Windermere Woodinville Blog

     Protection Island, WA

 We’re seeing a much higher incidence of Buyers thinking they have financing and finding out either at the closing or days before - that the appraisal fails or the lender doesn’t have the money or has gone out of business.

To protect Sellers some brokers offer this advice to their listing agents:

1. Loan Approval Letter. Make it a condition that Seller approves of Buyer’s Loan Approval Letter

This Agreement is contingent upon Seller’s review of Buyer’s loan approval letter. Seller’s review shall be made in Seller’s sole discretion. In the event Seller disapproves Buyer’s loan approval letter, Seller may terminate this Agreement by sending notice of termination to Buyer within _____ (5 days if not filled in) of mutual acceptance of this Agreement. Upon timely notice from Seller, this Agreement shall terminate and the earnest money shall be refunded to Buyer. This contingency shall be deemed waived unless Seller sends timely notice of termination.

      2.  Appraisal Support. Work closely with appraisers to ensure that financing doesn’t cave because of low appraisals. Provide all the data you have that validates the purchase price.

       3.  Seller’s Lender Reviews Buyer. Make it a condition that Buyer’s get a mortgage approval, at no cost, from our funding affiliate, even if Buyer has its own lender.

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In our Woodinville market we’re seeing more “seller financed” transactions.  Sellers become more flexible and willing to make accommodation for Buyers. 

Reasons to consider Seller financing:  poor market conditions, unavailability of other financing because of buyer credit problems, to avoid making repairs required by other lenders, reduce closing costs, spread receipt of income over time.

Reasons to avoid Seller financing: delayed receipt of consideration for the property, risk of default and foreclosure or forfeiture, obligation to monitor the operation of the collateral, lack of experience in negotiating loan terms and qualify borrowers.

This is an area where you need experienced hands helping you.  Here’s an outline used to teach a short course in Seller Financing at our office.

Sellers and Buyers entering into “Seller Financing” arrangements need the best in the way of professional real estate agents and … as the last item on the outline reveals… other professionals should review the arrangements.  Get your attorney involved.

In today’s market, agents need to think more creatively for their clients.

Thanks for reading this blog.

From the Real Estate Broker to the Agent’s Family

Thanks for bearing with us in this difficult market. We appreciate your patience. Someone in your family sells real estate. Sales may be far-and-few between. Around your house the purse strings might tighten. You find “your agent” carrying some extra worries. Perhaps in their frustration they’ve been difficult to deal with. Listings sit on the market longer than we want; buyers sit on the fence seemingly forever. Lending practices have drawn fire. Wall Street financial news dampens consumer confidence. Sometimes it appears a perfect storm conspires to frustrate our profession. Thank you for the extra consideration and patience required to support your agent.

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That’s right, grab your head.

This month saw yet another U.S. Federal intervention in the financial markets.  The bail outs and “shoring ups” continue.  The good news is that without them - we would wait longer for the return of a robust housing market.

The U.S. Treasury decided, on September 16, to take over American International Group (AIG).  They tell us that allowing AIG to fail could have panicked small investors, adversely affected banks and caused yet more negative repercussions for the housing industry.

AIG is an insurer, not a bank.  It created a global financial system by using derivatives to insure hundreds of billion of dollars of corporate mortgages.  Holders of these assets ranged from the world’s largest banks to retired people’s money-market funds.

AIG is a most safe, well-run insurer.  But its financial-products division wrote enough derivatives contracts to destroy the firm and shake the world financial institutions.

A Derivative is a financial contract whose value is derived from the performance of assets, interest rates, currency exchange rates, or indexes.

What was that?  What’s a “derivative?” Okay, I can read, but what does that sentence mean? In simple tax-payer terms, what is a “derivative?” 

Okay, you say I have the brain capacity of a house mite.  True, but if you can give a clear, cogent, and confident answer to that question, you probably need a defense attorney.  The people who really understand “derivatives” have stepped in some cow pies, big time.

Many AIG insured mortgages went bad because of lending practices.   On September 15th,  rating agencies downgraded AIG, forcing it to hand over $14 billion in collateral to holders of its debt.  Enter the U.S. Treasury.

Thank you Uncle Sam and thanks for reading this blog.

California is the beacon to watch.

Buyer’s have a question: given high inventories of unsold properties, how long will it take for prices to stabilize?  When will the bottom be reached?

In a paper prepared for the Brooking’s Panel on Economic Activity, September 11, 2008, we find California at the center of attention.  Karl Case, Katherine Coman and A. Barton Hepburn of Wellesley College propose that the market will clear when prices bottom out in California.

The big question mark is the Sunshine State. Since California represents about 25 percent of the value in the country, “much of the national story will be written there.”

Existing home sales in the state are up to over half a million. With foreclosure sales running at about a third of total sales, prices are down and are continuing to fall, but at a much slower pace in June.

Every time home prices fall substantially, within a few years they came roaring back. Even now, anyone who bought or owned in California more than five years ago is worth a small fortune. 

In California, buyers acknowledge that prices are falling rapidly now, but they still believe that “it is a good time to buy because prices will rise in it the future.”

The Wellesley professors say that “the  macro indicators are at exactly the levels where the bottom has been reached in the past three cycles, and the state level relationship between house prices and income are not far off of their traditional bottoms.”

The professors from Wellesley College conclude: “Regardless of whether a bottom comes in the next three months or prices continue to fall for much longer, this down cycle will end prices will rise again someday… maybe not today, maybe not tomorrow, but soon…”

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One picture is worth a thousand words.  The guy above is smiling … sort of … but it’s obvious his eyes are pained, worried.   He holds his hands  in prayer.  This is pretty much the American reaction to current news.  What’s the news?

When reports of bombs exploding on foreign streets don’t divert us, we’re regaled by news of the housing sag.  We’re assaulted by stories of the mortgage crisis.  We’re now beat about the head by 1929-type articles on the financial spiral.  And if you’re a sports fan in Washington State, add to Chicken Little’s forecast the Mariners, the Huskies, the Seahawks and the departed Sonics.  We have dropped into the black hole of the sports universe.  Even the never-ending campaign wears on our nerves.

What’s our reaction to this unrelenting drum beat of downers?  Prayer, if that’s up your line, won’t hurt. After that, start counting blessings.   We live in a great State with better economic numbers than most areas of the Unites States. We enjoy  stellar numbers compared to most people in the world … particularly some folks doing the hunger shuffle in strife-ridden dust bowls.

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What real estate companies lead in the sale of $1 million and up residential properties on Seattle’s East side?

“WIND WRE” is Windermere Real Estate.

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Out of the fog of the housing wars will emerge the truth … and the solution.

The U.S. taxpayers have come to the aide of Fannie Mae and Freddie Mac - the “receivership” some envisioned has come to pass.  The “bail out,” “take over,” “rescue plan,” “the push-on-the-panic-button,” underscores the housing market’s central role in the health of the Nation’s economy. 

This is a positive event in both the short and long term.

In the short term it could mean lower rates and more flexible underwriting. Both very good things.

On a longer term basis, there will be a “heavyweight” debate next year and beyond about the future size and structure of the GSEs (e.g. public or private entities). That debate will not occur until the new Congress and Administration take office next year.

We have a “new” GSE system. The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market  more efficient and transparent.

While the new GSE approach to mortgage availability will increase the number of potentially eligible borrowers, it will likely not have any significant impact on affordability (borrowers must still qualify and make down payments) in those markets where house prices increased the most during the “housing bubble” until house prices and borrower incomes are in line.

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We are seeing transactions where the Buyer’s financing fails late in the transaction because of underwriting issues.

The Buyer’s are disappointed, their spirit grieved and the Seller’s now have to put their properties back on the market … time and effort wasted.

What can we do to head off this problem?

Answer: Build a condition into the Purchase & Sale that says …

• Despite that Buyer has its own lender, this transaction is subject to Buyers meeting with Seller’s mortgage representative, within five days of mutual acceptance, for independent loan approval.
• Seller shall pay any credit report fee required.
• In addition, as consideration for Buyer’s cooperation, Seller to pay $250 toward Buyer’s pre-paids and loan costs should this transaction close.
• If in the subjective judgment of the Seller, Buyer’s are not loan qualified based on the report of Seller’s mortgage representative, Seller may terminate this agreement by sending written notice to Buyers of termination within 10 days of mutual acceptance.
• In the event of Seller termination, earnest money shall be refunded to the Buyers.
• This contingency shall be waived unless Seller sends timely notice of termination.

There you go, just an idea.  Consult your own professional broker or legal counsel for a review.

Thanks for reading this blog.