April 2008

Candace Robinson, a HomeSmart agent in Gilbert, has spooled up what looks like a promising group — The AZ Real Estate Blogging Network.

Several real estate bloggers from the ActiveRain network will be talking, and many others will be chatting and networking at what Candace (and I) hope will be a monthly event.

Here are the details for this kick-off event:

When: Thursday, April 24. 9:00– 10:30am
Where: Paradise Bakery – San Tan Mall. Gilbert, AZ. (NE corner Williams Field & San Tan Parkway (Greenfield)

RSVP to Candace at 480–202–3558.

More info can be found here and here.

Without fail, every time I’ve met up with other industry bloggers it has been educational and fun. This won’t be any different. I’m not really involved in ActiveRain any more, but these look like good folks and this should be a great event.

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Write and negotiate an offer:  The Arizona Residential Resale Purchase Contract is the primary form used in residential sales.  There is a corresponding purchase contract used for vacant land sales.  The contract is between a buyer and a seller and establishes the terms and conditions of the sale of residential property. There is a lot of “boilerplate” language and items that can be modified by either party.  Keep in mind that just about everything can be negotiated. Your agent should be able to explain each item and any additional addendums required.  The property and type of sale will dictate which addendums are necessary (Home Owners Association, As Is addendum, Short Sale addendum, etc).
 
If you aren’t paying cash, the standard Arizona Residential Resale Purchase Contract requires a Loan Status Report (or LSR) be submitted with the offer.   In the Phoenix real estate market and in the current lending environment, it is critical to demonstrate to sellers that you are not only willing to purchase their property, but that you are able to. An LSR signed by your lender is in effect a statement of pre-qualification. It is not a guarantee that the loan can be obtained but it does show that you are a strong potential buyer. The LSR outlines the loan terms, down payment required and qualification amount. 

The most common question we get is, “How long does this process take?”  If you are obtaining a loan for a standard home purchase (not a short sale).  It’s usually best to plan on 30 to 45 days.  If you are paying cash it can be done in about 21 days (I’ve seen shorter time frames but it is very stressful and I don’t recommend it).  Short sale purchases can take significantly longer.

Probably the second most common question from first time home buyers is “What is earnest money and how much do I need?” Jay previously wrote a post about earnest money.  It’s a great post and I don’t really have anything to add.

The down payment is often indicated in the LSR and is typically discussed with your lender prior to locating a property. 

The buyer should determine the price offered for the property – not the agent.  Your Realtor can provide information (such as the latest comparable market analysis or “CMA” for the neighborhood) to help you with your decision.  Properties in the last few months sold (not those that are listed for sale or under contract) are usually a good indicator of current value.  Upgrades do not necessarily add value to the property but condition issues can reduce the current market value.  Your agent should be able to help you determine if any of the recent sales were foreclosure or short sale properties.  These “distressed” properties are often sold below market value.  Once you determine an approximate market value, ask yourself two questions:

1 – Is this property realistically priced?
2 – What am I willing to pay?

Successful negotiations begin with realistic expectations by both the buyer and the seller.  Buyers don’t want to pay too much for a property – sellers want to get the most from their investment.  If the property is priced significantly higher than the comparables the seller may be unrealistic and it could make negotiations difficult.  A higher than comparable price may also create a problem when the property is appraised for your loan.

A common negotiation mistake made by a buyer is to submit an unrealistically low offer with the expectation that the seller will counter the offer somewhere between the list price and the offer price.  This isn’t usually what ends up happening.  Many sellers have a difficult time seeing their property as an investment –they’ve made memories there.  They’ve made improvements. They are emotionally bonded with their home.  Extremely low offers tend to irritate the seller to the point that they don’t want anything to do with you or your offer.  It can be better to start with the amount you expect to pay (maybe just a little bit less) and be willing to walk away from the property if the seller asks for more.

Walking away is not easy, but it may be necessary so prepare yourself. It’s important not to fall in love with a home while you are in purchase negotiations! There will be plenty of time to make memories and fall in love with your home after you’ve moved in.

There is more to submitting an offer and negotiating the purchase of a home than just the price (though obviously that is the major factor). Other considerations are the amount of earnest money, the inspection period, items that the buyer and seller will pay, length of escrow period and even loan terms all come into play. Your offer is a combination of all these factors and each factor will be weighed differently by different sellers. Make sure you understand all of the purchase contract terms and conditions BEFORE you submit an offer. Work closely with your real estate agent and let them help guide you and educate you on the nuances of submitting and negotiating a purchase offer.

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RealtyTrac recently released its March 2008 U.S. Foreclosure Market Report. This report shows foreclosure activity — which is not just the number of homes foreclosed. It includes default notices, auction sale notices and bank repossessions.

Nationally, foreclosure activity was up 5% from February 2008. In Arizona, foreclosure activity dropped 5% from February.

Here are the Top 10 states for foreclosure activity rate:

Phoenix made another appearance on an unglamorous “Top 10” list.

Forbes has just compiled a list of “America’s Worst-Selling Housing Markets” (Based on price growth and sales rates). Phoenix comes in 3^rd, in the company of half of south Florida.

Of course this isn’t cheery news. But if you are a buyer, given the inventory levels in Phoenix, and the historically low mortgage interest rates, it might be a good time to consider purchasing a home.

If you need to sell a home, do not despair. Yes. prices are off from the historic run up of 2005 – 2006. But properly priced and marketed homes are still sold on a daily basis. Be prepared for aggressive offers and lots of competition, but depending on your circumstances, it is still quite possible to sell your home. 

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Short sales — where the homeowner owes more on their loan than the home can be sold for — are popping up a lot. In the MLS, in conversation, and even in the Wall Street Journal.

Yesterday, the WSJ posted a good article titled, Why Lenders Are Leery Of Short Sales. The subtitle is fitting: This Foreclosure Alternative Helps Strapped Homeowners, But It’s Not Easy to Pull Off.

There is a fairly common misconception out there that buying a home in a short sale situation is a way to purchase a home for pennies on the dollar.

That simply isn’t true in the vast majority of situations.

Lenders are not real keen on forgiving debt. Mortgage investors want to make money, not lose it. This tends to make lenders and investors hesitant to approve short sales. No, they don’t want to foreclose on a home and carry the cost of that, but they also don’t want to lose money by selling short.

In the Phoenix real estate market, there are currently 5,468 properties tagged in the MLS as “Lender / Corporate Approval Required”. That is how all short sales should be flagged (as well as corporate/relocation owned homes), but that number has to be taken with a grain of salt as often agents don’t enter data correctly. (In other words, there are probably more than 5,468 current short sale listings in the Phoenix metro area).

Short sales are difficult transactions. They require extensive negotiations with the lender, and it can take months to get lender approval — if it comes at all. As such, the ‘buyer pool” for short sales is small. Let’s face it, most folks buying a home can’t or won’t wait for weeks on end to get an answer. There are plenty of individually owned homes to chose from.

But if you are interested in purchasing a short sale, it can be done. Be sure to chose an agent that has worked short sales. One job of the agent is to convince the bank that an offer made on a short sale is a reasonable offer and will save the lender money over foreclosing on the home. Such negotiations are not for the faint of heart or inexperienced.

Just don’t expect the lender to accept an offer at 50 cents on the dollar. Different lenders have different criteria as to what they will accept, the costs they will pay, and the proof they require that the seller is in a position that demands a short sale. Some lenders will send short sale paperwork before a home is listed, some require a home to be listed for a period of time before a short sale will be considered, and some won’t even discuss a short sale until you have an offer in hand.

These various lender requirements make both listing and buying a short sale home tedious, at best.

Recently I’ve had a couple of discussions with people that are of the mind set that they don’t want to pay for a home that is declining in value. They are perfectly capable of making the payments, they just don’t want to make them. Well, that’s just not going to fly. It may sound harsh, but the lender doesn’t really care what you want or don’t want to do. You committed to making payments when you signed your mortgage, and they expect you to keep that commitment. Before any lender will accept a short sale, they will require financial statements and likely a “hardship letter” so they can determine if you can no longer make payments. The fact that you don’t like your payment is of no concern to them.

I’m not writing this to discourage people from selling short or buying short sale properties. It’s important though, to know what you are getting in to if you chose to sell or purchase short sale real estate.

Update: Jamie Geiger over at the Real Estate Cactus posted on short sales today, referencing the same WSJ article. Nice local stats included!

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