Family Buyers
First, my son calls me in June. He had looked at buying a condominium in Laguna Niguel for about $440,000 in the spring of 2007. He actually made an offer at the time, and for a reason I cannot recall, the deal did not go through.

Fast forward to June of this year and he is looking at a similar condominium, a bank foreclosure, but priced at $285,000, and "it’s going to be competitive, Dad." He makes an offer at $310,000, it is accepted, and I put him in the hands of one of my favorite San Francisco-based lenders for the simple reason that I don’t want him to show up to close at the escrow company only to be told that the lender won’t perform for one reason or another. It is happening a lot. Lenders always drive the process, and at times like the present, in spades!

All goes well. The appraisal comes in at the $310,000 price, but the appraiser notes that the property is in a "declining market". What pray tell does this mean? Well, what it means is that the bank will still lend on the property but not 90% as planned but now only at 85%. Okay so we agree to put up a larger down payment. Then 10 days later our lender calls to say that policy has changed (again) and they will gladly lend 90%. A lucky break? Not necessarily. Cool.

There is a moral to this story: in today’s market, make sure you use a trusted lender and be prepared for the rules of the game to change at any moment.

Then my Seattle-based daughter calls: "since you are finished with bro, I now want to buy a new house," she says. Ok, I say, I will help on one condition. You use my San Francisco lender. She seems to find this acceptable until a few days later when she calls to tell me that her local Seattle mortgage broker whom she likes a lot is willing to match the terms of my San Francisco lender.

I must admit that I almost lost my cool. (Why don’t daughters just listen to dads?). She soon got clear on my message from the heat in the tone of my rising voice as I patiently articulated the difference between a mortgage broker and a lending bank. Hey, don’t get me wrong. There are many competent mortgage brokers. However, the current financial mess has spooked many lenders, and they are tap dancing their way through almost every new transaction hoping to avoid any further missteps. In today’s overly cautious climate, the closest thing to a personal relationship is with a trusted banker who has direct contact with the rapidly changing credit standards within his/her own institution. While most good mortgage brokers will do their best to service their borrowers, they can’t be as tightly in the loop when dealing with multiple lenders.

My daughter gracefully relented and is proceeding to a close in a couple of weeks. She is also quite happy with the terms that she worked out with the bank.

The moral of this story: stick to your guns and make sure you use a trusted and competent professional, in this case a trusted lender. I don’t know what can go wrong, but I do know that I have a much better chance of resolving an issue if I have vetted a lender over time. That lender has a better chance of knowing what is about to happen when he/she is personally connected to the decision-making chain within the institution. He/she is also in a position to move more swiftly and pull things together, as happened with my son. This goes for everyone else on the team who may be participating in the buying/selling process from title company to inspectors, escrow personnel, and of course, the real estate agent.

Summer Reading

 

I gravitated to two books this summer, both of which educated me and changed my view of how I look at the world. I would like to commend them to you. They connect the dots very nicely.

The first is Bad Money, written by Kevin Phillips. Though focused on the financial markets, you don’t have to be a financial type to understand and appreciate what he has to say. It provides a thorough analysis of how we as a country got into the current financial mess, and what the next 10/20 years are likely to bring us as individuals and as citizens of the U.S. It is not a pretty picture, and rather than stick our heads in the sand, I think it is wise to gain a better understanding of what is likely to unfold in the financial markets, which impacts the real estate market, and as the current subprime mortgage crisis has taught us, impacts the rest of our lives as well. While I believe strongly that no one can predict the future, I also believe strongly that there is wisdom to be gained by understanding what is occurring beyond the headlines and an awareness of the crosscurrents that are moving the world forward.

 

The second book is The Post-American World, by Fareed Zakaria and is about the "rise of the rest" including China, India, Brazil, Russia, South Africa, Kenya, as well as others and how they are and will be affecting America. Like the first book, it is not an uplifting saga, but a saga that affects all of us, nonetheless.

If you tuned in to the Olympics, as I did, you had to be impressed with the scale of accomplishments that China has wrought in just the last few years. The other countries noted above are making similar monumental changes to their economies and societies as well.

Despite all the gloom and doom, the residential market in San Francisco is holding up quite well.

I hope your summer was a great one.