Redfin’s Home Buying ClassRedfin’s Home-Buying Class

Chicago, IllinoisApril 22, 2009p ,

AgendaEvaluating the Market 6:30 – 7:15• When to Buy & Why• The Market: what’s going on?• Costs of Ownership: alternatives

O li R• Online ResourcesBreak: 7:15 – 7:35Working with Redfin 7:35 – 8:00Working with Redfin 7:35 – 8:00• Touring• Working With an Agentg g• Making an OfferShort-sales & foreclosures 8:00 – 8:15Mortgages 8:15 – 8:30General Q&A 8:30 – 9:00

When to BuyWhen to BuyA i l l di t t b i B A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. greedy when others are fearful.

Warren Buffett, October 2008

I was seldom able to see an opportunity until it had ceased to be one.

M k T i 19th C tMark Twain, 19th Century

Why Buy a Home?You’ve got a family and need room to grow• You ve got a family, and need room to grow

• You want deep roots• You want creative control• You want a type of property that is difficult to rent• You’re handy, and ready to invest your time• You’ve saved up a down payment• You ve saved up a down payment• You want the tax savings• You’ve got an anaconda, a dog, a boat, a camper…

Why You Shouldn’t Buy a Home• You don’t have a good reason• You don t have a good reason

• Family• SchoolsYou can’t afford a 10% 20% down payment• You can’t afford a 10% - 20% down payment

• You can rent for much less• You plan on moving soon

Th i i• Three years minimum• Seven years is ideal

• You’re worried about job securityR i ll h j b

The most common real estate mistake is

• Renting allows you to move where jobs are• Renting allows you to down-size more easily

The most common real estate mistake is viewing a house first as a financial investment and only second as a home.investment and only second as a home.June 2008, New York Times

C Shill S ttl 20 Cit Case-Shiller: Chicago Area16% year over year Case-Shiller Seattle v. 20-City -16% year-over-year

Maximum: March 2007-22% from maximumJune 2003 price levels

Case-Shiller: 20-City Composite-19% year-over-yearMaximum: May 2006Maximum: May 2006-28% from maximumOctober 2003 price levels

MRED: Median PriceC k D P & L k C iCook, DuPage & Lake Counties

-30.2% 03-2008 to 03-2009+3 9% 02 2009 to 03 2009+3.9% 02-2009 to 03-2009

$187,000

MRED: Median PriceC k D P & L k C iCook, DuPage & Lake Counties

-30.2% 03-2008 to 03-2009+3 9% 02 2009 to 03 2009+3.9% 02-2009 to 03-2009

$187,000

MRED: # of Homes SoldC k D P & L k C iCook DuPage & Lake Counties

-5.3% 03-2008 to 03-200937.9% 02-2009 to 03-2009

2,042

MRED: # of ListingsC k D P & L k C iCook, DuPage & Lake Counties

-5.3% 03-2008 to 03-20094.4% 02-2009 to 03-2009

41 48341,483

MRED: Months of SupplyC k D P & L k C iCook, DuPage & Lake Counties

03-2009: inventory would take 18.5 months to sell out if there were no new listings added to the market.

3-2008: 15.4 months of supply

Number of Homes Sold and Under Contract (Cook, Lake, DuPage)

28.8% 03-2008 to 03-200949 0% 02 2009 03 200949.0% 02-2009 to 03-2009 7.6%

Cook County: 58,183 Foreclosed Homes i Chi 31 712 it• in Chicago 31,712 units

• Average price $128,240• 0.34% of all buying units• 0.27% nationally

Data source: www.realtytrac.com

Sale v. List Data: Chicago Area (93.5%)Area Units List Price Sale Price SP/LPArea Units List Price Sale Price SP/LP

Deerfield 21 $479,571 $407,881 85%

El h t 48 $467 656 $431 730 92%Elmhurst 48 $467,656 $431,730 92%

Glenview 46 $467,656 $431,730 92%

Jefferson/Portage Park 33 $243 800 $228 073 94%Jefferson/Portage Park 33 $243,800 $228,073 94%

Lakeview 154 $443,860 $426,081 96%

Li l P k 81 $652 095 $606 055 93%Lincoln Park 81 $652,095 $606,055 93%

Naperville 201 $362,855 $338,203 93%

N N th Sid 197 $663 520 $627 028 95%Near North Side 197 $663,520 $627,028 95%

South Loop 80 $481,543 $485,658 101%

W T 114 $395 183 $377 878 96%

Source: www.mredllc.com

West Town 114 $395,183 $377,878 96%

Fi d R t M t T dFixed-Rate Mortgage Trend

National Average 30-Year Fixed-Rate Mortgage:-16.2% 03-2008 to 03-20092 5% 02 2009 t 03 2009-2.5% 02-2009 to 03-2009

Average March rate: 5.00%

What Does This Mean For You?R d 4 82% ( k di A il16th)• Rates are down: 4.82% (week ending April16th)

• Home values have dropped:Nationally:• Nationally:• -19% 03-2008 to 03-2009• -28% since peak May 2006p y

• Chicago:• -16% 03-2008 to 03-2009

22% i k M h 2007

Peak Price/Rate* Chicago (-22%)

• -22% since peak March 2007

Price $400,000 $312,000Rate 6.16% 4.82%Payment $ 2,440 $ 1,640

The peak represented is for Chicago, March 2007 per Case-Shiller, national rate quoted per Freddie Mac

Home-Buyer Tax IncentivesStimulus tax credit

• 10% of purchase price• Tax credit, $8,000 maximum • No repayment required• Haven’t owned home in past three years• Must own the home for three years post credit• Income limit: single $75,000, couples $150,000• Purchases through November 30, 2009

$• Replaces $7,500 credit in effect

For more information visit: http://www.federalhousingtaxcredit.com/

Consider the Alternative: Renting• Search Craigslist for a comparable rental

• Same neighborhoodg• Same property type: house or condo• +/- 10% on square feet

• Rule-of-thumb: would 20 years of rent buy the home?• Q3 2008: Chicago, 19.54, National, 19.8• 15-year average: Chicago 18 5 National 17 7• 15-year average: Chicago, 18.5, National, 17.7• Range 1983-1999: 13 – 15• Expect to pay just under 20x for a home in Chicago

Sale Price Rent Annual Rent Years of Rent to Pay for Home

$ $ $ $ $$395,000 $2,100 $25,200 $395,000 / $25,200 = 15.67

Source: http://www.nytimes.com/2008/05/28/business/28leonhardt.html?adxnnl=1&pagewanted=1&adxnnlx=1227586022-oBS9cXJCDNdDOj/zErPHRQ

What’s Most Likely to Happen?• Why homes prices could decline another 20%

• More local layoffs: unemployment 10+%y p y• New wave of foreclosures• Listings pulled in winter re-listed in spring• First-time home-buyers rent instead

• Why homes prices won’t decline 20%y p• Low interest rates spur demand, limit foreclosures• Pent up demand• Housing Permits down 57.2% YOY in Illinois

Online Resources

What’s for Sale

• MLS: brokerage sites (Redfin)g ( )• Conventional sales• Short sales• Bank-owned

• For-Sale-By-Ownero Sale y Ow e• Craigslist• Zillow (also on Redfin)( )

• Foreclosures: RealtyTrac, ILFLS

Online Resources• Other Websites

• Heatmaps: Trulia, Hotpadsp p• Analytics: DQ News• For-Sale-By-Owner: Craigslist• Other Data: WalkScore

• Redfin• Sweet Digs• Forums• Stats & Trends• Neighborhood Data

Finding Sweet Digs & Forums

Sweet Digs•Neighborhood pricing•Neighborhood pricing

•Sale-to-list data

•Real estate trends

•Case-Shiller indices

http://blog.redfin.com/chicago

Forums: 336 postsForums: 336 posts•Right home, wrong timing…

•Townhome newbie…

•Successful short-sales…

http://forums.redfin.com/rf/board?board.id=Chicago

20 Minute BreakEat, drink & talk real estate.

Up Next... Up Next...

W ki ith R dfi 7 35 8 00Working with Redfin 7:35 – 8:00• Touring• Working With an Agent• Working With an Agent• Making an OfferShort-sales & foreclosures 8:00 – 8:15Mortgages 8:15 – 8:30General Q&A 8:30 – 9:00

How to Work with Redfin

Home-Buying: The Redfin Way

• Find out what you can affordT h i Fi ld A t• Tour homes using our Field Agent

• Choose a Lead AgentFi d h lik• Find a home you like

• Determine what to offerMake an offer• Make an offer

• Work with your Lead Agent to negotiate• An Associate Agent will guide you through closing• An Associate Agent will guide you through closing

Before We Get Started: Get Pre-Approvedf i d d• Information needed

• W-2, two pay-stubs, tax returns (get them ready)• Bank statements

• Time required: 30 minutes• Duration: 30 – 120 days, depending on lender• Uses

• Tour homes: verify you can afford home• Make offers: substantiate your offer

• Ask for a few different amounts

How Touring Works• Unlimited tours

• Up to 6 homes per tourWeekends book early• Weekends book early

• Led by Field Agent• Get advice from a Lead Agent firstg• Or just tour without talking to anyone first

• No commitmentS h th h R dfi• See a home through Redfin

• Buy through another agent if you choose• Pre-approval requiredPre approval required

• Redfin can connect you with a lender (no kickbacks)• Start shopping for loans

T i With R dfi DTouring With Redfin: Demo• Walk through a live demo that includes:g

• Searching for a home on the map• Clicking the “Go See This Home” buttong• Filling out the tour wizard• Selecting another home to tourg• Submitting the final tour request

Working With a Lead Agent

Found a Home You Like?Y t lk t L d A t fi t You can talk to an Lead Agent first

orP ff t liPropose offer terms online

What to Ask an Agent• Is this your full-time job?• Familiar with foreclosures or short-sales?• Familiar with foreclosures or short sales?• Where were your last five deals?

Who else will be working with me?• Who else will be working with me?• Will you show me all properties for sale?• When am I committed to working with you?• Has a client ever filed a complaint? • How are you paid?

Talk to an Agent

Get in Touch

Or, Find an Agent You Like

Make Sure He’s a Good Fit

Talk With an Agent:Talk With an Agent:

•If you’d like guidance on what to offer

•Need insight into the market

•To confirm who you’d like to work with

Lead Agent Negotiates DealResearches seller• Researches seller• Reviews agent-only comments• Contacts listing agentg g• Studies listing agent negotiating patterns

• Discusses with youDo you want a comparative market analysis?• Do you want a comparative market analysis?

• Where do you want to start?• Where do you want to end up?y p

• Crafts purchase & sale agreement• Inspection contingency

Fi i ti• Financing contingency• Submits offer• Negotiates termsNegotiates terms

How is Redfin Different?

• Lead Agent not paid on commissions• Base salary benefits• Base salary, benefits• Customer satisfaction bonus

• You can evaluate our agents• You can evaluate our agents• Online: transaction history, reviews• Meet face to face or talk via telephone• Meet face-to-face or talk via telephone

• No commitment• Switch Redfin agents• Switch Redfin agents• Use another brokerage entirely

Submit an Offer Online

Input Draft Offer Terms

After Submitting Your Offer

• A Lead Agent will review it• We’ll follow up with you over the phone• We’ll guide you on price g y p• You’re not committed until you sign • We’ll negotiate with the seller on your behalf• We ll negotiate with the seller on your behalf• Guide you through closing

Let’s Talk Strategy: The 6 Tells1 S ll h t 1. Seller has to move2. On the market for 90+ days at one price3 Last or first in a development3. Last or first in a development4. Property is vacant5 Estate sale5. Estate sale6. Owner’s are getting a divorce

How Commissions Work• You’ve purchased a home for: $500,000• The seller owes his agent 2.5%: $12,500

Th ll h b ’ 2 5% $12 500• The seller owes the buyer’s agent 2.5%: $12,500• Redfin refunds 50% of buyer’s agent fee: $6,250

• Reduces closing costs

Traditional Commission

g• Excess paid as a check within 10 days of closing• Refund is tax free

Minimum Redfin fee: $5 500 Traditional Commission

Seller’s Agent $12,500

Buyer’s Agent $12,500

• Minimum Redfin fee: $5,500

Buyer s Agent $12,500

Redfin Commission

Seller’s Agent $12,500

Buyer’s Agent* $6,250

Redfin Buyer $6,250

Short Sales & Short-Sales & Bank Owned PropertiesBank Owned Properties

What is a Short-Sale?

• Usually pre-foreclosure, but not always• Listed for less than what’s owed to the bank• Listed for less than what s owed to the bank• Requires 1 - 2 bank’s approval (usually 2)

Redfin maps short-sales but does not t thsupport them.

Why Doesn’t Redfin Service Short-Sales?Lengthy close time (3 5 months)• Lengthy close time (3 - 5 months)

• Roller coaster of emotionHi h t f j ti• High rate of rejection

• Ties you up in a contract• No repairs (take-it-or-leave-it)• Title issues common (liens)( )• Low Success Rate

What is a Bank-Owned Property? A i f il• Auction fails

• Bank owns, markets property via broker, MLS• Standard sale but:

• Verbal negotiationsg• Long response times• Repairs unlikely• Repairs unlikely• Legal addenda may require an attorney

Limited or no disclosures• Limited or no disclosures• Also known as Real Estate Owned (REO)

REO Quirkiness

• Long response times• Banks put seller friendly clauses into contracts • Banks put seller-friendly clauses into contracts • Homes will be winterized (you may have to pay

for the de winterization to inspect)for the de-winterization, to inspect)• Banks, brokers and attorneys not

accommodatingaccommodating• Property purchased ‘As-Is’• Closings often don’t happen as planned• A major hassle!

What About Auctions? Cash buyers only• Cash buyers only

• Dates are posted in small publicationsD ti th th t• Dress warm, auctions are on the courthouse steps

• Bidding starts at what the bank owes• Be prepared, homes move fast• You can’t count on getting a good deal• You’re on your own

Cut to the Chase: Where’s the Best Deal?

• REO’s & short-sales often aren’t the best deal:• Banks are stingygy• Not a fire sale

• Your best bet for a good deal:• Your best bet for a good deal:• Sellers who own their home outright

S ll h l ti• Sellers who are relocating• Estate Sales

MortgagesMortgages

You Need a Loan

More importantly, you’ll need to find someone willing to lend you moneysomeone willing to lend you money.

Assuming you’ve got good credit (>720) Assuming you ve got good credit (>720), and can come up with a decent down

(10 20%) ’ll h payment (10 - 20%), we’ll go over the standard loan process.

Before You Get Started• Get your finances in order

• Cash accounts (liquid funds)( q )• 401(k), stocks, other investments• Gift funds? (up to $10,000)• Move funds around before you start shopping

• Review your debty• Pull credit report, look for errors• Pay down balances to 1/3rd of credit available• Don’t open any new lines• Don’t buy any big ticket items (wait till later)

• Co-borrower will need to do the same

Start Shopping• Gather documentation (you & co-borrower)

• Last two paystubsL ’ W 2 & • Last two year’s W-2s & tax returns

• Bank statements (last 30-days)• Copy of driver’s license • Copy of driver s license • Employer information• PDF everything so you’re prepared, avoid delaysPDF everything so you re prepared, avoid delays

• Shop for loans from• Banks & credit unions: mainstream loans (20%, FHA)• Brokers: more options, rate shopping (“niche” loans)• Mortgage bankers: lend their own money (flexibility)

Compare Results • Gather good faith estimates (loan quotes)

• A minimum of three, more is better• Compare similar loans

• Program (FHA, conventional)• Timeframe (same day)

• Compare costs side-by-side• Discount & origination points• Interest rates• APR (interest rates + fees + points + PMI)• Insurance premiums (FHA, PMI)

A k h f h• Ask what fees may change

Make Your Decision • When possible, get a loan commitment• Lock your interest rate (30 - 60 days)• Lock your interest rate (30 60 days)• Make alternative funds liquid (401(k), stock)

Final stop: closing table• Final stop: closing table

Good news! Loan payments are made in arrears, so your first loan payment won’t be f t th Y ’ll h th f for two months. You’ll have one month of no payments!

National Average: 1963 - 2008

Graph Reproduced with the permission of www.Mortgage-X.com

Current Average Rates: F ddi M SFreddie Mac Survey

f A il 9 2009 A il 16 2009Type of Loan April 9, 2009 April 16, 2009

30-Year Fixed 4.87% 4.82%

15-Year Fixed 4.54% 4.48%

5/1 ARM 4.93% 4.88%

1 Year ARM 4 83% 4 91%1-Year ARM 4.83% 4.91%

Appendix: pp•Step-by-step Touring Guide•How to Conduct Your Own: Comparative Market AnalysisComparative Market Analysis•Mortgage Types & ProgramsOur Favorite Real Estate Websites•Our Favorite Real Estate Websites

How to TourHow to Tour

Search for Properties Onlinep

Find a Home to Tour

Schedule a Tour

You’re All Set…Remember! Bring your ID & pre-approval letter.

Tours: Top-Ten Tips1. Bring a camera and a notebook2. Bring a (handy) friend3. Bring a tape measure4. Keep your thoughts to yourself5 Vi it d i th d5. Visit during the day6. Check under oddly placed furniture7 Check the bathrooms for rot and mold7. Check the bathrooms for rot and mold8. Look for wavy or discolored siding9. When sharing a wall, make sure it's thickg ,10. Be wary of signing a guest register

Print out our checklist for your next home tour: http://p1.rfimg.us/static-images/images/text/redfin_home_tour_worksheet.pdf

Comparative Market AnalysisComparative Market Analysis

You Want This Home

Quick & Dirty CMA Using Listing Details1. Find the home you want1. Find the home you want2. Click on “View Details”3. Scroll down to find:

• Google street view• Property history• Median house values• Value estimates• Similar listings & sales• Community informationCo u ty o at o

Want to know more about CMAs? Link: http://www.redfin.com/buy-a-home/comparative-market-analysis?src=printable-listing-text

Determine a Final Price Range• Found two solid comparables• Price range: $399,950 - $440,000• Asking price: $497,500 (higher than the range)

Identif Uniq e Attrib tes Identify Unique Attributes • Remodeled • View• Finished basement• Quality landscaping

A k A tAsk an Agent• Tell your agent which home you’d like a y g y

CMA for• Agent will pull recently sold comparable Agent will pull recently sold comparable

homes

Next Step: Active Listings• Find out what’s on the market (competition)• Run a CMA on active listings

S l t f bl• Select a few comparables:• Are they similarly priced?• What’s the price range?• What s the price range?• Drive by to confirm details, attend open house

Review Pending Sales• Ask your agent to pull comparable pending sales, photosy g p p p g p• Establish a final range for homes sold in the last month• Use this as a final gut check for your offer price

Ask Your Agent• How much depreciation has taken place since

the sale of your comps?

Finally, Compare Resultsy, p• Establish a final range

C lt t f ifi• Consult your agent for specifics• Adjust the range for unique attributes• Submit an offer

Do I make an offer now, or wait?G l R l f Th b ( hi i ’ l)General Rule of Thumb (this ain’t gospel)• Does it meet the criteria of most of the seven tells?

Ho far belo list price are o ? • How far below list price are you? • 0%-6% : Green Light• 7%-12% : Use Discretion• 7% 12% : Use Discretion• 13%-15% : Stop and Evaluate

• Weigh the Pro’s and Con’sg• The price could reduce on it’s own (no offers)• There’s a higher chance of success (days on market)• Interest rates could change (up or down)• Another party could make an offer (you lose the home)Y ld j di f t ti ti b l b lli• You could jeopardize future negotiations by low balling

Loans & ProgramsLoans & Programs

Types of Loans• Fixed-rate: 15 – 50 years, usually 30-year

• Simplest• The most popular

• Adjustable Rate MortgagesLow initial rate• Low initial rate

• Rate increase after 1, 3, 5, 7, 10 years• Then re-adjusts every 1 2 3 years• Then re adjusts every 1, 2, 3 years• Usually a standard rate + 2%• Lingo: 5/1 ARMg

Loan Programs• Federal Housing Authority• Conventional• Conventional• Combination (1st & 2nd)

Veteran’s Affairs• Veteran’s Affairs• Jumbo

FHA Loans• Insured by U.S. government

• Insurance 1.75% rolled into the loan• Subject to PMI 05%• Subject to PMI .05%• Available for fixed and ARM loans• Rate is usually lower

• Minimum down-payment: 3.5%...• FHA appraisal value• Purchase price (whichever is lower)• Purchase price (whichever is lower)

• No maximum income limits• Best choice for…

• Folks with a lower credit score• Small down-payment• Self employed• Self-employed

Conventional (conforming)T i l t 30 • Typical term: 30 years

• Lowest rates• 10-20% down payment• Credit score >720

Veteran’s Affairs Loans (VA Loans)• Fixed-rate: 10-30 year termsy• Open to veterans of active military service• Easy qualificationy q

Jumbo (non-conforming)• Loans up to $3 000 000• Loans up to $3,000,000• Higher rate

Long-Term Factors Affecting Home P iPrices

• Supply• New construction: Down 57% from 12/07-12/08• Foreclosures: interest-rate drops reduce foreclosures• Number of homes for sale: 98,006 (vs. 104,173 1/08)Number of homes for sale: 98,006 (vs. 104,173 1/08)• Competing rentals: Rents up 3.14%

• Demand• Interest rates: affect real costs of ownership• Migration: will more people move here over 5 years?• Employment: 7.6% (vs. 5.3% 12/07)p y ( )• Income: will they be good jobs?• Schools, crime: does this neighborhood have good schools?

Favorite Real Estate Links

• Property Informationp y• CCRD.info: Cook County Recorder of Deeds - title

history: sale, loan history, liens...

• Neighborhood Information• WalkScore: Proximity to points of interest• EveryBlock: What’s going on in your

neighborhood of interest• Trulia Heat Maps: Median prices across a county

Favorite Real Estate Links

• Listing Searchg• Redfin: MLS + FSBO + REO, updated every 15

minutes, with DOM, price history, Zestimatei li t M j FSBO th t R dfi 't • craigslist: Major FSBO source that Redfin can't

crawl• HotPads: Foreclosure heat maps, slow to load & HotPads: Foreclosure heat maps, slow to load &

the zoom can be funky • Brokerage site of listing agents: more photos of

th li ti gthe listing• RealtyTrac: Foreclosure market detail,

subscription required for full reportsp q p

Favorite Real Estate Links• Pricing Data & Tools

• Case-Schiller Indices: Pricing trends by g ymetropolitan area

• HouseMath: Compares a housing investment to a stock market investment

• Altos Research: Median price trends and days on market by city but some complain data is market by city, but some complain data is unreliable

• MSN Home Affordability Calculator: Based on MSN Home Affordability Calculator: Based on your income & credit score

• SmartMoney's Home Buying Worksheet: Similar to the MSN calculator, but requires more info

Favorite Real Estate Links• Mortgage Calculators & Loan Information

• Bankrate: Many ads, but is great for comparing Bankrate: Many ads, but is great for comparing local lenders

• Zillow's Mortgage Marketplace Help Center: Articles mortgage rates, types of mortgages, credit reports, and a series of mortgage calculatorscalculators

• The Mortgage Professor: Bare bones information on mortgages, definitions of common terms, on mortgages, definitions of common terms, myriad of mortgage calculators

• HUD FHA page: Most reliable explanation of FHA loans, good site for first-time buyers

Favorite Real Estate Links• Loans for First-Time Home-Buyers

• Federal Housing Administration (FHA)Federal Housing Administration (FHA)• Fannie Mae and Freddy Mac

• Government Sites• Federal Trade Commission: Articles & alerts for • Federal Trade Commission: Articles & alerts for

home-buyers.• Dept. of Justice: Role of competition in real p p

estate

Favorite Real Estate Links

• Remodeling & Renovationsg• DoItYourself.com: A few ads, but a useful

clearinghouse of information on remodelingN ti l A i ti f H B ild (NAHB) • National Association of Home Builders (NAHB): Articles on remodeling your home, most are good

• What to Look for in an Inspection• American Society of Home Inspectors (ASHI):

Good consumer FAQ & virtual home inspection