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Hello my dear readers, please answer the following questions without peeking the answers first.

1.  Short Sale means the selling price is shorter than the seller‘s loan amount, yes or no?

2.  Short Sale takes a longer time to process because it involves more than the seller’s decision, yes or no?

3.  Short Sale requires seller’s lender’s approval and this decision usually means the Bank, yes or no?

4.  The sold price of Short Sale property is lower than the fair market value, yes or no?

5.  Fair market value means the selling price of similar properties sold in similar locations within 3 months, yes or no?

6.  The parties involve in the Short Sale are: sellers, listing agents, buyers, buyer’s agents, seller’s lending institution, yes or no?

Do you get all yes?  So did I before I attended the Short Sales Seminar hosted by Chinese Real Estate Associationof America (CREAA) and presented by Elena Celestine of Bank of America today.

The answer to question no. 3 is no because while most people think that the seller’s bank has the major power to decide whether to approve the short sale transaction, in reality, the bank is only a third party who carry out the instructions from the investors behind the loan.   This also explain the complex communication path.  The listing agent has to negotiate with the “loan mitigation department” of the bank but the assigned negotiator is usually only a middle person and has to pass the information  to the investors.  Therefore, this is an extremely complex negotiation and it is more than what ordinary people think in the communication path.

The answer to question no.4 is yes and no.  Technically all sellers will not want their properties sold below fair market price and so do the seller’s lender.  However, market price is very dynamic and is determined by many factors.  Therefore, not only short sale properties, but all properties can be sold at market price, below market price or above market price.  Basically short sale properties and real estate own properties will involve more than one formal appraisals – one from the seller’s lender and one from the buyer’s lender.

The answer to question 6 is no because at least one more party will be involved, that is the investors.

1. yes    2. yes    3. no    4. yes or no    5. yes    6. no

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What is APR, why it is different from the interest rate that my loan agent/bank representative disclosed to me?

Almost all the time APR is higher than the actual interest rate that the loan agent quote you.  APR is actually a sophisticated jargon that the Bank wants to intimidate/scare you?  Just joking.

Let me demonstrate how APR comes up and you will understand.

If I say I loan you $100 and you pay 5% interest so your interest payment is $5

But what if you pay $5 interest but I am giving you $90 because $10 is your closing cost, then now your interest rate will be: 90 divided by 5 x 100% = 5.5%

This is exactly how the bank calculate your APR.  But then you say I even pay points to lower my interest rate and how come my APR is even higher?  It is because then your closing cost is higher.  Instead of $10 closing cost, maybe now you are paying $20 closing cost so your interest rate is still 5% but your APR will be 6.25%.

Thank you for checking in.  I am a real estate agent specialized in San Francisco and Peninsular area and will be happy to help you buy or sell your house.

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REO  is the short form for Real Estate Owned.  The real meaning is the lenders, usually the banks, have taken over the properties and are actually owners of the properties.  When the properties put up to the market for sale, the lenders/banks had already come up to an agree upon for sale price so usually if the buyers offer the asking price, it will be approved.  However, some lenders/banks will still listen to the sale experts marketing strategy, i.e. to ask for a ridiculously low price to encourage strong competition and thus beat up the sold price.  Anyway, the buyers involved usually can close the escrow within a reasonable time like a normal sale.

Short Sale means even after the sold price of the property is still too short to pay the mortgage.  In this case, the individuals are still owners of the properties and not the lenders.  However, since the homeowners cannot bring additional money to pay back to the bank/lenders, the sold price has to be approved by the lenders.  Since in this case, it is the homeowners who initiated to sell the property to avoid foreclosure, the lenders/banks involved had not yet came up to an agreed upon price prior to the property put for sale in the market, every offer has to be reviewed by the lenders/banks involved.  Thus it usually takes a much longer time for closing.

As a real estate agent, I encountered many times potential buyers/investors like to throw me one looks like simple question or statement: INFORM ME WHEN IT IS A GOOD DEAL.

Wow, that is a big question.  What is a good deal?  I have a client who have rejected my good deal suggestions many times.  To many people, a good deal usually means after you put down 25% downpayment, you can get an annual return rate of 8% or higher on the money you invest.  But my client is very different.  She would only like to have the expenses break even with(i.e. equal)  the income.  Typical expenses of property may include: mortgage payment, tax & insurance, utilities, management fee.  Thus if the total rental income minus all these expenses still comes up with a positive figure, we call it a positive income or positive cash flow.  However, my client has a very high tax bracket and she does not care too much of her income because most of it goes to Uncle Sam (tax office). 

Another two very important factors to bear in mind are the potential of the income property and cost of maintenance.  If the property is newer and does not require any major repairs in the next 10 years and it is located at a upcoming area, it is considered good.  Some good indicators of the upcoming of a certain area are growth in  good schools, in jobs and in infrastructure (easy commute).

Since different people have different needs, a good deal to one person may not be so to another one.  Please feel free to contact me if you want a free anyalysis of your real property investment.

Although many homeowners can still afford to pay their mortgage, many still choose to walk away  from their mortgage, we call this strategic default.  Many homeowners who purchase in the year 2005 find their current home value is more than 25% below their purchase price and the mortgage payment is higher than their rental  amount of the exact house.   So, these homeowner purposely not paying their mortgage and save at least 9 months of mortgage payment and can pocket these cash with whatever they have on hand.  They might buy another house all cash or simply rent another one of similar size, condition and location for an amount lower than their mortgage payment. 

These homeowners’ credit will be ruined and unfortunatley, in San Francisco, the mortgage debt has no recourse.  One cannot get it back by legal process.  In other county, homeowners are smart enough to claim bankruptcy to shield themselves against the recourse. 

Is it all beneficially to those homeowners?  Not necessarily, their credits were ruined and could not buy in the next 7 years and all their credit card rates will be at skyrocketed rate or be totally denied.

To me, I specially feel it unfair to let the society bear this burden.  What do you think?  Your opinion is welcomed.