The Scottsdale Real Estate Files

In many respects, the heralded Real Estate bargains to be had in Scottsdale and the greater Phoenix area should come with the disclosures that attend weight-loss product testimonials.

“Joe Homebuyer’s results not typical.”

“Always consult a physician before launching an intensive home search program.”

“Stretch thoroughly and lift with your legs when attempting bank-owned property heist.”

For the purposes of this piece, we are going to focus on the first caveat.  Every Valley resident has at least passing knowledge of some fortunate homebuyer who leveraged the current market to score a honey of a bank-owned deal.  As big a nobody-turned-celebrity as the 170 pound guy in a Nutrisystem commercial holding up a pair of orca sized slacks as evidence of his former girth, Bob from accounting is the new gold standard for idolatry after securing the housing buy that set the office abuzz.  Before following in Bob’s considerable footsteps, however, there are a few things you need to keep in mind.  His results may not only prove atypical, but in extreme cases, constitute patently misleading advertising.

The hidden “gotcha” to many bank owned purchases right now are property taxes.  While the institution that owns the property should pay off any back taxes as a condition of conveying clear title to the purchaser, many buyers fail to properly account for the bill they will be saddled with for the next couple of years (at a minimum).  Unlike other parts of the country, where taxes are based solely upon purchase price, Maricopa County taxes are based upon the assessed value of the property.  Many falsely assume that the home they are buying for $350,000 will reflect a tax basis commensurate with that value.  As our budget revolves around 2 year property evaluation schedules, odds are very good that your current tax basis will reflect a value closer to the $1.1 million that the home sold for back in 2007.

*Click here for information about Maricopa County property taxes

*Maricopa County residents are entitled to appeal all new evaluations from the county assessor (typically go out in early February), but must do so within 60 days of the date they were mailed.  Click to begin the Maricopa County property tax appeal process online.

Another thing to bear in mind is that while the assessed value of the property is likely to decline rather dramatically over the next several evaluation cycles, expect tax rates to rise in contrast.  You should see an overall reduction to your bill in the future, but our strapped municipalities aren’t going to let go of all that revenue without a fight.  Already firmly entrenched in the red, it is an almost foregone conclusion that the tax rates will be fully maxed out to legally allowable levels to offset as much of the lost potential revenue as possible.  Your friendly, cash-strapped local government at work.

Another hidden sniper to these bank-owned bargains are Homeowner Association expenses.  While monthly fees are typically disclosed upfront (or easily determined through a few well placed phone calls), former million dollar neighborhoods can be fodder for massive asset preservation and capital improvement fees/impounds.  You might well afford the $120 monthly fee, but the bulbous community enhancement fee that is due at the time of purchase could blow an unsuspecting buyer’s budget right out of the water.  Given the many amenities that some such high end subdivisions boast, it would also be wise to expect and budget for future special assessments involving their maintenance.

There really are some amazing deals floating around the market right now, just make sure you really can afford them.  You are looking for a home you can comfortably maintain over the years, not a fad purchase that will lead to a lifetime of yo-yo budgeting.  While you might give your left arm to find the same "bargain" that Bob did, let's see how he's doing one year from now.  Is he still the water cooler rock star, or is that turkey neck starting to get a slight case of the gobbles again?  If he didn't do his due diligence, those hidden costs will eat up his calorie deficit faster than a three day bender at Sizzler.

You don’t want to end up back in the fat pants.

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Classic risk aversion for the liability-phobic mandates that an agent make no actual referral to an auxiliary service provider in the course of a Real Estate transaction.  Need a lender?  Here are the names of three professionals.  Need a home inspector?  Sift through this stack of business cards and let me know who you choose to hire.  The very thought of shimmying out on a limb to recommend a capable practitioner sends shivers up the clenched backside of some in our ranks.  Cold anticipation of the potential commissionectomy that attends a referral gone bad trumps the tug of responsibility.

No businessman walks around looking for a financial colonic, but the very real potential for having his inner sanctum legally hollowed out exists in each and every transaction he undertakes.  As such, it has become customary for many to simply ward off as much exposure as possible by abstaining from any form of guidance that can later be labeled  malfeasance or conflict of interest.  Heaven knows, if the contractor you recommend for repairs screws the electrical pooch, any rabid attorney worth his salt will gleefully encourage the client to pursue the deep pocketed brokerage (and agent by proxy) as well as the contractor for damages.  Why put yourself on the line by recommending a home inspector when the potential for blow-back on a balky A/C unit can put you directly in the cross hairs?  For that matter, why even bother to attend the inspection if the due diligence can be misconstrued for interference?  Why attend closings if your review of the documents places increased responsibility upon your shoulders for their accuracy?

Because risk deflection is not my job. 

My job is to fulfill my fiduciary obligations to my clients to the very best of my ability.  That means recommending pros who have proven their worth to me countless times in the past, rather than crossing my fingers and hoping my clients receive competent service.  That means attending inspections to physically see any defects, so as to better advise my clients and argue their cases.  That means attending the closing to ensure that the settlement statement jives with the negotiated terms of the contract.

Doing the eeny-meeny-miney-mo thing with a referral does not serve the client, and neither does calling in “neutral” to the appointments that demand an ally.  Such laissez faire Real Estating is designed only to mitigate the agent‘s risk.  While it is understandable, given the litigious nature of our culture, it’s just not how I roll.  You need a lender, I give you the name of the best lender I know.  You need a home inspector, I give you the name of the most thorough one in the rolodex. 

I would argue that recusing oneself from the crucial junctures and decisions of a transaction is not only negligent, but self-defeating.   As the surest invitation for catastrophe is to stand aside and watch the transaction happen, the best defense is, and always will be, a good offense.  Fixing potential problems, rather than hiding from them, has kept my clients happy, and me out of legal hot water to date.  Active involvement serves the interests of all parties.

I wear my big boy pants to work every day.  I put them on with the knowledge that certain forces will always be beyond my control.  Secure in that understanding, I’d much rather stand behind the repercussions of my actions than my inactions.  Standing on the sideline, not attending inspections & closings, carefully avoiding opinions … seems to me that ascribing to the Caspar Milquetoast model of risk avoidance is, ironically, the surest route to the ruin that one would desparately scramble to avoid.  Decreasing the standard of care for the client is akin to an RSVP for trouble. 

And trouble never sends its regrets.

Need a Referral to a Local Professional?  Give me a ring.

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What is it about the rain that brings the mischievous out to play? 

Real Estate sales is the type of racket that leads one to bump bellies with all manner of folk.  Over my years in the industry to date, you might say I’ve been sheltered.  For all of the horror stories that float about a brokerage regarding the customer from hell, or the underhanded agent that shafts a fellow colleague out of a deserved paycheck, the instances in which I have encountered such REALTOR kryptonite have been few and far enough between to defy instant recollection.  Challenges and difficulties, to be sure, but no readily recounted tale of woe regarding a true American consumer psycho.  Either the good people of Scottsdale, AZ are simply of good stock, or my conscious decision not to hand out business cards at the dog track every Saturday afternoon as a central component of new client acquisition was prescient.

When the downturn in the market that first became evident in 2007 gave way to a full-fledged nosedive, however, a bunch of loose cargo in the back of our plane and overhead storage bins unloosed itself.  Ending up in the aisles and on the laps of well-behaved passengers, we find ourselves wading through the cretinous stowaways in attempt to pull the decent home buyers and sellers from the acrid wreckage.  Wouldn’t you know those oily ne’er do wells always seem to reach the emergency exits first; whooping it up as they slide to safety wearing a stolen oxygen mask.  Don’t worry about granny in seat 46C.  She can hold her breath for up to 18 seconds at a stretch.

To answer a few of the more “creative” questions I have fielded recently, I figured I’d simply draft a response to which all such future inquiries may be pointed.

No, I will not help you tie up a property with a straw buyer until such time that you can amass your down payment and/or financing.  It’s a fraudulent offer, and one made in bad faith.

No, I will not write offers on 15 short sale properties at once for the same buyer.  Short sales are frustrating, but it’s not just a numbers game.  I will not grease the wheels to a seller's foreclosure by tying their property up with an offer you have no real intention of seeing to fruition.

No, I will not give you a guestimate on how long you can live in your house rent-free before your mortgagor initiates foreclosure proceedings.  There are more than enough homeowners in need of  loan modification or short sale assistance.  I cannot in good conscience help you game the system and further bog the process down for those in true need of help. 

No, I will not help you buy a property as a primary residence if I know that you have no intention of ever occupying it.  There will be many dubious, and potentially fraudulent purchases made in the rush for the tax credit, but I won’t be a part of any of them.

No, I won’t secure a tenant for the property upon which you have stopped paying your mortgage.  That “free money” that goes in your pocket until the bank forecloses and boots the unsuspecting tenant out carries a steep price.

No, I will not be party to any side agreement pay-out in a Real Estate transaction that does not appear on the settlement statement. 

Rationalize such schemes all you like, but a treacherous climate does not excuse treachery.  Not only does potential harm fall on specific parties, but on the greater good as well.  Don't look to me to make my own biological contribution to the cesspool we’ve been forced to bathe in for many moons now.  Moral and ethical constraints aside, for no deal is it worth ruining a hard-earned reputation and future livelihood.  This is how I feed my family.

Your shenanigans are not worth my license. 

Now, if you would kindly hurry up and slide into the waiting arms of the authorities below, there are good people on this plane who need my help.

It’s a daunting task.  Settled in around the bargaining table, you see nothing but pros, chips stacked to the ceiling.  Looking down at your comparatively meager stack, you’re tired of getting bullied out of hands.  Offer after offer you submit, only to fold under the check-raises from predators with pockets the depth of the Mariana Trench sewn into their five thousand dollar suits.  You are being methodically ground out of the main event.

Welcome to the Scottsdale Real Estate Market / World Series of Poker that is 2010.  The buy-in may be cheaper, but the odds haven’t been longer since 2005.  Why’s that, you ask?  The players.  The allure of the investment windfall has brought all of the serious card sharks back into the mix.  Good for the overall health of the market, but not so good for your chances of sauntering into the saloon of your dreams and winning its title on the river with a ten dollar bluff.

The penny ante games haven’t left the Valley, but the table keeps getting more crowded with first-timers, new arrivals, second home buyers and … gulp … professional investors.  It’s that last class of gambler that is making things tough on the buyers out there who can scarcely put together a 3.5% down payment.  Throwing around cash offers like a rousing round of 52 card pickup, the investor has an annoying habit of taking a negotiation and spinning it upwards.  A great property listed at the bargain price $250,000 turns into $267,500 for the lucky bidder in a few frantic blinks of the eye.

When competing with these well-seeded makos, there are several critical mistakes that buyers need to avoid if they are to keep from busting out at the table early. 

For starters, stop reading the papers.  Despite the blanket generalizations you are inundated with on a daily basis, houses are selling.  Especially in the price range you are shopping.  In fact, that 250k range is hotter than John Goodman in a polyester hoody in the middle of July.  Below is a highly scientific composite breakdown of the various market segments.

>$1,000,000:  Harboring enough inventory to choke a disinterested goat for the next two 2 years, this price range is more lifeless than a Jim Jones after party.  With few jumbo loan options and even fewer buyers in a hurry to drop this kind of dough in a schizophrenic economy, the greatest larcenies are to be had here at present.

$750,000 - 1,000,000:  Mostly dead, ala the pirate Wesley in The Princess Bride.  Only the occasional act of a miracle-making Real Estate agent results in a consummated sale.  If you can afford to shop this range, "have fun storming the castle!"

$500,000 - 750,000:  Patient has a nasty hangover, but not incapable of stumbling through the house for a bottle of Vitamin Water.  Given a couple hours and a plate of pancakes, he will return to some semblance of himself.  This price range is seeing movement for homes that were worth twice as much a few short years ago, but still in a bit of a fog.

$250,000 - $500,000:  Now we’re talking.  Especially in the Northern reaches of Scottsdale, homes in this range have their boogie shoes on.  Fortunately for all but the homeliest of homes, there are plenty of willing partners out and about on the dance floor.  Some are even adept at avoiding toes as they clomp about the market in gimungous platform shoes.

< $250,000:  Sold before you have time to jump up and slap your mama.

When you hear the reports and/or anecdotes referring to the “standard” or “average” percentage you can expect to knock off a list price, you need to understand what a ridiculous notion that grotesque simplification proves to be.  In the upper reaches of the price scale, you might very well knock 20-25% off a list price due to the lack of competition.  In the frenzied segments that most cash-strapped buyers are trolling, however, writing offers at 80-90% of list price will acquaint you quite dearly with the following reaction:

“HA! HA! HA! HA! HA!”

Fending off a throng of potential rivals, you will have to push all in when, after sitting through hand after hand of garbage cards, you finally draw the ace that constitutes a genuine housing value.  No point encouraging others to remain in the hand by going in low.  As the short stack, your only leverage is to force the issue early and hope you can stop the bidding before it starts.  Don’t give the sharks time to congregate and subsequently frenzy.  By aggressively moving all of your chips to the center of the table right off the bat, you might just chase some away to pursue easier pickings.  Let the deep-pocketed players linger for the turn and it’s all but guaranteed they will ultimately own you and the house you covet.

Price considerations aside, your next best shot to beat out the better financed buyer lies in the terms.  Hubris can be a damning thing for the guy with all the bucks, and he often fails to seek the additional information that someone in a weaker position must exploit.  Closing date, choice of title company, etc are concerns that Doyle Brunson over there just might expect to force through on the power of his awe-inspiring cash.  If your price is relatively competitive, your financed offer still has a shot at beating him out if you can find the terms that are most advantageous to the seller and include them. 

As to the homes you chase, knowing which table to sit down at is as important as the poker skills you bring to bear.  Bank-owned properties are going to be the most difficult for the novice player to obtain.  Financial institutions will sit on your offer for 3-7 business days while additional offers pile up, and they won't give a fig about any terms other than the ones demanded by their associated addenda.  It's tempting to sit down at these REO tables, given the big payouts, but it's often a fool's errand for the guy just in town for the weekend with his buddies.  You'll have more success if you stick with the slightly less lucrative owner-occupied resales that blunt competition from the pros. 

It’s not easy out there, despite all that you’ve heard, so remember to act fast, act decisively and save the gamesmanship for the slots.  Everyone wants a deal, but you can’t secure a value without first securing the property.  At prices that have rolled back to levels not seen in six to seven years, there’s no need to get greedy.  The well-positioned homes have the value already built into the price.

If you want it, and it comps out, don’t talk yourself into spitting in the wind with an offer predicated on faulty logic.  The national economy and generic offer-to-list-price-percentage paradigms have nothing to do with this one house and those who would buy it out from under you.  Long metaphor short, don’t write a $200,000 offer on a home listed at $250,000 that is worth $300,000.  Only adds unneeded time and heartache to your quest.

See house.  Evaluate house.  Make best offer to purchase house.  Buy Paul expensive, celebratory steak dinner. 

Easy :)

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Investor. 

The word alone inspires a host of reactions that run the full gamut between antipathy and, well, slightly lesser antipathy, depending on the audience. 

Image From the Hubbel Telescope of Investors Invading Local Real Estate Market

As any semi-interested news watcher and industry blog reader can attest, the Real Estate investor is the greatest scourge to befall our fragile ecosystem since polybutylene plumbing.  What, with the housing supply lines ill-equipped to handle the artificial demand, our flimsy pipes swell and burst when the pump and dump investment surge strikes a hapless market.  Aside from the banks who flooded Wall Street with dubious mortgage backed securities that were chopped and reconstituted in more numerous and indiscernible ways than Joan Rivers' alleged face, the fount of no-money-down investors is the most vocally derided catalyst of the Great Real Estate Bubble of 2005 ©. 

Well, guess what?  The investor is back … and that’s a good thing.

Hold your rotten tomatoes and easy with the pitchforks, if you will.  How can I possibly opine that the reemergence of the buyer subset that sent values through the roof, only to crash them through the basement when they left a valley of foreclosed “investments” in their wake is a good thing?  Is the demand any less artificial now than it was when the previous incarnation of ne’er do wells spiked our collective punchbowl? 

In a word, yes.

The 2010 investor is not the fly-by-night operator who purchased the nearest home for sale at the conclusion of a four hour seminar on how to get rich in Real Estate investing with no money down.  Shoot, who needed money down when you barely needed a pulse and a job to buy a house back then?  No, today’s investor, by and large, is showing up at trustee sales and plunking down cash on a barrel.  He has the skin in the game that his counterpart of yesteryear did not.  He is investing in a very real sense of the word.

In addition to securing an interest in the property with his own bankroll (thus making the prospects of simply walking away from a property that doesn’t return as hoped less palatable), the other crucial dynamic at play is the return of sanity to the overall investment arena.  When investors were driving Scottsdale and Phoenix property values into the stratosphere back in 2005, there was little regard to the initial purchase price.  Our entire market temporarily forgot that you make your money on the purchase.  Buy a property right, and the return will be there when it’s time to sell.  In the throes of insanity, investors were climbing over themselves and each other to purchase property, any property, for 50k over whatever ludicrous price was being sought by an apoplectic seller.  Investors were betting on the come.  Pay whatever now, and the joint will be worth 100k more in two months whether a hammer is ever swung in renovation or not.  With the year long fervor, they got away with it … for awhile.

Today’s investor is not settling for just any property he can get his hands on, but is showing up at the courthouse and robbing the bank blind.  Paying pennies on the dollar and rehabbing a previously dismantled home, his margin is large enough to bring the distressed apple of his eye to market at a price actually supported by recent sales comps.  

The coup de grace?  Today's investor fills a need that the banks won't.  He is essentially financing the fix-up costs that many banks have abandoned in self-defense.  Against a backdrop of tight lending purse strings, consider the difficulty many people have just in coming up with 3.5% or 20% down payments, let alone remodeling capital.  With home equity lines all but vanished from the marketplace, that stripped bank-owned home bargain isn’t all that realistic for the buyer who doesn’t have the available cash to put it back together, regardless of how appealing the price tag.  When you could tap a line of credit to finance improvements, it wasn’t that big of a deal to throw in some new carpet, counter tops and appliances after closing.  Now, you have few options other than reaching into your own pockets.  Thus, there is a sizable buyer pool for a move-in ready home.  The well heeled investor who assumes the risk and fills that need is not to be derided. 

Take the mom & pop homeowners who are unable to price their homes competitively due to high loan balances, mix with the interminable wait of short sales, fold in the distressed condition of much of the bank-owned inventory and bake at four hundred degrees to create a casserole of supreme frustration for many disenchanted home shoppers.  A rehabbed home at an affordable price, if not the outright theft that was envisioned at the outset of their house hunt, begins to look more and more appealing to many buyers after getting an up close look at what the reputed bargains actually look like live and in color.  In essence, by purchasing a property from an investor, a buyer has found an end-around to financing renovation costs. 

If your last nickel is earmarked for your down payment, and you can purchase a renovated home at a fair market value that you can afford, don't begrudge the man his margin.  While the stereotype of the lecherous vulture remains, we would be remiss not to acknowledge the good he can, and does, bring to a market like ours.

Investors:  they’re not just for nuclear Real Estate holocausts anymore.

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