“It’s Only a First Home” (and other bad advice).

So I’m enjoying one of the myriad HGTV Real Estate shows the other night.  First time home buyers were the focus of this particular program.  Unable to  watch without properly entertaining myself with my own sarcastic commentary (did that agent really just say that?), this has become one of my favorite pastimes.

There is the Realtor who feels the need to point out the backyard or the front door to the dumbfounded buyers.  The agent who demands to know “if this is a house you can see yourself living in” within seconds of stepping through the front door.  It’s a carnival of overselling that I can only hope has more to do with the camera than the standard practices of my erstwhile colleagues.

There is one particular practice that repeats itself ad nauseam on these shows, though, that truly makes my blood boil.  I’m speaking of the agents who seemingly forget that their job description as a buyer’s agent is to protect the interest of their clients.  It’s awfully hard to do that portion of the job correctly when you push every property that you look at as the greatest thing since canned yams.

Homes have flaws and some are fatal.  While it is ultimately the burden of the consumer to make that determination, these silly shows raise my ire when the response to the buyer’s observation that there is a train running through the back yard is, “Hmm, let’s go back inside and look at that wonderful kitchen again!”

Or my personal favorite brand of exchange:

Buyer: “This only has 2 bedrooms?  We need at least 3.”

Agent: “Yes, but look at those hardwood floors!”

Buyer“The floors are nice …”

Agent:  “And remember that this is your first house.  The first house is never the dream house.  You can always move up to the bigger house in a few years.”

Timeout!  This is the worst brand of advice, and I simply cannot tolerate it.  No, the first house will not be the dream house, but to advocate making sacrifices on the aspects of the home that will impact resale potential the most is unconscionable.  You don’t eliminate the third bedroom and 75% of future buyers, you eliminate the hardwood.  You don’t purchase the stigmatized property with the highway behind it just to get the kitchen with the stainless steel appliances.  Those are poor purchasing decisions.

If I had a nickel for every time I heard that a first time buyer should not worry about some major feature of a house, I would be a piggy bank.  While it is always important for a buyer to discern the future value potential and ability to resell a property he or she is considering, it has somehow become cliche that it is not as important to the first time buyer.  As if the lower dollar value of the investment or the knowledge that he or she will only be in the home for a couple of years would somehow mitigate the importance of due diligence.

I maintain that future value concerns are even more important to first timers than most.  For the very reason that they will likely enjoy a shorter stay in the home, they need to be especially cognizant of resale capability.  The retired couple who is buying the home they envision for spending the duration of their golden years can more afford to make a purchasing decision with their specific needs in mind than the couple that is just getting started and will use their first property as a springboard to their ultimate home.  They don’t want to get off on the wrong foot by making a poor initial investment.

You can more afford to screw up your purchase if you never plan to sell it.  If this is the house you plan to die in, by all means, buy the one on the ancient burial ground with the sweet discount and benevolent (hopefully) spirits.  Otherwise, buy something that someone else will want to buy from you.

So first-time home buyers, you will have to make sacrifices, especially if you are looking in a higher end market like Scottsdale.  That does not mean you should settle for having a power plant next door or the funky one bedroom house with the garage converted to a recording studio.  Eliminate the properties that have unfixable or expensive structural/locational problems.  Remember, you can always replace the vinyl flooring and the laminate counter tops.

Not so easy to re-route the Amtrak.

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Put Away the Rose Colored Glasses When Shopping for a Home

My buyers must think that I am an absolute buzzkill sometimes.

How can an agent possibly find something wrong with 25 straight houses?

Why would a Realtor always harp on the negative instead of getting excited about the positive?

This market is why.

When I am working with buyers, I tend to point out every conceivable flaw with each property we visit.  I have literally talked clients out of purchasing homes.  Be it a busy street, a vacant lot next door with suspect zoning, goofy architecture, etc, I am ruthless.  An anti-salesman if you will.  Not only does this give me credibility when I actually do show some excitement about a property that I think is a terrific value, but it protects the buyer’s future interests.  Inside every good buyer’s agent is a listing agent.  I know that someday I will be called upon to sell the home that my clients are buying today.  Out of pure selfishness, I want to make sure I have a saleable listing.  That means great location, great condition and great price.  This brings my goals in perfect alignment with theirs.  An agent who focuses only on today’s sale cannot be trusted to secure the best value and highest possible appreciation schedule.  Many agents will spend thousands of dollars soliciting the listings of highly desirable properties.  I would rather secure great listings by finding my buyers great houses.

And in a difficult market like today’s, the last thing I want is to tell a client that his/her home will be darn near impossible to sell because of some flaw that we overlooked.  Or that there is not much wiggle room on price because we did not secure the best value.  While many properties are sitting on the market, the good ones are selling.  The lesson to be learned is that the pain many sellers are experiencing right now is not entirely market driven.  Some blame must be levied for purchasing with rose colored glasses, and not being nearly critical enough when assessing the property.

So for the foreseeable future, you will see me with a smile on my face most all of the time … except when showing property.

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Short Sales, Foreclosures, Resales … Huh?

Times were you looked at a few houses, found one you liked and made an offer to the current owner.  After a bit of haggling, you settled on a price that both parties could live with and away you went.  Easy as pie.

In the current landscape, however, buying a home is not always that simple.  Due to the prevalence of foreclosure properties and upside down sellers in today’s market, a buyer is often in the dark as to the nuances that may vary from one property to the next.  To that end, there are certain rules of thumb that a buyer should keep in mind as he or she navigates the 2009 Scottsdale Real Estate market.

1.  The Short Sale Property

Upside Down Seller

"Upside down, boy you turn me, inside out ..."

You’ve read about them in the paper, heard about them on the news and know somebody who attempted one, but still may not know exactly what a short sale is.  First off, I would be remiss if I didn’t make the requisite quip that short sales are anything but short.  By and large, they are loooooooooooooooooooooong.

The term “short sale” is derived from the seller’s lack of equity in the property.  In fact, the seller is upside down to the point that the market value of the home is less than what is owed on the mortgage(s).  With a short sale, the seller must convince the bank to take a loss by agreeing to the sale.  There are numerous pitfalls, including waiting for weeks or months for the lienholder’s response and low success rates (less than 10% of short sales are successful).  One particular difficulty lies in ascertaining whether a seller even qualifies for a short sale at any price.  Each institution has its own unique standards, but sellers must adequately demonstrate hardship (job loss, etc), provide up to date financial statements and pay stubs, document where all funds for a line of credit have gone (the lender in 2nd position will disallow a short sale if the funds went anywhere except back into the house (kitchen remodel, pool, etc).  The biggest saboteur of a short sale, other than an incompetent listing agent, is the presence of a second loan.  Multiply the difficulty exponentially if the loans are held by different institutions.

If it sounds like a lengthy, treacherous process, that is because it often is.  Short sales, in this agent’s humble opinion, only make sense for the buyer with no real time table.  Investors, specifically, are primed to take a stab at one if the purported price (the price listed in the MLS is really just a moving target when you don’t know what the bank will ultimately deem acceptable) is attractive enough.  If you don’t plan to live in it, and won’t be devastated if it doesn’t pan out, have at it.

2. The Foreclosure Property

I'll take a single-family home and $20 cash back, please

I'll take a single-family home and $20 cash back, please

If 2009 could be summed up by initials, they would be “REO.”  Real Estate Owned properties, or foreclosures, are all the rage this season, and for good reason.  Banks are awash in foreclosed homes at present and have effectively set the market.  Eager to rid themselves of bloated inventories, the various institutions have well-earned reputations for bargain basement pricing.  By the time a bank takes a property back from an owner in default via a Trustee’s Sale, I find they are often ready to deal.  If the short sale process can feel like a rudderless vessel as your offer drifts from file to file in the bank’s loss mitigation department, there is actually a captain at the helm by the time the bank ultimately rejects the offer(s) and opts to foreclose instead.  Now an asset manager is responsible for offloading the acquired property.  Just the titles alone speak volumes as to the motivational forces at play:

loss mitigation VS asset management

More often than not, a property that is taken back by the bank will reemerge as an REO property at an even lower price than the listed price of the failed short sale attempt.  Does it make sense?  Not really, but that’s what often happens.  And the price is no longer a moving target.  With the bank now the principal, they set the list price and will negotiate more like a typical seller (albeit at a slightly slower and more aloof pace).  Expect to wait up to a week for a response and the possibility of fighting off multiple offers due to the low pricing, but it sure beats waiting months for an all too often unreasonable response.

The negatives of dealing in bank-owned property are primarily rooted in lack of disclosure about the home and the penchant for selling property “as is.”  You can be sure that something will be missing from the home.  Either vandals have cannibalized the A/C for copper or the former owner yanked all of the appliances and the hall bath towel rack out of the home on the way out, but rest assured, some component of the house is FUBAR.  Complete with heavy handed addenda that favors the seller, the trade off for the great price on a bank property is an often uncared for home with no disclosed history of damage/repair and no one to repair the defects you find during the course of your due diligence period.

Yes, you do get the opportunity to inspect even though the bank will require an “as is” addendum.  If you ever see language in a contract or addendum disallowing your right to inspect the property … run!

3.  The Resale Home

Quick, Marge, get the camera ... real people!

Quick, Marge, get the camera ... real people!

Ah, a home actually owned and sold by a real, unencumbered person.  I must confess, finding such a specimen in the modern Real Estate jungle has been a rarity.  At least finding one that can compete with the pricing of bank-owned homes, that is.  As more and more sellers become realistic about the erosion that has taken place in Valley home values, though, I am starting to see the gap close ever so slightly.  Obviously, anyone who bought a home in 2005 or later is not in a position to competitively price it for today’s market without attempting a short sale due to the subsequent swan dive in prices, but those who have been in their homes for a decade or longer are finally getting the memo and positioning themselves to compete with the banks.  With prices still trending downwards, the smart seller is getting out in front of the curve and pricing his/her home to sell before any further price degradation can occur.  When you find such a home with a seller still capable of maintaining, disclosing and repairing the property’s condition, and priced in line with the foreclosure market … buy it!

So there is a (not so) brief synopsis.  Don’t limit yourselves unnecessarily when shopping for a home.  Allow your agent to explore all available avenues, just be aware of what you might be signing up for with the entanglements that come with each option.

Most importantly, remember this:   A low price in the absence of value is meaningless.

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