Paul Andres

I've stated before and stand by my answer - there is no such thing as a real estate bubble, when a bubble bursts, it's gone. The real estate market is not gone; it's just not where it was. Some think of the real estate market as a ladder, up and down. I prefer to see it as a clock; continuously cycling, depending on the time, different people are afforded opportunities to buy or sell.

Real estate prices are always changing, sometimes benefiting the seller other times benefiting the buyer. The fact remains; real estate prices are driven by supply and demand. What changed this past decade was the artificial demand made possible through easy money, easy money equating to billions of dollars of easy profit.

When asked, most will say sub prime borrowers purchasing beyond their means caused the housing crisis. Although it sounds good it couldn't be possible without the accord of insolvent lending institutions vending out phony mortgages guaranteed by assets, which didn't exist. As with most economic catastrophe it was caused by greed.

Over encumbered banks deceptively sold loans knowing the institution didn't have the financial resources to sustain the debt. Were borrowers irresponsible? Absolutely but that wasn't the cause of this crisis, it was however the whistle blow that exposed the fraudulent activity perpetrated by Wall Street.

Rather than being held accountable the lending institutions have been afforded a blank check at the taxpayer's expense. Correcting the mortgage crisis by dumping hundreds of millions into the mortgage banking system is as effective as pouring milk into a glass with a hole in the bottom. Analysts indicate that Bank of America requires nearly $35,000,000,000 over the next two years. How much will they need in April 2011 and how will this change the predicament? It won't.

Currently the banks are storing thousands of foreclosed assets supposedly to stabilize the market value; however the actual reason is to appear solvent, sound familiar? Meanwhile deficiency sales are not occurring at a fast enough pace to slow the impending foreclosure.

Eventually the banks over saturated inventory levels will be released, thousands of foreclosed properties will be thrust upon an already declining market creating more supply, reducing values even further. With values declining further, short sale inventories will increase resulting another blow to values... The banks will need more money to maintain, how does it end?

To stop the foreclosures banks must accept the losses now, and discontinue utilizing the taxpayer as an endless source of revenue for a failing industry. To stabilize prices and slow the level of foreclosure, all mortgages must be readjusted to the current market value with stipulations to keep the homeowner from capitalizing on the banks loss. I see little else to resolve the dilemma.

There are several variables in either category to consider when purchasing either new construction or a resale home. I'll begin with resale.

RESALE

Resale homes are most often in established neighborhoods with mature landscaping and lots of character. These homes may be less energy efficient and may have deferred maintenance the buyer must factor into the purchase price. Over the past 5 years we've experienced a high level of new construction, a large percentage of available properties currently on the market. Newer homes tend to be more energy efficient and have less deferred maintenance however they are less likely to have mature landscaping and some of the conveniences of older established neighborhoods.

The deficiency sale -

Currently there are hundreds of resale homes available on the market, which must be sold through a deficiency sale (short sale). Short sales often have a negative connotation, generally due to bank backlog in processing; although the more common reason is an inexperienced agent facilitating the deficiency negotiation.

Essentially short sale homes are sold at the current market value; depending on the market in your geographical area the current market value may remain stable and the buyer could begin accumulating a moderate rate of appreciation, however depending upon the number of foreclosed and pre-foreclosure homes the buyer may risk not seeing normal rates of appreciation for several years and may even experience a slight depreciation.

Homes on the market offered through deficiency sale are more likely to be maintained and in typical condition of what traditionally could be considered a resale home. Depending on the age and design, the buyer may be faced with repairs and/or remodeling kitchen and baths; with newer homes they may only need to perform minor repairs or update carpeting and paint in order to move into the home.

The bank owned sale (REO) -

Bank owned properties could be either a great bargain or the proverbial money pit. For the fist time buyer REO properties can be an easy beginning to home ownership if the buyer is wise about the process. Having an experienced REO agent can save you a lot of time, grief and money. Whether you're considering a newer construction bank owned property or an older bank owned property it is highly recommended to have a whole house inspection performed. Spending $300 to $500 up front could save you tens of thousands in the long run.

NEW CONSTRUCTION

As with resale homes, new construction has several scenarios to consider once you've made the decision to purchase or build a new construction home. Most common is the tract homebuilder, then the spec homebuilder and finally the custom homebuilder. Although there are variations of the three, I'll begin with the tract homebuilder.

Tract homebuilder -

The tract homebuilder is the most recognized and most readily accessible, not without a cost. Large amounts of money are spent to market new developments through advertising, beautifully furnished model homes and staffing. The tract homebuilder is sometimes perceived as less expensive than the spec and custom builder; does the tract homebuilder take less profit or recover expenses through saving on construction costs?

The tract homebuilder purchases larger parcels of land, subdivides the land into smaller lots and builds out a percentage of the development for immediate occupancy. Often there are 3 to 5 different floor plans offering a variety of interior and exterior architectural finishes, square footage and upgrades creating a fixed cost for the builder to estimate minimum profits. Typically the standard finishes are lower grade ceramic tile, oak cabinetry, linoleum and low-grade carpeting. The tract homebuilder upgrades are expensive and very profitable for the tract homebuilder.

In some situations there is an opportunity to purchase a hybrid of sort from the tract homebuilder. In this scenario the tract homebuilder has already upgraded the home with granite, wood flooring and nicer interior/exterior finishing at a similar price point to a less appointed floor plan creating more of what the buyer may find with a spec homebuilder. The buyer ends up with a tract home with higher grade finishing at the tract home value.

Spec homebuilder -

A spec homebuilder generally finds a parcel of land or selects a custom lot within a larger tract development and builds a medium to large size custom/semi-custom home and then sells it. Generally the spec home has a higher-grade finish than the tract home and comes appointed with upgraded flooring, cabinetry and interior/exterior finishing all factored into the price often the same price point as an upgraded tract home or slightly greater in cost.

If the buyer finds the spec home in the initial stages of construction they can sometimes select some of the finish materials and/or color selection adjusting the finished price accordingly. The spec home has more of a custom feel to the buyer as it is different than the other homes in the neighborhood however it isn't quite a custom build since the buyer wasn't able to select or design the floor plan or architectural elements of the home.

Custom homebuilder -

Working with a custom homebuilder has many advantages for the buyer. The custom homebuilder can design a home specific to the needs and wants of the buyer; custom homes are not necessarily enormous palatial estates costing a million dollars. A custom home can be simple with few amenities; the difference is that the amenities are designed specifically for the homeowners needs.

As with the spec homebuilder, the custom homebuilder has designs previously constructed, which can be modified to suit the needs and wants of the homeowner or the custom homebuildercan orchestrate a floor plan based on the buyer's own design concepts to build on a specific parcel of land or within a custom home development. Although the cost can be greater than purchasing in a tract home development the end result is a one of a kind custom home designed specifically for the homeowner. For those willing to wait 3 to 4 months and pay a little more, there are some huge advantages right now for building a new custom home; the cost of land is very inexpensive, material cost are lower and there are numerous tax advantage plans available to the borrower.

Custom homes are not necessarily more expensive than resale or tract/spec homes when you factor in the cost of remodeling and/or upgrading as an alternative. Selecting a reputable contractor and participating in the process from the beginning will ensure your satisfaction with the finished home. Working with an experienced agent is key when considering a short sale or bank owned home. It's especially important when working with a spec or custom homebuilder to have a real estate agent who is experienced with new construction as the process is much different than resale and tract home purchases.

There has been a lot of dialog regarding 3^rd party short sale negotiators; in my view the real estate agent comments have been negative and in some cases ill informed. As in any profession there are those who perform well and others who don't. Assuming all in the loss mitigation field are bad is unapprised thinking.

As a veteran agent, 20 years in the business I've had the opportunity to work with many agents, not all as stellar as the next for various reasons. During the course of my real estate career I've primarily acted as a listing agent, paying a percentage of my commission to a selling agent to perform a segment of the transaction.

When a selling agent is competent it's less problematic for my side however that isn't always the situation. In cases where the selling agent is incompetent or unethical, as the seller's agent we must continue to maintain our fiduciary, still paying the cooperative agent regardless of the level of expertise they bring to the table.

Throughout the course of the real estate transaction we must rely on 3^rd parties to perform various duties to assure a successful close; over the years many checks and balances have been added to protect all parties to the transaction. Real estate agents unwilling to relinquish responsibilities outside of his/her job proficiency are not upholding to their fiduciary responsibility to the client.

The seller/purchaser pay for inspections, geological reports; title/escrow charge a fee for service; mortgage lenders are paid a fee for service... each segment of the transaction is performed by professionals specializing in his/her area of expertise. Or at least they should be. I'm skeptical of transactions in which the real estate agent wears multiple hats, other than monetary what is the motivation to perform duties outside of their specific profession?

Loss mitigation negotiation is not a new field; it's only become more evident recently due to the current market conditions. For the past several years I have worked primarily on the loss side of our industry working with the end result, foreclosure. More than 70% of the inventory coming through our firm could have been avoided had the real estate professional facilitating the initial deficiency sale been more knowledgeable of the loss mitigation process.

Having a competent 3^rd party negotiator facilitating the short sale process is as intrical a role as a mortgage processor or title agent; a bad one will either delay or cause the transaction to fail. There are several ways a deficiency negotiator is compensated and I would be wary of firms requiring advanced fees for service.

If you purchased your home in the past 5 years and need to sell, in most cases you'll need to sell short. Sometimes also referred to as a real estate short pay-off or a pre-foreclosure workout, a short sale is an agreement with a lender to accept less than the amount owed by a borrower via a sale of the property to a third party.

Facing a situation in which the property value decreased and can't be sold for the amount owed on the mortgage, the lender may make a deal to sell the home for whatever it will get on the market. If the sale price is less than the amount remaining on the mortgage, then the lender will get the proceeds and discharge the remaining debt.

Even though the delinquent mortgage will still negatively impact on the seller's credit rating, at least short sellers avoid credit reports showing "debt discharged due to foreclosure".Having a foreclosure on your credit report is the most difficult strike, after bankruptcy, and can reduce your credit score by more than 250 points. Instead, short sales show up on a credit report as a "pre-foreclosure in redemption" status and can result in a credit score reduction of 100 points or less. After the sale, the mortgage may show up as "discharged."