These days, I consider myself lucky if a closing isn’t delayed two weeks and my clients draw anyone other than Sparky, the one brain-celled signing agent.

With new disclosure regulations, a completely different settlement statement and a host of new concerns with the transfer of clear title due to the pervasiveness of foreclosure and short sale properties in our midst, an accomplished escrow officer has never been more vital to the process of a home sale.  Unfortunately, many of the good ones were forced out of the industry when the market hit the skids in 2007.  When sales finally began to rebound, the major title/escrow companies restocked their ghost offices.  As the predominance of these properties were distressed, however, it was the REO (bank foreclosures) and short sale divisions that welcomed new staff.  The resale divisions remain largely undermanned.

The REO division of a title company is an entirely different universe.  Like that of a REALTOR who specializes in listing bank property, transactional volume is ludicrously high.  Too many files on too few desks.  You can imagine how this translates to the urgency with which your file gets treated.  Another component that is not necessarily to the buyer’s benefit is the relationship between the bank and the title company they have procured.  Supposedly a neutral third party whose purpose is to convey the property from the current owner to the buyer, the myth of its transactional Switzerland is a tale taller than the Alps.  If the sheer dollars involved in a title company’s relationship with a bank (or the bank’s asset management affiliate) does not dictate outright obedience to the demands/whims of one party over the other, it sure does influence behavior.  I have been nonplussed during the course of bank property transactions (the buyer MUST use the bank-selected title company if his/her offer is to be accepted) in which the title company is the one contacting me with seller demands, essentially performing the role of the listing agent by proxy.

It is expected that one will have to tolerate a third party that is subservient to its master in a bank property sale (and not overly concerned with getting the file closed in a timely fashion to boot), but problems are now creeping into “normal” resale transactions between living, breathing human buyers and sellers.  For starters, with many resale divisions depleted of adequate staff, it is not an unlikely scenario to get stuck with an escrow officer who primarily handles REO accounts.  Flip a coin between whether said officer is overworked or under-experienced, but too often lately a less than exemplary job is being done.  Documents are not being requested/delivered on time, assistants are left to answer questions they are not ready to field, communication between the officer and the buyer’s lender is nonexistent … I’ve even encountered “signing agents” at closing who are neither the selected escrow officer, nor capable of explaining the documents upon which they want your signatures.  One clown literally tossed the paperwork in my lap and told me to explain it all to my clients.  Had I not been rendered utterly speechless, I would have ordered the hall monitor to escort the fresh lad to detention.

Mind you, these are not mom & pop style title companies, but reputable names that do a very high volume (perhaps too high?) of business.

The moral of the story?  Unless you are purchasing a bank property, and thereby resigned to the amusement of escrow fate, you have a choice in the matter.  As the buyer, you get first crack at naming the title company in your initial offer.  Sellers (upon direction from their chosen representatives most often) may list their own preferred company amongst the terms that are countered, but don’t cave.  Unless your agent can point to specific, positive dealings with said officer/company in the past, I urge you to stick to your guns.  Going back four or five years, a title company was largely a disposable part of the negotiation.  As long as you got your price, you let the other party get the perceived “win” of naming the company.  The recent changes to the escrow landscape make such a laissez faire approach to the title work fraught with peril.  Make this term non-negotiable.  More often than not, the other party will buckle rather than lose a sale over what many still consider a minor point.

When selecting a company, your chosen agent is the best source of advice.  We have favorites for a reason, and it is not monetary.  Through trial and error, we find excellence in all of our affiliates.  When we find a diligent service provider, we are loyal.  In this day and age, though, a little prevent defense is still warranted.  Ask your agent who underwrites the title policies of his recommended escrow company (title and escrow are not necessarily synonymous) before satisfying yourself as to its viability.

I happen to use Jenny Werner with First Arizona Title.  Her policies are underwritten by the big boys at First American.  She chaperones her files quite adeptly to prevent avoidable delays and miscues, and is very responsive to consumer questions/concerns.  Whether you employ me to assist you in the purchase of a home or not, I highly recommend you write Jenny’s services into the agreement.  Your movers and peace of mind will thank you for it.  Eventually, the other party will as well.

________________________________

Jenny Werner, First Arizona Title

11333 N. Scottsdale Road
Suite 160
Scottsdale, AZ 85254
Phone: (480) 385-6500
Fax: (480) 385-6800

________________________________

The phrase alone inspires a host of reactions that run the full gamut between antipathy and, well, slightly lesser antipathy, depending on the audience.

As any semi-interested news watcher and industry blog reader can attest, the Real Estate investor is the greatest scourge to befall our fragile ecosystem since polybutylene plumbing. What, with the housing supply lines ill-equipped to handle the artificial demand, our flimsy pipes swell and burst when the pump and dump investment surge strikes a hapless market. Aside from the banks who flooded Wall Street with dubious mortgage backed securities that were chopped and reconstituted in more numerous and indiscernible ways than Joan Rivers’ alleged face, the fount of no-money-down investors is the most vocally derided catalyst of the Great Real Estate Bubble of 2005 ©.

Well, guess what?  The investor is back … and that’s a good thing.

Hold your rotten tomatoes and easy with the pitchforks, if you will. How can I possibly opine that the reemergence of the buyer subset that sent values through the roof, only to crash them through the basement when they left a valley of foreclosed “investments” in their wake is a good thing? Is the demand any less artificial now than it was when the previous incarnation of ne’er do wells spiked our collective punchbowl?

In a word, yes.

The 2010 investor is not the fly-by-night operator who purchased the nearest home for sale at the conclusion of a four hour seminar on how to get rich in Real Estate investing with no money down. Shoot, who needed money down when you barely needed a pulse and a job to buy a house back then? No, today’s investor, by and large, is showing up at trustee sales and plunking down cash on a barrel. He has the skin in the game that his counterpart of yesteryear did not. He is investing in a very real sense of the word.

In addition to securing an interest in the property with his own bankroll (thus making the prospects of simply walking away from a property that doesn’t return as hoped less palatable), the other crucial dynamic at play is the return of sanity to the overall investment arena. When investors were driving Scottsdale and Phoenix property values into the stratosphere back in 2005, there was little regard to the initial purchase price. Our entire market temporarily forgot that you make your money on the purchase. Buy a property right, and the return will be there when it’s time to sell. In the throes of insanity, investors were climbing over themselves and each other to purchase property, any property, for 50k over whatever ludicrous price was being sought by an apoplectic seller. Investors were betting on the come. Pay whatever now, and the joint will be worth 100k more in two months whether a hammer is ever swung in renovation or not. With the year long fervor, they got away with it … for awhile.

Today’s investor is not settling for just any property he can get his hands on, but is showing up at the courthouse and robbing the bank blind. Paying pennies on the dollar and rehabbing a previously dismantled home, his margin is large enough to bring the distressed apple of his eye to market at a price actually supported by recent sales comps.

The coup de grace? Today’s investor fills a need that the banks won’t. He is essentially financing the fix-up costs that many banks have abandoned in self-defense. Against a backdrop of tight lending purse strings, consider the difficulty many people have just in coming up with 3.5% or 20% down payments, let alone remodeling capital. With home equity lines all but vanished from the marketplace, that stripped bank-owned home bargain isn’t all that realistic for the buyer who doesn’t have the available cash to put it back together, regardless of how appealing the price tag. When you could tap a line of credit to finance improvements, it wasn’t that big of a deal to throw in some new carpet, counter tops and appliances after closing. Now, you have few options other than reaching into your own pockets. Thus, there is a sizable buyer pool for a move-in ready home. The well heeled investor who assumes the risk and fills that need is not to be derided.

Take the mom & pop homeowners who are unable to price their homes competitively due to high loan balances, mix with the interminable wait of short sales, fold in the distressed condition of much of the bank-owned inventory and bake at four hundred degrees to create a casserole of supreme frustration for many disenchanted home shoppers. A rehabbed home at an affordable price, if not the outright theft that was envisioned at the outset of their house hunt, begins to look more and more appealing to many buyers after getting an up close look at what the reputed bargains actually look like live and in color. In essence, by purchasing a property from an investor, a buyer has found an end-around to financing renovation costs.

If your last nickel is earmarked for your down payment, and you can purchase a renovated home at a fair market value that you can afford, don’t begrudge the man his margin. While the stereotype of the lecherous vulture remains, we would be remiss not to acknowledge the good he can, and does, bring to a market like ours.

Investors: they’re not just for nuclear Real Estate holocausts anymore.

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.

“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.

That bears repeating.

Real Estate agents are largely responsible for the massive housing inventories of the past two years.

This is a conclusion that does not please me to reach, but my conclusion nonetheless after continuing to see overpriced home after overpriced home hit the market.  You can blame banks or non-paying homeowners for the glut of foreclosure inventory, but guess what?  Bank owned homes sell.  By and large, they are priced appropriately and adjusted regularly until they sell.  Compare this to the unrealistic seller/listing agent tandem with the home down the street that enters the marketplace grossly overpriced, and just sits there while the days on the market pile up without mercy.

You can blame the banks again for the short sale listings that take forever to work their way off the market because of all the bureaucracy and idiocy involved.  In many instances, I would agree with you, but I find ample fault with the listing agents who do not take the time to learn the process and requirements involved for the institution(s) that hold the lien(s) against the property.  Even though many banks seemingly select the files they will actually review via a no holds barred game of inebriated backgammon on the first of every month, too many agents simply throw a short sale listing on the market at a completely unrealistic price (compared to what the bank will be willing to accept) and hope that they can make it stick.  Buyers get frustrated with the process after several months of inaction and often exit the transaction before getting a response from the bank.  Even if the home eventually sells prior to the looming trustee’s sale, it has contributed to the bloated inventory level for months instead of weeks.  Some banks will not negotiate with a seller at all until an offer is in hand, but that doesn’t mean that the agent can’t have all of the documentation lined up in advance.  Many short sale listing agents that I have encountered have been a bit lacking in the communication department as well.  Buyers are more likely to hang around and wait for a response if they are receiving regular feedback and updates from the seller’s side of the table as to the progress with the bank.  A phone call or an email update every week or two would go a long way to keeping some of these deals together and clearing out these negative equity weeds that are choking out the resale lawn.

Inventory levels have dropped considerably in the last couple of months, but we have a long way to go before we reach a nice healthy balance of buyers and sellers.  While everyone is currently focused on stimulating demand, we professionals bear a large portion of the responsibility for the supply.  Every time an agent in our ranks takes a listing for 100k over the property’s current value, or even 10k for that matter, he/she is contributing to the stasis that has plagued our Valley since the equity and credit bubbles burst in 2007.

We all want your business, and are generally eager to please.  As such, it can be a temptation to tell a prospective client what they want to hear when it comes to the value of their house.  Less charitably, it can also be a temptation to “buy the listing” by quoting an unrealistic price to sway a seller to list the home with us versus the agent quoting a considerably lower asking price.  A good agent will ensure you command a top of market price for your home, but not a one of us has a secret stash of magic beans that will grow the value of your digs above and beyond what a buyer will be willing to pay. We can advise you as to how to make your home more market ready, and how to improve its value, but we can’t fit a $750,000 peg into a $500,000 hole.

Ray and I vow to give it to you straight.  It does neither party, nor the market, any favors to cram yet another overpriced listing into the protesting pair of lycra pants that is the MLS.  Nope, no more glazed doughnuts on our watch.  It’s time for an industry-wide low glycemic carb / high saleability diet.

As I tell my clients when we sit down to review the data, I would rather tick you off with my evaluation up front than 6 months down the line when your home hasn’t sold.  Better to lose business truthfully than be complicit in the further swelling of our hemorrhaging housing market.

A home should be priced accurately, or it should not be priced at all.

We don’t list homes to practice.  We list them to sell.

The latest water cooler rumbling to emerge from a recent tour group meeting centered on a purported professional short sale negotiation company.  Here in the Valley, short sale negotiation has become its own cottage industry in the past year and a half, and for good reason.  Most Realtors had never encountered a short sale before the recent woes in the market.  You can include me among those ranks.  As such, there has been great demand recently for third party professionals who know the drill and have contacts within the various institutions for expediting the process.  While the skill-set required to negotiate with the bank is really little more than gumption, persistence and know-how, the learning curve can be steep, and the time commitment impractical.  Many agents would rather enlist the help of a specialist to handle this critical portion of the transaction than practice on their first few short sale clients.  The stakes are too high for an erstwhile, but bumbling rube to fumble it all away.  For many of us, it just makes good, practical sense for all parties involved.

Now comes the “but.”

Back to the recent tour meeting of which I mentioned, the latest scuttlebutt is that at least one major short sale negotiation company is the focus of an open investigation.  It seems there is some question as to whether this outfit was utilizing fraudulent measures to cash in on a much grander scale than the stated fee of their services.  Nothing has been proven, and no charges have been filed to my knowledge (hence the glaring omission of the company name here), but the concern is that this company might have engaged in the “double escrowing” of the short sales they were hired to negotiate.  Plainly stated, upon receiving an offer that both buyer and seller had executed and forwarded to the negotiator to submit to the bank for review/approval, this company is thought to have tabled said offer and worked to negotiate an even lower sale of their own with the bank.  Once accepted, they would orchestrate the virtual simultaneous closings in which they bought the property from the bank and turned around and sold it to the buyers at the higher price.  Neither the buyer nor seller would ever know that there were actually two transactions taking place concurrently.

Of course, if the negotiation with the bank failed, the buyer and seller would simply be informed that the offer had been rejected … eventually.  Even though the bank never saw it.  The buyer wouldn’t be overly thrilled to learn of this, of course, but the seller is the one who really stands to lose in such a scenario.  He is the one with the imminent foreclosure and interminable credit limbo on the line while the entity hired to negotiate on his behalf plays Russian roulette with his financial well being.

So while nothing is proven in this instance as of yet, it serves as a consumer alert.  While I was careful in the selection of the professional I have enlisted to negotiate with the various banks on my sellers’ behalf, some might mistakenly believe that any fly-by-night company that has branded itself as a “short sale negotiation specialist” is reputable.  Just as you would exercise diligence and perform your own investigations in the selection of your Realtor, don’t let your guard down when settling upon the service enlisted to actually talk to the bank.  Find out how long they have been in operation.  Are there any complaints lodged with the Better Business Bureau (though some may be such neophytes that they haven’t been around long enough to incur complaints)?  How long has your specific negotiator been involved in either the Real Estate or banking industry prior to their current position?

Maybe I’m just jumping at shadows, but I can’t help but wonder if this is a niche that won’t prove to be populated by failed Realtors, loan officers, car salesmen, financial advisers, taxidermists, Maytag men and arthritic slow-pitch softball umpires in hindsight.  There are some good ones out there who are absolutely invaluable to the busy Realtor and desperate seller alike, but I am under no illusion that there aren’t more than a few soulless chasms of dollars and teeth hiding behind the polished veneer of a snappy tagline as well.

When dealing with a property that you are trying desperately to sell before the bank forecloses, the stakes are elevated to financial Thunderdome proportions.  If your short sale survives the fight, you will walk away with a limp (credit damage, possible tax ramification, etc), but at least you walk away.  A foreclosure will effectively kill your aspirations of future home ownership for the next 5 years.

Choose your weapon wisely.

Is the bloom returning to the rose?

All signs seem pointed towards a market poised for recovery.  Said recovery may, in hindsight, prove to already be well under way.  Of course, bringing supply back in line with demand is the most tangible proof we have of a recovering market, but it doesn’t answer the question we Realtors can’t escape.  We hear it in the line at Starbucks and when cornered by someone three martinis deep at cocktail parties:

“When are prices going to bottom out?”

That, my friends, is the 2 trillion dollar question.  Let me preface my forthcoming opinion with the following.  Anyone who tells you definitively where this elusive “bottom” is probably derived their opinion by studying flow charts, statistics, MADD Magazine and cutting the head off of a live chicken under the cover of midnight prior to the winter solstice.

My voodoo is no better than their voodoo.

That said, when I consult the astrological charts and the Arizona Regional MLS data, I am left with two distinct impressions.  First, it is self evident that the house of Apollo will be foreclosed upon prior to the arrival of the harvest moon.  Secondly, that the cocktail question cannot be properly answered in its current construct.

Here’s the way I see it.  A segment of the market has already bottomed out.  Not just any segment, mind you, but the primary driver of the past year’s Real Estate activity across the greater Phoenix and Scottsdale area.  Of course, bank owned property is to what I am referring.  With a disproportionate number of actual consummated transactions involving foreclosure properties at present, it is my humble opinion that the banks have already crashed their values through the floor.  Attracting multiple offers and bidding situations in many instances, they would be hard pressed to erode pricing further now that demand is lined up around the corner in the form of cash laden investors.

The next part of the equation, though, might be difficult to swallow for Valley homeowners (A + B = oh Crap!).  With foreclosure properties really driving pricing, few traditional sellers have been able to compete.  Foreclosures have sold at record clips while resales have lagged behind their typical share of the market.  As such, a gulf has opened up between the bank properties which are selling and the non-bank owned homes that are collecting dust at non-competitive prices.  For the market at large to officially “bottom out” in my opinion, resale prices still need to fall further to decrease the gap.  Buyers need a reason to start buying resale homes again, and that reason is all wrapped up in pricing.  Most folks would prefer to buy a well maintained home from a mom and pop seller than an abandoned bank owned property, but not if it is priced a couple hundred thousand dollars higher.

Synopsis:  I think the lowest prices that the Valley will see are presently or very nearly at hand because there is a great deal of demand for these homes.  There will be good values still to come as resale prices drift further down, but don’t expect the bank owned bargains you are seeing today to get substantially better in the coming weeks and months.

As the title suggests, I think the summer will tell the tale of our market’s health.  The spring is always our most active season, so I want to see how the market reacts when the seasonal buyers leave town.  Will we retain the momentum from a brisk spring or will we recede back into the doldrums as the mercury rises?  I predict the former, but again, that’s just my voodoo.

It wouldn’t be a Real Estate post without a call to action, so I’ll leave you with this. Wherever prices are next year, interest rates are highly unlikely to be in the 4′s like they are presently.  If you’re asking me, and even if you’re not, I think it’s time to buy.  Last call for bargain shoppers is looming.

Now, about this chicken …

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, 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

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!

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.

It is an inevitable starting point for many buyers right now. Before I can finish saying hello, I am bombarded with requests to see bank-owned and short sale housing. Frankly, were we to change places, I would most likely do the very same. I am aware enough of the opportunities this market has created in the foreclosure arena to dedicate a more or less weekly post to bank-owned property spotlights, after all.

However, there are values everywhere right now. Resale homes have been dragged inexorably closer to the shallow end of the pool by the bank properties, and builders have been forced to sell off their inventory homes at even deeper discounts than usual. There is no part of the market that isn’t coughing up a bit of water.

Ah, brand new construction at foreclosure pricing … can it be?

In some cases, yes, it can.

Builder spec homes just might provide the alternative to bank-owned property that Phoenix area value hunters seek. A spec home is either one which the builder constructed without a waiting buyer in the wings or one in which the original buyer bailed out on the transaction after construction commenced. These homes make great options for buyers who prefer brand new construction, but don’t want the lengthy wait involved in having their new home built from scratch. A buyer can typically move into a completed spec home within 30 days. Of course, if construction is complete, the new buyer will not be able to make any cosmetic choices in regards to flooring, cabinetry, etc. The big discounts, however, are often very persuasive arguments for that sacrifice.

Eager to dump existing inventory in the best of times, builders are even more anxious to get their specs off the books in this market. As evidenced by the near standstill in new permits being pulled by builders for new projects, it is cut and run time for many. I am seeing completed spec homes with significant levels of upgrading being advertised for sale well below base price. In other words, if you signed a contract to build from scratch, you would pay more for a home with absolutely no upgrades than you would for the completed home with cherry cabinets, slab granite countertops, stainless steel appliances, premium culdesac lot, etc.

Another advantage that a builder can offer a prospective buyer right now is tough to beat in-house financing. Not usually a fan of running my loan through the same guy who is selling me something, any conflict of interest concern tends to melt away when they disclose the cheap rate blocks they have purchased for their customers. In addition to the low sales prices, I have isolated several builders who are paying up to the maximum allowable buyer closing costs. A recent client is getting a fixed rate in the 4’s with an additional buydown for the first two years. At no out of pocket cost. All he has to show up to closing with is a downpayment. Not too shabby. *

You have to be careful, however. As I mentioned in a previous post, there are many struggling builders throughout Maricopa County. While a little financial pinch works in the buyer’s favor, too much can lead to unfinished subdivisions, mechanic’s liens and other fun stuff. You want to do your research (or better yet, work with a knowledgeable Realtor to ensure you are not walking into a doomed project. I recommend national builders with ample working capital and developments that are nearing close-out.

You don’t want to get stuck in a ghost town.

Bear in mind that you may have to venture a bit further from your desired location if brand new construction is your bent. Scottsdale is largely landlocked, with only the valuable land in the North remaining open to development. There is infill construction in central Phoenix, but the majority of new home projects are located in South Phoenix (Baseline corridor), North Phoenix (I-17 corridor) and pushing ever Westward towards LA. For those in the Southeast Valley (Mesa, Gilbert, Chandler, Tempe, Queen Creek), there are still plenty of options.

I spent the last week looking at a fair amount of them, as a matter of fact.

I had one of those purported foreclosure buyers who ended up buying a brand new spec home from a quality home builder instead of any of the bank-owned homes in the same price range that needed work, had no available warranty and disclosure information and no special financing incentives.

The moral of the story is not to rule anything out. Look less at the property label (bank-owned, resale, new) and more at the property itself. You just might be surprised at the unexpected bargains that are available to be had across the full color spectrum of the 2009 Real Estate market.

Give me a call if you want to find just the right shade of perfect.

* I always advise speaking with a reputable outside lender to compare programs/costs