Friday, January 30, 2009

How is your family budget?

This morning I had an opportunity to talk with a representative of Chase Credit Card Services in Springfield, Missouri. I had been directed to a supervisor because of an inquiry about the sudden increase in the minimum payment on my Chase Credit Card. I also had questions about a $10 service fee which I had noted when reviewing my monthly billing statement. The $10 charge had never appeared before.

Their representative was pleasant but firm and told me that Chase Credit Card Services had sent out a letter last fall outlining changes where the minimum payment on Chase Cards would be increased from 2% to 5% of the outstanding balance. I noted that I did recall receiving such a letter. But had called and was told the letter related to different accounts then mine. It was further explained that the changes were necessary because of the national credit crisis occurring. Their representative never explained the $10 service fee. I asked for a copy of that letter and it was agreed they would faxed it. But it was unclear when it would be faxed. Later I received a call saying it would be mailed instead.

While it is unclear if these changes affect every Chase Credit card holder, my account was created when I took advantage of a low fixed rate of 4.99% guaranteed for the life of the loan. Chase’s representative quickly pointed out that while the rate was guaranteed, the amount of the minimum payment was not. However, the random $10 service fee was not noted. It increased my otherwise guaranteed 4.99% rate to 8.04%. But, as he said, the changes were necessary because of the national credit crisis.

The question raised here is, can a family withstand an increase greater than twice, two percent-to-five percent, of any single line item within their monthly budget? Another question is, whose crisis is Chase Credit Card Services really concerned? Is it a crisis that Chase Credit Card Services guaranteed a low fixed rate for the life of a loan? Or maybe they want their low fixed rate obligations to go away? Chase’s representative said the explanatory letter sent to me had indicated I could opt out of the minimum monthly payment increase. But, if I did, I would have to agree to an increased rate of something over seven percent. Hasn’t that already happened? For lack of a better term, isn’t this legalized extortion?

But, once again, what about that family whose budget is already stretched to the limit. Whose family is facing reduced earnings? Whose job may be in jeopardy? What happens if they are late or miss a payment? It would seem that that’s the catch Chase Credit Card Services is looking for. You see, if a payment is late or missed entirely, it is a guarantee the interest rate gets bumped to the highest allowable rate Chase Credit Card Services can charge.

Either way, Chase Credit Card Services avoids the national crisis and legal extortion becomes the norm.

For additional complaints lodged against Chase Credit Card Services, please check out the website at: http://www.consumeraffairs.com/credit_cards/chase_credit_cards.html.

Wednesday, January 28, 2009

Reprint from Local Area Lender

The following is from an email I received from Rick Knight, Knight Financial in Tacoma, Washington. Rich gave me permission to post this in my blog. I’m unaware of whether this is original work of Mr. Knight or reprinted from some other unknown source. Nevertheless, I feel the information contained here is both encouraging and timely. It illustrates and states very clearly that our real estate market is good and loans to finance real estate purchases are readily available.

"IT'S A CRUEL, CRUEL SUMMER...LEAVING ME HERE ON MY OWN." From 80's band Bananarama And that's exactly what potential home buyers and refinancers who stay on the sidelines might be singing.

Although home loan rates are very attractive now, the picture could be quite different as some inflationary factors will likely come to light heading into summer. Oil prices may be on the rise as we approach the summer driving season, some of the economic stimulus might begin to take hold, corporate cost-cutting measures could start to bear fruit, and, perhaps most importantly, the Fed will no longer be a buyer of Mortgage Bonds. These are all ingredients in a recipe that could very easily result in significantly higher interest rates this summer...so if you have been thinking about acting on a home loan, do not delay.

But with no hint of inflation in the current market, why would Bond traders be fearful now? Are they listening to strange voices and what did they say? The forward looking markets got an earful from Fed Governor Frederic Mishkin last week...and he's not the only one. Mishkin said that "inflation could come to the forefront, given all of the government programs", and "once the economy recovers, liquidity must be taken out of the markets"...meaning the Fed may need to rapidly hike rates down the road, to control the potential of inflation.

In other news, Stocks around the globe faced heavy selling pressure last week on renewed fears of the deepening worldwide economic slump...and this despite better than expected earnings from Google and IBM, as well as GE meeting earnings expectations. Even with the downward pressure on Stocks which can sometimes benefit Bonds, the mention of the "I" word left its mark, with home loan rates ending the week around .25% higher than where they began.
The Heat is On

Homes are on sale, sellers are motivated, and interest rates are at historic lows...but may not stay that way, which means it makes sense to get moving on that home purchase or refinance you've been contemplating. But if you or one of your clients is among the smart individuals who are going ahead and taking advantage of the low home loan rates to be had right now, there are a few things to be aware of.

With interest rates at record lows, all lenders in the US have recently seen a sharp increase in loan applications - right at the time that many lenders have cut headcount to save money in a challenging economy. This means that timeframes needed for underwriting, approvals and closing have become longer than normal. Some companies have chosen to actually raise rates just to slow down the volume to a manageable level.

Sound crazy? No crazier than when you go to buy that hot new vehicle...only to find that there is no price negotiation. In fact, you wind up lucky to just pay the sticker price, as the demand usually allows the Dealer to add a markup to the price. And you don't get the car right away; you have to wait on a list for your turn to come up.

Right now, home loans are like that hot new car - but with the timer ticking on interest rates locks, there are a few things you can do to protect yourself.

First, longer lock in time frames than might normally have been considered are a necessity, to ensure that the file has time to be processed, underwritten, approved and closed in time to protect the rate lock in this extremely volatile climate. And that longer, safer lock-in period may be a bit more costly - but it's money well spent. Overall, the mind set here should not be one of greed. Don't try to squeeze every last drop out of rates. If you are within a quarter percent of the lowest rates offered in the history of this country, you did very well. And rates always shoot up higher at a much faster pace than when then dip lower. So if the savings or opportunity make sense - grab it.

Next, responding quickly to requests for information or documentation is important - the faster the file is submitted and approved, the better off we are to keep that great interest rate protected.

Finally, be aware that it may be a smart idea to pay points to gain the best interest rate - and sometimes is even necessary in today's market. Giant mortgage buyers Fannie Mae and Freddie Mac have recently imposed more "risk-based pricing adjustments", meaning that even credit scores and loan to values which in the past would have been considered very low risk, may now be subject to mandated fees by Fannie and Freddie. And based on the way lenders have changed their rate sheets over time, there is now very little "premium pricing", which used to allow options for fees like these, points or other closing costs to be covered in return for a slightly higher interest rate.

Right now is still an excellent time to act, before the great low rates of today get away from us. But let's be smart - call me for information on how we can get started right away.
All the best,

Rick Knight
KNIGHT FINANCIAL
P: 253-224-3756

Cost of updating and remodeling

In response to a clients question about how the cost of repairs/updates to a home built in 1979, I provided the following insights, questions and recommendations.

As I read your email, a couple of thoughts come to mind. First thing, your home will sell. How long it will take and what the sale price will be, I wish I had a crystal ball. But, unfortunately, I don’t. When we started, I think I was reluctant to get too many things started for somewhat different reasons then what you’ve alluded to in your email. My concern was, once you get started, were do you end. And what do you have when you do finish.

Without any work being done to the home, despite the hole in the dining room carpet, the house is totally livable. The cleaning was necessary and painting would probably help. But, beyond that, it seems that you could get into too many personal preferences and faced with the ongoing questions of “what would yield the great benefit?”

Whether I agree or not, regardless of the age of a home, today’s buyer hopes to find a home that looks new and modern inside. Anything that differs is considered dated; out-of-date if you will. Buyers want ceramic tile floors, vinyl insulated and tinted windows, hardwood floors, new carpet and granite slab countertops surrounded by new & modern kitchen cabinets with stainless steel appliances. The problem is, if you put new floors in the kitchen and a prospective buyer wanted to redesign the kitchen, the value of that new floor is essentially lost. What if they preferred ceramic tile over vinyl? It’s a paradox! On the one hand new floors make it look nicer, but if it really isn’t what the buyers would choose, the value of the new floors could be minimal. While all of this is true, the other fear I have is, if you make the floors look good, what about the counter tops and the flaking wallpaper. But if you think about the countertops, why don’t you just do the cabinets to begin with.

Yes, I have spent a lot of time considering everything that could be done; $20,000 –to- $30,000 or more could easily be spent. Sometimes I just wish I had a crystal ball where I could predict with certainty which things would prove to be most beneficial and would help sell a home faster. Some sellers are evening spending thousands of dollars to stage their homes hoping to make them look more appealing and livable.

Now, four years ago, if I were faced with the same questions, there would be no hesitation. Yes, do everything and you’ll get all of your money plus a handsome profit back in return. But, as the market has changed, I’m uncertain if the same could be said today. Actually, I don’t think it could.

But, all of these questions and possible actions or inactions do have an impact on the price a buyer is willing to pay for a home. I recall we talked a bit about some of that when we originally put her home on the market. And, with everything going on in the national economy and the new listings and price reductions which have occurred in the past 20 days, it is evident that our market and the homes we find ourselves competing with for a limited number of buyers has changed dramatically. I’m not saying the changes are negative; now we just have more competition in the $300,000 price range then we had before. As an illustration, I called a agent who had just listed a newer similar rambler for $300,000 and asked her about price. Basically, like I had told you when we listed the home, she said, “I wanted to be under anything else that was remotely comparable in the area.” And, with buyers preferring homes they perceive as the best value, it becomes my responsibility to try and interpret all of this and relate it to you in a meaningful way.

Honestly, this has become the most difficult part of my job. Sellers’ don’t want to hear about market changes or flexible marketing plans, they want their homes sold. This is probably why I’m taking so long to answer your question and I apologize. There are no simple answers.

At this point I would say, aside from possibly getting the interior painted, my best advice would to be to able to be flexible with the price and offer to credit prospective buyers with replacement carpet and vinyl costs.

Again I apologize for taking so long to get to the point.

As you have questions, please don’t hesitate to contact me.

Sincerely,

Ken Thiemann, Real Property Specialist & Consultant
Windermere RE / Paragon Co.
(253) 370-5626

Thursday, January 15, 2009

Oh My, It's Thursday Morning Already

Yes, it’s true. It’s already Thursday morning and since my last entry, I know I’ve done a lot, but much of it is a blur. Well, let’s think. Along with an office meeting Tuesday morning, we toured new listings. One looked interesting and I called and left a message with a client. Although I know I was busy, the rest of the day was busy. I know I talked with lots of people. Some strangers and others friends and neighbors

On Wednesday, I was again up and running early. My primary goal was to complete a valuation on a client’s home. I was doing it for estate purposes. Although it didn’t get totally completed, I’m well ahead of the curve. The rest of the day, I know I was busy. I showed two clients two different properties and I got my outlook set on my home computer, my office computer as well as my handheld phone. Plus, when the day was over, I was dead tired. Oh yes, we had a Papa Murphy’s pizza for dinner.

Sorry, I got interrupted. A banking executive called and we had a lengthy conversation about distressed sales, bank losses, home builders and value decay. He had an interesting perspective on how to potential deal with the problem. Yes, it sounded like a glimmer of hope.

Well, with that I need to head off and get my day rolling. I hope you all have a great and productive day. I know I will.

Tuesday, January 13, 2009

Happy Wednesday Early Morning Greetings

Good Morning!

Although it's early, just after 4 am, we're up and going. I've already done my morning review of new listings and closing. Not much that really caught my eye though.

I'm going down for breakfast now.

Hope you have a great day.

Monday, January 12, 2009

What your Realtor did today!

It all happened today.

Yes, don’t tell me it’s Monday morning. The alarm was set for 4:30 am but I didn’t rise and shine until 4:50 am. No reason for the delay in getting up, it just happened. First off I got the computer going with access to database program which usually takes a bit of time to load. Then there was coffee. I heated up some from last night but it didn’t taste good. I think it was leftover decaf; I’m not a decaf type of guy. Instead, I made a new pot of the real stuff. I also put a bowl of oatmeal in the microwave for my wife.

Then it was back upstairs for my morning work. Just before 6 am I started my wife’s car and waited for her to get ready to depart for work. Just a bit more than a mist, there was just a drizzle of wetness in the air. Back at my computer I finished a assessment of a low appraisal which had come in on a property I had sold. The seller wasn’t in the mood to sell it for less than the original purchase price and the buyer wanted the house at a fair price. That seems logical. Well, just after 9 am when I finished my written opinion of the lower than low appraisal, I was literally flying to get showered and ready to get on with the day.

My first stop was a meeting with a competing company’s manager to discuss a salesperson who worked for him, then off to the office to turn in a new University Place rambler listing I had taken Friday afternoon. It’s a great property in a great neighborhood of mostly more expensive newer homes. Plus it’s listed at a great price. Then it was off to meet with a local bank’s manager to discern why it had become so difficult to communicate with them concerning a transaction they were financing for a buyer I represented. All in all, it was a so-so meeting, but later in the day it would prove to be beneficial. I suppose you could say I stirred the pot just enough.

Then back to the office to write directions and comments to be input with my new listing. Before I had a chance to escape, I also input a front picture of the property of my new listing. In response to an email I copied and emailed additional information to two clients in California. Yes it was way past time for lunch and I still hadn’t had breakfast. Where had the time gone? Whirling into my driveway, I again was on the fast tract for real nourishment; leftover eggs and hash browns from yesterday. All of a sudden I felt warm and cozy, no longer uneasy or inhibited from a lack of sustenance. But before I could return to the office, I had to get additional outside pictures of my new listing.

Back on the road again, I had a real purpose. But before I could get much accomplished, the phone rang. It was a call from a seller / agent who really didn’t want to see me. But I insisted that we needed to talk in person and I took off to meet them at their home. Sitting at their kitchen, they appeared relaxed yet nervous at the same time. I attempted to explain to them what I was doing I was distracted by a phone call from a lender who had information about the property those folks were attempting to sell to my client. They listened intently and seemed pleased that I was attempting to help but then, the phone rang. It was the lender calling to inform me that they would help solve our problem. Again, as they listened to just my side of the conversation, they seemed aware and anxious that something positive was happening.

Attempting to download the pictures I had taken, I found that the port in my office computer wasn’t reading the card I had inserted. Taking the computer apart didn’t help. As I was contemplating my next attack on my computer, a fellow agent stopped by and indicated he needed to talk. He came in pushing a roller chair, closed the door, sat down and told me that he was working with a former client of mine and the client had been referred to him by another office agent who has subsequently left real estate sales. He told me he had met with the clients last evening but he said he couldn’t help them until such time as he talked with me. I told him I was aware of the situation and while I believed the client’s actions were very hurtful to me, I didn’t have a problem with him working with them. I did however stipulate a number of items. First of all I said that I no longer had any files pertaining to their property. He said he didn’t need any of my files. Secondly I showed him an active comparable which I felt was superior in nearly every regard. “That is your competition,” I told him. And lastly, I told him I never wanted to discuss this situation or this particular client ever again. He agreed and just as fast as it had begun, our meeting was over.

Unhindered by what had just been discussed in my office, I was back in a nearby neighborhood talking with potential clients, going door-to-door passing out promotional material along with a business card size calendar. One man I met was very interested in what I was doing. Back at my computer I got additional information about him so I could mail him a thank you card.

Finally at home for the afternoon, I finally was able to extract the pictures from my camera and get them downloaded into the Windermere Photo Gallery for my new listing. All in all it was a wonderful busy day; eventful and exciting.

Beginning Tuesday morning, more to follow.

Sunday, January 11, 2009

What your Realtor did today

This morning my wife and I attended mass and instead of breakfast out, we got donuts and went home where we had eggs, bacon and hash browns. Of course we ate the donuts on the way home before we had breakfast. They were so sweet. I suppose we needed to be sweetened up a bit.

After breakfast, I started removing turkey and beef from bones we had from Christmas leftovers for a soup Kathleen was making. But, before I could get too far, I had a phone call and I had to run up to my computer. A client wanted information on a home he had saw in the newspaper ads and while we discussed it, he asked if I could show it to him. We decided to meet at 12 noon.

Afterwards I drove to an agent’s home to try and catch her to discuss a mutual pending sale we were working on together. Lately we had had difficulty connecting.

Once again on the run, after realizing I had old jeans on, I drove back home to change and then took off like lightening. First, I stopped by my office and got paperwork for an open house I was doing after my appointment. Second, met my client who, after seeing the home, said the home too much like scrambled eggs. He didn’t need another project. Then off like a bullet to my open house.

When I came home after my open house, the turkey/beef soup was delicious. Afterwards, I crashed in my recliner. I hope I'm just tired. Of course I'm not old. I have the energy of a youth. I just spend it every day.

Later in the evening, I made a couple of client calls. I hope everyone also had a productive day.

Thursday, January 1, 2009

New Year Memories - Great Buys

Of course I have many great New Year memories, but the one that popped into my head today was New Year’s Day 1972. At the time I was a senior at WSU and a number of us had returned to campus right after Christmas to finish papers due the end of the semester. Back then, the semester ended a couple of weeks after the Christmas break.

As a kid growing up, New Year’s Day had always been special and included a special dinner with friends and neighbors. Back then my folks used to bring out a bottle of port wine to signify that the meal was indeed a special event. Although I’ve never been quite sure of what exactly constitutes a port wine, sometimes they would let me take a sip. Anyway, in keeping with that tradition, I felt obligated to fix something special. Since a fraternity brother had left a couple of quail or ducks with me after a hunting trip, I thought they would make the perfect meal. But, as I began the preparations, I realized the birds still had feathers.

I reasoned that my mom knew everything, so I called her and asked how to get rid of the feathers. She told me to melt paraffin wax in a pan and dip the birds and when I removed the wax from the birds, the feathers would disappear. Surely, that sounded easy enough except, after I had dunked and removed each of the birds from the dripping wax, I found out that it wasn’t so easy to remove the wax and feathers. Actually, by the time I had finished, I literally believe I had broken every remaining bone in each birds little body. At the time it was very nerve racking but now it seems quite humorous. As I recall, my friends and I enjoyed a delectable feast and no one cared how the feathers were removed.

As to my real reason for being back on campus before the Christmas break had concluded; I finished my paper and had it turned in the first day back in class. Actually, it was a great paper and I received one of the two highest grades in the class. The class was a graduate economics class on discrimination and my paper was entitled “The Circular Tendency of Discrimination.” My wife says I still have a copy of it around somewhere. She believes I never throw away anything. I hope she’s right. It was a great paper and a great accomplishment. Something I still treasure.

As this relates to real estate, it reminds me of the eternal question of “What is value; what constitutes value; how do you measure value and who determines what that value is or should be?” Of course the paper I finished that Christmas break had great value to me. I gave my blood, sweat and tears finishing it and it earned me an exceptional grade in a graduate level class. Did I mention that the grade on the paper determined ones entire grade for the class? Well it did. The sole grade determinant was one single paper and I was triumphant and exuberant that I had done so well. That paper had real value and the grade I received was the measure of that success or value.

However, in residential real estate, value is primarily determined by buyers and supposedly quantified and substantiated by real estate appraisers using data from already closed transaction where buyers and sellers had come together in a meeting of the mind. A meeting of the mind is another way of referring to a sale price.

Just to stir the pot a bit, an economic adage states that value doesn’t always equal cost. With residential real estate, that’s another way of saying that some components of a home cost more than what a willing purchaser is willing for pay. Hot tubs are a quick example. Another one would be master bedroom soaking tubs. In those cases, the cost of the hot tub or soaking/Jacuzzi tub usually exceeds what most buyers would be willing to pay if the items were sold separate from the residential real estate. As an appraiser, those instances would be referred to as, “the contributory value, less depreciation, of the hot tub or soaking/Jacuzzi tub is less than the actual cost of those items when purchased new. Contributory value indicates that they are part of something greater; that they contribute to something which has many parts. The value of a whole house could also be less than the cost of building it. It’s what a willing buyer is prepared to pay.

But, getting back to value, let’s say that a builder buys a lot and builds a home. Let’s also say that the builder proposes to build a new residential home projected to cost $300,000 on a lot already purchased for $100,000. The builder goes the banker and fills out an application and hopes to get an appraisal of at least $400,000; $300,000 for the proposed improvements and $100,000 for the lot to build it on. If an appraiser, after an inspection of the property and review the building plans (specifications), is able to concur with the builder and conclude that the value of the residential real estate, once completed, is at least $400,000, then the builder will typically get a loan from the bank and begin construction.

However, if after the home is completed and if it still remains unsold, does it still have a value of $400,000? Not necessarily. Furthermore, it doesn’t have a higher value either. It isn’t until someone steps up to the plate and completes a purchase of the property at a price agreeable to both the buyer and the builder, who is also the seller, that value is confirmed. As with the earlier example, the cost of building the home isn’t necessarily the value of that home when exposed on the open market.

This is very important. I’m constantly being told, “Well my home was appraised last year for $400,000 and therefore, that’s what it is worth today.” Sorry, it’s only worth that today if the market will support that price and a willing and able buyer is willing to pay that amount. Here again, it is important to recognize that the value conclusion of a real estate appraiser, completed by a licensed or certified appraiser, is as of a specific day and time. It isn’t intended to represent a value that will exist to any other date or expand into the future. This is especially true today. In today’s market, value is a moving target. It isn’t constant and it’s constantly changing.

Another economic principle is that change is expected to occur; that markets will change and react differently to altering conditions and influences. That is why it is called the “principle of change.”

Looking at our current Pierce County market, one indicator I pay a lot of attention to is the medium price of the unsold residential housing inventory. These include all unsold homes which are currently listed for sale on the Northwest MLS. The medium price is the price of the home most near to the middle of all of the homes available at any given time. As an example, on January 1st, 2008, the medium price of all unsold residential homes in Pierce County was $310,500; $351,500 in Bonney Lake; $535,000 in Gig Harbor; $287,825 in Lakewood; $265,448 in Spanaway; $259,000 in Tacoma; and $400,000 in University Place.

In statistics I ran this morning, the medium price of the unsold residential inventory in Pierce County was $285,845; $315,000 in Bonney Lake; $499,925 in Gig Harbor; $267,000 in Lakewood; $225,000 in Spanaway; $234,950 in Tacoma; and $369,900 in University Place. Yes, there have been changes and this data indicates that the list prices of the unsold residential inventory are being reduced. This is a reflection of perceived market changes and an attempt to become more competitive.

What all of this suggests is that, if not already, residential real estate will soon become a hot commodity. In other words, it’s a great time to be buying real estate. The list price (asking price) of residential real estate and the interest rates to purchase those properties are at the lowest levels in years.

For those of you still on the fence, let’s look at statistics of the medium price of the unsold inventory from September of 2004. In Pierce County the medium price of the unsold inventory was $225,000; in Bonney Lake it was $257,400; in Gig Harbor it was $349,000; in Lakewood it was $209,950; in Spanaway it was $192,450; in Tacoma it was $188,990; and in University Place it was $290,000. You do the math. Real estate is still a great buy.

Ken Thiemann is a Real Estate Consultant with Windermere RE / Paragon Company located at 7525 28th Street West in University Place, Washington. In addition to holding an associate broker’s license, he is also a Washington State certified appraiser. Due to stringent appraisal reporting requirements, Thiemann points out that the majority of the valuation consulting he does is completed under his broker’s license. When possible he completes manual statistics of various market areas throughout Pierce County. Since 2004, he is particular interested in homes listed and sold over $800,000. For instance, in December of 2004 there were 95 homes throughout Pierce County listed over $800,000. In statistics ran this morning, there were 395 homes listed over $800,000. Thiemann attempts to use statistics to help his sellers better understand the market in order to facilitate a quicker sale. Thiemann was originally licensed in 1972 and earned his broker’s license in 1976.