Bidding Wars Can Lead to Home-Appraisal Headaches

A small number of for-sale listings in many U.S. housing markets is contributing to appraisal problems for some home buyers.
Bidding wars between eager buyers have become the norm over the past couple of years in markets with limited inventory, real-estate agents say.

That’s one reason that 13% of existing homes on average sold for more than the asking price during the first 10 months of the year, according to the National Association of Realitors.

In the process, however, buyers could find that they are essentially offering to pay more than a house is actually worth. That’s a reality that may—or may not—become evident in the process of getting a home loan.

Many buyers get pre-qualified or pre-approved for a mortgage before they start shopping for a home. With a pre-approval, that mortgage amount is largely based on their credit history, income and debt load. Armed with this figure, buyers know how high they can bid to still be able to get financing for a property.

But that’s only part of the equation in the mortgage underwriting process.
After the buyer’s offer is accepted by the seller, the lender will order an appraisal. Banks in most cases will lend up to 80% to 90% of the appraised value of the home. (Some mortgages, like those insured by the Federal Housing Administration, a government agency, allow banks to lend nearly the entire appraised value.)
If the appraisal comes in below the agreed-upon purchase price, the buyer will have to make some tough decisions.

The buyer may ask the seller to agree to a revised, lower purchase price that’s in line with the appraised value. If the seller declines, the buyer will either have to walk away from the deal or put extra cash down to make up the difference between the appraised value and the purchase price.

In such cases, buyers will also have to accept that they’re overpaying based on the current market value of the property. It’s possible that the value will rise during the time period that they own the home. But it could also decline.

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Obama Signs New Food Safety Legislation

President Obama signed into law Tuesday legislation that represents the first major overhaul of the nation’s food-safety infrastructure since 1938, but the presumed incoming Republican chairman of the agriculture subcommittee says he may not fund it. 

The Food Safety Modernization Act moves the Food and Drug Administration (FDA) away from its early-20th-century role of responding to adulterated food to a more modern one of requiring companies to stop contamination before it happens by looking for the places where things can go wrong and fixing them.

It also allows the agency to issue mandatory recalls and hire more food-safety inspectors. The FDA oversees most of the nation’s food supply, except for meat, poultry and processed eggs, which are the purview of the U.S. Dept of Agriculture.

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Despite Bad News Real Estate Funds Perform Well

Despite rumors of an upcoming collapse in commercial real estate, real estate mutual funds continue to bring home solid returns.

Investors bracing for part two of the financial crisis, this time in commercial real estate, missed out on a 27.6% gain, according to Lipper, by real estate mutual funds in 2010. These funds capitalized on discounted prices for commercial property and real estate investment trusts as well as lucrative dividend yields.

“There was less of a distressed environment (for commercial real estate) than many perceived,” says David Lee, portfolio manger of the T. Rowe Price Real Estate fund, one of the top-performing real estate funds last year, returning 29.9%.

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Draining Flooded Aussie Mines Could Be Daunting

Australia’s flood-stricken coal industry faced lengthy disruptions, with one miner saying it could take weeks to drain its pits of water and a major port suspending export shipments because of a lack of coal.

Floods have swamped mines in Queensland state, paralyzing operations that produce 35 percent of Australia’s estimated 259 million tons of exportable coal. Australia contributes two-thirds of global coking-coal exports, needed to make steel.

About 200,000 people scattered across an area the size of France and Germanycombined have been affected by the flooding in Queensland. Damage from the floods, the worst in the state in 50 years, has been estimated at $5 billion.

One of Queensland’s two major coal ports, Gladstone, suspended exports on Thursday, starved of sufficient supplies from water-logged and marooned mines further inland.

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Record Food Prices A Worrisome Sign

Record high food prices are capturing the attention of top of policymakers

The United Nations’ food agency (FAO) said on Wednesday that food prices hit a record high last month, moving beyond levels of 2008 when riots broke out in countries as far afield as Egypt, Cameroon and Haiti.

In Asia, official data and analyst estimates both pointed to inflationary pressures. Chilli prices have increased fivefold in Thailand in the last year and Indonesia’s president called for households to plant food in their own gardens.

President Susilo Yudhoyono Bambang told a cabinet meeting people should be “creative” in planting, with Trade Minister Mari Pangestu leading the way in planting at home.

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Business Is Improving, But Not Profits

Just as the U.S. economic recovery finally seems to be picking up profit margins seem to have peaked.

Stronger GDP growth should help domestic revenue pick up. But belt-tightening may have run its course while commodity and labor cost pressures start to build.

Operating profit margins for the S&P 500 companies have risen for seven straight quarters, as corporations used sharp cost cuts to leverage modest sales gains. But they likely dipped to 8.81% in Q4 from Q3′s 8.95%, predicts Howard Silverblatt, senior index analyst for Standard & Poor’s.

GAAP profit margins, which include various charges, peaked in Q2 at 8.31%, fell to 8.11% in Q3 and likely sank to 7.23% in Q4, according to Silverblatt.

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