Financial Overhaul Bill and Real Estate

Recently, our congress successfully passed new legislation, courageously recomposing century-old U.S. financial rules. It seems our buddies in D.C. have acquired great economic know-how, unseating 80 years of financial thought in a single, 24-hour session. The method of attack dealt with added regulation in derivative trading, and more specifically - Credit Default Swaps. Today, I will explain CDS's, their influence on U.S. real estate, and how this new legislation will drastically affect everyone from the mighty real estate investor to the common renter. So, get involved and find out how this revolution to financial rules will affect both your personal and professional world.

Quick Hitters: side-effects of new bill

-Slow, steady increase in size of middle class

-Fewer home purchases

-Decrease in American home ownership -Increase in the renting community

-Increase in rental prices

-Critical paradigm shift in banking

Most critical to the real estate market is how the bill imposes derivative regulation on all U.S. banks. Certain types of derivatives, Credit Default Swaps, are used by banks to hedge or protect against the risk of default or non-payment on loans. In essence, CDS's reduce some of the risk associated with providing loans, and for our purposes - mortgages. A third party will offer a bank to pay the amount left on the loan if the borrower is no longer able to make the loan payments. To make the third party willing, the bank will pay a premium to the third party, similar to premium payments to insurance companies. Here is an example:

Bank A decides to provide Minesh the Borrower with a 30-yr fixed mortgage of $250,000 to purchase a home. Bank A cannot afford to lose $250,000 if Minesh is unable to pay, but the bank can afford to risk losing $100,000 of the principal on the mortgage. Now, since Bank A still cannot afford to lose the remaining $150,000, it offers to pay a third party company $1000 every three months if the third party company agrees to pay Bank A $150,000 in the event that Minesh Borrower is unable to pay his mortgage. It is similar to insurance, without the insurance regulations - a way for banks to hedge against financial loss from borrower default.

The added security of CDS's to our mortgage lending environment instigates and encourages lending to home buyers, as mortgages protected with CDS's are more likely to be issued, and are more marketable for re-sale. Anything that makes mortgages more appealing, facilitates mortgage approval, and thereby, makes home purchasing more frequent and attainable. In many situations, loans are not made without credit default swaps.

So, what does this all mean? The added regulation on CDS's may remove their safety net from mortgage lending, increasing associated mortgage-default risk. In order to balance or reduce risk, costs to borrowers will increase. At times, the lack of CDS's will lead to such an increased default risk that any prospects of bank profitability are eliminated, leading to declined mortgage applications.

Why are Credit Default Swaps the target of legislative assault? Large corporations exposure to certain CDS's such as AIG- America's insurance giant- led to corrosion of corporate balance sheets. AIG sold a number of CDS's to banks all over the world, providing bank protection in the event of mortgage default. With nearly $440 billion of coverage provided in the form of CDS's to banks, AIG faced a crises when the American people simultaneously began defaulting on mortgages, as the climbing of the federal funds interest rate provoked many newly issued floating-rate mortgages to blunder. Without enough cash to maintain its side of the CDS agreement to cover the loss on mortgage default, AIG liquidated many other, profitable assets out of necessity, killing the company's financial well being. Unable to provide banks in need with the promised cash recuperation, and also unable to maintain the promise of a security blanket against default to other financial institutions sent the banking system into a frenzy. Now, banks had to deal with mortgage default losses alone, and banks not yet facings mass defaults were forced to look elsewhere to protect their mortgage assets against default; however, the protection was now significantly more expensive, considering the shift in the perceived risk surrounding mortgages. The poor investing of AIG funds corrupted its primary line of business - insurance, requiring government intervention, as too many Americans depended on insurance benefits from the giant corporation, requiring tax dollars to protect the insurance benefits, as the company was no longer able to secure funds elsewhere

How will all this affect the real estate market?

Wave good-bye to the ease once associated with CDS issuance and trading - bye, bye. Banks are no longer to engage in "risky" derivatives trading to prevent catastrophe exemplified by AIG - a situation relying on taxpayers for correction. Now that banks are no longer able to deal in potentially risky derivatives trading, the government is, in essence, lifting the ability of banks to offer mortgages to anyone other than the most capable home purchasers. Effectively, banks will only have the availability to approve mortgages with significant down payments (a minimum of 20%) and borrowers with outstanding credit. Such borrowers are not in need of any form of default insurance, considering the debtor's financial strength.

The Mistake

The stated goal of those drafting our new legislation is to eliminate the use of Credit Default Swaps as a means of speculating the quality of a loan/mortgage, using the AIG example as the evidence of potential catastrophe with speculation in Credit Default Swaps. Oh no no no no, Barney! Mr. Barney Franks! Again you misinterpret the fundamentals of American financing, it was not bank speculation that led to the problem; it was the speculation of the companies investing in CDS's like AIG who put the system in jeopardy. I submit that government regulation is imposing harsh regulation on a mistaken culprit. The banks simply use the vehicles to purchase security, but the companies supplying the CDS's speculate that they will collect enough premiums to counterbalance any claims on defaults they may on day need to pay. There is no speculation on behalf of the bank, only hedging for safety measures. The regulation, if any, should be levied on private sale of CDS's by companies such as AIG - regulating their exposures to certain derivatives trading would be more appropriate. AIG's mistake was acquiring too many CDS's of similar complexion, all with sub-prime borrowers, similar loan start dates, and floating interest rates. Such negligence left the company vulnerable to catastrophic loss. For AIG, the catastrophe was a progressive climb in interest rates. I submit that regulation preventing companies from pursuing too many of one category of CDS's could protect conpanies, banks, and individuals from the risk of catastrophic loss.

As a result of the new legislation, the mortgage game will be more challenging, as a loan without the security of a Credit Default Swap is less marketable, and therefore, less attractive to banks. There is little money to be made off of non-CDS supported mortgages unless the borrower brings accompanying financial strength that dispels the need for added, hedged security. Also, the loans will only be designed with strength, including only financially strong debtors and loans built off strong equity positions (large down payments).

Who's Affected?

Investors: the practice of flipping houses will no longer have short-term profitability, as the buyers market will be a fraction of it once was, and the frequency of real estate purchase will thereby decline. Real estate investment will shift from seeking gain on house value, to designing strong revenue from cash flow - income properties. With cash on hand and appropriate ratios of debt to equity, investors with cash retain access to low interest rates, unavailable to others, and should be able to use their cash-rich situations to design a cash flow from rent. Interest rates will remain low, as few will have access to the low rates, and with a small number actually able to take advantage, the widespread demand of borrowed money will never be great enough to quickly drive up interest rates. The wealthy will be able to borrow for cheap, and likely rent out the property at high returns, as home ownership will decrease dramatically, and the American dream of home-ownership will turn to distant fantasy

Renters: You will soon be greater in numbers, as many American will revert back from ownership into the conservative life of renting. Without available funds, young professionals will no longer be afforded the opportunity to leap into early home ownership. Furthermore, some home-owners of the past will be sent back to the minor leagues, presented with new obstacles on the path back to the top. As I'v mentioned before, increased renting will drive up monthly rent prices (another reason why the investors mentioned above may want to take advantage of income property).

Property Managers: prepare to expand your business at lower prices to your clients. In the coming years, an increasing number of houses and various other units will be used for rental activity. Form strategy on how to accommodate the new renting generation, as they will likely seek the quality of a home, in rental form. These are long-term renters with a likely heightened demand for quality. Keep the complexion of the incoming tenants in mind, and adjust your business plans to accommodate for the surplus in renters.

Real Estate Agents: Depending on your niche in real estate, you will likely need to alter your approach to profitability. The purchasing power will now rest primarily in the hands of investors, and after the houses on the market now are unloaded, there will be no quick turnover on homes as we have grown accustom to over the past 40 years. Ownership will remain constant, so it is important to focus sales efforts in cities with substantial investment capital and great rental demand, as housing purchases will come from investment for the purpose of generating cash flow, requiring a renting population. Personally, I suggest cities containing large colleges/universities. Next, you will likely need to incorporate property management into your business model, as it will be the best way to secure consistent income in the long-term. However, many agents will also shift into property management, so be sure to provide a competitive advantage - use new technology available to create an efficient management company. Remember, the current state of the industry has little technological influence, and requires too much leg work to function properly.

Do I Need a Home Inspection? - Real Estate Advice

Most home inspections today run between $300 to over $1000 and sometimes you don't really get your moneys worth. There are home inspection companies that guarantee, any problems that they miss will be repaired at their expense over a desired period of time, usually a year. It seems like, most home inspection companies are just inspecting the property and have no guarantees or liability from their inspection.

It's not a good idea to buy or sell a home without getting a home inspection from a licensed home inspector. This is like having a second opinion from someone who is usually skilled in the process. I would like to point something out to unsuspecting, potential home buyers and sellers. Sometimes a home inspection company will get a little behind in their work and need to hire other home inspectors if these home inspectors don't have any experience in the construction business or have never inspected a home before. In other words there fresh out of home inspector school. You might not get a good home inspection.

You can always ask the question, how long have you been in business?... How long have you been a home inspector?... have you ever worked in the construction business or have any skills in home building and remodeling. If the answers to these questions are satisfactory, it doesn't mean, that they're telling the truth and being sincere and could lead to problems later if they are lying to you.

Let me rephrase the question now, "Do I Need a Home Inspection" from an unqualified home inspector? Absolutely not. But how can you really tell the difference and is the report going to be worth the money that you paid for it.

What would you say, if I had the solution to your problem. How about a pre-home inspection, using a home buyers checklist? What if I could give you a check list with questions, that you could ask your home inspector? Some of these questions are not going to be part a regular inspection but should always be asked and make sure you get the answers to them, before purchasing the property.

Would you be interested now? What if I told you, for under $20, you could purchase a home buyers checklist, now for the tough question, this checklist could save you thousands of dollars and prevent you from purchasing a home with major construction problems or defects, and can be used on every house you look at.

Don't buy a home without purchasing a professional home inspection checklist. These lists of questions can save you some serious headaches and stress in the future.

The Links at Greenfield Plantation Homes and Real Estate for Sale

Optimism remains high in the Bradenton real estate market in Florida because of the splendid values that can be possibly had in the golf communities in the area. One of these properties is The Links at the Greenfield Plantation which count among real estate agents' choices of properties that they recommend to prospective buyers.

Location, the most important factor to consider in a due diligence for a property, is a great plus for The Links at Greenfield Plantation real estate. Its State Road 64 main transit point is only two miles east of Interstate 75. Hence, this places the community only minutes away from the commercial areas of Bradenton and Sarasota to the south, as well as the latter's arts and culture district. The urban centers of Tampa and St. Petersburg up north are also within ten miles from the community.

The alluring combination of a residential community with a golf course and its clubhouse also work well in favor of The Links at Greenfield Plantation. Opened in 1998, the course has grown in popularity in the Bradenton area not only for some memorable play but also because of its hospitable clubhouse. This community center comes out enticing with its Snack Bar storied for its home-style deli specials, hot and cold sandwiches, delectable soups, and fresh salads. Likewise contributing to the homey atmosphere are the comfortable appointments at the clubhouse which include a large screen projection TV. There's also a swimming pool with a spacious deck contributing to the laid-back lifestyle at Greenfield Plantation.

The 18-hole, par 72 golf course in the community was designed by the famed course architect, Chip Powell. The layout measures 6.719 yards with its well-maintained grounds wending through a dramatic landscape of lakes, woodlands, and marshes that has become a natural habitat for local birds and wildlife. Some drama looms in every play with the wide bunkers and water hazards that were built subtly into the layout. To help golfers solve these riddles, the club recently acquired a ParView GPS system to enable access to graphic overviews of each of the eighteen holes of The Links course.

Options for sales-listed homes in The Links at Greenfield Plantation can consist of single family residences either in ranch-type Florida style or in Mediterranean-inspired architecture. Reputable builders like La Maison and Bruce Williams, were behind the construction of these homes. Their superior values can best be appreciated in homes with floor plans of about 1,300 square feet that can carry tag prices in the $140,000 range. Another good reference point are houses with floor areas of around 2,500 square feet listed in the $300,000 price range which can fully show the great property values in this golf community.

Is Housing and Real Estate Bubble Hype Irrational Exuberance?

Not so, says the author of this article and four real estate books including the recent "1001 Tips for Buying and Selling a Home". The upside of the hype is for real estate consumers and investors. The housing bubble topic has produced real estate market information for new or nervous investors about specific markets. Little reporting on the bubble topic exploits the "sell now" syndrome. The downside of the hype is the occasional real estate industry naysayer (never say never?) who has a financial interest to protect.

Media stories have included balanced perspectives from real estate analysts, brokers, consumers, educators, and trade associations. Their experiences remind us that real estate remains a market based upon supply and demand. The value for consumers is the wealth of updated information about their market and current real estate practices. These new resources help them make informed investment decisions concerning the management of their real estate holdings.

Housing once relegated behind the headlines has become the cover and lead story. It's certainly struck a relevant cord with its appeal to consumers, as sixty-eight percent of us are homeowners. Online monitoring service Hitwise confirmed consumer searches for real estate and housing bubble information reached a twelve-month high at the end of May 2005.

Zoning 101 - Understanding Buncombe County Zoning and Real Estate in Asheville, North Carolina

Zoning can be a confusing issue regardless of where you own real estate, whether it's a large city like Charlotte (NC), a small city like Asheville (NC) or a rural area like Buncombe County Western North Carolina. Zoning is a tool used to designate individual areas of land for specific purposes. When used correctly zoning can help fast developing cities and counties create a smart growth plan. This is one of the reasons Buncombe County commissioners are implementing new zoning in the metropolitan region surrounding Asheville, North Carolina.

The new zoning, adopted in May of 2007, impacts property owners throughout Buncombe County, as well as future homebuyers, sellers and real estate investors. A clear understanding of the zoning ordinances and restrictions is essential if you are going own real estate. It affects the value of your home and the choices you can make when selling or building on your property. This applies to residential real estate as well as commercial property owners.

Zoning Rules for Real Estate in Asheville, NC: The Importance of Community Accountability

In a video entitled "Will Zoning Affect You?" on the Buncombe County web site, [http://www.buncombecounty.org/governing/depts/Planning/landUse.htm], Assistant County Manager Jon Creighton explains the county's motivation for implementing new zoning in the spring of 2007 and describes the proposed zoning changes. He also confirms that concerns about the increasing number of county residents, real estate developers and homes being built on the tops and sides of mountains have compelled Buncombe County and city of Asheville officials to make zoning a priority.

Creighton begins by defining an Open Use zoning designation. Open Use, or OU, is zoning usually found in rural areas. Land considered available for Open Use means property can be purchased and sold for a wide variety of residential and commercial purposes with the exception of certain restricted uses. The uses restricted on Open Use land include incinerators, concrete plants, landfills, asphalt plants, chip mills, mining operations and motor sports facilities.

According to Creighton these types of businesses have a large impact on the community, as a whole, so any real estate investor or property owner interested in these ventures must present a project proposal at a public hearing. This allows other property and homeowners in the Asheville area to hold Western North Carolina business and real estate developers accountable for the impact they have on existing neighborhoods and residents.

How Does Zoning Affect Buyers and Sellers of Mountain Homes and Land Near Asheville, North Carolina?

The comprehensive zoning throughout Buncombe County and Asheville, NC also changed in 2007. Comprehensive zoning differs from Open Use because it separates residential and commercial areas into designations like R-1 and R-2 residential districts, employment districts, and neighborhood and commercial service districts. Buncombe County and Asheville homebuyers and sellers can find their property's zoning designation using the county's online GIS system. The system can be found at [http://www.buncombecounty.org/governing/depts/Planning/landUse.htm].

Property owners and real estate investors interested in changing the zoning designation of specific land can approach the Buncombe County Commissioners and Board of Adjustment. Public hearings are required if an Application for Variances or Conditional Use Permits or an Application to Amend the Buncombe County Zoning Ordinance Text or Maps are submitted. In order to obtain a building permit for any zoning district other than Open Use real estate investors and property owners must file for Certificate of Zoning Compliance. The cost associated with these applications varies.

Size Does Count! Downtown Zoning in Question on Merrimon Avenue

The most recent zoning debate taking place in Buncombe County is actually happening in downtown Asheville, NC. In an article written by Mark Barrett in the January 15, 2008 issue of the Asheville Citizen Times the Asheville City Council will explore two major zoning matters in 2008. First, the developers of the Horizons Project, which would erect nine buildings including two 10-story towers, have asked to postpone a public hearing until July in order to evaluate neighborhood opposition and economic conditions.

Barrett also writes that the Asheville City "council is scheduled to hear from city staff on zoning proposals for the 2.4-mile stretch of Merrimon between Interstate 240 and North Asheville Library near Beaver Lake." "The city had considered creating a new zoning district for much of the property along the street that would encourage taller buildings closer to the street," Barrett continues, "but several property owners and some residents objected."

As Buncombe County moves forward into the future growth is inevitable, but the real effects zoning will have on real estate in Asheville, North Carolina is yet to be seen. Local homebuyers and sellers can achieve more real estate success the more they educate themselves about zoning restrictions and changes. To learn more about zoning or buying and selling real estate in Asheville, NC visit http://www.MarkGJackson.com.

Your Home Equity and Real Estate Commissions

If you're like most people, your home is the biggest single investment you've got. You expect it to increase in value over time, and you probably have more money tied up in it than in any other investment. This money is your equity, and a large chunk of it disappears when you sell your home using a real estate agent.

In this article, you'll learn how real estate commissions affect your equity, you'll see just how many real estate agents make money from a single commission, and in the section called Avoiding the Pressure, you'll get an inside look at why many real estate agents are so persistent at getting their sellers to accept low-price offers.

A Quick Word to Buyers

Buyers and sellers alike benefit when there is no real estate agent involved. The term "fair market value" has a different ring to it when the middleperson is taken out of the equation, and prices trend to a truer value when they no longer reflect real estate commissions.

Equity

Equity is the value of the unencumbered interest in your home. It's the difference between the fair market value of your home and the unpaid balance of your mortgage, plus any other outstanding debt on the home.

Real Estate Commissions

Real estate commissions are the fees earned by real estate agents and are based on the selling price of the property. They're usually in the range of 6%, and they represent an excessive portion of the property's equity, equaling thousands and thousands of dollars.

Your equity increases in two ways: as you pay off your mortgage and as your home appreciates. It decreases when you borrow against your home. But nothing reduces your equity quite like a real estate commission. You get nothing for it that you couldn't have got on your own.

Here are three assertions for why you should sell your home yourself:

Lower Cost of Selling

If you sell your home using a real estate agent, the commission you'll be charged is around 6%. For a $250,000 home, that's $15,000. For a $600,000 home, it's $36,000. You have to ask yourself what you're getting for all that money. The cost of selling your home on your own is negligible by comparison, and the result is the same: your home will sell. If you list your home on a For Sale By Owner real estate wed site, run a few classified ads in the real estate section of your local paper and prominently display a For Sale By Owner sign in your front yard, the cost of selling your home could be less than $1,000. With the amount you'd save in commissions, you could still afford to advertise more, if necessary, in places like local real estate publications and newspaper supplements.

Retaining Your Equity

Let's say a couple decides to sell their home. It has a fair market value of $300,000 and they have $60,000 of equity in the home. They decide to use a real estate agent and agree to pay a 6% commission, or $18,000. The house sells. After the closing, the couple realizes they've lost 30% of their equity. The $18,000 commission paid at closing meant that instead of walking away with $60,000, they only walked away with $42,000. So they have much less to put down on their next home.

Avoiding the Pressure

The economist Stephen D. Levitt and co-author Stephen J. Dubner wrote recently in their book Freakonomics (HarperCollins Publishers, Inc.) of Levitt's study showing that when real estate agents sell their own homes, those homes stay on the market an average of 10 days longer than their clients' homes. The same study shows that the selling price of real estate agents' homes is on average 3% greater than that of their clients.

Here's why. A couple who lists their home with a real estate agent for $250,000 may hear from the agent that someone has offered $240,000 for the home. The agent will typically insist that this is a good offer and that the sellers should take it. Why would the real estate agent be so eager to accept a price that's $10,000 below the seller's asking price?

It's simple. Agents split their commissions: half goes to the buyer's agent, half to the seller's agent. Then it's usually split again: each agent gives half of their commission to the agency they work for. So the agent representing the seller is only getting 1.5% of the sales price of the home (6% ÷ 4).
With a $240,000 offer, the price of the home is reduced by $10,000, but the commission is reduced by only $600. The real estate agent's cut of this is $150. It will cost the seller's agent only $150 to accept the low-price offer. What does it cost the seller? An additional $9,400.

This situation happens every day. There is a strong incentive for real estate agents representing the seller to entice their sellers into accepting offers well below their asking price.

Summary

As you can see, there are tremendous financial advantages to selling your home yourself. That's not to say it's for everyone. It requires a little more effort, and some are willing to part with all that equity to have a real estate agent do it.
But selling your home yourself can be easier than you think. The right research will help you price your home correctly, understand the paperwork involved, and prepare you getting the home ready to sell.

Make sure you walk away from your closing with your equity intact.

Mortgage and Real Estate Information for Debtors

If you owe money and have a below average credit score you may find it difficult to get a mortgage loan. In view of these facts, you may find interest in asking a qualified real estate agent help you find a home. These agents have a database full of houses that stream from land contracts, bad credit approval, and so on. The real estate agent may help you find a home you can buy despite how bad your credit maybe.

If you have outstanding debt, the lender will inquire about your credit history and debts incurred. The lender will ask if you have any outstanding loans, and if so, what amount do you pay monthly. In other words, if you have car loans, you will need to supply the balance owed and the amount paid monthly toward the loan.

Lenders will ask about credit card debts. If you reply yes, then the lender will ask how much do you pay monthly. Overall, the lender will ask how much monthly do you spend on incurred debts that come from your pretax salary on credit card repayments etc.

You will need to answer questions pertaining to assets, which includes cash on hand. The underwriters will investigate information relating to the questions. For example, they will examine and ask, "What is the estimated amount in your banking account?" How much funds will be available in your account after you have paid closing fees, down payment costs, and other fees applicable to mortgage loans. Do you have a saving account?

The lender will ask how much cash do you intend to apply to the loan. The lender may ask also if the down payment is money coming from your pockets. If the answer is no then the lender will ask where the money is coming from...

Loan Purpose

The loan purpose is of interest to the lender. Accordingly, you will respond to questions relating to the purpose of the loan, which includes, are you refinancing a current home, or are you an innovative buyer?

Refinancing Mortgage

If you respond to the question pertaining to the loan, letting the lender know that you intend to refinance a current home with the money lent; the lender will ask, "Do you require cash at closing to repay debts? Of course, the question that follows will be, "How much" cash will you need to pay the debts in full?

Property Purpose

The lender will require information pertaining of the home's purpose. Do you intend to use the home for work or dwelling? Is the loan intended to invest in the property?

Type of Property

The mortgage lender will also need to know if the home is duplex, condominium, or single-family housing.