Mary Monday

Back in the old days three to four years ago when everything in the real estate world was hunky dory no one thought or seemed to care about what the market may look like in a few years. Life was good and if you bought real estate you could expect its value to increase. Then quite suddenly conditions began to change. The real estate market suddenly went south and property owners who had bought during those times found themselves in properties that were worth far less than when they had purchased.

Given the declining real estate market the past couple of years, The Arizona Association of Realtors in August of 2009 developed a one page paper entitled "Market Conditions Advisory". The advisory is a form now used by many realtors when negotiating a contract to advise both buyers and sellers about potential future market conditions. Buyers and sellers are asked to read and acknowledge by signing the document.

The form states in part:

•§ The real estate market is cyclical and real estate values go up and down. The financial market also changes, affecting the terms on which a lender will agree to loan money on real property. It is impossible to accurately predict what the real estate or financial market conditions will be at any given time.

•§ The ultimate decision on the price a Buyer is willing to pay and the price a Seller is willing to accept for a specific property rests solely with the individual Buyer or Seller. The parties to a real estate transaction must decide on what price and terms they are willing to buy or sell in light of market conditions, their own financial resources and their own unique circumstances.

•§ The parties must, upon careful deliberation, decide how much risk they are willing to assume in a transaction. Any waiver of contingencies, rights or warranties in the Contract may have adverse consequences. Buyer and Seller acknowledge that they understand these risks.

There is more to the document that I have not included in this article, but I think you get the point. The intent is that all parties to a real estate transaction should understand the implications and risk of buying and selling real estate. No one knows what the market will be like tomorrow, next year or in five years. If you are interested in viewing the entire advisory I have posted a sample copy on my website at www.marymonday.com/docs/mca.pdf.

As we enter a new year and a new decade there are signs that the storm clouds hanging over the real estate market in Northern Arizona the past few years are beginning to break. At a recent business meeting which I attended there seemed to be a consensus that the real estate market nationally will remain flat and perhaps drop a bit this year. The market should then begin a slow recovery in 2011 and the recovery should continue into 2012. If the economist, planners, and fortune tellers are correct by the end of 2012 we should be back to a near normal market.

The major problem in our local area this year will be the continued rise in foreclosed and bank owned homes. As I wrote last month the number of foreclosures we experienced in 2009 was a fraction of what is expected for 2010. The result of these foreclosures is reduced values for everyone's property. Another problem is the certainty that mortgage rates will rise this year making homes a little more unaffordable.

While the real estate market has been terrible in many areas this past year, Flagstaff has shown some surprising resilience in both the number of homes sold and value of those properties. Each year my January article is written to show how last year's real estate market in Northern Arizona has preformed compared to previous years.

To see the trends in graph form and to view statistical reports for other property types in 2009 you can visit my web site at www.marymonday.com and go to Flagstaff Real Estate Trends under the Seller's Resources link.

The average price of $338,452 for 2009 indicates a drop of about $33,000 from the average 2008 price of $371,515. The median price for single family homes in 2009 was $290,000, down from $324,000 in 2008. The number of homes sold by year shows activity picked up with an increase of 66 homes sold in 2009 over 2008.

While our market has had its share of down periods, when compared to other areas in the state I think we are fortunate that our values have not dropped to the same extent that some of our neighbors have. As we move into 2010 the future of our real estate market appears to be steady as you go. The wildcard is the number of foreclosures we will endure, and the effect those may have on home values.

As we move from summer into fall, the countdown has begun for first time purchasers to earn a homebuyers tax credit of up to $8000 on their 2009 federal income tax. The American Recovery and Reinvestment Act of 2009 provides the credit to home buyer's who have not owned a home in the past three years. To qualify for the full $8,000 tax credit, couples filing jointly must earn less than $150,000 in adjusted gross income for 2009 and the home must be closed on by November 30 of this year. The credit will go away on December 1, 2009. The refund is a true tax credit; not a deduction. In other words if your tax bill for 2009 is $8000 and you have earned the full tax credit your final tax bill is $0.

To educate yourself on the value of this once in a lifetime opportunity, go to the internet and conduct a search for the credit. There are countless articles, videos and blogs describing the merits of the legislation. The National Association of Realtors web site at www.realtor.org contains a wealth of information describing the eligibility and value of the program.

There is some movement by various organizations to get the tax credit extended and expanded, however as I write this I know of no legislation being considered. With time getting short some mortgage lenders, realtors and economist are predicting that there will be a rush of people who want to buy and close on a home before the deadline passes.

Some statistics indicate that many people have not yet heard of the tax credit, so if you or someone you know may qualify and be interested in buying a home it is imperative that they move quickly. The first order of business is to visit with a mortgage lender. We have many here in our community who are knowledgeable about the credit and are ready and able to assist in getting you pre-qualified for a loan.

If you are considering using this gift from Uncle Sam time is of the essence. You must act soon as time is getting short! My advice; don't look back in a few months and say; I could have, should have, would have, it may be too late.

If you have followed the local real estate market the past year you know that townhomes and condominiums have become popular with home buyers. Town homes are more affordable than single family homes, making them more attractive to first time home buyers. Town homes and condos are gaining appeal not only for primary homeowners but also for second home buyers who are looking for a weekend get-a-way to Flagstaff as well as for parents looking for a place that their kids can live in while they attend NAU.

In many cases a town home or condo may be a better investment than a single family home. To ensure that you make a good investment, review what your objectives are for purchasing the unit and what location would work best for you. Is it going to be a second home, will it be a place for your kids to live while attending school, is your objective an investment property that you plan to use for a rental, will it be your primary residence?

The difference between a condo and town home is sometimes a bit hard to discern. The best definition I have for a town house is that it is a type of ownership where individuals actually own the building or unit they live in and the ground below it, but common areas are owned jointly with the other members of the development or association. In a condominium, an individual owns the airspace in the unit, but the buildings and common areas are owned jointly with the others in the development or association.

When you purchase a condo or townhouse you automatically become a part of a homeowner's association to which you pay dues. The dues cover the cost of maintaining and insuring the common areas. The complex where the property is located is governed by CC&Rs (Covenants, Conditions and Restrictions), which restrict your ownership rights. Read and understand the CC&Rs and any other pertinent governing documents before you complete a purchase.

The past few years have seen a number of local apartment complexes converted into Condominiums. Many of theses projects have an abundance of amenities such as swimming pool, basketball courts, and fitness centers. These units are especially popular with young people.

There are many bargains in our town right now so if you are in the market for a Townhome or Condo it is a good time to start looking. As in any real estate transaction it all comes down to location and what works for you.

Back in the old days determining the market value of real estate was a fairly straight forward process. An agent would obtain sales records from comparable properties for the past few months and with input from the property owner a value would be determined.

In today's market the concept remains the same, however there are some new considerations that must be taken into account. First and foremost is the number of foreclosure and short sales that have occurred in a market area. When these sales are factored into a comparative market analysis (CMA) the result is often a shock to prospective sellers.

This is the situation that has put buyers in the driver seat in our current market. But whether you're a buyer or a seller, knowing the fair market value of a home is important. It can make the difference between a quick sale or having a home languish on the market for months or even years. If you are a buyer, knowing the comparable sales in a market area gives you confidence in the negotiation process. If you are a seller as distasteful as it may be, you must consider the effects of foreclosures and short sales on the value of your property.

Market value is defined as; "The most probable price a property should bring if payment is made in cash and the buyer and seller are unrelated, well informed and acting without pressure". Just as each property is unique, so are buyers and sellers. Emotions, desire, and the necessity to buy or sell all play a part in the negotiation process even when the market value is known by both parties. Even with all of the comparable sales information from a CMA, arriving at a fair market value is an art and not a science. All the numbers and data considered; each house is a unique property at that moment and time.

A professional Realtor, with knowledge and experience in the market and in dealing with people, can help both parties reach an agreement on the value of a property. When all is said and done the true value of a property is the amount paid at the time of closing.