Beware the HELOC

Does this rapidly-inflating real estate market look suspiciously familiar?

With many communities in our country still feeling less than financially recovered from the recession, we have to wonder if the more fortunate (i.e. prosperous) communities have learned any lessons from the bust.

Some financial analysts insist that we are NOT headed for another bubble because banks are no longer giving away money as feely as they were in the early 2000’s. However, another reason that we (collectively) got in trouble is because homeowners used their property as ATM’s by borrowing against their equity from an inflated market. It seems as if that part of the equation might repeat itself.

Because interest rates have remained so low for so long, most homeowners who want to refinance to a lower loan rate, have already done so. That means that financial institutions need to find a way to replace the income they were making from refi’s. Some of the large banks have begun encouraging homeowners to once again tap into their equity by applying for a HELOC — Home Equity Line of Credit — to finance things like second homes, vacations, college tuition, etc.  The beauty of a HELOC is that it can be used for any purpose you wish, or simply left as an open line of credit. Much like a credit card, there are no payments to make until you access that credit. Unlike a credit card, your home is used as collateral.

Bankers know that most people who apply for a HELOC, even if they don’t intend to access the credit, will eventually do so. It’s simply human nature. Make no mistake, a HELOC is the equivalent of a second mortgage.  When home prices stop their drastic rise, or perhaps even go down, those who have added a HELOC to their first mortgage could find themselves underwater. I.e. the total of the loans against the property could be more than the property is worth. Or, at the very least, the lack of remaining equity could thwart plans to purchase another home.

I’m not saying that it is never a good idea to utilize a HELOC — it may very well make financial sense for you — but I am cautioning homeowners to consider how it might impact you if home prices don’t continue their current meteoric rise.

If you’d like to know more, give me a call at 206-708-9800, or talk to a trusted lender.

If you know of anyone who is thinking of selling their home, I would appreciate the opportunity to tell them about my services!

Posted 4/1/16

Multiple offers from a home seller’s POV

If you haven’t sold your home recently, you might be interested to hear a bit about what that experience is like in the current Seattle market.

Once a home has been prepped for sale — which takes very little work in such a strong seller’s market — the agent and homeowner agree on a list price based on sales of comparable properties. This is easier said than done when homes are selling so quickly at ever-escalating prices.

If the agent and seller anticipate multiple offers, they often set an offer review date. That date is usually 5-7 days after the home goes on the market. This strategy typically nets a higher sale price for the seller than if they accept the first offer that comes in.

Appropriately priced homes in West Seattle currently receive anywhere from 3 to 15 offers that meet or exceed the list price and are not contingent on inspection. I.e., buyers have either pre-inspected the property or waived inspection. This essentially results in “As Is” sales.

It is not unusual to receive all-cash offers and/or offers with down payments of 30-50%.

The agent then prepares an analysis of all the offers to determine which are the strongest.You may be surprised to hear that the highest offer price doesn’t always constitute the strongest offer.

Each agent goes about this analysis in their own way. My process consists of creating a spreadsheet showing a side-by-side comparison of the offers on 24 separate criteria!  

A “strong” offer is one that has the best chance of closing quickly and without incident. For instance, if there is a loan involved, the lender should have a good track record for closing on time. The chosen offer will typically have a combination of a high purchase price, reliable financing, and a contract with few, if any, contingencies (i.e. “outs” for the buyer).

The seller also wants to ensure that the buyer will go through with the purchase even if the house does not appraise for the full amount of the offer price. This means that the buyer has the financial means to pay the difference between the appraised value and the offer price, in cash.

Once buyers and sellers have reached Mutual Acceptance — and disappointed the 2 to 14 other buyers — the sale will usually close in 30-45 days when a loan is involved, or as quickly as one week for an all cash sale.

After that, the seller often gets to experience the process in reverse, which is why many homeowners are reluctant to sell.

Any questions? Comments?

If you are ready to buy or sell, give me a call at 206-708-9800

Posted 4/1/16