A broker submitted an offer that seems out of step with someone who claims to be a broker since 1977. He didn’t seem to have a notion of how to write a winning offer especially in a competitive situation. The buyer could only qualify for an FHA loan. But how the offer was written sank his chances.

If you want to win....here are some DO’s and DON’Ts when writing an offer, for example, in Alameda CA especially in a competitive  situation, or where the seller has limited funds.

DON’T

• Mention wood-destroying organisms/pest inspection in the contract.
• This is a huge RED flag for the FHA underwriters who will want all Section 1 items on the pest inspection cleared before they approve the loan.
• Most sellers would not want to undertake such expenses if they can help it, and would want to negotiate these terms
• Ask seller to pay for any of the buyer’s inspections
• Some sellers may already have inspections done. If you manage to have your offer accepted, you can opt to get your own inspections later
• Ask for repairs and/or credits up front
• Especially not before you even have inspections
• After your offer is accepted, and you find significant defects/repairs, then you can negotiate for price reduction
  
• Ask for seller to pay for your closing costs
• Sellers have their own closing costs to contend with
• Offer significantly higher than what the property may appraise for
• If it appraises for less, you my be forced to approach the seller to reduce the sales price, or come up with the difference between offer and appraised price, or back out of the agreement

DO

• Know the FHA guidelines for repairs. Click on the FHA Repair Conditions, Appraisal and Property Requirements.
• Shorten your contingency periods
• Buyer investigation. In less than 7 days, a resourceful agent can arrange inspectors. And shortly after that, the buyer can decide whether to move forward or back out.
• If the buyer decides to back out, the sooner the better for the seller who would want to put the property back on the market as soon as possible. We all know that the longer the property stays on the market, the less attractive it becomes to buyers who may wonder what’s wrong with it
• Offer to take responsibility for a few things like smoke and carbon monoxide detectors, water heater strapping.
• These are inexpensive and may already be done anyway, but at least it shows that buyer is willing to take on some of the responsibility
• Conform with the customary practice
• Determine who usually pays for certain expenses like city and/or county transfer taxes
• Buyer pays own escrow fees.

Omigosh...how many times have we heard this? Not just in Alameda County CA, but everywhere else.

Several years ago, when agents and negotiators were still struggling through the early onslaught of short sales, this may have been one of the first things that buyers were told to do: miss payments.

This is no longer the case...and no REALTOR would or should advise their sellers to miss a payment. It’s wrong and not the best advice. The seller should consult his lawyer and/or a financial adviser instead.

First of all, qualifying for a short sale is based on the property owner’s hardship which could be one or a combination of several:

WHAT CONSTITUTES HARDSHIP?
Reasons why people apply for a short sale

• Unemployment
• Reduced income
• Divorce
• Separation
• Medical bills
• Too much debt
• Death of spouse
• Mortgage payment increases
• Business failure
• Job relocation
• Illness
• Damage to property
• Military service
• Incarceration
• Decline in market value (needing to sell, but property is worth less)

And although one’s credit may be damaged after a short sale, one can take several steps to repair credit, such as paying down or paying off debt (credit card balances), paying on time and not missing any payments.

Missing mortgage payments will have other repercussions besides damaging one’s credit. In certain situations, someone who had a short sale may still qualify to buy a house again. But one of the requirements could be that one didn’t miss any mortgage payments.

See Department of Housing and Urban Development Mortgage Letter 09-52

Excerpts

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to

• take advantage of declining market conditions, and
• purchase at a reduced price a similar or superior property within a reasonable commuting distance.

Borrowers are considered eligible for a new FHA insured mortgage if

• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property and
• the proceeds from the short sale serve as payment in full.

FINAL ANSWER
It depends on what the seller wants to accomplish in the near future ---- if seller wants to buy another house, then it behooves him to NOT to miss those payments.

Related post

SHORT SALE PRIMER for sellers --- setting the groundwork and expectations

How can an existing home seller compete for buyers against the builder in the same community?

Selling a property in a development where the builder is still building more houses can be challenging. After all, why buy a “used” home when one can buy a brand new house and select your own upgrades and finishes?

The most important and most competitive factor is PRICE. Underprice a little under the price of the new homes, and it should stimulate interest among value hunters.


Here are some thoughts on how we can compete in this situation, assuming conditions being nearly equal (same development or immediate area, homes are close in age, style of homes). There are benefits to buying an existing home -- and we should share these with the potential buyers.

And let's not forget the other basics of selling property. See

Preparing a house for sale: Do the C’s to get the most C (Cash)

More short sales expected in 2012.

Will the Mortgage Debt Forgiveness Act be extended?

Headline: Short Sales Will Increase Dramatically in 2012

As an Alameda  and Oakland Short Sale Realtor, I am glad I have helped many clients through successful short sales. Sellers benefited from knowing their options besides foreclosure, and buyers found properties that they know were very good deals for them.

Short Sale Sellers were also relieved to know they qualify under the provisions of the Mortgage Debt Forgiveness Act  which “generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

However, this act expires end of 2012, and there is hardly any news on extension although a few have raised the question Will Mortgage Forgiveness Debt Relief Act Be Extended?

I’ve been looking for some news about efforts to make this happen. But even NAR  (National Association of REALTORS) have not sounded the horn or issued a press release or started a petition to do so. All one finds is info about what this Mortgage Debt Forgiveness Act is about.

The only consistent source of information about this is DS News

Obama Proposes Extending Tax Waiver on Mortgage Debt - DSNews

www.dsnews.com/.../obama-proposes-extending-tax-waiver-on-mort...

Feb 15, 2012 – Welcome to DSNews.com—delivering stories, ideas, links, ... Without the Mortgage Forgiveness Debt Relief Act, debt reduced through ...

Still Time to Have Forgiven Mortgage Debt Excluded as ... - DSNews

www.dsnews.com/.../still-time-to-have-forgiven-mortgage-debt-exclu...

Apr 2, 2012 – Under the Mortgage Debt Relief Act of 2007, the provision is for debt forgiven between 2007 and 2012. For those considering a short sale, ...

What an Extension of the Mortgage Debt Relief Act Could ... - DSNews

www.dsnews.com/.../what-an-extension-of-mortgage-debt-relief-act-...

Apr 27, 2012 – That's a lot of potential debt to be forgiven, and through the Mortgage Debt Relief Act of 2007, homeowners get a break from paying taxes on ...

News for IRS - DSNews

www.dsnews.com/tag/irs

That's a lot of potential debt to be forgiven, and through the Mortgage Debt Relief Act of 2007, homeowners get a break from paying taxes on their forgiven debt, ...

So who is pushing to get this act extended?

Should we worry? YES!

RELATED POSTS

Short sale realtor: SHORT SALE PRIMER for sellers --- setting the groundwork and expectations

Short sale realtor: How can you tell when a short sale buyer is serious about his offer?

Short sale negotiators: "Are short Sales Getting Easier? "

Short sale negotiators: Short Sale Sellers: Don't stop following up with your short sale lenders

Questions:

• What is the market like where the buyer is writing an offer? Is it a seller’s market? (In many cities in the Bay area, this is the case)
  
• Are properties selling quickly in competitive situations?
• What are the comps?
• How do the actual cash outlays and monthly PITI compare at certain sale price points? Here’s an example, assuming 4% interest rate, 10% down payment, 1% loan origination fee. 
• Are the differences that significant that one would jeopardize getting the property by insisting on a lower offer than what the market would bear?

• Is this the property the buyer really likes or can he afford to wait and find something else?
• Take a look at this blog by Steve Karney on Buying a Home? The COST Is More Important Than the PRICE

• Who will know better how to write an offer in this situation ---- an experienced broker, or a first time buyer?
• Why hire a professional if you won’t listen to his/her advice?
  

SPECIAL NOTE: See National Association of Realtors' news release about "March pending home sales rise, market recovering."

Early January, I noticed an uptick in the market when I encountered multiple offers for over list price --- not just on my listings, but also on properties where my buyers wrote offers. It was rather surprising, but other agents relate that they are encountering the same thing in their markets as well.

Looking at just three cities in the East Bay CA area, the pending sales trend seems to confirm that March ---- as well as April ---pending sales are on the rise. These figures were gleaned from the MLS, looking for properties that went into contract during each month.

No, it isn’t a matter of using a price strategy to list properties at less than market value because we did our CMA (Comparable Market Analysis) and we listed those properties based on our findings.

More than likely, we have entered a Sellers Market where there is little inventory, and there are more buyers seeking to take advantage of the lowest interest rates in decades and lower prices for properties.

InvestorWords.com defines sellers market as “Amarket which has morebuyers thansellers. High pricesresult from this excess ofdemand oversupply.”

Pending Home Sales trend as of March 2012

National Association of Realtors (NAR) recent news release March Pending Home Sales Rise, Market Recovering is indeed good news on the national level. So what is it like in your markets?

Steve Harney’s Keeping Current Matters blog at www.KCMblog.com provides an excellent illustration.

Many would-be home buyers always hear that perhaps they should look in the East Bay. Do it! You'd be surprised at many fabulous neighborhoods, and delight at finding cities that offer many amenities for homeowners.

Take a look at Oakland and Piedmont CA which share zip code 94611 that is sought-after by buyers for several reasons.

Piedmont is one of the premier cities much-desired due to high academic performance indices, historical significance, architectural diversity and proximity to amenities that large hubs like San Francisco offer.

The Montclair area is part of Oakland that shares this zip code, noted for the same features, although homes in Montclair appear to be less expensive than in Piedmont.

Although both areas may have experienced a slight dip in home prices from the height of the market in the mid-2000s, the market appears to be rebounding. A view of recent activity among detached single family homes since January 1, 2012 shows that sold properties were on the market for for an average of 50 days, while pending properties were on the market for an average of 28 days before going into contract.  When properties are on the market 3-6 months, this suggests a seller market.

InvestorWords.com define a seller’s market as

A market which has more buyers than sellers. High prices result from this excess of demand over supply.

As of this writing, April 21, 2012:

• Among the active listings, the lowest list price is $375,000 for a 3 bedroom/2 bath house on the Piedmont border, and the highest is $5,150,000 for a historic 8 bedroom/6 plus baths, 8328 sq ft mansion
• The lowest sold price is $148,000 for a 796 sq ft fixer, and the highest  is for a house with bay views,  4 BR/4 BA with 4600 sq ft, that sold for $2,760,000 after only nine days on the market
• Pending sales show the lowest priced home is a short sale  with 2 bedrooms/1 bath and 805 sq ft at $199,000. The highest pending sale has 7 bedrooms/7 plus baths, 9336 sq ft in Piedmont, listed at $6,920,000, and pending after 94 days on the market.