Hi folks. Today I want to talk a little bit about credit scores and how they may be affected by the credit crunch we are experiencing. Lenn Harley wrote a post last week that touched down on some of this, titled "ANOTHER DRAG ON THE ECONOMY?? AN UNTOLD STORY. The loss of consumer credit." If you haven't read Lenn's post please take a minute to do so. 

Lenn's post is about the effect of foreclosures, short sales, late payments, etc....on a person's credit score and how this will affect their ability to get jobs, open bank accounts, buy cars, find affordable insurance and so forth. What her post doesn't mention is the negative effect of credit scores for folks that do pay their bills on time. 

Your credit score is based on several factors....including: paying debts on time, amount of debt AND available credit. The last one is the kicker. Having a couple of credit cards is a good thing. Owing more than 50% of the available credit is a bad thing. 

Let's say you have 3 credit cards with available credit of $60,000, but, because you are very good with your finances, you keep your total debt at about 25% or $15,000. This is a good thing. It shows you are able to manage credit in a responsible manner. Now let's say you get your bills next month and the credit card companies have decided to "freeze" your credit at the amount owed or $15,000. You are now maxed out on your credit cards and your credit score will drop!!! 

That's right folks.....you have done everything right and your credit score has dropped because the credit market is in turmoil. Does this suck or what?

I wrote this article in July of 2006. In light of where we are at today I'd say my concerns were valid.

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No money? No problem.

Negotiated a deal on one of my listings yesterday. The Buyer is purchasing using 100% financing with the Seller paying closing costs. My market is affordable housing with the majority of homes priced from $190s to $250s and it seems like most of the Buyers lately have been purchasing with no money down.

Now don't get me wrong I am in favor of home ownership for everyone but I fear a lot of the Buyers are going to have financial difficulties in the near future. With high insurance costs, property taxes and mortgage payments I am seeing payments of close to $2,000 per month for a starter home. That's a pretty big nut to crack every month, in my area, where most families are regular working class people and don't have any reserve funds if they should encounter a financial setback.

Also, a good number of these purchases are being made with ARMs with the Buyers basing their ability to pay on future raises at work or a part time job that they may or may not be getting. In my opinion Mortgage Brokers and Realtors are being overly aggressive in selling these folks on the advantages of home ownership without really taking the time to counsel the Buyers on the true costs involved. And since they don't have to come up with any money at closing they are sitting ducks for Mortgage Brokers who are charging them sometimes outrageous fees for doing these types of loans.

So my challenge to REALTORS(R) who are dealing with first time Home buyers, with a little or no money down, is to really take the time to explain the pros and cons of purchasing a home. If the Buyers are fully informed and are wanting to move forward then help them to negotiate fees or guide them to the myriad of programs available that can help them with financial assistance. Placing a Buyer in a home he can't afford can damage them for years. It can cause bankruptcies, divorces and even illnesses. So let's "Protect the public" it's what REALTORS(R) are supposed to do.

Hi folks. If you are looking to purchase single family homes, that will cash flow, the time is right. The homes below would rent in the $600 to $650 per month range. With 20% to 30% down each would have a positive cash flow of approximately $100 to $150 per month. There are currently 65 properties on the market in Poinciana Florida for $75,000 or less. Most of these are 3 bedroom 2 bath homes with about 1200 sq ft. 

Check it out: 

3 bedrooms 2 baths with 1088 sq ft of living area built in 2000. Last sold in August of 2005 for $163,500. It is currently back owned and is being offered by First Service Realty, Inc at $44,900!!!

3 bedrooms 2 baths with 1750 sq ft of living area built in 2006. Last sold in February of 2006, brand new, for $198,300. It is currently bank owned and is being offered by First Service Realty, Inc at $63,500.

4 bedrooms 2 baths with 1410 sq ft of living area and a pool built in 1986. Last sold in December 2006 for $182,000. It is currently bank owned and is being offered by Goodwin Realty & Associates at $64,900.

***These properties are not listed by Tutas Towne Realty, Inc but are a sampling of available homes per the Mid-Florida Regional Multiple Listing Service.

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Folks are you looking for your own little piece of Florida paradise? If so this could be the one. Immaculate 3 bedroom pool home on a half acre lot. Extensive landscaping. Extended driveway and separate detached garage/work shop. Very private subdivision. Privacy abounds in this very small and private subdivision near Cherry Pocket. More than 1/2 acre of lush landscaping. Solar heated in ground pool.

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Hi folks. Many times over the years I have heard from Sellers wondering why their home hasn't sold. The usual comment is "it's priced right". Well is it really? My experience has been that any property will sell if the price is right. What is the "Right Price" in today's market? Is it "Market Value" based on the last 6 months of sales? Is it based on homes that have sold in the last 30 days? Is it the "Appraised Value"?

The "Right Price" is the price that will sell your home in 60 to 90 days. But what is this magical number and how do we arrive it? Well in my market (Poinciana, Fl) the right price is 10% to 15% below recent comparable sales. When Realtors are searching the MLS they may have 100-200 homes that meet their Buyer's parameters. My Seller's property, in order to sell, needs to be in the top 5 (preferably #1) properties on the list (by price) and it needs to have a competitive or better co-broke.

If you can achieve this positioning you should be able to get the property sold in a short period of time. Seller's need to know this. It is very important when pricing a house to look at the whole picture that includes active, pending, withdrawn, expired and recently sold listings. I know this is Real Estate 101 but I have met with many Seller's recently whose listings have expired and they have never even seen a "Market Analysis". When asked how they arrived at the listing price they say "this is what we told him/her we wanted." They used a little known technique to price their property it goes something like this:

Down payment for house I want to buy + moving expenses + credit card debt + closing costs + Realtor commission + current mortgage balance="Market Value".

Now I know this may be the new math but folks it won't get your house sold. When hiring a REALTOR(R) it is important that that REALTOR(R) provides you with a detail analysis of current market conditions and counsels you on what it will take to sell your property. They need to be 100% honest about pricing. It may not be what you want to hear but it must be what you need to hear. Then and only then can you make an informed decision on how to list your house at the "Right Price".  Make sense?

Here are a few photos I took while driving around Poinciana Florida today. If it's true that a picture paints a thousand words then I guess these pretty much sum up what's going on with the Poinciana Real Estate Market.

IT'S A JUNGLE OUT THERE!!!

MOVED ON WITH NO FORWARDING ADDRESS!

TRYING TO MOVE ON!!

NEED I SAY MORE?

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Hi folks. I had one of my Sellers email me earlier today needing an update on what is going on with her property. She's an absentee Seller and I could feel her frustration. She had been to my Poinciana website and noticed that I had just closed on a short sale that was similar in size to her house. Anyway, I'm sure many of you are getting these types of emails, so, I decided to post my response here, just in case it will help you with responding to your Sellers. The main thing, of course, is too just be honest. As a listing Broker, I can't control the market and I certainly don't take responsibility for it. 

When I first listed this property we were within 5% of market value and have in fact had 2 offers on it that were turned down. So here's my response to my Seller. 

START OF EMAIL

Thanks for your email. I did just close on a short sale property a couple of weeks ago. It was about the same size as yours but was a single story. It sold for $140,000 with the seller paying $8,400 towards the buyers closing costs for an effective selling price of $131,600. 

We are getting some activity on your home but it is very sporadic. I have attached a market report showing how homes with at least 4 bedrooms, 2000 sq ft or more built no earlier than 2004 are doing in Poinciana since we placed yours on the market. 

What it shows you is that there are currently 199 homes for sale that meet these parameters. The average home has 4 bedrooms 2,551 sq ft and is priced at $174,413 or $68.49 per sq ft. For reference yours is priced at $74.79 per sq ft. 

There are 18 properties under contract(pending). These are on average 4 bedroom homes with 2,623 sq ft priced at $151,446 or $58.50 per sq ft. 

There have been 52 sales since your house was placed on the market. These were 4 bedroom homes with 2,552 sq ft and sold for $160,917 or $64.30 per sq ft. 

This shows me 2 things:

1. First, the homes that are selling (sold and pending) are larger than yours and are selling for less money per sq ft. The sales are at $64.30 and the pendings are at $58.50.
2. Secondly, this shows me that prices are still declining. That means that your house will be worth less tomorrow than it is today and less next week than it will be tomorrow. 

The last time we discussed pricing was 4 July. At that time, the average price per sq ft was $66.00. Your house at that time was worth $141,000. Based on that figure a price reduction to $149,000 was suggested. You agreed to $159,000. 

Based on today's price per sq ft the value of your house is $137,500. So the issue is still pricing.

Poinciana is averaging about 45 sales a month out of 1200 listings. That means that there is 26 months of inventory on the market. 83% of the sales are either bank owned properties (REOs) or short sales. 

So, to answer your question, people are looking at the best priced properties out there. If they can find a bare basic house that is relatively new for $20,000 less than yours then that is what they are buying. 

To compound our market difficulties, as of September 31st, Seller paid down payment assistance will no longer be allowed. This is a huge part of the market in Poinciana. FHA is also raising their minimum down payment from 3% to 3.5%. Mortgages are getting more and more difficult to get. 

So what do you do?

• Reduce it and sell it before it gets worse.
• Rent it out. 

Here is a link to my latest market report. 

I hope this helps you to understand what's going on. I'll look forward to your thoughts. Please feel free to give me a call if you want to chat. END OF EMAIL 

Folks, chasing a declining market downward is a losing proposition. What say you?  

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This is one of my classic posts that I felt I needed to bring to the front of my blog. It shows that short sales aren't something new. This post was written in December of 2006. Enjoy!!!

Tomorrow, I'm placing a home on the market, that is going to require a short sale. Seems like I'm getting an awful lot of these lately. This is one where I just don't understand what some folks are thinking. Nice young family, who were first time homebuyers just about 2 years ago. They bought a great little house, new construction, and they only paid $135,000 for it in November of 2004.

This was right before our big increase in prices that happened in Poinciana in early 2005. So when I made my appointment with them, earlier this week, I assumed they would be in a pretty good equity position. Even if they had purchased with 100% financing, which they did, they would still be able to receive a sizeable amount of money at closing. Based on my preliminary analysis, the property is worth between $225,000 and $235,000. That's some real good appreciation for 25 months of ownership. After expenses they should be looking at around $70,000 to $75,000 in their pockets. That's a lot of money for a young family.

Well, when I met with them, I was shocked to find out they currently owe $225,000 on this house! How the heck did that happen? From what they told me, when they moved into the house they wanted to fix it up and furnish it real nice, so about six months after moving in, they refinanced and pulled out the equity that had built up when prices started skyrocketing.

They used this money to purchase the things they wanted. New furniture, TVs and all the other items that a young family think they need. What they didn't count on was hitting a financial bump in the road about 9 months later. But they weren't too concerned since they kept getting all these mailers from mortgage companies in the mail promising them more money.

The temptation, being too much, they decided to call one of the mortgage companies and have a salesman came out to see how he could "help" them. They said he was a real nice guy and he told them they could put a second mortgage on their house for $65,000. He was also nice enough to let them know, that the way houses are appreciating, that after a few months, they could refinance again and get rid of the second mortgage. He said "Don't worry about the high rate, once you refinance the payments will come back down to what you can afford. You can use the $65,000 to make payments in the meantime."

What a great guy! They can now get that new car they want and buy more nice things for their three young children. They told themselves, "It's not a big deal. We know we will get jobs real soon and then we can just refinance like the nice man said. This homeownership is really awesome! It's like having our very own ATM machine."

Fast forward to this week. I met with them and they are in dire straights. Husband just started work a couple of months ago and the wife has still not been able to find work, since she is too busy, taking care of three small children. They have enough money to make two more mortgage payments and then they are done.

So, tomorrow, I am placing the house on the market at $225,000 and I will be trying to negotiate a short sale.

These folks are in their late twenties. Instead of selling the house and using their, what would have been, $70,000 equity to purchase a better and bigger home for their children, they are now looking at possibly being foreclosed on and in the best case scenario, ruining their credit for years to come. It is sad but it's largely self inflicted.

They made a mistake and they know it. They're not bad people they were just weak in the face of easy money and instant gratification. Now they must pay the price. I hope I can get them through this with the least amount of stress possible. I hope they have learned a valuable lesson. I hope they move forward from this and are able to get it together. I hope all their new furniture looks good in their new apartment. I hope they don't read this post.

Moral of the story: Your home is your castle, not an ATM machine.

OK so the Department of Revenue in Florida has decided to charge Documentary Stamps (tax) on the amount of mortgage forgiveness related to short sales. Doc Stamps in Florida are charged at the rate of $.70 per every $100 on the Deed of every real estate transaction. 

For example: If you sell your house for $100,000 the seller pays $700 in doc stamps. 

Now what the State is saying is that if you sold that same house for $100,000 BUT it was a short sale where the Lender forgave $50,000 the tax due is now $1,050!!! 

So this brings up some interesting questions. 

• How many out of State lenders are going to be willing to give the "forgiveness" amounts to the title company? 

• How is this going to affect future appraisals where the appraiser relied on Doc Stamps as an indicator of sale price?

• What about a closing where the Seller brings money to closing? Will they too have to pay Doc Stamps on their mortgage balance instead of the sales price?

• Will the Department of Revenue ever get their head out of their ass? 

Oops!! Did I just say that? Oh well.....what say you?

In my last post I had mentioned that I was dealing with a PMI (private mortgage insurance) company during my short sale negotiations. Some of you guys didn't realize that this was one of the entities involved in the decision making. PMI is almost always required when the home is purchased with less than 20% down and is paid for by the home buyer BUT it can also be purchased by the lender even if the down payment was 20% or more. If you are dealing with short sales this is one of the first questions you want to ask the lender, "Is there PMI Insurance?". It affects the negotiations, so you need to know. 

There are actually 3 entities that may have an interest in the negotiations, the Lender, the PMI Company and the Investor. The Investor could be Fannie Mae or Freddy Mac or any of the other secondary mortgage market Investors. 

If there is PMI and an Investor involved it has been my experience that the PMI Company has the most weight in whether or not the deal will be accepted. This makes sense since they are the ones that have insured the loan. The Lender will usually accept what the PMI Company approves. If Freddy Mac or another Investor is involved they too have to OK the deal after the PMI Company. I haven't dealt with FHA or VA yet but I'm sure their process will be similar. I hope. 

So there is much more involved in getting a short sale approved than just getting the Lender to accept the deal. 

If you understand the process and know what you are doing, these deals are not complicated, they are just very time consuming. I am by no means a short sale expert, yet. But I am a very quick learner and I'm getting better at them everyday. Short Sales do not have to suck!!! 

Anyway, I hope this information helps you. Let me know if you have any questions and also let me know if you feel any of this information is incorrect. I don't think it is but hey....I've been wrong before. I just can't remember when. :)

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