Gary and Shannon Kiernan, Cave Creek Arizona Real Estate Blog

Part of being a good real estate professional is knowing your local market intimately. It sounds obvious, but it is imperative that you are aware of trends, subtle neighborhood differences or any other factor that can affect value. Education is key.
Whilst reviewing homes for sale in my town recently, I came across a potential short sale that "rang a bell" with me. Sure enough, it was a home that I remembered had gone back to the bank back in early 2008. Here it was again, just three years later, being offered as a short sale. It was a little jarring so I decided to investigate. I realize prices had not really done much of anything in that time; well slightly down, but how was it possible to be back in trouble so quickly?
A bit of history. The home sold in mid 2003 for $320,000, and then was re-sold at the end of 2004 for $400,000 even. This is in keeping with what we know of pricing trends back then. Prior to 2004, prices were mostly flat-lined and it was in late 2004 that we began to see "investor" fueled increases in a few states. Flash forward to February 2008 and we see it being foreclosed upon with a total indebtedness of almost $450,000. More than the original sales price. Safe to assume the owner, like many others, had re-financed to release some of his "equity". Which wasn't really there. House-as-ATM strikes again.
The bank then sold the house some five months later for $400,000. I remember thinking at the time that the price seemed high. And therein lies the problem. That last owner simply paid too much, but as he put down 25% the bank was less than stringent in its appraisal. That last selling price was identical to the 2004 selling price, even though the reality was that prices had dropped to pre-2002 levels. Because of the large down-payment the bank figured they were safe. Well they were wrong! As ever, price is everything.
It reminded me of another case in 2006. I had a client looking for vacant land to build his dream home. He found a 5 acre parcel priced at $639,000. Wary that the market had likely peaked, we offered $450,000. The seller countered at $539,000 and actually wrote this on the counter-offer, "And not a penny less!" I advised my client against it, given the market conditions, and we walked away. Three years later, the land sold for $272,000. Glad we dodged that bullet!
By the way, four years later in 2010 he bought a 4000 sq. ft. home with a pool on 4 acres for $850,000. A home that had sold for $1.5 Million when he was looking at land. I love a happy ending, don't you?

Recently, I was working on a search for a client when I came across a Fannie Mae owned property, the lister of which encouraged me to click on the "documents" tab in the MLS. For those of you not in the know, this is a folder that contains any extra disclosures or forms that are required to close the transaction. Lo and behold, what did I find on that day?

The latest folly to be foisted upon a weary industry trying desperately to recover. This form required a potential buyer to agree to pay Fannie-Mae $5,000 if they should have the temerity to re-sell their own home within a year. Note, not only if they sell it at a profit; just if they sell it at all! Where to begin. I understand that these people are trying to punish "investors". This is not the way to achieve that. What of some poor schmo who loses his job, or has to re-locate? Why should he be punished? If a so-called investor is able to make a sufficient profit, then the re-capture amount will best be another cost of doing business.

We do not need any new laws. We need to enforce the ones we already have. The last property boom and bust was fueled, in part, by an "investor's" ability to claim he was going to "owner occupy" each property he bought. Over and over again. To claim such on the purchase contract erroneously is a felony. How many prosecutions have you heard of? Exactly!

Mind you, this is the same Fannie Mae that was formerly run by Franklin Raines. Mr. Raines is famous for massively and fraudulently over-stating Fannie Mae profits in order to inflate share prices. That little boondoggle enriched him to the tune of some $90M. After investigation, he and his two co-conspirators reached a settlement. He surrendered his stock option, which is hilarious because his shenanigans had rendered them worthless, and was fined just under $3M. That, in itself, was particularly odious because the fine was paid by an insurance policy paid for by Fannie Mae. Which means you paid it.

To re-cap then: The same Fannie Mae that was largely responsible for the current melt-down, and that aided and abetted Mr. Raines in his criminal enterprise is now trying to pick our pockets one final time in the unlikely event our home should increase in value.
We are in the best of hands.

For those of us selling homes in the greater Phoenix metropolitan area, short sales are a simple fact of life. In some newer communities, homes built in 2006 for example, almost every single one has entered the re-sale market a distress sale of one kind or another.

We all know how frustrating it can be when banks take up to 7 months to respond to an offer, by which time the buyer has likely already purchased something else. Frustrating for seller, buyer and agent alike. Hopefully, that is about to change.

On April 5th 2010, the above mentioned program, known as HAFA, came into effect. On its face, it seems to be a step in the right direction. Participating banks, and that is almost all of them, agree to abide by established time frames for responding to offers and for determining the net proceeds they desire from a short sale. If they do not comply, they will be ousted from the program.

It is quite involved so I suggest you Google it, but here are some highlights. For the Realtor, it prohibits the bank from reducing the commission. For the seller, they will be absolved of the debt without any judgements or promissory notes allowed. The seller may also receive $1500 for re-location. (Quick translation; relocation= not trashing the joint.) The bank also receives a financial incentive for following the guide-lines.

All in all, it seems to be a win-win situation. So why am I concerned? I search the MLS every day for various clients, often in areas that are chock full of short sales. Since this program was announced, of all the short sales I have reviewed, only ONE has mentioned HAFA. This is tragic. This means that there are hundreds of agents out there who have the listings, but do not have the faintest idea of how to process them within the new frame work. It is tragic because what is, or was, an extremely difficult process no loner needs to be. If the agents don't know about it, do the banks? If a great idea fell in the forest, and no one was there to hear it...

I am curious to hear opinions on the from professionals across the country. Maybe it's just my area. What say you?

There is an old adage regarding the "Golden Rule". Them with the gold, get to make the rule. We had an irritating example of this just last month. We had listed a property for our client and it had sold within days for full price, which in and of itself was quite a shock. We later discovered that the buyers had coveted the home years before so that when it came on the market they just snapped it up. Even though they were going with a large down payment, we still felt an appraisal at full price might be a stretch in this market, and advised our seller accordingly.

In the meantime, our seller also had a second shot at what he considered his dream home when a short sale that had dragged on for almost a year suddenly became available. Our offer was accepted, but it was contingent on the first sale. The appraisal came in at the desired price of $545,000 and it looked like two families were going to get their dream homes. Who was it who said "I love it when a plan comes together"?

Then, the waste product came into direct contact with the oscillating, rotating air-moving device. The day before drawing docs on the first sale, a loan processor arbitrarily and capriciously decided it did not like the appraisal. It then ordered a drive-by appraisal which came in at $470,000! The original appraiser was mortified by this lack of respect for her work and requested the opportunity to defend herself. This was duly granted. In the meantime, the processor ordered another drive-by, and this one came in at $400,000! Nobody told me there'd be days like these!

In the end, they completely ignored the official appraisal and said they would stick with the drive-by evaluation of $470,000. Everybody said "They can't do that!" But they did. Luckily, both buyer and seller were willing, and financially able, to reach a compromise. The seller came down $25,000 and the buyer was able to come up with the extra cash, so it closed, albeit a couple of days late.

Interestingly, when we came to an agreement with the bank on the short sale we were buying, they gave us 10 days to close it. This, after they had messed around the previous buyers for more than 9 months. The stones on these people. We closed it in 9 days. That night, Mrs K and I went out for frozen yogurt. It was good.

Recently, in the middle of April, we were working with a buyer looking to purchase a home in the $150-$160K range. With the $8000 tax credit about to expire, we thought there might be a spring in his step, but we were wrong. He was curiously detached about the credit and reasoned that prices might even go down upon it's expiration. We tend to agree with him. When the government introduced "cash for clunkers" to salvage the auto industry, its main effect was to drain all future sales from the pipeline in short order. Much the same will happen in the housing market. It makes sellers and buyers lazy when it comes to negotiating. If $8000 is on the table, the seller wants to get his "share" while the buyer is less motivated to haggle. I am not a fan of artificially supporting the market for anything, especially when the money involved does not exist and will have to be borrowed. All in all, another smoke-and-mirrors job by the ne-er-do-wells in D.C.

Talking of smoke, an agent called me for feedback on a house we had shown. I told her it positively reeked of cigarettes. To which she replied that they had repainted the house. Be that as it may, the place still stunk like an ashtray. Either have the place professionally deep-cleaned or throw out the carpets. To not do so is a sever dis-service to your client and frankly, is wasting the time of your fellow agents. No one will contemplate such a home without a deep discount.