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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.
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March 17, 2008 3:50 PM
Posted by Elizabeth Rhodes
The Rex Agreement, a new way for equity-rich homeowners to cash out some of it, was the subject of a story on Sunday, March 15. Offered by a California firm, the agreement was rolled out in Seattle recently. North Bend reader Hal Williams considered signing a Rex Agreement. He offers his observations.
I read your subject article with interest today. Well written and I believe you have your facts in good order. As an individual who recently went through the REX application process, I thought I would point out two items that could be of interest to you and other readers who might involve themselves in one of these financial arrangements.
1) Those who are interested need to read the "early out" penalty clause very carefully. If you sell your home within 5 years of entering into the REX agreement, the financial penalties are very substantial. In fairness to REX & Co., they do point this out as not a "short term" solution to financial situations.
2) The appraisal. This is the real "gotcha" in my opinion and where I parted with REX & Co.
My home in North Bend was appraised in April of 2007 for $810,000.00 for a refinance of my first mortgage. It was through Countrywide, so no "fly-by-night" mortgage broker. It was a full-fledged appraisal by a certified and licensed appraisal firm.
I based my application to REX & Co. in February, 2008 on the assumption that our real estate pricing had been relatively steady-state over the past year. All real estate publications and articles that I have reviewed in the past year indicate that the Seattle area, Portland, OR area and Charlotte, NC area are the only ones where real estate prices have held their own, or even appreciated slightly. Just to be safe, I discounted my home value by 2% to $794,000.00 in my submission. This gave me plenty of equity to meet their ~25% equity requirement. No issues of any type that would cause a decline in value to my home had occurred over the previous 10 months.
Much to my surprise (and subsequent irritation), the appraisal on my home from the REX & Co contracted appraiser came back at $734,000.00, A FULL 9% DECLINE IN VALUE! To say that I was shocked would be an understatement. I took this info to a Countrywide lending agent that I know and asked her about this. She advised that even a quick, cursory look showed at a minimum $765 to $775K. My Realtor, who is very familiar with the Snoqualmie Valley area in general and my home in particular, said a listing price for my home would be in the $790K to $795K range.
So my point is, beware to any users of REX & Co that the appraisal is realistic AND accurate! Otherwise, you are just building a low baseline value for them which locks in instant profits since that is the number that drives everything when you sell out. By the way, I did not move forward with REX & Co. because of this (and had to suck up the $500.00 appraisal fee even though I had provided a copy of the April 2007 appraisal to them and their appraiser).
Posted by ClarenceB
11:01 AM, Mar 18, 2008
Posted by SpecialK
11:12 AM, Mar 18, 2008
That was great. Thank you.
Posted by Jay Endels
12:36 PM, Mar 21, 2008
E. Rhodes, The Rex Mort. sounds like a total rip-off. I can't believe you have written about it with a straight face.
Posted by JackD
7:40 PM, Mar 30, 2008
We got the Rex information and my main concern was EXACTLY what you had a problem with - the appraisal. They claim it is an independent appraisal, but since they pick the appraiser, how exactly is that "independent." I don't believe there are any kickbacks, but there is kind of an understood quid pro quo similar to what happens in auditing. Is an appraiser who is getting a lot of business referrals from Rex going to give them appraisal numbers that would not be beneficial to them? If they did, Rex would find another appraisal firm. My gut has been telling me not to do this and this article confirms my gut.
Posted by Appraiser
5:31 PM, Mar 31, 2008
Verrrry interesting --- April 2007 value of $810,000 by Countrywide - "no 'fly-by-night' mortgage broker." Countrywide is under investigation in several states for pressuring appraisers to over-value homes. One of the reasons they need a buy-out from BofA.
I agree that prices in the Seattle area and on the Eastside have continued to appreciate, although at a slower rate. However, both your Realtor and a Countrywide lending agent say the value of your home has dropped $15-45,000 - and if listed at $790-795K, would probably sell for less.
The REX appraisal may have been too low, and I have other questions about the entire REX program, but it definitely sounds like your home may have been overvalued in 2007.
As to Jack's comment, federal law requires that the lender order the appraisal when making a loan. As a homeowner, you can order and pay for an appraisal, but if you take it to a lender they must order a new appraisal - and most will not order from the appraiser you used.
Posted by Vira
3:11 PM, Apr 03, 2008
I appreciate your comments regarding the Rex Agreement. One of my major questions in finding out more about this was to ask if I could hire an independent appraiser and have that appraisal submitted to Rex. I was not told no but was told that Rex would make arrangements with an independent appraiser, indicating to me this was another way of skirting the real answer, which I believe is no.
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