Cash-Out Refinancings Will Be Higher Than Ever

U.S. homeowners are expected to draw $257 billion of wealth out of their homes this year, according to Freddie Mac.
REALTOR® Magazine Online
That’s a $13 billion increase from the refinancing cash-out boom in 2005, when interest rates were lower.

"I would have thought the home-equity extractions would have been much weaker now," says Frank Nothaft, chief economist for the mortgage finance giant.

Economists say most of the money is going right back into the domestic economy and characterize it as the housing sector’s last gift to the country’s economy.

Freddie Mac expects home owners to extract $152 billion out of their homes in 2007 and $108 billion in 2008. Those numbers are much higher than a decade ago. In 1996, refinancing cash-outs were $17 billion.

Part of the increase is due to a changing view of home mortgages, says Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "One of the big changes is that people look at their home as a financial asset," he said. "In another generation, the notion was 'Burn the mortgage.' That phrase is not in fashion anymore."
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First Step for Buyer: Find Out Your Credit Score

Among the very first steps prospective home buyers should take on their path to home ownership is to find out their credit score and address any errors on their report.
By: Robert Bruss: REALTOR® Magazine Online
You can help them get started by educating them about how credit scores work: When deciding whether to lend, mortgage lenders consider the FICO (Fair Isaac Corp.) score, which is based on credit history, the percentage of available total credit being used, and the buyer’s record of on-time bill payments.

A credit score above 750 (850 is the maximum) will net a buyer most mortgage lenders’ best rates. If customers discover they have a credit score of less than 680, that doesn't necessarily mean they'll have trouble getting a mortgage, but they may pay more for it than someone with a higher score.

However, buyers with credit scores of less than 620 should look for a lender who routinely handles mortgages for subprime buyers because they will probably offer more options for that customer.

The first step for a buyer who doesn’t know his credit score is to obtain his credit report. The best place to obtain a FICO score and credit reports from all three credit-reporting agencies is at www.myfico.com. The report costs $45. If there are errors, the potential home buyer can ask the credit bureaus to fix the incorrect information. Credit bureaus have 30 days to verify the information and remove anything that is wrong.
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The cash-out refinance has rarely looked so good

Remember back when you refinanced your home mortgage to get a lower interest rate and pay less every month?
By: Kenneth R. Harney: Los Angeles Times
How quaint. Now the rage is refinancing into a higher interest rate while pulling out cash.

Almost nine out of 10 homeowners who refinanced during the second quarter "cashed out" additional money — often tens of thousands of dollars and more — according to mortgage investment giant Freddie Mac. The 88% cash-out refi rate was close to the all-time record and could surpass it later this year.

Meanwhile, the typical refinancer hasn't been scouring the market for an interest rate lower than his or her existing first mortgage. To the contrary, according to Freddie Mac, most refinancers are opting for larger replacement first mortgages with rates averaging about one-half of a percentage point higher than on their old loan.

Cash-outs may be booming, but they are not new. They've existed for years as a financial tool to extract equity and convert it to immediately spendable money. During the refi boom years of 2003 and 2004, for example, anywhere from a third to half of all refinancers pulled out additional cash. However, the overwhelming majority of borrowers during that period chose traditional rate-reduction replacement mortgages in which the new balance approximated the old and the new monthly payment was lower than the old.

Scroll ahead to mid-2006: Short-term interest rates no longer hover near 4%. Thirty-year fixed-rate first mortgages no longer are in the 5% range. The prime rate is 8.25% and could move higher. Standard 30-year mortgage rates are nudging 7%. Home-equity credit lines are slumping as their adjustable rates — typically set one or more points above the bank prime — start racking up bigger monthly costs.

Now consider the near-record pace of cash-out refis: Say you need $40,000 to $100,000 for home improvement, a down payment on a vacation property or to consolidate high-cost consumer credit debts. Say you also have lots more than $100,000 sitting untouched in home equity. Rather than signing up for a home-equity credit line tied to a jumpy and unpredictable prime rate plus 1%, you instead opt for a fixed-rate cash-out refi.

In effect, you trade in your existing first mortgage — say it's at 6.25% — for a replacement at 6.75%. Plus you pull out the money you need and add it to the principal balance of the new loan. Yes, your monthly payment will be higher than you were paying on the old loan, and yes, you'll have transaction costs, which you may be able to roll into the new loan amount. And yes, your total first mortgage debt may be significantly higher than it was.

But then again, would you be happier with a $100,000 credit line with a floating rate potentially heading for double digits?

Amy Crews Cutts, Freddie Mac's deputy chief economist, says another factor at work in the big shift to cash-out refis may be the estimated $500 billion in adjustable-rate first mortgages that will experience rate "resets" this year, plus another $650 billion in second mortgages and equity credit lines that will adjust upward.

Many homeowners want out of these mortgages — especially those with 40% and 50% payment increases at the first reset. Refinancing into standard fixed-rate loans suddenly looks attractive. And if homeowners can pull out some cash in the process, that's fine, says Cutts, because "many people see that their real estate has been one of the only things making money for them during the past few years."

Another key to the cash-out refi boom, according to Cutts: "Borrowers have developed new ways of thinking about their home mortgages" and increasingly see them as resources — not just debt loads — to be used to achieve financial objectives.

Should you consider a cash-out? Not unless you really need the money; you don't want to play roulette with an adjustable-rate equity line; you want to lock in your mortgage debt at a relatively low long-term fixed rate. Check out fixed-rate second mortgages as well.
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Overnight real estate rates trend lower

30-year fixed rate at 5.99%; 10-year Treasury yield at 4.86%
Inman News
Long-term mortgage interest rates were down again Thursday, and the benchmark 10-year Treasury bond yield held at 4.86 percent.

The 30-year fixed-rate average dipped to 5.99 percent, and the 15-year fixed-rate sank to 5.72 percent. The 1-year adjustable was up at 5.36 percent.

The 30-year Treasury bond yield increased to 5 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average gained 7.84 points, or 0.07 percent, finishing at 11,334.96. The Nasdaq was up 8.07 points, or 0.38 percent, closing at 2,157.61.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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Don't Worry, Be Happy About the Economy

If you’re becoming negative about the nation’s economy, there may be reason to cheer up, says David Wyss, Standard & Poor’s chief economist.
By: Jeffrey R. Kosnett: REALTOR® Magazine Online
After all, there’s no impending recession, and exports are strong, Wyss says. Manufacturing, commercial construction, and finance also are doing well.

The economy is growing slowly, but Wyss says, for most people a slower growth rate is a good thing. It should encourage the Federal Reserve to stop raising interest rates. Once the Fed stops boosting rates, it typically waits for about seven months and then starts cutting rates.

If that happens, 2007 will be a good year for job hunters, investors, home sellers, and real estate professionals.
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The Weekend Guide! August 17 - August 20, 2006

The Weekend Guide for August 17 - August 20, 2006.
Full Article:
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Overnight real estate rates fall

30-year fixed rate at 6.08%; 10-year Treasury yield at 4.93%
Inman News
Long-term mortgage interest rates were down Tuesday, and the benchmark 10-year Treasury bond yield dropped to 4.93 percent.

The 30-year fixed-rate average dipped to 6.08 percent, and the 15-year fixed-rate sank to 5.8 percent. The 1-year adjustable was up at 5.37 percent.

The 30-year Treasury bond yield decreased to 5.05 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average jumped 132.39 points, or 1.19 percent, finishing at 11,230.26. The Nasdaq was up 45.97 points, or 2.22 percent, closing at 2,115.01.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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Popularity of 1031 Exchanges Surges With Market Decline

Investors who want to cash in their chips on real-estate bought as an investment and defer the tax bill, in some cases forever - can do so by trading into another piece of property.
By: Tara Siegel Bernard: The Wall Street Journal Online
This strategy isn't new, but it's enjoying a resurgence in popularity now because many investors believe that real-estate values have peaked in some markets. They want to lock in their gains and shift into other holdings without a big payment to Uncle Sam.

The stratagem is called a 1031 exchange, but it doesn't actually require you to swap property with another real-estate investor. You sell one property and buy another, carefully abiding by certain restrictions and time limits.

A section of the tax code known as 1031 allows investors to make a "like kind" exchange of investment properties and thereby defer, and in some cases avoid, capital-gains taxes. (The maximum federal long-term capital-gains rate is currently 15%, while some states impose an additional tax.)

You can swap just about any kind of investment property for another - such as an apartment house for land, or a house for a store. Investors can keep exchanging into new properties of equal or greater value, while deferring the tax hit. If you hold property until death, the capital gain is erased altogether because your heirs inherit the property at its market value, making this a popular estate-planning technique as well.

'Best-Kept Tax Secret'

"It's the best-kept tax secret," says Stephen A. Wayner, first vice president at Bayview Financial Exchange Services LLC, a unit of Bayview Financial, a Miami real-estate investment, development and mortgage-finance company. "There are so many people that should be doing it. They just don't know about it."

The tax savings can be substantial - and by deferring the tax bill, investors have more capital to reinvest into the next property. Take, for instance, an individual who purchased a rental duplex 10 years ago for $150,000 that's now worth $500,000. If he simply sold the property, he would owe $52,500 in capital-gains taxes. (This doesn't include any state taxes that might be imposed, nor does it include any depreciation recapture tax which could be owed if the owner took deductions for depreciation.)

But by conducting a 1031 exchange, he could use the entire $500,000 as a down payment on a more expensive property. If you acquire a property of lesser value, you pay tax on the difference.

To get the tax benefits, however, there are caveats and very specific rules which must be followed carefully. Individuals cannot use their primary residence as part of a 1031 exchange; it must be an investment property or one that's used in a trade or business. (The exchange option also isn't available for financial assets such as stocks and bonds.)

Limited Time to Pick

While there are a few ways to structure an exchange, the most common is known as a deferred or delayed exchange. When a property is sold, a "replacement" property must be identified within 45 days of the sale closing, and a deal must be completed within 180 days.

An independent party - known as a qualified intermediary, who can't be your real-estate broker, lawyer or accountant - must hold the sale proceeds until the next property is bought.

"Once the taxpayer takes control of the proceeds, it violates the like-kind exchange and the spirit of the rule," says Robert Klein, a tax partner in BDO Seidman LLP's Woodbridge, N.J., office.

Be sure to coordinate with your tax and legal advisers, along with the qualified intermediary, to be sure you're doing everything correctly. To find a reputable qualified intermediary, you can contact the Federation of Exchange Accommodators, a qualified intermediary trade organization based in Philadelphia. It has a "QI Locator" link on its Web site, www.1031.org.

Ask Plenty of Questions

Once you find an intermediary firm in your area, make sure the people are experienced. After all, these are the folks who will be keeping watch over your proceeds. Key questions to ask: Are they insured and bonded? Do they engage in many 1031 exchanges, or only a couple a year? Who gets the interest on the account?

Fees vary. A $500,000 or $1 million exchange would cost approximately $2,000, says Dennis Helmick, president of the Exchange Accommodators group, but it also depends on who's earning interest on the account and for how long it's held. Bayview's Mr. Wayner says fees average around $750.
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Appraisals Can Help Sellers Accept Pricing

An experienced real estate professional can generally price a home for sale properly, but sometimes it pays to get a second opinion.
By: Amy Hoak: REALTOR® Magazine Online
The appraisal will analyze the health of the local real estate market, giving homeowners more personalized expectations for selling their home, which can be helpful given the plethora of national news stories generalizing the real estate market, says Alan Hummel, past president of the Appraisal Institute and chief appraiser for St. Paul, Minn.-based Forsythe Appraisals LLC.

Here are some tips from the Appraisal Institute for getting the most out of an appraisal:

    • Expect the appraisal to include side-by-side comparisons of similar
      properties, notations of major problems with the property that will affect its
      value, and an estimate of the expected time it will take the property to sell.

    • Don’t expect an appraisal to replace a home inspection. Appraisals are
      opinions of value. Inspections look for physical imperfections.

    • Suggest sellers focus on items that caused a negative adjustment to the
      appraisal. They can be a good checklist for fix-up projects before putting the
      house on the market.

    • Urge the sellers not to be shocked or angered by the results of the appraisal.
      Remind them it is an impartial report and a tool for accurately pricing the
      property.

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Foreclosed Properties May Offer Bargains, but There Are Risks

As some homeowners get squeezed by higher mortgage rates and a cooling real-estate market, many house bargain-hunters are turning their attention to foreclosures.
By: Aleksandra Todorova: The Wall Street Journal Online
They hope to get good deals by buying from homeowners who are falling behind on their mortgages or by buying after the lenders have seized such properties.

Confirming the trend, online Web sites such as Foreclosure.com, Foreclosures.com and RealtyTrac.com, which list foreclosed properties and charge subscription fees, all report an increase in listings.

"For the right buyer, foreclosures are an excellent opportunity to buy a house at a lower than market-value price," says Tim McCloud, an agent with Kelley Realty in Green City, Ohio, who specializes in selling foreclosed properties on behalf of the lenders.

Needless to say, buying foreclosure properties is more complicated - entails more risk - than going the regular home-buying route. Here's what you need to know:

Tapping Pre-Foreclosures

Buying property in a pre-foreclosure stage - the period between when the owner receives a Notice of Default from the lender and the day the lender puts the property up for an auction - may offer the best bargains, but it's also the most difficult. "Pre-foreclosures tend to be more for the seasoned investors," says Brad Geisen, CEO of Foreclosure.com.

For starters, you have to deal directly with the owner of the house, who may not even be aware that the house was made public in a foreclosure listing.

"These people don't ask for their properties to be listed on our Web site," says Alexis McGee, founder of Foreclosures.com. Rather, foreclosure Web sites get their listings from county recorders' or clerks' offices, since notices of default are public records.

Even if you come to an agreement with the owner, you may have very little time to complete the transaction.

Depending on which state they call home, the owners may have only a month before the bank puts the home up for auction.

Auction Risks

If buying pre-foreclosures is tough for the regular home buyer, buying at an auction can be downright impossible. For starters, you have to pay cash, since financing auctioned properties isn't allowed. You're also expected to buy the house sight unseen. And on top of that, you're not allowed to get title insurance: If the house has a $100,000 tax lien attached, the new owner will have to pay it off. "The auction is the most risky way to buy," says Foreclosure.com's Mr. Geisen. "We don't recommend it."

Foreclosed Deals

If no one shows up on the courthouse steps or there are no bids high enough to cover the outstanding loan, the bank will take ownership of the property and put it up for sale. This is the easiest way to buy foreclosed properties, but you are also least likely to get a discount, as the bank will typically put houses up for sale at or close to market value.

Bank-owned properties, also known as REO or "real estate owned" properties, are usually sold through real-estate brokers. To find an REO broker in your area, try REONetwork.com

Government Homes

When homes that were bought with loans guaranteed by the Federal Housing Administration or Department of Veterans Affairs go into foreclosure, they're put up for sale by the government itself. The listings at www.homesales.gov/homesales/mainAction.do are free and updated every Friday, but you can only bid through a government-registered broker.

For the first 45 days, a listing is available only for homeowner occupancy, which means you don't have competition from seasoned foreclosure investors, explains Dick Esposito, owner of ADR Properties in Maryland, who specializes in buying and flipping HUD foreclosures. "You get the first chance at all the good properties as a homeowner," he says.
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The seller as suitor

How do I lure thee? With toys and flowers, maybe even a fake family.
By: Ann Brenoff: Los Angeles Times
TRUTH is, much of the joy was sucked out of the home-buying process over the last few years. Buyers, faced with a scarcity of choices, were pressured to act faster than their comfort-zone speed limits and urged to make offers that often stretched the boundaries of common sense.

But did sellers really think they would ride the crest of the wave forever?

Welcome to real estate's Brave New World, where buyers rule and sellers drool every time someone actually shows up at an open house.

With more listings to choose from and less frenzied competition comes a sea change in how real estate is being marketed. To the chorus of "hallelujah," we have seen the end of some of real estate's ickier marketing practices; then again, others appear poised to take their place.

Under the category of goodbye and good riddance: playground-like pleas of "Pick me! Pick me!" from buyers desperate to find something, anything. Buyers promising to love, honor and faithfully water the seller's cherished rose garden if only they could own it. Impassioned letters from Mr. and Mrs. Desperate (with a photo of their adorable son enclosed) begging to buy your house so little Johnny can live up the street from his best friend.

Perhaps we are also rid of those mysterious spurts of sudden interest in the house you just looked at — the one that had sat on the market forlornly for months. And with it those frantic calls from your agent urging you to make an offer that very minute because five other families suddenly had a simultaneous epiphany and were ready to go full price, plus some. Now, it is safe to say, no one will be advising you to write up an offer on the hood of your car, just so you can be first.

Down but not out are those cold calls at dinner time from agents claiming to have a client ready to buy if only you were ready to sell. Or variations on that theme: a sister-in-law who wants to live on the block, a friend who has been admiring your home from afar, a client who is flying in for the weekend and wants to see your place — even though it's not for sale.

There is, of course, no reason to believe that the heights (make that depths) buyers and their agents reached in the last few years won't now be rivaled by the strategies of sellers and those who represent them.

Those incessant mailings from real estate agents trying to drum up business aren't going anywhere soon, they've just set their sights on a new target: buyers. So far, the "best-of-show" missive in our icky file is one that went out recently in Santa Monica. It asked seductively, "Do you know what your neighbor at [address here] did last night?" Well, the neighbor listed his condo, and the agent was fishing among local homeowners to see whether they knew someone in the market to buy. Nobody ever said sex doesn't sell.

In fact, says Ely Dahan, assistant marketing professor at UCLA, all that has really changed is that marketing is now plucking at the heartstrings of buyers, rather than the emotions of sellers.

In this climate, where bidding wars are a distant memory, Dahan says, owners will have to sell more than just their homes: They will have to sell a way of life.

Buyers will have to be convinced they are signing on for romance, family harmony and/or a life filled with interesting friends who come over to be entertained. The house needs to convince buyers that all that is standing between them and holding A-list parties is the absence of an outdoor Viking kitchen.

Home stagers, Dahan says, should do a booming business in this market — but not those who just rearrange the furniture. Nothing that simple will make a home jump out of the chorus line.

"The smell of freshly baked cookies in the oven, the dining room table set with fine linens and china, fresh-cut flowers" will all be de rigueur, he says, along with de-cluttering, removing personal items and repairing anything that's broken.

"Lifestyle, think lifestyle," Dahan says.

To that end, a home stager may set up a bistro table in the garden with Champagne chilling in a bucket or pipe in music to set the scene. When it comes time for showings, there will be scented candles burning in the bedroom, a fire going in the fireplace. Those hoping to sell to a family may be advised to install a swing set in the backyard — even if the homeowner's own kids are grown and gone.

"It's all about appealing to the emotions of buyers, subtly suggesting things to help them envision themselves living in this house," Dahan says.

New-home developers aren't immune to the shifting tide. They are also pulling out the stops to suggest a lifestyle to prospective buyers.

Pushing the needle on the can't-you-just-imagine-yourself-living-here Richter scale is Centex Homes. For its Santa Clarita Milestone development, the builder hired actors to play house while prospective buyers toured the model home. The mom and dad, son and daughter celebrated a birthday with a party and interacted with one another, demonstrating what a wonderful life onlookers could have — if they just bought this house. Each actor wore a name tag identifying his or her role: "Hello, my name is Dad."

The program, dubbed "HomeLife," has already expanded to Centex's Westerly at Riverpark master-planned neighborhood in Oxnard.

"I think it's both entertaining and beneficial," says Amanda Larson, marketing director for Centex. One prospective buyer touring the model told Larson that she had about 30 people in her extended family and that she wouldn't have realized how large the home was if she hadn't seen so many people gathered around the "family's birthday cake."

And at least one builder is counting on the power of a nagging child. Pulte Homes, a national builder with Los Angeles-area developments, doesn't skimp when it decorates the kids' rooms in its models. The builder outfits the rooms with whatever movie character or fad is currently in vogue so that children will remember them, says Deborah Blake, a vice president of marketing for Pulte.

This thinking extends to common areas too. In one of its Arizona multi-generational projects, Pulte Homes installed a kid-size railroad, a water park with a "fun dunker" that dumps 300 gallons of water from a two-story-high bucket, an in-line skating rink and skateboard parks. Pulte also made sure these amenities were the first things buyers saw when they drove into the development.

Blake says that about 18 months ago, Pulte redesigned its sales offices, looking for ways to keep children occupied while parents had "more serious conversations" with sales agents. The builder installed big toy boxes and, in its multi-agent offices, there's now a separate toy-filled room with a nanny cam. The kids can watch videos using headsets, and Mom and Dad can check the nanny cam periodically for peace of mind.

Pulte also gives out coloring books that include games like "decorate your new room" and "find the path from your old house to your new house."

Suzanne Finne, marketing manager for Pulte Home's Orange County/South Riverside division, says the builder is putting in a "monster play set" in the yard of one model set to open in November.

"We realize that children are part of the discussion," Blake says, "and we want them to talk about what a great place that was on the way home from a model tour."

Bah humbug, says Jim Crawford, a columnist for RealtyTimes.com and a Keller Williams Realtor in the north Atlanta area. Crawford says flat out that gimmicks don't work.

"Having survived other changing markets," he says, "it is the basics that sell the homes…. Giving away Jaguar cars, BMWs, exotic vacations do not work. Proper pricing, determining who is most likely to buy the home and identifying their needs is what's important."

The bottom line remains that a home "speak" to a buyer.

"Homes need to make an emotional statement," says Gary Harryman, a Pritchett-Rapf agent based in Topanga. "It has to hit you as soon as you walk in the door."

He recalls a Topanga property, which, he says, left most would-be buyers swooning. It had four bedrooms and three baths in just 2,700 square feet and sold for $1,650,000. What made it so special?

"Everything about it said 'Old World charm,' " Harryman says. "Everything felt authentic, right down to the smallest detail — the kitchen cabinets, the sconces, the hardware.

"It was a joy to show because of how people reacted to it — they instantly got swept up in its presence."

And presence can be hard to stage.
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Home buyers gain clout in slowing market

Why more home listings are for sale
By: Dian Hymer: Inman News
Home buyers have more clout now than they've had for years. So, they are more discerning, and focus only on the best houses at the best prices. If the seller won't negotiate a satisfactory deal, buyers would rather walk away than overpay.

The incidence of failed transactions appears to be rising. Last year, buyers couldn't buy fast enough. Many paid over asking price, overlooked property defects and bought "as is."

Today's buyers are cautious going into a transaction and less likely to accept full responsibility for correcting defects found on inspections. When a resolution can't be reached on an inspection issue and the buyer decides to search for a better deal, the seller is left with two options: He can either put his property back on the market, or he can wait for a friendlier market.

The second approach is risky if you want or need to sell in the near future. Although the current market won't last forever, it may be some time before we see a market that's better for sellers than it is today.

HOME SELLER TIP: Before letting a deal fall apart, sellers should seriously consider their chances of negotiating a better deal with another buyer. Depending on state disclosure requirements, a seller might be required to disclose the inspection issues to future buyers.

For example, in California, sellers are required to disclose all material facts to prospective buyers. A material fact is one that affects a buyer's decision to buy or the price he'd be willing to pay.

Disclosing newly found defects to a subsequent buyer could affect how much he'd pay for the property. Also, remarketing a property is a hassle, it takes time and it might be no more lucrative than the first deal. In fact, it could be worse.

Putting a property back on the market in a rising inventory environment can be challenging. Rekindling enthusiasm is difficult because most buyers focus their attentions on the new listings coming on the market, not than those that are back on the market.

A listing comes back on the market because something went wrong. If there are plenty of new listings to choose from, there's less incentive to narrow in on a listing that someone else didn't buy, even the listing is back on the market for a reason other than the condition of the property. For instance, a certain number of transactions fail because the buyers were unable to secure financing.

Last year, buyers were less inclined to withdraw from a purchase over inspection issues. The listing inventory was so limited that they were afraid it would be difficult to find something else to buy. According to the National Association of Realtors, inventories nationally now represent a 6-month supply at the current sales pace. This puts inventory levels in balance for the first time in years. By comparison, in April 2005, inventories in California represented a little over a 2-month supply; it gave sellers a decided advantage over buyers.

The primary reason there are more listings back on the market is that some sellers are reluctant to accept that the market has changed. It has often been said that when the market changes, sellers are the last to know. This is understandable. No one likes to hear that a valuable asset is worth less than anticipated.

There are sellers who realize weeks after they let a deal fall apart that they made a mistake. If you find yourself in this situation, consider a price reduction to send a message to prospective buyers that you've changed your stance.

THE CLOSING: Sellers can keep further negotiations over inspection issues to a minimum by providing presale inspections reports and disclosure statements to buyers before they make an offer.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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How to get rid of a neighborhood nuisance

Lawsuit should be avoided whenever possible
By: Robert J. Bruss: Inman News
"Do I have to disclose to my buyer the real reason I am selling my house is the obnoxious noisy neighbors?"

That was the e-mail question I received a few days ago. Most states now have home-sale disclosure laws that require sellers to reveal serious problems that have a material affect on the market value or desirability of a residence.

My answer was, "Yes, you must disclose the next door neighbors are noisy." However, you don't have to reveal that is the primary reason for your home sale. I based my answer on the only court case of which I am aware, which said home sellers must disclose especially troublesome neighbors.

That case involved an IBM employee who had been transferred to Seattle. A corporate relocation firm took over the sale of the employee's former residence. The firm was not aware of the very troublesome neighbors and the police had been called many times.

After the buyers moved in, they immediately noticed the obnoxious neighbors and sought a rescission of the home sale. The California Court of Appeal granted rescission and refund of the buyer's money because of the seller's failure to disclose the neighborhood nuisance. The case is Shapiro v. Sutherland (1998) 60 Cal.App.4th 666.

YOUR NUISANCE MIGHT BE ENJOYABLE TO OTHERS. Several years ago, in the town adjacent to where I live, there was a very popular nightclub that featured loud rock music. Hundreds of people came every evening to dance and enjoy the music. But the nearby apartment building neighbors couldn't sleep because of the loud noise.

Although the nightclub was properly licensed, the city attorney received so many citizen complaints that he brought a lawsuit to abate the public nuisance that affected many neighbors. Before trial, a settlement was reached. The nightclub owners agreed to keep the doors and windows closed so the sound could not escape into the neighborhood.

However, that still didn't abate the nuisance from the loud band music. Before the neighbors could bring another lawsuit, the nightclub owners agreed to close their business. Today, there is a superb restaurant at the site and now all the neighbors complain about is the smell of great cooking. But I don't think that is an abateable nuisance.

TWO TYPES OF NUISANCES TO CONSIDER. Legally, there are two types of nuisances that might affect the enjoyment of your home or business property. When a disturbance affects only one or a small number of individuals, that is a private nuisance.

For example, recently I heard about a commercial tenant who leased office space. Sometime later, the landlord leased the adjacent space to a metal stamping plant, which installed heavy equipment to stamp metal. The vibrations drove the adjoining office tenant to vacate because of the "private nuisance" created by the next-door tenant.

The other type of nuisance is a public nuisance, which affects many people. Examples include a rat-infested dump, a noisy airport, a house of prostitution, a "drug house," and a noisy or smelly factory.

1. PRIVATE NUISANCE ABATEMENT IS A PRIVATE MATTER. Most private nuisances, which affect only one or a small number of people, involve neighbors. For example, if your neighbor's dog barks all day while the owner is at work, it is a private nuisance if you are the only person affected. However, if the barking dog disturbs many neighbors, then it is a public nuisance.

The legal remedy to abate a private nuisance, which affects only a few people, is to bring a nuisance abatement lawsuit against the offender. However, before resorting to a lawsuit, which might not be successful, try to politely talk with the offender.

For example, my neighbor's two old trees were leaning precariously toward my house. In the event of a strong windstorm, my house would probably be severely damaged if they fell. However, my neighbor was not aware of the danger. When my neighbors came over to my property and observed the lean of their dying trees, they promptly had them removed. I didn't even have to mention the words private nuisance or abatement lawsuit.

2. PUBLIC NUISANCE ABATEMENT CAN BE COMPLICATED. When a disturbance affects many individuals, that is a public nuisance, which can be very difficult to abate, especially if it has existed a long time.

A public nuisance is usually not "all bad." It often has benefits. Examples include a noisy airport, a smelly factory employing many individuals, an amphitheater providing loud entertainment to thousands, and a shopping center with traffic congestion, which provides employment and tax revenue.

The legal remedy to remove or mitigate a public nuisance is usually (a) an injunction to stop the nuisance activity, (b) a partial abatement court order, (c) a negotiated settlement, and/or (d) payment of monetary damages to allow the nuisance to continue.

The customary legal remedy to remove or abate a public nuisance is for a public official, such as the city or county attorney, to bring a nuisance abatement action against the offender. However, when such an official refuses to act, matters become complicated.

To illustrate, noisy airports are very important to the local economy. The success record abating airport noise has not been good. Because of the economic benefits, elected public officials are usually reluctant to bring public nuisance abatement actions.

WHEN PRIVATE LAWSUITS CAN ABATE PUBLIC NUISANCES. When public officials refuse to abate public nuisances, individuals can take action.

The most famous court decision on this issue is Lew v. Superior Court (25 Cal.Rptr.2d 42). In that case, 75 angry Berkeley, Calif., neighbors of the 36-unit apartment building owned by the Lew family sued to abate an alleged "drug house" that the police had been unable to close. The neighbors were very upset over the shootings and other crimes originating in the apartments.

Each of the 75 neighbors sued the apartment owners for the local Small Claims Court maximum $5,000. The judge ruled in favor of the 75 plaintiffs. The Lews appealed.

But the California Court of Appeal upheld the $218,325 damages against the apartment owners for allowing a public nuisance affecting many neighbors.

POSSIBLE DEFENSES TO A NUISANCE LAWSUIT. Just because a private or public nuisance disturbs you doesn't mean it can be successfully abated.

Possible defenses include (a) the plaintiff moved to the neighborhood knowing about the nuisance and (b) the nuisance was tolerated for many years.

Most courts now rule the statute of limitations is not a defense to a lawsuit to abate a longtime nuisance, and each new occurrence is a separate offence that can be abated.

Additional defenses, usually ineffective, include (a) there was no law violation, (b) there are other public and private nuisances in the neighborhood, and (c) local zoning and ordnances allow the offending activity.

TRY TO SETTLE BEFORE SUING. Because the results of a public or private nuisance abatement lawsuit are extremely difficult to predict, it is best to first attempt to reach a settlement with the offending party. A crafty defense attorney or a sympathetic judge or jury can often result in failure to abate a nuisance.

Plaintiffs in a nuisance abatement lawsuit should therefore be well prepared with evidence such as photos, witness testimony, and scientific evidence such as noise measurements. In other words, because public and private nuisance abatement can be very difficult, a lawsuit should be avoided whenever possible. For full details, please consult a local real state attorney.
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Real estate purchases pull out of 3-week slump

Interest rates plummet in latest MBA survey
Inman News
Overall mortgage applications increased 4.9 percent last week on a seasonally adjusted basis from the week before, fueled by a significant drop in interest rates, the Mortgage Bankers Association reported today.

The seasonally adjusted purchase index increased by 3.4 percent to 388.9 from 376.2 the previous week, and the refinance index increased by 7.1 percent to 1,518.1 from 1,417.2 one week earlier.

The refinance share of mortgage activity increased to 38 percent of total applications from 37 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 27.6 percent of total applications from 27.8 percent the previous week, and is now at its lowest since March 2004.

The average contract interest rate for 30-year fixed-rate mortgages dropped to 6.45 percent from 6.62 percent, with points including the origination fee increasing to 1.01 from 1 for 80 percent loan-to-value ratio loans.

Points, which are fees charged by lenders for loan processing, are expressed as a percent of the total loan amount.

The average contract interest rate for 15-year fixed-rate mortgages fell to 6.1 percent from 6.28 percent, Points including the origination fee increased to 1.09 from 1 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year ARMs declined to 5.96 percent from 6.18 percent, with points including the origination fee decreasing to 0.80 from 0.81 for 80 percent loan-to-value ratio loans.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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