Buyers May Not WANT Condo Docs for Short Sales & Foreclosures

I was quoted in the Washington Post yesterday for my recommended strategy of NOT asking for condo docs on a foreclosure or short sale.

In the original article here, the author discusses the fact that:

Virginia law requires sellers or their real estate agents to get a presale financial disclosure packet from the association and give it to buyers. Buyers have three days to review the financial disclosures and rules governing life in the association and can back out of the deal if they don't like what they see. In Maryland, buyers have seven days in which to review the documents and cancel the purchase. In the District, buyers are allowed three business days.

The challenge with short sales and foreclosures is that the sellers either can't or won't provide these documents (which come with a charge of several hundred dollars.) This leaves buyers in a tough spot -- they don't know whether there are any problems with the Association's finances, for example, because they never received the packet. Sometimes buyers can pay for the pack themselves, but often Associations won't give them to anyone but a current owner.

BUT, there's an upside to this frustrating situation: Buyers who never receive the packet retain their right to back out at any time up until, and for 3 to 7 days after receiving them (depending on jurisdiction). See my quote here:

Katie Wethman, a real estate agent in McLean, pointed out a way to game the system. "It can be a strategic choice not to ask for the documents," she wrote. "Buyers retain a right of rescission up until, and for three to seven days after, the receipt of the documents. If the buyer is concerned about timing, financing, finding a better deal, or just getting cold feet, they may wish to delay receipt of those documents as long as possible. They may forgo them altogether in an attempt to keep their right to walk away right up until settlement."

So talk to your agent about your situation and whether it makes sense to try to obtain the documents or not...you may come to regret having asked for them.

Scared about taking on a short sale or foreclosure home because of the rehab work involved? Consider purchasing one using an FHA 203(k) loan, described in my blog post here.

Clarendon Named One of Nation's 'Great Streets'

Congratulations to the Wilson-Clarendon Blvd area, which was named one of the Top 10 "Great Streets" in America.

The area is one of Arlington's famed "Urban Villages" along the Orange line which combines public transportation, business centers, retail, and residential buildings into a walkable AND livable mini-city. The concept, ground-breaking when it was introduced, has transformed Arlington into one of the most highly sought after places to live and work in our area. North Arlington, in particular, epitomizes the best of both urban and suburban living.

Are you thinking of buying along the Orange Line? Check out recent condo prices in my post here, and contact me to discuss current market conditions and how to get started.

North Arlington Condo Market Update - Oct 2008

North Arlington/Orange Line Condo Prices
Zip Codes 22201, 22203. Includes Ballston, Clarendon

ACTIVE LISTINGS: 1BR Condos / 2BR Condos
Number of Active Listings: 46 / 68
Average List Price: $351,858 / $526,993
Days on Market (Property): 74 / 100

SOLD LISTINGS: 1BR Condos / 2BR Condos
Number of Sold Listings in Prior Month: 18 / 14
Average Sold Price (excludes subsidies): $313,085 / $461,407
Days on Market (Property): 66 / 64


Absorption Rate
6 = Balanced Market;
>6 = Buyer’s Market;
<6 = Seller’s Market

1 Bedroom Condos = 2.5
2 Bedroom Condos = 4.9

* Statistics exclude retirement communities
Click here to see the previous North Arlington Condo Market Update
Source: MRIS data as of 10/17/2008. All data deemed reliable but not guaranteed.

North Arlington Condo Market Update - September 2008

Zip Codes 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

	1 BR Units	2BR Units
ACTIVE LISTINGS as of Sep 29
Average List Price	$352,725	$542,493
Number of Active Listings	50	57
Average Property DOM(P) – Actives	69	119
SOLD LISTINGS
Average Sold Price for Previous Month (does not include seller subsidies)	$323,929	$458,069
Number of Sold Listings in Previous Month	31	32
Average Property DOM(P) - Solds	70	64

Absorption Rate

6 = Balanced Market

>6 = Buyer’s Market

<6 = Seller's Market

1 Bedroom Condos = 1.6

2 Bedroom Condos = 1.8

* Statistics exclude retirement communities

Click here to see the previous North Arlington Condo Market Update

Source: MRIS data as of 09/29/2008. All data deemed reliable but not guaranteed.

First Time Home Buyer Class Now Scheduled in Montgomery County

Note> For the most recent schedule of dates for 2008 and 2009, please visit the First Time Home Buyer class page at my website. Classes will be held in Montgomery County, DC, Arlington, and elsewhere in Northern Virginia.

I am scheduled to teach another “First Time Home Buyer” seminar in Montgomery County on October 23. Please invite your friends and colleagues who currently rent to join me for this session where we will cover a recap of the market, current trends and market stats including days on market, average sales prices, and inventory levels. We'll also discuss the impact of the banking system collapse and bailout, the home purchase process and common pitfalls, financing basics (including interest rates, points, fees, and closing costs), and a how to get started checklist. Details are as follows:

Date(s):
Thursday, October 23rd (DATE CHANGED FROM PREVIOUSLY SCHEDULED Oct 16)
registration required

Logistics:
7:30 – 8:45 pm
Location: 930 Wayne Avenue, Silver Spring MD 20910
Metro: Red Line/Silver Spring

Cost: There is no obligation, and the session is FREE, but registration is required by emailing me at Katie@katiewethman.com or leaving me a voicemail at (703) 847-3336. Seating is limited.

Client Testimonial

I got the nicest letter today from a first time buyer client couple. It really made my day and I wanted to share it:

Katie,

We wanted to thank for your guidance and tremendous service during our condo buying process. Given the issues with FHA and our lender situation, this process had a lot more twists and turns than we ever imagined. But at the same time, we were reassured that your innovative solutions and attention to detail would get us through and it did!

Honestly, as we told you, before attending your home buying seminar and leveraging your expertise during our condo purchase, our opinion of realtors was not the highest. However, after working with you, that has changed. We really appreciated your vast array of knowledge as well as your super prompt response to what at times were our incessant questions. Plus, the little extras like the website of preferred vendors, use of the pick up truck, and letting us borrow your dolly helped us to move in.

Finally, thank you for the card. It now graces our new stainless steel fridge and we have already put those gift cards to good use.

We had no idea how stressful this process could be and honestly, we could not have done this without you.

Thanks Katie!

If you're a first time buyer, please contact me. I'd love to help you find a home, too!

North Arlington Condo Market Update - August 2008

Zip Codes 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

	1 BR Units	2BR Units
ACTIVE LISTINGS as of Aug 24
Average List Price	$362,444	$534,537
Number of Active Listings	51	61
Average Property DOM(P) – Actives	66	111
SOLD LISTINGS
Average Sold Price for Previous Month (does not include seller subsidies)	$320,469	$451,453
Number of Sold Listings in Previous Month	16	20
Average Property DOM(P) - Solds	67	56

Absorption Rate (Balanced Market = 6)

1 Bedroom Condos = 3.2

2 Bedroom Condos = 3.1

* Statistics exclude retirement communities

Click here to see the previous North Arlington Condo Market Update

Source: MRIS data as of 08/24/2008. All data deemed reliable but not guaranteed.

North Arlington Condo Market Update - July 2008

Zip Codes 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

	1 BR Units	2BR Units
ACTIVE LISTINGS as of Jul 22
Average List Price	$353,716	$518,239
Number of Active Listings	49	74
Average Property DOM(P) – Actives	69	90
SOLD LISTINGS
Average Sold Price for Previous Month (does not include seller subsidies)	$346,651	$452,120
Number of Sold Listings in Previous Month	26	16
Average Property DOM(P) - Solds	54	79

Absorption Rate (Balanced Market = 6)

1 Bedroom Condos = 1.9 Months

2 Bedroom Condos = 4.6 Months

* Statistics exclude retirement communities

Click here to see the previous North Arlington Condo Market Update

Source: MRIS data as of 07/22/2008. All data deemed reliable but not guaranteed.

Update: Housing Bill Credits for First Time Buyers

Congress continues to work on resolving conflicting versions of the housing bill first discussed back in April. Word is that they're close to a deal. Here's the latest scuttlebutt as to what is planned (remember, though, that this is NOT YET FINAL):

- The credit (yes, that's a CREDIT, which is much more valuable than a simple deduction) will be $7500 .

- Eligible properties will include condos, co-ops, and single family residences.

- The credit is available to those with an AGI of less than $70K ($140 for joint returns), and is phased out above that limit.

- Credit is available only to first time buyers, defined as those who have now owned in the previous 3 years and who purchase between April 8, 2008 and June 30, 2009.

- A portion is to be repaid each year for 15 years, so it's not exactly free money, but rather will operate more like a 'loan.' However, it is a 'refundable credit', which means that even if you owe absolutely nothing in taxes, you can get this money refunded to you when you file. If you sell the property before the 15 years are up, then you will be required to repay the balance of the credit. Clearly Congress is trying to gear this opportunity towards those who intend to stay in their residences for the long term.

Though this isn't as generous as first planned, this nonetheless is a great way for first time buyers to get an up-front $7,500 to help with down payments and closing costs, enabling them to take advantage of this buyer's market sooner.

As I've commented in this blog many times, I find it takes first time buyers a minimum of 3 months to find a home they want at a price they're comfortable with, so this deadline of June 2009 gives buyers about 9 months to get started, in my estimation. However, real estate prices often fall sharply in the Fall and Winter, so you may want to get started sooner than later, so you can maximize how far that $7,500 goes!

Stay tuned as this bill makes its way through committee.

How to Read a Good Faith Estimate or HUD-1

It can be difficult to compare apples-to-apples when looking at closing cost estimates from lenders. There are lots of tricks that a lender can pull to make themselves look better, and there are so many expenses that’s it’s difficult to know which ones are “junk fees.”

Let’s review terminology first. When you make a loan application, a lender is required to provide you with a Good Faith Estimate (GFE). Most lenders provide you with this estimate even if you haven’t made a full application yet. The GFE contains three main parts: your rate/point combination, your monthly housing payment estimate, and an estimate of your closing costs. Though lenders are required to give you an estimate of closing costs—which run 2.5% to 3% in this area—they actually have no control over most of the fees shown! So be warned: do NOT compare lenders based on total closing costs! There are too many places they can under-estimate to make themselves appear more competitive.

The GFE closing cost estimate is an estimate of what will ultimately be shown on the HUD-1 at closing. The HUD-1 is a standard government form with each line item numbered for easy comparison. GFEs, on the other hand, come in a variety of format, further complicating comparisons.

Generally the expenses on GFEs and HUD-1s will fall into these categories:

Total Sales/Broker’s Commission	Section 700 on the HUD-1, and usually not shown on the GFE because this section is an expense of the seller.
Items Payable in Connection With the Loan aka “Lender’s Fees”	Section 800 on the HUD-1. These are your lender fees, and the most important part of your GFE because this is the part your lender actually controls, and is, at least in part, negotiable. This section will also include any points that you are being charged to get your loan rate. So you must compare this section in conjunction with comparing the interest rate charged.
Items Required by Lender to Be Paid in Advance	Section 900 on the HUD-1. This section is primarily driven by the day of the month you close. Lenders require that you ‘pre-pay’ the interest between settlement day and the end of the month. So if you close on the 1st, you owe 30 days of interest. If you close on the 30th, then you owe one day. If you’re comparing lenders, make sure they all use the same assumption for purposes of the GFE. As long as you’re comparing apples to apples in rates and points across lenders, you can ignore this section.
Reserves Deposited by Lender aka “Total Prepaids/Reserves”	Section 1000 on the HUD-1. Most lenders are the same in what they require—a year of hazard insurance, a few months of property and other local taxes, mortgage insurance, and possibly a month of condo fees. The lender doesn’t actually control this section of the estimate, so it’s safe to ignore it in your ‘shopping’ of loans.
Title/Settlement Charges	Section 1100 on the HUD-1. The settlement company determines this section, so it’s safe to ignore it in your comparison of lenders. This is a big chunk of your fees because it includes title insurance.
Government Charges	Section 1200 on the HUD-1. The local jurisdiction determines this section, so it’s safe to ignore it in your comparison of lenders.
Miscellaneous	Section 1300 on the HUD-1. Contrary to popular belief, this is not where the “junk fees” are. Instead it tends to be actual costs incurred for couriers, the survey of the property, and other fees that don’t fit into one of the above categories.

Read more: "Junk Fees"

Read more: Title Insurance

Complications Buying Condos Using FHA Financing

FHA doesn’t play well with condos. Which is too bad, really, since FHA is such a perfect option for first time buyers since it requires only 3% down, as opposed to the 10% most banks are demanding right now. For a borrower to use an FHA loan to purchase a condo, it must be on the FHA approved list (click here for database). If you take a look through this database, which is not very user-friendly by the way, since it doesn’t allow you to search by address, you’ll see it’s slim pickings.

That doesn’t mean that you should give up hope though. You can still try for a ‘spot-approval’ which means that FHA will see if the building meets certain criteria and then give a one-time exception. Some of the most restrictive criteria include:

· Building must be at least 90% sold (so no new construction qualifies)

· Building must be >51% owner-occupied (I’ve found this is an issue for many older buildings where units are low in price.

· No single entity owns more than 10% of the units

· Condo Association must not be currently in litigation

· No special assessments are pending

· There is an adequate reserve fund and plan

To protect yourself as a buyer, it’s advisable to include a financing contingency period while the lender investigates whether you can get a spot approval. You don’t want to be locked into a contract only to find FHA won’t give you the loan.

So, what to do if you’re interested in a condo but can’t get FHA approval? First, speak with your lender (or other lenders) about other programs that might be available. If your budget allows it, consider looking at townhouses or duplexes, which aren’t subject to the same FHA approval requirements. It may be even more affordable than you think, when you factor in the lack of a condo fee. Or concentrate your search on buildings you know to be FHA compliant.

North Arlington Condo Market Update - June 2008

Zip Codes 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

	1 BR Units	2BR Units
ACTIVE LISTINGS as of Jun 25
Average List Price	$335,979	$520,929
Number of Active Listings	53	79
Average Property DOM(P) – Actives	70	98
SOLD LISTINGS
Average Sold Price for Previous Month (does not include seller subsidies)	$333,247	$454,222
Number of Sold Listings in Previous Month	19	23
Average Property DOM(P) - Solds	56	54

Unique Risks in Buying New Construction Condos

There are risks in any real estate transaction, but buying new construction has several unique ones:

1) Contract Risk - builders use their own contract and rarely (if ever) allow changes. Obviously the contract is written in the builder's favor, but how will you know which terms are commonplace in the local market and which are uniquely theirs?

2) Financing Risk - If the building isn't ready to be delivered yet, the buyer assumes any financing risk between contract date and delivery. If interest rates double between now and then, for example, it's the buyer's problem. Similarly, any change in the buyer's status (e.g., job loss) is rarely accepted as a reason to get out of the contract. Best case is that you lose your deposit and walk away.

3) Delivery Risk - Again, with buildings that aren't complete, builders write in a clause that give them a specific time frame-often 2 years in this area-in which they can deliver late with NO consequences. If a buyer's lease is up or they have no place to go, that's the buyer's issue. It also adds to the Financing Risk (see #2)

4) Sales Risk Part A - If the builder doesn't sell out, then it's nearly impossible for a resale owner to price competitively. Consider the math--a buyer purchases, and has to mark it up to cover their own sales costs. How will a resale ever compete with a builder that doesn't have that markup?

5) Sales Risk Part B - If a builder doesn't sell out, and money is getting short, they may decide to "repartment" the building - that is, convert partially to apartments. That's a bad situation for owners (who now have tenants in their building) as well as for re-sellers (who would buy in a building when they can rent for much less in the very same building?)

6) Fees - Not really a risk so much as an FYI. Don't get too excited about that huge closing cost credit with use of "preferred lender and settlement attorney." They're "preferred" because the fees are higher in the first place. Know what a reasonable fee is so you can make an informed decision.