Shocking Facts About Appraisals!

Last month we had a guest speaker at our team meeting who has been doing appraisals in the Las Vegas Valley for more than 20 years. She has a stellar reputation in the industry, and usually comes to speak to us at least once a year to update us on appraisal formulas, how adjustments are made, the value of specific improvements to real estate in Las Vegas and trends in appraisal values.

But this time, a random question about how appraisers are chosen by the banks led to some shocking discoveries!

First: a little background. Because of the “mortgage meltdown,” the federal government passed specific laws requiring mortgage lenders to order appraisals through a “neutral” third party. Appraisal management companies were formed. These companies receive the appraisal order from the mortgage lender and then assign an appraiser from their “approved” list. The mortgage lender cannot ever speak to the assigned appraiser, and all communications must go through an online portal to the appraisal management company.

The general population, Las Vegas Realtors included, have been under the assumption that these appraisals were assigned in rotation to the next appraiser in line to preserve the integrity of the process. Not so!

The appraisal management company charges a fixed fee to the mortgage lender for each appraisal. When the management company receives an appraisal work order, they send out a “first come, first served” type email to all the appraisers on their list. From the responses, the management company then selects the appraiser that is willing to complete the appraisal in the shortest possible time for the lowest possible price!

So if ten appraisers respond with the same general timeline, the management company will then select the CHEAPEST appraiser. Say the appraisal fee the management company is charging the lender is $450. If one of the appraisers that responds is willing to charge only $200 and the rest are charging more, the management company gives the order to the least expensive appraiser and pockets the difference.

This means that every appraisal that is being done is being awarded to the appraiser that is willing to charge the least. YOU GET WHAT YOU PAY FOR. In most instances (though not all), these are the less experienced appraisers. (Well established appraisers like our guest speaker will not even sign up to be on the list with appraisal management companies!) In addition, because these appraisers are earning less per appraisal, they have to make up in volume for charging less, which means that they are less likely to spend the extra time to truly evaluate each subject property. They are also less likely to “reconsider” the value of an appraisal that is contested.

So it is no wonder that over the past couple of years homebuyers, sellers and Las Vegas lenders are more consistently experiencing “bad” appraisals that do not truly reflect current market value.

Tired of Losing out to Cash Buyers?

Tired of losing out to cash buyers on the Las Vegas homes of your dreams? You must get completely pre-approved for a loan before submitting an offer, and you must be able to close quickly once that offer has been submitted. So we found a mortgage lender who could help our clients compete in multiple offer situations.

Southern Fidelity Mortgage, one of the Tonnesen Team Preferred Lenders, wants to earn your business and help you compete with all cash offers. They will guarantee:

1. They will be ready to fund and close any loan within 15 days. Just submit your completed loan application with required documentation and then go house hunting with one of our experienced real estate agents. When you can close as fast as a cash offer, you have a much better chance to get your contract accepted in multiple offer situations. Banks consider preapproved financed purchase offers with two week closes to be as strong as cash offers. 
2. Lowest rates and fees in town! Southern Fidelity guarantees to meet or beat any legitimate loan quote, so you can save money AND qualify for a higher loan amount. 
3. The best customer service around. After your loan closes, you will be asked to complete a short survey on your customer experience. Your lending team only gets a bonus if YOU are a happy customer!

Just go to: Las Vegas Mortgage Loan Application and fill out a short pre-application form, and one of Southern Fidelity’s loan officers will get back to you within 24 hours to put together your mortgage game plan.

Selling Your Home - Las Vegas Short Sale Tips

The collapse of the general economy has left the Las Vegas real estate market in a shambles. If, like many, your home is upside down and you need/want to sell it, you are going to need the approval of your existing mortgage lender(s) to take less than what is owed. This is what we call a short sale, or pre-foreclosure property. Short sales are complicated transactions, so you can’t just hire your sister’s best friend who works part time in real estate to handle it for you. (Well, you can, but you may not be happy with the outcome.)

Who actually makes the decision to approve a short sale? As the seller, you will not be allowed to take any money from a short sale transaction. So you, the seller, really don’t care what you sell your home for. Surprisingly enough, your lender, who is probably only servicing your loan, doesn’t care either. The servicing bank merely collects the appropriate documents and presents the entire file to the investor who is actually holding the note and is owed the money. Literally, you could have two identical homes with two identical cash offers being serviced by the same bank and yet one will get approved and the other will not. It is entirely up to the investor holding your note how much of a loss they are willing to take.

Why would you short sale your home? The main advantage to doing a short sale is that you will ask your existing lender(s) to release you from any deficiency judgments. In other words, they agree not to go after you for the difference between what you owe and what the home sells for. (After a Las Vegas foreclosure they automatically have that right. On a short sale, this is negotiable.) In addition, if you can keep your payments current during the short sale process, it may not ding your credit too badly. While you won’t be able to finance another Las Vegas home for 3 years under FHA guidelines or 4 years under conventional guidelines, you should be able to buy a car or obtain credit cards. A foreclosure could prevent securing any type of credit for a number of years.

What will you need to provide to your lender to get a short sale approved? Most lenders will require the following documentation in addition to a multitude of standard forms:

· hardship letter – you are telling the lender in detail why you can no longer make your payments. Loss of employment, reduction of income, job transfer, divorce, illness, etc. In some cases the investor holding the note may still be willing to do a short sale even if you can afford the payments, but that is on a case by case basis
· last two paycheck stubs
· last two bank statements from all accounts
· last two years of tax returns
· financial worksheet showing expenses

What is the best way to go about a short sale? First of all, you would want to contact your lender to see if you qualify under the HAMP program or Home Affordable Modification Program. If you qualify under program guidelines, your lender may agree to reduce your interest rate so that you can afford to stay in your home. If you still can’t stay in your home for one reason or another, you may then qualify for the HAFA program or Home Affordable Foreclosures Alternative. Under this program you may get pre-approved for a short sale based and you may also receive relocation assistance up to $3k upon the sale of your home. Definitely something worth checking out.

The next step, whether or not you are HAFA eligible, is to hire a Las Vegas real estate agent EXPERIENCED in listing short sales. Your home must be listed on the local MLS so that the investor has a chance to receive the highest possible price on the open market. You cannot sell your property to a family member or friend either with the idea of buying it back later. Part of the bank paperwork you will be required to sign at closing is an “arm’s length” disclosure stating that you have no relationship with the buyer who purchases your property. (Breach of that disclosure is federal fraud and subject to severe penalties.)

Should you hire an attorney to help negotiate a short sale? If you have been unable to obtain a preapproved short sale under the HAFA guidelines, this is an excellent idea as long as the attorney you hire does not charge you anything at all, and only collects a fee from the bank’s proceeds upon the successful completion of the short sale. Your real estate agent should be able to help you locate a firm that has been successful in negotiating short sales, and the attorney should be brought in at the beginning of the listing process. Often if the investor proves stubborn about approving a sales price or terms of the short sale, just an attorney’s letter can alter the outcome favorably. Again, the attorney takes their fee from the bank’s proceeds at no cost to the seller or buyer.

How much should you list your home for? You are trying to establish a reasonable value for your home in the marketplace, keeping in mind that it is a short sale transaction which is not popular with either buyers or buyer agents as it may take months for them to find out if they even have a deal. Your agent should look at recently sold comparable properties and price your home at the bottom end of that spectrum but taking into account comparable condition and amenities. Once your home has been listed for several weeks without an offer, you want to do regular price reductions (your agent can advise you on how much is reasonable) until you are able to generate an offer with a solid buyer.

What happens after I get an offer on my home? Your lender, the servicing bank, puts together a file containing the contract, your updated financial documents and all documentation that you have tried to obtain the best price possible. They order a BPO or Broker’s Price Opinion (basically an appraisal) to establish market value of the home. They present this file to the investor for approval, rejection or, in many cases, counter offer if the BPO comes in higher than the sales price. If there is a counter offer on the price, the buyer may decide to accept the counter subject to a second appraisal of the property by the buyer’s lender. If both the buyer and seller accept the initial terms of the short sale approval, the buyer’s due diligence period commences. The buyer’s Las Vegas mortgage lender will order their appraisal and the buyer will complete all inspections and review any HOA documents.

Quite often the buyer’s appraisal is lower than the bank’s appraisal, and then the buyer will ask for a reduction of the sales price to meet that appraisal. The investor can either agree or disagree. Once a final price is agreed upon by all parties, the transaction proceeds pretty much as normal.

Why do most short sales fail? Most Las Vegas short sales fail simply because of the time it takes to find out if they are approved. Even the most serious buyer can become fidgety after a month or two of waiting to hear something, anything. That is why it is crucial for your agent to give weekly updates to the buyer’s agent, even if there is nothing new to report. Just a steady stream of communication can keep a deal alive. The second most common reason short sales fail is the difference in appraisal values between the short sale bank and the buyer’s lender. Again, a strong listing agent can go a long way toward documenting reasons for a lower sales price, though again this is ultimately the decision of the investor and sometimes those decisions seem to make no sense at all! But it is quite common to see the same Las Vegas homes for sale go into escrow several times before a successful closing. There is nothing wrong with the property itself, just the process.

That is why it is vital that the seller, the buyer and the agents all remain calm and be willing to jump through many hoops to a successful close. Guaranteed, there will be many hoops! But the patient buyer can get a great deal and the seller can walk away with a clean slate, and that is what makes it all worthwhile.

Real Estate in Las Vegas - The Buying Process

Every country, state and city has different procedures when it comes how a real estate transaction is handled. Below is an overview of how the Las Vegas real estate purchase process is handled.

1. Obtain a loan preapproval from a major bank or provide proof of funds (bank statements) for an all cash sale to your Las Vegas real estate agent. This is required before submitting any offers on properties, and some sellers will not allow you to view their property without one.
   
2. Identify potential Las Vegas homes for sale that meet your needs and view them with your agent. Remember to give your agent as much advance notice as possible. Many properties require appointments to view, and if you can give at least a week's notice it is easier to make sure you get to see all properties on your list.
   
3. Select property that you would like to make an offer on. Because there are multiple offers on many properties, especially those under $400k, it is wise to select several properties and not just one.
   
4. Have your agent run comparable sales to determine an approximate value. If you are getting a loan, your lender will also require an official appraisal to be done on the property. If this is a cash sale, an appraisal is not required, but the buyer may pay for one and that can be a condition of the contract. We use the standard Greater Las Vegas Board of Realtors purchase contract which contains many provisions for the protection of both the buyers and the sellers. The only exception to using a standard GLVAR contract would be when purchasing a brand new Las Vegas homes from a developer. In that case the purchase contract is supplied by the developer.
   
5. The agent will write up a purchase contract including all terms of the sale. The buyer will sign the contract and the agent will submit it to the listing broker along with a copy of the earnest money deposit check or a notation that these funds will be wired directly to the escrow company within one business day.
   
6. The seller then has three choices: they can accept the contract as written, they can reject the contract, or they can make a counter offer to the buyer.
   
7. If the seller makes a counter offer, the buyer can accept it, reject it or make another counter offer to the seller. All offers and counter offers must be in writing. Verbal offers are not acceptable.
   
8. Once all parties have reached agreement in writing, the contract is considered accepted. The buyer's agent will submit all documents and the earnest deposit check to the escrow company and escrow will be opened. Once again, the earnest deposit will be cashed at this time and the funds will remain at the escrow company until the closing occurs.
   
9. The buyer's Las Vegas mortgage lender will also immediately receive an executed copy of the contract so that they may start processing the loan.
   
10. The lender should be instructed to order the appraisal immediately and collect funds for the appraisal from whoever is paying for it.
    
11. The property inspection should also be set up immediately so that the results can be reviewed and accepted or rejected by the buyer during the due diligence period. Should there be items on the inspection list that the buyer wishes to have fixed by the seller, a separate form will be prepared itemizing those items. Keep in mind that Las Vegas foreclosures and short sales are mostly sold "as is, where is" with no repairs to be made. Short sale sellers have no money, and Banks will very seldom pay for any inspection items unless a major issue is found like mold or a structural defect.
    
12. HOA docs should be ordered immediately so that the buyer can review them in a timely fashion within the due diligence period.
    
13. The buyer should also immediately contact their preferred homeowner's insurance company and order a homeowner's policy. The buyer will need to supply the property address, the property square footage and both the lender' and escrow company's contact information so that the insurance company can provide them with the necessary paperwork for closing.
    
14. Once the items of the due diligence period have been covered and the due diligence period ends, the buyer's earnest deposit is considered non refundable unless the seller is unable to provide clear title to the property or the property is materially damaged in some way prior to the closing.
    
15. About three days prior to the closing, the buyer will have an opportunity to "walk through" the home once more to make sure that the property is still in the same condition as it was when the offer was tendered. Also if there were repairs that were to be made by the seller, the buyer would check to make sure that those repairs have been done. If the buyer is unable to be at the property for the walk through, the buyer may nominate someone else in writing to perform this walk through on the buyer's behalf. The real estate agent may be present during the walk through, but CANNOT do the walk through for the buyer. If the buyer or a buyer's nominee cannot do the walk through, the buyer will need to waive his rights to the walk through in writing.
    
16. About three days before closing, the buyer will sign all the closing documents and lender documents, if applicable. The escrow company will have prepared an estimated HUD settlement statement outlining all fees being charged and this will be reviewed for accuracy by the buyer and the buyer's agent. The lender documents will be returned to the lender for review, and then the lender will wire mortgage funds to the escrow company. The buyer will deposit the remaining funds needed to close by WIRE TRANSFER only. Escrow companies will not accept cashier's checks as "good" funds. If a cashier's check is used, the escrow company will wait five to ten days for the check to clear. This will delay closing and may result in fees and penalties to the buyer.
    
17. About three days before closing the buyer will call the utility companies to have the utilities turned on in their name at the close of escrow date.
    
18. Once the property is officially recorded in the buyer's name at the Clark County Recorder's office, the buyer is obtains access to the property and keys from the seller. Prior to recording, no work may be done on the property by the buyer and no furnishings may be installed without prior written permission from the seller. (Bank owned properties never allow any kind of access prior to recording.)
    
19. Recording a property on the specified closing date is not an exact science, though we do everything we can to accomplish this goal. Some of the most common delays are: the HOA does not return the demands to escrow on time, the seller does not sign off on the final HUD statement, the loan documents need to be resigned because of a clerical error, escrow is waiting on the lender funds, final repairs have not been made, or title needs to clear a lien. These are all items outside of the control of the buyer or the buyer's agent, and a sense of humor helps to get through the process.

For non US Citizens: the above process for purchasing Las Vegas homes is the same for US and non US Citizens. One other item that foreign nationals need to be aware of when purchasing property in the United States: when you eventually sell the property, a certain percentage of any profit over the original sales price will be withheld at the closing to pay US federal taxes.

Taking title to property as an LLC or Corporation: it is possible to take title to a property in the name of a US registered Corporation or LLC if you are paying cash for a property, but the purchase contract must contain this information when it is presented to the seller. Most sellers will not sign a contract that allows an assignee to take over the contract. You must also provide your real estate agent with the appropriate documentation proving you are authorized to sign for that entity. Otherwise you will have to wait until after the transaction is closed and then transfer the property into the entity's name, at which time you would be subject to the applicable Nevada transfer tax for that change of title. If you are transferring title to a trust containing the names of the principals, transfer tax is not required.