An earnest money deposit shows the seller that a buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer’s down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller terminates the deal, the earnest money will be returned to the buyer. When the buyer is responsible for retracting the offer, the seller will usually be awarded the money.

Typically, the amount of the deposit is related to the purchase amount. For a home under $100,000, a deposit of $1000 is completely reasonable. For a $500,000 home, it will be more. It should be an amount that the buyer will think twice about walking away from the transaction! Currently Fannie Mae requires 10% EMD on cash purchases of Homepath homes (this is subject to change).

Once a purchase offer is accepted, the deposit should in almost all cases go to the escrow company — a third party that will make sure that both the buyer and seller get what they deserve. They will hold on to the money and make sure that all the accounting on the transaction is correct.

Now, most reasonable purchase offers have contingencies: a provision for the buyer to get his deposit back if certain things are not as expected. The GLVAR purchase offer, for example, has a mortgage contingency, an inspection contingency, an appraisal contingency, and an HOA resale package contingency. That  means if the buyer can’t get a mortgage, or terrible things turn up on inspection, or the appraisal comes in low, or there are unacceptable things in the HOA rules, the buyer can cancel the contract and get that EMD back. Some of these contingencies can be waived. For example, a cash buyer doesn’t need a mortgage and can waive appraisal. I think any buyer would be foolish to waive inspection. The receipt of the HOA resale package cannot be waived in most circumstances under state law.

Now, let’s point out what it is not: It’s not a write up fee, a payment to write a purchase offer, an up-front commission to the buyers agent, a bribe, a way to cheat a buyer. This is a legit deposit, and I wish more Realtors and resources for home buyers did a better job of explaining it.

Investopedia correctly points out that the deposit will be applied towards the downpayment and closing costs. However, it is important to note that in the rare case that you qualify for a “Zero Down” program (such as a VA loan), you will still need to put down an Earnest Money Deposit. You can apply it to closing costs, you can often get the money back at closing. In the immortal words of Robert Heinlein, “There ain’t no such thing as a free lunch.”

The News: I do love to start with fun stuff, so let’s get rolling with 21 things to do in Vegas for under $21! And it doesn’t include the shoes at the Cosmo, Fremont Street, or the various neon displays. Who doesn’t love fun things at low prices?

Even though foreclosures are down, they are still an important part of the Vegas housing market. So here’s an interesting article on foreclosures nationwide and why some states have different problems than others.

Trulia has noticed what I’m seeing on the ground: listing prices for homes are going up, even when you account for the mix of price levels.

And finally, mortgage interest rates have hit yet another all time low: the 30 year fixed rate averages 3.84%. Many experts say that rates will remain low for another year or two “because the Fed has committed to low rates.” What these experts fail to understand is that the Fed doesn’t control mortgage rates. I hope to explain in detail next week.

Available Listings: There are 4725 single family homes (down), with a median price of $189,900 (up), $87 per square foot (up). In addition, there are 553 condominiums (down), with a median price of $60,000 (down), $62 per square foot (unch) and 353 townhomes (up) with a median price of $90,000 (up), $67 per square foot (unch).

Distressed Properties: Of available listings, there are 1641 short sales (down) and 787 bank-owned (REO, foreclosures, & “repos”) properties (down). Median price for a short sale is $139,999 (up); median price on a bank-owned home is $119,950 (up). All short sale listings should be considered at risk of becoming bank owned properties whether they are available or contingent. The 3203 non-distressed properties for sale (up) had a median price of $219,900 (up). While many of the non-distressed properties are traditional sellers, many others were purchased fairly recently as short sale or bank owned, and then renovated by investors.

Single Family Home Prices: Of available listings, 129 under $50,000; 711 between $50,000-$100,000; 1737 between $100,000-$200,000; 1311 between $200,000-$400,000; 427 between $400,000-$700,000; 167 between $700,000-$1,000,000; and 294 over $1,000,000.

Condo and Townhome Prices: Of available listings, 281 under $50,000; 351 between $50,000-$100,000; 209 between $100,000-$200,000; 57 between $200,000-$400,000; 14 between $400,000-$700,000; 1 between $700,000-$1,000,000; and 1 over $1,000,000. For technical reasons, these figures do not include high-rise communities.

Contingent and Pending Listings: Of the 15777 properties in the process of being purchased (down), 13332 are single family homes with median price of $120,760 (up); 1487 are condominiums with median price of $50,000 (unch); 959 are townhomes with a median price of $75,000 (unch). Final negotiated sales prices are confidential until closing. Of the total, 11626 are short sale, 2166 are foreclosed, and 1984 are traditional sales. While the bank-owned and traditional sales are likely to close within 30-45 days, no time frame is available for unapproved short sales.

Recently Sold: 1017 properties closed this week, 3936 in the last 30 days, and 15746 so far this year. For properties closed in the last 30 days, median time on market was 37 days (down). Median sales price was $115,000 (up); median list price was $116,000 (up). For single family homes, median sales price was $129,900 (up), for condos $51,000 (unch), and for townhomes $69,725 (up). Short sales accounted for 1181 of the total, there were 1458 bank owned properties, and 1298 non-distressed sales.

Rentals: 5165 homes, townhomes, and condos were available for rent in the Valley in the MLS system (up). Median square footage of these units is 1502 and median rent is $1095. There are 1040 contingent leases waiting to be signed and 2530 leases signed in the last 30 days (down) with median rent of $1095 and median square footage of 1563.

Need more information or help with your real estate needs? Call me today at 702-727-7842 or email bmagnus@bridgetmagnus.com. Based on information from the Greater Las Vegas Association of REALTORS Multiple Listing Service for the date specified above. This article was written and copyright by Bridget Magnus, and is her sole property.

The folks at Calculated Risk, on the other hand, look at the very same data and see an upwards slope! He notes that some markets — like, say, Las Vegas — are seeing bidding wars.

Just in case this isn’t confusing enough, here’s an economist who thinks that both the “bulls” and the “bears” are correct. Edit: here’s more.

Personally, I think that prices in some metro areas probably have bottomed, some haven’t, and it’s very hard to make all the data fit one trend.

Will the mortgage officer really process it: One of the questions I ask every new mortgage person I talk to is whether they will handle loans in this price range. In my experience, no reliable mortgage person will. It’s simply too much work for too little commission — and too little chance that it will close. I have dealt with some mortgage people from the “big banks” that say it’s no problem, but something bad comes up every single time. And why is that?

It comes down to condition: I’ve tried to make these transactions work in the past. Really, I have. Usually in the last week before closing, appraisal conditions come back. You probably knew that your mortgage company won’t commit to lending you the money until after the appraisal. They want to make sure the place is really worth that much. But maybe you didn’t know that the appraisal can come back with a list of things that must be fixed before closing! Sometimes these things are simple, like a new smoke detector. Sometimes they are big and expensive, like replacing broken windows or replacing the roof! Since most properties in this price range are either bank owned or short sale, odds are very good that the seller will not make any repairs prior to closing. This leaves the buyer with a choice: pay to fix the problems before closing (if it doesn’t close, you lose the money, if your workers break something, you’re liable); put a lot of money in escrow towards making repairs (usually 2-3 times the estimated repair cost); or walk away.

And a bonus half a reason, The HUD Condo List: it shouldn’t be any shock that there are more cheap condos than cheap houses. Many lenders won’t lend to purchase in a community that isn’t on the “HUD list” of FHA approved condos. There are very strict criteria to get on this list. As of today, there’s only 283 communities in the entire state of Nevada that qualify, 192 of them in Las Vegas.

It never feels good to tell someone that their dream of owning a home just isn’t going to work out right now. However, sometimes it is the honest thing to do.

Bank Addendum has unacceptable terms: If you are buying a foreclosure, the bank that owns the property will send you a big addendum with terms that over-ride your local paperwork. This document is written by a team of lawyers and is not negotiable. Read it carefully! If the buyer can’t live with the terms, the only thing to do is walk away.

Inspection turns up problems: This is why buyers should always do a property inspection. Sometimes the problems are much worse than expected. As a buyer, you can ask for reasonable repairs in most cases. However, most bank owned properties are sold “as is, no repairs prior to close.” In the case of a short sale, the seller might not have the money to make repairs. The buyer might have the ability to negotiate a lower price based on the inspection report, but it is unlikely on foreclosures and short sales. A traditional seller hit with a bad inspection report has the option of making reasonable repairs or offering a lower price. This is a great reason for sellers to pay for a property inspection up front — the opportunity to make repairs before somebody else finds a problem, or adjust the price up front.

Short Sale Approval Doesn’t Work Out: After months of looking at the seller’s financial papers, the bank can come up with one of 3 replies: yes, no, or new terms. Since the bank will be losing tens or hundreds of thousands of dollars, they do get the last word. If the bank comes up with a higher price or other terms that are not acceptable to the buyer or the seller, the only option is to end the transaction. What might be unacceptable to the seller? No release of deficiency or a big out of pocket payment at closing! What might be unacceptable to the buyer? Higher closing costs, a higher purchase price, or an unreasonably short time in which to close. If the bank’s terms just won’t work for either party, the only answer is to cancel.

Title Problems: These days, it’s increasingly common to have a problem caught by the nice folks at title: a forgotten lien, delinquent HOA payments, sometimes even a seller who doesn’t actually own the property! Only the seller can fix these problems, and it does take time. The seller should probably cancel the transaction, clear the problem, and put the property back on the market.

Appraisal Comes Back Low: The buyer’s mortgage company is not going to let the buyer borrow more than the property is worth. That leaves 3 options: the buyer can come up with the difference between the purchase price and the appraised value  in cash (not always possible), the buyer and seller can negotiate a lower price close to or even at the appraised value, or the buyer can walk away. This leaves the seller in a bad position, since that appraisal is likely to come up again.

New Loan Conditions based on Appraisal: The appraiser may notice something that must be fixed — at least in the mind of the lender! Sometimes these items are minor, like a couple more smoke detectors. Sometimes they are major, like a new roof! The loan will not fund without the required repairs. A traditional seller can be pressured to make repairs. When the seller can’t or won’t make repairs, the buyer has a problem. I will never recommend that a buyer make repairs on a property he doesn’t own. But usually, a buyer can either put money into escrow towards repairs to be made after close, or in some cases get a home improvement loan for the express purpose of making those repairs after close!

HOA Rules or Fees Unacceptable: Most states require the seller to make sure the buyer gets a copy of the HOA documents before close. The buyer should have an opportunity to read things like the community policies and budget before closing. Sometimes, things pop up in those documents that just won’t work. Perhaps the buyer planned to rent out the property and the HOA doesn’t allow rentals. Perhaps the buyer hoped to paint in new colors or renovate the landscape in a way that isn’t allowed. The buyer has the right to back out and there’s not really much the seller can do.

Loan Problems: I find this to be the most common item. Sometimes a buyer does something without thinking that it might effect their mortgage: open a line of credit at a furniture store to buy stuff for the new place; have a garage sale for all the stuff they aren’t moving and deposit a large sum of cash in the bank. Most loan problems can be overcome, but they take time. Buyers should ask their mortgage professional up front what things they should avoid in escrow, and keep very good financial records in case a problem comes up. Again, not much the seller can do.

Unexpected delays: Sometimes things just take longer than they should. No matter which side is to “blame,” the only answer is an extension addendum. This basically says “I know we agreed to close on this date, but we will close by this later date instead.” Be sure to ask for as much time as you need up front — and within reason! — because most people are reluctant to grant a second extension.

I hope this is helpful. Good luck!

Once you get a property under contract, you have a period of time where you find out everything you can about the property. That’s called “Due Diligence.”

One document you’ll see at this time is called a Preliminary Title Report. It’s dry reading — a list of all the public documents like purchases and liens — but here’s why you need to sit down and read it anyway.

Another thing that happens is the appraisal. It’s supposed to make sure that you aren’t getting ripped off and that the property is really worth what you’re paying for it. But what happens when it comes in low?

Bank of America — one of the Too Big To Fail instutuions that helped bring terms like “robosigning” into our vocabulary –has made an important announcement: the housing crash is over. Of course, the analyst who appeared on Bloomberg did have to hedge her bets just a little:

We do think that home prices are in the process of bottoming right now, but we do think that it’s going to be a very bumpy bottoming—one that lasts through the end of next year, and then you start to see home prices turn higher in 2014.

Of course, we’ve already seen Vegas prices bottom and turn. Prices of available foreclosed homes are up 17% over last summer’s bottom. Prices on short sales and classic listings are up too. Builders are reportedly writing prices on floorplans in pencil because prices can and do change quickly. Prices on sold properties aren’t showing the gains just yet, but they likely will within 60 days as our lowest priced properties move off the market and short sales get approved.

When it comes to local real estate, I truly do live in “interesting times.”

This morning we had attorney Gary Fales in our office. He’s always an interesting guy. His specialty is a type of trust we have in the State of Nevada that can clean up your balance sheet, protect your hard earned money/property from creditors, and make it much more likely to get a short sale approved with less risk of the bank ever coming back to you for more money — often no risk!

There are just a few things he said today that I want to share with you. The first is the idea that deciding not to pay the bank any more money is a business decision, not an issue of morality; your credit score is not a character score. He’s seeing foreclosure timelines getting very long in Nevada, with sometimes a year to get a court date! Chalk that as one more reason banks are suddenly enthusiastic about short sales. He’s even hearing about banks approving short sales without late payments in some cases.

If you are considering a short sale in Nevada, you owe it to yourself to attend a free public class on Thursday the 8th of March at Mr. Fales’s office (it’s almost around the corner from my office at Sahara). You can find out more — and watch some of his very educational videos free — at his website. Obviously, he charges money for his services, but at this free event you can get a better idea of what you need to do going forward.

Remember that if you go the short sale road, I am certified as a Short Sale and Foreclosure Resource (SFR) and I currently have capacity for additional short sale listings. Don’t forget to check out my videos on the short sale process and what goes in a short sale package.