Non Refundable $500 for First 90 Days

If you get offended easily, can only see one side of a picture, DON'T READ THIS. I Don't Want Hate Mail. Professional discussion welcomed.

I am seeing more and more of this $500 non refundable earnest money for the first 90 days on Short Sale listings. As if selling a home that is a short sale isn't hard enough, listing agents are adding this verbiage along with a 3 page novel hidden under the document tab of how to write "their" offer.

Why don't my buyers get to write the offer "they" want and the sellers (really the listing agent) counter with everything they want. Writing an offer based on someone elses terms and conditions is becoming nonsense in my opinion.

In all fairness, to those that do not understand this, let me "Break It Down Barney Style" as my good friend likes to say (always makes me laugh).

This whole non refundable earnest deposit clause came about as listing agents became increasingly frustrated of working night and day to get an offer through the banks short sale system only to have the deal fall apart as the buyer loses interest and finds another home. This process (more so in the past) has taken anywhere from 3 to 6 months (some longer). During that time it was very common for the buyer to keep searching the internet for homes. Inevitably they would find a foreclosure they like just as much, submit an offer, and win the bid. No waiting, no unknowns, just a simple approval, easy peezy, close in 30-45 days. So the same buyer would back out of the short sale (as allowed per addendums). This would leave the listing agent to have to find another buyer and start the process over again. (let me finish, I already know what you are thinking).

Stay with me, I am only explaining the logic (not reality) behind this. So the $500 is to attract only "serious" buyers who will commit to hanging around long enough for the bank to respond.

Reality. Most ridiculous thing I have seen yet (yep, my blog, my opinion is allowed). Short sales that have this stipulation stay on the market longer before getting an offer, typically retain offers for less than asking price. Not only that but since when does a bank respond by 90 days anyway? Yes, far and few between.

Smart short sale listing agents will take several back up offers so if the first buyer backs out, they can slip one of the back ups in its place so the process doesn't have to start over with the bank.

I can tell you from representing many buyers, that the $500 has not stopped my buyers from continuing to look. If another home moved them enough to that "warm and fuzzy" feeling they would walk from that $500 in a heart beat. In which case how did that $500 help the listing agent with her offer and the bank. Does she offer the bank the $500 by saying, "Oh, by the way, the buyer backed out, here is $500 for your troubles." I do not think so. That listing agent has to go back to the drawing board irregardless to find another buyer.

Also, how does a listing agent know for sure if the buyer hasn't already bought another home and is just waiting out the 90 days to get their $500 back? Even if the bank were to respond within 90 days, they all counter with something. So all the buyer would have to do is reject the counter and get their $500 back. As a listing agent, if the buyer found another home, I would rather know sooner than later so I could secure another buyer instead of having the buyer secretly appease me for 90 days just to get their $500 back. Furthermore I would continue with that buyers offer with the bank until I could get an approved price so my listing was in a better position for the next buyer. Looks fantastic in a listing too! "Approved Short Sale"

In my opinion, the first buyer is doing me a favor just by allowing me to get the ball rolling with the bank. If the buyers sticks around, Great! If not, I have a plan B that is ready for its play. I could so open another can of worms about agents who submit bogus first offers but I won't.

I honestly and logically do not understand this $500 non refundable earnest deposit. I suppose for some buyers it is a mental thing but if anyone really thought this through, you could see how very flawed this is not to mention how detrimental it is to an already tough short sale listing. I have buyers who avoid these listings for this mere fact and it is not because they do not want to commit for 90 days, they know what they are getting into, they just do not like being told to wait 90 days for an answer AND hand over $500 to wait for that answer.

Ok, I said it.

Verrado Founders Day and "The Romantics"

http://ivic02.residentinteractive.com/programs/web.show_html2?xwebsite=&xinput=52647408&parentid=13962025

This is always a great weekend in Verrado. Nonstop fun and entertainment for all Friday through Sunday.

Should I Buy Now or Wait? (I ask, "Wait for What?)

I just received an email from one of my mortgage loan officer colleagues. Great explanation of how interest rates affect payment. People become so focused on the lowest price for a home and do not take into consideration that the clock is ticking and rates are highly volatile. Live within your means and buy what you can afford when the time is right for you. We will see if the release of the December foreclosure freeze brings new inventory to the market that is littered with highly unpredicatable short sales. And prices have creeped up a little on the lower end inventory. For many, a mortgage payment is still equal to or better than rent. We are here to help when the time is right. Free money still availabe with NSP First Time Home Buyers program in select zip codes/areas.

Taken from daily email blog of Mike Roberts of V.I.P Mortgage Inc. http://www.mikerobertsmortgage.com/

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So what does all that really mean for you and your buyers besides "Rates are going up! Buy Now!"?

First you need to understand how a mortgage qualification works. When a buyer qualifies for a mortgage, they are NOT qualifying for a specific sales price or loan amount. They are qualifying for a specific PAYMENT. If rates go up then payments go up and a buyer qualifies for less home. Period.

Rule of Thumb: For every half of a percent that rates go up, their buying power decreases by 5-6%.

For example, if John Doe wants to buy a home at 250k and put down 20%, his loan amount would be $200k with a 30year loan repayment of $1073 at 5% interest rate. If rates crept to 5.5% then that same payment would only allow a $189k loan amount; which equals a $236k sales price. He would have to find a home at $236k instead of $250k to have the same payment. If rates jumped to 7% then he would only qualify for a $201k house!

So if you have a buyer that wants to wait for the market to drop another 10% before buying, they better hope that rates don't jump by more than 1% by the time they purchase.


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Thanks Mike
Mike Roberts Mortgage VIP Mortgage Inc

Christmas Card from Joe Sheehan (my dad)

Cold morning. Brewed some coffee. Figured I finish off the last of the Peppermint Mocha creamer as I wait for the java jolt to take control of my energy level. Zombied my way to the Christmas Tree with the empty boxes to put everything away. Had Pandora on in the background (Lady Gaga Radio Station) hoping it would assist my attitude. The music works at Food City, why not for taking down the Christmas Tree decorations.

I dumped the first box on the sofa of tissue paper to start wrapping balls. Saw something stuck in between the cushions. It was a Christmas card from my dad. Maybe the nostalgia of putting Christmas away made me feeling kind of emotional but this card got to me. Enough to want the words to resonate on my blog for years to come as a memory.

So here it is:

"There are many gifts that I wish for you at Christmas. I'd like to give you the gift of happiness, but the path that leads you there is one you have to find on your own.

I'd like to give you the gift of wisdom, but that's something only years of experience can bring.

I'd like to give you the gift of success, but that's something that only has true value if it's earned.

But there's one gift I can give you this Christmas that will always be with you - and that's the love of a proud parent's heart.

Merry Christmas"

Thanks Dad, I love you..