The Perfect Home in Real Estate

Home buyers must often deal with deferred maintenance or repairs. For example, you may have found a terrific house and like many competent home buyers, you included a structural inspection contingency in your purchase agreement. What happens when you find out that your "perfect" house needs some work? Do you ask the sellers to pay for the repairs? Before you answer "yes", there are some important considerations.

Some contracts require that all of the home's systems, such as plumbing, heating, electrical and central air conditioning, be in working order. In this case, the sellers may be obligated to repair any problems with these systems. Leaky roofs, damp basements, or other structural problems may not be covered, however. If you ask the sellers to make these types of repairs, you may void the contract by doing so. The sellers might prefer to negotiate the repairs to keep from losing the sale. If there are other buyers waiting in the wings with back-up contracts, you run the risk of losing the home.

Ask your Real Estate Agent for advice on how to handle the needed repairs in an acceptable manner that will keep both parties on tract and focused on the priority - completing the sale!

Real Estate Walk Through Woes

Buyers can be a little cranky on closing day if things go wrong during the walk-through inspection. For example, the sellers' dependable old dishwasher might stop midway through its cycle and the bathroom sink might clog unexpectedly. These situations can create anxiety for the buyers and sellers, but such problems are quite common and usually simple to resolve.

Most purchase agreements require that the major mechanical systems and the appliances being conveyed are in working order at the time of the closing. Defects are often discovered during the structural inspection, allowing the sellers plenty of time to have the repairs made. Occasionally there are last-minute breakdowns or defects that are not spotted until the walk-through inspection. In that case, an agreement can be made with the sellers at the closing to escrow funds for the repair or replacement of the items in question.

Remember to stay focused on the main reason you are there - "The purchase of your new dream home."  Carefully handle the situation and then move on to the closing.

Careful Property Inspections

Many home buyers today are investing in a professional structural inspection before they finalize their purchase of a home. You should choose an inspector carefully and be prepared to learn important facts about your new home that could save you money.

When you have a ratified sales agreement, the Real Estate Agent will set up an appointment for you to see the home with the inspector. Bring a notebook, even though you will get a written report of the inspection. Write down any questions or concerns that may occur to you as you tour the house, such as cracks in the walls, spots on the ceiling, or noises in the air conditioning system. And remember that no house is perfect. You should come away from the inspection with a fundamental understanding of what you are buying and how much the maintenance will cost.

Need to find that top quality home inspector?  Go to www.askaboutrealestate.net and request the best.

Buyer Protection in a Real Estate Transaction

There are situations in which you as a homebuyer may be in need of protection: here is one example. You have finally found the home that is right for you, but you have some questions about the structure and condition of the home. A home inspection is the best place to get answers that will help protect your interests as a buyer. There are companies that specialize in inspecting new and used homes. Most sellers allow a reasonable amount of time to have the property inspected after the purchase agreement is agreed upon and prior to closing. It is wise to have a home inspection, even if the house is new or everything appears to be in perfect condition.

The inspector can provide important information about the house. Where are the gas and water shut-off valves? How do the circuit breakers operate? What type of routine maintenance should be done for each system?

NOTE:  The inspector's fee is an investment that can save you money later!

The Real Estate Inspection Report

Are you looking for a home and becoming tired of house-hunting? If so, you may be tempted to buy a bargain-priced home "as is" and forego the home inspection. But without the inspection report, do you know what the "as it" refers to? Wouldn't it be better to know what condition the home is in before you buy it?

The inspection contingency allows the buyer to enlist the services of a licensed home inspector within three to seven days after the purchase agreement is signed. The inspector will go over the property from top to bottom, evaluating the condition of all the basic systems and structures of the home in order to identify conditions that may be considered material defects and thus may affect the market value or the safety of the home.

The inspector's report is the only documented proof of the actual condition of the property that is being sold. It is a valuable tool that helps you negotiate the sales contract and gives you information about future maintenance projects. The cost of an inspection is well worth the peace of mind it provides.

Looking for a great home inspector?  Request their services at www.askaboutrealestate.net.

About Termites in a Real Estate Transaction

Many real estate offers require an inspection by a licensed exterminator to determine that the house doesn't have termites or other wood boring insects. The inspector will look for two signs in deciding whether or not to pass a house--an active termite infestation and evidence of a past infestation.

If your house does not pass the termite inspection, get a list of qualified exterminators from your Real Estate Agent. Find out what treatment options they offer and what they charge for the service. Exterminators are usually quite competitive. If your home was treated for a past infestation, the company which performed the extermination may be willing to re-certify your home without a second treatment. Arrange for the termite inspection as early as possible, so you will have time to determine the best way to get rid of them, if they are found.

Going Green - How to Fight Global Warming
Take these steps and you'll help reduce global warming pollution.[En Español]

Overpriced Real Estate

In the real estate world, a large group of people are looking to buy homes at any given time. These are the seller's best prospects. This ready group of buyers is wasted, however, if your house is overpriced.

People who have been shopping around and are accustomed to comparing properties will probably refuse to look at your home with an unrealistic price tag. You and your Real Estate Agent may know that you would sell for $10,000 less, but the buyers do not know this. As a result, your overpriced property receives little attention.

Don't be fooled into thinking that your house is worth more than someone is willing to pay for it, or that it's just a matter of waiting for the "right" buyer to show up.

Surveys show that the longer a house is on the market before being sold, the greater the drop in price from the listing price when it does sell. The buying public eventually sets an accurate price.

An overpriced house just sits on the market, waiting for a price adjustment before it will attract a buyer.

Price and Condition in Real Estate

Pricing a house is one of the most important parts of the marketing process. You want to get as much for the property as you can, but if you set the price too high, you can turn away qualified buyers. Your Real Estate Agent can tell you the selling price of homes comparable to yours. Pricing strategy depends on market conditions, and it is different in a buyers' market than it is in a sellers' market.

If your home is overpriced, the marketplace will reflect that to you. When a property fails to sell in a reasonable period of time, you and your real estate agent should have a frank discussion to determine whether too high a price tag is the reason. Your real estate agent will also be getting feedback from other agents who have shown your home.

Remember that price is only one factor. Consider ways you can make the property more attractive to show by handling needed repairs, improving curb appeal or making cosmetic improvements.

Sellers remember:  Improve the condition of your home and you will improve its chances of selling.

Keeping Your Earnest Money Safe

When you make an offer on a house, it is accompanied by an earnest money check. Earnest money is intended to demonstrate that you are "in earnest" about purchasing the property. The earnest money check is made out to the listing company. What happens to this check?

The party holding the check acts as an escrow agent until you go into closing. At that time you will receive credit for the amount of your check against the down payment and closing costs. Real estate brokers are required by law to keep escrow funds in a special account. These funds cannot be used to pay any other expenses associated with the sale. If you don't complete the transaction, the purchase contract determines the disposition of your earnest money funds. Be sure to review this part of your contract with the Real Estate Agent.

If you are in default on your agreement, the funds may go to the sellers, so be sure that you understand the deadlines in order to avoid breach of contract and forfeiture of your deposit. If you have any questions, be sure to ask your Real Estate Agent for advice.

Evaluating the First Offer in Real Estate

Your dining room table is the scene of high drama. Your home has been listed for sale for six weeks, and finally, the first offer has come in. You are meeting with the agents, and are very excited until they mention the price--it is a lot less than you expected.

Before you feel offended, however, remember that the first offer is often just the beginning of a negotiating process. Your agent can help you weigh the good and bad points, evaluating the price in relationship to the terms or conditions of the sale. Sometimes an offer with a low price can look quite attractive once you understand all of the terms. If you are willing to make some compromises, the buyers may accept a counter offer that will give you more money. A lower price from highly qualified buyers may be better than one from people who may have difficulties with financing. Keep in mind that your first negotiated price is often your best price!

Good Faith Deposits in Real Estate

After many months of searching, you have found your ideal house. You are a little older and a little wiser now, so you want to give the impression that you are serious without appearing to be too eager. What should you do? In the marketplace, "money talks."

There is no absolute rule about how much "good-faith" deposit you should put down--but it is a tool to make your point with the seller. The typical $1,000 will hold many homes for you, except in larger-home markets where it may be critical for you to show that you are an especially serious and able buyer. You don't want to make a deposit that is too large in case there is a problem getting your money back, but if your offer is substantially below the asking price, a larger deposit--$5,000 or $10,000--might influence the seller. If you make a low deposit with your offer, be sure to provide for an increased deposit when the offer is accepted or upon removal of the contingencies.

Bargaining in Real Estate

You found a house that seems perfect and you really love it. The chemistry is there, and the price is right. If you are like many buyers, you start off by asking the Real Estate Agent if the sellers will take less than they are asking.

A Real Estate Agent doesn't know what the sellers' bottom price is. The sellers often don't know themselves until they get an offer. In many cases, the price is negotiable, but the only way to test it is to make the sellers a written offer to accept or counter.

Attractive, well-priced homes usually sell quickly in any market. If you get involved in offers and counter offers, another buyer could come in with a better offer while you are negotiating back and forth. If you cannot qualify for financing at the asking price and you are willing to risk losing the house, you can make a lower offer. But if it will break your heart to lose a home you really love and you can afford it, it may be better to avoid bargaining and simply pay the asking price.

Greening Your Business
Tips on how to start making your business operations easier on the planet -- and on your bottom line.
[En Español]

When you start to green your business operations, you're helping to reduce global warming pollution, preserve forests and biodiversity, and keep our air and water clean. And you can also help protect your bottom line because environmentally responsible businesses are efficient businesses. This guide provides a few simple tips on how your business can start to go green.

Use Better Paper, and Less of It
The average office tosses out about 350 pounds of paper per employee, per year. Reducing your waste and purchasing paper with postconsumer recycled content can help save trees and nudge the pulp and paper industry, one of the most environmentally destructive industries in the world, toward a less damaging path.

• Set your printers to print double-sided, or designate a draft tray and fill it with paper that's blank on one side.
• Buy copier paper with a minimum 30 percent postconsumer recycled content. (100 percent is best!)
• Collect used paper separately for recycling, and coordinate with your building manager and waste hauler to set up a recycling system that works for everyone. If you can, also recycle other materials, like aluminum, glass and plastic.
• Stock bathrooms with postconsumer recycled tissue products. Tissue manufacturers destroy forests when they turn virgin wood into throw-away paper products. See our guide for ecologically preferable brands.

Get Energy Efficient
Using less energy reduces the demand on power plants, the nation's leading contributors to global warming pollution and mercury pollution. And it saves a bundle on your energy bills.

• Contact your utility company to arrange for a free (or inexpensive) energy audit. An engineer will examine your operations and provide you with a detailed report about how your firm can save on energy costs, from rebates to improved maintenance.
• Turn off lights and unplug electronics after hours -- computers and other electronics use energy while they're plugged in, even when they're switched off. (Plug all your appliances into a power strip and you'll only have to flip one switch at the end of the day.)
• Set computers to sleep and hibernate when inactive, and lose the screen savers. Flying toasters and slideshows can use up about $50 of electricity in a year. Look for power management or energy saving features on the control panel for Windows, or system preferences under the apple menu for Macs.
• Use Energy Star office equipment -- most major brands carry energy-saving models marked with the Energy Star label.

Cut Water Waste
One billion people on our planet can't get safe drinking water. In the United States, some rivers are being drawn down faster than nature can fill them up. Using water efficiently today will help ensure that future generations have access to the water they need.

• Install faucet aerators and low-flow toilets
• Check for and fix leaks
• Recycle water
• Landscape for maximum water efficiency

Create a Greener Working Environment
Employees are on the front lines of any sustainability initiatives your company chooses to make. Participation from all levels of your staff is a crucial part of any greening effort.

• Buy less toxic cleaners to improve indoor air quality and reduce risks to employee health.
  
• Create a green team with members from all divisions of your organization to help implement plans and bring new ideas to the table.

Stay Tuned NRDC offers comprehensive getting-started guides to green building and to smart paper-use practices. If you are a business owner or manager and you'd like to hear from us when we add resources to help you green your business, sign up here.

RESOURCES Building Green: Safeguard Indoor Environmental Quality EPA Nontoxic Household Products Fact Sheet GreenSeal Database of Certified Cleaning Products Green Biz: 10 Keys for Education and Engaging Employees

Find more green guides in our Green Living section and in the NRDC Action Center

The Language of Real Estate Agents

Technical terms can be confusing to people who do not work in a profession, and Real Estate Agents use language that may be confusing to many home buyers and sellers.

If you find your eyes glazing over when your Real Estate Agents starts talking about escrow, clear title, easements, encroachments, contingencies, financing, appraisals and the closing process, don't hesitate to ask for a translation. Buying or selling a home is a major step, and professional Real Estate Agents are totally committed to helping you understand the process thoroughly so that you can make informed decisions.

The simple transaction of trading the sellers' house for the buyers' money has become complicated by several hundred years of custom, common law, and state and local government requirements. Consumer demands have resulted in up-to-date rules that communication be as clear and understandable as possible. Real Estate Agents work to create an atmosphere in which you feel comfortable to ask questions.

Refinancing Your Home

Interest rates fluctuate as changes occur in the general economy. If you purchased your home when interest rates were higher, you may want to consider re-financing your loan at a lower rate.

You will have to apply for the new mortgage and have your current income eligibility assessed. Depending on how long you have had your present loan, a current appraisal may be required. There are closing costs, such as attorney, title fees, recording and notary fees, and appraisal charges. The biggest factor in your decision should be the length of time you plan to remain in your home. If you will be there for only a year or two more, it might not pay to re-finance. If you will be in your home longer, re-financing could provide you with lower mortgage payments.

Your Real Estate Agent can help you work out the numbers and can refer you to reputable home appraisers and mortgage lenders.

Professional Appraisals in Real Estate

Before your mortgage application is approved, the lender will order a professional appraisal of the home to make sure that the agreed-upon selling price is justifiable based on the current market value of the property. The cost of the appraisal will be based on the complexity of the appraisal report and the time required to complete it.

A professional appraiser will choose the appraisal technique that is applicable to the particular property to arrive at an unbiased opinion of value. One approach is to look at comparable homes in the area that have sold within the last six months. If there are a number of similar properties that have sold recently, the appraiser's job is easy. It is more complicated to arrive at the appraised value if your home is located in a rural area or a diverse neighborhood.

The appraised value will usually be very close to the sale price. If the appraisal comes in lower, the real estate agent may be able to provide the appraisers with additional information on recent sales which will result in increased value.

Lender Appraisal in Real Estate

Many sellers think that the price of their home is determined solely by what they are willing to accept and what the buyer is willing to pay. However, there is one more variable that can affect the sale of a home assuming that a bank loan is involved -- the lender's appraisal.

To protect the interest of their investors, the buyer's mortgage lender hires a licensed appraiser to give an independent, objective opinion of what the property is worth.

The appraiser compares the house with similar homes in the neighborhood that have recently sold. Square footage, amenities and the condition of the home are taken into account. Renovations and home improvements made by the seller usually add value to the home, while defects such as needed repairs or code violations decrease the property's value. The seller's real estate agent can provide the appraiser with up-to-date information about neighboring homes that have sold to support the seller's asking price

Real Estate Terms (the N's)

negative amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

net cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

net worth
The value of all of a person's assets, including cash, minus all liabilities.

no cash-out refinance
A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

nonliquid asset
An asset that cannot easily be converted into cash.

note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

note rate
The interest rate stated on a mortgage note.

notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Real Estate Terms (the M's)

margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

master association
A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.

maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

merged credit report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

modification
The act of changing any of the terms of the mortgage.

money market account
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

money market fund
A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

monthly fixed installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.

mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

mortgage banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.

mortgage broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

mortgagee
The lender in a mortgage agreement.

mortgage insurance
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (MI).

mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

mortgagor
The borrower in a mortgage agreement.

multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

Real Estate Terms (the L's)

late charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

leasehold estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

lease-purchase mortgage loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.

legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

liability insurance
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

lien
A legal claim against a property that must be paid off when the property is sold.

lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

lifetime rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.

liquid asset
A cash asset or an asset that is easily converted into cash.

loan
A sum of borrowed money (principal) that is generally repaid with interest.

loan commitment
See commitment letter.

loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.

loan-to-value (LTV) percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

Fair Market Value in Real Estate

What is the best price for a piece of real estate? Mortgage lenders, appraisers, and real estate brokers use what is called the "fair market value" (FMV). FMV has been defined as "the price that a buyer is willing to pay and the seller is willing to accept, when both parties are knowledgeable about the property and neither is under any time pressure to buy or sell". Sounds great, but how is this price determined?

The starting point for determining a fair price may be an opinion of the value or "comparative market analysis". Such an analysis uses information on similar properties which are: 1) currently for sale, 2) already sold, or 3) expired properties (those which did not sell). Local, national and international trends and market conditions must also be evaluated.

By comparing similar properties in each of the three categories and the market conditions, appraisers, lenders and agents come very close to the maximum price that buyers would be willing to pay for a house.

Best Interests of the Real Estate Buyer

Who represents the homebuyer in the transaction? The most common scenario is for homebuyers to purchase a home with the help of the seller's listing agent. In this case, known as "dual agent representation," the Real Estate Agent assists both the sellers and the buyers. However, it is also possible for the buyers to ask another realtor to represent their interests exclusively, acting as the "buyer's agent," a service which is available at no additional cost to the homebuyer.

Any licensed Real Estate Agent can act as your buyer's agent, helping you to locate and look at properties in your price range. However, if that Real Estate Agent works for the same brokerage that is listing a particular property, dual agency or designated agent rules will then apply. The buyer's agent will advise the buyer if issues arise such as termite damage or significant material defects appearing on the home inspection report. If the home appraisal comes in at less than the asking price, the agent will represent the buyer's interest, working with the seller and the lender to negotiate a satisfactory resolution.

A Market Analysis in Real Estate

Setting the right price is an important first step in the process of selling a home. Is it necessary to spend $200 to $400 for a professional appraisal of your property before placing your home on the market?

A professional appraiser's opinion of a property's market value is based on the recent sales of similar homes in the neighborhood, and on the square footage and condition of the property. Different appraisers might come up with different figures. Even if all of them agreed on a value, there is no guarantee that you would receive that amount for your property.

An alternative to a professional appraisal is to ask a professional real estate agent for a written market analysis of your property. This analysis will include information about recent home sales in your neighborhood, as well as how those homes compare to yours. Real Estate Agents may provide this service with no charge or obligation. If you are still unsure of the value of your home, you may wish to pay for an appraisal.

Working With Appraisers

After the buyer and seller come to a "meeting of the minds" on the price of a house, there is one more person who must be convinced that the house is worth the selling price--the mortgage company's appraiser.

The appraiser looks for three similar houses that have sold in the same area within the last several months, and compares the selling prices of these homes with the one that is now on the market. The appraiser makes adjustments to account for the differences in each property, and averages the adjusted prices of the other three homes to arrive at a final opinion of value. In subdivisions or condominium projects where there are many similar properties and numerous recent sales, the appraiser's job is relatively easy. In neighborhoods of older homes that have been renovated or remodeled over the years, it can be like comparing apples and oranges.

If the appraiser's evaluation is lower than the selling price, it can stall the transaction because the lender may decline the buyer's loan because of the discrepancy. A Real Estate Agent can work to minimize potential delays associated with the appraisal process by helping the seller to price the home as close to fair market value as possible.

A Real Estate Agents Expertise

If you are using the services of a professional Real Estate Agent to find a new home, good communication is crucial to the transaction. A Real Estate Agent who knows your most significant criteria can work much more effectively to show you homes that will meet your needs.

Let the Real Estate Agent know why you are interested in a specific location. Discuss specific requirements such as proximity to your job, good schools, or recreational activities. If there are no houses available in your price range, the agent may suggest alternate neighborhoods with the same amenities. Do you need a home office or do you have hobbies that you want to accommodate? Is there a particular style of architecture that you prefer?

Agents sometimes have to be intuitive when we work with buyers. The more you can describe to your agent what elements in the home are essential and where you are willing to compromise, the easier it will be to use their expertise to find a home that's perfect for you.

7 Low Cost No Cost Ways to Network

Effective networking is one of the best ways to gain good market exposure. The good news is that you can do this at low cost!

Effective networking is one of the best ways to gain good market exposure. The good news is that you can do this at low cost! Whether it is the list of friends and acquaintances you have or meeting someone new, it always helps to have more contacts. Here are some low cost ways to improve your network of contacts.

a. Calling up: If you are scared or have inhibitions about cold calling then shed them right away. Pick up your telephone and start calling your contacts. You could contact journalists and media persons right away. Contacting such persons will prove to be very beneficial for your organization as having relations with them can mean good publicity for you in future. At a later date whenever you need to introduce a new marketing campaign or product, just contact these media persons and you are assured of publicity.

b. Social media websites: With the recent wave of Web 2.0, it’s foolish not to leverage this wonderful technology for increasing one’s network of contacts. With various blogs, forums and online discussion groups, there is no dearth of opportunity for building on your contacts. You never know - one contact can lead to another and may even land you a business deal!

c. Introduce yourself: If you are the shy and reserved kind of person who takes time to open up to a conversation, you can forget about networking. Successful networking is all about being proactive, talking and meeting people as much as you can. Make sure to go meet as many people in your niche segment and introduce yourself and your business to them.

d. Free speeches: Free speeches help any business person establish authority in the niche segment. So if you speak well and know your subject matter fairly well, consider giving a free speech at a common and popular venue. You will not only find large crowds gathering but once you give out your business cards you’ll be amazed at how soon customers start enquiring about your products.

e. Group meetings: Group meetings and public body associations are great ways to socialize and network. Make sure to carry plenty of business cards when you reach the place. Once you are there, be proactive in introducing yourself and handing out your business cards to clients. This really helps create an impression on potential business partners and you will very soon find yourself receiving enquiries from customers.

f. Events: By having a fun-filled and interesting event in your office premises, you can get to network a lot. Try having a dinner party or an informal luncheon and invite everyone you know. Anyone who is interested in this niche vertical can also be invited. This way you get to meet plenty of new people and add them to your contact list.

g. Help out: If you know some associations or professional groups, consider getting involved in an active manner. You may not be able to volunteer for a lot of the work but trying to help out in little ways can really help build on your network of contacts. You will not only meet more people but also be able to propagate your business in this manner.

Networking is crucial to business growth. This especially holds true if you’re in the service sector. So use these proven methods to network your way to more business and more profits!

About the Authors

Doug and Claudia Brown use their 40 plus years of business building experiences to educate people and businesses on how to dramatically increase their revenues. Free Report "17 Strategic Steps to Steps to Achieving a Six Figure Income or More" at http://www.whatisyourplan.com/

Are you ready to get started on your journey to clutter control?

Here are 10 things you can do right now:

1. Get rid of your largest items first. Eliminating exercise equipment and large stuffed animals that don't belong in a room can result in an immediate improvement in clutter reduction. Once you get rid of the big pieces, it will make it easier to move on the the smaller pieces.

2. Return everything that has been borrowed from someone else. Magazines, books, CDs, videos and tools are just a few of the things that may below to friends or neighbors. Return them to the people they belong to.

3. Pick up everything that is on the floor. Sort into boxes, baskets - and most importantly - trash bags. Take laundry directly to the laundry room.

4. Recycle newspapers, magazines and catalogs. If you've read them, throw them into your recycle bin. If you haven't, put them into a "to read" basket or shelf. Cut out articles that you want to keep and toss the rest of the magazine.

5. Have you looked into your closet lately? I mean really looked? How many pieces of clothing and shoes are there that you never even wear? Donate them or put them in a box for your next garage sale.

6. Go through your dresser drawers and toss old socks, pantyhose and lengerie. Also, get rid of sweaters and jeans that no longer fit you. Are you really going to be able to wear them within the next few months?

7. Now, go to your office. How many old pens are in your desk drawers that don't work? Toss them! While you're there get rid of used ink cartridges and other things that you're never going to use.

8. Clean off your desktop. Go through each piece of paper and decide how important it is. Put bills and statements into your "in" box to pay. Throw old newspapers and flyers away.

9. Empty all of the wastebaskets where you have tossed your decluttering efforts immediately - before you decide there's something in there that you just can't part with. Believe me, after a few days you won't even remember that item!

10. Wash each room's windows. There's nothing that will make a room look brighter and cleaner than a little sunshine.

There it is. Start with this ten items to make a huge difference in the clutter of your rooms. You'll be glad you did.

New Year in Real Estate - New Opportunities

(Successful Business Plans)

“Out with the old and in with the new?” is a popular saying and one many Real Estate Agents are hoping means improved business opportunities in 2008. As independent business owners you don’t need to wait for the end of a calendar year to revamp your business plan, but it is often an easy time to reflect on the past and look forward to the future.

Business planning need not be a complicated, time consuming, cost leaden process that takes you away from finding consumers willing to use your business services. But it does require you to take an honest look at what you have done in the past and whether it has worked or failed.

Below we have put together a short and concise model for you to follow. You can add to or subtract from the process as you desire. The more business planning you do the better and more rewarding your plan will be.

Step one is getting started. Many people fail to complete a business plan because they think it is too complicated or too difficult to follow. Begin with establishing a goal for 2008. First have a goal for the year, and then break it down by month and by day. This may be harder than you think.

You need to consider not only what you have done previously, but how many transactions you need to make to cover your business and household expenses. As an independent contractor you are both employee and boss, so you must make sure that when building your sales goals it takes into account not only the costs of running a business, but also the cost of your number employee – you!

Let’s say you live frugally and set a goal of 12 homes in 2008 based upon the average commission dollars you collected in 2007. Does that mean 1 home a month? Not necessarily. More homes may sell in May and June than in December and January. That means you need to determine what percentage of homes sell in each month. If 100 homes are sold in a year, and 14 sell in May and 12 June, that means 26 percent of all sales happen in those two months. That means to stay on track with your goal you must sell 4 homes in those two months!

TIP – don’t use one annual year to establish a sales curve. Use 4-5 years of transactions to come up with this number. 2007 was not a typical year and the sales curve would be skewed toward spring. By using 2001-2006, and 2007, you will get an overall sales curve that takes in account different market situations and fluctuations.

Step two is contacts. You must determine how many consumers you must come in contact with before getting a sale. This is an age old process of determining how many people you must talk to about your service business before one is converted into an appointment. From here you must determine how many appointments are converted into actual contracted clients. Then you need to determine how many clients end up in purchase agreements.

Let’s say as an example you convert 15 contacts into one appointment. For every 3 appointments you are able to get a signed buyer or listing contract. For every listing taken you sell 50 percent and for every buyer contracts you are able to convert 1 out of 3 into a sale.

If your goal is two a month, that means for every listing sold you need an inventory of two. If you are planning on selling two in March, you will need an inventory of four. In order to get four listings, you will need to make 12 listing presentations which means you will need to contact 180 people about your services. That means you must be explaining your listing services to at least 6 people a day and requesting an appointment, based upon your 15 to 1 contacts to appointments ratio.

The 15 to 1 ratio may not be enough based upon what prospecting activities you are pursuing. When pursuing buyer leads, the formula could easily top 20 contacts before you can secure an appointment. That means you must talk to lots of people considering a home purchase before you will be able to set an appointment, sign a buyer contract and ultimately sell a property.

Step three is activity. This step is looking at how you are going to come in contact with consumers looking to utilize the real estate services you provide.

• How many people are coming through your open houses (buyers & sellers)?
• How many cold calls does it take to get an appointment?
• How many expired listings do you need to contact before one sets an appointment with you?
• How many FSBO’s do you need to call upon before you get an appointment?
• How many ads, mailings, brochures etc. does it take to get the phone to ring once?

This is where you need to error on the high side not the low side. If you think it takes between 8 to 10 people during an open house setting to get an appointment, use either 10 or 12 in your planning. The worse thing that can happen by erring on the high side is that you have more sales than you planned to sell.

Step four is commitment. Talk to your broker and significant other(s) about your goals and how you are planning to achieve them. This accomplishes two things:
1) It makes your commitment public so your broker and significant other can hold you accountable;
2) Your family and friends will understand why you are working so much.

Also, post your plan with your daily contact goals in front of you at your real estate office, home office and if need be your fridge or bathroom mirror. You need to see these goals constantly in order to keep yourself motivated and on track. Make a personal commitment not to quit working until you have made the necessary contacts daily.

One of the most common problems for Real Estate Agents is diversions. You get busy showing homes or preparing listing presentations and fail to prospect. You sell one more house in March then you had planned and decide since you are ahead of plan you’ll take a week off. Don’t stray from the plan. If you take time to vacation, you must alter the daily contact plan. As an example, if your business plan calls for 6 contacts a day and you take off 5 days, you need to spread those 30 contacts over the next week or ten days or you will fall behind.

Step five is to continually update your plan. If you are not converting enough contacts into appointments, you need to increase your number of contacts. If you are not selling enough of your listings, you will need more listings and hence need to make more contacts.

You also need to adjust your financial budgets. If revenue is not flowing as you planned, you need to make adjustments on the expense side. That means cutting out as many unproductive or relatively unimportant expenditures. You probably cannot cut out auto fuel, but perhaps lunch out of the office or shrinking or eliminating some advertising will help get you on track. As tough as it is, household expenses may need to be adjusted. That includes extras like super sized cable packages, vacations and other activities that do not directly impact the bottom line of your business.

When you make your business plan make sure you focus on what your business is – you are selling your ability to assist a buyer or seller in a housing transaction. All of your marketing materials, including your verbal script must focus on why a consumer should utilize your service when buying or selling a home.

Best Wishes as you prepare to for a successful 2008.

Save Money at the Pump and Stay Safe

INFLATE TIRES. Under-inflated tires waste nearly 4 million gallons of gasoline annually, according to the US Department of Energy. They're also a leading Cause of tire failure, which can cause accidents. Check tire inflation frequently - even good tires lose pressure from month-to-month.

EASE OFF THE ACCELERATOR. On the highway, you can improve gas mileage by about 15% by cruising at 55 to 60 miles per hour, rather than 65 to 70. Slowing down also saves lives. Speeding is a factor in nearly 1/3 of fatal crashes, according to the National Highway Traffic Safety Administration.

LIGHTEN UP. The heavier your vehicle, the more fuel it requires - and the longer it takes to come to a stop. Every 100 pounds of needless cargo weight can cost you a half mile per gallon. Overloaded vehicles can also lead to tire failure.

DON'T BE IDLE. If you're waiting somewhere for more than a few minutes, turn off the engine. Idling burns more fuel than restarting. If 145 million vehicles idle five minutes per day, about 4 million gallons of gas are consumed without anyone going anywhere.

The Best Real Estate Agents

The best Real Estate Agents in today's marketplace are becoming even better about marketing the homes they list to the public, as well as to other agents who have potential buyers.

When you are interviewing prospective Real Estate Agents to help you sell your home, ask how they find buyers. In the past, a "For Sale" sign would go into the ground, the basic information went into the Multiple Listing Service, and then there was an occasional Sunday classified ad and an "open house". If the house did not sell right away, the agent might recommend a price reduction.

Agents today are much more sophisticated and pro-active about getting people into their homes. They rely on computers, direct mail, telemarketing, and just plain clever ideas that no one else has tried. Ask prospective listing agents for two things--a written analysis of what is happening with housing prices in your area and a marketing plan which outlines how they would get your home from "For Sale" to "Sold".

Choosing a TOP Professional Lender

Choosing a mortgage lender does not have to be a difficult task, but it does have to be a task that you take very seriously.  Mortgage lending is done by a number of different people in today’s world and that is the reason why you must be careful; some people are very good, some are bad and it is the careful consideration and shopping around for comparisons that you do beforehand that will ensure that you work with a mortgage lender that is good for you. While all mortgage lenders are different and offer different products, the ideal mortgage lender for you will have a number of different characteristics.

Experience - A good mortgage lender will have experience in handling people that are just like you. In today’s age of the internet, it is impossible for a person to have a lot of experience as a mortgage lender without someone having written a review about them. Whether you are talking about a specific bank or else you are talking about a specific individual that is an agent for other lending activities, you are going to be able to find something online about them if they have a lot of positive experience with clients. You can even ask them right away for testimonials from clients they have had in the past and cross-reference the two pieces of information to get an overall view of just how experienced they might be.

Skill - Mortgage lenders are essentially people that are supposed to make you feel good about the mortgage that you have. This means that while part of their job is educating you on the mortgage products and options you have available to you, another large part of their job is in the field of making you feel good and confident about the mortgage product that you pick. This should be regardless of whether you follow their advice or not. Therefore, a good mortgage lender, regardless of the decisions that you make, will be courteous to you at all times and will make you feel very good about the decisions that you make. If your lender does not do this, then you need to be wary about continuing with them because quite often there is a link between someone’s ability to make you confident and the confidence they themselves have in what they are saying.

Options - Lastly, a good mortgage lender will be able to offer you options. Most mortgage lenders work for a specific company, so this really has more to do with what the company has to offer rather than with what the lender has to offer and that is why it is down here at the bottom of the list. Options are usually given everywhere, but the places that you are likely to get the best options are from places like big banks. If you can get good mortgage options from a particular bank and then find a mortgage lender agent that possesses experience and skill, then you are going to be in a good position to make sure that you end up with a mortgage agreement that is truly good for you. 

Are you having a hard time finding a Lender that you want to work with?  Request a TOP Professional Lender and their services at www.askaboutrealestate.net. 

When it comes to your loan, go with a proven leader from Ask Abour Real Estate.net.

If the Price Is Not Right

A Real Estate Agent has shown you a house that you like a lot. There is only one problem--the price seems too high. In a situation like this, you can still make an offer that you feel is appropriate.

The Real Estate Agent does not tell you how much to offer, but they can give you information about the selling prices of similar homes in the area. The agent will present your offer to the sellers. They have three choices--they can accept, reject, or counter your offer.

If the house is a new listing, or if your offer is very low, they may decide to hold out for something better. Sellers frequently build a little negotiating room into their asking price. Prices that are not negotiable at the beginning of a listing period may become flexible as time goes on. If you want to test the sellers' flexibility, make them an offer.

If you truly like the home, don't be afraid to find out what price the sellers will be willing to accept for the sale of their home.  In the current market, if the price is not right, find the price that you both can live with.

Value Added Features in Real Estate

A recent study conducted by the National Center for Real Estate Research evaluated the features of a home based on what each contributes to the selling price.

According to the study, the feature that can most dramatically increase the value of a home is an additional full bathroom, upping the selling price by a remarkable 24 percent. Installing an extra half-bath can add 15 percent to the selling price. A garage, a fireplace and a central air conditioning unit each add a little more than 12 percent to the home's market value. A laundry room located on the main floor of the home increases its value by 15 percent, while a basement laundry room can potentially reduce the home's overall value. Homes with raised or vaulted ceilings sell for 6.2 percent more than identical homes with standard ceilings. Each extra bedroom increases the price by 4.1 percent. A family room adds 7.3 percent, and a dining room is worth 6.2 percent. A view of the water adds 7.8 percent, but a golf course view is better at 8.1 percent. A home built on the waterfront is worth 18 percent more than the same home in a landlocked location.

Every real estate market is different, so consult your local Real Estate Agent regarding the resale value of your home's special features.

If you are in the need of professional real estate advice and do not know where to begin, just click on www.askaboutrealestate.net and request services from a TOP Professional in your area.

The Value of Your House

One of the sayings from the "gold-rush" days--"Them that's got the gold, sets the price!"--is also a principle that applies to real estate. We say that a house is only worth what someone will pay for it, even though the owner, the bank, and the agent all have their own opinions about the "market value" of a home. In other words, no sale ever takes place until the buyer agrees with the price.

How can sellers arrive at the maximum "fair" price that buyers are willing to pay? Buyers (and appraisers) make their decision based on comparisons. While shopping for a home, buyers will visit many similar homes in their price range and measure the features of each one against the price. They decide which house offers them the maximum value for the price. Buyers do not expect a home to be a "steal" or dramatically under-priced, but they do expect it to be a fair value.

Sellers must determine the value that their home offers in order to arrive at the right price. The Real Estate Agent will advise the sellers what buyers should be willing to pay for their home, but the asking price is set by the seller.

The Real Estate Asking Price

Picture this...

Your house has been on the market for four weeks. There have been a lot of showings but no offers, so you are wondering if you should consider a price reduction. You want to get as much as you can for your home, but more importantly you want it to sell!

This may be the time to have a frank discussion with your Real Estate Agent. While price may be a major factor, it may not be the only consideration. Are you making your house easy for agents to show? Have you completed the necessary maintenance and cleaning so that your property is as appealing as possible? Review with your agent the current market conditions and the prices of other homes in your neighborhood before determining that a price reduction is in order.

Even though your price may be competitive, the marketplace may be telling you that buyers just won't pay what you would like to get. If all indicators point to a price reduction, it is better to do it sooner rather than later.

Beneficial Brokers in Real Estate

Homebuyers who use the Internet to start their home search may be lured by the promises of realty companies advertising "one-stop shopping" guaranteed to meet all your housing needs. But before you sign up with an online company, consider the benefits of meeting personally with a Real Estate Agent or broker who can represent your best interests in the transaction.

A full service real estate broker will be informed about the current trends in your local market. He or she will personally show you properties that satisfy your unique requirements. When you want to discuss your options for a home mortgage loan, your broker will refer you to a reputable mortgage professional who can help you choose a loan that meets your specific needs. Your broker will have a working relationship with home inspectors and homeowner's insurance companies whose professional integrity they can vouch for.

Online "one-stop" companies profit from handling all aspects of a transaction, but the homebuyer may not receive adequate personal attention or get the best deal. It is to your advantage to engage the services of a Real Estate Agent  or broker, because their sole motive is to protect and guide you during the complex process of buying property.

Dual Agency in a Real Estate Transaction

What happens when you are interested in purchasing property that is being sold by the same real estate agency in charge of your buying needs? You may have concerns about a dual buyer/seller agent. Will this form of agency protect your interests, or that of the seller? Will you as buyer be able to share confidential information about your needs?

In states where dual agency is legal, the Real Estate Agent will serve the needs of both parties fully, because good business practices and professional integrity require honesty and fairness. If a buyer and seller are both represented by the same agency, they will be asked to sign a dual agent contract acknowledging the affirmative obligations of the Real Estate Agent. Neither party should fear being shortchanged because the other party's interests will come first. Because the Real Estate Agent will honor the code of confidentiality, both parties may share sensitive information without undue anxiety.

A reputable real estate agency will help to reach a satisfactory outcome to negotiations for both parties in the transaction.

Who Pays the Real Estate Commission

Does it cost the homebuyer more to be represented by a buyer's agent who serves their interests exclusively? No, because the listing agent splits the sales commission, which is customarily paid by the seller of the home, with the buyer's agent. The sales commission split is usually 50-50, but the listing agent and buyer's agent will sometimes make another agreement and split the commission differently.

There is one very unusual circumstance in which the homebuyer might pay a commission to their buyer's agent. The Real Estate Agent might show the buyer a local "for sale by owner" (FSBO) home which the client decides to purchase. In most cases, the FSBO seller who is presented with a qualified buyer is glad to pay the buyer's agent a reduced fee of about 3 percent, or half of a normal sales commission. But the FSBO seller could stubbornly refuse to pay the buyer's agent any commission whatsoever. In that case, the buyer's agent would legitimately expect the buyer to pay the sales commission, in fair exchange for the agent finding the FSBO home and negotiating a successful transaction.

Real Estate Agent Advantages

How do Real Estate Agents sell homes? When a professional Real Estate Agent is retained to sell a home, the agent will develop a marketing plan that has proven effective for selling homes quickly and for the maximum sale price.

The Real Estate Agent will perform a market analysis, comparing the home with similar homes in your neighborhood that have recently sold. Your agent will evaluate the current real estate market in order to develop a price opinion for your home. The next step will be to make recommendations about preparing your home so that it is presented to its best advantage. A description of the home will be uploaded into the local Multiple Listing Service, and your agent will implement a marketing plan tailored to your home.

By listing your property, you expose it to thousands of Real Estate Agents throughout the region. MLS exposure is one of the most valuable services a Real Estate Agent can provide sellers. Real estate professionals aslo network with other agents in their office when they bring new listings to the market.

Does this system work? 85% of the homes sold today use this method.

Enough said!

Owner Financing in Real Estate

If you are selling a house in which you have a lot of equity, and you don't need that equity to buy a new home, an owner-financing agreement may benefit you and your buyers.

Seller financing arrangements usually involve the buyers securing the largest portion of their purchase money from a mortgage company and getting a smaller second loan from the sellers. For example, they may finance 75% from a lender, put in 15% from savings, and ask the sellers to finance the remaining amount. The terms and interest rates on seller carry-backs are negotiated on a case-by-case basis.

Sellers may be able to negotiate a note that provides a better return on their money than 1-to-5 year CD's or treasury notes. They should ensure that the note protects them to the fullest. Use common sense when considering such a loan, and verify the buyers' income, credit history, and job stability before making your final decision.

Sellers Beware

Here is a scenario for sellers to avoid. You contact a Real Estate Agent to list your home and the agent suggests that you might get more for your house than comparable homes on the market. The agent assures you that it only takes finding one person who is willing to pay your price!

Some agents approach a listing appointment as if they are bidding for your home. The unfortunate result is that you start out with an unrealistic opinion of your home's value. There is often a strong temptation to work with a person who says what you want to hear. An experienced, reputable Real Estate Agent will back up their opinion of your home's value with hard data. The agent should give you information about the listing price of homes that are currently on the market, and recent selling prices of similar properties in your immediate area.

Even the most heroic marketing efforts won't work on a property that is obviously overpriced, (except in the most exaggerated of seller's markets.) Even if you find a buyer who is willing to pay more than your home is worth, the sale could fall apart when the appraisal comes in lower than the agreed-upon price.

Listen to everything, but be careful!

Selling Your Home and Lock Boxes

Having your house on the market involves a certain invasion of your privacy. Real Estate Agents will be previewing it and showing it to buyers with some regularity. While you want to make your home reasonably accessible to the real estate professionals and their prospects, you don't want to run the risk of stepping out of your shower just as a broker is ushering in buyers.

In many areas Real Estate Agents use a handy little tool of the trade called a "lock box". When a property is occupied, the agent first calls to let the owner know when they will be coming by. If no one is at home, the agent can get into the house with a key stored in the lock box.

The other extreme of accessibility is to require a day's notice before a showing, and to insist that your Real Estate Agent be present at each one. This will eliminate a lot of the inconvenience to you, but it may also eliminate a lot of showings of your house. Whatever arrangements you work out, keep in mind that the easier you make it for Real Estate Agents to open and show your home, the easier it will be to sell it quickly.

Scents and Home Sense

Prospective buyers may react to the way a home smells. Cigarette smoke, strong disinfectants, insecticides, kitty litter, and french fries have all been known to dampen the enthusiasm of buyers who might otherwise respond positively to a house that would meet their needs.

Be sure that your home passes the sniff test when it is on the market. Many people have a particular reaction to smoke and pet odors, so consider a temporary smoking ban inside your home while it is on the market. If you have a cat box, be meticulous about cleaning it. If your new puppy has ruined a chair, replace the stained chair with a spot-free one.

There are cleaning services which specialize in stain and odor removal. They may suggest carpet steaming and other techniques to remove the offensive smell. Even if buyers are themselves smokers or have pets of their own, they will react differently to the same odors lingering in a home they are considering

Effective Real Estate Marketing

If your home has been listed for a number of weeks and you have only seen it featured in one newspaper ad, you may start feeling anxious. Although your house is being shown regularly, you wonder if the agent is doing enough.

Home sellers often equate effective marketing with classified ads in the weekend Sunday real estate section. However, the most skilled Real Estate Agents know the market well enough to be aware of where the prospective buyers for your home are likely to come from. They will look for the best ways to reach those people through direct mail, telephone contact or specialized ads in neighborhood publications. They will also work to get their colleagues excited about your house, especially agents who have many listings or sales in your neighborhood.

Remember--it is important for you and your agent to communicate often so you will know exactly what is being done to sell your home.

A Buyers or Sellers Market in Real Estate

If you are going to sell your present home, the market conditions will play a crucial role in determining the asking price. Market conditions change constantly, so it is important that you get solid advice from a professional who is familiar with your specific area.

A good Real Estate Agent will know how houses in your area are selling, as well as the other factors that may influence the sale. Nearby commercial development, which may create congestion and noise, may also mean a greater demand for housing from people who will be working in the new office buildings. A new bus route that cuts commuting time could make your home more valuable and highways close by can be an issue with the price. The economic conditions have a strong impact on the real estate market. Real estate professionals can help you consider all of the issues and assist you in setting a fair price for your home.

Fair Market Value in Real Estate

What is the best price for a piece of real estate? Mortgage lenders, appraisers, and real estate brokers use what is called the "fair market value" (FMV). FMV has been defined as "the price that a buyer is willing to pay and the seller is willing to accept, when both parties are knowledgeable about the property and neither is under any time pressure to buy or sell". Sounds great, but how is this price determined?

The starting point for determining a fair price may be an opinion of the value or "comparative market analysis". Such an analysis uses information on similar properties which are: 1) currently for sale, 2) already sold, or 3) expired properties (those which did not sell). Local, national and international trends and market conditions must also be evaluated.

By comparing similar properties in each of the three categories and the market conditions, appraisers, lenders and agents come very close to the maximum price that buyers would be willing to pay for a house.

The Financial Consumer Hotline Act of 2007

Sandra F. Braunstein, Director - Division of Consumer and Community Affairs 

Before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives

December 12, 2007

Chairwoman Maloney, Ranking Member Biggert, and members of the Subcommittee, thank you for the opportunity to discuss the recently introduced "Financial Consumer Hotline Act of 2007."  I am the Director of the Federal Reserve Board's Division of Consumer and Community Affairs.  In addition to its responsibilities for rulewriting and enforcing many federal consumer financial protection laws, the Federal Reserve administers a nationwide consumer complaint and inquiry program with respect to the banks we supervise and general consumer financial issues.  My division has responsibility for that program.  My testimony today will comment on the proposed legislation, and discuss recent Federal Financial Institutions Examination Council (FFIEC)¹ and Federal Reserve initiatives that address the purpose of the proposed legislation. 

The Financial Consumer Hotline Act of 2007 would amend the Federal Financial Institutions Examination Council Act by requiring the FFIEC to establish a single telephone number that consumers with complaints and inquiries concerning financial institutions or issues could call and be routed to the appropriate federal supervisory agency or state bank supervisor for assistance.  Under the legislation, transfers of calls to state bank supervisors would be subject to the state's capacity to receive calls and its satisfaction of any conditions established by the FFIEC.  The legislation would also require the federal financial institution regulatory agencies to submit a report to the Congress on efforts to establish a public interagency website for directing and referring consumer complaints and inquiries to appropriate agencies, and to establish a system for expediting the routing of misdirected consumer complaint or inquiry documents between appropriate agencies. 

The Federal Reserve concurs with the intent of the proposed bill and strongly supports the current efforts by the FFIEC agencies to improve the consumer's experience with getting complaints involving banking services and transactions addressed promptly and accurately.   However, given that the FFIEC agencies are collaborating and cooperating on how to facilitate the consumer complaint handling and resolution process in ways that are consistent with the proposed bill, and the considerable progress being made already on both an interagency basis as well as through our own efforts, legislation does not appear to be needed to ensure continued momentum.  Additionally, it is important that the agencies maintain flexibility so they may benefit from recommendations that will result from the current FFIEC initiatives and future technological advances.    

Interagency Initiatives
Before highlighting current interagency initiatives, it is important to mention that the FFIEC agencies have been coordinating on consumer complaint processing since the 1970s.  For example, the agencies have had fully operational procedures in place for decades to promptly refer misdirected consumer telephone calls and misdirected consumer complaints and inquiries to the appropriate federal or state regulator.  Recently, the agencies have started using new technology to further speed-up and improve the referral process, including the use of encrypted email and electronic scanning of complaints, which has significantly reduced the paper flow between other FFIEC agencies and the Federal Reserve. 

Moreover, the agencies meet periodically to share complaint data and to discuss emerging issues identified through the complaint process.  Most recently, the federal banking agencies held national conferences in April 2006 and October 2007 to share information about trends and issues evident in consumer complaint processing, and to share best practices in investigating and analyzing complaints. The agencies also discussed ways to improve their service and potential ways complaint data might be used to aid in the development of consumer education materials.  Another interagency conference, which will be sponsored by the Federal Reserve, is scheduled for April 2009 at our central consumer help site located at the Federal Reserve Bank of Kansas City.

To build upon the efforts of the agencies to enhance their ability to investigate and respond to consumer complaints, in September of this year the FFIEC formed an interagency working group to identify ways to collectively improve the consumer complaint programs of the agencies with the goal of making those programs even more consumer-friendly.  This working group also includes representatives from the Conference of State Bank Supervisors. 

The group met several times to identify appropriate best practices and areas of common approach related to the consumer complaint process; and, determine whether the use of a third party vendor would be appropriate to assist in this effort, and if so, to determine the scope of the vendor's engagement.  A number of promising initiatives that would enhance consumers' experience with the agencies' complaint processes surfaced during these discussions, including:

• Marketing and publicity campaigns to increase consumers' awareness of each agency's complaint program;
• An interagency website or portal that would serve as a gateway for directing complaints and inquiries to the appropriate agency;
• A process for routing consumer calls, letters, and emails to the appropriate agency; and,
• A search tool on the interagency website to make it easier for consumers to identify the regulator with responsibility for their financial institution. 

The group also put forth some ideas that might leverage agency resources, including unified complaint coding to facilitate the sharing of information between the agencies about emerging trends and issues identified from consumer complaints, an electronic process for forwarding complaints to the appropriate agency, and a uniform case management system. 

These initiatives have much in common with those identified in the proposed legislation.  The FFIEC working group recommended to the FFIEC that a third party vendor be engaged to address the ideas for enhancing the consumers' experience in dealing with the agencies and to explore the feasibility of pursuing the initiatives related to leveraging the agencies' resources.  The group further recommended that the vendor use consumer focus groups to identify consumers' preferences for filing complaints and contacting a regulator about their banking problems.  On December 4, 2007, the FFIEC approved the working group's recommendations and is beginning the process of hiring a vendor, which includes developing a statement of work, soliciting bids from interested parties, and selecting a vendor.   We believe the vendor's work will provide the FFIEC with insight needed to develop a comprehensive strategy to further enhance the consumer complaint process and consumers' overall satisfaction with the process.    

Federal Reserve Initiatives
Through the Federal Reserve's consumer complaint program, which was established in 1976, we address complaints about the banks under our supervision (state-chartered banks that are members of the Federal Reserve System and certain foreign banking organizations) and promptly refer complaints we receive regarding other financial services firms to the appropriate federal or state agency, including the Federal Trade Commission. 

The Board has uniform policies and procedures for investigating and responding to consumer complaints, which are implemented by specially trained analysts at the twelve Federal Reserve Banks.  Board staff oversees the implementation of these policies by the Federal Reserve Banks.  In each of the last two calendar years, the Federal Reserve System has received about 1,900 complaints concerning the roughly 900 state member banks for which we have supervisory responsibility.  The Board maintains a database that enables us to track each complaint and how it is resolved.

Consistent with the intent of the proposed legislation and the Federal Reserve's long-standing consumer protection program, we recently announced additional enhancements to our own consumer complaint handling procedures that show great promise for improving consumers' experience in dealing with our program and in streamlining our processes. 

On November 19, we launched "Federal Reserve Consumer Help," which is a new centralized resource that consolidates and streamlines the Federal Reserve's consumer complaint and inquiry program.  Trained customer service professionals are available to answer questions and assist with a wide range of issues relating to financial products and services, and consumer protection laws.   Simply put, it serves as a one-stop complaint and inquiry site where consumers can go to get help from the Federal Reserve. 

Consumers calling our new toll-free number (888-851-1920) between the weekday hours of 8 a.m. and 6 p.m. Central Time can speak directly to a customer service professional.  After hours, callers may leave a message and Federal Reserve Consumer Help staff will return their calls the next business day.  The website, http://www.federalreserveconsumerhelp.gov/ was designed for easy access allowing consumers to submit a complaint or inquiry electronically. 

The website provides answers to commonly asked banking questions and links to many consumer protection materials and resources.  Consumers will also find an updated version of the brochure "How to File a Consumer Complaint Against a Bank" on the website.  This brochure explains, step-by-step, the Federal Reserve's complaint process and tells consumers what to expect during a complaint investigation.  An electronic complaint form is also provided. 

Consumers do not have to know which federal bank regulator supervises the bank or financial institution that they are concerned about in order to file a complaint or inquiry, or to get assistance from the Federal Reserve.  Further, consumers are not limited in how they can contact the Federal Reserve for help--complaints and inquiries can be filed with us by mail, fax, telephone, or email.  When a complaint or inquiry is filed with us, our customer service representatives query a national database maintained by the Federal Reserve Board in order to determine the appropriate regulator responsible for the financial institution that is the subject of the complaint or inquiry.  Federal Reserve Consumer Help then directs the complaint or inquiry to the appropriate regulator.  For example, with regard to complaints and inquiries filed by telephone, we have arrangements with several other banking regulators to transfer callers directly to a representative at the appropriate agency.  Any misdirected written or electronically submitted complaints or inquiries are forwarded to the appropriate agency, and for agencies with the capability, these complaints and inquiries are passed on to them electronically.  

Conclusion
We are keenly aware of the congressional interest in the administration of the agencies' consumer complaint and inquiry programs, and are moving ahead with the implementation of both interagency and Federal Reserve System measures to address the needs of consumers and improve these programs.  As underscored by recent enhancements to our consumer complaint program, and our support for interagency initiatives, the Federal Reserve remains strongly committed to ensuring that issues consumers have with their financial institutions are handled promptly, courteously, and thoroughly, and that consumers have access to an effective and efficient means for resolving complaints.  Moreover, the Federal Reserve believes the consumer should not be burdened with having to know the regulator to file a complaint or make an inquiry.  As such, the Federal Reserve provides the same level of commitment and service to all consumers and uses highly trained, professional staff and customized tools to direct consumers or send misdirected complaints to the appropriate regulator or agency. 

I would be pleased to answer any questions you may have about the Federal Reserve's consumer complaint program, our recent initiatives, or ongoing interagency efforts to enhance consumer complaint handling and resolution.

Footnotes
1. The FFIEC is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, and to make recommendations to promote uniformity in the supervision of financial institutions.  In 2006, the State Liaison Committee (SLC) was added to the FFIEC as a voting member.  The SLC includes representatives from the Conference of State Bank Supervisors, the American Council of State Savings Supervisors, and the National Association of State Credit Union Supervisors. Return to text

Governor Randall S. Kroszner on

Loan modifications and foreclosure prevention

Before the Committee on Financial Services, U.S. House of Representatives

December 6, 2007

Chairman Frank, Ranking Member Bachus, and members of the Committee, I appreciate the opportunity to appear before you today to discuss recent problems in the subprime mortgage market and possible legislative responses.  The challenges facing the housing market at the moment are significant.  Increasing numbers of homeowners and communities are experiencing problems.  We continue to work to find and implement the best and most sustainable solutions to the current challenges. 

Background
In recent years, the subprime market has grown dramatically, enabling more and more borrowers to obtain credit who traditionally would have been unable to access it.  Increasing numbers of lenders entered this market, with underwriting standards, industry practices, and risk-based pricing evolving along with the subprime market.

The growth of this market is well recognized.  Also well recognized are the problems that have arisen with these changes.  The Board believes that responsible subprime lending has an important role to play in expanding credit to traditionally underserved borrowers.  It also recognizes, however, that some of the lending undertaken in recent years was neither responsible nor prudent. 

Mortgage delinquency and foreclosure rates have increased substantially over the past few months.  Over 17 percent of subprime adjustable-rate mortgages were in serious delinquency at the end of September, a rate over three times higher than that in mid-2005.  Serious delinquencies also increased among near-prime and prime mortgages, although these delinquencies remain much lower than among subprime mortgages.  Lenders initiated foreclosure proceedings for an average of 320,000 loans per quarter in the first half of this year, up from 240,000 loans per quarter in the preceding two years.

One significant factor in the increase in delinquency rates has been the slowing of house prices.  Prices decreased slightly for the nation as a whole in the third quarter of 2007, and declined more dramatically in some regions.  Over a quarter of homeowners report that their houses decreased in value over the past year, just a bit above the level last seen in the early 1990s.¹  These price changes will affect homeowners' abilities to resolve financial troubles by refinancing their mortgages or pulling equity out of their homes, and may lead to increased defaults.  In addition, some borrowers whose mortgage balances exceed their house values may be tempted to walk away from their loans.  Borrowers who purchased properties solely for investment purposes may be more likely to default in this situation; indeed, the Mortgage Bankers' Association has found a disproportionate share of serious delinquencies are associated with non-owner-occupied properties in some of the states with the highest increases in delinquencies.  A recently released study by the Federal Reserve Bank of Boston attributes most of the recent rise in foreclosures in Massachusetts to declining house prices.²

Borrowers who have lost their jobs, not surprisingly, may have difficulty meeting their mortgage payments.  Thus, increases in unemployment in certain areas, such as states in the Midwest struggling with job cuts in the auto industry, are another major factor contributing to higher delinquency rates.

The final major factor explaining the current increase in delinquency rates is the apparent deterioration in underwriting standards beginning in late 2005.  An increasing number of subprime loans were made with layers of additional risk factors, such as a lack of full documentation or very high loan-to-value ratios.  Much of this weakening in underwriting standards happened outside of institutions regulated by the federal banking agencies.  For instance, in 2006, over 45 percent of high-cost first mortgages were originated by independent mortgage companies.³  In addition, prior to late 2005, high demand for housing and rising house prices allowed borrowers to recover from these risks through profitable home sales and refinancings, hiding the weakened underwriting standards from view.  The slowdown in house prices, coupled with shifts in underwriting standards, are the most likely explanation for the pronounced rise we have seen in defaults occurring within a few months of origination, before most borrowers would have experienced significant changes in their payment obligations or in their financial situations.

Looking forward, we expect the substantial payment increases often experienced at the first interest-rate reset to result in higher delinquencies.  From now until the end of next year, each quarter roughly one out of ten borrowers with an adjustable-rate subprime mortgage is scheduled to experience the first rate reset.⁴  In addition, tightening credit conditions as reported in the Federal Reserve's Senior Loan Officer Surveys suggest that refinancing may become more difficult.  In the past, many borrowers experiencing these resets were able to avoid the payment increases by refinancing their mortgages.  The recent declines in house prices and the current tighter credit conditions, however, reduced the viability of this option for significant numbers of borrowers.

The Federal Reserve's Response to Problems in the Subprime Market
As I testified before this Committee in October, the Federal Reserve is actively working to respond to these challenges.  If the benefits of homeownership are to be realized, we believe that homeownership must be sustainable and that access to responsible lending be available for consumers.  To achieve this, the Board believes that there must be appropriate consumer protection and responsible lending to traditionally underserved borrowers.  Accordingly, we continue to coordinate with other federal and state agencies, and consult with consumer advocates, lenders, investors, and others.  We take these issues very seriously, and, along with the other federal banking regulators, began issuing guidance on subprime lending in 1999 for the institutions we regulate.  We significantly expanded that guidance in 2001, issued guidance on non-traditional mortgage products (such as payment-option and interest-only loans) in 2006, and issued guidance on adjustable-rate subprime mortgages earlier this year.  I would like to take this opportunity to share a brief update on some of the work that the Federal Reserve is undertaking on these issues. 

Coordinated enforcement of consumer protection laws

First, the enforcement of consumer protection laws and regulations is critical and the Federal Reserve enforces these measures through oversight of the institutions it examines.  As the mortgage industry has diversified, increasing coordination among regulators has been helpful.  In particular, our need to cooperate with state bank regulators has increased in importance, and we have responded to that need.  In that vein, we launched a cooperative pilot project with other federal and state agencies to conduct reviews of certain non-depository lenders involved in the subprime market.

The reviews will evaluate underwriting standards, risk-management strategies, and compliance with certain consumer protection laws and regulations.  This initiative brings together the Federal Reserve, the Office of Thrift Supervision, the Federal Trade Commission, and state agencies represented by the Conference of State Banking Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).  The companies being reviewed include those that are supervised by the federal agencies, as well as independent entities that are licensed by the states. 

Loss mitigation efforts

Second, the Board, along with the other federal financial agencies, has worked to guide federally supervised institutions as they deal with mortgage defaults and delinquencies.  The federal financial institution agencies issued a Statement on Working with Mortgage Borrowers in April 2007, and, in cooperation with the CSBS, a Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages in September 2007.  Together, these statements encourage institutions to work proactively with borrowers who may be facing delinquency or foreclosure, and encourage servicers of securitized residential mortgages to determine the full extent of their authority to restructure failing loans and to pursue appropriate loss mitigation strategies.

The Board continues to encourage servicers and investors to make every effort to keep troubled borrowers in their homes. I, and other members of the Board, have had numerous meetings in recent months with a wide array of market participants and consumer advocates to understand the complexity of the issues and to encourage appropriate responses.  Each of the twelve Federal Reserve Banks has been working with financial institutions and community groups around the country to address challenges posed by loan performance problems.  And the Federal Reserve Board's staff has been working with consumer and community affairs groups throughout the Federal Reserve System to help identify localities that are most at risk of high foreclosures, with the intent to help local groups better focus their outreach efforts to borrowers.

We have also been talking with lenders, servicers and investors, independently as well as through the Hope Now alliance, to support prudent efforts to reach out to as many borrowers as possible.  Many servicers have established procedures to identify segments of borrowers who are current but could face trouble at reset, to contact these borrowers ahead of the reset, and to systematically evaluate the ability of borrowers to make higher payments.  On the basis of this analysis, they can sometimes present prudent refinancing or loan modification alternatives to the borrower.  Other efforts, such as the FHASecure product and various state and local efforts, can play a role in avoiding foreclosure.  As I will discuss further in a moment, we support these efforts because foreclosure is generally the worst possible option for consumers, investors, and communities, and should be avoided whenever other viable options exist.  Changes to existing terms, however, should not be made lightly, should be consistent with safe and sound lending practices, and should not be made when they are only delaying losses to investors and consumers.  In short, we should pursue sustainable solutions. 

Consumer protection regulations

Finally, the Board continues to work toward more effective consumer protection rules.  We will soon begin extensive consumer testing to ensure that new disclosures are effective and comprehensible.  Later this month, we will propose changes to the Truth in Lending Act (TILA) rules to require earlier disclosures by lenders and to address concerns about misleading mortgage loan advertisements.

The Board recognizes, however, that improved disclosures are necessary but not sufficient to address the problems.  In addition to these actions, therefore, the Federal Reserve will exercise its rulemaking authority under the Home Ownership and Equity Protection Act (HOEPA) to address unfair or deceptive mortgage lending practices.  At the same time we propose the TILA rule changes on advertising and timing of disclosures, we will issue, for public comment, significant new rules that would apply to subprime loans offered by all mortgage lenders.  In formulating our proposal, we are looking closely at practices in the subprime mortgage market, such as prepayment penalties, failure to offer escrow accounts for taxes and insurance, stated-income and low-documentation lending, and the failure to give adequate consideration to a borrower's ability to repay. 

I can assure you that our proposed rules will be based on detailed analyses of the issues and our statutory authority to address them, extraordinary outreach efforts to gather a wide range of information and opinions, and attempts to balance the needs of adequately protecting consumers and maintaining responsible lending markets.  The rules will reflect input obtained through public meetings in 2006 and a hearing that dealt specifically with these issues that I chaired this past June.  We also considered nearly 100 comment letters, following the June meeting, and consulted with other federal and state agencies and our own Consumer Advisory Council.  Finally, we have continued to meet with, and listen to informed opinions from, consumer groups, the financial services industry, lawmakers, and others to ensure that our proposed rules are likely to achieve the goal of adequate consumer protection without shutting off access to responsible credit.

Legislative Responses
Congress has expressed understandable and appropriate concern about subprime lending and the challenges in the mortgage market more generally.  We commend leaders in Congress who are looking into these problems and wrestling with the challenges of addressing abusive lending while encouraging responsible lending. 

The Mortgage Reform and Anti-Predatory Lending Act of 2007, which was passed by the House of Representatives last month, would extend additional oversight and consumer protections to the market.  We were asked in today's testimony to comment on two issues, not addressed in the current version of the Act, that could be addressed through amendments or other actions.

Loan modifications

One issue is the possible legal exposure of servicers of mortgages who enter into loan modifications or workout plans.  Because loan servicers play a critical role in implementing possible loss mitigation strategies, this is a timely and important question. 

We believe that investors and servicers generally want to work with borrowers to avoid foreclosure.  Prudent loss mitigation techniques that avoid foreclosure not only help homeowners, they are usually cost-effective for investors.  Borrowers who have been current in their payments but could default after reset, for instance, may be able to work with their lender or servicer to adjust their payments or otherwise change their loans to make them more manageable.  Working with borrowers before they experience payment problems has other benefits; for instance, late payments will not have affected such borrowers' credit scores, preserving a wider range of options including refinancing.  Such proactive outreach by servicers may mean the difference between loan payment and default, particularly for lower-income families who may have little financial cushion. 

Given the substantial number of resets expected from now through the end of 2008, it is in the interest of the industry to go further than it has historically to join together and explore collaborative, creative efforts to develop prudent loan modification programs and other assistance to help large groups of borrowers systematically.  Such programs can streamline and speed the process of anticipating and addressing delinquent loans, reduce transaction costs, and provide guidance to borrowers and to mortgage counselors.  Many servicers are, in fact, working with counselors who can play a crucial role in helping homeowners, many of whom do not even communicate with their servicers out of fear, embarrassment, or misinformation about their options.  Loan modification programs should be a bottom-up approach designed to balance the needs of all parties, and we are encouraged by the progress being made by the industry in advancing such programs. 

Because systematic approaches to dealing with troubled loans are often likely to lead to better aggregate investor returns than foreclosures, we are encouraged by industry efforts to pursue these approaches.  When servicers modify loans, however, they may face potential litigation risk from investors because of their contractual obligations under the servicing agreements.  One particular source of litigation risk, we understand, may be that different asset classes have conflicting interests.  Therefore, we encourage ongoing industry efforts to agree to standards for addressing these issues.  We are hopeful that the industry can resolve these conflicts on a consensual basis so that they do not preclude servicers from taking actions that are in the overall best interests of consumers and the industry.

More generally, the Board supports efforts by the industry and others to develop reasonable and standardized approaches to dealing with these challenges.  Such approaches, when applied consistently and predictably, can reduce uncertainty and ultimately help the markets function.  Prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower, but there may be instances when such arrangements are not prudent or appropriate.  In trying to help homeowners, we must also be careful to recognize the existing legal rights of investors, avoid actions that may have the unintended consequence of disrupting the orderly functioning of the market, or unnecessarily reducing future access to credit.  Provisions intended to immunize servicers from liability should be crafted to avoid creating moral hazard of parties disregarding their contractual obligations, which would ultimately have negative impacts for markets and consumers.  Sustainable solutions, and not those that simply hide for the short term real repayment challenges, should be our goal. 

Patterns or practices of violations

A second issue is the possible imposition of civil money penalties when the enforcement agencies find that there is a pattern or practice of violations.  Penalties collected would be used to establish a trust fund for those consumers whose interests had been harmed but who lack a remedy in the event, for instance, that the responsible party has gone out of business.

The proper magnitude for any such penalties, or under what circumstances they should be imposed, is Congress' decision to make.  As a general rule, the Board believes that penalties for any violation of law should be sufficient to deter the prohibited conduct, and also reasonably related to the injury caused by the violation.  Penalties that are clearly articulated, and that reasonably match the magnitude of the violation, are the most appropriate and effective forms of deterrence.  

We would recommend that the amount of such civil money penalties, if imposed, be given a ceiling as well as a floor because of the market uncertainty that can be introduced by open-ended liability.  We would also suggest that some discretion in the actual amount of the penalty, within such a range, be given to the enforcing agencies.  This sort of flexibility in enforcement would help the agencies adjust the punishment to fit the infraction.

The proposed increase in civil money penalties draws attention to the critical role that enforcement plays in ensuring compliance with the new responsibilities enacted by Congress.  But the effectiveness of increased penalties can be diminished by a lack of enforcement resources.  As Congress weighs the merits of the bill and possible amendments, we would encourage you to also look at the resource needs of the agencies that are authorized to take enforcement actions to ensure that sufficient resources for this important role are available.

Conclusion
The Board recognizes the magnitude of the challenges facing mortgage borrowers today.  We understand the uncertainty and harm being experienced by consumers across the country as the housing market challenges continue.  We are engaged in an array of activities to respond to these concerns.  In coming weeks, we will propose new rules regarding advertising, the timing of disclosures, and practices that we find to be unfair or deceptive under our HOEPA authority, all of which we believe will offer increasing protection to consumers.  We look forward to continuing to work with Congress to achieve sustainable solutions to challenges in the mortgage market. 

Footnotes

1.  Reuters/University of Michigan Survey of Consumers, November 2007. Return to text

2.  Kristopher Gerardi, Adam Hale Shapiro, and Paul Willen, "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures,” Federal Reserve Bank of Boston Working Paper 07-15, 2007. Return to text

3.  2006 Home Mortgage Disclosure Act data. Return to text

4.  Federal Reserve Board staff calculations based on data from First American LoanPerformance. Return to text

Real Estate Terms (the J's)

joint tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

judgment lien
A lien on the property of a debtor resulting from the decree of a court.

judicial foreclosure
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

jumbo loan
A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a nonconforming loan.

Real Estate Terms (the I's)

income property
Real estate developed or improved to produce income.

index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.

in-file credit report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

inflation
An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

initial interest rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."

installment
The regular periodic payment that a borrower agrees to make to a lender.

installment loan
Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

insurable title
A property title that a title insurance company agrees to insure against defects and disputes.

insurance
A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

insurance binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

insured mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

interest
The fee charged for borrowing money.

interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

interest rate
The rate of interest in effect for the monthly payment due.

interest rate buydown plan
An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.

interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

investment property
A property that is not occupied by the owner.

IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

Real Estate Terms (the H's)

hazard insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

Home Equity Conversion Mortgage (HECM)
A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.

home equity line of credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

home inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

HomeKeeper_SM
Fannie Mae's adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.

homeowners' association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

homeowner's warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

HomeStyle® Mortgage Loan
A mortgage that enables eligible borrowers to obtain financing to remodel, repair, and upgrade their existing homes or homes that they are purchasing. The financing takes the form of a conventional second mortgage or a Federal Housing Administration (FHA) Section 203(k) first mortgage.

housing expense ratio
The percentage of gross monthly income that goes toward paying housing expenses.

HUD median income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

Purchase Negotiations in Real Estate

If you are selling your home, you should be prepared for the day your first offer comes in. When your Real Estate Agent calls to say there is an offer on your home, you will naturally get excited. When your agent describes the offer, you will probably experience an adrenaline rush. Whether the offer is good or bad, you should just remain calm--and discuss a counter-offer with your agent. The negotiations of a purchase begin with the buyer's ideal terms and a counter offer that communicates the seller's ideal terms.

A good agent will look beyond the price when evaluating an offer. If the buyers' financial qualifications are shaky or the offer includes potentially problematic terms or conditions, your Real Estate Agent should be there to minimize any risk to you and to address these items in your counter-offer. Your agent's job is not to make a decision for you, but to be sure that you understand fully what the offer includes and what is expected.

Your Real Estate Agent will be able to give you advice based on the current market trends in your area.  Remeber, when inventory is heavy there are many more homes than buyers and that does not have a positive impact on home prices.

The First Real Estate Offer

Often the first offer to come in is the best one. When a house is fresh on the market, there is usually a rush of activity and the buyers who see it during the first thirty days are likely to be the most interested. While your home is new on the market, it will receive the most exposure, so the chances of finding a serious buyer are greater during this period of time.

In the current market, if you are fortunate enough to receive an offer right away, you will probably be better off if you accept it and work on resolving any issues that arise relative to price and terms.

Responding to Low Offers in Real Estate

The beginning of negotiations is usually the end of many months of hard work for the buyer or seller. The work ahead requires skill in order to maintain a strong position.

Sellers can lose their advantage if they do not counter an offer that a buyer has made. Even if the opening offer is beneath what the seller feels is reasonable, it is advisable for the seller to respond with a slight reduction from the asking price. The most important component in negotiating is good communication.

The best way to handle a low offer is to counter it with definite terms that are favorable to the seller. A counter offer has two advantages: 1) it keeps the buyer interested, and 2) it moves the negotiation forward and gives the buyer the opportunity to submit another offer that the seller is more likely to prefer.

Is First Always Best

Your home has been listed for just a few days, and your Real Estate Agent calls with great news. The people who looked at the house last night have come in with an offer to buy it! When the agents arrive to present the offer, you are excited and hopeful. As they explain the price and terms, however, you feel that the price is a little too low and that the offer contains some terms that will be inconvenient for you to meet. Should you try to work it out or wait for something better? Work it out!

Often the first offer to come in is the best one. When a house is fresh on the market, there is usually a flurry of activity and the buyers who see it during the first few days of the listing are likely to be very interested. If you are fortunate enough to get a solid offer right away, it will probably be to your advantage to accept it or try to work out a compromise.

Accepting An Offer in Real Estate

Your Real Estate Agent has just brought you an offer on your home, and you want to think about it. You would like your agent to contact the other people who have shown an interest in your home. Whether your home has been listed for three days or three months, there is always a desire to hold out for a better offer, and sellers can feel considerable resistance to making a decision.

Some buyers will include in the offer a deadline for getting a response, but the seller should respond to an offer quickly even if a deadline is not specified. The interval between when an offer is submitted and when a response is made is a crucial period because the buyers are free to withdraw from the transaction during this time. Even though they are mentally landscaping your yard and arranging their things in your rooms, they may also be afraid that they will get the house, and are, therefore, extremely vulnerable to buyers' remorse.

A Tough Sale in Real Estate

Here is a situation that many buyers have experienced. After searching for weeks, you found the perfect home and you made a very low offer. The sellers responded with a counter-offer which was several thousand dollars lower than their asking price. You came back with a slightly higher bid, and they came down some more. After many days of back and forth, you finally reached a meeting of the minds, and you are very pleased with the results.

If you have driven a hard bargain in purchasing a house, be sensitive to the seller's feelings as the transaction proceeds. They may be suffering from the impact of a rough negotiation. Try to minimize any additional requests you might make of the sellers. As you move toward your closing date, keep in mind that the sellers may not share your elation. If you are considerate and avoid making excessive demands, you can help everyone walk away from the transaction feeling satisfied with the outcome.

First Impressions in Real Estate

Good curb appeal is a major plus when it comes to marketing a home. A little bit of work on the front of your home can pay big dividends.

When a potential buyer pulls up in front of your house, their first impression is absolutely crucial. Sometimes buyers won't even look at a home with droopy shutters, sagging gutters, peeling paint and a bumper crop of dandelions in the front yard. Or they might go in expecting to find a "fixer-upper" that could be purchased at a bargain price.

If a house looks neat and cared for from the street, the initial good impression will carry over as the buyers step inside. It is not necessary to hire a professional landscaper, but listen to your Real Estate Agent's suggestions when you list your home.

Local nurseries can help you select blooming plants that will thrive in your area. Keep the lawn mowed, and regardless of the season, take care of exterior maintenance.

Strong curb appeal will help your home sell more quickly and for top dollar.

In Real Estate Brighter is Better

Sometimes a Real Estate Agent will walk into a home that is basically attractive, yet communicates the feeling that something is lacking. Then the agent notices that all of the drapes are closed, interior lights are off and there is a lot of overgrown shrubbery blocking the sunlight that might otherwise pour through the windows.

A dark house is not as appealing to most buyers as one that is flooded with light. As a part of your preparations to market your home, try to maximize the light in your home. Make sure that all the windows are clean and the drapes are open when the house is being shown.

A fresh coat of light paint can do a lot to brighten up the interior. If your house has very dark paneling, and you do not wish to repaint the walls, you may want to consider adding additional lamps.

Your Real Estate Agent may be able to provide other simple and cost-effective ideas about how to maximize your home's appeal.

Improving To Sell Your Real Estate

Many homeowners wait until they are ready to put their home on the market before painting, planting flowers, and making other improvements to their homes. After completing these improvements, they may be so delighted with the results that they wish they had done the work on their home sooner in order to enjoy the changes.

Whether you have recently purchased a home or have been settled in your home for several years, you should consider evaluating the condition of your house as if you planned to sell it soon.

Maximize your home's "curb appeal" now, so that you will reap the benefits every time you pull into your driveway. Plant those flowers and bulbs and you will have your fresh flowers on your own dining room table. Add new window treatments to freshen the appearance of the main rooms. If your house needs an upgraded kitchen, go ahead with the renovation. You will enhance your whole neighborhood and experience the pleasure of living in a more beautiful and fully functional home.

Upgrade Before You Sell

Real Estate Agents sometimes receive calls from homeowners asking for advice on what they should do to prepare their house to go on the market. They may have settled for living in a "less than optimal" circumstance for years, and are now going to spend money to make it nice for someone else to enjoy.

If you are considering painting, updating the kitchen, landscaping, or making any other improvements that will increase your home's re-sale value, think about making those improvements while you are still there to enjoy them. Create your own dream kitchen, master suite or spa, build an outdoor living room or restore your wood floors now. Improving your property will make your home more enjoyable, help maintain the property values in your neighborhood, and expedite the sale of your home when you are ready for a move.

An Attractive Approach to Selling Your Home

First impressions count! Do you remember your first impressions of your present home? What made you want to buy it? The features or amenities that first attracted you are probably the same ones that will sell your home.

Prospective buyers' first impression of your home is the feeling they get when approaching your property. Each home has its own unique features--trees and shrubs which soften structural lines, unusual architectural features, such as bay windows, or a beautifully landscaped entrance. Whether your home is modern or elegant traditional, the approach to your home makes a statement. Since most buyers are looking for a home that has both charm and class, it pays to keep your grounds well-maintained and attractive.

If the exterior appearance of your home and yard is pleasing, buyers will want to see the interior.

Landscaping Your Home FOR SALE

Many buyers call a real estate office for information on a home after reading an appealing description of the property, or seeing a photograph of the exterior of the home on the real estates website. The exterior of your house and your yard will create the first impression for prospective buyers when they drive up to your house. Spending money on landscaping can bring you excellent returns when you sell your home.

You don't have to spend a fortune or develop an elaborate landscaping plan to make your front yard look terrific. If the yard is neatly mowed and trimmed and there are colorful plants blooming, the outside appearance of your home will make a good impression. A local nursery can help you select plants that will grow well and require minimal care. If you are planning to make any permanent changes or additions to your property, ask for advice from your Real Estate Agent.

Land Lovers in Real Estate

Great curb appeal goes a long way toward attracting buyers to a home that is for sale. Many of our sales have been generated by a "For Sale" sign in front of a home that is beautifully landscaped. Prospective buyers who admire a home's exterior often prove to be among the most interested in the property.

An investment in attractive landscaping can help your home sell more quickly. If you have a moderately green thumb, you can get a lot of free advice from local nurseries. They can give you tips on what will look good in your yard, considering the time of year, the available light, and the type of plants that do well in the area. You will probably be able to choose from many attractive low-maintenance plants that will add color and vitality to your yard. Whatever the season, a few dollars invested in your front yard will usually reap much greater benefits than your original investment.

A Beautiful Yard (Preparing for that Real Estate Sale)

Many people wait until they are about to sell their home before they put energy and attention into improving the landscaping. Then in a desperate attempt to create instant curb appeal, they call in a professional landscaper and spend a lot of money making the yard beautiful for the next owners to enjoy.

Why wait until you are ready to move to enhance your surroundings? Even if you don't want to take on a major project, you can plant a few bushes and bulbs each year. You can get plants that bloom at different times of the year, many of which don't need a tremendous amount of care. There are several benefits to this approach. You will be able to enjoy your improvements yourself, and you will profit more from your sale if you haven't invested a lot of money in your yard right before the transaction. Well-landscaped lawns tend to increase the real estate values in the whole neighborhood, and can result in a more rapid increase in the equity you have in your home!

Trees Improve Energy Efficiency

Mature trees add "curb appeal" to a property and can make a home more energy efficient. Planted at the edges of a building, a tree's broad canopy of leaves softens the hard lines of architecture and offers shade. Trees absorb light reflected from the roof and decrease the air temperature surrounding your home through evaporation of moisture.

The positioning of trees and shrubs around your home has a significant effect on how much you'll be paying to heat and cool your house each month. According to the U.S. Department of Energy, even one strategically placed tree can reduce your heating and cooling bill up to 25 percent. In general, deciduous trees planted on the south and west sides of the house keep the home cool during the summer and allow low-angle sun into the home during the winter. If you live on a windy hill or coastal bluff, planting evergreen trees or shrubs on the north and west sides of your structure will help protect your home from winter gusts and storms.

Consult your landscape designer for advice about your particular property.

Grooming Your Yard for a Real Estate Sale

Does your yard have a freshly-painted fence, a smooth, green lawn and a well-trimmed hedge? A well-groomed yard is one of the most important indicators of proud ownership. Neighborhood pride can pay impressive dividends to homeowners.

Even if you don't plan to move right away, grooming and landscaping your yard could help your neighbors sell their home. Yard work and gardening can be relaxing and rewarding hobbies that can pay off in beautiful flowers--and higher property values. If everyone does their share to make the neighborhood look terrific, the demand for homes like yours will increase among prospective buyers, and nearby homes will also sell for top dollar. When you are ready to sell or refinance, the comparable homes in your neighborhood will support a higher price for your home.

Real Estate Terms (the F's)

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae
Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. Over the past 30 years, Fannie Mae has provided nearly $2.5 trillion of mortgage financing for over 30 million families.

Fannie Mae's Community Home Buyer's Program_SM
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Fannie 97®
A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with either a 25- or 30-year term. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

fee simple
The greatest possible interest a person can have in real estate.

fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA coinsured mortgage
A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor's default.

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.

first mortgage
A mortgage that is the primary lien against a property.

fixed installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mrotgage debt.

forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.

401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans -- monies must be repaid to avoid serious penalty charges.

fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Finding A Real Estate Agent to Assist YOU

Finding an experienced, reliable Real Estate Agent whom you like and trust is the first step in locating your new home. Here is an approach to finding the right agent.

Call or stop by a real estate office and ask to speak with the manager. Describe the type of home you are looking for. The manager can refer you to an agent who knows that market very well. You might also use weekend "open houses" as opportunities to look for a Real Estate Agent , as well as a new home. It is really a matter of chemistry! If you meet someone who is knowledgeable and with whom you feel comfortable, call that person!

Once you establish a strong working relationship with a Real Estate Agent , your agent can show you a number of homes for sale, even if they are listed with other companies. Often the agent can show you a property as soon as it is placed on the market. Many of the best homes never even make it to the weekend classified section of the newspaper!

Work with one agent so that they give you 100% of their time in effort in assisting you in making your best decision.  Loyalty in real estate goes a long way!

Need additional help finding a TOP Professional Real Estate Agent ?  Just go to www.askaboutrealestate.net and request the best in your area. 

Check it out!

Real Estate 101 for a Successful Sale - "If It Is Broken Fix It"

Most houses have a few "little" problems, like leaking faucets, a stove burner that won't light, or electrical outlets with too much "spark". These defects may not seem very important--unless your house is about to go on the market.

Real Estate Agents rarely have difficulty getting sellers to agree to paint, replace worn carpets or plant a few flowers in the front yard. These kinds of repairs obviously increase the overall appeal of the property. However, if any of the major systems in your home need maintenance, it is also prudent to have the necessary repairs made. Have your furnace, central air-conditioning system, plumbing and wiring checked as part of your pre-marketing efforts. The best rule is--if it's broken, fix it!

The purchase agreement requires that a house be conveyed with all the systems in working order, and most buyers will bring in a home inspector to identify any potential problems. During the period of time between the "meeting of the minds" and the removal of the inspection contingencies, the buyers are the most vulnerable to an attack of buyer's remorse. This is also the time when anything that hasn't been repaired could become a major issue.

Houses and Pets in a Real Estate Transaction

Many Real Estate Agents are animal lovers and have pets of our own, but we have all shared stories of having our fingers or ankles nipped by furry creatures during a showing. We have opened the front door to the home we are showing only to have a purebred Persian kitten scoot toward the nearest busy street.

If you have pets and are going to put your house on the market, be sure to work out the showing arrangements carefully. It is important for your  Real Estate Agent to be able to communicate to their colleagues what to expect when they pass through your front door. It is rare for pets to pose significant problems, but big dogs can be menacing. Buyers or agents may be allergic or even a little phobic about dogs or cats.

It is difficult to get a buyer excited about your home if he or she is sneezing continuously or unwilling to cross the threshold because your dog is barking away intruders. If your agent knows there might be a problem, they can arrange ahead of time for you to walk the dog, vacuum the cat dander or do whatever is necessary to make sure that the showing goes smoothly.

You might want to consider placing  the pet in an on site kennel during the time the home is on the market or make plans to remove the pet while showing are being held.  Set yourself up to have your buyers remember your home for all the right reasons and NOT the pet encounter.

Offers and Counter Offers in Real Estate

Many of the offers Real Estate Agents submit for prospective buyers aren't exactly what the sellers want. The price may be lower than they are asking or there might be terms included in the offer that will require negotiation. What happens after the offer is submitted?

The seller's Real Estate Agents will present the offer to the sellers, along with the buyer's qualifications. If the sellers accept the offer, then a purchase agreement is written and signed by both parties. If the sellers counter the offer, the next action is initiated by the buyers when they make a response, either accepting the counter offer or countering it with yet another figure. If you want to buy a particular house, your chances of succeeding are greater if your initial offer is as close to the asking price as possible. You could save money by engaging in lengthy negotiations, but you run the risk of losing the home if a more attractive offer comes in from another buyer.

The job of the Real Estate Agent is to take the emotion out of the equation and deal with the material facts of the offer.  Most times agents are there to give solid advice based on facts and experience; while at the same time buyers and sellers are letting emotion get in the way of a good decision. 

Every Real Estate Agent has a story about an offer that did not go together because pride and emotion got in the way.  Don't let a small difference prevent your sale from success.  Ask your Real Estate Agent for their advice and trust their experience!

Evaluating Multiple Bids in your Home Sale

Competition for homes is high in hot markets. When you are a seller faced with multiple offers on your home, how do you choose the best one? Your Real Estate Agent can help you compare and contrast the terms of each proposal.

Look at the price of each offer and evaluate your net profit. Next, consider the terms of each contract. How "clean" is each offer? Are there contingencies that affect the sale, such as the buyers needing to sell another property before they can finalize the purchase of your home? Can you work out a mutually agreeable date for you to move out and for the buyers to move in? Can you get reasonable assurances that the buyers will be able to qualify for the financing they will need?

Your Real Estate Agent can help you weigh the relative merits of each offer, so that you can accept--or counter--the best one, and line up another as an alternative.

Clean Offers in Real Estate

You have found a house that makes your heart skip a beat--it is in the right location and has all the amenities you want. The price is the only thing that is keeping you from making an offer, because you feel that it is more than you can afford. How can you maximize the possibility that the owners will accept an offer that is much lower than their asking price?

The first thing you should do is to make the offer as "clean" as possible by not asking for special contingencies. Avoid making demands on the sellers for minor repairs, such as cutting down the dead tree in the back yard or leaving custom drapes. Be as flexible as possible about scheduling the move-in date to accommodate the seller's plans. Finally, you can offer a larger-than-usual deposit to persuade the sellers that you are a serious buyer and to make it harder for them to "just say no". Each situation is different, but the "cleaner" the offer, the more likely the sellers are to accept it.

REAL ESTATE TERMS (the E's)

earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

easement
A right of way giving persons other than the owner access to or over a property.

effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

eminent domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Employer-assisted housing
A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

encroachment
An improvement that intrudes illegally on another’s property.

encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

endorser
A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow account
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

escrow payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

eviction
The lawful expulsion of an occupant from real property.

examination of title
The report on the title of a property from the public records or an abstract of the title.

exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

Know Your Real Estate or Home Price Range

As a homebuyer, you may have found the perfect new house for your growing family, but what if it is a little out of your price range? You might list your current home for more than it is worth and be lucky enough to find a qualified buyer who is willing to pay the price, but it is impossible to know in advance what your home will sell for.

If you want to sell your home quickly, have a frank and detailed conversation with your Real Estate Agent to determine the best price for the house. Setting your price within 5% of the fair market value of your home greatly increases your chances of getting solid offers that will result in a relatively quick sale.

Don't buy and sell so close to your target amount that you become anxious when the numbers don't meet your expectations. There may be other approaches, such as adjustable rate mortgages or owner financing, to increase your buying power and get you into that new home. When you are selling one home and buying another, you will need more than good luck. You will need a highly professional and experienced Real Estate Agent who can give you solid advice on how to make the transaction work for your particular requirements.

Negotiating Factors in Real Estate

Negotiations for the sale of a home can be affected by emotional factors. For example, it is easy to be offended by someone who is making an offer on your property. Even if the buyers love your house, they are trying to negotiate the best possible price and terms. They probably will not let you know how much they want your home until they have negotiated a purchase agreement.

Buyers almost never write offers that please the sellers entirely. Offers and counter offers may be traded back and forth over days or weeks. Terms of the sale will be discussed and deadlines will be set. When there is finally a meeting of the minds, both sides may feel relieved but exhausted by the process. One of a Real Estate Agent's most important jobs is to act as the intermediary during such negotiations. With your agents knowledge of financing, negotiation procedures, and the tax laws affecting real estate sales, agents come up with creative solutions to the challenges that may arise.

Low Offers in Real Estate

In every real estate market, there are buyers who make offers that are far below the current market value of the property. How should you react if your agent brings you one of these "low ball" offers? Here are some scenarios for the seller.

If your home is priced very close to its fair market value, you can simply reject the offer and be reasonably confident that a better one will appear. However, if you have priced your home higher than other comparable homes in the neighborhood, the offer may not be unreasonable.

Ask your Real Estate Agent for advice about the buyer's overall strategy. Do they really want your house or will they move on to another property if you make a counter offer? Can they afford to pay a higher price? Are there ways to close the gap with a small owner take-back, or with terms that will increase your bottom line? Take a hard look at your asking price and explore all your options before saying "no", especially if you are selling in a buyer's market.

Why use a 1031 Exchange?

Tax-free growth of your real property investment is the tremendous advantage provided by a 1031 exchange.

A 1031 exchange allows you to:

A.   Legally Avoid Capital Gains Taxes and Use All of Your Profits as You Step Up and Expand Your Real Property Ownership.

B.  Effectively Stabilize and Increase Your Stream of Income.

C.  Decrease Your Property Management Expenses and Time Commitment.

What to know about buying a Vacation Home!

Buying a vacation or second home can be a stressful experience, especially during the hectic holiday season, however it doesn't have to be. Follow these tips and ideas and you will be on your way to knowing everything you will need to buy your dream getaway.

1.  The first task in buying a vacation home is determining its affordability. Unless you have saved the money in advance, chances are you will need a second mortgage. Go to your bank before you look and determine the amount you are pre-approved for. Remember though, a second mortgage can be a lot to handle, even if you plan on renting it out. Also, keep in mind that banks often require a larger down payment for second mortgages, sometimes up to 25 percent. Be sure to add monthly maintenance costs and, if applicable, condo association fees into the cost of your new home.

2.  Once you are approved for an amount, you can begin to look for your new home, but make sure you do your research. Look into both houses and condos and determine the pros and cons of each type. Think about how you plan on using your new vacation home and how often you will be staying there. Also, research current housing rates and the expected appreciation rates for both homes and condos in the area you are looking.

3.  Location is also an important factor when buying a vacation home. If you don't already have a location in mind, look for a spot that you'll enjoy, whether it's a tropical oasis or a mountain resort. Also, depending on when and how often you will use your new getaway, look into the year-around climate and the time it takes to travel to and from your new destination.

4.  Often times, vacation home owners will rent their property out as a way to soften the blow of monthly costs. If you plan on doing this, it's customary to charge renters about 10 percent more than your monthly mortgage cost, in order to cover all the added maintenance. Renting a vacation home also means you will have to determine the time in which you want to stay there in advance.

By following these simple tips and ideas you will be on your way to owning a relaxing vacation home that you will enjoy for years to come. 

When in question, feel free to contact a Professional Real Estate Agent for their advice and experience.  Let an expert guide you through the process and enjoy!

Winterizing Your Home or Real Estate

If you're like most homeowners, you probably dread opening your energy bills during winter months. But there are ways to prevent energy loss and keep your home well-heated. Follow these tips and watch the cost of your energy bills drop this winter.

Set Your Thermostat
In the winter, your thermostat really only needs to be set at about 62°F. If you feel a little chilled, put on a cozy sweater or some fleece-lined pants. And nothing beats a warm cup of hot chocolate to keep you toasty.

Plug Up Leaks
To find out if you're losing heat through windows and doors, conduct a candle test. Place a lit candle by the edges of your windows and doors and if the flame flickers — or even worse, goes out completely — you've got a heat-loss problem! To plug up these leaks, apply new caulking to windows or install storm doors to keep cold air out. Also, never heat your home through your fireplace. The flute of the fireplace is one of the biggest sources of heat loss in your home.

Remember Energy Efficiency
Consider installing energy-efficient Energy Star® appliances as well as compact fluorescent light bulbs. Not only will these appliances last longer than regular models, but they also use far less energy, shaving valuable dollars off your energy bill each month.

Adjust Your Water Heater
Many manufacturers set the thermostats at 140°F, but 120°F is usually hot enough for all your hot water needs. If your water gets so hot that you have to mix it with cold water to use it, you're wasting money.

Get Time-of-Use Meters
If you don't already know about time-of-use meters, you might be interested in checking them out. It's kind of like calling during peak hours to save on your cell phone bill. Energy used during certain peak periods would cost more, while energy used outside of those periods would cost less. So if you wait until 9 p.m. to do laundry or run your dishwasher, you'll save money! Check with your electric provider to see if they offer time-of-use meters and what their set peak hours are.

Keep in mind these tips and those scary winter energy bills won't be so shocking this season.

Why Is It Not Selling

If you are selling your home and it has been on the market for several months, you might start to wonder why it just isn't moving. How can you introduce some extra energy into the sale?

The first thing you should do is have a frank talk with your Real Estate Agent in order to get feedback from prospective buyers who have seen your home, and other agents who have shown your property.

• Does your home look its best?
• Is it accessible for agents to show on short notice?
• Is the price in line with the rest of the market?
• Do you need to consider neutralizing any strong decorating features that may not have wide appeal?

Getting your home sold is a collaborative effort between you and your Real Estate Agent. It is important for your agent to market your property aggressively, but you must do your part to ensure that buyers see a home that is as appealing as it can be.

Ask your agent for any new ideas that will create results.  Be open to whatever the causual effect of not selling is.  With an ample inventory on the market at the same time, your property must stand out, and not for the wrong reasons. 

Leaving yourself room to negoiate is not a good game plan if there is no one left to negoiate with.  Price sells, just ask any successful seller in the current market!

Locating A Buyer in Real Estate

Listing your home with a Professional Real Estate Agent gives you the advantage of having a team of experts apply themselves to the task of finding you a buyer as quickly as possible. In the process, the agents try to arrange showing appointments that are convenient to both parties, but it does not always work out that way.

Last-minute appointments are sometimes necessary because buyers who are relocating from other areas are often on tight schedules. This can be annoying to sellers unless they understand the nature of the Real Estate Agent's job. When selling homes, we sometimes have to rely on our intuition. Many sales have been consummated as the result of last-minute appointments.

The prospective buyer who is on a very short house hunting trip may need a house now! In this kind of situation, the Real Estate Agent can make things can happen fast! So when the phone rings at the last-minute, keep in mind that the appointment represents an opportunity for the sale.

Keeping Your House Safe

Home safety precautions are always important, but it is especially important to make your home "accident-proof" while it is on the market. Many strangers will be coming through your home who won't be aware of the minor hazards that you and your family instinctively avoid.

Go through your home with an eye for potential hazards. Remove the obstacles that you can and post "watch your head" or "watch your step" signs where they are needed. Look for loose banisters, uneven steps, precariously placed plants, art objects or anything else that could fall on someone, wet spots on bath or kitchen floors, toys that someone might fall over and anything that you have to step over or duck under. Make sure that rugs will not slip, especially those at the bottom of stairs. There aren't many things that will more quickly dampen a buyer's enthusiasm for a house than a bump on the head or an unexpected trip down a flight of stairs.

Water Problems in Real Estate

Sometimes there are defects in a house that the homeowners no longer notice, such as small leaks in the roof or a basement that only gets damp when it rains. When the house is on the market, they don't have a real sense of urgency about having such defects repaired. The Real Estate Agent feels quite differently, however.

When buyers are deciding which houses deserve serious consideration, any kind of water problem may appear to be much more detrimental than it really is. The sellers may regard a damp basement as simply a sign that it's time to clean the gutters or check the soil buildup around the house or a leaking roof as a call for new flashing. But to someone who has never owned a home, these defects can be taken as signs that the house may not fulfill their primary need for shelter from "the elements." Renters may be perfectly willing to live in a home with minor water problems, but buyers are likely to pass up the same house if they think it won't keep them perfectly dry.

The Pheromone Factor in Real Estate

Pheromones are mysterious little chemical sensors that are supposed to have a lot to do with whether or not we are attracted to people. They may also play a big part in the way people react to houses.

If you have a house on the market, it will be important to ensure that the pheromone factor is as high as possible--so that the prospects who come inside will involuntarily pull out their checkbooks and offer to pay your asking price. A good Real Estate Agent can give you some important hints about maximizing your home's ability to attract buyers. This could mean completely airing out every room to eliminate musty odors, or allowing enough time for freshly painted walls to lose that telltale toxic smell.

Unless you are already compulsively neat, you may need to make temporary changes in your housekeeping habits to ensure that your home is both fresh-smelling and sparkling clean. Sometimes this will involve hiring a professional cleaning service. Give your Real Estate Agent the space to speak candidly about what you need to do to make your house looks its best.

Real Estate Terms (the D's)

debt
An amount owed to another. See installment loan and revolving liability.

deed
The legal document conveying title to a property.

deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

delinquency
Failure to make mortgage payments when mortgage payments are due.

deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.

depreciation
A decline in the value of property; the opposite of appreciation.

discount points
See point.

dower
The rights of a widow in the property of her husband at his death.

down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

due-on-transfer provision
This terminology is usually used for second mortgages. See due-on-sale provision.

Some Common Real Estate Terms

In real estate, it's important you understand the terms your Real Estate Agent will discuss with you through your buying or selling process. Understanding key real estate terms will help you save on interest costs, fees and will help you get a lot more home for your money. So what if all you see in terms of ARM, LVT and PITI is alphabet soup? Here are some common real estate terms so you won't be left in the dark.

Here are some common real estate terms and their definitions:

Adjustable rate mortgage: An ARM is a mortgage rate that changes over time as the interest rate changes.

Escrow: A third party wills act as a stakeholder for both buyer and seller according to both parties' instructions. The third party will hold responsibility for handling all paperwork and distribution of funds.

Fixed-Rate Mortgage: Often made for 15 or 30 years, this type of mortgage is based on payments that stay them same throughout the entire term of the loan.

Inspection: A third-party report on the property's overall condition prior to a sale. A buyer may attend the inspection, and demand repairs for any problems reported.

LTV: A loan to value ratio is a figure that tells the lender what percentage of the purchase price the loan will be.

PITI: Stands for principal, interest, taxes and insurance. This is an owner's typical monthly payment.

Point: An amount that is equal to 1 percent of the principal amount of the investment or loan You can either pay points to get your lender to offer you a lower interest rate, or you can refuse to pay and keep the initial interest rate

Purchase Contract: A document wherein the homebuyer will set the price and conditions under which he or she will buy the property and the seller agrees. This is also called a sales contract or agreement for sale.

Title Insurance: Guarantees a return if your investment if a title problem arises after you've taken possession. There are two types of title insurance: 1) Fee title policy — insures owner's title. 2) Mortgage title policy insures the lender for the mortgaged amount. These policies will fluctuate depending on the mortgage amount.

Selling Selling Sold in Real Estate

Although your Real Estate Agent is responsible for marketing your property, it requires a joint effort to get your home sold.

How can you empower your agent? It is very important that you feel absolutely confident in your agent's ability to produce results--no matter what the market is like in your area! This may sound like stating the obvious, but it is important to let your Real Estate Agent know you trust them to get the job done. Support that trust by putting a realistic price tag on the property and keeping it in prime showing condition. Work out showing agreements that will make it easy for agents to preview or show your home. Meet periodically to discuss any feedback from buyers who have seen your home to determine how you can improve its appeal.

Don't hesitate to share any ideas you may have about marketing your home. I will try anything that works, and have received some very good suggestions from clients.

Doing nothing never works, and doing something always takes you a step closer to success!  Don't be afraid to hear the Real Estate Agent's true advice as to what your best options are.  The agent's job is to tell you the truth even when you do not want to hear it.

Good luck with your sale . . . .

An Empty House in Real Estate

There are two schools of thought about whether it is better to show a house empty or with the furnishings in it. An empty house is like a blank canvas, and prospective buyers can more easily imagine what their things would look like in it. But buyers could take the fact that the house is vacant as a sign that the sellers are very anxious to sell and, therefore, might entertain a low offer.

Our recommendations are usually based on how the house would look. Personal taste is highly subjective. Unless your furniture looks really wonderful and is neutral in color and conservative in style, it could distract buyers from the most attractive qualities of your home. The fact that your home is vacant could give it a competitive edge when they make their final selection. Will it attract low offers? It might, but if the price is right, it will attract reasonable offers, too.

Deal with the Defects in a Real Estate Sale

If you are selling a home, the buyers will probably include a home inspection clause in the offer. This will allow them to hire an expert to make sure that the house is structurally sound and all the systems are working properly.

The time to get ready for the home inspection is before you sell your house! Owners usually know about most of the defects in their house, such as plumbing or electrical problems or leaks that occur when it rains. When you decide to put your home on the market, you should repair any defects immediately. Most purchase agreements require sellers to convey the property with all systems and appliances in working order. You won't save money by delaying repairs, and buyers may be frightened away by an inspection report that contains a long list of needed repairs.

Eliminating maintenance as a potential issue in the sale can help you ensure that the transaction goes as smoothly as possible. This is especially important when there is active construction of brand-new homes in the area.

Selling Your Kitchen in a Real Estate Transaction

Most buyers rate an attractive kitchen very high on their priority list when they are looking for a new home. The layout of the kitchen, the amount of counter space and storage, and the age and overall condition of the appliances are all important to them. The kitchen area is basically viewed as the center of nourishment and an important place of family interaction.

Take a discriminating look at your kitchen and consider what you can do to make it a real asset. Repair any plumbing leaks or broken appliances. Scrub the room thoroughly, paying special attention to the range and oven. Clean the refrigerator and place a box of baking soda inside to absorb odors. Simple improvements can sometimes work wonders. Hang some colorful pot holders over the stove or install a new stainless steel or copper exhaust hood. Brighten the windows with new curtains and clear all clutter off the countertops.

You don't need a brand new, high-tech kitchen to impress buyers, but do whatever you can to make your kitchen look as efficient and well-maintained as possible.

Show And Sell (Real Estate)

Real Estate Agents are often asked "What is the best way to show and sell a home?" Almost every agent can tell you a story about meeting with a prospective seller who has just completed a lot of work to prepare their home for the market. It can be difficult for a Real Estate Agents to tell the seller that their renovations were not the best changes to effectively market their home.

If you are considering making any improvements prior to selling your home, the best advice is to consult with your agent before you make any changes. An experienced Real Estate Agents can provide you with information that can help you decide what kind of improvements will set the stage for a sale. Whether it is paint and wallpaper, remodeling the bathrooms, or updating the kitchen, your real estate agent can guide you toward "neutral" choices which can assist the buyer's imagination.

Real Estate TERMS (the C's)

call option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, periodic payment cap, and periodic rate cap.

capital
(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

capital expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.

capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

certificate of deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

certificate of deposit index
An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).

Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

chain of title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

chattel
Another name for personal property.

clear title
A title that is free of liens or legal questions as to ownership of the property.

closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.

closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors® often provide estimates of closing costs to prospective homebuyers.

closing statement
See HUD-1 statement.

cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

coinsurance clause
A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.

collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

common area assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

common law
An unwritten body of law based on general custom in England and used to an extent in the United States.

Community Home Improvement Mortgage Loan®
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community Land Trust Mortgage Loan
An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Community Seconds®
An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

condemnation
The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

condominium hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

contract
An oral or written agreement to do or not to do a certain thing.

conventional mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

cooperative corporation
A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

cooperative mortgages
Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

cooperative project
A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

corporate relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).

covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

credit history
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

credit life insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

creditor
A person to whom money is owed.

credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. See merged credit report.

credit repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

How do you go about finding a mortgage?
                                                                                                                                                                                                                         The commotion of house hunting is finally over. You found just the right house, and your offer has been accepted. It was a great buy. Now, just one more hurdle-getting a loan-and you're home free.
Often, buyers are so eager to get this "final detail" behind them, they rush through this portion of the transaction, and end up with less-than-ideal terms. Borrowers, however, have something lenders want-their business. This positions them to negotiate the best possible price (cost of loan), terms and service.
Let's look at price, or the cost of the loan. The first thing to do is find out what the current rates are, information readily available on the internet, in your newspaper or from your real estate agent. When comparing rates, figure the annual percentage rate (APR), which includes interest, extra fees and costs amortized over the life of the loan. Also determine the number of points, if any, that the lender will charge to make the loan.
(A point is equal to one percent of the loan amount.)
Next, consider what loan options the lender offers. There are six or seven basic types of loans, which vary in their duration. Check how rates are calculated (fixed versus variable), and whether charges are fully amortized over the life of the loan, or whether you'll have to pay points up front and/or balloon payments at the end.
Is there a prepayment penalty clause?
Which terms are best for you depends on such factors as what changes you expect in your income and what you predict will happen in loan rates in the years ahead.
For example, if you only plan to reside in the home for a year or two, starting with a lower Adjustable Rate Mortgage (ARM) might be the best choice. If you have no plans to move, and feel that inflation will rise rapidly, a fixed rate would obviously be better.
Finally, and perhaps most importantly, consider speed and service. Buyers shouldn't have to wait days for approval and weeks for closing just because the lender is slow.
Remember, qualified buyers are great prospects for lenders - so give your business to the lender who demonstrates they not only want it, they deserve it.

How Much House (Real Estate) Can You Afford?
                                                                                                                                                             There are several ways to gauge how much you can afford to spend on a house.
But, before you go house-hunting, get pre-qualified for a mortgage so you'll know
in what price range you can shop.
It is not unusual for first-time buyers to be somewhat baffled about how to estimate what mortgage payment they will be able to handle each month, plus how much money they'll need for a down payment and closing costs.
That's why it is a good idea to get pre-qualified through a lender before you even start to look for a home. Pre-qualification lets a buyer know exactly how much a lender is willing to loan them. With pre-qualification in hand, the buyer can save a lot of time-and frustration.
Pre-qualification does not obligate buyers to take a loan from the lender, nor should it involve any fees (until later, when they actually apply for the loan).
At the same time, you must understand that pre-qualification is not pre-approval for a loan either which is a much more involved formalized process that results in an actual letter of credit from a lending institution for a specific loan. Depending on your unique circumstances, you may wish to consider pre-approval as an option, but it is not necessary-consult with your real estate professional to decide what's right for you.
The less formal process of pre-qualifying on the other hand is a tremendous tool for buyers to have when making an offer. Usually, pre-qualified buyers have an edge when making a purchase offer because the seller knows that the buyer is pre-qualified, and that there is at least one lender ready to make it happen.
In addition, it allows you the flexibility to choose the mortgage that is best for you at the time of actual purchase-which is sometimes months down the road. That can be important given the volatility of interest rates.
When a lender pre-qualifies, they are more concerned about the buyer's paying ability than the price of the property.
For this reason, lenders are interested in more than just a buyer's income. They also want to know how much existing debt a buyer has, what their on-going financial obligations happen to be, and what the buyer's monthly budget looks like.
Lenders use an established debt-to-income ratio, usually between .28 to 1 and .38 to 1, to calculate the amount of the loan they are willing to give to a buyer. For instance, a lender who uses a .3 to 1 debt-to-income ratio has determined that payments toward debt reduction-including existing debt plus new debt associated with buying a home-cannot be more than 30% of they buyer's gross monthly income.
An important factor that may influence a lender to authorize a loan with a higher debt-to-income ratio - (where debt payments take a higher percentage of a buyer's income) - is a larger down payment. Buyers who put a larger percentage of the purchase price down (5%, 10%, 15%, 20%, etc.) are considered better "risks," because the theory is that the more a person has actually invested in the purchase, the less likely they are to default on the loan.
Buyers usually discover that the pre-qualification process will produce a home purchase price that is roughly 2 1/2 to 3 times their gross annual income. The 2 1/2 -to-3 guideline is only a general rule of thumb, however, and it doesn't take a buyer's full financial situation into consideration. Since the lender's calculations will also consider a buyer's actual debts and ongoing expenses, the loan pre-qualification amount may be higher or lower.
Regardless of the price bracket a buyer targets, they should keep pre-qualification in mind.