by Paul Slaybaugh | May 15, 2009 | Home Selling, Scottsdale Real Estate
There is always opportunity in the margins. Unfortunately, margins tend to attract the marginal.
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.
by Paul Slaybaugh | May 6, 2009 | Home Buying, Scottsdale Real Estate
How many days do I get to back out of a home purchase in Arizona?
Now that is an often misconstrued matter. Many people view the due diligence period (inspection period) as a “free look.” While it is true that a buyer is entitled to a full return of his/her earnest money and freedom from the obligation to continue with the purchase based upon the results of inspection(s) or other material matter (discovery of neighborhood crack house right next door, improper square footage in listing, scary structural or insurance history as reported in the Seller Property Disclosure Statement or insurance loss history report, etc) during the first 10 days of the escrow period, it should not be abused. It’s not really a “free” look anyway if you are shelling out money for inspections. I’ll address the question by examining the buyer protections that are in place regarding the initial inspection period in the standard AAR (Arizona Association of Realtors) purchase contract.
As a protection, the time frame for the inspection period is often slightly misunderstood. The buyer has 10 days from the full execution of the purchase contract (the day it the contract by both parties is executed is considered Day Zero) to provide the seller with notice of his/her intentions. Any time up to 11:59 PM on Day 10, the buyer can elect to (A) move forward with the purchase, (B) decline to move forward based upon a specific objection(s) or (C) agree to move forward provided that the seller make certain repairs. If the buyer chooses option A, he/she is committed to the purchase and the inspection period is over. If option B is selected, the buyer withdraws from the purchase and earnest money is fully refundable (provided the seller doesn’t contest the validity of the buyer’s objection). If option C is selected, the seller has 5 days to respond to the repair demands. If the seller responds in any manner other than full acceptance of buyer demands, the buyer has another 5 days to review upon receipt of seller’s response. The options for the buyer at that point are to either walk away or accept and move forward.
So, like so many things in Real Estate, the answer is that “it depends.” Depending on the choices made by each party, the buyer can actually have up to 20 days to cancel the contract based upon inspection issues. There are other potential walk-aways in the standard purchase contract, such as the financing and appraisal contingencies, that extend beyond the initial inspection period, but those are dependent upon your good faith effort to obtain timely loan approval failing or the property not approving for at least the sales price (in financed transactions), respectively. They aren’t reliable escape clauses to be leveraged if you simply change your mind weeks into the escrow period.
There is also the final walk-through, which provides the buyer with the opportunity to ensure that the property is both in substantially the same condition as it was when they agreed to purchase terms, and that all agreed upon repairs have been competently performed. Again, however, this is not a reliable walk-away at the zero hour. There would have to be some serious material reason for exiting the transaction at this point. A reason that would have to stand up to scrutiny as you can bet your bippy the seller will contest it.
Long story short, there are ways out of a purchase agreement in Arizona if certain contingencies are not met, or the other party breaches the agreement, but you shouldn’t rely on them as safeguards against a change of heart. Your “free look,” if you insist on considering that, effectively ends at midnight of Day 10.
* A note of importance: If the buyer supplies the seller with notice of repair demands prior to Day 10, he/she effectively waives the remaining time left in the initial 10 day inspection period. For example, if the buyer sends repair demands to the seller on Day 5, he/she cannot come back with additional demands on Day 9. And if the seller signs off on the agreement to make all repairs, the buyer is now bound to proceed. *
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Ray and Paul Slaybaugh are not attorneys, just humble Real Estate agents. Please do not be silly enough to rely on any opinions given here for legal advice. Consult with a qualified attorney should you have any legal matter pertaining to a Real Estate transaction that needs to be addressed.
by Paul Slaybaugh | May 5, 2009 | Home Buying, Scottsdale Real Estate
The latest sales numbers are in, and the news is encouraging. Closed sales and pending sales are up rather dramatically and the listing inventory is sub 40,000 (37,000 and change at last glance) for the first time in recent memory. The underpinnings of the Valley Real Estate market have been statistically improving steadily with each passing month.
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 …
by Paul Slaybaugh | May 2, 2009 | Home Selling, Scottsdale Real Estate
One of the age old adages of Real Estate is that everything is negotiable. By and large, it is true. However, another adage to bear in mind is that there is a time and a place for everything. Let’s examine the sticky issue of seller repairs during the course of a typical transaction, for example.
Buyer’s aren’t the only ones who can experience a healthy degree of remorse after consummating an agreement to purchase a home. The phenomenon also extends to sellers who are convinced that they have undersold their property. Hard to fathom that anyone who watches the news these days and has an idea of what is going on in the current market would think it is possible to undersell right now, but it happens. While a remorseful buyer may look to the home inspection as an escape hatch to get out of a purchase they no longer wish to make, a remorseful seller may decide to stonewall all buyer inspection requests because “they are already stealing the house.”
There is also the case of a seller who has received a subsequently higher offer. Legally bound to the terms of the contract with the first buyer, the higher offer can only be placed in backup status. As such, some sellers with a better backup offer in hand will be inclined to stonewall the inspection demands of buyer number one in hopes of chasing him/her away. This would enable the more favorable terms of the second contract to be moved to the forefront.
Well, in each case, there is a problem with the strategy. A seller cannot retroactively change a purchase agreement to an “as is” transaction. The time to address such terms is during the initial contract negotiation. Unless overridden with constructive language, the boiler plate of the AAR (Arizona Association of Realtors) purchase contract warrants that certain systems of the home are in working order upon the close of escrow (receipted proof of any/all corrective work is required to be furnished to the buyer 3 days prior to closing).
Section 5a of the AAR Purchase Contract:
Seller Warranties: Seller warrants and shall maintain and repair the Premises so that, at the earlier of possession or COE: (i) all heating, cooling, mechanical, plumbing and electrical systems (including swimming pool and/or spa, motors, filter systems, cleaning systems, and heaters, if any), freestanding range/oven, and built-in appliances will be in working condition; …
In other words, the seller is contractually obligated to make any repairs necessary to ensure that the systems referenced in the passage above are in fully functional condition at closing (or possession, whichever comes first). I am not an attorney, but according to the suits in our downtown corporate office, “functional” is to mean “as intended upon original installation.” In other words, your A/C may work, but if it has a temperature split outside of the ideal range, you are most likely technically obligated to repair the component that is preventing it from functioning in accordance with original specifications. Faulty wiring (double taps in the breaker box, reversed polarity, etc), non-functioning fixed appliances, leaky shower valves … you are on the hook for those repairs.
Let me reiterate, I am not an attorney, so please do not refer to anything stated in this post for legal guidance. I am but a simple Realtor with a simple message:
Unless you struck the seller warranty language out of your original purchase agreement (good luck with that in this market unless you happen to be an asset manager for a bank and willing to discount the price of the home dramatically), there are certain repairs you are stuck with, lest you be in breach of the purchase contract.
That’s where fun new topics such as specific performance lawsuits come into play.
Read the contract to which you are agreeing, and don’t let your agent dismiss the fine print as “just boilerplate.” That boilerplate contains specific rights and responsibilities of which you need to be aware prior to ratification. The Devil is always in the details.
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by Paul Slaybaugh | May 1, 2009 | Scottsdale Real Estate, This & That
You wake up one day and find a small, hard lump entombed in familiar, soft flesh. You fret through your morning coffee before spending an inordinate amount of time exploring the tender area in a scalding hot shower that refuses to burn away the foreign body and subsequent angst. You dress quickly and head to work with a churning cauldron of bile and trepidation threatening to bubble over and sear the already frayed inner calm which connects your soul to your tear ducts. One inky drop of festering emotion is all it takes to bore through the tenuous hold on blissful denial.
And then you forget about it.
Life crowds out the specter of an unwanted distraction and you willfully ignore that first warning. The lump which felt like a boulder upon initial discovery no more than a minuscule peppercorn to your unworried mind. Until the soreness begins to increase. And the inflammation in your neck and glands is preceded by a sharp drop in weight.
The metastasis was inevitable. Originating in the housing and financial sectors, the cancerous cells quietly exploded throughout our economy’s unsuspecting body via Wall Street’s capitalistic lymph nodes. Blood supplies were choked off and organs began failing, thus inviting the drastic life extending efforts of surgeons and oncologists alike. Some ravaged tissues were simply too far gone and excised completely. Others were salvaged by the same deft hands that are capable of merging the tendon of a cadaver with the damaged body of a live patient. Banks imploded and banks were stripped for parts.
And now onto the chemo.
With mortgage backed security bombs replicating throughout the global economic structure, surgery alone was not enough to thwart the advancing menace. You can only cut so many holes. The only hopes of ebbing the toxic tide now appears to be a good, strong dose of poison. Poison to poison the poison. Radiation treatment failed to make a dent in the credit freeze as the localized cash infusions were simply absorbed by the institutions and … well, the doctors are not really sure where all of those rads went, but the tumors didn’t shrink. Lenders failed to lend. The credit crunch spread to auto manufacturers, credit card companies, the adult entertainment industry, entire states and individual pocketbooks. As the new administration prepares to unleash a heavy dose of socialistic poison upon our dying markets, we can only hope that the patient responds. Remission sure sounds better than recession.
Of course, we have to first survive the cure.
I, for one, am not particularly fond of rat poison, but it’s time to ladle it down our collective gullet in hopes of killing the affliction before it kills us. I am not an economist. I honestly do not know whether this stimulus package is sound policy or not. All I know is that there is supposedly a ninety eight year old shaman in New Guinea who can find and extract disease by touch.
My bags are packed.
by Paul Slaybaugh | May 1, 2009 | Home Selling, Scottsdale Real Estate
Shh! Can you hear that?
It’s the sound of hollow vault doors being slammed shut and masking tape being drawn to piece together shattered family piggy banks. Smashing the pink porcelain piglet in cases of emergency is the easy part. It’s putting the starved omnivorous swine back together that requires the patience of Job.
While America has gone for her hammer, we Realtors have been peddling a seemingly contrary message.
Buy. Now.
While it is difficult to fathom spending money at a time when most are diving under the sofa cushions to retrieve every last nickel and Chuck E Cheese coin alike, we are all familiar with the free market tenet that the best time to buy is when everybody else is selling. Or trying to sell, I should say. The worst of times allow for the best of swindles purchases. The majority of the general public recognizes this, laments the scarcity of available funds to capitalize on the current opportunities, and grudgingly returns to the painstaking task of trying to figure out which of the three credit cards to make a payment on this month.
These prices are crazy! If I had any extra money laying around, I’d buy five!
Of course, it goes without saying that values are so low because of the very truth that so few are in a position to buy. As soon as demand catches back up with supply, and more folks are in better places financially, the opportunity for the best values will be gone. This isn’t a sales pitch. This isn’t even a sales post. It’s just the way it is.
Nope, rather I am simply writing to remind you that the same market forces that apply to the current housing market at large apply to your home specifically, even if you are not looking to buy or sell. I am talking about now being an excellent time to renovate.
Blasphemy, I know.
With prices consistently falling for the past year and a half, why on God’s green earth would you invest more money into a depreciating asset? Especially when money is not exactly growing on HELOC trees these days?
Because there are a lot of hemorrhaging material suppliers and minimally employed contractors out there, that’s why. If you haven’t shopped the box stores or general construction supply retailers lately, you might be surprised at some of the prices that can currently buy you a slab of granite or travertine tile.
With starts for new build homes down to a virtual standstill, there is excess material and labor strewn all across the Valley. Don’t believe me? Go post a construction job on Craigslist and don’t blame me when your inbox explodes. Just like winter is the best time to resurface a pool, a slow growth market is ripe for a home renovation bargain.
Whether you are an investor that has adopted a buy and hold strategy for a slow motion flip, a homeowner who plans to sell in several years when the market is more conducive to your goals, or just someone who is simply sick of mauve carpet and laminate cabinets, this just might be the time to take the plunge.
It will be more difficult to finance the rehab, with lines of credit evaporating and home equities diminishing, but again, that’s the rub. That is precisely why there are bargains to be had.
While counting all of the money you are saving as you pick out those cabinets, thanks to the uncanny insight of a certain friendly Scottsdale Real Estate magnate, please bear one thing in mind as a thank you gift:
The magnate likes cherrywood.
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