Heads Up!

Whether it is politics, the economy, international affairs or our personal daily activities, “change” is the operative word.

In real estate, many of the norms and rules that we have operated under have fundamentally changed.

I’ve previously talked about how our principal financial institutions affecting real estate, Fannie Mae and Freddie Mac, are tightening their guidelines on credit scores, appraisals and loan-to-value on properties in markets that they have identified as high risk. Their obvious goal is to minimize exposure to further losses.

This means that many real estate markets are in a prolonged down cycle, and we need to make sure that our sales approach with prospective clients takes all of these issues into account.

It is a new world order for many real estate professionals, and educating or qualifying buyers and sellers has renewed importance.

Sellers: In many locations throughout the U.S., home values have declined and have not stabilized. Sellers need to have a realistic expectation of the value of their home.

The first issue to be addressed is how much equity they have in their home. Their equity may be the determining factor to their ability to sell their home.

This is where the appraisal becomes important to the process. There is incredible pressure coming from both the Federal and State governments to ensure the independence of the appraisal process.

Finally, when writing the sales contract, you need to consider writing a 60 or 90 contract expiration date into the agreement. In addition to the guidelines that can extend the time to gain loan approval, Lenders have reduced staffing in their underwriting departments adding time to the approval process. This extended time in the sales contract is equally important to the buyer.

Buyers: While many potential buyers are waiting for the real estate market to bottom out before purchasing a home, they need to understand that the guidelines being instituted may result in many loan programs that they qualify for today not being available tomorrow.

Qualifying the borrower should be done early in the process. We are not referring to the “pre qual” letter of the past based on buyer supplied information.

Client information needs to be validated. Ascertaining the buyer’s credit score(s), determining their income, assets and employment, are critical to determining what price home they can qualify for as well as what loan programs.