Recently someone said I should write an article on the need for increased real estate ethics. I told them, “There’s no such thing as real estate ethics”. After a moment to let that sink in, I finished my comment. “There is only ethics.” We become our own worst enemy when we live under the assumption that every situation allows for its own code of behavior. For many, our ethics become malleable to a situation instead of our response to the situation becoming malleable to our established ethics.
Every real estate transaction potentially involves at least a dozen different parties. Two realtors and their brokers, the appraiser, the home inspector, the pest inspector, the mortgage provider and the national lender, the title company, a survey company, a well and septic inspection and a contractor to affect any necessary repairs. We all have heard of or experienced horror stories involving straw buyers, forged income documents, shoddy repairs, and grossly inaccurate home disclosure documents. Is it any wonder that buyers and sellers express an anxiety level that is off the charts?
Every participant in a real estate transaction has undergone some level of training, whether formal or informal, and each of these professions has at a minimum, annual “continuing education” programs that in most cases is required. Most of these remedial courses contain a small section on ethics for their particular business. The trouble is most people settle for a level of ethics that simply “keeps them legal”. This then becomes the standard of measure which everything they do in their business must pass.
But is this standard too low? Is it enough to do our jobs with the aim of performing only what is legally required, or do we need to raise our sights to some higher ground?
Think with me for a moment the difference that would be made if everyone in your next real estate transaction operated under one simple rule. “I will treat you in the same way I would want to be treated; and I will handle your business the way I would want someone to handle mine.” That’s it. The Golden Rule applied to real estate transactions. What would such a transaction look like?
Appraisals would portray accurate home values. In recent years one of the primary reasons home values shot up was because of inflated appraisal reports. As a result the entire appraisal industry is currently under close scrutiny and the natural response is paranoia. Many appraisals report an artificially low home value. This is because appraisers don’t want to risk losing their license. But left unchecked, this practice could prove just as potentially damaging to the real estate industry as was the practice of inflating home values.
Home inspections are a critical part of any real estate transaction with both buyers and sellers anxiously awaiting the inspector’s report, but for very different reasons. If the report reveals repairs, the sellers will have to pay and the buyers will demand that the repairs be made correctly and be performed by a licensed contractor. I have personally experienced customers who have closed on a home only to find out that the heating and air system that passed inspection only a few months prior now needs replacing.
Mortgages are a necessity for most home buyers. Investigations have shown that in many cases uneducated home buyers were steered into risky adjustable rate loans that now place them in jeopardy of losing their houses. The industry is filled with stories of surprises at closing that involve much higher interest rates and inflated closing costs. The buyers have already removed everything out of their old home while the workers wait for closing to move their belongings into their new home. They have few options but to sign the papers at the higher interest rate.
It’s a nice thought that everyone would conduct their business and personal lives under the same code of ethics. But how can this be accomplished? How is possible for the Golden Rule to become the standard of ethics? How can this be made the bar under which everything must pass? Let me suggest that when the cost of doing what is right exceeds the price we are willing to pay that we make the difficult choice to pay the price and treat others better than we would want to be treated. This is a great concept that almost everyone believes is true, all that is lacking is the will to implement its practice into our lives. Will you be the first to commit to living by this one simple rule?
Wednesday, September 30, 2009
Friday, September 25, 2009
Senior's Purchase New Homes Make No Payments
Right here in Edmond and all around the nation, Seniors are downsizing to smaller homes making the purchase with a mortgage that requires no monthly payment for the remainder of their lives.
It’s called a Reverse Mortgage and it has become more popular than ever before, especially with Seniors who are selling their larger homes and opting to purchase newer smaller homes to gracefully age in place. This is exactly what Lydia Cross (not her real name) is doing.
I met Lydia just this week after she had spent the better part of three weeks working with a local bank to get financing for a new home. Her existing home was too large and in truth, too opulent for her needs. Five years ago Lydia’s husband passed away and left her in good financial shape. She purchased the larger nicer home to entertain her friends and family. Lydia is 72 and after experiencing significant health problems earlier this year, she’s ready to simplify life.
She put her house on the market and it sold rather quickly. In the meantime Lydia had found another home that better suited her needs and made an offer to purchase which was accepted. About the first of September she signed contracts on both houses and spent the better part of three weeks working with a local bank to get financing. The bank exhausted every avenue to secure the financing Lydia needed and only after visiting with her financial planner was she directed to call our office.
We examined the Reverse Mortgage from every angel and Lydia was convinced that this was not only the only way for her to get the financing she needed, as it turned out, it also helped her maximize cash flow for her remaining years. Here’s how her scenario works.
First Lydia will receive considerable proceeds from the sale of her current home. Because every Reverse Mortgage is custom fitted to each Senior’s needs, she will need to bring $103,000 to closing to cover down payment and closing costs. The purchase price of her new home is $305,000 so her new which leaves her a new loan amount of $202,000.
Her fixed interest rate for the rest of her life is 5.65%, a rate just slightly higher than conventional 30 year rates. If she were to take out conventional financing for this amount at 5.25% her monthly principal and interest payment would be $1,115.45 but with the reverse mortgage, Lydia can live in her new home and never make a monthly payment for as long as she lives. I explained to Lydia that when she passes, her estate has 12 months to settle the mortgage by either selling the home, or securing replacement financing.
But Reverse Mortgages have a few associated costs that can be surprising if they are not anticipated. The first is the up front mortgage insurance fee. A Reverse Mortgage is an FHA loan and as such like all FHA mortgages has a mortgage insurance premium attached to the front of the loan. This fee is calculated as 2 percent of the maximum amount that can be borrowed plus a 0.5 percent annual premium. For Lydia this added $6,100 to her closing costs.
Another sizeable fee is the servicing set aside fee. Each Reverse Mortgage charges either a $30 or a $35 a month service fee. This amount is multiplied by the number of month until the borrower reaches the age of 100. For Lydia this was a total of $4,730. This amount is not added to the closing costs, instead it is set aside out of the equity of the home, and the unused amount is returned to the estate when the note is settled.
Closing costs are the most controversial part of the Reverse Mortgage discussion. For some Seniors it is the sticking point that finally deters them from pursuing the idea any further. For others it is a necessary part to realize the opportunity of living out their years with fewer liabilities and a greater cash flow to better meet their needs. Before making your decision about a Reverse Mortgage, consult your financial planner and a Reverse Mortgage specialist.
It’s called a Reverse Mortgage and it has become more popular than ever before, especially with Seniors who are selling their larger homes and opting to purchase newer smaller homes to gracefully age in place. This is exactly what Lydia Cross (not her real name) is doing.
I met Lydia just this week after she had spent the better part of three weeks working with a local bank to get financing for a new home. Her existing home was too large and in truth, too opulent for her needs. Five years ago Lydia’s husband passed away and left her in good financial shape. She purchased the larger nicer home to entertain her friends and family. Lydia is 72 and after experiencing significant health problems earlier this year, she’s ready to simplify life.
She put her house on the market and it sold rather quickly. In the meantime Lydia had found another home that better suited her needs and made an offer to purchase which was accepted. About the first of September she signed contracts on both houses and spent the better part of three weeks working with a local bank to get financing. The bank exhausted every avenue to secure the financing Lydia needed and only after visiting with her financial planner was she directed to call our office.
We examined the Reverse Mortgage from every angel and Lydia was convinced that this was not only the only way for her to get the financing she needed, as it turned out, it also helped her maximize cash flow for her remaining years. Here’s how her scenario works.
First Lydia will receive considerable proceeds from the sale of her current home. Because every Reverse Mortgage is custom fitted to each Senior’s needs, she will need to bring $103,000 to closing to cover down payment and closing costs. The purchase price of her new home is $305,000 so her new which leaves her a new loan amount of $202,000.
Her fixed interest rate for the rest of her life is 5.65%, a rate just slightly higher than conventional 30 year rates. If she were to take out conventional financing for this amount at 5.25% her monthly principal and interest payment would be $1,115.45 but with the reverse mortgage, Lydia can live in her new home and never make a monthly payment for as long as she lives. I explained to Lydia that when she passes, her estate has 12 months to settle the mortgage by either selling the home, or securing replacement financing.
But Reverse Mortgages have a few associated costs that can be surprising if they are not anticipated. The first is the up front mortgage insurance fee. A Reverse Mortgage is an FHA loan and as such like all FHA mortgages has a mortgage insurance premium attached to the front of the loan. This fee is calculated as 2 percent of the maximum amount that can be borrowed plus a 0.5 percent annual premium. For Lydia this added $6,100 to her closing costs.
Another sizeable fee is the servicing set aside fee. Each Reverse Mortgage charges either a $30 or a $35 a month service fee. This amount is multiplied by the number of month until the borrower reaches the age of 100. For Lydia this was a total of $4,730. This amount is not added to the closing costs, instead it is set aside out of the equity of the home, and the unused amount is returned to the estate when the note is settled.
Closing costs are the most controversial part of the Reverse Mortgage discussion. For some Seniors it is the sticking point that finally deters them from pursuing the idea any further. For others it is a necessary part to realize the opportunity of living out their years with fewer liabilities and a greater cash flow to better meet their needs. Before making your decision about a Reverse Mortgage, consult your financial planner and a Reverse Mortgage specialist.
Friday, September 18, 2009
October to April; Best Time to Buy Home
The other day my wife and I were having dinner with a group of friends and I overheard someone with the group at the next table say, “We’re ready to buy a house, but we’re waiting until spring so we can get the best deal.” Really? The best deals are only available in the springtime?
It’s funny how an urban legend gets started.
Statistics at the Oklahoma Association of Realtors website (www.oklahomarealtors.com/mlsstatistics) support that more homes are sold each year during the second and third quarters than are sold during the first and fourth quarters. This has been true at least since 2002. I know this because that’s as far back as the OAR website displays the data. One quote from that website speaks volumes.
For the second quarter of 2009:”The average cost of a home in Oklahoma has decreased by 3.4 percent compared to Second Quarter 2008. In Second Quarter 2009 the average cost of a home sold was $145,413 compared to $150,559 in 2008. Statewide, 12,130 homes were sold in Second Quarter 2009. This is 11 percent less than the number of homes sold in Second Quarter 2008 in which 13,626 homes were sold. The average Days on Market was 115, and the average Median Price was $106,901.”
If you wait until spring and summer to purchase a home, are you certain you’ll be getting the best deal? Or is it possible that just the just as many good deals and even great bargains could be available during the fourth and first quarters of the year?. Let’s briefly examine the conditions that could make this October to next April one of the best times to buy a home.
High Home Inventory: More homes are available for purchase now than at any time in recent history. Across the state the average days is on the market 115 days before being sold. That’s almost four months. That means that if a home was put on the market in June (one of the peak months for home sales) that same home could very well still be on the market today. And with 11% fewer homes being sold (April through June, 2009) you can expect to find more homes on any MLS database search that meet your criteria.
Time on Market Affects Price: When a home is first listed on the MLS, it receives a great deal of notice from Realtors. But the longer that home remains on the market the less notice that home usually receives. This is why many Realtors suggest dropping the asking price. This kind of change brings the home to the top of the search criteria when Realtors check the MLS.
Don’t Forget Foreclosures: The news is filled with numbers of new foreclosures throughout the country. Oklahoma has its share of these numbers and many of these homes are in good shape and can be picked up for a great price. If you elect to go down this path, make certain your Realtor has experience negotiating a short sale. This is a transaction where the holder of the lien agrees to accept a price that is less than the note they currently hold against the property.
$8,000 tax credit goes away December 1, 2009: There’s still time for first time home buyers to close on a home and claim this tax credit. However, time is running out. Check with your Realtor and your mortgage provider for all the details.
Hungry Realtors: One of the things I love about America is the structure of our economy. Hard work and industry are rewarded by greater income. When fewer homes are being sold, skillful Realtors survive by going the extra mile for their buyers and sellers. Skillful Realtors feed their families all year long by working hard to get you the best deal.
Hungry Mortgage Brokers: The same truth that applied to Realtors applies to Mortgage Brokers. The number of refinances has dropped right along with the number of applications for home mortgages. This motivates the skillful and hardworking Mortgage Brokers to do whatever it takes to get your business and that can include reducing the amount they make on your loan.
It’s funny how an urban legend gets started.
Statistics at the Oklahoma Association of Realtors website (www.oklahomarealtors.com/mlsstatistics) support that more homes are sold each year during the second and third quarters than are sold during the first and fourth quarters. This has been true at least since 2002. I know this because that’s as far back as the OAR website displays the data. One quote from that website speaks volumes.
For the second quarter of 2009:”The average cost of a home in Oklahoma has decreased by 3.4 percent compared to Second Quarter 2008. In Second Quarter 2009 the average cost of a home sold was $145,413 compared to $150,559 in 2008. Statewide, 12,130 homes were sold in Second Quarter 2009. This is 11 percent less than the number of homes sold in Second Quarter 2008 in which 13,626 homes were sold. The average Days on Market was 115, and the average Median Price was $106,901.”
If you wait until spring and summer to purchase a home, are you certain you’ll be getting the best deal? Or is it possible that just the just as many good deals and even great bargains could be available during the fourth and first quarters of the year?. Let’s briefly examine the conditions that could make this October to next April one of the best times to buy a home.
High Home Inventory: More homes are available for purchase now than at any time in recent history. Across the state the average days is on the market 115 days before being sold. That’s almost four months. That means that if a home was put on the market in June (one of the peak months for home sales) that same home could very well still be on the market today. And with 11% fewer homes being sold (April through June, 2009) you can expect to find more homes on any MLS database search that meet your criteria.
Time on Market Affects Price: When a home is first listed on the MLS, it receives a great deal of notice from Realtors. But the longer that home remains on the market the less notice that home usually receives. This is why many Realtors suggest dropping the asking price. This kind of change brings the home to the top of the search criteria when Realtors check the MLS.
Don’t Forget Foreclosures: The news is filled with numbers of new foreclosures throughout the country. Oklahoma has its share of these numbers and many of these homes are in good shape and can be picked up for a great price. If you elect to go down this path, make certain your Realtor has experience negotiating a short sale. This is a transaction where the holder of the lien agrees to accept a price that is less than the note they currently hold against the property.
$8,000 tax credit goes away December 1, 2009: There’s still time for first time home buyers to close on a home and claim this tax credit. However, time is running out. Check with your Realtor and your mortgage provider for all the details.
Hungry Realtors: One of the things I love about America is the structure of our economy. Hard work and industry are rewarded by greater income. When fewer homes are being sold, skillful Realtors survive by going the extra mile for their buyers and sellers. Skillful Realtors feed their families all year long by working hard to get you the best deal.
Hungry Mortgage Brokers: The same truth that applied to Realtors applies to Mortgage Brokers. The number of refinances has dropped right along with the number of applications for home mortgages. This motivates the skillful and hardworking Mortgage Brokers to do whatever it takes to get your business and that can include reducing the amount they make on your loan.
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