Can You Afford That Bank-Owned Bargain?

In many respects, the heralded Real Estate bargains to be had in Scottsdale and the greater Phoenix area should come with the disclosures required of weight-loss product testimonials.

“Joe Homebuyer’s results not typical.”

“Always consult a physician before launching an intensive home search program.”

“Stretch thoroughly and lift with your legs before attempting bank-owned property heist.”

For the purposes of this piece, we are going to focus on the first caveat.  Every Valley resident has at least passing knowledge of some fortunate homebuyer who leveraged the current market to score a honey of a bank-owned deal.  As big a nobody-turned-celebrity as the 170 pound guy in a Nutrisystem commercial holding up a pair of orca sized slacks as evidence of his former girth, Bob from accounting is the new gold standard for idolatry after securing the housing buy that set the office abuzz.  Before following in Bob’s considerable footsteps, however, there are a few things you need to keep in mind.  His results may not only prove atypical, but in extreme cases, constitute patently misleading advertising.

The hidden “gotcha” to many bank owned purchases right now are property taxes.  While the institution that owns the property should pay off any back taxes as a condition of conveying clear title to the purchaser, many buyers fail to properly account for the bill they will be saddled with for the next couple of years (at a minimum).  Unlike other parts of the country, where taxes are based solely upon purchase price, Maricopa County taxes are based upon the assessed value of the property.  Many falsely assume that the home they are buying for $350,000 will reflect a tax basis commensurate with that value.  As our budget revolves around 2 year property evaluation schedules, odds are very good that your current tax basis will reflect a value closer to the $1.1 million that the home sold for back in 2006.

*Click here for information about Maricopa County property taxes

*Maricopa County residents are entitled to appeal all new evaluations from the county assessor (typically go out in early Februaruy), but must do so within 60 days of the date they were mailed.  Click to begin the Maricopa County property tax appeal process online.

Another thing to bear in mind is that while the assessed value of the property is likely to decline rather dramatically over the next several evaluation cycles, expect tax rates to rise in contrast.  You should see an overall reduction to your bill in the future, but our strapped municipalities aren’t going to let go of all that revenue without a fight.  Already firmly entrenched in the red, it is an almost foregone conclusion that the tax rates will be fully maxed out to legally allowable levels to offset as much of the lost potential revenue as possible.  Your friendly, cash-strapped local government at work.

Another hidden sniper to these bank-owned bargains are Homeowner Association expenses.  While monthly fees are typically disclosed upfront (or easily determined through a few well placed phone calls), former million dollar neighborhoods are fodder for massive asset preservation and capital improvement fees/impounds.  You might well afford the $120 monthly fee, but the bulbous community enhancement fee that is due at the time of purchase could blow an unsuspecting buyer’s budget right out of the water.  Given the many amenities that some such high end subdivisions boast, it would also be wise to expect and budget for future special assessments involving their maintenance.

There really are some amazing deals floating around the market right now, just make sure you can afford them.  We are looking for a home you can maintain and afford, not a fad purchase that will lead to a lifetime of yo-yo budgeting.

You don’t want to end up back in the fat pants.

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Losing Buyers to the Banks? Time to Work On Your Bolo Punch.

You’ve been punched.  You’ve been cajoled.  You’ve been dismissed out of hand as a serious contender.  Your corner wants to throw in the towel, but it’s time to look deep inside yourself for that fighting spirit.  This is your Rocky moment, and I’m your Mick.

Tempting as it may be to utter “No mas,” in the face of a younger, stronger foe, you as a home seller have your own strengths.  Yes, the bank properties have been hammering your rib cage and battering you with low blow after low blow for the last eleven rounds.  Every time you regain your composure, another steel-fisted uppercut in the form of a new REO listing shatters the ineffective “pride of ownership” cup upon which you have been so dependant.  The referee and the fight doctor are scrutinizing that nasty gash above your eye to determine if you are still able to intelligently defend yourself.

You’re seeing triple, you say?  Buck up, Rock, and hit the guy in the middle.

Now that the free-fall in property values has seemingly arrested (much like the hearts of many homeowners this year) across several segments of the local Scottsdale Real Estate market, would-be sellers can take a deep breath and catch their second wind.  Even if they are still leery of making the price jump from distressed properties to resale properties, buyers are back in the market.  Several straight months of increasing home sales, decreasing inventory and even modest median price increases (really?) indicate this.  That’s the good news.  The bad news is that most of these buyers are still purchasing the goods on the ground floor (sporting goods, evening wear and foreclosed Real Estate) while the typical mom & pop seller continue to be priced on level four.

Before resale homes start selling at a higher rate, their prices still need to drift a little further South.  This is not news.  You’ve been pummeled with this unwelcome assertion for the past year.  My intent is not to rabbit punch you with the obvious on this day.  I’m offering a momentary reprieve from the infernal pessimism (which I have admittedly dispensed with impunity).  No more defeatism from your corner, it’s time to talk strategy.

Yes, the bank-owned property on the far side of the ring is a fearsome opponent, but skill and guile can slay the relentless beast.  You’ve been getting drubbed over the course of this bout because you are not offering your bigger foe any angles.  You’re simply turtling up with that ridiculous price of yours and accepting a merciless beating.  To change the tide in this lopsided affair, yes, you do need to get a bit more competitive with your price.  Until you get inside the freakish reach advantage of the banks, you’re rope-a-dope tactics will just get you roped and doped.

This is not to imply that you need to match the price of the distressed properties, you simply need to vie for the same buyers.  If the banks are on the ground floor, you need to get down to level two.  If you can at least mitigate a portion of the huge price disadvantage you face, you have a puncher’s chance to sell your home.  Here’s why:

  • The bank property across the street will convey to the buyer in “as is” condition.  You have maintained your home over the years and will make any necessary repairs, within reason, to appease a buyer.
  • The bank property across the street will come with a grand total of zero disclosures.  You will provide a potential buyer with a Seller Property Disclosure Statement, Insurance Loss History Report and any other appropriate documentation to give a certain level of comfort to the new owner.
  • The bank property across the street may not be able to be financed by a buyer due to its condition.  Because you have listened to your Realtor and whipped your home into tip-top shape, you will face no such problem.  Right?
  • The bank property across the street may require a buyer to order utilities turned on in their name (and pay any applicable deposits for said service) in order to inspect the working components of the home.
  • The bank property across the street may ultimately attract multiple offers at its supremely low price.  This can benefit you in several ways.  For starters, the ultimate sales price is often driven higher than the list price in such scenarios, thus making your case for higher neighborhood values.  Secondly, there will be despondent losing bidders for that property that will look, perhaps to you, for alternatives.  Lastly, some buyers will become disenfranchised with bank properties after having gone through this multiple offer scenario several times.  Eager for less competition and an honest negotiation, some just might set their sights on the slightly higher priced property that can be negotiated downwards instead of upwards.

So there you go, champ.  You are far from a hapless tomato can against the oversized Palooka who has been doing the Ali Shuffle all over your face.  He’s a one-trick pony.  Take away the huge price haymaker and the kid is a regular Glass Joe.  If you have the moxie and the wherewithal to get your price just a bit closer to the bank’s, you have the arsenal to pull off a stunning upset and walk out of the joint with the title.  The title of “former homeowner,” that is.

Now put your mouthpiece back in, get off that damn stool and get in there and fight!

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First-Time Home Buyer Credit & Short Sales Do Not Mix!

By now, even the most procrastinating of first time home buyers understands that the end is nigh.  The end of the $8000 first-time homebuyer tax credit, that is.  While rumors abound about a possible extension past the current deadline, rumors also persist that man did not actually walk on the moon in 1969 (if you happen to believe the latter, you can moonwalk your way right out of my blog catalog).  When it comes to our esteemed legislative bodies, I am not ready to take the leap of assumptive faith that they will do the logical thing.  As things stand, you have received sufficient warning from every warm and cold blooded Realtor type in the land that you need to get on the stick immediately.  With new appraisal regulations and loans which used to take 30 days now bogged down in underwriting quicksand, it is not a good idea to venture past mid October before pulling the trigger on that home you have been patiently watching for just one more price reduction.  With a fleet of fellow procrastinators waiting until the absolute zero hour (closing prior to 12/1/09), there is also the added risk of running into title company soup.  Think the end of the month is busy at your friendly title company and subsequently hectic in terms of getting your deal closed?  My hunch is that typical happenstance will be a walk along a tranquil beach in comparison to the buyer tsunami that figures to crash upon every escrow office near you between 11/1 and 11/30.

But these are the things you already know.  Just like you already know that the credit is not reserved solely for first time buyers, but also those who have not owned Real Estate within the past three calendar years.  This information is so readily available that I haven’t even bothered to write about it before now.  At great risk of being the guy who runs into the empty room to yell “Fire,” I do believe there is one more wrinkle that needs to be discussed.  With the deadline steadfastly approaching (just because it looms closer, doesn’t mean the pace has suddenly morphed to earn “rapidly approaching” designation, now does it?), lost in the prodding for first-timers to buy now is any discussion as to the kinds of homes you should be considering.  I shall rectify this egregious oversight now.

Earlier in the year, the Real Estate world was your oyster.  REOs, short sales, HUD homes, auctions … bring them on.  As long as you wrapped up your purchase prior to December, you were golden.  Thus, you had the ability to trawl every last oceanic trench to scrape up your sunken treasure.  It probably didn’t take long to realize that the biggest finds, those Titanics of the Real Estate deep, were teeming with sharp-elbowed and deep-pocketed prospectors.  Basically, you with more purchasing power.  Every time you made a play for a new bank property, you and your FHA-fueled dingy were left eating the wake of 50 foot conventional vessels and staring into the live canons of the scourge of the first timer’s sea: cash buyer pirates.

Resigned to the fact that your 3.5% down and government-backed loan vehicle is not a fair fight against the types of buyers that the best values attract, you most likely started looking at resale and short sale properties.  Resales have been tricky because most sellers are not in a position to compete with the banks.  Many that you would be interested in continue to be priced out of your affordability.

Now you may be thinking that short sales are the way to go.  The bank wants to offload a property that is in default without incurring the expense of foreclosure.  The seller just wants out and is not motivated by profit, thus creating a tantalizing asking price.  Sure there are only a couple months left to close on a house to secure your credit, but this listing says they are using a “Certified Negotiating Specialist.”  This other one says they have a 95% success rate!  Another even says that they are near bank approval!

Don’t do it.

I know you have gotten your teeth kicked in on the bidding wars that erupt on the bank properties, and the resale market is still too pricey, but short sales are not the way.  Not now.  If you had submitted an offer on one several months ago, you would have a shot, but I am telling you right now that YOU WILL NOT RECEIVE YOUR $8000 TAX CREDIT IF YOU WRITE ON A NON-APPROVED SHORT SALE LISTING at this point.  It is quite typical for the process to take 3-6 months, and the resolution is far from a sure thing.

Keep looking at the bank properties, but reset your sights a little.  Great values are still out there.  You can lock one up that isn’t priced so stupidly low that every buyer and his pet chimpanzee show up to vie for it, driving the price into the stratosphere.  Some of the best buys made right now are actually the ones with list prices that aren’t necessarily the most attractive.  When banks, just like typical sellers, miss that sweet spot, you have a better shot at negotiating the price lower versus bidding the stupid cheap one up.

This is also not a bad time to take another hard look at the resale market.  Sellers of properties that will fit the budgets of first time buyers should be receiving advice from their agents right about now that they really need to get competitive if they are to capitalize on the last minute purchasing rush.  Granted, many sellers simply are not in a financial position to lower their prices, I have noticed more and more resale listings working their way into my searches.

Finally, I would be remiss if I didn’t caution that the tax credit should not be the be all and end all for your purchasing decision.  If you simply cannot find the property you want at a price you can afford, don’t get caught up in the frenzy.  The worst decisions are often made in the face of such artificial pressure.

But if you are ready to take the plunge, find yourself a property in which the seller can give you a thumbs up or thumbs down within days instead of weeks.  Walking the short sale plank with less than 90 days to get it closed will net you an $8000 cold shower.


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I Had a Choice … And I Made It.

Picture a bowl of primordial soup.  No, really picture it.  What does it look like?  I see a gelatinous, gray gumbo of sorts.  The contents within completely impervious to the light of the sun underneath an opaque, spoon-devouring outer layer.  I don’t need to make out the individual invertebrates that I sense roiling about the porcelain confines to intuit that a wayward finger would disappear into tiny, prehistoric mandibles within moments of straying into the land of the culinary lost.

Of course, I am talking about bank owned property sales.  If the creepy crawlies in the walls don’t get you, the asset managers will.

About a year and a half ago, I, like many of my Real Estate brethren, was forced to take stock of the focus of my career.  Having long relied on the nearly continuous repeat and referral business that I cultivated through years of diligent service, I was forced to ponder the unponderable when the Great Market Implosion of 2008 (c)  threatened to sabotage my business model.  If you could even call it a business model, that is.  I subscribe to the notion that if you do right by the clients that you have now, you will never want for clients in the future.  Good business practice begets good client retention.

And yet, there I was.  Looking around for the vine upon which my new business had died amidst the economic crop dusting that was rendering entire markets fallow.  My hedgerow bustled only with concern.  So what to do?  With credit markets drying up and loans increasingly difficult to come by, the resale market became a stagnant bog.  The only sign of life would be Nessie popping her head above the surface of the foreclosure loch on occasion to swallow another hapless homeowner.  Against this stark backdrop, many of my respected colleagues turned to the very institutions that led us down this path to housing oblivion for their salvation.  Sensing that resale properties could not compete with the dirt cheap foreclosures, and that finding loans for buyers had become vastly more difficult than finding properties, I was tempted to follow suit.

The lure of pursuing bank-owned property listings was … gulp … quite tantalizing.  I saw REO agents handling more properties at a given time than they ordinarily handled over the course of an entire year while I banged my head against the resale wall.  Heeding the siren’s song, I went so far as to solicit lists of banks with whom I could apply to handle their overflowing inventories.  Hat in hand, it struck me that this was the 21st century version of standing in line for hours on end amidst scores of other able-bodied candidates for a factory job circa 1930.  A funny thing happened en route to the head of the line, however.  An epiphany, if you will.

In the current market, we all work for the banks in one manner or another.  You either list their houses, or you bring them buyers.  Only one side of that equation will bring you repeat business down the line, however.  I realized that I could not take on the workload that REO specialists enjoy tolerate without alienating the loyal client base that had propelled me to heights I had never really thought possible in my career.  Knowing there are only so many hours in the day, I made the conscious decision to forgo the possibility of immediate gratification with the banks to continue to serve real people.  It’s not an entirely altruistic choice either, but a pragmatic one.  The foreclosure market will dry up eventually, leaving the few remaining morsels to the established denizens of the deep who have waded through that knee-deep filth for the last two decades.  Those Johnny Come Latelys whose bank-owned property experience extends back a year or two will be in the unenviable position of having to redefine their expertise yet again.  Their neglected mom and pop clients will have moved on.

I do not want to watch my business wash up on the rocks along with the myriad other souls aimlessly following the tide on a makeshift raft of sticks and desperation when the winds finally change.  I’ll continue to take my chances with my own internal compass and weather-battered crew.

So, here you sit.  Spoon in hand, ready to dive into that noxious looking soup.  It may not be the most appetizing dish you have ever seen, but it’s the house special and the price is right.  The maitre d’ has already slipped back into the kitchen, hurriedly gathering the same ladled gruel for the next table.

No fear, your royal tester is still here.  Pass that gnarly bowl on over and I’ll help you determine its edibility.

I was sitting on your side of the table when we were eating steak and lobster, and I’m not looking for the check now that my dinner guests can only afford spam.  It may bring a little indigestion on this particular evening, but there are plenty of four star evenings ahead.

If you are buying or selling a home in Scottsdale, Arizona, and you are not an amorphous, soul crushing financial institution, it would be my great privilege to represent you in your pursuits.

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Selling Homes and Nailing Things to Trees

My wife has an affinity for collecting quotes.  Whether humorous or inspirational, on fridge magnets or flowery stationary, she likes having the visible reminders nearby as a lifeline to help pull her out of whatever malaise she may happen to find herself mired in at a given moment.  Truth be told, prone as I am to ridicule the sappy sentimentality, I kind of like having them around the house, too.  Sitting here in the kitchen on a slowly unfolding Sunday morning, sipping my first cup of coffee and awaiting the incubating bounty of cranberry muffins that is teasing my nose and stomach, one particular wall hanging catches my eye.  Emblazoned across its whitewashed, faux wooden surface in black scroll lettering is the following:

“Raising children is like trying to nail jello to a tree.”

Not the first time I have seen it, but it still draws a chuckle.  Substitute the words “Selling Real Estate” for “Raising Children,” and you have this agent’s description of the arduous world of buying and selling property in 2009.

Case in point, one of my property listings is a short sale.  My lone short sale listing.  Now, and hopefully forever.  Over the four months it has taken our buyer’s offer to gain full approval, only to have a needed extension to the closing date entail another two week period of review and authorization from the banks involved, the twists and turns of this transaction have been nothing short of spectacular.  Fortunately, with a closing now on the horizon, we finally appear to have this bit of transactional jello firmly nailed to the mesquite in my backyard.

Apparently a glutton for punishment, I currently have two buyers with offers accepted by sellers and submitted to their respective banks for approval on short sales.  One of those buyers deploys for Iraq at the end of this month.  We will be lucky to have a loss mitigator assigned to the transaction by the time his boots touch the 130 degree foreign sands.  The other buyer is a first time homeowner who has been looking with me for several months.  In both instances, we’ve only grudgingly included short sale listings recently in our lists of properties to see.  The time factor is brutal, but it is the uncertainty that has been the primary deterrent.  It’s one thing to wait indefinitely for a foregone happy conclusion, but quite another to invest a month or six of your life into a transaction that may be doomed from the start.  As such, for many, short sale properties have really turned into the “just-in-casers.”  Throwing an offer at a bank as a contingency plan, buyers are well advised to continue shopping for a property in which the seller is in a position to provide a quicker response.  If a resale or bank-owned property pops up while the short sale is still in limbo, the buyer is free to cancel that transaction (provided a standard AAR short sale addendum is included with the standard verbiage) with no loss of earnest money and pursue the new candidate.  Lots of additional work for all parties involved, but you’ve got to get your fingers dirty in the current market if your seeds are to take root and grow into an actual sale.

Then there are the bank properties. Foreclosures, REOS or whatever other term you know them by, they differ from short sales in that the bank has already taken the property back from the defaulting homeowner.  No interminable wait while the bank assesses value and the seller’s qualification for a short sale, but there are still a few wiggly characteristics with these properties.  For starters, while infinitely quicker, you can still forget about an immediate response or any loyalty to the author of the first offer.  You can attach a two page cover sheet with your offer outlining your love of the home, how the drapes match your furniture and for the first time in your life, you feel like you have really found “home,” but the asset manager at the bank will still sit on it for 3-5 business days to see if anyone will beat it by twenty five cents.  Even if you offer full price or above.  Trust me … been there, done that.  Further, because everyone wants bank owned pricing, these properties are often highly competitive.  The banks know it.  Given this truth, the very best values that you are holding out for as a buyer are highly competitive.  If you’ve seen 100 properties and think the latest one is a screaming deal, so do the thirty other buyers who have been looking at the very same houses.  That awesome deal you see on a bank-owned price is often just the floor for the higher offers that pile up like clowns in a circus car.

Wiggle, wiggle, wiggle.

Of course, if transactions involving banks are akin to manipulations with an amorphous edible substance, selling a typical resale home at present remains more like nailing a pickup truck to a tree.  By and large, resale properties continue to be drastically overpriced.  Only the savvy sellers who price to compete with the banks stand a chance of actually unloading their homes.  No matter how strong the marketing nail or stout the trunk of seller resolve, gravity continues to win that lopsided struggle.  You can only prop up an unrealistic price for so long before it finally crashes back down to market value or the broken down rig gets towed right off the market.  No buyer is going to shimmy up that tree, get behind the wheel and drive said truck straight into the ground.

Is buying and selling Real Estate in 2009 a tricky business?  Hell yes!  Up is down, down is up, and nobody knows when this crazy ride will end.  But just like raising kids, the process is uniquely rewarding.  So grab a helmet, buckle up and don’t be afraid to enter the scrum.  As long as you know what to expect and bring an experienced chaperon, you’ll eventually get where you want to go.

Even if you end up with a few stains on your shirt along the way.

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