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Wednesday, April 22, 2009
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28 comments:
Freddie Mac Exec Found Dead At Home
Very sad news. He was only 41 and had a 5 or 6yr old daughter. Clearly, this mess was not the fault of one person. We don't even know what his participation was. Very, very sad.
I guess all the rumour about Freddie & Fannie going under may be valid?
Probably the only honorable thing he could do.
Yeah, this was very strange and sad news this morning. Clearly this is an incredibly stressful job, but there must have been more to it than that. Presumably some of that would be personal, and none of the public's business.
On a much more positive note, if anyone of you is looking for investment properties under the assumption that another bubble will come to float all boats here's a decent one:
SFH Burke, walk to VRE.
http://franklymls.com/FX7037835Downsides, on the main road through that area, split-foyer, probably totally un-updated (which is not a bad thing for an investor). price: $286k,
owner:FEDERAL HOME LOAN MORTGAGE CORPORATION
(notice the ad doesn't mention that).
But the turn around time from possession to MLS is impressive, foreclosure sale was 3/4/09.
I guess his creative accounting practices were staring to catch up with him.
NY Times columnist who bought gleefully in DC last year attends auction and says the bottom isn't here yetIf nothing else, this sales pitch certainly had chutzpah. It combined the old bubble-era notion that house prices always rise over time (ignoring the fact that incomes, stock values and the price of bread do, too) with the new postcrash idea that houses must be a bargain because they’re a lot cheaper than they used to be. Even Countrywide, which was taken over by Bank of America after so many of its subprime mortgages went bad, is still part of the housing pitch.
Yet as soon as the auction began, it was clear that the pitch wasn’t working.
The winning bid on the first home auctioned off, a two-bedroom townhouse in Virginia Beach, was $115,000. Just last July, it sold for $182,000, according to property records. A four-bedroom brick house with a two-car garage in Upper Marlboro, Md., went for $375,000. Last year, it sold for $563,000.
Throughout the evening, such low-ball prices continued to win the bidding. At one point, the auctioneer, Wayne Wheat, interrupted his sing-song auction call to cheerfully ask, “Where are my investors?”
The tables that had been set up around the edges of the ballroom, reserved for people planning to buy multiple houses, were mostly empty. Many audience members, like the man in a camouflage baseball cap just in front of me, were attending their first auction.
How expensive is it to build a house on land in Fairfax County? Let's say there is land for sale for $200K. How would the financing of land and the financing of building a home work? Does it end up costing a heck of a lot more than if you just bought a SFH?
I had a discussion with a realtor recently. He was saying that a SFH that was in bad condition (a foreclosure) would have been a good investment if it were sold for $350K, and then if you poured maybe $50K of work into it. But, doing it that way means you need $70K for the 20% downpayment, plus $50K for renovations for upfront costs of $120K on a $400K home. Most people don't have 30% to put down. It would make more sense for them to just buy a $450K house if it was in better shape, despite the increase in price, because it's just more affordable up front, and $50K amortized over 30 years isn't a huge increase in the monthly payment.
So, I'm trying to understand how it would all work out with land and a custom built home. Thanks for your insights.
MJC,
You're right. The land generally makes it prohibitive, unless you've got a lot of cash, patience, and a really good and reasonable builder. And *finding* a lot in Fairfax County (as a regular Joe) would be another issue.
MJC,
construction loans work differently, such that they are essentially equivalent to buying with your typical DP. The construction loan includes the price of buying the land and the construction costs. It may or may not have a initial period where no payments are being made and interest is being added unto it while construction is ongoing. You can get one structured multiple ways.
You are aware that you can get a purchase mortgage that includes money for renovating an existing house as well, right?
Where there's a market, there's a loan product for it. As long as your three C's are in order, you can still get them.
MJC - You generally have to own the land before the bank will give you a construction loan (see below for the reason). If you have an outstanding mortgage on the land, the construction lender will wrap the outstanding balance of that loan with the new loan for the costs of construction. The term of the construction loan is generally about 9 months and then it usually converts to a permanent loan upon issuance of the certificate of occupancy.
Construction lenders approve loan applications based on a comparison of the loan amount requested to the appraisal of the property on an as-constructed basis. In other words, you give them your construction documents and an appraiser determines the post-construction value based on the size and quality of the house and the value of the land.
To answer the question of why you need to own the land first before the bank will give you a constuction loan, consider that the bank requires construction documents during application. If you don't yet own the land, you aren't going to want to pay to design a house for that lot. Therefore, you don't have plans until after you've purchased the lot. You may find a bank willing to give you a short-term bridge loan for the purchase of the lot with the requirement that you'll provide them with the construction documents within a couple of months, but they will demand a high price from you in the form of points and very low LTV ratio.
As far as the cost of all of this compared to the cost of purchasing an existing house, that is an almost impossible to answer question. It depends on how much you pay for the land, how much your construction costs will be, etc. Construction costs vary widely by quality of materials and construction and by how good you are at shopping around for competitive quotes from GCs.
You do, however, need a fair amount of capital to build a house. You need money to acquire the land (let's assume you buy an existing house that you plan to tear down - you'll probably need 20% down on that property) and you need money to hire an architect to do schematics and construction documents and to hire a surveyor for the land. These are the minimum upfront costs. You may also pay upfront for building permits (although these can generally be included in the construction loan).
Hope this helps.
in other unrelated topics
Check this out:
http://franklymls.com/FX6803074
this may have the least enticing description ever:
"BACK ON THE MARKET CONTRACT REJECTED BY LENDER. NEED NEW CONTRACT ASAP. ..."
Hmm, yeah, that makes me want to run out and put an offer in. I suppose they'll tell you why it was rejected and that might help you decide whether your will be accepted. And at $220k this might be a good buy. Might. If the bank would sell it to you for that.
Krugman: Alice in financelandKrugman puts into perspective nicely the accounting rule which allows you to change your bottom-line on the basis of the option to buy-back your own debt. I will not quote it, it's short, go read it.
Hi all,
Been lurking her for a while and have a quick question. We currently own a 4 bdr sfh in the 20171 area code. We bought in Jan of 2006(ugh) and our growing family is dictating a move a bit further our for some more space. We're currently looking out in the Ashburn area for 5+ Br homes.
We recently had a realtor in to view our house and interview. We expressed our desire to put the house on the market and his qualifications. One of the questions I asked him was in regards to the tax assesed value of our house vs. the list price he was considering. His response was that he doesn't consider tax assesed values..he only looks at market value.
I guess I'm curious on two things: 1. do realtor's consider tax value when they are pricing homes and this guy isn't very wise?
2. When I'm looking at homes in Ashburn, etc...does it make sense for me to consider the list price vs. tax assesed?
Thanks
No3Putts,
regardless of the rest of your situation, as to the question posed.
As has been discussed here, the tax assessment is too broad-brush to be of much use in pricing individual properties. He's right to instead rely on pulling up the comparable closed sales and your current competition. Also note that the tax assessment is only aiming to be 90% of the full sale price in FFX County even if it were accurate on an individual scale.
On the other hand, a buyer may indeed reasonably ask you what improvements you've done or exist that justify your price over the tax assessment. So, have an answer ready for that.
no3putts,
tax assessments are practically worthless when it comes to (1) valuing a property or (2) determining it's current market price. sales comps are practically worthless with regard to (1), but are useful in determining (2).
Contrarian,
I've heard for a couple of years that NVR is well positioned to ride this out strongly compared to many. NVR remembered the lessons of the early "90's and optioned much of their land this go around.
On the other hand, in the zip codes I've looked at (and the homes I've looked at), no homes in 20171, 20152, or Vienna sold for more than the 2008 assessment this year, and all were +/- 5% of the 2009 assessment.
No3Putts,
Congratulations on breaking your lurking status!
I think you'd have a lazy Realtor who might cost you money and/or time and aggravation, if s/he wanted to rely on the tax assessment rather than do a comparative market analysis. So I think it's a good thing that s/he plans to do that.
If I were you I would go to the websites of both Loudoun county (for Ashburn) and your current home county and learn exactly how home prices are assessed by the tax authority in your county. That will help you determine how to weigh tax assessment, whether to factor in how much values have likely gone down in the time since they were calculated, whether to add to the assessment or subtract from it for your particular house (e.g., for improvements not taken into account by the county, as Cara noted), etc.
NoVAwatcher did an analysis linked here some time ago, showing that the asssessed values do have some predictive ability. So I wouldn't ignore them but use them as just one more piece of info.
ps I would think that assessments would tend to be closer in value to market value in neighborhoods where most housing is newer rather than older (holding assessment process constant). The reason for this is that in older neighborhoods, there is considerable variation in how much $ and time have been invested in updating and upgrading the houses, a factor often not fully accounted for in broad assessment calculations, but which is clearly important in market valuation.
Can anyone advise me on my dilemma? I have had a house on the market for 7 months. Houses in our area are selling fairly well, several each week. We've done everything the agent has requested, including lowering the price by $70,000. Our Long and Foster agent has had a few open houses, advertised our house once in the Post and once in the Sun Gazette. That's it. No other marketing plans. We want out of our contract. We want to give someone else a chance before Spring is over, before we give up and rent it. BUT, she's refusing to let us terminate the contract, saying that the broker said no, even though she (our agent) had previously told us that we could terminate the contract at any time! She has NO plans to sell the house, no marketing plan at all, yet she won't let the contract go. I suppose she's hoping someone will come along and buy it without her doing anything. Since that hasn't happened in 7 months, it seems very unlikely.
I am so angry that if she holds us to the contract I will do nothing to cooperate with her. Anything short of a full price, all cash, contract, I will refuse. I certainly do not want to giver her any commission.
Has any one else been successful in canceling a contract with a Long and Foster agent? Don't these agents realize that the seller can still refuse to sell the house? Don't they realize disgruntled customers can spread it all over the internet? Is it common for agents to refuse to cancel a contract? Do I have any legal recourse?
Thanks all.
Eva: It would be very unusual to have a 7 month listing agreement with a company. You probably know the length of your listing agreement, but just check it again. If you are still within the listing period stated in the listing agreement, write a letter to the manager of the agent's office (you can get the name and address on www.longandfoster.com) or call the agent's office and ask for the info. In the letter state that you are voiding the listing agreement for non-performance and give reasons why the agent has not performed, such as the lack of open houses and advertisting. Then ask that the sign, lockbox and any marketing material be removed from the property. Also ask that the data about your house be removed from the mulitiple listing service and any websites immediately. Send a copy of that letter to the agent and to Brenda Shipplett, Vice President for Northern Virginia, Long and Foster, 14501 George Carter Way, Chantilly, VA 20151. I suspect that the manager will call you and try to persuade you to complete the listing and may ask you to reimburse the agent for marketing costs. Refuse to do so and repeat your cancellation of the listing agreement. The agent may be stupid about not letting you cancel the listing agreement, but I assure you that Long and Foster does not want to have an even more-dissatisfied consumer and you have to get your problem beyond the agent to corporate Long and Foster. You are right that the spring selling season has begun, especially in Vienna where sales are tied to the school year, and you do not want to miss your opportunity to sell now.
eva,
Did you have a friend contact your agent and ask for a showing yet to see how she handles it? Consider having the friend record the conversation and even the walk through.
You gave 2 comps before (assuming this is the same person, my apologies if I'm misremembering your handle). While these two easily justify your price perhaps even for an assessment, they aren't necessarily what buyers are looking at. As a buyer, I look for the lowest sales prices out there for comparable places when thinking about what I'd bid (I'm not actually shopping quite yet). And I do mean the lowest. REO's count, they just get an additional amount added to them for renovations if they needed them. If you look around the neighborhood with a buyers eyes, is your price appropriate? What is it about your house that is making it last on every buyer's list? Location? Updates? size? If any of these things are lacking you may need to drop your price further. (Or as anielarke said, your price may already be too low such that buyers assume there's something wrong with it, without knowing which listing it is, we can't tell now can we?)
You would only take a full-price full cash offer at this point, just to spite your realtor? Really? I don't think any realtor would believe that's a credible threat.
Besides, buyers and realtors find listing on the MLS. Advertising is moot. The only really useful places to advertise are on your work bulletin boards if your commute is a quick and easy one. You want to hold more open houses? Hold them yourself. You don't like the commission structure at all? You should have listed with redfin, but now you're in a contract. Hopefully others will be able to weigh in on the question you actually asked.
As I said before, 7 months in this market is not a long time and most of it was in the dead of winter. Any more advice we can't give unless we can critique the listing.
"Eva said...
she's refusing to let us terminate the contract, saying that the broker said no"
Eva, very well could be a bluff. She doesnt want to be the bad guy, so shes throwing the broker under the bus. Call her bluff, ask to speak to the broker. If you are still under contract, offer to go with another agent with that broker. If thats the reason, broker shouldnt care.
Thanks so much to all of you for your comments.
I was under the impression that only agents could have open houses. When I wanted to advertise on website, militarybyowner, the agent said she would have to do that. It's good to know that none of that is true.
Seven months in Vienna means no other house has been on the market as long as our's. We priced it as she suggested and have lowered the price far more than she advised.
I can tell you that the house two doors down, same house, (but with a garage) is under contract for $720,000 while our house is listed for $619,000. I think that you are right, after this long on the market, and so many price reductions, it does appear that something is wrong. Here is the house down the street: http://franklymls.com/FX6976045 Our house:
http://franklymls.com/FX6976045 While we don't have the garage, we do have an extended double carport with brick walls.
Have I mentioned that Long and foster has sold 3 other houses for us, and just last August collected $22,000 in commission from our current house? On our Vienna house they spent less than $50, total, on marketing. Do the math. They've made plenty off of of us.
We sent an email to the broker laying out why we want out of this contract. She didn't answer it but called and left a message. I will call her tomorrow, and keep saying I want out of the contract, no I do not want another long and foster agent. If we relist it, it will be another company, but I think we will need to rent it because the house has been on the market for so long, everyone will think there is something terribly wrong with it, when there isn't. Our neighborhood easily rents to the military because we are walking distance (under a mile) to the metro, so military people take the metro to the Pentagon and DC. We have already had 3 inquiries about renting, so we'll probably do that, although it isn't our first choice.
Yes, I would turn down any contract that the current agent brings to the table. I am too angry at her to give her any money at all. Had she done her job in the beginning, we wouldn't be in this position. So she can keep the listing, I'll move in a motorcycle gang, and see how that works out for her. She lives across the street. Even though I no longer live there, I can move in anyone I chose. Of course I won't really do that, but I may well let my son and his five friends move in, with their 5 huge trucks, and their 3 very loud motorcycles. Surely that wouldn't hinder her sale of the house and I'm sure she wouldn't mind a couple of those trucks parked in front of her house.
To avoid that, I will do as kind anielarke suggested and call the broker tomorrow and be ready with my broken record responses, "no, I don't want another long and foster agent, no, I don't want to give my agent another chance, no, I don't want another agent, I want OUT, I want OUT, I want OUT''. If that doesn't work, I will send a letter to the Long and Foster vice president. Thanks so much for her contact information.
Thank all of you for your suggestions and help, keep 'em coming, and I will keep you posted on what happens.
Eva,
You meant this one yes?
http://franklymls.com/FX6993594
Best of luck. I think anielarke's advice to go straight to corporate is going to be your best bet. If you decide to rent it out for a few years, get an appraisal first, so that any future depreciation will be tax deductible. VERY IMPORTANT. That way if the market brings it down in price while you're renting it out, you'll at least be able to deduct that portion of the loss from your taxed income (also check out the IRS website for details).
AICPA case study on turning a residence into a rental tax-wiseI'm not familiar enough with Vienna to really advise on price, just looking at the current listings on frankly in that zip, there's junkier stuff both below and above you in the listings so it's hard to tell, you might be too low, on the other hand you don't have granite counters, the kitchen is a bit dated and the exterior shots are a bit uninviting looking (due probably to the season, the flower mound for instance looks kind of like a grave because of when it was taken) so, with those in mind, and just a carport I think $100k less than the comp you posted is about right. At the same time with the nice new bath fixtures, and gleaming hardwood floors I would be careful who I rent it to if I were you.
Unfortunately I think this is a cautionary example to others that right now, selling your existing house before buying is key. Not just for the normal reason, but because as your buyers agent, Long and Fosters had a guarunteed commission, whereas now they need to do real work. If instead 2 commissions were contingent on the sale of the existing house, I think they'd be much more motivated. Sad (and perfectly useless to you now) but apparently true.
Thanks for the great article! There is hope for us bloggers out there! All the best!
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