Massachusetts Real Estate Blog

Predatory lending is back in the news.

2006-04-15T19:54:00.000-04:00

On March 8, 2006 a new Montgomery County law supposedly took effect which will have significant impact on home buyers and mortgage lenders in that County.

On November 7, 2006, the Montgomery County Council enacted legislation which expanded the County's fair housing and civil rights law. According to a press release issued by the Council, "The measure expands the categories of lending activities that constitute discriminatory housing practices and increases the amount of damages that the Commission on Human Rights can award from a maximum of $5000 to a maximum of $500,000."

The new law defines "indicators" of discriminatory lending practices, some of which include:

marketing or refinancing mortgages that a borrower cannot afford to repay based on income and credit levels;
charging abusive prepayment penalties;
financing excessive points and fees, and
steering a borrower to a more expensive mortgage, by discouraging a potential borrower from obtaining a mortgage loan with more favorable terms.
According to the Council:

Discriminatory predatory lending targets borrowers with limited or poor credit for loans with exorbitant or abusive terms based on race, national origin, sex, age... Most abusive home-lending practices occur in the sub-prime market and many address home loan opportunities for people with limited credit histories. African Americans, Latinos, the elderly and those with low-incomes are disproportionately victims of predatory lending.
(Montgomery County Council News Release, November 29, 2005).

On February 10, 2006, the American Financial Services Association (AFSA) -- a trade group representing many of Montgomery County's largest mortgage lenders -- filed a lawsuit in the Circuit Court challenging the authority of the Council to enact this new law.

According to Randy Lively, president of AFSA, "Maryland's law is clear that only the state has the power to enact regulations governing mortgage lending." Lively added, however, that "AFSA opposed discriminatory lending and supports allowable county efforts to crack down on abusive lending practices."

To date, there has been no court action on this lawsuit.

Recently, a study by the Center for Responsible Lending concluded that:

State laws enacted to prevent predatory mortgage lending work as intended to reduce abusive loan terms without impeding credit. Strong state laws have been good for consumers while supporting a thriving subprime lending market. They provide credit-strapped families with plenty of access to responsible home loans at typical -- or even lower -- costs.
(The complete study, entitled "The Best Value in the Subprime Market: State Predatory Lending Reforms," dated February 23, 2006, can be found at responsiblelending.org).

The Montgomery Council calls it "discriminatory lending," while others call it "predatory lending." But like the proverbial rose, predatory lending by any other name is still discriminatory.

The Center for Responsible Lender provides a brief description of some of the most common of the abusive practices:

Loan Flipping: Here, the borrower is "flipped" by a lender who insists that the consumer refinance its current loan -- sometimes over and over again -- primarily for the purpose of generating more fees for the lender.
Unnecessary Products: A lender will insist that the consumer buy such things as credit life insurance, or other products which are not necessary for the borrower. Once again, this serves primarily to increase the pockets of the lender.
Mandatory arbitration: Instead of taking a lender to court where the parties will get a full and fair trial on the merits, many lenders will require that a borrower must go to arbitration if there are any complaints. Often, this arbitration must take place in the home state of the lender, which may be thousands of miles away from where the borrower lives.
Home ownership is -- or should be -- the great American dream. But unscrupulous lenders have long clouded this dream, by making mortgage loans to borrowers where the terms of the loan were designed for failure -- and for foreclosure. Once the home is foreclosed upon, the lender starts all over again, and it is a vicious cycle with little or no end in sight.

The Center for Responsible Lending concluded that its findings have two significant implications for state and federal policymakers who are "grappling with the best way to prevent predatory lending":

First, the finding suggest that strong state laws like those in place in New Mexico, Massachusetts and North Carolina can serve as successful models.
Second, the findings call into question the advisability of federal proposals that would nullify state efforts and substitute a weak national standard. From a homeowner's perspective, it appears that mortgages protected by strong state laws may be the best deal in the real estate market.
But laws alone are not enough. Consumers must understand that they must protect themselves. They must learn the basics of mortgage lending as well as the steps to avoid. CaseNuevaHouston is a consumer organization in Texas that assists homebuyers -- mostly Latinos -- in becoming homeowners. Recently, they issued the Home Buyer's Bill of Rights.

The market is slowing cooling down, and interest rates will rise by the end of this year. These factors become open season on lenders to take advantage of unsuspecting consumers.

If you are looking for a mortgage loan, you must shop around. And even if you can qualify for a loan, you must also be comfortable that you can make the monthly payments on a timely and regular basis.

Benny Kass

The Mechanics of a Short Sale Payoff

2006-04-15T19:36:00.000-04:00

It was great to actually see the Buyers come back in full force in Early March. Granted it was a month and a half of nail-biting, but it looks like things are starting to stabilize, and 2006 looks like it will pan out to be a more balanced marketplace than we’ve seen in a while. I celebrated their return like the Swallows to Capistrano, with a couple of nice bidding wars on two of my new listings. As much as I hate those, I have to admit it was nice to see them out there again.

There’s still time for sellers to get a bit of a heads up on the market, but we definitely don’t want to wait much longer to do that or the bus will have gone by. If rates continue to trend upwards, that could easily put a damper on any recovery before it even takes flight.

One thing I’m starting to work on a lot more are Short Sale opportunities. These are created when a Seller is selling a property for less than they owe to the bank, but getting the bank to accept that lesser amount as a full discharge of the Sellers obligations. Sounds impossible doesn’t it? It’s really not as hard as it sounds.

The key premise is that ultimately, the bank doesn’t want to own your home, they want their money, and realistically, the main reason they’re in this situation to begin with is at least partly their own fault. Over the last few years, the banks have just made things far more easy then they should. Full page ads, radio spots, tv commercials….all tell the buyer how they can buy with “no money down, no income verification, no asset verification, bad credit etc.” In fact, many don’t do just 0% down….but are allowing buyers to purchase with a mortgage of up to 105% of the purchase price. Oh….and did I mention they could do it on an interest only, negative amortization loan that could leave them owing thousands more than they borrowed.

Let’s start with WHY a short sale is a useful tool. By way and away one of the worst things to deal with is a Foreclosure. That’s far worse even than a Bankruptcy, in terms of it’s far reaching impact on your life. If you owe $425,000 and the bank forecloses, they can sell it at public auction for much less. If they sell for $375,000 at auction, you not only have no house, but the bank can still go after you for the $50,000 shortfall as a deficiency judgement, and make your life miserable for years, even when you’re long since out of the house. In the case of a short sale, we may find a buyer for $400K and get the bank to accept the $400K as a full discharge, without reflecting that as a negative on your credit report.

The process of a short sale using begins with a Realtor who is very familiar with them. people who will all need to work together. Often, this process will start with a market analysis or appraisal that establishes that the estimated sales price will not meet the amount of the payoff. When that happens, we want to put together just a small team of people, including a local attorney to work out a solution. If you have already received a Notice of Default (NOD) the loan may be in the hands of the collection department. Usually, those folks have no interest in anything anyway. They are merely outsourced people to call and try and intimidate you. What we want to do is get beyond them to the folks in the loan workout department (LWD). Unlike collections, the LWD has an interest in mitigating any loss to the lender, and is usually only too happy to work with you, as long as they know they’re not being taken advantage of.

Providing the Loan Workout Department with an offer from a ready, willing and able Buyer, in conjunction with a realistic appraisal of value, often yields magical results. Last month, for example, we had a lender accept 90% of the amount owed as a full discharge, and enabled the seller to get out from under this mountain of debt with a clear conscience and a new lease on life. If you think you may qualify for a short sale, drop me an e-mail at steve@stevelevine.com or call me at 508 735-4663, and we can take a moment to chat about options.

Steve Levine is President of Steve Levine Inc., and an agent at REMAX First Choice. He’s currently ranked as the #1 REMAX Agent in New England, and can be reached online at www.stevelevine.net

Interest only Mortgages - Friend or foe

2006-02-27T22:43:00.000-05:00

From the Massachusetts Consumer Protection Division.

Why Interest-Only Mortgages Are Not In All Consumers' Best Interest
Prospective homebuyers must be wary of the potential pitfalls of non-traditional mortgages

Interest-only mortgages and payment option adjustable rate mortgages (“Option ARMs”), once marketed as wealth management products, have made their way into the mainstream and should not be the mortgage of choice for most consumers in a changing real estate market. That’s the message that Massachusetts Consumer Affairs Director Beth Lindstrom and Commissioner of Banks Steven Antonakes conveyed to potential homebuyers on this first day of National Consumer Protection Week.

“For first time homebuyers, the temptation to buy a larger or more expensive home because monthly payments are lower during the initial years of the mortgage is a risky road to go down,” said Director Lindstrom. “These buyers are not building equity and may find they can’t meet the significant payment increases when these loans are re-priced. Worse yet, they may end-up owing more than the actual value of the home in our changing real estate market,” emphasized Lindstrom.

A new brochure, “Interest-Only and Option ARMs: Are They Right for You?” will shortly be distributed to banks, credit unions, mortgage lenders and consumer groups and is currently available on the Office of Consumer Affairs website at www.mass.gov/consumer. The brochure was produced by the Massachusetts Division of Banks in collaboration with the Massachusetts Bankers Association, the Massachusetts Credit Union League, the Massachusetts Mortgage Association and the Massachusetts Mortgage Bankers Association.

“Consumers have the benefit of a wide variety of choices in financing a home, but the home buying process is also very complicated and prospective buyers should take the time to understand these non-traditional mortgage products. Getting our new brochure into the hands of these consumers is an important step in meeting that learning curve,” said Banking Commissioner Steven Antonakes.

Interest-only loans are usually adjustable rate mortgages that permit borrowers to pay only the interest portion of their loan payments, rather than interest and principal for a specified term. Option ARMs allow borrowers to decide how much to pay from month to month for a specified term. Options include interest-only payments, minimum payments that do not include all interest due or a full principal and interest payment based on the remaining scheduled term of the loan. At the end of the interest-only term, these products are re-priced (“recast”) and consumers make higher payments to cover both principal and interest.

So What Can Happen?

If a homebuyer obtained an Option ARM for $300,000 today with an initial interest rate of 6.3% (starting or “teaser” rates may be much lower), the borrower could make a minimum payment of as little as $1,035 per month. But this payment would not cover any principal and would not even cover all interest owed. At the end of the payment option term, the borrower would then owe $330,000, which would have to be repaid over the remaining 25 years of the loan. The new monthly payment could be as high as $2,612 per month. With uncertainty in future interest rates and home values, homeowners may find that they are unable to refinance into a more traditional mortgage.

House hunters…Do the Home Work…Be Realistic about Your Financial Portfolio!!!

Before purchasing or refinancing a home, consumers should comparison shop and evaluate loan rates and terms. First time homebuyers really need to be realistic about how much they can afford before buying a home. Using a nontraditional mortgage to buy a bigger or more expensive home than you can afford now may result in an inability to meet the payments in just a few years. All prospective homebuyers are encouraged to hire an attorney whenever they are purchasing or refinancing a home so that the terms and conditions of all mortgage documents are clear and understandable.

Consumers with additional questions regarding mortgage products should contact the Division of Banks’ Consumer Hotline at (800) 495-BANK (2265), extension 501 or visit www.mass.gov/dob.

Where is the “easy money” I keep hearing about?

2006-02-01T22:54:00.000-05:00

By Steve Levine

Happy 2006 everyone. I hope you all had a safe and healthy holiday season. Before I start off the year with my real estate column I wanted to mention a special event that we’re having on March 11th. My wife and I are running a concert to raise community awareness of the huge need for Foster Parents in our region. Additionally, the show will be donating 100% of profits to a summer camp program that offers siblings who have been separated when they went into the Foster care system, to reconnect for Summer Camp. For more information on this awesome show, please go to www.shrewbury.net.

OK, back to real estate. So the marketplace is still very quiet, although we do see some signs of the buyers venturing back out. The potential for rising interest rates is motivating some buyers to brave the weather, and those that do are getting awesome prices on property, as many sellers compete for a limited buyer group. Not sure how long that will last though as we often see a spike about this time of year. For buyers out there looking for some under-market opportunities, you may want to check out www.massrelo.com. There are certainly some amazing values to be found at that website.

I’m still seeing quite a few agents getting out of the business, which is also not surprising. Many new people entered the business when things were pretty hot, looking for the allure of what everyone tells me is “easy money.” I can’t tell you how many times I’ve heard that from people. “Boy, you real estate folks have it made.” Easy money? Hmm... It sure doesn’t seem that easy when you’re in the middle of it all. It inspired me to go back and look at a couple of recent transactions, just to see how “easy” it actually was.

I decided to pick an average every day $300K ranch that closed a few weeks ago in Shrewsbury, to document just for my own insight what was involved.

I first met with the Seller of the property on August 4th, 2005 to do the first of what would be 3 market analyses, each of them over 25 pages long. There were questions about some of the details about the home, so it required 3 visits to the town hall to pull field cards, assessment records, and plot plans. The seller was moving with his Relocation company, so that necessitated a 4th Market Analysis for them, and completion of another 15 pages of forms before we ever even listed the property, which happened after only after 5 additional meetings, 9 e-mails, and 16 phone calls. The property was on the market for about 30 days, during which there were 27 emails, 43 phone calls, 21 showings at the property, and an additional 12 pages of relocation documents to prepare. Following the offer itself, there was a home, pest and radon inspection, which itself spawned 5 visits from contractors, electricians, the gas company, and the town building inspector to determine whether the slope of the driveway required the moving on an electric line that ran to the house. The relocation company sent 45 pages of addendums, which had to be signed, faxed, resigned, altered, refaxed, fed exed, counter signed, modified one last time, faxed back, and then fed exed again – before we could even get the Purchase and Sale Agreement issued!

During the 2 month period from the Offer to the Closing, we had further inspections, the bank appraisal, visits to the house to “measure for furniture,” the final water reading, final electric reading, smoke detector inspection, visits to town hall to pay all final bills and deliver receipts for paid bills to the attorneys. I know it sounds bizarre, but here was the final count.

92 E-Mails and 55 phone calls with the Seller; 48 e-mails and 32 calls with the Buyers Agent; 14 E-mails and 23 calls with the Relocation Company; 8 e-mails and 12 calls with the attorneys. In total, hundreds of phone calls and e-mails, dozens of visits to the property, and over 300 pages of documents, and 5 months from start to finish. Based on a 2.5% listing side fee, the gross earnings were about $7500. The relocation company took 35% of that as a “referral fee” even through they had nothing to do with referring the listing, leaving a total of about $4900. Our company took their cut, and the government took the portion to which they were entitled. Final “cut’ about $2K. Isn’t that amazing? Thankfully…I sold a bunch of others that month…because marketing costs were over $10,000, health insurance was $1200, disability and life insurance, another $600. Not to mention the $1580 I paid my endodontist for the root canal he did on me that took 40 minutes. (I should have gone to dental school!)

Am I complaining? Absolutely no way! I love what I do, and I think I do it better than anyone. I couldn’t even imagine ever wanting to do anything else. This industry has been awesome to me and has helped my family thrive for over 2 decades. I just wish someone would show me how to get some of this “easy money” that I keep hearing about…so that I can get some rest for a while and just count the cash!

Steve Levine is President of Steve Levine Inc, and an agent at REMAX First Choice. He is currently ranked as the #1 REMAX Agent in New England and can be reached on line at www.stevelevine.com or by phone at 508 845-HOME.

Listings Listings Everywhere

2005-12-18T19:17:00.000-05:00

It no secret that the number of listings coming on the Massachusetts Real Estate market over the past few weeks has been increasing in dramatic fashion. That's enough to give anyone who is selling their property a little competition. Supply is increasing while demand is staying relatively constant. I think the days where you nail a sign in the ground and have a contract in 5 minutes are over... It's time to get serious about the way you list, market and sell your property. Here are my thoughts about what sellers need to keep in mind in this market:

1. Price your property aggressively to attract multiple interested buyers. I can't stress this fact enough. Aggressive prices attract buyer interest. Buyer interest creates an emotional attachment to the home. Once a buyer (or multiple buyers) are emotinally attached to a home, demand increases, price increases and the property sells. Just because your neighbor has his property priced insanely high, doesn't mean you have to...

2. Make your property as presentable as possible inside and out. Reduce the clutter. Again, reduce the clutter!

3. Trust your real estate agent, then get out of the way. Make yourself scarce during showings and give your agent lattitude in marketing decisions.

4. Have all the information a buyer could possible want in your agents hands (maintenance, renovation history, past owners, previous inspections, etc..)

Having more success at a showing

2005-12-18T19:06:00.000-05:00

What you can do to improve your bottom line while your home is being shown to a prospective buyer.

Let the agent sell your home. It is usually much better if you are not there during the showing, the prospective buyers can talk openly with the agent, who is well versed in handling objections and calming nerves.

If you are home, be nice to the agent and their clients..especially to the agent.

Phrases like, "thanks so much for bringing your clients to my home, I'll get out of your way and let you walk through" are a huge plus. A big turnoff would be what happened to me the other day. I was out with a buyer last week looking at a bunch of homes. We had them scheduled back to back, and in a rare occurance, we were actually running ahead of schedule. I show up at a home at 3:18, on my watch, for my scheduled 3:30 appointment. The homeowner open s the door and starts in with "Gee I wasn't expecting you so early." I'm thinking....she probably hadn't had a showing in 2 weeks (it was a really unusual house), and this is how I was welcomed? I definately won't go out of my way to bring other buyers back.

Children, pets and adults can keep buyers from feeling at ease while they look through a home. For showings, please be out of the house if possible...but don't get pushed around by agents. If you need to be home, be home.

Soft music playing is nice, as is a TV on in the family room. Makes it feel like home.

Turn on all lights for the entire showing. Open drapes in the daytime, close them at night.

Strong cooking or smoking odors can ruin a sale. Make sure your home is fresh for showings. Create pleasant aromas by opening windows, putting out fresh flowers, or baking bread or cookies a bit before the showing.

Have a lock box installed and leave your home in "ready to show condition" whenever possible.

Use an answering machine or another message system available so messages can be left regarding appointments.

Even better....do everything via e-mail. It'sd so much more convenient.

Make sure that the feature sheets of your home are left in a conspicuous place. If your supply is getting low, let me know and I will drop some more off.

Remove and replace major items not included in the sale if you feel this is necessary - you don't have to remove small things - e.g.: dining room chandelier or the occasional window covering

Often it is difficult for Agents to schedule appointments precisely. Expect Agents one half hour either way of the scheduled appointment time.

If your for sale sign is vandalized or dislodges, please let me know right away and I will have it corrected.

Be sure to put valuables away. Although theft problems are extremely rare, you are always better safe than sorry.

What is 1031 Tax Free Exchange

2005-12-18T18:39:00.000-05:00

INTRODUCTION

Much has been written over the years to explain tax deferred exchanges, however, it has been my experience that most explanations are lengthy and much too technical. Being a well known real estate attorney with an emphasis in tax deferred exchanges, as well as an author on this subject, it has been brought to my attention that a simple to read guide explaining tax-deferred exchanges has been in high demand for quite a long time. I hope this guide will be useful to you.

To begin with, I am often asked, "Why should I consider a tax-deferred exchange?" Well, there are various reasons why one would do a tax-deferred exchange, the following are a few examples:
1 __
You may have some non-income producing real estate investments, such as raw land, which are not giving you any cash flow. You could exchange this for property that is income producing, such as a duplex or a rental home. Not only could you start realizing a cash flow, but you can also get income tax deductions such as depreciation, which you did not have with your raw land.

2 __
Often people find that they have been holding properties long after their appreciation has topped out. You can start rebuilding your equity by disposing of those properties and acquiring new ones.

3 __
The area your rental properties are located in has become economically depressed or is deteriorating. Why not trade those properties for others in a better location or neighborhood?

4 __
If you have rental properties with problem tenants or they are in need of expensive maintenance or repairs, sell the properties and acquire other rentals with fewer problems. This may also give you an increase in appreciation.

5 __
Many people think about selling and reinvesting into more income or investment property. One would be foolish not to do a tax-deferred exchange! If you sell and reinvest, you will pay income taxes on the realized gain. However, if you call it an exchange, you will pay no taxes. This means that more money is available as leverage for acquiring your next properties. Look at it as a free loan from the government!

6 __
With proper estate planning you can keep exchanging properties throughout your lifetime. Neither you nor your heirs will ever pay income taxes on the gains.

7 __
By doing a tax-deferred exchange, you can conserve your equity by not having to pay taxes on your net profits.

TAXES

When you sell real estate which has been held for investment or for business, we all know that a large amount of income taxes will need to be paid. Even if you reinvest all of the money from your sale into more real estate, you will still pay nearly the same amount in income taxes.

EXCHANGES

In most of our minds the question lies, "what do the big boys do?? If all of the tax loop holes are for the rich, well, what can the average taxpayer do??" OK, here is the answer we've all been looking for! If you arrange for the sale of your business or investment properties as an "Exchange", such as "trade" properties so to speak, and then reinvest all of the money from your sale into buying more business or investment properties, you will pay NO INCOME TAXES! Yes, its true!

Also, your income taxes are actually deferred (postponed) until the day you decide to outright sell your property and pocket the sales proceeds. You can even avoid "ever" having to pay the income taxes at all by continuing to exchange properties throughout your entire lifetime! Then, with proper estate planning, you can pass it all to your heirs completely TAX-FREE!!

DISADVANTAGES

There are only two possible disadvantages worth noting. One of them being that you will have a slightly lower depreciation schedule when you acquire your new properties. This is because the IRS will look at your new tax basis as being the same as your previous one; less your deferred gain.

The other disadvantage is that losses on your income tax return cannot be deducted if you exchange property rather than sell it. So, if you want to take a loss, just call it a sale, not an exchange

LEGAL & ETHICAL

Tax-deferred real estate exchanges are legal and ethical. Internal Revenue Code Section 1031 has been in existence since 1928. The IRS has even established "recent" guidelines for accomplishing tax-deferred exchanges! The purpose for this law has been to encourage real estate sales nationwide which, in turn, supports our entire economy.

WHAT PROPERTIES QUALIFY

In this area confusion often sets in. Put very simply, any type of real estate used for business, trade or investment purposes will qualify. Examples are: apartments, office buildings, multiplexes, single family or condo rentals, raw land, farms, ranches, commercial, and industrial. All of these will qualify! A lot adjoining a primary residence can also qualify if it is considered investment property.

MIX & MATCH: You are not limited to exchanging for property similar or exactly like your present property. The law and the IRS allows you to trade raw land for an apartment building or a commercial mall, or a condo rental as long as you structure it as an exchange. As long as you are selling (wanting to exchange) real property used for business, trade or investment purposes; you can buy (exchange it for) any other type of business, trade or investment properties. For example, you can sell your self-operated gas station (trade property) and buy an apartment building (business property) and pay no taxes!

WHAT PROPERTIES DON'T QUALIFY

Now it is time to talk about IRC Section 1034. This law is in regards to your "personal" residence. The home you live in will not qualify for an exchange because you cannot mix IRC Sections 1031 with 1034. In other words, you cannot sell your home and use the proceeds to buy business or investment property. Nor can you sell business or investment property and buy a primary residence that you intend to live in shortly after acquiring it. Exceptions and loopholes do exist, and will be discussed later.

But for now, remember, that all of the properties you sell and buy in an exchange must be trade, business or investment related.

YOU DON'T HAVE TO SWAP

You do not have to buy property at the same time you are selling. The law allows for what is called a "Delayed Exchange". This lets you sell now and buy your "replacement" property at a later time. However, the law does set up some strict timing requirements which will be explained later.

There are some interesting ways you can plan your exchange. For instance, you can sell your property to one party and buy your replacement property from another. You can sell one property and buy two, three or more replacements! Here is a good example: if you sell a $450,000 waterfront lot you can buy a $50,000 condo rental, a $100,000 parcel of raw land as an investment, a $150,000 duplex, and a $200,000 commercial building, and PAY NO TAXES!

Also, you can sell several properties and buy only one property with the sales proceeds. In this instance, you may sell a triplex, a rental single family home and acreage for $400,000 and buy an office building for $500,000 and still pay no income taxes!

DO DEALERS QUALIFY?

First of all, let's address the question, what exactly is meant by a "dealer"?

A "dealer" is a person, corporation, or entity that acquires property for a fast resale only. They are similar to "used car dealers" who buy cars to quickly repair, clean and polish them for resale. Congress limited exchanges to those properties "held for productive use in a trade or business or for investment". The IRS interpreted those words to exclude properties "held primarily for sale". Therefore, if a dealer or anyone else tries to exchange property held primarily for sale, they cannot exchange.

However, if a dealer decides to rent the property or to hold onto the property long enough to be considered investment property, then the property can be exchanged. Read my book for more details.

HOW TO HAVE A TOTALLY TAX FREE EXCHANGE

For you folks who like rules and formulas, this section is for you! For those of us that don't, we will keep it simple. So, here it goes... when you sell your property(s), the replacement property(s) must equal or be greater than the VALUE (sale price) and existing DEBT of the property(s) being sold (exchanged), and all of your EQUITY from the property you are selling (exchanging) must go into acquiring the replacement property(s).

The formula is: The replacement property(s) must be equal or greater in VALUE & DEBT than the property(s) being sold (exchanged).

PARTIAL TAX FREE EXCHANGE

Sometimes you may have a PARTIAL TAX-DEFERRED EXCHANGE. This may happen in a number of ways. Such as pocketing some cash from the sale, or receiving "nonlike-kind" property in the exchange. This "non-like-kind" property could be personal property or any other kind of property different from real estate. Another way to have a partial tax-deferred exchange would be for your replacement property to not be equal to or greater than either the VALUE or DEBT of the property you sold. This means that you will pay some income taxes.

Any one of the above situations is known as a "PARTIAL TAX-DEFERRED EXCHANGE" because you have not protected all of your sales proceeds from being taxed. For example, if you sell a $200,000 rental and buy two properties totaling $150,000, you may pay income taxes on the $50,000 difference.

Another example would be if you owned acreage worth $200,000, in which you had $100,000 in DEBT. You decide to sell it!

You then buy a $200,000 duplex using a $50,000 loan (which gives you a $50,000 in equity). This means you went down in debt by $50,000 which is taxable income. Remember, for a totally tax deferred exchange, you must aquire replacement property(s) which are EQUAL to or GREATER in sales price (VALUE) "and" EQUAL to or GREATER in DEBT than the properties being sold.

COMMON EXCHANGE SITUATIONS

As much as I would like to, it is difficult to anticipate all of the situations which may involve an exchange and discuss them at length. So, I will comment on some of the most common ones which may prove to be most helpful to you.

PROPERTIES UNDER CONSTRUCTION

You can acquire replacement properties that will be built for you. However, the construction project must be at a point for all of your equity to be used up and the fair market value equal to the sales price of the property(s) you sold when you acquire title. Completion of the construction project out of your own funds after title passes to you is acceptable.

Although it is not built, during the 45 day identification period, you must identify this property in as much detail as possible. Also, at the time of acquisition, the construction project must be substantially the same as it was at the time you identified it in detail. Only "usual or typical" construction changes will be allowed.

PARTNERSHIPS

A partnership can sell real estate it owns and exchange it for more real estate if it takes title to the replacement property in the name of the partnership. For example, "ABC Ltd. Partnership" is the seller and the replacement property is sold to "ABC Ltd. Partnership". However, if the partnership only wants to sell a portion, such as the sale of "25% interest in ABC Ltd." which owns a building, this would be unacceptable and the IRS will DISALLOW the exchange.

What if one or more members of a partnership wish to do an exchange and the other members do not? Well, although it sounds difficult, there is a way to accomplish a totally tax-deferred exchange. However, it would take too much space to explain it here. Buy my book and read the chapter on partnerships.

SELLER FINANCING

Typically when the real-estate market softens, making it harder to sell, sellers often finance the purchasers themselves. THIS IS DANGEROUS!! Since the purpose of exchanging is to sell and roll over some or all of the sales proceeds into replacement property, any money pocketed is TAXABLE as a partial tax-deferred exchange (as we discussed earlier).

Unless the seller of the replacement property is willing to take over your promissory note (with a Deed of Trust) or Real Estate Contract you received from your buyer; the payments will go directly to you as TAXABLE INCOME. So you may want to compare the tax savings of waiting for an all cash buyer and do a total tax-deferred exchange, compared with the taxes you would pay on an installment sale (which is what seller financing is). Read my book to see other ways around this problem.

CONSTRUCTIVE RECEIPT

If there is a way to foul up your exchange and end up having to pay taxes unnecessarily, this is where it usually happens. For instance, if you or one of your agents (real estate agent or any other person working in your behalf), directly or indirectly, exerts any control over the money received from your sale before the entire exchange is completed, the IRS will DISALLOW THE ENTIRE EXCHANGE.

The object of an exchange is to keep you away from the money until you have acquired all of your replacement properties. If your attorney, CPA, real estate broker, escrow officer, or an employee touches the money; in the eyes of the IRS, it is as good as being in your pocket!! This is why you must hire a stranger to act as a "Facilitator", or "Qualified Intermediary" or "Trustee" to handle the exchange.

The IRS will consider any one who has an existing "AGENCY" or "Fiduciary" relationship with you as being under your control, which in turn, means your money being under your control also. Most state laws automatically consider an escrow officer or closing agent as being your agent, so you cannot use them to hold your money (i.e., hold the proceeds from your sale until you need it to acquire the replacement property).

ESTABLISHING INTENT

It is important to document your intention to do an exchange as soon as you can and it MUST BE IN WRITING. You can establish your written intent in the Listing Agreement with a real estate office; and/or in the Earnest Money Agreement with your buyer. This can be done at the time of negotiation, or later as an addendum to the Earnest Money Agreement sometime before closing takes place.

I recommend using the language in my book which obligates the buyer and seller to cooperate with your exchange at no extra cost or liabilities to them.

TIMING REQUIREMENTS

We must pay careful attention to the timing rules set up by the IRS. When you sell your property(s) and title passes to the purchaser, the timing requirements to IDENTIFY (locate) and ACQUIRE your replacement property(s) begins. You will have 45 days to produce a written list of up to 3 potential replacement properties (common addresses are OK) delivered to your Facilitator or anyone else that is not your '"agent".

A signed, dated Earnest Money Agreement is an acceptable alternative to the written list. If you wish to identify more than 3 potential replacement properties, there are only 2 ways to do this:

1. _
200 PERCENT RULE: You can identify more than 3 properties if all of them add up to no more than TWICE the sales price (fair market value) of the property(s) you sold; or

2. _
95% RULE: You can identify as many properties as you wish AS LONG AS 95% of the fair market value of all property(s) identified are actually acquired. In other words, if you identify 5 properties worth a total of $100,000 you had better acquire at least $95,000 worth from that list.

180 DAY RULE: You must ACQUIRE your replacement properties within the EARLIER of 180 days from closing of the first sale, or, the DUE DATE FOR THE TAX RETURN (including extensions) for the year of the sale.

WARNING!! If you fail to properly and timely identify your potential replacement properties, or fail to acquire title to all of the replacement properties in time, the IRS could DISALLOW YOUR ENTIRE EXCHANGE.

SUMMARY OF SECTION 1031 REQUIREMENTS

1. __
AN ACTUAL "EXCHANGE" MUST TAKE PLACE. You must either directly swap properties with your buyer's property; or the buyer in exchange for your deed will acquire the replacement property for you; or you must hire an expert to act as the "Trustee", "Facilitator", or "Qualified Intermediary".

2. __
THE TRANSFER MUST INVOLVE REAL PROPERTY FOR REAL PROPERTY.

3. __
THE PROPERTIES YOU SELL AND ACQUIRE MUST BE HELD FOR PRODUCTIVE USE IN A TRADE, BUSINESS, OR AS AN INVESTMENT.

4. __
THE 45 DAY AND 180 DAY MAXIMUM TIMING RETUIREMENTS FOR IDENTIFYING AND ACQUIRING REPLACEMENT PROPERTIES MUST BE MET.

5. __
SECTION 1031 IS MANDATORY. If you have accomplished the above 4 requirements, the IRS and the courts will call it an exchange even if you did not intend for it to be so.

IN CONCLUSION...

The best advise I can give you is to USE EXPERTS!! It is too easy to make a mistake and lose your tax deferral. Improperly documented exchanges, even if you state your intentions in writing, have led to numerous DISALLOWED EXCHANGES by the IRS. Missing the 45 day or 180 day rule deadlines will cause the entire exchange to be DISALLOWED!
The penalties are severe! The IRS can assess the back taxes owed with a 25% PENALTY, and all at 20% INTEREST. A $ 10,000 tax owed could add up to a total of $ 17,500 due in two years when you get audited.

The IRS strongly believes in substance over intention. In other words, you must prove your intentions of doing an exchange, in writing, each step of the way. The IRS requires that you use either a "Qualified Intermediary" or "Qualified Escrow Accounts" (where the buyer of your property will buy the replacement property for you), or a "Qualified Trust" (where you hire a Trustee to hold the buyers money and acquire the replacement property for you).

This article was written by Albert J. Velarde who has been an attorney since 1978 and graduated from the University of Washington's School of Law.

Risky Real Estate Moves

2005-12-18T18:34:00.000-05:00

Put nothing down and don't worry much about monthly payments -- what's the worst that can happen?

SALEM, Ore. (CNN/Money) – The American spirit of "buy now and pay later" – or never – has been a driving force behind this unprecedented housing market.

Gone are the days of saving a hefty down payment and striving to pay off your house in 30 years. Today, the typical first-time home buyer or vacation-home buyer might finance the entire cost of the house and pay only the interest owed on the loan for the first several years.

The latest option? A monthly "minimum payment" that doesn't even cover the interest.

Such innovations have, no doubt, been a boon to buyers who might have otherwise spent years socking away a down payment or paid a premium for a 30-year fixed-rate loan on a house they planned to own less than five years. And judging by historically low default rates, homeowners have been able to handle their growing debt burdens.

Then again, buyers have been experimenting with more aggressive financing in the best of all times, when interest rates remain low and home prices continue to appreciate.

"Mortgage markets have been so flush with cash that home buyers are able to layer one risk on top of the other," said Keith Gumbinger, vice president of HSH Associates. "It's possible to borrow more than the value of the home, put in no money of your own and pay a minimum monthly payment."

What's the worst that can happen, you ask? Consider the danger with three increasingly popular loan structures.

'Piggyback' loans
The 20-percent down payment, once the first hurdle to homeownership, is now the exception rather than the rule. According to a recent survey by the National Association of Realtors, in fact, 25 percent of all buyers financed 100 percent of the purchase price, and 42 percent of first-time home buyers bought with no money down.

Though small down payments are the norm, borrowers with less than 20 percent to put down must either pay private mortgage insurance or borrow their down payment using a home equity loan or line of credit.

Most choose the latter option, also known as a "piggyback" loan. That makes sense if you can afford to make your regular mortgage payment and pay more than the minimum owed on this loan.

The danger: A home equity line of credit, which is the most common such loan, carries a variable rate and has no fixed payment schedule. If you make only the minimum payment, the balance of this loan will remain the same. What's more, the interest you pay is immediately affected when the Federal Reserve raises short-term interest rates.

Interest only loans
As the name suggests, an interest only loan requires that you pay only the interest due on the loan for the first five, 10 or 15 years of the loan. It's a popular option in areas where high home prices have made it tough for buyers to afford monthly payments that include principal and interest.

According to R.J. Arnett, executive vice president of national wholesale lending forMortgageIT, an interest-only loan makes sense for first-time buyers whose incomes will likely go up in the next few years or investors who don't want to commit to paying principal every month -- but could afford to pay the higher amount if needed.

"If you're the gambling sort, you could get into an interest-only product and bet that the market will build equity for you," said Gumbinger, explaining that paying down principal is not as much of a concern for people with shorter time horizons, particularly if home prices are going up.

The danger: Homeowners who are using these loans to buy more house than they can afford could get into serious trouble if they don't budget for higher payments down the road. There's no a guarantee that prices will appreciate. And if you stay in the house longer than you planned, your monthly payment jumps drastically after your interest-only honeymoon period.

The 'minimum payment' option
The mortgage du jour -- which is marketed as a cash flow ARM, option ARM or flex ARM -- gives borrowers three or four payment choices each month.

They can pay the old-fashioned principal and interest of a 30-year loan.

They can pay only the interest due.

Or, they can make a "minimum payment" and add the rest of the interest they owe to the balance of the loan.

Lenders put a limit on how much interest borrowers can pile onto their loan. Still, borrowers who consistently pay the minimum will see the balance of their loan go up rather than down over time.

"Traditional banker that I am I didn't think there would be much interest in this product," said Anthony Hsieh, president of LendingTree.com, referring to the payment option his company rolled out in February. "But consumers have loved it."

Still, Hsieh cautions that this not the best bet for everyone. "If you have seasonal income or are self-employed with monthly income that is inconsistent, this loan may be great for you," he said. "You can pay the minimum monthly payment a few times per year, but catch up by making extra principal reduction in months when your income is higher."

If, however, you're using such a loan to push the limits on how much you can afford, you could be setting yourself up for trouble.

The danger: "Not only do you not own any of your home, but you may be piling up additional debts that could quickly exceed the value of the home," said Gumbinger, adding that the interest rates on these loans adjust every one to three months. "There are no guarantees that rates will remain at comfortable levels and no guarantee that home prices will continue to go up."

"You could find yourself in a rather uncomfortable circumstance," he said.

Click here for more on buying a house with little down.

Click here for more on interest-only loans.

Ups and down in the market.

2005-12-15T11:51:00.001-05:00

Ups and Downs Abound in Today’s Market

The roller coaster of the real estate market is truly a never-ending ride full of more ups and downs than you can imagine. Here are a few that I’ve been seeing first hand out here in the trenches.

1. Inventory is UP. We went from a time in the middle on the spring/summer market in which there was basically just nothing for sale, to a time when inventory is definitely more abundant. The net result of that, of course, is a turn around from a point where homes were seeing multiple over full price offers at the open house, to today when even the cream-puff listings are sitting on the market for a little bit before they sell. It’s not a stagnant market, by any means. Things are definitely selling, but it’s definitely not what it was a few months ago. That’s due to far more factors than we can discuss here, but I cover them in detail on my website at www.stevelevine.com if you want to check them out.
2. Interest rates are UP. For over a year the Fed has been struggling to try and move the long term bond market, and as a result the Mortgage rates. They’ve finally succeeded, and we’re now seeing 30 yr fixed rates hovering just above 6%. Still a historically low rate, but 1% higher than just a year ago. This will definitely serve to make owning a home more expensive down the road, or potentially impact pricing.
3. Prices are DOWN a bit. Across the board we’re seeing a softening in prices in some markets. Not a “crash” just a bit of air seeping from the balloon. This doesn’t even apply to all house types, not all price ranges…but overall it’s safe to say that the bloom is off the rose, and then whenever you look at past sales for comparable purposes, you may require adjustments due to seasonality.
4. Number of Agents is DOWN. Boy when the market was rocking over the last 12 months, it seems like everyone I met, from appraisers and home makers, to hairdressers, nurses, and attorneys decided they wanted to become real estate agents. In all the last 20 years I’ve been at this, I’ve never before seen such an influx of people chasing what they all seem to think is the “easy money.’ Boy, if only it were that easy, I’d have more hair left. After a year in the business, and for the most part making very few sales, it seems as though many are closing up shop and trying to find something else to do. We see shake-outs like that any time the market tightens, but this time it seems even more pronounced than in times past and I’ve seen a lot of the new agents putting the ‘ole shingle back in the drawer. I suppose in the end that will be OK, as it will make it easier for the Sellers to ensure that they’re getting only the highest caliper of service.
5. Foreclosures and bankruptcies are up. No mystery here, to be sure. In the last few months alone I’ve seen a half dozen people in our area dealing with potentially losing a home. In most cases, this was due to either overpaying, over financing, or buying just beyond their means. Then, when their job situation changes they don’t have the equity in the property to even pay off the mortgage, and the result is a sad but predictable one. Lesson here…be a smart shopper. Don’t spend more than you can comfortably afford, and please make sure you keep a reserve fund handy for emergencies.
6. Marketing is UP. At times when the market tightens up a bit, it becomes more important than ever to have a top agent who knows how to get a property sold. The days of putting it in MLS and praying are gone, and new and innovative approaches come to the forefront in importance.

So…am I filled with gloom and doom? Absolutely not! We go these cycles every year at this time, and the secret to surviving 2 decades of doing this is just to recognize the cycles, know that the sky isn’t falling, and enjoy the ride. Soon…we’ll see snow again (yuck) but we know that that means the “pop” in demand that we often see the first week of January is just around the corner. For the first time buyers out there, these lulls often represent great buying opportunities. For the current homeowners looking to upgrade, the fall/winter market is often a great time as well. For though you may sell for a few dollars less, you’ll likely more than make up for it on the other end by buying in the winter, instead of waiting for the spring, selling for top dollar, and then being one of the 20 people bidding on some hot new property.

Steve Levine is President of Steve Levine Inc, and an agent for REMAX First Choice. He is currently ranked as the #1 REMAX Agent in New England, and can be reached on-line at www.stevelevine.com or by phone at 508 735-HOME.

How do I know what to offer?

2005-12-15T11:51:00.000-05:00

How will I know what to offer?
By: Steve Levine

There is more to an offer than price, but it's the price that usually attracts the seller's attention. As a buyer, you want to pay the lowest price possible. Why pay more than you have to?

But, don't get carried away with trying to buy at a bargain price. Recently, a buyer made an offer in competition with three other buyers. His was the lowest of the four. He had been making low offers for months, always in competition and always with the same result -- one rejection after another. Eventually you would think that someone would come to grips with the fact that whatever analyses they are using to establish offering prices are inconsistent with the market dynamics.
It is possible to prepare effectively for making an offer, so that you don't find yourself making offer after offer with no success. The first step is to line up the financing you'll need to make a purchase. Most serious buyers are preapproved for a mortgage, some even before they start looking.
Once you know how much you can afford, you are able to compete in a multiple offer situation if necessary. Without preapproval, you have little chance of winning in a multiple offer competition. That is, unless you're willing to offer a higher price than you need to.

To make an offer with confidence, it's essential to understand local market conditions. It helps to make sure you have the right Realtor. A “top agent” in the area can advise you on what factors impact the value of a home, and illustrate strategies to better ensure that your offer is the one accepted. Typically, those agents are unencumbered with the financial pressure of having to “close the big deal” and can truly act with your interests in mind. Let’s face it, there isn’t enough time for YOU to become “the expert,” and thus outsourcing to a trusted agent will be key.
Ask your real estate agent to let you know about every new listing that comes on the market that might suit your housing needs. Arrange to see these listing as soon as possible, before they disappear from the market. It may mean a few wasted trips, but the datapoints will be invaluable.
HOUSE HUNTING TIP: Keep track of the listings you see. Some buyers collect listing flyers in a folder or binder. Make sure your agent tells you the ultimate selling price when the listings sell, and make a record of this. Then when you find a listing you want to buy, you'll have valuable pricing information to help you decide what the property is worth.
In some situations, it won't be possible to see a lot of listings before you decide to make an offer. You might find the perfect house quickly. If so, ask your real estate agent to prepare a comparative market analysis (CMA).
A CMA will give you information about similar listings that sold recently, including how long they took to sell and how close the sale price was to the list price. You won't be able to look inside of the properties that sold, but you can drive by.
Have your agent take you to any other current listings and recent sales that might be comparable to the one you're considering buying. This is good for comparison purposes, and it also ensures that there isn't another listing available that you might like better.

Before you decide what to offer, find out as much as possible about the seller's situation, how long the property has been on the market, and the strength of the current real estate market in your area.
In a hot seller's market, you may have to offer your best price without negotiating. When several buyers are competing for a listing, you may not have a second chance. Again, your agent, if they are very experienced, will be your best advisor on the potential value of any given home.

Steve Levine is president of Steve Levine Inc., and an agent with REMAX First Choice. He is currently ranked #1 in New England, and can be reached on line at www.stevelevine.com or at 508 845-HOME.

How will I know what to offer

2005-12-15T11:50:00.000-05:00

How will I know what to offer?
By: Steve Levine

There is more to an offer than price, but it's the price that usually attracts the seller's attention. As a buyer, you want to pay the lowest price possible. Why pay more than you have to?
But, don't get carried away with trying to buy at a bargain price. Recently, a buyer made an offer in competition with three other buyers. His was the lowest of the four. He had been making low offers for months, always in competition and always with the same result -- one rejection after another. Eventually you would think that someone would come to grips with the fact that whatever analyses they are using to establish offering prices are inconsistent with the market dynamics.
It is possible to prepare effectively for making an offer, so that you don't find yourself making offer after offer with no success. The first step is to line up the financing you'll need to make a purchase. Most serious buyers are preapproved for a mortgage, some even before they start looking.

Once you know how much you can afford, you are able to compete in a multiple offer situation if necessary. Without preapproval, you have little chance of winning in a multiple offer competition. That is, unless you're willing to offer a higher price than you need to.

To make an offer with confidence, it's essential to understand local market conditions. It helps to make sure you have the right Realtor. A “top agent” in the area can advise you on what factors impact the value of a home, and illustrate strategies to better ensure that your offer is the one accepted. Typically, those agents are unencumbered with the financial pressure of having to “close the big deal” and can truly act with your interests in mind. Let’s face it, there isn’t enough time for YOU to become “the expert,” and thus outsourcing to a trusted agent will be key.
Ask your real estate agent to let you know about every new listing that comes on the market that might suit your housing needs. Arrange to see these listing as soon as possible, before they disappear from the market. It may mean a few wasted trips, but the datapoints will be invaluable.
HOUSE HUNTING TIP: Keep track of the listings you see. Some buyers collect listing flyers in a folder or binder. Make sure your agent tells you the ultimate selling price when the listings sell, and make a record of this. Then when you find a listing you want to buy, you'll have valuable pricing information to help you decide what the property is worth.
In some situations, it won't be possible to see a lot of listings before you decide to make an offer. You might find the perfect house quickly. If so, ask your real estate agent to prepare a comparative market analysis (CMA).
A CMA will give you information about similar listings that sold recently, including how long they took to sell and how close the sale price was to the list price. You won't be able to look inside of the properties that sold, but you can drive by.
Have your agent take you to any other current listings and recent sales that might be comparable to the one you're considering buying. This is good for comparison purposes, and it also ensures that there isn't another listing available that you might like better.
Before you decide what to offer, find out as much as possible about the seller's situation, how long the property has been on the market, and the strength of the current real estate market in your area.
In a hot seller's market, you may have to offer your best price without negotiating. When several buyers are competing for a listing, you may not have a second chance. Again, your agent, if they are very experienced, will be your best advisor on the potential value of any given home.

Steve Levine is president of Steve Levine Inc., and an agent with REMAX First Choice. He is currently ranked #1 in New England, and can be reached on line at www.stevelevine.com or at 508 845-HOME.

Protecting yourself when selling a home

2005-12-15T11:49:00.001-05:00

How can I protect myself selling a home?
By: Steve Levine
Disclosure laws vary from one state to the next. But, there is a movement nationally to require sellers to disclose material facts that might effect the buyers' decision to buy or the price they might pay. Most after-closing claims by buyers against sellers involve misrepresentations or sloppy disclosures.
Here are a few guidelines for protecting yourself when you sell your home.
First, pick the right agent. Your listing agent will represent you in interactions with other agents, prospective buyers, lenders, inspectors, and various professionals associated with the real estate business. Be sure to select a trustworthy agent with whom you are compatible, one who will represent you honestly but aggressively. Most importantly, understand WHO is actually the person who will be “marketing” your home and making sure that deals get done, and stay together. Over the last few years, many of the top agents have evolved into “teams” of people. Their inherent marketing axiom is that you’re getting “4 people for the price of one.” On the surface, I can see the allure to a potential seller, after all, they assume, I’m getting “more people” so I must be getting “more service.” While that’s sometimes an interesting approach, it can occasionally be like hiring the Harvard Educated Cardiac Surgeon, but on the “big day” of the surgery he isn’t actually there to do the operation, instead replaced by “an associate,” whie he is in the office meeting with the next patient. That’s often the last thing you want to see when you look up from the operating table. You want the person who met you in the big office with all the diplomas handling every mundane aspect of your care, as opposed to “delegating” you to an underling. That’s why I tell my clients that when they hire me…they get me 24/7. Clearly there’s a lot more work for me that way, but at least I always know where the buck stops, and can keep on top of things at all times.
Second, be fastidious about preparing your property for sale. This will not only facilitate the sale and bring you a higher price, it could prevent after closing disputes with the buyers.
Make a list of all the elements of your home that need repair or replacement. Your agent can help you with this. If you're uncertain about the condition of a major system, like the roof or furnace, you might want to hire a professional to inspect and issue a report.
Determine how much it will cost to repair or replace defective items. If you can't afford to repair everything on the list, ask your agent to help you prioritize. Disclose any defects that you're aware of that you don't fix before selling. As an alternative, get written estimates of work to be done, and offer those estimates to the Buyers and documentation. Without this, Buyers often have a tendency to deduct much more than the actual cost to repair an item.
HOME SELLER TIP: Sellers often fear that if they disclose defects to buyers it will impede the sale of the property. This rarely happens. In fact, buyers appreciate knowing about property defects before they buy. Problems can develop when buyers discover defects after closing that they know the sellers were aware of, but failed to disclose.
A California home seller answered no when he was asked if he had any drainage or flooding problems. He had remodeled his home to create a family room in the lower level that had previously been a basement. During the first heavy rain after the buyers moved in, the family room was flooded with water. The buyers sued the sellers in court and won.
It's natural to feel proud of your home. But, avoid over-selling your home to prospective buyers. Be particularly careful about rooms that were added without required building permits. In the event that issues occur down the road, insurance companies can be very testy about work done without proper municipal permits.
Let's say your home has four bedrooms, plus a room that was added without permits that could also be used as a bedroom. From a marketing and legal standpoint, you'd be better off marketing your home as a four bedroom, not a five bedroom, home. Interested buyers will discover when they look at your home that it has an extra room that could be used for a bedroom. They'll be pleasantly surprised to find more than they anticipated. If you market the home as having five bedrooms, buyers will be disappointed to find that the fifth bedroom isn't a legal bedroom. If this information isn't discovered until after closing, you could have a legal problem.
Many after-closing claims involve misrepresentation of square footage. When a property is passed from one owner to the next, the square footage is often rounded up to a higher number. Worse still is a tendency some agents have to list a 2000sf home with a finished basement as a “3000sf home.” Their thought is that it may generate “more showings” yet ultimately thety aren’t the “right showings.” Buyers come to the home who actually are looking for a 3000sf home, and find the room sizes way to small. Other Buyers, truly looking for 3000sf may not view the home because on paper it sounds too big. As in most things in life, honesty is always the best policy ,in a achieving a timely and efficient sale.
Steve Levine is President of Steve Levine Inc., and an agent at REMAX First Choice. He’s currently ranked as the #1 Selling REMAX Agent in New England, and can be reached at 508 845-HOME or on line at www.stevelevine.com.

Do you have a building permit for that finished basement?

2005-12-15T11:49:00.000-05:00

Did you have a permit for that finished basement?
By Steve Levine

Here’s a topic that I can’t recall ever being covered in any of our previous articles, the need for evaluating Building Permit status when buying or selling a home

I’m in homes all the time and often see gorgeous additions or alterations that were done to a property. Beautiful finished basements, new decks, patios, pools, gazebos, new roofs, storage sheds, new furnaces, a screened in porch etc. Lately, I’ve started asking homeowners whether or not a Building Permit was obtained from the town for these renovations. At least 70% of the time, the answer is amazingly no! This does not mean that the work was not done according to the guidelines under the local building codes, but the lack of a permit to do the work in the first place, means that the home is technically out of compliance.

The applicable statute Chapter 36 (780 CMR 36) states "It shall be unlawful to construct, reconstruct, alter, repair, or to change the use or occupancy of a building or structure: or to install or alter any equipment for which provision is made or the installation of which is regulated by 780 CMR without first filing a written application with the building official and obtaining the required permit."

Basically the bulk of things that you can think of doing to improve the home, require a building permit, from putting on a new roof, to removing a wall, and even putting in a new gas dryer! The importance of a permit is to ensure the safety of the homeowner and the community, as well as protecting the rights of the abutters. If disaster stuck, an insurance company could ultimately try to avoid paying a claim, if they can prove that wiring was done without a permit. Safety first!

The excuses homeowners have for not obtaining the required permits are many.
(1) Gee I didn’t know I needed one.
(2) I thought the contractor filed for one.
(3) I didn’t want them to raise my taxes
(4) I did the work myself, did I still need one?
(5) I think I filed for one I just never picked it up.

As a Home Buyer, you want to ask the question on all homes you visit, whether or not any permits were obtained for work that required one. As part of an offer to purchase, ask for a copy of all permits for your file. When in doubt, the local building inspector keeps copies on file at the town hall.

One of the key things to look for as a Buyer involves the framing of the finished basement itself. Go to the furnace room and look at the “back side” of the finished wall. Check out the piece of 2x4 known as the “sill plate” that touches the cement floor. That piece should, according to building code, be made of “pressure treated lumber,” which will appear to be green in color, as compared the rest of the framing members. If it’s not…chances are there was no permit pulled when the basement was finished.

For Sellers, now is the time to get those permits done. Don’t worry… nobody’s going to call the FBI, yell, or otherwise give you a hard time. I think the local inspectors are usually very understanding and helpful. Most of the time, the work would have been done to code anyway, and you’ll get an easy sign off. Either way, it’s so much easier to get it done early on in the process, before a sale is on the line.

Steve Levine is President of Steve Levine Inc., and an agent at REMAX First Choice. He is currently ranked the #1 Agent in New England, and can be reached at 845-HOME or on-line at www.stevelevine.com.

Baby Boomers, Real Estate, and High Tech…

2005-12-15T11:48:00.001-05:00

By Steve Levine

To say that the last decade has brought revolutionary changes in the Real Estate market would be a huge understatement. I can still recall in 1995, the agents in my office making fun of me as I told them I was going to be using this new “internet thing” to enhance my business. This was before Internet Explorer, before Netscape...yet I knew that this was the direction the industry would soon be heading.

As technology has evolved, the Consumers have evolved just as quickly, and they have come to expect far more than ever before. Amazingly enough, as far as we have come, we have leaps and bounds yet to go. Here are a few changes we’ve seen over the past couple of years, a preview of what’s to come, and some new expectations that the Home Sellers and Buyers have high on their list of expectations.

Consumer Access to Listings

Long held as the “secret box” by the Realtor community, the MLS database has now become a public tool. Gone are the “Sorry but I can’t give you the address” days, and welcome to a world where my Buyers often know about a new listing before I do, because my automated system notified them at 5:00AM. The amount of information available to the public is unbelievable. How much your neighbor paid? How long a home has been for sale? Detailed room by room specifics. You’d be amazed! To access it, pop over to www.stevelevine.com and hit the “Access the Multiple Listings” link under “Search for Homes.” By providing MORE information, instead of less, the search process has been completely revolutionized.

Mortgage Financing Options on-line

When I started my site, there was nothing I could do to pry my mortgage lenders into putting information on-line. Now, I have companies approaching me wanting links on my site. The best on-line mortgage lenders though, are not on-line lenders at all! I can tell you horror stories of dealing with XYZ Mortgage.com from East Nowhereland, and having them botch a closing at the last minute. On the other hand, some excellent brick and mortar lenders have developed a serious on-line presence, and taken the industry one step further, creating on-line seamless loan applications. Again…pop over to www.stevelevine.com and click the link for “Mortgage Information” to view a suite of on-line tools.

True Virtual Tours

As digital cameras and videos become as prolific as mosquitoes, selling homes long distance is becoming a reality. I’ve had several recent clients come in from Europe and the Far East who traveled here without their spouses, and were able to buy a home through the pioneering use of our virtual tours. When I can e-mail a client’s spouse in the UK a 10 minute video tour of a home, inside and out, and even interviews with the neighbors, they can make long distance buying decisions just as if they were here all along.

Coming Soon…

Virtual Open Houses

Within the next 6 months, you’ll be seeing a new concept I’ve developed called the virtual open house, hit the marketplace. Miniature web cams placed in each room will be fed through a laptop computer and directly onto the Internet, for a specified Open House period. No more waiting until Sunday! You’ll be able to dial into a new listing, often before it even hits the market, and have an open house from your office computer on a Tuesday afternoon, complete with inside and outside views, interviews with the homeowner, aerial photos and everything you need to make a decision as to whether to leave work and head out, without you’re needing to waste the trip. For those moving in or out of state, this will be an amazing marketing tool.

Compact Disks replace flyers

I showed a home a few weeks ago that w as listed at close to $1 Million and the “take home sheet” for my buyer was basically a wrinkled, faded, photocopy of the MLS print-out. Not sure where that agents marketing budget went, but imagine a CD-ROM flyer instead! Packed with HUGE full sized color photos of each room, from all angles, video clips, copies of plot plans, seller disclosures, utility bills, and everything else a Buyer could need! The cost to burn a CD-ROM is now down to under One Dollar, and represents a ground breaking advance!!

On-Line Offers

This one’s almost done as we speak. Basically just a compilation of the required documents needed to make an offer, in an on-line format. No more scribbled signatures on the hood of a car, we’ll now be able to combine the Offer, Disclosures, and Mortgage Approval in a Digitally signed file, E-Mail a copy to the Sellers, Attorneys and Other Agents, and have a fully executed copy back in hand within minutes. In a fast passed market such as this, a moment lost is a moment in which other offers can come in.

High Tech vs. High Touch

No matter how far we carry the technology, one must never lose site of the fact that we’re still in a people business, and that “high-tech” is not a substitute for “high-touch.” The goal remains to make it easier for our clients to do what needs to be done, and make ourselves more efficient in the process…. NOT so we can work less, but so we can spend more time doing the handholding that always has been and will be the mainstay of the industry. That may mean taking a bunch of clients to Fenway, like I did the other day, or it may mean spending that hour showing your new home to your visiting relative. It could mean having my handyman and landscaper come over to prep your house before marketing, or just going out for lunch so we can talk for a while. In the end, the goal is not to “replace” the personal interactions, but streamline the other parts of the process so we’ll have more time to spend together doing all the personal things we’ve always done. As Tony Robbins once said, “If you have customers you’ll starve, if you have clients, you’ll survive. But if you have friends, you’ll always be rich, because friends always do business with friends automatically. Be a friend first, and the rest will come.”

Steve Levine is President of Steve Levine Inc., and an Agent at REMAX First Choice. He is currently ranked as the #1 Selling REMAX Agent in New England, and in the Top 20 worldwide, out of 80,000 top professionals. He can be reached on-line at www.stevelevine.com or by phone at (508) 845-HOME.

Agent loyalty works both ways

2005-12-15T11:48:00.000-05:00

Agent Loyalty Works Both Ways
By Steve Levine

We’ve covered so many times over the years the concept about how agents should treat their clients but what about how clients should treat their agents? For as much bad press as I’ve seen time and time again about Buyers and Sellers receiving marginal service and advice, I wonder if anyone has ever covered it from the agent’s point of view. My wife tells me that most people just don’t understand how the industry works and how agents earn a living, and that we need to go farther to explain what agents go through every day.

This past weekend, I was doing an open house and met this wonderful couple. We talked for close to an hour. They asked if they could meet with me privately to write an offer. I made plans to meet them after the open house, at 2:15 at my office. At 2:00PM, they called me for directions, and said they were on their way. I called my family, told them I’d be late for baseball practice, and off to the office I went. I sat there about an hour…and nobody showed up! Two hours later, I received a fax from another agent, with an offer she had written with them on the property. What happened between 2:00 and 2:15 I can’t imagine!

The week before I had a client who I had been working with for 6 months. We’d been in touch constantly while waiting for his house to sell in Syracuse. Finally, the home went on deposit and he asked me to e-mail him a list of homes, so he could do some preliminary drive by screening and decide which ones to look at with me that weekend when his wife came to town. That night, he e-mailed me to let me know that he really liked one of the ones I sent him to. In fact, he liked it so much he called the agent on the sign and bought it on the spot! He just wanted to thank me so much for all my help over the last 6 months. No money for the Levine kids that day. Thank God I’d sold 5 others that week and was feeling good about myself, or I might have locked myself in the garage with the engine running!

Such is the life of the Real Estate Agent - from the agent’s point of view!

Professional Realtors are not salaried employees. They invest tens of thousands of dollars in marketing (I spent $200K last year), pay their own health insurance ($1100/mo), disability insurance ($500/mo.) take educational classes, and routinely work 7 days a week, 60-70 hours+. They have no 401K, no paid vacations, no stock options, no sick days, and no benefits of any kind. The sacrifices they make in their family lives are incalculable, as evidenced by the huge divorce rate. Look around at your kids Little League game. See someone furiously typing on their Blackberry between innings? There’s a Realtor! I spent 3 days in Cancun over Christmas, and all my family heard was “Senor, you have another Fax at the front desk. Feliz Navidad.“ They’re willing to give up so much for their clients, no matter how long it takes to find that perfect home, and all they want in return…is loyalty, and maybe a smile or two.

The benefits of establishing loyalty with an agent is huge. An experienced agent knows the market better than you ever will. They know which homes are a great buy, and which ones are overpriced; which might be impacted by future development; which homes obviously have work that appears to have been done without a permit. They key lies in whether the consumer will ever hear those pearls of wisdom from their agent, and that depends on the relationship. When an Agent has a loyal relationship with their Buyer, they have absolutely no reason on earth to be afraid to tell you what “not to buy.” If your relationship deteriorates to one of “I call a different agent every day and whoever answers the phone first wins,” each agent has only one goal - get you to buy today! They know if you don’t, they’ll likely never see you again, and as such it just becomes a matter of whether or not they can “close the deal” that particular day and any advice they give is possibly tainted.

Loyalty should NOT be blind, and more importantly it should not be given at all until you’re sure you’ve got the right agent. Don’t pick an agent based on seeing a particular house or any other such nonsense. Pick your agent based on nothing more or less than a proven track record of success. How long have they been in the business? How many homes have they sold? Do they know about the hottest listings before they hit the market? Only once you know the answers…“choose” your agent. Once you do though, be the most loyal Buyer in the world, and you’ll reap the best the industry has to offer. Steve Levine is president of Steve Levine Inc., and an agent for REMAX First Choice. He’s been name the #1 REMAX Agent in New England for the 6th straight year, and can be reach at 508 735-4663 or on line at www.stevelevine.com.

Access the MLS database

2005-12-15T11:47:00.001-05:00

5 ways to get burned by a market bubble

By Steve Levine

Everything time I turn on the TV these days I see story after story about the so-called “real estate bubble” that looms on the horizon. Experts cite reasons such as the inevitable rise in interest rates, the drastic increase in cost of housing, and shaky overall economy, as reasons why such a bubble is inevitable. While I’m not sure I concur with all them, nor agree that doom and gloom lies just over the next mountain, I certainly do see their point. What’s amazing to me isn’t that so many people are afraid of a market bubble, but rather that so few people are taking proactive steps to protect themselves. It almost seems like they’re just walking into fire without even giving it a second thought. For those people, I decided to put together a detailed instruction sheet about how to get burned, so that it would be an easy path to follow. A tad tongue in cheek perhaps…but good advice nonetheless.

Step One – Overpay for your new home. Often it’s really hard to know just what something may be “worth.” After all, it’s really hard to figure out, especially for a unique property, just what the “value” truly is. Those aren’t the situations I’m talking about though. I’m talking about those sales where 3 homes have sold on the street for $410K with a full finished basement, and a month later someone comes in from out of town, and buys the “hot new listing” on the street with an unfinished basement for $500K! The house all the local buyers were just shaking their heads at in amazement. Doing you homework on recent sales is vital to making sure you pay a fair price.

Step Two – Get fooled by the lure of low “interest only” mortgage rates. Every time I hear a commercial on the radio about “rates as low as 1.5%” I wonder just how many people fall for that ruse. From a recent report in the paper, it seems that there are many more than you’d think. Do they understand that these rates are just a temporary fix? Do they know that they could borrow $400K today, and find that 5 years later they owe $450K – a process known as “negative amoritization? Or…do they just think they’re saving money by choosing that “special program.” Clearly, there’s something out there for everyone.

Step 3 – Buy more house than you can comfortably afford. I’m a firm believer in buying the best home you can. Under-spending on your home, and then having to sell it in two years to upgrade is a total waste. On the other hand, stretching to the brink, counting on two incomes, plus bonuses, plus commissions, and having no savings left the day after the closing is a very risky venture. I’ve had people in the 600K range who were buying at 5% down and couldn’t close until they got their next paycheck, because that’s where some of the 5% was coming from. No clue how one sleeps without a ‘reserve” in the bank.

Step 4 – Pull all the equity out of your home and use it to buy a second home, boat, sports car, etc.. The equity in your home is one of most important assets to your family. That could provide for retirement, college tuition, and a cushion in the event of a market downturn. When you pull out all that equity, it’s just that much easier to get hurt. Why not just rent a house on the cape for two weeks? Do you really need to own one? How often will you be there?

Step 5 – Choose the wrong agent to work with. I’m always amazed that people put more effort into screening the qualifications of their landscaper or cleaning lady than they do in choosing their Real Estate agent. This agent will be handling the largest investment of your life, and you really need to evaluate their qualifications, honesty, track record, and communication skills. They need to have the courage to really express an opinion based on their past experience, rather than just yes-ing you to death in the hopes of making a quick sale. Oddly enough, real estate is the only field I know where the consumer can work with the best in the industry, for the same price as “that nice lady from playgroup who just got her license” and amazingly the consumers don’t realize there’s even a difference.

Anyway…keep it to 600 words they tell me! If you have a few minutes to spare, I recorded a few short video clips to help you navigate the maze. You can find them at www.shrewsbury-ma.com/video.htm Hope you enjoy! Have a safe summer.

Steve Levine is president of Steve Levine Inc., and an agent at REMAX First Choice. He’s currently ranked the top selling REMAX Agent in New England, and can be reached at 508 735-HOME, or online at www.stevelevine.com

Getting burned in a bubble - a how to guide.

2005-12-15T11:47:00.000-05:00

Can I sell contingent upon finding a replacement home?

2005-12-15T11:44:00.000-05:00

Can I sell contingent upon finding a replacement home?

Happy summer everyone! I never thought that summer would ever arrive! Before I get to this weeks article, I just wanted to remind everyone that 3 slots still remain for Home Sellers interested in this springs “Homeowners Blend Program” which provides for real estate sales fees as low as 50% of what you might have been expecting. If you’re truly looking to maximize your net return on the sale, drop me an e-mail at steve@stevelevine.com and I’ll block off one of those slots for you. You’ve got nothing to lose, and thousands to gain.
OK… this week we’re doing “contingencies.” Sellers don't like offers that are contingent upon the sale of the buyers' home. Buyers don't like to make offers on homes that are contingent upon the sellers finding a replacement home. The reason these contingencies aren't popular is that they involve a high degree of uncertainty, and there is often very little holding either party to the transaction.
An offer that's contingent on the sale of another property isn't worth much unless the buyer's home sells. If it doesn't sell, the deal is off. Likewise with a sale that's contingent upon the seller finding a replacement home. If the seller doesn't find a suitable replacement, the sale is off. In most cases, better options exist for both Buyer and Seller.
In an ideal world, sellers would find their new home before they put their current home on the market. This way, they could sell without a requiring a contingency that might jeopardize their marketing effort. Some buyers, particularly buyers who need to be in a home by a certain date, won't even consider offering on a home that's contingent on the sellers finding a home.
Most sellers, however, don't have the financial wherewithal to buy the replacement home without having their current home sold. They need the proceeds from the current home in order to close on the new home. That said, there are several stopgap measures we’ve come up with in the last year which can easily address this age old problem, especially in hot markets such as this.
One alternative would be to put your home on the market with a provision that you may need a long closing or rent back. A rent back provision lets you stay in your home and rent from the new buyers for a time after closing. The length of time is negotiable between the buyers and sellers. This gives you time to find a replacement home so that you can avoid an interim move.
Sellers who are intent on selling contingent on finding a replacement home should attempt to reduce the uncertainty factor before they market their home. Start looking for a new home before your current home goes on the market. You can log directly in the local Multiple Listings at www.massachusetts-multiple-listings.com and at least begin perusing the listings, just to get ideas..as opposed to falling in love with a particular home.
Once you're convinced that you'll be able to find a home to buy, then we can put your home on the market. Price it competitively so that buyers will be willing to accept your contingency. If you've located a specific home you want to buy, we will indicate this in the Multiple Listing information about your home.
Buyers may be concerned that the sellers will be unreasonable in their home search. If the sellers have already found a home to buy, this increases the chances that a Buyer will be willing to initiate the process, and that the sale will go through.
If you're making an offer on a home that's listed contingent on the seller finding a home, and the sellers haven't located a replacement home, consider including a release clause in the contract.
A release clause might read like this: If the sellers haven't located a replacement home by a certain date, the buyers can give the sellers written notice that they are withdrawing from the contract unless the sellers remove their home purchase contingency within a certain time period (i.e. 24 to

With a release clause (also called an "escape" or "kick out" clause), the buyers aren't tied into a contract for an extended period of time. They can get out of the contract if the sellers don't find a home within a reasonable time period.
Steve Levine is President of Steve Levine Inc, and is currently ranked as the #1 REMAX Agent in New England. He can be reached at 508 845-HOME or on-line at http://www.stevelevine.com.

Carbon Monoxide Detector Law hits Massachusetts

2005-12-15T11:41:00.000-05:00

My last article of 2005 may be the most important of all.
by Steve Levine

Well we’ve come to the end of another year. It’s been a year with just so many unimaginable triumphs and tragedies. It was, after all, the best of times, and the worst of times, to paraphrase Dickens. Before moving on to the exciting year ahead of us, I wanted to take a moment to say thank you on behalf of myself and my entire family. I bump into people all the time who tell me how they wait each month for their issue of the Advocate, hoping to find one of my articles. The feedback I get has been amazing. Many people I meet can quote my articles verbatim, which I always find hard to believe, or have piles of them clipped out and saved. I get e-mails, letters, suggestions for columns, and questions on last months piece all the time. Hopefully you’ll keep them coming. It’s truly been one of the great pleasures of my life being your Hometown Realtor. I know that all I am or ever hope to be, I owe to all of you, and I thank you from the bottom of my heart for your loyalty over the last 20 years.

Today I wanted to write a little bit about Nicole’s Law which was signed by the Governor on November 4th, and goes into effect in March. This law honors the memory of young Nicole Garofolo, a Plymouth girl who died last winter when snow piled up on the side of her home, blocking the exhaust pipe for the heating system and causing the home to fill with Carbon Monoxide gas. In short, this law will mandate the installation of Carbon Monoxide detectors in virtually every home or apartment in the Commonwealth heated with fossil fuels like oil, gas, wood or coal, or any property with enclosed parking of any kind. This law has been talked about for years, and while it definitely imposes a cost burden on homeowners and landlords, it truly is a minimal cost compared with the many lives that will be saved. It’s estimated that last year saw nearly 3000 Carbon monoxide cases here in Massachusetts.

Some details of the enforcement policy are still being drafted by the Board of Fire Regulation Provisions, and we should have a final policy imminently. In short though, you’re looking at a requirement for “Hard-Wired Battery Backup” (HWBB) detectors in many homes. Properties with an unvented gas heater, shall have a HWBB in direct proximity to the heating unit, and according to sources I’ve spoken to, those units will no longer even be allowed as the primary heat source, which affects all of the gas-on-gas units.

Many new homes have furnaces, which utilize “power vents” instead of a chimney, sending the exhaust fumes out through a wall. These homes will require a HWBB next to the furnace, as well as a separate battery or HWBB unit outside the bedroom area. In addition, these properties will need to install a sign, placed a specified distance above the ground on the outside of the home directly above the vent, that contains specific wording about the fact that Carbon Monoxide is emanating from that vent, and the importance of keeping the vent area clear from obstructions.

The current Massachusetts Smoke Detector Law requires that all properties be inspected at the time of sale by the local Fire Department. Now, the Fire Department will also need to do a full inspection of your Carbon Monoxide detectors, and sign off on the system. The additional cost for this inspection will vary from town to town. The state has authorized Fire Departments to charge “up to $100” provided that the inspection is done concurrent with the smoke detector inspection, although many towns may opt to charge less. Landlords will need to have the property inspected any time there is a tenant turn-over. It’s very important to note that this law does not apply “only to properties being sold” but to “all properties in the Commonwealth.” While enforcement may be cumbersome, in the case of homes not being sold, it still is important to understand the law and comply with it. To have something happen to your family, and know that $30 could have saved them would be a tragic waste.

In the opinion of many, this law is long overdue. While it may seem to be a tad draconian in nature, it ultimately will save countless lives. Certainly one may want to opt to go over and above the regulations and truly consider installing multiple CO detectors throughout the house. Smoke and CO detectors are without a doubt the cheapest piece of mind your family could ask for. For low income residents who may have financial issues with buying a CO detector, resources may be available to provide them. Please e-mail me at steve@stevelevine.com and I’ll see if I can get one for you.

Have a happy and healthy holiday, and I look forward to seeing you in 2006.
Steve Levine is President of Steve Levine Inc., and an agent for REMAX First Choice. He’s currently ranked as the #1 REMAX Agent in New England and can be reach on-line at http://www.stevelevine.com or by phone at 508 735-4663. You can also access the local Multiple Listing System at http://www.massachusetts-real-estate-sales.com

Welcome to my Massachusetts Real Estate Blog

2005-12-15T11:39:00.000-05:00

Time to refinance to a higher rate?
By Steve Levine

Predicting the future is always a dangerous little experiment…don’t you agree? I have to say though, I’ve been doing this since 1985 and my predictions have usually been dead on. This time, I think there may be only a few months or so left to lock in some of the huge gains we’ve seen in the real estate market in the last few years and protect yourself for the future.

Clearly we’re dealing with a rising interest rate environment. Fueling the rocket in real estate values in the last 4 years has been the ridiculously low long-term interest rates and the willingness of the lenders to bend over backwards to give away money. That gravy train may be rapidly coming to an end. Over the last few months we’ve seen the 30 year fixed rate mortgages rise from absolute historic lows in the 4.5% range to well over 6%. Of course…6% is still low relative to the 10, 11, 12% rates I saw when I entered the business in the mid 80’s, but the same buyer who could afford to pay $X for a home when rates were 4.5% jut don’t qualify to buy it at 6.5%. That has led to prices slipping a bit in some market segments and to days on market values stretching out in many communities. Ultimately, I think we’re going to see long-term rates in the mid 7% range within the next few months and that’s going to shake things up further. In such an event 10% “cut” in home pricing could easily happen in the blink of an eye. Of course…the buyers would be wrong to think that would be a good thing. Ultimately, if you do the math, you’ll fin dit far better in the long run to buy now when rates are low. Paying 10K less for the home later, but paying 7% over 30 years, will cost you way more in the long run.

For current homeowners, if you have an adjustable, now is the time to go back and refi to a 30 year fixed. This is especially true for anyone who took out a home equity line.
Why refinance now and go for a higher rate? Because it may be the only chance you get! During the late 1980’s rates had been in the 11% range and prices had skyrocketed. Then came Black Monday in October of 1987 and the gloves were off. Soon, prices had slipped across the board. I can still remember having an 11% rate on my first condo back then. I had paid 75K, and next thing I knew it was worth 40K. Adding insult to injury though, and this is my concern here, the rates had fallen into the 7% range and we all wanted to refinance, but the banks wouldn’t let us because the properties would not appraise for the amount of the mortgage. Obviously, no bank wanted to lend 75K on a property that was only appraising at 40K so a refinance was impossible. This led homeowners who could easily have afforded to keep the property at 7%, to instead let the banks foreclose, driving the prices in the complex down even further. It took 10 years for the values in the complex to come back to where they were.

The point I’m making is that even if rates go back down, you may now have the equity position in the home to allow you to refinance it, so bite the bullet now and bail on that 5 year adjustable rate. I talked to my favorite lender the other day and he’s already working on putting together some special packages for those that want to lock in at a 30 year fixed.. Feel free to call him if you want and mention this article. His name is Pat O’Reilly and he’s a VP at Chase Manhattan Bank. 508 872-2680.

The other issue we’re going to want to discuss in next months column is “loan workouts.” There’s a term that hasn’t been uttered in our area in a few years, but I can remember when it was all too common. Loan workouts occur when your house value is less than the amount owed, but you need to sell. That is going to be more a factor in the future, not because of values slipping a lot, but because of the multitudes of people buying homes with “no money down,” and in many cases financing the closing costs into the mortgage. This resulted in clients buying a home for $400K back in April, but getting a mortgage for $410K. If the value were to slip, even to $390K, while coinciding with a life-altering event such as a job loss that forced them to move, they’d have a big problem. In such instances, the only way out is typically to get the bank to accept less than the full amount owed, as full payment for the mortgage. Doing so requires a dedicated, sensitive, and understanding team of professionals and knowing what steps to take and when. We’ll talk more about that next time. In the meantime though, if you need help with a loan workout situation, please get in touch with me at steve@stevelevine.com and we can set up a time to chat.

Steve Levine is President of Steve Levine Inc., and an agent with REMAX First Choice. He is currently ranked as ther top REMAX Agent in New England. He can be reached on line at www.stevelevine.com or by phone at 508 735-4663.