Buyer's Window

Buyers for years now have been taking advantage of downpayment assistance programs such as Nehemiah. These programs help provide up to 6% in funds that go towards the downpayment on a home purchase. These are classified as a gift and these programs can be used with FHA mortgages.

But the default rates on mortgages going through these programs has been much higher than that for other loans. So, beginning October 1st these programs will essentially cease to exist.

But for the next few weeks there is a window of opportunity here. If you're a buyer looking for help with a downpayment and don't have family or other assets to tap, look into this program. But do it now! There must be a case number assigned by the end of September in order for you to take advantage of these programs.

The other current buyer benefit that's out there now is a current quirk with VA loans. While the guidelines providing the loan limits on jumbo loans have come out, the interest rates have not. So currently those jumbo mortgages are being financed at the same interest rate as, say a mortgage on a $350K house. This is only with VA loans and this will disappear quickly. So, if you're eligible for a VA loan and know that the home you want to buy will put you in the Jumbo market I'd move quickly on this one.

Videos and Reverse Sprawl

I'm tied up in class today but found a couple of interesting things to share with you.

This is the first in a series of stories by the Albany Times Union newspaper exploring the changes occurring in how people live both because of rising energy prices and the increasing numbers of senior baby boomers. While the towns and cities they refer to may be in NY, this is a story that's being repeated around the country.

Saturday's Washington Post's real estate section contained an interesting story about consumers finding real estate agents online through social media sites and things like blogs. How well do you feel you can get to know an agent (or anyone else) through a blog?

And, lastly, I've begun experimenting with the use of true video (as opposed to "virtual tours") on my listings. I've just posted the first one on YouTube and would welcome your feedback, not just on what you think of this video, but whether you see this as significantly better for buyers than a typical slide show.

Green Olympics?

While I think there's plenty of room to argue about how "green" these Olympics really are given the treatment of Beijing's recyclers there is some amazing architecture here.

If you're interested at all in green building you'll enjoy Jetson Green's look at the buildings China has created for the Olympics.

Hopefully in four years the world has changed so much the descriptor "green" has become meaningless because every building is built with those concepts as an integral part of the design!

Buyers Never Say...

I wish I'd bought a house on a busier street.

I wish I hadn't wasted my money on a home inspection.

I wish my commute was a little longer.

It was such a waste of time test driving the commute ahead of time.

I'm so glad I didn't worry about resale when I bought this house.

I so wish I'd bought more house than I could afford.

Using the seller's agent and having no representation was definitely a good move.

I'd just as soon not see photos on listings on the internet.

I wish I hadn't saved up so much money for the down payment.

I love that heavy metal rock band that practices in the garage next door.

July Number and More Good News

I love good news and, fortunately, there's plenty available in this month's real estate statistics. The trends, across the board, are up! And, not only that, but if you look at trends over the last six months you see a longer term upward trend that seems to be developing.

Take a look at Culpeper County for example:

Month                   # Listings           New Listings       New Contracts    Solds 

This is great news! The most important thing here is the continued downward trend of inventory. Solds are generally trending upwards, although not quite as strongly. But it's a good news story.

Fauquier is also looking good:

02/08	730	153	44	32
03/08	734	140	56	35
04/08	764	168	68	47
05/08	764	145	79	49
06/08	753	128	61	67
07/08	745	141	68	117

In Fauquier the decrease in inventory is less convincing. But the steady increase in sales is helping to make up for that. If it continues we'll ultimately see a decrease on the inventory side as well.

Now the caveat, of course!

We are at the end of the summer, the busiest home buying period. We may very well begin to see the inventory numbers begin to rise again after August and see sales numbers fall.

Prices are nowhere near stabilizing.

But in a year of nothing but doom and gloom, there's a little good news here!

Cutting Your Losses

Robert Bruner, the Dean of Darden School of Business at UVA has a blog that I often find interesting. His latest entry is based on a quote by the famed investor Bernard Baruch "If you have made a mistake, cut your losses as quickly as possible."

He talks about the difficulties of doing that in the business world, specifically using the AOL/Time Warner merger as an example. But one of the points he makes about why it's so difficult seems applicable in real estate as well.

He talks about "sunk cost" thinking. In other words, a seller says "I bought this place for $400,000. I'm not selling it for less than that."

The problem becomes that if you really do need to sell there's no guarantee you can hold out long enough for prices to go back up, or even to stabilize. If you're a seller who's moved on and you're paying two mortgages, how long can you continue doing that?

If you refuse to lower the price or let an offer get away for $10,000 difference, what happens when it's still on the market six months from now and you've paid that much more out in mortgage payments and prices have continued to fall?

Sometimes, cutting your losses is the best advice, in business and in real estate!

Home Warranties More Important

Given that the bulk of sales in our area are either short sales or foreclosures, home warranties are becoming increasingly important.

Most short sales and foreclosures are sold "as is" meaning that the owner is not willing to repair any defects in the property. So, if the refrigerator doesn't work, too bad.

These are the properties buyers are snapping up and they're getting excellent deals. But it's a higher risk transaction and home warranties are one way to take away a little bit of that risk.

There are a couple of things to keep in mind if the seller is buying the home warranty, an increasingly common occurrence in this market.

Home warranties typically have basic coverage with options available for additional coverage. The additional coverage can cover things such as the roof, well and septic, swimming pools, etc. Depending on the property you're buying, it may make sense to consider purchasing the additional coverage yourself.

If the seller buys the basic coverage, most companies will allow the buyer 30 days to add additional coverage. Note that this is not meant to allow you to find problems and then buy insurance retroactively to cover them! So, the best way to do this is really at the settlement table.

When you're buying foreclosures or short sales, you should really have a home inspection before making an offer. But if you don't, a home warranty can be a very good investment!

For more information, check out my previous blog post on this subject.

Apologies

The last two years have been miserable ones in this industry. And, the human toll has been awful. When faced with the overwhelming pain, fear, anger and misery it is human nature to want to pull away.

I was reminded today of how this is impacting both real estate agents and the clients we serve. The story was about a soldier coming back from deployment over seas, living in a hotel room with his family, trying desperately to get a happy ending for all of them. They were buying a foreclosure and, as usual, the process seemed never ending.

People under stress can react with anger and rudeness. Clients under stress often take that stress out on agents. The agents, out of self-preservation often pull back, even hide. Over time, given enough stress, even good agents can find themselves trying to avoid client contact. Who needs more stress, especially when you have so little power sometimes to make things better?

But being there for our clients, really listening, telling them the truth, good or bad and sometimes just telling them we have nothing to tell them is what needs doing right now.

So, for all the clients for whom I haven't been a good enough listener, for those whose pain I avoided in order to spare myself, I apologize. I'm going to take better care of me so I can take better care of you!

Settlement Companies & Foreclosures

Since foreclosures are such a big part of the market right now, I'm going to do a few posts on some of the issues that are likely to arise if you're buying a foreclosure.

Today I'm going to talk about settlement companies.

Once the bank has given you a verbal agreement that they've accepted your offer, you'll get an addendum (or, more likely, multiple!) One of the clauses you're going to see in that addendum concerns your choice of settlement agent.

The bank is going to want you to use their settlement attorney and there are several ways they may try to make this happen.

One is to incentivize you. The addendum will basically offer you some discount or deal if you use their settlement company. The most common one here is free title insurance. The problem with these incentives is that (as with new construction) you will very rarely actually save any money. Reports are now coming in about the padded fees for these settlement companies in order to make up for giving away the title insurance. In short, you'll be lucky if you save $50 and may actually end up paying more.

The other way a bank can try to get you to use their settlement agent is to simply say in the addendum that you, the buyer, are obligated to do so.

Let's make it clear right now, that you are not obligated and nothing a bank says in an addendum can make you obligated. A buyer in Virginia always has the right to choose their own settlement agent. And, a bank's attempt to get you to use their settlement agent without disclosing the financial relationship between them is a violation of Federal RESPA laws.

The problem becomes that many buyers desperately want the house and are afraid if they don't agree with the addendum without any changes their offer will still be rejected. I understand wanting the house. But it's my job as your agent to also make sure you're protected.

So, go ahead and sign the addendum and get the whole thing ratified. Then your real estate agent should write a notice, informing the seller (in this case, the bank) that you'll be using "X" settlement company instead.

Any clause in any contract forcing you to use their settlement agent is not enforceable. And, in all honesty, once they have a ratified contract in hand and the money is in sight, they're unlikely to balk.

By the way, the other reason you may not want to use the settlement company recommended by the bank is that the process is already slow enough! Since there are very few settlement companies working with these banks, most of them are completely overwhelmed. Good luck getting a settlement done in a timely fashion!

And, last, but not least, the settlement company is going to be doing the title search and make sure you really do own your house when you actually close. You want that done as thoroughly as possible by someone who cares about protecting your ownership interests. The bank's settlement agent would seem to have someone else's best interests at heart!

Patience!

It feels like we're all moving in slow motion these days in the real estate industry. Or maybe we're just wading through deep mud that's slowing us all down!

Or choose your own mental image here.

And, there's one segment of the real estate industry that's almost single handedly responsible for the slow down...lending institutions.

With foreclosure sales making up 2/3 of Culpeper sales last month and 1/2 of those in Fauquier, a lending institution is actually the seller in most of the sales happening these days. If you add in short sales, where the lender has to approve any deal you're definitely dealing with the vast majority of transactions.

Lenders are moving very slowly on these things. On one foreclosure sale I'm working on right now it took my buyer clients about three weeks to even get a response to their offer. And there are enough stories around this to fill up a blog!

But lenders aren't the only ones slowing up the process. Listing agents who handle foreclosures are typically specialists in this area. Foreclosures are about all they do. Lenders typically offer less compensation on each individual deal in exchange for providing large volumes of transactions. And, so you get agents who are completely overwhelmed by the number of listings they have, but can't afford or won't pay to get help.

I heard one story last week about a buyer's agent bypassing the listing agent when he wasn't getting anywhere and asking the settlement company to talk to the lender directly to get things done. A week after settlement had taken place the listing agent still claimed to be unable to get an answer from the bank on outstanding issues! (This agent was completely unaware the deal had already settled!) More likely the agent wasn't even trying to get an answer as the issue had fallen through the cracks.

Documenting everything I do, every conversation I have, every fax or e-mail I send and who I talk to have become even more important than usual.

If you're trying to buy in the midst of all this, be aware that you will need a lot of patience. You may very well get a good deal buying a foreclosure or short sale. But it may require that you have the ability to wait several months to get the deal closed and get into your new house. Keep that in mind as you search for your next home.

Me? I'm getting just a little tired of slogging through all this mud. But like everything else, it's cyclical and this too shall pass!

Bob and Carol and Ted and Alice

There's a new trend among local real estate agents. It's the sign that says simply:  

JULIE

There is, of course, a company name and phone number on this sign. But only a first name. Clearly, the agents using these signs are either convinced they're so famous that they're a household name or they're hoping to be.

If Cher ever decides to go into real estate, she can get by with putting just "Cher" on the sign. Same with Prince.

For the rest of you...

There are about 770 real estate agents in the local REALTOR association. I'm not the only Julie. You're probably not the only Bob or Carol or Ted or Alice. Get over yourself and put your whole name on the sign!

And, by the way, have you filed that "Doing Business As" form with DPOR allowing you to use just your first name in advertising?

Worth Your Time

Here are a couple of items you ought to take a look at.

My friend, Jim Duncan says it so well, I can't improve on it. Sellers should read this.

If you're a first time home buyer and are excited about the new tax credit just passed by Congress, there's a web site designed to give you all the answers on this program and how to take advantage of it. This site is provided by the National Association of Home Builders. The tax credit is different than what was originally proposed so it's worth taking a look at the details.

In fact, I got it wrong on my earlier blog on this bill. I hadn't seen the final details. The tax credit now applies to any home you buy, as long as it's your primary residence! Exciting news!

Lake Whippoorwill Update

Lake Whippoorwill is a subdivision on the DC side of Warrenton, just off of 605. The tax records show 122 homes in this community. The homes here are mostly colonials, generally on lots between 1 and 2 acres.

Stopping Foreclosures

There are some interesting things happening around the country in an effort to stop foreclosures.

The New York Times details the story of an Atlanta woman and her successful battle to save her home.

The Wall Street Journal takes a wider look at judicial activism in the foreclosure arena.

And, San Diego has decided it wants to become a foreclosure sanctuary.

One thing everyone should get from these articles, if you're facing foreclosure and want to save your home, talk to an attorney! You may have more options than you think.

Stinky!

More and more often these days I walk into a house and the first impression is.....

OMG! Phew! What is that awful smell?!

Now, to be fair, most of these homes are vacant. (Over 3/4 of the homes I show these days are vacant!) And, a closed up vacant house will always start to smell, over time.

Some of the smells I regularly encounter:

• Mildew
• Mold
• Pet urine
• Cigarette smoke
• Dead, rotting animals

There are plenty of others, many of them not easily identified.

If you're a homeowner, selling a vacant home, either you or your agent should be checking from time to time to see if the home has acquired any unfortunate odors.

Keep the air conditioning running! I know you're not living there and hate paying the bills, but, believe me, what you'll net in a better offer is more than you'll lose on paying those bills.

If there are some stubborn odors, take steps to remedy them. Get rid of drapes, have carpets professionally cleaned, consider getting an air purifier.

By the way, adding really smelly air fresheners is not the same as taking care of the problem!

Remember, the sense of smell is powerful and has a major influence on our emotions. No one falls in love with a stinky house! Even if they still buy it, the price went down the minute they opened the door and smelled the place!

If you're considering putting your house on the market, consider having a friend or neighbor give you an honest assessment of what they smell when they first walk in the house. This can be a delicate area so make sure they know they have your permission to be brutally honest!

And, if your agent tells you there's an odor problem that needs to be dealt with, don't waste any time in dealing with it. There's a house down the street that smells just fine and is also for sale!

Housing Bill

Next week the President is likely to sign into law the most far-reaching housing bill any of us have seen in at least a generation. Now that the details seem to have been worked out, it's time to talk about what this means.

First, you should know that almost no one really likes this bill. But even those who don't will generally admit they think it's a necessary evil.

Strangely enough the piece of the bill likely to have the biggest long term impact is the last minute addition thrown in to address what's happened at Fannie Mae and Freddie Mac. In the short term, this is a good thing. If you think the local real estate market is tough now, a Fannie Mae/Freddie Mac collapse would have put us into a tailspin with very dire broad economic consequences. In the long term, this is probably not a good thing. It's a band-aid and doesn't ensure there's any reason for either of these institutions to behave more responsibly in the future. And, there's certainly no sign anyone will be held accountable!

The pieces of this bill that are designed to immediately impact the housing market seem unlikely, in my mind to have much real impact.

The first piece I'll focus on is the provision that is supposed to encourage lenders to renegotiate mortgages for troubled homeowners. So, let's say you bought one of those new homes in Culpeper a couple of years ago. You paid $400,000 (with 100% financing) and now the thing is worth $200,000. This bill suggests that the bank provide you a new mortgage at 90% of the current value of the home. In this case, it would be $180,000. The rest of the debt would be forgiven. The bank has just eaten a $220,000 loss. In addition, they will pay an additional 3% fee to FHA which will then guarantee the mortgage.

The supposed payoff for the lender is twofold. First of all, they don't end up with a foreclosed home on their hands. Foreclosed homes are a money drain for any institution. They're expensive to maintain and the cost of selling them is something banks hate. The other payoff for the lender is that the mortgage is now guaranteed and they know they won't lose their shirt on what's left.

Since this program is entirely voluntary, is that enough incentive given the size of some of these losses? Obviously, I don't know. But I wonder if we'll see the most impact on those communities that weren't that badly hit, where the losses that the banks eat will be smaller. If your a bank, maybe this program makes sense where the original home price was $400K and the current value is $370K. So, help may go to those places that need it least!

The other piece I'll talk about today is the $8000 7500 credit for the first time home buyers who buy foreclosed homes any primary residence. Overall, this is a good thing. It's certainly a nice bonus if you're a first time home buyer! And, we certainly need to move those foreclosed homes out of inventory faster.

But if you're Joe Seller, trying to sell your home and the home next door is a foreclosure, buyers have an awfully big incentive to buy that home rather than yours.

If you've got opinions on these parts of this bill, or on other provisions, chime in. Is this, on balance, good or bad? Will it do any good for our local markets?

Reinventing Our Communities

Warrenton and Culpeper have, for some time now, been considered bedroom communities. Basically the people who have been moving here were commuting to someplace far away to work each day and coming home to sleep.

As more and more families couldn't afford homes closer to their jobs, they came looking out this way. Often they put up with miserable commutes in order to get that new house for their family.

This was part of what fueled the boom in real estate in our communities. And, the end of that flock of commuters moving here has had much to do with the real estate bust, at a local level.

Even with the recent decline in the price of oil, a real long-term reduction in gas prices now seems unlikely. And, as long as gas is at or above $4/gallon, those commuters are probably not coming back.

So, what's next? Who is going to buy these homes?

It seems clear to me that both Warrenton and Culpeper are going to need to reinvent themselves. Whatever we're going to be in the future, it's probably not what we've been in the past.

It's probably unrealistic to think that we're going to bulldoze all those new subdivisions and go back to the sleepy small towns that we once were.

It's equally unrealistic to believe that the commuters are coming back and that we can thrive as a bedroom community.

So, who do we want to be? Clearly we're going to need to attract businesses that pay high enough wages that families can afford to buy homes. What kind of businesses do we want to attract? What's a good fit with who we are today, our history and who we want to be in the future?

I'm not sure our local governments have yet figured out that we need to re-imagine ourselves as something different. Although I see signs of hope in each community.

Warrenton is talking about turning trash into energy. Might this be the start of becoming a green city and a push to attract green industry?

Culpeper is building new condos downtown next to the train depot where they hope to soon have another train headed into DC. This could be the start of the new Culpeper.

These are clearly seeds of something new. Now let's start public discussion and brainstorming around this challenge and potential solutions. It's going to take years to figure this all out and to begin to make these changes. Let's get started now!

Feeding Fauquier's Hungry

Month	# of Families	Individuals	Under 18	Over 65
07/04	127	363	142	47
07/05	108	253	64	66
07/06	117	323	104	70
07/07	119	341	126	73

Culpeper Star Exponent Article

The Culpeper Star Exponent carried an update on the local housing market yesterday. If you've been regularly reading this blog you won't be surprised by most of what you read there! Wish they'd made the reference to this blog a hot link!

People charging money to "help" distressed homeowners with short sale and/or foreclosure information scum! This article over the weekend in the Washington Post talks about this racket.

Why I want to be the Rickie Lee Jones of real estate blogging!

Looking Deeper at Culpeper June Sales

The Culpeper numbers showed a healthy jump in sales year over year. I've been wondering what made up those numbers and so decided to do some additional analysis.

38 out of those 57 sales were foreclosures. That's two thirds of those sales.

While an increase in sales and a decrease in inventory always qualifies as good news, this probably doesn't warrant throwing a party to celebrate the end of the real estate downturn.

What this means is that two thirds of those homes sold at very steeply discounted prices. Here are a couple of examples:

This home was purchased brand new in October of 2005 for $345,000. It sold in June as a foreclosure for $149,000.

This home was purchased new in November of 2006 for $448,000. It sold in June as a foreclosure for $230,100.

Those are discounts of 57% and 48%. I analyzed 10 of these foreclosure sales. The average discount from the original sales price was 48.8%.

If your the guy who lives next door and you want to sell your home, how do you compete? Most homeowners can't or won't sell their home for half of what they bought it.

So, yes, it's good news that more homes are selling and inventory is shrinking. If they sell all the foreclosures, there's less downward pressure on pricing.

But right now, if you have to sell, be prepared to price your home very, very aggressively. The competition is based on price and it's vicious!

One quick note, I'll be in the Wildwood Forest subdivision in Amissville this Saturday afternoon from 1 to 3 p.m. If you've got a question on the real estate market in general, your home in particular or just want me to look into my crystal ball, let me know. I'm bringing free cloth shopping bags for everyone I talk to. Give me a call at 540-270-2742 if you'd like to chat while I'm in the neighborhood!