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Thanksgiving is tomorrow. I know that it can be a tough day with a lot of stress… Will the meal be perfect? Will everyone get along? Will my team win?
As I said last year, just enjoy the time… Don’t stress. Half of the stuff we are going to stress about won’t matter at the end of the day, and the other half will make for great stories in a few years.
Here is last year’s post.
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Two years ago I wrote about this… On many Foreclosure and Short Sale properties, sellers are requiring buyers to qualify with a specified lender… sometimes even the lending branch of the seller.
It doesn’t seem to be that big of a deal, right? I mean all you have to do is call up the specified lender, give them some info over the phone and let them make sure you are qualified to complete the sale of the property. But the problem is that many buyer end up offering on multiple properties over several months… and that means that the credit pulls can actually HARM the credit of the buyer.
There still aren’t any rules regarding this practice. And I still think it needs to be stopped… I can understand it from the perspective of the seller, but it may actually be damaging to the buyer’s credit.
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Maybe… maybe not. Last year I had a pretty good post (if I do say so myself) about issues that can arise between Contract and Closing in a real estate transaction.
I wish it weren’t the case… but it is. There are a lot of reasons that a sale can fall through between the time the seller accepts the offer and the buyer shows up at the closing table. Some can be easily prevented and others are a little tougher to deal with. For the most part, though, if both real estate agents do their jobs well and the clients on both side are transparent about any skeletons that might be hiding in the closets, everything should go pretty well. But even then, there are some issues that can raise their heads at the last minute and derail everyone’s plan.
As listed in the post from last year…
Homes fall out of contract for a variety of reasons.
- Inspection issues
- Buyer financial problems
- Buyer’s remorse
- Appraisal comes in too low
- Seller can’t produce title
- Lender changes standards
And of course there are always strange and unique ways for sales to fail.
It used to be that the most common issue was something popping up in the inspection. I’ve has buyers jump out of a sale because of an undisclosed issue showing up during inspections… although most of those have been with foreclosed properties (no Seller’s Disclosure statement). But a couple of times it has been because of a problem that should have been disclosed by the sellers.
Right now, one of the biggest problems is something that was almost unheard of a few years ago… Appraisal coming in low. I’ve been on both side of this one, and it isn’t fun for anyone. The buyers begin to second guess their decision, the sellers are over a barrel (especially if the buyer is using FHA financing). Perhaps the price really was out of market norms and the agents both failed to catch it. Other times, the property is unique and the Appraiser failed to account for its uniqueness. In other cases, a sale closes between the Contract and the appraisal that adversely affects the neighborhood’s values.
Of all of them, the one I get most annoyed with is Buyer’s Remorse. The vast majority of the time, it should be completely preventable. But sometimes there is a piece of information that comes available during the Buyer’s Due Diligence process.
Buyer financial problems should also be preventable… but sometimes, with (usually) borderline buyers, changing lender standards can jump in and create havoc at the last minute.
Check out the post from last year for more info on how to prevent sales failures between contract and closing.
I believe in an ownership society. And while I will easily concede that owning a home isn’t for everyone, I would argue that home ownership SHOULD be encouraged… and is a cornerstone of America’s society.
There are a few things in particular that make home ownership valuable…
There are a variety of ways that home ownership fosters Personal Responsibility. To begin with, it is easier to put down roots in a community when you know that the lease isn’t coming up in a year or two, leading to a possible move. Part of putting down those roots may include making friends with the neighbors, volunteering at school, getting involved with a local church or other community organization.
That leads directly into how home ownership increases Community Stability. The very essence of community stability is personal involvement. The community will naturally be more stable if the people that live there volunteer for local organizations and get to know each other. Neighbors looking out for each other and helping each other are a community. And people that have decided to stay in a community for the long term worry about things like school quality, taxes and parks… quality of life issues.
A side benefit is Long-Term Financial Planning. I won’t get into things like comparative tax benefits… those could change… but one thing that is less likely to change is the payment. With a fixed rate loan, the payments are almost set for the duration. There will be minor changes due to fluctuations in tax rates or insurance, but the larger portion of the payment, the principle and interest, won’t change over the duration.
The downside of owning a home is liquidity… If job or life changes require a move, it may be difficult to quickly react during some phases of the market. And there have been a LOT of people that experienced that during the recent (and possibly continuing) housing bust.
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There is a lot of discussion in the real estate world about the Mortgage Interest Deduction (MID) on Income Taxes. The National Association of REALTORS® (NAR) is virtually flipping out with just the thought that it could be eliminated by Congress as they look for more “revenue enhancements” (they are unwilling to say “tax increases”).
The NAR position is that with a weak housing market, and the fact that homeowners have benefited form the MID for decades, this is NOT the time to eliminate it, increasing taxes on mostly middle class taxpayers/homeowners. I can’t argue against that position very forcefully. It isn’t that I want to agree with the NAR, because I don’t. And, in fact, my reasoning is much different from theirs.
Opponents of the MID argue that homeowners shouldn’t get special treatment v. renters in getting a tax credit for a portion of their mortgage. And that IS a strong argument, but there is one HUGE flaw…
Renters might not get a tax credit, but Landlords DO. They may or may not pass that savings along to the renter (depending on the competitiveness of their rental market), but as a business, interest is a deductible interest expense. So, in effect, a homeowner would be penalized for occupying a home that they own. And with all of the talk of “fairness” coming out of Washington, DC, taxing the Mortgage Interest for Owner/Occupants, while not taxing it for investors seems kind of dumb.
Also, this would be going after the heart of the middle class. Many opponents argue that upper middle class families benefit more from the MID than those with lower incomes… although, the truth is that income isn’t as much of a determinant as is mortgage debt. BUT, those with higher incomes might have a tool available that those with lower incomes may not. Many are already business owners. And, it wouldn’t be that tough for them to incorporate, transfer the ownership of their home to their business, and rent the house.
This would give them the tax deduction for the mortgage interest as a business expense. Homeowners with smaller mortgages and/or smaller incomes might not be able to swing the same deal… meaning that they would be more adversely impacted by the change than higher income and/or higher debt homeowners.
One other thing, which I personally think is important, but a back burner aspect of the debate, is the benefit of a home-ownership society. Simply put, home owners are a more stable group than renters. They have a stake in their neighborhoods, schools and communities. Renters want nice neighborhoods, schools and communities, but have a much easier time escaping if things go sour. They won’t pay a financial penalty for getting out… in fact, if demand increases for a specific area, they might actually end up having to pay more.
BTW, I DO consider business deduction of interest to be something that should NOT be taxed. It is a legitimate business expense. And since I don’t think businesses should have to pay taxes on the interest THEY pay, I don’t think it would be right to force owner/occupants to pay interest for the exact same thing.
What do YOU think? I’d love to hear your thoughts. Add a comment.
