Phoenix: Short Sales and Foreclosures are Coming to Visit

Without delving too deeply into the reasons for this current predicament, it is a sad fact of life that many Arizona homeowners are running into serious difficulties in meeting their mortgage obligations. As with most areas of life, in order to combat a problem, it is necessary to first admit that the problem exists. If that sounds crazy, you will be surprised how many Realtors get the call "My home is being foreclosed on next week" especially since that procedure comes at the end of a 90 day period. Too many homeowners ignore all phone calls and correspondence from the bank until it is too late. They cover their ears and go "La, la ,la!" However, there are avenues to explore before we get to that point.

If you know you are unable to make this month’s payment and may have more difficulty in the future, contact your lender immediately. Be aware, the bank does not want to talk to a Realtor at this stage; this is a call you must make yourself. Also, make sure you talk to the right department. Just calling the 1-800 will not suffice. It may take some digging, but you must speak to the "loss mitigation" or "work-out" department. The, probably, outsourced employee at the end of the 1-800 does not have any authority to help you, that employee just wants you to make your payment. Some lenders may be willing to modify the existing note, extend the loan period, or give you a six-month break and add those costs to the loan. This is if your financial difficulty is temporary in nature.

If your monetary problems are an ongoing situation with no end in sight you may try to negotiate a "short pay" with the bank. This is when the bank may agree to accept less than what is owed in order to release the lien from the home and enable you to sell. Most likely, they will try to work with you because the last thing any bank wants is to take the property back. Bear in mind, also, that your setback must be real; if you own other homes or assets you cannot, and should not, expect them to forgive you debt while you still have worth. You will most certainly have to "reverse qualify" to obtain a short pay. In the same way you had to qualify to get the loan in the first place, you will be required to furnish proof you can no longer afford said loan. This is where some people run in to trouble. If you "fudged" your initial loan application, if you "stated" income you did not earn, if you said you were going to "owner-occupy" and you did not; this is when the chickens will come home to roost. Some of these conditions I just mentioned are felonies, so think very carefully a) whenever you apply for a loan b) whenever you try to seek relief. Indeed, with the recent spate of "no-doc", "stated income" loans, which many would argue have fueled this current crisis, you may find the reverse qualification more stringent than the original application.

Remember, a foreclosure or a short pay is going to affect your credit history for a long time to come. Also, remember that in a short pay you will receive an IRS 1099 form from the lender for the short fall, just as if you earned that money. Income tax, therefore, will be due on said amount.

To summarize, if your financial difficulty is short term, most lenders will be very willing to work with you to resolve it. If your difficulties are permanent, it is probably time to consult with a Realtor. You will need them to find a qualified buyer at a fair price, and then you will need their expertise to persuade the bank that this is the fair and equitable solution for all parties involved. In either case, the earlier you acknowledge the problem, the better the resolution.

Finally, make sure the Realtor you choose has the knowledge and experience to see it through, your financial future is Dependant upon it.

Phoenix Real Estate Price Wars

I was recently involved in a real estate transaction in Phoenix, thank the Lord, that I feel bears repeating because there are lessons to be learnt for both buyers and sellers in this difficult market.

The subject was an entry-level home in Phoenix that had just been reduced from $229,000 to $219,000. It had been empty for about a year, but the sellers were long time owners (over 20 years) so they were not in distress. However, they felt the home was priced right, given the vagaries of the market in the Valley of the Sun, and they were probably correct. Plus it had a remodeled kitchen and an impressive 4-car garage, which was an absolute boon to my client, who I represented as a buyers agent. He wanted the property, because of the garage, and was willing to pay full price. We started at $212,000 which is an amount that is respectfully close to asking and not insulting in any way. The Lister had told me in light of the reduction they would probably not go lower than the asking at this point. Whilst she was at the owners' home presenting the offer, she called me to say, "if you re-wrote the offer at $215,000 today, they would sign it, as they are going on vacation in the morning, and did not want to mess around with a counter-offer. If not they would counter back at $219,000." Verbal negotiations are not valid, all offers must be reduced to writing, so I said "Do what you have to do." Remember, they had already indicated they would accept $215,000 so their $219,000 counter could be countered back by a $215,000 counter from my client if needed. Why the rush? Two hours later, they accepted the $212,000 without any counter. Why? Well, buyers have a lot of choices these days, so if a well qualified one comes along it is important to take them seriously. In this case our offer was close enough that they could "smell it".

Too many people start way too low then the seller feels insulted and takes it personally. In fact, it is a business transaction but both buyers and sellers can get over-emotional because we are dealing with their home, with all the hopes and memories that that can contain.

I also try to dissuade clients from annotating offers with language like "final offer" or "firm". They are combative terms and I find them to be petulant. Be
business like in negotiations and allow people to keep face and respect. It will turn out better in the long run, and you will feel better, too.

I also avoid advertising homes as "with instant equity" or "tens of thousands below appraisal". Seriously, does anyone buy into that nonsense? It always reminds me of T.V. ads from jewelers who guarantee "our items will appraise at twice our price". Good, will you buy them back from me then? I could make a tidy living popping in and out of jewelry stores all day.

The truth is that, in the cooling market that is Phoenix real estate at the moment, correct pricing will help you find the few real buyers that are out there. Negotiating fairly and with respect will help you close the deal, and keep that buyer. And, of course, your integrity.

Home Sales at Lowest Levels in Four Years

The National Association of Realtors reported another drop in existing home sales in May, a rate of sale not seen since June 2003.

In fact, some areas of the country, notably the north-east and north-west has seen a small rise in sales. Unfortunately, that means the stats are being pulled down by a disproportionate fall in sales in other areas, for instance, the south-west, and of particular relevance to us, of course, here in the greater Phoenix metropolitan area.

The main reasons for the regional differences are as follows; while housing growth was quite dramatic in the Pacific north- west, for example, it was largely driven by an underlying growth in the local economy. Such was not the case in Arizona. We fell victim to a confluence of circumstances; lots of new construction, lax lending requirements, and a booming national economy that made Phoenix, and its environs, attractive to non-resident speculators. The professionals moved in, and out, quickly but left the impression among amateur speculators that it was easy money. Many of these people are now left holding the bag.

Here in Phoenix we now have inventory at over 60,000 units representing, at current sale rates, an eight to ten month housing supply. Not a positive thing if you need to sell your home. What never ceases to amaze me, and I am sure it does you, is that they are still building thousands of homes throughout the Valley of the Sun. I have said this before but it bears repeating, developers that sold you a home in 2004 for $150,000 that now could sell in the secondary market for $225,000, can still build and sell an identical home for that earlier low price today. They will continue to price their new builds at, or below, what the market will currently bear, until their inventory is reduced.

The good news is that our economy here in Arizona is strong and tens of thousands of people are relocating to our great state each month. Ultimately, the housing market will return to some form of equilibrium, just not in the very near future.

If you need to buy a home you are in a good position; if you want to trade up to a larger home, likewise; if you have to sell (and I mean absolutely have to) set a reasonable price and they will come. If you need to sell three or four or more homes...well you're an investor, you'll think of something.

Phoenix Real Estate Market-How healthy is it?

Recent reports show that nationally, home prices have dropped for the third straight quarter. Interestingly, here in Arizona we were reporting less sales, but sales prices were actually increasing. What does it all mean? Well let us not forget that anyone can pull a set of statistics and interpret them to suit their own purposes. In this case, nothing nefarious is occurring but we do need to analyze the stats carefully. What is happening in the Phoenix metropolitan area is that although the number of homes sold has gone down, the ones that have sold are at the higher end of the price range. This reflects a couple of interesting points in the Arizona real estate market. Firstly, the fact that more expensive homes are still selling just reveals a broader fact of life that the more wealthy among us are not as affected as the less financially fortunate, by the overall economy or the ups and downs of a finicky real estate market. Secondly, the folks in entry level homes who desire to trade up for something bigger or better (and this is an excellent time to do this) are experiencing a great deal of difficulty in selling their current homes due to unrealistic pricing and an over-abundance of inventory. The pricing problem is one I encounter all the time. Otherwise intelligent folks cannot seem to grasp that the "investor" fueled madness of two years ago is over. I point out recent comparable sales and the response is universal. Those people just "dumped" the property at below market prices. The old "grassy knoll" conspiracy trick!

The overall economy is generally healthy. In the Pacific Northwest prices have either held, or dipped slightly, due to excellent job growth. Here in Arizona, the economy has some catching up to do, to help siphon off excess inventory. That may take time. Also, banks are tightening up lending parameters; making loans, particularly "low-down" or "no-qual" loans, much harder to get. Lenders are now seeing an increase in foreclosures, Arizona ranks 7th in the nation, as their previously lax requirements are coming back to haunt them.

Lenders are also starting to process "short-pays". This is a situation whereby a bank will forgive a portion of the debt secured by a home, in order to allow it to be sold. Traditionally, in a foreclosure a bank would receive, after expenses, around 70-75% of sale proceeds, whereas a short pay could net as high as 90% of proceeds. See your Realtor, or accountant, for more details of both procedures.

It is not all gloom and doom. There will not be any catastrophic decline in house prices, as we saw in the 90's, due to the underlying strength of the economy. Some of the huge "investor" fueled increases will inevitably be given back. However, the market will stay robust, but it will need a year or more to rid itself of the so-called investors, the foreclosures and for inventory levels to return to normal.

Look on the bright side, at least the weather is excellent!

Scottsdale, Arizona, Where The Living Is Easy

Scottsdale Arizona, is internationally renowned as a major resort destination despite barely squeaking into the top 100 of U.S. cities in terms of population. No Virginia, size is not everything.

Although its nickname is "the West's Most Western Town" I have to say that really is a misnomer. In fact, construction of new horse corrals was all but banned back in the 70's. Call me old fashioned but to be "Western" I think horses should factor into the equation somewhere. The only re-shoeing going on in Scottsdale today is a trophy-wife exchanging her Blahnicks for Jimmy Choos!

That being said, Scottsdale truly is a treasure. It has been written that in terms of entertainment and culture, Scottsdale ranks at #3 behind Los Angeles and New York. As someone who has lived, at length, in all three places, I have to say that Scottsdale is most definitely on the ascendancy; indeed it may already have surpassed L.A., in this humble scribe's opinion. Certainly, theatre, dining and entertainment are L.A.'s equal, but housing costs are much lower, and the traffic here in Scottsdale is a breeze compared to the grid-lock that L.A. has become.

It is also the reason that many wealthy people, and in fact several celebrities, have chose Scottsdale for their second home. Spectacular estate homes in Scottsdale are available for a fraction of the cost of comparable homes in LaLa land. Of course, many are of new construction with all the attendant modern conveniences that would be expensive retrofits in Los Angeles. Plus we still have abundant land available here in Scottsdale, a situation not available in L.A. for many years.

Scottsdale is also well served by its own airport as well as Phoenix International Sky Harbor Airport just minutes away. Of course, the northernmost boundary of Scottsdale abuts Carefree,(which also has its own airport) even so it is still a scant 30 minute drive to downtown Phoenix.

Believe it or not, when the town of Scottsdale was incorporated in 1951 it was just one square mile. Today, it covers around 184 square miles.

As testament to its status as one of the premier golf and tourist destinations in the world, Scottsdale is home to the annual FBR Open Golf Tour, the most attended PGA event on the tour.

It is also home to the world famous Barrett-Jackson Collector Car Auction, plus a host of lesser auctions staged at the same time, such as Russo and Steele and Kruse.

While it is true that it can be an expensive place to live, it should be remembered that the older parts are quite affordable and are enjoying something of a renaissance. One of the benefits of the cooling real estate market, is that for some who felt the ship had sailed forever in 2004 and 2005, there is a second chance to grab a piece of the dream.

Whether your interest is cars, horses, museums, art, theatre, entertainment, shopping, nightlife or golf, there is something for everyone in Scottsdale, Arizona.

Responsibility in Home Loans Goes Both Ways

Whilst watching the news on a local Phoenix TV Station recently, I came across a human interest story about a couple who were in danger of losing their Phoenix home as they could not afford the payments. In this case, the homeowners had an interest rate of 9%, we will get to that later, and the mortgage broker who had arranged the loan in the first place had told them that would refinance after a few months in order to get lower monthly payments.

Firstly, they did not have great credit, plus they had no down-payment, hence the aforementioned interest rate. Also, given those circumstances, they were gambling that home prices in the Valley of the Sun would go up, of course they didn’t, which would enable them to refinance with a better loan-to-value ratio, they couldn’t. The fact is, they could not really afford the payments in the first place, and were using their meager savings to supplement them until re-financing. It was a house of cards, and it all came tumbling down. Yes, it is sad, but also quite predictable. If you are paying 9% in a 6% world something is not right. If you cannot afford the initial payments don’t take the loan. Do not take an adjustable rate loan with a low teaser start rate if you know you will not be able to afford the payments when the honeymoon period is over. Do not gamble that your home will increase in value in the next 6-12 months. You don’t know! Nobody knows. Some, but not all, lenders are quite willing, and ethically-challenged enough, to tell you anything you want to hear, in order to get you to sign on the dotted line. This is not an Arizona specific problem, it could happen anywhere.

The second case involved a gentleman in California who re-financed his home in order to finance his home-based used car business. The lender failed to supply, as required by California law, the loan documents translated into the language used predominantly in the negotiation. The borrower claimed he was duped, however he did admit an English speaking friend had read and translated the terms of the loan to him. Now he could not afford the payments and was looking to lay off the blame. In this case, I know for a fact that in order to be a car dealer in California, you must (amongst other requirements) have a storage facility for at least four cars, not at your residence. It must be completely separate. My point is, in this case, the borrower was quite willing, and ably abetted by the lender, to circumvent the rules while it suited his agenda. When he could not make the payments, he cried foul.

In both these cases, the borrowers played a little loose with the rules, or ignored early warning signs in pursuit of their goals. The will both certainly pay a price in the future because of bad credit, late payments and maybe even foreclosures.

Studies have shown that many times ethnic minorities end up paying more for their home loans than other folks. What the P.C. police do not tell you is that in most of those cases the victims were taken advantage of by people of the same ethnicity, that is to say unscrupulous people taking advantage of their own. In the end we are responsible for our actions, but remember everything must be in writing. If the broker “said”, then have him put it in writing. If he won’t, well you know the rest.

Property Pricing In a Falling Market

This past weekend, a colleague asked me to join him in a visit to a homeowner who wanted a frank and brutal assessment of his home’s value. As usual, we prepared a bunch of comps, i.e. recently sold homes plus a list of currently available homes. This last list is less helpful, obviously, as the homes have not yet sold, but is somewhat helpful as they will at least indicate an upper price level by virtue of their listing price.

We started out by touring the home and making notes on various maintenance matters that should be rectified to better show the home. Pointers were also given on room staging to make better use of the available space. All in all, a fine home, with a pool, from a respected builder with all the right upgrades in both kitchen and bathrooms.

Them come the moment of truth “How much is it worth?” said Mr. Straight Shooter. “Seven Ninety Nine” I replied. Well, we gave him some smelling salts and when he came around it seemed he thought he was somewhere in the low $900K area.

How come we were so far apart? Well, the main point of his argument was a similar home that seemed to have sold for $915,000 about a year earlier. The problems with that are many. Firstly, a sale a year ago is useless to an appraiser. They prefer to go back 3 months as a rule, or six months if absolutely necessary. Secondly, this particular home sold in a week, for cash, to an out of state buyer. When folks pay cash, some of the checks and balances of a normal transaction are lost i.e. an appraisal and a bank watching over you. Who knows, the price may have included all the furniture and the $100,000 R.V. in the driveway. We do not know. We do know that an appraiser would have many questions regarding the sale of a home that seems to have sold for an excessive amount before an underwriter would allow him to use that comp.

I then pointed out that three similar homes had sold in the mid to high $700K range quite recently. He replied that they just “dumped” them to screw up the neighborhood! Believe you me, this is not the first time I have heard this “conspiracy” theory.

I then pointed out that there were three similar homes listed, but still unsold, in the low $800K range, that have been on the market for between 210 and 270 days. Anyone can list a home at whatever price they like, but if you want to sell a home you have to price it right. It has to be priced so well that a potential buyer in the price range has to see it. In this current market there are a lot less buyers, so they can pick and choose freely.

Finally, he told me that if he priced it too low (i.e. to actually sell) the neighbors would be mad at him. Well, you know what they say. “Misery loves company.”