Okay so where were we? How do we determine what a home is worth in the Phoenix Real Estate Market in 2010?
In my last entry I covered the basic way of determining how to value a home in the good old days circa 2002-2005 and it was pretty straight forward. We looked at area active listings to determine what the competition looked like, the past sales to determine a baseline lending value and we looked at the supply of money available.
I’ve learned that when things get a bit complicated, get back to basics, find the common denominators that apply, get back to the egg. Look at it this way… get out of bed, put right leg in right leg pant leg, left leg in left leg pant, pull up pants, pull up zipper (very important) fasten belt, walk…. Or “lather, rinse, repeat”…Basics always work and become more important as the task gets bigger, whether you’re preparing a seven course meal or building a spaceship, you fall back to the basics and build up.
You see although there are a myriad of factors that determine what a home might be worth, all the other factors particular to this market affect the major three, competition, baseline value and money supply.
So what about foreclosures and short sales? Does the fact that in my neighborhood a home with the same floor plan I have goes on the market at a low price owned by the bank affect what a prospective Buyer offer on my home? You bet it does. Like it or not that’s your competition and Buyers will determine how much more (or less) they would offer you based on what they see out there.
Does the condition matter? Yes it does but within reason. A Buyer will not give you $50,000 more if the bank home down the block is similar and he can fix it up for $25,000! Oh Iheard you, you’ve got granite counters and extra thick insulation in the attic, and you’ve got thicker nails in the wall (a homeowner actually once told me that to justify his ridiculous higher price!)
Does the fact that it would be difficult for a Buyer to get a loan in my neighborhood affect me? Yes it does. Remember what’s happening in the in the million plus market? If banks won’t lend, cash is king and when was the last time a Buyer with a million or more in cash paid a premium price? Especially when there are a ton of homeowners that would like or need to sell, maybe worse than you. Do you think the competition for the cash would be fierce? You bet! Would prices drop and drop fast? It’s already happening.
If people are losing their jobs, does that affect the ability of someone to secure a loan and the demand for homes in our market? Yes it does! It affects the overall demand in the economy and hits certain price ranges more than others.
What about closed sales, the basic focal point of what a willing and able buyer HAS paid? Are these recent sales price numbers lower because they reflect sold foreclosures and short sales? Yes they are! Will an appraiser figure these numbers into what the value of your home might be? Absolutely! Fair? Absolutely not, but who are you going to fight?
So as I’m standing there at a party enjoying my appetizers and glass of wine, my concern is not having a discussion about what your home might be worth because if I study the factors that affect the basics, I’m pretty confident I can give you pretty good idea what range your home might be worth. My “Jaws” movie scenario comes from the desire not to give you news you might not want to hear since 99 percent of the time it isn’t what you want to hear. So my bottom line is this: If you don’t, have to sell, don’t. Not at the moment anyway until things get a bit better. And if you must, ask me to come by and we’ll look at ALL the factors that affect the basic three and determine what that number is. Then we’ll open a nice bottle of Merlot. We’ll most likely want to share a glass….
Sal Cartagine is a 23 year veteran of the Real Estate industry specializing in residential sales, rentals, property management and investments working in the Phoenix Metro area.
I was at a party this past weekend and there I am enjoying my pate’ sitting nicely on my Ritz Cracker when I see it coming from my left. Then the feeling comes over me like I’m Sheriff Brody floating in the water on an air canister in the movie “Jaws”. Suddenly , I hear music…”dun dun, dun dun, dun dun, dun dun,…”….It’s no use. I brace myself as I hear the words, “You know Sal, we are trying to figure out if we should sell or not, what do you think my home is worth?”
Now normally I don’t mind in the least discussing Real Estate anytime, anywhere, and as long as I get a few appetizers and a good glass of Merlot in me at a party first, I’m good to go. But that particular question has unfortunately put Realtors in somewhat of an awkward position as of late.
A few years back circa 2002-2005 the answer would have been, “Put a sign out and ask for what you want.” but as we live the realities of today’s volatile Real Estate market, that question has become some sort of hot potato for most Real Estate Professionals. Just how do you figure out what a home is worth in today’s market?
The historical answer based on a healthy economy was “Whatever a willing and able buyer is willing to pay for it.” Within reason if we looked at the homes on the market, (your competition), and the prices of homes sold within the area the last 3-6 months (the baseline value of what a lender would be willing to lend on a home), the fact that money was available (WAY to available!), I could reasonably tell you what price range your home would sell in. How speculative you wanted to be would have been up to you and in a rising market I remember not taking such a hard line if the homeowner wanted to play up the market a bit if they had the time to speculate on increasing home prices. Ahh, the good old days…
So what about today? Well it is absolutely true that waters have become much more murky when we have to factor in the deluge of foreclosures, and short sales. Add to that the pool of available Buyers changes determined by the availability of money banks can lend which directly affects our demand. A good case in point is that there is the glut of homes over the one million dollar range with values dropping fast because no one is lending big money to buy these homes any more. Want to be like the Jeffersons and “Move on up?” Now’s the time! The actual statistic is that only 1% of all sales in the Phoenix Metro area are over the million dollar mark. For the first time we are seeing foreclosures at an alarming rate in Paradise Valley, the area of the Phoenix’s most expensive Real Estate.
So although we can weigh into the equation even more factors such as the value of the dollar and the rising or falling GNP or the job rate or the pre foreclosure statistics etc… what is the value of a home in Phoenix worth today? The answer is “What a willing and able Buyer is willing to pay for it!”
Back to the egg folks… I’ll explain what this means in my next blog. Till then, another glass of Merlot is in order…… Any comments?
The Real Estate Word at the Moment is… Cash Flow! There’s always two ways to look at things. Being a Realtor in Phoenix, might seem like misfortune for some but the upside is (and there is always an upside if you look for it) is that there’s a ton of bargains to be had.
The Real Estate market can be looked at two ways right now as well. There are two camps. One camp says things will get worse and the other says we’ve hit bottom. Whichever way you look at it there is a strategy to follow. Let’s look at what’s going on right now.
About six months ago, real estate investors in Arizona were flipping properties as fast as they could, taking advantage of rock-bottom prices and plenty of inventory. Now that the spring real estate market has blossomed, inventory is lower and fewer homes are available at auctions. The low inventory is the result of two trends: more buyers are in the market trying to beat the tax credit deadline and the possibility of higher interest rates; and fewer properties are being placed on the market by banks.
However a bigger factor is savvy real estate investors seeing the potential of low prices and high cash flow returns. This makes buying even at the highest auction prices a true steal. Successful real estate investors need to switch strategies to adjust to the changing marketplace. With fewer homes available at auctions, buyers and investors have been pushing up the prices bit by bit. While buyers are still getting a great deal on these properties, investors will find these slightly higher prices are more conducive to holding onto the homes for cash flow properties rather than flipping them.
Investors should always keep their primary goal in mind when buying real estate: creating profit. Most investors would prefer to make a $100,000 profit rather than a $20,000 profit on their investment, wouldn’t you? In fact, all of them would. Current market conditions suggest that holding onto property purchased right now for about three to five years will generate a higher profit than flipping. Here’s why:
Some of the homes available at auction now for $100,000 were worth as much as $300,000 a few years ago. I just sold a short sale home in Peoria purchased for $300,000 for $90,000. If you purchase that three-bedroom, two-bath home at $90,000 and your monthly costs are $500 or $700 per month, you can generate a profit of $500 to as much as $700 per month if you are able to rent the home for $1000 to $1300. Then, in three to five years as the market improves, you will probably be able to sell the home for as much as $175,000 or even $200,000 based on average appreciation.
The rental market is hot right now and it is great time to lock in some long term leases for people looking to rent homes since a lot of the demand is coming from families that themselves have lost their homes. So even if the market dips a bit, you’ve already taken advantage of the current circumstances and secured the cash flow for your property.
Second guessing the market is a tough game and trying to decide when to jump in can cause paralysis of analysis and cause the worst action which is to do nothing. But right now the conditions that are conducive to setting up some excellent cash flow properties to add to your portfolio. What will you do?
It seems everywhere you look, the government in order to maintain its bloated massive belly of programs and handouts (to everyone but the people who could really use it…) has looked to fund itself everywhere possible. Just the other day for instance, I saw the occupants of a government issued vehicle, you know the black Ford Crown Victoria with the blacked out windows, official looking plate and side mounted flood light, slowly makes its way down our city streets, pull up to a vending machine and fleece the return change slots for extra coins.
So it would seem feasible that the government would look towards the closing table at the sale of a home to see if it could reach in a grab a few bucks there too. Well there has been some talk in recent weeks about a “Home Sales Tax” that would cause good piece of change to be deducted by the government at the closing table at the expense of the Selling party.
In his recent guest column regarding the impact of the Health Care Bill, Paul Guppy of the Washington Policy Center claimed that a 3.8% tax on all home sales was a part of the recently passed legislation. This is inaccurate and needs to be corrected. The truth about the bill is that if you sell your home for a profit above the Capitol Gains threshold of $250,000 per individual or $500,000 per couple then you would be required to pay the additional 3.8% tax on any gain realized over this threshold.
Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made. This tax is aimed at so called “high earners” if you do not fall into that category you will not pay any extra taxes upon the sale of your home.
Not great news, but not the catastrophic effect if the rumors about the new legislation were true. So beware my friends of standing too close to vending machines as an official looking vehicle approaches as you walk the streets of Phoenix. You just might get your pockets fleeced as well.
For anyone who know knows me, I’m not the biggest fan of banks. If I had to identify how I felt about dealing with a bank I would put it somewhere between a trip to the dentist and an afternoon shopping with the wife at Joanne’s Home Craft Emporium. Nothing against my wife, I love her dearly but not the “quality time” I would agree to spend with her as we would carouse the aisles between the unending styles of buttons, 15,000 types of glitter and sparkly things, long rows of green foam I only though was in pillows to the overwhelming smell of Eucalyptus…
There are recent proposed laws that are requiring banks to respond to short sale offers within ten days. While waiting on banks to respond is certainly not one of my favorite things, often in my experience, it may not solely be the bank’s fault.
Realtors can contribute to the problem of the over-extended workload the bank has to deal with when they do not submit all the necessary paperwork that has to be submitted with a short sale in advance. Then when an offer is submitted, the bank is surprised and has to commit resources to follow up. For a successful short sale to take place, the seller should establish his “hardship” with the bank first. An income shortfall should also be established. Perhaps a modification should be attempted.
Many banks have in place a fast track short sale process. Wells Fargo/ Wachovia and Bank of America/Countrywide do. Once hardship and income shortfall are established, with very little paperwork, these banks will have a BPO (Brokers Price Opinion) done and provide the seller with a pre-approved sales price. They will respond to all offers within 10 business days. Short sale bank managers are in place to respond quickly.
The above mentioned banks hold the vast majority of America’s mortgages. Bank of America receives over 30,000 calls per day. The average foreclosure without damages to the home and theft of appliances, etc. costs the bank $60,000 to $70,000. They would much prefer a short sale to a foreclosure as it is cheaper. Banks are now providing moving expenses to their short sale customers. They may excuse all deficiencies on primary residences. I will follow up on the details on the nuances of short sales in later writings.
In no way am I saying banks have had no part in the present fiasco, far from it, But for now, I would caution against making banks to be the only villains in the story. You know, the one in the black cape with the curly mustache who has just tied our poor helpless heroine to the tracks in front of an oncoming train. Remember, the Government required them to lend money to people who couldn’t or wouldn’t pay them back. Government also encouraged them by telling them they could sell these loan portfolios to Freddie Mac & Fannie Mae. The officials running these agencies then cooked the books to receive large personal bonuses (These same guys are now part of the current administration btw…) Freddie & Fannie failed. All had to be rescued and bailed out by the US treasury – Freddie, Fannie, and the Banking Industry.
Real Estate will recover as will the Banking Industry. Short sales are part of the process. Those of us in the business can make it run smoother if we just do our homework. Those of us who don’t will face penalties in the not too distant future. But just blaming banks will not help speed up our recovery. We must all bone up on the rules and do our part.
I remember very well, the first time I heard of remote control television. I was about seven years old in my New York Mets baseball cap sitting crossed legged in front of the TV watching the Mets take on the St. Louis Cardinals. Then I hear it from behind me. “Son put on channel 5 for a minute, I want to see the news.” says my Dad from his easy chair. I believe I was the first remote, at least in my household any way.
Flash forward to 1988, my second year in Real Estate at my office in C21 in New York City. We are all gathering around this huge box trying to figure how when you put a piece of paper in one end, the same piece of paper appears out of the other end in some other place, anywhere! No more driving to a listing agent’s office delivering a contract in person. I had just gotten used to not getting out on my car carrying a roll of dimes up to a phone booth to make a call thanks to my handy beeper and now this!
Flash forward to 1995. I’m on a property tour with my good friend and fellow agent John Sposato and as we are driving together he hands me a CD case and tells me to open it and give him the CD. At that time John being the audiophile he is, was way ahead of the curve and not only had his whole music collection on CD, he had one in his car! Well, not me! I wasn’t about to be duped into updating my whole cassette collection to CD. I’m not going to be suckered into the marketing ploy of the big time record companies! I fumbled with the jewel case for a minute or two trying to get the thing open as John watched in amusement. After some time he motions to take it from me and in three seconds, opens the case and pops the CD in. The Allman Brother in pure digital bliss! I went home that day and readied my collection for an overhaul.
OK, so I haven’t been the most pro active staying in touch with all the latest technical trends. I believe my generation has had it the hardest in terms of coming to grips with everything that has been advancing the last couple of decades but in my opinion we have not seen the incredible change in technology and how it’s been integrated into our lives and businesses especially in the last THREE YEARS. Just two days ago, I got an updated version of the software on my Smartphone ( a new gadget I only recently resided to myself I did need and now I can’t do without…) and now I am able to convert speech into text. I couldn’t have been more excited and texted everyone I knew! No more fumbling thumbs for guys like me who don’t care if the text they write looks like some sort of version of pig Latin to the receiver. The word “thre” is perfectly fine for the word “there”, “thy” know what it means.. Now I can talk into the little devil and it converts what I say into something worthy of a man of my supposed intelligence. And so it goes….
I can give a hundred of these examples but it points to one thing. That the world is changing and will continue and even more rapidly and with the downturn of the economy and of the dramatic changes in the Real Estate market recently, I had to go “back to school” so to speak to re-tool and acquaint myself with the new technology and way of communication that are quickly taking over the Real Estate business.
And the result of the last few months of researching, internalizing and whole heartedly embracing these new changes has given birth to my new website, researched & and executed carefully to help me be on the cutting edge and stay in touch with all of you, my family friends, clients and fellow associates.
Through the miracle of blogging, social networks & real time MLS info, I can now deliver information and communicate in a way that will effectively portray who am I am , what I do, and how I may be able to help the people I care about most in a very difficult time. I am ahead of the curve so to speak and I like the way it looks and feels and how it can help those who wish to take advantage of it.
This is a living breathing site, one open to communication by anyone who wants to add a comment, a critique to help me get better, a pat on the back (always appreciated… J ) or to suggest I offer something not yet available here that would be of value I’m not aware of. A gathering is better enjoyed and more productive when the room is full.
So as it is now, I’m the one who gets to sit back in my easy chair on occasion with my two sons Vincent and Anthony watching TV, and it is I who gets the pleasure of asking my son,” Hey Son, will you update my iPod with the new downloads you got from the net?”
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