3 Last-Minute Real Estate Regrets – and How to Combat Them

 

By Tara-Nicholle Nelson

Any time you make a major commitment, financial decision or move to the next step in your life, there’s a chance you’ll have regrets at the last minute. Just as brides and grooms commonly experience cold feet before they walk down the aisle, many a home buyer has found themselves sitting at the closing table, pen paralyzed over paper, mentally cataloging their last-minute regrets.

The first step in dealing with last-minute regrets is to understand that they are totally normal – even rational. The fact that you’re fixated on your deal, or that you’re scared you’ve made the wrong decision is a sign that you are treating this transaction with the gravitas it deserves.

If you are buying or selling a home, here are three last minute regrets you might encounter, and some ways to rethink and counteract them.

1. I left money on the table – could have gotten more (or paid less) for it. This regret showcases a classic case of buyer’s – and seller’s – remorse. The day an offer is signed, sometimes within moments after acceptance, sellers second guess whether they might have been able to get more cash if they’d negotiated harder, and buyers beat themselves up over not going in lower or holding out against the seller’s counteroffers.

Conquer real estate remorse by understanding that the universe in which you pay or receive anything other than what you and the other side actually DID agree to is a hypothetical fantasyland. It doesn’t exist. Your decision made sense when you made it, and did actually result in a deal – unless you realize that the home does not actually suit your needs or you receive new information that changes your understanding of the home’s value (i.e., later disclosures or inspection reports reveal significant problems) within the time frame you have for resolving such issues, a deal is a deal.

So stop torturing yourself and let it go. Be content with the fact that you bought a home at or near the bottom of the market, or that you got your home sold at a very tough time to do so, and turn your attention to the next phase.

2. I’m overwhelmed by the 30-year mortgage commitment. Thirty years seems like a long, long time. But here’s the rethink: you need to live somewhere forever, and I hope that your forever will last 30 years times three! So, unless you have access to free housing somewhere, here are your options:

· You can rent a home and pay rent to a landlord every month for the rest of your life, or

· You can buy a home with cash, or

· You can use mortgage financing to buy a home, and make payments on it over time.

So, in fact, the commitment you make to paying on a 30-year mortgage, which you have the power to pay off entirely over time, is less onerous and lengthy than the alternative: paying monthly rent ad infinitum. While it’s true that your mortgage binds you to a particular property unless and until you can sell it or otherwise move on, if you select your home wisely you will (a) relish that stability and/or (b) select a home with good prospects for resale in the long-term. (If you think you’ll want or need to move in less than a 7- to 10-year time frame, you might be well-advised to continue renting rather than buying a home.)

The fact that you take out a 30-year mortgage (or a 15-year one, for that matter) does not bind you to that time frame; many homeowners elect to pay their mortgages off early. Putting a plan in place to shave off five or 10 years from your mortgage commitment by paying extra toward your mortgage principal on a regular schedule is one way to control your regret and put it to good use.

3. I can’t believe I went through all of my cash cushion! In this relatively new mortgage era, lenders are requiring buyers to put some of their own skin in the game, by requiring down payments in a way they once did not. Beyond that, the vast majority of the down payment assistance programs that once helped buyers meet these requirements are now gone (state, local and employer-funded programs are the last bastions of down payment help). As a result, today’s buyers frequently spend a couple of years saving up their cash, and optimizing their credit creating strong financial habits and getting used to having a fluffy cash cushion along the way, then end up writing a couple of checks – earnest money deposit, increased deposit and cash to close – that wipe nearly the whole thing out in 45 days or less.

And that can be traumatic. But if your spirits are feeling as deflated as your savings account when you write those checks, keep in mind that you are investing that money in a home that your family will be able to live and flourish in, and eventually either pay off or have equity in, if you continue your responsible financial trajectory. Additionally, this is precisely the reason you saved the cash in the first place.
Finally, due to your timing vis-a-vis home prices and interest rates, you are getting the most home-buying bang your hard-earned bucks could have bought anytime in the last decade or so. And that’s really something to be proud of – not to regret.

Foreclosure-sales slowdown a blessing and a curse

 

Banks aren’t ditching foreclosures at nearly the rate they were last year, which is helping to keep the housing market stable. But a recovery hinges on how long it takes to dispose of the huge backlog of distressed properties.

By Melinda Fulmer of MSN Real Estate

Distressed properties — those in some stage of foreclosure — edged up to 28% of all U.S. residential sales in the first quarter from 27% the previous quarter, according to RealtyTrac.

The percentage would have been higher, analysts say, but overall housing demand is weak and the banks are not disposing of these assets at nearly the rate they were at the same time last year, when distressed properties made up 29% of all sales.

The numbers tell the story: In the first quarter of this year, 158,434 bank-owned properties (or those in the foreclosure pipeline) were sold, a 36% decline from the first quarter of 2010 and a 16% decrease from the fourth quarter of last year.

Compare that with the nearly 350,000 distressed properties sold in the first quarter of 2009, and you can see why the foreclosure pipeline is so bloated.

"According to our numbers, if you just look at the properties in foreclosure or on the banks’ books, it will take us three years to work through that inventory at the current rate of sales," says Rick Sharga, senior vice president of RealtyTrac.

Of course, this slowdown in foreclosure sales is — at least in the short term — a good thing for the housing market, helping to keep home prices more stable, Sharga says.

"The downside is that this approach ensures that we will be in the doldrums in housing for several more years," he says.

Indeed, with such a large supply of distressed properties and foreclosures, the timing of a recovery hinges in part on how quickly banks and servicers dispose of these holdings.

Foreclosure bargains
The average sale price of properties in some stage of the foreclosure process — from default to bank-owned — was $168,321 in the first quarter, down 1.9% from the fourth quarter of last year and 1.5% from the first quarter of 2010, according to RealtyTrac.

Homes in some stage of foreclosure traded on average at 27% below the average for standard sales — a bigger discount than the 26% discount posted in the first quarter of last year.

Bank-owned properties sold for the largest discount — 35% on average, slightly more than the 33% discount taken by lenders at the same time last year. A total of 107,143 bank-owned homes sold in the quarter, comprising 19% of sales.

Pre-foreclosure properties — those in default or scheduled for auction (often short sales) — sold for an average discount of 9%, an improvement from the 14% average discount taken on them in the first quarter of last year. Sales of 51,292 such properties were recorded in the first quarter, down 45% from the same period last year.

While sales in this category overall were much lower than last year, some reports point to a recent pickup in short sales. That’s what Luis Mendoza, a real-estate agent with Century 21 Award in San Diego is seeing in his area.

"I have seen a huge increase in short sales," Mendoza says, as some loan modifications have fallen apart. These short sales are bargains too, he says, trading at about a 15% to 20% discount to the houses around them.

This decline in prices is making mortgage payments rival rents in many areas. In downtown San Diego, he says, a two-bedroom condo can be rented for $2,500 a month, or bought for the same monthly mortgage payment.

Indeed, affordability has gotten a larger number of investors out in the market, says Christian deRitis, director of consumer credit analytics at Moody’s Economy.com.

"They’re buying up foreclosures, fixing them up and turning around and renting them," he says.

Foreclosure hot spots
Not surprisingly, the most foreclosure sales are being posted in boom-and-bust areas of the West.

Sales of properties with foreclosure filings accounted for 53% of all residential sales in Nevada during the first quarter, the highest of any state, but down from 59% in the first quarter of 2010. Because so many of the sales there are foreclosures, and have been for so long, the discount rate is declining, Sharga says, reaching 18% in the first quarter.

California foreclosures accounted for 45% of all residential sales during the first quarter, up from 43% in the previous quarter, but down from 48% at the same time last year. The average foreclosure property in the Golden State sold for 34% less than the average price of homes not in foreclosure.

Foreclosures made up 45% of all residential sales in the first quarter in Arizona, down from 50% the previous quarter, and 47% in the same period a year earlier. Foreclosures here traded for a 25% discount to the average traditional listing.

Other states where foreclosures accounted for at least one-quarter of all sales were Idaho, Florida, Michigan, Oregon, Virginia, Colorado, Illinois, Georgia and Ohio.

The biggest discounts on foreclosure properties were in Ohio and Illinois, where foreclosures traded at an average 41% discount to the average nondistressed listing.

Could foreclosures kill the recovery?
To be sure, the large numbers of distressed properties in the housing market are taking their toll on prices this year.

The Federal Housing Finance Agency’s Home Price Index, which uses home-sale price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 2.5% lower on a seasonally adjusted basis in the first quarter than in the fourth quarter of 2010, the biggest quarterly decline since the fourth quarter of 2008, the agency said Wednesday. Prices fell 5.5% between the first quarter of 2010 and the first quarter of 2011.

And that picture wasn’t looking any rosier, as the country entered what is traditionally the peak selling season. In April, the U.S. median home price declined 5% to $163,700 from the same time a year earlier, according to the National Association of Realtors.

Given the large backlog of distressed properties and the sluggish economy, Moody’s predicts a 5% decline in home prices for 2011 overall.

If banks decided to sell off a much larger number of the distressed properties on their books, analysts say, prices could erode further, postponing a recovery.

However that’s not something Sharga and deRitis are predicting.

"Banks are in a much better position now than they were in the past," deRitis says. "They are not as desperate. I see a much more orderly process going on."

2011 first quarter foreclosure sales by state
Foreclosure properties — bank-owned homes and those in some stage of foreclosure — continued to make up a large number of all home sales across the country. And with discounts averaging 27% below the average price of homes not in foreclosure, they weighed heavily on prices. Here are the foreclosure sales by state and the discount these distressed properties commanded.