Thursday, October 30, 2008

Trailer full of confusion

Stick Built, Mobile Homes, Manufactured Homes, Modular Homes, Trailers, Site Built Homes.

Just what DO these words mean? That depends on who is asking or answering.

Stick and Site built homes generally means a home built on site by a builder using 2 x 6's, 8's, cement, rock, trusses and all the other thousands of pieces of stuff that go into a home. These homes will normally be the most desired, most expensive and most easily financed.

Mobile homes and trailers typically refer to, well, mobile homes and trailers! Let's get a bit more precise. If the "trailer" was built in 1976 or earlier, it was "Pre-HUD" and may have many more issues relating to the wiring, the construction and general condition. These homes are virtually impossible to finance without extraordinary interest rates.

Also, this term is used by older people who have not transitioned mentally from the cheaper homes made when they were young hot studs and studdess to the very expensive, finely engineered Manufactured homes of today.

Manufactured homes are Mobile homes and Trailers made in 1977 up to now. These homes, if set according to FHA standards, are easily financed by many lending institutions, although, the current pendulum swing has made the down payment requirements much higher.

For financing, the rules vary from year to year based on the mood of the financing establishment. Right now, that mood is a bit gloomy. Expect .5 to 1 percent add on fees for a Manufactured home over a Stick/Site built home. Construction of these homes is done in a factory and the home incorporates a metal frame into the building. This frame accepts an axle and the home comes in on its own wheels, is set on cement blocks or jack stands upon cement runners which function as the foundation. We will discuss setting in a separate blog.

Modular homes. It is obvious modular homes are manufactured homes, but, as far as banks are concerned, a modular home finances like a Stick/Site built home.

What is the difference between a modular and manufactured home? Easy! Both are made in a factory and driven to a different location and turned into a house. But, the modular home is constructed with a typical base plate, set on a truck bed, then a crane or other slide methods are used to remove the home from the truck and set it onto a standard home foundation.

It may look like a manufactured home, most of the construction is the same, it may be made at the same factory, but, the bank says "Dude! Have I got a deal for you! Construction costs are a bit higher than most manufactured homes by the time you get it set up. But, the cost difference may be mitigated by cheaper financing rates and lower down payments.

So, there you have it. A quick definition guide that works today, in the Spokane Washington area. Who knows what the terms will mean tomorrow, but, at least you have a general idea. Do not forget the other wrinkles, Panelized homes, Log home kits, Pre-fabed homes. Like anything in real estate, there are wrinkles on wrinkles, so do your homework.

Wednesday, October 29, 2008

Las Vegas money for Sellers

If you have great credit, you can still get a good home lone without any trouble. But, the 100 percent down loans are almost gone. FHA demands 3.5 percent down and conventional loans are 3-20 percent down. It is time to trot out Owner Financing again.

Owner Financing falls into two categories. First and second mortgages.

Owner Financing with a first mortgage usually requires a down payment of at least ten percent to cover costs. Most sellers want to take a trip, buy a car, or do something that costs money. Expect to come up with at least 15 percent and more likely 20 to 30 percent down. Sellers want to know if they must repossess the house, he will be able to fix any damage and be able to price the home a bit more aggressively if he has to resell it later.

Three other aspects regularly affect Owner Financing.

Expect a "balloon" payment. The loan is written with monthly payments based on a 30 year pay off. BUT, in 5 years, 10 years or some other designated time, you will be expected to pay off the entire loan.

Expect to pay higher interest. If the going rate is 6% then do not be surprised the seller wants 7.5 to 8.5 percent. You do save a lot of money on loan costs.

Expect and demand the loan be held by an escrow company. This is one of the best consumer products out there. The minimal costs of collecting, disbursing and keeping track of the monies is truly wonderful and safe for all concerned. I did one of these between parents and an adult child. I insisted they do this. Only way to go.

What Dangers lurk out there in the world of Owner Financing?

Two common ways of transferring property are "Real Estate Contracts" or "Deeds of Trust." The actual ins and outs are legal and beyond my understanding or licensing capabilities to explain. The old timers around here who LOVE to provide owner financing favor the Real Estate Contract method.

Make sure you can pay it off in full anytime without penalty. I saw one where the buyer had to pay 13,000 dollars in penalties to pre-pay 25,000 dollars of principal. It was all the interest due until the end of the loan.

Sellers, make sure the loan has a "Due on Sale" clause. You may want to let another buyer assume the loan, but, you do not want that to be the default.

Don't just set down with a good old boy and write it on a napkin--either sellers or buyers. Take the napkin to a real estate agent or real estate attorney and make sure it is done right. Better arguments before than after for everyone!

"Las Vegas Money for Sellers."
Sellers, if you take a SECOND mortgage to help a buyer qualify for a first mortgage down payment. Then, the buyer defaults and the home is repossessed, more than likely, there will not be enough money to pay anything against the second mortgage. That means that money just goes away, kinda like a mutual fund. You may be able to go after the buyer to try to recover it, but, it is probably not worth it (call a lawyer).

Therefore, a second mortgage is Las Vegas Money. If you can say "Thank you God" for every Penny you got paid by the first mortgage, and for every penny you get in monthly payments and if it repos and you do not get one payment on the second mortgage and can still say thank you God for what you got, do it because Second mortgages are just Las Vegas Money.

Saturday, October 25, 2008

Do FSBO'S pop or fizzle?

FSBO = For Sale By Owner. Does it make cents to sell your home yourself? Maybe, maybe not. Certainly the motivation is money. While there is no set percentage rate and there are as many potential plans as there are people, the Agent commission is one of the largest costs of a sale. For the purpose of this blog, let's say the commission is six percent. That is $12,000. on a $200,000. house. We could all do a lot with that much money. So, let's look at some general statements or consistent ideas about FSBO's and the pros and the cons of this route.

I hear sellers say, "I am going to FSBO it and keep the agent commission for myself." I hear buyer's say "I am going to buy a FSBO and knock all the commission off and get the house for $12,000. less than market." Which is correct? Either or a hybrid could be true. I have observed some FSBO's to be incredibly under priced. I have seen many more to be very much overpriced. In the end, it will come down to a negotiation and that will determine who benefits.

If you decide to sell your home by yourself, what are some of the problems. First is access to buyers. In most markets, 85 percent or more of the buyers are associated with an agent. A buyer, in our example, is a $6000.00 business asset to the agent. If you are not willing to cooperate with the agent, why should he release his buyer to you? He has spent hours, if not months; many thousands of dollars becoming educated regarding the practices, principals and quirks of the local real estate market. He has likely spent much time driving that buyer around showing him property. For the FSBO to expect the Agent to say, "Here is my buyer, have a nice life" is the same as for you to walk into the hardware store and say "Gee, this is a nice hammer. I appreciate it. See you later." Then leave without paying. Second. How familiar are you with local real estate law? Two obvious questions that are often missed by sellers acting on their own behalf are the Lead Based Paint addendum for 1978 and older homes and the Property Disclosure Form which is required in many states. Failure to use either could result in legal problems or fines. Third. Selling or buying a home is very emotional for most people. Agents earn their money by being the Emotional Dead Zone where the heat can dissipate without damage to either party--at least in theory. Sometimes, you are just too close to the situation to be rational. An agent may keep it together for you in these circumstances. Fourth, how do you price your home? How do you know how high or low it should be? Are you pricing your home too high so it will not sell? Are you pricing it too low? If so, you may be giving away the commission and assuming the work and stress of the sale yourself. Does that make sense? And finally, costs. The agent generally spends a lot of money advertising your property. You are going to assume that bill. Also, the Multiple Listing Service (MLS) gives you access to and all the local agents. This tool is the single biggest benefit to a seller. Without listing your home with a Realtor, you lose this benefit. Your house becomes much less visible. Visibility sells. That, after-all is your target.

What is the benefit of being a FSBO? You MIGHT keep a few more dollars in your pocket. Obviously in the hot, hot, hot markets where nothing is available, being a FSBO may make sense. Also, if there is just no money to pay those costs, it might make sense. In any case, it is probably worth your time and money to buy and hour or two of an Agent's time to get your home priced, find out what forms are necessary and get a general state of the market. A good agent may charge you $100-200 an hour. It is usually money well spent. Certainly, it makes sense to enlist the aid of the buyer's agents by paying a buyer's agent commission of half or slightly more of the typical commission in your area. Remember, it is not legal to set industry commission rates. Rates are always negotiable. That does not mean an agent has an obligation to accept your offer. What is reasonable to you may not be to the agent. So, in our example. Pay the buyer's agent 3 - 4 percent. He is doing the work of both agents because he has to deal with your emotions as well as his buyers' stress. Believe me, he earns his money.

In the end, 85 percent or more of FSBOs list their property. Personally, I am not offended by FSBOs. I have sold many of their homes, I have helped many more with forms, information and photos. After-all, many ultimately become my listing or I help the seller buy their next home. I built a 2000+ sq foot barn. Took me 7 years to do it. The front is 49.5 feet, the back is 50.2 ft. Sheet rock does not come together just perfectly at the corners. But, it works. I wanted to do it myself, I did it, I am happy with it, but, I will never build another myself. Do you really want to sell your home yourself?

PS: Do It Yourself Apendectomy kits available from

Monday, October 20, 2008

Has the real estate market turned into nacho cheese?

Day after day, I listen to the media bemoan the high numbers of homes being repossessed. As a Realtor, I know first hand we are in a tough market. So, it has been with some surprise I have found the repo market is not what the national media is saying it is. Not in Spokane, at any rate.

I know there are repos out there. I see an occasional repo when showing homes. I have friends who have listed a number of them over the past several months. Sadly, I have friends and acquaintances who are losing their homes or hanging on by their fingernails. Repos have not been a significant factor in my business, but I began paying closer attention because several long-term clients indicated they were ready to invest if I could find a screaming deal. Repos are a good place to start looking.

In recent years, most lenders have listed their repos with Realtors in order to get free advertising and to expand the market for their "used goods." I felt I could get the numbers together easily and that there must be hundreds of choices. So, where is our market here in eastern Washington?

To give you a yardstick, in May 2007, there were about three thousand homes listed in the Spokane area. The market was hot and multiple offers were common. Now, houses sit for months. Values have dropped 10-20 percent and in homes costing over half a million dollars, probably more. Currently, in the Spokane Multiple Listing Service (MLS,) there are 5,818 residential properties for sale. Of these, 603 are "pending," which means they are under contract and quickly (hopefully) moving towards closing. Another 310 are "contingent" waiting on inspection, sale of another home or some miscellaneous issue to come to pass. Clearly, we have a problem when our inventory has almost doubled in 18 months and new construction has almost stopped.

The burning question is, "How badly have we been hit by the repo plague?" Of almost six thousand active listings, only 112 are repos. HUD, a rare non-MLS user, has only three listed in Spokane County and one in the adjacent Stevens County. This is certainly not an epidemic. It is not significantly worse than in previous years and on a percentage basis, I would hazard a guess, far less. It seems to me, 12 years ago when I first moved here, there were far more repos and far fewer homes for sale. Also the cost of getting into the homes and making the payments was much, much less then.

What does this mean? I think, it tells us our Inland Empire real estate market is still strong. I believe it shows the majority of people are working hard to save their largest investment. I think it also tells us in this area our industry, both the lenders and the Realtors, have not been the scalawags the media has portrayed them to be. Finally, I truly believe this demonstrates the flexible programs we used to help people buy their homes were often not so bad after all.

My lender and I had a radio show for about a year. We often discussed some very creative lending programs, some we liked and some we did not, but, we noticed all were appropriate for some users, none were good for everyone. In the end, if we as real estate professionals work carefully with our lenders to put the right people in the right programs and keep our clients' well-being, not the transaction at hand, in the front of our faces, we will have a limited number of failures. That is ultimately our duty -- to take good care of our clients.

Friday, October 17, 2008

Why "Verities & Balderdash?"

Those who know me, know I know a little about a lot, a lot about a little, and have a mind that retains nonsense more effectively than my body maintains carbohydrates. Also, I can sing along with about 90 percent of the Harry Chapin songs. His most popular album was titled the same as my blog and I cheerfully admit to purloining his title! According to Unabridged (v1.1) Verities means:

1. the state or quality of being true; accordance with fact or reality: to question the verity of a statement.
2. something that is true, as a principle, belief, idea, or statement: the eternal verities.

According to quite a number of authority figures in my long life, "Balderdash!" was the one word definition of some of my wilder ideas. Think about the scene in Forrest Gump in which Lt. Dan's ancestors are killed through a series of wars. Just replace the dying ancestors with my grandparents, parents, teachers, pastors, sergeants, commanders, bosses and wife sternly staring at me as a baby, young boy, little older boy, teenager, young college pup, draftee, up to a grown man, with each level saying "Balderdash!"

So, in this blog, you will get to know me through my verities and my balderdashes as they come to mind and I have time to commit them to this forum. Hang on! It could be a wild ride!

Here are some of the subjects we may discuss: Real Estate, because that is my current profession. Gardening, because it is one of my passions (Check out, the daylilies tab at the top right to access pictures of my garden. Peonies, Iris and 200+ varieties of daylilies! ), politics, religion from time to time, places foreign, books and just plain old stories.

I look forward to lots of conversation.

Before I say "Goodby," I want to compensate Harry for the theft of his title by encouraging you to check out Harry's daughter, Jen. She makes some very nice music. Her site is: