Last week I was contacted by a reporter from KPLU, the Seattle affiliate for National Public Radio, wondering if I would sit down with her and talk about how many banks have elected to temporarily suspend their foreclosure process. So last Thursday she showed up at our offices, microphone in hand, and we spent the next 90 minutes discussing this brave new world of real estate.

90 minutes of conversation with three different agents (Dennis Pearce, John McCants and myself) was edited down to 4 minutes, and a good share of that was split with Jillayne Schlicke – real estate and mortgage educator extraordinaire, and Richard Hagar – a Seattle real estate appraiser. The piece aired nationally on the “Weekend Edition” on NPR this past Sunday.

I think that the initial pitch for the story was an investigative report as to how the suspension of foreclosures from big banks like Bank of America, JP Morgan Chase, and GMAC was effecting the day-to-day operation of real estate businesses like ours. As a real estate team that services short sale, bank-owned, resale, new construction, and auction properties, the suspensions most greatly affected our auction business. John is quoted in the report discussing this – saying that on average we’ve been seeing about 150 homes going to trustee’s sale every Friday in Snohomish County. There was about 75 scheduled for auction last week, and most of these were postponed. In King County we’ve been seeing about 300 properties going to auction every Friday, and their numbers were halved as well.

We also noticed a void in our bank-owned business, as we didn’t receive any listing assignments (which are usually awarded the week after foreclosure) and our BPO (broker price opinions – much like an appraisal or CMA – used to establish market value for the banks as they decide what to do with a property in the foreclosure process) orders were down about 95%.

There is already news of these foreclosure suspensions lifting, which – as oddly as it sounds – is good news. Foreclosure is a natural way of the market correcting itself, and if we suspend foreclosures, then we suspend the market’s ability to recover. The foreclosure industry is now an essential part of real estate, and it’s helping to stabilize a sputtering economy. Banks hire companies to manage these properties, who hire contractors and landscapers to service the properties and real estate agents to sell them. On the auction side there are trustees to handle the foreclosure process, investors purchasing the properties at auction and hiring contractors and real estate agents to ready the properties for a quick sale. All of these properties end up contributing to the title, escrow, mortgage and homeowner’s insurance businesses.

In preparation for the interview I pulled some statistics, just for a better understanding of how much market share bank-involved properties were taking up in our current market (NOTE: by bank-involved I mean short sale or bank-owned listings – that the property can’t be sold without a strong level of involvement from the bank). What I found is that in the 30 days prior to October 8th (when many banks announced that they were suspending foreclosures), bank-involved properties made up 33% of the sold inventory in Snohomish County and 22% in King County. My stat didn’t make the radio piece, but you can see how even a 30 day foreclosure suspension could affect our market.

I wish that they could have devoted more time to discussing the issue at length, but I’m happy that Pickett Street got it’s share of four minutes of fame. You can listen to the piece or read the transcript at NPR.org, or you can use the player below.

Podcast: Play in new window | Download

Tags: BPO, Jesse, John, Pickett Street, radio, REO, short sale

Here in Washington state, we are accustomed to paying an excise/state sales tax when we purchase goods. Interestingly enough, when it comes to the most significant acquisition most of us will make, the seller, rather than the purchaser, covers the taxes.

Currently, the base Washington state excise tax rate is 1.28%, with each county adding on their own percentage for a total that fluctuates somewhat by area. Snohomish and King County excise taxes (in most areas) are at a .50 rate,  bringing the grand total to 1.78% of the purchase price.

An obvious question if you’re a distressed home seller would be, “who exactly pays this tax in the event of a short sale?”  In most cases, the burden falls to the bank that is carrying the mortgage to ‘eat’ that cost, along with the other costs associated with selling a home.

For a brief time at the beginning of 2009, some sellers were required to pay excise tax on the amount of the shortage (the difference between what they owed, and what they were able to sell their property for in a declining market). Sellers in this category may now be eligible for a refund of excise taxes. Use the following link to download the required excise tax refund application form.

Should you have detailed questions about Real Estate Excise Tax (aka REET) or short sales, we will happily refer you to a CPA and/or attorney who can further assist you. Give us a ring, or send us an email for a referral list to professionals who specialize in these issues.

Tags: excise tax, seller, short sale

By now you’ve probably heard: The $8,000 Tax Credit has been extended!

And you’re thinking, “I’ve been wanting to buy a home… maybe there’s something to this procrastination thing, after all.” In this case, you’d be right; The last go-round provided up to $8,000 to homebuyers who had not owned a home in the past 3 years, and whose income was $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

In recognition of your patience and wisdom, you are now eligible for the Sweetened Deal: For home purchases occurring after November 6, 2009, the new income limits are $125,000 for single taxpayers and $225,000 for married couples filing jointly.

Be prepared to prove it!

Due to the very real potential for fraud, you will be required to prove that you have not owned a home in the last 3 years, however, the credit can be allocated to the person who has not owned previously, in cases where parents are assisting with a purchase, or where one member of an unmarried couple has previously owned.

Saving for a downpayment?

Another element of the new version is that it allows prospective home buyers who believe they qualify for the tax credit to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Keep the Cabin!

Also of note is that ownership of a vacation home, or rental property that was not used as a primary residence, does not disqualify a buyer as a first-time home buyer.

Upgrade your digs.

The most significant change to the ‘bonus round’ homebuyer tax credit is the addition of a ‘move-up buyer’ credit. This provision allows for a tax credit of up to $6,500 to homebuyers who have lived in the same residence for 5 of the last 8 years, on purchases up to $800,000.

You’re Not from Around Here?

Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.

Get Educated.

The income limits for move-up buyers are the same as for first-timers, and the allowable credit amount is graduated at the same rate, so please speak with your accountant for details on how your specific situation may be affected.

Some Restrictions Apply.

In order to qualify, all purchases- both first-time and move-up, must be completed on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

The Fine Print.

If you’re considering purchasing a home, and want to take a look at the tax credit qualification and application process, here’s a link to download the IRS Form 5405

Tags: buyer, seller, tax credit, thoughts

Among the many contentious issues of our day, the concept of being ‘environmentally conscious’, certainly strikes a few hot buttons for some. This post isn’t going to explore the politics of Al Gore, or Rush Limbaugh, because, controversial as that subject may be, there’s just not enough space to do the topic justice, and frankly, I don’t find it that interesting.

My personal angle on the Green Movement tends to slant more toward the practicalities of implementation, and looking at the cost/benefit balance for long term value. Given the condition of our current economy, and the impact of rising energy prices, and prices overall, I don’t think it’s an overstatement to say everybody’s looking for ways to save money.

From that perspective, the question becomes one of whether it’s more practical to save money now (which frequently means either making do with less, or doing nothing), or to take the preventive and holistic steps that provide for long term cost and resource savings through conservation, thoughtful design, and practical implementation of new home-building technologies.

The Green Movement is really just a convenient handle for the overarching conversation that revolves around the management and distribution of resources within a given community, and attempts to provide quantifiable benefits for the conscious, thoughtful, holistic use of those resources.

The holistic view can be overwhelming but done well, it brings together the critical elements of a home: location (both within the community, and the specific site), materials usage, durability, water management/usage, power usage, lighting, walkability/transportation, and landscaping to name a few.

As resources in our finite world become increasingly difficult to procure, and consequently more expensive, finding cost-effective ways to recycle old materials into new products, and avoiding the dead end of landfills, will become yet another major industry- as we’re already seeing in many third-world countries. It’s not a matter of ‘if’, this is truly a direction all developed nations are already heading towards- from mining turkey carcasses for oil, to reinventing formica countertops- the race is already on for renewable solutions to our most challenging environmental questions.

There are an endless array of opportunities within this shift, some of which have been proposed as elements of a recession-ending strategy, and others that feel truly sci-fi.

Having recently earned my Realtor, Green Designation, I find this topic to be an endless source of ideas and look forward to implementing as much as I can in my own home. If you have questions or ideas about green construction, I’d love to chat.

Tags: Dennis, designation, environmental, green

The US Housing market officially hit bottom on Tuesday, June 16, 2009, according to Mad Money’s Jim Cramer. Based on his analysis of better than expected housing starts, increasing sales, and decreasing inventory, Cramer argues that we’ve seen the worst of this housing debacle, and can begin the slow climb back to sanity.

And yet, a month later, we’re still seeing headlines that read like footnotes to the 4 horsemen’s sightseeing tour. So, how can we have this extreme swing in opinion? We’re all getting the same numbers, and existing on the same planet, correct? Yet I’d swear I’ve never seen more schizo info. There’s nothing consistent, no standards of reporting, no BIG HOUSING CHART that we’re all referring to- like the digital counter ticking up the national debt ( I think they ran out of slots on that one).

Shouldn’t there be some agency (job security!), or body of standards keepers (bureaucrats) who sift through all the info and disseminate it into neat little bite-sized, easily digestible (And Accurate) chunks so those of us with lives to lead can get our (Useful) news and still have a life? I’m sure this was the original thinking behind the current crop of infotainment/news magazine formatted shows that we now channel surf through in search of actual information (had enough of MJ yet?).

As a Realtor, I spend a lot of time every week, reviewing current data on our local market, viewing current inventory, looking for trends, and hunting for the useful bits of info that can help my clients make good financial decsions. It’s up to me to filter out the noise, hone in on the facts, and extract the  hidden nuggets of truth. The pieces of data that don’t fit the trend line are commonly referred to as ‘froth’.

What I’ve been finding lately is that there’s frequently more froth than trend. With foreclosures, pre-foreclosures, short-sales, reluctant homesellers, hesitant home buyers, underwater builders, fearful banks, newly revised appraisal systems and lending standards all exerting pressure on prices, the resolute, able, focused homebuyer or seller has become a rare bird.

Providing clear, concise answers to pricing questions has become a black art; in a large black cauldron, blend 1/2 cup of recession (the cup is always 1/2 empty), 2 pinches of foreclosure, add 1 minced jobs forecast, a sprig of stock market turmoil, 1 new bailout, 1 eye of newt. Stir for as long as it takes one short sale to close (or for Countrywide to respond to an offer-60 days to 6 months), then bring to a boil over an open flame for 18 months. Serve cold. Leftovers are even more flavorful!

In spite of the fact that unemployment rates for Washington are still below 10%, and foreclosures make up less than 2% of the market, psychologically, their impact is much greater. When headlines trumpet endless destruction, it takes a strong will to keep marching to your own drum. Which is why steely-nerved investors are the first ones out of the trenches, snapping up everything that looks mildly tasty.  Just ask Warren Buffet- he’s the one who said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Tags: market, thoughts

I’ve tried writing an opening sentence that explains the heart of this post, and the shortest I could make it was more than 50 words, which is hella long. So let me try another tact.

• The American Recovery and Reinvestment Act of 2009 allows residents (first-time homebuyers) the purchase a home before December 1st a tax-credit of $8,000.
• The Washington State Legislature recently approved a measure that allowed eligible residents to use the promise of this credit to secure a loan from the state government so that those funds could be used on the down-payment of home, thus enabling people that have not saved the minimum 3.5% down the opportunity to (1) become a homeowner and (2) take advantage of the $8,000 tax credit while it’s available.
• Said measure sat in political purgatory as it seemed that the legislature (and other state legislatures that had approved the measure) may have overstepped their bounds – so the Department of Housing and Urban Development (HUD) has been meeting to decide if they were going to allow homebuyers that hadn’t saved the minimum down payment requirement to use state funds as a short-term loan for the down payment.

So the HUD has ruled: the tax credit can be used to close on a house, just not in any way that will actually help. As quoted from REALTOR Magazine:

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today. Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent. The loans can’t be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Let me try to explain simply why this doesn’t make sense. There are people that would like to buy a home right now for three main reasons:

1. Buying low: home values are down 25-50% throughout the country, so home ownership is more affordable.
2. Rates are low: interest rates have hit a historic bottom this year, which increases everyone’s buying power.
3. Free money: the $8,000 tax credit is a significant perk for those that make the leap into home ownership.

There are many requirements that have to be met before anyone can buy a home, but perhaps none more rigid than the down payment requirement. The only true “zero down” loans that I’m aware of in our current lending environment are VA and USDA loans. VA loans are only eligible to veterans of our military, and USDA loans are only available on homes within the boundary lines of certain rural areas. This makes FHA loans the most popular girl at the dance, requiring only 3.5% down (which is still half a percent higher than requirements before 2009).

I’ve said before that we have a perfect storm brewing in real estate, mostly for the 3 reasons I posted above: homes are more affordable, rates are down, and the $8,000 tax credit. Now that the word is getting out, demand is increasing, and as always, people in the real estate industry are trying to find ways to convert that demand into sales. Here’s the rub: the promise of a tax credit ends in five months, and if a buyer wants to buy a $300,000 home, they need to come up with $10,500 in order to make the minimum down payment. In an effort to make the dream of home ownership available to those that don’t have these savings, the Washington State legislature proposed lending up to $8,000 to homebuyers that were eligible for the tax credit. When the tax credit was received by the buyer after their home purchase, the loan would be repaid.

So the Department of Housing and Urban Development (HUD) was asked to rule on whether or not the tax credit could be used to secure the very home purchase that was a requirement for receiving the credit in the first place. Last week the HUD ruled that the loan programs could be offered to loan homebuyers who were eligible for the tax credit up to $8,000, to be repaid by said tax credit AS LONG AS those funds WERE NOT used toward the minimum requirement of a down payment of a home. The funds could be used for closing costs, or for any down payment on a home greater than the minimum requirement, but if a buyer needed to use the $8,000 toward their 3.5% down – then no, that could not be done.

I don’t necessarily disagree with the HUD’s ruling, I just don’t like the way they did it. We were effectively asking: “Dear HUD, can we put said cart before said horse?”, and they ruled no, the cart needs to stay behind the horse. But saying that a program could be developed allowing for buyers to use the $8,000 toward closing costs is a little like a credit card company offering a balance transfer to a customer with a zero balance. Buyer’s closing costs can be financed into the purchase of a home – negotiated with the seller to reduce their proceeds and rolled into the amount of the loan. The HUD didn’t need to offer to set up a program that will be difficult to setup and maintain (and more than likely won’t happen at all) to offer a solution to a problem we don’t have.

So, as a resident of Washington State, can you use the $ 8000 tax credit as down payment for a home? No. This effectively kills the measure approved by the Washington State legislature. If you want to buy a home in perhaps the best buying cycle we’ve seen in 30 years,  you’ll have to do it the old-fashioned way: save.