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.
by Paul Slaybaugh | May 1, 2009 | Home Selling, Scottsdale Real Estate
Appraisals are typically regarded as the most accurate measure of a home’s value, and for good reason. Licensed to perform one task and one task only, appraisers see and evaluate property all day, every day. While some of us more egocentric Realtors feel that we put more time and effort into our own opinions of value, considering we will ultimately bear the responsibility of bringing the home to market and selling it, that bit of vanity is neither here nor there. Appraisers, though many underwriters these days are loathe to admit it, are still considered the ultimate authority on worth outside of a willing buyer and seller.
Appraisers, however, are often hamstrung by their own guidelines in keeping pace with the current market. This can be beneficial, such as when prices were artificially exploding between 2005-2006. We agents lamented the stodgy appraisers who were too rooted in the past (closed sales) to acknowledge the present (upward trending prices) while values were exploding. You couldn’t attend an office meeting without a colleague or six bemoaning the bozo appraiser who didn’t grasp the current market. If only our industry at large had been so conservative.
Normally the protective ally of the bank and the buyer, I have noticed an interesting shift as of late, however. Appraisers have become a seller’s best friend. Before you toss me out on my heretical ear, hear me out.
Appraisers have begun to view the market in two distinct categories. There is the general non-distressed resale home market, and then there is the foreclosure market. When evaluating a property, most seem to have taken to lumping properties into one grouping or the other. Their subsequent findings are based upon the homogeneous pairings: bank-owned properties are comped against other bank-owned properties and standard resale homes are comped against other standard resale homes.
It sounds great in theory, but the problem with this new pattern is two-fold. First, there is the matter of pure sales volume. The action in our current market is more heavily dominated by foreclosure properties than any point in memory. It’s undeniable. The mini sales boom that has seen a steady increase in total closed and pending sales in each of the last several months here in the greater Phoenix area is due in large part to the allure of these lower priced options. As such, it is just not feasible to ignore this growing segment of the market when trying to determine the value of a home. The data is often quite scarce when trawling for non-distressed sales upon which to base an evaluation. By and large, the higher priced resale homes just aren’t selling with a great enough frequency to provide adequate comparison data.
The other issue is the problematic assumption that a buyer cares. If the home next to your own has been foreclosed upon and is listed at $200,000 less, do you honestly think the buyer will buy yours if all other things are equal? Is a buyer really expected to see anything beyond the price and the condition? The label of “bank-owned” versus “resale” is wholly irrelevant to what a buyer is willing to pay. Shoot, I have seen quite a few remodeled bank-owned or short sale properties that put many dog-eared resale listings to shame. And yet, they are somehow devalued or eliminated from the consideration of value for other homes in the neighborhood simply because of the conjured stigma. Buyers may start their search with one particular market segment in mind (distressed property shoppers looking for a deal, resale shoppers looking for a well maintained home), but they will ultimately look at everything that fits their price and need requirements. Labels be damned.
I sure like it when my appraisal tells me my home is worth more by ignoring completely the last four neighborhood comps, but I know the real score. No buyer will pay me what my current appraisal tells me it’s worth. No way. I know better than to be the ostrich who thinks that the homes that are actually selling right now have no impact on my property value because they are “distressed.” Guess what, buckaroo, those sales are distressing the entire market. There may be microcosms within the market at large, but they are amoebic. The uneven boundaries protruding against each other as they occupy overlapping space.
So while there is still plenty of benefit in having your home evaluated by a neutral authority, just remember not to spend all of that anticipated equity before your buyer signs on the dotted line. You just might be unpleasantly surprised when he doesn’t downgrade the competition or recent sales comps like your appraiser did.
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