Elizabeth Newlin - Arizona Real Estate Agent

In this market builders have been dropping prices like crazy and offering amazing incentives. $75,000 off an already completed newly built home (or a ’spec’) is definitely not unheard of. The deals are out there and the builders are willing to do lots to make things happen, so I can see how this would be an attractive option for buyers.

There are are few things to keep in mind, however.

#1: First and foremost, it is essential to be represented by a buyer’s agent. It is, of course, very possible (easy even) to walk into a new build development and have the agent there help you through the process. However, they will not be representing you. They will be representing the builder. They will not help you to negotiate. They will not explain to you your rights in the transaction. If you walk in to a development alone, expect to go it alone. The builder will not pay a commission to an agent representing you unless that agent brought you to the development the the first time and registered you. So even if you’re just thinking about buying new, get a good agent and drag her around with you to models. You will be happy you did.

#2: Many builders are currently hanging by a thread. They have developments they’ve poured money into that aren’t selling and they’ve dropped prices so low that they’re out of pocket in some areas. Engle has filed Chapter 11 Restructuring Bankruptcy, which they are marketing as a positive change, but that isn’t reflected in some developments where building has halted. Randall Martin has officially ‘walked away’ from their houses. Some communities are built but only half sold, and others haven’t finished building and have some owners already in. People are being left high and dry. Another builder, Trend, hasn’t released official word on financial troubles, but anecdotally, some of their offices and model home sites should have been open to sell this weekend and weren’t. It’s not looking good. It’s really hard for the general public to know which of these builders and communities are stable and which are not. It’s important that you align yourself with an agent who has an ear to the ground and can steer you in a safe direction.

#3: Being under contract for a new build house, doesn’t mean that your price is set in stone. If you’re 6 months out on a new build and you, or your agent sees that the base price has dropped or that the builder is offering new amazing incentives, your agent can go back to the builder and request (or, you know, demand, whichever tactic would be more effective) that your base price also be dropped. Builders know that even though they have your earnest money and it’s non-refundable, if they drop their prices enough, then it would be worth it to a buyer to walk away. It’s smarter for them to allow you to drop your price and stay in the contract that to risk you walking away. This is something that a smart and savvy buyer’s agent should know and be able to negotiate.

#4: A great buyer’s agent will have search resources and contacts in the new build industry to help you find the right development for you. It’s not just as simple and driving around all day following the flags. An agent can gather all of the info, find out the skinny on the builder’s financial state, get the incentive info and even schools and amenities information even before you take the time to go out and look at models.

#5: If for some reason you’re driving by models and are moved to stop and check them out and can’t get ahold of your agent, disclose as you walk in the door that you have an agent and want to be represented by them. Let the salesperson on duty know that you’ll leave if this is a problem, but that you have your agent’s name and phone number if it’s OK to register yourself with them and you’d like to take a look at the models. Many builders are OK with this as long as they know upfront.

There’s no reason to negotiate the new build minefield alone. Be a smart buyer and bring your agent along!

Wow, there have been a ton things happening in the mortgage side of real estate lately. The big three that I have come across this week are:

1. Most banks have stopped issuing second mortgages and home equity lines of credit (HELOC). Some are even freezing existing lines of credit.

2. Stated income loans are going, going, and all but gone.

3. FHA has raised the upper limit of of loans for single family homes in Maricopa county from $261,500 to $346,250.

There are lots of ways that these things will affect home buyers in the next few months.

Let’s start with the freezing of the HELOCs. It makes sense that banks would want to staunch the flow of money into the hands of the already over-extended public. Those hundreds of thousands of foreclosures we’ve been hearing about all over the national media often come with a mortgage in second position that will get nothing out of the foreclosure process. However, those of us with legitimate plans for our lines of credit may just end up out of luck. My husband and I have a HELOC that we have considered using as a down payment on a larger home so that we can keep our current house as a rental property until the seller’s market gets better. If our HELOC is frozen (it hasn’t been yet), that option pretty much goes out the window. Although, it may be a moot point anyway, as we move on to number 2…

Stated income loans are mortgages that allow self-employed people with decent credit to borrow money based on what they expect to have as income in the next year. My in-house lender, Century 21 Mortgage, announced at our weekly sales meeting Wednesday that they would no longer be offering these loans. In order to get a mortgage, I need to show two years of tax returns at my current career and what I will qualify for will be based on that income. This is all well and good because I have been in real estate for the last three years. However, my grand plan of renting my current house and upgrading to something larger while the prices are good hinges on qualifying to purchase the second home. Rent can count as income (75% of the rent) to offset the mortgage in your debt vs. income ratio, but only if you have a rental agreement in place when you apply for the mortgage. This would require us to have the house on the market for rent while we’re still living in it, which I don’t think my 5 person in a 1750 square foot home family could cope with. A work-around for this would be to go with a stated income loan and inflate my income enough to qualify for the second mortgage without a rental agreement already in place. But without stated loans, this is a problem.

Now on to the FHA increase in cap… this is the only good news (besides the rate-cutting by the feds) we’ve received from the mortgage industry in a long time. This opens the door to lots of buyers who couldn’t otherwise afford to buy right now. 100% financing is long gone, but FHA only requires 3% down (most banks are currently requiring 10%, some still have 5%, but that’s on its way out also). There is also a program called The Ameridream Down-payment Assistance Program that allows sellers to donate 3% of the purchase price of the home to them and they gift it to the buyer (for a $500 flat fee) for down payment. So a desperate seller and a buyer with no cash can come together and make a home sale take place. Now that the cap has dramatically increased, more buyers and more sellers can move forward.

As you can see, times, they are a changing out here in real estate land. Keep your eyes and ears open for how these things can effect you!