New Complications of Buying a Home/Condo
Homebuyer Associates June/July 2009 E-Note
New Complications of Buying a Home/Condo
Homebuyer Associates
414.254.4129
Michael D. Holloway/Seamus Holloway
Lynn Sarver/Paul Wollersheim
In my youth I was chess champion of Merrill Park. Checkers, an easier game, required less thought. Real estate used to be checkers, now it is chess and the days of thoughtless buying are behind us.
Buying real estate the traditional way used to be similar to playing checkers – a home was found, offer made, the home was inspected, financing secured and the purchase closed – a fairly simple process.
Now buying a home or condominium is similar to playing chess – problems must be anticipated and countered with solutions. Every move counts. It has become a complicated process.
It is now more important than ever to have an experienced real estate agent (preferably an exclusive buyer agent) and an experienced mortgage lender. Each must anticipate problems and then have a plan to address issues that will arise in the transaction – and issues will arise.
For smart buyers the days of using Uncle Tupelo’s friend Jeff to assist in buying a home should be over. A knowledgeable, experienced exclusive buyer agent will save you headache and heartache. Let me provide a few examples.
One of the processes that helped get us in the real estate mess we are in was the cozy relationship some lenders had with appraisers. If unscrupulous lenders and appraisers were involved the result was inflated and inaccurate appraisals. That was a bad process.
The pendulum has swung to the other extreme, and that is also a bad process. Lenders now order appraisals through a third party – they may no longer have direct contact with an appraiser.
The result can be that an appraiser is assigned to an area he or she has little experience in. Remember, appraisals are an art not a science so knowledge of the area market is important. It is why I must anticipate problems when a client of mine who is buying a downtown condo has an appraiser assigned by the lender who is from Watertown, WI.
Appraisers now may also want to be overly conservative. One appraiser recently quoted in a Wall Street Journal article said, “I don’t want to stick my neck out.”
An appraisal is a snapshot in time of what a property is worth. So, in a process that involves two agents, a buyer, a seller and a mortgage lender, the decision about whether or not a purchase moves forward can rest in the hands of one person – who is an artist not a scientist.
It is unfortunate when dishonesty trumps common sense, but the industry has no one to blame but itself because of its past mistakes. This, unfortunately, affects today’s buyers and sellers.
Another issue of concern is Private Mortgage Insurance. An experienced lender will be able to explain the difference in cost between PMI on an FHA loan and conventional loan. The cost can be significant. The former requires a substantial up-front PMI payment that is non-refundable while the latter can be removed over time when the loan-to-value ratio reaches 80%.
Until the pendulum swings to the area called “common sense” the best advice I can give you to limit your financial risk is to work with experienced exclusive buyer agents (not just buyer agents) and experienced lenders. As always, ask questions…and then question the answers.
Of course if you have any real estate related questions feel free to contact me or one of Homebuyer Associates agents.
Thanks for reading.
Michael D. Holloway