Category: Selling a Home


Darn that DODD-FRANK!

Cropped image of businesswoman writing on checklist

Just imagine, after years of struggling to complete college, your son, little Johnny has finally has his head on straight. He graduated, he’s worked for the family business for two years and is doing well. He met a nice girl and they have married.

He wants to buy a home. Unfortunately, Johnny has not always made the best decisions. His credit is not where it needs to be. Based on the fact that he is now making better decisions, you decide to loan Johnny the money to buy the home. The title company you’re working with will prepare a note and mortgage to secure your loan, what could be easier, right?

That Darn Dodd-Frank! Your loan is probably in violation of this Act. Based on this violation, your note and mortgage may not be enforceable.

Dodd-Frank is federal legislation that came about as a result of the real estate crisis of the last decade. The Act created the Consumer Financial Protection Bureau (“CFPB”) and other laws that regulate all consumer loan transactions.

One of the other laws is the Loan Originator Rule. In general terms, if the borrower will use the home for residential purposes (whether a primary residence, a second home or a vacation home) then the person arranging the loan is defined as a “loan originator.” A loan originator must have a mortgage originator’s or broker’s license. Pursuant to the Act, any person who offers and negotiates terms of a residential mortgage is deed to be a mortgage loan originator. Unfortunately, for mom and dad above, there are no exceptions for a person, who is not a Seller, to secure a mortgage with a residential property.

The Act does provide for certain exceptions. Namely, Seller financing, these exceptions are as follows:

One property exception: A Seller may extend credit, secured by a mortgage encumbering residential property and is not considered a loan originator if:

(a) they are a natural person, estate or trust;

(b) they provide financing for only one property in a 12 month period;

(c) they own the property securing the mortgage;

(d) they did not construct or act as the contractor for the construction of a residence on the property;

(e) repayment of the loan must not result in negative amortization;

(f) balloon payments are allowed, however the term of the balloon is not clear. Most practitioners believe that no shorter time period than 5 years should be used.

(g) while the Act does not prohibit adjustable rates, a fixed rate is suggested. The Act has restrictions, limitations and caps on rate charges.

(h) the seller is not required to investigate the buyer’s ability to repay the loan.

Three Property Exception: A Seller may extend credit, secured by a mortgage encumbering up to three residential properties and is not considered a loan originator if:

(a) they are a natural person, estate, trust or an entity;

(b) they provide financing for three properties or less in any twelve month period;

(c) they own the property securing the mortgage;

(d) they did not construct or act as the contractor for the construction of a residence on the property;

(e) the loan must be fully amortizing and there are no balloon payments or structures allowed;

(f) while the Act does not prohibit adjustable rates, a fixed rate is suggested. In this context, limits and caps are required’

(g) the Seller is required to make a reasonable investigation regarding the Buyer’s ability to repay the loan. Although formal documentation is not required, the investigation should be done in good faith and the results should be maintained.

While other exceptions exist, they are very complicated and are not practical for ordinary Seller financers.

Good news is Dodd-Frank does not apply to every loan. First, it only applies to residential loans. So, if you’re dealing with vacant land, commercial properties, rental properties or properties used solely for investment purposes, Dodd-Frank simply does not apply. Moreover, Dodd-Frank does not apply to non-residential buyers. So, if the buyer is a corporation, limited liability company or partnership etc., Dodd-Frank will not apply and the loan can be made without consideration to its restrictions.

So, now that we know that mom and dad have a problem trying to help little Johnny buy his home, what are we to do?

One solution would be for the mom and dad (the lender) to purchase the property from the underlying Seller first. Then mom and dad as the Seller could sell little Johnny the home and take back the note and mortgage under the one property exception. Yes, the transaction costs would increase, but the creative closers at the Florida Agency Network will work with you to keep these costs down.

Another solution would be for mom and dad to work through a mortgage broker. The mortgage broker will be required to comply with all of the various lending laws and regulations. While the broker will likely charge a fee for this service, it is another option that will allow the transaction to go forward.

How Can I Improve My Home’s Value?

Buyers generally seek the least expensive home in the best neighborhood they can handle. Like the guy in the video says, you want to present a home that fits in the neighborhood but doesn’t stand out too much.

For example if neighbors are all 4 bedrooms, 3 baths and 3000 square feet additions that make your home 5, 4, and 4000 will make yours harder to sell.

Improvements should make it show well and fit well in the neighborhood. Last-minute capital investments in large structural changes aren’t likely to pay off.

But cosmetic upgrades like paint and landscaping help a home “show” better and often do pay off.

Of course, all systems and appliances should work to get a top price. To make your home competitive and attract buyers and bids work with a professional real estate agent and start early.

How Is A Home Marketed?

As you’ll see in the video, every home and market is a unique situation. Good marketing plans are specific to both. But every plan will include: Preparation Pricing and Marketing Activities.

Preparation takes time – typically, months. Homes must be in “show” condition all repairs and upgrades complete and all photos and video completed before the home goes on the market.

Pricing, likewise, should be planned in advance. Your broker will advise on both the best price and the best TERMS things like closing costs and seller credits to balance sales speed with sales price. Once the home is on the market it will quickly be entered in the MLS and will show up in Internet searches by agents and buyers.

Your broker will advise other marketing activities including advertising, signage, showing and open house events so make the best of your situation. Their aim is to get negotiable offers, and then take the offer you accept through the closing process.

Which Square Footage Figure Should I Use?

Home size is one of the key figures used in comparisons.

But you may have different measurements to choose from,  as you’ll learn in this video, including builder, appraiser, tax records and possibly owner records.

Which one is right, and which one is best?

The official figure is the one in tax records – typically, the county.

Any other figure must be documented by a builder’s floor plan an appraisal or an official floor plan, prepared by a company for a fee.

If your house has been remodeled and you’re planning to sell you may want to confirm that the official record matches your actual house – and update if required.

Most lenders will require an appraisal which will verify the figures you used. So be accurate and keep records to make the most of your sale.

 

How Do I Set The Price On My House?

While this video simplifies things to help you remember: your aim is to get the best price AND terms in your market during the period you’re selling.

Market conditions interest rates and competition all matter.

The price you want, and the price a buyer will pay are framed by those complex conditions So pricing isn’t completely predictable.

Other factors include:

  • How your home compares to other homes for the same buyers
  • The inventory of homes and the level of buyer demand

Your needs also affect negotiations – for example, if you must sell quickly – but the final price will be determined by the market not by your needs.

Buyers look at the same comparables and market conditions and they want to pay as little as possible while meeting their needs.

Remember that the price isn’t the entire deal – repairs, closing, points, appliances and other factors can all change the value you finally receive. Listen to your broker, stay informed, be patient if you can and make your best reasonable, unemotional decisions.

What Details Can I Ask Brokers In Advance?

This video tells you what any real estate professional would tell you. Ask them:

  • How long do homes in my neighborhood currently stay on the market?
  • How would you price my home?
  • What data did you use to arrive at that price?
  • How would you market my home?
  • What activities would you expect of me to market my home?
  • How will you handle representation if one of your buyers is interested in my home?
  • May I speak with sellers you’ve recently represented?
  • How long a period would you want on a listing agreement for my house?

It’s best to ask these questions, and be comfortable with your choices before signing a listing agreement.

6 Selling Mistakes

If you’re selling, don’t do these things – take some notes from the video!
1. Don’t Sell Before The House Is Ready.

If it doesn’t present well, it won’t sell well.

2. Don’t Over-Improve

People buy houses in neighborhoods.

If yours is so “improved” that it sticks out you’re hurting your chances at selling.

3. Hire Wrong

Make your agent choice for business reasons.

Personal relationships matter, but experience and expertise will determine financial success in your sale.

4. Don’t Hide Anything

Covering up or ‘failing to mention’ real problems doesn’t work.

State disclosure laws are strict and you can be sued after the sale for anything that should have been made clear.

5. Don’t Rush

You should know about your mortgage, including pre-payment penalties your market conditions and trends and your options for your next home before jumping on the market.

6. Don’t Get Too Emotional

Your attachment to your house and your own financial needs

don’t really matter in the transaction.

If you can’t set them aside the sale won’t go as you’d like it to.

Remember – it was your home but to the buyer it’s as a house.

 

What Does The Closing Process Involve When I Sell?

As this video explains, a signed sales contract doesn’t mean your house is sold. There are still financial, contractual and legal steps for both sides.

The buyer has to get financing to meet the contract terms – which includes credit checks.

The property is inspected and appraised; title insurance and escrow accounts are set up while you locate new housing, pack and move. And take care of any obligations like painting or repairs. After the contract is signed, it can take a month or more of closing steps to reach the closing meeting.

So plan on that when you plan to sell.

What Is A Counter-Offer?

The video puts this in more visual terms, but basically, a seller can respond to a buyer’s offer with changes – a “counter” – that improves the terms.

You need to put yourself in their shoes and construct a modified offer that you think they might take that meets more of your needs. Then it’s their turn – accept, reject, or construct yet another counter.

It’s an efficient market process, but beware: clauses and costs matter. Your broker should be closely involved in constructing a counter. Successful bargaining is best done with a win/win approach where each side is meeting their biggest needs and compromising others to reach an agreement.

Remember that outside conditions like interest rates, and supply and demand, will keep evolving so you’ll need to be patient but decisive to craft an counter-offer that works for both sides.

How Do I Evaluate An Offer?

Well, as this story shows, there’s more to an offer than the price tag. Factors you should consider:

  • Is this offer at, near or above my asking price?
  • Are there clauses and additions in their offer that change the terms and final price substantially?
  • How long since I had another offer, or expect another offer? Can I wait?

Remember every month you’re probably still paying mortgage, taxes and insurance. If you have several offers… remember that an offer isn’t a completed sale.

Compare the risk and likelihood of a completed sale for each buyer including things like “contingencies”, where your sale depends on their sale. and whether they’re pre-approved for the offer they’re making.

Remember you have three options for an offer – accept it reject it or prepare a counter-offer that improves the terms for you in some way.