Converting home shoppers to buyers

A number of studies have been made attempting to determine how buyers go about finding the right home. The print advertisers believe homebuyers will choose a local newspaper or home magazine and begin previewing written ads or pictures of properties. The Internet companies believe homebuyers will begin their search online. Many web sites download the listing information from the MLS and the information is available to their visitors. Some buyers, who know the specific area where they want to live, drive the neighborhood looking for “For Sale” signs and open houses. All the research confirms one thing. Homebuyers don’t start the home buying process by walking into a real estate office or calling an agent and saying “I want to buy a house.” Why not?

In an attempt to attract business, real estate companies spend thousands of dollars renting strategically visible locations. Yet, many homebuyers feel visiting a real estate office is akin to a visit to the dentist’s office. A stranger is going to be poking around sensitive areas. It’s going to hurt and it will costs money. “Hey, doc, that’s a long needle!” “Rest easy, you will only feel a little pressure.”

Nobody wants to feel pressure from a needle or a salesperson. We naturally avoid pressure situations which occur when we are about to make a major decision like which wine to order with dinner, paper or plastic and should we hit a soft sixteen when the dealer has a face-card showing. Since buying a home is the largest major decision most of us will make, it warrants serious consideration. If we don’t like its aroma we can’t ask the sommelier to take it back.

Buyers enjoy the anonymity, control and convenience they have when shopping on-line or at the kitchen table. Some buyers will take extronary precautions to avoid the stress of speaking with an agent and accelerating the home buying process. At some point, however, a buyer will reluctantly make that call to an agent in order to move the process forward. There are steps agents and buyers can do to remove much of the stress and pressure of buying a home.

Shopping for a home may not be as fun as visiting Disneyland but it should be at least an interesting and rewarding experience. Homebuyers have an opportunity to discover new homes and places while meeting friendly or at least interesting people. Many avoid the experience for fear of being pressured into a decision. The pressure of making a major home buying decision can be easily removed when homebuyers and agents agree in advance not to buy any home on their scheduled tour.

Once my clients get their seat belts adjusted, I have a routine explanation of the days showing process. We are going to have fun and get acquainted. I will answer all your real estate questions. We will not be measuring closet space for a home that you will not buy. We will pass up looking at a home if it’s in an area you do not like. We will not show excitement about a home you like, if the seller is there. I will not follow you around the house pointing out oblivious features. We will not buy a home today.
By not allowing buyers to sign a purchase agreement on a home on the same day they preview, removes all the pressure of making a buying decision. Buyers feel more relaxed and receptive to the experience. They have an opportunity to focus on their lifestyle preferences than having to make a decision on a specific property. It tweaks the sales agent image to one of counselor/advisor. The second showing on a home of interest is more important than the initial one. Every home has a story and between the first look and the second or more, allows an agent time to discover the “story.”

The standard California Association of Realtors (CAR) purchase agreement provides for many opportunities (contingences) for the buyer to pull out of the agreement and cancel escrow. Standards of practice should provide buyers an additional one. No buyer should be allowed to sign a purchase agreement until they have inspected a home at least twice and 24 hours have elapsed since their first viewing.
When an agent understands that a client will not be making an immediate buying decision, it relieves their guarded expectations. It allows them to focus more on the relationship with the client rather than nudging a client into a decision on a specific property. All parties are more comfortable with the process and more home shoppers would turn into homebuyers.

No easy quick sales?

A reader writes: I have a friend that brought a JTS home in Wilton. He cannot afford the house payments, one is $400,000, the second is $20,00.00, both mortgages are through Countrywide.

He is now going to do a Quick Sale, where he states he stops paying on the mortgage and the real estate person takes care of everything. I read one place that the short sale is 60 to 90 days. He states they have 6 to 9 months and they don't have to make any payments on the house. Is this a better solution than foreclosure? Will this ruin his credit? What happens with IRS?

Thank you for your information. You can answer back in your daily letters. We really enjoy your articles. Mary Anne

Hi Mary Ann,

I haven't seen any "quick sales" since 2005. We have long-sales, no sales and short sales but no "quick sales." You’re probably referring to a short sale. As for the real estate person taking care of everything, your friend has misunderstood the agent's explanation of the situation or must believe there is a tooth fairy. No lender is allowing borrowers to skip 6 to 9 months of mortgage payments without consequences. Your friend needs to get a second opinion and/or get some understandings in writing. When homeowners can't make the house payment, it clouds their thinking. They sometimes get desperate and start believing in miracles.

Short-sales will commonly show up on future credit reports as a foreclosure, deed-in-lieu (of foreclosure) or charge-offs. They will all affect his credit for at least 3 to 5 years. No lender is going to be stupid about making another loan to a borrower who has recently defaulted on the last one. It will also drop his FICO credit score by 200 points. Missed house payment will also result in lowering your friend’s credit score and will remain on the credit report for a long time.

Many lenders will not allow short-sales. A short sale happens when the lender allows the home to be sold for less than the existing mortgage. The lender forgives the difference between the selling price and the existing debt. When there is a first and second loan on the property, short-sales are highly unlikely since two different investors must agree on the loan amounts to be forgiven.

Countrywide usually forecloses on homes rather than to wait around for a short sale. It’s usually faster than waiting for some potential buyer at some price to buy a $400,000 home in Wilton. What was your friend thinking? As with many lenders, Countrywide made the loan but sold it to an investment group. The investment group is now the holder of the note and will make the decision on whether to allow a short sale. I have seen lots of short sale listings but few short sales closing.

Congress is in the process of changing the law regarding the tax consequence of short sales. Your friend should check with his tax professional for advice on his specific situation. In the past, debt forgiveness was considered a taxable event and lenders issued a 1099 for the amount of the debt that was forgiven. There are no easy solutions without consequences to defaulting borrowers. Your friend should make sure he has looked at other possible solutions, like restructuring the existing debt, before looking for the tooth fairy.

I am not a crook!

I have been ordering appraisals from Larry for the last ten years. Larry is a member of the Appraisal Institute and his valuations are accepted by all the lenders where I broker loans. Last week I called him to discuss a home’s value. I am refinancing a client’s loan and concerned if the property does not appraise high enough, my clients will not be able to refinance into a lower fixed rate mortgage.

“Hi Larry, have you had a chance to review the numbers on the property on Jenkins home? I really need $450,000 or I can’t do the loan.” “No problem Ken, it’s a stretch but I think I can hit your number.” “Thank Larry, I own you one. I will buy lunch next Friday.” Did I break the new law against influencing appraisers or was I helping my clients?

Earlier this month, California Governor Arnold Schwarzenegger signed into law, SB 223 -- making it illegal to pressure appraisers to arrive at a predetermined property value that's been set by mortgage brokers or homeowners to ensure a sale goes through. The new law also states that it makes it illegal for a licensed appraiser to engage in "any appraisal activity in connection with the purchase, sale, transfer, financing, or development of real property if his or her compensation is dependent on or affected by the value conclusion generated by the appraisal."
"This law helps deter some of the individuals from putting pressure on appraisers," says Michael H. Evans, real estate appraiser, Evans Appraisal Service and a Fellow with the American Society of Appraisers. But Evans is careful to add that it's only a start. "It'll help. It's not a cure all; I can guarantee you that."

The problem has been brewing for a long time and leaving appraisers and homeowners vulnerable. "Almost every order that would come through our fax machine would have some type of order on it saying, 'If it doesn't come in at this price, call me.' Or, 'If this doesn't make value, we don't want the appraisal.' We just send it back to them saying, 'Hey, we don't work that way. We're going to have to give you the value that it is; we can't change that and if you want us to work under those circumstances, we can't do the job for you.' And some of them go away, they'll try to find some who will," explains Evans.

But Evans says some appraisers fall victim to the pressure. "We have a lot of young appraisers … and they're hungry. You have some -- not all -- but just some unscrupulous lenders out there who are just hunting for a value. So the lenders go through the phone book looking for a young appraiser who maybe doesn't have the experience or the clientele and will do something that maybe he or she shouldn't do and lenders prey on them," says Evans.

The law now makes violators subject to punishment of license suspension or revocation with the potential of civil action. Evans says the new law will make will people think twice before they pressure an appraiser for a predetermined value on a property. It will also make appraisers who are tempted to accept the illegal offer recognize there are severe consequences.
As for homeowners, they too will stand to gain from this new law. "Homebuyers need to protect themselves by checking the credentials of everyone involved in the transaction and requesting that their assigned appraiser be state licensed and accredited by a national professional organization," says Evans.

He says that by selecting an accredited appraiser, homeowners will risk less because "accredited appraisers have got more experience and more to lose if they're succumbing to that type of pressure. They've invested more in their profession." Experts believe that inflated appraisals have significantly contributed to the mortgage-meltdown crisis. For that reason, numerous industry and consumer advocacy groups joined together to support the passage of the bill including: the Appraisal Institute, the American Society of Appraisers, the California Mortgage Bankers Association, the California Association of Mortgage Brokers, and the Fair Lending Alliance, and the Greenlining Institute.

The 2008 predictions begin

It's not even Halloween and already industry experts are predicting the direction for the housing market next year.

The Mortgage Bankers Association says the housing slump will extend to the third quarter of next year and possibly into 2009. Maybe it's a good thing that any forecast includes a bottom. He says that existing home sales for 2007 will be about 5.72 million units for a 12 percent decline from 2006, and that existing home sales will slump 10 percent further before they pick up by five percent in 2009.

New home sales will be down 22 percent from 2006 to a total of 819,000 units and will soften 10 percent further in 2008. Things look brighter in 2009 with an expected rise in sales of six percent. For the first time national median home prices will decline two percent in successive years in 2007 and 2008 before going flat in 2009.

On the bright side, Duncan doesn't expect mortgage interest rates to go up much higher. A conforming 30-year loan today is about 6.4 percent and will climb to 6.6 percent by early 2008. It's a large "overhang" of inventory, coupled with tighter lending standards that are the cause of the continuing slump, he says.

To the rescue, the National Association of Home Builders Chief Economist David Seiders says that new home construction is at a 14-year low. "While there's no question that the housing down swing continues to be played out in markets across the country, today's numbers show that builders are pulling back on production until sales improve," says Seiders, "This is exactly what our latest builder surveys have told us. We do expect some additional downward movement in housing production going into next year, at which point starts should begin to stabilize as sales turn upward in the second quarter."

According to the U.S. Census housing starts in September were at a seasonally adjusted rate of 1,191,000 annually, over 10 percent below the revised August estimate of 1,327,000 and 30.8 percent below September 2006. New home completions are 31.1 percent below September 2006 at 1,391,000, including multi-family units.
Consequently, the builders' confidence index reached an all-time low of 18, meaning one in six builders feel conditions are favorable. The one in six must be on vacation in Hawaii.
While the National Association of Realtors forecasts similar slow rises in mortgage interest rates to the MBAA, the trade organization is more optimistic about home prices. Existing-home prices will probably slip 1.3 percent to a median of $219,000 in 2007 before rising 1.3 percent next year to $221,800, while the median new-home price should drop 2.1 percent to $241,400 this year, and then increase 1.0 percent in 2008 to $243,900.