The Laguna Beach home sits on a rock jutting out into the ocean.

It has a 20-foot salt water aquarium on the lower balcony, not to mention the 64 million-square-mile aquarium stretching to the horizon and beyond.

The master suite has two walk-in closets, a shoe closet, a private fireplace, a workout room and a sunken tub.

It lists for $12.5 million, but if a buyer doesn’t rescue it soon, the home might be sold or revert to the lender at a foreclosure auction to satisfy unpaid debts. The current opening bid is about $9 million.

The South Laguna mansion is but one example of how defaults and even the loss of homes to foreclosure are mounting in Orange County’s beach cities, in its higher-income neighborhoods and, yes, even for homes valued in the millions.

At a time when Orange County foreclosures and defaults are declining, some of Orange County’s priciest ZIP codes are seeing these signs of distress falling to a lesser degree – or rising even.

New figures from MDA DataQuick show that during the first quarter of 2010:

•ZIP codes with median home prices below $500,000 saw foreclosures fall by 12.3 percent from the first quarter a year ago.

•ZIP codes with median home prices above $500,000 saw foreclosures increase by 12 percent from a year ago.

•Foreclosures fell 7.5 percent countywide, but 40 of Orange County’s 83 ZIP codes still saw foreclosures go up. That includes 12 of the county’s 16 beach-close ZIP codes.

•The beach-close cities of Laguna Beach, Newport Beach, San Clemente, Dana Point and Huntington Beach were among towns with the highest percentage increases in foreclosures. Relatively affluent Brea and Yorba Linda also were among the top towns in percentage gains.

•The biggest percentage gain in foreclosures occurred in Newport Beach’s 92660 ZIP code, encompassing the Back Bay and other neighborhoods. Lenders seized eight homes in that ZIP code, up from two in the first quarter of 2009. One home reverted to the bank at $3.1 million. Another home in that ZIP code has a foreclosure sale scheduled for June with an opening bid of $5.5 million

•Newport Coast (92657) had the third-highest percentage gain: Five homes there were seized, vs. two a year ago.

To be sure, the rate of foreclosures remains lower in ZIP codes and in cities with higher home prices, the DataQuick figures show.

The rate of foreclosures remains highest in neighborhoods with lower home prices, where reliance on risky subprime mortgages was highest. Also newer areas built and sold during the housing boom tended to have higher foreclosure rates.

The 92694 ZIP code, encompassing Ladera Ranch, for example, had the county’s highest foreclosure rate – 8.3 foreclosures per thousand homes. Rancho Santa Margarita (92688) had a foreclosure rate of 4.4 per 1,000 homes; Aliso Viejo (92656) had a rate of 3.8 per 1,000.

The countywide rate during the first quarter was 2.8 foreclosures per thousand homes.

Still foreclosures, and notices of default, or NOD’s, fell fastest in those high-risk areas, while going up or falling more slowly in the more affluent neighborhoods.

“It is definitely a trend that is moving toward the coastline,” said Steve High, a Coldwell Banker luxury-home agent based in Newport Beach.

“The NOD’s are up, and they’re way up,” High added. “The notice of default list is at the highest rate that I’ve seen in 25 years. … There are many people out there who haven’t paid their mortgages in months.”

A recent report by the Wall Street Journal confirmed that higher-dollar homes are increasingly falling to default and even foreclosure.

Citing data from Santa Ana-based First American CoreLogic, the Journal reported that about one out of every seven U.S. homes with loan balances at or above $4 million – 14.8 percent — were 90-days delinquent by the end of January. That compares to a rate of 8.7 percent for all U.S. loans tracked by First American, the Journal said.

“Big borrowers are more likely to default than ordinary people,” the newspaper reported.

Richard Cirelli, president of Laguna Beach-based RTC Mortgage Corporation, noted that a lack of so-called “jumbo” loans for higher-dollar borrowers makes it harder for them to get out of a bind by refinancing or by selling.

“The low interest rates over the past few years were only for loans less than $729,750,” Cirelli said. “Many Laguna buyers and homeowners owe more than that and, therefore, there are no programs to enable them to refinance to obtain a lower rate and payments.”

Added Coldwell Banker’s High: “This economic downturn is of unparalleled circumstances. There is no neighborhood, no price category that I’m aware of where people aren’t being affected.”

High and others noted that lenders are seeking alternatives to foreclosure – either taking longer to seize a home or working with sellers to achieve a short sale, or a sale for less than what’s owed on the mortgage.

On average, California homes foreclosed on last quarter spent 7.5 months winding their way through the formal foreclosure process – up from 6.8 months a year earlier, DataQuick reported.

Hence, O.C. foreclosures declined last quarter even though default notices seven months earlier were at record highs.

Banks “cannot take on all these massive losses on their books. That will dry up all their reserves,” said Tom Moon, a Huntington Beach broker specializing in the sale of bank-owned, repossessed homes. “They really don’t want to foreclose on these people. They want to work out and modify (loans) any way they can.”

After hitting a record 3,485 a year ago, notices of default fell at an even greater rate this past quarter – a sign that foreclosures likely will fall further down the road.

According to DataQuick, default notices in O.C. were down 37.5 percent in the first quarter – more in lower-priced neighborhoods and less in higher-priced areas.

Nonetheless, agents here expect the problem to be with us for awhile yet, although it’s debatable whether lingering foreclosures will continue to be a drag on the housing market.

“The foreclosures are here, and they’re not going away,” observed top-selling Irvine agent Mac Mackenzie. “Am I concerned about it? No.”

OCRegister.com

Finally, a government economic stimulus program that really works.

Uncle Sam’s $8,000 tax incentive for first-time homebuyers created a shopping spree in recent months that promises to continue — at least until April 30.

Real estate analyst Tracy Cross said the $8,000 credit is responsible for a 20 percent increase in the sale of new-construction housing in the Chicago area.

“Going forward, the extension of the $8,000 credit and the new $6,500 tax credit for previous homeowners should bump up housing sales by 10 percent to 15 percent,” said Cross, president of Tracy Cross & Associates in Schaumburg.

Most of the first-time buyers have been those in their 20s who found homes in their price range, in the low- to mid-$200,000s. They have bought a mix of condos, town houses and smaller single-family homes.

Many of them rushed to close by the Nov. 30 deadline to qualify for the initial offering of the $8,000 tax credit.

Among them was Natasha Kowalozyk, a renter in Chicago who had been planning to buy for two years. The opportunity to cash in on the credit spurred her to make the move. She closed Nov. 23 on a one-bedroom 1,150-square-foot condo at the Heritage of Palatine, a development of R. Franczak & Associates. It was priced in the low-$200,000s.

The mortgage on her unit starts in January. But her apartment lease is not up until April, so she will have to pay rent until then. “It’s worth it for the tax credit,” she said.

“I love having my own place because you can do what you want with it,” she added. “My priority was location. This will mean my commute will be about 15 minutes.” Kowalozyk works in radiation therapy at a hospital.

The location of her four-story condo building also is within walking distance of shopping in downtown Palatine.

Among the many other new first-time buyers are Ryan Mejdrich and Ines Pagan. After checking out 50 houses on the market, including foreclosures, they decided on a new town house at Providence, the Town & Country Homes mega-development in Elgin.

The couple, who are planning a wedding in February, moved into their two-story, three-bedroom, 2,000-square-foot unit in October.

“The $8,000 tax credit caused us to buy a few months earlier than we had planned,” said Mejdrich, an appraisals analyst for UPS.

They locked in a 4.75-percent fixed-rate loan for the $219,000 unit, which has 11-foot first-floor ceilings and a first-floor master bedroom.

Builder incentives included $5,000 for closing costs and such upgrades as granite countertops and stainless-steel appliances in the kitchen.

The $8,000 tax credit has not been the only boost to buying, according to Chris Naatz, vice president of sales and marketing for Pulte Homes’ Illinois division.

“Other optimal factors include low interest rates (now hovering near 5 percent for a 30-year fixed loan) and the reduction of home prices in the last two years,” he said.

He estimates that the tax credit has increased Pulte’s sales in the Chicago area by 20 percent. The government’s extended $8,000 tax credit for first-time buyers runs to April 30 for homes to be closed by June 30, he added.

Naatz praised today’s first-time buyers for being “more focused on raising their credit scores so they can purchase a home.”

Another trend spurred by the tax credit has been an increase in first-time housing purchases by immigrants who have become U.S. citizens, he said. “They are usually older, in their 30s, and have been saving for the American dream. A number of Indians and Asians are in this group.”

Naturally, moving into the first house you’ve ever owned is a major accomplishment.

“We are excited and love it,” said Nico Scharfe. He and his wife, Giovanna Lavalle, have just finished unpacking in their new town house at Pulte Homes’ Meadow Wood in Lake Zurich.

They rented in Aurora before moving into their three-story, three-bedroom, 2,100-square-foot town house. The couple started looking in May and found what they wanted in early October.

“We have family and friends in the area,” said Scharfe, who works in health-care consulting.

The purchase price of $269,700 included a builder’s discount and upgrades. The couple had wanted a conventional loan but decided on a 4 percent adjustable-rate mortgage

“First-time buyers now account for 40 percent of the market,” said David Smith, vice president of sales and marketing for Cambridge Homes, which has 19 active subdivisions in the Chicago area.

“We had quite a rush of first-time buyers trying to beat the November deadline for closing in order to qualify for the $8,000 credit,” Smith said.

He noted that Cambridge had more than 100 closings in November.

Eric Grimes and fiance Jenny Chamberlain were among those Cambridge closings. They bought a 1,500-square-foot town house at Cambridge Lakes in northwest suburban Pingree Grove.

They had checked out houses to buy for four months, including some in the $200,000-to-$230,00 range, and then settled on a town house in the $140,000-to-$170,000 range.

“The $8,000 tax credit helped to move up our decision to buy by a few months,” Grimes said. Their FHA loan carries an interest rate of 5.25 percent.

In downtown Chicago, first-time buyers can expect to pay more than in the suburbs.

“Typically, the first-time range is from $200,000 to $300,000 for a condo,” said Colin Kihnke, president of CMK Companies Ltd., the developer of the 46-story 235 Van Buren. “Most of these buyers are between 25 and 35. Many have rented in the area and work in the city.”

He estimated that 40 percent of sales at 235 Van Buren have been to first-time buyers. “Financing has been relatively easy for those with a work history and good credit. They have been able to secure loans as low as 5 percent down.”

Builders are hoping the home-buying surge continues after the end of the tax incentives this spring. However, real estate analyst Cross said that outcome could be affected by more job losses and a prolonged credit crunch.

Chicago Tribune

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Being successful at anything is about determining the steps we need to take to be more successful and putting those steps in the right order. If you think success is a one step process – think again! We can have the right steps but apply the wrong order, and we will not achieve the result we want. The steps and the order must both be correct for change to occur with efficiency. In time management, most people start trying to change without taking the proper step of evaluation.

We have been taught to plan our work, and then work our plan. That approach sounds reasonable, but it leads to failure without taking more essential steps before we plan our work. Most of us start with planning our work or start planning our tasks. I have a few phone calls to return – we list those. I need to make these marketing pieces or put a sign or lockbox up at my new listing today. The truly productive individual starts at the opposite end from where most people begin. They start by working to determine where their time actually goes. They don’t begin by planning – they begin by exploring where their resource of time goes. Once they know where their time goes, then they work at managing the time to increase the amount of time in DIPA (Direct Income Producing Activities) activities.

They focus on lowering the PSA (Production Supporting Activities) that they do in their business, and then they work to increase and compartmentalize their discretionary time in the largest amounts possible. These blocks of discretionary time are grouped together, so the individual achieves the largest value from their time invested in personal enjoyment. This whole process starts with recording their time. There is really a 3-step process to this:

1. Recording your time
2. Managing your time
3. Consolidating your time

The most successful people acknowledge that time is the limiting factor to their greater success. The limits of anything in life are determined by the most valuable and scarcest resource. In achieving greater success in life, that scarce resource is time.

I talk about the four probabilities of success being knowledge, skill, attitude and activities. The ratio at which we increase any of those four is in direct relation to our success. To be able to increase any of those four takes one thing – time.

We must have more time to increase our knowledge. We must have more time to practice to increase our skills. We must have time to increase the activities we do that generate a higher probability of income. Changing our attitude takes time invested in thinking, planning, reading books, listening to motivational CDs, and attending seminars. This all takes a greater control of our time than before. The scarcest resource in life is time.

Time is the great equalizer of life. As a resource, it is unique unto itself. We all possess the same amount of it. With all other resources, we have unequal amounts. Some of us have more money, more skills, greater knowledge, more energy, or even better looks. We all have exactly the same amount of time, which makes time unique.

The other unique characteristic of time is it doesn’t follow one of the tenants of the law of supply and demand. One of the key tenants of the law of supply and demand is that when the demand goes up to a high level, the supply will increase to meet the demand. When Ford comes out with a home run of a car like the Explorer, when the demand for Explorers is significantly higher than they can produce, they increase capacity. They increase the supply to meet the demand. Ford goes to around the clock shifts. If that doesn’t work, they change out other manufacturing plants they have to build more Explorers. That is the way it is with all resources except time.

We cannot rent, borrow, hire, or buy more time. Even a heightened level of demand will never increase the supply for us. It is also finite and perishable; we can’t store it for the future. We are all marching toward the end of our day. The end of our day will come and be gone forever. The path where we marched and what we did is the true value. Time will always be in short supply.

In most resources, there is a substitute. But with time – there is no substitute. We can substitute more knowledge to achieve a greater result. With the greater knowledge, we can accomplish a more significant result. A Sales Person with a solid sales process and sales skills can create a higher rate of return than a less skilled individual.

We can substitute money or capital for labor. Most Real Estate Agents understand this one well. They spend a fortune on marketing to avoid the labor of prospecting. In the end, there is not substitute for time.

D. Zeller

Just five years ago, no one had even heard of smoke-free condo units, now there are more than 100,000 of them – at least in Michigan. The initiative to create more smoke-free units, MISmokeFreeApartment.org, claims that “the right to smoke is not protected under law, according to the opinions of the Michigan Attorney General and HUD (U.S. Department of Housing and Urban Development).

As long as the policy is not used to target a protected class or minority, a building manager is legally free to restrict or prohibit smoking in his or her building, on the group’s site.

In just a few years, the group has been instrumental in public awareness across the state enabling landlords to start advertising smoke free (SF) units and newspapers to accept such advertising.

On top of the 100,000-plus units of SF market-rate apartments and condos in Michigan, their outreach has also culminated in:

* well over 20,000 units of SF “affordable” or subsidized multi-unit housing in Michigan
* 28 public housing commissions in Michigan having adopted SF policies

Newspapers now allowing “smoke-free” ads and some online apartment listings include SF icon In today’s litigious society, the group explains on its site that many jurisdictions fear creating smoke-free zones, fearing charges of discrimination, however, a U.S. Housing and Urban Development Legal Counsel letter of 2003 states that “the right to smoke is not a right protected under the Civil Rights Act of 1964 because smokers are not a protected class under federal law.”

M. A. Carr

WASHINGTON – The U.S. housing market has started to recover from the most far-reaching crisis since the Great Depression, data released Thursday shows.

Sales of previously occupied homes rose for the third month in a row in June, the National Association of Realtors reported. That hasn’t happened since early 2004, during the boom.

“The turnaround in the housing market appears finally to be here and indeed may be gaining some speed,” wrote Joel Naroff, president of Naroff Economic Advisors Inc.
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Stocks jumped on the news, with the Dow Jones industrial average rising above 9,000 for the first time since early January.

Home sales rose 3.6 percent to a seasonally adjusted annual rate of 4.89 million last month, from a downwardly revised pace of 4.72 million in May. Sales were up in all four regions of the country.

It was the highest level of sales since last October and beat economists’ expectations. Sales had been expected to rise to an annual pace of 4.84 million units, according to Thomson Reuters.

In another encouraging sign, the share of foreclosures on the market is shrinking. About one out of three homes sold in June was foreclosure-related, down from nearly half earlier this year.

And the glut of homes up for sale dwindled to 3.8 million. That’s a 9.4-month supply at the current sales pace and another important sign of a recovery. When the market balances at a 7-month supply prices should begin to stabilize, the Realtors’s group said.

That probably won’t happen until next year because of a backlog of foreclosures that have yet to come on to the market. The median sales price was $181,800 in June, down 15 percent from year-ago levels but up slightly from $174,700 in May.

Nevertheless, prices have risen for three straight months in about half of the 55 major metropolitan areas tracked by the Associated Press-Re/Max Housing Report, also released Thursday.

The 2009 Construction Industry Survey recently released by Grassi & Co., CPAs, a leading national construction practice, in partnership with McGraw Hill, uncovered a need for contractors and developers to begin relying on sophisticated business planning tools and programs to grow business over time and on financial techniques to increase profitability. The survey queried construction companies in seven different information areas: organizational structure, contract types, training and technology, profitability and access to capital, financial tools, business development and future vision. “Construction contractors should key into business planning for both growth and profitability,” advised Louis C. Grassi, CPA, CFE, and Managing Partner of Grassi & Co., CPAs, who has been advising construction firms for nearly thirty years.

Overall, many of the firms who responded to the survey reported that they did not have a business succession plan in place. The importance of succession plans — especially in the construction industry which has followed a father-to-son/daughter business model — cannot be underestimated says Grassi. “For many companies, second generation professionals are in place; however for many others, a new generation of leadership has not been formalized, leaving business growth on an uncertain path,” he added.

Firms also indicated that change order disputes are still one of the largest causes of litigation and often leads to profitability losses. According to Grassi, this result is most telling and indicative of a growing trend on the part of owners and developers, both public and private, to implement better project planning procedures and more complete construction documents as ways to reduce the number of project change orders.

Technology is also playing an increasingly important role in providing more complete construction documents and drawings to ensure that clashes, conflicts and the potential for future change orders may be reduced. According to Pat DiFilippo, Executive Vice President at Turner Construction and his firm’s lead professional on Building Information Modeling (BIM), “Technologies such as BIM and other integrated project delivery programs are likely to have a significant effect on reducing changes throughout a project and increasing overall profitability, for both the owner and the contractor.” Other highlights of the survey reveal:

* Sixty percent of the respondents did not have a succession plan. In a generational-based business, succession planning is critically important. The lack of these plans in the construction industry is significant for a better understanding of this predominantly, small business industry.
* Thirty percent of the respondents currently participate in joint ventures. Larger projects require increased bonding and financial capacity. Smaller firms may be challenged by complex mega-projects. The results of the survey point to an emerging trend for companies to consider joint ventures and other business associations as a way of expanding capacity. This is also more prevalent in a down economy, as firms can collaborate and be more competitive.
* Fifty-seven percent of the respondents reported they do not have in-house training programs. With the need for increased training in safety standards and new technologies, training both in best practices and technology emerges as a ‘must have’ for many construction companies. There appears to be need for more improvement in this area.
* Fifty-two percent of the respondents cited change order disputes as the largest cause of litigation. With the need to increase profitability, many of the respondents may begin to look at ways in which to control costs through exploring opportunities to reduce change orders.
* Fifty-seven percent of the respondents stated that their companies have instituted fraud control plans. With data from the Association of Certified Fraud Examiners (CFE) indicating that companies lose an average of 7% of their revenue to fraud (CFE), the fact that just over half of the firms reported fraud control plans appears to suggest that greater control in this area is needed.
* Fifty-seven percent of respondents indicated that they have a business plan; only 40% noted that they have a marketing plan. The survey indicates that lack of use of standard business planning tools (i.e., business plans, marketing plans) is another emerging trend in the construction industry and may have a significant effect on the growth of an industry that demonstrates generational and familiar characteristics for supporting business growth.
* Only 76% of the respondents noted that they have a Web site. The construction industry is increasing its reliance on Web-based documents, forms and communications and the fact that almost a quarter of the firms surveyed do not have Web sites is another telling characteristic about the way in which a traditional industry such as the construction continues to operate.
* In general, firms surveyed were moderately optimistic about future growth, despite the current economic downturn. Almost 80% of the respondents indicated that their firms are growing or at least leveling off. However 18% of the respondents indicated that they saw their firms declining.

The results of the survey indicated that many of the respondents focused on cash flow versus profitability. While vitally important, cash flow is only one measure of financial health, and profitability is the ultimate bottom line factor in financial success. Highly successful contractors that we work with use the following tools: budgeting, forecasting, monthly financials and profitability reports. Many of the survey respondents did not report that they rely on those tools to manage their business.

The survey results also indicate that firms need to put a plan in place to survive and thrive in the current economic climate. While contract opportunities for both private and public work are reduced for 2009, with expectations of an upswing in 2010, the need for a realistic business and marketing plan is critical.

The survey reported on trends including joint venture participation, targeting larger opportunities and partnering on jobs. According to Grassi, new associations can create new opportunities for contractors.

“Contractors can be more competitive on bids, more efficient with productivity, and more successful when utilizing each other’s expertise,” he added. “We’ve seen clients utilizing partners with financial backing, minimizing their own financial exposure and presenting more competitive bids. The construction industry is going to overcome the economic downturn. Contractors will emerge stronger, well-prepared, and more diversified than before.”

P. Mosca

NEW YORK (CNNMoney.com) — As complaints mount about President Obama’s foreclosure prevention program, the administration is ratcheting up the pressure on mortgage servicers.

Financial executives will meet with Treasury Department and administration housing officials on July 28 to discuss how the loan modification and refinancing plan has been implemented. The administration plans to grill servicers that have done few modifications or have had many complaints.

Officials also want financial institutions to hire more people and train them better, expand their call centers, and send more mailings to eligible borrowers, according to a letter sent to servicers last week. The government also said servicers need to establish a way for borrowers to contest their treatment or denial.

“There is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” according to the letter, signed by Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan. “We are asking all servicers expand their servicing capacity and improve the execution quality of loan modifications.”

Loan servicers’ efforts will be made public on Aug. 4, when the Obama administration plans to start issuing monthly progress reports.

The updates will include data for each servicer participating Obama’s $75 billion program. Specifically, they will feature the number of trial modification offers extended and underway by each institution, as well as the number of final modifications and the success of those adjustments.

So far, participating servicers have extended 325,000 loan modification offers and have 160,000 three-month trial adjustments underway, said Herbert Allison, who heads Treasury’s financial stability efforts, at a Senate Banking Committee hearing Thursday.

Under the plan, eligible borrowers who are in or at risk of default may be able to lower their monthly payments to no more than 31% of their pre-tax income through a loan modification. The modifications are made permanent after the homeowner makes three on-time payments.

Servicers have also refinanced 43,000 loans under the administration’s program that allows people with little or no equity in their home to refinance and take advantage of today’s low mortgage rates. People can participate even if they have loans of up to 125% of the value of their property, as long as they meet other criteria.

“Even though we are making rapid progress, we think we can do even more,” Allison told lawmakers.

Many industry insiders fear that the foreclosure crisis in outpacing efforts to help troubled borrowers. Thursday’s hearing came on the same day as a report revealed a record 1.53 million properties were in the foreclosure process during the first half of 2009, up 15% more than the same period of 2008. One out of every 84 homes received at least one filing between January and June, according to RealtyTrac.

The Obama program has been plagued by problems since its February debut. As soon as most servicers started processing applications in April and May, borrowers began reporting that their paperwork was being lost, their calls were going unreturned and decisions on their cases were being delayed.

“This is disgraceful,” said Sen. Christopher Dodd, D-Conn., head of the banking committee. “Why am I still reading about lost files, under-staffed and under-trained servicers, and hours spent on hold on the phone?”

When the president unveiled his program on Feb. 18, he said it could help up to 9 million people. Allison said that goal was still attainable by the end of 2012.

To achieve those figures, the administration is trying to make sure borrowers in need know where to turn. It is pressing banks to do more outreach, as well as holding its own educational events.

Among the issues holding up loan modifications are second liens, which are often owned by banks as opposed to investors. The administration issued revised guidelines in April saying that participating servicers had to modify or extinguish second liens if they adjust the first. But banks are waiting for additional information, which officials say will be available in coming weeks.

After lawmakers grilled administration officials, the committee heard from a borrower and consumer advocates reiterating problems with the program. Mortgage executives from Wells Fargo and Bank of America also spoke, defended their efforts to assist troubled homeowners.

Wells Fargo was in the process of finalizing 52,000 loan modifications under the president’s program, as of June 30, said Mary Coffin, head of mortgage servicing for the bank. Only 55% of its seriously delinquent borrowers are eligible for it. During the first half of this year, it boosted its default team staff by 54% to 11,500.

Some 80,000 Bank of America customers, meanwhile, are in trial modifications or are responding to offers, said Allen Jones, the bank’s default management executive. Bank of America also has funded nearly 40,000 refinances applications. It has 7,400 people dedicated to home retention, double the number a year ago. They respond to an average of 80,000 calls a day.

Initial Deposit

Be prepared to write a deposit check when making a contract offer to purchase real estate. Commonly referred to as a Binder, more commonly known as the initial deposit, this is the check made out to the Selling Real Estate Office when submitting a contract offer. In simple terms, it is a good faith deposit to express interest in purchasing real estate.

What is the required amount of a binder deposit? There is no law as to a required amount, but local real estate practices may determine what is acceptable. Common sense should prevail in determining the amount of the Binder deposit however. Writing a check for $100.00 shows good faith, but what kind of statement is that making to the owner when the contract offer is presented to them?

Would a more substantial initial deposit, say $1,000.00, make a stronger statement? How about $5,000 as an initial deposit, or even more? Wouldn’t a larger initial deposit check make a stronger impression with a seller in making a decision to accept a contract offer or in contract negotiations?

The Binder is generally not deposited by the Real Estate Broker until there is offer and acceptance, a signed contract of sale. However, there are State Real Estate Licensing Laws which regulate how long a Real Estate Broker can hold a deposit check without depositing it into the Company’s Trust Account. In cases where contract negotiations are prolonged, perhaps beyond five business days, most Real Estate Brokers will either deposit the check into their Trust Account during contract negotiations, or ask the buyer to write a new check as contract negotiations continue.

If the contract offer is not accepted, the Binder is returned to the buyer. If the contract is accepted and signed by the owner, the Binder will be deposited in the Broker’s Trust Account and will be applied to the buyer’s down payment and the purchase price.

Earnest Money Deposit

Commonly referred to as the second deposit, this is the additional upfront deposit made in the purchase of real estate and is also part of the buyer’s total down payment. The earnest money deposit could be 10% of the purchase price depending on the real estate market the home is being purchased in, the price range or the total amount of the down payment being used by the buyer.

It is quite common in many real estate markets that homes are purchased where the total down payment is less than 10% of the purchase price. In these type real estate transactions, the earnest money deposit will generally be some portion of the total down payment, or perhaps the entire amount of the down payment in a transaction where the buyer has a total down total payment of 3.5 % to purchase a home. The amount of earnest money deposit is something that may eventually be determined during contract negotiations.

The earnest money deposit is generally paid within a certain time frame or after completion of Attorney Review. It is generally paid to the Selling Broker, unless local real estate practices provide otherwise, or there is a change made to the contract of sale during the Attorney Review process where the Seller’s Attorney requests to hold all deposit monies in their Trust Account.

There are times when a contract of sale is terminated after Attorney Review, such as home inspection problems, mortgage denial and others. In those situations where a contract to purchase is cancelled in accordance with the terms of the contract, all deposit monies previously paid by the buyer are refunded.

Many buyers, and buyer agents, under estimate the importance of these two aspects of contract preparation, and the benefits they can provide in contract negotiation. The Initial Deposit and Earnest Money Deposit can be the difference in whether a contract offer gets accepted and signed by the seller, especially in multi-contract presentations.

Mortgage Considerations

A contract to purchase real estate will include a mortgage contingency clause which provides a time period for the buyer to apply for a mortgage of a specific amount and obtain mortgage approval in order to complete the purchase of a home. This is commonly referred to as the “mortgage contingency clause” in real estate contracts. The time frame for mortgage approval varies from buyer to buyer, and is determined by the type of mortgage being obtained (Conventional, FHA, and VA) and how complete the mortgage pre-approval process was. A buyer’s Real Estate Agent or Mortgage Representative can help in providing more information about the time frame required in processing the formal mortgage application and obtaining the written mortgage loan commitment.

It is recommended that a buyer reviews their Mortgage Pre-Approval when submitting a contract offer, and provide a copy to their Buyer’s Agent. Review is necessary in order to verify that the mortgage amount in the contract offer is the amount in the Mortgage Pre-Approval, or less.

All too often buyers begin their home search in one price range and later find that they need to increase their price range, and increase the mortgage amount, to find a home they like. Obtaining an updated and revised Mortgage Pre-Approval to reflect the mortgage amount in the contract offer is highly recommended.

Mortgage Interest Rates and Mortgage Rate Lock-Ins

Another important consideration is mortgage interest rates. Mortgage interest rates may fluctuate from day to day and mortgage rate lock-in may vary from one mortgage lender to another. Buyers should obtain a current interest rate quote when making a contract offer as the current mortgage interest rate may be different from the quoted interest rate when the Mortgage Pre-Approval was issued.

The interest rate affects mortgage payments, mortgage qualifying and price range.

Closing Date

A closing date is included in the contract offer. This date may be important to the seller in contract negotiations as it relates to their time frame in moving. It is also a consideration for the buyer with regard to their time frame in moving and perhaps with a mortgage interest rate lock in.

Mortgage lenders have various interest rate lock-in policies. Consult with the Mortgage Representative to obtain more information on interest rate lock-in policies and length of interest rate lock in period.

A contract offer to purchase real estate includes sales price, mortgage to be obtained and down payment.

Down Payment

The buyer’s down payment is somewhat fixed. It is generally the amount of money a buyer has saved, or has available, for the purchase of a home. However, there are minimum down payment requirements depending on the type of mortgage to be obtained.

When applying for a mortgage loan, the lender does verify the buyer’s assets. Commonly referred to as deposit verification, this occurs during the mortgage application process to insure that the buyer has the funds for the down payment as well as additional monies for closing cost expenses.

In making a contract offer, it is highly recommended that a buyer be aware of the various costs involved with the purchase of a home and obtain a reliable estimate of closing costs either from their Buyer’s Agent, Mortgage Lender or Attorney. Some of the costs related to closing title are directly related to the home being purchased, others are fees paid for services provided and then there are the costs related to obtaining the mortgage.

It is quite common for buyers to get assistance for the down payment, or closing costs, from family members. The mortgage lender will require a “gift letter” from the donor, and will also verify that these monies are available. While it is great that a family member says they will help in the home purchase, it is very important that a buyer in this situation obtains a commitment for an exact amount they will be given and explains the verification process in advance to the donor in order to avoid any complications later. A mortgage lender can provide specific details.

There are times when gift money is provided in advance of the home purchase and mortgage application. It is important that the buyer creates a paper trail with a copy of the check received, and the deposit slip depositing the money in their bank account. During the mortgage application process, the lender will ask for an explanation on any recent large deposits.

Mortgage Payment

The mortgage amount, and monthly mortgage payment, is determined by the buyer’s income qualifications. There are buyers who choose to maximize the amount of the mortgage as it relates to income qualifications, while there are other buyers who choose to mortgage less than their income warrants in order keep the monthly mortgage payment at a more affordable amount. That is all about personal choice.

When applying for a mortgage loan, the lender does verify the buyer’s income, requires copies of current pay stubs and prior income tax returns. Commonly referred to as income verification, this occurs during the mortgage application process to insure that the buyer has sufficient income to qualify for the mortgage loan requested.

A monthly mortgage payment includes principal, interest, real estate taxes and home insurance, commonly referred to as PITI, and is what is estimated in the pre-qualification process. During the mortgage pre-approval process, mortgage lenders calculate mortgage qualifications based on the current mortgage interest rate, estimated real estate taxes and estimated homeowners insurance. However, mortgage pre-approval for a specific mortgage amount is only an estimate.

There are situations where the pre-approved mortgage amount and price range is beyond affordability for a buyer. This can occur if the mortgage interest rate increases during the home searching process, or during the mortgage application process and the interest rate was not locked in. Likewise, if the home to be purchased has higher real estate taxes than what was estimated in the pre-approval process, the monthly mortgage payment will be higher and may be beyond affordability.

It is highly recommended that a buyer knows what the monthly mortgage payment will be based on their contract offer and match that payment to their mortgage pre-approval.

It is not purchase price which determines affordability, it is the monthly mortgage payment!

D. Fialk

Is going “tankless” as liberating as it sounds? Is owning a tankless water heater a solid indication that you’re saving money while reducing environmental damage?

Your answer to these questions may depend on whether you own or are buying a newly-constructed home versus living in or purchasing an existing, decades-old property.

Conventional water heaters heat litres of stored water which is kept hot 24/7, even when there is no demand. Tankless units are heaters which heat water on demand, then stop.

First of all, don’t get sanctimonious if your tankless water heater was part of the features of the new home you bought or had built. Starting from scratch and incorporating energy-efficient, environmentally-friendly systems during construction is always easier, and usually less expensive, than retrofitting, or adding a modern system to an older home.

The benefits and cost-considerations of tankless water heaters in new homes can make this installation a feasible if not a preferred alternative to conventional tank-style heaters. New home construction standards are normally higher than those that existed for homes built in the last century or earlier. New plumbing, electrical, sound-proofing and other systems favour optimum installation and operation of tankless water heaters and other modern technologies.

If you own or want to buy an existing property, your commitment to reducing “your footprint” and saving energy may not be enough to make tankless water heaters the right way to achieve your environmental and financial goals. You can still have an energy-efficient, green home with a conventional water heater, but you’ll just have to go about it differently.

One of the most important lessons to learn about the current rush toward “green” is that there are just as many inappropriate applications of good ideas and over-sold environmental or energy-efficient solutions as there are “right fits.”

Don Fugler, Senior Researcher in Policy and Research at Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC), is currently managing CMHC’s initial tankless field project designed to determine the actual savings gained when converting from a well-functioning conventional water heater to a tankless unit.

“Basically, what we hear is that tankless water heaters do save energy in a lot of cases, but what is not necessarily established so far, is what people should expect,” said Fugler. “It is probably different from the theoretical savings—that you just calculate based on efficiencies. What house usage is unlikely to get significant savings? The fact [is] that water heater usage or homeowner draws on hot water are a lot different in reality than they are modelled in standards. This makes a difference because the way they are modelled in standards actually benefits tankless water heaters. I don’t think they set it up this way, it just does.”

Tankless water heaters are not a new idea, just relatively new to Canadians. In retrofit situations, they may not always be practical, cost-effective or feasible. Fugler offered a few issues to consider in evaluating whether tankless is right for you:

• Net result may not be a gain “Part of the problem, or part of the solution, is tank heaters lose their heat to the house….So even though a conventional water heater does lose heat, it is seen to be heating your house and that is an asset for two thirds of the year…. In Canada, which is more a heating than a cooling climate, tankless is only going to have a third of the advantage that it may have in a cooling climate.” Fugler explains that expected savings from converting to tankless may not materialize because, while fuel consumption by the water heater may go down, fuel consumption to replace heat to the house may increase. This has been found for shifts to high-efficiency furnace fans and CFL light bulbs.
• Billing disappointment The quoted percent of savings should be applied to the portin of the gas or electric bill represented by the water heater. With all the charges piled confusingly on a gas bill, an absolute savings may not be visible. If you expect to save significant amounts, you may be disappointed.
• Pay back clarity For the two reasons above, the quoted pay back time may be hard to calculate or much longer than stated. Sales representations would normally include best case scenarios. Where hot water bills are high, savings could be more noticeable. With low or conservationist usage, the savings may be small and the pay back much longer.
• Hot water delivery How long does it take hot water to arrive at the tap? Since home designs usually locate heaters in an otherwise unused corner of the basement, second-floor and higher bathrooms may be a long way off. Having to run water as long as 5 minutes to get the hot may result in wasted water. Low-flow shower heads increase delivery time. Anti-scald valves like those required in new homes may also interfere with hot water availability. Recirculation pumps may help this problem, but that’s another cost to consider.
• Heating differential Municipal water may be very cold, requiring considerable fuel to heat it to the desired temperature. Drain water heat recovery installations recycle hot wastewater to heat up incoming cold water to warm by spiralling the wastewater piping around the intake pipe. However, this approach is only practical for those who regularly take long hot showers, not baths.
• Flow limits and use patterns Tankless heaters have minimum flow limits, so they don’t heat water for small draws like rinsing your hands. Some users turn on a second tap to reach the flow threshold for hot water at the tap where they want low flow hot water. It is this type of water-waste pattern and other use changes that are of interest to Fugler in the current research project. To achieve maximum desired flow, particularly to have two or more simultaneous uses with lots of hot water, intake pipes may need to be increased to 3/4 inch from the conventional ½ inch. In large, high-usage homes, more than one unit may be advisable.
• Adequate fuel supply Gas supply input may need increasing to 3/4 inch pipe to achieve desired hot water flow. A comparable cost may be required to upgrade to a larger service panel for an electric tankless unit.
• Venting and noise The exhaust gases and moisture from gas tankless water heaters are vented outside, not into a chimney, in a manner dictated by bylaws and codes. Proximity to neighbours may cause complaints about noise and condensation, or it may make the installation impossible. Decks and patios may also restrict venting choices. More expensive and higher efficiency condensing units may offer more venting flexibility, but installation costs may increase. If venting is not possible, an electric unit may be the only tankless alternative.

Tankless water heaters are expensive to purchase and installation in Canada. Fugler predicts that these and other issues will be resolved through technological advances and government regulation. Tankless water heaters willbecome the new normal in the decades ahead.

For now, invest in knowledge in advance of a purchase, or regret in hindsight…your choice. Don’t rely on salespeople or installers to make decisions for you. Buyer beware is the law. Buyer be aware is the solution.

PJ Wade