Intermediate Information: March 2008 Archives
Don Henley has a fun song off his second solo album called "Driving With Your Eyes Closed". I can't find a video performance, but here's an MP3. It's got a chorus that ends with the line, "You're gonna hit something /but that's the way it goes."
A lot of what I read about the real estate markets reminds me of that song. Mostly, people are looking in a rear view mirror myopically, and think that's going to tell them where the market is going. Not so.
Let me tell you the most important "secret" about the real estate market - or any other market. Short term results are mostly about mass psychology. People are so into what is happening right now that they will react to it the same way as everyone else without thinking, whether it's fear and greed driving the market up or fear and greed driving it down. The short term, in real estate, is this year, next year, and maybe the year after. But the actual real estate transaction is expensive. It can cost you a couple percent just for the transaction to buy real estate, seven to ten percent to sell, so you've got to clear ten to fifteen percent higher price just to break even on the costs. Those costs will more than pay for themselves, but they are there. An average year in my market is about 5% up, and 20% up in one year is one of the best years local real estate has ever had. Short term flippers work by different parameters than most consumers, but these are the market factors most people have to deal with. It takes about three average years to break even on the costs you have to pay for the transaction.
This is enough to take the majority real estate investing out of the frame of the short term market, controlled by mass psychology, and into the realm of the medium to long term market, where psychology is a factor, but as time goes on, more and more of your investment results are controlled by pure economics. Supply versus demand. What people who want housing make. What the interest rate environment is like. Oh, and don't forget the effects of government and public policy. When somebody says, "The market has dropped in the last three months, therefore it's going lower" that is no more correct than the opposite which we had four or five years ago: "The market has been going up - five percent in the last three months alone! Therefore it's going to keep going up!" In either case, making this sort of claim is functionally equivalent to blacking out your windshield and driving by the rear view mirror. "You're gonna hit something, but that's the way it goes!"
Furthermore, there is no such thing as a national market for real estate. It does not exist, and anybody who claims it does is either so clueless as to the nature of real estate markets that you should pat them on the head and say, "That's nice dear. Now run along and play with your Duplos&trade," or they are actively lying. There are factors such as the interest rate environment that influence real estate markets nationally, but there is no national real estate market. In order for a given area to be considered one market, the properties within them must be functionally equivalent for the residents as to location. Let's look at the City of San Diego: No way is San Ysidro, right by the Mexican border, functionally equivalent to Del Mar Heights, thirty-five miles away along the coast on Interstate 5 just north of all the corporate buildings in the Golden Triangle, and neither is equivalent to Rancho Bernardo, which is about that same distance north inland along I-15. All three are part of the City of San Diego, and we haven't even gotten to the suburbs yet, they are three very different markets, with different demographics, different lifestyles, different building styles and all that that implies. For my real estate work, I specialize in and around the City of La Mesa, which borders San Diego on the east, and is different from all three previously described areas, and there are areas of La Mesa which are decidedly different from other areas of La Mesa. These markets are close enough physically to have market interactions, but different enough to constitute different markets - never mind Idaho, Georgia, or Vermont, which are not part of the local commuting area. Talking about a unified countywide market is occasionally a useful fiction, as there are interactions. People are able to commute from home to work and back again, no matter their respective locations within the county. Talking of a national real estate market is blatant nonsense. At most you can talk about a national amalgamation of local markets - a statistical hash of what is going on in all of the individual markets. Even right now with real estate markets in the tank in all the headlines, though, there are local real estate markets that are doing very well, and others that are poised to do so.
You can talk about national factors influencing all of the local real estate environments. Interest rates, lender requirements, legislation in Congress, federal rule-making in general, all of these have a national influence. The markets themselves remain local.
For longer term analysis, you've got to talk about the economics of an area. Current supply versus demand, and where that ratio is going. What do people in the area make? What is the regulatory environment? How difficult is it to build more housing? What are the population trends? What is the economy of the area doing? What are the factors influencing rental price and availability? How likely is any of this to change in the future? It doesn't matter whether people are getting "priced out" or even how many people are getting "priced out." People have been priced out of Manhattan for decades; it hasn't stopped Manhattan real estate from rising in value. What does matter is whether enough people with the economic ability to pay the current prices are available to buy up the new inventory that hits the market. It doesn't matter that people who bought twenty years ago could not afford to buy their properties at current prices. What does matter is that enough people who can afford it will buy to more than balance out the people who want to sell at current prices.
So while you can talk about national trends, any given property sits in a particular local market, and any discussion of whether to buy a given property has to be rooted in the local market situation. National trends may have an influence upon its value. If interest rates go to eight percent, people can only afford about seventy percent of the loan they can afford if interest rates go to five percent, so falling interest rates are a time of rising prices, other things being equal. Of course, we've had falling interest rates the first three months of 2008, and that's not the case. The explanation is that there are stronger factors at work.
Nonetheless, if a million people want to own property in an area (say, La Jolla) and only 40,000 people can, then the price will be determined by the 40,000 people willing and able to pay the most. If twenty million people want to live in San Diego County and only three million can, the prices will be determined by the three million people willing and to pay the highest prices. End of discussion. Not all properties in all locations are equally valuable of course, but the mix will be determined by what prospective buyers are willing to pay the most for. Note that not all costs are in dollars. Sometimes it's opportunity cost, sometimes it's any number of other costs, such as the risk of earthquake, the heat when the Santa Anas roll in, etcetera. Some people absolutely require living in a six bedroom 3000 square foot house, and if they can't afford the prices those command here, they'll go elsewhere despite the fact that they could easily afford something less expensive. Others will put up with living in a broom closet so long as they can go surfing every day.
Analysis focusing on a market's short term results are largely a study in mob psychology. Three years ago when property was overpriced locally, I couldn't slow people eager to follow the other lemmings with a locomotive. The last year or so, with available property prices well below historical trendlines locally, it's taken entire battalions of wild horses to pull people off the sidelines due to media coverage. But mob psychology is a changeable thing. A co-worker and I were talking about modifying an old T shirt the other day. The original version has two vultures sitting on a tree limb, discussing the negative utility of patience: "Patience MY ASS! I'm going to KILL something!" (pardon the vulgarity.) We're going to change the second line to "I'm going to BUY SOMETHING!" That's the mood of the market we're encountering now. The people who have been holding off seem to have realized that this is about as good as things are going to get for them. Maybe they're tired of waiting. Maybe they've realized things are more affordable for them now than they were in 2000, let alone 2004. Maybe they got "priced out" during the bubble and want to move before it happens again. Once you buy, it's not like the seller can come back and ask you for more money later because it turned out to be such a wonderful bargain - you're locking in your cost of housing. Putting it under your own control forever. The vultures are starting to swoop.
Analysis on a local market's longer term prognosis have to ignore mob psychology. It's unpredictable on that scale, and nobody ever knows just when it will turn, or how. But there's only so long mob psychology can trump practical economics, which is the norm that any particular market will follow ever more closely the longer you run the experiment. With the recent decline in values, San Diego has dropped significantly below long term value trends. This means that considering current supply and regulatory barriers to increasing it, demand of people who want to live here, the values that those people can afford to pay, and increasing demand for housing in San Diego, not to mention the changing dynamics of the rental situation (be prepared for rapid increases in rental rates), right now is an excellent time to buy, as prices are below where you would expect, given the longer term factors influencing the San Diego regional housing market.
Articles which consider only short term price fluctuations are looking backwards as we go into the future. They're looking at where we've been, not where we're going. And as always when you're effectively driving with your eyes closed: "You're gonna hit something, but that's the way it goes..."
First off, let me make something very plain. All a CBB can do is give good agent an incentive or disincentive to look at the property. A high one will not, by itself, sell the property. A low one will not prevent it being sold. Buyers, being interested in their own bottom line, will persist in choosing the property that offers them the best property for their purposes at the lowest price, and agents with about an hour in the business should understand this. I not only cannot sell a buyer on a property that isn't at least as good a bargain for them as the competing properties, I won't try. It's contrary not only to my client's interest, which should be the ultimate consideration of any agent, but it's not in my interest either.
Now with that said, you really don't want to do is give agents a reason to sell the other property instead of yours. A cheap CBB does not motivate the agents to work. Suppose a boss told their workers "You will be paid $10 for every green widget you sell. You will be paid $15 for every purple widget you sell." Assume the widgets are identical in every way except color. How many green widgets do you think would get sold versus purple? Sure, they'll sell green if the customer wants it, but that's not going to be what they suggest first. If a customer came in the door wanting a green widget, they'd get a green widget. But if they walk in the door and aren't sure they want a green widget, the sales staff will quite predictably see if they can sell them the purple widget first. If they can, the green widget sits unseen, untried, and unsold.
In real estate, the person who sets that compensation is the owner of the property. There are lots of properties out there, even in a seller's market. Do you want your property to be treated like a green widget, or a purple one?
This isn't evil. Agents have to eat, pay the mortgage, pay expenses, etcetera, and we don't make as much money as people think. Even less so than most people, agents don't get to keep every dollar their company gets paid for their services, and they don't get paid instantly for waving a magic wand. It takes time, work, and expertise - I've spent six months, hundreds of hours, and over a thousand dollars just in expenses working with clients to close a deal. If the company gets paid $10,000 and the agent has an 80% split (better than most), they get $8000 gross. Less monthly desk fees, less per transaction fees, and less fixed expenses of staying in business, that's maybe $6500, and social security eats twice as much of that as normal, leaving about $5400 - and we haven't even considered income taxes or advertising yet. For a solid month of work, and who knows how much time looking before the clients made the offer that was accepted. With practically unlimited liability, and requiring continuous training and work to keep their edge. If it takes 3 months in all, that's barely minimum wage, and most agents work sixty hours per week at a minimum. Quite often, we've got to reduce our commission to put some money back into the transaction so it can close. Sound like a cushy sinecure to you?
Of course, most agents are working with more than one set of clients at a time, but as you can see, a $10,000 commission doesn't translate into a huge windfall for the agent. If the company only gets paid $8000, that translates into maybe $4100 that the agent can use to pay their family's living expenses and taxes. Which do you think they'd rather have, the bigger check or the smaller? Ask yourself what you'd do in their place. If it's a question of the smaller check or nothing at all, there's no question, but there are a lot of properties competing with yours for the available buyers, and more coming onto the market all the time. Do you want to give agents a reason to try and sell your property, or a reason why they'd prefer to sell someone else's property?
With all of this in mind, a screaming deal will sell. You don't have to worry about whether or not the agent is going to be on your side. Buyers will beat a path to your door, with or without an agent. However, pricing your property as a screaming deal is not something most rational owners want to do. They want to get top dollar for that property, and it takes at least ten percent below the rest of the market - more likely fifteen - to get attention as a screaming deal. I've said this before, most notably in How to Sell Your Home Quickly and For The Best Possible Price, but this is fifteen percent off the correct asking price, not the owner's fevered dreams of greed. The average CBB around here is three percent. So, save three percent to lose fifteen? Not something I'd do. Furthermore, you're not going to put up a CBB of zero, no matter how low it's priced. I've explained before why the seller pays the buyer's agent. Finally, if you end up needing to give the buyer an allowance for closing costs to get the property sold, you're quite likely giving out with the other hand the same money you withheld in the first place, as buyers paying their agent is a closing cost. Why not put it out there in the first place, where it is likely to do you some good?
The differences a higher CBB makes for the seller are three: You don't have to worry that buyers needing to come up with cash to close for their agent will impact buyer cash to close, you get more attention for your property more quickly and more consistently, and you don't have to worry about buyer's agents creating reasons not to buy your property. Put yourself in this situation: Most buyers are reluctant to pull the trigger on a half million dollars. They need some good hand-holding and reasons to buy, and instead, their agent is looking for a reasons to help convince them why they want to buy some other property instead. Do you think it might take longer for the property to sell? With carrying costs of somewhere around two-thirds of a percent per month for most properties, if a CBB a half percent higher gets the property sold three weeks faster, you are ahead of the game. The time difference will almost certainly be more than that, and - statistical fact - the longer your property sits unsold, the lower the price it will sell for.
If you want to offer a low CBB, that's your prerogative. The property had better sell itself enough better than anything comparable to still the doubters - and practically every buyer is a doubter. The lower it is, the worse it will be, the longer you'll have to pay carrying costs, and the lower your final sales price. A low CBB, especially in conjunction with other factors about the listing can advertise to buyer's agents that you aren't ready to sell yet, warning them of a difficult transaction. If I can find a model match with an obviously motivated seller around the corner, why should I take my buyer to yours? We're going to get a better price on the same thing with the property around the corner, there will be fewer issues with the transaction, and the fact that I'll make more money even though my client got a lower price is pure bonus for being a good agent. Call it karma.
On the other hand, offering a significantly higher than average CBB doesn't work as well as some people seem to think it does. It definitely won't sell the property for more than it's really worth. Furthermore, it raises all kinds of red flags in my mind, and, I imagine, in the eyes of most agents. "Why do they think they need to offer five percent when the average is three?" springs to mind pretty much unbidden. Most often, the property is overpriced. Almost as often, there's something wrong with it that only an experienced investor is going to be able to deal with - and experienced investors don't pay top dollar for a property. Ever. Quite often, there's something unrepairable detracting from the value of the property. It might get the property sold much more quickly - most agents have some investors I can call if we have reason to, and if you get our attention with a high CBB, both we and our clients are happy. So if you're stuck with a property that has something seriously wrong with it, a high CBB and a low price will cause it to see a lot more action. But they have to be coupled together. High CBB won't do it on its own. On its own, high CBB is pointlessly wasted money.
An average CBB or maybe slightly higher will quite likely accomplish what you want; a quicker sale and therefore a higher sales price. If you're a half percent above average, that's not enough to raise red flags, and it will get you attention. Good buyer's agents will still require that it be an above average value for the client, but they will look, where they might not otherwise. It also stands a good chance of motivating them to really take a good long look at the property.
Short Sales are worse than everything else, as far as CBB goes. Short sales usually take much longer, are more often than not overpriced, and there's a much higher chance of transaction falling apart and the agent losing the client as a result. In my area, over eighty percent of all short sales fall apart, and there's not much the buyer's agent can do to alter the odds - it's in the hands of the listing agent. The lender is going to require the agents involved to reduce their commissions. Agents know this, and they can't really fight it. If you're out there on the cheap end of CBB before the lender wants to grab money we've earned away from us, and four out of five self-destruct and lose the client without closing, what reason is there to show your property, as opposed to the one down the street that's not a short sale? Cost my client money and time to no good purpose, when I can usually find them something just as good at a better price that closes faster and without the eighty percent chance of fallout. But there's always a reason for a short sale. I've never seen one yet where the owner didn't need to sell for some reason or another. Why doesn't matter; If a short sale is the least bad thing that can possibly happen to you, the one thing you don't want is for the property to fail to sell, and a below average CBB on a short sale will practically insure that the property won't sell.
If I had my druthers as a buyer's agent, I'd rather buyer's agency commission be set as a flat amount, regardless of the actual sales price, so that the agent isn't shooting themselves in the foot if they can negotiate a better price. On the other hand, it's not a crime for the seller to structure it in a way that produces dissonance between the interests of the buyer and the interests of that buyer's agent. I may not like it, but I take shameless advantage of it when I'm listing property - I advise owners to make CBB a percentage. Just because I understand a happier client is likelier to bring me more business doesn't mean every agent does. Maybe it's because I read Sun Tzu and von Clausewitz at an early age, and military history has always been an avocation with me. Maybe it's because I took almost enough probability and statistics courses in college for it to count as a major. Maybe I'm just competitive by nature. Whichever it is, I believe in taking every opportunity to load the dice in my client's favor before they get tossed. Anytime there are large amounts of money at stake, you're either in it to win or you are a sucker. There's a lot more money involved in real estate than almost anything else.
At higher valuations, reasonable agents expect CBBs to go down. There's not much difference in the actual work between a half million dollar property and a full million dollar one. Higher liability exposure and a little more hand holding and a little more service. Furthermore, the kind of people who buy million dollar properties tend to be better qualified to do so, leading to fewer escrows failing due to buyers failure to qualify.
One of the things I don't understand is that many agents are the worst about CBB. They should know the power, and yet when it comes to their own money they disregard the facts and try and to do it on the cheap. I make a special note when I notice those listings, because it's like they're shouting, "I'm just out for a quick buck! I don't really know what I'm doing!" to those with the ability to hear it. With that information, I keep a special eye on their listings for other clients. Just part of my desire to look for opportunities to depth charge fish in a barrel. When I find one, it always results in a happier client.
What happens if a home you signed to purchase goes into foreclosure before the closing date?
We were supposed to close on a home four months ago. On the day of closing we get a call from the seller's realtor that the sellers owe 22K and need time to figure out negotiations w/the mortgage company. We go through a series of extensions & hear a variety of excuses from the sellers realtor (sellers haven't turned in paperwork, wrong forms filled out &new ones were overnighted, etc) In June, a Lis Pendens was filed & our realtor checked it out. He talked to the sellers realtor & found out that it had been filed but has been negotiated off &was no longer in effect. On 8/9 our realtor gets a call from the sellers realtor that they have finally been in contact with the mortgage company &there is 1 more paper that needs to be completed & they are "on top of it". After not hearing anything last week, I check with the online courts to see if anything else has occurred to see that a foreclose decree was noted for 8/4. What happens now? Can we purchase the home from the bank?
Somebody has not been "on top of it". Probably at least two somebodies, and they're not exactly fulfilling full disclosure requirements, either.
Yes, an Notice of Default adds thousands of dollars to fees due. But what do you think the lender would rather have: An already negotiated sale that is consummated and they get their money, or go through that whole dismal foreclosure process?
So what is going on here is an undisclosed short sale. What this means is that the lender isn't going to get all of their money, or the transaction would have closed by now.
So what's most likely going on is that the bank is taking their own sweet time about approving it, but your realtor has allowed the selling realtor to feed you a line of BS. Indeed, they've probably actively cooperated. They're probably afraid of losing the commission, but if they keep it open "just a little longer" maybe the lender will approve it.
It's the listing agent's job to talk the lender into approving the sale. Perhaps the bank is imposing some conditions that the seller can meet, but does not want to. Perhaps the bank is demanding some money, or that the realtors reduce their commission, and they don't want to Perhaps the listing agent just clueless, but I doubt your agent has exactly covered themselves in professionalism either.
The person with the power to break the logjam is you. Talk with a lawyer, but if you put in a 48 hour notice to perform, the lender is likely to suffer a sudden attack of rationality, especially in this market. They'll likely net more money through the sale than through the foreclosure process, but if you allow them to go on ad nauseum they will keep the transaction open as long as possible. You see, once the transaction closes they can't get their money back if a better offer comes along. Therefore, they are trying to put you off for as long as possible in the hopes that such a better offer will come along. From their point of view, they have this transaction well in hand, they are just hoping to get more money from someone else, and the longer you allow this to go on, the higher the likelihood they will. If you don't force the issue, the only possible resolution is unfavorable to you. There are possible issues with the deposit, and damages they could owe you and you could owe them, which is why you need to be careful. But putting them on Notice to Perform is the thing that is going to break the logjam one way or another, and your agent should probably have done it months ago. You're stuck with them for now, but if this transaction doesn't close you should probably find a new agent. Good agents know that if they are willing to risk losing a particular deal, they will not only better represent their clients interests, but also that they will end up with more deals overall. Approached correctly, it's a way to have even the client whose entire family has their heart set on a particular property that you are acting on their behalf, not just looking for a commission, and they will send you their friends, and they will come back to you when it's time to sell, or to buy another property.
I get occasional questions about the difference between these three kinds of activity. Well, there are subjective parts to the answer, but here are some general guidelines:
A true flipper is looking for a quick turn on the property, usually without much work done to really improve the property. They don't typically keep the property and rent it; they're not willing to accept the work of being a landlord. They make their money off of desperate sellers and getting a very low price for a property. Typically, their profit comes from how far down they can drive a desperate seller.
A fixer is someone who is looking to make a profit by making the property more attractive. By making it more attractive, they are able to sell for more money. They are willing to do more than just cosmetic things, but they still typically sell when the renovations are done, although many will wait for a full year to gain better tax treatment. They do not typically rent the property out, although they may live in it while it's being renovated.
An investor has the idea of buying and holding for a certain period of time, usually leveraging rent to make the payments, sometimes breaking even, preferably with positive cash flow, usually while eventually hoping to cash in on capital appreciation, but always holding for periods that start at two years and go up from there.
Now I've heard a lot of folks who are really fixers call themselves flippers, but I've never heard a flipper call themselves a fixer. Why? Because the general perception admires flippers more, because they theoretically make money by their wits instead of by the sweat of their brows. It's more status to call yourself a flipper, although why people think it's better to tell people they make their living by shorting people who really have no choice, instead of by actually creating value by improving the properties they purchase, is beyond me. I don't look down on flippers in any way. That seller had a reason they thought it was a deal worth taking; nobody held a gun to their head. I do have more admiration for fixers and investors - which are more difficult. But due to the huge long swell of the seller's market that concluded recently, many people got addicted to the fact that it enabled people who didn't really know what they were doing to buy properties for too much money, and six months later sell for a profit despite not having done anything to improve the property.
Right now, the local market does not support flipping, due to the fact that no matter how good the bargain they buy the property for is, as soon as the flippers go to sell it and actually make a profit, they become one of the thirty-odd sellers for every buyer out there right now. Indeed, I know of a couple of properties out there on the market that have been through more than one sale from desperate flipper to optimistic flipper, and then the optimistic flipper gets desperate and sells to another optimist. Indeed, with most properties on the market, it's a gamble as to whether fixing will yield a profit after expenses in the usual fixer's time frame. There are quite a few out there that are suitable, and many more that are not. With the ratio of 30 buyers to every seller this last week, the odds are against it in all but a very few properties.
Investors who buy now will do very well. There are a lot of desperate sellers out there, and so long as they've got positive cash flow in a sustainable situation, all they've got to do is wait for the market to move in their favor. Until then, they are making money. Real investors never turn into desperate sellers, because they always have the option of hanging on to it. It might not be their original plan or their most preferred option, but it is there.
I love working with fixers. It's a lot more work to find suitable properties right now, but that's fine. And, of course, families who buy for a personal residence in the current market will do very well in the long term. But flippers are basically wasting their time. The market isn't there to make them happy, and I can't say as that causes me any grief.
One of the things I keep telling folks about the real estate market, whatever area you live in, is that it is controlled by the loan market. If you want to understand where real estate in general is headed, look at the loan market and the financial markets that generate them.
Right now, the loan markets are in full panic mode. In the last week or so, all non-governmentally guaranteed loans for more than 95% of value have disappeared. This means that VA and FHA are all that is left above 95% loan to value ratio, and you've pretty much got to be A paper full documentation to get 95%. Since 100% Loan to Value ratio financing has been the universal financing vehicle for borrowers for the past several years, this constricts their choices. Comparatively few people have money they could use for a down payment if they wanted to. Not everybody qualifies VA or FHA. VA requires military service, and FHA has loan limits that aren't going away. As I'm writing this, we're still waiting for hard numbers on what increased loan limits will be, but I strongly doubt that they are going to be raised as high as most people seem to be assuming that they will.
Furthermore, all of the other loan programs to get 100% loan financing have gone away, and all of the supplemental programs to extend buyers' ability to qualify have rather sharp income limits, and those income limits are not going up at all. They actually effect San Diego less than most areas, but even here, they constrict the ability of buyers to qualify. Both the mortgage credit certificateand all of the municipal first time buyers programs have income limits that mean people can't make over a certain amount of income - and even if they have no other bills they can't qualify for the loan on property over a certain loan amount, because even if they have no other bills, their debt to income ratio will be too high. You can't cheat on this - all of these programs require full documentation of income. Above about $420,000, even if they conforming limit goes up, even if the prospective buyers make the maximum amount per year for the program and have no other bills, they won't qualify based upon debt to income ratio.
The moral of this story is simple: If you want to sell your property above a given price, you're not competing for first time buyers. You are competing for people who have sold (or are about to sell) their property for a profit and are now ready to move up. No matter what the conforming loan limit is or becomes in your area, if the prospective buyers don't qualify for the necessary loan based upon debt to income ratio, they can't buy.
Any time you raise the price you want to sell by a certain amount, there are people that no longer qualify to buy your property. You have priced them out, and no matter how much they might want to buy your property, the fact remains that they cannot.
As for buyers making the median family income in San Diego of $72,100, their limit on 100% financing is about $270,000. So unless they have a significant down payment, a family making $6000 per month is looking at a condominium. Just a cold hard fact.
There will always be buyers around the edges who are exceptions. People who have saved or inherited a substantial down payment in defiance of demographic trends. But those are the exceptions, and for every one of them, you have a dozen of more unqualified buyers engaged in wishful thinking. I just spent the most of the morning unsuccessfully looking for a stated income loan to save the home of a guy who called me out of the blue this morning. At this point, I'm 99% certain there's nothing I can do, because the loan program to help him doesn't exist today. Six months ago it would have been a slam-dunk - there's plenty of equity. Before you ask me what relevance this has to buying and selling, I'm going to answer: Every time a lending program goes away, there go some buyers who otherwise could have qualified. Right now, there is no stated income. Doesn't bother me much, as 95% or more of my clients have always been full doc, but for those who are used to the opposite ratio, it's the apocalypse. Ditto for sellers and listing agents who don't understand what it takes to qualify, and who price their properties as if the loan market for two years ago was still going gangbusters. When the property sits for months because the people who might buy can't qualify for that big of a loan, that's a problem.
With all this said, the people who do have the cash or the ability to qualify for a loan are in the driver's seat now. You may be getting tired of hearing this from me, but veterans can qualify for about 20% more loan than someone without military service for the same income. People with 5% or more down are in an even stronger situation, and people who have both things going for them have an incredible amount of negotiating leverage. When the loan market will approve anyone who can fog a mirror, your competition is everyone who can fog a mirror. When the loan market wants to see guarantees and cold hard cash going into the property in the form of a down payment, your competition is, by comparison, non-existent.
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