Friday, April 26, 2019

Earnest Money Tie Ups

Real estate transactions are nearly always offered with an earnest money deposit. Generally this is about 1% but some buyer may "sweeten" the pot with high amounts, particularly when paying in cash or using a large down payment loan. The seller likes the larger earnest money because it shows serious intent by the buyer. The earnest money is typically held by a neutral third party often the title/escrow firm handling the transaction.

The buyer usually has some contingencies associated with their offer. A common contingencies are  inspection and loan. The inspection contingency states that the buyer will buy the house provided they are subjectively satisfied with the results of a professional inspection.This is typically a short period of 7-10 days in which the buyer can effectively exit the transaction and is entitled to a refund of the earnest money. The more common outcome of an inspection period is some form of negotiated agreement for the seller to make repairs.

The second contingency is based on the successful loan commitment from a lender. This one is not subjective but requires a legitimate contingent event to occur in order for the buyer to be eligible for an earnest money refund. If due to no fault of the buyer the lender is unable to fund the loan the buyer would exercise the right to terminate the agreement and is entitled to a refund of earnest money. No fault of buyer is objective and could be an arguable status. Generally a buyer must act in good faith to get the loan, this means submitting all documents to lender in a timely manner, following lender guidelines regarding credit. So if a buyer voluntarily quits his job, or goes out and buys a new car before closing, the buyer is not entitled to his earnest money back if the loan fails. But if an underwriter decides that their is something in the file the missed when approving the loan initially, this is not the fault of the buyer so long as they acted in good faith. The buyer is entitled to a refund of the earnest money.

A failure to close late in the process often is irritating to all parties involved. These are the situations that can lead to disputes over earnest money. The title company will not release the earnest money to either party until all parties agree. Buyers need to be aware that once they release the inspection contingency their earnest money is at risk. Even if they are entitled to receive it back a seller can stonewall for a fair amount of time tying up that money. This can be frustrating for buyers and agents alike. Buyers should be cautious about putting up excessive amounts of earnest money beyond the typical 1% as there is no guarantee that money will be promptly returned or in some cases returned at all. Buyers or sellers seeking to capture the earnest money in a dispute are always well advised to seek legal counsel before digging in for any kind of fight. Real Estate agents and Title Officers are usually NOT lawyers and must be careful not to practice law or give legal advice outside the scope of their very limited expertise.

Friday, April 19, 2019

Cash means CASH!

Last year I wrote a post about the rise in prevalence of cash offers and noted that there was a trend towards offers that claimed to be cash offers but really were not CASH.

Here is that post from last year:

"There has been a large number of cash offers being made over the last few years. I have definitely felt an uptick in my business and other Realtors® have expressed a similar vibe as well. But buyers making cash offers need to be very clear about what a CASH offer is. I ask my buyers that want to offer cash on a house, right up front. Do you have the cash on hand right now? That is, is the cash in the bank and accessible immediately. That my friends is the DEFINITION of cash. It is immediately accessible money. Some buyers are planning on drawing an equity line, or taking a loan on another property, or selling another asset. This is not cash until those transactions are complete.

A buyer making a cash offer that does not have the cash already liquid is in jeopardy of default should the source of the "cash" be delayed or for some reason made unavailable. Even more dangerous is the fact that a cash offer made without liquid cash on hand could be litigated by the seller as civil fraud should the deal fall apart. Cash is C A S H, not "I'm taking a line of credit," or "my uncle is lending me the cash." Buyers need to disclose to the seller the source of the cash if it is not already liquid and sitting in the bank. It is fine and well to make an all cash offer predicated on the arrival of cash from another transaction, be it a sale of another property, or loan, or gift, whatever the case is; but when that cash is on the way rather than in the bank, disclose, disclose, disclose.

Buyers in a tight market are often trying to make their offer stand out in front of other offers, but they must be cautious not to put themselves in legal trouble when making a soft cash offer. Buyers that want to play with the "big fish" in the hard cash arena, need to take the loan, sell the asset, or grab the gift, etc. BEFORE making the offer."    

Friday, April 12, 2019

Not all lenders are created equal

Don't be fooled by adverts for this rate or that lack of fees or any other puffed up marketing baloney. The overwhelming majority of lenders are all selling their loans to one of two primary entities and the actual real world difference in pricing and costs between them is typically benign. The real difference is the people working behind the scenes to get your loan closed.

There are so many crappy lending companies just churning paper as fast as possible leaving many borrowers in the wake of doom. A good loan officer will spot potential problems well in advance and reduce the chance of a catastrophic failure (that's where you get to the end of the process and then don't close). If the loan officer is giving you the hard close, you probably should find a different lender.

The lender that gives you a pre-qual letter without running your credit and getting some supporting documents from you is not helping you. In the end the underwriter will sniff out every detail and if there is any omissions or items that don't fit the lender's guideline they will abruptly kick you to the curb. They don't care about the $400 you spent on an inspection or the $800 you coughed up for an appraisal, nor will you get that money back if they can't close the loan. The rates and fees and such have all fallen pretty closely together since the major lending overhaul in 2011. Don't be lured in by the rate barkers. 

Loans are complicated. There are a great many ways to show a lower rate that really isn't lower at all. A 4.5% loan with 2 points of upfront fee is probably not as good a deal as 4.75% with no points. And 2 points for a 1/4 point rate reduction is too much. Most people don't know what a fair buydown is, and it is a moving target that ebbs with the economic conditions. But for many people that 4.5% looks good. In reality a $100,000 loan at 4.5% is $507 a month and at 4.75% it's $522 a month. That's $15 a month difference. Now if you stay in the loan to the very end you will come out ahead, in fact the 2 points on 100k is $2000 you come out ahead after about 11 years. The average mortgage loan however only makes it to about 7 years before refinancing or selling the house. So unless you are staying in the loan for a long, long, time the seemingly lower rate may not be lower at all.

So don't fall for the gimmicks and the sleazy ads, find someone who will actually look at what is best for your specific scenario. That person will also very likely be mindful of the potential pitfalls in the process and guide you through to a successful close. The loan is the most complicated part of the deal, despite what some real estate agents might think, you know... the ones that think they are the center of the universe. Unless the buyer has a wheelbarrow full of cash, or seriously heavy bank accounts, the loan is the heart of the deal. The loan officer is the most important person in the room.

I have found a few really solid, honest, and hard working lenders locally in Vancouver, WA over the years including:

Mike Roy, Pinnacle Capital, 360-798-8339

Elione Miller, Security National Mortgage 503-577-1974

Tom Clark, Guild Mortgage, 971-409-5750

Friday, April 5, 2019

Fixers On The Comeback Trail

For a number of years buyers have been most excited about move in ready properties. Of course clean and tidy homes have always held an advantage in the resale market, but back before the crash, a lot of buyers were seeking fixers to put some classic sweat equity into. That more or less died off after the crash.

One thing that certainly aided in the decline of the fixer market was the lack of decent financing options. Sure hard money lenders were always there waiting to take you payment in the form of a few broken bones if necessary...kidding... sort of. But mainstream lenders were very gun shy about houses that were not real clean. 

This latest run up in values however has made it difficult for traditional rehab companies to acquire property cheap enough to pencil a remodel and resale. That same run up in values has brought a whole new wave of potential homeowners back tot he drawing board and the fixer is making a return to prominence.

Although lenders are still not a loosey-goosey with the vault as they were in the mid 2000s, and let's be honest that is a good thing, they are starting to lighten up on the condition requirements. This make the dream of home ownership available to a larger group of people, and in general that is also a very good thing.

Buyers at or near the bottom of the price range for homes can start looking at fixers. bear in mind that FHA and VA are still a bit more picky about condition so using a conventional lender is the best approach for buying rough property. Be sure to stay connected to a real estate pro as they will help guide you to what can and can not fly with a bank loan.

Real estate is still America's best investment for the mainstream consumer.