The Weekend Guide! June 30 - July 4, 2005

The Weekend Guide for June 30 - July 4, 2005.
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Regulators Discount Housing Bubble Fears

By: Kevin G. Hall: REALTOR® Magazine Online
Federal Deposit Insurance Corp. officials say they're not too concerned about a housing bubble, because job growth is happening in tandem with the biggest home price gains.

The FDIC is scheduled to release a report today that suggests that the housing markets where prices continue to rise also have added a lot of jobs.

Barbara Ryan, associated director of the FDIC's research division, notes that home prices rose 31.22 percent in Nevada during the first quarter from a year ago. Ryan adds that the state's job growth was 6.7 percent, well above the 1.6 percent year-over-year national average.

FDIC chief economist Richard Brown explains that booms are not always followed by busts, as the agency only found nine instances among the top 55 metropolitan areas from 1978 to 2004.
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Gauging pre-sale fix-up work on your home

By: Dian Hymer: Inman News
Usually it's worthwhile for a seller to fix-up a home before putting it on the market. Listings that are in move-in condition attract more buyers. The more interest there is in a listing, the more chance a buyer will make a strong offer. Buyers tend to pay more for homes that they can move in to without doing a lot of work.

The prospect of a profitable sale is a strong incentive for some sellers to turn themselves into general contractors, for the short term. This can have a positive result because most buyers have difficulty imagining what a listing might look like if they were to do the refurbishing. There's nothing like showing the finished product to convince buyers that they'll feel at home in your home.

Another reason to consider fixing your home up for sale is that it will make it easier for real estate agents to sell it. Houses that show well are a pleasure for agents to show, so they are shown more often. If your home is a show stopper, word will get around. This can only help bring about a quick and profitable sale.

But beware. A good fix-up for sale job, including a well-staged decor, can blind buyers to defects that they will surely discover after they move in. Keep this in mind when you embark on your fix-up for sale endeavors. There's a fine line between making a listing presentable and misrepresenting the condition of the property.

Disclosure laws vary from state to state. Check with your real estate agent or attorney to make sure that you don't violate your disclosure obligations in your effort to show your home in a better light.

One seller figured that his three-bedroom home would sell for a lot more if it had a family room. So, before he listed his home for sale, he converted an area of his basement to a separate room by adding paneled walls and a dropped ceiling with recessed lights. He painted, installed a carpet over the cement floor and moved furniture in to create an inviting setting.

Thanks to the seller's improvements, the house sold for a good price. However, the seller ended up being sued by the buyers because he failed to disclose that the house had a serious drainage problem. The house was located in California where home sellers are required by law to disclose all material facts when they sell.

Not only did this seller fail to disclose the problem, he intentionally led the buyers to believe that the downstairs room was usable living space. However, during the first heavy rain storm after the buyers moved in, the basement flooded. The basement improvements were damaged beyond repair.

HOME SELLER TIP: Before tackling a major fix-up-for sale project, have your home thoroughly inspected so that you are aware of any serious problems. You may want to make some repairs while you're preparing your home for sale. However, if your renovations conceal rather than correct a problem, make sure the buyers are aware of this before they make an offer.

Sellers often fear that disclosing defects will keep their home from selling. Actually, the opposite is true. Buyers who are aware of defects before they buy usually don't sue the seller after closing. However, when buyers find out after closing that the sellers intentionally concealed a defect, it's a different and often unpleasant story.

THE CLOSING: It's good to prepare your home for sale in order to show off its potential. But, concealing material defects in the process can get you into trouble.

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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Rates fall, home sales soar, bubble talk explodes

Mortgage market commentary: What's behind this?
By: Lou Barnes: Inman News
Mortgages are back down to 5.5 percent, taken down by the 10-year T-note's return to 3.93 percent, that dive in turn caused by events overseas.

As of Friday, the mortgage market is in a pattern not seen since 1995: on a fee-equivalent basis (no points, no origination), 5/1, 7/1 and 10/1 hybrid ARM rates are about the same as fixed-Fannie. As the Fed pushed the cost of money from 1 percent to 3 percent in the last year (going to 3.25 percent this Thursday, 3.5 percent in August...), the ARM-to-fixed spread has narrowed and now closed. 3/1s can be had under 5.5 percent (for another month or two), and one-month COFI and MTA teasers are sub-3 percent, but both will index to the mid-fives, and then rise monthly as lagging indices catch up with the Fed. Figure a tenth a percent a month for a year or more. Cheers.

This ARM-to-fixed spread may go ARMs-on-top, and will persist until the Fed overshoots neutral and has to cut its rate; or the Fed turns out to be right about economic heat and inflation risk, and long-term rates blow out of a colossal mistake.

Domestic economic data were strong, but a European recession threatens to spread worldwide, except for the United States and non-Japan Asia. If the slowdown happens, even the exceptions will falter, and the prospect creates a lot of buyers for bonds.

Europe's problem (aside from rigidity, ruinous entitlement promises, demographics, and oil) is an overvalued euro. Last year, a ton of money tried to get out of the dollar, and the only "safe" alternative was the euro; safe-haven buying drove the euro to $1.35 and put Europe out of business.

U.S. mortgages and bonds broke lower this week when Sweden cut its Fed-funds equivalent a half-point to a record 1.5 percent, and the European Central Bank may have to do the same with the euro rate. The Fed-ECB yield differential has pulled the euro down to $1.21, but not enough; recession bets have the German 10-year at 3.13 percent, an all-time low.

The rest of the non-Asian world is in trouble, and Japan, as its labor and production prices are undercut. Only the extraordinary productivity (and borrowing) of the United States can withstand Asian competition and a tightening Fed.

There is neither end nor solution in prospect. It is in China's interest to sell us everything it can, and take paper back; the excess paper should do great harm to the U.S. issuer, but the harm is for now displaced to Europe. China is running out of things to do with the paper (currency reserves, U.S. bonds to buy), and caused consternation this week with its offer to buy a strategic asset – Unocal and its oil – not a golf course or Rockefeller Center, in the style of Japan Inc. when we feared that it would buy the world with our paper.

In the very best American political theater, Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow testified on China trade to the Senate on Thursday. Snow brought the administration's tough-on-China message, and looked as planted too deep in the pot as he is. The Chairman has six months to go on the job, and no longer has to pretend respect for Senatorial preening. The Chairman...visualize Yoda in suit and necktie on a cranky, short-fuse, suffer-no-fools day.

How about the renminbi revaluation or tariffs demanded from either side of the aisle? "I am aware of no credible evidence that supports such a conclusion."

Later, the Chairman tried to help the panel to understand: beyond inevitable adjustment discomfort, China's embrace of market economics is a great benefit to the United States and the world. Interrupting the Chairman in mid-paragraph, one anti-Commie Senator blustered, "They had to, to feed their people!"

The Chairman then interrupted him (I don't think I've seen a Fed Chair do that before), snapping, "Senator, it doesn't matter why they have, they have."

Get your fiscal house in order, get your entitlement promises in scale, try no tricks or fibs, and hang on tight, because, "...they have." And they have just begun.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Getting your home ready to sell

Suggestions for sprucing up the homestead before nailing down the sign
By: Paul Bianchina: Inman News
So you've decided it's time to sell your existing home, and you're getting ready to put it on the market just in time for the nicer weather to hit. Before the "for sale" sign hits the front yard, have you taken the time to really look the old place over?

Remember that you live there and you're used to overlooking those little problems and idiosyncrasies that many homes have, so be sure and look at your home from the perspective of a potential buyer. Get those little repairs out of the way now, and showcase the pride you have taken in your home.

OUTSIDE THE HOUSE

First impressions begin when the buyers pull up out in front, and you want things to look their best before anyone even gets out of the car. Here are some suggestions to get you started.

    • Repair walkways and driveways: Fix cracks in bricks, concrete, and asphalt.
      Use a commercial cleaner to remove stains from concrete driveways – and from
      the floor of the garage while you're at it.  Consider an application of
      asphalt sealer over asphalt driveways.  Remove weeds and debris, and edge the
      lawn where needed.  Make sure that any steps are safe and clean, and that
      handrails are in place, solid, and in good repair.

    • Spruce up the paint job: Scrape and repaint any areas of siding where the
      paint is peeling.  Re-caulk windows and doors, and consider a complete fresh
      coat of paint on exterior trim and doors. If the house is badly in need of a
      complete repainting, give some serious thought to making the investment. Some
      people opt to offer a discount to the buyer to cover the paint job, but bad
      exterior paint makes a terrible impression, and may lead some people to
      question other aspects of the home's maintenance and overall quality.

    • Fix the roof: Replace missing shingles, and repair any loose or missing
      flashings or vent screens.  Repair or replace damaged or missing gutters and
      downspouts. If the old roof has deteriorated beyond repair, consider replacing
      it, bearing in mind the same rationale as repainting.

    • Fix windows and doors: Replace missing or damaged window screens and screen
      doors. Check the operation of each door and door lock to ensure nothing sticks
      or hangs up. Pay particular attention to the front door, front sidelights, and
      any screen or storm door on the front.

INSIDE THE HOUSE

Once you've got them through the front door with that wonderful curb appeal you've created, wow them with how beautiful and well maintained the interior is as well.

    • Check and repair all flooring: Starting with the entry, check all the flooring
      in the house. Repair any loose seams in vinyl or carpet. Replace missing or
      cracked grout in tile floors. Make sure that any transition pieces between two
      different flooring types are in place and solidly attached. Check the
      condition of baseboards, and reattach and repaint or stain them as needed.
      Have carpets professionally cleaned, and have the cleaners pay particular
      attention to any stains.

    • Check door and window operation:  Check each and every door and window in the
      house. Make sure every window operates and latches correctly, that tracks are
      cleaned and vacuumed out, that frames are tight and freshly painted, and that
      the glass is clean and in good repair. Check that all doors operate without
      dragging or scraping the jambs, and that doorknobs and locks work correctly.

    • Spruce up the paint job:  As with the exterior, good interior painting shows
      good maintenance and pride of ownership. Fix any holes or cracks in drywall,
      and touch up the paint. If your walls have not been painted in a while and the
      touchup paint is now a different color, repaint the entire wall rather than
      leaving spots behind that have obviously been touched up.

    • Check the plumbing:  Examine every plumbing fixture in the house, including
      the water heater. Make sure there are no leaks anywhere, including annoying
      drips in faucets. Make sure that toilets flush properly, and also shut off
      properly. Repair or replace caulking around tubs, showers, and toilets as
      needed. Make sure every drain is flowing freely, and consider having the drain
      system professionally snaked if necessary. If your septic system is due to be
      pumped and serviced, do it now rather than risk an untimely backup.

    • Check light bulbs: It's a minor thing, but check each and every light fixture –
      including table lamps that are controlled by a wall switch – to make sure that
      every bulb works.

Remodeling and repair questions? E-mail Paul at paul2887@direcway.com.
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Why do most couples hold title to their real estate in joint tenancy?

Despite equal ownership rights, there are drawbacks
By: Robert J. Bruss: Inman News
If you are married, or plan to be married someday, you probably wonder what is the best way to hold title to your house or condo (and other real estate investments).

Unless you're selfishly greedy and reply, "I want to hold title in my name alone," you might honestly answer, "I don't have a clue as to the best way to hold title with my spouse."

However, if you are a typical married couple buying your first house or condo, shortly before the time comes to have your names placed on the deed, you will turn to the attorney, real estate agent, or escrow officer handling the closing settlement and sheepishly ask, "Well, how do most couples take title?"

Bear in mind the answer to your key question might not be in your best interests.

That individual might just want to get your home sale closed quickly.

Frankly, unless you are speaking with a real estate attorney, the person you ask about how to hold title usually isn't qualified to answer. Instead, they might answer, "Most couples take title in joint tenancy." For most couples, that's how they take title to their biggest and most important investment.

JOINT-TENANCY OWNERSHIP IS NOT SIMPLE. To be technically correct, joint tenancy is "joint tenancy with right of survivorship." That means when one joint-tenant co-owner dies, the surviving joint tenant(s) automatically receives the ownership share of the deceased joint tenant without probate.

A deceased joint tenant's will has no effect on his or her joint-tenancy property (except in very limited situations, such as simultaneous death of all the joint tenants, perhaps a plane crash).

Probate avoidance is considered the biggest joint-tenancy advantage. All a surviving joint tenant needs to do in most states to clear the deceased joint tenant's name from the title is record (a) a certified copy of the death certificate and (b) an affidavit of survivorship.

TENANCY BY THE ENTIRETIES IS VERY SIMILAR. In 24 states, a husband and wife can hold title as tenants by the entireties, which has the same joint-tenancy survivorship benefit. But neither spouse can convey his/her tenancy by entirety share without the other spouse's signature. This overcomes the disadvantage joint tenants can convey their interest without the approval of the other joint tenant(s).

Tenancy by the entireties is available to married couples in Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming, and the District of Columbia.

JOINT TENANCY PROS AND CONS. Before discussing joint tenancy with your real estate attorney or other trusted adviser, it pays to know the seven key characteristics of holding title in joint tenancy with right of survivorship (JTWRS):

1. YOUR WILL HAS NO EFFECT ON JOINT-TENANCY PROPERTY. As explained earlier, when a joint tenant dies, their joint-tenancy share automatically goes to the surviving joint tenant(s). This characteristic can be especially important in second marriages where each spouse often wants to leave their half of joint-tenancy property to their children from a first marriage. An alternative is to hold title as tenants in common or in a revocable living trust.

2. JOINT TENANCY SHARES ARE ALWAYS EQUAL. Although there are usually only two joint-tenant co-owners, there is no limit to the number of joint-tenant co-owners. But each joint tenant always owns an equal share. That is because joint tenants must take title by the same deed at the same time.

For example, suppose husband and wife take title as joint tenants. Each owns a 50 percent interest. Later, they decide to add their adult daughter as a joint tenant. They can do this by signing a quit claim deed from themselves to themselves and the daughter as joint tenants. The result is each joint tenant now owns a one-third share.

3. PROBATE COSTS AND DELAYS ARE AVOIDED. A major perceived joint-tenancy advantage is the avoidance of probate court costs and delays after one joint tenant (or tenant by the entireties) dies.

4. ONE JOINT TENANT CAN FORCE A SALE OF THE PROPERTY. Most states have a law of partition. That means a joint-tenant co-owner can force a court-ordered sale of the property even if the other owner(s) resist selling. The same result applies to tenants in common.
5. ALL JOINT TENANTS HAVE A RIGHT TO OCCUPY AND MANAGE THE PROPERTY. Unless agreed otherwise, all joint tenants have a right to occupy the entire property and manage it. But this can become a problem if one joint tenant refuses to participate in key management decisions, such as refinancing the property, or renting it to a tenant.

If one or more joint tenants are not yet 18, a minor joint tenant cannot convey title or deal with real property except when represented by a court-appointed guardian. For this reason, it is usually not wise to add minors as joint tenant co-owners.

Another problem can develop if one joint tenant becomes incapacitated, such as due to a severe stroke or Alzheimer's disease. A court-appointed conservator might be needed to represent the incapacitated joint tenant's property interests.

6. A JOINT TENANT CAN SECRETLY CONVEY HIS/HER INTEREST. Joint tenants are usually husband and wife, or other close friends and relatives. However, in most states a joint tenant can convey his/her share by gift or sale without approval of the other joint tenant(s). Of course, if title is held by husband and wife as tenants by the entireties, this is not possible.
The most famous court decision on this issue was the 1980 case of Riddle v. Harmon (162 Cal.Rptr.530). Without telling her husband, the joint-tenant wife secretly signed and recorded her quit claim deed to herself as a tenant in common. She died shortly thereafter.

After her death, her husband presumed he owned the entire joint-tenancy property as surviving joint tenant. To his shock, he learned his late wife had dissolved the joint tenancy by the deed and her will left her 50 percent tenant-in-common share to a third party. The widower husband learned he owned his 50 percent share as a tenant in common with a stranger. Of course, either co-owner could force a sale of the property in a partition lawsuit.

7. JOINT-TENANCY MURDER LAWS PREVENT BENEFITS TO MURDERER. Every state has a statute prohibiting a murderer from benefiting from the murder of a joint tenant co-owner. When a joint tenant murders his/her joint-tenant co-owner, then the will of the deceased joint tenant, or the state law of intestate succession, determines who receives title to the deceased joint-tenant's share.

For example, after the recent famous trial of Scott Peterson for the murder of his wife Laci, where he was found guilty, suppose they owned their Modesto, Calif., house as joint tenants with right of survivorship. Under California law, as a convicted murderer Scott could not receive his late wife's joint tenancy share of the house and it would pass according to her will (or by the state law of intestate succession if she left no will).

8. SIMULTANEOUS DEATH OF JOINT TENANTS REQUIRES INDIVIDUAL WILLS. Although joint-tenancy co-ownership is not subject to the wills of the joint tenants, occasionally individual wills are necessary.

A key example is where all joint tenant co-owners are killed in a plane crash and it is impossible to determine which joint tenant survived the longest. In such a simultaneous death situation, the shares of the joint tenants will pass according to their wills as if they were tenant-in-common co-owners.

Or, one joint tenant might survive another joint tenant for a short time. That happened a few years ago in Berkeley, Calif. Joint tenancy co-owners Larry and his girlfriend, Lana, were on an evening walk. A drive-by shooter's bullet hit Larry. Another bullet hit Lana.

They were rushed to a nearby hospital. Lana died at 2:58 a.m. Larry was kept alive on a ventilator until 4:55 a.m. when he died.

Because Larry survived Lana by a short time, he was the surviving joint tenant of their properties. As a result, his relatives inherited all the joint-tenancy property under Larry's will. Lana's relatives received nothing because she was not the surviving joint tenant.

SUMMARY: Holding title to real estate in joint tenancy with right of survivorship (or tenancy by the entireties in states where that method is allowed) might not be the best way to hold co-ownership title to avoid probate costs and delays. Other alternatives include revocable living trusts. For full details, consultation with your real estate attorney and tax adviser is recommended.
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Housing Prices Reach a Record

Still rising: Median home prices rose to a record $207,000, with no evidence the market will cool soon.
By: MICHAEL SCHROEDER: The Wall Street Journal Online
Existing-home sales fell slightly in May, but median home prices climbed to a new high with no immediate evidence that the housing market will cool soon.

Home resales slipped to a 7.13 million annual rate last month, a 0.7% decline from April's record pace, the National Association of Realtors said. The median home price rose to a record $207,000, up $2,000 from April and 12.5% above the price in May 2004. Meanwhile, the inventory of homes on the market rose to a 4.3-month supply, up slightly from April's revised 4.1 months, the association said.

Housing prices will continue to climb, at least through 2006, according to a survey by the American Bankers Association's Economic Advisory Committee. The committee cautioned, however, that there is a growing risk of a correction in some overvalued local housing markets.

"Conditions will inevitably cool, but it is hard to see what changes will bring that about," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. "Until either the economy plunges or long-term rates more closely reflect robust economic fundamentals, we can expect the housing market to remain on the boil."

While low mortgage rates continue to drive the housing market, some economists believe the threat of rising mortgage rates has also motivated some potential home buyers to accelerate their purchase decisions. The average 30-year rate dropped to 5.72% last month from 5.86% in April, according to Freddie Mac.

Separately, initial claims for unemployment benefits in the U.S. fell by 20,000 to a seasonally adjusted 314,000 last week, the lowest point in two months, the Labor Department said. The four-week average declined to 333,000 from 335,500.

The department said the number of workers drawing unemployment benefits for more than a week fell in the week that ended June 11, the latest period for which data are available. Those continuing claims declined by 38,000 to 2.6 million. The jobless rate for workers with unemployment insurance decreased to 2%.
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Supreme Court: Eminent Domain OK for Economic Development

By: Kelly Quigley: REALTOR® Magazine Online
In an important eminent domain case, the U.S. Supreme Court ruled on Thursday that local governments may seize homes and businesses to make way for private projects that serve a public purpose by promoting economic development.

In a 5-4 ruling, the high court decided that the city of New London, Conn., did not violate constitutional rights by condemning non-blighted properties so a private mixed-use project could take shape.

The city made the case that the riverfront project would provide a much-needed boost to the ailing local economy, thus benefiting the public. But the property owners involved in Kelo vs. City of New London argued that eminent domain should never be used for economic development or, alternatively, only used when there is a reasonable certainty that the government will receive the public benefits expected from the taking.

Justice John Paul Stevens, writing for the majority, said local officials know best in deciding whether a development project will benefit the community, adding that states can pass additional laws restricting the use of eminent domain.

"The city [of New London] has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including—but by no means limited to—new jobs and increased tax revenue," Stevens wrote. The development plan calls for a mix of residential, retail, commercial, and recreational uses.

In a dissenting opinion, Justice Sandra Day O'Connor countered that government shouldn’t have power to take ordinary private property in order to convert the property from one use to another chosen by the government, even if the owners are compensated, and she expressed concern that wealthy developers would benefit the most.

"The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms,” she wrote.

The NATIONAL ASSOCIATION OF REALTORS® and the National Association of Home Builders in December filed a joint friend of the court brief supporting the property owners.

The brief argued that if economic development is the sole justification for public use, the door is left open for local governments to abuse their eminent domain powers.

Susette Kelo and other homeowners in New London filed the suit in 2000 after city officials announced plans to tear down their homes for the mixed-use development.

“I am very disappointed that the court sided with powerful government and business interests, but I will continue to fight to save my home and to preserve the Constitution,” Kelo said Thursday in a statement issued by the Institute for Justice, the Washington, D.C.-based law firm representing the New London homeowners.

To read more about the ruling, the 58-page Supreme Court opinion is available in PDF format.
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Outrage over eminent domain ruling

Debate over what Supreme Court decision means for property rights
By: Jessica Swesey: Inman News
Thursday was a sad day in court for 15 homeowners residing in New London, Conn., who learned they would be forced to sell their properties to private developers who will knock down the houses and build offices and retail complexes.

In a 5-4 split decision, the Supreme Court ruled that cities could take private homes and hand them over to developers for public use projects in the widely watched eminent domain case, Kelo v. New London.

Susette Kelo, one of the homeowners challenging eminent domain abuse, in a statement released Thursday said, "I was in this battle to save my home and, in the process, protect the rights of working-class homeowners throughout the country. I am very disappointed that the Court sided with powerful government and business interests, but I will continue to fight to save my home and to preserve the Constitution."

At issue in the case was a redevelopment project in the downtown and waterfront areas of the economically distressed Connecticut city. The Supreme Court had to decide whether the property transfer from the private owners over to the developer met the required "public use" element for eminent domain.

Several Inman News readers wrote letters expressing their concern over the broader implications of the ruling:

"This is an outrage," said David G. DeVries. "Private property is a constitutional right." DeVries takes issue with the debate over public use. In the Kelo case, the court ruled that developers were providing the necessary public use to exercise eminent domain.

Another reader, Patricia Ross, said the broad reading of eminent domain rights to seize private property for distribution to other private parties is "a sad outcome."

"The common good identified speculates that a simple redistribution will provide greater value to the tax base than current use…That theory could apply to any residential neighborhood, however, to any island, or to any real estate held for industrial, warehouse, or residential property anywhere since the income attributable to stores and offices is always higher than any other form of property class," she wrote.

But Thursday's Supreme Court decision doesn't mean that every city will decide to take private property from homeowners and transfer it to developers for public use in every situation.

Neil Richards, associate professor of law at Washington University in St. Louis, pointed out that the court spent a lot of time reviewing the proposed development project in New London, and that the decision really means that states have the power to decide for themselves, not necessarily that they will engage in eminent domain activities.

Richards, who teaches constitutional law, privacy law, property and legal history, pointed out an important line in the majority court opinion that says states are free to pass laws saying cities cannot take individuals' private property.

People who are worried about the possible broad implications for property rights resulting from this case should lobby for state laws to prohibit this, Richards suggests.

The question of whether the court's decision undermines individual fifth-amendment property rights is tough to answer and depends on a person's views on where property rights came from, Richards said. "If you believe that property rights are a creation of government, then no," he said, the decision would not undermine those rights. But a person who believes property rights are a natural human right would feel the opposite.

"I found this to be a very difficult case," he said. "On the one hand, property rights are important and entitled to significant protection for good reason. On the other hand, what the city was trying to do here seems like a laudable goal."

It will be interesting to see how the decision plays out in the lower courts, Richards said.

The Institute for Justice, which represented the homeowners in the case against New London, has warned that the Supreme Court's ruling leaves homeowners vulnerable to bureaucrats and developers.

"The court simply got the law wrong today, and our Constitution and country will suffer as a result," Scott Bullock, senior attorney for the Institute for Justice, said in a statement released Thursday. Bullock said the 5-4 split and the nearly equal division among state supreme courts shows how divided the courts really are on the issue. "This will not be the last word," he said.

Bullock turned to Justice Sandra Day O'Connor's dissenting opinion, in which she wrote, "Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms."

Chip Mellor, president of the Institute for Justice, said the action now turns to state supreme courts where the public use battle will be fought under state constitutions. "The Institute for Justice will be there every step of the way with homeowners and small businesses to protect what is rightfully theirs. Today's decision in no way binds those courts," he said in a statement Thursday.
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GOVERNMENT'S POWER OF EMINENT DOMAIN EXPANDED

Brought to you by the California Association of REALTORS®
In a landmark decision yesterday, the United States Supreme Court held that the government's power of eminent domain may be used to seize someone's private property to turn over to a private developer. This case involved the seizure of 15 homes by the city of New London in Connecticut to use the land as part of a 90-acre redevelopment project by a private developer. Although the city was designated a "distressed municipality," there were no allegations that any of these 15 homes were blighted or in poor condition.

The homeowners challenged the constitutionality of the seizure under the Fifth Amendment's prohibition against the taking of private property for public use without just compensation. The homeowners argued that the government may take their homes against their will for public use, such as to build roads or railroads, but not just to give it to another private party who intends to make more productive use of the property. Whether the homeowners would receive just compensation for the taking was not directly at issue in this case.

In its 5-to-4 decision, the Supreme Court first clarified that, under the Fifth Amendment, the government cannot take someone's private property for the sole benefit of another private party, but it can take private property for use by the public. The Court went on to uphold the government's exercise of eminent domain in this case. The Court reasoned that the taking of private property to promote the city's economic development, which includes creating new jobs and increasing tax revenues, is a public purpose that falls within the public use requirement of the Fifth Amendment.

The name of this case is Kelo, et al. v. City of New London, Connecticut, et al. (2005 WL 1469529). For more information, C.A.R. members may contact C.A.R.'s Member Legal Hotline at 213.739.8282, or for office managers, broker/owners, and designated REALTORS®, call 213.739.8350. Access to Member Legal Hotline is also available through C.A.R. Online at http://www.car.org/index.php?id=NTk2.
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Couples Skip Big Wedding for Dream Home

REALTOR® Magazine Online
A growing number of couples are choosing not to have traditional weddings, which cost an average of $30,000, and are instead putting their savings toward a downpayment on a house, according to a recent online survey by KB Home.

As the average age for marriage climbs, financially independent couples are finding that rather than getting married and renting while they save up to buy, or taking on these two large expenditures simultaneously, they'd rather put the bulk of their wedding budget toward starting their life together in their new home.

"They want the comfort and security that comes with homeownership and prefer to spend their money on their future life together rather than on one night," says Jeff Mezger, KB Home's chief operating officer.

Nearly a quarter of the couples polled said they bought their homes at some point during the first six months of marriage.
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The Weekend Guide! June 23 - June 26, 2005

The Weekend Guide for June 23 - June 26, 2005.
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Existing-home sales hit record in May

Home prices up 12.5 percent in past year
Inman News
Sales of existing homes were at the second-highest pace on record in May as mortgage interest rates continued to decline, the National Association of Realtors reported today.

Total existing-home sales – including single-family, town homes, condominiums and co-ops – slipped 0.7 percent in May to a seasonally adjusted annual rate of 7.13 million from a record of 7.18 million in April. Sales were 3.5 percent above the 6.89-million-unit level in May 2004. Aside from the last two months, the previous record was a sales pace of 7.02 million in June 2004.

David Lereah, NAR’s chief economist, said low interest rates, population factors and job growth are driving home sales. “Most of the stars continue to be correctly aligned for the housing market,” he said. “An ongoing problem is the tight supply of homes available for sale, which is pushing gains in home prices.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 5.72 percent in May, down from 5.86 percent in April; the rate was 6.27 percent in May 2004.

The national median existing-home price for all housing types was $207,000 in May, up 12.5 percent from May 2004 when the median price was $184,000. The median is a typical market price where half of the homes sold for more and half sold for less.

NAR President Al Mansell, of Salt Lake City, cautions buyers to avoid shortcuts and to take time to fully understand all aspects of the purchase. “In a market where it’s common to see multiple bids on homes, buyers should avoid the temptation to skip appropriate inspections or documentation that would protect their interests,” he said. “Even more important is to understand the riskier loan products that are on the market today. There are insufficient disclosures regarding the risks of some of these products, so be sure to work with a professional who can offer guidance on the kinds of loans that are better suited for your situation.”

Total housing inventory levels rose 4.9 percent at the end of May to 2.55 million existing homes available for sale, which represents a 4.3-month supply at the current sales pace.

Lereah said, “We need about a six-month supply of homes on the market to have a rough equilibrium between home buyers and sellers. For the foreseeable future, the demand for homes will continue to outstrip supply, but we expect the inventory situation to improve in 2006 and take some of the pressure off of home prices.”

View Existing Homes Sales Data.

Existing condominium and cooperative housing sales hit a record in May, rising 2.2 percent to a seasonally adjusted annual rate of 922,000 units from a level of 902,000 in April. Last month’s sales activity was 10.6 percent above the 834,000-unit pace in May 2004. The median condo price was $221,000, up 15.2 percent from a year earlier. Condo sales accounted for 12.9 percent of market activity in May.

Single-family home sales slipped 1.1 percent to a seasonally adjusted annual rate of 6.21 million in May from a record of 6.28 million in April, and were 2.5 percent above the 6.06-million-unit pace in May 2004. The median single-family home price was $204,600 in May, up 12.2 percent from a year ago.

Regionally, total existing-home sales in the West rose 1.9 percent to an annual rate of 1.63 million units in May, but were 0.6 percent below the same month a year ago. The median existing-home price in the West was $305,000, up 19.1 percent from May 2004.

Existing-home sales in the Northeast held even at a record annual pace of 1.2 million units in May, and were 8.1 percent above the level of May 2004. The median existing-home price in the Northeast was $246,000, up 13.9 percent from a year ago.

The home resale pace in the South slipped 0.7 percent from a record in April to a level of 2.72 million units in May, and was 5.4 percent higher than a year ago. The median price of an existing home in the South was $181,000, which was 7.7 percent higher than May 2004.

Total existing-home sales in the Midwest declined 3 percent from a record in April to an annual rate of 1.59 million in May, and were 0.6 percent above May 2004. The median price in the Midwest was $169,000, up 10.5 percent from a year earlier.

The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns.

Existing-home sales, which include single-family, town homes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 percent of total home sales, are based on a much larger sample – nearly 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
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Interest Only Loans: The Myths and the Risks

By: Henry Savage: RealtyTimes
The sustaining popularity of interest-only mortgage programs has created a lot of media attention. Henry Savage cuts to the chase and examines the interest-only product objectively.

It appears that most financial writers in the media have jumped on the Interest-Only Bandwagon, thanks to the immense popularity of these products. Most of what I have read in the media on the subject gives an overall pessimistic viewpoint -- a warning to those who are thinking of taking out an interest-only loan that they carry considerable risk.

I don't necessarily disagree with everything that is being written. I'm in this business every day, talking to buyers facing skyrocketing home prices and homeowners salivating over low interest rates and low payments. Let me give you my view.

Interest-only loans allow the monthly payment to be equal to only the interest charged for that month. The principal balance does not change. In contrast, a loan that carries a 30-year amortization requires a monthly payment that covers the interest charged, plus enough of the principal balance that will pay the loan to zero in 30 years.

The difference in payment is startling. An interest-only payment is lower by about 20 percent, regardless of how much you borrow. For example, a $400,000 loan with a 30-year amortization at 5.75 percent will cost $2,334 per month. An interest-only payment would only cost $1,917.

Looking at it the other way, interest-only loans allow a buyer to afford 20 percent more house. Let's say that your comfort level for a house payment is $2,700 per month. Subtract $400 for the real estate taxes and insurance, and we have $2,300 left to make the principal and interest (or just interest) payment. At 5.75 percent, a 30 year amortized loan would allow you to borrow $394,000. An interest-only loan would allow you borrow $480,000.

Interest-only loans, unfortunately, have become a necessary product for home buyers in some areas. Folks who are buying in areas with lofty home prices are stung by sticker shock.

The difference between borrowing $480,000 and $394,000 may offer a family an opportunity to buy a nice house, thanks to an interest-only mortgage.

For folks where affordability isn't an issue, an interest-only loan gives them the option of taking the lower payment and investing the difference somewhere else. Remember that paying down a mortgage loan is akin to investing the money in an illiquid asset that's earning the same return as the after-tax cost of the mortgage. A 5.75 percent mortgage rate, discounted by say, 25 percent for the tax deduction, equals a "cost-to-borrow" rate of 4.31 percent. That's cheap money. Proponents of the interest-only loan have a strong argument that investing the money elsewhere is wiser.

Now let's get to the question as to whether interest-only loans carry significant risk. As with anything else, it depends.

Remember that these loans give you merely the option to pay just interest. You are always free to plow money into the principal and pay it down.

Skeptics charge that the frenetic housing boom cannot be sustained. I wholeheartedly agree. In fact, I'm so pessimistic that I think certain areas in the country (including parts of the Washington, DC area, where I come from) could face home-price depreciation. But does that mean interest-only loans are risky? It depends.

The way I see it, there are four basic things to watch out for if you're considering an interest-only loan.

First, know the length of the interest-only term. If you take out a 5/1 ARM, for example, you will probably be allowed to pay only interest for the first five years. After that, you must pay off the loan over a 25-year amortized period. Plus, your interest rate could be higher.The potential result: severe payment shock.

Second, contrary to what I've read, make sure you plan to hold your home for a reasonable period of time -- at least five years. Some say an interest-only loan is appropriate for folks who plan on a short-term hold because very little principal is curtailed in the early stages of an amortized loan anyway. While this may be true, it's irrelevant. Real estate values appreciate over time, but they are indeed cyclical.

An interest-only loan can be dangerous if the buyer is solely relying on unreasonable appreciation expectations over the short term. Markets will turn. We just don't know when.

Third, make sure you are able to pay at least 10 percent down. If the market turns and your property value drops when you need to sell, you won't be left "upside down," meaning your mortgage balance is greater than your property's market value.

The way I see it, the biggest risk inherent with interest-only loans apply to the borrower who has a very small down payment, has a short holding period, and is using the interest-only feature to maximize his qualifications. Add to the mix unrealistic appreciation expectations and poor market timing, and there's likely to be some trouble.

The bottom line is this: Interest-only loans give the American consumer more choice. But choices go hand-in-hand with responsibility. Choose wisely.
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Major red flag of adjustable real estate loans

Important information every borrower should know
By: Jack Guttentag: Inman News
Adjustable-rate mortgages (ARMs) are becoming increasingly popular with borrowers, and the cost of borrower ignorance about ARMs is growing with it. Every day I encounter misperceptions that have led to bad decisions, or are about to.

To avoid getting trapped into a bad ARM, it is very useful to understand the difference between the interest rate and the fully indexed rate (FIR).

The ARM interest rate is the rate you see: it is the rate quoted by the loan provider, and the rate shown in the media. It is the same as the rate on a fixed-rate mortgage, with one difference. The ARM rate holds only for a specified initial period. That period can be as short as a month, and as long as 10 years. At the end of that period, the rate is adjusted.

The FIR is the rate you don't see. It is never quoted, never shown in the media, and is not a required disclosure. Yet it is the major indicator of what will happen to the rate at the end of the initial rate period.

If the initial rate period is long and the borrower expects confidently to be out of the house before it is over, the FIR is unimportant. But if the initial rate period is short, or if there is a reasonable probability the borrower will still have the mortgage when it ends, the FIR is critically important to the borrower.

The flexible-payment, or "option" ARM, which has been growing in popularity, has an initial rate period of one month. It is a favorite instrument of hucksters because they can advertise rates as low as 1 percent. They don't bother to mention that this rate holds only for the first month. The FIR, which provides the best clue as to what the rate may be in the 359 months that follow, is seldom volunteered.

The FIR is the current value of the rate index used by the ARM, plus a margin, which varies from one transaction to another, but stays the same through the life of any one ARM. For example, a widely used index on monthly ARMs is COFI, standing for cost of funds index. If the current value of COFI is 2.5 percent, as it was in April 2005, and if the margin on a particular loan is 3 percent, the FIR on that loan is 5.5 percent.

The FIR is usually the best prediction of the rate at the first rate adjustment, which is month 2 on a monthly ARM. If the index does not change between month 1 and month 2, the rate in month 2 will be the FIR.

That is important information for the borrower to have. If you are choosing between two ARMs that are otherwise the same, you take the one with the lower FIR.

If two ARMs use the same index, you only have to compare the margins because the index values will be the same. I don't advise using this shortcut, however, because sometimes indexes with the same names are different. For example, the loan provider may tell you that the index is "Treasury" or "Libor," but there are several different indexes that fall under each of these headings.

Even if the index is the same, furthermore, lenders may define the "current value of the index" differently. While some indexes (such as COFI) are only available monthly, a number of Treasury and Libor series that are used as indexes are published monthly, weekly and daily. If one lender uses the latest monthly average while another uses the latest weekly average, their FIRs won't be comparable.

To make sure two FIRs are comparable, proceed as follows:

1. Ask the loan provider for the margin – in writing. You don't want any nasty surprises at the closing table.

2. Ask the loan provider to identify the index used from a list that you give him. Copy and paste the following URL into a Web browser: http://www.mtgprofessor.com/A%20-%20ARMs/arm_indexes.htm, and then copy the list.

3. Find the most current value of the index yourself. (The Web page cited above shows online sources for all the indexes listed there.) Just remember that if you are comparing ARMs with different indexes, the period used should be the same. They should both be monthly values for the same month, weekly values for the same week, or daily values for the same day.

Yes, you could ask the loan officer to do this for you; it is his/her job, after all. The loan officer's interests may not coincide with yours, however, so if you want to be sure it is done right, do it yourself.

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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Real estate foreclosures down nationwide

By: Inman News
Late house payments and mortgage foreclosures in the first quarter of 2005 dropped compared to the same time period last year, helped by an improving economy, a mortgage survey revealed.

At the end of the first quarter, the mortgage delinquency rate was 4.31 percent, down from 4.46 percent in the same quarter of 2004 and down from 4.38 percent at the end of the fourth quarter of last year, the Mortgage Bankers Association said.

"Mortgage delinquency" means late payments. The MBA's figures are seasonally adjusted and apply to one-to-four unit residential properties.

The foreclosure rate on mortgages entering the foreclosure process was 0.42 percent at the end of the first quarter, down from 0.47 percent in the year-ago quarter and 0.46 percent at the end of the fourth quarter.

During the first quarter of 2005, the U.S. economy grew at almost 3.5 percent in annualized real terms, adding 180,000 jobs a month, Douglas Duncan, the MBA's chief economist and senior vice president, said in a statement.

That, combined with the low interest rate environment, helped consumers strengthen their household finances, increasing the percentage of homeowners making their mortgage payments on time to nearly 96 percent, he said.

"Economic growth is expected to remain strong over the next couple of years. Likewise, job growth should be steady in the presence of modest interest-rate rises," Duncan said. "These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters."

The inventory of loans in the foreclosure process edged down to 1.08 percent at the end of the first quarter, from 1.29 percent in the year-ago period and 1.15 percent in the previous quarter.

In the MBA's report on the fourth quarter of 2004 released in March, the seasonally adjusted rate of loans entering foreclosure was up 5 basis points from the preceding quarter, to .44 percent, suggesting that concerns about rising foreclosures in coming months might be valid. But this phenomenon did not continue, with the latest report, released today, with the seasonally adjusted rate of loans entering the foreclosure process down 4 basis points from the fourth quarter of 2004 and down 5 basis points from the previous year.

The MBA has conducted the National Delinquency Survey on a quarterly basis since 1953. The survey covers more than 38 million loans, representing more than 80 percent of all first-lien residential mortgage loans in the United States.
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California: Conversions Underway in LA Loft Boom

By: Cara Mia DiMassa: REALTOR® Magazine Online
The conversion of 50 historic buildings in downtown Los Angeles into residential units is nearing an end, with all but six completed or nearly finished.

The 75-year-old Eastern Columbia Building and the 80-year-old Subway Terminal Building will soon be opened, featuring 147 and 264 units, respectively. City officials and developers are now looking at other structures to continue revitalization of the urban core.

Among those being considered are office towers built over the past four decades, parking lots, and pre-war buildings just outside of the downtown historic area. Although waiting lists for many of the units indicate strong demand, the city still must overcome several challenges.

In addition to concerns about drug arrests and other criminal activity, the city must contend with a lack of shopping centers. Moreover, the converted units are selling for $350,000 to more than $1 million, pricing many buyers out of the market and at the same time restricting the options available to renters.
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Toilet technology takes a turn for the better

New 'thrones' treat users like kings
By: Katherine Salant: Inman News
It was only a matter of time before the computer-chip technology that has transformed kitchen and laundry appliances migrated to other rooms in the house.

Those little chips that gave us the dishwasher with sensors that determine how dirty the plates are and calculate wash time accordingly and washing machines that slice and dice the laundry into 12 different cycle choices plus sensors that precisely calibrate the amount of water required for each load have now moved into the bathroom. And there they just might transform your daily routine.

I saw it all at the annual Kitchen and Bath Industry Show, otherwise known as KBIS, in Las Vegas last month.

Toto, the world's largest toilet manufacturer, now offers the Neorest 600. A high-tech fixture that looks like something out of Star Wars, the 600 lifts the lid as it senses your approach. If you sit down the seat warms up. If you want to lift the seat, you can do so with a touch of the brushed stainless steel remote control pad. Then, within 30 seconds of your walking away, the seat and lid go back down and the toilet flushes. In addition, a high-tech deodorizer also provides white noise that masks sound.

Toto's Neorest 600's real piece de resistance, however, is its built-in bidet. Unlike its European antecedent, which is a separate fixture, the Neorest 600 bidet is built into the toilet itself. A touch on the remote and one of two wands moves into place for "feminine cleansing" or "rear cleansing." You can also adjust the water temperature, the amount of pressure, and the oscillation of the spray. A 10- to 30-second wash cycle is followed by a 30- to 60-second drying cycle.

If you should experience a power outage, the Neorest 600 goes into manual override mode and performs like an ordinary toilet.

The cost of all these nifty Neorest 600 features is a mere $5,200. Should this seem a bit steep, Toto offers a Neorest 500 toilet with everything but the remote control for only $3,200. If these prices are still too high, Toto offers several less costly $800 to $1,320 Washlet bidets with similar features that are incorporated into a toilet seat, which can be fitted onto any toilet.

Two other firms make similar bidet seats. Illinois-based UCI offers three BioBidet models that range in price from $450 to $ 600, and Wisconsin-based Bemis offers its Purite model for $800.

For the thoroughly modern master bathroom, Toto also provides another unusual option: a urinal. Though a somewhat startling idea for the average homeowner, Toto's $600 Lloyd urinal is admirably practical, eliminating drips and spills. As to where to put it, one possibility is in a separate compartment with a regular toilet.

Perhaps you're not interested in all these bells and bathroom whistles, and you merely want a toilet that works well with the U.S. government-mandated 1.6 gallons per flush (gpf) required in all new houses since 1994. When the low-flush toilets were first introduced, many consumers complained that they did not work well, frequently requiring several flushes, which negated any water savings. Over the intervening years toilet manufacturers have gone back to the drawing board and completely re-engineered their products. Some have added a second sealed tank that sits inside a conventional toilet tank and uses air pressure to give the smaller amount of water an extra boost (these are referred to as "pressure assisted" toilets). A few manufacturers added a pump to move the water through quickly and effectively (these are called "power assisted" toilets), but these won't work when the electricity is off.

Still other manufacturers have looked at ways to modify the old gravity-fed toilets so that they would work well with far less water and many of the newest ones work better than the old ones ever did. Recent innovations have included doubling the size of the outlet from the tank so that water enters the toilet with more force, altering the shape of the rim so that water shoots around it creating a more powerful flush, and changing the shape of the bowl and trapway so that water and waste can pass through it easily without clogging.

I saw several toilets with these new innovations at KBIS, each one enthusiastically endorsed by the manufacturer's sales rep. How well do they actually work?

According to Veritec Consulting, an environmental testing firm based in Mississauga, Ontario, Veritec tests toilet performance that has devised more accurate tests than those used previously.

Eljer's new Trojan toilet ($410) bested the average by 100 percent (For those into details the Trojan easily flushed a "pseudo paste" stool twice the size of an average adult male stool). American Standard's new FloWise ($395) did nearly as well as the Trojan with even less water (1.1 gallons) than the manufacturer claimed (1.28 gallons). None of Toto's latest innovations, including the Neorest, Guinevere and Soiree models, has been tested yet, but Toto's products have performed extremely well in previous Vertec tests.

For more information on Veritec's May 2005 MaP (Maximum Performance) test results for more than 100 toilets, go to the Web site of the California Urban Water Conservation Council.

Another attractive toilet innovation displayed at KBIS was pint-sized fixtures for kids' bathrooms. Gerber's new Pee Wee Collection includes a $350 toilet with a 10 1/8-inch rim height (standard rim height is 14 inches) and a pint-sized toilet seat. It can easily be switched out for a regular-sized toilet when a child is tall enough. For most kids, this means at the age of seven or eight.

Gerber also offers a white porcelain, wall-mounted Pee Wee sink for $44.50. It's serviceable, but I would spring instead for one of Elkay's brand-new, adorable, pint-sized Scrub-a-Dubs sinks that go for $249. Made of a solid surface material similar to Corian and available in seven bright colors, the sinks come in the shape of a fish, tulip, heart, butterfly, football and "whimsy design." A special detail for a small user: the overflow hole is designed so that a child can't get a finger stuck in it.

In developing this product, Elkay held a focus group with its employees who are parents to determine which shapes and colors would appeal to a 3- or 4-year-old and still be loved when that child was 10 or 12. Judging by the results, I would say they were right on target.

For more information:

Toto, www.totousa.com

UCI's Biobidet, www.biobidet.com

Bemis's Purite, www.bemisseats.com

Eljer's Trojan, www.eljer.com

American Standard's FloWise, www.americanstandard-us.com

Gerber's PeeWee Collection, www.gerberonline.com

Elkay's "scrub-a-dubs," www.elkayusa.com

Questions or queries? Katherine Salant can be contacted at www.katherinesalant.com.
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In a Booming Market, Sellers Can Be Choosers

By: Amir Efrati: The Wall Street Journal Online
Within a month of putting her two-bedroom house in San Francisco on the market recently, homeowner Linda Gao had five offers, each one above her asking price of $699,000. So before accepting the most-attractive bid, she threw in an extra condition: If you want to buy my house, you have to feed the squirrels.

Two weeks later, she and the buyer hammered out a contract that included feeding the backyard wildlife, which Ms. Gao has done three times a week for the past two years. "I don't think it matters if it's a buyer's market or a seller's market," Ms. Gao says. "Anyone with a good heart would feed them."

In this booming real-estate market, prospective home buyers are encountering some unorthodox requests. As sellers are barraged by eager bidders, they're seeking not only the highest price or wrangling over who'll pick up taxes and closing costs -- but some also are asking to stay in the house months after the deal closes, or requesting fixtures that typically stay with the property, such as refrigerators and diving boards. In Tempe, Ariz., one seller invited bidders to sit for interviews until he found one he thought his neighbors would like. A homeowner in San Antonio was happy to let her house go, but only to a buyer who promised not to renovate it.

"As a buyer you have no leverage in this market," says Bruce Ross Bernor, an agent in San Francisco. "You have to bite your tongue and go along with it."

Sellers' unusual demands are another manifestation of the current hot housing market. Inflation-adjusted home sale prices increased at least 30% in the past three years in 55 metropolitan areas, according to the Federal Deposit Insurance Corp., while the number of houses for sale remains low, particularly in hot markets such as Palm Beach, Fla., and San Francisco.

Home-buyer Allison Love figured the process wouldn't be about anything but the financials, and when she bid $235,000 for a three-bedroom Craftsman-style home in Tempe, Ariz., she expected the sellers to respond with a simple counteroffer or rejection. Instead, they invited her over for a 20-minute interrogation around the kitchen table. "So, why do you want to buy my house?" the sellers inquired, asking as well what Ms. Love would bring to the community, and whether she would participate in neighborhood watches. "The last thing I expected was to be interviewed for a home," says Ms. Love, a 32-year-old elementary-school teacher. "You're at the seller's mercy."

Being Neighborly

The sellers, Robert Mode and his wife, Lisa, say that because they had more than one bidder, they could afford to weigh factors besides the final price. Mr. Mode, a 42-year-old salesman, says he wanted to be a good neighbor to the end, leaving his home of six years in good hands. "We'd have a neighborhood cookout every six months. Sometimes, I'd be mowing my lawn, and people I never met before would wave. It made you feel like you were part of something bigger than yourself," he says. "I had a moral responsibility to my neighbors to pick the best buyer." (The Modes accepted Ms. Love's offer, which was $6,100 above the asking price but $2,000 below the highest bid.)

In many cases, there's a fine line between picky and discriminatory. A seller who interviews a buyer must follow roughly the same rules as an employer who interviews a job candidate, says Beverly Watts, director of the National Fair Housing Training Academy, which trains state and local agencies on how to investigate fair-housing violations. Sellers cannot refuse to sell (or show a property) to someone based on race, religion, disability or other classes protected by federal laws. Some cities and states have laws to protect against age or sexual-orientation discrimination.

That's why brokers often discourage communication between seller and prospective buyer. Home sales already are high-stakes negotiations, and personal communication can add a whole new menu of possible snags. "Sometimes the simplest thing said between the buyer and seller before the contract is signed can blow the deal," says Dick Leike, president of Memphis, Tenn.-based brokerage firm Crye-Leike.

Claire Golden was willing to take the risk. She didn't care who the potential buyers were -- but she did want to know what they planned to do with her house. The San Antonio retiree lived in a modern cedar-and-glass three-bedroom she and her late husband built in 1959, and she wanted a buyer that would keep it the way she left it. "It was an emotional tie," she said. "I just didn't want the house changed."

The first couple Mrs. Golden interviewed last summer offered the asking price, in the high six figures, and said they wouldn't do any major renovation. A second couple made a higher offer, but had five boys and wanted to convert the home's study into a bedroom. "Right away I was turned off," Mrs. Golden says. "This house would not accommodate five boys comfortably without doing major changes." The lower offer prevailed.

Turnabout's Fair Play

There's always been some give and take between buyers and sellers, depending on the market conditions and peculiarities of each deal. But the latest seller-driven market marks a change from even as recently as four years ago. After Sept. 11, 2001, for example, some sellers eager to unload properties were throwing in extras to help close the deal -- including convertibles, art or recommendations for the local country club.

Some buyers aren't eager to give ground. After Lisa Lai Fook offered the $499,000 asking price for a town house in Oakland, Calif., last month, the seller asked her to write a letter describing her background. Ms. Lai Fook walked away. "I'm really busy," says the 33-year-old chemical engineer. "To sit there and write a letter to someone I don't know after I've put down a ridiculous sum of money is insulting."

Not every seller's demand is necessarily honored. Terms of sale meant to remain in effect after the deal has closed must be written into the contract and transferred to the property's deed, says Neil B. Garfinkel, a New York real-estate lawyer. In the case of Ms. Gao's squirrels, the feeding clause in the contract wasn't transferred to the deed. Even if it had been, Mr. Garfinkel says enforcement would be tricky. "It would be impossible to monitor that," he says.

Indeed, when Susan Butler was negotiating to buy Ms. Gao's San Francisco property, she was resigned to the feeding schedule. "At that point, I said, 'Yeah, what the hell, I'll feed the squirrels,'" she said. She signed a contract in April, paying $815,000 -- or $116,000 over the asking price. Will Ms. Butler actually feed her new furry friends? "Probably not," says the college administrator. "I don't want to encourage other rodents."
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NAR Responds to Erroneous Statements Made on Today Show

By: NAR: REALTOR® Magazine Online
On June 16, guests on the Today Show made several erroneous statements about the real estate transaction process and real estate agents. In response, the NATIONAL ASSOCIATION OF REALTORS® wrote a letter to the Today Show’s executive producer, Tom Toucher, to set the record straight.

The full text of NAR's response follows, and is available in PDF.

June 16, 2005

Mr. Tom Toucher
Executive Producer, Today Show
NBC News
30 Rockefeller Plaza, Suite 374E
New York, NY 10112-0002

Dear Mr. Toucher:

On the June 16th Today Show, Professors Dubner and Levitt reached some conclusions that are based on false assumptions about the real estate industry.

They assume that real estate sales are a one-time transaction in which real estate agents don’t have to go the extra mile. That's simply not the case. Most clients are obtained through referrals and many buyers will hire the same Realtor for repeat business. Home transactions are not in fact a one-time affair. People move once every seven years on average, and referrals and repeat business are an important source of business for real estate agents. It’s in an agent’s economic self-interest to look beyond the immediate profit to a long-term relationship.

They also said that agents often advise sellers to accept an early, unnecessarily low offer to close the sale quickly so the agent can move on to other properties, but that agents tend to hold out for better prices when selling their own property. However, in the case of the average consumer transaction, it’s frequently to the advantage of the consumer to make a transaction in a timely manner, due to family and personal factors. It is a fact that price concessions often become deeper the longer a home stays on the market. Sellers needing to move may have to make a price concession with each passing week. In the practical world, if agents were trying to make a higher commission, seems to me they’d leave the property on the market longer to get the higher price Levitt thinks is forthcoming.

Professor Levitt may have misunderstood the real reasons why real estate agent-owned properties—a very tiny portion of the home sales market—tend to stay on the market for a longer period than owner-occupants’ properties. It is a common acceptance that a majority of homes owned by real estate agents are second or investor homes. With investor properties, the seller can usually wait for the best price and not worry about factors such as job transfers or school year timing. In that kind of sale, the type of home, not the status of the owners, is driving the results.

Professor Levitt overlooks the obligation of real estate agents to exercise due diligence on behalf of clients. Doing due diligence is an agent’s legal obligation, as well as a moral and professional one. In fact, the National Association of Realtors was one of the first trade associations to adopt a code of ethics. NAR members are required to receive training in our Code of Ethics and review this subject matter on a periodic basis. A major emphasis in this Code is the obligation of due diligence which the agent owes to clients.

Professor Levitt’s rush to endorse reduced service and discounted sales models overlooks the reason sales by full-service brokers remain so popular, an omission that misleads your viewers There are a large number of reduced service and reduced fee discount sales approaches, and it is a fact that most are soon replaced or discontinued, due to flaws in their business model. In a market economy, a better business model survives over the long run. If the services provided by real estate professionals are not valuable, then the demand for them would surely diminish over time. The fact that owner-facilitated and limited, flat-fee sales cannot gain market share is itself a confirmation that agents are providing value-added services.

In light of the importance of these issues to millions of your viewers, we would like to offer the Today Show our chief economist, David Lereah, or our president, Al Mansell, to discuss them.

Sincerely,

Stephen K. Cook
Vice President, Public Affairs
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More Women Buying Solo

By: Jim Buchta: REALTOR® Magazine Online
In the past 20 years, the percentage of single female homebuyers has nearly doubled, making unmarried women the second-largest group of buyers behind married couples.

Last year, single women accounted for about 20 percent of the market, compared with single men--who made up just 8 percent. The Joint Center for Housing Studies at Harvard University reports that the total number of unmarried homeowners increased to 17.5 million from 13.9 million between 1994 and 2002; and, during that period, about 30 percent of all new homeowners were single women.

The increasing number of single women entering the market has sparked demand for town houses and condominiums, boosted the home improvement industry, and prompted the mortgage industry to offer more programs to non-traditional buyers.
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Housing boom won't let up

Economists poke holes in real estate 'froth' worries
By: Glenn Roberts Jr.: Inman News
Real estate industry economists today downplayed Federal Reserve Chairman Alan Greenspan's comment last week about "froth" in home-price appreciation in some markets and presented forecasts for continued strength in the housing market, at least through the end of the year and likely carrying into 2006.

"Yes, there is froth in the markets, but froth can be healthy," said David Lereah, chief economist for the National Association of Realtors. "It's not a bad word."

Home-price gains can be more about supply and demand than they are about bubbles, he said. Lereah referenced a report citing double-digit price gains in 66 U.S. metro areas in a 12-month period. "That doesn't mean there are 66 metros that are having bubbles." Rather, he said, they represent "66 metros where the demand is clearly higher than the inventories of homes in those local markets." Even so, he acknowledged that double-digit price gains cannot continue indefinitely, and inevitably that pace will slip off. "It's not sustainable," he said.

Greenspan said during a Fed meeting June 9 that a nationwide housing "bubble" does not appear likely, though "there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels." Greenspan also said that the "apparent froth in housing markets may have spilled over into mortgage markets," and expressed particular worries over a rise in interest-only and "other relatively exotic forms of adjustable-rate mortgages."

Today, real estate economists representing major real estate trade groups and mortgage entities fired back with their optimistic forecasts for a booming housing market that has so far refused to wither or die. The economists represented members of the Washington, D.C.-based Homeownership Alliance, which includes a coalition of about 15 housing-related organizations.

All of the economists agreed that the still-low long-term and short-term mortgage interest rates are likely to rise through the end of the year, and that the continued strength of the housing market owes a lot to those low rates. But demographics, including new immigration and population growth, also play a powerful role in the continuing boom, they said.

Frank E. Nothaft, chief economist for mortgage industry giant Freddie Mac, acknowledged that "there are signs of 'suds' around the country," though the overall housing market remains hot. The dollar volume of mortgage originations should drop 5 percent to 8 percent this year, he said, due largely to a lower share of refinancing activity. Refinancing accounts for about 40 percent of all mortgage originations activity, he said, which is the lowest share in five years. Meanwhile, purchase-money originations are up but not enough to offset the larger trend in reduced refinancing.

Five-year adjustable-rate mortgage products have become "a dominant product" among alternative loans, account for about 40 percent of all adjustable-rate mortgages, Nothaft also said. He estimated that long-term interest rates should gradually reach 6 percent by the end of the year, from a current rate of about 5.65 percent.

Also, he said, "I think we'll see some gradual moderation in house-price valuation over the next couple of years," with about a one-in-three chance of a region in the country seeing stagnant or declining home values over the next couple of years, linked to regional economic weakness.

David Seiders, chief economist for the National Association of Home Builders, said, "The performance of the housing sector so far this year certainly has exceeded our collective expectations largely or at least partly because long-term interest rates basically have refused to go up."

Seiders and other economists expressed some worries about the level of investor and speculator activity in the real estate market, and about how the real estate market might react to a rise in interest rates.

While some home-price increases exhibit boom conditions, Seiders questioned, "Will there be some price bust following behind?" He projected continuing economic growth through the rest of the year, with an expected record in new-home sales.

Lereah, meanwhile, forecasts a record 6.89 million existing-home sales in 2005.

Worries about a growth in alternative forms of home loans are exaggerated, said Paul Merski, chief economist for the Independent Community Bankers of America. Merski said, "Bankers are being very diligent now about their lending practices," and the FDIC is "closely monitoring bankers' lending practices right now due to the long run in the housing boom."

"(The notion) of exotic products out there that are extremely dangerous is well overblown," Merski said. Zero-down payment loans are probably more dangerous as they tend to have a higher default rate, he said, though these types of loans account for a much lower share of the overall market. Bankers do worry about repayment risk, Merski said, and closely watch home builders' inventory of unsold homes.

Merski also addressed the issue of home-price "froth." He said, "Economists have a saying that unsustainable trends will not be sustained," and that may hold true for some markets that have rapid, double-digit price appreciation. He forecast a "reasonable cooling off in certain markets in the prices but certainly no crashes in these markets because of the strong demand." Even so, the overall housing market should be strong for the rest of the year and going into 2006, he added.

And David W. Berson, chief economist for Fannie Mae, a sister entity to Freddie Mac and key player in the secondary mortgage market, said, "There are no signs of any slowing in the housing market at all. You need a pretty good decline for the second half of the year not to set a record this year."
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'Bubble-proof' your second-home investment

Guest perspective: How not to get caught in a speculator market
By: Christine Karpinski: Inman News
According to the March 2005 report by the National Association of Realtors, a record 2.82 million second homes were sold in 2004, up 16.3 percent from 2.42 million in 2003. Astounding as it may seem, investment property and vacation homes account for more than one-third of residential transactions.

Jack McCabe of MaCabe Research and Consulting said, "An estimated 40-60 percent of the more than 60,000 condos and homes scheduled for completion by 2007 in Southwest Florida are under contract with speculators." Speculators are defined as investors who only purchase properties in areas where they think there will be huge appreciation factors. They never intend to occupy the property, but just want to sit on it during the construction phase and then get out at high appreciation times of build out. Areas where a large percentage of speculators invest historically make those areas more vulnerable to artificially inflated prices.

The last thing you want to do is buy in an area where there are too many speculators. The risks of the bubble bursting and you getting soaked by the burst are much higher in these markets.

All of this talk about a real estate bubble shouldn't stop anyone from buying that dream vacation home. But it should make prospective buyers do a lot more research. Gone are the days of going on vacation and coming home with a vacation home. A lot more homework is required to protect buyers and make sure they're making a sound investment.

Here are some tips for buyers interested in purchasing vacation homes

• Start with a plan: Whether buying for personal use or for investment,you should
  start with a business plan, just as you would if you were starting any new
  business. Confidence in an investment takes a lot of research.
• Buy with your wallet not your heart: Make sure you're buying a smart investment.
  It's especially difficult for vacation home buyers because we tend to use our
  emotions more than our heads. It's easy to get caught up and sign on the dotted
  line when you see that gorgeous beach home or perfect ski resort, why do you think
  so many people own timeshares?
  Because they get caught in the moment and only see the romantic side of ownership
  without doing the due diligence necessary.
• Research the area: Is this a new emerging area? Or is it an older, more developed
  area? This makes a lot of difference. If you are looking to purchase in an area
  that's well developed, such as Cape Cod, then there's less to worry about. The
  supply is so low in these areas that historically they indeed hold their value.
  But exercise caution in an emerging market such as southwest Florida to be sure
  that there are not too many new developments causing inventory to exceed demand.
• Use your real estate agent: Pick your agent's brain. Ask tons of questions, scour
  through his or her Web site and absorb as much information as possible. After all,
  your agent is getting paid to be knowledgeable in this area. Use his or her
  expertise to your advantage.
• Look for large credible developers: Developers do more research than any single
  buyer could ever dream of doing or affording. They sink thousands of dollars into
  researching the market, tourism, growth and inventory. If you follow large
  developers, your chances of failing likely will be significantly less.
• Beware of overextending with "teaser" mortgages: Yes, you can afford that property
  with a 3.5 percent interest-only payment, but be realistic. That payment is likely
  to go up, and maybe faster than you think. Mortgage rates today are still at an
  all-time low, but if you're using an adjustable-rate or interest-only just for the
  affordability factor, watch out, your rates will go up. You might be saying, "I'll
  just sell when the rates rise," but so might thousands of other owners. You could
  be stuck with a property you cannot afford. There is no way of telling where the
  mortgage rates will be when your teaser rate caps out.
• Leave your options open: You might be saying, "I want to buy a vacation home for
  personal use. I never intend to rent it out." Well that is perfectly fine, but you
  can never be sure what tomorrow brings. Today, it may be financially feasible to
  not rent your home but what will tomorrow bring? What will change in your finances
  over the years? Will you be retiring? Will your children be attending college?
  Will the tax rate for the property skyrocket? What about the simple costs of
  ownership? Buy in an area where you know you can utilize the option to rent your
  property.
• Stay away from areas with short-term rental bans: The best way to protect yourself
  from market fluctuation is to leave your options to rent your property on a nightly
  or weekly basis when you are not using it. Some complexes, local, city and counties
  have areas where there are covenants or laws against renting on a short-term basis.
  If you stay away from purchasing in these areas, then you're leaving your options
  open to turn your vacation home into an income-producing asset.
  In closing, all in all I still think that vacation homes are good strong
  investments. If you make well-researched, educated decisions you'll be setting
  yourself up for success, not failure. Smart investing is all about eliminating
  your risks from the start.

Christine Hrib Karpinski is the author of two books on vacation-home investing, "How to Rent Vacation Properties by Owner" (Kinney Pollack Press), and an upcoming new book, "Profit from Your Vacation Home Dream" (Dearborn Trade Publishing).
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Developers get creative with downtown housing

Part 2: A return to cities
By: Glenn Roberts Jr.: Inman News
Editor's note: Downtown living is no longer taboo, and residents and developers are increasingly drawn to urban areas in many cities across the nation. Experts say demographics and lifestyle choices are driving the trend. More people are getting fed up with long commutes, immigration and population are surging in some areas, and a niche group of people – including young professionals and empty nesters -- are bored with living in the suburbs. In this three-part series, Inman News peels back the buzzwords associated with inner-city rebirth to find out what's really driving the new trend of downtown digs. (See Part 1: Downtown dwellings bring new life to urban core.)

Developing residential projects in inner-city areas is bold and daring. It can also be challenging, complex, chaotic, and costly, experts say. But that hasn't stopped builders across the country from putting up housing in unconventional places.

Scott K. Choppin of Urban Pacific Builders, who spoke about infill development during a presentation at a builders' conference in San Francisco this month, said developers must take a creative, visionary approach to urban infill development. "The rules have to be broken almost everyday, and almost every minute of every day," Choppin said during a presentation to hundreds of conference attendees. "You have to be able to take risks in design."

A few blocks away, participants in a parallel conference on multifamily housing trends heard presentations on mixed-use development that combines residential with retail space, developing in mixed-income urban neighborhoods, and building high-density and high-design projects in urban areas.

Downtown living is no longer taboo, and residents and developers are increasingly drawn to urban areas in many cities across the nation. Experts say demographics and lifestyle choices are driving the trend. More people are getting fed up with long commutes, immigration and population are surging in some areas, and there is a niche group of people -- among them young professionals and empty nesters -- who are bored with the 'burbs.

David Smith, a principal at Thomas P. Cox, Architects, Inc. in Irvine, Calif., who attended the multifamily conference, said, "In two years our business has entirely changed. (There is) a renaissance in downtown urban cores. High-density housing for a long time was thought of as inferior -- a less than desirable type of housing. Now you have the option of living where the jobs are." Developers earlier tested the central-city housing market with rental units, and now the thrust is in housing units for sale, he said.

Smith also said that the shift to urban development in the Southern California region has been "breathtakingly" rapid. What would have been a five-story wood-framed apartment building project a few years ago is now a 20-story condo development, he said, and the rental market has given way to a strong for-sale market in downtown areas.

Lawrence S. Bond, chairman for Bond Cos., a developer, said the popularity of infill is a byproduct of population growth, and because of this he doesn't expect the urban market to dry up. "What we have is a population explosion. Investors are clamoring for these (infill development) properties. They see a trend for the future."

Neil Takemoto, who in 1997 co-founded National Town Builders Association, a trade group for smart growth and new urbanism real estate developers, said developers typically don't like urban residential development, but they can't ignore the demand, and suburban development is facing an increasingly uphill approval process in some regions.

"(Urban development) is not cookie-cutter and requires greater risks and costs, but permits are becoming too difficult as sprawl becomes a greater issue." City living, he said, "Is an entirely new mentality of what the American Dream is." Takemoto, who runs a CoolTownStudios.com Web site that tracks urban infill issues, lives up to the standards he promotes: In 1997, he moved to downtown Washington, D.C., and walks five blocks to work.

Cities and other community agencies play a vital role in city-center residential development. But not every municipality is easy to work with, and that can make residential infill projects difficult at best. "We have a saying, 'There are two things every city hates: Its density and its sprawl,'" said John Ochsner, division president for Centex Homes, Northern California.

"The development community is one of the most highly regulated industries in the United States. We really need the backing of the community, at a neighborhood and local level, to pull these projects off. If we are going to turn inward we are going to need to find a way to improve the process," he said. For high-density infill projects, "the time to market and delivery time is very lengthy. There is a lot of market and investment risk compared to traditional single-family projects."

Atlanta, Boston, Chicago, Los Angeles, Minneapolis, New York, Portland, San Francisco, San Diego, and Washington, D.C., are among the cities that have embraced urban infill residential developments, and the list goes on. Kevin Wakelin, CEO for Holliday Development, based in the San Francisco Bay Area, said his company looks for properties that are priced very low in neighborhoods that may be blighted or have been overlooked by other developers. A presenter at the multifamily trends conference this month, Wakelin said that his company won't pay more than $100 a square foot for property, and his company looks for development partners to share the risk.

The company typically turns its attention to new cities and neighborhoods as the real estate market around its current projects begins to rebound and thrive, he said. Holliday's niche is building affordable housing in communities that are on the rebound.

"We're not going to say it's easy but where there's a will there's a way," he said. "You have to rely on your audience to also be pioneers...people who want to live in edgy urban areas." Wakelin's company is something of a pioneer in seeking out the middle-market, a market that can be somewhat "elusive," he said. Some urban residential developers compensate for high property costs by building high-density luxury condo units that cater to upper-income consumers, for example.

Jay Stark of Phoenix Realty Group, who participated in a panel discussion titled "Infill: The 'Out of the Box' Solution" at the Pacific Coast Builders Conference this month in San Francisco, said, "Infill is not for everyone. If you don't love mixed use you probably shouldn't be doing it."

Developers tend to lag slightly behind the demand for urban infill housing, said Alexander von Hoffman, a senior fellow for the Harvard University Joint Center for Housing Studies who wrote a book about urban renewal efforts in Boston, New York, Chicago, Atlanta and Los Angeles. "Developers show up last because they have money at risk," he said.

Sometimes, residential urban infill is an unintended consequence of other development. In Detroit, a new baseball stadium spurred substantial urban renewal, though only after neighbors fought for change, von Hoffman said. While urban infill has been practiced for decades in some cities, "a lot of people haven't got the message yet," he added.

Andrew Young, senior vice president for CenterPoint LLC, a real estate investment group that provides capital for luxury condominium developments, said, though, that it's surprising how many communities are now turning toward high-density, inner-city residential development. "There are a lot of markets that were pretty scared of high-rises that are now coming up." Denver, Dallas, Phoenix, Chicago, Las Vegas and Miami are among the markets that have seen a lot of interest in infill residential development, Young said.

There are demographic factors that builders cannot overlook about the future of urban infill development, said Ochsner, of Centex Homes.

"There is population growth, immigration -- more and more people are getting into housing," he said. "I think there is a sustained level of demand that will be with us in perpetuity. In the U.S. right now there are 400,000 housing units a year that become structurally or functionally obsolete and need to be rebuilt. That's true especially in urban cities."
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Credit-report errors eliminate competition for real estate

Learn how to check FICO scores, fix mistakes
By: Robert J. Bruss: Inman News
Is your credit perfect? Then stop reading and move on to something else.

However, if you are like most of us, you have a credit blemish or two.

But don't let bad credit stop you from buying a home. Today, there is a home loan lender for virtually every prospective home buyer.

Before shopping for a house or condo, your first step should be to get pre-approved in writing by a mortgage lender. Then you will know what price-range home you can afford and if you will need any cash down payment.

If you have good credit and sufficient steady income, you might not need any cash down payment to buy a home. A savvy mortgage lender can show you how to buy a house or condo for nothing down.

CHECK YOUR CREDIT REPORTS BEFORE BUYING OR REFINANCING YOUR HOME

Having just satisfactorily refinanced my home mortgage with Wells Fargo, I recently became very concerned about my credit reports. Before refinancing, I checked my three credit scores.

The easiest source I found was www.myfico.com. It wasn't cheap. But for $14.95 each I checked my three credit reports and my FICO (Fair, Isaac and Co.) scores from the three major nationwide credit bureaus.

To my surprise, I discovered there was a 32-point difference between my best FICO credit score and my worst FICO credit score. However, after I read each credit report from Trans Union, Experian and Equifax, I couldn't spot any significant differences.

Fortunately, I didn't find any major mistakes on my credit reports, other than credit accounts I closed long ago, which were shown as still open on several reports.

As a general rule, mortgage lenders report if your FICO scores are 680 or above you probably qualify for the lowest mortgage interest rates. However, you might pay a bit higher interest rate if your FICO scores are between 620 and 680. Each lender has its own FICO score standards.

However, if your FICO scores are below 620, you will probably have to pay a higher interest rate. But don't let that stop you from buying a home.

The reason is once you buy a house or condo, you can work on improving your FICO credit score, which virtually all mortgage lenders use. After a year or two of on-time mortgage payments, you can probably refinance on better terms and, if your home appreciated in market value, even take out some tax-free cash thanks to the increased equity.

HOW TO OBTAIN THREE FREE ANNUAL CREDIT REPORTS. Thanks to a new federal law, in most states it is now possible to obtain a free annual credit report from each of the nationwide credit bureaus. However, these free credit reports do not include your all-important FICO credit scores, which most mortgage lenders now use to evaluate your mortgage eligibility.

To obtain your free, once-a-year credit reports, without FICO scores, in most states just go to www.annualcreditreport.com. If you don't have Internet access, your public library reference department will be glad to assist you. Some eastern states will gain access to these free credit reports later this year.

HOW TO FIX YOUR CREDIT REPORTS IF YOU DISCOVER ERRORS. Mortgage lenders are eager to loan you money to buy or refinance your home. The better your FICO scores, the better the mortgage terms you will obtain and the lower your monthly payment will be. For this reason, it pays to fix your credit reports containing errors.

After obtaining a written copy of each credit report from the three nationwide credit report bureaus, if you are not satisfied with your FICO score, be sure to contact each credit bureau to dispute any errors.

As a general rule, FICO scores depend on the length of your credit history, on-time payments, number of recent credit inquiries, and percent of credit use compared to available credit.

For example, suppose you pay your credit cards on time, but you always make the minimum required monthly payments and have borrowed 95 percent of your total credit limits. That doesn't help your FICO score.

Instead, suppose your credit use compared to available credit is less than 50 percent, you always pay the monthly minimum payment or more, and you don't have any credit inquiries within the last six months. This situation greatly helps your FICO score, as compared to the previous scenario.

ASK FRIENDS AND BUSINESS ASSOCIATES FOR MORTGAGE LENDER REFERRALS. Thankfully, not all mortgage lenders are the same. If you don't know a good mortgage lender, such as a bank loan officer or a mortgage broker, ask friends and business associates for their recommendations.

Contrary to popular misbelief, mortgage lenders are very eager to make home loans. The reason is home loan volume is down, compared to the near-record lending rate volume of last year.

There is plenty of mortgage money available. Also, mortgage agents work on commissions. If you don't borrow, they don't eat.

But lenders don't want to create risky home loans. An exception, however, exists for "sub-prime lenders" who make home loans at high interest rates to compensate for their higher risks with borrowers having low FICO scores.

There are even extreme "loan to own" mortgage lenders who make very high-risk home loans, knowing the loan will probably go into default and the lender will profit from the foreclosure.

Home buyers should shop carefully for the best mortgage terms to get pre-approved in writing by an actual lender before shopping for a house or condo to purchase. Getting pre-approved for the mortgage is often more difficult that finding a home to buy.

SUMMARY: Virtually everyone with a reliable income can obtain a mortgage to buy a house or condo. But the first step to home ownership is to check your credit reports and obtain your FICO scores. The second step, after clearing up any credit report errors, is to obtain written mortgage lender pre-approval so you will know the maximum mortgage available and your maximum home purchase price.

More details are in my special report, "How to Buy a House or Condo If You Have Less Than Perfect Credit," available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or Internet PDF download at www.bobbruss.com.
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