By Amy Hoak
MarketWatch

CHICAGO - Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated in many markets.

But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order, real estate professionals say. Further, buyers need to effectively explain why the price of a home should be lower.

That's what Pat O'Heron did recently when buying a home in Ann Arbor, Mich. He was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood that had two years' worth of inventory on the market.

Before he even made an offer, the asking price had already dropped by about $80,000, he said.

After O'Heron made his case why the cost should be even lower, he eventually bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.

O'Heron was able to take advantage of a market in which buyers decidedly hold the upper hand, with its excessive for-sale inventory due in large part to job losses in the area. Even though housing is in a slump in many parts of the U.S., those tactics won't work in markets that remain healthy.

In any location in which an aggressive offer is attempted, there is always an inherent danger in going too low. There's a real risk the offer will insult the seller to the point that they'll refuse to counter, Realtors say, and the seller could easily make the assumption that the buyer isn't committed to making a deal.

"There's a danger of them taking it too personally," said Jon Boyd, president of the National Association of Exclusive Buyer Agents. "When you're making the offer, if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or (the buyer) not as serious," he added.

Heed these three guidelines on how - and when - to make an aggressive bid for a home:

1. Learn how motivated the seller is to make a deal.

Certain sellers are going to be more willing than others to negotiate a low offer, and there are several giveaways that might indicate more leeway on the issue of price.

For instance, if the sellers have already purchased another home and that sale has closed, they're likely to be more willing to make a deal, said Dick Gaylord, president elect of the National Association of Realtors and a broker with Re/Max Real Estate Specialists based in Long Beach, Calif. And certainly if the property has been on the market for a long time, sellers will be interested in entertaining any offers, he added.

To get at as many seller details as possible, Gaylord gets in the ear of his or her listing agent. The nuggets of information he gets can be clues as to what kind of offers they'll consider.

Overall local market conditions also play a role. The housing market in which O'Heron bought, for example, was sluggish, and the home he bought had been on the market for about a year. Because of the job relocation, the seller needed to move and wasn't in the position to take the home off the market until conditions were more favorable, O'Heron said.

2. Make your case with hard facts.

When putting together an aggressive offer for a client, Boyd doesn't just hand the seller a purchase agreement with the price the buyer is willing to pay - he creates a cover letter explaining exactly where that number came from.

In addition to citing comparable sales in making the offer, it also could be important to include details regarding the amount of inventory in the immediate surrounding area, he said.

"If we just looked at the relative values of the houses that sold, we would end up paying too much for that house because we know that the values are going to fall," he said. "If we see two years' worth of inventory, we should be buying 5 percent, potentially 10 percent less than what houses have sold for in the past year in the neighborhood."

Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Gaylord said. That way, they can detail what they like about the house but express their fear of future dropping values.

That's still not to say the seller will respond positively.

"The difficulty we're having in my market right now ... sale prices are not dropping, things are staying on the market longer," Gaylord said. "Buyers read about how terrible the market is; sellers don't want to budge because they're reading that prices aren't falling."

3. Prepare for the possibility of rejection, or negotiation.

Ultimately, a real estate agent working on behalf of a buyer needs to honor and facilitate the offer that the buyer wishes to make - even if it seems to be too low.

Gaylord offers a word of warning to buyers making very low offers, pointing out that the seller might refuse to negotiate. On a "super-aggressive offer," Boyd might tell a client "there's a one in five chance there will be a positive response."

Still, there's that potential for a seller to counteroffer, especially if there haven't been many other bids. Danielle Kennedy, a real estate sales coach and author based in Pacific Palisades, Calif., advises sellers not to think of a low offer as an insult but as "a sign of interest."

"And it begins the dialogue regarding the purchase of your house," she said in an email interview. "They should make every effort to be grateful that an offer has come in."

Also, not all hope is lost even if a seller doesn't bite immediately.

Sometimes after time elapses, the seller comes around and decides to negotiate, Boyd said. Or new information - such as the sale of a comparable home at a lower price - can nudge a seller to give an aggressive offer a second look and open the negotiation process.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

Friday, August 17, 2007

Commentary: Credit crunch will likely hurt 'bubble zones,' economy

By Lou Barnes
Inman News

"Agency" mortgages are as available as ever, about 6.75 percent, finally showing signs of decline toward ultra-safe Treasurys. High-quality jumbos are available but pricey, about a half-percent above agency, low-doc underwriting scarce. Piggyback seconds and PMI are available for low-down borrowers, but full-doc only. Appraisal underwriting is ferocious, arbitrary and late in the process.

The Fed's action Friday morning has firewalled the mortgage panic from the rest of the banking system, and brought a short-covering rally to the stock market, but will do nothing whatsoever to solve the underlying problems.

Something on the order of $4 trillion in nominal mortgages outstanding (give or take a trillion) are not worth that much anymore; perhaps half have lost value in the range of 5 percent to 10 percent, the other half ... nobody knows what they are worth.

This wild swing at an estimate of troubled loans outstanding is based on $11 trillion in total residential mortgages. One trillion is second mortgages, roughly half in trouble. Then there's about $1.5 trillion in subprime and about the same in Alt-A (numbers hazy because of overlap), and maybe another trillion in lower-quality non-agency (bad adjustable ideas, 95 percent and 100 percent no-doc ...).

These troubled mortgages (together with the good ones) are always held with borrowed money. Some borrowed from depositors or owners of life, pension or annuity policies, most from institutions; some borrowed long term, some short; some borrowed on prudent leverage, some on high leverage. Most of the troubled mortgages are held in securitized form; absent an agency guarantee their credit attested only by S&P, Moody's and Fitch, and most of the structures new since 2000 and untested.

The rating agencies grossly overrated the securities. The light of this cold dawn came gradually, beginning in late 2006, and the market reaction was a gradual withdrawal of the worst mortgage ideas. On Aug. 7 the Fed met, and pronounced the economy in good shape. Two days later the mortgage market froze solid. The Fed has injected cash every day since, to no effect, panic spreading to other markets.

If you were a short-term but highly leveraged holder of non-agency loans -- a big mortgage bank -- your capital was gone, and so were you. The mortgages had only to fall in market value a few percentage points. If you were a long-term holder, leveraged, you are in terrible trouble. There are lots of you. New buyers do not wish to join you.

By Thursday, the 90-day T-bill, the ultimate safe-haven, fell to 3.45 percent -- a gap so wide below the Fed's 5.25 percent rate indicates systemic collapse in progress. Friday's cut in the "discount rate" allows banks to borrow from the Fed against AAA-rated assets, which put a floor under the financial system, in particular commercial paper and corporate finance, but did absolutely nothing to thaw the mortgage freeze (which is oh-by-the-way spreading to commercial mortgages).

The bubble zones would have survived the removal of the bad ideas, as of the end of July, and probably found a way to muddle through the subprime resets ahead. They will not survive this degree of credit starvation. They have a month, maybe two; and this time the economy will not be spared the consequences.

The solution is going to require federal intervention, and that's going to require a victory of prudence over market-solution hard-heads. One idea: re-underwrite the $4 trillion to common-sense Fannie standards (forget size and details: is this "A" paper, or not?). Lord knows, there are plenty of underwriters standing around with nothing to do. Then the loans could be valued and traded, but running the securitization sausage machine in reverse may be impossible. Another idea: form a modern version of the Resolution Trust Corp. (which '88-'92 received and re-sold the wreckage from S&L portfolios, a tremendous success) to buy and re-market illiquid loans and securities.

Whatever: get going. Two weeks of Fed band-aids have burned precious time.

Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

Wednesday, August 01, 2007

'Exclusive' agreements affect how property is marketed, whether commission is paid

By Robert J. Bruss
Inman News

DEAR BOB: What is involved when you give a real estate listing agent an "exclusive"? Will the property go on the MLS (multiple listing service)? Can another realty agency show your house and bring a purchase offer? --Craig A.

DEAR CRAIG: There are two types of "exclusive listings." One is called an "exclusive agency listing." That means if the home seller finds a buyer without any agent's help, a sales commission need not be paid to the listing agent.

However, if the listing agent or a buyer's agent locates an acceptable purchaser, then the seller owes a sales commission. Because an exclusive agency listing agent lacks full control over the property sale, most agents refuse to accept this type of listing.

The other type is the "exclusive right to sell listing." That means the listing agent earns the sales commission regardless of whether the seller, the listing agent, a buyer's agent or someone else produces a buyer. Then the seller owes the full sales commission. This type of listing is strongly favored by realty agents because it gives the agent maximum control and maximum incentive to get the property sold.

Either type of exclusive listing should be put into the local MLS so other agents can show and sell the home. When signing a listing contract, be sure the contract provides for maximum market exposure in the MLS and on the Internet.

Don't be fooled by an "office exclusive listing," which means the property will be marketed only by agents in the listing agent's brokerage firm. Home sellers need maximum market exposure for their listings and the MLS is the most powerful sales tool available.

MUST HOMEOWNER GET A NEW DEED AFTER PAYING OFF MORTGAGE?

DEAR BOB: I paid off my home mortgage a few years ago, but I did not transfer the title. What do I have to do now? --Patricia W.

DEAR PATRICIA: Congratulations. After you paid off your mortgage or deed of trust, the lender must clear your title by either recording a mortgage satisfaction or a deed of reconveyance. That recorded document removes the secured debt from your home's title. After that is done, you needn't do anything further.

There is no title transfer involved. Check with your county recorder of deeds office to be sure your mortgage lender recorded the proper document. If not, follow up with the lender now to clear your title.

WHY IS IT BEST TO HAVE A MORTGAGE ON A "BAD HOUSE"?

DEAR BOB: In one of your recent articles you suggested that a reader make a 25 to 30 percent cash down payment even though she could afford to pay all cash for a house. You said, "Then you won't have a large amount of cash tied up, just in case you buy a bad house." It would seem to me it would be an equally bad situation whether you paid cash or had a mortgage, which requires monthly payments regardless of any problems with the property. --Len P.

DEAR LEN: It sounds like you are very wealthy so you won't mind having a large amount of cash tied up in a "bad house," one which can be difficult or impossible to sell.

If you instead had a mortgage on a bad house, you would still have most of your liquid cash available in the bank or elsewhere. The primary reason I favor obtaining a mortgage when buying a house or condo is so you don't become property rich but cash poor.

The new Robert Bruss special report, "Everything Home Sellers and Their Realty Agents Need to Know About the $250,000 Tax Exemption Rules," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula