I get a lot of questions asking me what happens to my payment if rates go up and from sellers….I do not get asked enough by my sellers the impact rates have on them so let’s look at this from two different perspectives….

BUYERS

Suzy and Steve Homebuyer are looking for a home.  They got pre-approved in February (it is now June) at an interest rate of 3.5% ****for this exercise we are using a single family home as the example (no condo fee) and we will not include taxes, insurance or the potential for PMI. Just Principal and Interest. Steve and Suzy will be looking for a $400,000 home with 5% down….let’s take a look.

$400,000 purchase price

5% down = $20,000

Mortgage amount = $380,000

Interest Rate = 3.5%

Monthly payment of principal and interest: 1,706.37 (the buyers comfortable monthly payment)

NOW if the rate is 4% like it is here in June, the scenario is as follows:

$400,000 purchase price

5% down = $20,000

Mortgage amount = $380,000

Interest Rate = 4.0%

Monthly payment of principal and interest: 1,814.18 (Over $100 more than their comfortable payment)

Let’s get them back to their comfortable monthly payment but at today’s interest rates

For them to be back at that $1,700 mark with 5% down and todays interest rate…

They can now afford a home that is $376,000 almost a $25,000 difference just because the rates changed.

Do you think the buyers knew that?  I don’t.

They could be shopping for homes at the 400 mark, maybe higher and then BOOM, the house they fell in love with is no longer attainable.

Stay in touch with your mortgage broker so you can stay on top of this.

SELLERS

Guess what just happened sellers?  If your home is on the market and is sitting, the buyer pool who could afford your $400,000 home, no longer can.  I believe you have two options:

1) Reduce your price to get offers now so that if interest rates continue to rise you do not lose more buyers.

2) Do nothing and pray!

This was for informational purposes only.  Interest rates change all the time and maybe went down while I was writing this…or up.

Email me with any questions.

Ryan

As you know, the real estate market for homes priced accurately are moving off the market quickly.  This and a low inventory of homes and larger number of buyers, means people are paying more than asking price for the property.

This is great!  Sellers are excited! Properties are moving quickly, Moral is high!

But there is one problem…especially for first time home buyers with smaller down payments….

Let’s say you find the condo of your dreams for $250,000.  You are so excited because this condo fits all of your needs AND it is under your budget by $30,000.

The bad part is it fits a lot of other peoples needs too as you noticed there was over 50 people at the open house!

What to do? What to do?

You decide that is in your best interest to offer $275,000 to get the property because there was a total of 20 offers.

You get the condo and things are going smoothly…until the appraisal (the evaluation done by someone hired by the bank to make sure the asset (condo) is worth lending money on)  comes back from the bank.

It came in at $245,000!  What!! How can this be?  There were 20 offers, most over asking and over 50 people at the open house!!

The similar property on Oak Street was priced the same and that had a heck of a lot offers too!

You see, the appraiser will use comparable properties SOLD, not pending and not active.  So in essence they are behind the market.

What does this mean??

Scenario 1

You are putting down 20% ($55k and all your savings) and a mortgage amount $220,000.  The good news is you can still buy the house.  The bad news is you went from having 20% equity position to not anymore and here is how.

The bank is only lending on a value of $245,000.  You are buying the house for $275,000, a $30,000 discrepancy. The total savings you have is the 55k, so you will need 30,000 to cover the difference between 245k and 275k.

Now you have 25k left over and you are still buying the home for $275,000.  25k /275k is .09%

This could do a number of things for you.

• Pay PMI
• Higher interest rate
• Indigestion

If the market continues to stabilize and rebound….6 months from now you could refinance and get the value increased and your equity position increased and PMI eliminated.

This was not the end of the world and worth it if you keep losing out on condos you love!

But what if I was only putting 5% down…. (Scenario 2)

You would agree to pay 275,000.  Appraisal comes in at 245,000 a difference of 30,000.

5% of 27,500 is 13,750 (also all your savings)

Your stuck.  Hopefully you can get out of your agreement and not lose your deposit.

One way to completely avoid this scenario is to right up an offer saying “Property must appraise at or above purchase price”

This would protect you if you got “stuck”

But let’s go one step further and put ourselves in the mind of the seller and listing agent.

If I am the listing agent — I say to the seller, “yeah that offer of 70,000 over the asking price looks great but what about that 5% they are putting down and the appraisal contingency in there offer?  Do you want to wait until the appraisal to find out they cannot do the deal?”

“You should consider this offer of 40,000 over asking with 50% down and no appraisal contingency because if the appraisal comes in lower, this buyer can still move forward.”

——————————————-

If you would like to know more info about this common situation — feel free to email or call

Ryan

In the recent past and the past in general – the busiest days for real estate agents was the weekend.  For obvious reasons…most people looking to buy or sell a home work traditional 9-5 jobs.  Not all but most.  So we would take our buyers out on Saturday and Sunday, have open houses for our sellers and meet with new clients.

BUT NOT ANYMORE!

Currently, with inventory LOW and rates still very low, most markets have shifted in favor of the seller.  If you combine that with some excellent price guidance, you are going to have people in lines trying to get into your open house!

(We are seeing this a lot in Melrose, Somerville, Cambridge, South Boston, Medford, Reading, Wakefield, Waltham, Wilmington and many other communities)

So let’s review how this is going down.  A new property in a sought after area comes on the market for a price that everyone perceives of being great value on a Tuesday or Wednesday.  (Remember this too, It is the Internet ERA — everyone who is looking for a house is on the web and everyone who likes avoid doing work AT work is looking at homes online)

The agent and the seller agree to not allow any showings until the first open house (Sunday).  This creates pent up demand.  People are being told that they cannot see a home so naturally they want to see it more and will be at the open house.

Also — It is being disclosed that all offers are being reviewed on Mon or Tues — so the buyers have to act quick!  The aggressive will right up an offer that Sunday but that is not for everybody. So the buyers sleep on it and want to get their offer in before the deadline…..Monday or Tuesday…Now the busiest days in real estate!

Check out NAR’s article about home prices and sales are rising

Melrose, MA!

I have seen multi family’s have open houses with HUNDREDS of people there…

Single family’s….the same

And now it is condo’s as well.

Right now there are 17 condos on the market in Melrose as of (2/8)

And in the last 6 months – there have been 20 condos sold!

Pretty good.

I want to introduce you to a new condo to the market.

It is a 1 bed plus (there is an office on the third floor) — has a great open floor plan, new windows, hardwood floors and very affordable condo fee payment (175).

Check out the listing below!

http://ryancovinorealestate.com/listings/39-vine-street-3-melrose-ma/

So you think that bidding wars for a property just happen on investment property?

You would be wrong.

In today’s market we can find bidding wars on every type of property out there, not just Multi family investment property.

I have seen it in the:

• first time home buyer market
• condo market
• new construction market
• second home market
• vacation home market
• move up home market
• and so many more.

We will save “how to get a bidding war on your home” for next blog post so the following are THREE Tips to winning a bidding war.

First off, pay more.  Easier said than done though.  You do not know what somebody else may offer. So while you may offer $10,000 more than the asking price, somebody else could easily offer $11,000.  What to do? What to do? Remember this quote “Buyer is willing to pay $5,000 MORE than any other bona fide offer”

But Ryan, what does that mean.

It means that you are willing to pay more than other person(s)

But Ryan, what if the price gets to high?

Than we would write “Buyer is willing to pay $5,000 MORE than any other bona fide offer not to exceed “x”"

We would always ask to see the other offer(s) to make sure we are not getting taken advantage of.

NEXT — Waive your home inspection, this is not for the faint of heart as this could be your very first home and it can be scary.  A seasoned investor may not have such an issue with this as he/she is familiar with buying houses

(not as useful but can be helpful is writing in your offer “Home inspection for informational purposes only.”

The Third one and the one that could be the riskiest is WAIVING your Finance Contingency.  This means that AFTER you given your Earnest Money Deposit, you are so sure your financing will be no issue that you put up that money (probably 10′s of thousands of dollars) without a safety net.

If your financing does not come though, you lose that money.

These three strategies can help you win a bidding war but may not be the best strategy for you.  Talk to your real estate professional and/or attorney for the counsel you need!

Ryan

No showings until Sunday 1/27/13 but I can tell you I like this house.  These are my favorite kinds of two family’s, symmetrical look, front and back porches (usually) and a nice two bedroom flow.

I recorded a video to show you the path of a similar multi family that sold not to long ago (a few weeks) It was located within .25 miles and was in “very neglected” condition — Both properties are two units.  The sold property on Hathorn was asking 389,000 and had 3 bedrooms per unit.

This one on Minnesota has two bedrooms per unit and is asking 399k.

Check out the video and let me know what you think.  Oh, I have included the listing sheets if you would like to do your own analysis.

hathorn

Minnesota

I am not the listing broker for either property — nor did i sell Hathorn — this is for informational use only

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.

Well, I work for a contractor for the government and the government imposes a strict “no work from home policy”. I currently have a cold where normally I would work from home so not to infect others (like most do in the private sector) plus I am not so sick that I couldn’t work. But now if I were to do that I would either have to burn vacation time or not get paid, neither of which are options in my opinion. So by the Government playing hardball in the contracts they enforce to their contracting agencies, they don’t help the situation either. There’s a ton of sick people in here working, probably for the same reasons I am. I just don’t understand why the Government thinks it’s so special in not allowing it’s contractors to work from home and get with the times. Just offering a different perspective on another way “the man keeps us down”.