A recent article from US News talks about the things you should consider before paying off your mortgage early.
To me knowledge is power and to having options as you plan for the next stage in life is comforting.
Understanding the purpose of earnest money – what it does and what is does not do is an important part of the home purchase and selling process. Earnest money simply funds the liquidated damages provision of the purchase and sale agreement between the Buyer and Seller. Basically, if Buyer defaults, Seller is damaged. Seller had the property off the market during the pendancy of the agreement; Seller may have vacated the property in anticipation of closing, Seller may have made repairs or improvements to accomodate Buyer or as required by Buyer's lender, etc. As a result, per the purchase and sale agreement when a Buyer defaults, Seller is entitled to a remedy.
An earnest money provision is a liquidated damages clause entitling Seller to the earnest money in the face of the Buyer's default. So, what is the right amount of earnest money or Buyer's "skin in the game"? !%-2% of the purchase price is pretty standard If the sale is scheduled to close in 20 days, all cash and the house is already vacant, the earnest money could be a low amount as Seller's maximum loss is 20 days of marketing time. However, if the sale is scheduled to close in 60 days and the Seller must install a new roof or vacate early to replace flooring throughout the house, then Seller should demand a substantial amount of earnest money. Seller risks losing 2 months of market time and, the expense of make repairs or vacating prior to closing, if the Buyer fails to close..
If Seller's remedies are limited to forfeiture of earnest money and if the earnest money is insignificant, there is no risk to Buyer for defaulting. Calculating the :right" amount of earnest moneyshould take into account the Seller's anticipated losses in the event the Buyer defaults prior to closing.
Naturally the Buyer wants their earnest money to be the smallest amount possible. For Buyers earnest money should be set . in the confomty with the competetiveness of the market. If Buyer writes a low offer, Buyer may want to increase the earnest money to make Buyer's offer more desireable and to compel the Seller to believe the Buyer fully intends to close the sale. In a strong Seller's market which we have today, Buyer may want to increase earnest money to distinquish Buyer's offer from the expected competing offers.
Earnest money is a negotiation tool to be used by both parties. A Buyer who puts down less earnest money may be signaling less commitment in the purchase.
Setting the right amount of earnest money is alwasy fact-dependent and the client alwasy has the final sayas to the right amount of earnest money.
Yesterday, FHFA released their housing price index data for November which showed that house prices rose 0.8 percent from October on a seasonally adjusted basis.
That rate of growth is the highest one-month growth rate reported by FHFA since December 2013; it would translate into an annual price growth of 10 percent.
While month to month data can be somewhat volatile, looking at the year over year data, we see a similar acceleration though not yet that strong. From one year ago, home prices were up by 5.3 percent, according to the FHFA, very close to the 5.6 percent change reported in NAR’s median price in November.
Both FHFA and NAR data showed that the November annual growth rate in prices was higher than that observed in previous months. Today, NAR will release December price and sales data, and we’ll get a first look at whether the acceleration in home price growth will continue. As long as tight housing inventory persists, which we expect to see as long as housing starts remain at a subpar level, we expect to see upward pressure on home prices which adds an additional challenge to potential first-time buyers.
In addition to national data, FHFA releases data at the Census division level. The most robust gains in FHFA data from a year ago were still in the West though other Census divisions were stronger than the Mountain division. NAR data showed less strength in prices in the West.
According to FHFA year over year prices rose 7.5 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 5.6 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico. But divisions that make up the South region actually had growth in excess of 6 percent from a year ago.
Effective with loan closings after January 1st, 2015 the conventional loan limits for King, Pierce, and Snohomish counties will increase from $506,000 to $517,500. This is good news for folks who are looking to purchase with only 10% down as many Jumbo options require 20% down to get the best rates. We expect FHA and VA to follow suit, but they have not made a formal announcement yet.
The National Association of Realtors’ most recent Existing Home Sales Report revealed that home sales were up rather dramatically over the past year.
Homes classified as “shadow inventory” fell to 2.3 million units in October, down 12.3 percent from a year ago but still representing a seven-month supply of homes, according to a monthly report from real estate data firm CoreLogic.
Homes with seriously delinquent loans attached to them made up 1.04 million of October’s shadow inventory. The balance included 903,000 homes in some stage of the foreclosure process and 354,000 bank-owned properties.
Shadow inventory refers to the number of distressed homes likely to hit the market soon, but which aren’t yet listed for sale in a multiple listing service or included in traditional pending supply metrics.
October’s shadow inventory tally represents 85 percent of the total 2.7 million homes identified by CoreLogic as having seriously delinquent loans, in the foreclosure proces or “real estate-owned” (REO). Seriously delinquent loans are defined as those overdue by 90 days or more.
“We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold,” said Anand Nallathambi, president and CEO of CoreLogic, in a statement.
Given that a significant portion of the shadow inventory has not entered the foreclosure process, it won’t have too large an effect in the coming months because of long foreclosure timelines in many states, said Mark Fleming, CoreLogic’s chief economist.
The value of the shadow inventory in October was $376 billion, a 5.8 percent drop from October 2011.
The five states where serious delinquencies declined the most in the three months ending in October 2012 were Arizona (13.3 percent), California (9.7 percent), Michigan (6.8 percent), Colorado (6.8 percent) and Wyoming (5.9 percent).
In October, 45 percent of all 2.7 million distressed properties in the U.S. were concentrated in five states: Florida, California, Illinois, New York and New Jersey.
Buyers closed on nearly 1800 houses in King County last month, 13% more than September 2011. The median price of single family homes sold has been in the $375,000 to $380,000 range since June Distressed home listings (short sales & bank owned) are down 60% from last year. The real estate tide has changed and the feeling of confidence has returned to Seattle!
There are more buyers than sellers currently in the market and inventory hasn’t been this scarce since at least 2000. Buyers are looking again, lured back to the market by record-low morgtage interest rates, rising rents and home prices that appear to have stabilized. Thinking of selling or buying? Now is the time!
Did you know…The median price of single family homes sold in June 2012 in King County was $380,000, up 10.4% from June 2011. The 1st double digit increase in nearly 5 years! Distressed home listings (short sales & bank owned) are down 60% from last year. The tide has changed and the feeling of confidence has returned to Seattle!
This week’s reports show that January New Home starts rose to the highest level since October 2008 and Weekly Jobless Claims fell to the lowest level since March 2008! Are we out of the woods? What do you think?