27,000+ Homes on the Market

In the primary 4 county area we do our core business in (Placer, Sacramento, El Dorado, and Yolo).

These statistics just in...

Of those 27,000+ homes:

- Roughly 26% are "REO" (Bank Owned, foreclosed properties)
- Roughly 36% are Short Sales.

Wow.

The remaining 38% are a combination of private party sales (the traditional home sale), relocation sales, and new construction (when the builder chooses to use MLS).

By comparison? In 2004 there were only two (2!) short sale transactions for the whole year in these same 4 counties! Now we're seeing months where more than 800 short sales are going on the market.

What is getting into escrow?

2 out of every 5 transactions are bank owned. This is a huge jump up in transaction rate, and a giant leap in their abilities from where they were 12 months ago.

Short Sales?

The rate of closure overall is still somewhere around 15% - 20%. What does that mean in how we generate offers for our Buyers? We still use the "shotgun" approach. Blast out offers on half a dozen properties and run with the first one that hits. Betting on just one property at a time will get you nowhere in this market.

Bottom Line?

Patience. If you can't wait for the delays caused by Short Sales or REOs... then call me and we will go look at new construction!

- Jim

RESPA Law and Paying Buyers

I had a question last week about paying Buyers back who use Neighborly Realty for their purchase. The question was basically, do we split our commissions with Buyers if they hire us?

We don't do that.

Commissions are always a touchy subject. What's most important to remember for those of us in the Real Estate business, is that commissions are our wages.

Although simply calling them "wages" may not be sufficient - as there are legal ramifications for how we use those earnings.

We are regulated on what we can do with those wages and how much we can do for clients. A big part of the regulation comes from something called RESPA - enacted in the 1970s and strengthened after the Savings & Loan failures in the late 1980s.

Here's what RESPA states:

In many states, Real Estate licenses are granted without close examination of an applicant's knowledge of RESPA guidelines. As a result, many Real Estate Agents go into business unaware that certain practices are prohibited via Federal statutes enacted by the US Department of Housing and Urban Development.

RESPA stands for the Real Estate Settlement Procedures Act. Introduced in 1974, RESPA law is designed to protect consumers in the process of purchasing a home. RESPA requires lenders to provide consumers with disclosures (Truth-in-Lending Disclosure Statement) at various stages throughout the loan process, and also prohibits kickbacks and referral fees that would increase the cost of settlement services for consumers.

There are two main points of the law that affect referral relationships between parties involved in the selling of a home:

Prohibition of kickbacks. RESPA states that no one can give any "thing of value" in exchange for referrals. According to RESPA, if a Real Estate Agent refers business to me, I cannot even send them a gift certificate as a way of saying thanks. This applies to any people involved in a Real Estate transaction. If a client of yours refers another person to you, you can't reward them with any "thing of value" in exchange for the referral.

Can you have a party and invite all your past clients and include referral sources? Yes. But you cannot exclusively invite referral sources, as this would constitute a provision of something of value in exchange for referrals according to RESPA.

Can you give a client a thank you gift after a transaction closes? Yes. Giving new homeowners a house-warming gift is great marketing tool to implement after the deal is closed. However, you cannot give them a thank you gift in exchange for referring additional business to you.


As the Broker for Neighborly Realty, I’ve taken several courses in Risk Management. I have too, as I hold an extra level of legal scrutiny by being a Broker.

RESPA is something we are very careful with. It isn’t entirely clear on some of the “gray areas” around gifts and sharing revenues.

I’ve been told that more legislation is coming – entirely due to the real estate market collapse that started in October of 2005.

Again, how we manage our wages is very important. We will never do anything illegal or unethical with those revenues. We hope our clients now have some insight as to why we do everything “by the book”.

- Jim

Latest DOM (Days on Market) Statistics

We're compiling some market data for a client.

They're house went live just a couple of weeks ago and they are thinking through some of our marketing strategies.

Part of this research includes keeping an eye on a very important variable - DOM. DOM means "Days on Market" and is a key indicator in how your area is doing.

Here are some of the averages for DOM in some key areas where we practice, for houses that are currently For Sale. When there are multiple numbers, it represents the average days on market in the different zip codes in that city (and surrounding areas):

Antelope 90
Auburn 101, 79, 144
Carmichael 83
Citrus Heights 95, 94
Colfax 103
Elk Grove 85, 90, 83, 73
Elverta 148
Fair Oaks 78, 87
Folsom 120
Foresthill 78
Freeport 89, 87
Gold River 90
Granite Bay 91
Land Park 95
Lincoln 126, 101, 95, 144, 83
Loomis 102
Mather 77
Natomas 68, 86
Newcastle 107
Orangevale 77
Penryn 110
Rocklin 89, 84, 103
Roseville 67, 70
Sacramento 76, 91, 80, 100, 84, 94, 93, 89, 141, 72, 86, 75, 99
South Land Park 71
Sun City Lincoln 104
Wilton 102

For those houses that are on the market now, the absolute average in all of Placer and Sacramento counties is 84 days.

Use this data in good health !!

Call me if you would like data on a specific zip code, neighborhood, or area. There are toooooooo many to type them all out by hand!

- Jim

"My Friend Told Me We Should....."

An important part of the home buying and selling experience is getting feedback. Validating assumptions is absolutely critical.

One thing you will find, is that everyone knows something about real estate. It's one of the joys and challenges of working in this industry. Everyone is willing to share their experiences, stories, and deep insight.

Be cautious.

Here are a few of my favorites:

* "My friend told me we should offer $xxx,xxx. He/she is an engineer and really smart".

* "My brother is in real estate in Pennsylvania. He told me we are missing the boat if we don't do X, Y, and especially Z. Please do them immediately"!

* "One of my co-workers lives in the neighborhood and tells me that prices are still doing pretty well. We should offer above list price".

* "My neighbor has a friend who's sister got a bank to drop 50% of their price on a foreclosed home, and I want the same"!


Please keep in mind that you've hired a professional in the Real Estate industry. Chances are pretty good that they know more about this business than those who aren't actually practicing in the profession.

Market drivers absolutely differ by state. What happens in Ohio has almost nothing to do with what happens in California. What happens in Southern California often has little impact to Northern California (did you know the processes for escrow are actually different within the same state?).

Differences between zip codes can be huge too - even neighborhoods across the street from each other?


Over the last couple of years, there are parts of Sacramento County that saw value decreases greater than 60%. Yet there are other locations in Sacramento County where the drop in value was less than 15%.

Placer County? An average drop of 23% last year. Yet there are places in Lincoln that dropped over 50%, while parts of Granite Bay actually appreciated!


Unless your friends, family, co-workers, etc.. are actually practicing Real Estate in your area, trust the professional that you are working with.

Chances are pretty good that that person is busy 7 days a week and works at least 12 hours a day. We have to. This market is changing so fast that daily participation is absolutely required, if we are to do the best job for our clients.

Operating models (placing offers, comp'ing for list price, etc) from just March are no longer valid! That's how quickly things are changing.

Pay attention to the professional you've hired. Listen to them. There will certainly be messages of good news and bad news. Ask questions. Dig deep. But make sure you are talking to the most knowledgeable person you can find.

Again, it is absolutely important to get feedback and to validate your assumptions. Just please do it with someone who is a professional and who is practicing on a daily basis. It will make your participation in these processes easier (and less emotional).

- Jim

Short Sales Getting Quicker

Hello Neighbors,

I think the lenders are starting to figure it out.

Last year (2007) we went for over 7 months "working" with one lender to get approval on one short sale. That lender (Wells Fargo) simply didn't have the process in place or expertise in their "asset manager" teams to handle Short Sales. When they did finally get back to us, they rejected our offer!

Put yourselves in the shoes of that Buyer. Would you have stuck around? Probably not - and neither did that Buyer.

Lenders can't do business this way. They need to figure out how to handle these "assets" (homes) quickly and efficiently.

Logically, it would seem like holding these assets is bad news for a lender or bank - and you are right! Financially, it isn't a good place to be if you are a bank. You aren't in the business of property management, and you should do everything in your power to sell these homes.

Well, logic need not apply.... in fact, forget logic completely. Lenders and banks aren't like you and me. Selling a home appears to be a 9 to 5 job for them, not an urgent situation that requires diligence and focus to get it done. Forget timelines too, as they ignore most offer contract timelines as they don't align with the paper pusher 9 to 5 timeline.

...However, that is changing. The last few short sales we offered on have had quick response times. In fact, we've had several that have been resolved within a week. That's great news. The pace of these transactions is picking up. A few of the Lender's real estate agents have even shared the lender's financial requirements (minimum net requirements) to get the houses sold. THIS IS HOW IT SHOULD BE DONE! Give us the information, give it quickly, and we will make it work. Families will get the housing they need, and Lenders will move back into the business they should be in!

Let's hope this trend continues.

Another important note: The smaller banks and Lenders (credit unions, local banks, regional banks) appear to be better at Short Sales than the big guys. Perhaps they have more to loose if they drag their feet? I'm not sure what it is, but our transactions that involve the big guys (see the Wells Fargo example above) are still going at a slower rate than the small lenders.

Watch this space for more real world updates,

- Jim

Bottoming Out - Wall Street Journal Agrees

Hello again Neighbors,

As you know, we are using this forum to bring you "real world" updates on the local housing markets. We hope you are finding it useful. We will continue to post data from our own actual transactions - so that you can make your own informed housing decisions.

...and, guess what? For a change, the media is starting to report what we've been documenting here in this blog since March... we are bottoming out!

This just in from the Wall Street Journal (thanks WSJ!):

The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Thanks again WSJ, nice to see some in the media are getting it!

- Jim

Property Taxes Dropping!

Hello friends of Neighborly Realty,

GREAT NEWS, and finally an answer to a question many of you have asked.

Yes, property taxes are dropping. With all of the foreclosures, bank owned property sales, short sales, and general decline in the marketplace between 25% - 65%, state / county property tax assessors are adjusting property taxes to match.

This won't impact everyone though.

Here is a direct cut and paste from a letter sent by Sacramento County to some of their property holders:


FOR IMMEDIATE RELEASE

ASSESSED VALUE DROPS ON 85,000 SACRAMENTO COUNTY RESIDENTIAL PROPERTIES

Reflecting the fact that much of the residential real estate market has been in a decline since mid-2006, Sacramento County Assessor Ken Stieger announces that the Assessor’s Office has reviewed the market values of residential properties in Sacramento County and will be reducing the assessed values for over 85,000 properties on the 2008-09 property tax roll. These decreases are often referred to as Proposition 8 reductions, reflecting the 1978 ballot proposition that authorized them.

Generally speaking, properties purchased in 2004 and later are affected. Most decreases will range between 10% and 30%.

The majority of the remaining residential properties in the county, some 300,000-plus parcels, will continue to be assessed under Proposition 13 provisions and will not be receiving notices. If a property was purchased prior to 2004, it is unlikely to receive the Prop 8 decrease in assessed value.

In the next few weeks, the Assessor’s Office will send letters to the owners of these properties, notifying them that the assessed value of their property will be reduced for the 2008-09 property tax roll. The letter will advise affected owners of their new Proposition 8 assessed value and will also include their Proposition 13 factored value for comparison. The Prop 8 assessed value will be reflected on the tax bills issued in October of 2008.

Proposition 8 value reductions are temporary. Once a property receives a Prop 8 reduction, its value must be reviewed as of January 1 each year to determine whether the current fair market value remains less than its Proposition 13 base year value plus inflationary adjustments. The Prop 13 value is typically the property’s acquisition value plus inflation factors for intervening years. The lower of these two values is the value used for property tax purposes.

Since the reduced Proposition 8 value represents the property’s current Fair Market Value, it can fluctuate from year to year without limitation, to reflect changes in the real estate market. When the real estate market recovers and the market value exceeds the Proposition 13 factored base year value, the property’s Proposition 13 value will be restored.

The anticipated decrease in assessed value for the 85,000 properties should approximate $6 billion, and will result in a revenue decrease equal to 1% of that amount, or $60 million. The lower amount of property taxes in the County will impact local schools, cities, and special districts.

Assessor Stieger also wishes to alert the public that property owners may receive solicitations from private businesses and individuals offering assistance in this process for a fee. While property owners are certainly at liberty to use these private companies, they can apply for this reduction themselves at absolutely no cost simply by writing a letter or otherwise contacting the Assessor’s Office.

Taxpayers may visit the Assessor’s web site: www.assessor.saccounty.net for more information or call the Assessor’s Proposition 8 Customer Service Line at (916) 875-0455.

That's Sacramento County.

Other counties are following suit, like Placer County for example: http://www.placer.ca.gov/Departments/Assessor/Decline%20in%20Value.aspx

Need specific info on your situation? Give me a call and we can figure it out together.

Many thanks, and Happy Memorial Day,

- Jim

Onsite: Real Estate Extravaganza, Friday May 23rd

Just an FYI to those of you who might like to talk about Real Estate services in person.

Neighborly Realty will be at the Addison Avenue Federal Credit Union tomorrow, Friday May 23rd from 11:00am - 1:30pm.

Addison Avenue has asked us to participate in their "Real Estate Extravaganza" week. They would like us to sit in their branch office and talk to their members about the local real estate markets.

If any of you are in the area, please do drop by tomorrow at:

1210 Roseville Parkway,
Suite #120
Roseville, CA
95678
(in the "BJ's Brewery" complex)

Obviously, if you need questions answered about loans and/or re-financing, this is the place to ask!

...stay tuned for an announcement on Addison Avenue too, and their recently announced "Lender of the Year Award" - congratulations Addison, and rightly deserved!

- Jim

The Market is Turning

We posted a note here in March that said the market was turning. We provided actual data from our own offers / sales to support the ramp up in activity. At the time, the data was confirming that the $300,000 and under segment was booming.

Well?

Now the $400,000s are starting to see similar action.

A few days ago, we tried to submit an offer on a bank owned house listed at $419,000 in Roseville. We were too late. Within 6 days the home went from ACTIVE (for sale, no offers) to SOLD (escrow done!). Amazing. The sales price was $415,000.

No chance for a competing offer, no backup offers accepted. Done.


Today I was standing in a home in Orangevale with a client. The list price for this home is in the mid $200,000s. WHILE WE WERE THERE - 3 other Realtors came through with their clients. This was in the span of roughly 25 minutes. Middle of the work day (a Wednesday at 3:15pm).


I had another agent call me yesterday to ask advise. He isn't with Neighborly Realty, but he's a good guy so we helped him out.

He was going after a Short Sale. His Buyer was tired of waiting on Short Sales and/or missing the chance to even submit an offer. He was effectively "done" with this process and wanted to know how to act.

He submitted an offer for that client that was $15,000+ above list price. He was competing against 3 other offers.


The market is turning. Those who aren't seeing these trends and who are waiting for the "bottoming out" are going to miss this chance.

Keep watching this space. I will continue to post real-world experiences. Ignore the popular press. I will post the actual transaction data, and let you be the judge.

Many thanks,

- Jim

Upcoming California Legislation & Eminent Domain

Several of you have asked for advise on the upcoming California Propositions 98 & 99, and their impact on Eminent Domain.

First though, what is Eminent Domain?

That's when local, city, state, or federal government groups take private property from an individual (or family) for "public use". The state delegates eminent domain power to certain public and private companies (typically utilities) such that they can bring eminent domain actions to run telephone, power, water, or gas lines. In most countries, including the United States (under the Fifth Amendment to the Constitution) the owner of any appropriated land is entitled to reasonable compensation, usually defined as the fair market value of the property. Proceedings to take land under eminent domain are typically referred to as "condemnation" proceedings.

OK, so what is the fuss with Propositions 98 & 99?

We went out to the California Association of Realtors web site to get some details.

A tangent too.... Do you know who the 3 largest lobbyist groups in the United States are working for? A Real Estate Finance professor once pointed it out to me:

#1 is the NRA (National Rifle Association)
#2 is the NAR (National Association of Realtors)
#3 are the Oil Company lobbyists.

Politics aren't discussed here, but know that the group in the #2 position fights time and time again for private property rights. They also fight for more legislation to keep home ownership the best vehicle for building a family's financial future.

So? Their advise on this particular matter is probably pretty good.

Here's what they had to say:

OFFICIAL C.A.R. POSITION
Vote YES on Proposition 98 and
Vote NO on Proposition 99
on the June Ballot

Local governments are abusing eminent domain to seize homes to give to private developers. It’s a rotten deal for Home Owners. Here are some real examples of eminent domain abuse:

-In Baldwin Park, CA, the city is threatening to use eminent domain to take 400 homes and businesses so developers can build new, higher cost retail and housing.
Los Angeles Business Journal, April 7, 2008

-In Vista, CA, city officials are attempting to classify 37% of the city as “blighted,” making it easier to seize properties within that area.
San Diego Union Tribune, April 13, 2008

SOLUTION: the June Ballot
REALTORS® – Support Proposition 98 and oppose Proposition 99.

The Solution -- Proposition 98:
-Provides real protection for homeowners.
-Limits eminent domain to legitimate public use.
-Prohibits price controls on private property.

Proposition 99 is a TRICK designed to maintain the status quo. It is particularly dangerous because if both propositions pass and Proposition 99 gets more votes, it CANCELS OUT Proposition 98.

Remember, YES on 98. NO on 99.

A YES vote on both measures is a vote against Proposition 98.

Thanks to CAR for the insight,

- Jim

Be Careful Out There!

Hello Friends of Neighborly Realty,

It is with sadness that I type this update. It is also with a word of caution for our friends and clients that I type this update. Be careful who you work with in this industry.

90% of the professionals I've worked with in these transactions are just that - professionals. Diligent. Competent. Accountable. Doing the best for their clients at all times. Living up to the Code of Ethics we all subscribe too. In short, they are nearly always people I would like to do business with again.

Of course it had to happen eventually.... We've run into our first transaction with a "professional" who is anything but.

It would be illegal and unethical to manage a “black list” of agents that we wouldn’t want to do business with. Just thinking about such a thing is nearly a violation of free trade legislation!

However, I’ve run into an agent on one of our transactions who is in a bit of legal trouble himself. This person runs both a real estate brokerage and a mortgage company. This person's methods are questionable and motives unclear, with several threats of litigation towards us. I've instructed my team to pass this person along to me as the single point of contact for Neighborly Realty, if we ever get into another potential transaction.

What's really unfortunate is that this person has been in this business for DECADES.

So?

Be careful. Watch who you work with. Ask for referrals from people you know and trust. These "transactions" are anything but - they are life altering, significant, and extraordinarily important processes to a family.

To treat them as anything but... just isn't the Neighborly Way.

- Jim

Technology & Neighborly Realty

As an ex Information Technology manager with Hewlett Packard and Agilent Technologies (and some time with IBM in San Jose), use of technology to help our clients is at the top of the Neighborly Realty business plan priority list.

As such, we've linked this blog to Technorati (blog management and publication service) and will be enabling RSS capabilities shortly.

Stay tuned.

The goal? Not to be sexy and wasteful with this technical stuff.... but use technology where it fits to better communicate with our clients, and to provide a level of service that outshines our peers.

- Jim

Technorati Profile

Another FED Rate Cut

Wow. The discounting continues.

This just posted to the financial wires a few minutes ago:

Federal Reserve cuts key interest rate by quarter-point
Wednesday April 30, 2:20 pm ET

Fed cuts key rate by quarter-point and says economic activity remains weak

WASHINGTON (AP) -- The Federal Reserve cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.

The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 percent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.

The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.

The Fed move was in line with expectations. Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than expected.


Interesting. I also read that Bank of America is dropping the Countrywide name by mid-Summer 2008. I guess the Countrywide name has a bit of a stigma to some folks....

- Jim

Is a Lease-Option a Good Idea?

I’ve had a few clients recently ask me about lease options and whether or not they are a good idea.

First of all, they are a bit misunderstood. It is not a risk-less way to get into a piece of property that you simply can’t afford now. Nor is it an absolute guarantee that entering into this arrangement will “land” you the property within a year or two.

You will find that many investor out there are willing to “buy the house for you and lease it back” while you save away enough for the down payment (when the purchase option is exercised). As an investor myself, I think this is wonderful. Someone pays the mortgage from me, I potentially benefit from appreciation, or at least I can theoretically use this arrangement to hedge against devaluation. Nice.

Is it the right thing for the Buyer? As a step of last resort, perhaps it is necessary. But if you can’t qualify for a standard loan in today’s market where rates are at a nearly all time low and FHA has jumped in to help, does that then say something about your financials to begin with? Are you ready for such a commitment?

Obviously it’s a case by case analysis and decision I would not make for a client family of mine. They would have to weigh the pros and cons (articulated with my help) for moving forward and make their own decision.

Here’s an article from the California Association of Realtors on Lease Options. One thing for sure… investigate wisely, as if you were going to be purchasing the home now.

Lease-Options are Back

A lease-option is utilized when a potential buyer wants to lease or rent the property with an option to buy it at a later date. The potential buyer pays separate consideration for the option to purchase at a later date to remain open for a specified period of time. If the potential buyers does not exercise the option, or does not purchase the property within the option time period, then the potential seller keeps the option consideration and retains the property.

Generally, lease-options are done in a slower real estate market when the reseller simply cannot sell the property outright. In this situation, a buyer, who may not have enough money for a down payment, can lease the property while they accumulate the money for a down payment. Often, a portion of the monthly payment by the potential buyer will go toward the down payment.

The option agreement must designate a price or state the price that will be determined by some objective standard when the option is exercised. Because the parties have entered into a binding agreement, the potential buyer may sue for specific performance on the option, requiring the potential seller to sell the property to the potential buyer under the terms of the agreement. The agreement must, therefore, contain all “material” terms for a purchase and sale to proceed.

Before proceeding with the lease-option, the potential buyer should consider:

a) Documenting the need for repairs with a property inspector

b) Checking for liens recorded against the property

c) Ensuring payment of the mortgage and taxed during the lease. Also, negotiating payment of insurance on the property

d) Ensuring that potential buyer will have the funds to make the down payment and qualify for any loan needed at the time of exercise of the option

e) Negotiating what will happen if the option period ends and potential buyer has not exercised the option.

f) Speaking with an attorney regarding removal of contingencies, disclosures, property inspections, etc.

After the lease-option is agreed upon, the option should be recorded to retain the potential buyer’s rights to the option.

Many thanks to CAR and Nicole Briggs for this article.

- Jim

Home Equity Lines of Credit (HELOCs)

If you have a home equity line of credit, you may have had a recent "discovery". A letter in the mail from your lender, indicating your credit limit has been reduced. This has happened to several of our clients and friends - and now our own family too.

WAMU (Washington Mutual) sent us a letter saying that our credit limit is now roughly 28% of what it was initially - WOW! That's a pretty significant change. We have no balance on the account either, not a dollar in outgoing loans. Our use for this account was our own real estate investing. Many of our clients have been using it for the same - and some to live on as their own financial situations are getting back on track.

Here's an article from Money Magazine on the situation, and what a borrow can (potentially) do to keep their HELOCs alive.

Thanks Money Magazine for the article,

- Jim

When a HELOC freezes over
What to do if the bank tries to put your credit line on ice.

(Money Magazine) -- When Diane Carr, 55, received word in February that her home-equity line of credit would be canceled, she was dumbfounded. The HELOC had been open since 2003, when she bought her Woodside, Calif. home. And Carr had never even tapped it.

"It was just a security thing," she says. No matter. In recent months, tens of thousands of homeowners like Carr have been shut off from their equity as lenders try to stem losses from subprime mortgages and other high-risk loans.

As of September, delinquencies on HELOCs were up 47% year over year, according to Economy.com; the numbers are expected to be worse in 2008. In response, Countrywide has already suspended an estimated 122,000 lines, many in high-foreclosure-rate states, and USAA has frozen or reduced some 15,000 accounts. Bank of America (BAC, Fortune 500), Chase (JPM, Fortune 500) and Citibank (C, Fortune 500), among others, are following suit.

Not all HELOCs will be frozen or downgraded, but you can be sure lenders will scrutinize every account - including yours.

If your HELOC hasn't been frozen (yet)

Know your risk. Areas where housing prices have fallen by 10% or more are prime targets for freezes, says Susan McHan, president of Opes Advisors, a mortgage banking firm in Palo Alto, Calif. Because of new lending standards, your HELOC could also be in danger if you bought your home in the past few years with little money down.

Last year consumers could easily borrow up to 100% of a home's value through a combination of a HELOC and a first mortgage. Today you'd be lucky to get up to 90%; 60% is the max in areas hit hardest by home-price declines.

Lenders are beginning to apply the same standards to existing HELOC customers. Call your bank and ask what the loan-to-value cap is on new HELOCs. If your house debt is above that, your line could be at risk. A change in credit score or a missed payment could also flag your account. Reread your contract to see if such factors allow the lender to cut you off.

Access cash now. If your line is in jeopardy and you need the HELOC to finish a renovation, you could draw a lump sum. On the downside, you'll cut your equity; you'll owe interest now; and if prices keep falling, your loan values could top your home's value. So borrow only as much as you need and put the cash in a high-yielding savings account or CD until the bills in question come due.
If your HELOC is on ice

Fight for a defrost.

The letter from your lender should explain why the line was suspended and how to appeal. Some banks use automated processes to identify troubled markets.
To prove that your house hasn't been affected, ask a realtor to pull prices for houses sold within three miles in the past six months, ask your mortgage originator to intervene, or have your house reappraised. The latter can run $400, but if you were counting on the line, it may be worth it.
If a change in your risk profile is the cause, check your credit reports. Carr was told that her HELOC had been canceled because of a drop in her FICO score. But when she checked, it was above 800, so the lender reinstated her line.

Compromise.

If your efforts fail, ask for a lower credit line instead of a total freeze. The bank may be more amenable if you hold your primary mortgage there, as that's an insurance policy of sorts.
Shop around. Not all banks have the same standards. If you have at least 10% equity, you may qualify with another lender. Search at bankrate.com, or click on the link above and to the right.

Thanks Money Magazine for the article,

- Jim

The Sac Bee - Optimism?

Not likely, as they wouldn't go quite that far!

I was in a builder's office until nearly 10:00pm last night, helping a couple of families buy their first homes. Great fun.

The builder's sales lady said she remembered well "one bad day in October" when the Sac Bee just about killed their business. She said that visits to the sales office went from a constant stream to almost nothing - overnight.

The Sac Bee isn't our friend. They have been terribly unkind to the Real Estate business. Some of it warranted, but much of their negative energy misplaced.

So imagine the surprise... when the Sac Bee actually posted a few upbeat notes about our real estate market !! Here are a few direct quotes:

"There may actually be a bottom out there."

"But amid the dreary statistics there appears to be the suggestion of a market in the beginning stages of stabilizing."

"Bank-owned homes have come to account for about half of the sales in the region, a factor that has scrambled standard market indicators."

"Real estate ....of Sacramento see a sign that things are looking brighter in bidding wars occurring on bank-owned listings in the suburbs. He suggests the market already is "bouncing off the bottom."

"...bank-owned homes in Elk Grove that once sold for $120 a square foot have risen to $135 per square foot and are going higher."

"We've seen prices stabilize and even go up in some of our communities," he said. Centex, the region's leading builder this year, has started saying no to buyers who ask for concessions that might have been routinely granted earlier.

"There are just a heck of a lot of foreclosures to burn off before the market can kick into gear in any big way,"

The whole article:

http://www.sacbee.com/142/story/854196.html

Wow. If the Sac Bee is noting a change, then it must be real.........

- Jim

Foreclosures Still on the Rise

The market continues to be on fire! Offers are coming in by the truckloads on bank owned and short sale property. The last two weeks of March and the first week of April have seen a dramatic swing in how those properties are being marketed and put into escrow – Offers now must be at list price or above to compete! Nothing I’ve submitted for a client has “stuck” if it has been below list price. Amazing.

Yet even as we are clearing out some of this bank owned “inventory”, new homes in this class are still coming to market. Here’s an update on that rate of new “inventory”. Many thanks to Yahoo Finance for this update on Foreclosure rates.

NEW YORK (Reuters) - Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.

For the month of March, foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent, led by Nevada, California and Florida, RealtyTrac said.
The rise in March to filings on a total of 234,685 properties followed a 4 percent decline in February, RealtyTrac reported.

RealtyTrac said the peak has yet to be reached. "What we're really looking at is ongoing fallout from people overextending themselves to buy homes they couldn't afford and using highly toxic loan products to get into the houses in the first place," Rick Sharga, vice president of marketing at RealtyTrac, based in Irvine, California, said in an interview.

"We're going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter," reflecting sharp payment increases on adjustable-rate subprime mortgages in May and June, Sharga said.

One in every 538 U.S. households living in single-family dwellings received a foreclosure filing in March. The single-family dwellings can include condominiums.

There are three phases of the foreclosure process in most states -- an initial default notice, notice of a scheduled auction, and an "REO" filing if the property is not sold at auction but instead repossessed by the bank, Sharga said. REO refers to real estate-owned property. All of the households in the report received at least one of these filings last month.

AUCTION NOTICES UP 32 PERCENT

While default notices and repossessions soared in March, auction notices rose a relatively small 32 percent, James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.
That suggests "more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," he said. "This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction."

The states with the highest foreclosure filing rates -- Nevada, California and Florida -- also are among those that had the biggest price appreciation in the five-year boom before the housing meltdown that began in 2006.

These states tend to also be plagued by defaults on unoccupied homes bought by speculative investors. In many cases, home prices have now fallen below the size of the mortgages and some owners are walking away.

In Nevada, one in every 139 households received a foreclosure filing in March, keeping the state at the top of the ranks for the 15th straight month.

The 7,659 Nevada properties receiving foreclosure filings last month represented a 24 percent jump from February and a nearly 62 percent spike from March 2007.

California had the second highest rate of foreclosure filings, one for every 204 households, followed by Florida with one of every 282 households.

Arizona's filings fell about 5 percent, but it retained its standing as with the fourth highest pace of foreclosure activity for the third month straight.

Foreclosure activity in Colorado dropped 8 percent in March from February and 1 percent from a year ago, but it ranked No. 5, with one filing for each 339 households.

Georgia, Ohio, Michigan, Massachusetts and Maryland were the other states with the highest foreclosure rates in March.

The states with highest total number of foreclosure filings were California, Florida and Ohio.
Foreclosure filings were reported on 64,711 California properties in March, the most of any state for the 15th consecutive month, up nearly 21 percent from February and up almost 106 percent from March 2007.

Florida posted the second highest total, with foreclosure filings reported on 30,254 properties in March. While down about 7 percent from February, filings were about 112 percent higher than last March.

Georgia, Texas, Michigan, Arizona, Illinois, Nevada and Colorado were the other states with the highest foreclosure totals in March.

PLEASE LISTEN - The Market is Changing

Hello Neighborly Realty friends and clients,

Every offer we've made in the last few weeks on Short Sale property or bank owned (REO) property has been rejected.

I have 9 active families right now trying to buy homes. Everything we've offered on has been rejected - in some cases, even when the offers are all cash !!

Why?

Short Sale properties and REOs - that are in decent condition - are getting offers above or at list price. Our offers are being beaten by higher priced offers.

Now, if a client wants something that is in poor condition, there is still inventory to go after. But for the most part the good homes are going into escrow. Even the poor condition homes are getting offers quickly. We offered on one home in Roseville that was truly trashed, yet it's $215,000 list price pulled in offers in the $280,000 mark! The home is worth roughly $310,000 - $320,000 in nice condition.

Another example in Roseville: A beautiful bank owned 2400+ square foot home listed at $379,000. We offered on it within just a few days of it going live in MLS. We lost on that one too. The home had several offers above list price, from buyers not even in the area (these buyers were on the East Coast).


What about "standard" transactions (family to family sales, not REOs or Short Sales)?

My own listing in Rocklin SOLD IN 13 DAYS !!

My clients and I were stunned ! (happily)

Legally I can't disclose the price we've agreed too... but it is VERY close to asking price.


New Construction?

We've had a few builders in Roseville actually raise prices! ...and when I've walked in to try and get a deal for a client, they've basically sent me away empty handed.


What does this mean?

At the micro-economic level, this market is changing. It's changing fast. Pent up demand is starting to jump. Inventory levels will be dropping. It matters not what the local news is saying... actual data from my own listings, my own offers, my own clients, and my own phone calls to my fellow Realtors shows that this market is changing.

I genuinely believe we have bottomed out - or are about to.

- Jim

Juli Marty & Neighborly Realty

She's fully on board!

Our newest Broker Associate. Very exciting indeed.

Take a look at Juli's web site and send her a note: http://www.JuliMarty.com/

We expect big things from Juli!

- Jim

Short Sales and REOs: Interpreting List Price in MLS

I have seen a strategy change in the last few months that Buyers need to understand.

Agents who are listing Short Sale properties and REOs (bank owned, foreclosed upon properties) are listing the sale prices for their homes BELOW fair market value.

How does it work?

A practical example:

A home in Roseville is listed in our local MLS at $425,000. The listing agent immediately gets 10 offers on the home. He / she collects the offers and submits them to the bank who has title on the home. The bank counters everyone's offers and says "come back to us with your highest and best price".

By the time it is all said and done, this house had 3 offers between $450,000 - $465,000, and the final closing price really has nothing to do with the initial list price.

Yesterday.... another example in Folsom:

A newer house was listed at $330,000. I had a Buyer who wanted to make an offer, so I called the listing agent. She was following the same strategy. She already had several offers in front of the bank - all higher than list price - as a result of the "list low, counter offer everyone" practice.

As a result, this house will probably close between $345,000 - $360,000.

What does this mean?

BE CAREFUL when searching the MLS details for "bargains". Do not get your hopes up and emotions involved. Those homes that are in Short Sale status or REO are likely being listed at lower prices than the actual transaction will close.

I am keeping a short list of agents who are using this strategy, and advising my Buyer clients when I see this happening.

Remember - agents who list REO (bank owned) property get measured on how quickly the "move" a home. So? They do what they think is necessary to attract a zillion offers immediately.

- Jim