The Nelson Project Real Estate Blog

What is Owner Financing?

nelsonproject — Sat, 20 Jun 2009 15:52:02 +0000

Occasionally, we will have a buyer’s agent call us and ask if you (the seller on a particular property) are open to owner financing (called Contract for Deed). That means that they have a buyer who has difficulty obtaining bank financing (they may be financially qualified but may have a bankruptcy on their records or perhaps got caught in the housing bubble with their home in Florida).

So let’s discuss if this is something you are open to.

With this method of financing, the Deed to the property is held in escrow and not recorded until the Seller (Owner) held financing is paid in full. You would have a contract where they are paying you financing (basically, you are the bank) under the conditions that they obtain 3^rd party financing (a regular mortgage or pay in full with cash) in a few years. The buyer will enjoy all the benefits of home ownership recognized by IRS, even though the Deed to the property has not been recorded.

This may or may not be an option for a seller for a number of reasons:

Your current mortgage may not allow it
It could impact you qualifying for a mortgage on your next property

You may be interested for some of these reasons:

If it is a strong buyers market (this is more prevalent in down markets like FL and CA; not real common with Austin, TX real estate, at least in my experience)
If your home is for some reason difficult to sell, this option could reach a segment of the buying market that is otherwise limited
It could be a better return than your more conventional investments

A few notes:

Involves a real estate attorney
The buyer owns the property subject to the terms of the contract

Here are a few online references:

http://real-estate-law.freeadvice.com/mortgage_matters/owner_financing.htm

http://homebuying.about.com/od/financingadvice/qt/091007_OwnFinan.htm

http://www.investopedia.com/terms/w/wrap-around-loan.asp

http://activerain.com/blogsview/1122745/get-the-facts-about-owner-financing

http://activerain.com/blogsview/1122692/the-alternative-of-owner-financing

Why appraisals are an issue right now

nelsonproject — Thu, 18 Jun 2009 14:19:19 +0000

- from one of our favorite mortgage voices, David Reed, CD Reed Mortgage Bankers, Austin

THE HOME VALUATION CODE OF CONDUCT…. APPRAISAL HORROR STORIES?…

If you haven’t had the experience lately of an appraisal coming in bad (or wrong) hold onto your seats because sooner or later you may find yourself in similar situations.

The Home Valuation Code of Conduct, or HVCC, is the newest tool in the shed to fight fraud in the mortgage industry. As a result of an investigation by New York attorney general Andrew Cuomo into practices by Fannie and Freddie this code of conduct was adapted nationally on May 1, The problem with this new tool is that it was never sharpened before being put into use.

Briefly, the HVCC prohibits a loan officer from ordering the appraisal directly from the appraiser. A mortgage bank can order the appraisal on behalf of the loan officer but the mortgage bank must either use an appraisal management company (AMC) or use a randomly selected system that rotates the orders to appraisers as they arise. Who cares?

Well, you might if you have an appraisal problem and you can’t talk to the appraiser about it. See, loan officers aren’t even supposed to talk to appraisers, either.

AMCs sign up appraisers from all over the country to be a part of their service. When an appraisal order comes in. whomever is next in line for an appraisal gets the order. AMCs also require the appraisers to take a reduced fee for their appraisals if they want to be on “the list.”

A relationship between a loan officer and an appraiser is a crucial one. Personally, I want only the best for my clients and that’s why I’ve pretty much used the same appraiser for my Austin deals over the past several years. I’ll go ahead and give him a plug, his name is Brett Framel of Framel Valuation Services. (I wonder if I just broke some kind of HVCC law just then?)

If there were every any appraisal issues I would simply review them with Brett and we’ve move on. But just in the past week I’ve experienced these two issues with appraisals ordered and received from an AMC.

______________________________

1: Story number one. Home sale here in Austin area. This guy has at least three legs on it. If the first sale doesn’t go through, it kills two more deals down the road. Enough said.

Appraisal ordered and contract sent to AMC. Appraisal was an “Exterior Only” or a “drive-by.” Sales price $225,000….appraised value? Try $221,000. Honestly, why even bother? But the kicker is the comment the appraiser made in the adjustment section that stated “Interior Below Average” when compared to comps so he adjusted the the value by $4,000.

Did you catch that? An “exterior only” appraisal means you don’t go in the house. So how could the appraiser determine that the interior was below average? The fact is that he couldn’t have.

By the way, he also said there was no fence or sprinkler system which there indeed were and failed to mention that the house backed up to a greenbelt. Just that alone would be enough to make up for the $4,000.

The loan officer couldn’t call the appraiser and point out these errors so he could only call the AMC and complain. Nothing happened for a couple of days so the Realtor called him but the appraiser never called him back, either.

The loan officer then ordered a full appraisal from the same AMC, the AMC ordered the appraisal and of course, the value came in at $225,000. This lost valuable time and very nearly either killed three deals.

2: Number two: Sales price $595,000 in Westlake. Appraisal ordered by AMC and came back labeled “Declining Market.”

The value came in at $595,000 allright but when the appraiser checked off “Declining Market” box new lending rules mean the loan-to-value is reduced by 5 percent. That meant the buyer had to come in with another $30,000 to close the deal. He fortunately had the money and decided to put another 5 percent down but what if he didn’t or couldn’t?

My take on this is, where in Westlake is there a Declining Market? Sales may have slowed but median prices have remained relatively solid and certainly nothing to warrant labeling 8W as “declining.”

Goodness gracious.

Austin Energy Audit – 1st stats

nelsonproject — Thu, 18 Jun 2009 13:18:09 +0000

From Austin Energy:

400 audits completed in Austin to date.
On average, homes are leaking 22% from their duct systems and need an additional 6 inches of insulation.
85% of homes are leaking above the “10% or less” that is considered acceptable for energy efficiency.
If energy efficiency improvements were made to the duct systems and insulation of these 400 homes, the combined savings would be 778, 056 kilowatt-hours a year and $77,800 in annual savings to the customers.
Approximately 496 tons of carbon dioxide would be avoided annually with the improvements.

Shacking Up, Tips For Non-married Persons Buying a House Together in Texas: Some Things You Should Know

nelsonproject — Tue, 16 Jun 2009 16:33:49 +0000

Gay or straight, doesn’t matter. Two “non-married” persons purchasing a property together in Texas need to know a few things about owning that love shack (or investment shack). Primarily, co-ownership does not necessarily convey the same rights as with a married couple. Many of these rights should be specifically created at the time of purchase of the home or shortly thereafter with appropriate legal documents such as a will.

This article is not intended to scare but it is scary how many non-married couples own property together without the appropriate legal documents in place to protect themselves in the case of death, disability or separation. Lovely topic, we know.

Did you know that if you own property with your friend, steady, lover, partner, college roommate, whatever non-married person you like and he or she dies without the appropriate and challenge-proof legal documents in place, that you now, more or less, own half of that property with their heirs? Oh joy.

You may love the family to pieces but do you want to be in a business relationship with them? What are your intentions if one person wants out? One person needs to move out of state for a new job? You break up? Or there is a death or disability.

In the case of partners, is it the intention for the surviving person to keep the house, take over the full responsibility of the loan or does the deceased’s heirs now own half the house? You could end up putting yourself in a position where you may have to refinance to buy out the other person’s family at today’s market value and mortgage conditions or be forced to sell the home if you do not qualify for the new loan? If you assume ownership of the property upon the death of the other co-owner, you may potentially have to address probate, inheritance challenges, inheritance taxes or risk the mortgage being called due.

We recommend legal counsel at the time of purchase or shortly thereafter to help you avoid these possibilities. So a little advice when purchasing property:

• Talk. Talk about wills and estates and what-ifs. Call it a pre-nup if you wish, but have an understanding and, best, an actual agreement in writing.

• Ask your agent to put you both on the contract even if just one of you is on the note. It will help get the ball rolling in the right direction. Some lenders will allow this, some will not. Consult with your lender and Realtor to assess your best approach.

• Ask your lender and title company about Joint Tenancy With Rights of Survivorship (JTWROS). Many lenders will not permit them, especially if just one of the partners is on the Note. Sometimes you’ll have a choice, sometimes not but you should ask.

• On tax benefits and who takes what, part or whole, talk to a good CPA for guidance.

We recommend working with Realtors, lenders, attorneys, tax advisors and title companies who are well-versed on working with non-traditional couples, non-married persons as this information is commonplace for them. A professional who is not may not understand these nuances and may waive them off as not important. Let’s take care of ourselves and our relationships. Legally sound home ownership is sound business.

Speaking of … we are holding our 9th annual legal seminar addressing the topic on Thursday, June 18. Here is a link to the class on facebook: http://www.facebook.com/pages/Austin-TX/The-Nelson-Project-Keller-Williams-Realty/59204118242?ref=ts#/event.php?eid=100033376677&ref=mf

Disclaimer: As licensed Realtors, financial advisors, mortgage brokers, we cannot give legal advice. We encourage you to discuss the details of your situation with appropriately licensed attorneys, financial and tax advisors.

Energy Audit Observations

nelsonproject — Fri, 05 Jun 2009 21:53:12 +0000

We are a week into the newly active City of Austin Energy Audit Ordinance and thought I would share a few observations.

First, everyone I talk to (buyers, sellers, Realtors, inspectors, neighbors) seems to be totally onboard with the foundational intent of the Ordinance: reducing our carbon footprint, encouraging use of the City energy rebate programs and making our homes more efficient. That on-board totality may not be what you have observed if you listen to talk radio (which I avoid as much as I avoid traffic tickets … one in the last 12 years) but I think I attract a fairly energy-conscious granola-inclined we-are-stewards-of-the-planet crowd.

So I recommend we all check out the efficiency factor of our own homes and do what we can to lower our utility bills, lower our own carbon footprint and, in some cases, cease cooling the air in our attics.

You do not need to do the full City audit to find these things out. An appropriately trained and licensed inspector will be able to do much of this testing on your home. I highly recommend the air duct test which measures the amount of your AC or heat output that is not blowing into the spaces you want cooled or heated. In fact, most of these inspectors could provide you probably a more useful report outside of the not-to-easy-to-read City report.

If you think you may sell your house in the next 10 years, then doing the actual audit would make sense vs. something that falls short of the Ordinance requirements. Go to Austin Energy to find specifics on the Ordinance and exemptions: http://www.austinenergy.com/About%20Us/Environmental%20Initiatives/ordinance/index.htm

For my own R&D, we did one at our house this week (business expense, education). Our duct deficiency? 18% and 25% Ouch. Here is the actual energy audit report from our home: http://images.kw.com/docs/0/0/1/001628/1244235965447_ECADAudit_8507_Appalacian_06_02_2009.pdf The audit worked … we are calling out Strand Brothers next week to redo the taping on our ductwork (and they use the duct blaster tool to watch the efficiency improve as they proceed through the process.

My main gripe with the Ordinance … it’s on the wrong side. It’s the seller’s responsibility and it really belongs on the buyer side. Why? The way it’s worded right now, the seller does not have to provide it until closing, well beyond a useful timeframe for the buyer to use the information in their inspection / negotiation period. The buyers want it done on day 1; sellers want it done just before closing. Buyers want improvements done; sellers do not have to do any improvements. The main complaint I hear from sellers is something along the lines of “why didn’t I do this years ago … I’ve been cooling my attic all these years.”

My auditor, Jason Marler of Energy Action, said he has done audits where the ductwork was 50% deficient. He has also done a couple brand new construction homes that were 30 and 40% deficient; don’t assume your new home is tight (homes under 10 years old are exempt). He said he did one home where he could not even get the meter to register because the duct was just flapping in the cool wind in the attic. He also has seen a couple new constructions where an entire knee wall had zero insulation (someone got lazy). How’s your energy bill?

I hope you find this helpful. You can find more Austin real estate resources at www.TheNelsonProject.com or find us on facebook at www.TNPfacebook.com.

Trudging through Texas Real Estate: What to expect from the Contract Option Period as a buyer or seller

nelsonproject — Mon, 18 May 2009 00:01:06 +0000

The option period in Texas contracts is a tool to assist with fair and timely negotiation processes between buyer and seller. It allows a set amount of time for a buyer to perform due diligence and inspect the property while compensating the seller for this lost time in ‘Active Status’ for sale on the market. The option period is paid up front when submitting an offer, and it is not refundable if the buyer terminates the contract. The option fee is paid in consideration for this initial time under contract, and the home is changed to ‘Pending Status’ in the MLS System because it is no longer actively listed for sale on the market.

The buyer has their negotiated amount of time to inspect the property and understand these findings. Upon final closing of the property, the buyer is reimbursed for the option fee at closing. This comes in the form of a credit from seller to buyer on the Settlement Statement at closing. If the buyer terminates the contract for any reason, the option fee is the seller’s to keep. The amount might also indicate how the seriousness of the buyer’s intent to purchase the home.

Most often, the buyer uses this timeframe to have the property inspected, to check on homeowners insurance for the home, and to understand the results of the home inspection report. We assist buyers in understanding what the report is detailing and suggesting, as well as what the scope and pricing of those projects would look like. We have several reliable professionals we work with to obtain pricing and bids for projects from miniscule in size to quite large in scale. We help our buyers plan for future repairs and understand general maintenance involved with homeownership, and this empowers our buyers to know when a home is right for them. Of course, most basically, we assist the buyer with repair negotiations and requesting repairs from the seller during this time period.

Every buyer wants to move into a solid and mechanically safe home. This means that the roof, foundation, plumbing system, electrical system, HVAC, and hot water heater are in good working condition. This may not mean they are sparkling like new, but they are performing as intended. If something were awry with one of these systems, that is a repair the buyer might request of the seller during the option period negotiations. All repairs agreed upon between buyer and seller are noted in writing, signed by all parties, and the repairs must be completed by closing date, or a date otherwise agreed upon in writing. This agreement in writing takes place on a form called the ‘Amendment to the Contract’ in Texas real estate.

To a seller, the option period is not the most anticipated event during the home purchase process. Sellers often feel invaded during the inspection process. Who wouldn’t when a person you do not know is combing through the systems of your home looking for imperfections? Sound horrible? Well, it doesn’t have to be horrible for a seller!

If you’ve ever put off a ‘honeydo list’ of pesky home repairs, getting to those can be essential if you are getting ready to put your home on the market for sale. Be it the list of chores you’d do for your spouse, or if the in-laws were coming to visit, that distant and overly avoided list of to do’s need to be done.

If all of these descriptions sound unfamiliar, this is also the list The Nelson Project will give you when you are getting ready to list your home on the market for sale. Do not negate the importance of this list. Changing out air filters, stopping minor leaky faucets, replacing the dryer vent, tightening the loose toilet bolts, mulching the garden…attending to these details can save you so much headache, and possibly heartache in the end! Our proactive sellers have better experiences time after time during contract negotiations, and during option period negotiations.

Outcomes of the option period are typically an agreed upon list of repairs, or an allowance for repairs. When a home is found to be in tip top shape, sometimes the option period is only there for the buyer to make certain of that fact. On the most exquisitely maintained homes, one item or another will be noted by the inspector, so don’t let that be a surprise.

– provided by our consistently talented contributor & Closing Coordinator, Heather Hill

Multiple Offers: The Luxurious Dilemma

nelsonproject — Thu, 02 Apr 2009 19:08:52 +0000

Fall 2008 and into 2009, we have been in 5 or 6 multiple offer situations. The luxurious dilemma. Please do not think that every market segment in Austin, TX is a buyers market; it is not so.

For example, we just put a little old house, a bit of a fixer-upper (needs paint in and out and needs a big kitchen project) but great location, corner lot, cute as a button. Listed at $287k last Saturday … 2 offers on Sunday and a bunch more phone calls this week.

If you are looking pretty much any where in Austin proper under $250k, beware. Beware because you are most likely competing for houses in a segment of the market that is a sellers market.

One of the best ways to tell if you are in a sellers market … look at the data for what has sold in that neighborhood and price range in the last 30-60 days. Is the average days on market under 60 days? Sellers market.

Here are two very real examples we ran this week for clients:

Area 10S $180k – $200k sold in the last 60 days (4/2/09), avg days on market 62. If I take off the few that were on the market 4 months or longer (let’s say they were over-priced or perhaps weird properties), then the average is 43. There are 6 that sold in less than 40 days.

Area 1A in Northwest Hills around Anderson HS for homes with 2100-2700 sqft (pricing mid $300k – low $500k) … there are 4 homes that sold in the last 60 days and they were on the market an average of 17 days. Yes, less than a month.

So buyers, know the market and put together a smart offer strategy. Hopefully you’re working with a knowledgeable and experienced Realtor who knows how to assess and maneuver the market.

Remember, in Austin the best homes that are priced right will sell fast. We want you to pay as little as possible for the house (it’s our job to look after your financial interest), but we want you to get the house.

Right now there are a lot of first time homebuyers on the market in Austin (and they should be considering the $8k tax incentive and historically low interest rates … more on that later). Let’s say conservatively there are 20 couples out looking in south Austin this weekend for homes under $210k (and believe me, there are more than 20 couples looking at homes this beautiful April weekend in Austin, TX) with 3 bedrooms and a garage and maybe a little yard and just maybe, hopefully an updated kitchen.

Right now in area 10N in the $180k – $210k price range with 3 bedrooms … there are 6 properties on the market. In area 10S there are 18. So a total of 24. Let’s say 4 of those are in poor locations, 2 are on busy streets, 6 are fixer-uppers and 4 have no street appeal. That leaves us with 8 homes on our list.

Of the 20 couples looking this weekend, how many of those are going to narrow down to that same list of 8? Quite a few. Let’s say of those 8 homes, 2 are awesome and priced right. I bet those 2 will be under contract this weekend; almost guaranteed.

So remember, you might be in a sellers market and at risk of being in a multiple offer situation. Study the market closely and figure out the right offer strategy for the house.

So, multiple offers … here is how we handle them:

Inform all parties that we are in a multiple offer situation
Make sure every party has exactly the same information
Give them a new deadline (ie tomorrow by 5 pm) for each party to submit their best and final offer
Present all offers to the seller
Seller responds to / negotiates with one offer
If that does not go through, seller can move on to the 2^nd offer
Keep all parties informed of the process; remember that Realtors and buyers worked hard to bring the offers to the table, respect their time
Some buyers will withdraw their offer when they are informed of the multiple offer situation because they do not want to compete … sellers, do not get over-confident
Can result in over the asking price offers
Keep in mind what you think the house is worth (it may be under priced and worth offering a little more)
Keep the offers clean and as uncomplicated as possible, present a lender pre-approval letter with the offer and a personal note to the seller telling them about you and why this house is right for you (real estate is very personal and sellers make emotional decisions all the time … it’s not always the bottom line)

We hope you get the best house at just the right price. Call The Nelson Project at Keller Williams Realty for professional assistance. Good luck out there.

Their First Time: First Time home buyers, ya gotta love ‘em…

nelsonproject — Thu, 12 Mar 2009 18:25:10 +0000

– from one of our favorite mortgage voices, David Reed, CD Reed Mortgage Bankers, Austin

What I Think This Week

March 12, 2009

I looked at this years’ closings so far and while I knew we had our fair share of first time home buyers I was certainly surprised to see that nearly 3 out of 4 closings were for first time home buyers as far south as Texas City up to Round Rock.

And while first-timers don’t make up that share nationally they are starting to buy in greater numbers, and that’s a good sign.

We all know first timers fire up the housing markets. When first timers buy their “starter” home after a few short years and maybe a growing family, realized equity or both, it’s time for them to move up to a larger home. They then go shopping for their newer home, selling their old one and “buy up.”

Home prices are falling, drastically in certain areas, and when you consider interest rates are at record lows then you have to realize affordability is beginning to take hold.

First timers are able to afford homes that they weren’t able to afford just a few short years ago. Heck, even one year ago. But now they’re creeping into the market which can only mean that the economic recovery is slowly taking shape. Honest. That’s how it happens.

They buy their first home then they buy their first real furniture then they take more trips to Home Depot…well, you know the drill.

I can see the light at the end of the tunnel.

You won’t read that anywhere in the media right now, but it’s true.

-DR

FIRST TIMERS, PART DIEUX

Honestly, it was a couple of first time home buyers that helped to solidify my commitment to the mortgage business. I can recall their faces but I can’t recall their names. But I do remember as a mortgage broker back in San Diego many moons ago the pure joy and excitement in the couple’s faces when they went to the closing table for their very first time.

I was at a closing just yesterday with a couple referred to .

Audrey and Matt had just bought their first home and they were all smiles. They were planning the move out of their apartment, deciding what to do with their $8,000 tax credit (buy stuff for the house!) and were simply just having fun!

When I think of that moment yesterday it reminds me of why I’m in this business. Yeah, I know the economy has seen better days and the financial industry is taking it on the chin. But for me it’s the first time home buyer that makes what I do all worthwhile.

About Us

CD REED Mortgage Bankers is a conventional and government mortgage company dedicated to providing superior service at honest, competitive rates. With 20 years in the mortgage industry, our clients enjoy the talent and expertise few businesses can offer.

An email about waiting to buy or not waiting … the numbers

nelsonproject — Fri, 06 Mar 2009 22:34:24 +0000

Thought you would like to see an actual email exchange one of our lenders (Deborah Ginac with CapStar Lending here in Austin) had with one of our clients this week on the topic of waiting to buy or not waiting … we think this is a valuable e conversation:

I had a call yesterday from Rachael. She said you two met and you are not sure if you want to move forward and purchase something right now, or wait until you save some more money. You need to be comfortable with the decision you make, but I wanted to make sure you understand the how today’s low rates effect your payment. This is why it is such a good time to buy, besides good deals and the $8,000 tax credit. For instance…

On a home purchase of $160,000 with you spending approximately $10,000, your payment would be $1,281 at a rate of 5%. If you wait to close and spend approximately $20,000 your payment would be $1,224 at 5%. So you save $57. If the rates go up to 5.5% your payment would be $1,269, and at 6% it would be $1,316.

On a home purchase of $180,000 with you spending approximately $10,000 your payment would be $1,430 at a rate of 5%. If you wait to close and spend approximately $20,000 your payment would be $1,382 at 5%. So you save $48. If the rates go up to 5.5% your payment would be $1,434 and it would be $1,488 at 6.0%.

I wanted you to have the numbers to make your decision.

Give me a call to discuss!

The Nelson Project . Keller Williams Realty . austin . tx . 512.794.6608 . www.thenelsonproject.com

www.searchAtown.com

www.TNPforsale.com

email us for a coming-soon list of properties: info@thenelsonproject.com

This Month In Real Estate (US): February 2009

nelsonproject — Tue, 03 Mar 2009 19:11:22 +0000