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Not Ready To Commit? Don’t

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | December 6th, 2019

A good real estate agent can be your best friend. But if you are just kicking the tires at open houses and aren’t quite ready to buy, you probably want to look around without being bothered.

Some agents will probably leave you alone. But in competitive markets, where clients are hard to come by, any agent worth his or her salt won’t turn you loose without first trying to establish some rapport.

At least that’s what they should be doing, says Debbie De Grote, a real estate trainer who has written numerous sales training scripts and closed more than 3,000 deals over her 16 years in the business.

Unless you really just like looking at houses -- to get decorating ideas, perhaps, or to see how other folks live -- there’s a reason you’re spending your weekends traipsing hither and yon.

Maybe you haven’t decided where you want to move, so you think there’s no need for an agent just yet. Perhaps you haven’t decided how much you want to spend. Or possibly you plan to hire your high school buddy or Aunt Matilda to be your agent once you take the plunge.

During a recent webinar, De Grote, the CEO of Forward Coaching in Costa Mesa, California, told agents how to overcome those and other common objections so they can sign up new clients.

Good stuff for realty pros, for sure. But also good information for consumers who really would prefer to be on their own. After all, if you know what’s coming at you, you will be able to prepare for it.

A potential client’s objection “could be legitimate,” De Grote said. But it also could be “a question in the prospect’s mind” or an attempt to “rattle” an agent or salesperson. The agent’s job is to figure out which.

There are a dozen or so common protests from both buyers and sellers, the coach reported. But the most customary is, “I’m just looking.” Or said another way, “We’re not serious right now.”

A good agent will look you right in the eye and say something like, “I’d glad you’re here. It’s commendable that you are taking the time to do your research. I encourage all my buyers to do that.”

The object, De Grote said, is to put you at ease. To lower your guard.

Next, the question: “How long have you been looking?” And then the hook: “Maybe I can help you with your research, or you can use our research. Tell me where you want to live, and your price points. I might even be able to tell you about houses that are not on the market yet.”

Another common dissent is, “I already have an agent.” But De Grote said that shouldn’t matter, at least not right away. “Maybe they do, maybe they don’t,” she advised. “So pretend they never said that and start selling yourself: ‘I’d love to help.’”

As the conversation commences, the coach said agents should ask several key questions, all designed to feel you out.

“Do you have a contract that obligates you?” Often, she said, people don’t. But even if they do, a good agent will continue digging: “Who is it? Maybe I know him.” “Where does she work?” “Is he full- or part-time?”

If your agent is two hours away and only works weekends or nights, that gives the agent in front of you an opening. “Go after them on that end,” De Grote advised.

A third typical protest involves commissions. Most sellers hate to pay the full boat, which generally runs from 5% to 7% of the selling price. So they sometimes bring up the possibility of listing with a discount brokerage, one that charges, say, just 1%.

Again, a good agent will sympathize with you to build that all-important rapport. “I feel the same way,” she might say, and then ask, “Is it the total amount of the fee, or are you trying to squeeze every last dollar out of the deal?”

Whatever you might answer, a good agent will respond with understanding. “That makes total sense,” the sales trainer suggested as a comeback, “but let me break it down for you. Which path is better, a cut-rate agent or a full-service real estate professional?”

Notice that “discount” is now “cut-rate.” De Grote suggested that agents stress that theme -- nicely, of course -- but stress it nonetheless. “A cut-rate agent is not likely to obtain the highest offer,” is her favored comeback. “If it worked, everybody would use a cut-rate agent. You get what you pay for. If the agent was a strong, powerful, experienced professional, why would he work for 1%?”

And then, the kicker: “You won’t be giving me any money upfront. I only get paid when the deal closes. I’m taking all the risk, providing all the services, so you might as well have the best.”

The message here for buyers and sellers: Hold your ground. Don’t be pushed into something you may regret, or into working with someone you’re not comfortable with. Take your time. The agent in front of you is just as likely to be available next month or next year.

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Odd Lots: Refi, Rejection, Pricing

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 29th, 2019

You found the house, secured your loan, closed the deal and moved in. So you never need to pay attention to mortgage rates again, right?

Wrong! It pays to keep an eye on loan rates as they move up and down. A case in point:

In early September, the average rate on a 30-year mortgage ticked up a mere 7 basis points -- a basis point is 1/100th of a percentage point -- to 3.56%. That small increase meant the number of “high-quality” candidates who could have refinanced dropped from 11.7 million to 9.8 million, according to figures from Black Knight.

In other words, 1.9 million borrowers lost their financial incentive to refinance at a significantly lower rate.

A week later, the typical rate jumped to 3.73% and the number of refi candidates slipped by 1.5 million more borrowers, to 8.3 million.

Had any of those 3.4 million folks been following rates during that period, they might have been able to save themselves a passel of money: roughly $263 a month on average, the mortgage analytics firm reports.

In the last week of October, a slight 3 basis-point uptick cut the potential refi population down to 6.8 million. That’s a 30% decline from September, and a 42% decline from the all-time high of 11.7 million during the first week of September.

(Black Knight defines refinance candidates as 30-year mortgage holders with a maximum 80% loan-to-value ratio and credit scores of 720 or higher, who could shave at least 0.75% off their current first lien rate by refinancing.)

Nothing is more devastating to a homebuyer than to search for months and finally find the place they want, only to be rejected by their lender. But it happens. According to LendingTree, 1 in 10 would-be borrowers are turned down.

That’s the lowest level since 2004, but it still hurts if you are part of the unfortunate 10%.

Debt and credit history were the main reasons folks are denied. The amount of debt you carry compared to your income, aka your DTI ratio, is the biggest barrier to gaining approval. A third of all denials are because the DTI is too high. And a credit history pocked with late payments and bad debts is responsible for 23% of all denials.

Collateral, meaning the property isn’t worth what you are paying, is the third-highest reason for lenders saying no, followed by incomplete applications and unverifiable information.

LendingTree also found that denial rates vary by race, ethnicity and even geographical location. According to the report, African American borrowers now have the highest denial rate, at 17.4%, while non-Hispanic whites have the lowest, at 7.9%.

The government can go after lenders who don’t follow fair lending laws. Still, you can up the odds you’ll be approved by making sure your credit file is in order: Dot every “i” and cross every “t” in your application, and line up all the documents required to verify your earnings, bank accounts, tax returns and assets.

Here’s another reason to price your home correctly in the first place -- rather than pricing it high, hoping someone will bite, and lowering it when that doesn’t happen.

According to a Redfin study, newly listed houses get 3.4 times the attention online as those that drop their price.

The analysis found that a listing that’s viewed by 100 people on the first day is looked at just 17 times after it’s been on the market for 30 days. A price cut bumps that up to 29 views on the day the drop is posted, but the next day, daily views drop back to just 18.

Overall, Redfin found that online views drop off severely after the first day. On day two, views are half what they were on day one -- and after a week, just a quarter.

Are you “sleep divorced”? Turns out 25% of married couples are. That’s the percentage of husbands and wives who sleep in separate beds, according to a study by the National Sleep Foundation. And 10% of us sleep in separate bedrooms.

Professional Women in Construction, a nonprofit that supports women in construction and related fields, has given its first-ever award to a man -- Richard Wood of Plaza Construction -- for his role in helping the cause. Plaza is a construction management company.

Rises in median wages in the various construction trades outpaced those for all workers in 2018 by 3.2% to 2.5%, according to the latest Bureau of Labor Statistics tally. But the median wage rose even faster for roofers’ helpers (6.7%) and laborers (3.2%). Wages of plasterers, stucco masons, floor layers and tapers increased about 7%, while stonemasons saw their wages rise by more than 6%.

Good news for workers, but not homebuyers. And since subcontractor bids historically increase faster than construction wages, adding more inflationary fuel to housing prices, builders have little choice but to boost their prices to absorb the higher costs.

Finally, one more thing to ponder: For what you pay for the median-price house in San Francisco -- $1.196 million -- you could buy five median-price houses in the other 49 largest cities in the country, according to a LendingTree analysis. In Detroit, you could buy the equivalent of 23 houses!

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Disaster Coverage Is a Disaster for Most

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 22nd, 2019

Many -- if not most -- homeowners aren’t prepared for a flood, tornado or other natural disaster. And neither, apparently, are their insurance companies.

Take California, where the California Earthquake Authority estimates $175 billion in residential damage would result from a recurrence of the “Big One” that struck San Francisco in 1906. Yet only $15 billion in damage would be covered by insurance, warns the CEA, a private nonprofit that offers earthquake coverage to Golden State residents.

Created by the state legislature in 1996, the CEA says it is financially strong enough to cover all claims it receives, should a repeat of the super-catastrophic quake occur.

But the magnitude 6.8 quake that hit Northridge, California, in 1994 caused so much damage that insurers paid out more in claims than they collected in premiums over the previous 30 years, bringing many dangerously close to insolvency, according to the trade journal Insurance Business America.

Steven Steckler, president of the Sentry Claims Group in Louisiana -- an independent adjusting service -- says most, if not all, insurance companies have the resources to cover their insured clients’ losses, largely because only about 10 percent of all homeowners have earthquake coverage. We’ll come back to that shortly.

But there’s another problem: Should another major quake strike -- and they have occurred in 42 states -- there’s “no way” companies could put enough boots on the ground to assess owners’ claims and get them the money they need to begin repairs, Steckler says.

For one thing, there just aren’t enough adjusters. For another, there isn’t enough infrastructure to support them. In a major quake, roads and bridges will be destroyed, so adjusters won’t be able to reach people.

At the same time, “you can’t just show up,” says Steckler. “First, you have to have structural engineers check the integrity of the property. Until they put a tag on the door indicating a place is safe to enter, everything is at a standstill.”

Now, about the lack of coverage. Many people don’t realize that a standard homeowner’s policy doesn’t cover earthquakes -- or floods, for that matter. You’ll need either a rider or a separate policy to cover damage from a quake, and yet another separate policy to cover flooding.

But quake and flood insurance is expensive, Steckler says. The deductibles on an earthquake policy are so high -- anywhere from 5 to 20 percent of the coverage amount -- that claims are often less then the deductible amount, especially in expensive areas like California. Consequently, homeowners end up paying the cost to repair their homes out of their own pockets.

Worse, perhaps, some people don’t even know what’s covered by their policies and what’s not. Even when people have coverage, 18 percent have never bothered to read their policies, a recent study by ValuePenguin found. A third believe their homeowner’s insurance covers floods.

The Insurance Information Institute figures upwards of 4 million houses are uninsured, and that two-thirds of all houses are underinsured, some by 60 percent.

Meanwhile, homeowners aren’t prepared, either. Most don’t take the precautions necessary to protect their homes, like raising places in flood-prone areas or tying all joists together so houses act as one unit in quake-prone regions.

At the height of the hurricane season, which stretches from June to November, 3 out of 4 owners in the riskiest coastal states believed they were prepared for whatever Mother Nature sent their way, according to a survey by ValuePenguin, a LendingTree subsidiary. But less than half had taken any precautions.

Hurricanes are deadly in a couple of ways: The high winds knock things over, and the tremendous amounts of rainfall and storm surge cause flooding. According to the insurance institute, flooding is the most common and costliest of all natural disasters. The National Flood Insurance Program says 90 percent of all natural disasters in the United States involve flooding.

But flooding can happen for any number of reasons, not just big rains. Pipes sometimes burst, dams break or snow melts too rapidly. And damage from just a few inches of water can be expensive to repair.

Standard homeowner’s insurance is a package policy covering both damage to property and liability or legal responsibility for any injuries and property damage policyholders or their families cause to other people. This includes damage caused by household pets.

A standard policy covers 16 disasters or “perils,” but neither flooding nor earthquakes are on the list. Flood coverage is available through independent agents from the National Flood Insurance Program, or through some private carriers. Earthquake coverage can be added to your standard policy as an endorsement (aka a rider) or purchased as a separate policy.

To make sure you are covered during any kind of cataclysmic event, Steckler suggests looking for firms with a rating of “A-plus” or “Excellent” in the state where you live. These firms are the strongest financially, and do a good job investing their money, he says.

Another consideration is whether a company is “admitted” or “nonadmitted.” The former shares in a state’s guarantee fund, which will cover you if the company can’t meet all legitimate claims. The latter are large, standalone companies which, while there is no guarantee they will cover all claims, are often the only ones writing policies in high-risk areas.

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