Friday, January 27, 2006

Q: My daughter and son-in-law want to buy a house here but don't have much money for a down payment.

I'm retired on a small pension and can't really help them. I've been reading lately about "no money down" loans and "interest only" loans and those scare me. I think it will really get young people in trouble to go so deep in debt. I read that some economist in Washington said that those who buy with no money down could lose money if prices decline. What do you think?

A: There is not likely to be a "bubble" effect on real estate prices here. Real estate prices are cooling in the center of the country, as they always do after a runaway market, and prices are predicted to fluctuate everywhere in the country this year as the market tries to stabilize. We, on Vashon, are not a part of that process since we are a "boutique" market with constantly high demand and perpetually low inventory. The Seattle real estate market has always been very volatile but it has not effected our prices much at all.

I've also read dire predictions of buying with a low or no money down programs. What many are forgetting is that we've had such programs for over 50 years! The FHA and VA home loans have always been low or no down payment, and have been used to get people into homes for generations. These days, all lending institutions can compete or even do better that these government sponsored programs, so they are no longer the only source of low down payment offerings.

I do advise against the "interest only" loans. Even though the value of property will continue to go up here, therefore increasing the equity in the home, it seems to be counterproductive to think that you'll have the same mortgage you started with even after 20 years of payments.

Remember that to build financial security one needs to start by owning their own home, so I encourage you to support your daughter and son-in-law in their plans to buy.

Friday, January 13, 2006

Q: We just lost out on a house we wanted to buy because another offer had something called an escalator.

It sounds like those movable stairs in big department stores. What is that and how does it work? We thought we would get the house because we offered full price and were the first offer made. Doesn't being first count for anything?

A: I can understand your confusion. To start with, the seller is under no obligation to accept offers in any specific manner. They can even take an offer that is for less than the asking price if the terms are more acceptable to them or for any other reason. Let's say you offered full price but your offer is contingent on selling another property. Maybe the other offer was for all cash and those buyers had already sold their other home so that wasn't going to be an issue for them. Obviously the other buyer's offer is less risky for the seller.

A seller might have other concerns that are as important or more important than the price. Maybe they need extra time to move out so an offer that has a negotiable closing date is better for them. Maybe they have to close fast for tax reasons so a two week closing is their best choice even if it's for less money. Sellers can even take an offer for sentimental reasons. Maybe they have dogs and really favor an offer from a family they know also has dogs! As long as they are not discriminating against anyone who is in a protected class they can chose whomever they like.

As for what's called an "escalation clause," or sometimes an "agreement to beat highest offer addendum," this is an agreement from the purchaser that says that they will beat any offer made, up to a maximum amount. It's often used when there are competing bids on the same property. It's possible that was what happened to you. The property actually sold for more than the listed price. Consult with your agent about ways to make yourselves the winning bidder next time. Good luck!