Full Circle Yoga Open House <– Print the flyer now!
Foreclosures continue to flood real estate markets across the country, and buyers are looking to cash in on what they view as some of the best real estate deals. But experts say that while some foreclosures are a great purchase, buyers need to be cautious before jumping in to make sure they really are getting a bargain.
Dan Steward, president of Pillar to Post Professional Home Inspections, advises buyers considering a foreclosure to avoid the following:
1. Don’t judge a house by looks alone. A $2 million mansion may look fabulous but have mold hiding beneath the walls or need numerous, costly repairs. A fixer upper, on the other hand, may look rundown but have excellent bones and can be repaired at a reasonable cost. A home inspection prior to purchasing a property can help buyers determine if they might be getting in over their head, Steward says. He cautions buyers to not just rely on previous inspections, however, since vacant homes can deteriorate rapidly.
2. Don’t focus on price alone. Buyers may focus on the ultra-low price so much that they forget to factor in other qualities, such as the home’s school district, view, location, and crime rate. Steward cautions buyers to not assume that financial problems of the previous owner are the main reason for every foreclosure.
3. Don’t be tempted to “flip.” Purchasing a home at bargain price, updating it, and then trying to sell it for a lot more may seem tempting, but Steward warns buyers to be cautious. Unless the buyers are pros at house flipping, they’ll likely run into several novice mistakes in trying to make fast money on flipping a foreclosure. Steward recommends buyers consult a real estate professional, home inspector, and contractors before considering a flip.
4. Don’t go over budget. Foreclosures often require some fixes so buyers need to make sure they have the money to afford needed repairs. Steward recommends that buyers have at least half of the money in cash for needed repairs. He says that buyers will want to avoid taking more loans than needed, particularly private loans, because the interest on them will slowly chip away at their initial foreclosure bargain.
Source: “What to Watch Out for When Buying a Foreclosure: Help Your Clients Know Which to Buy … and Which to Walk By,” RISMedia (April 7, 2011)
Distress Sales Used as Comps: Right or Wrong?
Should residential appraisals use distress sales as comparables? It’s a thorny question that some states are weighing.
In a recent Realty Times article, the author notes that in a normal market using distress sales as comparables is often viewed as inappropriate because such sales are unusual and do not represent the standard market.
However, nowadays in many markets, distress sales may comprise 30 percent to 40 percent of current sales activity and may be impossible to ignore.
Four states are considering laws that would affect how appraisers should consider the sale of distressed properties. Here’s a breakdown of legislation those states are considering:
Illinois: A proposed law says that an appraiser may not “use as a comparable sale the sale price for a residential property that was sold at a judicial sale at any time within 12 months after the date of the judicial sale… .” The Illinois law would sunset after five years, according to the Realty Times article.
Missouri: Legislation says that appraisers must comply with the Uniform Standards of Professional Appraisal Practice (USPAP), but not in cases when a property has been foreclosed. “An appraiser shall not utilize the foreclosure price as a comparable property when developing an appraisal,” the legislation states.
Maryland: The proposed law is somewhat vague, but it says in cases of duress or unusual circumstances “such as a foreclosure sale or short sale,” the appraiser is to “consider” the property’s history (e.g. whether it’s being sold at auction or as a short sale) and “consider” the seller’s motivation, such as if the home owner was seeking to avoid foreclosure.
Nevada: A pending law covers both short sales and foreclosures: “Except as otherwise required by federal law or regulation, an appraiser shall not include as a comparable sale in an appraisal a short sale or a sale of property which was the subject of a foreclosure sale.”
Appraisers are required to comply with the Uniform Standards of Professional Appraisal Practice guidelines for weighing comparables in federal transactions, which “mandates that appraisers must analyze such comparable sales as are available. Further, the standard cannot be voided by a state or local government.” That said, a recent article at Appraiser News Online raises the issue that appraisers have a difficult decision to make when their state has different regulations than USPAP when it comes to weighing distressed sales.
Source: “Should Distress Sales Be Used as Comparables?” Realty Times (April 5, 2011)
As home values fell and unemployment rose, an increasing percentage of homeowners opted to make their credit-card payments before their mortgage payments — a trend that has been occurring for about three years, according to TransUnion, a credit reporting company. But that may be changing.
A TransUnion study released this week found that the percentage of consumers who remained up to date on their credit cards but were delinquent on their mortgages reached as high as 7.4% in the third quarter, up from 4.3% in the first quarter of 2008. However, the percentage dropped to 7.24% in the fourth quarter, TransUnion reported. Traditionally, consumers make their mortgage payments the priority, so as not to default on their loan and possibly face foreclosure.
The reversal of the traditional payment hierarchy was driven in large part by home-value depreciation and rising unemployment, both of which speak to consumer willingness and ability to pay their mortgages versus their credit cards. Home-value concerns and stubbornly high unemployment continue to drive this dynamic, though the decline in the number of consumers delinquent on mortgages and current on credit cards may be a sign that the divergence in the payment hierarchy has peaked.
As the job market improves and housing values stabilize, the thinking is that more consumers will revert to a traditional order when it comes to their monthly financial obligations: They’ll pay their mortgages before their credit cards. But the return to a “traditional payment hierarchy” will most likely be gradual.
Though we saw the first decline in the number of consumers who are delinquent on their mortgages and current on their credit cards in the most recent quarter, the percentage of people in this position still remains more than 72% higher than it was at the beginning of the Great Recession.
World events affect your mortgage rate
As world events dominated the news in recent weeks, mortgage rates enjoyed a reprieve from a climb that began late last year, keeping the 30-year fixed-rate mortgage down below 5% at the start of what is traditionally the home buying and selling season.