Ask any good mechanic, and they will tell you to use the right tool for the job.
More sales associates are preparing broker price opinions, but when third parties are involved, you open yourself up to new liabilities. Here are the top risks you need to know about.
1. Not having a policy. Your broker should have a policy that spells out when it’s appropriate to prepare a BPO, what you can charge, who handles the fees, and who keeps records. Not having a policy is risky for you and your broker because state law could impose a penalty if BPOs are prepared improperly or mischaracterized. A BPO fact-finding group in Nevada found that in most cases, real estate professionals were preparing and getting paid for BPOs without their brokers even knowing about it. "There was no record-keeping," says Pamela Kinkade, a member of the Nevada BPO task force. "And that’s a big part of our law."
2. Using the wrong terminology. Appraisers determine property market value; sales associates preparing a BPO determine a recommended property price. Make sure that third parties aren’t calling your BPO a "market valuation," which is the work of appraisers.
3. Breaking state laws. State regulations governing BPOs vary greatly. Nevada, for example, permits real estate licensees to prepare BPOs for clients only in a sales transaction. Many states don’t allow fee-based BPOs. Some states require that BPOs include a disclaimer that they are not appraisals and are not to be used for lending purposes. Certain laws also require that only appraisers provide an opinion of market value, and that BPOs must be limited to determining a purchase or sales price. Be sure to investigate what’s legal in your state.
4. Being uninsured. If your E&O policy doesn’t specify that it’ll cover liability for BPOs, get a policy that does. "Most brokers have no coverage for liability arising out of the purpose for which the BPOs are being done," says Kinkade.
WHERE DOES IT SAY ANYTHING ABOUT THE DANGER OF GETTING VALUATION SERVICES FROM THE UNQUALIFIED, UNLICENSED, UNINSURED ?
Oh, one more thing in my state NJ, it is illegal for a real estate salesperson, or broker to prepare a BPO for any purpose other than setting list price.
By Ilyce Glink, Thursday, April 23, 2009.
With 30-year interest rates well below 5 percent, and 15-year interest rates between 4 percent and 4.5 percent, it's time to start seriously thinking about refinancing your mortgage.
But before you high-tail it to the nearest mortgage lender and fill out a mortgage application, there are eight things you should do:
1. Check out the interest rate you have on your current loan. When interest rates dip, the natural inclination is to start filling out loan applications left and right. But too many times, homeowners are focused solely on the new interest rate instead of how much they'll save by refinancing. While you may get water cooler-bragging rights, you should refinance only if it's going to save you money.
2. Find out how much your home is really worth. There's no way to sugarcoat it: Home values have sunk around the country an average of about 20 percent in the past year. In some places, such as Las Vegas, Miami, Phoenix and the San Francisco Bay Area, the decline has been twice as steep. It's vital to assess whether your home still has any equity (the difference between what you owe and what the home is worth) or if you are "underwater" with your mortgage (meaning that you owe more to your lender than the property is worth. Whether you have equity will determine what kind of refinance is open to you.
3. If you're underwater with your mortgage, assess how far underwater you are. While federal requirements have changed with regard to refinancing loans owned or serviced by Fannie Mae, Freddie Mac or FHA, if your loan is more than 105 percent of the value of the property, you may not be able to refinance without bringing cash to the table. (You may still be eligible for a loan modification, however.)
4. Get a copy of your credit history and credit score. Since the credit crisis began, lenders have raised the credit scores required to get approved for the best loan programs and best interest rates. The best place to go for a copy of your credit history and credit score is AnnualCreditReport.com. It's the only place where the three credit reporting bureaus provide a free copy of your credit history each year, plus you can pay $7.95 for a copy of your credit score. Choose the Equifax credit score, since it's the one closest to the score used by most lenders. (You can also go to MyFico.com, and purchase your credit history and FICO score for $15.95. You may also find their online community to be helpful in terms of suggestions on how to raise your credit score.)
5. Start identifying potential lenders. Shopping around for a loan takes a little more planning and effort than it used to, as lenders have jacked up the fees they charge to underwrite and process the loan. Your best bet is to talk to a national lender, a credit union (if you belong to one or can join one), a local mortgage broker (call your real estate agent if you don't know one and ask for several recommendations), and perhaps an online lender.
6. Find out if your second lender will subordinate to your first lender. If you have a first and a second mortgage (also known as a home equity loan), find out whether the second lender will subordinate to the new first lender. That will allow you to refinance your first mortgage, while leaving your second loan in place. Many second lenders will not agree to this, and if yours doesn't, you may not be able to refinance at all unless you pay off the second loan. One possibility is to refinance your first mortgage with the lender who owns your second loan.
7. Focus on the big picture, not just the interest rate. While the interest rate you'd get is important, it's also important to calculate how much you'd pay in fees, and how long it will take to pay yourself back the cost of the refinance with your monthly savings. For example, if you're going to save only $50 per month, and it costs you $5,000 to refinance, it'll take you 100 months -- or more than eight years -- to pay back the cost of doing the loan. You won't start saving until well into the eighth year of paying down the mortgage. So, unless you're cutting the term of the mortgage significantly (going from a 30-year to a 15-year), or you're able to pay off the costs in a relatively short period of time (say, less than a year or 18 months), it may not pay to refinance.
8. Get your paperwork together ahead of time. Before the housing crisis, you could almost do a refinance over the phone. In fact, you could call the loan officer you worked with regularly and put in your order for a refinance. You could do a no-cost refinance without providing much in the way of proof of earnings, or account statements or copies of tax returns. The forms would be delivered to your home, and then you'd sign them and send them in. Today, you've got to have your paperwork in order before you can refinance. Gather your W-2, a current paycheck, copies of your last two federal and state tax returns, copies of your bank accounts, retirement accounts, and other assets. Then call the lender.
***
"Reprinted with permission of Inman News"
SHOULD you care about how much money your appraiser makes?
That question is at the heart of a dispute in the mortgage industry, pitting independent appraisers against established banks, which in recent years have built vast networks of affiliated appraisers, through appraisal management companies.
Appraisers who work on behalf of these companies typically receive less pay than those who do not. Some appraisers say the lower fees mean consumers are less likely to get a high-quality appraisal, which could jeopardize their loans.
It is a claim with which banks strenuously disagree. “Obviously, it’s in a lender’s best interest to have the most accurate appraisal possible,” said Terry Francisco, a spokesman for Bank of America, “and it’s in the homeowner’s best interest, too.”
Borrowers, though, pay the same amount no matter who orders or conducts an appraisal. In the New York region, for example, an appraisal of a single-family home will cost around $300 to $500. But independent appraisers say that when a big bank orders an appraisal, it typically pays the appraiser about $200 of that fee and pockets the rest.
Mr. Francisco of Bank of America would not disclose the compensation of the bank’s affiliated appraisers. The bank employs 700 staff appraisers and relies on another 10,000 independent appraisers to do work on its behalf. All of the appraisers, Mr. Francisco said, are licensed and certified, and their work is inspected to ensure they comply with professional standards.
But that may not be a sufficient proxy for local market knowledge, said David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn. Over the last several months, he said, he has seen appraisal management companies offer the work to low bidders and hire appraisers “from two counties away from the subject property.”
“They’re in a county they’re not familiar with, so they’ll use comparable sales from inferior or superior markets than the one the subject property is located in, just because it’s in the same town limit,” he said.
In some cases, he said, a home’s true market value might be underestimated. “And that prevents homeowners from refinancing, and saving money in today’s low interest rate environment,” Mr. Adamo said.
Zachary Kimmel, an owner of William Paul Appraisals in Tarrytown, N.Y., performs appraisals for big banks and smaller lenders and brokers who do not use appraisal management companies. He would not disclose how much he is paid, but he said appraisal management companies generally pay $200 per assignment. “Most of the mortgage work now goes through the big banks and appraisal management companies,” he said, “so now the lion’s share of our work is this cut-rate kind of thing.”
But appraisals have become more complex, Mr. Kimmel said, given the declining housing market and new requirements from Fannie Mae and Freddie Mac, the government agencies that buy mortgages from lenders. He said the increased work and the decreasing compensation could eventually affect the quality of appraisals industrywide.
Broad efforts, meanwhile, are being made to protect homeowners during the appraisal process.
As a result of an agreement last year involving Fannie Mae, Freddie Mac and New York’s attorney general, Andrew M. Cuomo, lenders selling loans to Fannie and Freddie must follow stricter guidelines starting in May to ensure that people involved in processing loans do not also choose appraisers. A lender’s in-house appraisal company may still do the work, but only if that appraiser is chosen by someone not helping to evaluate or underwrite the loan.
In the meantime, Mr. Adamo of Luxury Mortgage, said borrowers should ask prospective lenders pointed questions about how they select appraisers.
Program offers up to $5,000 cash to qualified first-time home buyers
The New Jersey Housing Mortgage Finance Agency (NJHMFA) is offering cash payments of up to $5,000 for qualified first-time home buyers to help defray closing costs or satisfy down payment requirements and help new buyers to get into the housing market.
The loan, offered as part of NJHMFA's "Prefund" program, would function like a cash advance against the $8,000 tax credit being offered to first-time buyers who purchase a home between April 8 and December 1 of this year. In its simplest terms, purchasers would be provided with the payment as a loan and would be required to repay the advance when they receive their federal tax credit.
"This is a powerful incentive that will allow potential first time home buyers to actually enter the market because this cash advance will help them meet down payment requirements or pay for closing costs that might otherwise be an obstacle to a first-time buyer," said Jarrod C. Grasso, RCE, executive vice president of NJAR®.
The cash advance is available to first-time home buyers who:
View the full details of the NJHMFA's First-Time Home Buyers Tax Credit Loan Program (TCLP).
Before I start let me state “ All real estate like politics is local”, what may be true for my geographic area, might not be so in other areas.
As an appraiser I note REO (Real Estate Owned, by bank or other creditor) activity in the market area, while the effect of REO/SHORT sales should be considered in the valuation process, it should be assigned least weight as this REO activity does not significantly impact value of properly marketed, move in condition dwellings. The typical REO or SHORTsale in this market will suffer moderate to severe deferred maintenance, may require extensive repairs and modifications to be made by prospective buyer prior to taking title in order to qualify for certificate of occupancy, or satisfy mortgage financing requirements, and cannot get homeowners insurance if it is to be unoccupied during renovations.
The typical buyer of these reo dwellings is a contractor or professional real estate speculator/operator able to close title with a cash sale, seeking to rehab and resell at profit. Other potential buyers would be “a handyman” someone with the ability, and willingness to move into a home and plan on the next year or so of making repairs and remodeling, trading sweat equity for a considerably below market price.
The generation that was willing to do that is pretty much moving on to assisted living centers.
Today’s generation buyer wishes to move in over the weekend, then send their kids to school, and drive off to work on Monday.
I await your thoughts.
The Nest, a home-improvement Web site, says before making any big changes to your home you should ask yourself these big questions:
A final tip: if you do plan to follow through with a large-scale renovation, do the smallest room in the house from start to finish -- the insulating, rewiring, painting, refinishing, tiling -- so you gain a sense of accomplishment.
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