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The Short Sale Option Explained

by Anne Barnes
What's A Short Sale?

The so-called "short sale" of a home can be a viable alternative to foreclosure and will become more prevalent as millions of adjustable-rate mortgages reset over the next 18 months.

Short sales are an agreement between the lender and the property owner that allows a home to be sold for less than the amount owed. The lender makes the final decision in approving a short sale. Potential buyers need to understand a short-sale transaction before entering any purchase contract. While a buyer and seller may agree on the price, it's up to the lender to accept that price or not. It's a potential option based on the value of the property, the underlying fundamentals of what is owed and the anticipated marketing time. The lender has predetermined guidelines for the minimum amount they will take in the loan sale. When the sale proceeds do not satisfy the remaining balance, the after-sale balance is forgiven. The credit is then reported as satisfied for "less than full" amount.
Though short sales have been around for a long time, they have come to prominence lately because of the unprecedented increase in foreclosures. While short sales are by no means a slam dunk, lenders are more willing to negotiate with borrowers today who are in default on their mortgage payments.
Indicators show that in many areas, many of the short sales are investor-owned.
What the lender wants upfront is a hardship letter from the seller, a contract between a buyer and seller and an estimated settlement statement. The lender may counteroffer and you continue to negotiate. Remember, the last thing a lender wants to do is foreclose on a home. If a lender puts the house in foreclosure, it has to clean it up, paint it, replace the carpet, list it on the market, pay a broker's commission and other closing costs as well as maintain the property while it sits waiting for a buyer.
Many lenders are not prepared and not accustomed to short sales and that can be a challenge for real estate agents and their clients. Realtors need to build a relationship with the bank on a short sale, when possible, they should meet with the loan officer and provide them with as much data as possible on the house and the market.
A short sale can benefit everyone involved in the transaction; financially troubled homeowners save the embarrassment and marred credit associated with a foreclosure. Investors and entry-level buyers have the opportunity to buy a home below market value. Lenders avoid the hassle and expense of seizing a home and putting it up for auction.
Short sales can occur before a home goes to foreclosure or during the foreclosure process.
Remember, lenders are not looking to bail out borrowers who simply overextended themselves during the recent real estate boom. In most cases, a lender will only consider a short sale if a borrower has clearly suffered a serious financial hardship that directly caused him or her to default on the mortgage. Short sales are a common practice within the mortgage industry and are determined on a case-by-case basis.
While banks still realize large losses on short sales, there are some benefits, including the elimination of foreclosure attorney fees and costs, the marketing costs should the property go to REO and any potential risk of damage or deterioration due to prolonged vacancy.
So far this year, 731,244 pre-foreclosures have been filed nationwide, Sacramento, California based Foreclosures.com reported. That translates to nearly 10 out of every 1,000 households in trouble with their mortgages.
A record $50 billion in adjustable-rate mortgages are poised to reset to higher rates this fall, according to Credit Suisse Group. The number of borrowers whose mortgage payments jump in October, November and December will be the second-highest ever for a quarter.
As far as short sales, those will continue to grow as folks with little or no equity realize they can't hold on. The problem is, most banks are not really discounting for investors yet on these properties.
Despite the current mortgage credit crunch, which is most pronounced in subprime borrowing, there remains significant favorable financial support for home buyers, especially in the FHA and VA and prime conventional conforming mortgage markets.

What Should You Buy - New or Resale?

by Anne Barnes

Congratulations! You’ve taken the first steps on the homebuying path – deciding to buy a home. A maze of other choices await you and here’s one of the biggest: new or resale?

 

There is no ‘right’ answer. In the end, it’s really about what works best for you and your family. Here are some things to think about.

 

 

Location

In real estate, you’ve probably heard it’s all about location. Families should bear that in mind when choosing a home:

 

New homes are most often built in subdivisions away from the city’s core.  The lots may be smaller than you’d find in older neighbourhoods and the houses are built closer together.  Coming from the same builder, the homes may look very similar, with minor differences in colour or siding. There won’t be many trees or landscaping. While there will be essential services (water, gas), there may not yet be adequate public transportation.

 

Resale homes are most often found in established neighbourhoods. There are fixed local services, parks and schools. The lots may be larger, although the homes may be smaller.  You can often find more individuality in older neighbourhoods.

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Amenities

These are the kinds of things you’d like to have quick access to, such as schools, fitness centres, grocery stores and other retail outlets.

 

New homes are often built with future promises of schools and parks. However, they may not be constructed until after the development is completed. These neighbourhoods away from the city core may be closer to large retail outlets offering more competitive prices.

 

Resale homes are already part of an established area  – schools and parks have been built, neighbourhood conveniences established. There is less likelihood that new development will take place.

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Size

According to the Canadian Mortgage and Housing Corporation (CMHC), the average size of a Canadian house in 2004 was 1800 square feet. That’s a big leap from the average 800 sq. ft. recorded in 1945 and the 1075 sq ft. noted in 1975.

 

New homes may be bigger than their older counterparts, answering today’s lifestyle demands that include open layouts, ensuite bathrooms, storage space and attached garages.

 

Resale homes may have more interior walls, creating more rooms but less of an open feeling. There may be more character to the homes – ceilings, archways and built-ins to make the home distinctive.

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Technology

Today’s modern family is so comfortable with technology that it’s become an expected part of everyday life.

 

New homes, particularly if you’re buying before construction, can be wired for 21st century living, including multiple phone lines, high-speed Internet and extra cable outlets.

 

Resale homes may not be wired to handle all of our tech toys. There may be fewer electrical outlets in the home and an electrical system that may need to be upgraded.

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Efficiency

As the costs of heating and electricity increase, homeowners discover the state of their windows, furnaces and foundations can make a big difference in their monthly expenses.

 

New homes must meet higher energy standards. New building materials boast of lower energy costs for homeowners, including glazed windows and thicker insulation. The appliances offered by builders are more energy-efficient.

 

Resale homes will cost more to run, unless the systems have been upgraded. It is expensive to replace older windows and furnaces but those improvements will cut down on those expenses in the future.

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Maintenance

Moving into a home is more than just unpacking boxes. You’ll have to devote your time and money to keeping it up.

 

New homes are just that – new construction, new foundations and new fittings. In Alberta, builders who are members of the New Home Warranty or National Home Warranty Program offer limited protection for homeowners for materials and workmanship. New appliances are covered by the manufacturer’s warranty, not the builder.

 

Resale homes equal increased maintenance, especially if the previous owners didn’t maintain it. It could be harder to match the existing materials and there may be a significant investment for a total refitting.

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Interiors

When you imagine yourself in your new home, you want to make sure the inside is something you can live with.

 

New homes are a blank canvas – literally! You can pick your paint colours, flooring, window coverings and cabinetry. You can customize details to your heart’s content or within your budget!

 

Resale homes either grab you with their décor or get you imagining how your design stamp will look. Resale homes often include window-coverings, light fixtures and appliances, savings that may factor into your budget.

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Health and Safety

No matter what you choose, feeling safe and secure in your home should be high on your priority list.

 

New homes feature materials to keep the space healthy. For example, asbestos and lead are no longer used in construction. Many new homes feature hard-wired smoke detectors on every level. As well, a sturdier electrical power system may be installed to deal with today’s heavy electrical demands.

 

Resale homes come with a history. As a proactive buyer, find out all you can about how the home was maintained or any structural problems or issues. Have the home inspected before you make your final decision.

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Future Development

The way your neighbourhood looks today could change, depending on future construction plans and zoning.

 

New homes are built in a subdivision, but that may not be the end of the construction.  If there’s a vacant field near your house or a pristine view, check out the city or town zoning board to find out how the land is zoned and if more development is planned for the future.

 

Resale homes, generally, aren’t subject to the same kind of development going on in the suburbs. Neighbourhoods will remain intact, although nearby future road projects could affect the home’s value and your ease in getting around.

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Price

You came into this project with a budget – the amount of money you could spend for your purchase and the variety of costs associated with it.

 

New homes are generally more expensive than resale ones. The cost of materials, labour and land has all increased as cities and towns build out from their centre core. Fees for bringing municipal services to the new area are also factored into the price. Builders have a base price for their homes and you may discover there are costs for the homeowners’ association, architectural controls and other mandatory fees.

 

Resale homes are priced with a number of factors in mind: location, condition and current market selling trends. Prices for these homes are also influenced by neighbourhood desirability or closeness to the downtown core. Renovated homes can account for large price variations within the same neighbourhood.

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The Decision to Buy

REALTORS® are prepared to help you with your choice.

 

If you choose to buy a new home, a REALTOR® may be involved in representing the builder (for example, at an open house) or representing you, the buyer.

 

Should you choose a resale home, a REALTOR® with access to the Multiple Listing Service® can help you find the home to fit your budget and your dreams.

 

Using a REALTOR® means you can be confident you’re getting a trusted professional to take the journey with you.

Why Should I Use a REALTOR®?

by Anne Barnes

REALTORS® work on behalf of both sellers and buyers and bring valuable experience and knowledge to the transaction.

 

If you're buying, the purchase of a home is probably the largest single investment you will ever make and if you are thinking of doing it alone, you may want to reconsider. All the details involved in the home buying process can be confusing. A REALTOR® has the time, resources and contacts to make the home buying process as trouble-free as possible. You can trust a REALTOR® to protect your interests and to look after the details.

  • A REALTOR® provides expertise. He/she can help you determine a price range you can afford and can suggest ways to obtain a downpayment or explain alternative financing methods.

  • A REALTOR® is familiar with development and trends in real estate, as well as current real estate values, taxes, utility costs, municipal services and facilities and may be aware of local zoning changes that could affect your decision to buy.

  • A REALTOR® will be well-acquainted with the details of the neighbourhood you may be considering, including the quality of schools, safety of the neighbourhood, traffic volumes and more.

  • A REALTOR® will find you homes best suited to your needs __ size, style, features, location and accessibility to schools, transportation, shopping or recreational facilities. With immediate access to homes as soon as they are put on the market, a REALTOR® can save you much time hunting for the perfect home.

  • A REALTOR® pledges to disclose property information and provide the facts needed to help you make one of the most important decisions of your life.

  • A REALTOR® can provide advice as to what personal and financial data to bring with you when you apply for a loan, and what other documents you will need to make the transaction run smoothly.

 

If you're selling, a REALTOR® can walk you through the more than 140 steps needed to complete a real estate transaction. Selling your home is a very complex procedure that involves large sums of money, stringent legal requirements and has the potential for costly mistakes.

  • A REALTOR® is an expert in effectively marketing your home and helping you to set an attractive selling price. Moreover, only a REALTOR® can give your home far-reaching market exposure through the Multiple Listing Service® (MLS®). The more exposure your home gets, the more likely you are to find a buyer willing to pay your price.

  • Under a seller brokerage agreement (or listing contract), a REALTOR® is responsible for looking after your best interests, including full disclosure of any information that may influence your decisions.

  • A REALTOR® will provide a full explanation of the selling process and what to expect from the beginning, as well as answers to all your questions along the way.

  • A REALTOR® will also attempt to separate the lookers from the buyers. This can be a real time saver because it helps ensure that only serious buyers visit your home.

  • When you receive an offer, a REALTOR® will have the knowledge and experience to negotiate an agreement on your behalf and according to your instructions.

  • If you decide to accept an offer, a REALTOR® will participate in drawing up a legally binding contract that protects your interests throughout the transaction.

  • Once a legally binding agreement has been signed, a REALTOR® will help you ensure the proper documentation is finalized and sent to the lawyers, that any conditions to the offer are fulfilled and that your questions and concerns are dealt with to your complete satisfaction.

How Are REALTORS® Different?

by Anne Barnes
  • REALTORS® in Alberta were the first in Canada to achieve mandatory professional development for the members of their industry.

  • REALTORS® in Alberta use plain language contracts carefully designed to provide maximum protection to you, the consumer.

  • REALTORS® __ and only REALTORS® __ offer the Multiple Listing Service®, a database of properties for sale. The MLS® (which includes mls.ca) is a powerful marketing system that provides wide exposure for properties __ a benefit to both buyers and sellers.

  • REALTORS® adhere to a Code of Ethics and Standards of Business Practices that are strictly enforced by the local real estate board. When you deal with a REALTOR® you are assured of the highest level of service, education and integrity.

  • REALTORS® can save you time, money and sleepless nights. See 'Why Should I Use a REALTOR®' below to find out how a REALTOR® can help you, whether you are buying or selling.

  • REALTORS® have a wealth of information on various topics, including tips on how to add value to your home, how to use your RRSP to buy a house and what costs to expect during the course of the transaction.

  • REALTORS® use the Agency Relationships guide, developed by AREA, to explain the relationships between the parties to a real estate transaction and the service expected of a REALTOR®. To learn more about agency disclosure, view the Agency Relationships page.

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The Barnes Team
RE/MAX Real Estate Lethbridge
107 - 50 AVE. WEST
CLARESHOLM AB T0L 0T0
Anne Barnes 403-393-1922
Fax: 403-328-2221