The Scottsdale Real Estate Files

If a rental property falls in the foreclosure forest, does it make it sound?  

Lost amongst the haphazard flailing of an epileptic market at large, the rental housing subset of the Scottsdale Real Estate market is picking up unexpected steam.  Driven, perhaps, by the surge of former home owners turned tenants, the latest statistics bear out what I have noticed firsthand: the available rental inventory within the city of Scottsdale has thinned considerably.  With fewer available properties to lease and absorption rates (number of properties leased per month juxtaposed against the current number of available units) at the highest level seen in several years, there is a fair amount of competition for rental housing at present.  Whereas the demand was formerly relegated to the lower price points (rents under $1000), the dwindling number of options is starting to put upward pressure on lease prices.  Though the numbers from May do not reflect a noticeable increase in the average rental price throughout the Scottsdale market, my personal experiences of late have really opened my eyes to the demand that exists (particularly in the $1400-$1800 per month range) for centralized single-family housing.  Expect next month's numbers to demonstrate a significant bump in rents.

What does this mean for Joe Consumer?  

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“Owner recently obtained property and is working towards gaining clear title.”

Is it any surprise that this seemingly innocuous little bit of verbiage, which has started creeping into private Realtor remarks, seldom appears in the public description of a property listing?  Flipping properties is not an unusual phenomenon, but the transference of title, insured by an underwritten policy, is part and parcel of virtually every legitimate sale of Real property in the state of Arizona.  When a Realtor learns that a seller does not have possession of clear title to the property they are attempting to sell, Circus Circus sized flashing lights and shrieking alarms erupt in said Realtor’s little noggin. 

An unfortunate advent of any market, but an unstable one in particular, is the proliferation of the creative types who seek fortune in the margins of chaos before the powers that be fully grasp the nature of the exploitation.  Rather than effectively working the market to provide value to the consumer, such professional card counters work the market to merely line their own pockets, often to the detriment of an unwitting public.  In their zest to shift into the next great money maker based on the market forces currently at play, the grifter will siphon an usurious profit under the guise of a savior. 

In seeking out the desperate demographic of homeowners who are at risk of losing their homes to foreclosure for one reason or another, unscrupulous predators in our midst are not satisfied with simply collecting a fee for helping facilitate a short sale.  No, that doesn’t lead to the immediate and egregious wealth that is promised in weekend seminars and from late night gurus.  For some, it too closely resembles work. 

And what, pray tell, are the insidious schemes I decry?  While the various masks worn by disingenuity are too numerous to count, one in particular has really drawn my ire.  Certain agents/brokerages who shall remain nameless, if not blameless, have taken to convincing sellers who are behind on their mortgages to deed their properties over to them.  Thus, they are effectively the new “owners,” though they do not have clear title due to the mortgage liens on the property (in addition to possible property tax liens, HOA liens, etc), and never intend to take possession of the property.  At this point, the home is listed for sale on the MLS.  Interestingly enough, even though a quick check of the tax record readily shows that a Trustee’s sale (foreclosure) has been scheduled because the mortgage remains in arrears, nowhere in the listing is the pre-foreclosure or short sale status reflected.  Nope, just that one little line at the top of this post.

So from where does the potential profit windfall arise?  From the margin the new “owner” can create between the negotiated short sale with the bank and the price attained on the open market from an unsuspecting buyer.  One price is represented in the MLS while a far lesser price is negotiated behind the scenes with the bank.  To the broker in the middle of the high wire act go the spoils.

Sound like an ingenious way to earn a buck in this market?  Wondering where the harm is if the seller is able to unload the problem property and the buyer purchases it for an agreeable price?  The issue is two-fold.  For starters, the listing agent is playing Russian roulette with the seller’s future financial well-being.  Owner of record or not, the seller/client is still responsible for the mortgage(s).  What happens if a short sale cannot be negotiated with the bank at a low enough price to create the necessary margin to carve out a profit?  Rather than simply, and honorably, working to sell the home for a price agreeable to the bank, the risk of losing the home and one’s credit is increased exponentially when profit is sought by inflating the end price to the relatively shallow buyer pool. 

Secondly, on top of the risk to the client, a gross misrepresentation is being made to the ultimate buyer.  Not only is the buyer often unaware that they will be paying for inspections and appraisals, giving 30 days notice on their apartments, etc for a property that is less likely to close because of an unrepresented short sale situation, but they would not be too keen to learn that they actually paid well over and above the price that the bank would ultimately accept. 

In these sixteen-shades-of-grey transactions, the buyer ends up paying far more than would have been necessary without the third party involvement of the duplicitous agent/broker, while fiduciary obligations to the client are flouted.  The duty to fully represent the best interests of the client is one that most agents take seriously.  Realtor clichés aside, I seldom encounter the fellow professional who does not.  Driving a potential wedge between the goals of your sellers and misrepresenting the full Technicolor picture of the transaction to the buyer falls woefully short of the minimum standard of care to my way of thinking.  Full disclosure is paramount to any Real Estate transaction.  Falling far short of that requirement, expect to see future litigation from such transactions from the damaged parties involved (even if the damage is only perceived).

Sellers:  Don’t walk, run from any would-be knight in shining avarice that demands you deed over your property as a pre-requisite to the service provided.  When you do so, you lose the rights to the property while maintaining the responsibilities.  If you find yourself behind on payments and in danger of losing your home, locate a short sale specialist and speak with a Real Estate attorney before making any rash and ill-conceived decisions.  For the record, I DO NOT specialize in short sales, and this is not a solicitation.

Buyers:  In 2010, you cannot take anything represented in a listing as gospel.  Even those that are 100% factual may contain intentional omissions that are hazardous to your purchasing health.  You need professional guidance from a trusted resource now more than ever.  I have become quite adept at isolating potential problem purchases in this topsy-turvy market, and in this capacity I AM soliciting your business.

We’re not in Kansas anymore, Toto, and that brick road leading towards your salvation may be yellow for a reason.  Forget the ruby slippers, and throw on your cross-trainers.  You'll need them to get past the flying monkeys.

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• Housing will not fully recover until 2012.  That is when the glut of backlogged foreclosures is expected to be phased out of the market. 

• Housing will recover by the end of the year.  Now that inventory has contracted to average levels for what constitutes “normal” regional markets in major metropolitan areas where prices have declined as much as 50% in the past three years, and month to month sales have steadily increased over the past six months, demand has realigned with supply to arrest the freefall in values.

• The housing recovery began in early 2009.  Median price increases in some markets indicate that even while many pundits were openly wondering when the bottom of the market would appear, it was actually several months in the rearview mirror.

Many factors and variables, and just as many divergent opinions to boot.  So many, in fact, that you almost have to choose amongst the purported experts to determine whether you fall in the half empty or half full category.  Job rates, interest rates, unemployment rates … psychiatric rates, for spending too much time poring over the data and extrapolations will render one in need of a head exam. 

Overanalysis 101.

You don’t need flow charts to tell you where things stand at the moment.  You won’t need a market report to tell you when things are better.

You’ll know the market has recovered when you no longer dread the trip to the mailbox or evening phone calls.

You’ll know the market has recovered when you can confidently re-enable automatic bill pay from your checking account instead of prioritizing which ones get paid this month by how far past due each is.

You’ll know that the market has recovered when you don’t have to decide whether you or a loved one is really ill enough to warrant the cost of a trip to the doctor.

You’ll know the market has recovered when you no longer have to explain to the kids why you can’t go to the zoo or stop for ice cream today. 

You’ll know the market has recovered when sleep comes as readily as worry formerly did.

You can stop looking to someone else to tell you when the market is fully healed as the housing implosion is the root of these greater ails.  It’s far easier to take stock of your own life, and those of your friends and family, to see where along its arc the pendulum is currently settled.  As the finance/housing sector dragged our economy into the muck, it will again lead us back to dry ground.  No need to watch the stars for celestial clues.  Just do what no pundit can and watch your own life for improvement.  You’ll know housing has recovered when both of your own feet are planted squarely on terra firma. 

Most importantly, beware the forecasts that don’t jive with your own internal index.  Those who would adamantly assert the rosiest or bleakest prognosis are likely more interested in influencing your behavior than in your well being. 

“Buy now before prices shoot back up!” 

“Sell now before prices erode further!” 

When you stop listening to yourself, you risk placing all of your trust in the megaphones of those who have a vested interest in your fear.

Is the housing market improving?  Is now the time to buy?  The time to sell?  For months, I have been asked to provide the answers to these questions.  I have dutifully provided my vague predictions with the obligatory caveat that no one truly knows how a free market will behave from one day to the next.  I realize, though, that in supplying answers to those who actually give the market context, that we have all been looking at this thing from the wrong perspective.  It makes zero difference where I think the market stands at present, and where it is headed.  The very consumers who ask me these questions are the ones who will ultimately provide the truth or fallacy to my various hypotheses.  So I turn the tables and ask the consumer, the actual authority, the very same question. 

“What is the state of the Real Estate market?”

Feel free to comment here or send me an email with your thoughts.  Looking for opinions from consumers and laypersons, not agents or financial wizards (all comments welcome, though).  I will post the results in a follow-up piece.

Mr. Homeowner & Mrs. Homebuyer, the floor is now yours.

I wrote an article a couple of months ago which detailed the rise in vandalism & theft across the greater Phoenix and Scottsdale area.  As the number of vacant homes have risen steeply along with the spike of foreclosures and total listings, so too have the targets for the scavengers in our midst.  The point made was that placing a “For Sale” sign in the overgrown and underwatered front yard of a clearly abandoned house is nothing short of ringing the larcenous dinner bell.  Copper, appliances, cabinets, ceilings fans, light fixtures, A/C compressors and anything else that fits in the bed of a ’74 Ford is walking out of vacant properties.  Between the absentee owner of record and the agent charged with selling the home, it is imperative that someone removes the telltale signs of lifelessness from the property to deter such criminal enterprise.  Far too often, door hanger advertisements are stacked five deep on the knob.  The lawn is deceased, but the weeds have never felt better.  There are papers in the driveway and not even the thick layer of dust on the front window can prevent prying eyes from determining that the interior holds no furniture. 

I maintain that if banks would employ agents who are not already carrying 200 REO listings, they might find someone who will actually pay the property the attention it needs to secure its dwindling equity.  Of course, the asset manager for the bank is just as overworked with hundreds of open files stacked upon his desk, so there really isn’t anyone who gives a whit about any one particular house.  This is toxic to our market.  As these properties are further devalued through negligence, the phenomenon further erodes values of the surrounding areas.  It really isn’t all that difficult to make a property a harder target.

However, trimming up the yard and routinely visiting the property (to show signs of life at the home, if nothing else) won’t really cut it when agents insist upon advertising “Vacancy” to any knucklehead with a computer who is looking for a temporary flophouse or a lightly-used dishwasher.  I found this snippet in the PUBLIC remarks section of the MLS today:

“Reduced 9/25/WOW. NOW VACANT!!”

I am going to type slowly so that everyone understands this basic tenet of the Arizona Regional Multiple Listing Service:

T h e r e  i s  a  R e a l t o r  r e m a r k s  s e c t i o n  f o r  s h o w i n g  i n s t r u c t i o n s.

Y o u  d o n ‘ t  h a v e  t o  in f o r m  t h e  e n t i r e  p l a n e t  t h a t  t h e  h o m e  i s  v a c a n t!

The bank, or absentee owner in this instance, may not care if the house is ransacked at this point, but the neighbors will.  It doesn’t make the jobs of us agents any easier, but that doesn’t concern me much.  Realtors are like cockroaches.  We’ll survive a nuclear holocaust.  I do worry about homeowners across the Valley, though.  The guy down the street who might be forced to sell because he lost his job does not need his value further degraded by a crummy comp that is even crummier than it needs to be.  

The banks are sticking it to a lot of people for the second time, and it needs to stop.