Green Real Estate in Idaho

While you might not know that we’re already deep into spring time here in the Treasure Valley based on the weather, the calender doesn’t lie and neither does the bump we’re seeing in the market. Historically, the Treasure Valley real estate market is very cyclical with slower times in the late fall and winter months and a vigorous revitalization in the spring and summer which peaks in late July.

This year is no different, in fact early spring sales got a terrific shot in the arm with home buyers seeing the expiration of their tax credit incentives drawing to a close. The vast majority of home buyers taking advantage of this opportunity were focused on the $110,000 to $180,000 price points and they came out in droves before the end of April (2010) at which time they had to have an executed contract on their property of choice to qualify.

Some agents and analysts lament this activity and appear to anticipate a dramatic drop in activity post tax credit. While this opportunity for buyers did accelerate many first time buyer time lines I do not anticipate closings to plummet. Buyers late to the party will be closing throughout May and June. Individuals and families that are buying up or buying down were less likely to be affected by the tax credit and are more likely to be focused executing their move later this summer. While activity in the entry level housing market (sub $200,000) has probably peaked, sales will continue and likely we’ll see homes at higher price points coming under contract during the summer.

The issue that continues to plague this and every market is the amount of distressed property that must be absorbed. The number of distressed homes for sale, short sales or REO/Bank Owned, outnumber traditional resale and have for months. This continues to put downward pressure on prices. Prices have stabilized considerably but the “fire sale” pricing of short sale and REO homes will likely depress prices for the foreseeable future, at least the next several years.

Why will things continue for the next several years you may be asking… well, the reason is simple. Before the sweeping mortgage reforms, most home buyers opted for 3, 5, or 7 year ARMs meaning that in X number of years the fixed mortgage APR becomes adjustable. Since most homes purchased in the last 5+ years are now underwater these homes will likely wind up as future bank owned or short sale listings. Thankfully, interest rates continue to be at all time lows, realistically there is no way they will stay here for ever. I’m the first to admit that I am no financial guru, but to see rates at 6% or higher in the next 12 months doesn’t seem at all unrealistic. 6% is still a fantastic interest rate, but when buyers become used to 5% there will be a crunch when rates rise.

It will all work itself out. Bottom line is that prices are down, interest rates are fantastic, and the amount of home that your money will buy is downright incredible. While many sellers will not like what the market will support in the sale of their home, if they are buying up the returns (in the form of savings) can far outweigh them.

This is a question that I hear quite a bit these days.  The wild misconceptions about the term and the process of the general public is to be expected and is perfectly understandable.  The scarier issue is the lack of understanding by many real estate agents who are unable to set realistic expectations, especially for buyers starting down this path to purchase a home.

A short sale is simply the sale of real estate in which the  proceeds from the sale are not adequate to satisfy the balance owed the lien holder(s).  Let’s look at an example with nice, round numbers.  So a home owner purchases a home for $200,000, & owes the same, and due to whatever circumstances must sell the property.  Based on the market conditions lets say that they market value is only $150,000.  This would be a typical short sale.

One of the problems however is that there are no typical short sales.  Every situation is different from the sellers position to the bank that holds the note.  Some banks have streamlined the process and are able to process and respond to offers in a very timely manner while others can take weeks, if not months, to respond.  Obviously the “Short” in short sale has nothing to do with the amount of time involved in making the purchase.  Usually it’s quite the contrary.

One of the biggest risks to the buyer in a short sale transaction is time.  From the moment you put forward the offer and the seller accepts, you’re under contract to purchase that property.  Unfortunately, in a short sale, you still don’t know if you will be able to purchase the property at the contract price until you receive written approval from the lien holder(s) which can take quite some time.  While you’re waiting you could be missing out on other potential candidates that come and go from the market.  Worst case you spend six or eight weeks waiting for the banks response only to find out that they wont accept your offer price and want significantly more than you are willing to pay.  What other homes did you miss during those two months?

To help lets run through a sample time line based on what I have seen lately in getting these deals together.

• Offer received from the buyer’s agent after hours ( Day 1)
• Review offer and present to client for signatures, prepare necessary addendums and return to buyers agent (Day 2)
• Receive addendum back from buyer’s agent, contract fully executed by buyer and seller (Day 3)
• Prepare packet for submission to bank, let the waiting begin (Day 3)
• Check in with Bank every day for 5 business days trying to confirm their receipt of offer (Day 4 – 10)
• Offer finally received in the system, waiting for a negotiator to be assigned from Loss Mitigation (Day 10 – 15)
• Receive call from negotiator assigned to file, spend several days going back and forth about contract price prior to submission to “the investor” and additional documents to complete the negotiators file (Day 16-19).
• File submitted to the investor, in this case Freddie Mac, for final approval (Day 20)
• Check in every other day with lien holder to inquire on the status of the file (Day 21-59)
• Receive final written approval (Day 60)

As you can see… there is a tremendous amount of hurry up and wait involved.  From the moment this particular offer was submitted to the investor there was absolutely no update on its status or any timeline given for the response.  When the offer was submitted originally I was told that the average response time was 30 days, after several weeks of follow up with no word that average was increased to 45-60 days.

Another item that eludes many regarding list price on short sales is that they are fairly ambiguous.  The list price of a short sale really doesn’t give you any insight as to what the lien holder(s) are willing to accept.  Listing agents are at a bit of a disadvantage in this regard because no bank that I have spoken with in establishing a short sale will give you any indication about what it is they would accept.  The best that you can do as a listing agent is price it at as low as possible while still being appropriate and get an offer you can present to the bank.  One misconception that seems to be very prevalent in the general public is that a short sale can be picked up for just pennies on the dollar.  This is not the case.  The lien holders will not accept an offer of $50,000 on a $300,000 home, no matter how much you wish they would.  Lien holders do not sell short to help out the sellers, they do so if and only if it makes the most sense financially to their bottom line.  There are costs associated with foreclosing on a home and costs associated with taking possession and then re-listing and making it marketable as an REO or bank owned property.  If a short sale can be achieved that outweighs these additional expenses they are more likely to proceed.  If not, the lien holder(s) will instruct the listing agent to counter the offer.  If a buyer can not be found for the short sale before the bank forecloses then the bank takes the home back.

Bottom line, if you have patience, persistence, and realistic expectations you can absolutely find some fantastic opportunities in short sale listings.  If you have a tight deadline to secure a new home and a drop dead date that you have to be moved in then you may want to steer well clear.  It’s just not possible to accurately predict when you might be able to close on the vast vast majority of short sale properties.