Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Everybody wants to know how to best time the market when buying a home. It's just natural. Especially if you're thinking about buying in a down market where homes prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
Well, here is why:
- If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
- If you can arrange for alternate housing, a smart strategy is sell now, wait a few months, then buy your new home.
- If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
- So you "lost" $30,000 on the sale of your home
- But you "made" $50,000 on the purchase of your new home
- Doesn't that put you $20,000 ahead?
- $425,000 sales price, at 8.25% interest, your payment is $2,554.
- $450,000 sales price, at 7.75% interest, your payment is $2,579.
- $475,000 sales price, at 7.25% interest, your payment is $2,592.
- $500,000 sales price, at 6.75% interest, your payment is $2,594.
- $525,000 sales price, at 6.25% interest, your payment is $2,586.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
The payments are almost identical. However, the home you can afford to buy a 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Housing prices took a 24% nosedive during the Great Depression of 1929. In hindsight, that housing recession was not really a good time to buy real estate in the short term because the recession lasted 10 years. It was long enough that some survivors still fold up and save pieces of used aluminum foil.
All other recessions since 1929 lasted a period of two years or less. Many of those recessions shared falling stock prices, high interest rates, high unemployment rates and a loss of consumer confidence, along with one other common trait: They were all good times to buy real estate.
Buying Homes in the Midst of a Housing Recession
When prices fall, the question is not really how low can they go but how much real estate can you buy before they go back up. If you are buying a home during a housing recession, getting a good price is just as important as being able to hold and ride out the housing recession.
Here are tips that can help you make a wise decision and capitalize on falling prices:
- Buying in a Down Market
How to figure out if it makes financial sense for you to buy when prices are falling. If prices haven't hit bottom yet, how to tell where the bottom is likely to rest, and why it might not really matter. - Looking at Overpriced Homes
- Buying Distressed Sales in a Housing Recession
- Before Buying a Short Sale
- Buying Post Foreclosures: REOS
In depressed markets, it's not unusual for some sellers to price their home too high. If you spot a home that's been languishing on the market, it might warrant a second look. Here's how to tell.
Foreclosures, short sales and REOs: differences. Buying distressed properties under market value. Which is more profitable for a buyer -- short sales, foreclosures or real-estate-owned (REO's)? How CA law affects foreclosure sales.
Before you buy a short sale, read about your rights. Why the seller's lender needs to approve a short sale and how to understand what is involved in closing short sale transactions.
How to buy a foreclosures / REOs from the bank. Negotiating offers for bank owned homes. Difference between REO homes and short sales. Hiring an agent to buy REOs.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Home buyers who want a good deal in real estate invariably think first about pursuing foreclosures. Buyers have this picture in their mind of a cute little house, surrounded by a white picket fence that is owned by a widowed mom who fell on hard times, but that scenario is generally far from reality.
Why Do Sellers Go Into Foreclosure?
Sellers stop making payments for a host of reasons. Few choose to go into foreclosure voluntarily. It's often an unpredictable result from one of the following:
- Laid-off, fired or quit job
- Foreclosure proceedings vary from state to state. In states where mortgages are used, home owners can end up staying in the property for almost a year; whereas, in states where trust deeds are used, a seller has less than four months before the trustee's sale.
- Almost every state provides for some period of redemption. This means the seller has an irrevocable right during a certain length of time to cure the default, including paying all foreclosure costs, back interest and missed principal payments, to regain control of the property. For more information, consult a real estate lawyer.
- Many states also require that buyers give to sellers certain disclosures regarding equity purchases. Failure to provide those notices and to prepare offers on the required paperwork can result in fines, lawsuits or even revocation of sale.
- Determine whether you're the type of person who can easily take advantage of a seller's misfortune under these circumstances and / or put a family out on the street. Oh, critics will argue it's just business and sellers deserve what they get, even if it's five cents on the dollar. Others will feign compassion and trick themselves into believing they are "helping" the home owners avoid further embarrassment, but deep inside yourself, you know that's not true.
- No loan contingency
- Sealed bids
- Proof of financial qualifications
- Sizeable earnest money deposits
- Purchase property "as is"
Negotiating Directly with Sellers in Foreclosure
Investors who specialize in buying foreclosures often prefer to purchase these homes before the foreclosure proceedings are final. Before approaching a seller in distress, consider:
Buying a Home at the Trustee's Sale
Check with your local county office to find out how sales in your area are handled, but common threads among those I see in Sacramento are:
Sometimes buyers are not allowed to inspect the house before making an offer. The problem with buying a house sight unseen is you can't calculate how much it will cost to improve the structure or bring it up to habitable standards. Nor do you know if the occupant will retaliate and destroy the interior. On top of that, you may need to evict the tenant or owner from the premises after you receive title, and eviction processes can be costly.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Home buyers who want a good deal in real estate invariably think first about pursuing foreclosures. Buyers have this picture in their mind of a cute little house, surrounded by a white picket fence that is owned by a widowed mom who fell on hard times, but that scenario is generally far from reality.
Why Do Sellers Go Into Foreclosure?
Sellers stop making payments for a host of reasons. Few choose to go into foreclosure voluntarily. It's often an unpredictable result from one of the following:
-
- Laid-off, fired or quit job
- Inability to continue working due to medical conditions
- Excessive debt and mounting bill obligations
- Squabbles with co-owner, divorce
- Job transfer to another state
- Foreclosure proceedings vary from state to state. In states where mortgages are used, home owners can end up staying in the property for almost a year; whereas, in states where trust deeds are used, a seller has less than four months before the trustee's sale.
- Almost every state provides for some period of redemption. This means the seller has an irrevocable right during a certain length of time to cure the default, including paying all foreclosure costs, back interest and missed principal payments, to regain control of the property. For more information, consult a real estate lawyer.
- Many states also require that buyers give to sellers certain disclosures regarding equity purchases. Failure to provide those notices and to prepare offers on the required paperwork can result in fines, lawsuits or even revocation of sale.
- Determine whether you're the type of person who can easily take advantage of a seller's misfortune under these circumstances and / or put a family out on the street. Oh, critics will argue it's just business and sellers deserve what they get, even if it's five cents on the dollar. Others will feign compassion and trick themselves into believing they are "helping" the home owners avoid further embarrassment, but deep inside yourself, you know that's not true.
- No loan contingency
- Sealed bids
- Proof of financial qualifications
- Sizeable earnest money deposits
- Purchase property "as is"
Negotiating Directly with Sellers in Foreclosure
Investors who specialize in buying foreclosures often prefer to purchase these homes before the foreclosure proceedings are final. Before approaching a seller in distress, consider:
Buying a Home at the Trustee's Sale
Check with your local county office to find out how sales in your area are handled, but common threads among those I see in Sacramento are:
Sometimes buyers are not allowed to inspect the house before making an offer. The problem with buying a house sight unseen is you can't calculate how much it will cost to improve the structure or bring it up to habitable standards. Nor do you know if the occupant will retaliate and destroy the interior. On top of that, you may need to evict the tenant or owner from the premises after you receive title, and eviction processes can be costly.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, ask your agent to call the listing agent to find out if the home is a short sale.
Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and very few can close in 30 days or less.
Many of my Sacramento home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
What is a Short Sale?
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.
If there are two loans, you could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent.
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Prepare the Seller for Lender Demands
A lender is not going to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven.
A seller I know once demanded that the buyer slip the seller $1,000 to be given the right to purchase the seller's property. We said no. This is fraud. The lender legally pursued that seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller receives no money because the lender is losing money.
Submit Documentation & Purchase Offer to Lender
Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.
Give the Lender a Deadline
Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel. If the lender is under no pressure to make a decision, the paperwork will sit on an underling's desk.
Some lenders submit short sales to committee, but most can make a decision within two to three weeks, providing you have submitted the offer to the individual in decision-making capacity. Get a name and phone number for the appropriate contact at the lender. Don't send an offer blindly to a department.
Expect Commission Negotiations
Regardless of the commission the seller has agreed to pay, the lender is actually the entity paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your agent.
If you have signed a buyer's broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.
It is extremely important that a buyer obtain a home inspection and pay for other types of inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections. Do not waive your right to obtain these inspections and make your offer contingent on approving them.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, ask your agent to call the listing agent to find out if the home is a short sale.
Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and very few can close in 30 days or less.
Many of my Sacramento home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
What is a Short Sale?
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.
If there are two loans, you could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even worse if your own agent has no experience in that arena. You need an experienced short sale agent.
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Prepare the Seller for Lender Demands
A lender is not going to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven.
A seller I know once demanded that the buyer slip the seller $1,000 to be given the right to purchase the seller's property. We said no. This is fraud. The lender legally pursued that seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller receives no money because the lender is losing money.
Submit Documentation & Purchase Offer to Lender
Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.
Give the Lender a Deadline
Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel. If the lender is under no pressure to make a decision, the paperwork will sit on an underling's desk.
Some lenders submit short sales to committee, but most can make a decision within two to three weeks, providing you have submitted the offer to the individual in decision-making capacity. Get a name and phone number for the appropriate contact at the lender. Don't send an offer blindly to a department.
Expect Commission Negotiations
Regardless of the commission the seller has agreed to pay, the lender is actually the entity paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your agent.
If you have signed a buyer's broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.
It is extremely important that a buyer obtain a home inspection and pay for other types of inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections. Do not waive your right to obtain these inspections and make your offer contingent on approving them.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Foreclosures, short sales and REOs remind me of, "Lions and tigers and bears, oh, my!" The latter are dangerous animals but different from each other -- just as foreclosures and short sales and real-estate-owned (REOs) are distressed sales but different from each other.
However, they are also similar because without knowledge about handling foreclosures, short sales and REOs, you could find yourself in dangerous territory. For example, while most short sales are foreclosures, not all foreclosures are short sales. To further complicate matters, REOs are not short sales either, but some intended short sales can end up as an REO.
What is a Foreclosure Property?
A foreclosure property is a home in foreclosure -- when a notice of default has been filed in the public records. It means the owner has stopped making mortgage payments and the lender has given notice that unless the payments are brought up to date, it will sell the property to the highest bidder.
Lenders can foreclose for other reasons, but the most common reason lenders file a notice of default is when a borrower is at least two payments in arrears.
If the home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale.
Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to a point, the time which varies from state to state.
Real estate investors and home buyers see profit in buying foreclosures because they can often buy the property for the amount owed, picking up the home owner's equity for free.
How California law Affects Foreclosure / Short Sale Investors
States have varying laws governing foreclosures and some follow California law. To completely understand your rights as a foreclosure buyer, contact a local real estate lawyer. However, realize that for a long time in California, a real estate agent could not represent a foreclosure investor if all of the following four statements were true:
- The home qualifies as the seller's personal residence.
- The property is a single family home or 2 to 4 units.
- A Notice of Default has been filed in the public records against the property.
- The investor buyer will not occupy the property.
However, if any of those four statements were false, an agent in California would be allowed to represent buyers, especially if the buyer was going to occupy the home. But to represent an investor, CA law requires that a real estate agent post a bond. No such bond is available in the state of California. Therefore, as a pre-foreclosure investor in California, many buyers were forced to act on their own.
A California court ruled in 2007 that the bond requirement was unenforceable. The California Association of Realtors then made available a special package of forms that agents can use to represent investors. Realize, as an investor, you are required to comply with the Home Equity Sales Act. Among other requirements, sellers who are in foreclosure have the right to rescind (cancel) a transaction within five days. Investors must give the seller notice of that right, including a copy of the form that will let sellers cancel.
Failure to comply with the Home Equity Sales Act carries severe penalties, including a provision that gives the seller the right to cancel the sale up to two years after the sale to the investor has closed and get the property back. You read that correctly. Two years.
As an investor, before you decide to buy a home in foreclosure by making up the back payments to the lender, giving the seller a few dollars and recording a deed, call a real estate lawyer.
What is a Short Sale Property?
A short sale occurs when a home owner is in foreclosure but before the property goes to public auction. Under a short sale, a lender must agree to accept less than the amount that is owed on the property.
Unlike a foreclosure, investors typically buy the home for even less because investors are not paying off the existing loan nor making up the back payments. Investors are striking a deal with the existing lender to take less than what the lender has coming to avoid dealing with a foreclosure.
It's a myth that lenders are not going to make a deal with an investor unless the seller has fallen behind on the seller's obligation to make timely mortgage payments. Sellers don't need to be in default for a short sale to occur. For a buyer who wants to occupy the home, buying a short sale makes financial sense.
What are REOs - Real Estate Owned?
- Buying an REO is similar to buying a short sale except the property is already owned by the lender.
- The property was acquired by the lender through a foreclosure action.
- Often lenders will sell repossessed homes for less than the past loan balance.
- Bank-owned properties are called REOs, meaning real estate owned by the lender.
Banks end up owning the property when nobody at the public auction bid enough to cover the amount owed against the property. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor, the investor's agent, the bank and the bank's agent who are negotiating the transaction. Some REOs can be purchased directly from the lender.
For more information, seek the advice of a real estate lawyer.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Foreclosures, short sales and REOs remind me of, "Lions and tigers and bears, oh, my!" The latter are dangerous animals but different from each other -- just as foreclosures and short sales and real-estate-owned (REOs) are distressed sales but different from each other.
However, they are also similar because without knowledge about handling foreclosures, short sales and REOs, you could find yourself in dangerous territory. For example, while most short sales are foreclosures, not all foreclosures are short sales. To further complicate matters, REOs are not short sales either, but some intended short sales can end up as an REO.
What is a Foreclosure Property?
A foreclosure property is a home in foreclosure -- when a notice of default has been filed in the public records. It means the owner has stopped making mortgage payments and the lender has given notice that unless the payments are brought up to date, it will sell the property to the highest bidder.
Lenders can foreclose for other reasons, but the most common reason lenders file a notice of default is when a borrower is at least two payments in arrears.
If the home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale.
Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to a point, the time which varies from state to state.
Real estate investors and home buyers see profit in buying foreclosures because they can often buy the property for the amount owed, picking up the home owner's equity for free.
How California law Affects Foreclosure / Short Sale Investors
States have varying laws governing foreclosures and some follow California law. To completely understand your rights as a foreclosure buyer, contact a local real estate lawyer. However, realize that for a long time in California, a real estate agent could not represent a foreclosure investor if all of the following four statements were true:
- The home qualifies as the seller's personal residence.
- The property is a single family home or 2 to 4 units.
- A Notice of Default has been filed in the public records against the property.
- The investor buyer will not occupy the property.
However, if any of those four statements were false, an agent in California would be allowed to represent buyers, especially if the buyer was going to occupy the home. But to represent an investor, CA law requires that a real estate agent post a bond. No such bond is available in the state of California. Therefore, as a pre-foreclosure investor in California, many buyers were forced to act on their own.
A California court ruled in 2007 that the bond requirement was unenforceable. The California Association of Realtors then made available a special package of forms that agents can use to represent investors. Realize, as an investor, you are required to comply with the Home Equity Sales Act. Among other requirements, sellers who are in foreclosure have the right to rescind (cancel) a transaction within five days. Investors must give the seller notice of that right, including a copy of the form that will let sellers cancel.
Failure to comply with the Home Equity Sales Act carries severe penalties, including a provision that gives the seller the right to cancel the sale up to two years after the sale to the investor has closed and get the property back. You read that correctly. Two years.
As an investor, before you decide to buy a home in foreclosure by making up the back payments to the lender, giving the seller a few dollars and recording a deed, call a real estate lawyer.
What is a Short Sale Property?
A short sale occurs when a home owner is in foreclosure but before the property goes to public auction. Under a short sale, a lender must agree to accept less than the amount that is owed on the property.
Unlike a foreclosure, investors typically buy the home for even less because investors are not paying off the existing loan nor making up the back payments. Investors are striking a deal with the existing lender to take less than what the lender has coming to avoid dealing with a foreclosure.
It's a myth that lenders are not going to make a deal with an investor unless the seller has fallen behind on the seller's obligation to make timely mortgage payments. Sellers don't need to be in default for a short sale to occur. For a buyer who wants to occupy the home, buying a short sale makes financial sense.
What are REOs - Real Estate Owned?
- Buying an REO is similar to buying a short sale except the property is already owned by the lender.
- The property was acquired by the lender through a foreclosure action.
- Often lenders will sell repossessed homes for less than the past loan balance.
- Bank-owned properties are called REOs, meaning real estate owned by the lender.
Banks end up owning the property when nobody at the public auction bid enough to cover the amount owed against the property. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor, the investor's agent, the bank and the bank's agent who are negotiating the transaction. Some REOs can be purchased directly from the lender.
For more information, seek the advice of a real estate lawyer.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Everybody wants to know how to best time the market when buying a home. It's just natural. Especially if you're thinking about buying in a down market where homes prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately
Well, here is why:
- If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
- If you can arrange for alternate housing, a smart strategy is sell now, wait a few months, then buy your new home.
- If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
- So you "lost" $30,000 on the sale of your home
- But you "made" $50,000 on the purchase of your new home
- Doesn't that put you $20,000 ahead?
- $425,000 sales price, at 8.25% interest, your payment is $2,554.
- $450,000 sales price, at 7.75% interest, your payment is $2,579.
- $475,000 sales price, at 7.25% interest, your payment is $2,592.
- $500,000 sales price, at 6.75% interest, your payment is $2,594.
- $525,000 sales price, at 6.25% interest, your payment is $2,586.
Consider the "Loss" on Selling Your Present Home
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers
Don't Forget the Impact of Interest Rates
Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.
FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look at the Differences Among Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
The payments are almost identical. However, the home you can afford to buy a 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
Originally published at Real Estate Blog at Fizber.com. You can comment here or there.
Housing prices took a 24% nosedive during the Great Depression of 1929. In hindsight, that housing recession was not really a good time to buy real estate in the short term because the recession lasted 10 years. It was long enough that some survivors still fold up and save pieces of used aluminum foil.
All other recessions since 1929 lasted a period of two years or less. Many of those recessions shared falling stock prices, high interest rates, high unemployment rates and a loss of consumer confidence, along with one other common trait: They were all good times to buy real estate.
Buying Homes in the Midst of a Housing Recession
When prices fall, the question is not really how low can they go but how much real estate can you buy before they go back up. If you are buying a home during a housing recession, getting a good price is just as important as being able to hold and ride out the housing recession.
Here are tips that can help you make a wise decision and capitalize on falling prices:
- Buying in a Down Market
How to figure out if it makes financial sense for you to buy when prices are falling. If prices haven't hit bottom yet, how to tell where the bottom is likely to rest, and why it might not really matter. - Looking at Overpriced Homes
- Buying Distressed Sales in a Housing Recession
- Before Buying a Short Sale
- Buying Post Foreclosures: REOS
In depressed markets, it's not unusual for some sellers to price their home too high. If you spot a home that's been languishing on the market, it might warrant a second look. Here's how to tell.
Foreclosures, short sales and REOs: differences. Buying distressed properties under market value. Which is more profitable for a buyer -- short sales, foreclosures or real-estate-owned (REO's)? How CA law affects foreclosure sales.
Before you buy a short sale, read about your rights. Why the seller's lender needs to approve a short sale and how to understand what is involved in closing short sale transactions.
How to buy a foreclosures / REOs from the bank. Negotiating offers for bank owned homes. Difference between REO homes and short sales. Hiring an agent to buy REOs.
