I’ve heard the argument from a few people out there in the Internet world that they don’t trust Realtors, because Realtors ALWAYS say it’s time to buy.   First, that isn’t true.   I’m honest about how I preceive the market, and while I don’t have a crystal ball, I do have a degree in economics (with a speciality in monetary policy), law, and education, and now I’m am a Realtor.   But there have been some Realtors out there who have missed the mark so far, it’s downright embarassing.   Watch this video for one who got it wrong and one who got it right.

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An Arizona home builder is throwing in a $200,000 Bentley for anyone who buys of one of his multi-million dollar spec homes that have been languishing on the market for over a year in Paradise Valley, a Phoenix suburb.   The developer is Five Star Development Group based in Scottsdale.

One of the homes, described as the “Old World European Villa,” is priced just under $5 million and is about 7,800 square feet.   The other, which is called “Tuscan Estate,” is under $4 million and is about 7,500 square feet.

The promotion states that if you buy one of these homes, you will get a 2009 Bentley Continental GT, which is worth about $200k.   Or you can have the option of reducing the price by that much.

Now, let me think a minute.   I’m going to buy a $5 million dollar home to get a Bentley?   I don’t think so.   Honestly, how many people who can buy a home like that do they think will do so just so they can get a Bentley?   Anyone who wants and can afford a Bentley probably bought it already.   Anyone who wants a home in the price range of $4 to $5 mil is probably intelligent enough to realize that in this market they probably can offer $2 million and get two for the price of one.   Okay, maybe I’m exaggerating a bit on what you could buy these houses for, but realistically, if someone offered $500,000 less than the current listed price you can bet the developer would accept the offer faster than you can say “Bentley Continental GT.”

No wonder this developer is in trouble.   Well, you say, this marketing strategy isn’t really intended to sell the house by offering a Bentley, it’s a marketing strategy to get exposure for these two listings.   Look, we’re reading about it, so it must be working.   No, it’s not working.   The houses haven’t sold.   What is working is that we are all shaking our heads at such a silly tactic.   This makes the developer look foolish and desperate, not smart and generous.

What brilliant marketing strategy is he going to come up with next? I have an idea.   How about he offers a trip to the moon?   Wait.   That strategy might actually work, but it would cost the builder more than the price of the house.

Bentley anyone?

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If you’re buying a Sequim or Port Angeles home, or getting ready to have one built, you can wait this market out, or you can take advantage of the lowest interest rates any of us have seen in our adult lifetimes. Under 5% for a 30 year fixed rate mortgage? Are you serious? Yes.

I’ve written elsewhere about Why Building a Home Now is Smart, and that it’s A Buyer’s Market in Sequim, and I wrote articles here about Low Interest Rates and The Perfect Storm, but who would ever have guessed that interest rates would be at levels as low as half a century ago?

I believe that when the market starts to breath again, inflation will slowly bring prices upward, but one of the first economic variables to go up is usually interest rates, so don’t be surprised if they dip as the are now to sub-five percent, and then level and start to climb in 2009.

If you are going to build or buy an existing house, now is nearly the Perfect Storm opportunity with interest rates at historical lows.   A low monthly mortgage payment.   That sounds kind of nice, doesn’t it?

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What effect does a foreclosure or a short sale have on your credit score? Negatives on a credit report are scored by three factors: recency (how recently did the negative event occur), severity (how late is the payment) and frequency (how many times you’ve been reported delinquent on credit obligations). If you have payments in default on a mortgage, your credit score is taking some hits, but if you have a foreclosure, you will not be able to get a Fannie Mae or Freddie Mac backed loan for five years.

If you have a home for sale that is threatened by a possible foreclosure, you may have to try to sell it for less than the current mortgage balance. If your mortgage company accepts less than what is owed, that is a short sale. Trying to do a short sale is not for the inexperienced homeowner or the inexperienced real estate agent. It’s very technical, and you don’t want to screw it up.

Lenders prefer short sales over foreclosures because they net more from them. Foreclosures incur additional legal costs and fees, carrying costs, and marketing costs. Your credit score is downgraded with a short sale, but not as much as a foreclosure.   Borrowers can be considered for loans following a short sale after 24 months, if the sale was caused by extenuating circumstances outside of a borrowers’ control, or 48 months if it was the result of financial mismanagement on the borrower’s part of the homeowner.

There are potential tax implications with a short sale.   The IRS code penalizes you if you do a short sale by taxing you on the forgiven portion of the loan, the difference between what you owed and what the mortgage company accepted in the short sale. It’s hard to believe that our government would tax you on a short sale when you are already in severe financial hardship, but who said our tax code was fair?

Because of public outcry, congress made an exception to the IRS code. The Mortgage Forgiveness Debt Relief Act of 2007 and the recently passed Emergency Economic Stabilization Act allows you to exclude up to $2 million of income ($1 million if married filing separately) from debt that’s discharged through mortgage restructuring, or that’s forgiven in connection with foreclosure, for the years 2007 through 2012. The exclusion must be connected with a decline in the home’s value or the taxpayer’s financial condition, and only applies to a principal residence, not investment properties.

If you own a home you need to sell, this is absolutely not a time to experiment with selling prices and marketing.   It’s not a time to hire an inexperienced real estate agent.   You may only get one chance to do it right, and time is your enemy.   If you do everything right from the beginning, in four or five months, if your lucky you’ll have a closed sale.   Trip along the way on any of dozens of steps, and you will lose, and the consequences could be devestating.   The key to getting it right is finding an experienced professional who knows exactly what to do and when to do it.

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Be proactive if you are facing high debt service and could end up with a foreclosure action in the coming months. If you wait to sell your home or your business at the 11th hour before a Trustee’s Sale, you may lose everything. If you find a buyer just before a foreclosure, you may be at the buyer’s mercy on the price. Don’t wait until it is too late. Be proactive with a loan modification now. How does a loan modification work?

A loan modification is not a new loan, it’s not a refinance. It is the same loan with adjustments to the terms of the loan so that you can reduce monthly payments. That is done with an adjustment to the interest rate or to the amortization schedule, or both.

Many people have told me they called their bank and tried to get a reduction in the monthly mortgage payment but it didn’t work. There’s a simple reason they could not get that done. The process of applying for a loan modification is very detailed, requires a ream of paper and information, and there must be a very persuasive argument as to why the modification should be allowed. You have to know who to contact, and most local bank tellers don’t even know who you would contact for their own institution. Loss mitigation departments or the modification division of any mortgage company is not found locally. They are not listed in the phone book. They are not listed on the Internet. These departments are not trying to hide from you, but they were not created to interface with the public, so they are below the radar.

In order to put together the right paperwork, you must know what they want, and to make persuasive arguments in writing, you must know what the issues are and how to address them. Then you must be able to write very good English and be very persuasive.

The truth is very few homeowners or business owners will have the knowledge and experience to get this done right. For those who try and screw it up, it could ruin their chances entirely even if they do hire a professional later.

I am not a loan modification guy. I do know one who is, and he is one in a thousand who knows how to do this.   He is having great success with loan modifications. He tells me incredible stories of good people who are staying in their homes because he was able to help them get a substantially reduced monthly payment.   What an incredible service he offers!

If you do need help getting your monthly payments adjusted with a loan modification, email Chuck Marunde. I’ll refer you to a man who can help you get the job done. By the way, he is qualified to do this in any state, so it does not matter where you live.

Don’t wait until it is too late. Be proactive and start working on your loan modification right now.

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The real estate market has taken a serious beating these past months, and the U.S. economy appears to be chaotic at best. I’ve been watching real estate cycles for 30 years, and I’ve learned four important lessons in this market.

Lesson Number 1. The national real estate market has very little to do with a buyer’s opportunity to find the ideal home at a great price right now. Let me explain.

Real estate news is a macro-economic perspective, while buying a home is a micro-economic decision. National news about housing inventory, foreclosures, and prices is all very interesting in the media and in the college classroom, but when John and Mary Smith are considering buying a home or building their retirement home in a new area, the national stats are irrelevant. Their decision is based on their personal goals, their credit score, their available funds, whether or not they must sell a house first, what kind of loan they can get, and a host of personal issues.

If all signals are full speed ahead for John and Mary Smith, they are in the most powerful place and time that buyers have found themselves in decades. They can shop at their leisure, taking time to gather information on the Internet before they actually hire an exclusive buyer’s agent, and they can narrow their search as they walk through a dozen or so homes.

Since the Smiths are the master of their own offer, they are in full control of the price and the terms of the offer. If they cannot come to terms with a seller (who may have had his house on the market for 256 days or more), they simply say, “Thank you very much. It’s been great. We will be making an offer on another house.”

I have written elsewhere that it is important to make a distinction between the market and an individual house. That’s exactly what the Smiths will do. The state of the market plays out in their favor right now, but their decisions are based on the facts in their little world and the house they decide to buy.

As I sipped a cup of hot gourmet coffee while walking around my yard this morning, I considered the state of the world economy, the U.S. real estate market, foreclosures and other disconcerting statistics, including my last five real estate commissions that went “poof.” Then I noticed a bee perched on a leaf and scratching himself. (I’m guessing the bee is a “he” and it appeared he was scratching his head, but there are many things in life I do not actually know. I’m only 54.) The bee was clearly unconcerned with the state of the economy or the number of days it takes to sell a home. The bee lives in his own micro-world, and I’m thinking macro-economics is not something at the forefront of his mind lately.

Buyers can and ought to focus on their own world and their own real estate market in deciding whether now is the time to buy their next home. We’ve never been in a buyer’s market like this where buyer’s who have good credit or cash have so much power.

Lesson Number 2. Don’t trust strangers with your money. If investors in the stock market, which includes the majority of retirees with 401(k)’s, have learned anything in this recent crash, it is that you should not blindly trust financial advisers or fund managers. I learned many years ago that “they don’t know what you think they know.”

Lesson Number 3. A good investment in your home and in rental real estate, where you are not over leveraged and where you seek to be totally debt free (a novel concept today, but quite popular among our grandparents’ generation) is far more secure and safer than the roller coaster known as the stock market. Of course, you must buy right and hold for the long term, and practicing that effectively would mean that dips in the real estate market, even of the current magnitude, would not jeopardize your retirement plans.   [Read a series on Real Estate vs. the Stock Market.]

Lesson Number 4. Find a professional in real estate who is truly knowledgeable and experienced to help you make your buying and selling decisions, and stick with that professional for life. I do not recommend that you retain any Tom, Dick, or Jane who got a real estate license as a part-time hobby. That would be like letting a stranger on Wall Street manage your 401(k), and look how that turned out.

Chuck Marunde, J.D. is a retired real estate attorney, author, and exclusive buyer’s agent in the State of Washington.

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