Arizona Real Estate: Why more Canadians may sell their U.S. Properties in 2016

This article was first published in the Arizona REALTOR® Voice on March 8, 2016.

by Fletcher R. Wilcox on March 9, 2016

Many Canadians own residential real estate in Arizona. They are especially attracted to the desert areas of Arizona during the winter when they can soak in the sun rather than shake off the snow.

Many got spectacular deals purchasing residential properties when prices were low and the Canadian dollar was close to being on par with the U.S. dollar.

Changes in the Canadian economy and dollar make it likely that there are now fewer Canadian buyers, but more sellers of their U.S. properties.  According to the Wall Street Journal on February 25, Canada’s economy is under pressure because of a drop in oil prices. In 2015, the Canadian-to-U.S. dollar average was at .75 cents compared to .97 cents in 2011.

Let’s look at a scenario as to why more Canadians may sell their U.S. properties this year than in recent years.

If a Canadian bought a house in the U.S. in 2011 and paid $150,000 USD, they would have paid close to $155,000 CAD.  In 2015, if that same property, because of appreciation, sold for $225,000 USD, a Canadian seller would receive $300,000 CAD, almost double what they paid in Canadian dollars in 2011. Quite a gain. So far in 2016, the Canadian dollar is even weaker against the U.S. dollar than last year.

USD v CAD exchange rate 2010-15

If a Canadian or if any foreigner, decides to sell their U.S. residential property, they should be aware of the Foreign Investment in Real Property Tax Act known as FIRPTA.

FIRPTA is the mandatory withholding of income tax on the disposition of U.S. real property interests by a foreign person(s) defined as a nonresident alien individual, a foreign corporation, a foreign partnership, trust or estate. According to the IRS, not only are sales under FIRPTA, but so are exchanges, gifts and transfers.

On February 17, the FIRPTA withholding tax rate increased up to 15% as demonstrated in the chart below:
FIRPTA demo chart

According to FIRPTA, what is the buyer’s responsibility? A buyer is solely responsible for the FIRPTA withholding tax from a seller.

When the seller is a foreign person? The IRS states:

“In most cases, the transferee/buyer is the withholding agent.  If you are the transferee/buyer you must find out if the transferor is a foreign person.  If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.”

To help make buyers and sellers aware of FIRPTA, Arizona REALTORS® has addressed it in the Seller’s Property Disclosure Statement (SPDS) and Residential Resale Real Estate Purchase Contract (Resale Contract).

Lines 13 and 14 in the SPDS read:
Is the legal owner(s) of the Property a foreign person or a non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA)? Yes No. If yes, consult a tax advisor; mandatory withholding may apply.

Lines 135-138 in the Resale Contract read:
IRS and FIRPTA reporting: Seller agrees to comply with IRS reporting requirements. If applicable, Seller agrees to complete, sign, and deliver to Escrow Company a certificate indicating whether Seller is a foreign person or non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (“FIRPTA”). Buyer and Seller acknowledge that if the Seller is a foreign person, the Buyer must withhold a tax of up to 15% of the purchase price, unless an exemption applies.

The seller in the Resale Contract agrees to comply with FIRPTA if they are a foreign person; if applicable, the buyer must withhold the tax. In the SPDS, the seller must indicate if they are a foreign person or non-resident alien; if they are, they should consult a tax advisor.

While different settlement agents may have different procedures, escrow officers are not equipped to give tax or legal advice concerning FIRPTA.

The IRS does not require the settlement agent to:

  • Determine a seller’s status as a foreign person
  • Decide how much FIRPTA tax should be withheld
  • Decide if the seller qualifies for an exemption, or
  • Complete FIRPTA forms

What then may a settlement agent do?

IF a buyer has determined that a seller owes FIRPTA tax, the escrow officer may assist them in collecting completed forms and withholding tax from the seller and buyer, and send the forms and taxes to the IRS on behalf of the seller and buyer.  (Remember, there is no duty by the escrow officer to complete FIRPTA documents.)

IF a seller applies for an IRS certificate exempting or reducing FIRPTA withholding tax prior to the transaction closing, it is likely that the certificate from the IRS will not be received until post-closing.  A settlement agent may agree to hold FIRPTA funds post-closing and send the funds to the IRS if certain conditions are met prior to the closing.  If the required conditions are met, then both the buyer and seller will have to sign post-closing holdback instructions.

IF the requirements of a post-closing holdback are not met, the seller and buyer will have one of two options.  The settlement agent may collect the proper forms and send in the withholding tax at the time of the closing.  Or the seller and buyer mutually agree in writing that the FIRPTA funds may be transferred to an attorney or CPA’s trust account.  The attorney or CPA will be responsible for the FIRPTA withholding amount.

Tips
If there is a FIRPTA withholding, both the seller and buyer will need either a social security number or a valid U.S. Individual Taxpayer Identification Number (ITIN) in order to process FIRPTA documents. If someone is not eligible for a social security number, they must apply for an ITIN.

Because of the length of time it may take to receive either a social security number or ITIN, it is a good idea to obtain one before a property is put on the market.

Also, talk with the escrow officer where the escrow will be processed prior to contract acceptance to find out what the officer will do on a FIRPTA transaction and what requirements must be met for a post-closing holdback.

A seller and buyer should always consult with a qualified CPA or tax attorney regarding FIRPTA.

Conclusion
In 2016, the Arizona real estate market will likely see more FIRPTA transactions with foreigners, specifically Canadians, selling their U.S. properties.  A knowledge of FIRPTA by both the foreign seller and buyer will help ensure a smother closing.      

Fletcher R. Wilcox is vice president of business development at Grand Canyon Title Agency

FWilcox@GCTA.com

602.648.1230

 

Phoenix Real Estate: Attend the first major real estate event of 2016! Why 2016 likely will be a better year for sales, guest speakers on closing trends and a special speaker from the CFPB!

Growth

Jim Sexton 2015 President Arizona Association of REALTORS and Fletcher R. Wilcox Grand Canyon Title invite you to attend the first major event in 2016 on residential closing trends you should know and obtain three C/E hours of contract law. We have put together an event which will bring you up to date on residential closings.  Bring your questions, listen and learn. This is an Industry Partners Conference follow-up event. There will be a special guest speaker from the Consumer Financial Protection Bureau. See bio below!

Find out why it is likely there will be more residential sales in 2016 than 2015. (You have to see this!)

REGISTRATION DETAILS:

www.AARonline.com/event/E/TRIDFEB

Attend the class! TRID LIVE: Real Stories, Real Solutions. Three hours of C/E in contract law. February 4, 2016 | 8:00 a.m. to 1200 p.m. OrangeTree Golf Resort 10601 N. 56th Street, Scottsdale AZ 85254

Panel of designated brokers: Martha Appel, Coldwell Banker; Gerry Russell, Realty Executives, Laurie McDonnell, United Brokers Group

Panel of lenders: Sherry Olsen, Desert Schools Federal Credit Union, Matthew Kelchner, Suburban Mortgage

Panel of escrow officers: Leslie Banes, First American Title; Patti Shaw, Old Republic Title,

Moderators: Jim Sexton, 2015 AAR President and Fletcher R. Wilcox, Grand Canyon Title

Download (PDF, Unknown)

Topics

  • What can lenders provide buyers to strengthen their offers, in addition to the PQF?
  • Is it taking longer to close under TRID? Yes, no, or sometimes?
  • Triggers that might delay a closing.
  • Are loan documents being signed three days before the close of escrow?
  • Closings and FIRPTA. Do you know what the IRS says when there is a foreign seller?
  • Are you seeing the buyer’s Closing Disclosure? The seller’s Closing Disclosure?
  • When can agents review the settlement statement?
  • Why are agents getting different settlement statements in their closing package?
  • Do you have questions on the changes to the AAR Resale Contract, PQF, LSU and TRID?
  • Special presentation on top ten ARMLS violations.

Noerena Limon from the Consumer Financial Protection Bureau (CFPB) will be our guest speaker. She is a policy analyst in the CFPB Office of Research Markets and Regulations and is the project lead for the Know Before You Owe, Closing Time Initiative. Throughout her 2-and-a-half years at the CFPB, Noerena has worked in the Office of Director Richard Cordray, the Office of Mortgage Markets and the Office of Liquidity Lending, focusing on mortgage and small dollar lending policy.

 

 

 

 

On September 16 attend the biggest real event of the year on the new closing rules and changes to the AAR Resale Contract.

I invite you to attend the 2015 Industry Partners Conference on the new closing rules starting October 3, 2015.  Find out from experts how the changes to the AAR Resale Contract, the PQF, the LSU interact with the new Closing Disclosure and Loan Estimate!  Do you understand the new chain of events and their timelines necessary to close a residential real estate transaction when a buyer is purchasing with a loan?  Register now at   https://www.aaronline.com/calendar/view-event/?id=724

Some of the speakers will be the following:

  • Jim Sexton President of Arizona Association of REALTORS, DB Realty One
  • Scott Drucker General Counsel to the Arizona Association of REALTORS
  • Rick Mack Legal Hotline Counsel for Arizona Association of REALTORS
  • Mary Frances Coleman attorney and real estate instructor, Realty Executives
  • Fletcher Wilcox, 2015 Industry Partners Conference Chair, V.P. Grand Canyon Title
  • Sherry Olsen, Desert Schools Federal Credit Union Mortgage Origination Manager
  • Chris Mozilo, Divisional Vice President at Caliber Home Loans
  • Leslie Banes, First American Title Arizona Resale Escrow Manager

Real estate agents will receive three hours of contract law and three hours of legal issues.

This event is a partnership of the Arizona Association of REALTORS, the Arizona Mortgage Lenders Association, and the Arizona State Escrow Association.  Members from all three of these industries have been meeting to discuss and present to you what you must know by October 3, 2015.   

2015 Industry Partners Conference Preview

by Arizona REALTORS on August 7, 2015

Submitted by Fletcher Wilcox, 2015 Industry Partner Conference Chair

On September 16 at the Chaparral Suites in Scottsdale, REALTORS®, mortgage lenders and escrow agents will join forces during the 2015 Industry Partners Conference (IPC).

The IPC is a partnership between the Arizona REALTORS®, Arizona Mortgage Lenders and Arizona State Escrow associations that meet and share different perspectives to gain clarity over new closing process procedures.

Fletcher Wilcox_75x75  By attending this year’s Industry Partners Conference I can say you will end the day with broader knowledge of how to get a transaction closed by understanding the specifics.

Fletcher Wilcox, VP Business Development, CFPB External Operations Expert, Real Estate Analyst, Grand Canyon Title Agency.

Grand Canyon Title Agency is a wholly owned subsidiary of FNF.  FNF is ranked #314 on the list of Fortune 500 companies. 

This year’s conference topics will include:

  • How the new TRID rules change the closing of a residential real estate transaction
    October 3 is the mandated start date for new TRID rules and docs from the CFPB; unless you only work with cash buyers, these changes will affect buyers, sellers, real estate agents, loan officers and escrow officers
  • What your buyers and sellers should know about the new closing process
  • How new CFPB Loan Estimate & Closing Disclosure forms interact with the Residential Resale Real Estate Purchase Contract
  • Different chain of events that must happen before a transaction can close
  • Review revised Residential Purchase Contract, Pre-Qual Form & Loan Status Update
  • Learn the new timelines

Click here to register for the 2015 Industry Partners Conference. If you have questions, contact Fletcher Wilcox via email at FWilcox@gcta.com or by calling 602.648.1230.

New AAR Documents Soon To Be Released

In addition to the new TRID rules and documents, REALTORS will soon have a new Residential Resale Real Estate Purchases Contract, a new Pre-qualification Form and a new Loan Status Update. The Arizona Association of REALTORS will be releasing these documents in September. The changes to these documents are in response to the TRID Rules. These new REALTOR documents incorporate lender events real estate agents will now need to know, such as the six pieces of information needed for a loan application, the Loan Estimate and the buyer’s intent to proceed. All of these have contract timelines. If your buyer does not correctly follow these event timelines, they may find themselves served a cure period notice.

How Should I Approach this Change?

There will be difficulties in closing some transactions. But many of these difficulties will come from a negative attitude toward the rules, and not taking the time to learn them and the new contract documents.

The best way to approach the new rules is knowing that the Loan Estimate and the Closing Disclosure will make it easier for a buyer to understand the loan and closing costs associated with the transaction. This is a good thing. And you must learn the specifics of how the new rules work with the new AAR documents. When you know and understand them, you will have confidence when representing a buyer, a seller, and when working with other real estate agents, loan officers and escrow officers.

Your Opportunity to Learn: The Industry Partners Conference

While most of you have attended a TRID seminar, most of you will not have attended a seminar as the one being offered on September 16, 2015.

At the seminar you will learn about chain of events that must happen before a transaction can close. An example of a chain of event is the following: before the appraisal can be ordered the buyer must have acknowledged an intent to proceed with the lender. Before the buyer can acknowledge an intent to proceed with the lender they must have received the Loan Estimate. Before a loan officer can send a Loan Estimate the buyer must have provided the six pieces of information necessary for a loan application. Before the buyer can supply all of the necessary six pieces for a loan application there must be contract acceptance. Each of these events has a timeline associated with it.

http://thewilcoxreport.com/on-september-16-attend-the-bigg…/ ‪#‎SEVRAR‬ ‪#‎GCTA‬ ‪#‎RealEstateIdeas‬ ‪#‎RealEstateM‬ ‪#‎TRID‬ ‪#‎ArcadiaHomeTour‬ ‪#‎YouNeedToKnow‬ ‪#‎TheWilcoxReport‬ ‪#‎GCTAarketing‬ ‪#‎ARMLS‬ ‪#‎SAAR‬ ‪#‎RealEstateArizona‬ ‪#‎AZRealtors‬ ‪#‎BestSalesTeam‬#NewRealEstateContract ‪#‎WorkingHard‬ #GCTA ‪#‎BerkshireHathaway‬

 

Almost 1,000 more sales this June in Greater Phoenix – and not because of cash buyers

July 28, 2015

www.TheWilcoxReport.com

Insight on existing single family sales, mortgage and job growth trends in Greater Phoenix or Maricopa County.

June 2015 Existing Single Family Sales Trends

  • June 2015 existing single family sales over 6,000 for third consecutive month.
  • June 2015 median sale price of $240,000, highest since January 2008, but still has a way to go to reach historic mark of $287,500 in June 2006.
  • June 2015 sales volume $411,049,735 higher than June 2014.
  • June 2015 sales volume highest for a month of June since 2006.
  • Snap shot of last twelve years of the month of June for foreclosure starts, auctioned properties, lender owned sales, and short sales.
  • Zillow’s Typical Error in Greater Phoenix is $13,650.

 By

Fletcher R. Wilcox

CFPB External Operations Expert

V.P. Business Development, Real Estate Analyst

Grand Canyon Title Agency

 New-GCTA-Logo

GCTA is a wholly owned subsidiary of FNF. FNF is ranked #314 on the list of Fortune 500 companies

The June Story   Loans

June 2015 existing single family home sales almost a 1,000 more – but not because of cash buyers

Sales of existing single family homes increased notably in June 2015. There were 980 or 18 percent more sales this June than last June. Driving the increase in sales were buyers purchasing with a home loan or mortgage.

How Purchased 2014 June 2015 June Change %  Change
Cash            1,138            1,181 43 4%
Mortgage            4,317            5,254 937 22%
Total            5,455      6,435 980 18%

When segmenting June 2015 mortgage purchases into the categories conventional mortgages, FHA mortgages and VA mortgages, conventional mortgages led the way with the most purchases. There were 2,946 purchases with conventional, 1,790 with FHA and 438 with VA. When comparing year-over-year percentage increases, FHA purchases had the highest percentage increase at 32%, conventional loans were 18% higher, and VA loans 13% higher.

How Purchased 2014 June 2015 June Change % Change
Cash            1,138            1,181    43  4%
Conventional            2,491            2,946    455  18%
FHA            1,352            1,790    438  32%
VA              426              480     54  13%
Other                48                38    10  21%
Total            5,455            6,435    980  18%

FHA Mortgage Purchases: Some reasons for the year-over-year percentage boost in FHA purchases are the following:

  • On January 26, 2015 the FHA mortgage insurance premium was lowered by .50 basis points or ½ percent. Thus, allowing more people to qualify.
  • The required FHA down payment is low at three and one-half percent (3.5%).
  • For buyers that went through a foreclosure or short sale, FHA has a shorter time period or penalty box period to buy again than does Fannie Mae or Freddie Mac. A buyer only has to wait three years, after a foreclosure or short sale to buy again under FHA underwriting guidelines. Under Fannie Mae and Freddie Mac underwriting guidelines a buyer has to wait seven years after a foreclosure and four years after a short sale.

VA Purchases: While the number of buyers purchasing with a VA loan is considerable lower than FHA or conventional loans, VA purchases have had the highest percentage gains since the great real estate recession. VA loan purchases in June 2015 were 7.4 percent of all purchases. In June 2013 they were 5.3%, in June 2011 4.1%, in June 2009 3.7%, and in June 2007 1.2%.

According to the U.S. Census Bureau Arizona has 522,387 retired or active veterans. http://quickfacts.census.gov/qfd/states/04000.html

The growing mortgage purchase market: A year-over-year comparison for first half of 2015

Since February 2015 mortgage purchases have taken off. There were 3,729 more mortgage purchases the first six month of 2015 compared to the first six months of 2014.

2014 2015
Jan          2,482          2,488
Feb          2,786          3,165
March          3,558          4,475
April          4,106          4,831
May          4,206          4,991
June          4,317          5,234
Total        21,455        25,184

Growth

What is fueling the growth in purchases with a mortgage?   

More jobs and more people and more boomerang buyers lift sales.

Jobs

 Job growth: You have to have a job to get a loan or mortgage. Greater Phoenix has gained back 250,000 non-farm jobs after losing 300,000 of them.

 

Download (PDF, Unknown)

Population growth: Maricopa County was the number two county in the nation in actual population increase with 74,000 more people according to the US Census Bureau. As of July 1, 2014 the population estimate of Maricopa County was 4,087,191.

http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

*Population increase

  1. Harris, Texas (Houston) 89,000
  2. Maricopa, Ariz. (Phoenix) 74,000
  3. Los Angeles, Calif. 63,000
  4. San Diego, Calif. 41,000
  5. Clark, Nev. (Las Vegas) 40,000
  6. Bexar, Texas (San Antonio) 34,000
  7. King, Wash. (Seattle) 33,000
  8. Dallas, Texas 33,000
  9. Riverside, Calif. 32,000
  10. Tarrant, Texas (Fort Worth) 31,000

*Source: Phoenix Business Journal http://www.bizjournals.com/phoenix/news/2015/03/26/census-maricopa-county-2nd-in-population-growth.html

 Ready to buy

Boomerang Buyers: Boomerang buyers are defined as those people who went through a foreclosure or short sale and want to own again. I estimate that by the end of 2015, it will have been at least three years for 137,000 past homeowners that either went through a foreclosure or short sale. Some of these people will have already bought a home. Some will be ready to own again, purchasing with an FHA loan because of the shorter penalty box time period of three years after a foreclosure or short sale. These future buyers will still need to meet the necessary FHA underwriting requirements for length of employment, down payment and credit score.  

Download (PDF, Unknown)

Sales

Existing single family sales in June 2015 was the third consecutive month existing single family sales were over 6,000. June 2015 sales of 6,435 were the highest since May 2013. In 2014 there were not any months with over 6,000 sales.

New Price

The median sale price was $217,500 in January and ended up at $240,000 in June.

Download (DOCX, 13KB)

Download (PDF, Unknown)

June 2015 sales volume highest for a month of June since 2006.

Download (DOCX, Unknown)

Summary

The increase in sales of existing single family home is a flowing together of more mortgage purchases due to more people with more jobs, along with more boomerang buyers and more veterans. The best indicator that the existing single market is coming back is the increase in sales volume of $411,049,735 this June over last June. This increase is the direct result of demand to own with a tight supply. This has pushed sales prices higher. Higher sales prices mean that there are less homes underwater and increased household equity, but higher sales prices makes affordability harder for those entering the market for the first time and for some boomerang buyers. I expect July 2015 existing single family home sales to be higher than July 2014. Below is an estimate for July sales.

  2014 2015 Change % Change
January 3,527 3,400 127 3.6%
February 3,917 4,185 268 7.0%
March 4,854 5,718 864 18.0%
April 5,591 6,098 507 9.1%
May 5,531 6,083 552 10.0%
June 5,455 6,435 980 18.0%
July 5,143 *5800 *657 *13.0%

*estimate for July 2015

Note: This report covers existing single family home sales in Greater Phoenix. The term Greater Phoenix refers to the geographic area of Maricopa County. The data in this report, unless otherwise mentioned, is compiled from the Arizona Regional Multiple Listing Services, Inc., also known as ARMLS.

In this report we compare performance for sales, sales volume, cash purchases, mortgage purchases, and new monthly listings.     The report includes foreclosure starts, auctioned properties, lender owned sales and short sales for the last twelve years for the month of June. Many of the comparisons are year-over-year, comparing a time period in 2014 to the same time period in 2015.  Year-over-year comparisons are an effective way to measure performance, highlight differences, and negates the effect of seasonality.

 

Zillow’s Typical Error in Metro Phoenix is $13,650

Posted on July 17, 2015 by John Wake

http://www.arizonarealestatenotebook.com/zillows-typical-error-in-phoenix-is-12896/?inf_contact_key=cfc6b4a7a8a66742935a2ac93ece694ed45a306dbfbf39782f3bb3c1c04d542a

The typical Zillow Zestimate error for metro Phoenix is $13,650.

Real estate agents hate Zillow’s estimates of home values, called Zestimates, because many are very inaccurate but mainly because many home buyers and homes sellers will fall in love with their inaccurate Zestimates. Home sellers fall in love with high Zestimates and home buyers fall in love with low Zestimates and it adds unnecessary drama to the home buying and selling process.

Here’s how it plays out, the Zestimate on a seller’s home is WAY too high but wishful thinking kicks in and the home seller really likes that high estimate and thinks up a bunch of reasons why it might be right. An economist would say that the homeowner “anchored” on the high Zestimate price.

 We real estate agents can try to show homeowners why the Zestimates for their homes are way off but they won’t usually buy it. They think we’re just trying to get them to price their houses below fair market value so they’ll be fast and easy sales for us greedy real estate agents.

This never happens to home sellers when their Zestimate is low. Home sellers immediately dismiss low Zestimates as being inaccurate but they fall in love with high Zestimates. Home buyers, on the other hand, might fall in love with that low Zestimate the home seller immediately dismissed.

 Zestimate Error Rate for Phoenix

Zillow is very good, however, about publishing the error rate of their Zestimates. I think it’s partly a CYA move but in metro Phoenix, the median error for Zestimates is 6.5%. They calculate the error by looking at actual sale prices of homes compared to their Zestimates immediately before the sale.

 In addition, Zillow says the median sale price in metro Phoenix is $210,000.

Apply 6.5% to $210,000 and we find that Zillow Zestimates in metro Phoenix are typically off by $13,650 but you don’t know if it’s $13,650 too high or $13,650 too low. And it’s worse than that because HALF of Zillow Zestimates are off by MORE than $13,650, sometimes a LOT more than $13,650.

 What’s the Typical Zillow Error for My Home?

You can fine tune the typical Zestimate error by putting your home’s price range into the equation. If your home is around $300,000, for example, just multiple $300,000 by 6.5% to get the typical error for Zillow Zestimates in that price range in metro Phoenix.

Zillow is very clear that Zestimates are not appraisals. In fact, Zillow says that for a home in the $300,000 price range in Metro Phoenix, their typical error is $19,500, but you don’t know if it’s $19,500 too high or $19,500 too low. And it’s worse than that because HALF of Zillow Zestimates are off by MORE than $19,500, sometimes a LOT more than $19,500.

 I’m going to publish a LONG article on Zillow Zestimate errors on my national blog next week but the takeaway is the paragraph above.

Disclaimer

While deemed accurate this report does not guarantee the accuracy of the data. Some numbers will change. Report may not reflect all real estate activity. Information should be verified. This article is of a general nature, and is not intended as investment advice, real estate advice, lending advice or legal advice. Please consult your broker, your lender, your own independent legal counsel, your certified public accountant. The information in this report may not be the opinion of Grand Canyon Title Agency.

Note: Included in some of the charts of this report may be a small number of new home sales.

TheWilcoxReport.com™

By

Fletcher R. Wilcox

Fletcher is a member or past member of the following associations

Arizona Association of Realtors www.aaronline.com

Arizona State Escrow Association http://www.azsea.org

Arizona Mortgage Lenders Association www.azmortgagelenders.com

Scottsdale Area Association of Realtors www.saaronline.com

Statistician for the Heart of Scottsdale Real Estate Tour http://www.saaronline.com/marketing/scottsdale.php

Homebuilders Association of Central Arizona www.hbaca.org

Scottsdale Chapter Women’s Council of REALTORS www.scottsdalewcr.com  

Fletcher is author of TheWilcoxReport.com This report provides statistics and analysis on single family real estate trends in Greater Phoenix. He is a contributing columnist for the Arizona Journal of Real Estate & Business and has written for Arizona Realtor Magazine a publication by the Arizona Association of Realtors. He has been a guest speaker on KTAR, KJZZ/NPR, KFNN, channel 3, 10, 12, channel 8’s Horizon show, Square Off Arizona and the Willis Report on Fox Business News. His residential analysis has been mentioned in the Wall Street Journal, Arizona Republic, AZCentral.com, Phoenix Business Journal, East Valley Tribune, Bloomberg News, Dow Jones MarketWatch, HousingWire.com and National Mortgage News.

He teaches renewal courses on the Residential Resale Real Estate Purchase Contract. Fletcher joined Alice Cooper’s Solid Rock organization as a board member. The organization promotes music and the arts and has opened a center for teenagers in Phoenix   http://www.alicecoopersolidrock.com/the-rock/ Fletcher served eleven years as a citizen board member on the Phoenix Police Department’s Disciplinary Review & Use of Force Boards. He attends Living Streams Christian Church. Fletcher started snowboarding in 2008. He is not very good.

 

The CFPB: What really happens August 1, 2015 to closing a residential real estate transaction when there is a loan?

What really happens on August 1, 2015?

June 10, 2015 Scottsdale Area Association of REALTORS

By: Fletcher Wilcox, CFPB External Operations Expert, Grand Canyon Title Agency

Infographic showing a summary of CFPB 2015 changes coming August 1

Saturday, August 1, 2015 will seem just like any other hot summer day in Scottsdale.  But starting on August 1, any loan application completed that day or thereafter, will be under the new CFPB rules.  These new rules create new documents and change the residential closing process.

Even though the new rules are effective August 1, we will not know many of their effects on the closing process until September, because most contracts written in August involving a loan will not close until sometime in September.  But until then, there are many things real estate agents can learn about the new rules that will help them in preparing for the new closing process.

What percentage of residential closings will be effected by the new rules?  If the new rules had been in effect in May 2015, 76% or 5,627 of the 7,398 ARMLS residential closings in Maricopa County would have been affected.  76% is the number of closings in which a buyer purchased a property with either a conventional, FHA, VA or FMHA loan.  All these loan types fall under the August 1 rules.  Two loan types that are not included under the new rules are reverse mortgages, and home equity lines of credit also known as HELOCS.  The new rules do not apply to a cash transaction.

So what are the new documents and how is the closing process changed? 

The Good Faith Estimate and the initial Truth in Lending will be replaced by the Loan Estimate.  The HUD-1 Settlement Statement and final Truth in Lending will be replaced by the Closing Disclosure.

The emphasis of this article is the effect of the Closing Disclosure.  The Closing Disclosure has a timeline associated with it.  Before the borrower can sign loan documents, they must have the Closing Disclosure three business days in order to review it.  These three days are called the Waiting Period.

Let’s do a scenario.  According to line 73 of the Arizona Association of REALTORS® (AAR) Residential Resale Real Estate Purchase Contract the borrower is to sign loan documents three (full) days before the close of escrow date.  So if the close of escrow is a Friday, the borrower is to sign loan documents on the preceding Monday.  If the borrower is to have the Closing Disclosure three business days before signing the loan documents, the Closing Disclosure is to be delivered no later than the preceding Thursday.  So in this scenario the Closing Disclosure has to be received eight days before the close of escrow date.

Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday
Closing Disclosure received.Day one of waiting period. Day two of waiting period. Day three of waiting period. Sign loan documents COE

Before the Waiting Period begins, there are specific rules in how the Closing Disclosure may be delivered.  Depending on the delivery method (email, regular mail, hand delivered), additional days may be added to the above timeline before the Waiting Period begins.  Lenders are responsible for both the preparation and delivery of the Closing Disclosure to the buyer.  Currently the HUD-1 Settlement Statement is prepared and presented by the escrow company.  This process ends for loan applications taken on or after August 1, 2015.

What are others saying how the Closing Disclosure and its timeline may affect the closing process?   

Below are two links to videos produced by the National Association of REALTORS®.  I suggest you watch both for knowledge and understanding.

In the first video, it is suggested to add fifteen days to the closing time.  If you usually write a thirty day close of escrow when the buyer is purchasing with a loan you may want to extend that to a forty five day close of escrow.  Also suggested is that you make sure your clients are ready seven days prior to closing, and make sure that sellers abide by their agreements.  I believe these are suggested because you don’t want last minute changes or negotiations that may kick in a new Closing Disclosure – with a new three day waiting period – thus delaying the closing.  Note:  A new Closing Disclosure doesn’t automatically mean there will be a new Waiting Period.  An additional three day waiting period is required if the APR changes by 1/8% for a fixed rate mortgage.  So if your clients do something toward the end of the transaction that changes the APR there may be an additional three days before closing.  Adding a prepayment penalty or a change in the loan type also adds an additional three days.

http://www.realtor.org/videos/hud-1-going-away-understand-new-closing-forms-procedures

The second video mentions the need to educate your clients that transactions will likely take longer if the buyer is purchasing with a mortgage, and has other takeaways for real estate agents.

http://www.realtor.org/topics/trid-tila-respa-integrated-disclosure

It is my opinion that once we see the effects of the new rules, some agents will add contract language to the contract to address the new process and to protect their clients.  It is also my opinion that the process will be much smoother for those real estate agents, lenders and escrow companies that spend the time, now, learning the changes.

Fletcher R. Wilcox recently had added to his job description the title CFPB External Operations Expert at Grand Canyon Title Agency.  He is meeting with lenders and real estate agents and discussing how the closing process may be improved amongst them and escrow when the new rules take effect.  Grand Canyon Title is a wholly owned subsidiary of the Fortune 316 Company FNF.  All the local FNF brands in Arizona are working together in unity in presenting how they will be ready and prepared for August 1, 2015.

Fletcher is the author of www.TheWilcoxReport.comHis market analysis on residential real estate in Greater Phoenix has been mentioned in the Wall Street Journal, Bloomberg News, HousingWire.com and National Mortgage News.  He has been a guest speaker on both local and national TV and radio.  

– See more at: http://www.saaronline.com/news/2015/06/10/what-really-happens-on-august-1-2015#sthash.LbCWIGx4.dpuf

June 12 class on what you must know about new changes to the residential closing process. Class at Scottsdale Area Association of REALTORS.

What percentage of residential closings will be effected by the new rules? If the new rules had been in effect in May 2015, 76% or 5,627 of the 7,398 ARMLS residential closings in Maricopa County. Seventy-six percent is the number of closings in which a buyer purchased a property with either a conventional, FHA, VA or FMHA loan. All these loan types fall under the August 1 rules. Two loan types that are not included under the new rules are reverse mortgages, and home equity lines of credit also known as HELOCS.

Go to link below to sign up.

http://saaronline.com/cfpb-the-new-loan-estimate-and-closing-disclosure-forms-0

Some of the topics we will discuss are what your buyers and sellers should know about the new closing process.  How the new closing process will influence contract writing.  We will use scenarios.  We will discuss why did a representative from the National Association of REALTORS say that real estate agents may want to add fifteen days to the close of escrow.  What your sellers and buyers needs to know about the title insurance, the Closing Disclosure and AAR Residential Resale Real Estate Purchase Contract.  Did you know a new contract is coming out this summer.  What might change?      

  Some terminology you will need to know

  • The Closing Disclosure
  • The Delivery Period
  • The Waiting Period
  • Business days versus calendar days
  • Consummation
  • Why the amount of the owner’s title insurance policy and the lender’s title insurance policy shown on the Closing Disclosure may be different than what the buyer and seller actually pay

Fletcher R. Wilcox

CFPB External Operations Expert

V.P. Business Development and author of www.TheWilcoxReport.com

Grand Canyon Title Agency is a wholly owned subsidiary of Fidelity National Financial (FNF).  FNF is ranked number 316 on the list of Fortune 500 companies.

Phoenix Real Estate: 2014 Single Family Real Estate Trends

February 25, 2015

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Existing Single Family Sales Go Up at End of Year. Mortgage Purchases Increasing.

  • December 2014 existing single family sales ten percent higher than December 2013
  •  Overall sales were less in 2014 than 2013, but trending upward
  • Watch listings: 2014 new monthly listings less than 2013  
  •  Median sale price in December highest month in 2014
  •  Sale Volume $160,000,000 higher in December 2014 than December 2013
  • 2014 Distressed Property Index lowest since 2006
  •  2014 cash purchases lowest since 2008
  • More purchases with a mortgage in 2014 than 2013
  • Grand Canyon Title acquired by Fortune 500 Company. See page two.
  • Big changes coming to residential real estate closing process starting on August 1, 2015. See page seven.

This report covers existing single family property sales in Greater Phoenix. Greater Phoenix is defined as Maricopa County. The data in this report, unless otherwise mentioned, is from the Arizona Regional Multiple Listing Services, Inc., also known as ARMLS.

In this report we compare performance for sales, sales volume, cash purchases, mortgage purchases, and new monthly listings. The report includes the Distressed Property Index covering foreclosure starts, auctioned properties, lender owned sales and short sales for the last twelve years. Most of the comparisons are year-over-year, comparing a time period in 2014 to the same time period in 2013.  Year-over-year comparisons are an effective way to measure performance, highlight differences, and negates the effect of seasonality.

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On January 1, 2015 Grand Canyon Title Agency was acquired by a Fortune 500 company. Grand Canyon Title became a division of Fidelity National Title Agency (FNTA). FNTA is a subsidiary of Fidelity National Financial (FNF). FNF is ranked 316 on the Fortune 500.

http://fortune.com/fortune500/fidelity-national-financial-inc-316/

FNF has more claim reserves than any other company in the industry.  With more than a billion dollars in claim reserves to protect you, contact me to open your next commercial real estate transaction.  

http://fidelitydfw.com/page/Financial-Strength.aspx

Existing Single Family Sales and Sale Volume

 Sales were dismal for much of 2014. There were 6,563 less existing single family sales in the first three quarters of 2014 compared to 2013. Then the course reversed. In December 2014, there were 420 or ten percent more sales and $160,000,000 more in sale volume than in December 2013. These numbers made December 2014, on a year-to-year basis, the best month of 2014. Sale volume in the first eight months of 2014 was less than for the same months in 2013.

Not only were December 2014 existing sales higher than December 2013, but so were purchases with conventional, FHA and VA loans!

Distressed Property Index

Disappearing cheap distressed property for sale was a reason for less sales in 2014. According to the Arizona Regional Multiple Listing Services, Inc. (ARMLS), there were 2,149 less lender owned sales and 4,934 less short sales in 2014 compared to 2013. The Distressed Property Index in 2009 was 186,643 compared to 18,932 in 2014 for a decrease of 90%. However, the disappearance of cheap sales diminished cash sales. Cash sales were less every month in 2014 compared to 2013, resulting in 7,370 less cash purchases in 2014. Cash sales in 2014 were the lowest since 2008.

Sales under $50,000

Gone are the days when there were thousands of sales under $50,000. In 2014, there were 207 existing single family sales under $50,000 compared to 625 in 2014. From 2009 through 2013 there were 22,513 sales under $50,000. So the good news is that the glut of cheap distressed properties for sale that previously drove down home values are gone.

6,154 more sales in 2013 than 2014

7,368 more cash sales in 2013 than 2014

1,214 more sales with a mortgage in 2014 than 2013

On August 1, 2015 new rules apply to residential real estate closings.

Do you know what they are?

On August 1, 2015 new rules apply to most closed-end consumer mortgages. The rules effect existing and new home purchases, refinances, loans secured by vacant land, construction only loans, and timeshare loans. Excluded are reverse mortgages, home equity lines of credit, mortgages secured by a mobile home or a dwelling that is not attached to real property.

The Consumer Financial Protection Bureau or the CFPB a creation of the Dodd-Frank Act, has integrated mortgage disclosures and created new forms. For loans originated on August 1, 2015 or later, the Good Faith Estimate and the Truth in Lending will be replaced with a new document called the Loan Estimate. And the final Truth in Lending and Settlement Statement are replaced with a new document called the Closing Disclosure.

How will this affect the closing of real estate transactions? The timing of workflow and closings will be impacted by the new rules. The Closing Disclosure has new time tables associated with it. There is a Delivery Period and a Waiting Period before the borrower is allowed to sign loan documents.

Ken Trepeta, Government Affairs for the National Association of REALTORS suggests adding fifteen more days to the normal closing process time in this video.

http://www.realtor.org/videos/hud-1-going-away-understand-new-closing-forms-procedures

There is much more to the upcoming changes, for more detailed information contact me, Fletcher Wilcox, at FWilcox@gcta.com or 602.648.1230. I will be representing Grand Canyon Title Agency in meeting with real estate designated brokers and their agents, and builders, and banks and lenders and their loan officers. Don’t wait to learn about the changes, but find out what you need to know, what you need to do, and how the changes impact your clients.      

Number of Buyers Purchasing with a Loan Improves. Fourth Quarter 2014 Best Quarter Year-To-Year

Purchases with a mortgage were 4.7% less in the first quarter of 2014 compared to the first quarter of 2013. As the year went on mortgage purchases gained momentum. In 2014, mortgage purchases up 1.3% in the second quarter, up 5.8% in the third quarter, and up 9.5% in the fourth quarter compared to the same quarters in 2013. However, the increase in mortgage purchases in the second and third quarters of 2014 was not enough to overcome the decrease in cash purchases resulting in less sales.

Segmenting Mortgages into Three Categories: Conventional, FHA and VA Loans

When segmenting mortgage purchases by conventional loans, FHA loans, and VA loans, we find the following results: Year-to-year conventional loan purchases were down the first three quarters in 2014 compared to 2013. A likely, partial reason for the decrease in conventional loans was the implementation of the new Dodd-Frank mortgage rules effective on January 10, 2014.

FHA loans were less only in the first quarter of 2014 compared to 2013, and VA loans were a hero all year long in 2014, up ever quarter of 2014 over 2013.

Keep Your Eye on Listing Inventory

The chart below is for new monthly listings of existing single properties in Greater Phoenix. The chart does not represent the total number of existing single family listings, but only new monthly listings. New monthly listings in 2014 were less from June through December compared to 2013.

Fletcher R. Wilcox

Fwilcox@GCTA.com  602.648.1230

Author of  TheWilcoxReport.com(TM)

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