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First Steps in Home Purchasing; Selling Homes Without Brokers; U.S. Ex-Pats Tout Their Mexican Home
Aired April 22, 2006 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: Good morning, everyone. Take a deep breath and dig deeper. While you were sleeping, gas prices went up 3 cents. According to AAA, the average price of a gallon of regular unleaded gas is $2.88. But don't expect that to hold. Oil prices this morning are topping $75 a barrel.
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Voices of protest are getting louder in Nepal, hundreds of thousands of protestors marched in Kathmandu demanding an end to the king's absolute rule. The angry demonstration brought out riot police with tear gas and rubber bullets.
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Stay right here with us here at CNN. We will continue to follow the developments from Afghanistan. OPEN HOUSE is next.
GERRI WILLIS, HOST: We are in the midst of the busy spring buying and selling season. So in this program you will find out the most important things you need to know to get the very best deals.
Good morning, I'm Gerri Willis, welcome to OPEN HOUSE. We have got a special show for you this week. It's really all about real estate from cutting out your broker to buying a fancy home in a foreign country.
But first, we start off with the first step to moving into your dream home, getting your financial house in order. We met one woman who is doing just that.
WILLIS (voice-over): Lisa Stebner is looking for a place she and her husband can call home. But before she even began looking, she spent years planning and coming up with a down payment.
LISA STEBNER, HOMEBUYER: Not easy, to keep saving money towards something like this. WILLIS: Aside from socking away a healthy savings account, Stebner also turned to a real estate agent for advice.
KAREN KELLEY, REALTOR, THE CORCORAN GROUP: Get a pre-approval. You know, put together your finances with regard to, you know, your liabilities, your assets, what your net worth is, and then determine what you can be approved for.
WILLIS: Kelley also recommends all buyers work to improve their credit score and have tax returns ready to show banks. It's part of a plan to ensure you're in good financial shape and it should give lenders the confidence to work with you. But even if you're offered a lot of money, don't let your eyes light up too much or you could get caught in a tough spot.
STEBNER: There are a lot of hidden costs that you don't think about, like closing and moving, and hospitalizations (ph) and utilities.
WILLIS: And you don't want to become house poor. It's a situation Lisa and her husband are determined to avoid.
STEBNER: You'll get approved for a certain amount, but be realistic in what we had to do was say we don't really want to max out to that point. We had to then reevaluate our needs and go into a smaller space, something we could see ourselves not sweating every month.
WILLIS: Joining me now is David D'Ausilio, a realtor.
DAVID D'AUSILIO, REALTOR: Thank you.
WILLIS: Good to see you. You know, I think this is a big problem. People don't really line up their finances. They start looking for the house first. Can that cause problems?
D'AUSILIO: Well, it can, especially if they're looking at more house than they can afford or perhaps can afford a much better house than they're looking at.
WILLIS: Well, a lot of people out there have been trying to buy houses that are too much for them. Are you seeing that now? Are people starting to get maybe some sense into the proposition of buying a house or have they still got their eyes on the prize?
D'AUSILIO: Well, I think most buyers are relatively sophisticated now. They talk with their mortgage representatives or bankers, find out how much they can afford. And then they contact their local realtor to see what's out there and available.
WILLIS: And I know you're out there in the market, you're looking all the time. Are you seeing any softness in the market? D'AUSILIO: Yes, there is some softness. Inventory is building, Gerri, which means there's more available moments for buyers to choose from. So sellers really need to be a little cautious now and make sure their homes are competitively priced in today's market.
WILLIS: So, you know, we talk a lot about the buyer and the buyer out there with her finances. What about the seller? When they're coming up with that sell price, what kind of things should they take into consideration?
D'AUSILIO: Well, I think they need to talk with their agent and look at all the competing homes and then be realistic about your price. Also check into your motivation. Why are you selling the home? If you need to sell the home, price it aggressively. If you're just fishing to see if you get a great price, it may take a lot longer than you expect.
WILLIS: OK, David, stick with us. We're going to talk to you a little more later. Coming up on OPEN HOUSE, how to put your real estate broker out of commission and sell your own house.
But first, your "Tip of the Day."
WILLIS (voice-over): Shopping for a house online? Here's what you need to know before you begin. First, determine your price range and get all financial documents ready and organized.
Next, create a reasonable wish list by figuring out what amenities your new home must have and which you'd like to have. Never buy a house you've seen online without seeing it in person and be sure you check out both local and national realty Web sites. That's your "Tip of the Day."
WILLIS: Welcome back to our buying and selling special. Your broker's commission could be the biggest expense when you sell your house. You could sell it yourself and keep that money in your pocket. The trick is bringing in the buyers. I met up with one man who gives a whole new meaning to "for sale by owner. "
LARRY KAGAN, HOMESELLER: Step was they came in and they were greeted by a mortgage broker.
WILLIS (voice-over): Larry Kagan is a lot like every other seller. He wanted to get the most for his home, didn't want to share profits with a real estate agent and wanted it sold fast. But unlike many other sellers, he got his wish, finding the idea at a bookstore.
KAGAN: I was in Barnes & Noble and I was hanging out, drinking coffee with my wife and we were looking through books, and we came across a book called "How to Sell Your Home in Five Days."
WILLIS: The book, and its companion Web site walks the reader through the process of selling a house by auction.
GEORGE CAPPONY, WWW.5-DAYSALE.COM: You can read it in about two- and-a-half hours and if you bought it on a Friday, you could sell your home effectively next weekend if you so desired.
WILLIS: Kagan spent a week and about $2,500 prepping for the auction. He staged his home as you would for any open house, created an 18-page brochure on his computer for potential buyers, took out ads in the local newspaper and on the Internet and plastered signs around town. Then he opened bidding at just under $200,000.
KAGAN: I chose a low number to attract activity because I wanted to have activity and, you know, so somebody truly did have the opportunity to purchase this condo for below the market value. And the market ultimately would determine the final price.
WILLIS: He let people into his home from first thing Saturday morning through 5:00 p.m. Sunday. Throughout the weekend, potential buyers toured the condo and made bids in writing which other bidders could see. To speed the process he had a mortgage broker on hand, but no real estate agents in sight. Kagan promised all bidders phone calls after 8:00 Sunday night for an update on their status.
KAGAN: Initially I had 74 bids on my bidding sheets. So on the first round I would call 74 people and I would tell them something like this, hi, this is Larry calling from the condo in Plainview. The current high bid right now is $351,500. In order for you to advance in the next round you have to move the bid up by at least $500. Where would you like me to place your bid?
WILLIS: The round-robin bidding took eight rounds, 100 phone calls, and a few hours to complete. The winning bid, $366,000, more than $166,000 from where it began.
KAGAN: I chose to sell my home this way because it's a win-win. It's a win for the buyer and it's a win for the seller. You know, basically what we're doing here is I'm able to not pay any sort of brokerage commissions, no broker's fees. There's no broker involved so I can afford to accept the lower price.
WILLIS: But brokers normally bring in prospective buyers. That means an option like Kagan's is only for those who have the savvy to get people in.
CAPPONY: Understand how the flow of traffic is going to be. Understand different forms of marketing that you have to do in order to bring the people into your home. And then try to understand effectively how the bidding process works.
WILLIS: For Kagan, all that made sense.
KAGAN: I sold this condominium, really, in two days. I sold it, I showed it on Saturday, I showed it on Sunday, and sold it Sunday night to the highest bidder. And to me that was the biggest benefit.
WILLIS: OK. Two days. That sounds pretty darn good. Joining us again is David D'Ausilio. David, why do we need you if we can sell the house on our own in two days?
D'AUSILIO: Well, if you can sell your home in two days, I encourage you to go ahead and do it, but again, as the markets change, the more homes that are available for sale, the more competitive you need to be.
WILLIS: Are you saying that some markets are better than others for selling on your own?
D'AUSILIO: Absolutely. In a heated market like we've had recently in the last four or five years, you can sell on your own. You probably have a chance of being successful and handling that on your own. As the market continues to soften, I believe realtor's values increase.
WILLIS: OK. But if I choose to do it on my own, if I decide that's the way for me, because I really want to pocket that commission, and let's face it, maybe I'm not going to get the price I expected right now in this kind of a marketplace, what is the one thing that people tend to do wrong when they sell on their own?
D'AUSILIO: It's really critical that you use technology to your advantage. Realtor.com is the stickiest Web site out there and it's where all buyers generally go to look for homes. You have to find a way to align yourself with someone who can get you on realtor.com.
WILLIS: Well, and you can do that for a fee in many parts of the country now. .
D'AUSILIO: Yes, you can.
WILLIS: Stick around, David.
So if you bought a house or refinanced one in the past few years, you may have gotten a great deal on an adjustable rate mortgage. But watch out, your rate may be poised to jump higher.
WILLIS (voice-over): For years, Bruce Herman could feel the cost of his mortgage hanging over him. In 2002 he bought this brownstone in Brooklyn, New York, and looked around for a mortgage.
BRUCE HERMAN, HOMEOWNER: The best rate we were able to get at that time was an adjustable rate, a five-year ARM.
WILLIS: That mortgage offered a lower initial rate, 6 3/8 percent for the first five years, followed by a reset when the mortgage would adjust higher in 2007. HERMAN: In anticipating that we would probably be hit in a year- and-a-half when we would have got to our five-year point with an increase and then that we might be in a situation where we would get annual increases of about 1 percent, that was a scenario that was quite troubling for us.
WILLIS: Millions of U.S. homeowners face exactly this predicament. The Mortgage Bankers Association estimates that more than $1 trillion in adjustable rate mortgages will reset by the end of 2007. That means many of those homeowners who locked in rock-bottom adjustable rates when mortgages fell to historic lows a few years ago are about to see their monthly costs shoot higher.
ALAN TRACHTMAN, MORTGAGE BROKER, TRACHTMAN & BACH: The step up in many of the adjustables is going to be a lot higher than the new payment undertaking a new loan.
WILLIS: Trachtman says the first thing to do is assess your individual needs. The first question, how long will you be in your home? If it will only be a few years, then it makes sense to take on another adjustable rate. Then again, it depends how much risk you can stomach. For some people there's nothing like the security of a 15- or 30-year picked rate.
Refinancing certainly worked out for Bruce Herman and his wife Jennifer. A couple of weeks ago they rolled over their adjustable as well as a home equity loan into a 30-year fixed rate mortgage. The result, a lower interest rate that will cut their monthly costs by about 20 percent.
HERMAN: It was certainly worth the time we put in and, you know, chasing the best rate and all that stuff. In the end I think it's going to be, you know, a situation that we are in a much better place.
WILLIS: Up next, what to do when your bank appraisal and your purchase price, they don't match up. Plus, how many Americans are moving to Mexico? You'd be surprised and why. But first, the mortgage numbers.
WILLIS: Well, you may think that the appraisal is one thing to check off your list when buying a home. Not so, this New York woman learned the hard way.
WILLIS (voice-over): For Jocelyn King it was love at first sight.
JOCELYN KING, HOMEBUYER: I knew right away that this was it and, you know, I fell in love with it, I thought it was beautiful.
WILLIS: Her dream apartment, a one bedroom in Queens, New York, was on the market for $219,000. She put in a bid at $207,000 and the sellers accepted. After researching neighborhood prices, Jocelyn thought she got a pretty good deal. Too bad her lender didn't agree.
KING: The number that I -- that the appraisal came back as was $185,000.
WILLIS: A $22,000 difference from what Jocelyn agreed to pay.
KING: I was stunned and so, I had seen apartments listed for $185,000, and I didn't think that they compared at all to this place. So in my mind I was sort of confused.
WILLIS: Confusion and frustration aside, she had a bigger problem, coming up with the extra financing.
KING: The bank said, we will lend you money, you know, we'll give you a loan package for $185,000 and that's it. And the rest you are responsible for.
WILLIS: Her solution, go for 90 percent financing instead of the 80 percent she initially planned toward. King's original lender wouldn't approve a mortgage for 90 percent, so she switched banks.
KING: I had to look for another bank and, you know, I lost my interest rate. You know, that was tough to swallow.
WILLIS: Through creative financing, King got her apartment and the view she always wanted, but as for appraisals. She's got a whole different view.
KING: I'm interested in the fact that this is on the fourth floor and there is a nice little view of the New York City skyline. The bank doesn't care, I don't ,think and the appraiser doesn't care.
WILLIS: All right. So maybe it's time to move a little further away. Many Americans are heading south of the border, buying homes in the central Mexican city of San Miguel.
WARREN HARDY, WARREN HARDY SPANISH: Life is easy here. Life is healthy here. The quality of life that we enjoy here is superior to anything I've ever seen anywhere else in the world, wherever we've traveled.
WILLIS (voice-over): Home prices in San Miguel aren't cheap, but you will get more for your dollar than in many comparable American resort communities. Plus, American real estate agents right in town make it easy to buy a home here.
CAMIE SANDS, SIMPLY SAN MIGUEL: I'm not sure that you're going find it a very different process. You're going to be meeting with your real estate agent and a real estate lawyer. One of the main differences is that here we have a subset of a lawyer called a "notario" and he is the person or she is the person who is legally responsible to register your house with the Mexican government, to register it and to make sure that you have free and clear title. And a foreign resident living in Mexico has all of the legal rights of ownership that a Mexican citizen has.
Where I lived in Tacoma, Washington, I paid $600 a month for a home, my taxes to the city and state, and here the annual taxes on houses range from, believe it or not, $150 a year to maybe $1,000 a year.
WILLIS: It might be an old city, but San Miguel has all of the modern services with satellite TV and free Wi-Fi Internet in the town square, many younger Americans are finding they can work from San Miguel while staying connected to the U.S. You can even keep your U.S. phone number.
KATHARINE HIBBERTS, PREMIER HOUSE RENTALS: There is quite a group of 30-somethings that are coming here and they're starting all sorts of different businesses, from -- there are a lot of graphic designers that are coming down here, computer tech people. One of my good friends is starting a vineyard here. It's your virtual office here. You don't necessarily have to be -- it's just like in the States, you don't have to be in the office anymore. And why not be here and enjoy this environment?
WILLIS: They call themselves gringos and thousands live here. Many meet their fellow ex-pats in Warren Hardy's Spanish class where he teaches more than just language.
HARDY: In Mexico, the number one value of the society is personal dignity and so I think you have to begin to respect all people. There are only about six basic sentences you need to know. But it's more of an attitude, a respect for all people. That is core to this society, which is different than in most. And so it's easy for Americans or foreigners to integrate here because Mexicans do respect all people.
WILLIS: Wow. It looks really pretty there. We're back now with realtor David D'Ausilio. David, I know that people who buy overseas, they really worry about getting good advice. But even if you're home in the States you want a real estate agent who is going to take you very seriously. How does a consumer manage that relationship, get the most out of their real estate agent?
D'AUSILIO: That's a great question, Ger. I think it's important that you interview a few agents so that you're comfortable and confident in that person. Ask them probing questions. How many houses have you sold? How many sellers have you represented? What specifically are the steps you're going to do to help us achieve our goals?
WILLIS: What about making sure that the person you're using has some experience in your neighborhood or even your part of the town? D'AUSILIO: Great question. What I would do is ask them to produce lists from the multiple listing service showing their track record over the last six to 12 months. Make sure they're an active agent that understands the local market.
WILLIS: Now I know a lot of people have very high expectations for their real estate agent. They want a really close relationship, but it is true that my agent should be responding to my phone calls pronto, and as soon as you guys get some sort of offer for my house, you have got to pass it through, right?
D'AUSILIO: Absolutely. But a realtor does have a life also. So you can't ask your realtor to be available 24/7. I think normal business hours, plus some weekend time should get the offer in front of you.
WILLIS: OK. Darn it, so no midnight phone calls for you, David. But at the end of day if you get offers for a house, you do have to pass them through immediately?
D'AUSILIO: Absolutely. I think it's the responsibility of an agent -- a listing agent, to get those offers in front of their sellers as soon as possible, not only the price, but the terms, the closing date, all of the details of the offer so that the sellers can make an educated decision.
WILLIS: What's the most important role you play for a seller?
D'AUSILIO: I think properly listing a home, properly giving advice on pricing and staying in constant communication.
WILLIS: Yes. It's a tall order for anybody, I think. David, thank you for your time today.
D'AUSILIO: Thank you.
WILLIS: I'll be back with some important tips for starting your search for a new home.
HARRIS: And good morning, everyone. I'm Tony Harris at the CNN Center in Atlanta. It is 8:55 in New Orleans where many residents have made a trip back home to cast their vote for mayor. Coming up at the top of the hour, we will go live to the polls to talk about the voting process with CNN political analyst Donna Brazile.
WILLIS: If you're looking for a new home, here are some tips to help you make the most of the market. First off, get the local flavor. Walk around town. Investigate the growth of home prices in that area and stay away from standout zip codes that may be prone to market swings and bidding wars.
Keep your emotions in check, when you are touring a home, don't talk about how much you love it, you could wind up paying thousands of dollars more for wearing your heart on your sleeve. And finally, don't panic about confusing market conditions. Little blips in the market don't mean much over the long term. Your home is one of the biggest investments you'll ever make. So treat it like one.
We want to hear from you. Send us your comments or questions to firstname.lastname@example.org. And you'll find more on today's guests and topics on our Web site, cnn.com/openhouse.
Thanks for watching OPEN HOUSE. We'll see you here next week. The day's top stories are next on "CNN SATURDAY." Have a great weekend.
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