Joe Murphy

The first time home buyer tax credit will expire on November 30. With Thanksgiving that week it might as well be a week earlier. Typical F.T.H.B. are getting financing through FHA, VA, or USDA. These type of loans will usually take 45 days to close, if there is no major issues with the borrower. So we have a month to find a home, go to contract, and close it to get the cash for the buyer. Here in Manatee county First time home buyers, and their agents are scrambling. I get a few calls a day from buyer agents asking if one of my listings would be able to close in time for the deadline. 1. Avoid short sales, unless they are "pre-approved"- Short sales can take months to close. You do not have time for that, and betting that you found the "one" short sale that will close in time is a risky bet now. Focus on foreclosures, and regular motivated sellers ( yes, they do exist!). 2. Get your financing in order as much as possible, as early as possible.- If the deal does not close due to financing issues, or worse, is delayed for financing issues. You will be the one losing the benefit of the tax credit. Make sure you have a reputable lender, be realistic with the time frame, and be proactive to make sure they have everything needed to close the deal. 3. START SHOPPING RIGHT NOW! - Did I mention you have about a month to find, and get into contract with your next home? Also, you are not alone. There are plenty of buyers out there trying to do the same thing. The good deals are going FAST.. I wrote an offer for 5k over list price, pre-qualified buyer, quick close, etc. We were beat out. The home had gone into a bidding war. My buyer was maxed out with what he could afford, but we made the offer within 24 hours of the home getting listed.

Sales are up in Manatee County. Inventory is down 35% down from last year. The listing inventory in certain neighborhoods has dropped even more.

Here's why...(my opinion of course....)

1. Federal income tax credit

This is stimulating the entry level price ranges. In my market this is 50,000-250,000. This price range is getting fierce. Two offers last week went into multiple offer situations. Buyers who are trying to take advantage of the tax credit have really only 5 weeks to find, make an offer, qualify, and hopefully close within the 11/30 deadline. These buyers are out in force, and are aggressive with homes that are well priced. One home that came on the market last week had been bid up well over list price. This is happening very often now with correctly priced homes up to even 400,000. This is a BIG CHANGE! Last year multiple offer situations were almost non-existant.

2. Inventory is dwindling for good homes

A year ago there were plenty of homes to show buyers. It seemed that it was sometime "never-ending", now, things are different. I have 5 buyers, that are ready to go, but the perfect home eludes them. Multiple biding situations, poor home conditions, and short sales make finding and getting under contract with a suitable home challenging. Almost all the bank owned homes that are value priced are getting multiple offers, and Short Sales are getting back up contracts. Finally, the condition of these often neglected, abandoned homes is deteriorating quickly causing inspection issues. FHA, VA, and USDA have criteria that have to be present. So, even if by buyer could handle the "fixer-upper", the bank will not accept the condition of the home as a condition of the loan. Cash buyers are tough competition when you are a first time home buyer, needing closing cost assistance from the seller, and putting very little money down.

These qualified buyers know that this market has changed!

3. There is "pent-up demand" with many buyers waiting for the right time to buy.

I have seen baby boomers getting into the market, suddenly. They have enjoyed vacations here in Florida over their years. They feel familiar with the area. They enjoy our sunny, warm, climate. they want to live here, but they are waiting for the moment to act. It seems that for whatever reason there is a major increase in baby boomers looking at the market, and getting active. I think that the stock market recovery from last year, is helping soon to be retires to feel wealthier than a year ago. Also, I think that the constant negative media attention on our area has served as an effective marketing tool. Winter is coming, and if it is going to be a cold year I would suspect that we will see price stabilization early next year in that market.

Supply and Demand CONTROL REAL ESTATE PRICES. Inventory is down to 13.6 months!

Inventory is down, potential sellers who would like to sell, but will not sell for a loss are not in the market. Therefore, a buyer who is looking for a home in excellent condition, and priced at fair market value will have few options.

• I would encourage action from congress to implement a streamlined approach to deal with the flood of short sales. If the short sales could become more manageable, then more buyers who need a house in a hurry, will have more options.
• More successful short sales would also mean less foreclosures. Quicker short sales, and less foreclosures will increase the overall quality of all the homes that are on the market. This will help to stabilize prices and increase the options for homes that are in condition that can be financed.
• Stabilizing prices will lead to further increased consumer confidence. It's tough to spend money when you think your home is losing value every month

This is the time to buy a home. Inventory will influence price more than any other component

I have now have closed a lot of short sales in the past three years. My words of wisdom for buyers, and sellers who are considering a short sale. Short sales can be a great deal typically selling for 10-20% below current market value. BUT, they have a tendency to frustrate buyers, and sellers in the process.

Patience, involvement and realistic goals are helpful to get a short sale closed. Either everyone wins, or everyone loses. The buyer gets a great home, for a fair price. The seller gets rid of a home that is under water, and can potentially wipe out a huge debt while avoiding a dreaded foreclosure. The market benefits because a short sale keeps one less home from becoming a foreclosure, or derelict.

1. There is nothing "short" about a short sale.. Only your patience.

I have closed a short sale in a record 4 weeks. The buyer went to contract the day the home listed. The seller was experienced real estate assistant, who was very involved with dealing with the bank. The bank was the "servicer" and the "investor". Servicer is the bank that payments are made to, and act as an intermediary to the investor who owns the note. In this case, they were one and the same. The home was in excellent condition. The buyers really wanted this particular home. Basically everything went perfect in this deal. Still, the buyers were anxious and considered canceling the contract because it was "taking so long".

2. Most transactions take a few months to get an approval, or counter offer.

It can still take a few more weeks for the " investor" to give written approval. I have experienced negotiators for lenders that will counter, negotiate, and verbally approve a deal, before any acceptance from the investor is given. Certain lenders take longer than others to get assigned a negotiator. This is really the major hurdle to get to an approval. Getting someone at the lender to talk with about a specific deal.

3. Inspections should be done shortly after going to contract, not waiting for "LENDER ACCEPTANCE"

It is very common to sell a short sale home two, three, even four or more times before a buyer sticks to the deal. Most short sale offers are written very loosely with many outs for the buyer. MLS rules dictate that homes "under contract", even short sales have to be put pending. Many times when many hours of work have been invested to get a short sale approved by the lender, the deal dies because the buyer is dissatisfied with the home inspection report. These sales are most often "AS-IS, with right to inspect". The problem is that this is usually tied to the effective date of the contract which is the day the lender gives written approval of the short sale. Short sales are often poorly maintained, and neglected. Utilities are often disconnected, pools are green, lawns are overgrown and full of weeds. You get the idea.

My suggestion for my buyers and sellers is that the major home inspection done within 10 days of going pending. If there are major issues, the buyer can adjust their offer accordingly to account for unknown defects. Also, with a written report the defects in the home can be submitted to the lender to further encourage them to accept the offer. Of course I would always recommend a walk through inspection, or home re-inspection close to the close date to account for any further defects, vandalism, or theft to the property.

4. Realistic list prices and reasonable offers

Some times a buyer will call me with news of a home that seems to good to be true. Most often, they are. A listing agent can under price a home so dramatically that it can bid up the price. In my experience short sale homes will sell for 0-20% under the current, appraised value. So, if the home would be priced at 300,000 under normal circumstances, the same home as a short sale should sell for at least 240,000 and up. Short sales are not fire sales, they have to make sense to the lender and the buyer. . All buyers are looking for a great deal, but that does not mean the bank is going to be willing to take a loss without considering the alternative of foreclosure and resale.

Some listing agents will under price a home by more than 30% market value. This will get their phone ringing, and the offers flying, but is a disservice to the seller, buyer, and other home sellers in the market.

To be able to "steal" a home, it would be better to first look to foreclosures, and motivated, regular sellers. A property owned by the bank (REO) has to sell. The price will be lowered until someone buys it. Also, motivated regular sellers, that can afford to sell in this market, and "NEED" to sell are sometimes willing to make a deal just to be able to move on. Short sale buyers need to be patient, and realistic with the price they are willing to pay. This means if it is worth 250,000, don't bother with the 50,000 offer.

5. Sellers need to be PROACTIVE in the closing process.

My job as the Realtor is to expose the property to the buying audience. Make the property available to potential buyers, and agents representing buyers. And negotiate a successful CLOSED transaction. I can help the willing, but if someone is drowning in quicksand, I can extend the stick, but I can't jump in to save you. A home seller has to take the process very seriously. One of the most important indicators of a short sale's success is the Sellers tenacity to follow up with the lender(s), maintain the home, organize and prepare the required documents. Of course, My team, and the seller's negotiator are going to be calling and pushing to make the deal go, and keep the buyer updated, but the ones that go quick always have a very involved seller.

6. Hire a GOOD negotiator to assist with the lender negotiations

Short sale Sellers often are having money issues, but acquiring assistance is critical to the success of a short sale. This does not have to cost a fortune either. Options include title companies, that can charge as low as a few hundred dollars, to attorneys that can charge a few hundred an hour. Some firms charge a flat rate to take on a short sale negotiation. The added help is really needed due to the tedious process of following up with lien holders. If you are a buyer and the seller does not have a skilled negotiator involved, be wary. I have closed many deals without outside help, but the cost is greatly outweighed by the benefits for the seller. I have many options for the seller to consider.

• A sign of a recovery, or just a blip from the 8,000 dollar tax credit?? Here are the changes that I am seeing in my local market. comparing today to a year ago.  I am curious to see if anyone else is experiencing the same effects?  It feels like the tax credit is working like the "CASH FOR CLUNKERS" deal.

When the government announced that the program was ending in a few days people were clammoring to get a car.  A friend that sells new cars, had not been as busy, ever, than the weekend prior to the end of the clunkers deal.

I am feeling the same thing.

A year ago VS TODAY

• A typical entry level buyer would have dozens of potential homes to consider.  Our inventory in Manatee County was over 5,000 single family homes.  Finding a good fit took time because there were some many choices.
• Today we have less than 3,000 single family homes for sale.  This week I showed a buyer ONE home that fit her criteria, This home was a Foreclosure and within 24 hours the home had 4 offers.  The home will most likely sell for well over the listing price.  I put an initial offer for over list to give my buyer a "chance" to get the home.
• In 2008 I did over 45 transactions, none for over the listing price.  Typical homes were selling 5-10% below the listing price.
• So far this year, I have put under contract 6 homes that were OVER the listing price.  Multiple offers are becoming much more common.  I would estimate that half of the homes put under contract this year had MULTIPLE BIDS.  These bidding wars are what drive up the price as the buyers compete to get the home.  This is not happening with every home, but it is much more common with foreclosure homes, and well priced properties
• Last year Short sales were a slow, tedious process.  Seller's lenders were often unwilling to face reality with the steep decline of our market prices in the past 12 months alone.  Short sales could easily take months for even a first response from the seller's lender.  Long hold times at the call centers, and frustration reaching bank negotiators the norm.
• The banks have gotten the memo that they have a flood of foreclosures coming, and that short sales are a great alternative to foreclosure.  Better for the Seller, for the lender, and typically the "investor", who owns the note.  The process is still tedious, but there is definate improvement with lenders willingness to do the short sale, and get them closed.  Certain lenders are worse than others, but overall it is getting better. 

 

• A year ago we had over 18 months of inventory in Manatee County.  Standards with Short sales were yet to be established.  Some listing agents were keeping homes active, even if there was a contract on them.  The MLS system was just implenting a system to deal with the flood of short sales.
• Today, we have 6.3 months!  There is a ton of pending inventory, mostly short sales in the waiting game with the banks,  but they are not showing active.  Our local MLS system has good standards for dealing with short sales and foreclosures.

It is my opinion that the first time home buyer tax credit has helped revive the market.  Just like the Cash for Clunkers for the car industry.  The home buyer tax credit has helped dry up inventory in the entry level market.  Which will "TRICKLE UP" and help the higher price ranges in time. 

I would hope that Congress and Obama would push to extend the tax credit, and expand it to include not just first time home buyers.  Could you imagine the effect if ALL home-buyers could get this credit? This would get investors jumping into the market, it would encourage home owners who need to move up to get back in the market. 
Supply and Demand control real estate prices more than any other factor.  All the indicators are that the market is recovering.  What we need is a return of consumer confidence, then I think the "valley" will have been reached. 

In the past three years I have been forced to become an expert doing short sales. Right now over half my business is dealing with short sales. One common frustration comes up time and time again.

Here is a typical scenario. A family owns a home that was bought at the peak of the market, or refinanced at the peak. For example they may owe 400,000 on a home that is only worth 250,000. The owner is employed, but with the economic slow down they are making less money then they did when they took out the mortgage. They have attempted to contact their lender, with the hope to either get their principle balance reduced, or work out a way to get a lower payment. They are still employed, but just making less.

I meet with the owners, and let them know that they are 100,000-200,000 UPSIDE-DOWN, and explain the particulars of a short sale.

At this point, The customer, and I reach the frustration point. Why is it fair or correct that the family has to sell their home, potentially destroy their credit, uproot their kids from friends and schools, forced into renting, suffer from the embarrassment from losing their home. This family typically loves their home, and they do not want to leave.

I am going to sell their "home" to a new buyer for 250,000. The bank will most likely agree to the deal. The seller has to keep the home in showing condition, and deal with the aggreavation of showing.

The Frustrating Question.

Why would the bank not just sell the home to the homeowner at the price they are going to get on the open market? This homeowner could easily afford the normal payment on the fair market price. This would keep one more family in their home, prevent another home from coming onto the glutted market, and help the neighborhood maintain the prices helping to prevent future short sales and foreclosures.

From my own research I have found that lenders are unwilling to do principle reductions to modify loans for two main reasons.

1. 1/3 of home owners will "self correct" within 12 months. Meaning that if the bank does nothing that a third will catch themselves up on their own. The owner got behind because of a temporary situation, and was able to catch ou on their own.

2. Of all the homeowners that are give a loan modification the majority end up defaulting anyway. A modification simply delays the inevitable. Which is bad for the lender in a falling market, the sooner they can foreclose, and resell, the more money they would get. This concern is valid because it is the foreclosure sales that lead the market down.

My Solution to the mess.

I would propose that the government force the lenders to reduce the principle balance to 90% of the appraised value for all homeowners. The lenders would have to eat some of this, which they would do anyway if the home foreclosed, and the federal government would assist with some portion as well.

For example, the homeowner that owes 400,000, and the home is worth 250,000. would have a new mortgage payment based on the appraised value. The bank and the government would "bail out" the homeowner the difference. In the future, when the homeowner would want to sell the home. The first 150,000 of appreciation would be paid back to the lender/government. This would be a way to make the lender whole again. Perhaps there could even be some applied interest if the home sells for even more.

In the current system when the lender forecloses they will only get the fair market value of a home, minus all the costs involved with kicking out the owner, repairing damage, paying Realtors etc.

In my proposal the bank would get the reveue stream of continued mortgage payments, and the future gain of appreciation.

Home prices will eventually rise again, especially if the unneeded foreclosure, and short sales could be removed from the market. This would lead to home price stability, and aid in economic recover as homeowners would be able to more easily afford their mortgages. This would increase consumer confidence to get out their and spend money again, and get us out of the recession faster.

Since the federal government has already bailed out troubled banks with billions of dollars, and spent billions to stimulate the economy, why not bail out "main street", and have a way to eventually be repaid the bailout funds. This would be a win-win-win for the government, the banks, and finally the American homeowner.