Definitions

Popularity: 5% [?]

Here in Seattle we are seeing a lot of the same housing situations that we are seeing around the rest of the country.  A whole new vocabulary has popped up in the media.  I thought I would help clear the air about some of the new confusing terms.   There are some subtle distinctions so lets look at each one separately first:

Pre-Foreclosure – A home that is in Pre-Foreclosure is one where the owner is in default of the loan.  They have missed several payments and the bank has informed them that they are initiating the foreclosure process.  Typically the foreclosure process takes at least 90 days.  It is somewhat expensive for banks to foreclose on a home and often they would prefer to sell the home, even at a loss prior to having to foreclose.

Foreclosure – Foreclosure is the process of the bank taking possession of a home from an owner.  Once the bank has foreclosed, ownership changes from the individual to the bank and the bank can and often does turn around and sell the home. 

REO – REO stands for Real Estate Owned.  It is property that a bank has foreclosed on and now owns.  These are some of those “toxic assets” you hear about in the media.  Banks don’t like owning homes.  They like lending money.  Banks often have an REO office that is in the business of selling these properties.  Often banks are willing to part with them at a bit of a discount to get them off their books but not always.

Short Sale – A short sale is where an owner is forced to sell their home, but will not make enough money from the sale of their home to cover the existing loans on the home.  In order to sell a home this way, the bank needs to give its approval since they are not going to make back the money they loaned on the home.  The owner may be current on the payments, or not.  Short sales can be very complicated and take a long time to complete.  Still, I have worked with buyers who have gotten great bargains on their homes by being open to short sales.

Distressed Home – A distressed home is a home where the owner is at least 30 days late on a payment.  They may face late penalties, but just because a home is distressed does not necessarily mean that they are going to be foreclosed on or that they will need to sell. 

So lets recap.  Lets say you own a home and you fall short of making a payment in a given month, you are now distressed.  If your bank issues you a notice that they are initiating foreclosure on you, you are now in pre-foreclosure.  If the bank follows through (at least 90 days after notice) and takes possession of your home, you have now been foreclosed on and the property is REO. 

Regardless of the involvement of the bank, if at any time due to market changes or any other factor you are forced to sell a home that is no longer worth what the bank (or banks) is/are owed on the house, it is now a short sale. 

In these financial times, we are seeing a lot of homes selling that are in various compromised positions.  Such homes can sometimes be bought at a discount.  They are treacherous waters however.  You want to make sure you have some experience on your side to help you navigate the murky waters.  We are dealing with a lot of money here.  Don’t take any chances.

If you need help, you know where to find me.

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Rob Graham

Windermere Real Estate

206-321-6349

robgraham@Windermere.com

Popularity: 4% [?]

It is the reality of our times that many people are looking for additional space in Seattle home they are shopping for.  Wether it be children moving home after school, or just taking longer to move out, aging parents, or taking on renters to help pay the bills, many Seattle home shoppers are looking for homes that have more flexibility. 

There is a bit of a maze of lingo when it comes to additional space with a home, so lets clear that up first.

ADU – Accessory Dwelling Units – These are in house living spaces that meet specific guidelines set out by the city.  They need to have a separate entrance, kitchen capabilities, at least a three quarter bathroom, etc.  Many people have never heard the term ADU before and refer to them as Mother-in-Laws.  They are very similar with one distinct difference.  ADU‘s have gotten the stamp of approval from the city.  This would indicate that they meet a more stringent standard on average then Mother-In-Law.  Mother-In-Laws may not meet the strict standard to be qualified as an ADU or the owner simply has not jumped through the hoops to get a permit.  Often owners fear a tax increase if they report a MIL as an ADU and so avoid the permit process. 

Either way houses with additional living space either as an ADU or MIL can offer a lot of flexibility for home shoppers.

Both Accessory Dwelling Units and Mother-In-Law units are within the walls of the existing home.  If you build a separate structure outside the framework of the existing house, you are now talking about a cottage. 

Cottages used to be forbidden.  A few years ago however the city embarked on an experiment to start allowing a limited number as a test.  the success of that experiment and current economic and social reality, prompted Mayor Nichols last month, to announce that the city is considering extending the allowances of cottages.  The City of Seattle would set standards for size, set back from lot lines, etc. and if individuals had the space and got the permits, as many as 50 a year would be permitted to be built per year.  

to read the full article on the Seattle DPD web site click here:

http://www.seattle.gov/dpd/news/20090319a.asp

This is an interesting development for those looking for additional living space.  Nice to see that the city of Seattle is trying to be more flexible for those with extended family or those simply looking to have space to rent within their property.

If you need help shopping feel free to e-mail me or give me a call.  I’ll be happy to show you what is available right now in any Seattle Neighborhood for any price point.

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Rob Graham, Accredited Buyers Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 23% [?]

One or the greatest frustrations for home buyers is when they decide on a monthly payment they are comfortable with only to come to find out that there are several other charges included in their monthly payment that significantly reduces the amount of home they can afford.  When we talk about monthly home payments in the industry we are referring to PITI (principal, interest, taxes and insurance).  Two charges that we don’t discuss in PITI are home owners dues if you are purchasing a condo or home in a development with HOD’s, and Private Mortgage Insurance or PMI. 

PMI is a charge that the underwriter of your loan will insist on you having if your loan is greater then 80% of the purchase price of your home.  Why?  Well look at it from the banks perspective.  They aren’t giving you hundreds of thousands of dollars just because you seem like a nice person.  They expect to make money on the loan over time.  If for some reason you default on the loan, they want some reasonable belief that they will be able to take possession of the home and sell it to make back the money they have loaned on the home.  If you have been able to pay 20% of the value of your home up front, there is enough equity in the home (difference between what is owed and what the home is worth) so that the bank can feel comfortable lending the money.  If however you only put 3.5% down, which is typical these days, the bank assumes a greater risk.  If you default on the loan, chances are you will not have the money necessary to cover what it will cost to sell the home.  Even worse if the home goes down in value then you need even more money to cover the loan, and most likely would short sale the home or simply let it go into default. 

To help the bank feel comfortable about the loan they are requiring PMI.   It is an attempt to not repeat the blunders of the past few years where banks are taking an enormous hit to their bottom line for 0% down loans and interest only loans.  PMI is literally an insurance policy that you are paying for that says that if the bank needs to foreclose on the house and you are unable to pay the difference between the proceeds of the sale and what is owed on the loan, the policy will help pay the difference.

PMI can cost anywhere from less then a hundred dollars to several hundred dollars depending on the amount of the loan and how close you are to the magical number of 20% of the value of your home compared to the loan amount owing. 

If you are paying PMI and make a significant payment toward your loan or for any reason in the future believe that your LTV (loan to value ration) is now below 80%, you can contact your bank and ask them to wave the PMI. 

There is no incentive for the bank to remove the PMI voluntarily, so be vigilant and check back with them if you think you should not be paying it.

Give me a call if you need help.  I really do want to be your agent.

Rob Graham, Accredited Buyers Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 3% [?]

I was having this very conversation with a client of mine and casually commented that I wrote an article about this on my blog and I would send him the link.  I went back and found out, that I had yet to write a post about earnest money.  Oops.  Sorry about that.

Earnest money is one of the key decisions a Seattle home buyer will need to make when making an offer on a home.  It is exactly what it wounds like.  Earnest money, is money that you put up in earnest to show your sincerity in making the offer.  If for any reason you fail to follow through with your written agreement in the purchase and sale agreement, you agree to forfeit your earnest money to the seller.  The earnest money serves several purposes.

1. It indicates to the seller how serious you are about the home.  It is easy to imagine that earnest money of $10,000 shows a lot more interest and sincerity to a seller then $100.

2.  It offers some security to a seller.  When a seller accepts an offer on their home and we move into the inspection phase of the process, they are effectively ending much of the marketing of the home.  If you later decide not to buy the home, they are out valuable time of marketing that home.  The earnest money will help ease a sellers concern of removing the home from having an "active" listing.

3. Earnest money helps avoid all purchase and sale disputes from ending up in court.  Hundreds of homes change hands each month in Seattle.  As you can imagine with so much money and emotion involved in these transactions, many lead to disagreements.  If all of these disagreements went to court you would see a clogging of the court system like no other.  So, partially to try to avoid this, earnest money is offered as compensation should the buyer back out of a deal for a non allowable reason.

So how much earnest money should you offer?  That depends on several factors.

First of all, how much do you have?  Earnest money is your money, and if you choose to go through with the purchase it will initially be put toward your closing costs by the escrow agent.  Any balance remaining, will be returned to you at closing.  So for example, if you offer $10,000 in earnest money, and your closing costs come to $8,000, then at closing you will receive a check for $2,000.

Here is a good rule of thumb I tell all my buyer’s.  Choose an amount that reflects your sincerity in wanting to buy the house.  Anything less the $1,000 is not going to impress a seller and anything over $10,000 is a significant financial risk for most people.  But also, take this into consideration.  We sincerely hope nothing goes wrong before closing that would necessitate you backing out of the offer but if for some reason such as a family emergency, you needed to withdraw the offer, what is an amount that would not be financially crippling to you and your family.

Keep in mind that in the event of some family emergency, we can always ask the seller to refund the earnest money voluntarily, but they are under no obligation to do so.

So what are the reasons that you can terminate a contract and get your earnest money back?  Stay tuned.  I’ll answer that question in a few days and post a link right here.  If you want to subscribe to this feed to receive all updates automatically, feel free to click on the RSS icon in the upper right corner of this post.

Related Post:

Earnest Money: How can I get My Earnest Money Back after I Have an offer accepted?

Give me a call if you need help.

Rob Graham, Accredited Buyers Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 7% [?]