Days on Market Report

Median Sold Price Report

• The extension and expansion of the credit has left some recent buyers wondering why they were in such a big hurry. Meanwhile some would-be buyers are feeling a little less confident. All are worried they will or have paid too much.
• Housing demand is typically created by one or more of the following: Household formation, employment opportunities, attractive financing and the lure of home equity. All of these are lacking in my market.
• I sense that many if not most of the recent first-time buyers would have eventually purchased a home regardless. The looming expiration of the tax credit served to get them of the fence. This created a somewhat false demand.

In short I do think we’ll suffer a bit of a hang-over this next year. As a generality banks are holding a bit firmer to their prices when dealing with fore-closed properties. I do expect interest rates to rise at some point. Short sales are just as mixed up as they ever have been. It will be interesting to see how things turn out for the big auto companies after the “cash for clunkers” revenue stops showing up on their bottom line. Perhaps an indicator for the near future in our housing market.

That said, if you’re in the market for a home now, don’t be too concerned. Your income should be secure. The monthly payment should be conservative in relationship to your income. It needs to be the right house at a fair price. If all those pieces fall in place, I say go for it. Prices will inevitably rise & fall and I think the joy of home ownership has been relatively under-rated lately. Planting a tree or shrub wherever you wish, knocking a hole in the wall to hang the family heirloom or driving down your street to the “best” house on the street; some things are priceless.

Since what is owed to the bank is almost always more than what the property is worth, very few Trustees’ Sales result in a successful closing. If the Trustee’s Sale is unsuccessful the property reverts to the bank or loan servicer and is now considered REO, or “real estate owned” property.

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will typically negotiate with the IRS and local municipalities for removal of tax/municipal liens and they normally pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will typically receive “clear title” and the opportunity to thoroughly inspect the property. These are the properties buyers will typically see on MLS.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you’re offering is comparable to similar homes in the neighborhood. Consider the costs of renovation. Last but not least, consider your loan type and down payment amount. Loans with high “loan to value” (small down payment) generally require that the home be in good condition.

 A well informed real estate agent, representing the buyer exclusively is invaluable in such a transaction. There are many pitfalls and complications that can be avoided with such representation.

1. Give it time. Buyers and agents would typically like to get a response from the seller within 24 – 48 hours.  Generally not so in REO.  In most cases 3 – 5 days is a more realistic expectation, and I often see good offers failing to get consideration due to the fact that the offer has expired before the asset manager (the bank’s selling representative) can get a look at it. 
2. Put your best offer on the table.  Everyone likes to get a “good deal”.  However, I often hear buyers say, “I would have offered more” in multiple offer situations, after they’ve lost out.
3. Bring your check book. In most cases we must have proof of Earnest Money prior to submission. Those offers that don’t will often get overlooked. 
4. Get the preapproval letter. Again, often a mandatory prerequisite for submission to the seller.
5. Waive the Property Disclosure.  In Nevada, banks are not exempt from Real Property Disclosure. They will most often require the Buyer waive receipt of the prescribed and state mandated form. This waiver requires notarized signatures. Buyers and their agents should get this form completely filled out accept for the property address. Should you find the right home on a Sunday afternoon, it will sure make life easier with this form in the file.
6. Please read the remarks. Most REO/foreclosure listing agents include clear instructions for submitting offers in the MLS, Private Remarks. Failure to follow these instructions will often cause the offer to get lost or overlooked.

This all seems pretty “common sense” in nature, but I’m amazed at how often one or more of these points are missed. Good luck and happy house hunting.

Overall, inventory is relatively low with less than two months supply on the market now at this price point.

• In this price range, in some areas we are actually seeing appreciation. It’s not uncommon to see multiple bids and often the price is actually bid up from the list price.
• We may have some challenges with the purchase appraisal.
• The well priced, active inventory is dominated by REO’s & Short Sales

Sans the distressed inventory this is exactly how we counseled buyers when the market was hot (in my market ’03 – ’06). Kind of ironic under the circumstances and one would hope that consumers and real estate professionals proceed with some caution 

The five year ARM’s originated during the boom are beginning to reset now. For many if not most homeowners a lack of equity makes refinancing impossible. Meaningful loan modifications are still pretty rare and short sales still anything but “short”. With this in mind we will undoubtedly see increased foreclosure activity and that will likely create another drop in median value. So how should we proceed?

Fist of all Buyers & Agents should talk about this. Some areas and types of properties are more vulnerable than others. For example smaller, poorly funded condo associations may really struggle if a significant number of homeowners stop paying dues.

Secondly focus on the monthly payment and long term tax benefit rather than the market value of the property. We often see monthly payments equal to or less than monthly rental value. For the moment we shouldn’t consider home equity our nest egg.

Buy conservatively. I know, there are a few ½ priced mansions out there and that can be alluring. I like to recommend that the buyer at least consider the possibility of hard financial times ahead. Contemplate job status, reserves and the length of time the buyer anticipates owning the home. I have a physician client that recently told me for the first time in his career he now has big gaps in his daily appt schedule. It seems that few people are immune from this downturn.

In short I think we all must keep our wits about us and learn from the recent past. Those that ignore history are doomed to repeat it…

Foreclosure crisis over right? I think not! There are some serious issues looming, some are here now:

• Notice of Defaults: Up over 100% when measured against last year in Washoe County. The foreclosure moratorium (Winter ’08 – Spring ’09) put a cork in the bottle for a few months but we’d better brace for the next wave.
• Option ARM’s: This next wave will be different and not just a sub-prime problem anymore. These are often nice, sometimes upscale homes and lenders were often incentivized to get these borrowers as much credit as possible. These borrowers have (or sometimes had) good jobs and great credit. For many “Pick a Payment” sounded like a good idea at the time. The number of units (properties/loans) re-setting is quite similar when compared to the sub-prime mess. The total dollar volume of these loans is significantly greater.
• 5 stages of grief: Many Washoe County neighborhoods have depreciated 50 – 60% from the peak: Often these homeowners, not yet in distress, are either unaware or in some stage of denial. Besides, “Won’t the bank simply modify my loan”? I for one sure hope so but don’t hold much faith. I recently heard that over 70% of those borrowers granted loan modifications fell into default within 10 months.
• HVCC: The Home Valuation Code of Conduct was intended to head off some of the nepotism inherent in the relationship between the banks & appraisers. It worked and loan officers can no longer communicate with the appraisers. We’re now losing 25 – 30% of our transactions over failed appraisals. I can’t blame the appraisers, why not get conservative? This lame attempt to curb favoritism has created an absolute lack of accountability and favors the unskilled.
• Show me the money: China, Russia, Japan & many others are financing our low interest rates with their investment. That investment dropped significantly last month over fears that the US might be spending too much. Ya think??? No doubt they’ll come to the table with more funds in the future. It’s also likely they’ll want a greater return on investment or higher interest rates.

It’s going to be a long winter but I consider myself up to the task. It will likely fall in the laps of local Real Estate Professionals to fix it this time too.

 “I lost my job”

“I went through a divorce, got raked over the coals, ended up with the house”

“My interest rate’s about to adjust”

“I can’t refinance because I owe more than it’s worth”

 This may sound heartless but the list goes on & on & on… I for one feel a great sense of obligation to provide some help and/or guidance to these homeowners. Beyond the eventual short sale I have had very little success in providing loan mod assistance. In fact I can say that I’ve yet to see one meaningful success story after sending dozens of homeowners on this quest. At the risk of sounding cynical but here’s some of what I have seen:

 The 3^rd party, Loan Modification Experts: These folks usually charge up front, often $2,000 – $3,000 or more. They have a legal team or it may actually be an attorney. They have expert negotiators on staff and they speak the language of banks. Again I’ve yet to see any meaningful success from this group. In fact I haven’t seen anyone perform a task that the homeowner couldn’t have completed themselves. Wouldn’t it be nice if someone were to charge based upon results and performance? Please share any positive experience..

• Avoid Foreclosure, We buy houses: These guys do provide an obvious public service, think of how many sign companies they’re supporting? Seriously, I’ve called several and talked to: Licensees fishing for short sale listings, Investors looking to for a contract of sale, Investors offering to negotiate a short sale while coordinating a concurrent “flip” to a new buyer. Again there could be some legitimate people out there, I just haven’t seen them. Please share….
• Let’s call the bank directly: First problem; you’re typically talking to the collection department. These guys are born to, well, collect. Second problem; Imagine going to the bank for a new loan. You must go 25 times and each visit you talk to a new person to whom you must tell your entire personal story. Each representative responds a little differently. How many loans would we close with that system? Enough said.. I’m looking for positive experiences… 
• Where’s the bailout money?: I recently heard these statistics from a very smart guy and I believe him. He said that of the loan modifications made to date, 80% go back into default within 12 months, 40% never make another payment. My understanding is that the federal money offered to banks for making modifications primarily kicks in when the homeowner actually makes his/her payments. If the above numbers are correct, no wonder the mortgage holders are not making a more concerted effort. I’d love to hear a different story…

 My goal in posting this is to gather some good news. Success stories that I can share with anyone that will listen. More importantly, I’d like to share with those that really need it. Please comment.

•  Buyers actually have to qualify for a home. They need good credit. The lender may actually require a down payment. Say it isn’t so! Risky lending practices created most of this mess. Don’t you think it should be this way? Perhaps we could have avoided all of this had things stayed as they were when I entered the industry in 1991. Those that ignore history are doomed to repeat it, get over it.
• Distressed properties will continue to dominate the Nevada market for the foreseeable future. We real estate pros must innovate, adapt and most importantly learn. This is a whole new world. It’s filled with hard work and accountability. Much more focus should be placed on loss and risk management. Our top people must embrace this and get over it.
• We will work harder for less money, get over it. We may need to work 40 – 50 hours per week or more. In the words of my teenage son, OMG!
• Banks, asset managers, third party REO (Real Estate Owned, the industry word for “forclosure”) service providers are overwhelmed. Much of this is caused by a lack of training from the real estate pros they rely upon for their field work. By the way, you typically can’t buy a bank-owned home conditioned upon the sale of another home. You probably won’t get your short-sale done in 45 days. Your listing is not worth 20% more than the nearly identical foreclosure listing down the street. The claw foot tub, great border paper and 16 pound nails are not worth $50,000. We really owe it to the public on this one.

I would like to make one statement directed towards some banks and loan servicers. Please stop using your collection department staff to manage loan modification. It’s kind of like asking your dentist to remove your appendix. Loan originators must be patient and intuitive. Skills not typically associated with your “repo-man”. Oh! And please stop losing my short sale file. You never seem to misplace my house payment!

Thanks for listening, I’m going to go sell another REO now.

My first request was to speak with a represerntative from Hudson & Marshall. In response they invited myself and several other Dickson Realty agents to join them in a conferance call for the purpose of training.  In general they seem very professional, accomodating and agent friendly. They made it perfectly clear that there would not be any additional fees charged to the buyer should the buyer choose to be represented by a qualified agent. However, I would anticipate at least one additional fee added to all of these transaction and it’s likely to be labeled something along the lines of ”auction premium”. In this case it was $5,000 across the board. Again this fee is charged to the Buyer regardless as to whether or not the Buyer brings his/her cooperating agent.

I found the conference call/training very helpful  and stumbled into a very important fact. One that is not clearly explained in the H & M public information sites and brochure. The fact is there were no representatives from the bank(s) with the authority to sign offers at this auction. With that in mind I think most of the high bidders left feeling as if they purchased a home. In fact they had most likely purchased the right to negotiate directly with the Bank or their Asset Manager at some later date. Looking over the low numbers on these bids I’m pretty sure there will be more negotiations. I noted each winning bid while at the auction and plan to check MLS in 45 days to see which ones actually close and for what price. I will report the results at that time.

As a generality this would seem to be a fairly risky transaction from the buy-side point of view. They do not accept any contingencies (financing & inspections for example) and the buyers earnest money in considered non-refundable from the very point the purchase agreement is signed by all parties. It remains to be seen if the actual reward compensates for that risk. In the end I do hope this strategy works. We need all the help we can get in clearing out the “Bank Owned” inventory.

I will keep you posted.

My partner and I recently re-directed our marketing efforts to include potential “short sales”. Although we both communicate regularly with our sphere (past clients, friends and business associates), neither of us has made a habit of sending vast quantities of mail to people we don’t know. 

The short sale market has changed our philosophy a bit. Typically these homeowners are in trouble and we feel a sense of obligation to help. It’s also a formula to head off foreclosure and ultimately a little healthier for our market as a whole. We’ve become reluctant experts in this field and now market ourselves to homeowners in distress. We’ve run into a few Loan Modification schemes out there and wanted to offer some advice:

• Beware of “up front” fees, particularly if they don’t clearly spell out or guarantee their future performance.
• Check with your Lender(s) yourself. We often find that 3rd parties often charge for a service that can be easily handled by the homeowner.
• If it sound to good to be true, it probably is. We’re all looking for hope aren’t we? This can create an easy target for some.
• Ask for and check references.
• Check with the Real Estate Division.
• Get advice from a trusted attorney and/or real estate broker.

There are some legitimate business models to help distressed homeowners. There are also many free services available for counseling and advice. A seasoned, reputable real estate broker or agent is a great place to start.