Sarahiously Speaking

So, whose market is it anyway?  Is it a buyer’s market?  Or, is it a seller’s market?  I’ve been saying it for 4 years now, it’s neither.  It’s a bank’s market.  This is not to say that banks are coming out rosy in real estate transactions.  Many banks are still losing money on individual transactions., even if their reported earnings include profits.  However, in a market that consists mostly of short sales and foreclosures, banks have the upper and.  On the selling end banks set the price they will accept for the sale and on the buying end banks order the appraisals and decide if the property is a good investment.  With the majority of the transaction in the bank’s hands, it’s a bank’s market. 

If banks have so much power, how much can you negotiate when trying to purchase a home?  I’m going to go ahead and lay this out there, this country has lost the fine art of negotiation.  Most consumers are looking for a “win.”  Very few consumers know how to pinpoint their breaking point when it comes to purchasing and even fewer can determine the seller’s breaking point.  Without these skills, negotiations can go south fast. 

The first step in negotiating real estate is figuring out, as the buyer, how much you want the property.  Your desire to obtain the property will determine your starting point. 

The second step is determining what comparable properties are selling for in the neighborhood and area.  Some real estate agents will price a property well under comparable sales in hopes of obtaining multiple offers.  When in a multiple offer situation, be wary of relying on being the highest offer.  The home will still need to appraise.  Highest is not always best.  On the flip side, if a home is priced much higher than comparables, it may be signalling an unreasonable seller. 

The third step is investigating the other conditions you will be including in your offer.  If you want a home inspection and expect repairs to be made, you may want to consider offering closer to market value.  If the property is sold “as-is” you need to weigh how many apparent repairs are needed in to your offer price.  Many “as-is” properties are priced with needed repairs taken in to account.  It is also important to remember that “as-is” means “as-is.”  The more conditions/ contingencies a seller sees, be it a bank or consumer, the less likely they are to favor your offer. 

After compiling all of this data, make an educated offer.  Real estate is not a game, especially if you really want the property.  If you treat it as a game, you may come out on the losng end more times than not.  It’s much harder to resubmit an offer once a seller rejects an initial offer or is offended by an original offer.  I’m not saying give the seller exactly what they want, but if their listing makes sense, make sure your offer makes sense, too.

I spend a few hours each day answering questions and engaging on social media sites.  About 50% of what I read and write have to do with personal matters.  The other 50% deals with real estate.  Recently I’ve been paying attention to conversations across the nation regarding the distressed real estate market.  I am absolutely amazed at how many consumers are being advised by people who do not have a real estate license.  Sure, anyone can read the paper and come up with their own opinion of what is working and not working.  Some people have some knowledge of the market due to their personal experiences as a distressed property owner.  But, unless you are in the field showing houses, writing offers, and negotiating contracts with buyers/ sellers and banks, you really don’t have a complete concept of what is going on out there.  Anyone can watch from the sidelines and critique, but few actually jump in and get their hands dirty.  I guess this is the case for most industries.  Armchair quarterbacking is the American way.  However, armchair quarterbacking in real estate can be dangerous and illegal.

So, how can you protect yourself as a consumer?  Well, Google is your friend!  Every state has a database of real estate licensees that can be accessed by the public.  Generally you can Google, “[state] real estate license look up” and the database will be on the first page of Google.  Virginia’s license database can be found here.  You will need to know the name of the person you want to look up.  As an added step, once you find out if the person has a license, it is good to Google their full name, First/ Last and First/ Middle/ Last to see what they’ve been up to the last few years.  It’s always neat to go look toward the back of the google pages, where information gets buried. 

All in all, you shouldn’t be taking real estate advice from people who aren’t actively involved in the real estate profession.  Real estate is state specific and very local.  Just because someone stayed at a Holiday Inn doesn’t make them qualified to give real estate advice.

Oh, the banks are at it again!  News has surfaced over the last 2 weeks that GMAC Mortgage and GP Morgan Chase are suspending foreclosures in 23 states (Virginia is NOT included!).  Bank of America announced late last week they were halting foreclosures in all 50 states in order to investigate their foreclosure process.  But this raises an important question:  Have banks been foreclosing on borrowers who are not delinquent?  Will this latest action save a borrower’s home? 

My opinion on this matter may not make me any friends, so let me start by saying that I do not support predatory lending.  I also am an advocate for short sales and think that banks need to be more willing to work with short sales with legitimate hardships.  However, if you have defaulted on your mortgage, the only recourse the lender has is to foreclose.  Last time I checked, we still weren’t giving houses away.  I don’t think many people signed their mortgage paperwork while intoxicated, drugged, under undue duress, or without being told some disclaimer about the terms and conditions of the mortgage.  I do think that many consumers took out very risky loans because they were caught up in the mentality that real estate was a guaranteed quick money maker.  I do know that there are some exceptions to this rule.  I have had clients that really didn’t know what they were signing.  Or, they were told one set of mortgage terms, but at the settlement table there were different terms.  They felt that they had to sign the papers or be in default of the contract.  But, I’ve found that these consumers haven’t waited until the 11th hour to get help. 

So, will consumers who are in default be saved from foreclosure by these latest moratoriums?  The answer is a resounding NO!  Defaulting borrowers will still lose their homes.  Banks will continue to foreclose on homes when the borrower proves they can’t pay the mortgage.  What this moratorium does is gives banks the opportunity to let the government and consumer know that they are not the evil vultures they are portrayed as being.  These investigations will assure the banks that their paperwork is in order. 

In states, like Virginia, that adhere to nonjudicial foreclosure, this moratorium has little bearing on the market.  Virginia borrowers sign their rights away when they sign their mortgage instrument at the settlement table.  There is a clause in the deed of trust that states that the borrower gives the lender the right to repossess the property if the borrower fails to make their mortgage payments when the mortgage payments are due.  There is no court action that needs to be taken for the lender to pursue a foreclosure.  Simply, it is very easy for a lender to foreclose on a property in a nonjudicial foreclosure state.  Foreclosure has a very quick timeline in Virginia, as well.  Some foreclosures in Virginia may have to start over, but the house will still be foreclosed.

Defaulting borrowers should not look at this latest news as the answer to all of their prayers.  This is more of a postponement of the inevitable.  They should still make plans to bring the mortgage current, pursue a short sale, or find a rental.

Many of the foreclosures hitting the Northern Virginia market were purchased as investment properties or turned into investment properties.  As housing prices soared and interest rates dropped, many want-to-be investors entered the market to earn a quick buck.  Some wanted to have a tenant for about a year and then sell it at the new inflated price; some wanted to flip the home in a matter of a few months.  What these investors did not count on was the housing market collapse and how quickly the market collapsed.  Virtually overnight, homes began to languish on the market and many investors were forced to put a tenant into their investments. 

The scary part is that many of these investors took the monthly rent and pocketed it.  They stopped paying the mortgage.  This leaves a tenant with few options once the home goes into foreclosure.  In Virginia, if the home is sold as a short sale while a tenant’s lease is in effect, the lease conveys.  If the home goes to foreclosure, the lease is void and the tenant is served an eviction notice.  Many tenants do not find out that their residence is in foreclosure until they are served the notice.  This leaves little time for them to collect money for a new security deposit (yeah, the security deposit you gave the guy who wasn’t paying the mortgage is probably gone), a first month’s rent, find a new place to live, and move.

On May 20, 2009 the Protecting Tenants at Foreclosure Act was passed as a smaller piece of the Families Save Their Homes Act of 2009 .  This bill ensures that tenants nationwide must be served at least 90 days notice to vacate the property if the purchaser of the foreclosed property intends to occupy the dwelling as their principle residence, and ensures that tenants can remain in the foreclosed property until the end of their lease unless the bank sells the property to someone who plans to occupy the property as their personal residence and 90 days notice to vacate must still be given. 

This is a victory for tenants across the nation who have been or could be effected by foreclosure.  However, this is another hurdle for buyers in today’s market.  Not many buyers are interested in purchasing a property with a tenant in place.  It will be very interesting to see how banks handle this new legislation.   Will they keep tenants in place while the property is on the market as an REO?  Or, will they serve the 90 days notice to vacate as soon as they foreclose on the property and wait to put it on the market?

My initial thoughts when seeing the April report was that we were seeing February prices finally closing in April and that I would see quite a few short sales and foreclosures on the list. 

In April we had 15 homes sell in Fredericksburg City (22401).  Of these, 4 were short sales and 5 were foreclosures.  4 of these contracts were written in February or earlier.  4 settlements were also for cash.

Stafford County sold 128 homes in April.  18 homes were short sales and 66 homes were foreclosures.  That means that 44 homes were most advertised as traditional seller sales.  Believe it or not, that’s not too shabby.  42 contracts that settled were written in February or earlier.  14 closings were cash offers.

Spotsylvania County sold 156 homes in April.  19 homes were short sales and 95 were foreclosures.  The lower price range dominated these alternative markets.  42 homes were listed as traditional seller sales.  57 contracts were written in February or earlier.  A few contracts dated as far back as early December.  20 closings were for cash.   

What does all this mean?  It looks as though short sales are getting to the settlement table in a timely manner.  There could be several explanations for this.  For one, many banks have streamlined their short sale approval process.  Secondly, more agents are better trained at handling short sales successfully.  Even though many banks have streamlined their short sale process, we still have a ways to go to make it a truly effective alternative to foreclosure.  Many associations in areas hard hit by predatory lending are offering numerous opportunities for agents to be trained on the ins and outs of short sales.  Some agents are now being recognized as being experts in this niche market.  However, sellers are not required to disclose their short sale status until they are in substantive conversations with a buyer.  This means that not all short sales are disclosed in MLS. So, although the majority of our transactions were foreclosures and short sales, I think there were a few more than what shows up on the report.

I do think that the sales prices were accurate, but you have to look at it in context.  It is taking longer to get to the closing table than it used to.  We are seeing January and February prices closing in April.  We are also seeing investors jumping back into the market.  They are being lured by low prices and a hot and heavy rental market.  Many of these investors are able to pay cash which can help a buyer get a house much cheaper than list price.  From experience though, I can honestly say that there has not been alot to choose from in the most popular price ranges, predominately $250,000-$350,000.  There are many more buyers in today’s market than good housing options.  We are seeing more and more escalation clauses and sellers digging their heels in and holding out for a better offer.  I believe we are getting to a point where it is inevitable that the scales start to tip in the other direction.  It’s still a long way to recovery, but with low interest rates, the $8000 buyer tax credit, investors jumping back into the marketplace, and buyer confidence on an increase, we just may turn this ship around.  (But still give it another 4 years).

The real estate market is beginning to see a trend in the time it takes to close on a property.  Unfortunately, it is taking longer to close than it has in the recent past.  Gone are the days of 15-21 day closing periods.  We are now seeing closing periods of 45-60 days on average.  However, buyers in this market usually don’t have 45 days to wait to move into a home.  Many times buyers need housing in 14-30 days.  Combine longer closing periods with an abundance of short sales.  Even though we are being told that banks are streamlining the short sale process, short sales are still taking upwards of 6 months to get approval.  So, where does this leave today’s buyer when it comes to housing between the sale of one home and moving into the new home, or waiting out the short sale approval period?  Many buyers have begun to reexamine pre-occupancy. 

For those of you not familiar with pre-occupany, it is the act of a buyer taking possession of a property before settlement for an agreed upon fee.  The buyer typically pays a security deposit to the seller and a monthly fee, much like a rental payment.  I’m here to tell you that pre-occupancy is a bad idea in this market for a number of reasons.

The seller is a bank in a foreclosure transaction.  I have yet to have a foreclosure bank agree to pre-occupancy.  Why?  If a buyer moves in to a foreclosure before they settle and then realize that there may be more work involved with the property than they originally thought, the buyer may be tempted to move out, default on the contract, and refuse to settle.  Banks are also not equipped to be landlords.  Foreclosure banks already sell properties “as-is.”  What happens if something breaks while the buyer is pre-occupying?  Who is going to fix the problem?  The Virginia Landlord Tenant Act requires some repairs to be made by landlords, banks don’t make repairs.  Pre-occupying a foreclosure isn’t compatible with the way foreclosure banks do business. 

Short sale pre-occupy is an even worse idea.  The sale of the home is contingent on third-party approval.  This approval can take up to 6 months; I’ve seen it take 9 months.  What happens when a buyer pre-occupies a home and then 4 months later the short sale bank denies the short sale?  The buyer gets to move out of the property and into temorary housing while they look for another home.  Or even better, the short sale/foreclosure bank evicts the would-be buyer.  What a headache!  Pre-occupancy agreements involve paying monthly fees, rent payments, for the time the buyer moves in to the time the buyer settles.  Most short sale sellers are already not paying their mortgage.  As a REALTOR, I can not reccomend that any of my buyers pay money to a short sale seller and hope that the seller actually pays their mortgage with it.  Again, it just doesn’t make sense.    

Believe me, I know moving is stressful, especially when you are afraid you aren’t going to have a place to move to.  I’ve would never recommended pre-occupancy, no matter what the market looks like, but pre-occupying a foreclosure or short sale is not the best solution and may cause more problems than you are equiped to deal with.  Talk to your REALTOR about available alternatives to pre-occupancy.  Also, make sure you begin your new home search in time to meet your moving deadline.