Multiple Offers – Perspective

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In our current SELLERS MARKET, multiple buyer offers are common… and depending on the situation, can turn out to be methodical or MAYHEM; so…

HOW DO I COMPETE AS A BUYER?

There are two perspectives; from the buyer side and from the seller side:

BUYER SIDE

Numerous strategies can be arranged through your experienced Buyer Representative, in an attempt to make your offer stand out from any others; some points to consider:

  • Limiting or completely waiving any inspection or other due diligence
  • Waiving the mortgage appraisal contingency (with confirmation up front from your lender)
  • Using an initial Earnest Money Deposit (EMD) followed by another deposit, post-inspection
  • Flexibility with the closing date or seller occupancy after closing
  • Not charging the seller for occupancy after closing
  • Not selecting more than one title company for both the lender and owner policies of title insurance; in other words… “we’ll use the sellers title company for everything”

SELLER SIDE

The seller has all the control, but it is critical for any seller to receive guidance from their experienced Listing Representative. A line has to be drawn somewhere, both ethically and professionally (for example; if there is an offer receipt deadline, and offers continue to post after such deadline).

Here again, numerous strategies can be arranged through your experienced Listing Representative… the intent to ethically, legally and professionally acknowledge all submitting agents offers, while attempting to negotiate the best price and terms for the seller; typically on the fly… with some points to consider:

  • The lender itself, and type of financing
  • Do we have an actual mortgage pre-approval letter, or simply a prequalification statement?
  • The buyer down payment and earnest money deposit structure
  • The contract itself; is it concise and complete, or ambiguous… incomplete or sloppy?
  • In a multiple offer situation, an experienced Listing Representative will also be able to negotiate on behalf of the seller on the fly, requesting offer re-submissions or revisions as needed before presenting to the seller
  • Not interpreting ANY buyer agent verbal comments or changes as legitimate unless in writing

I am only touching on these perspectives, perhaps to be broken down in future blog posts… but any versions of these strategies can and should be employed by buyer and seller agents alike; even in the absence of other offers. A key takeaway is that; in the heat of the moment and when decisions may have to be made verbally… that the party making the verbal statement will in fact honor and abide by the conditions of that statement, or risk their reputation as an honest and ethical agent.

In these multiple offer situations, an experienced agent (representative) will outshine the mediocrity so prevalent in today’s market… while balancing trust and integrity from both sides of the transaction. Your “sister’s best friend who just happens to have a real estate license and is engaged to your neighbor’s cousin” isn’t likely the choice you’ll want to make, to represent you as a buyer or seller in this market 🙂

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Principal Residence Exemption… Can I Have More Than One?

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I mentioned in my blog post “How Are My Property Taxes Determined?”, that Michigan’s General Property Tax Act (GPTA) allows an owner to “exempt” the local school district tax from their primary residence. Known as the “Principal Residence Exemption” or PRE, this saves about 40% on average, in total property tax burden each year. Second homes, vacation homes, investment homes, etc. are not eligible for this exemption.

An owner can typically carry only one PRE at any given time.

YOU WANT A LOOPHOLE? HERE’S AN EXCEPTION

Under the GPTA, a Michigan homeowner can claim only one PRE.

HOWEVER, there is a way for a married couple to claim TWO exemptions… as long as they each file separate income tax returns, and each spouse individually owns and occupies separate principal residences. Both residences can be anywhere in Michigan… or one can be in Michigan and the other in another state that allows for a similar exemption.

The most typical scenario is where a husband and wife own residences in different states. There are many “burden of proof” hoops to jump through, but the rumor that “we have to be legally separated” isn’t true… and over time, the tax savings can be huge.

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4 More Buyer Mistakes in our Sellers Market

It’s a Sellers Market in most of our local Real Estate Community… How SERIOUS are you about beating other buyers to the best homes? Here are four more mistakes you don’t want to make:

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NOT BEING “FIRST TO THE PUNCH”

Locating a suitable home and having your offer presented to the seller before any others should be your goal. WHY WAIT AND COMPETE AGAINST OTHER OFFERS? You need to work with a Buyer Representative who feels the same way… and can make it happen.

BACKING DOWN IN A MULTIPLE-OFFER SITUATION

If we can’t be first to the punch… don’t let the presence of other offers dissuade you, unless you really “don’t care if you get the house or not”. By taking a backseat attitude, you’re basically giving in to defeat before you even begin.

NOT BEING “PAPERWORK PREPARED”

You need to work with a Buyer Representative who can execute offer docs ON THE FLY, either manually or electronically as needed… and be able to prepare and submit an offer at any time. THIS IS CRITICAL.

BEING “LACKADAISICAL” OR ONLY “MILDLY MOTIVATED”

You’ve heard the phrases “the early bird gets the worm”… “why put off until tomorrow what you can do today”, etc. This begs the question… how bad do you really want this? If YOU’RE not motivated… it will be difficult for ME to be motivated. And believe me… as soon as you decide you want that house, Murphy’s Law of Real Estate” says… SO WILL SOMEBODY ELSE; now the pressure is on. Bottom line… DON’T DAWDLE.

Related Post: 4 Buyer Mistakes

Curious about how I keep my Buyer-Clients one step ahead of the competition to locate and land their dream home? Let’s have that interesting conversation as soon as you’re SERIOUS about finding what you’re looking for!

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A “Taxing” Situation – Who Pays?

Here’s a followup to my blog post “How Are My Property Taxes Determined?”, geared toward those taxpayers who own homes in Michigan. The local “tax authority” (your municipality; city, township, etc.) must first formulate its budget… which identifies all necessary expenditures. It then projects all non-tax revenue (such as fees, fines, interest income, franchise fees, etc.) and deducts that revenue from the budget. The balance that remains “unfunded”, is the part that must be covered by your property taxes. That’s how the “Millage Rate” is determined… and taxes then “levied” against your property.

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Levy = Budget divided by Spending, Minus Income

The amount of taxes a municipality collects must be equal to its levy. When the levy rises, taxes must also rise… so that the municipality collects enough money to meet the levy. Individual property assessments can fluctuate, but the taxes collected will be the same… because the local mill rate (tax rate) is recalculated every year. The municipality sets the levy; individual assessments are calculated by the assessor, and then added together for a total municipal assessment. The mill rate is then calculated by dividing the levy by the total assessment. So, what does this really mean for you?

For owners, if you successfully challenge your assessment, you may end up paying less in taxes. For buyers, it doesn’t matter if you pay one dollar for the house; the current taxable value will “uncap” to match the current assessed value, after you close on the purchase. Any “distress” sales (sold below market value) will NOT result in less taxes paid; since the total taxes collected must still equal the levy. All of the other properties combined must make up any difference. The only way to impact taxes “across the board” is for the municipality to lower its spending (budget), or increase its income.

I hope this helps to better understand the process; clear as mud, right?

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How are My Property Taxes Determined?

I’ll be breaking down more “technicalities” of the entire process  in future posts, but here are some of the initial topics and terms you need to be familiar with as a Michigan homeowner…

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Michigan’s General Property Tax Act (GPTA)

Establishes a process for determining and collecting your taxes, along with local review boards organized to act as a “sounding board” for property owners.

Millage Rate

The amount of tax (in dollars) of every $1000 in taxable value of your property, that is required to satisfy that part of the local annual budget that remains unfunded, after other non-tax revenue is collected from all other sources. The rate is expressed in “mills”; in other words, one mill is equal to one dollar per every thousand dollars of taxable value.

Principal Residence Exemption (PRE)

Formerly known as the “Homestead Exemption”, this exempts an owners primary residence from the local school district tax (for school operating purposes) up to 18 mills. In order to qualify, a person must be a Michigan resident who owns and occupies a property; hence their “principal” or primary residence/home. Second homes, vacation homes, investment homes, etc. are not eligible for this exemption; an owner can typically carry only one PRE at any given time.

When you review your tax bill or public records, make sure the PRE is shown at “100%” to take advantage of the exemption. I have had owners who were entitled, but never bothered to verify their tax status… unnecessarily having spent thousands of dollars over the years for school operating taxes they weren’t required to pay.

What You’ll Notice on your Tax Statement

In Michigan, property taxes are typically collected each SUMMER and WINTER. You will receive a statement in the mail for each; usually around July 1st and December 1st. Aside from showing the millage breakdown for that period, the statements will also show:

Taxable Value (TV)

  • The value to which your tax rate is applied
  • Can’t exceed 50% of your home’s “true cash value” for tax purposes
  • Can increase 5% annually, or by the inflation rate; whichever is less
  • You pay taxes based on your “TV”, regardless of how much your “SEV” (see below) changes, unless title to the property/ownership was transferred
  • The “TV” reverts to the “SEV” in the year after a sale; both become the same figure
  • Your “TV” can never be higher than your “SEV”

State Equalized Value (SEV)

  • The equivalent of 50% of your Assessor’s annual “recalculated” cash value, based on the actual appreciation (or depreciation) rate in your area
  • The “SEV” will grow over time, as long as property values are increasing; becoming larger than the “TV”
  • The “SEV” multiplied by two is an approximation of your market value
  • The “SEV” should remain fairly consistent in a “flat” market; head higher in a rising market, and may even be reduced by the percentage of any annual decline in local property values… although your “TV” can still INCREASE each year due to inflation

A Common Assumption

When a property sells for MORE than (or maybe even LESS than), twice its “SEV”… the Assessor will NOT automatically increase (or decrease) the “SEV” to 50% of the sale price! The “TV” will most likely, revert to the current “SEV” for the new purchaser… so buyers need to be aware of this “future tax base” when considering a home purchase

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Credit Score “Principals and Practices”

Credit Score “Principles and Practices” – a basic overview

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Your credit score affects everything from interest rates on loans and credit cards, to your insurance premiums. The “dominant” player is Fair Isaac’s FICO score, from “MyFico.com” or “Equifax.com”. A report can be provided for free at “AnnualCreditReport.com”, but won’t include actual scores.

The Fair Isaac Company produced the FICO score for consumers, as a general purpose indicator of our credit standing. FICO is the figure that lenders use to help determine our mortgage rates. Auto and Insurance companies use variations of this to determine your “auto” and your “homeowners” scores.

All three bureaus (Equifax, Experian and TransUnion) sell some version of your credit score. Experian and TransUnion are really “knockoffs” of the real thing; your FICO score, which you can ONLY get through FICO’s website or Equifax (or through your lender). The other two are “educational scores” sold to consumers (NOT lenders) and will give you an idea of where you stand, and how you can improve your score. If you’re shopping for a mortgage, the FICO score is the one you want to stick with.

Beware of internet scams! The only online source federally authorized to provide the “free” credit report is “AnnualCreditReport.com”, which is the consumer-version of the FICO score. Watch out for scams! “Scambusters.org” is a site that verifies the latest internet scams.

Other questions or concerns about your credit score or available mortgage products? If you don’t have a lender you’re already comfortable with, I’ll put you in touch with a few reputable resources, so you can “shop and compare” based on your particular situation.

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Do Banks Really Lose Money on Foreclosures?

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So… did the banks REALLY lose money on Foreclosures?

There was a discussion a few years ago during the mortgage meltdown that “stuck” in my head, regarding the fact that thousands of failed banks have been taken over by the FDIC (you can research online by googling “FDIC bank takeovers”).

The FDIC then sold the “toxic mortgages” from these failed banks to any other “living” bank willing to pay them 70% of that debt. These “new” banks then sold the same homes, (pre or post-foreclosure defaulted loans) and were reimbursed by the FDIC at 80% of the original debt, less the new purchase price.

Here’s a typical example of how this would look:

  • House forecloses or is in default at $500K (original debt)
  • Mortgage is purchased from FDIC for 70% ($350K) by “new” bank
  • New bank resells house for $250K
  • Original debt less “paper” loss = $250K
  • New bank reimbursed by FDIC at 80% of that loss ($200K)
  • New bank now has $450K, less their $350K purchase
  • New bank has instant $100K profit for basically shuffling paper around

Sound fair to you?

On top of that… the “new” bank could also make the “new” buyer pay a promissory note on all or part of the remaining “loss”, AND have the right to pursue the original seller for any deficiency it can gain there. Did I forget to mention the “TARP” funds given to these same banks? So, who’s REALLY losing money?

Kinda makes your blood boil… doesn’t it?

Underwriting Issues for Buyers – Shifting Money

Mortgage lenders are watching every monetary move you make… ALL money moving in and out of your accounts is now under scrutiny. Anyone applying for a mortgage should avoid transferring money between accounts, or making any significant, non-payroll deposits before the deal closes… even if they can account for such activity. When in doubt… check with your loan officer first!

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