From Jane J. Kim of RealEstateJournal.com comes Credit Scorers Find New Ways to Judge You. As lending standards continue to tighten, many credit rating agencies are delving further into your payment history than ever before in their effort to provide greater peace of mind to lending institutions. Check out some of the ways in which each agency is changing the way they report your credit worthiness:
"Hey honey, did we pay that phone bill yet?"
Just yesterday a friend of mine shared that his wife is going to withdraw $21,000 from her 401K to pay for their 3 year old to go to nursery school for 3 hours a morning next September. For those reading this outside of Manhattan, the numbers to dial for a coronary are 9-1-1!!! Yep, $21K for 15 hours of nursery school per week. Which brings me to this post today at Calculated Risk regarding the surge in 401K withdraws to keep homes from going to foreclosure.
Tanta at CR references Christine Dugas’ USA Today article 401(k)s tapped to save homes. As the economy struggles despite some saying that we are NOT in a recession (LA Times), more and more people are finding themselves in difficult financial situations and are doing what’s necessary to stay afloat.
Struggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators.
Rather than borrow money from their 401(k) accounts, which would have to be paid back, a growing number of beleaguered families have been cashing out, plan administrators say.
This is happening even as borrowing from 401(k) accounts remains fairly flat. Fewer still are borrowing from 401(k) plans to buy homes. By contrast, new figures from plan administrators show the number of 401(k) "hardship withdrawals" is up in early 2008 compared with the same period last year.
The main reason? The need to stave off foreclosure or eviction.
Consider Tamara Campbell, who raided her 401(k) after her husband was laid off from his job as an occupational technician, and they fell behind on their mortgage for several months. "If I hadn’t done that, we would have been foreclosed on last year," says Campbell, who lives in a Denver suburb.
No evidence of this happening here in Manhattan…yet. But if some are finding the need to tap the 401K for education, saving their apartment may be next. It’s getting ugly out there!
The state of the Manhattan real estate market remains stable but some of the rules that have been followed for more than a decade are meeting resistance and dare I say, may be changing. Of course my experience is anecdotal but I always try to get a sense of market conditions from my colleagues anytime I’m preparing to write about the goings on in Manhattan real estate. Something that seems to be happening with more and more frequency is the request for the financing contingency in contracts.
For more than 10 years during the housing boom, sellers have had the upper hand and in the case of financing contingencies, they were almost NEVER permitted. In addition to lax lending practices that gave everyone the confidence that they would procure financing, there were almost always multiple buyers vying for the same property. Striking the financing contingency from a contract gave a bidder more leverage and the seller more comfort that the prospective purchaser was confident that they would close on the property. As the sub-prime and ALT-A mortgage mess is trickling UPHILL now, we are seeing more and more attorneys advising their clients against signing a contract that is not contingent of financing.
If you’re not sure what this means, here are the 3 financing options as written in a boilerplate Julius Blumberg Contract of Sale (Co-op):
- 1.20.1 Purchaser may apply for financing in connection with this sale and Purchaser’s obligation to purchase under this contract is contingent upon issuance of a Loan Commitment Letter by the Loan Commitment Date.
- 1.20.2 Purchaser may apply for financing in connection with this sale but Purchaser’s obligation to purchase under this Contract is not contingent upon issuance of a Loan Commitment Letter.
- 1.20.3 Purchaser shall not apply for financing in connection with this sale.
These are the 3 options. No more, no less. For the past 10 years or so, almost every contract has stricken 1.20.1 and 1.20.3 leaving the purchaser the ability to obtain financing but protecting the seller from the buyer walking away should their mortgage not be approved. If the buyer was unfortunate enough to sign a contract this way and not procure financing, they would forfeit the 10% deposit that they submitted with the signed contract. In 16 years, I have NEVER seen this happen. That said, attorneys seem to be much more gun-shy about advising their clients to sign non-contingent contracts in today’s bizarre lending environment as more well-qualified borrowers are experiencing the frustration of stricter lending standars. For example:
- Purchaser with $4M in cash buying a $2.7M property was advised by his attorney against signing a non-contingent contract…they lost the apartment to another bidder.
- Multiple purchasers having agreed to sign non-contingent contracts were advised by respective attorneys that banks were finding reasons not to close on loans increasing the risk of losing that 10% deposit.
- Prospective purchasers concerned about their future employment are also balking at the non-contingent contract.
The non-contingent contract is no longer a given. Fortunate sellers have more than one bidder thereby allowing them to continue to insist on non-contingent contracts. Other sellers are being presented with 7-14 day contingencies as opposed to the standard 30 day. Whatever the case may be, sellers are more frequently being faced with the decision to allow a prospective purchaser the make their contract contingent on getting a loan. And in today’s lending environment, that makes a seller much more anxious than they have been in quite a long time. It also makes it that much more important to have qualified buyers at the table who are represented by savvy and sophisticated real estate agents, mortgage professionals and attorneys.
LOL!!!
The flu is sweeping through our house with the latest victim being my 3 year old daughter. My wife and I are just waiting for its attack on one of us…oh happy day. So here’s a list of some of the interesting bits in the blogosphere today as I attempt to fend off the flu bug:
Still feeling healthy…see you Monday.
Lauren Baier Kim of RealEstateJournal.com asks the question, Do Young, Tech-Savvy Buyers
Need a Real Estate Agent’s Help?
In real estate, there is a growing dichotomy: buyers are getting younger, while real estate agents are growing older, according to articles in the Seattle Post Intelligencer and the Boston Globe.
Using data from the National Association of Realtors, these articles note that while the median age of home buyers was 39 in 2007, the median age among Realtors is 51. And, among first-time home buyers, 49% were between 25 and 34 years old.
This could present a real problem for the real-estate industry, which despite the current overload of real-estate professionals, is actively trying to recruit younger real-estate agents, reports Aubrey Cohen of the Post-Intelligencer. Younger agents will be needed to replace an aging workforce and to create inroads with a uniquely high-tech set of house hunters, the articles say. Youthful home buyers are more independent and rely more on the Internet in the home-buying process than their predecessors did, these articles note.
There is no doubt that Gen Y buyers and sellers are "turned on" by technology. For example, all of my twenty and thirty something clients and many of Gen Y "minded" beyond their thirties are tech-centric in such a way that as sellers they demand things like video be used in marketing their homes and as buyers they won’t even look at properties except those online that include multiple photographs, floor plans and video tours. These same sellers and buyers want responses from their agents within minutes of firing off an email so a BlackBerry or like device is essential.
As one reader pointed out in response to a WSJ.com post on photos in real-estate listings, "most agents are not utilizing technology efficiently." The readers explains, "We had a young agent and he did an excellent job with marketing our town home. We ended up getting three dozen offers. He also uses BlackBerry and a few other tech gadgets which many agents simply don’t use or cannot afford or whatever."
This shifting perspective of the real estate agent’s value in a transaction poses some serious problems for those in the industry who resist advances in technology. There is an independent agent whom I have interacted with in the recent past who has been in the industry for 30 years. She has no website, she types up property fact sheets with her typewriter, draws floor plans herself, and provides no photographs at all. For this unparalleled service, she charges sellers a 3% commission and refuses to work with other agents. The last few properties that she has represented have languished on the market in a building that sees properly marketed homes sell within days or even hours of coming on the market. For obvious reasons, this woman’s deal flow is decreasing exponentially.
As more consumers embrace technology and all of the ways that it makes the real estate industry more transparent and efficient, real estate agents better get on board too. And for you resistant dinosaurs out there, beware, a technological "asteroid" has hit Earth and your days are numbered.
While the headlines across the country depict an atrocious housing market, the Manhattan real estate market continues to baffle many of us. Just a few weeks ago I blogged about an open house that was attended by more than 150 people of which ten submitted bids. That apartment went to contract for nearly 15% over the asking price.
Two weeks ago, we had nearly 70 people attend an open house for another property we were marketing. That open house also resulted in multiple offers over the asking price with the winning bidder at 5% over the asking price. The unusual outcome of this multiple bid situation is that the winning bidder decided after a revisit to the apartment that they didn’t want to proceed. No problem right? Wrong. Three days after the highest, best and final (see definition below) bids were received, we reached out to our back-up bidder who had offered a higher price to inform him of the good news that his bid was now being considered and the seller wanted to proceed to contract. He was no longer interested as he was negotiating on another property.
highest, best and final–each bidder is given one final opportunity to put their best foot forward and bid at the highest price with which they feel comfortable. In addition to submitting their highest bid, the best terms for the seller are conveyed to each bidder so that they can formulate an offer that appeals to the seller in both price and terms. Bidders must also submit a financial statement that discloses a complete breakdown of all assets/liabilities and income/expenses. The highest bid price is not always the best offer based on the seller’s desired closing date, financing contingencies, and/or financial condition of the bidder.
On to bidder number three. Thinking that bidder number three would jump at the opportunity based on their disappointment at not getting the place initially, we were confident that we would have a deal with them. Not so fast. When notified that the seller would accept their bid, this prospective purchaser suggested that they needed to view the property again at this past Sunday’s open house before proceeding. Which brings us up to date…
Yesterday, another 50 or so people came to the second open house of this property and we now find ourselves with 3 more offers over the asking price and at least 2 more coming in today before 5PM. Our hope is to accept the highest, best and final offer this evening so that we can have a contract signed by the buyer and delivered with their 10% deposit to the seller’s attorney by 3PM on Friday. That’s our hope but we will see how this round plays out.
In my 16 years selling Manhattan residential real estate, I have never facilitated 2 highest, best and final offer scenarios for the same property within a 3 week period. It’s very bizarre and a sign of the times. Here’s what I see:
- Buyer anxiety remains high
- Sellers remain in the "catbird seat" reluctant to budge in negotiations
- Financing contingencies are being requested more frequently by some buyers
- Sellers are still not amenable to financing contingencies particularly when they have multiple bidders to choose from.
- There are still plenty of ready, willing and able buyers who want to own their piece of Manhattan.
So as we all wait to see how the national housing crisis plays out in our backyard, for the time being it looks like the game goes on with similar rules and similar players as we’ve seen over the past decade.
Here’s the latest update on the SanMar Children’s Home House Raffle:In the spirit of full disclosure I should let all of you know that I have purchased some of these raffle tickets and continue to promote this raffle both because I want the chance to win of course and because it is raising a huge amount of money for SanMar. Mostly because I want to see this effort succeed as I see it as a win-win-win. They have now sold 4,214 tickets thanks to good people like you! They need to sell just 786 more in the next few days to reach their minimum goal of 5,000 tickets and hold the drawing on March 13. Otherwise, they will continue the raffle until May 9.Here is what they suggest that you can do to help:
- Tell your friends, relatives and neighbors about the raffle and our website www.sanmarraffle.com
- Give them the flyer (download flyer) and entry form (download entry form).
- Post the flyer at the corner grocery store.
- Tell your local newspaper about it.
- Or, simply forward the block below to all your friends so all they will have to do is go to the website to enter.
Win a House, Car, Cash or More!
Enter San Mar’s Annual Raffle Today
Order your tickets at www.sanmarhome.org
or www.sanmarraffle.com
Hurry — Drawing Date is March 13
Raffle Limited to 7,000 Tickets
For tips and advice on conducting your own house raffle, check out How To Raffle Your House.
After 16 years of successfully negotiating deals for both sellers and buyers, I do know a little bit about the "art of the deal." What I mean by this is that an experienced agent often understands the idiosyncrasies of the parties involved in a negotiation and this insight is almost always of benefit to the agent’s client. An experienced agent may very well have a relationship with a buyer’s or seller’s agent that sheds light on that agent’s positive, negative, or simply bizarre behavior. For example, as an agent representing a buyer, I may know that the seller’s agent has a solid reputation of pricing property very well which would lead me to suggest that my buyer be aggressive about placing a bid on the property. When representing a seller, I may know that the agent representing the buyer has a reputation for poorly communicating with their buyer which would lead me to request additional information about the buyer and make the seller’s attorney aware of all terms that the buyer and their agent allegedly agreed to.
All of this said, the most successful and smooth transactions are those in which the experienced and knowledgeable agent and her/his clients work together as a team with the agent being the point-man and leader. Every team has a captain and the real estate transaction should be no different. More than one captain generally leads to chaos and if the client thinks they know the market better than their agent then they either need a new agent or a dose of humility.
So if you don’t trust that the agent that you’re working with is worthy of "captain" status, consider first whether you are willing to give up the helm to anyone…ever. If you need to control every aspect of the transaction and lead all negotiations, consider your track record in buying or selling real estate. If it’s a solid one, keep up the good work. If your efforts to "captain" the transaction continue to fail, it may be time to step down and trust someone with more experience in the Manhattan residential real estate market.
In March, TrueGotham will celebrate 2 years in the blogosphere and if I do say so myself, "we’ve come a long way baby!" Having said that, yesterday and Monday were the first back to back weekdays of silence on Truegotham since its inception and I don’t plan on making a habit of that. The impetus for the silence…well…LIFE! I spent Monday in Baltimore for one of my dearest childhood friend’s father’s funeral. Why do we wait for Weddings and Funerals to reconnect with people who mean so much to us? Yesterday, I had the pleasure of spending the day with my son and daughter as the three of us helped to "train" their new nanny. No time to blog…at all. For those who are saying to themselves, "Who cares?" I offer you a quick anecdotal snapshot of what seems to be going on in today’s Manhattan real estate market:
- The phones have definitely quieted down from buyers in the sub $3M market as interest rates have climbed almost a full point in the past 4 weeks. Many experts including our very own Dan Shlufman suspect that interest rates will come down again in the coming weeks.
- We remain incredibly busy with Co-op Board applications and contracts for the deal flow that took place in February but new business is coming more slowly. I typically have between 5 and 20 exclusive properties/sellers that I’m representing at any given time and I currently have 2.
- Relative to the same period last year, I am definitely seeing a slower market with fewer transactions taking place. No great dips in prices yet but fewer buyers.
- Inventory remains very tight causing less impact to the decrease in the number of buyers.
- I experienced the first ramifications in my business of the sub-prime meltdown as tighter lending standards across the board for all borrowers slow deal flow (ex. Chase generated a commitment letter for a purchaser of mine who has twice the purchase price of the apartment in liquid assets that made the sale of their current apartment a condition of fulfilling requirements to procure the mortgage…this would NEVER have happened this time last year but I’m happy to report that Chase is removing that contingency at the borrower’s request. It still has delayed the purchase process.)
So the Manhattan real estate market remains stable and continues to churn but not nearly at the pace that I experienced this same period last year. I would love to hear from sellers, buyers and colleagues regarding their experiences in today’s marketplace.
