Real Estate Information Archive

This has been a long time coming. On February 1^st HUD will relax their rules and allow buyers to get an FHA loan on homes that are owned by the seller for less than 90 days – a move that will help expedite the rehabilitation and resale of foreclosure properties.

In English? After the "go-go" market of the mid 2000's and a ton of property "flipping", the government came out and said "you can't buy a home and flip it until you have owned it for 90 days." They call this "seasoning" and as is implied, it is designed to keep people from buying a home, inflating the price above market, then flipping it again.

After a long period of that rule in place, they've realized it is hampering the market.

"Property Flipping", or "Upside Down House?" (real estate humor!)

In a housing market where tighter lending requirements have made FHA financing the only option for some buyers, this 90-day policy has (1) kept some homebuyers from being able to purchase affordable homes and (2) prevented the quick resale of foreclosed properties, which affects the ability of communities to stabilize and rebuild.

If you are an Investor looking to flip homes: This change is great news because you can now go STRAIGHT to marketing the home in the MLS, etc immediately after purchasing rather than waiting 90 days.

If you are a Buyer looking for your next home: This change is great news because many of these investors put their homes back on the market at below-market prices to ensure a quick sale and naturally this will add to your options as a Buyer.

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:

• All transactions must be arms-length and there can be no identity of interest between the buyer and seller (i.e. their business partners, cousins, aunts, uncles, siblings, etc.)
• If the sales price of the property is 20 percent or more above the seller's acquisition cost, the lender must meet specific conditions for the waiver to apply. (referring to fact that an investor with buying power of CASH may buy a home for $180k at auction, then be able to sell in open "retail" market at $200k+)
• The temporary waiver will be in effect for a period of one year, unless extended or withdrawn by the FHA.

It's easy to knock the government for being overly involved, but this is a well-placed effort on their part that should do much good for the market.

One of my FAVORITE (not) situations as a Real Estate Professional is the Buyer who wants a "bargain" on a "bargain." We show them a KILLER deal and they immediately say, "so what do you think we could get it for?"

I like to refer to this guy as "Lowball Larry." Have you met him? Is wearing your pants right now?

In today's report we talk about the fact that home sales nationwide are up 9.4% month over month - a 2 year HIGH,! And the fact that many, many properties in the St. George area are selling for FULL PRICE or HIGHER in literally just a few days.

Buyers beware - the deals are right in front of you and may never get any better.  CHECK OUT THE VIDEO:

I’m sure I’m going to take some heat from my peers for this, but I’ll take that risk to present the following long-range views on the subject.

There’s a lot of “buzz” in the St. George real estate market right now about the upcoming “Utah Real Estate Auction”, (www.UtahREA.com). I’m not sure what that buzz looks or sounds like outside of my professional peer group, but it seems that every time I turn around this week another agent is talking about it. 

The concept behind the auction is quite simple, and on the surface, makes complete sense: Put together a huge list of properties that are (supposedly) distressed and ripe for deal-seekers. Compile them all into a big online database, roll out the direct mail and billboards announcing “deals of the century”, and set the “contract room” up for hungry Buyers and elated Sellers.

In theory, everyone wins. Sellers get what they want, Buyers the same, and any involved Realtors pick up a quick, albeit reduced, commission.  So what’s wrong with the program?

Nothing, perhaps, but if you take a long-term view of the market and the perceptions that get created when things like “auctions” take place, there are some potential pitfalls. Here are a few to chew on:

Potential Pitfall #1: Buyers’ perception of possible savings become distorted.  For months and months now, the average home in Washington County has sold for 85-100% of the list price. Now hold on for the next part: many homes, almost all bank foreclosures, are selling for 100% of the list price or MORE! I am hearing weekly of “bidding wars” being created on homes priced so aggressively that multiple buyers are trying to get in on the action.

With the hype of an auction, buyers, especially out of town buyers, get the idea that they can come to town and “name their price” when the reality just isn’t so. This creates disappointed buyers and lots of wasted time.

Potential Pitfall #2:  3^rd-Party lender and lien-holder buy-off. Many of these homes are “short-sales” and lack the required 3^rd party approvals at their current prices….what happens when bidders come in and offer another 25% lower?

What happens is more disappointment. We saw this happen in the past 90 days in Northern Utah. It was all over local and state news. Would-be deal seekers showed up an a similar commercial auction, made their bids and had them “accepted” at the auction…only to find out later that the banks and 3^rd-party lien holders wouldn’t buy off on the high bids. I saw some ANGRY people on the news that day……whoops.

Potential Pitfall #3: The “perception” of a good deal does not a good deal make. I am always reminded of the story my Keller Williams Sales manager told me about his first iPod purchase on eBay. The poor guy stayed up ½ the night to ensure a winning bid, only to find out later he had paid higher than retail price!

In a KSL piece dated August 6, 2008, Paul Nielson wrote about the fact that real estate auctions are not always a good investment. This goes back pitfall #1. Read the following excerpt from that article: “As for those great deals where people can buy a home at auction for less than half it's worth, some attorneys say that's not really happening in Utah right now. Sometimes at foreclosure auctions, the bank will charge what it is owed, even if it's more than what the house is worth.”

Well that’s interesting. Unfortunately, just as there is always a dummy who will respond to an email from the “Princess of an African King” to make a few million dollars, there will always be people who will show up to a real estate auction and over-pay for a property due to the inherent “perception” of a good deal.

Now can I be completely frank with the following? When you go to the auction website you will see the "Estimated Value" vs. the "Opening Bid." There are very "Estimated Values" that I can comfortably say are the "Actual Values." From my personal observation, many of those estimated values seem high to the tune of 5-15%. In many cases the "Opening Bid" is just about the actual current market value. DO YOUR HOMEWORK!

And don't forget that they are tacking a 6% "premium fee" on top of the winning bid price!

Here is a link to the auction inventory which stands at 72 properties at this writing: http://www.utahrea.com/auctions/properties.php?auctionid=14

So why go?

Lots of reasons. Sheer Curiosity and the fact that you really might find a sweet deal are two really great reasons. Another is that you will just learn a lot in the process as a bystander.

The Utah REA people and their local contacts are doing a super job promoting the even and all of the potential pitfalls aside, it is great exposure for our local market.

The other thing I really like is that in a market of "bystanders," these people are actually out making it happen. There is also the potential to move a large volume of inventory in a very short period of time....very cool.

Here are some useful tips to make sure you don’t end up as one of the “dummies” I described above:

1. Do your homework first. This means contacting a good local Realtor who has solid contacts with people like home inspectors. Get out and physically view the properties in advance, ask questions, and have your agent run some “comps” (comparable sales data) to determine what would be a good price for the home.

If you’re concerned about how your agent, as well as “listing” agents get paid (cause you don’t want to pay more than you have to, right?), contact me directly for a copy of the auction company’s rules, forms, etc.

2. Pre-determine your absolute max asking price in advance. This will also ensure that you don’t get caught up in the wave of emotions that can come along with an auction-type setting.
3. Be sure about your big “why” before bidding. Do you need a home or are you just someone who buys 5 pallets of Diet Coke at Costco because it’s “on sale?” Real estate investment may be the greatest long-term wealth building tool in the world, but buying and “flipping” homes like the masses did in 2005 is a dangerous game nowadays, so but be sure you have a solid game plan put together before bidding at an auction.

Auction Date: Thursday February 13th - 7:00 PM.

Location: The Dixie Convention Center - 1835 S. Covention Center Dr., St. George.

I will be there. We will be driving the SoUtahForeclosureTour.com shuttle…you can’t miss us! Please chime in with your thoughts and opinions about the auction process. Good? Bad? Indifferent?

Not more than 1 year ago they would take your home from you 180 days to the day from your first missed payment.

Now it is typically taking MUCH longer and in many cases, the banks are coming up with all sorts of creative "loan modifications" to avoid taking back any more property and to allow the homeowner to stay put.

Call it a "band-aid" if you will.......

This is a bit of a throwback to a piece I wrote on Nov 11th about "at risk" borrowers. I found this piece today through who knows what channels. I think it is interesting because it is specific to one geographic area, but tells the story of what is going on nationwide.

Check it out here and share your opinion freely!

http://www.indystar.com/article/20090111/LOCAL18/901110400/1195/LOCAL18

So you ask, "how low do you think prices will go?"......"have we hit bottom?" You may even ask, "is the world coming to an end?" Ok, well I haven't been asked that, but I've been asked something similar during the woes of the current market.

Now CNBC Analyst Dennis Kneale raises what may be the most critical question of all: Is the current housing crisis really a "crisis?", or just a problem blown out of proportion? Take 2 minutes 28 seconds and see if his answer to the question matches yours by clicking the link below:

So the Summary looks something like this:

-1/3 are owned 'free & clear'

-1/2 of the remaning 80 million were bought before the year 2000

-The median home price is up 53% since then

-Overall, 95% of all mortgage holders still pay on time.

-That leaves us with maybe 4 million homes in trouble.

-Moreover, only 2% of the households in America are actually in foreclosure!

Hmmm......is this really a crisis, or the proper adjustment necessary to get home buyers back in the game?  You make the call!

Your agent tried to warn you, but you just wouldn’t listen. You thought you could save some real dough buying a short-sale. Now months have passed and you didn’t even get the home you wanted!

This can either be a long or short post. It all depends on how much convincing you need, which will then determine how much you elect to read.

If you’re a Buyer, you’ve probably been enticed by all sorts of real estate-sexy terms like “short sale”, “foreclosure”, or “bank-owned.”

Yes, just hearing those words may have you turned on for a “killer deal” as we speak.

As a Seller you’ve heard those same terms and they’ve had more nasty connotations. You  might have said to yourself, “those are things that happen to other people, not me.” Or perhaps you have even become aware of the fact that those very bank-owned, foreclosure, or “REO” properties are robbing you BLIND of your equity. And they are, believe me they are, but that is a discussion for another day.

However, this post is mainly devoted to Buyers. After getting really excited about the short-sale, you call your agent and tell them you want to make a really low offer and save some serious cash. Your realtor knows better, and tries to dissuade you from making the offer. “Let’s find another home” he or she says, but you just think they want a quick sale. You can’t be stopped. You are one savvy buyer and hell-bent on making a good deal.

Weeks pass, and still no word from the listing agent. Your agent tries and tries to call the listing agent to find out what is up, but they always get the same response: “we’re waiting for approval from the bank.” As the weeks pass, so do other buying opportunities on properties with great equity in them and that you can actually close on in 3-4 weeks. You, of course, are still living where you don’t want to and it’s driving you nuts.

Finally after say a 4-6 week wait, the bank comes back and tells you: “Sorry, we can’t accept your offer. Please bring us a higher offer.” Or better yet, “sorry we received a higher offer than yours and we will be pursuing it.” Or let’s say that they actually accept it. Now they need you to close within an EXACT number of days or it is dead and they have to reapprove…yuck! (Hey that 4-6 week scenario may be conservative...I've seen MONTHS pass before approvals).

We will be closing a short sale transaction next week. It took us 5 months, 7 offers, and probably 100 calls to the bank to get to this point. I am hearing figures of only 10% of short sales making it to the closing table, but who can be sure how many really do?

But it is a “short” sale…can’t I save money?

Here is the deal: The very NATURE of a short-sale is that the bank is taking a loss on the deal. Why in the world would they want you to give you a good deal in the process? Sure they need it sold, but they aren’t stupid and they will make dang sure that they exact every penny they can out of the deal in the process. They don’t care about you, me, or even the Seller – only their bottom line.

What is it with Human Nature?

There is nothing more compelling than the thought of either saving or losing money. Buyers in today’s market live in absolute fear of buying something that may lose value, or that they might have saved money on in some way. Sellers suffer from the same malady, only from the opposite perspective. They notion of selling their home and “leaving money on the table” is almost too much for most Sellers to bear. That is their hard-earned money dammit, right? Well not really. The equity you have on paper is just make-believe until you sell and get it out – just like the stock market.

So what DO you buy?

There are hundreds of phenomenal buys sitting right under your nose in our market right now, being offered by either A: motivated sellers with the equity to negotiate, or B: Motivated banks who have already foreclosed on the property (the short-sale never worked) and they have it back on the market at a great price so they can get rid of it quickly.

Any while you’re at it, please take caution with so-called “short-sale” or “foreclosure specialists.” These are usually just brand-new agents looking to cash in on the current market, or unscrupulous investors who want to save money at your family’s expense. If it seems too good to be true, it probably is.

Summary: Short sales are a necessary evil in today’s market, but they do suck. They suck for several key reasons:

1. They are, in essence, a "mirage." They look good from afar, but they end up sucking the life and energy out of everybody involved in the process: Buyer, seller, agents, Title Company, mortgage lender, the whole works. If you can avoid them, do.

2. As a segway to #1, statistically, you will probably never get that home. Really, you probably won't. You will either give up before the bank approves, or someone else will outbid you in the process.

3. Because of #1 and #2, they don't even end up being the "great buy" you wanted. I just sold one in downtown St. George for $9000.00 OVER the listing price! Yes, you read that correctly, OVER. Does that sound like a good deal to you?

Buyer beware, what more can I say?