The Phoenix Area Foreclosure Experts

Real Estate "risk list"

I have written about title giant PMI Group in previous posts on this blog.Their quarterly metropolitan area "risk list" came out last week. The list covers 381 markets and ranks them according to the probability of real estate price declines during the next year.

The 10 areas most likely to see real estate price declines:

1. Fort Lauderdale, FL
2. Riverside-San Bernadino, California
3. Orlando
4. Miami and Miami Beach
5. Tampa-St Pete
6. Las Vegas
7. Los Angeles
8. Santa Ana-Anaheim-Irvine; CA
9. Jacksonville, Florida
10. Sacramento-Arden-Arcade-Roseville; CA

The least risky markets, in terms of avoiding short-term valuation losses, according to PMI: Texas dominates the list with Dallas, Ft. Worth, Houston and San Antonio all in the top five. But Pittsburgh, Charlotte, Cleveland, Denver and Indianapolis also are among the safest bets to grow property values in the next 24 months.

Another way to state the results of this report would be: the best deals ( lowest prices) can be found in cities on the top 10 list. The banks are still clearing out inventory.  The least risky markets will have less depreciation and, therefore, there is much less motivation (area more stable) to sell properties as cheaply.

Where was Phoenix-Mesa on the list? #11.

Foreclosure leak = thousands of dollars

by Kent Lamb

Restoration of water service to the house is needed in many foreclosures.  The water companies do turn the water off at the main valve if there is activity at the meter, but in some cases the water meter is not turned off completely or vandals turn the water back on.  This home had the main water valve 3/4 off but water was still flowing into the laundry room of the home.  The damage to this room and to the wood foundation in the home will cost thousands to repair.

More than a clogged sink -- always inspect it first

by Kent Lamb
This may look like clogged drains but wait there is more.  Things have not only been stoled from this forclosed home but the crooks also clogged the drainage system for this house.  In this particular case, the vandals poured concrete mix into the drain line piping and have caused thousands of dollars in damage.  This is not the first instance of this type of vandalism.  Many times the drain lines are clogged with rags or other materials.  Ensure that your home inspector is taking the extra steps to determine if the clog is limited to a single drain or a more significant issue with the drainage system of the home.  In the foreclosed homes that I inspect, we allow the water to run for an extended period of time to ensure proper drainage and flow through all drain lines.

Actives drop 2,755 from Dec 2008 to Jan 2009 in Phoenix Area MLS

Active properties for sale on the Arizona Regional MLS dropped 2,755 over the last 30-days.  This is the second lowest total of homes on the market in the last 9-months.

Phoenix home values continue to plunge - November 2008

Desperately seeking bottom?

Home values in Phoenix have dropped $61 per-square foot from this time last year. Look at the chart and read it in this manner: 13,927 homes were on the market to begin November of 2008.  897 sold, which was 6.4% of all homes for sale.  That equals 15.5 months worth of inventory.  The average "sold" home was 1,770 ft.² at a price of $162,485, or $92 per-square foot.  Those homes sat on the market for 111 days before selling.

 

Notice the big drops from month to month, especially in recent months;

• a five dollar drop from May to June
• a seven dollar drop from June to July
• a six dollar drop from July to August
• an eight dollar drop from August to September
• a six dollar drop from September to October
• an eight dollar drop from October to November

Have appraisers gotten tough?

The short answer: YES. I recently sold one of my REO listings that was under contract for $176,250. By all "normal" sales this was a screaming deal for a 2,200 sq ft, 4 bedroom home built in 2006. However, there had been a run of REO's in the neighborhood. As we know, appraisers always try to compare "like to like."

The appraiser found 3 other "sold" REO  properties and one active REO. She said she could not justify a sales price of more than $176,000. That's a $250 difference. I have never seen an adjustment in the sales contract price required for that small of an amount -- in almost 9-years as a Realtor. Do you think appraisers have been under scrutiny (that was a rhetorical question)?

However, in this case it may have been the particular appraiser having a bad day. She also stated the dish washer and stove had to be repaired or replaced for this FHA loan because they did not work. The fix: turning on the circuit breakers for the appliances. Hmmmm ....

Appraising in a Crazy Market - Part 2 of 2

by Georgi
To purchase a short sale the buyer must be patient because the banks take time to make their decisions. Short sales are also typically sold in “as is” condition. Many short sales have utilities turned on; therefore a home inspection is possible. Also, you are buying them before the foreclosure when most upset homeowners are doing the vast majority of the damage. There are many "mad homeowners" created by foreclosure who want to leave the bank the home as damaged as possible. You must have patience to purchase a short sale and understand that this is the “price” you pay to get a home below market value.

To purchase a bank owned REO you must also wait while the bank makes a decision and you cannot have contingencies (in other words: "I can’t buy this home until my home sells"). Typically, many REO's have all the utilities turned off making it more challenging to complete a home inspection, something I highly recommend on every purchase. Good Realtors will have the bank turn on all utilities for an inspection.

I have seen many bank owned homes in the past few months with considerable water damage, missing appliances, missing ceiling fans, and missing kitchen cabinets. On one home the rear watering system flooded the home when the water was turned on by the bank after closing but before the buyers moved in. Another  REO had $18,000 worth of water damage and drywall repairs. Look for mold in the closets that back to bathrooms and for signs of water damage under the sinks in the kitchen and baths. Remember water damage in a cabinet could mean that the drywall behind the cabinet could have mold.

Make sure you understand these are “AS IS” and to take into consideration the “cost to repair”. I have seen purchases where the REO’s were not cheaper than the typical transactions in the neighborhood after the extensive required repairs. Buyers should beware that many things found in an inspection can not be seen with an untrained eye, especially without utilities.

I try to use comparables of “normal” sales with the purchase of a “normal” sale, as the risks that come with REO’s -- and the time that comes with a short sale -- are factors that do affect the price a typical buyer is willing to pay.

This is a great time to find a good deal, just realize that you need to be patient and hire professionals for their opinions in order to reap the savings. Time is money, and if you are willing to take the time with a short sale you can find a great deal.

If you would like to know the current value of your home please call HomeStar Appraisers at 480-777-8266 or fax your request to 480-777-8499. You can also email me at georgi@homestaraz.com

Appraising in a Crazy Market - Part 1 of 2

by Georgi
In 15 years of appraising this is the most complicated time to try to determine a homes estimated market value. In the typical neighborhood we see several types of transactions:

• between a typical buyer and typical seller with out duress (also called a "normal sale")
• REO’S (bank owned foreclosures)
• short sales (homes being sold for less than owed by negotiating with the bank)

There is a considerable difference in price between the "arms length" transactions versus REO’s and short sales (arms length transactions are conducted as if the parties were unrelated and carried out under free market conditions in which each party acts in its own self-interest). If we are appraising a typical transaction with a "normal or typical sale" we try to find “normal sales” to use as comparables. We always try to find sales which are similar to our subject property in every way.

It gets tough when you are in a neighborhood where there are little or no typical transactions. Some neighborhoods have few sales that aren’t short sales or REO’s. This is where it gets really tough! As an appraiser we must make a decision whether it is more reasonable to go to another neighborhood to find a typical sale OR stay in the neighborhood and use the short sales and REO’s. Due to location, age and quality of construction this must be decided on a case by case basis.

I try to use typical sales to compare against typical sales, however underwriters (the people that read appraisals and make loan decisions) are under new guidelines and incredible pressure to have an appraisal with comparables less than 90 days old and located within 1 mile. The reason: they need to sell this loan on the secondary market and need the appraisal to make sense. The hardest part about appraising now is that lenders want more similar comparables and we are in a slower market with less comparables than ever to supply them. We must give them enough recent sales and explanations as to "why we did what we did" to give them a comfort zone with this appraisal and this home.

Tomorrow I'll write a bit more about REO's and short sales. 

If you would like to know the current value of your home please call HomeStar Appraisers at 480-777-8266 or fax your request to 480-777-8499. You can also email me at georgi@homestaraz.com

Forget the "average price" - price per-square foot is the real indicator

Everyone reports on the average sales price. Why?  It's the easiest index to use. Just add up the prices of each "sold" home and divide by the total number sold. No fuss ... just a simple number to obtain. We have been seeing the average price fall, largely due to foreclosures. We hear it reported quite regularly. But -- should you base your market decisions only on that number? Let me show you why not.

On a "street" level this is really easy to  understand. Let's say 1234 Main St. sold for $250,000 in March of 2008. 1256 Main St. sold for $220,000 in April of 2008. An alarmist who lived on Main Street might say "the sky is falling!" At first glance it appears values dropped $30,000 in one month. However, when you learn that the $250,000 house was 2,500 square feet and the $220,000 house was 2,200 square feet ... that assumption is no longer valid. In fact, both homes sold for $100 per-square foot.

Here's a second example: The average price of a "sold home" in Mesa in December of 2007 was about $242,000. In January 2008 the average sales price was about $254,000. Is the slump over in Mesa? Are prices rising? Are foreclosures dryin up? Here's the rest of the information: in December the average house was 1,737 sq ft ... in January the average house was 1,849 sq ft. That equals $139 per-sq ft versus $137 per-sq ft  -- or a drop of 2 dollars per-square foot from December to January. You see the point. Numbers by themselves do not tell the whole story. It is important to compare apples to apples.

The town of Maricopa is the third example of this. Over the past 5-months the average sales price of a home dropped from $193,045 to $163,129. That's bad enough, right? BUT ... as houses get more affordable people are buying bigger homes in that community. Are you ready to break out your calculator? Here goes: the homes that averaged $193,045 also averaged 2,069 sq ft. The homes that averaged $163,129 also averaged 2,314 sq ft. That's a 245 sq ft larger home and an "average" price decrease of $30,000. So, is that an accurate depiction of the average price considering the homes are larger?

Have you completed the math? If you didn't have a calculator the answer is $93 per-sq ft versus $70 per-sq ft. That $30,000 drop in price was actually a $23 per-sq ft drop in price. This also means the most current, average sales price in Maricopa can also be expressed as $70 per-sq ft. Now, apply that number to the 2,069 sq ft home that sold for $193,045 5-months prior and the adjusted, current price just became $144,830. In other words, the 2,069 sq ft home bought for $193,045 just 5-months ago would cost $144,830 today. That huge $30,000 decrease just blossomed in to a potential $48,000 decrease over a 5-month period.

You can do the math another way with the same result. We know that $70 per-sq ft is the current sales price in Maricopa. We also know that the most recent sales have been an average of  245 sq ft larger. $70 X 245 sq ft = $17,150.  $17,150 plus the apparent $30,000 price drop = about $47,000. The numbers do not match exactly in this equation because the average sq ft numbers I used were rounded to the nearest whole number.

If that math makes your head hurt, imagine how your head would hurt if you owned a house in Maricopa. Imagine seeing forclosures lining your streets. Anyone can do this math. It's not trigonometry or quantitative analysis. Doesn't it seem more reasonable to consider price per-sq ft? What do you think?

Fannie Proposes Ban on Lenders' In-House Appraisers

by Georgi Stratton,

Bloomberg.com reported today that Fannie Mae, the largest source of financing for U.S. home loans, told lenders it will probably ban their use of appraisals by in-house employees or those arranged by brokers. This comes as a result of yearlong mortgage probe by New York Attorney General Andrew Cuomo because of rising foreclosures on U.S. home loans. He initially subpoenaed appraisers to ask whether mortgage brokers or lenders pressured them to inflate home valuations, which would artificially boost the value of "collateral supporting mortgage-backed securities."

"It would be a monumental change because it would require a shift in the way that the lending industry does business,'' said Jonathan Miller, chief executive officer of Manhattan-based appraisal company Miller Samuel Inc. and a longtime proponent of creating a firewall between residential appraisers and mortgage originators. "I think it would be tremendous.''

The proposed changes include banning Fannie Mae's partners from using appraisers employed by their wholly owned subsidiaries. Mortgage lenders that own appraisal companies include Countrywide Financial Corp., the nation's largest home loan originator.

Miller termed current procedure as "Laughable Practice:"

About three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes, Miller said today in a phone interview. He called the practice "laughable'' because it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out, he said.

Cuomo subpoenaed Fannie Mae and Freddie Mac to determine if loans they purchased from lenders including Washington Mutual Inc., the nation's largest thrift, were based on "tainted" property evaluations. He also sued First American Corp., the largest U.S. title insurer, claiming it inflated home values under pressure from Washington Mutual. Freddie Mac and Fannie Mae own or guarantee about 40 percent of the $11.5 trillion in U.S. residential-mortgage debt.

Fannie Mae and Freddie Mac are cooperating fully with the attorney general's investigation. Neither will speculate on the outcome but expect a "vigorous defense'' from lenders.