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Sell Your Home:Choosing the Right Purchase Offer

Posted by Pete Sabine on October 22, 2007

Most sellers would be delighted to receive multiple offers from prospective buyers. However, figuring out which offer to accept is not always as simple as you might think. Suppose you receive three purchase offers. One is for $495,000, your asking price. Another is for $10,000 more. And the highest offer is for $525,000 – $30,000 over the list price. If you consider all the factors of each offer, then the best offer might not be the offer with the highest price. Let’s look at each offer a bit more closely. 

Offer 1:There’s more to consider about an offer than the price. The $495,000 offer might be from a pre-approved buyer who has a $250,000 cash down payment and no appraisal contingency. This means that if the house appraises for less than the offer price, the buyer may not use this reason to back out of the contract without the risk of losing their good faith deposit monies. The lender should have no problem granting the buyer a mortgage for approximately 50 percent of the purchase price, even if the appraisal comes in low. The larger the cash down payment, the more likely the lender will approve the loan.  

Offer 2:The highest-price offer might be from a buyer with a 5 percent cash down payment and an appraisal contingency. This means that if the property appraises for less than the purchase price, the buyer has the right to back out of the contract without forfeiture of their deposit to the seller. Even if the buyer doesn’t want out, the lender won’t be willing to grant a mortgage in the amount the buyer needs to complete the sale.  With only 5 percent down, there’s a good chance the buyer won’t have enough extra cash to make up the difference between the appraisal value and the purchase price.  

Offer 3:The third offer could be contingent upon the successful close of escrow of the buyer’s current home that is now under contract. If the transaction on the buyer’s home fails to close, the buyer can withdraw from your contract without penalty and forfeiture of their deposit to the seller. If this happens, you’ll be back on the market searching for a new buyer.  

Counteroffers:In terms of a risk analysis, the lowest price offer appears to be the offer with the best terms. One negotiating option would be to counter the lowest offer with a higher price, based on the fact that you have two offers higher than offer #1. Before making a counter offer, consider that the buyer could reject your counter offer and disappear from the negotiations leaving you with two riskier offers to choose from. If you have already purchased another home, you might be better off leaving the price alone on the lowest offer and asking for a short close of escrow date. A quick close could save you the cost of interim financing, which would effectively put more money in your pocket with less risk. When analyzing offers, the fewer the contingencies, the better. Contingencies can complicate a contract by providing more opportunities for a transaction to fall apart. In general, you’re looking for the highest price, the quickest close and the least number of contingencies. 

Call Pete Sabine (925) 407-0606 for a free consultation or visit www.GetRealEstateHelp.com 

RE/MAX C.C. Connection  

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Real Estate Tip: Mastering Your Next Move

Posted by Pete Sabine on October 9, 2007

Spread moving day over several weeks to avoid the hassles of a last-minute scramble  

5 Weeks Before The Move

  • Take an objective look at what you own, and decide what can be left behind.  Extra weight  on the moving van costs more.
  • Draw a floor plan of your new home, and consider where you’ll want to place the furniture. Mark and label specific pieces of furniture on your diagram.  If a piece of furniture won’t fit, don’t take it with you.
  • Make any personal travel arrangements—flights, hotels, rental cars—for your trip.
  • Organize a garage sale if you have items worth selling.
  • The mover will do all he can to make your move as smooth as possible.  Ask for estimates to include the option of having the company pack some or all of your belongings.  While the mover is liable for breakage to any items it packs, you’re responsible for damage to items you have boxed.
  • Start a central file for all the details of your move. Collect all receipts for moving-related expenses.  Depending on the reason for your move, you may be entitled to a tax deduction.  

4 Weeks Before The Move

  • Select your mover and discuss dates and costs.
  • Decide now whether you want to pack your things or hire the mover to do it.
  • Start gathering boxes if you decide to pack.  Your mover can provide boxes best suited for moving, including special containers for clothing on hangers, lampshades, and dishes.  

3 Weeks Before The Move

  • Notify the post office, magazines, credit card companies, friends, and family of your change of address.  The U.S. Postal Service offers a kit to make this process easier.
  • Call utilities to schedule disconnection on the day following your move.
  • Talk with your mover to schedule, a few days before your move, disconnection and service of the major appliances being moved.
  • Arrange for utilities and services needed at your new home.
  • Start your self-packing with seldom-used items: fancy dishes, specialty cookware, non-essential clothing, curios, decorative items. 

2 Weeks Before The Move

  • Decide what you will discard.
  • Start your serious self-packing.  Label contents of all boxes.
  • Arrange to clean your new home as close to before your move-in as possible.
  • Arrange for copies of school and medical records and make bank safe-deposit arrangements in your new town.
  • Hold a garage sale.  

1 or 2 Days Before The Move

  • Expect movers to arrive to start the packing process.
  • Empty and defrost refrigerator and freezer; clean both with disinfectant and let them air out.  Put baking soda inside to keep them fresh.
  • Empty your safe-deposit box.  Plan to take important papers, jewelry, cherished family photos, irreplaceable mementos and vital computer files with you.
  • Arrange for payment to the moving company.  Write directions to your new home for the van operator, provide the new phone number and include numbers where you can be reached  in transit.
  • Leave your forwarding address and phone number for your new home’s occupants.  

Moving Day

  • Remove blankets and pillows from beds and pack in an “open first” box.
  • Review all details and paperwork when movers arrive.  Accompany van operator to take inventory.  Verify delivery plans.
  • Leave electric garage door opener and all the spare keys for new residents. 

While moving is one of life’s most stressful events, proper planning and preparation can ease the way. Call us to help you orchestrate a smooth move into your new home. 

For a consultation, contact Pete Sabine (925) 407-0606 or visit http://www.getrealestatehelp.com/. 

RE/MAX CC Connection

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Real Estate Finance: One of the World’s Leading Experts on Credit Derivatives Explains The Secondary Market Credit Crunch

Posted by Pete Sabine on October 4, 2007

This article was forwarded to me from one of my clients who is retired from Moody’s and S & P…this is one of the most clear and concise explanations I have read on the current state of affairs in the secondary market as related to the credit crunch. Read on-

Satyajit Das, one of the world’s leading experts on credit derivatives, is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice. This is not a defense of the practice.

Das says “massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way”.  Das is not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times…    as an optimistic era of too much liquidity, too much leverage and too much financial engineering…   slowly and inevitably deflates.

Like an ex-mobster turning state’s witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen (mostly banks and hedge funds that pay him consulting fees) that the jig is up. (read old pals as Moody’s, S&P, etc. of supermodels fame)

Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, Das points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn’t understand; and financial engineers who built towers of “securitized” debt pools with mathematical models that were fundamentally flawed.

Das’ view sounds cynical, but it makes sense if you stop thinking about mortgages as a way for people to finance houses and start thinking about them instead as a way for lenders to generate cash flow and create collateral during an era of a flat interest-rate curve. Although subprime U.S. loans seem like small change in the context of the multitrillion-dollar debt market, it turns out these high-yield instruments were an important part of the machine that Das calls the global “liquidity factory.” Just like a small amount of gasoline can power an entire truck given the right combination of spark plugs, pistons and transmission, subprime loans became the fuel that underlays derivative securities many, many times their size. Here is basically how it works…

Banks “originate” loans, “warehouse” them on their balance sheet for a brief time, then “distribute” them to investors by packaging (pooling) them into derivatives called Collateralized Debt Obligations, or CDOs, CLOs and similar instruments. In this scheme, banks don’t need to tie up as much capital, so they turn it around and simply put more money out on loan.

The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door — a task that was accelerated in recent years via fly-by-night credit brokers now being accused of predatory lending practices. Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at much lower interest rates in Japan and the United States, these managers leveraged up their bets by buying the CDOs with borrowed funds at the much lower rates.

So if you follow the bouncing ball, borrowed money bought borrowed money. And then because they had the blessing of credit-ratings agencies relying on mathematical models suggesting that they would rarely default, these CDOs were in turn used as collateral to do more borrowing. In this way, Das points out, credit risk moved from banks, where it was regulated and observable, to places where it was less regulated and difficult to find or identify let alone rerun or even recalibrate default probabilities with the same math models that built them.

Turning $1 into $20

This liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money “rose in value”, players could borrow more money against the same assets, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house. But the homeowner can only do it once.  

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper — the short-term borrowings of banks and corporations — which was purchased by supposedly low-risk money market funds.

According to Das’ figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das’ research, a single dollar of “real” capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of actual real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion — or eight times total global gross domestic product of $60 trillion.

Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn’t know what they were buying or what any given security was really worth. The math models had long been put away because the underlying assets were simply undetermined.

A painful unwinding

Now here is where the U.S. mortgage holder shows up again. As subprime loan default rates doubled, in contravention of what the mathematical models forecast, the CDOs those mortgages backed began to collapse. Because they were so hard to value, banks and funds started looking at all CDOs and other paper backed by mortgages with suspicion, and refused to accept them as collateral for the sort of short-term borrowing that underpins today’s money markets.

Through late last month, according to Das, as much as $300 billion in leveraged finance loans had been “orphaned,” which means that they can’t be sold off or used as collateral. Remember the underlying assets were simply undetermined.

One of the wonders of leverage is that it amplifies losses on the way down just as it amplifies gains on the way up. The more an asset that is bought with borrowed money falls in value, the more you have to sell other stuff to fulfill the loan-to-value covenants. It’s a vicious cycle. In this context, banks’ objective was to prevent customers from selling their derivates at a discount because they would then have to mark down the value of all the other assets in the debt chain, an event that would lead to the need to make margin calls on customers already thin on cash.

Now it may seem hard to believe, but much of the past few years’ advance in the stock market was underwritten by CDO-type instruments which go under the heading of “structured finance.” I’m talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks — the works.

So to the extent that the structured finance market is coming undone, not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says. That is why he considers the current market volatility much more profound than a simple “correction” in prices. He sees it as a gigantic liquidity bubble unwinding — a process that can take a long, long time.  While you might think that the U.S. Federal Reserve can help prevent disaster by lowering interest rates dramatically, as they did last Wednesday, the evidence is not at all clear.

The problem, after all, is not the amount of money in the system but the fact that buyers are in the process of rejecting the entire new risk-transfer model and its associated leverage and counterparty risks. Lower rates will not help that. “At best,” Das says, “they help smooth the transition.”  So, will we just muddle along through this or is something big coming?

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Move Up Buyer: How to Buy Another Home Without Selling Your Current Home First

Posted by Pete Sabine on October 1, 2007

Avoid the inconvenience and added expense of moving into a rental home in between selling your current home and buying another suitable property. Now move-up buyers can find relief with an affordable and flexible financing strategy. By obtaining an equity line of credit secured by your current home, you can position yourself to find the right home without the worry of not having enough time to sell your home and find another. This financing strategy for your down payment offers many advantages such as a loan fee of no more than $1,000, borrow up to 90% of the value of your current home, pay no interest until you use the loan to finance the down payment of your new home, pay off the loan from the proceeds of the sale of your current home plus this loan is available to borrowers with a less-than-perfect credit history. 

Follow these key steps to find out if this strategy will work for you: 

  • Contact a local real estate professional to assist you with determining the current fair market value of your home. Your Realtor will provide a comparative market analysis (CMA) of recent sales of similar homes in your neighborhood.

  • Subtract the existing loan amount from the current value of your home to determine your equity. Most banks will allow an equity line of credit up to 90% of the appraised value behind your existing loan.

  • Apply for the equity line of credit

  • Apply for a new loan for the purchase of your next home.

Once the loans are approved for the equity line of credit and the new loan for the purchase of your next home, add the sum total of the two loans to determine your top purchase price range. Now you are ready to begin the home search and when you find the right home, your purchase offer will not need the contingency to sell your current home as a condition of completing the sale of the new home. Once your offer has been accepted by the seller and you are confident that you want to complete the sale, list your current home for sale to minimize the time period of owning one home too many.  The equity line of credit secured against your current home is paid off at the close of escrow as well as the existing first loan. This strategy gives you the peace of mind to take your time to find the right home and the confidence that your financing is pre-approved when you need it. 

Call Pete Sabine (925) 407-0606 for a consultation or visit www.GetRealEstateHelp.com.    

RE/MAX CC Connection

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List Your Home: Seven Questions You Must Ask a Realtor

Posted by Pete Sabine on September 26, 2007

Seven Questions You Must Ask a Realtor Before You List Your Home 

Many home sellers make the critical mistake of thinking all Realtors are the same. Start by doing a few hours of research.  Ask around… who’s the most active agent?  Compile a list of agent names and use these questions to help you determine which agent is right for you.                                                

1.  Could you send me some information about yourself? – You can often get a good idea of    which agents are the most professional by looking at their promotional materials.  If their own  materials aren’t professional, how well are they going to market your home?                                             

2.      How long have you been in business?- There is no substitute for experience. An agent with years of experience selling hundreds of homes can handle just about any unique challenge. An experienced agent knows when the market is changing and will provide you with effective options. 

3.      Do you have an assistant or support staff? – By employing someone to handle the details of their business the agent can spend more time servicing your needs.  It may be fine if the assistant does most of the behind-the-scenes work as long as the agent is there at the most critical times of the transaction period.           

4.      How do you use technology to sell my home? –Most of the top agents have a web site to develop a pipeline of prospective buyers for their listings. E-mail marketing has evolved into one of the most effective and efficient advertising tools available. Ask the agent to send you an email with samples of their e-marketing plan. Visit the agent’s web site to find out how they attract potential buyers for your home. 

5.      What listing price do you recommend ? – Take great care in choosing an agent with the knowledge to price your home effectively.  Keep in mind the selling price should attract prospective buyers to your home, get you top dollar in the current market and reflect the condition of your home.  Do not base your decision to list with the agent who quotes the highest price. Some agents will “buy” your listing only to harass you to lower the price after the agent has secured the listing..                                   

 6.      What disclosure laws apply to me? – Make sure your agent helps you with locating professional inspectors for the various mandatory home inspections required in your area.  Create a file including a property transfer disclosure statement, pest control report, applicable C.C.& R’s , applicable hazard zones report, plans for alterations or additions and building permits. 

7.      What types of things separate you from your competition and will you give me some feedback? – How effectively will they advertise?  Do they have 24-hour advertising capability?  How will you follow up on the leads for my home and how often will I hear from you? Agents who are innovative and offer new methods of attracting homebuyers will measurably outperform agents who rely on methods of the past.  Make sure the agent offers a listing cancellation agreement that allows you to cancel the listing prior to the expiration date if your are not satisfied with the agent’s performance. 

For a consultation, call Pete Sabine at 925-407-0606.

RE/MAX CC Connection

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Move Up Buyer: Six Insider Secrets to Avoid Trade-Up Mistakes

Posted by Pete Sabine on September 24, 2007

Making a local move usually means selling one home and buying another. The secret to making it all come together is coordination. Take a moment to review the six insider secrets to a successful move.

  1. Get all the facts early: Determine a realistic fair market value for your current home. Find out how much equity you have to add to the new loan required to buy your next home. Get pre-approved by a reputable lender and choose the best financing program to meet your needs. By doing so, you can determine an affordable price range in which to shop for your next home.
  2. Make a game plan: Make a list of repairs and cosmetic improvements for your current home that will maximize your potential sales price and eliminate delays and surprises during escrow. Complete these improvements before putting your home on the market. Meet with a Realtor to form an aggressive marketing plan to sell your home for the best possible price in a reasonable amount of time.
  3. Sell first: This is the most conventional way to make a trade up to your new home. You are not pressured to accept a below-market value offer just to meet a purchase deadline. In many cases, the Buyer will accommodate the Seller’s need for adequate time to find another home to buy with an option to rent the Seller’s current home from the Buyer past the close of escrow date.
  4. Keep a lookout: Learn the real estate market and stay on top of the inventory of available homes for sale while you are preparing your home to sell and waiting for an acceptable purchase offer. Visit open houses to discover neighborhoods and become familiar with current real estate values. Use time saving technology such as the internet (visit www.ContraCostaLiving.com) to search the Multiple Listing Service in real time. Sign up for a free automatic e-mail listing notification service to have new listings sent directly to your e-mail address that meet your search criteria.
  5. Be flexible: If you buy before you sell you may need to arrange “bridge financing” secured against the equity in your current home. Set up an equity line of credit for the down payment and closing cost on your next home. The advantages of buying first and selling second include the peace of mind knowing that you found the right home without letting go of your current home first, eliminate the anxiety of moving into temporary housing because you ran out of time to find a suitable new home plus the competitive advantage of making your purchase offer “non-contingent” on the sale of your current home.
  6. Coordinate closings: Our experience shows our clients enjoy the smoothest local moves when we work on both the sale and the purchase. There may be 15 to 30 entities involved in the transactions-appraisers, lenders, inspectors, escrow officers, etc. Direct communication is critical to synchronize your next move. The fewer people involved, the more efficient the process. 

Call Pete Sabine (925) 407-0606 for a free consultation.

RE/MAX C.C. Connection.

  

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Sell Your Home: How to Avoid the 7 Mistakes That Could Cost You Thousands of Dollars in the Sale of Your Home

Posted by Pete Sabine on September 19, 2007

 When you sell your home, the difference between a smooth and profitable transaction and a break even, miserable experience is often a fine line. By utilizing the trade secrets of a qualified real estate professional, you’ll ensure the quick, profitable sale of your home. If you are not completely prepared you could end up losing valuable time and thousands of dollars in profits. 

Refusing to Make Profit Inducing Repairs and Cosmetic Changes

It can cost you more money to sell “as-is” than to make repairs that will increase the value of your home. Even minor cosmetic improvements will often yield as much as two to three times the improvement or repair cost at the time of sale. The homebuyer’s first impression is critical to net the highest return on the sale of your home.

Provide Easy Access for Showings

The more accessible your home is, the better the odds of finding a buyer willing to pay your asking price. Appointment-only showings are the most restrictive, while lock box access is the least. Accessibility is the key to profitability.

Priced Too Low/Priced Too High

If the property is priced too low it could cost you considerable profits. If it’s priced too high it will sit and develop the identity of a problem property. The real estate market is constantly changing. Your pricing strategy should be re-evaluated by your Realtor every 14 to 21 days to help you maximize your return.

Relying Solely on Traditional Methods To Sell Your Home

Around the clock advertising exposure, innovative lead generation methods and lead accountability services exist and should be included in the marketing and sale of your home. The Realtor who is innovative and willing to offer new strategies of attracting homebuyers will always outperform agents who rely on traditional methods.

Market Timing/Seasonal Selling

Pricing your home effectively is in direct co-relation to market conditions and supply/demand dynamics. A professional real estate agent continually follows the trends of your local real estate market to know when the market cycle is poised to net you the most money in the sale of your home.

 

Wasting Time With An Unqualified Prospect

Be sure to align yourself with a professional and experienced Realtor to eliminate negotiating with unqualified prospects. An experienced Realtor knows how to screen a prospect’s qualifications before valuable marketing time is lost.

Believing All Realtors are the Same

Your home sale is a time consuming, effort related and often complex task. Rely on an experienced top producing Realtor instead of a friend or family member to handle the intricate details and critical decisions to be made concerning your home sale. Many friends and family have been estranged as a result of failing to meet expectations.

 

To discover more profitable real estate trade secrets, call Pete Sabine (925) 407-0606 or log onto www.GetRealEstateHelp.com

 

RE/ MAX C.C. Connection.

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Credit Scores: The Five Factors of Credit Scoring

Posted by Pete Sabine on September 13, 2007

A good credit score can mean the difference between a low mortgage rate with conventional financing and a restrictive, higher-rate loan. There are five factors that impact consumer credit scores. They are listed here in order of importance:

1. Payment history has a 35% impact.
Paying debt on time and in full has a positive impact, and late payments, judgments and charge-offs have a negative impact.
2. Outstanding credit balances have a 30% impact.
Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account: the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest incurred by moving balance from a 0% card to a 23% card will be minimal relative to what the increased mortgage might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio provided they can do so without a hard credit inquiry.
3. Credit history has a 15% impact.
The length of time a particular credit line has been opened is important. A seasoned borrower is stronger.
4. Type of credit has a 10% impact.
A mix of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only.
5. Inquires have a 10% impact.
Hard inquires for credit will negatively impact the score. Auto and mortgage inquires receive special treatment and 20 inquires made in a 14-day period for auto or mortgage will be treated as only 1 inquiry. The maximum number of inquires that will reduce the score is 10. Any inquires beyond that (11+) in a six month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.

Trade secret tip:
Request that creditors and credit bureaus delete any outstanding debt that is incorrectly charged to you or has yet to be cleared. They have an obligation to react within 30 days. If you choose to pay off an outstanding debt (less than two years old) mark the back of the check “accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit”. You may able to use the cancelled check if the outstanding debt in not removed.

Call Pete Sabine (925) 407-0606 for a free consultation.

RE/MAX C.C. Connection.

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Live Interview With Pete Sabine and Ross McGowan on KTVU Channel 2

Posted by Pete Sabine on September 3, 2007

Click on the photo to view a Live Interview With Pete Sabine and Ross McGowan on KTVU Channel 2

Live Interview With Pete Sabine and Ross McGowan on KTVU Channel 2

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