. But at least you don’t have to wait for the owner to move out of the house.

The Rules

rules3.pngThe profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.

Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.

Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.

1. Invest now to get more in the future.
    Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.

2. Real estate is an IDEAL investment.
    IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage.

3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range.
    This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.

4. Location, location, location.
    The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.

5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold.
    These three distinct strategies involve big differences in acquisition, management and taxation.

6. Know where your profit is coming from before you invest.
The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.

7. Profit starts with purchase.
Buying the property below market value builds profit into the investment initially.

8. Risk is directly proportionate to the reward involved.
    An investment that has a high degree of upside also will have considerable downside possible.

9. Avoid functional obsolescence unless you have a plan before you buy.
    The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.

10. Good property + good tenant + good management = great investment.
These are three solid components for a successful investment.

11. Problems left unresolved have a tendency to get worse.
    It is generally cheaper in time or money to fix a problem earlier rather than later.

If you’d like more information about the opportunities in our market, contact me.

Lafayette Real Estate Market Report: March 2014

The numbers are in for the first quarter of 2014. Home sales and pending home sales are on the rise in Lafayette and Acadiana, as is usually the case in the spring.

Lafayette and Acadiana home sales first quarter 2014

Home sales pending in Lafayette and Acadiana

Meanwhile, our inventory of homes available is still having a hard time keeping up with the demand. This seems to have been the story these past few months as our market shifted into a seller’s market.

Homes for sale in Lafayette and Acadiana

If you have been thinking about selling your home, now is a great time to do so. If you are in the market to buy a home or an investment property, be prepared to have some competition as we are seeing multiple offer situations, especially in the city of Lafayette.

Whether you are in the market to buy or sell a home, or invest in real estate, contact us today. You’ll be glad you did!