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May 15th, 2009 11:23 AM by David W. Welch
I cannot speak for other markets, but here in Orlando our market place is being driven by investors and first time home buyers. Some investors are seasoned professionals, and others went to some seminar or bought the cd/dvd on how to make a bunch of money in real estate. Others are just looking at real estate as a more solid investment right now than the stock market with better return potential than the bond market. The first group of investors know the answers, the second think they know the answers and the last group ask a lot of questions.
First time buyers have a lot of questions too, and that is great. Thanks to the internet there is a lot more data for you to go through, and blogs like mine with information to help you understand the data you are looking at. Unfortunately, there is a lot of stuff on the internet that I think just confuses or overwhelms people. There also can be significant differences in markets, and what the current real estate environment is. Here are a few questions that I get frequently from first time home buyers.
Are REO's and Short Sales a better deal? The short answer quite often is yes, but not always. You do have to be careful, because REO's and short sales are as-is, and there are likely to be problems with these homes since they usually have not been maintained properly.
How do I get the tax credit? First, you cannot have owned a home in the last three years, and you must close by November 30, 2009. There are income restrictions, and the credit is not necessarily $8,000. It is 10% of the purchase price up to $8,000. So, if you buy a $50,000 home the most your credit can be is $5,000.
Can I use the tax credit as my downpayment? Not yet, but I have heard that there may be some changes coming that could allow that.
Will the seller pay my closing costs? That depends on the seller. Typically, in the Orlando real estate market, sellers are being asked and most appear to be agreeing to pay some buyer's costs. The most common thing I am seeing is 3% of the purchase price.
How much with the seller come down? That also depends on the seller. On average we are seeing between 8-10% being negotiated on the price. That varies by neighborhood, and the average means virtually nothing. If the home is priced correctly to begin with, it may sell for full price. If the home is way overpriced, they may have to come down a lot more than 8-10% or just not sell the home.
What is the problem with short sales? A short sale requires the sellers lender to agree to take less than what is owed to them. Before they agree to it, the PMI company has to agree and the lender that holds the security has to agree to it. I say there is nothing short about a short sale, since they will take you a minimum of 3 months to obtain that approval. I recently obtained approval on a contract that was written in September of last year. Eight months of waiting, and I have heard of many worse than that.
Is this the bottom of the market? This is a completely different question than "is this a good time to buy?" The recession was correctly predicted by the brightest economists the government could find nine months after it started. In my opinion, we are actually below the bottom here in Orlando, but we may be on our way back up.
Is this a good time to buy? Absolutely, for four reasons: 1) inventory is still high, right now we have about a 12 month supply of homes for sale (a year ago it was almost 24 months); 2) prices are ridiculously low, the affordability index is 195 meaning the median wage earner can almost afford to buy two median priced homes.; 3) interest rates are being held artificially low by the Fed, last month's average rate was 4.87%; 4) the tax credit is free money, but it is gone at the end of November.
David Welch, Real Estate Optimist, @RealtyOptimist