Friday, December 27, 2013

Home Buyers: Pull the Trigger or Toss in the Towel?

My son wants to talk about buying a house. Would I advise him any differently than I would a stranger? No, not really. Below is a list of what to consider.

1. If you're on the fence right this second, get off. Interest rates will go up in 2014, and so, probably, will prices.

2. If you'll be looking in 2014: Rates will likely go up. Interest on the ten-year Treasury, the biggest mortgage rate influencer, hit 3%, which it hasn't seen since 2011. I won't get into the boring stuff about Fed bond purchases and all that, but if rates hit 6%, I believe the market will stall.

3. All things being equal, prices should move up. That's good, because more sellers will poke their heads above water and be incentivized to sell. That means more inventory. Prices may edge up, but they won't be volatile and nerve-racking.

4. Buyers can afford a unique (to them) monthly payment. The amount is based on the mortgage amount (principal) and the interest rate. Since the payment has to stay constant, the interest rate and price can't both go up. That's arithmetic.

5. That being the case, buyers should not feel pressured. They'll be able to make sensible, unstressed decisions and should not give in to their real estate brokers, significant others, or HGTV.

6. Caveat to #5: Hot neighborhoods excepted.

7. Sales of existing homes have been off for the last three months. The so-called housing market recovery may not be a strong as advertised. Pay attention to these numbers when formulating your negotiating strategy. My view is that the housing market recovery is over-hyped, as real estate markets always tend to be.

8. If the market does stall out a little and you're looking at new construction, don't be shy about asking for builder concessions in the form of upgrades, added features (swindow coverings, loft shelving, e.g.), rebates for closing costs, etc. They're unlikely to lower the price because of their financing arrangements, but they absolutely hate carrying inventory.

9. A takeway: You get 50% of what you ask for. You get 0%of what you don't ask for.

10. It may seem arcane and insiderish, but watch and see if the private secondary mortgage market makes a comeback. Right now, the U.S. government is the biggest player (ok, Fannie and Freddie are technically private, but they're in receivership and being propped up buy Treasury). The return of private mortgage investors signals confidence in both the real estate market and the economy. Rates would stabilize, more credit would be available and everyone would feel happier about things.

11. The final takeaway: Do your homework before looking for houses and getting all starry-eyed. Don't sweat over what you can't control anyway. My sense is there's a home you want at the price you want to pay out there.

12. Final Takeaway 2.0: Negotiation is not about charm and making people like you. It's about leverage. Being willing to walk away is enormously powerful. Take care in creating your package so you can do just that.

Thursday, December 19, 2013

You're Judge Judy. Who's Right: Buyer, Seller, HOA, Property Manager or Agents?

I left Remax pretty well convinced that eighty percent of what top management did was work at risk management. I'm pretty sure all of the big box brokers do, too. Look at a so-called Real Estate Sales Agreement, and by and large, you see a legal document describing who gets the earnest money when a dispute makes the transaction fail. In aiding their clients, real estate agents come dangerously close to practicing law, and management works hard to keep agents on their toes and themselves out of legal trouble.

Consider this case.

Mrs. Smith sold her home to Mr. Jones. Both were represented by real estate agents. In the course of the inspection, a hole in the sewer line was discovered. Mrs. Smith contacted her Homeowners Association (HOA) property manager to find out what she needed to do to repair the sewer line. The manager's assistant erroneously informed Mrs. Smith that since the sewer ran through the common area, it was the HOA's responsibility to repair it. Relying on the assistant's email, Smith and Jones completed the sale with no consideration being made for the sewer line hole.

Mrs. Smith subsequently asked her HOA to repair the sewer line hole. The HOA, pointing to the governing documents (Articles of Incorporation and C C&Rs), informed Mrs. Smith that sewer repair was clearly the individual homeowner's responsibility.

The sewer line was still not repaired when Mr. Jones took occupancy. He obtained a contractor's quote for $2,000 to repair the sewer line and had his attorney request payment from Mrs. Smith before completing the work.

Mrs. Smith, in turn, had her attorney request payment from the property management company, claiming that she had relied on its employee's advice that repair was the HOA's responsibility. The HOA's claim that this repair was clearly the homeowner's responsibility was not valid, since she'd relied on a management company employee's statement.

Who should pay?

1. The buyer, Mr. Jones, since he accepted the home in the condition it was in and made no arrangement to withhold funds or reduce the price
2. The seller, Mrs. Smith, since she assured Mr. Smith the HOA would make the repair.
3. One or both of the real estate agents, since their expertise should have better informed and structured the sales agreement.
4. The property management company, since its employee made a misstatement that Mrs. Smith relied upon.
5. The HOA, since it should have known what the property management employee had said.
6. No one, since buyer and seller should have exercised more responsible due diligence.

You be the judge.

Someone's gotta lose

Wednesday, December 11, 2013

Five Big Mistakes Home Sellers Make

People deciding to sell their homes need to approach it as the pricey and complicated transaction that home selling is. Here a some of the biggest mistakes they make.

1. Pricing the home. Look. It's hard. Ever notice how real estate brokers all get goosey at pricing time when they lay that slick CMA down? Too high, and buyers won't look. Too low, and money gets left on the table.  Pricing is part art and part science, so you need to navigate among the hard numbers, market conditions and, frankly, your home's condition and neighborhood. Moreover, buyers are more market savvy than sellers, who've been out of the market ever since they moved in. Buyers eat, drink and sleep market.

2. Thinking you need a real estate broker. The most critical task is to make sure every potential buyer out there knows your home is for sale. In the past, the only way to make this happen was through the local Multiple Listing Service, which required a member broker's services. Now, buyers find homes online through many websites. For pricing, you can hire an appraiser, and a real estate attorney can handle the contract, all which will probably cost less than a commission.

3. Thinking you don't need a real estate broker. Look, let's be serious. Real estate brokers do this for a living. Brokers can do in their sleep what some sellers freak out over. They understand the mortgage market, pre-approval versus pre-qualification, repair contingencies, and who gets what if a deal falls apart. Moreover, they work hard to make sure it doesn't fall apart. Realtor contract forms cover just about every phase of a transaction and were created by generations of lawyers. As for fee pricing, shop around and get referrals. It's gotten competitive out there. If you use a real estate broker to sell your home, he or she may cut you a deal if you use him or her to buy your replacement home.

4. Not fixing everything. Chipped molding, torn carpets, wall gouges, whatever. To a buyer, even such minor items as burned out light bulbs suggest that something larger might be wrong. Get the furnace and air conditioning serviced and make sure all the appliances work. Bad appliances are big fat red flags to home inspectors. As for re-painting and redecorating: If that one magenta bedroom looked good to your kid, understand it will look horrible to most buyers, and instead of sugar plums, they'll see re-painting dollars dancing in their heads.

5. Overlooking stinky. Stinky is hard. After all, have you ever noticed that everyone's house has a unique odor? Most often, these aren't offensive, but sometimes, they're two-second deal killers. Offending odors can come from a variety of sources, but I'm thinking, here, of cigarette smoke, dogs, cat pee, strong cooking (curry, for example, or even greasy range hoods) smells, whatever. Find the source and get rid of it. And don't think those awful floral plugins will do the trick. Not only are they almost as bad, but they shout stinky cover-up.

6. Not eliminating clutter and not cleaning. Okay, I said, five big mistakes, but this one's important. Clutter makes rooms feel smaller and more crowded than they are. Countertops need to be as bare as possible. Remove furniture from rooms, if possible, to make them seem bigger. Get rid of all the pictures and cute school drawings from the refrigerator and stash pictures of family members, Jesus, vacations, and the like into storage. If the kids' rooms have posters on the wall, trap sets, large sound systems and the like, pack them. And don't forget to clean the house, and then clean it again. Buyers hate dirt in corners, dust on furniture, dishes in sinks, toothpaste smears on faucets, and the like. Cleaning is easy, and it's safe to say that buyers' respect level for homes skyrockets when the place is hospital-clean.

There's more, but that should get you started. Feel free to ask any questions or make comments.

Friday, December 6, 2013

The Best Money-making Idea I Never Did

Many of my best ideas ever came while I was shaving. Some I acted on, some I didn't. But the one I'm about to describe was--and still may be--among the best ever. It's not scammy and it's not a get-rich-quick thing. You still have to do it the old-fashioned way by employing focus and hard work.

First, you need to know what SCOR is. SCOR stands for Small Company Offering Registration. It's a federal law, adopted by most states, that allows very small companies access to public capital solicitation without the huge costs and regulatory hurdles required by the Securities and Exchange Commission. Read more about it here.

Under SCOR, a company can raise up to $1 million per year through selling securities to the public. That's not what it was in the 1990s, but it's still a start. Besides, that's per year. It can still make a dent in a startup's capital requirements. Think of it as a micro IPO program.

Second--and I know of only one guy who did this--you can form a REIT (Real Estate Investment Trust) under SCOR guidelines. REITs have their own rules. They must have 100 stockholders. No more than half the shares may be held by five individuals. Ninety-five percent of its income has to come from real estate-related sources (rent, mortgages, etc.) and ninety percent of the taxable income has to be distributed to the shareholders. Read about REIT rules here.

My plan was to form a hybrid REIT, that is, one in which income came from buying discounted mortgages along with owning quality rental properties. The thought was that even a slightly diversified revenue stream would offer investors some stability.

Most people understand rents. You buy a place and rent it out. But by using investor money with a REIT instead of a mortgage loan, the debt load is less and the cash flow is higher.

Although it's more challenging today than in previous eras to make money in discounted mortgages--something that's unfamiliar to even a lot of real estate people--it's still possible. Read this E-how post I wrote years ago on how to do it.

Assuming a good company, the REIT is a good deal for investors because there's a market, albeit a tiny one, for their investment. They can sell their shares and get their money back if they want. And the return can be pretty good--usually above the going rate. It's a good deal for startups, too, because a good business plan and lots of hard work can jumpstart them into a good-sized business fairly quickly.

Most SCOR startups are dismal failures. Dynamic successes are few, one being Willamette Vineyards in Salem, OR. This 2012 Denver Post article tells about two Colorado tech companies that used SCOR.

Using SCOR to form a REIT is another matter. The guy I knew who did it was a real estate broker in Marin County, CA, in the mid-1990s. His company bought a couple of warehouses and some office buildings, as I recall, and it was doing so well that he had to turn away investors. That said, he doesn't come up in a Google search, and I don't know what became of him.

Still, if you're an entrepreneur in 2013, it's a terrific way to jumpstart a real estate investment company. Finding 100 investors is usually not a problem for people already active in real estate. The key to success is a well-crafted business plan and its execution.

Monday, November 25, 2013

Take Your Time to House Hunt, Love HOAs and Support Immigration Reform.

This article in The Atlantic a few days ago really caught my attention. It's entitled, "What Will Happen to Grandma's House?"

The thesis is that gazillions of aging Baby Boomers will be trying to downsize and sell their homes in the coming years, and a lot of them won't have buyers. As in, about a third of them.

The Captain has alluded to this possibility before in predicting the future of the real estate market. It's one of many factors suggesting that it could be a really, really long time before the housing market takes off again. It's demographics, supply and demand. Oh--and a crappy economy, where security in good-paying jobs is something Boomers tell Millennials *really did happen*.

Driving through suburban neighborhood after neighborhood along the Front Range in Colorado, you'll see that so many of them seem old as tattered books, with a lot of older people living there and few young folks moving in. Architectural styles are kind of dated. Many have deferred maintenance. Proximity to good public transportation is rare to non-existent, and cars are required for the most routine tasks. But the same is true, and worse, in other places across America.

How cool is this?
That's a lot of oak-cabineted kitchens with black refrigerators, sixty-percent furnaces gasping away, settled foundations, failing cast iron sewer lines and more what-not that goes with older homes. Along with, no doubt, homeowners associations with seriously underfunded reserves. And Colorado, along with other cities in the West, Southwest and the coasts, is one of the good places to be with a pretty good outlook.

Buffalo and Schenectady? Hmmm.

We can't do much about demographics, but we can try to tweak supply and demand.

First, support immigration reform. Immigrants buy houses. Lots of them.

Second, love your HOA.

Third, the house you want at the price you want to pay is out there.

For Boomers, someone said to take out a reverse mortgage before it's too late. But the Captain would never go that far.
Out with the old and in with the new!

Friday, November 22, 2013

Real Estate Brokers: What Do You Do to Make Yourself Stand Out?

A few weeks ago, I was talking with one of my sons about how fast business was growing at Native Rank, the startup SEO (search engine optimization) company he works for and is helping develop. He casually mentioned, in passing, how real estate websites are more difficult to manage than most others. "They all have the same content," he said.

It's pretty much true. They all have some sort of property search engine, even though few people out there use broker websites to search for properties. Most have mortgage calculators and similar
features. Most have a narrative on why the broker's service is so much better than anyone else's. Often, the site is equipped with a blog purporting to give "valuable information" and exhort the viewer to leave contact information. Some talk about the broker's "team." Others claim to be "your trusted advisor."

But by and large, broker websites are like American shopping malls: Plunk yourself down in one, and you're hard-pressed to know where in the world you are. As my son said, they all have the same content.

I've been thinking a lot about this, lately, since I'm considering (underline considering) getting my broker's license again. If I were to do that, how might I develop a brand?

By brand, I mean the unique je nais se quoi that sets one out from the other. Nordstrom vs. Sears. Whole Foods vs. Wal Mart. Audi vs. Chevrolet. For that matter, Chevy pickups vs. Ford pickups.

A lot of successful brokers don't spend a lot of time navel-gazing over this issue, probably because they're too busy buying and selling homes. And most of these folks that I know personally pretty much share one trait--a personal authenticity they've developed over time. But that's a personal quality known to their clients and network.

But still. If someone were going to list a home for sale or were thinking about buying one, how would  he or she shop for a broker? How do consumers find the quality level in a broker they want at the price they want to pay? And, more to the point, what do brokers do to address the issue? What can they do?

Or does it all matter anyway? To date, I don't think it has. Outside the recent crash and the savings and loan debacle in the 1990s, the housing market has had a pretty good run. Of course, some brokers are better than others, but by and large, anyone could do the job, and they al get paid the same.

But going forward into kind of stagnant years? I'm less certain. Just as other professional personal service people have developed specialties enabling consumers to choose one over the other, I suspect real estate brokers will have to as well.

Everyone's content can't be the same.

Thursday, November 21, 2013

Don't Rush to Buy a Home. There's Plenty of Time.

A few days ago, I read some mortgage broker's blog post on why people interested in a house needed to move sooner rather than later. The whole post was on the cost of waiting and assumed the buyer would take down a $200,000 mortgage. Rates were low, now, and so were prices, and he was pretty sure both would be going up. Wait too long, the post said, and buyers would be paying a higher price and a higher interest rate.

I heard the same thing when I started at Remax in 2006. And again in 2007, just after the crash. And again in 2008, 2009, 2010, 2011, and 2012. See a pattern, here?

In fact, I think I've pretty much heard the same cant my entire adult life. And it always comes from people who get paid only if a transaction closes. There's nothing inherently wrong with that, this being America, the last I heard. But if compensation only comes when a transaction closes, the buyer and broker have competing interests.

From a financial point of view, one of the attractions of buying a house is the enormous leverage available to a buyer. With $10,500 plus closing costs, a person can tie up a $300,000 property. Ownership has some tax preferences (overstated, in my view) and offers a way to lock in housing costs. As an investment, though, it's a crappy one, according to Nobel Prize-winning economist Robert Shiller.

Sales of pre-existing homes have been down the last two months, which means little except that monthly data means little. It didn't mean anything when sales were up earlier in the year, either. In my view, the country is in for a stagnant and possibly deflationary period of several years, which means rates and pricing aren't going to move a whole lot. Available inventory and competition from cash buyers will pose the greatest roadblock to normal buyers.

People buy a house because they want to own a home, and that's a good thing, I think, especially if they can stay put for a good number of years. Whenever I meet someone interesting, I always wonder what their house looks like. People put their personal stamps on their homes, make them reflect who they are and what they're all about. I like that.

Which is what you should keep in mind when you set out to buy a house. It will insulate you from others trying to push you.

Wednesday, November 20, 2013

Form an HOA of One--You!

Among our most popular posts are this having to do with Homeowners' Associations (HOA) and their evil twin, Condominium Owner Associations (COA). Okay, not really twin. Both are the necessary evils that owners love to hate.

But individual owners, whether or not they belong to an association, can take a page from the HOA book to handle repairs and maintenance. HOAs save monthly for repairs that have to be made over time.

Owners can do the same thing. Instead of ponying up all at once for, say, a $6,000 paint job, they can put $100 a month into a savings account. At the end of five years, the money's in the bank. And if owners are DIY folk, and if they use the new super-cool 25-year paint, the cost is less.

It works for appliances as well. The average life span of a furnace is 15-18 years, so why not save a little bit per month for the time when it has to be replaced? Same for water heaters, with life spans of 8-12 years. Caveats, of course, abound. For example, the furnace in our home is a 1992 vintage, ands it's running just fine. But our 7-year-old water heater died.

I used to get super annoyed with brokers who'd gleefully advertise a listing as having no HOA fees as a selling point. In fact, HOA fees are a really good savings account.

Why not form and HOA of one--you--and do as they do?

Thursday, November 7, 2013

Demographics Drive Change

I keep saying that the inability to recruit young real estate agents is what will drive major changes in the profession. Forty percent of Realtors are over 60!

Check out this article in Inman News.

I guess old agents could dye their hair, huh?

Saturday, November 2, 2013

How's the Market? Is Now a Good Time to Buy a House?

Depending on whom you ask, it's always either (a) It's a great time to buy a house, or (b) It's never a good time, because a house is a lousy investment.

The problem, here, is that both sides are right. Robert Shiller, Nobel Prize-winning economist at Yale University, takes the latter view and has the strong data to prove it.

While most people say they want to buy a house as an investment, they really don't see it that way. Lots of first-time buyers say something like, "It's better to put that monthly payment into a house than give it all to some landlord."

But an investment is something like, say, pork belly futures, and most people know it. You can't live in a pork belly future. Really, lots of people want to own a house because they just do. They like having something that's theirs.

For those folks, maybe now is a pretty good time to buy.

It's true house prices have gone up, but they're still hovering around 2004 levels. And mortgage interest rates (as, ahem, a previous post predicted) aren't much north of 4%. Even though The Captain believes we're in a low-rate environment for a while, that's still pretty low by historical standards.

But plan on being there a while. The Captain continues to think prices won't be moving up anytime soon. The recent uptick in prices induced more sellers to put their homes on the market. But too many are still underwater, according to Zillow, and that doesn't include owners with flatlined-to-minimal equity. Prices won't be going up until the national economy improves, something which has been right around the corner for several years and will be for several more.

And the recent upsurge in home buying has come from investors paying cash for distressed or low-priced properties and pent-up demand from traditional buyers. Investor purchases are already falling off, as are traditional ones. Pending home sales continue their slide.

The point being, I guess, that the home-as-investment part isn't looking great. The place to live part is, though.

As usually, if you have any questions for The Captain, fire away.

And, agree or disagree, I'd love to hear what you think!

Tuesday, October 22, 2013

More DIY Real Estate Brokerage

The most popular posts in this blog deal in some way with real estate brokerage commissions (HOA issues are a close second). Now, news comes of a startup out of Kansas whose technology allows lay people to perform work traditionally done by real estate brokers.

With Keyzio, home buyers and sellers can connect without, well, actually connecting. Keyzio wants to create a home marketplace where owners who are thinking about selling and buyers who are tossing around ideas can come together. Inman News ran a full article on Keyzio a couple of weeks ago.

Zillow has long had a "Make Me Move" feature, where homeowners who don't want to sell would consider doing so at a set price. Keyzio takes this idea and runs with it. How? Buyers can choose a neighborhood they want, select a house they like, and let the owners know that when the time comes to sell, they're interested in buying. Owners may also place their homes on the platform, even if they're not ready to sell.

In other words, the platform lets home buyers and home sellers to contact one another. Buyers can search homes that aren't actually listed for sale just yet, and sellers can gauge interest in their home's marketability without engaging a real estate broker. True, people have always been able to contact whomever they want. I once owned a home in a popular neighborhood where homes seldom came up for sale and would receive postcards from lay people expressing interest. I also received cards (and phone calls) from brokers who claimed to have a client wanting to buy my house. It never turned out to be true.

But Keyzio institutionalizes this kind of interest and keeps the parties at arm's length. I pretty much lost the postcards and when I thought about them, I assumed the sender had lost interest anyway. Keyzio keeps interest alive.

What's kind of interesting is that the Keyzio founders, just as with Suitey and others, found motivation in their personal experience with home buying and selling. The traditional way of doing business--namely, contacting a broker for access to the gateway into homes for sale--just didn't work for them.

Real estate agents may not prospect for clients on the site. That said, Keyzio says it is working on ways to include brokers, especially at the point of transaction where broker services can be so valuable.

What does this all mean? The Captain believes it's just more evidence of a sea change in the way homes are bought and sold and in how brokers are compensated, all brought on by the preferences of the Millennial generation. The business needs to be consumer-centric, not brokerage- or broker-centric. And brokers need to think small by concentrating on neighborhood specialization, advanced education and transactional skill expertise.

Monday, October 21, 2013

Who Pays Your Real Estate Broker?

If you sign a listing agreement with a broker, you'll know who pays--you. It says so in the listing contract. Use of the Multiple Listing Service (MLS) requires listing agents to split the commission with the buyer's agent.

If you use a real estate agent to help you buy a home, who pays your broker? It's not always clear to first-time buyers, but make no mistake--you do.

As a subdivision developer and a licensed broker, I've heard numerous real estate brokers tell their buyer-clients that the client didn't pay. Compensation came from the listing agent when the transaction closed, meaning, in effect, the seller paid the brokers. Could that be true? Are broker services free to buyer-clients?

Let's break it down.

The home sells when buyer and seller agree to a price and the buyer obtains a mortgage. If the appraisal pans out, the lender agrees and issues the loan. At closing, the seller gets the money for the house and disburses the proceeds where they're supposed to go--the seller's trust deed holder, the county tax authority and so on--including the buyer's and seller's real estate broker commissions.

If you're the buyer, who pays your real estate broker?

Is it the seller, who receives and disburses  the proceeds?

Is it the listing broker, whose sales commission arrangement with the seller and agreement with the MLS compels him or her to split the gross commission with the buyer's broker when the transaction closes?

Is it the buyer, who came up with the down payment and borrowed the money to fund the transaction whose proceeds pay everyone?

Is it the lender who funds the loan, part of whose proceeds pay brokers?

The answer is that it's you, the buyer. Your money pays your broker. Just because the funds filter through the seller and everyone else doesn't mean the money didn't come from you.

Thus, if a broker tells you his or her services don't cost you, the buyer, anything, smile politely, leave and find someone else.

Wednesday, October 16, 2013

Hey. I Knew That.

Comes now economics (and housing) guru Robert Shiller, he of the Case-Shiller Housing Index, who says what The Captain has been saying for years, even as a licensed broker representing clients buying homes. Check this story out.

And anytime anyone tells you a home is a good investment, run like hell.

Monday, October 7, 2013

Disruption Eruption

Yes, the federal government shutdown is affecting mortgage approvals. This Washington Post article is one of many trickling out on the problem.

What they don't say, nor do the morons in the House of Representatives seem to realize, is the huge disruption in the housing market that mortgage approval delays will cause--check that, is already causing.

The first victims are the buyers themselves. Many of them made offers that sellers accepted, and in good faith, cancelled their leases or otherwise terminated their present living quarters, based on the closing dates of their offers. With a delay in mortgage approval, those closing dates have to be extended. With a lease cancelled and the new home not available, where are these people supposed to live? A hotel? With family? Tell their landlords they might need the place for an indeterminate number of days after all in the hottest rental market in years?

Likewise, many sellers have made offers on homes using the proceeds of an accepted offer on their present homes. A holdup in the closing the sale of their present home delays, and in some cases even terminates, the transaction on the new home.

In other words, a delay in mortgage approval for just one buyer can seriously disrupt the lives of three different families, and for no reason other than a small band of Rumpelstiltskins in Congress can't get their way.
Speaker John Boehner leaves a press conference

Sunday, October 6, 2013

Why Consumers Like Zillow

Real estate websites Zillow and Trulia were just beginning to hit stride when I received my Oregon broker's license in 2006. I liked them instantly, even though the sites were far less robust than they are today, because I'd always felt empowered consumers were easier to serve than uninformed people. Most of my colleagues hated the sites--especially Zillow--for its "zestimate" of home values.

The biggest reason brokers for their contempt usually cited was Zillow's inaccuracy. Pricing was the worst offender, but listing data was also an issue. And older brokers especially didn't like yielding access to home listings and sales, long the guarded property of local MLS's, to the general public.

Today, though, nearly all home buyers and sellers begin their research online, and Zillow and Trulia lead all other sites in unique visits. Enter a property search into Google, and those two sites are where you'll likely go first, and even end up.

Are they accurate? Kind of, but they're not perfect, as they openly disclose to site visitors upfront. And not a week goes by that I don't hear a Zillow-client anecdote from a real estate broker about how inaccurate the site is, and why do people use it? Snarl!

When we moved to Colorado and began shopping for homes, my wife often began her sentences with "Zillow says..." I'd stop her mid-sentence, carefully explain Zillow's price valuation deficiencies and ask her not to rely on it. She listened very earnestly and went right on ahead and did it anyway.

She liked it because the information she wanted most was there--location, room count, square footage, amenities, lots of photos, and so on. Flaws in the accuracy of "zestimates" was acceptable at this point in the search, because (a) no one was ready to make an offer, and (b) few people pay the asking price anyway. For sellers, the same dynamic is at work. People see price inquiries as lead generators for real estate brokers, and most don't want to enter into a broker relationship early on.

Trulia and Zillow have both become public companies and are working to make their sites more useful and robust with enhanced user-generated content and agent reviews. And did you know that 14 million people submitted mortgage loan requests to the Zillow Mortgage Marketplace, according to Zillow Digs--a foray into home improvement--just launched a few months ago. I'm betting Trulia will follow.

The Captain's one gripe with Zillow is its "neighborhood expert" labeling. Find a listing, and you'll see thumbnails or larger photos of real estate brokers who are supposed to be "neighborhood experts." In fact, those are paid slots, sold to brokers by zip code. While these persons may indeed be local experts, there's no objective correlating data for consumers. These folks are neighborhood experts, and if you don't believe them, just ask them.

Zillow and Trulia are here to stay, and from a consumer's point of view, the older they get the more they become better. How they will change the way business is done is fodder for another post.

Wednesday, October 2, 2013

How the Federal Government Shutdown Could Derail the Housing Market

The Captain has never quite believed that the housing recovery was a strong as most seemed to believe. Yes, sales and pricing have been up in most areas. Lenders have loosened up a bit. It's still a sellers' market, but not as much as a few months ago.

First, the statistics have never been even enough to give a real comfort level. Sales were on the rise, but took a dip in August. September isn't in, yet, but it looks as though it will be an okay month. Interest rates are up, but settling back.

Second--and this is a personal thing--there are too many cash sales. Nothing wrong with cash, but home buyers don't use cash. Investors do. Also, the number of buyers in 2013 seemed to result from pent-up demand more than household creation, the traditional engine of the housing market.

All of which means...what? The Captain doesn't know, and I don't think anyone else does, either. Let's agree that the market is up, sort of. Maybe not, but we hope it is.

Comes now the federal government shutdown. Of the noncash sales, VA, FHA and USDA provide a huge number of the mortgages, because few buyers have 20% of the purchase price for down payments. It's true that Fannie and Freddie offer low-downpayment loans, but borrowers better have a FICO score of 725 or higher to get one, which means F and F aren't doing many of these loans.

Which throws us back to the federal agencies. All are reporting slowdowns. Reports on FHA and VA range from "slight" to "getting serious." USDA, which funds rural area loans, is not taking new applications.

A standard guideline for all loans is IRS and Social Security Administration verifications and tax transcripts, and guess what? They aren't producing them. This fact alone is serious, because it could virtually shut down lending, unless underwriting guidelines get relaxed--which isn't likely.

With a fragile recovery at best, shutting down these mortgage sources could knock the whole thing into a tailspin.

There oughtta be a law, right?

Monday, September 30, 2013

FHA May Not Shut Down Right Away

Updating an earlier post...

If the federal government shuts down at midnight tonight, FHA may hum along, although gasp may be a better term than hum.

Andrea Bramblia of Inman News reports that H.U.D. has reversed its earlier position. It will continue to endorse new loans in order to minimize disruption of the housing market.

Most sources say that if the government shuts down, programs needing appropriations will be curtailed. FHA falls into this category unlike, say, Medicare or Social Security, which are mandatory entitlements and are already funded.

Funding for single-family home loans received multi-year appropriations, so the pipeline isn't dry just yet (multi-family funding is another story). H.U.D. (and, therefore, FHA) will continue top operate, although at slower levels than before. If the federal shutdown doesn't last too long, operations won't be severely affected. But if it lasts a long time and the commitment authority runs out, home loans will be impacted.

Other sources have reported a similar story.

Sunday, September 29, 2013

Is FHA or VA Part of Your Transaction? Watch Out.

Well, it's looking as though the federal government will be shutting down faster than a bar in Utah. To know more about the who's and the what's, read this article in USA Today.

But if you've got an escrow set to close, if you're making an offer on a home or even thinking about it, and you're using an FHA or VA program, you need to plan accordingly. If the government shuts down, your escrow may not close and your offer will receive a different kind of scrutiny.

Yeah. There oughtta be a law or something.

Wednesday, September 25, 2013

What Is Equity? Can You Build More?

The equity in your home is the difference between what you sell it for and how much you owe on it. Homeowners gain equity through price appreciation and paying down their mortgage debt.

In the past few years, homeowners haven't given as much thought to their equity in their homes as they did in the years prior to the housing crash. In fact, the pumped up promise of free equity is what made the bubble in housing. But as market volatility fades and more and more homeowners are lifted above water, people are starting to think about equity once again.

The postwar Baby Boomers gained equity primarily through home price appreciation, actually creating their own demand. Those who remained in their homes a long time saw equity buildup from paying down their mortgages.

For the many new buyers using low down payment programs such as the FHA 3.5% down program, building equity is challenging. The day they close on their new home, they're probably ten percent or more underwater. If they had to sell, the price would be the same as they paid, at best, but their closing costs at purchase time and selling costs at sale time would overwhelm their equity--the 3.5% down payment--and then some.

This space has written previously on the true cost of home buying, and it's worth a re-read now and then. One of the takeaways is that equity isn't investment income or "profit." The true cost of a home is the base price, all the remodeling and repairs, the points and other costs associated with the initial mortgage, refinances, home equity loans, and the like. These don't get deducted in the equity calculation, but they're very real costs.

One way to build equity more quickly is to make additional principal payments. Some lenders offer a program where the borrower makes two mortgage payments a month, each of them half the normal monthly payment, which pays down the principal a bit more quickly. Another way (and one I think is better) is to pay more than your payment, if you can, because the extra amount will pay down principal.

For example, with a $200,000 mortgage at 5%, about $240 of the nearly $1,070 monthly payment is applied to principal for the first ten years. The rest is interest (taxes and insurance aren't in this calculation), which is why you'll pay about $386,000 over the entire thirty years. If you paid an extra $100 per month and apply it to principal, you'd be adding 70% more to principal payoff and gaining quicker equity buildup.

These are rough calculations, of course, but they make the point. Talk to your lender or financial adviser to see what works for you.

As always, if you have any questions, just ask. The Captain is always here!

Wednesday, September 18, 2013

The Latest Fed Action: Good News or Bad?

In the last five years, the Fed has almost single-handedly saved the U.S. housing market with its aggressive purchasing of mortgages. Mortgage rates were pounded to, and kept at, historical lows, an action which allowed pricing to stabilize. Mere speculation that the Fed might taper off its purchases was enough to send interest rates a full point higher.

Today, in a move that most analysts found surprising, the Fed announced that its purchasing program would continue. That's good news for buyers, because rates should stay low and may even drop a bit.

But overall, it may not be such good news. The only reason to have curtailed the program was a recovery in the housing market, which made Fed intervention less necessary. That the Fed Board elected to continue the programmay mean that Bernanke et al suspects the recovery is less robust than originally thought, and the housing market is either stalling or tipping downward.

Monday, September 16, 2013

Is It the Beginning of the End for Real Estate Sales Commissions?

When home sellers are shown the savings in fee-for-service listings versus listing commissions, they nonetheless usually choose to pay a commission. Moreover, an inherent conflict of interest is created when a seller enters into a commission-based listing agreement with a broker. Why this practice continues is anyone's guess.

In the past few weeks, though, Inman News has posted several articles on the issue, far and away more than is Inman's customary practice. This blog has done its own riffs based on the Inman stories, one having to do with innovative marketing and the other with dynamic broker startups. Does this new and sudden buzz foretell a change in the way real estate brokers are compensated?

Stay tuned. The Captain believes that the biggest driver for change is demographic. Brokerages are having a tough time recruiting young people because Millennials don't like pay based solely on commission. At the same time, their larger numbers will supplant Baby Boomers' within six or seven years, dramatically changing the housing market.

A possible last straw: Mortgage loans arguably include pay for the buyer's broker. Will lenders unbundle this amount?

Wednesday, September 11, 2013

The Next Big Thing for Real Estate Brokers

Until the last few years, real estate brokerages' business model keyed off brokers' exclusive access to local multiple listing services (MLS). Brokers all sold the same product. They still do.

While it's true that some firms try to specialize in certain niches, they still all sell the same stuff. Walk into, say, Rodeo Drive Brokers and tell them you want to invest in low-income rental housing in Compton, and they'll take care of you. And while individual brokers may specialize to a degree--say, in REO (foreclosures) properties--they'll say yes if you want them to help you buy a suburban tract home out of their territory.

The question for brokerages: What's the difference between you and the one down the street? The same is true for individual brokers.

Joel Burslem of 1000 Watt Consulting wrote a terrific short article for Inman News that addresses the issue. He says that instead of clinging to the mindset of being the consumers' gateway to homes listed for sale, brokers--and brokerages--need to drop their all-encompassing search engines, and, in his words, "get narrow."Getting narrow means focusing on homes, say, located near the best private high school or favorite restaurant row or whatever.

What real estate brokerages--and brokers--lack is branding, and by branding, I mean a je ne sais quoi attached to a name. Remax isn't qualitatively different than Sotheby's. Or Century 21 or Keller Williams. They aren't different because their  Glengarry Glen Ross business models have keyed off the same exclusive MLS access and sharing of broker commissions rather than some unique quality that's theirs, and theirs alone.

Individual brokers sometimes advertise service, often referring to themselves with such monikers as "your trusted advisor"or other sloganeering (a new favorite is "prosperity through real estate achievement") attempting to present the broker's service as a value-add to the consumer. While it's true that the most successful brokers are those who work the hardest, the fact remains that a conscientious new licensee or part-timer can serve a client with the same degree of quality that a broker who bills himself or herself as the "Top Producer," and charge the same fee.

As far as the consumer is concerned, objective correlation for service quality doesn't exist. Brokers don't have branding in the way that Sears or Saks Fifth Avenue has.

Both demographic and technological forces will cause a move to true branding. For the next few years, the seventy-eight million Baby Boomers will have the greatest influence on the market. But there are also eighty million so-called Millennials right behind them, and they are better educated, more tech savvy and demanding of authenticity. And they will dominate the market.

Right now, one-fourth of Realtors are 65 and older, while only six percent of them are under 34, according to a National Association of Realtors survey. Yet, a related survey notes, the average American worker is 41, and the typical age of a first-time buyer is 31.

The old ways just won't work for them. And that's what will cause the Next Big Thing.

Monday, September 2, 2013

C C&R Violation or Not? You Be the Judge

Off-leash dogs pooping, dead lawns, homes painted electric teal--these are obvious C C&R violations. They're easy to flag. What about off-leash dogs that aren't bothering anyone and are under voice control? What about a parked vehicle that violates the half-ton rule but is an attractive Mercedes? Rule violation becomes less clear.

What would you do in the following example?

Perhaps the most prominent and loveliest features of our community is a 33-acre lake, which the HOA dues maintain. It's home to a variety of waterfowl, bass, blue gill and carp. Community members may fish, go boating in non-motor boats and generally enjoy the beauty of the lake.

Usage is controlled, although plenty of people from outside slip in. No one much cares as long as these visitors are nice. Swimming is strictly forbidden, as is harassing the waterfowl. Outside that, things are pretty loose.

Sunday, a group of twenty or so people showed up at lake's edge in front of my home about the same time as I took the dog out for her afternoon walk. At first, I thought they had arrived to set up a picnic, but no one carried food or baskets. They all seemed to be speaking to one another, as though conspiring, and I assumed they were going to lay claim to one of the picnic tables. While I did not recognize them as neighbors, they didn't seem to be bothering anyone. Although their presence set off tinkling alarm bells, I still thought no-harm, no foul.

I continued up the path and peered back after five or ten minutes, only to see that three men, perhaps in their mid-thirties, had waded out into the water, fully dressed. One was speaking as the other two seemed to be listening earnestly. One of them--not the one speaking--took off his shirt. The water is super-scuzzy--so bad that the botanist who inspects the lake annually said he wouldn't allow his dog to enter. A no-swimming violation, maybe. Trespassers. Whatever.

A thousand thoughts collided in my head when it dawned on me what was happening, and I hurried back to my house.

Once there, I turned to watch the shirtless man get dunked in a full-immersion baptism. When he got back to shore, the others seemed to congratulate him (or whatever it is they do), and the group left. However, about half of them--including the now-saved young man--stopped off at our community pool (since it's locked, one or more had to be homeowners) and went inside.


1. Did a C C&R violation occur?
2. If so, what's the penalty?

Thursday, August 29, 2013

Real Estate Broker Fired, Client Thought It Was HGTV

Local real estate broker Trish Benedetti says her former clients unfairly fired her after learning they were not starring in an HGTV episode of House Hunters.

"Ashley and Mitchell told me their budget was a home in the $850,000 range," Benedetti said. "Ashley had to have a big, updated kitchen, and Mitchell needed space for all four of his cars."

Ashley and Mitchell Fournier, Benedetti's clients, said they found Benedetti online. "Her website at High Point Realty clearly stated she would find us 'the home of our dreams', Ms. Fournier said, "and I'd always dreamed of a three-bedroom home on a huge lot with a big kitchen and Wolff range, granite counters, cherry hardwood floors and all that."

"A house with a four-car garage isn't all that hard to find," Mr. Fournier added. When asked if he owned four cars, he said not yet, but that he'd been thinking about it.

Benedetti said she held the customary meeting she generally conducts with new clients, making sure they understood such basics as earnest money, title and escrow and trust deeds. "They seemed pretty knowledgeable," Benedetti said. "I began searching Multiple Listing for homes right away."

Benedetti said she suspected problems when, after a week had passed, she received a copy of the Fourniers' pre-approval letter from their lender. "They could barely afford a $250,000 starter home," Benedetti said.

Ms. Fournier said she was pleased at the first few homes Benedetti showed but that she became suspicious when the broker began sending listings with none of the criteria she and her husband wanted. "I was, like, 'What is this, we never asked for anything like these', and she was all, 'well, you know, I got your lender's letter and this is what you should be looking at'."

"They definitely weren't the homes of our dreams," Mr. Fournier said.

Benedetti said she made several telephone calls and sent a dozen emails to the Fourniers over the next ten days or so, sending them listings and offering to make appointments. She finally received a text message from Mr. Fournier, saying it was time to make a choice of homes.

Ms. Fournier described what happened at their meeting. "She (Benedetti) was supposed to go, 'Well, do you like the Southern plantation-style home in Belmont that has a new kitchen but needs the appliances replaced, or the updated Craftsman that only has a three-car garage but it's a 4,000-foot home, or the Tudor one out in the country that you loved but was $50,000 over your $850,000 budget'. She didn't do any of that."

Benedetti confirmed the meeting. "They told me what they wanted, and I finally said, 'What do you think this is, HGTV'?" They just kind of looked at each other and left. Ten minutes later, I get a text message telling me I'm fired."

Her feelings were hurt, Benedetti said, but she realized she was a professional and shouldn't take the incident personally. "I sent their contact information to a friend over at Remax," she said. "You never know, huh?"

Tuesday, August 27, 2013

Could Changes in Real Estate Broker Pay Affect the Market?

I was being bad a while back and internet-trolled a well-known real estate trade magazine article on brokers discounting commissions. It was kind of fun. But the question, as the last snarl was gasped, what would changing the traditional broker commission-compensation model mean for consumers--if anything?

Suitey is a next-gen real estate brokerage startup in New York who has already raised a half million dollars and rising. Its founders, one-time Yale Rowing teammates, say they founded their company after hearing from friends who didn't like working with real estate brokers. It's agents are called "neighborhood experts" (how original) and are paid a salary, with a bonus paid per deal as opposed to dollar amount. Part of the sales commission intended for the buyer's broker is passed through to the buyer.

If this sounds like Redfin's business model, it's because it is. Redfin maintains perhaps the industry's most robust website and likewise pays its agents a salary. Their salary increases are determined by customer reviews. Findwell, in Seattle, rebates 1% of the buyer-side commission to clients and, like Redfin, charges sellers a 1.5% listing fee.

Meanwhile, a Southern California brokerage, "unbundles" its services for both buyer and seller. With services unbundled, a client will only pay for those services she needs. Clients also have a choice to pay a traditional commission. brokers consult with clients for thirty minutes, free, and then lay out a game plan, not unlike good traditional brokers. The difference is that the client selects services needed and pays accordingly.

What does all this mean? Heck if I know. I do believe the current commission model will last for a while, with the new compensation offerings making stronger inroads as the years go by. Transparency and choice is just a better deal for consumers.

It's unclear how the overall market would be affected. If a non-commission payment modus operandi takes hold, lenders may get into the act and offer to pay all or part of their customers' broker fees. They're already doing it, in effect, but by formally crediting their borrowers for real estate broker expertise, they could assume some control in the process.

I kind of like the idea of real estate brokers getting paid for all their work, not just on closed transactions. Doing so helps get rid of the inherent conflict of interest pointed out by the Freakonomics guys.

Thursday, August 22, 2013

Should You Use IKEA for Your Kitchen Remodel?

In it's current Cost vs. Value report, Remodeling Magazine reports major kitchen remodels rank near the top of home improvement projects whose cost results in a value return at resale time. It comes in at nearly 69%, which is pretty good. But kitchen remodels present two problems for homeowners. Cost is the first, since they can be expensive. Second is having to deal with contractors.

What about using IKEA?

Having remodeled several kitchesn over the years, having been a real estate broker and having been a contractor, I can fairly state that kitchen remodel projects nearly always run over the budgeted amount, usually by a lot, and finish up far later than intended. That's usually because of what's euphemistically called "communication issues" between owner and contractor.
We didn't agree to do that! Or did we?

With construction of a new custom home, an architect-engineer will draw plans. Plans don't just show how the building looks. They contain all specifications and materials to be used. Where an owner sees "new window," for example, the architect sees the brand, the U-value, the frame, the flashing and everything else, right down to the size of the screws and washers. There's very little ambiguity in the cost.

Not so with a remodel, which rarely have detailed plans and specifications leading into a formal Scope of Work both sides understand. Owners pretty much find a contractor they trust and go for it. Problems can result, such as the new 30-inch range the owner selected not fitting into the hole that housed the old range, and expensive finished carpentry is required to make it look acceptable.

Custom Cherry Cabinets
What about using IKEA?

One of the raps on IKEA alludes to quality: If its products are so inexpensive, then the quality isn't top flight. To a degree, that may be true, if subjective. IKEA kitchen cabinets are not as high-quality as the solid-wood cabinets people get in a traditional remodel.
IKEA Millennial Kitchen

But I have to say, IKEA cabinets can look pretty good and the quality is fine. And with a total cost more than fifty percent less than a traditional remodel, it's kitchens are worth a serious look.

IKEA's kitchen cabinet doors are solid wood. The insides--the cabinet boxes--have a melamine-like veneer covering the MDF (medium-density fibreboard) box. Many purists prefer solid wood over MDF, although the data doesn't prove this preference.

The clincher is that IKEA offers a twenty-five-year limited warranty on its cabinets. For many--including me on our most recent remodel--that takes care of the quality issue.

IKEA also has free, in-store kitchen design consultants to help you with the company's fun-to-use online design program. If you don't feel comfortable designing yourself, or if you just don't have time, in-home help is available for a modest fee. The designer comes to your home and you walk one another through the whole remodel, cabinet-by cabinet, fixture by fixture. The advantage, here, is that the designer can solve problems of new stuff fitting in old spaces--a big issue in older homes. And you get both two- and three-dimensional drawings with written specifications when the design is finished.

Don't want to assemble the cabinets yourself? IKEA has an outside contractor for that as well--reasonably priced and extremely efficient, in our experience.

IKEA has been using Whirlpool kitchen appliances. They aren't top-of-the-line, but they're well-rated in Consumer Reports. And you can get just about any kind of counter tops from laminate to butcher block to granite through IKEA's preferred vendors.

Since most of the product cost of IKEA cabinets is in the boxes, you can change the entire look of your kitchen when you get tired of it. With boxes all being the same size, it's easy--and inexpensive--to switch from, say, Euro Contemporary to Pottery Barn white.

For a huge big-box store, IKEA's customer service is outstanding. No one ever tries to upsell you on anything, and their staff treats all problems very seriously. We had some issues with the counter top supplier--not even IKEA's stuff--and our IKEA consultant was right there to solve the issues. Returns are a piece of cake.

I promise I'm not a shill for IKEA. Not everything it has is great, and I'm sure others have had problems that we did not experience. But for kitchens, both new homeowners and older ones need to give IKEA a long, hard look. The communication and cost-overrun issues just fall by the wayside.

By the way, their cabinets are 20% off twice a year, so be sure to buy during sale periods.

Friday, August 16, 2013

Help! My Neighbor Wants Me to Join the HOA Board!

Dear Captain,

We recently moved into a neighborhood with a Homeowners Association. For some reason, half the directors resigned en masse. My neighbor won't say exactly what the infighting is all about, but he's encouraging me to seek a vacant spot on the board. Should I? Why would anyone want this kind of aggravation?


HOA Rookie

Dear Rookie,

Something you hear again and again
Is that HOA boards are all Grumpy Old Men.
They come in all kinds from picky to battler.
All of them look like Waldorf and Statler.
It's really not so, but perception rules.
To owners, the board members all look like fools.

But are they, really?

They look after common area ground,

This never happens
Where dead plants and garbage and dog poop abound.
They manage the clubhouse and fix irrigation.
And put in long hours without compensation.
And, don't forget, some owners are weird.
Their house painted teal, their annuals sheared.
Their porch is for tires, their yard is for cars.
It can all be made right with good C C&R's.

Can you put common interest ahead of your own?
That's what's required. You won't be alone.
Board members fighting is more myth than fact--
Safe for your gastrointestinal tract.
Homeowners seldom say thanks to the board.
You'll hear very little 'til their ox is gored
But you'll look with pride on the common demesne,
The trees neatly trimmed, the grass all pea green.
A secret you learned, you think with a smirk,
The property manager did all the work!

Monday, August 12, 2013

More More More on Home Inspections, Rookies!

Dear Captain,

We just got a screaming good deal on a new house, but now it's time for the home inspection. Is this just a routine thing? What if the inspector finds something that needs to be fixed and we can't afford it? How do you know if the needed repairs are something the seller is supposed to take care of? Also, our real estate broker said something about FHA inspectors and homes getting rejections based on home inspections. What's this all about? Can you help?


My Rookie Friends,

Buying a home can be quite enjoying
But when something goes wrong, it gets quite annoying,
Especially when you pay for a home inspection
And everything goes in the wrong damn direction.
Is there mold? Are there leaks? Does the furnace not work?
When you turn on the light, does it zap, twist and jerk?
Who is that cretin who sold you the house?
Boil him and sue him, that miserable louse!

But all is not lost when you find something wrong.
It may be something they knew all along,
Sellers are nice, by and large, just like you,
They don't go out looking for people to screw.
Years ago something broke and they thought "What the heck!
I just got laid off and I can't write a check,"
Maybe their builder ran lickety split
When the inspector told him to go get a permit.

These kinds of things happen. So what's to be done,
Especially when underwriting's begun?
Closing is coming! You've cancelled your lease!
The tension is mounting! Can you just find some peace?
Probably yes, with this one little task:
Decide what you want, and then: Just ask.

Ask them to fix the leak in the sink,
Remove the dead critter that's starting to stink.

Window sills etched with water and stains:
Could they be archaeological remains
Of failed seals from a long time ago,
Or a window left open? You just never know.

Ask about stuff that doesn't look right,
Ask them to fix it. You know, they just might.
And if they refuse for whatever reason,
Don't give up on a chance for cohesion.
After all, the seller can lower the price
To pay for repairs, enough to suffice.

FHA loans have no flexibility.
All their repairs must be done unequivocally
Before escrow closes. So no issues there,
Sellers must fix each FHA repair
Which, truth be told, all deal with life safety.
Straightforward stuff, not Wayne Manor stately. (OMG, did I really do that one?)

Repairs and fixes don't have to be formal.
Making adjustments should be fairly normal
For buyer and seller, since both have a stake
In writing it down with fair give and take.

Questions? Ask The Captain!

Saturday, August 10, 2013

The Rhyme and Reason of Home Buying!!

An email from a "Rookie's Guide" reader:

"Dear Galaxy Starship Captain,

We are first-time buyers who just moved here from New Zealand and have no idea how to begin the home-buying process in (name of city edited out). How shall we begin?


Our reply:

Dear Firsties,

Before setting out, go visit a lender.
I know that can sound like a real dead ender
'Cause lenders use terms like "RESPA" and "TILA ."
But they'll sit you down and act glad to see ya.
"Where do you work?" they'll say with a smile
As they start writing up a mysterious file
With your past and present, your children, your spouse. 
"All this?" you'll think, "to just buy a house?"

It probably seems an intractable nuisance.
But really, both sides should exercise prudence--
Both you and the lender engage in this dance
Of embracing the process of mortgage finance.
You need to learn what you can afford.
And yeah, the paperwork makes anyone bored,
But hey, Firsties--

That whole razzle-dazzle will get you a castle!
The razzamatazz is worth all that jazz.
If I left something out, just shoot me an E-,
Whatever you ask is between you and me. :-)