NEW YORK (CNNMoney.com) -- During the housing boom, home sellers were in the driver's seat with real estate agents courting them - often at bargain commission rates. But now that the bubble has burst, the tables have turned.
In 1991, the average commission rate was 6.1 percent, according Steve Murray, of Real Trends, which tracks the brokerage industry. The rate inched down to 5.4 percent by 2001 and by the end of 2005, it stood at 5.02 percent.
| Special Reportfull coverage |
 |
| Current Mortgage Rates |
| Type | Overall avgs |
|---|---|
 | |
| 30 yr fixed mtg | 5.90% |
| 15 yr fixed mtg | 5.52% |
| 30 yr fixed jumbo mtg | 6.53% |
| 5/1 ARM | 5.64% |
| 5/1 jumbo ARM | 6.04% |
| |
Industry insiders expected further declines with the competition of discount and Web-based brokerages. In early 2006, the chairman of Re/Max, Dave Linder, told Real Trends that he expected a drop into the 4 percent range within five years.
But when home sellers found themselves with houses sitting on the market, they became increasingly amenable to paying higher commissions. Real Trends reports the average commission reversed its course and climbed to 5.18 percent in 2006, and it looks like it's going to end 2007 with another rise.
"The thing that changed," said Murray," is that the market flipped. There was a flood of listings on the market and suddenly they weren't as valuable. Agents were saying, 'I'm not going to drop my commission rate as readily."
Many sellers believe they can sell their homes quicker by hiring the best salespeople, which comes with a premium. Some may have returned to full-commission brokers after trying unsuccessfully to sell their homes themselves.
"A year ago people were asking, 'If things are selling in two days, why should I deal with a full commission broker?'" said Jim Long, an owner of Coldwell Banker Prime Properties in upstate New York.
Now sellers want a professional to hold their hand, according to Long, and some even think that it won't wind up costing them anything.
"The significant factor is net to the seller," he said. "Our list-to-price ratio is 98.2 percent," meaning the difference between the listing price and the final sale price is less than two percent - considerably better, he claimed, than most of his competitors.
Modern real estate brokerages have a long list of expenses, including the latest technology, according to Lennox Scott, of John L. Scott Real Estate, one of the largest brokers in the Northwest.
"This is a continuing investment because tech keeps advancing," he said. Scott said his interactive department spends $3 million each year, while their information technology department spends another $2 million.
The agents themselves, who act as independent contractors, maintain their own personal Web sites and purchase their own tech devices like cell phones and lap-tops equipped with wireless Internet connections.
Brokers also bear the expenses of brick-and-mortar offices, as well as brand-recognition radio and television advertising. Individual agents buy newspaper ads to launch new-to-market properties. They also have their car expenses, lunches to pay for, membership fees and the expenses of professional development - classes in everything from web development to negotiating skills.
Then there are support teams, transaction coordinators who specialize in herding deals through to closing, relocation experts and administrative assistants.
When all the expenses are added up, there may be little left. Murray said that the average profit margin for brokers in 2006 fell to just 4.3 percent, down from 7.6 percent in 2005. Out of that, brokers still have to pay taxes - and themselves.
All this could mean further increases in commissions, just adding to the grief of hard-pressed home sellers, already facing sharp drops in their property values. 
So many families are finding themselves in a tough situation. They purchased a home with an ARM mortgage that either has or is about to readjust. Refi went out the window for a lot of them when they lost equity in their home due to the housing slump AND mortgage lenders tightened their requirements (making self employed individuals have the toughest time obtaining financing) When it does, the payments will become unaffordable. There are a few options. You can just allow your home to foreclose (not recommended), You can short sale if your willing to let go of any money you either put down or put INTO the home. But, here's an option you can try to excercise and perhaps with a little persistance it might just work.
The first thing you need to do is contact the bank or the mortgage servicer which holds your loan,or is in contact with those that hold your note. Tell them the impending situation. They most likely will give you the answer that they won't talk to you till you are already in arears.. usually 60 to 90 days. Do not accept this answer and INSIST that you apply for their assistance programs. They will then ask you to send them information about income and expenses and if you are self employed, they will ask you for a profit/loss. Give them all the information that is neccesary. Always be courteous but insistant that your information get to a supervisor or someone in charge. The servicer has guidlines to follow and steps set forth by each holder they service for certain situations. Most likely the holder has not drawn up procedures yet on how to deal with an ARM mortgage that is in this new situation. That's okay.. insist that the information that you have provided AND the explanation of your situation go to someone who can pick up the phone and talk to the person/company/ investment group that holds your note. Tell them that you are trying to be proactive, that you want to STAY in your home and want to re-negotiate terms that will be acceptable to the note holders AND affordable to you. Follow up all phone conversatinos with either a fax or e-mail outlining the request you made over the phone to have your case heard by a supervisor.
The solution most offer when you fall behind on payments just does not and will not work in a situation of a readjusting arm. Their solution usually means taking the payments you are behind on and spreading them out over a certain period of time and adding that amount to your monthly payments moving forward. Which, if your monthly payment were affordable to you in the first place after the adjustment, you wouldn't be behind. Those payment options usually only work for a family that could otherwise afford their payments but have had a recent illness or tradgedy that caused them to fall behind, but when things are back to normal they can catch up. With an ARM lenders need to re-adjust their thinking and figure out ways to work with you.
Another thing you can do is put your request for assistance in writing to the Banking Board in your state, outlining the problem and that you would like the bank to help you work out a resolution. They will forward your letter on their letterhead along with one of their own to the servicer, just to give it some extra umph!
Good luck and hang in there.. if you are in this mess just know that this too shall pass.
The biggest discount real estate firm is closing it's doors and contemplating bankruptcy because of the down turn in the marketplace. Here is a link to the article : http://njrereport.com/index.php/2007/09/27/so-long-foxtons/
We in the industry all knew that when the market cooled, the discount model would not and could not work. In a hot market not much was needed to sell a home quickly, but a las those that sold with a full service full commission realtor DID sell for more. Now that the market has grown very stagnant with rising inventory, it takes much more time, marketing and the "extras" that a full service realtor can and does give. Commissions are also on the rise, and those agents that were in it to ride the wave will soon find that it's tough to make money in the Real Estate world.
Now more than ever it's important to to chose the right agent, one that will work hard and get your home sold!
When you go discount, you are getting what you paid for.
I have an exciting new lisitng in Roslyn Gardens. It's a beautifuly 1 Bedroom Coop located in a quiet corner of the Roslyn Gardens Courtyard. It's an ideal developement because it is conveniently located within walking distance to LIRR, Buses and Shopping and close to the LIE. It's also affordable and a great wayto get your foot in the real estate ownership door. The apartment features an EIK and dining area. Complex features laundry on premises and parking for $250/year (you must confirm availablity with Roslyn Village to obtain permit). I say, why Rent and an apartment when you can own?
Check out the virtual tour to see all the phots.
NEW YORK (CNNMoney.com) -- Don't look now but the cost of financing a home purchase in some of the nation's priciest areas just got more expensive.
Wells Fargo, one of the nation's biggest mortgage lenders, raised the interest rates on it 30-year, fixed-rate, non-conforming (AKA jumbo) loan to 8 percent last week, up from 6.875 percent. Other lenders followed suit and more are likely to join them.
| Current Mortgage Rates |
| Type | Overall avgs |
|---|---|
| |
| 30 yr fixed mtg | 6.22% |
| 15 yr fixed mtg | 5.89% |
| 30 yr fixed jumbo mtg | 6.84% |
| 5/1 ARM | 5.95% |
| 5/1 jumbo ARM | 6.43% |
| |
|
The rate jump means the monthly bill for a $600,000 mortgage would hit $4,403, compared to $3,942 previously, an increase of $461.
Jumbos are loans of more than $417,000, the limit observed by Freddie Mac and Fannie Mae, the government sponsored enterprises (GSEs) that buy loans in the secondary markets. Freddie and Fannie don't buy loans above that cap.
Wells Fargo's timing may seem odd: 30-year, fixed-rate mortgages have come off their highs for the year; their benchmark 10-year treasury has fallen considerably in the past few weeks to 4.69 percent from 5.2 percent, with further drops expected. And the Federal Reserve, which meets on Tuesday, has shown no inclination to raise its key rate.
Even borrowers with shakier credit scores than many jumbo loan applicants can qualify for a prime loan at about 6.75 percent, only 0.25 or 0.30 percent above what more qualified borrowers get, according to Keith Gumbinger, of HSH Associates, a mortgage information publisher.
But jumbo borrowers are paying a point and a half more than those who receive a conforming loan. That's way up from the traditional premium spread of about a half to three/quarters of a point.
Why should jumbos, whose borrowers often boast high incomes and assets, cost more than conforming loans? It's because Wall Street has stopped buying the loans.
Conforming mortgages, or loans below $417,000, carry much lower risk, because Freddie Mac and Fannie Mae guarantee a market for them. In a tighter credit market, lenders are charging more for jumbos because of the extra risk of not being able to sell them to the investment community.
Allen Hardester, a mortgage broker in Maryland, said that jumbos have lost their appeal for investors. "[Lenders] are having trouble unloading even prime, fully documented, 20 percent down jumbos. Nobody has any faith in real estate," he said.
George Hanzimanolis, president of the National Association of Mortgage Brokers, said, "Wall Street is just so shaky right now that any kind of mortgage-backed anything is a concern."
The implications for high-priced markets may be serious. On a wider scale, jumbos account for 16 percent of the overall mortgage market, according to Inside Mortgage Finance, which provides news and stats to the mortgage industry.
On an individual level, it can push potential buyers out of a market, because they generally care less about a property's price than their final monthly mortgage costs.
A buyer with a budget of $4,000 a month may be able to afford a $600,000 mortgage at 6.875 percent, but with jumbos up to 8 percent, a buyer with the same budget can only afford a $545,000 mortgage. To make up for the increased interest rate, a home seller would have to knock off nearly 10 percent from a selling price.
In many places, rate hikes for jumbo loans matter little, because most house prices fall well below the limits set by the GSEs. The median house price in the United States still stands at about $220,000.
Factoring in a 20 percent down payment, a home would have to cost more than $521,250 to trigger the higher interest rates of a jumbo loan.
But in some housing markets, such as most of California, much higher home prices prevail, pushing the majority of purchases into jumbo territory, according to mortgage broker Steve Habetz of Threshold Finance in Connecticut.
Buyers have to pay an extra premium, above already outsized home prices, to get a mortgage in the Bay Area, Silicon Valley, Los Angeles and many other California areas. The same holds true for the New York region, Boston, Washington D.C., parts of Florida and other high-priced markets.
"There are hot spots like that all over the country," Habetz said, "where there's a potential for a real meltdown."
The drying up of investment capital for jumbos is part ofa widespread liquidity squeeze. According to Gumbinger, a lot of the secondary market -the investors who buy securitized loans from lenders - has put itself on hold.
"They're saying, 'I'm not going to buy any more paper until I know what I have to know,'" he said.
As far as non-conforming loans are concerned, "We are seeing essentially a frozen market," said Jay Brinkman, the Mortgage Bankers Association vice president for research and economics. "When lenders can't get a bid even on the AAA loans, it's a market that has ceased to function."
A whole class of borrowers, subprime home buyers, has already been virtually eliminated from the home-buying universe. If jumbo buyers also face much higher interest rates, many will postpone home buying plans. And that can only add to the pain of slumping or stagnant markets.
Wow.. what a week last week was for the mortgage industry. One of LI's biggest firms went belly up. leaving a lot of people who were at the closing table suddently without the money promised to close and left a lot of people scrambling for new mortgage commitments and pre-approvals. As a result, the stock market took a little nose dive there, as investors were worried once again.
But, what is going on in the mortgage industry and what is the buzz among the mortgage agents out there. Well, from a meeting today I can tell you and give you some insight and pass what they told us agents on to you , the general public. And so I'm blogging about it.
For one, all the lenders out there are once again tightening their ropes on who they give mortgages too and how much they will finance. WAMU, one of the nations biggest companies, have recently reset their guidlines and will only finance 65% of a mortgage! Ouch!! But, there are other lenders out there that will finance 80%. 90 even 100% is still available, however your FICO score better be way up there.
If you were given a pre-approval for a 90% value to ratio, go back to your broker/lender and check to make sure that a) you still qualify and b) the rate you locked is still locked. What's been happening is that people who have been approved for 90% with a rate locked in have found, at the closing table, that their rate is up by 1%. Why? Well if the market prices of homes continues to decrease , then although 90% of it's value isbeing financed today.. 6 months down the line it could be more like 95 or or even 100%. So, lenders are still willing to finance you, but to make up the difference and the "extra risk" they raise the rate 1%.
Bottom line for both buyers and seller is this; if you have a pre-approval or a closing coming up..check and reverify that everything is as it was when the deal was first put together (cause as we know in NY it takes 3 months to close and a lot of things in the mortgage industry change fast these days).
Also.. for buyers.. it's a VERY good time for you to buy. Why? Well,it's rare for both prices AND interest rates to both be down (typically prices go down and interest rates go up.. not happening as rates are staying the same). And.. some good news for both buyers and sellers.. historically when an election is coming up interest rates tend to go DOWN.. this is good for buyers because money will still be "cheap" and good for sellers because that can open the door for more potential buyers to pruchase your house.
Check back later when I talk aobut the effect and buzz among the agents about the market!
We all know the market has been a little soft. It's most definately a buyers market with interest rates being low and more inventory to chose from. In Levittown alone today there are 170 homes for sale. That's a lot of choices!
Traditionally we would price a home at a fixed price. Basically if we figured the home could get , let's say in the $420K range, we'd probably price and market the home around $439K. Because as we all know, buyers like to negotiate.
But, in a slow market where pricing your home correctly is extremely important to if AND when you'll sell your home (not to mention getting the top price) it's time to start thinking outside the box to appeal to the most broad range of buyers and to make your home stand out above the others. I believe that PVRM or Price Value Range Marketing is an excellent way to do that.
Say, for example, you have buyers who are looking for a home and $425 - $429K is their max that they can and are willing to spend on a home. But, your home is priced at $439k. Keep in mind that in a market with a lot of choices, buyers will look at their max and under.. not over, since there will be a lot available for them to chose from without having to expand their search beyond their comfortable price max. So, while your home DOES technically meet their affordability range , but your home is listed at $439K, they will most likely not see your house.
With PVRM your home would be listed at $$399,000 - $458,876. This will bring those shopping on the lower side to your home (and perhaps they'll fall in love with it and come up to the price you are expecting) while making sure that the home is not underpriced, nor overpriced. This does not mean that you will accept any offer given in that range, just that you will counter any offer that a person makes with that range. Of course, the buyer will come in with the minimum offer of $399,00 but negotiations will take off from there and we can achieve your target price.
I pitched this idea on a marketing appointment just a few days ago, and then today in Newsday was an article about PVRM and how it is helping to sell homes in this market. I'm proud to say that Prudential was the first RE firm to use this marketing method. This method is not new and was used once before when the market was soft.
It was a wonderful article and you can read it at http://www.newsday.com/business/realestate/ny-bzspdn5298182jul20,0,6325009.story?coll=ny-realestate-headlines .
Enjoy
This is a great article that my Managing Broker passed on to all of us and so I just had to blog it. Thank you Fern! Read on.
NEW YORK (CNNMoney.com) -- Mortgage rates jumped to the highest level in 10 months after recent reports on unemployment, wage growth and labor costs fanned growing fears about a pickup in inflation, Freddie Mac said Thursday.
The average rate on 30-year fixed-rate loans climbed to 6.53 percent for the week ending June 7, from 6.42 percent the previous week. Last year at this time, 30-year mortgage rates averaged 6.62 percent. The rate is the highest since Aug. 10, 2006, when it averaged 6.55 percent.
| ||||||||||||||||||
The 30-year rate stood at 6.15 percent on May 10th, just before it turned sharply up.
Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), expects mortgage rates to top out near 7 percent by the end of the year.
Rising rates, among other factors, have caused the MBA and the National Association of Realtors to push back their forecasts for a home price recovery. Both groups are now looking to early 2008, compared with a previous outlook for mid-2007.
Home prices and mortgage rates are closely connected. If rates go up, would-be home buyers face higher monthly mortgage payments, cutting into overall affordability.
The 0.38-percentage point increase since May 10 represents a jump of $50 a month on a $200,000 loan.
In order to keep the monthly payment on a 30-year fixed loan the same as it would have been at 6.15 percent, a home buyer would only be able to borrow $192,500.
And if rates do go as high as 7 percent, that could have a major impact on buying patterns, according to Keith Gumbinger of financial publisher HSH Associates, which tracks the mortgage industry.
"It would make it more likely that [buyers] would sit on the sidelines," he said. "That would put downward pressure on housing prices."
The rate on 15-year loans averaged 6.22 percent, up from 6.12 the previous week, Freddie Mac (Charts, Fortune 500) said. A year ago, the 15-year rate averaged 6.23 percent.
"Mortgage rates climbed this week owing to market concerns about a tight labor force and wage growth," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. He noted that reports pointing to a tight job market and rising labor have fanned inflation fears on Wall Street.
Still, he said the housing market could potentially see a recovery within several months, since prices have leveled off and are even falling in some markets.
"As house prices grow less quickly and household incomes rise, the housing market will likely recover from its current slump, but perhaps not before the end of this year," he said.
The danger, however, according to Richard DeKaser, chief economist for National City Corp, is that mortgage rate increases are playing out "at the precise time that the housing market is trying to find its legs." A substantial move up could pull the carpet out from under the market.
The question then becomes at what rate should we start to really worry. "What we want to avoid is breaking new highs," said DeKaser. "We've seen levels last summer akin to what they are now."
Mortgage rates reflect the yields in the Treasury market, which have also risen substantially this month as strong global stock market returns have lured investors away from bonds, lowering their prices. Bond prices and yields move in opposite directions.
In fact, the yield on the 10-year Treasury jumped above 5 percent Thursday, the highest it has been since last August.
Robust economic growth outside of the housing market with healthy consumer and improving business spending has added to upward pressure on rates.
Five-year adjustable-rate mortgages rose to 6.24 percent from 6.19 percent last week. The five-year ARM averaged 6.20 percent a year ago.
One-year ARMs averaged 5.65 percent, up from 5.57 percent last week and 5.63 percent a year ago.
Mortgage rates, of course, are only one third of the affordability equation that plays out in the housing market. There's also home prices themselves and household incomes, both of which have been positive lately for buyers, according to DeKaser.
NEW YORK (CNNMoney.com) -- A big drop in the price of the typical new home sold in April spurred much better-than-expected sales, according to the latest government reading on the battered real estate and home building market released Thursday.
New homes sold at an annual pace of 981,000 in April, up 16.2 percent from the revised 844,000 pace in March. Economists surveyed by Briefing.com had forecast an 860,000 rate in April.
 |
| The price of a typical new home sold in April was off more than 10 percent from a year earlier. |
| ||
| Current Mortgage Rates |
| Type | Overall avgs |
|---|---|
| |
| 30 yr fixed mtg | 5.92% |
| 15 yr fixed mtg | 5.64% |
| 30 yr fixed jumbo mtg | 6.19% |
| 5/1 ARM | 5.70% |
| 5/1 jumbo ARM | 5.88% |
| |
The gain in sales compared to March is the biggest jump in 14 years. But even with the April spike factored in, April sales came in 10.6 percent below year-earlier levels.
The median price of a new home sold in April plunged 10.9 percent from a year earlier to $229,100. The new price reading was also down 11.1 percent from the March reading.
It was the sharpest year-over-year drop in median new home prices since December 1970 and the biggest month-to-month drop on record.
Paul Kasriel, chief economist with Northern Trust in Chicago, equated the strong sales to the strategy of the Detroit automakers, who cut prices and offer other sales incentives to counteract weak demand for their cars and trucks, sometimes taking a loss on the sales.
"The builders are clearing out the merchandise," he said. "They're doing a Detroit here. When you have excess supply, the quickest way to move supply back into balance with demand is to cut the price, and finally they're doing that. I would not say this is the bottom of the housing recession."
Kasriel pointed out that the median number of months it takes builders to sell a completed home has risen every month for the past seven. It now stands at 6 months, the longest time it takes them to move a completed home since 1993, and it's almost double the 3.4 months it took them to sell a home as recently as September.
However, the faster sales pace in April helped take the estimated months' supply of homes on the market down to 6.5 months from 8.1 months in the March report.
The median price is the point at which half the homes sell for more, and half sell for less. The average price, which is generally higher than median prices due to the impact of high-priced homes, was also lower, although the drop was not quite as sharp. It fell 3.6 percent from year-ago levels, the biggest drop in six years.
Economist Robert Brusca of FAO Economics said the much sharper decrease in median price than average price shows that the biggest declines are taking place in the less expensive part of the market.
"That may have something to do with subprime problems," he said, referring to the problems with the mortgages written to buyers with less than top credit ratings. "Clearly, builders have been cutting prices and just as clearly, the strategy has been working."
But unlike Kasriel, Brusca said he believes the spike in sales brought on by the price cuts is important, and it could be a sign that the battered housing sector could turn around sooner than later.
"If we look at trends in average new home prices around the time of the last recession, we see that builder capitulation on prices was the catalyst for ending the weakness in the sector," he said. "The low prices jump start demand and get some inventory off homebuilder's hands giving the market a push."
The weakness in pricing has been seen since last year. Many builders have been reporting that they were cutting prices.
The prices being quoted in the Census Bureau report may actually be underestimating that price weakness, since three out of four builders responding to their trade group's survey report offering incentives such a covering closing costs and offering extras in the homes at no charge in order to maintain sales in the weak market.
The downturn in new home sales and home building has hammered results at the nation's largest builders, which are reporting losses, lowered earnings guidance, coupled with rising cancellation rates from buyers and charges for walking away from options they have on some land.
Thursday, luxury home builder Toll Brothers (Charts, Fortune 500) became the latest to report a sharp drop in earnings. It had already warned it expected to miss its earlier guidance on 2007 earnings.
Pulte Homes (Charts, Fortune 500), the No. 4 U.S. homebuilder, posted a loss late last month. No. 2 homebuilder D.R. Horton (Charts, Fortune 500) reported a 37 percent drop in the number of new homes sold in the latest quarter, citing weakness in prices and saying the typical start to the spring home buying season hasn't begun.
No. 3 Centex (Charts, Fortune 500) and New Jersey-based Hovnanian Enterprises (Charts, Fortune 500) both also reported losses in the most recent quarter.
No. 5 builder KB Home (Charts, Fortune 500) returned to an operating profit in its most recent quarter after an earlier loss, but its CEO warned in April that he expects the housing slump to get worse.
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