You
may be saying to yourself, as you begin to read this week’s installment of
possibly the best mortgage newsletter in the world if not the universe, that
this better not be about how we’re in a seller’s market and that I need to be
“armed and ready” to fight tooth and nail (now THAT is a weird saying) for the
house I want when it hits the market.
Relax. I promise I’m not going to
write about that . . . because
if you didn’t listen to me in previous weeks, you’re already behind the eight
ball, and you need some other wise advice.
I’ve got your back, don’t worry.
A
bunch of people with pointy heads bulging with bigger brains than mine got
together in a Holiday Inn conference room in Des Moines recently, and the
leader in a tweed jacket with leather elbow patches, an old walnut pipe
jauntily hanging from the side of his mouth, said, “Ok, people, no one leaves
this room until we come up with a method to classify homes for sale in this
ever-competitive seller’s market. I mean
it!” Four feverish and stressful days
later, with only 5-minute potty breaks and sleeping in two-hour shifts, they
had worn out seven dry-erase boards and countless markers, but their hard work
paid off: they had the perfect four-level classification system that would
succinctly and effectively describe the conditions of the homes for sale. Buckle up, kids, this is groundbreaking
stuff!
First
the methodology –
its simplicity is the key to its genius.
They broke the homes up into four groups with each group representing
25% of the inventory –
wow! Then –
and this is where you might want to wear a helmet because your mind is about to
be blown, and you’re going to want to contain the pieces –
they gave a name to each of the four groups: Great, Good, OK, and Bad. If you’re having trouble processing this, let
me help. The “Great” homes sell the
fastest and get the best pricing when they sell; the “Good” homes sell almost
as fast, and they have good, healthy pricing when they sell; the “OK” homes sit
a little longer on the market and may have to take a hit here and there on
price to get themselves sold; and the “Bad” homes have been sitting on the
market for quite a long time either because it’s an owner/agent who thinks his
house is the Taj
Mahal
and is worth $100K more than comps would support or the home is in a state of
disrepair that disables it from a mortgage company lending on it and the owner
doesn’t have the cash to fix and bring it up to a “loanable” qualification. If you want me to wait a moment while you
read back through all that technical jargon, take your time.
So,
here’s the deal: the inventory is
vanishing almost as fast as it’s appearing (I’m preaching to the choir here, I
know), so that’s all the “Great” and the “Good” and most of the “OK”, right? So, now you’re dealing with the “Bads”
–
the Dark Side. Since you’re not a bank
with oodles of cash lying around, you’re going to need a mortgage to complete
the transaction, so what do you do? I
have the answer for you with one word: holdback. Quite simply, the money needed for the repair
(roof, flooring, etc.) is held back from the proceeds of the closing, held by
the escrow company, and paid out to the contractor once the work is
completed. This allows the transaction
to close and get everyone proceeding with their lives. More importantly, it gives you a tremendous
tool with which to negotiate on the price!
Here’s
a secret: going through the mortgage process with a holdback involved is
something most mortgage companies hate doing.
There’s extra work involved and a lot more hoops for the mortgage
company to jump through with underwriting and other departments –
it’s not a walk in the park –
so many mortgage companies either act like they didn’t hear you when you ask
about a holdback or they run screaming into the night and hide. Now, here’s the reason I tell you that
secret: we love to do holdbacks!
Why? We want you to arm you and
enable you to dominate in this seller’s market without having to fight tooth
and nail –
that still sounds weird.
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