As I look back every problem I have ever had seems to have only one common element, me.
It is easier to see this when it is someone elseâ€™s problem, the message gets lost when it is my problem.
I have worked with the public all my adult life and have witnessed thousands of examples that seem to support my observation.Â Everyone creates most of their own problems.Â It is interesting how true this is when discussing buying, selling and financing a home.
There are numerous questions asked on Trulia by both buyers and sellers about problems during a real estate transaction.Â I am amazed how often I see consumers ask if they are being treated unethically or if they are victims of fraud.Â I have never seen a question asking, â€œWhat did I do wrong?â€
The root of most of the issues being tossed around today will fall in one of two categories and sometimes both.
1) Â The â€œOink Factorâ€
2) Â The â€œWork Aroundâ€
The Oink Factor is a term I came up with to describe the degree of greed behind the motivation that is driving the individual to do something.Â We are hard wired with this, just follow us when my Honey wants to go to Zappos.Â Men, do not stand between a woman and shoes that are on sale!
The Work Around happens when a home buyer has a loan application denied yet they still want to move forward.Â They want to find a â€œWork Aroundâ€ for whatever is holding them back from buying a home.
These are two traits that we all have to some degree or another and are the foundation to most self-inflicted real estate problems.
A buyer that purchases a home they canâ€™t afford will try to place the blame on the lender.Â Donâ€™t misunderstand; I am not talking about issues beyond our control like the loss of job, illness, death in the family, etc.Â Bad things happen to good people all the time.
What I am referring is the countless number of people that have contacted me wanting to finance a home they couldnâ€™t possible afford.Â I had one fellow years ago apply for a mortgage that had a monthly payment of $2,100 per month and he only earned $2,000 a month, gross, before taxes!!Â Â Go figureâ€¦
Unfortunately that is not uncommon.Â
We have all heard how strict the mortgage underwriting guidelines have become today; let me tell you that is BUNK!
Last week I ran across some old papers from the early 90â€™s and the basic mortgage guidelines are the same today as they were in 1991.Â In fact the income ratio is more lenient today than it was then, a full 3% better for the borrower, if you think higher is better.
Letâ€™s look at some examples of how the two issues I am picking on impact buyers and sellers.Â First the Oink Factor, I coined this term long ago after firing a client over $50 in closing cost.Â Â His Realtor begged me to come in on a Saturday, my day off, to do a loan application.Â I approved his application and then he called me first thing Monday morning to inform me I was $50 higher in closing cost than some out of town lender and I needed to pay $50 of his closing cost.Â Not only did I fire him but the Realtor as well.Â Â My interest rate was cheaper than the other lender and I paid for a one year temporary buy down.Â But that wasnâ€™t good enough, he needed more. Â Â Â
In its simplest form the Oink Factor is easy to pinpoint, no matter how good the deal is it isnâ€™t good enough. Â I have buyers contact me all the time saying they want to buy a foreclosure a short sale or an REO.Â Not that they want to buy a home, but specifically a distressed property situation.Â The motivation behind carving out that type of property as a niche is plain old greed.Â In a buyerâ€™s market there are many non-distressed properties that are priced aggressively.Â But for some people that simply isnâ€™t good enough.
I am not saying a buyer should rule out an REO, just pointing out that excessive greed can cost a great deal.Â If a short sale takes months and months to close and the interest rate spikes during the process, how much sense does that make?Â Â Play with some numbers, knock off 10% on the sale price and then increase the interest rate.Â Youâ€™ll see it can cost a pile of money to mess around with the Oink Factor.
Another example would be a buyer messes around trying to buy a short sale and misses a good deal on a better home.Â Then the short sale falls apart.Â Would they not have been better off to focus on finding the best home?Â Â
This phenomenon can impact sellers as easily as it does buyers.Â I have witnessed sellers countering a good offer asking for a few hundred dollars more, lose the deal and sell later for a lot less.Â I suspect some prospective sellers are waiting for values to firm up or improve, a move that prohibits them from the next deal.Â Follow this, a potential seller has an existing mortgage with an interest rate of 6% but is waiting for the value of their home to increase before them move.Â Â If the value of their home is down chances are so is the value on the one they want to buy after they sell their existing home.Â Â How much does their existing home need to go up in value to offset what they can achieve on the next deal?Â
Okay, the Love of My Life just called, I have to log off for now, will continue this subject later, please check back.