As one knocks around the internet here in late April of 2010, he or she cannot go two clicks without encountering manic encouragement to purchase a home “BEFORE IT’S TOO LATE,” or proclamations that “TIME IS RUNNING OUT” to take advantage of the first-time and move-up homebuyer tax credit; each froth-inducing pitch more fevered than the last. The only thing missing are the decrees that “THIS OFFER EXPIRES AS SOON AS YOU LEAVE THE PREMISES,” and inquisitions as to “WHAT DO I HAVE TO DO TO GET YOU INTO A HOUSE TODAY?” P.T. Barnum had nothing on a gaggle of motivated Real Estate agents.
Here’s the thing, though, I am not a big fan of leveraging fear as a sales tool. With just over a week left in the Federal Clearing House Tax Sweepstakes, I am pulling the plug on my own hyperbole. If you are a first-time homebuyer and have not found a suitable home after months of feckless searching, it’s time to call off the dogs. “IT DOESN’T HAVE TO BE PERFECT, JUST BUY SOMETHING!!!”
“HAVEN‘T BOUGHT A HOUSE YET???
WHAT ARE YOU WAITING FOR???”
“DON’T GET LEFT ON THE SIDELINES! THERE’S STILL TIME!”
Lest your home buying ship wash up on the nearest reef, these bleating calls to action should go unheeded. The wall to wall promotion does have one thing right, though: the time is now. Just not in the way they would have you believe. Now is the time to regroup and ensure you do not make a poor purchasing decision. The tax credit has been a nice perk to those fortunate enough to find the right home over the past year, but don’t sabotage a 250k purchase because Uncle Sam is holding an 8k caliber gun to your head.
If you are just starting the hunt now, you’ll do yourself a huge disservice by attempting to shoehorn yourselves into an ill-fitting home due to the time constraint. If you are nearing your wits end after an unsuccessful months-long odyssey, you are equally likely to do the same when facing down the looming deadline. I am issuing a cease and desist order to those who have confused the priorities of their fledgling home purchases.
Let it go, folks. Let it go.
We can start again when your only underlying concern is securing the best possible deal on your ideal new home. With the throng of desperate lemmings running blindly for the cliff, you might just find yourself as king of the buyer’s mountain come May 1st. With a potential reduction in the number of suitors left after the great tax credit hari-kari, you could unwittingly stumble upon higher negotiating ground via your abstinence from the purchasing frenzy. While that 8k incentive will drive some to overbid on properties in the coming days, the smart buyer might seek to carve a larger swath out of a seller’s backside in the fertile post-April 30th hunting grounds.
“IF YOU DON’T LIKE THIS HOUSE, SEND IT BACK FOR A NO-HASSLE MONEY BACK GUARANTEE!" <or not>
The folly in the air is palpable at present. That little governmental spiff will come and go, and you won’t even remember towards what end the money went. You’ll be stuck with the house, however. Make sure it is the one you want. And for God’s sakes, man, don’t make the same mistake that we all made back in the heyday of 2005-2006 by assuming you will be able to offload the house in a couple of years if it doesn’t prove suitable for your needs.
Surely we haven’t forgotten this lesson while it is still being taught in excruciating detail?
In many respects, the heralded Real Estate bargains to be had in Scottsdale and the greater Phoenix area should come with the disclosures required of weight-loss product testimonials.
“Joe Homebuyer’s results not typical.”
“Always consult a physician before launching an intensive home search program.”
“Stretch thoroughly and lift with your legs before attempting bank-owned property heist.”
For the purposes of this piece, we are going to focus on the first caveat. Every Valley resident has at least passing knowledge of some fortunate homebuyer who leveraged the current market to score a honey of a bank-owned deal. As big a nobody-turned-celebrity as the 170 pound guy in a Nutrisystem commercial holding up a pair of orca sized slacks as evidence of his former girth, Bob from accounting is the new gold standard for idolatry after securing the housing buy that set the office abuzz. Before following in Bob’s considerable footsteps, however, there are a few things you need to keep in mind. His results may not only prove atypical, but in extreme cases, constitute patently misleading advertising.
The hidden “gotcha” to many bank owned purchases right now are property taxes. While the institution that owns the property should pay off any back taxes as a condition of conveying clear title to the purchaser, many buyers fail to properly account for the bill they will be saddled with for the next couple of years (at a minimum). Unlike other parts of the country, where taxes are based solely upon purchase price, Maricopa County taxes are based upon the assessed value of the property. Many falsely assume that the home they are buying for $350,000 will reflect a tax basis commensurate with that value. As our budget revolves around 2 year property evaluation schedules, odds are very good that your current tax basis will reflect a value closer to the $1.1 million that the home sold for back in 2006.
*Maricopa County residents are entitled to appeal all new evaluations from the county assessor (typically go out in early Februaruy), but must do so within 60 days of the date they were mailed. Click to begin the Maricopa County property tax appealprocess online.
Another thing to bear in mind is that while the assessed value of the property is likely to decline rather dramatically over the next several evaluation cycles, expect tax rates to rise in contrast. You should see an overall reduction to your bill in the future, but our strapped municipalities aren’t going to let go of all that revenue without a fight. Already firmly entrenched in the red, it is an almost foregone conclusion that the tax rates will be fully maxed out to legally allowable levels to offset as much of the lost potential revenue as possible. Your friendly, cash-strapped local government at work.
Another hidden sniper to these bank-owned bargains are Homeowner Association expenses. While monthly fees are typically disclosed upfront (or easily determined through a few well placed phone calls), former million dollar neighborhoods are fodder for massive asset preservation and capital improvement fees/impounds. You might well afford the $120 monthly fee, but the bulbous community enhancement fee that is due at the time of purchase could blow an unsuspecting buyer’s budget right out of the water. Given the many amenities that some such high end subdivisions boast, it would also be wise to expect and budget for future special assessments involving their maintenance.
There really are some amazing deals floating around the market right now, just make sure you can afford them. We are looking for a home you can maintain and afford, not a fad purchase that will lead to a lifetime of yo-yo budgeting.
It’s true. In Arizona, you will rarely get the keys to your new home at the closing table. Despite the fact that you wired in the balance of your down payment funds or marched a cashier’s check into the title company on what you thought was the penultimate day, the home is not yet yours. You see, unlike other parts of the country where all parties congregate around the closing table to officially finalize the escrow process, there are still a few remnants of hanging fire that must be doused before your new home is officially, well, your new home.
If you relocated from back East, you may be surprised to find the title officer and your agent (hopefully he/she is in attendance) as your only companions at signing. Buyers and sellers typically have separate signing appointments, so if your loan documents arrived at the title company three full days prior to the scheduled closing date, as stipulated in the boiler plate of the standard Arizona Association of Realtors contract, you might actually execute your portion of the documents before the seller does. Until both parties sign their respective closing docs, the property cannot be transferred. Even if the seller has signed off prior to your appointment, however, there are a few additional factors that preclude you from taking immediate possession of the property.
The closing appointment at which the buyer signs the loan documents is not technically the “closing” because of a few missing components. Most important among them are the funds from the lender. While you may have already brought in the balance of the funds required of you (down payment and closing costs), most lenders do not release their funds until they receive and review the loan documents that you sign at your closing appointment. Some lenders will “table fund,” meaning they will release the wire to the title company without review of the documents, but that is atypical. Needless to say, until the money from your lender hits the title company’s coffers, the moving truck you have scheduled is going to have to keep circling the block. From the time of your signing, it will usually take 24-48 hours for the lender to fund the loan. This, of course, assumes that there are no problems or discrepancies found in their review of the signed documents.
Okay, so you signed your documents, wired in your down payment and just learned that the lender has funded your loan on the scheduled day of closing. Woohoo! The house is finally yours! Now where’s that key? Not so fast. Even though it is tantamount to a rubber stamp, the title company still has to submit the deed to the county for recording. This is an automated process these days and is done en masse, but the home is not yours until we receive confirmation that the deed has been recorded. It is then, several days after you signed the paperwork and deposited your money that your Realtor shows up with your keys and a thousand watt smile.
The thing to keep in mind when considering the logistics involved in closing is that you will have nothing to do on the actual close of escrow date. The signing of documents and deposit of monies, if handled correctly, will be done in advance. Keep this in mind when discussing closing dates with your agent as part of the initial negotiation, as miscommunication (we agents sometimes forget that people don’t understand all of the minutia involved in the sale of property) might lead you to take the wrong day off work or schedule the movers incorrectly. Plan on being physically available two to three days prior to the agreed upon closing date (as it is stated in the contract) to do your part. Some people schedule the movers for the closing date, but this is a mistake. Because the home is not yours until it records, and there is no way to know whether it will record at 9 in the morning or 5 at night, you will save yourself a lot of potential misery by scheduling the truck a day or two later. With the recent delays that have been caused in many transactions by various, and dare I say, draconian changes within the lending industry, a little buffer is advisable.
Now that you have a handle on the closing process, we’ll backtrack a bit in the next installment of the Scottsdale Property Shop home buying series as we take a closer look at the inspection process in, “They Have to Fix That, Right?”
By now, even the most procrastinating of first time home buyers understands that the end is nigh. The end of the $8000 first-time homebuyer tax credit, that is. While rumors abound about a possible extension past the current deadline, rumors also persist that man did not actually walk on the moon in 1969 (if you happen to believe the latter, you can moonwalk your way right out of my blog catalog). When it comes to our esteemed legislative bodies, I am not ready to take the leap of assumptive faith that they will do the logical thing. As things stand, you have received sufficient warning from every warm and cold blooded Realtor type in the land that you need to get on the stick immediately. With new appraisal regulations and loans which used to take 30 days now bogged down in underwriting quicksand, it is not a good idea to venture past mid October before pulling the trigger on that home you have been patiently watching for just one more price reduction. With a fleet of fellow procrastinators waiting until the absolute zero hour (closing prior to 12/1/09), there is also the added risk of running into title company soup. Think the end of the month is busy at your friendly title company and subsequently hectic in terms of getting your deal closed? My hunch is that typical happenstance will be a walk along a tranquil beach in comparison to the buyer tsunami that figures to crash upon every escrow office near you between 11/1 and 11/30.
But these are the things you already know. Just like you already know that the credit is not reserved solely for first time buyers, but also those who have not owned Real Estate within the past three calendar years. This information is so readily available that I haven’t even bothered to write about it before now. At great risk of being the guy who runs into the empty room to yell “Fire,” I do believe there is one more wrinkle that needs to be discussed. With the deadline steadfastly approaching (just because it looms closer, doesn’t mean the pace has suddenly morphed to earn “rapidly approaching” designation, now does it?), lost in the prodding for first-timers to buy now is any discussion as to the kinds of homes you should be considering. I shall rectify this egregious oversight now.
Earlier in the year, the Real Estate world was your oyster. REOs, short sales, HUD homes, auctions … bring them on. As long as you wrapped up your purchase prior to December, you were golden. Thus, you had the ability to trawl every last oceanic trench to scrape up your sunken treasure. It probably didn’t take long to realize that the biggest finds, those Titanics of the Real Estate deep, were teeming with sharp-elbowed and deep-pocketed prospectors. Basically, you with more purchasing power. Every time you made a play for a new bank property, you and your FHA-fueled dingy were left eating the wake of 50 foot conventional vessels and staring into the live canons of the scourge of the first timer’s sea: cash buyer pirates.
Resigned to the fact that your 3.5% down and government-backed loan vehicle is not a fair fight against the types of buyers that the best values attract, you most likely started looking at resale and short sale properties. Resales have been tricky because most sellers are not in a position to compete with the banks. Many that you would be interested in continue to be priced out of your affordability.
Now you may be thinking that short sales are the way to go. The bank wants to offload a property that is in default without incurring the expense of foreclosure. The seller just wants out and is not motivated by profit, thus creating a tantalizing asking price. Sure there are only a couple months left to close on a house to secure your credit, but this listing says they are using a “Certified Negotiating Specialist.” This other one says they have a 95% success rate! Another even says that they are near bank approval!
Don’t do it.
I know you have gotten your teeth kicked in on the bidding wars that erupt on the bank properties, and the resale market is still too pricey, but short sales are not the way. Not now. If you had submitted an offer on one several months ago, you would have a shot, but I am telling you right now that YOU WILL NOT RECEIVE YOUR $8000 TAX CREDIT IF YOU WRITE ON A NON-APPROVED SHORT SALE LISTING at this point. It is quite typical for the process to take 3-6 months, and the resolution is far from a sure thing.
Keep looking at the bank properties, but reset your sights a little. Great values are still out there. You can lock one up that isn’t priced so stupidly low that every buyer and his pet chimpanzee show up to vie for it, driving the price into the stratosphere. Some of the best buys made right now are actually the ones with list prices that aren’t necessarily the most attractive. When banks, just like typical sellers, miss that sweet spot, you have a better shot at negotiating the price lower versus bidding the stupid cheap one up.
This is also not a bad time to take another hard look at the resale market. Sellers of properties that will fit the budgets of first time buyers should be receiving advice from their agents right about now that they really need to get competitive if they are to capitalize on the last minute purchasing rush. Granted, many sellers simply are not in a financial position to lower their prices, I have noticed more and more resale listings working their way into my searches.
Finally, I would be remiss if I didn’t caution that the tax credit should not be the be all and end all for your purchasing decision. If you simply cannot find the property you want at a price you can afford, don’t get caught up in the frenzy. The worst decisions are often made in the face of such artificial pressure.
But if you are ready to take the plunge, find yourself a property in which the seller can give you a thumbs up or thumbs down within days instead of weeks. Walking the short sale plank with less than 90 days to get it closed will net you an $8000 cold shower.
You have a problem. Your family sees it. Your friends see it. At the eye of the storm, only you lack the perspective to clearly recognize the wake of wanton destruction spawned by your vice. Despite your feeble protestations to the contrary, you need help. Your addiction does not end with you. It touches the lives of those around you with dark, restless hands. Probing unsuspecting pockets and vulnerable throats.
The cycle of despair ends today. Your days as a perpetual Real Estate shopper are over.
House hunting can give you a rush like none other. No buyer quickly forgets the first time he steps through the front door to a new potential future. The magic. The exhilaration. The knowledge that one is virtually unfettered to choose his own adventure. Of course, once that initial euphoria grabs a hold of a buyer, he must experience it again. Houses 2-10 still hold some residual magic, but do not hold a candle to that very first experience. Houses 11-20 hold an air of disappointment. Soon enough, each successive property becomes a progressively greater assault on the sensibilities. Your friends and relatives grow weary of your constant trolling of Realtor.Com. Your erstwhile volunteers will no longer join you on the weekly Sunday home tour with your beleaguered Real Estate agent.
You don’t care. Despite all evidence to the contrary, your silver bullet is out there. You don’t need help, you just need more listings. Where are all the new listings, anyway? Everyone knows that banks are giving houses away for pennies on the dollar, so this simply must be the week that the 5000 square foot home on 4 acres hits the market. For $125,000.
Welcome to Detox. My name is Paul. I will be your cold dose of reality for the next 30 days.
The first step to recovery, of course, is admitting you have a problem. Trust me, you have a problem. Further, you must admit that you are powerless to the tug of your addiction. I offer as “Exhibit A” this August 9th, 2009 email sent to your agent regarding a property you found online. Time-stamped at 3:48 AM. “Exhibit B” is your agent’s cell phone records from 3:49 – 4:32 AM of the very same day.
Step two is to understand that a power greater than yourself can restore you to a sane existence. No, it’s not your brother’s mail carrier’s uncle who owns four rental properties. It’s your agent. Listen to him/her.
We’ll just skip step three because we all know that the realm of Real Estate is presided over by a supreme being in the guise of a braying, one-eyed donkey with cataracs. Pin the tail on him and you are as likely to get donkey kicked in the goods as you are to win the investment lotto. See step two for obtaining the services of one who knows how to best manipulate, if not outright tame, the fickle Real Estate beast.
You are now ready to move on to step four. This is where you take full and unflinching stock of your own morality. “Thou Shall Not Steal” is a typical shortcoming of many Real Estate shopping addicts. The thrill of the grift, after all, is one of the primary tarpits into which the saber-toothed buyer has fallen to become bogged down to such an irretrievable degree.
While admitting to yourself the wrongs you have committed is no picnic, neither is admitting those things to the higher power of your choice and a fellow non-home buying human. When you can do so, you have conquered Step five. Don’t even think about omitting the part where you burned 1897 hours and 16,789 gallons of your agent’s time and gasoline.
Step six is opening yourself up to the full removal of the defects in your character from a higher power. Once again, your agent will gladly fill this role in absentia and remove said defects via Paypal and/or rubber mallet.
If you can bring yourself to ask for said absolution, you have mastered step seven.
Step eight requires that you make a list of all those you have harmed and be willing to make amends. You can start with your spouse, co-workers and anyone you have pumped for advice and proceeded to dutifully ignore. Just make sure that your REALTOR is somewhere in the mix. No greater sin than trumping his/her decades of industry experience with the sage advice of your hairdresser and life insurance agent.
Step nine is actually making the aforementioned amends. A little wine and cuddling to soothe frayed nerves and egos is a good start, but cash money absolves all.
Step ten directs that you continue to take stock of your failings and immediately admit subsequent wrongs. You may be on the road to recovery, but that doesn’t mean you are immune to calling a listing agent directly to schedule an appointment after your agent has patiently educated you over the past year and a half. And yes by the way, that does make you a bad person.
Step eleven directs you to establish more direct contact with your agent. Email and the occasional phone call will suffice. He or she is tired of sending smoke signals in the direction of East Jabib to reach you. When the right property comes along, don’t make a search party necessary. Bloodhounds are pricey by the hour.
Step twelve is reserved for those Career Buyers who have had complete spiritual awakenings and will actively work to spread and promote these guiding principles to their brethren in shopping addiction. Praise the lord and pass the turnips, you are now ready to purchase a home! Go forth and proselytize!
Should you experience temptation to return to your former habits or worse, suffer a relapse, it is important that you understand three things:
Whether a professional athlete intent on a signing bonus the size of Madagascar, a victim of a vicious fender bender fixated on the 2.8 million dollar legal prescription for a tender neck or a home buyer/seller whose sole purpose on this earth at the immediate moment is to grind as many Ben Franklins as possible out of the guy on the other side of a negotiation, aggressiveness is typically the hallmark virtue in the professional representation that is sought.
The sports super agent, who we are 95% certain has a life-sized portrait of his bare chested self wearing a boa constrictor around suspiciously well tanned shoulders hanging in his posh downtown office, is universally loathed by all. Secretly, however, we all know he’d be the only guy we’d call if we needed to make a cash withdrawal from the abundant posterior of a team owner.
The weaselly ambulance chaser with the slicked back, Grecian Formula enhanced locks is similarly unlikely to find himself on the guest lists of many Bat Mitzvahs and baby showers. That narcissistic predator might eat the baby. When we spill the drive-thru coffee in our laps or stumble over the “Watch Your Step!” sign at a public establishment, though, he’s the guy we call.
Amicable folks are great to have around, but when the conversation turns to business, we don’t want Mary Poppins going into battle on our behalf armed only with a spoonful of sugar to make the medicine go down. We’d rather employ the services of Dr. Jekyll to go all Mr. Hyde on the opposition and cram that spoon straight down their throats.
Easy, tiger.
There is a time to kill, and there is a time to frolic. The problem with the constant grinder is that he often grinds himself right out of a transaction. It is critical that you leave the other guy with some dignity at the end of a tough negotiation, lest all of your efforts collapse under the weight of the other party’s exhaustion. After you’ve knocked the poor bloke to the ground and bloodied his nose, do the smart thing. Extend your hand and help him up.
In practical terms, this is akin to finally saying “yes” after repeated “no’s.” When you win on the key points, you are often in a position to make a small concession on some trivial tangential issue. Too many times, I see lost opportunities for a clear victor to score easy diplomatic points at these junctures in the waning moments of a deal. Want the inspection and other critical aspects of the transaction yet to come to go smoothly? Give up something that isn’t really necessary. Offer something minor, but unexpected.
You’ve bitten his neck on price, drank his blood on terms … time to give him a transfusion unless you want to carry his Doppelganger the rest of the way to closing. For the record, undead weight is quite heavy.
Of course, because you are reading my blog, this advice assumes you were on the dispensing end of said treatment throughout the course of the initial negotiation. If you were unfortunate enough to be on the receiving end, go ahead and drive a wooden stake through the SOB’s black heart.
