In a sellers and shifting market, strong financing is the best offense. The value of a relationship with a verified lender can be the difference between a contract that will not see closing and a successful transaction. It’s the fiduciary duty of the agent to verify and vet the buyer for his or her client. It’s also the responsibility of the buyer’s agent to vet the buyer for the seller’s agent. I recently had an interesting wrench in one of my transactions that I feel everyone can learn from. Here’s the situation that transpired: Buyer was transferring to Cincinnati for a job He had a mortgage on an out-of-state house with USAA He had a strong amount of money in the bank Buyer thought it was in his best interest to use USAA instead of one of my preferred lenders for their home purchase in Cincinnati He wanted to buy a house three months in advance so renovations could be done prior to relocation 21 days from closing, buyer was informed that USAA couldn’t loan money “unless the borrower is within 60 days of gaining their employment” Buyer needed to generate an $20k additional to close with USAA My client then asked me to delay closing from mid-March to the first of May—and that was going to be a deal breaker. When we wrote a contract for the house, we were in competing offers and ours was chosen because of relationships; both offers were identical. Then we talked to my preferred lender, Huntington Bank, which has a portfolio product they can offer my client—a physician loan: 0% down payment, matching interest rate zero Private Mortgage Insurance (PMI) A homerun from the local group! This information intrigued the buyer, but if the financing was changed this close to the closing, closing would be delayed. We evaluated each option and decided to stay the course with USAA, the national provider. To overcome the underwriter’s 60 days from gaining employment rule, the buyer had to bring 5% more money to closing, approx. $19,500—a huge expense! I was fortunate to have a great client with good financial backing who was able to accomplish the transaction and save us from a tailspin that would have resulted in the sellers removing themselves from the contract. The lesson here: Shop your mortgages, but ask the right questions—and work with a knowledgeable agent who can navigate this delicate space. For great service from a local Cincinnati lender, call Huntington Bank’s Matt Miller at 513-770-2060, email firstname.lastname@example.org. He has the team behind him to service you for physician loans and more!
We just closed a transaction with a client in Anderson who bought the most wonderful ranch house. During the offer period, it was noted in the disclosures that the house had a disclosed sewer backup in 2014 and that they have not had issue since. I also noticed that they had a mature, 25 year+ Silver maple in the front yard. I informed my client that it was my opinion that we inspect the sewer in addition to the house, which she was receptive too because she just replaced a sewer in her current house in Clifton. The buyer hired Zins Plumbing, a local Cincinnati company to camera the drain. They discovered a major root intrusion and major break in the sewer line. Zins Plumbing was very professional and marked the location in the front yard and recommended that Metropolitan Sewer District (MSD) to be called and they would see if the blockage went into their sewer main. It is the homeowners responsibility to keep the house sewer to the street clear of roots. This is mentioned in multiple documents found on the public service website- http://www.msdgc.org MSD only becomes involved when the pipe is compromised, cracked or shifted from alignment, within the Right of Way (ROW). In our case, the pipe damage was deemed within the ROW and its depth was over 15’ below the surface. The estimate to perform this repair was well over $10k. The cost of inspection was $200, the cost saved was peace of mind and over $9800. That’s a nice return on investment and something that in my opinion more Buyers and Sellers should investigate as they do maintenance on our homes. Knowledge is Power, and as always be careful out there buying and selling real estate!
I have always been told by respected investors that you make your money when you Close the first time on the property- you buy with equity in the property. I have changed my opinion within major sections of Cincinnati this last year. I believe within the Sellers market regions of Cincinnati, you buy equity in the neighborhood. Equity in a neighborhood is the upward mobility of your immediate area- your neighbors. There are rules to this theory and I believe they are bound by these three rules: the market search of the neighborhood, how close the subject property is to the core of the neighborhood and does it have the housing features of the typical house in that neighborhood. First, the market search is critical. People are not creative when purchasing a house, if they want Hyde Park- they don’t want Oakley, Evanston or Norwood. Some areas of Cincinnati’s MLS simply don’t get searched and their values do suffer because agents and the general public do not know what that neighborhood is named! Second, how close the house is to the core of the neighborhood. Context is everything- your proximity to the center of the neighborhood is critical. A community core can be an obvious “square”, it can be “that house” on the block, it can be adjacent to an iconic park- it’s a place where people want to be. Lastly, the housing features- these are critical. If you buy a 2 bedroom in a 4 bedroom neighborhood- it’s a out of market house! Buy the same style of house that everyone wants or has. If you buy a 2 bed in a 4 bedroom area, you should make sure to have the money to add those additional bedrooms and make it nicer than your neighbors. So don’t get frustrated by the marketplace, accept it, negotiate nimbly within it, but don’t forget- its not a bad place to be on successes’ coat tails! Be careful buying out there!
The most major contingency in the Real Estate transaction is the inspection period. It is typically a 10-15 day period from which you can hire a home inspector to provide you a report of their opinion of condition. In the report, they will provide opinions of defects and they can recommend further investigation and/ or they state that a repair should be completed. The inspector does not include in the report how to correct, they do not recommend companies to do the repair. Your agent may have qualified persons from previous dealings or AngiesList is always an option. The Buyer takes the information in the report and tells the agent what items within the report need to be repaired or resolved before they move forward with the purchase. The Buyers agent provides this list of desired repairs to the Sellers agent on a “Post Inspection Addendum” boilerplate form. After the presentation of this form the Sellers have a negotiated time period to respond to the addendum. We usually write 3-5 days in the purchase contract. The Sellers can negotiate from the Addendum. While it is a request of repair, it is formally a counter offer to the original purchase contract. As a buyer, you should understand that they can say “NO” to any item. Typically, if the request is reasonable, we get this negotiated pretty easily unless a structural or major mechanical system needs addressed. Sellers are hesitant to invest money in the house that they want to Sell, and Buyers are wanting a stable house to move into. It is critical that both agents understand their clients goals; Buyers Agent- Buyer needs a house; Sellers Agent- navigate the Owner to a successful Closing. After everyone is satisfied, the Buyer and Seller sign the addendum and move forward to Closing! If the Buyer and Seller can not be satisfied, then the Buyer is Released from the Contract and retains the Earnest Money deposit because they exited the contract using a negotiated contingency. In the Sellers market that Cincinnati saw the summers of 2014 and 2015, I saw many contracts being emotionally written and then the buyers agents’ used the inspection period to negotiate the transaction to the real market price. It was a tactic used to emotionally invest the Buyer and Seller, then you leverage the fear of the Sellers that the house would look defective if they couldn’t negotiate with the Buyers. It is something to be aware of during the transaction!
Facebook SOLD my house. It couldn’t negotiate, write a contract or see it to Closing though… In the competitive world I think of cab drivers and Uber, Kroger and farmers markets and Realtors and Facebook. Each has their appeal and place in the market, but do you as the consumer know the difference? Let me tell you. I’ll leave cabs, Uber and Grocery alone- you can watch the news for that headline. Real Estate and Facebook, or social media, has never had higher stakes in my businesses. National data from the National Association of Realtors, 9% of home sales were FSBO in 2013. The typical home sold for $184,000 compared to $230,000 for agent assisted home sales. Source- NAR website. That information doesn’t tell you anything definitive, but it does tell you that the spread between the two is $46,000 and the commissions paid would have profited the consumer who used the agent assisted method. If you have a house under $250,000 or you live in a neighborhood that sells within 14 days of being on the market, you are thinking “I can Sell this myself”. I am here to say, maybe, but I can do it better and it may not cost you anything more once the transaction is complete. I want to Market, Negotiate, and Shepherd you to a successful Closing. Call me to get more information about how I can get you your equity! 513-500-7474.
Where has loyalty gone in our society? I am finding that younger generations of clients are significantly less loyal even after getting the same service as my elder clients- I asked myself WHY? Generation Y and the Millennial have grown up with the internet at their finger tips. I am one of them and since Ive had a mobile phone with internet connection, Ive not let an unanswered question leave my mind without a search. I can accomplish anything with my smart phone and opposable thumbs! The baby boomers are internet savvy but they have grown up with a physical rolodex of professionals. They grew up with a physical white or yellow pages!? My hypothesis is past clients and personal referrals create loyalty. “Access to information” hinders loyalty or the perception of need for professional service- the DIY society. I am a Realtor® and I work with a hundred plus clients a year. I end up Closing transactions with approximately 50 clients per year. The difference between the numbers is because I consult with more people than sell or buy. I help people get their renovations correct, make sure that people don’t over-improve without knowing, I introduce contractors with clients because I’ve been blessed to work with amazing professionals during my life of working. I am a professional. I belong in your rolodex. I have had a few clients recently in the Generation Y category work with me, gain knowledge, spend my time and simply go trailblazing on their own- without any trigger. In my industry, they are mostly switching and working with the Listing agent. The reasons are to “Streamline” or “simplify” because they don’t want a communicator, advocate in their camp… it’s frustrating to say the least! Contrary, I have several clients over the age of 50 who send me a steady stream of clients because they have either first hand, or second hand heard that my level of service is a must. Compliments like “You cant do this without John”! I just shared some of my frustrations on this topic with a dear friend who is also in the service business- financial planning/ investments. His opinion is that you need to be clear with your value added and leverage your “raving fans” to continue to gain client base. If you have the choice of 10,000 agents, a friend’s recommendation will set you apart. I am on the phone with past clients now, asking for referral business, because they are experienced! How do you gain loyalty in your industry? Do you see the difference between generations and what I reference as “loyalty”. You can leave a comment, or post a comment on Twitter @RealtorPayne call me 513-500-7474 or email me email@example.com
The process of buying a semi custom or custom house is one of the most enjoyable and potentially stressful things that you can do during your home buying life. The reasons in general why they stress people is because it stress tests your finances, you need to make so many decisions, and you are trusting a new team of experts. The reasons why it is enjoyable is because you get to create your dream- one selection at a time! The process of building a house is easier than renovating, but more complicated than buying an existing house. You need to identify your lot, your builder, your budget and timeline. Some communities have builders who are well financed, or self financed. That means that these builders have enough money on deposit, or a good enough profit margin that they can borrow the money to build the house and still sell it to you for a profit after recouping their “cost of money”. If your builder does not finance the properties, or it’s a semi custom or full custom home, you will be required to get “construction financing” or pay Cash. Construction financing is done by banks who do traditional financing- Locally, I like to use a group of experienced banks, call me 513-500-7474 to get a list of Lenders. The banks manage the construction “draws” and are another protection for you- the consumer. There are two contracts that can be used in buying new construction. The two are- lawyer drawn contract that binds the builder and customer together, or a State of Ohio Realtor Board Contract that binds the brokers to their clients and then attaches addendums to the contract. It doesn’t matter which is used, but if the first is used, I would hire a real estate or contract lawyer to review the contract and explain the details and position of the contract. Whoever draws up the contract will be protected more than who is bound by the contract! Typically, the construction schedule is a 6-8 month schedule and I would always recommend building with a well laid out schedule. Materials can overcome some of mother natures curveballs, but you need to make sure that your specifications match your environmental risks. For all of your site/ builder identification, negotiations and building representation needs, please contact John Payne at 513-500-7474.
Per Inman Reports article by Bernice Ross (attached), the landscape of doing Real Estate transactions changes again on August 1, 2015! The Buyers ability to produce accurate financial records and the Lenders ability to communicate this in a timely manner will make this a non-issue for most, but it makes the tolerance for error to become very narrow. Surround yourself with the best people to keep your transactions on track! Without doubt this will cause some short term chaos that Buyers and Sellers will need to be ready and sympathetic to. Agents understanding of the milestones will be more critical and the time under contract will overall increase. TILA-RESPA_August 1 2015
I just represented a client on a house in Anderson which we had under contract, inspected and then it fell apart because of a “short” appraisal. They call it short because it came in under or short of the contracted purchase price. The house was a renovated ranch in an area of renovated ranches. It has two bedrooms upstairs and one legitimate bedroom in the lower level. I call it legitimate because it has an egress window cut into the foundation as means of egress in the case of fire. The yard was amazing and private and it came with a two car garage which was a great bonus in the neighborhood. The problem with the appraisal on the property is that you needed to go more than 1 mile to get a property that was renovated nicely like this one. Also, you are in an “older” circa 1950’s neighborhood which has many original owners who have either not updated before Selling or haven’t moved- causing a draught of comparables. The contract was for over $210,000 and the property appraisal came back over $50,000 short! That’s ¾ of what we thought was market value! The buyers and I knew that they were paying “top of the market” for the house, so no one was surprised that they were not getting a ‘deal’, but I wash surprised when we saw the independent third parties value on the property. You can challenge an appraisal, but you are only going to get a percentage, not bring ¼ of the value back to the property with justified comparables. The Seller is not out anything financially, but more under the pressure of the market to put unjustified value on the property. The point of leverage here is in the Buyers favor as it can be resolved with a price reduction to the appraised value. Also, the Buyer could bring more money to the Closing- so if the appraisal came back at $200,000 and the contract was for $214,000; the Buyer would bring an additional $14,000 (the difference) to the Closing. Not many people can or want to do this financially, not the most viable option. The Buyers at this point had invested $250 in an appraisal, $450 in home inspections and put money into a loan origination. Fortunate for them, all was refunded except the termite and radon inspection fees with the understanding that all of the “players” would remain the same, but it was a stressful exit from a previous very exciting time! The message here is that you have a risk if you are Selling and Buying a property that is an “outlier”. Your most conservative position on buying a house is to understand your market ‘exit’ and what price ceilings you have to monitor as you elect to do your renovations. Even if you didn’t use me to make your purchase, please feel free to call or email with any questions with regards to your homes value or “market position”.
You may think Im an elitist if you read my article Cut FHA PMI- Housing Market going in wrong direction. You’re half right. The fact is that you’re able to purchase a house with little money down is not a problem, its leveraging debt to income and the Lending environments rule. Leverage is a wonderful thing as long as there is a plan in the background! I would recommend that the person comfortable leveraging the numbers would have a successful financing planner working for their money that is not tied up on the house purchase. Also, I would recommend that the person’s accountant would help advise someone with a low down payment in vetting the plan of execution so that your aware of your path towards financial success. My issue with clients with 3.5% down on a house is that when you sell a house, you pay 6% or higher. The broken piece is that your transaction costs and your equity in the property could be imbalanced. In this scenario, when you Sell a house you are gambling on the market appreciation or are you only going to take a clients built equity to pay your agent for that professional service? That doesn’t sound like good business! If you have read my story titled “Is the American Dream, just a dream?” you will have more understanding of the ‘equitable position’ of owning Real Estate. I just had a client in the booming market of Madeira, a suburb of Cincinnati- loose money on a house that they bought in 2010; arguably pre-recovery. On a phone call with the client 2 days before Closing, he said “You know a house is more of an asset if you only do the maintenance, it can be an investment but you need to constantly work to improve it!” That was the best explanation that I have heard to date and I needed to write that down! In summary, I would recommend that if someone is only putting down a minimal amount of down payment, that they have liquidity elsewhere in their life so that the “big gamble” isn’t on the house. Also, this concept of reinvesting constantly makes you wonder if your debt service to income ratio is low enough that you have monthly cash flow for those stabilization projects. As a rule of thumb, you are supposed to have 6 months of ‘Living’ within an investment vehicle that can be liquidated without major penalty in less than 3 days. If you read this and want more information or coaching on the correct next steps for you, I would love to have that conversation and refer you to a professional financial planner so that you can make educated buying and selling decisions. No reason not to Win!