Outsmarting Ourselves
Denver Dwellings would like to welcome a guest columnist, Greg Polashock. Greg is a mortgage lender who enjoys answering the challenging call of the consumer. Please welcome Greg by sharing your thoughts in the comments section below.
Sometimes I wonder if we are just incapable of learning “the lesson.” In the real estate industry five years ago we
pretty much collectively acted in a way that shouted, “I want it now, I want it free, I want it my way, and no matter what history teaches, I expect things to turn out the way I want.” As Dr. Phil would say, “So… how’s that workin’ out for ya?”
Many people got a very hard lesson on the exercises of self-indulgence. And, too many people failed to listen to voices of reason and moderation, instead flocking to squawkers who simply said the things people wanted to hear, in spite of a lack of soundness and reason.
It seems the same thing is happening again, only different. Everybody is now gun-shy of risky mortgages (hurray for finally having gotten THAT message), but it seems like many people still are making financial mistakes when it comes to making real estate decisions.
I see the current phenomenon as a meeting of what I’ll call “analysis paralysis” with an attitude of “I know more than the experts.” I’ll analogize it to people deciding to waste a gallon of gas to find the station that will sell it for ten cents a gallon less. (Think about it for a moment if you’re not getting it immediately.)
I expect Yogi Berra would say something like, “we’ve all gotten so smart, we’re now stupid.”
It doesn’t seem to matter who I talk to – realtors, financial planners, builders, bankers, mortgage professionals… the stories I hear and the personal experiences I have seen indicate that the consumer generally seems to think that they know better than the professionals. A sarcastic aside – I am curious to see how well this mentality goes over once it bleeds over into their relationships with doctors and lawyers!
I am at a bit of a loss as to how to help consumers these days… I really am! And it is taking a toll on me. It bothers me to see people hurt themselves financially. They would have been better off listening to good advice early on. It concerns me to see someone walk away from a great transaction after the realtor has negotiated in an exemplary manner only to have the client dicker about the inclusion of the refrigerator, but not see the $60,000 in equity they’re getting because of the realtor having gotten the contract as such a bargain price. It REALLY burns me at the failure of ethics when a client, through actions, basically shouts, “Thanks for that excellent, free advice that nobody else was smart enough to tell me about… I’m gonna take your great advice and now go over to ‘XYZ Mortgage’ so I can save $13 a month on my housing payment.”
While we seem to have learned a lesson over the past year about risky mortgages (and we probably wouldn’t have learned that one if the marketplace had not been absolutely forced by economic necessity to teach it to us); we still haven’t seemed to learn the lesson about prudence and the need to listen to sound professional advice. As I look around these days, the underlying issue I really see is that the lesson to have been learned from five plus years of shady real estate trickery (where everyone from consumer to title company and everyone in between was complicit) is that we must apply ethics and morals in how we interact with others and in how we represent ourselves. I am concerned that that most important lesson has not yet been learned.
From the desk of:
Greg Polashock
Home Mortgage Consultant
Cherry Creek Mortgage
w) 303-887-0672
Greg@GregisFinancingSolutions.com
Gregis Financing Solutions
Good News
Over the last few months most of the Denver metro real estate market has been designated as a "declining market" by F
annie Mae and Freddie Mac. This meant borrowers purchasing homes in the area would have to put down an additional 5% to purchase. This extra amount gave the investors lending the money more confidence to make the loan.
This past week Fannie Mae and Freddie Mac announced they are pulling back from the "declining market" minimum. This is sweet news to home buyers AND sellers in the Denver metro market.
Not having to come up with that additional 5% down will mean more borrowers will be able to qualify for loans. More homes will get purchased, more sellers will sell and on and on. 
One catch, at this time the investors who actually make the loans have yet to pull back on the requirement. It is assumed they will do so soon, now that the announcement has been made.
First time home buyers take note, now may be Your Time To Buy…
Sold~ What does it mean?
Yesterday my cell phone rings. On the other end was an inquisitive voice stating she was
sitting in front of my listing at 9654 XYZ Road. She said her agent told her the house was “sold” and she wanted to know why my sign was still up.
“Well,” I explained, “The house is actually under-contract waiting to close.”
“But your sign is still in the yard.” she protested.
“Correct. It will stay in the yard until the house is closed. Then I will have it removed.” I replied.
“Oh. Thank-you.” click.
This conversation got me to thinking how often we use words that aren’t technically correct. The caller’s agent told her the house was “sold.” When in fact it was “pending” or “under-contract.”
Pending is not sold
Pending and under-contract mean the same thing. When a buyer writes an offer on a house there is a period of time between the offer being accepted (under-contract) and the actual sale or closing of the house. That time can be a matter of a couple weeks to months.
During this time the buyer completes inspections and finalizes financing details. If there are items on the inspection the buyer and seller cannot come to terms on, the contract could “fall.” Actually the contract doesn’t fall, but rather buyer can opt not to purchase the house.
It is for this reason we don’t remove the “for sale” sign. The sign will stay up until the home does officially close.
One thing consumers may notice, a rider saying “under-contract” or “pending” might get attached to the sign. This typically lets the consumer know there is an interested party who is working toward purchasing the property.
It is important to note, a buyer can still place an contract on a property in what we call a “back-up position.” This would mean if the first contract did not work out, the offer in second position would than have a chance to purchase the property.
Is writing a Back-Up Contract wise?
Most listing agents and sellers LOVE having a back-up contract. It helps their negotiating position with the 1st contract and gives a feeling of security if the 1st contract doesn’t work out at least there is a “plan b.”
So as a consumer should you consider putting in a back up contract? Maybe.
Let’s work through this scenario. The seller has two contracts. The first contract just completed their inspections and they are now requiring the seller to do repairs. The seller can say, “no!”
This could force the buyers into accepting the house “as is” knowing that if they didn’t they would lose it.
Sometimes the buyers love a home enough and realize the only way they will get to buy it, is on the seller’s terms. This wouldn’t happen if the seller didn’t have a second contract.
So as a back up contract, you just helped the seller force the buyer to buy and you walk away empty handed.
Of course every situation is different. It could just as easily happen in reverse with a buyer who refused to go forward and walks away, leaving you with the house!
Nehemiah Down Payment Assistance
Just got an email notice regarding the popular Down Payment Assistance program called Nehemiah.
Dear Colleague,
I am pleased to announce that Nehemiah was victorious in its litigation against HUD!
Judge Lawrence K. Karlton of the United States District Court for the Eastern District of California upheld Nehemiah’s motion for summary judgment. The Court Clerk’s Office is directed to enter judgment and close the case.
To be clear, the U.S. Department of Housing and Urban Development’s (HUD) rule to ban private down payment assistance as proposed in the “Standards for Mortgagor’s Investment in Mortgaged Property” regulation published October 1, 2007, is permanently set aside.
Mary Steinmeyer, Certified Mortgage Lender
This program enables home buyers to ask the seller for a "grant" for their mortgage down payment. The seller grants the down payment to the buyer via the Nehemiah program. Nehemiah charges the seller a fee for then doing the paperwork and passing the down payment along to the buyer.
This is good news for buyers who lack a mortgage down payment. With down payment assistance they may be able to purchase a home.
I say "may" because typically the seller inflated the price of the home to account for this bonus to the buyer. The appraisal becomes the issue if the value of the house cannot be met. In some markets this may be difficult.
Just the same, buyers say a little thank you to Judge Lawrence K. Karlton. If you ever see him on the street, perhaps buy him a beer!
First home purchase
Home ownership is the American Dream come true. No where on earth is becoming a
home owner easier than it is in the U.S! Owning a home is part of our heritage and the desire to put down roots is strong.
The home ownership path is not always as easy as one would like. First timers find with house prices so high, they often have to settle for less than they would like. Of course settling for what you can afford vs. what you want is a rule of life for most people. Weeding out the "wants" from the "needs" is a process I help buyers with all the time. It doesn’t matter if they are in the entry level market or purchasing a million dollar home. There is always a gap between want/need.
First Time Buyers Challenges
After the decision is make to purchase a home, the first time buyer will face a few challenges which are generally overcome with a simple strategy.
- Credit; good, bad or lack there of! If a 1st timer has been living within their means, chances are they have good credit or perhaps no credit at all. Establishing a good credit record is the first step in obtaining a loan. If there is no credit a mortgage broker will advise obtaining a credit card and charging a few items on it each month. Paying off the credit card in a timely manner will establish a good track record for the first time buyer.
- Bad credit; It seems first time buyers are tempted early on in college to take out credit cards. Next thing they know they are in over their heads, unable to make timely payments. Late payments, written off charge card accounts, etc. can be taken care of. The remedy will vary from case to case, but a good mortgage banker can advise the best strategy. I’ve been told even the worse credit (including bankruptcy) can be turned around with proper attention.
- Down-payment; Buying a home has almost always required some sort of down-payment from the buyer. In recent years mortgage companies became very liberal in lending practices and made loans with no down-payment necessary. That practice was found be to faulty, so now we are back to requiring the buyer to have some "skin in the game!" The amount of skin required depends on the type of financing obtained.
- Low-income; Mortgage loans are typically made on a ratio of take-home earnings to house payment. An affordable house payment is generally defined as 30% of income. What happens to many potential buyers is their income is not sufficient to warrant purchasing a home in the area they live. In some instances there is a way around this by using First Time Home Buyer Programs.
First Time Home Buyers Programs
In Colorado, every county has some sort of program to assist buyers in purchasing a home. The Colorado Housing Finance Authority (aka CHFA) is a state run organization that makes loans to low income buyers. Typically these loans are made at a better interest rate then offered on the general market.
CHFA programs as do most First Time Home Buyer Programs have very specific requirements the borrower must meet.
- loans are made on an income based scale. Borrower’s income cannot exceed specific amounts.
- Borrower(s) must attend a Home Buying Class put on by the organization that is lending the money. If there are two borrowers on the mortgage, both must attend prior to closing on a home.
- Credit score is important
- Must be "under-contract" with a home before borrower can apply for loan.
I am purposely being a little vague here, because each program has rules that differ from the other. Income limits can be as low as $40,150 for one person to as high as $71,400 for a household of 1 or 2.
For buyers who are lacking a down-payment, there is also Down-Payment Assistance in the form of Denver Bond money. This program GRANTS up to 4% for a down-payment that NEVER has to be paid back. Grants can also be used to bring the cost of the mortgage down by 4% if the buyer is able to have the seller pay for closing costs.
Ok, are you confused yet? These facts actually make my head swirl!
"Putting together a loan package that uses CHFA, Denver Bond Money and other options has become an art form!" said Cindy Howeth CHFA’s top mortgage loan broker at 1st Priority Home Loans.
The important thing to know is there are people who specialize in funding first time home buyers. Whether the buyer qualifies for special financing or not, the process of buying a home for a first timer takes more care and concern. The buying process itself is not much different, but the education process that should accompany is critical in making the experience one of pleasure or one of pain.
In a Nutshell First Time Buyers Need To:
- Consult a Professional who can inform them of their options…all the options.
- Make the time to attend a Home Buyers Class, before purchasing
- Develop a strategy to become a homeowner
- Maintain or become fiscally responsible
- Go find a home you can afford
The journey may look like a maze of confusion, but with a little help first time home buyers can successfully navigate and enjoy the trip.
Other Articles of interest
First time buyers are finding opportunity with CHFA
Home Buying Blues Dealing with Disappointment
The search for a home today ended with disappointment for my buyers. Yesterday we
were ecstatic to learn the home we lost 2 weeks ago had come back on the market. As soon as I learned of the other buyer’s deal falling, I hustled my clients over to the house to take another look.
It seems the buyers that beat us out discovered an issue with the furnace, it didn’t work. The seller opted to replace the furnace, but other details unknown to me caused the buyers to back out of the deal. My guess? Someone’s ego got in the way.
Their loss was our gain. My clients have been in mourning over losing this house. Imagine my excitement to learn the home was back on the market!
This time we managed to rewrite our offer, raising our offer price to match what the seller had previously agreed too. I wasn’t sure this offer would now be good enough since the seller had additional expenses to improve the home. Needless to say, we decided to start at a fair price, higher than when we left off.
Unfortunately, it didn’t work. Another offer came in with a better bottom line for the seller. He sold the house to them.
Again we are left out in the cold.
So what did we learn?
Denver has significant inventory of houses on the market. Most of which are not priced well and/or show poorly. In my experience if we tour ten homes, one out of that ten will be far better than all the others. This one home will be clean, neat, well kept and generally show it has been “loved!” This home will be the one that sells.
What I am seeing in the Denver real estate market are quite a few buyers looking for this specially “loved” home. When found it is not unusual to have competition in the bidding of the home.
Strange as it seems, it does make sense. Buyers sometimes fail to remember they aren’t the only consumers searching for The Home! Others are searching at the same time, looking at the same poorly positioned inventory as you. When the “loved” home is found, everyone wants it!
Lessons can be learned on both sides of the real estate transaction.
As a seller, it is obvious to take the time to make your home stand out. Make it better than the competition. By taking the time to make it shine, you will lesson your DOM (days on market). Proper presentation will result in a quicker sale, most likely at a higher price, most every time.
Buyers lessons are a little more difficult;
- Time is of the essence. If you find The Home, don’t delay, write it up before someone else does.
- Be prepared to move (physically) to match the seller’s needs. By being prepared to work with the seller on this negotiation item, you stand a better chance of gaining on an alternative negotiation item.
- Don’t be lured into a false sense of security because of what you read in the newspapers. The news you read is about a collective real estate market. The Denver real estate market is anything BUT collective. Each sale in each neighborhood is as unique as your finger prints. Homes are selling. Proof is easily found by looking at the sold comparables in the neighborhood.
- Leave your ego locked in the car. Buyers and sellers get crosswise for the darnedest reasons. Take care not to let an ego item quash the sale of a home that meets your criteria. It really isn’t worth walking away from a home over a silly emotion.
So you are probably thinking, why did we miss out? That is a question that crosses my mind frequently. Part of the problem was lack of trust.
Trusting the system is very hard to do. Believing what we were hearing was a leap, the home had been on the market well over 100 days, so why now were we expected to accept there were multiple offers? Well I could tell by several clues the house was being shown, so I knew the agent probably wasn’t lying.
Conveying this knowledge to the buyer didn’t help, they didn’t trust the information was true. They believed the other agent was delivering a “sales pitch.”
I don’t blame my clients for not trusting the other agent’s information. Sales pitches in real estate are part of life, unfortunately… but Life leaves clues. We must learn to look for and trust the clues.
As an old time Realtor, I trust the clues, but I don’t make the decisions for my clients. I just deliver the information, it’s up to them to develop the strength to make the right decision.
They will.
For now we will regroup, look at some more homes. Eventually another home will come on the market and next time we will jump on it…with confidence.
Disappointment is just another emotion in the home buying process. We live, we learn we get on with the process of buying a home.
Besides I heard “the third time is a charm.”
Primal Scream Catch 22 a Denver relocation nightmare
Denver Relocation Tips
Moving to a new area brings horrors of it’s own. The biggest horror of all is having a Catch 22 problem you cannot solve.
The most common problem I see is when the transferee packs up all his belongings. As the moving van pulls away from the curb the Denver lender calls, asking for documentation for the new loan.
No problem the transferee says, I’ll fax it to you, then he remembers…
OH NO! It’s packed away in the truck!
What happens now? The moving van does not arrive until next week sometime, just after closing.
But closing can’t occur until there is a loan. The loan won’t occur until there the documents are delivered.
What a predicament.
The solution? Get your loan in place before you pack. Separate all your important back up data from the items to be moved. Keep them with you, this might even mean HIDING them from the moving guys, who have been known to be extra efficient in packing!
This Denver Relocation Tip works in every part of the country whether you are buying
Denver Real Estate or not!
(Photo of Norway’s most famous painter, Edvard Munch’s emotional Primal Scream. Painted in th 17th Century were obviously the artist experienced a distraught moment in relocation!)
Relocation logistics
House hunting is very intimidating when there are so many homes to choose from. I’ve been working with a buyer, let’s call her Mary. Mary is moving to the Denver metro area and was very concerned about "finding the perfect home in the perfect neighborhood." Mary’s desires are very typical of just about everyone moving into a new home, particularly when they are relocating from a different part of the country.
When we first started working together, long before we actually met, Mary felt the only way she could ever feel comfortable about making a decision was to move here and rent a home for a few months. That way she could investigate all the areas, see all the homes that were available before ever committing to purchase one.
The rent now-buy later strategy is a very popular one. Typically first time transferees find comfort in this plan, because they have never made such a major transition before.
However Mary, being an experienced mover, had relocated more than once. She was a savvy mover, but for some reason was letting the "bad press" about foreclosures in the Denver metro area get to her.
We talked on the phone on several occasions and I could feel Mary was being to feel more comfortable with the move and less comfortable with her plan of torture of making a double move. Her dream was to be able to visit Denver for a few days or more and find the perfect house in the perfect neighborhood and make a door-to-door move when her home sold back east.
I agreed with Mary that this was the perfect situation and we should try to make her dream come true. I assured her I would never push her to make a decision. My part in her plan was to supply her with as much information about the potential areas as possible. She would have time prior to the move to study her top priorities, which were good schools, a youngish neighborhood where children would have plenty of playmates and she really didn’t want to travel more than 7 minutes to a grocery store.
No problem!
Mary scheduled a 4 day trip. She was still apprehensive about getting the job done in 4 days. I knew by her description there were several areas that would fit the bill.
The first day out was the usual reality check. Mary learned quickly what the Denver ‘burbs had to offer.
Day Two the whole plan came together beautifully. We were able to target 2 homes she would be perfectly happy in.
Just for grins on Day 3 we looked at the other competing homes in Mary’s favorite neighborhood. We wanted to be sure we weren’t missing The House.
On Day 3 we were finished looking and ready to write an offer.
As it turned out Day 4 was not necessary for house hunting, but Mary used it to visit the schools and the mall.
Mission accomplished!
The reality is we have 30,256 homes on the market in the Denver metro area (as of June 2007). This is a combined number of both single family detached and attached homes. The metro area is geographically huge, probably more than 40-50 miles in each direction.
When you take that many homes, divided them up by price range, number of bedrooms and other criteria there may only be a total of 20-40 homes that fit a buyer’s needs.
Once you start house hunting, it is important to continue the search at a pace to be able to make a decision before the home you like gets sold. Stretching that decision over weeks or months only means you become a career looker.
Mary learned the best strategy is to push forward, learn quickly and make a decision in a timely fashion. She will be making a door to door move.
And just for the books, Mary is delighted with her decision.
I love it when a plan comes together!
Expectations of real estate
A few years ago I was touring Vietnam on a bicycle. One day I found it necessary to replace the batteries in my camera with fresh ones.
Finding such a rare extravagance in a small village was not easy. Additionally I didn’t speak the language, so I relied on my "show and tell" communication skills. Pulling out the old batteries I showed them to a self-proclaimed shopping helper, a young man who had attached himself to me for the moment.
He understood my needs and immediately went off in search of fulfilling them.
After a passage of time, he returned with a wrapped package of Eveready Batteries. I was delighted! In just a few minutes I would be back shooting photos again.
My shopper’s helper led me to the owner of the batteries, so I could finish the job of negotiating for their purchase.
As with everything in the country, the negotiations took as long as the finding of the batteries. We came to what I considered a fair price, I paid and left.
Never once during the negotiations did it occur to me to try the batteries to be sure the worked. They were nicely wrapped in the original packaging, so I had the expectations that they would work.
I was wrong.
The batteries as pretty as they were, were old and dead. I was screwed. The merchant who sold them to me was long gone.
Of course the money that exchanged hands probably meant far more to him than me. But it was the principle of the exchange. Perhaps he didn’t know he sold me perfectly useless batteries, or maybe he did. I would never know.
I learned a cultural lesson that day. Assume nothing.
In the U.S. we call it "Buyer Beware." We still make assumptions, but when buying a house for example we hire an inspector to come in and make sure the components of the house work.
We do have assumptions that certain parts of a home will work. Particularly when that part of the home is advertised.
I sold a home recently that advertised a gas log fireplace. Upon inspection, the inspector found out the gas part of the fireplace did not work. The sellers of the home didn’t want to spend the money to fix it.
My buyer insisted the fireplace be repaired to work as advertised. She had the minimum expectation that what was advertised actually worked.
Buyers often have minimum expectations that the major parts of a home will be in good condition when they purchase a home. If the condition is less than good, it needs to be disclosed.
My buyer won the negotiation on the working fireplace. She was right and the sellers finally did agree.
If everyone had the same minimum expectations my job as a real estate broker would be a lot easier. Expectations are as numbered as there are people. The only thing we as a group could agree on is…the sun does come up every morning.
The Missing Element
Marketing homes on the web has changed the way a Realtor does business. Buyers from near and afar present themselves to me with a fistful of listings they want to see. The more focused and organized buyers have the home listings ranked in their order of preference. My initial job is to set appointments and get the buyers into the homes they have chosen to see.
What could be easier? Ha! Let me tell you like it is…
More often than not the buyers have a good part of the story but not the whole story from their well-intentioned research. Online home searching is NOT the whole picture, the pictures and information are tailored as in the tradition of marketing to appeal to the consumer.
What is left out becomes more important than what is presented.
Together the buyers and I run through the list, visiting one home after the other. The visions the buyer created in their head as to the location, neighborhood or whatever are more often than not dissolved into dust.
Neighborhoods that appear to be close to work and conveniences are much further away. Homes back to unsightly objects that blink, speed or make noise 24/7. The photos that show expansive yards are actually trick photography accomplished with magic lens. Any number of unacceptable elements overwhelm the buyer causing disappointment to set in.
Hitting rock bottom usually happens on Day 1. It is a day of disappointment, a reality check.
Day 2 is usually my favorite because it begins with dispair but ends in hope. Day 2 is the day when we put the missing pieces together and find maybe not the exact house but target a good neighborhood or two.
By the end of this day the spirits are lifted and the happiness returns.
More often than not on day 3 The House is found. It is then we write the offer and start the negotiation process.
Ironically the house isn’t usually one from the buyer’s original list. We move on from the list and find others that fit the bill. Buying a home is a process, no two are ever the same.
That’s why helping people find a home is so much fun, each day is different, never boring and never dull.
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