If I could be  President Obama’s Mortgage Czar for just one week, the first thing I would mandate is that all existing mortgages become assumable.

When starting my real estate career in Houston, Texas during the last century, it was not uncommon for buyers to assume or take over  existing  financing. In fact, it was a perfect way for the self-employed or those with dinged credit to buy a home.  And because there were no loan origination fees or points,  buyers were often willing to pay a slight premium for homes with assumable loans.

To implement this today would create an immediately available financing alternative for the real estate market–and might even be a way for banks to deal with some of those famously-toxic assets. As Mortgage Czar, I would create two tiers for Assumable Loans:

1. Non-Distressed Loans. Owners of these home have equity and would likely need concessions from neither the lender nor the government, other than permission for the mortgage(s) to be assumed. For example, Seller Smith has an outstanding mortgage of $200,000 and is selling his home for $250,000. Buyer Jones would pay $50,000 plus minimal closing fees and would assume esisting financing. All future payments would now be made by Buyer Jones.  It is a simple transfer of title and mortgagor with no change in terms.

2. Distressed Sales. Sellers of these homes have no equity; in fact, they generally owe more than the home is worth.  Using a blend of short sale and loan modification procedures, loan balances and interest rates on these homes would be adjusted to current market value and rates.  Because buyers would no longer be “buying equity” and would have no equity stake in the properties, lenders could now require that prospective buyers deposit at least three months’ payments with the lender as insurance against potential future default.The Buyer would also be responsible for applicable closing fees.

Implementation of this mandate would allow both the existing borrower and the lender to avoid the costs and damages of the foreclosure process–and would help protect neighborhoods from further decay and decline.

By allowing mortgages to become assumable, we would also be offering a second chance to many whose credit ratings have been demolished by short sales and foreclosures.

Under this plan, lenders would fare much better vis-à-vis short sales and foreclosures–and more homeowners would be able to save their credit and exit their situations with dignity.  Most lenders now force homeowners to be in default with their mortgage before they will even consider a short sale or modification of terms.

It just makes sense to get the mortgage debt seamlessly transferred before it ever goes default.

And with strangled liquidity in financial markets, it makes more sense than ever for this Mortgage Czar to transfer debt rather than forcing buyers to secure new financing–which may or may not be available.

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Good Bargaining Tips for the Luxury Home Buyer

If this is the worst real estate market (for sellers) in recent history, then surely it creates some of the best luxury bargains of a lifetime as well.

We are seeing smart money aggressively buying in our San Diego real estate market, and hear reports of the same elsewhere. The properties are being bought as fix-and-flippers or are being held as longer term rentals.

We receive inquiries about these homes almost daily; but more recently, we are being consulted about bargaining tips for buying luxury homes at bargain prices. These buyers may not have to sell their existing home to buy another, or are open to exchange possibilities.

Below are 7 bargaining secrets we use to help our luxury home buyers (and others) get some of the best luxury bargains on the market.

1. Study Market Time: Luxury homes in general may take longer to sell because of pricing, custom features and a more limited pool of buyers. But that doesn’t mean sellers are any less motivated to move on with their lives. At one time, we thought little of $million-plus homes sitting on the market for 90 days or more. These days, we seek buying opportunities if a home has been on the market over 60 days and are seeing some heavy price discounting if days on market goes over 90 days.
2. Check Tax Records and other Sources: Is there more debt on the home than what it is worth? Has a Notice of Default been filed that would indicate a looming foreclosure? If so and if this is a home of interest for our buyer, we submit an offer contingent on the successful negotiation of a short sale (where the lender sells the property for less than what is owed). In this case, either we or professional negotiators deal with the lender(s) to reach the best possible price for our buyer.
3. Did Owners Pay Cash or Have They Owned Their Home for Longer than 10 Years? These sellers may be in a position to sell at a discount or may be motivated to do so due to life transitions or other investment opportunities. They may also be open to owner-financing for all or part of the home mortgage.
4. Are You Open to Remodeling? Homes sold in as-is condition are more likely than others to sell at a substantial discount. Owners, especially when the home has been on the market for some time, are often overwhelmed with the thought of remodeling and updating–and fearful that their decor choices will not suit potential buyers. Especially in the uber luxury home market, older or outdated homes are sometimes sold at land value.
5. Foreclosoure Sales: The f-word (foreclosure) is occurring even in the luxury home market. Highly leveraged homes purchased in the last few years are more frequently ending up on the courthouse steps. Foreclosure purchases, which require cash and carry no disclosures or guarantees, offer both great potential for profit–and dire dangers for the uninformed. Bidding should be non-emotional and it is best to have a professional bidding for you–but only after thorough-as-possible research has been done regarding the home’s condition, its history and resale potential. Cracked slabs, structural defects and boundary line encroachments are unwelcome surprises.
6. Home Exchanges: This is a rather novel strategy for those trying to sell their luxury home in a bloody market. Life transitions encourage luxury homeowners to make moves. Empty-nesters may wish to relocate from their large estate to something equally posh but far less demanding in upkeep. Others may have expanding families that crave acreage, pools, tennis courts or equestrian facilities. In the Southern California market, Owner-Broker Bob Dyson and Villa Sotheby’s International Realty have set up a property exchange platform that allows homeowners to directly exchange properties and ownership. It is a tactic that helps to support neighborhood values and removes many of the pressures involved in having a home on the market for an extended period of time.
7. If the property you want is listed, have your agent check the other real estate agent’s listing history. If that agent tends to have listings on the market for a long time, you may wish to lower your offer. On the other hand, if the agent prices properties aggressively and has short “days on market,” you may consider coming in near to or at list price. You will likely find the listing is already priced at or below market to attract multiple offers. This bargaining tip is crucial!

A combination of patience, perseverance and the ability to move quickly will serve all astute buyers of real estate these days, but the greatest potential of all may lie in the luxury real estate market where replacement value could far exceed the purchase price. Follow these bargaining tips and let us know how you succeed!

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If real estate investors are looking for blood in the streets, they had better be wearing galoshes.

Even the books of venerable luxury builder Toll Brothers, America’s largest luxury builder of tract homes, are in the red. For the first time in 21 years, the company is suffering its first quarterly loss (Oct. 31) in the amount of $81.8 million. Much of this loss can be attributed to $314.9 million in pretax write downs for homes it could no longer sell at a profit. Even Robert Toll, the company’s founder, concedes that 2007 has been the most challenging year in the company’s 40 year history.

But every loss also registers a gain–somewhere and somehow.

It has been evident that newer tract home subdivisions have been hit especially hard the past couple of years. Many homeowners needing to sell had bought during market highs and more than a few a have been forced to sell at a loss. Funds spent on landscaping, hardscaping, flooring/ surface upgrades, and window coverings (and perhaps even the down payment) have gone down the drain.

It is a tough time to be a home seller. And very tough for the luxury builder of homes.

This has forced a number of builders with standing inventory to offer costly upgrades as an incentive for potential home buyers. Those buyers, who once had to budget for many of these improvements, are now getting them for free–sometimes packaged with interest rate buydowns and other incentives. It is a spiral that has forced builders and their prior home buyers to compete.

Many shrewd real estate buyers have been renting and waiting for opportunities such as these–and are coming out of hiding. Real estate investors who sold at or near the top of the market a couple of years ago are also back into buying mode. And so are foreign investors, who benefit not only from depressed real estate prices in prime US markets, but also the strength of their Euros and Canadian dollars against the US dollar.

This may explain the recent phenomenon in the beaten-down San Diego real estate market, where multiple offers are being made on properties that are priced under market. It’s something we haven’t seen in a long time, and just may be the beginning of a market bottom.

If you have any questions (or need to borrow a pair of rubber boots), just give us a call at 760-942-9100 or 760-402-9101.

Roberta Murphy

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