Relationship Management: First-Time HomeBuyers

3 Ways a First-Time Home Buyer Can Drive You Nuts!

Learn how to overcome three common challenges of working with first-time home buyers.
Working with first-time home buyers can present its own unique challenges. If their indecisiveness doesn’t drive you crazy, their meddling parents just might.

Some first-time home buyers can be your best clients—eager to learn more about the housing market and soak up every ounce of your wisdom. But others won’t let being novices at home buying get in their way, and they may send you on an endless search for that perfect house.

First-time home buyers are the largest group of buyers, making uWelcomep 32 percent of the home buying market. They can generate extra business for you for years to come, too, so they may be worth the trouble.

How can you overcome some of the biggest challenges to working with first-time home buyers? Experts weigh in.

Problem No. 1: Buyers who bring in their parents.

First-time home buyers are often young and they may want to bring in some reinforcements to help find the perfect house.  “There is no more dreaded phone communication from the first-time home buyer to his agent than the ‘I’d like my parents to stop by and take a look’ call or e-mail,” says Richard Courtney, a real estate broker with French, Christianson, Patterson and Associates in Nashville and author of Buyers are Liars & Sellers Are Too (Fireside, 2006). “At that point, regardless of any and all conditions, the deal is most likely dead. While the buyers have not heeded a word of advice from their parents since they were 11 years old, now they want the folks to share in the biggest decision of their lives.”

And you’re stuck in the middle.

When the parents enter the picture, they often play the game of “see who can find the most wrong” with a property. As Courtney notes, parents are great at spotting a “nail hole from 70 feet and through two sets of windows” or they can “hear a floor squeak at a noise level otherwise audible only to bats.” [You think he’s kidding! =SA]

What You Can Do:

  • Don’t argue. Resist the urge to blurt out: “Your father’s an idiot; you shouldn’t listen to him!” Nor do you want to argue with ma and pa. Instead, let the parents meddle and involve them in the process as much as your client wants them in, Courtney says. Thank the parents for their extra insights. And if the parents misstate something, correct them gently when they are wrong, but do it respectfully.
  • Educate the parents too. Share comparable sales, financial information, and inspection reports with the parents too — assuming your client approves. Share all your accumulated knowledge and data with the parents so that they feel involved in the process and aren’t advising their child when they’re uninformed about the realities. [Please note, the Parents may well have a different agenda than seeing that their child makes a good decision.  They may not want the child to yet purchase anything.  It will become clear by the second showing.  When this happens, kindly tell your client that you think they may want to take some time to determine what they wish to do and you will be available when they are ready.  Do not look for them to get back with you.  Move on. =SA]

Problem 2: The uninformed buyer who doesn’t realize it.

Some first-time home buyers know they’re novices with real estate and defer to you as their expert. But some will take on the know-it-all role, even though they don’t have a clue about the real estate market.

Maybe the buyer wants a move-in-ready beachside home, with every upgrade money can buy — and they want it all for a fraction of what it really costs. Or they may find a home they love and want to submit a ridiculously lowball offer.

Educating buyers about the market may take some extra time, but it’s worth it. After all, educated buyers tend to make better offers with fewer contingencies, agents say.

What you can do:

  • Talk about the home buying process. Counsel your client about the process of buying a home before anything else. “They need to understand how the home buying process works from beginning to end,” says Leroy Houser, a real estate coach and trainer who leads seminars and courses.Discuss home inspections, appraisals, and some of the terminology in the business (such as HUD, short sales, easements, surveys, and so on). Include up-front discussions about common stumbling blocks, like when does their lease expire if they’re renting, and will they be prepared to break their lease? Talk about market conditions: Are prices going up or down?
  • Make sure they get a financial reality check. Have the buyers get prequalified for a loan so they know what they can afford before they start falling in love with homes that aren’t in their budget. Use a mortgage calculator to determine monthly mortgage payments plus estimated utility costs, property taxes, and maintenance costs.
  • Let them make a mistake. With some stubborn buyers, you sometimes have to let them make a mistake before they get in the right psychological mind-frame, Courtney says. Against your advice, they may insist on doing too many counteroffers in a deal or submitting too low an offer. As a result, they may end up losing a house they really wanted. “Let them experience the loss of something they wanted,” Courtney says. Next time, they’ll listen more closely to your advice.

Problem 3: The indecisive buyer.

Some buyers just can’t seem to commit. The search for that perfect house is endless, and after about the 15th home you’ve shown them, you may lose hope that they’ll ever choose one!

First-time home buyers love to search for homes, and “they know how to find houses,” Houser says. “But their problem is they don’t know how to buy them. The more you look, the more confused you can get. They want to do more looking because they don’t have enough information to make an informed decision.”

What you can do:

  • Have them complete a questionnaire. Do this at the very beginning of the home search to learn what they’re looking for and to get them to more carefully consider their “must haves,” “nice to haves,” and “avoidables” too. Get a sense of the house styles they prefer, the number of bedrooms, home designs, neighborhoods, and so on. What are their main motivations for finding a home? Do they want to have a shorter commute, be in a certain school district, or have increased security?“The questionnaire is much like a doctor would do for a new patient,” Houser explains. “A doctor uses a questionnaire before you even meet. The doctor then looks it over to talk about what the issues are. In real estate, it should be the same thing.”
  • Use “preframing” to guide the search. Get the buyer to focus on part of the market rather than the entire market. For example, say something like, “There are two distinct groups of homes in the marketplace that fit your criteria. One group we call ‘opportunities,’ which include some new homes and resales we consider good values because they are priced to sell, in excellent condition, and move-in ready. They are close to perfect, and I have four of those to show you,” Houser explains at his Web site about using “preframing” with first-time home buyers. “In addition, we have three homes we call ‘Deal Homes’ because they are outstanding deals. They need some repair, so they are priced below the market.”  You narrow the market for them to seven homes and carefully frame and prepare them for what they’re going to view.
  • Create urgency. Mortgage rates and housing prices won’t stay this low forever. Your buyers may need more drive to buy now rather than wait until later. Show them what home prices have been doing in your area. Mortgage rates are at ultra-lows right now, but what can your clients afford if rates return to the 6 percent range, as they were a few years ago?
  • Be frank. You want to encourage buyers to be open and straightforward with you about what they want, and you also may need to heed your own advice. After the millionth house showing, you may need to confront your buyer point-blank on his or her indecisiveness. As Courtney says, you may need to say: “If you want to buy a house, I can help you do that. If not, we can’t look at houses forever.”First-time home buyers require plenty of patience, but if you’re able to help them successfully navigate the process, you may not have just produced one sale, but a bunch of future sales, such as:

    “The buyer may have been single when you sold him that first house. After marriage, he wants to move again,” Courtney says. “Then he and his wife have children, and they need to move. First-time home buyers could easily produce five sales in a short period. They’re a good market to work with and cultivate. But just remember, you’ll need to educate and nurture them through the process.”

Melissa Dittmann Tracey is a contributing editor for REALTOR® magazine.
Advertisements

Real Estate Financing: Recipe for Success

For homebuyers today, the paperwork involved in securing a loan is often more painstaking than actually qualifying for a mortgage.

In an effort to avoid substandard loans and underwriting practices, Fannie Mae and Freddie Mac have cracked down on “bad,” or poorly documented and underwritten loans of the past. As a result, most mortgage lenders began greater enforcement of thorough underwriting guidelines and procedures, understanding that the key to avoiding future loan repurchase or buyback losses is to create the “perfect” loan file, as discussed by Mark Greene of Forbes.

Proper documentation is vital to developing a borrower loan file that meets today’s stringent credit and underwriting guidelines. Providing all required documentation requested will help facilitate a smoother mortgage process and help avoid unwelcome surprises.

Borrowers will have to disclose everything about their financial lives, from how much money they have in checking, savings, investments and retirement accounts, to gifts received to help with the purchase of the home. Full disclosure of credit as well as previous home ownership must also be captured to eliminate any potential obstacles to closing.

The mortgage approval process is rigorous for a reason – to avoid defaults and loan buybacks for lenders. [And consequently, should protect the buyers.-SA] These higher standards and strict guidelines are required by mortgage investors (e.g. Fannie Mae and Freddie Mac). Not having a “perfect” loan file can ultimately result in the lender having to buy back the loans at a loss from the investor – a scenario all lenders strive to avoid.

Courtesy of Coldwell Banker Home Loans

Financial Health: Recovering from Bankruptcy

Buying a home is one of the biggest investments you’ll ever make, so use our tips to make savvy financial decisions before you buy – and maintain your home’s value once you sign on the dotted line.  The following is PART 1 of an excellent guide from FrontDoor:

PART 1:  Financial Health and Recovery

The housing crisis has tightened up credit markets, so it’s more important than ever to have a clean credit report. Use our tips to shore up your credit score before you buy, or restore your credit after a major financial blow.

A.  Recovering From Bankruptcy

What you can expect in the first 2 years after bankruptcy

Filing for bankruptcy should not be a financial monsoon that sweeps away your credit freedom for the rest of your life.

Bankruptcy can offer a fresh start to individuals with overwhelming debt who are seeking ways to brighten their financial horizon. But, improving your credit standing, like diminishing your credit standing, happens over a period of time.

While bankruptcy remains on credit reports for years, if you maintain a good credit history after filing for bankruptcy some lenders oftentimes extend credit for auto and home loans 18 to 24 months after a bankruptcy discharge.

In 2008, more than 1.1 million Americans filed for bankruptcy, a 32 percent increase from the year before, according to the Automated Access to Court Electronic Records. As the U.S. attempts to recover from an economic recession, a credit crunch has created a few hiccups as lenders tighten up credit standards for loan applicants across the board.

The turbulent markets could make the road to credit redemption a little longer, but don’t fret — instead focus on long-term financial freedom.

Know that every application for credit is judged on an individual basis, so the length of time it takes to repair your credit will vary.

What might your recovery period look like?

The First 6 Months

The most damage to your credit will be immediately after you file, says Candy Wright, group manager of counseling at GreenPath Debt Solutions (www.greenpath.com), a non-profit consumer-counseling service. “If you have accounts that you’re not including, like a mortgage, that will actually help your credit over time if you keep your account current.”

First, you should find an experienced and trustworthy lawyer who specializes in bankruptcy, or seek low-cost legal aid services.

Take the time to learn the difference between Chapter 7 and Chapter 13 bankruptcy and which works best for you. Under Chapter 7, also referred to as “liquidation bankruptcy,” you pay nothing to unsecured creditors, but may be required to liquidate non-exempt assets (like a house or car worth more than a certain amount). Chapter 13, often called a “wage-earner’s plan,” means you pay back a portion of your debts over a period of time and are not required to liquidate assets.

Next, be prepared to spend up to six months awaiting bankruptcy discharge, which releases the debtor from personal liability for some or all of his or her debts. During this time, creditors are notified and given time to respond to your bankruptcy claim. You should not pursue any new credit during this period.

6 Months to a Year

Your credit history won’t clear up immediately — even if you’re current on your bills, it will take several months for your credit to improve on paper.

“After six months to a year, if you’re in good standing, then you will establish a track record of turning yourself around that will be reflected in your score,” says Director of Consumer Education Steve Katz of TrueCredit (www.truecredit.com), a credit monitoring agency. “Keep in mind the impact of bankruptcy is a lot of late payments, and if you have a foreclosure you might still be accountable for that mortgage and those things can linger on for quite awhile.”

If you re-affirm debt, or agree to repay a portion of a debt, the positive effects of repayment will begin to show up on your credit report. If not, rental payments or other types of credit that are reported to credit bureaus may have a positive impact as you re-establish your credit.

The First Year

Request your credit report from all three credit bureaus after bankruptcy the first year and each subsequent year. As you begin to rebuild your credit, it’s important to track your credit history and remain in good standing.

“It’s kind of like your report card from school, so you want to try to always improve your score,” says Ralph R. Roberts, a bankruptcy and foreclosure expert and creator of KeepMyHouse.com. The way to improve: Pay on time, every time.

The Second Year and Beyond

Each year after the first has less of an impact on your credit history. However, bankruptcy will stay on your credit report for 10 years. For that period of time, any lender viewing your credit report will see an indication that you filed for bankruptcy and may take that into consideration before extending a line of credit. If you become more financially healthy in the seventh year, for example, it will have less of an impact than the 1st or 3rd year of bankruptcy.

Your credit requires a lifetime of maintenance, and while bankruptcy is a major roadblock, worry less about a timetable and more about weathering the financial storm by relying less on credit cards and survive by living a debt-free lifestyle.

NEXT:  Part 1, Item B:  7 Ways to Improve your Credit Score

 

Get Out of Debt

debt   6 steps to take:

by MMarquit

One of the most important financial lessons that you can learn is that debt is prison. Indeed, when you are paying interest on your debt, that money is going straight into someone else’s bank account — and you receive nothing in return. Plus, paying that interest makes it harder to pay down the principal and to reduce your debt. Even though it might be difficult to get out of debt, it is doable. Here are the steps you can take to get out of debt.

1. Really Decide that You are Committed to Getting Out of Debt

The first thing you have to do is decide that you are really committed to getting out of debt. You need to truly want to change the way you do things, and get serious about paying down your debt and getting on the path to financial freedom. Without the commitment to get out of debt, you are likely to give up.

2. Stop Adding to Your Debt

Take a look at your budget, and figure out how you can better live within your means. Before you can effective tackle your debt problems, you need to stop making purchases with debt. Look at your spending, and cut back on the unnecessary items so that you are living within your means.

3. List all of Your Debts

Next, list all of your debts. List the balances, minimum payments and interest rates. Decide on an order to pay them off. Many people like the “debt snowball” method. You take that lowest balance debt, and concentrate on that first. This method is psychologically rewarding, since you see success faster, and are encouraged to keep going. Others, though, prefer to start with the debt with the highest interest rate, since it will save more money in the long run, since you will get rid of the most expensive debt faster.

4. Decide How Much You can Put Toward Debt Pay Down

Now that you have prioritized your debt list, it’s time to figure out how much money you can put toward your debt pay down. Honestly evaluate your spending, and look for places to cut back. You should be able to find waste in your spending, and, instead of spending it on frivolities, put it toward paying off your debt. Pay the current minimum on all of your debts, except the one at the top of your list. Put your debt pay down amount toward that debt. The more you can put toward it, the better.

5. Look for Ways to Earn More to Speed Up the Process

If you want to speed up your debt repayment process, you can look for ways to earn more money. Start a side hustle. Get a part-time job. It’s only for a little while. If you can put your debt repayment efforts into overdrive, you can be free that much sooner — and you will reap the benefits.

6. Acknowledge Your Successes

You can stay motivated when you acknowledge your successes and take time to reward yourself. Don’t go big though — you want to stay out of debt. But you can hold a little celebration, or you can retire each debt in a creative way. Buy a small treat, or cook your favorite dinner at home. Be sure to mark each milestone, and get excited about your next step toward success.

The Next Decade for House Prices

BY THE NUMBERS      AUGUST 28, 2012

IS IT TIME TO BUY?

Ignore the bulls, bears and brokers, and get out your calculator.

U.S. home prices rose in June from a year earlier for the first time in nearly two years, according to data released Tuesday. Is this the start of a bounce back for housing, or is it just a cheerful blip in the numbers before prices resume their fall?

Bet on neither.  Instead, assume for planning purposes that U.S. house prices will rise by an average of 2.3% a year over the next decade.   Here’s why: House pricest end to track the rate of inflation over long time periods (see chart). After all, inflation is the gradual rise in the cost of ordinary goods and services, and houses are boxes made from ordinary goods and services — lumber, copper, carpentry and so on.

If house prices either outpaced or lagged behind the inflation rate over long time periods, houseswould become either infinitely unaffordable or cheap. Of course, that doesn’t happen. Booms and busts tend to offset each other, leaving house prices in sync with other prices. That’s what has happened over the past dozen years or so.

Predicting the inflation rate is difficult, but the work is already done. That’s because of a special kind of bond called Treasury inflation-protected securities, or TIPS. These give investors both a stated interest rate and an ongoing principal adjustment based on the consumer price index, the main measure of inflation. Regular Treasurys give investors only the stated yield.

The difference between TIPS yields and regular Treasury yields, then, is equal to investors’ collective bet on the rate of inflation. Right now, that spread is 2.3 percentage points on 10-year issues. Investors should assume that rate for the next 10 years of annual inflation — and house price gains.

Housing bears will point out that the recent year-over-year price gain is just 0.5%. All of it may be due to a recent drop in mortgage rates luring buyers, which isn’t likely to repeat. And last year made for an easy price comparison, because prices dropped following the expiration of housing stimulus programs. Indeed, house prices may already be falling again. The latest Case-Shiller reading is for June, and really, it reflects purchases that were inked a few months prior.

Housing bulls counter that mortgage delinquencies are down, new home sales are up and affordability has been restored.

They each make good points — and their views are already reflected in market prices for houses, which is why prospective buyers should ignore them. They should also ignore broker claims about a particular area being an up-and-coming one or a deep value. Those sentiments are priced in too.

Buyers should instead use their 2.3% house gain forecast in one of those renting-versus-buying calculators available. Good ones typically ask the user to plug in forecasts for their annual rent increases, annual house price increases and the rate of inflation. Use the same number for each (2.3% or whatever the current spread between TIPS and regular Treasury yields suggests).

Of course, house prices may not exactly track inflation over the next 10 years. They could rise more or less, and history suggests price gains will vary sharply by market. Even in the same market, some buyers will get better deals than others. But the point of the forecast is to base housing decisions on a sober look at likely outcomes rather than hope or hype.

Homeownership still looks like a good deal in most markets, but that has little to do with June’s price rise or the possibility of timing the market.

Thanks to:  JACK HOUGH, SmartMoney.com

What Is A HERS Score?

What Is A HERS Score? photo   With an increasing focus on green home building there is also a greater interest in knowing just how energy efficient an already-built home is. The HERS score is a way of quantifying that information.

Like it or not HERS scores will be entering our mainstream home sales market and you will start seeing more and more of them, but just what is a HERS score? The Home Energy Rating System or HERS, is a numerical value for the efficiency of a home.  A HERS score takes into account the home’s insulation levels, orientation (with North-South exposure being more efficient), the number and kind of windows, the efficiency of the HVAC unit(s), leaks in the home envelope (your home’s barriers to outside elements), leaks in ducts, and electricity generation such as solar panels.

A RESNET (Residential Energy Services Network)-certified professional uses performance testing such as a blower door test in addition to energy-modeling software to give you a numeric score. The lower the score the better.

A new home built to standard 2006 international codes would have a score of about 100. ENERGY STAR homes have HERS scores of 85 or lower, meaning they are built 15% more efficiently than required by code. Average existing homes may be around 130, though some homes score well over 200.

Net-zero energy homes score zero or lower. A Habitat for Humanity “Legacy Home” in 2010, had a -16 HERS because the home produced more energy than it used.

What Is A HERS Score? photo    The rating shown here is from a 1954 block-construction home, renovated in 2005. Apparently, the previous owners did a pretty good job when retrofitting and didn’t skimp on insulation. This this rating was done, the owner has installed PV solar panels.

HERS scores may be required to be posted in future home sales as a good indicator of how much it may cost to operate the home. The cost to conduct a HERS rating varies, so it’s important to shop around. Quotes may run between $250-$450. Qualified professionals can be found at: resnet.us/trade/find-raters-auditors.

Thanks to:   

Realtor Melisa Camp, Phoenix, AZ