10/03/07
On top of the dreadful news that pending home sales tumbled 16.5% in just two months, we're now learning a lot of homes that are under contract might not get sold after all — and not because the buyer can't get financing in a suddenly-tighter credit market.
No, in a growing number of cases the problem lies with the seller.
It seems that for those homeowners on the margins — those with some but not much equity — the costs of a real estate transaction are turning into a kick in the pants.
The problem seems to start, she said, with those formerly easy-to-snatch mortgages that cover 95 or 100 percent — or more — of the purchase price.
Yep, thanks to Bubbles Greenspan's EZ Credit Emporium, more and more, the seller finds himself or herself writing a check on closing day… and in some cases, the seller just doesn't have the funds to cover it. Chicago Tribune real estate columnist Mary Umberger hears from an understandably anonymous source:
"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.
Going over a settlement sheet from a recent transaction that did close, it becomes very clear why others aren't. This home cost just under $600,000:
Reeling off a few of the line items, she notes that the seller had to cover $1,800 in title insurance, a $75 water-certification fee, nearly $900 in tax stamps to Chicago and Illinois; a $550 attorney's fee; a $40 "overnight processing" fee. Those and numerous other charges drove the closing costs to about $3,400.
And that didn't include the pro-rated property taxes for which the seller was liable and which weren't covered by the escrow account. In this case, the seller had to set aside $6,000 from the sale of the house to cover the taxes.
Then, ahem, there's the commission.
"If you're listing a house for $410,000 and the mortgage is $390,000, you've got a problem," she said, in a bit of an understatement.
Based on the 5 percent rate she says prevails among city real estate agents, a seller in her $410,000 example would pay a $20,500 commission.
Ouch. While there aren't any numbers that pin down how often sales are falling through because the seller is strapped for cash, the agent says the trend is strong enough to change the way her office does business:
My friend said her fellow agents had been admonished by management that they should delicately wrestle their sellers' finances to the ground before matters progress too far.
"There used to be a rule of thumb that you needed to be able to set aside 10 percent of your sales price," she said. "Five percent covered the commission, and another 5 percent covered the miscellaneous fees, the cardboard boxes and the movers."
Now, in our over-leveraged age, that number seems just too tight.
"All those fees, they don't seem so big when you're looking at a $50,000 check coming your way," she said, her voice trailing away. "But when you've spent all your equity on a new car …"
Or a cruise, or a boat, or a big screen…
Little wonder that the second wave of the housing tsunami is upon us.
Dave Gonigam
Treading a fine line between contrarian thinking and conspiracy theory, Dave Gonigam explores the nexus of finance, politics, and the media for Agora Financial's 5 Minute Forecast. He joined kindred spirits at Agora Financial in 2007 after a 20-year career as an Emmy award-winning writer, producer, and manager in local TV newsrooms nationwide.
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I have trouble envisioning how virtually any subprime loan that is set to reset will not default and wind up in foreclosure.
If this homedebtor could have qualified for a prime loan, they would have had every incentive to do so at the time (when qualifying for one was easier than it is today). Yet they didn’t. Thus, they were barely on the edge of qualifying for the teaser rate. Now, the rate is going to adjust to something much higher than the rate that they previusly couldn’t afford.
Am I missing something here? Why do all of the estimates of deliquincies seem so low. House prices going down. lending standards tightening and incomes stagnant! It’s going to be a rare sub-prime borrower who can either a) come up with the cash to sell his/her home; b) have seen such an improvement in financial circumstances that they can afford the reset or c) can now refinance as a prime borrower.
I have no idea why anyone would not start from the assumption that ALL sub-prime loans that are resetting in the next year are going to default and then start backing out the rare exceptions.
Regards,
Chip Plumb
yes, i totally agree ,chip, i am 1 of them,i see myself in forecl. soon.I could only qualify for a A.R.M. 2 years ago cause of 3 ERRORS on my credit, 30 day lates,the credit bureau`s,the lender,the F.T.C.,the rapid rescorer all ignored my proof,did nothing for me,very fraud friendly!This credit system is corrupt,the F.C.R.A. is an honor system?not enforced so they steal from us at will,then you consider how big bus. (gas,oil co`s,insurance co`s,banks,lenders,media,)is raking in record profits while we get our credit ruined and thrown out of our houses,and the gov. helps them?NO JUSTICE=NO FREEDOM=NO OPPORTUNITY
We need to take back our country from the self-serving ignoramus’s who run it. The only way to do this is to establish a third party and stimulate real debate about the issues. Light can banish the ignorant darkness that allow snakes like Murdoch to control us. Mail me at chiro4life@peoplepc.com if you are ready to sacrifice for your country. Whiners stay away, it may be your right to whine, but I am appealing to those with a sense of obligation.
This note from Canada. Since our dollar hit par. A couple of weeks ago my friends father went to the Arizona. He seen a very nice 1200 sq ft house with a for sale sign on it. (Since he is looking for a retirment property). He called up the company that had it for sale. He offered $80,000 cash. The asking price was $140,000. He thought that they were going to tell him to take a hike, instead he said they had the papers out so fast for him to sign that he could hardly believe it.