Today's buyers are looking for turnkey homes. That is, they want to move right in without having to do a lot of work. Buyers with busy lifestyles pay a premium for listings that are in prime condition. Staging can make the difference between a listing selling or not, the time it takes to sell, and the ultimate sale price.
Sellers who are financially strapped often have a hard time accepting that they'll need to invest in preparing a house for sale even though they may sell for less than they paid. Fix-up costs can mount up; your agent can help you prioritize so that you don't waste money. It's important to keep your goal in mind, which is to sell your house in a difficult market.
Recently, a home in an affluent city came on the market in "as is" condition. It had been lived in for decades without much upgrading. Although located in a desirable area, the listing was vacant, dark and showed poorly. The sellers refused to do any work to improve its appeal.
After months on the market with no significant interest, the sellers pulled the house off the market and made improvements. The wall-to-wall carpet was pulled up to reveal hardwood floors that were then refinished. Painters lightened the interior and a professional stager was hired to bring in furniture, artwork, house plants and accessories. The listing was put back on the market with a fresh look and sold right away.
HOUSE HUNTING TIP: Although listings staged by a good decorator show well and often sell quickly, you don't need to spend a lot to put your home into shape for marketing. Most homeowners have too many personal possessions in their home from a sale standpoint. Decluttering is something most sellers need to do.
Consider hiring someone to help you sort, pack, donate and recycle items that you no longer want. You may be able to take a tax deduction for things you donate. Make sure to get a receipt. Your real estate agent should be able to recommend someone who can help you clear your house of clutter if you are overwhelmed by the project.
Your agent, or stager, may ask you to put away collections of art, personal photos, etc. This can be difficult for most sellers because, for them, it's part of the emotional appeal of their home. Your house won't look like your home after you've removed personal possessions and moved what's left around to display the house to its best advantage.
That's the point of the preparation process. You don't want prospective buyers focusing in on your personal property; you want them to focus on the house. Keep in mind that how you live in your home and how it should look when it goes on the market are not the same.
Some sellers complain that their house looks too stark without all their possessions. Even so, it helps you to detach yourself emotionally from the property. Also, less personal property usually gives homes a more spacious feel. When buyers are looking for the most for their money, bigger is usually better.
To close the deal, a listing should be spotless and inviting. Bring in new house plants to put in strategic locations, like orchids in the bathrooms. In dark spots that need a dash of warmth and color, use bromeliads.
THE CLOSING: If you can't pull this together yourself, or with the help or your agent, hire a good stager for a consultation or a proposal for full or partial staging.
Dian Hymer is a real estate broker with more than 30 years' experience and a nationally syndicated real estate columnist and author.
Tuesday, February 7, 2012
Monday, February 6, 2012
Refinance or modify while it's still possible
By Jack Guttentag
Interest rates have been very low for several years, and right now they are lower than ever, yet millions of mortgage borrowers who could profit from a refinance haven't.
Similarly, millions of borrowers who are having trouble making their mortgage payments but want to remain in their homes could have their mortgages modified to make the payment affordable but haven't.
The reasons in both cases probably include apathy, resignation and ignorance, but this article is about ignorance only. Many borrowers are even hazy about the difference between a refinance and a modification.
Refinance vs. modification
In a refinance, you take out a new mortgage, either from your current lender or from a different one, and use the proceeds to pay off your existing mortgage. In a modification, the terms of your current mortgage are changed by your existing servicer, usually for the purpose of reducing the payment.
Most often this involves an interest-rate reduction, but it may also include a term extension and, in some cases, the loan balance may be reduced.
A refinance is a market-based transaction entered into by a lender who wants the new loan. A modification is an administrative measure designed to prevent the costs of a foreclosure. In both cases, however, the borrower must document an ability to make the new payment.
Refinance profitably if you can
In general, borrowers should refinance if a profitable refinance option is available to them. A refinancing will not drop a borrower's credit score, while a modification will. Refinancing borrowers can deal with their existing lenders but are free to shop alternatives.
A modification is a lot more complicated, takes a lot more time, and borrowers are wholly dependent on their existing servicers, which means that they have no bargaining power.
Qualifying for a refinance vs. qualifying for a modification
Declining home values have severely restricted the ability of many borrowers to refinance by eroding the equity in their homes. (Equity is property value less the mortgage balances.) With an important exception noted below, borrowers who have negative equity cannot qualify.
Borrowers with equity of 3 percent to 20 percent can qualify if they purchase mortgage insurance, which in some but not all cases will eliminate the profit from the refinance.
Borrowers with equity of 20 percent or more are best positioned to refinance profitably. In contrast, insufficient or negative equity will not bar a modification.
A low credit score will also prevent a refinance, but not a modification. Because lenders have become extremely risk-averse in the post-crisis market, credit scores have increased in importance and are related to equity.
On a Federal Housing Administration (FHA) mortgage, for example, the minimum score is usually 620, but a 620 score may require equity of 15 percent. If the borrower's equity is the minimum of 3 percent, the required credit score is likely to be 660.
Borrowers who have suffered income declines to the point where the ratio of housing expense to income is viewed as excessively high will have their refinance applications rejected. However, an income decline of this magnitude will not necessarily prevent a loan modification.
On the contrary, an income decline that weakens the ability of the borrower to continue current payments but still enables the borrower to afford lower payments is the major problem loan modifications are designed to meet.
Borrowers can check on whether they qualify for a refinance using the new qualification calculator on my website.
The HARP exception
The earlier statement that borrowers with negative equity cannot refinance has a major exception: If their loan is owned by Fannie Mae or Freddie Mac, they are eligible for refinancing under the Home Affordable Refinance Program (HARP). This program was recently extended and liberalized.
The previous negative equity ceiling of 25 percent was eliminated for fixed-rate mortgages; fees were reduced; the requirement for a new appraisal was eliminated in some cases; and incentives were provided to the lenders servicing the loans to refinance them.
Qualifying for a modification
Determining whether a borrower is eligible for a modification is a complicated exercise on which the rules are anything but clear. The government-supported program, which differs from the strictly private programs, requires that the borrower's income be large enough to afford a reduced payment but it cannot exceed 3.23 times the current mortgage payment. Further, the borrower cannot have "sufficient liquid assets" to make the payments, whatever that means.
In addition, the owner of the loan must be better off with the modification than without it, which is determined by a complicated algorithm that is available to servicers but not to borrowers or to me. The servicer has the final say.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Interest rates have been very low for several years, and right now they are lower than ever, yet millions of mortgage borrowers who could profit from a refinance haven't.
Similarly, millions of borrowers who are having trouble making their mortgage payments but want to remain in their homes could have their mortgages modified to make the payment affordable but haven't.
The reasons in both cases probably include apathy, resignation and ignorance, but this article is about ignorance only. Many borrowers are even hazy about the difference between a refinance and a modification.
Refinance vs. modification
In a refinance, you take out a new mortgage, either from your current lender or from a different one, and use the proceeds to pay off your existing mortgage. In a modification, the terms of your current mortgage are changed by your existing servicer, usually for the purpose of reducing the payment.
Most often this involves an interest-rate reduction, but it may also include a term extension and, in some cases, the loan balance may be reduced.
A refinance is a market-based transaction entered into by a lender who wants the new loan. A modification is an administrative measure designed to prevent the costs of a foreclosure. In both cases, however, the borrower must document an ability to make the new payment.
Refinance profitably if you can
In general, borrowers should refinance if a profitable refinance option is available to them. A refinancing will not drop a borrower's credit score, while a modification will. Refinancing borrowers can deal with their existing lenders but are free to shop alternatives.
A modification is a lot more complicated, takes a lot more time, and borrowers are wholly dependent on their existing servicers, which means that they have no bargaining power.
Qualifying for a refinance vs. qualifying for a modification
Declining home values have severely restricted the ability of many borrowers to refinance by eroding the equity in their homes. (Equity is property value less the mortgage balances.) With an important exception noted below, borrowers who have negative equity cannot qualify.
Borrowers with equity of 3 percent to 20 percent can qualify if they purchase mortgage insurance, which in some but not all cases will eliminate the profit from the refinance.
Borrowers with equity of 20 percent or more are best positioned to refinance profitably. In contrast, insufficient or negative equity will not bar a modification.
A low credit score will also prevent a refinance, but not a modification. Because lenders have become extremely risk-averse in the post-crisis market, credit scores have increased in importance and are related to equity.
On a Federal Housing Administration (FHA) mortgage, for example, the minimum score is usually 620, but a 620 score may require equity of 15 percent. If the borrower's equity is the minimum of 3 percent, the required credit score is likely to be 660.
Borrowers who have suffered income declines to the point where the ratio of housing expense to income is viewed as excessively high will have their refinance applications rejected. However, an income decline of this magnitude will not necessarily prevent a loan modification.
On the contrary, an income decline that weakens the ability of the borrower to continue current payments but still enables the borrower to afford lower payments is the major problem loan modifications are designed to meet.
Borrowers can check on whether they qualify for a refinance using the new qualification calculator on my website.
The HARP exception
The earlier statement that borrowers with negative equity cannot refinance has a major exception: If their loan is owned by Fannie Mae or Freddie Mac, they are eligible for refinancing under the Home Affordable Refinance Program (HARP). This program was recently extended and liberalized.
The previous negative equity ceiling of 25 percent was eliminated for fixed-rate mortgages; fees were reduced; the requirement for a new appraisal was eliminated in some cases; and incentives were provided to the lenders servicing the loans to refinance them.
Qualifying for a modification
Determining whether a borrower is eligible for a modification is a complicated exercise on which the rules are anything but clear. The government-supported program, which differs from the strictly private programs, requires that the borrower's income be large enough to afford a reduced payment but it cannot exceed 3.23 times the current mortgage payment. Further, the borrower cannot have "sufficient liquid assets" to make the payments, whatever that means.
In addition, the owner of the loan must be better off with the modification than without it, which is determined by a complicated algorithm that is available to servicers but not to borrowers or to me. The servicer has the final say.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
REO, preforeclosure properties selling at a larger discount
Share of distressed real estate sales dips in Q2
By Inman News
The share of bank-owned homes and homes in some stage of foreclosure dropped 5 percent from the first quarter to the second quarter, falling from 36 percent to 31 percent, but was up from 24 percent in second-quarter 2010, according to a report released today by foreclosure data provider RealtyTrac.
And distressed properties are selling at a larger discount these days, RealtyTrac reported:
• The average sales price of a bank-owned (also known as real estate owned or REO) home was $145,211 in the second quarter, which was about 40 percent below the average sales price of a nonforeclosure home. That compares with a 36 percent discount in first-quarter 2011 and a 34 percent discount in second-quarter 2010.
• The average sales price of a preforeclosure home (preforeclosures, which are homes in default or scheduled for sale at public auction, are often sold in a short-sale process) was $192,129 in the second quarter, which is 21 percent below the average sales price of a nonforeclosure home. That compares with a 17 percent discount in first-quarter 2011 and a 14 percent discount in second-quarter 2010.
There were 162,680 sales of bank-owned homes to third parties in the second quarter, RealtyTrac also reported, roughly flat compared with the 162,900 reported in the first quarter and down 10 percent from second-quarter 2010.
REO sales accounted for 19 percent of home sales in the second quarter, compared with 23 percent in the first quarter and 15 percent in second-quarter 2010.
There were 102,407 sales of preforeclosure homes to third parties in the second quarter of this year, up 19 percent from the first quarter but down 12 percent compared to second-quarter 2010. These sales accounted for 12 percent of sales in the second quarter of this year, flat with the first quarter and up 10 percent compared to second-quarter 2010.
"The jump in preforeclosure sales volume, coupled with bigger discounts on preforeclosures and a shorter average time to sell preforeclosures, all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales -- at least in some areas," said James Saccacio, RealtyTrac CEO, in a statement.
"This gives distressed homeowners who do not qualify for loan modification or refinancing -- or who are not interested in those options and want to sell -- a better chance of completing a short sale to avoid foreclosure."
Expedited short sales, he added, "also give lenders the opportunity to more pre-emptively purge nonperforming loans from their portfolios," and avoid a lengthy foreclosure and REO process.
Among those metro areas with at least 100 foreclosure-related sales in the second quarter, Louisville, Ky., had the largest average foreclosure discount -- 54 percent below the average sales price of nonforeclosure homes. Florida's Sebastian-Vero Beach metro area was second on the list with an average foreclosure discount of 53 percent, followed by Milwaukee (51 percent), Pittsburgh (51 percent), and Kalamazoo, Mich. (50 percent), RealtyTrac reported.
By Inman News
The share of bank-owned homes and homes in some stage of foreclosure dropped 5 percent from the first quarter to the second quarter, falling from 36 percent to 31 percent, but was up from 24 percent in second-quarter 2010, according to a report released today by foreclosure data provider RealtyTrac.
And distressed properties are selling at a larger discount these days, RealtyTrac reported:
• The average sales price of a bank-owned (also known as real estate owned or REO) home was $145,211 in the second quarter, which was about 40 percent below the average sales price of a nonforeclosure home. That compares with a 36 percent discount in first-quarter 2011 and a 34 percent discount in second-quarter 2010.
• The average sales price of a preforeclosure home (preforeclosures, which are homes in default or scheduled for sale at public auction, are often sold in a short-sale process) was $192,129 in the second quarter, which is 21 percent below the average sales price of a nonforeclosure home. That compares with a 17 percent discount in first-quarter 2011 and a 14 percent discount in second-quarter 2010.
There were 162,680 sales of bank-owned homes to third parties in the second quarter, RealtyTrac also reported, roughly flat compared with the 162,900 reported in the first quarter and down 10 percent from second-quarter 2010.
REO sales accounted for 19 percent of home sales in the second quarter, compared with 23 percent in the first quarter and 15 percent in second-quarter 2010.
There were 102,407 sales of preforeclosure homes to third parties in the second quarter of this year, up 19 percent from the first quarter but down 12 percent compared to second-quarter 2010. These sales accounted for 12 percent of sales in the second quarter of this year, flat with the first quarter and up 10 percent compared to second-quarter 2010.
"The jump in preforeclosure sales volume, coupled with bigger discounts on preforeclosures and a shorter average time to sell preforeclosures, all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales -- at least in some areas," said James Saccacio, RealtyTrac CEO, in a statement.
"This gives distressed homeowners who do not qualify for loan modification or refinancing -- or who are not interested in those options and want to sell -- a better chance of completing a short sale to avoid foreclosure."
Expedited short sales, he added, "also give lenders the opportunity to more pre-emptively purge nonperforming loans from their portfolios," and avoid a lengthy foreclosure and REO process.
Among those metro areas with at least 100 foreclosure-related sales in the second quarter, Louisville, Ky., had the largest average foreclosure discount -- 54 percent below the average sales price of nonforeclosure homes. Florida's Sebastian-Vero Beach metro area was second on the list with an average foreclosure discount of 53 percent, followed by Milwaukee (51 percent), Pittsburgh (51 percent), and Kalamazoo, Mich. (50 percent), RealtyTrac reported.
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