The Scottsdale Real Estate Files: June 2008

There are some downright stupid buys to be had in the current Real Market here in Scottsdale.  In the past two days, I have looked at three different properties that were $100,000-$200,000 under market in my estimation.  Given they were located in my primary market, my estimation is pretty darn accurate if I do say so myself.  And I do.  

It seems that the investor activity on the fringes of the Valley is trickling into the more central locations like McCormick Ranch, South Scottsdale and the Kierland area.  Why?  Because of the outbreak of crazy values like these few I mention.  While I have written at length about the pitfalls of the bank-owned buying craze, I must say that many of the better values as of late have been bank properties.  Sure, most require some work, but we're talking tens to hundreds of thousands under market ... even in the current distressed condition.  Now I caution that many of these homes are not going to be suitable for end users or amateurs.  It will take a professional investor to see past the current grime and filth.  In some extreme cases, the properties may even have trouble qualifying for conventional financing due to the condition.  Picture a crack house where the owner's fellow crack addicts are concerned about how he really let the place go.  Think banks are tough on properties in primo shape right now?  Try running one with animal feces ground into the carpet and holes in the walls past them.  Okay, they aren't all that bad, and some are actually in very livable shape, but the cash and/or private financing that many professionals operate with still gives them a decided advantage. 

What I am having trouble understanding is why some of these prices are so incredibly low.  I know that banks are eager to offload them, and the incentive to the buyer must be strong enough to look past the required fixup, but some of these properties are overshooting (or should I say undershooting) the mark by such a wide margin that it is simply staggering.  My hypothesis?  Out of area agents offering BPOs (broker price opinions) to out of area banks.  I don't know of many institutions that are hiring specific agents for individual properties based on their locational specialty.  They simply have a group of agents to whom the listings are funneled, and it's often luck of the draw as to who gets what.  So they run their numbers, not knowing the neighborhoods, builders and specific submarket forces, and come up with an unenlightened evaluation.  Taking it a step further, they will dutifully report the treacherous Valley wide market conditions, spurring the bank to lop even more off the asking price. 

With this cheap inventory being pounced on immediately, it is not an easy prey.  Like the supernova that erupted our market in '05, the current low end of the market is generating multiple offers and bidding wars, and selling within 48 hours of hitting the market.  You don't want to bring American Express to one of these.  Cash is king.

Even with the spring high season behind us, the sheer absurdity of some of these prices is bringing non-Phoenix residents back to town in the midst of 110+ degree heat.  While there is ample competition for the very best deals, the odds of securing such a steal are significantly better than they were a few months ago when all of the seasonal residents were still in town and vying for their pieces of Scottsdale's pie.

I'm calling on the professional investors from Scottsdale, Arizona to Alberta, Canada and beyond.  I see unbelievable values every day, and it's killing me not to have anyone to offer them to at present.  Don't make me form an LLC with a few partners and start buying all of this low-hanging fruit myself.  I really don't have the money and can't take on the added responsibility right now, but ...

Shoot me an email, and I'll put you on my watch list for the next investment opportunity that comes down the pike.  I won't fill your inbox with clutter, but you'll need to be ready to rock and roll when I do forward something.  As fortunes are unfortunately being lost in this market, so will they be made.  You in? 

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Paul Slaybaugh is Your Scottsdale AZ Real Estate Specialist

Whether Buying, Selling, Investing or simply burning my gas at $4.15 a gallon,

I'm your guy.

(480) 220-2337

paul@rayandpaul.com

The concept of trading houses is not a new one.  It was around when I started in this industry nearly a decade ago, and it was around when my father was just launching his career in 1974.  What is unique, at least in terms of the local Real Estate market in the greater Phoenix area, is that the current climate makes the seemingly farfetched idea more feasible today.

Until the woes of the past year and a half, the Valley maintained a steady appreciation schedule for nearly 15 successive years.  The market may not have been wholely dominated by sellers until the brief spike of 2005, but sellers certainly held their share of pricing and negotiating leverage.  During this time, any buyer who came to a seller with a proposal for trading properties was met with a rueful grin, pat on the head, and told to run along.  There was simply no need to jump through the hoops of such an exchange when ready, willing and able buyers were congregating on every street corner.  Folks just wanted to get cashed out conventionally, and then they would find a new home of their choosing. 

But as evidenced by Starbucks recently replacing the bold caffeinated goodness of its Café Verona blend with the watered down insult that is Pike's Place roast, all good things come to an end. 

With the credit crunch a very real factor in today's Real Estate market, lenders are no longer tripping over themselves to finance any buyer with a pulse.  Slow credit, no credit, even a bankruptcy?  Well, you're basically out of luck if a new home is on your wish list.  Sprinkle in a healthy dose a consumer trepidation which has arisen in conjunction with the tumbling of prices in many corners of the Phoenix metropolitan area, not to mention the bloated inventory level of active listings, and you get an environment where selling a house is no easy feat.  Not at the price you are hoping for, at least.

That's the bad news.

The good news is that there are still plenty of buyers in the market for a new home.  They are simply unable to act.  Why?  Because many of them are trapped in properties they cannot sell, or fear they will not be able to sell.  They are buyers in sellers' clothing.  The trick at present is to figure out a way to mine this untapped demand.

Enter the trade scenario.

I don't know how many times recently I have had visitors to my open houses lament their inability to move on a property because they have not sold their home yet, but it's typically at least once per sitting.  I do know that many of the non-distressed sellers who have homes on the market right now are looking to either downsize or upsize.  Despite knowing that a terrific buy is out there for them, they can't seem to bite the bullet and price their homes for immediate sale.  The fear of giving a house away, only to find that the expected deal on the other end is not as sweet, is too great.  So they sit, and sit, and sit on the market some more, eager to move, but unsure of how to proceed.

In a market such as ours, with such an abundance of homes that are not selling, a trade scenario is one way to take the fear out of the equation.  There are trading sites on the internet where interested parties can list their homes and troll for others.  I find that most tend to grossly overprice their homes on such sites, but that is to be expected.  After isolating a property that looks suitable, there will be negotiation on the price of each home. It's not as simple as finding a willing trade partner and striking a deal on price, however.  I would certainly never advocate attempting such a trade without the representation of a knowledgeable Realtor.  In a typical transaction without agent involvement, it has been my experience when observing from a distance that one party almost always gets taken to the cleaners.  Remember, the idea of the trade is to reduce risk, not amplify it.  Separate contracts should be drafted for each property, and will likely include some type of mutual sale contingency (imagine if one loan funded, but the other didn't!).  There should be standard inspections and appraisals performed to protect the interests of each party.  Trying to navigate one transaction without professional involvement can be tricky enough, but two at the same time?  That's simply disaster waiting to happen.

In a coming post, I will outline some of the pros and cons of houseswapping, including an interview with an associate of mine who recently completed a swap of investment properties across state lines.  In the interim, please feel free to contact me for additional information or resources for exploring whether this alternative option to a standard sale is right for you. 

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Paul Slaybaugh is your source for Scottsdale AZ Real Estate

Whether your interest is buying, selling or trading houses in Scottsdale, please contact me at

(480) 948-9450

paul@rayandpaul.com

When shopping for a new home, every potential buyer has a wish list.  "X" bedrooms, "Y" bathrooms, pool, maybe a big, open kitchen with granite countertops and a nice patch of lawn out back.  Price range is of critical import, though largely as an isolating factor.  Once the parameters are established, it's a matter of falling in love.

When it comes to financing, however, most borrowers go into cold, hard number-crunching mode.  Very few look past the curb appeal when shopping for a loan.  They don't particularly care who they give their business to, provided that the math looks the most advantageous. 

"Your name is Stan, you have two kids and enjoy juggling flaming swords.  That's great.  Now what are your rates?"

To be sure, you want your lender to be competitive in rates and fees.  We all want the best deal available to us.  Your choice of lending institution should involve more than just the numbers, though.  It behooves you to know a little about the institution with whom you are doing business. 

I know, I know. You could care less about who holds the note.  You only care about the terms within said note.  Before laughing off my assertion, consider my own recent personal experience.

I took out a line of credit against my primary residence last year with Citibank.  I had several purposes for doing so, but that is not germane to this post.  What is relevant is that I earmarked a good portion of those funds for use several months ago ... only to see my account essentially frozen.  In the blink of an eye, the line was reduced to 1/4^th of its original limit.  It seems that Citibank was running scared, and initiated blanket reductions to credit lines across the Valley.  No new evaluation nor appraisal of my specific property value.  No advanced warning.  Simply a letter in the mail informing us that per the terms of our agreement, they were exercising the right to unilaterally reduce the amount available on our line due to declining local values.  The effective date stated was prior to my receipt of the notice. 

Now, this peeved me.  Imagine if some poor schmoe was set to tap his line of credit for a purchase, only to get to closing and find his funds no longer available.  Yikes.  That was not the case here, but I have subsequently heard of this very thing happening.

I understand the rationale to a degree, and many banks had already stopped issuing new lines entirely (Chase, Countrywide, etc), but the heavy handed application of this new policy did not sit well with me.  It was especially frustrating that this institution was not interested in the least whether or not the current market value of my property still fell within Loan To Value guidelines (it did so comfortably, I might add).  Was I borrowing against the entire Scottsdale area or just my house with this loan? 

Life goes on, however, and I scouted out an alternative.  I located an institution that not only offers a terrific product, but peace of mind.  From the representative who handled my application to the manager who opened my new checking account, I feel very comfortable doing business with this institution.  That fact was magnified when I sat down to sign the docs on my new line of credit with Compass Bank yesterday. 

There in the payoff statement for my existing line was a $429 early termination fee from Citibank.  Nice.

Were they legally entitled to charge this fee because I was closing out the line prior to two years?  Unequivocally, yes. 

Did this same institution basically put a gun to my head to refinance only to pistol whip me upon doing so?  Undeniably, yes.

I had to admire the sheer audacity.

But I don't have to give them my future business.

My purpose here is not to bash Citibank, but to illustrate the importance of the institution that offers you financing.  It's not just about the front end costs.  It's also about how you are treated on the back end.  By all means, find the most favorable terms that you can, but give a little thought to the guy behind the giving as well.

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Shopping for a New Scottsdale Home?

Give me a call at (480) 948-9450 or drop me an email at paul@rayandpaul.com

Looking for a Line of Credit in Scottsdale?

Give Compass Bank a try.  

Ask for Linda Shoemaker, (480) 596-2617

Multiple Offers?  Bidding Wars?  Cash Sales?  Oh My!

Surely I refer to the good ole days of 2005, right?  Not exactly.  Try 2008.

How do I know that we have either reached or are very near the nadir of the Great Phoenix Real Estate slump of 2007-2008?  Well, I don't.  Unlike the "experts" who like to think they can accurately forecast our market's health, I offer no promises as to the month, week, day and minute that we hit absolute rock bottom.  I am but a simple Realtor.  I do know one thing.  When it does happen, there will be no starter's gun fired into the sky signaling that it is time to BUY NOW!  We will only know with certainty that we hit the mythical bottom when looking back from a vantage point of 3-6 months past the mark.  That fleeting moment in time will last about as long as a Bob Saget tribute reel before prices begin the slow march back up.  Until then, it's all speculation.

Speaking of speculation, I do offer the reappearance of the investor to the local Real Estate scene as anecdotal evidence that we may be finally nearing the elusive bottom.  While many still see only the inky darkness of the abyss, others have firmly planted their feet where they believe the ocean floor to be. 

Investors are back in a big way in the Phoenix Real Estate market.

Bank REO properties are getting gobbled up at an amazing rate.  In the most price driven market this agent has ever seen, the cheap properties are selling at a startling clip.  This is not just happening in the historically sought after communities, but in the far reaches of the Valley as well.  The dinner bell is ringing, and the professional investors are heeding the call.

Ah, the scavengers!  Loathe them or love them, the Real Estate investor can help stabilize a market by establishing the basement.  When the bottom feeders (affectionately dubbed in this instance) start snapping up the delicacies that fall to their depths, it's a signal that the tide may be set to turn.   Not only does it display confidence that values are at a perceived low point from a group of buyers that purchases for the sole purpose of making money, but it helps to cut through the ample inventory that has plagued our market.  With sales increasing with each passing month this year, builders pulling very few permits as they sell their existing inventory and investors now fighting tooth and nail over low-priced homes, I like our chances of turning the corner sooner rather than later.

Like it or not, the banks are setting the market.  Foreclosure properties are what is selling right now.  As long as investors keep gobbling up this segment of the market, it will bring the regular Mom and Pop buyers back to the regular Mom and Pop sellers.  They just can't compete with the deep pocketed investors (who often pay cash) for the distressed properties, and often don't have the means to invest in the required fix up costs.  Shoot, we still have one of the fastest growing populations in the country.  There is no shortage of demand.  With signs of life permeating the market, a nice big dose of consumer confidence may be just what the doctor ordered.  Needing livable housing, and unable to swim with the sharks, these buyers will turn to you, Mr. and Mrs. Seller. 

Fear not, better days are near. 

And they will begin on August 17^th, 2008 at 5:24 PM.

Damn, couldn't resist.

Another byproduct of the foreclosure mess across our Valley of the Sun is burglary.  With every new headline that splashes across one of the local periodicals about the rise in foreclosed properties and vacant homes, it seems that the scavengers among us become more and more emboldened.

Targeting vacant houses is no new trick.  A home with no one living in it is often perceived as an easy mark for appliances, air conditioning components, copper (wiring/plumbing), ceiling fans, etc.  With the less desirable segment of our population reading the same papers and watching the same television reports, they simply know there are more bones to pick clean right now.  I have no data to support this hypothesis, but I assume that a "For Sale" sign is much more likely to draw prying eyes to windows for a closer look than in years past.

This makes for quite the conundrum. 

A Realtor's "For Sale" sign is the hallmark of advertising to the public that a home is looking for a new owner.  While many will assert that the signpost is an antiquated dinosaur of advertising in the digital age, I maintain that it is still a vital beginning to a marketing campaign.  Not so much as the piece that will actually sell the home, but a prerequisite if you will.  Is the sign a tool to get the agent's name out amongst neighbors and future clients as much as a means of exposing the house?  To be sure, but the relationship is symbiotic.  Take your pick as to who is the shark and who is the remora, but it serves the interests of each.  Those very neighbors constitute one of the most effective sales forces that an agent can employ as he/she endeavors to sell a house.  Bob down the street has an aunt whose sister would love to move into the subdivision.  Mrs. Richards in the house on the corner would love to entice her parents to move closer to their grandchildren.  It's the same reason I tell my clients not to get upset when their neighbors take all of the flyers from the box.  They help spread the word, and often have a specific person in mind when they do so.  Sure there are those who are merely nosy, but Real Estate has always been a numbers game.

The additional values of the sign in the yard are self-evident.  The buyers who drive specific neighborhoods looking for new listings.  The agents who bring their clients to see the house look for their beacon to ensure they, in fact, have arrived at the right house.  Even now, when most buyers will do the lion's share of their research online, there is a role for the traditional methods of advertising.

So what to do?

Do you place a sign in the ground as you endeavor to seek highest value and best terms for your home?  Do you rely on other methods to attract buyers to your home while attempting to avoid painting the scarlet "V" (vacant) on your home?

In my humble opinion, as does everything in this world, it depends.  If you live in a highly desirable, centrally located area with vigilant neighbors and relatively low crime, I think it makes sense to employ every tool at your disposal to market your house.  There is a high level of traffic, both pedestrian and vehicular, that not only serves your advertising purposes, but as a possible deterrent to less savory activities as well.  If you own a house in the far reaches of the Valley, in a neighborhood where there is not an active HOA or neighborhood watch program, you just might forego the sign. 

Whichever route you choose, I urge you to either look in on the property regularly, or have someone do it for you.  Explosive weed growth, an accumulation of door hanger advertisements, papers in the driveway and general lack of activity at the house sing the bridge in any thief's siren song.  Just the daily appearance of a car in the driveway can discourage. 

This goes for the banks that are the proud owners of newly foreclosed upon property as well.

I have a buyer who is scheduled to close on a bank owned property in far East Mesa a week from today.  In the three weeks we have been in escrow, it has been burglarized twice.  She is having serious reservations about moving forward with the purchase at this point.  If we terminate the transaction due to safety concerns, the seller will have been doubly affected by the vandalism. 

Food for thought.