Archive for February, 2008
Short Sales – Salvation or Scam?
February 29, 2008
Unless you’ve been living under a rock, or unless you pay no attention whatsoever to the local Santa Cruz Real Estate market, you have heard the term Short Sale. If you’d like to familiarize yourself with short sales a bit, I suggest you get my Santa Cruz Foreclosure Report. In a nutshell, though, a short sale is when a homeowner needs to sell their property, but the property is now worth less than the amount that is owed on it.
Short Sales have kind of been marketed as a panacea to Realtors to bolster their flagging businesses. There are short sale gurus out there all over the place selling seminars and CDs and books to Realtors on how to do short sales – I spent a weekend in one, and actually it was pretty interesting. Also, short sales are being marketed to home owners in distress as a way to avoid foreclosure, which can be absolutely disastrous on one’s credit report.
But there is a growing chorus of voices saying that Short Sales are not all they are cracked up to be. Realtors are getting burned out by loss mitigation departments who are uncooperative, buyers are turned off by the uncertainty and delay that is involved with a short sale, and of course, sellers are often totally burned when they cannot complete their short sale and get foreclosed on, which is happening a couple of times per week at least in Watsonville right now.
Here’s an interesting bit I read on short sales on about.com:
[Short Sales Are No Bargain for Buyers - 11 Reasons For Not Buying a Short Sale]
It’s an interesting read, and talks about why you, as a buyer, might want to avoid short sales. One of the touted benefits of short sales is that the buyer can get the property at below-market prices. This article claims that is not true – the lenders will let the property go for less than is owed, but not below market price. From the article:
Lenders aren’t naive or unaware of the value of a home. Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If a lender believes a better price can be obtained by taking the property back in foreclosure over a short-sale offer, the lender may hold out for a higher price. That price will be close to market value. Lenders accept short sales when the home is worth the short-sale price, which means market value.
From the Realtors that I have talked to who have actually done short sales, there is a difference of opinion on this. Everyone agrees that a lender will get at least one, or perhaps two, BPOs on a short sale property. However, some Realtors say that lenders will discount the BPO amount by a certain percentage – somewhere between 10 and 20%. Other Realtors say that lenders don’t do this, that they always want the full BPO price for the property.
I suspect the discrepancy lies in the lenders that are being dealt with – each is different. What’s more, I suspect that even within a lending organization, the loss mitigators are different, and some may be more hard-ass than others, or more experienced, or less experienced.
The fact is, there really are not that many Realtors around Santa Cruz who have a lot of short sale expertise. How do I know? Well, I look at how many short sales have actually been completed, and it’s not a whole heck of a lot of them. The buyer’s agent basically has little to do in this process – it’s the seller’s agent that has the most to do, by far. The buyer just has to sit there and be patient. I’m in a short sale purchase right now, and we were told it’d be about a month until we got a decision from the bank. We’ve just been sent an addendum asking for an additional month.
I got this addendum a couple of days after I read an interesting blog entry over on ActiveRain:
[From Real Estate Blog - Virginia Short Sales are FAKE. Only 5% Close.]
Most Short Sales are what I call “FAKE listings.” Only 1 in 20 sells. In Arlington only 3 have sold out of 65 attempts….The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong.
Read the blog article. Interesting, right? Well, you might say, that’s Virginia! This is Santa Cruz! Well, that’s true, except that Countrywide, US Bank, HSBC, Deustche Bank, Wells Fargo, Citibank – I think these companies do loans in both Santa Cruz and Virginia.
Anyway, if you ask my opinion, I think it’s OK to try and buy through a short sale process if the property in question is one that you really want to buy. It helps if the seller has already had an offer that maybe didn’t come together, and that they are in contact with the lender’s loss mitigation department and have perhaps worked out an agreement with them already, and you can just walk in, furnish the missing contract, cash, and loan, and be on your way. Other than that, you’re probably much better off finding a nice bank-owned REO property, or (suspend your disbelief here, just for a second) buy a house from a buyer who isn’t totally distressed and facing foreclosure.
Posted by SantaCruzBroker at 12:24am
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A Realtor, Verizon, and his Smart Phone
February 27, 2008
I just counted. My cell phone rang 37 times today. I didn’t count how many phone calls I made, probably at least a dozen, probably more. Actually, I had to increase my monthly minutes with Verizon to 3000. I got clobbered last month, a $467 Verizon bill, because I went over my minutes. I took the time to call up Verizon and complain. “Shouldn’t you have a feature where you can get your system to send out a friggin’ text message to let me know that I have run out of minutes on my plan, so that I can have the opportunity to step up to the next plan?”
The guy was very nice, actually. He said that no, there was no such feature. Of course there’s no such feature – such a feature would probably cost Verizon millions – dozens, hundreds of millions! – per year in lost revenue.
Of course, not having such a feature might end up causing them to lose customers, and thus revenue, in the long run. OK, probably no major carrier has this feature. But they should.
Anyway, the Verizon guy was very apologetic, and said he’d give me a $100 credit on my account – that was nice of him. It did take me about 1/2 an hour on the phone, which since I value my time at $100/hour, means that really, I only saved $50. And I still ended up with an exorbitant phone bill of $367.
Somewhere in the course of our conversation, he mentioned that I was eligible to upgrade my cell phone. Of course, I’d have to sign a new two year contract. Natch. The thing is, I hate my cell phone. It’s a Treo 700p, and it’s a piece of junk. I’m on my third one – the first two were faulty. I read (in Realtor Magazine, of all places) that the Treo is the shiznit yo for Realtors. Because it’s Palm OS, and Palm OS has all the kewl Real Estate apps.
It’s a sad reflection on the savvy of the tech writers for Realtor magazine to say that the Palm OS has great software for Realtors. I couldn’t even find a decent friggin’ mortgage calculator that would calculate payments for a first + second loan combination. And I looked. Long and hard.
Yeah, the Verizon guy told me that I should check out…some Samsung phone, I forget. I told him I didn’t want a Windows Mobile phone. I’ve never had a Windows Mobile phone, but I’m sure it sucks, because pretty much every other technology product with the name “Windows” in it is a mediocre, steaming pile of doggy doo. He said it wasn’t a Window Mobile device, this Samsung – must be Symbian. Whatever.
But the Verizon guy did turn me on to a cool web site – phonescoop.com. He said I could go there and get un-biased reports about what next smart phone to buy. I thanked him, but I have a dirty little secret. Which isn’t a secret to anyone who knows me, and no won’t be a secret to anyone who reads my blog. My secret is…
My next phone is an iPhone. I’m just waiting for Apple to release the “real” next generation iPhone, the one that is a 3G phone and also slices and dices onions like my Nicer Dicer does. Yep, once Apple kicks down with the real new iPhone, it’s bye-bye, Verizon. And back to Cingular – err, AT&T. And, yeah, there’s no Realtor software for iPhones. Unless, of course, you count all the zillions of web sites which eitiher don’t work or hardly work on my EDGE-network Treo 700p. Like, oh, mlslistings.com – the web site that is the bread and butter of my professional existence. Doesn’t work for beans on my Treo, but I’m sure that Safari on my future iPhone will handle it with aplomb.
Verizon is better, but their phones suck. And please, don’t tell me how much I’ll miss the physical keys of my Treo 700p. If I don’t end up auctioning this thing off on eBay, I’ll smash it to bits with a hammer – I’m that enamored with it.
OK, that’s enough of that. Back to the salt mines.
Posted by SantaCruzBroker at 11:05pm
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Watsonville Foreclosure Tour
February 26, 2008
No, we won’t have a cool bus like the guy in Stockton did as seen on 60 Minutes. But here’s what we do have: a bunch of folks interested in buying some investment-grade real estate down in Watsonville. We’re going to meet at my office in Capitola on Saturday, March 1 at 11 AM, and then make our way down to Watsonville. So far, most of the folks who are coming along are from the Santa Cruz Real Estate Investment Club, which I mentioned a few blog entries ago. If you’re not a member, this might be a good chance to meet some of the people involved and see if maybe you’d like to join too.
We are going to see about a half-dozen different REO properties that are presently for sale, all of which represent good opportunities for investors. I just spent the last hour or so going through every house and condo listing from Larkin Valley down through Watsonville, and I found that there are seventy listed REOs in that area.
Most of these REOs are not what I’d call investor grade – most of them are consumer grade, which is to say, they are priced for owner-occupants, not for investors. Investors need to pay less than retail consumers, because a true investor is looking for cash flow with a relatively small down payment – that is, he’s looking to actually get a return on his investment month to month, just as if he had it invested in an IRA or something.
But there are a few investor grade listings out there, and that’s what we’re going to be seeing this coming Saturday, March 1. If you are interested, just meet us outside my office at 3555 Clares Street (Suite WW) – next to the Fresh Choice Restaurant. We’ll probably want to carpool, but if you want to follow along, that’s fine – we will make copies of the properties we are going to see, if you have a GPS unit in your car or know Watsonville well, feel free to drive by yourself and just meet us at each property in turn.
I hope you can join us!
Posted by SantaCruzBroker at 9:02pm
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January foreclosures up 57%
February 26, 2008
Yawn. Blink blink. Sip coffee. Take a peek at CNN.com. Front page news:
California had the largest total number of foreclosures among the states. There were more than 57,000 foreclosure filings there in January, one for every 227 homes. Florida trailed well back in total foreclosures with 30,000, but its rate of one for every 273 households was only slightly behind its West Coast rival.
Zoinks. That’s pretty impressive, but remember that this is foreclosure filings, i.e., notices of default, not actual foreclosures of homes. A good portion of people who receive notices of default will be able to cure the default or sell the property via a short sale before the actual foreclosure happens. And, it should be noted, the filings are up 57% year-over-year, not up 57% from the month before.
The article does speculate that the government & lender programs (e.g. Project Lifeline) may be helping to slow the rate of foreclosure filings. I’m a big sceptic on that one. I think that in many cases, folks just don’t see much upside in making exorbitant mortgage payments on a property worth perhaps half of what they paid for it two years ago. It’s one thing to struggle and fight to keep something that’s worth something; it’s another to throw money down a sinkhole of a mortgage where the upside is perhaps many years away.
I think that the wave of foreclosures will keep on surging for the foreseeable future. It hasn’t hit the more affluent parts of Santa Cruz yet, not really – but with the median price dropping in the county the way it did in January, perhaps we’ll see the foreclosure crisis spread from the extremes of the county to its heart. Let’s hope not.
Posted by SantaCruzBroker at 8:32am
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Real High Stakes Poker, Round Two
February 25, 2008
I had an escrow close last week, but we were barely able to keep the deal together. I alluded to this deal in my earlier posting about Real HIgh Stakes Poker a few weeks ago. It may not surprise you to read that a deal which was hard to put together was hard to keep together, but listen to this…
We were well on our way to closing. The seller had actually already signed the documents she needed to, all that was left for the buyers to go to their friendly neighborhood First American Title Company office and do their signatures, and then we’d just sit around and wait for those fat commission checks to come rolling in. Then, late one evening, my phone rings. It’s the buyer’s agent. It seems we had a problem.
“A new material fact has just come to light,” she began. “It significantly affects the value of the property.” Now, the buyers had already released their physical contingencies. They had already signed off on the property, saying that after having had ten days to investigate it, everything was kosher. But now, on the eve of the day when they sign their loan and title documents, a new material fact had apparently come to light. Wouldn’t you know it.
“Oh?” I asked, “What’s that?” The agent replied, “Well, in the MLS, you listed the property as 1690 square feet. When the appraiser measured it, he came up with only 1505 square feet.” It seems that the buyers had gone ballistic, had threatened to file a lawsuit, to sue us for misrepresentation or fraud or something…but that the buyer’s agent had calmed them down to the point where all they wanted was a discount of $15,000.
Well, that’s a bummer. The truth is, I had no idea how many square feet the house is. I had read several different figures from a variety of different sources, and come up with 1690. It “felt” like about 1690 to me, too. Also, the carpet guys and the hardwood floor guys, guys who measure houses all day long, none of them ever said anything to me like, “Hey, you really think this house is 1690 square feet? It feels smaller than that to me.”
However, right in the agent’s private comments on the MLS, it said quite clearly: “SF Approx.” Not only that, but the buyers had submitted a Buyer’s Inspection Advisory along with their offer, a signed document which reads, in part:
YOU ARE ADVISED TO CONDUCT INVESTIGATIONS OF THE ENTIRE PROPERTY, INCLUDING, BUT NOT LIMITED TO THE FOLLOWING:
…
2. SQUARE FOOTAGE, AGE, BOUNDARIES: Square footage, room dimensions, lot size, age of improvements and boundaries. Any numerical statements regarding these items are APPROXIMATIONS ONLY and have not been verified by Seller and cannot be verified by Brokers.
You see, the seller really isn’t on the hook to provide a precisely accurate measurement of anything. And, what’s more, if you take three different appraisers and have each measure the house, each one would probably come up with a slightly different figure.
Now, this measurement of 1505 square feet came from the appraisal. The buyer (or his agent, or lender) orders the appraisal, and the buyer pays for it. The buyer is entitled to see it, it is his property. The buyer has a specific contingency on the contract called the appraisal contingency – if there’s anything in the appraisal that does not satisfy the buyer, the buyer can back out of the contract. However, the buyer had specifically released his appraisal contingency as well. Why, if this square footage was so important to the buyer, did he not bother to read his appraisal which he paid for, before releasing the contingency?
And perhaps the biggest weakness in the buyer’s ploy to get a $15,000 discount was that even at 1505 square feet, the home had appraised for at least the purchase price. So how, then, is a $15,000 price deduction justified?
The answer is that it’s not justified. To my eyes, this was a last-minute ploy to chisel some more cash out of the seller. Not such a bad ploy, really, but a bit unfortunate. It would have been more effective to use this before releasing the physical and appraisal contingencies, because as I said, the seller had already signed off and was thinking that it was basically a done deal. Pulling something like this at the last minute kind of left a sour taste in everyone’s mouth.
The buyers had sent over an addendum, asking for the $15,000. After consulting with my client, I informed the buyer’s agent that it wasn’t going to happen, no way would my client be signing that addendum, and that she needed to talk some sense into her client.
Alas, the word came back from the buyer the next morning, in the form of a cancellation of contract form. I shipped that off to my client the seller, and in a few hours I had it back, and forwarded it on to the buyer’s agent, saying, “OK, here’s the cancellation of contract. I’m going to let you send it in to the escrow company, if that’s really what your client wants to do.”
Heh. I had a feeling that’s not what the buyer really wanted to do. I think the buyer really wanted to buy the house (it was a good house, good location, good price). And, sure ’nuff, a few hours later I got a phone call from the buyer’s agent. “Seb, we’re gonna hold off on sending that cancellation to escrow. I’ll let you know later on in the day.”
Well, a whole lot more drama ensued, which I won’t go in to. In the end, the buyer’s agent chipped in $2,500 of her commission, and we had to chip in $2,500 of our commission – except that our client, bless her heart, signed a separate agreement and wrote my brokerage a check after the close of escrow, giving us the $2,500 back.
What a crazy business. Ya win some, ya lose some. After all the hard glares across the poker table I’m glad we won this one.
Posted by SantaCruzBroker at 7:44pm
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