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.

There was a time when real estate agents helped people buy and sell homes. Then the market changed, and now we do a lot more counseling, some financial advising, negotiating short sales with banks, and on the flip side – evaluating properties for banks as they liquidate their foreclosed assets. Regarding the latter, banks ask real estate agents to complete BPOs (broker price opinions), to give them an understanding of the local market and an evaluation of the property’s value. Banks do not pay agents well for this service, but agents (including myself) do them in the hopes of listing bank-owned properties.

When completing BPOs, I have enough experience that if I’m familiar with the neighborhood I have an intuitive idea what the price of the home should be before I go about the work of proving it. My intuition is not enough for the banks though, so I have to complete a fairly rigorous form that goes over statistical averages for the neighborhood of the home that I’m evaluating.

I hate BPOs – but the truth is, doing them on a regular basis makes me a better agent. It’s easy to take what’s true for a majority of neighborhoods and assign the same market symptoms to every neighborhood. For instance, when evaluating most markets in Snohomish County, it’s easy to say that home values dropped 8-12% in the last year, or almost 1% every month. Here’s a graph to prove it (click on graph to load full scale PDF report):

If it’s a little small to read, here’s what you need to know. For all residential properties in Snohomish County, the average price has dropped 7% and the median price has dropped 8%. I’m not a statistician, and better people than I can explain the variables involved in a comparison like this, but the sake of brevity, let’s accept these values and move on (smile inflected).

So now, if you’re a homeowner in Snohomish County, I’ve just taken the wind out of your sails. Most people are hoping that we’re at the bottom, but with drops like these, that doesn’t seem to be the case. I’ve been saying for a long time that I don’t think that we’re at the bottom of anything, and until we get rid of the short sale and bank-owned inventory, it could be awhile until will do. But I would be in error if I led people to believe that this is the case everywhere.

Case in point: I recently had to complete BPOs in the Silver Lake / Silver Firs / Gold Creek / Cathcart neighborhoods, and I have two upcoming listings in these neighborhoods, and what I found was surprising (click on graph to load PDF report):

Compared to a year ago, the average price of homes in this neighborhood went up 7%, and the median price of homes sold only came down 1%. I do quite a few BPOs, and as I mentioned, I’d grown accustomed to seeing depreciation in almost every  neighborhood in Snohomish County. I’ve run these stats on different sizes and styles of homes, but the emerging trend that I see in these neighborhoods (Silver Lake, Silver Firs, Gold Creek & Cathcart) is that maybe – just maybe – we’re seeing signs of a stabilizing market.

No one will know for sure for several months, and just because we see some markets stabilizing doesn’t mean that the trend will continue. No one really knows what the impact of the tax credit expiring (eligible buyers had to be under contract by April 30th) means for the real estate market, but I can tell you that just about every neighborhood saw unusually high sales activity in March and April, and based on the trend for May thus far, activity will probably fall far short of those numbers. Even then there’s a trend – if you’re a homeowner in the Silver Lake, Silver Firs, Gold Creek & Cathcart neighborhoods, or if you’re a home buyer considering how much a neighborhood effects values, consider these graphs (again, click on either graph for a full PDF report). Let’s look at all of Snohomish County first:


So the red bar is the inventory of homes available (which is down 2% from last year), the blue bar is the number of homes under contract (up 33%) and the green bar is the number of homes sold (up 36%). Good news right? Anytime supply drops and demand goes up it’s a good thing.

Now consider the Silver Lake, Silver Firs, Gold Creek & Cathcart neighborhoods:

In comparison, available inventory in these neighborhoods dropped 1%, homes under contract rose 292%, and homes sold went up 88%!! So while it seems obvious that the expiration of the tax credit inspired home buyers to get in the game, it seems as though these areas are generating more sales activity than surrounding areas.

Overall, this is good news. I’ve gotten so used to seeing negative trends in our market that it took me a little while to recognize a positive trend. Do I think that that this means that we’re through the worst of it? No. Can I pause and enjoy the respite that a positive trend brings? Yes.

We’ll be doing further statistical posts regarding neighborhoods in Snohomish and King Counties, but if you need an analysis of your neighborhood in the meantime, please let me know.

SOLD – Echo Lake Estate

Immaculate Rambler on nearly 10 acres! Just thru the gated entry- a slice of private paradise. Situated atop a knoll on almost 10 acres, this 3bedroom, 2.75ba immaculate rambler beams with pride of ownership. Inside are generous spaces including an entertainment size kitchen w/eating space, a separate dining room, living room and family room each with cozy gas fireplace. Attached 3 car garage AND detached 3bay shop/RV/Boat parking. Covered back aggregate patio for “any season” bbq’ing. Standby 13KW *natural gas* generator means you’ll always have power!

Sold Price: $667,900

MLS#: 71578

Address: 12711 238th St SE, Snohomish, WA 98296

Bedrooms: 3

Bathrooms: 2.75

Square Feet: 2750

Year Built: 1996

School District: Monroe
High-Resolution Slideshow

Call Lisa Bender at 425-770-4438 or Jesse Moore at 425.876.0766 or Dennis Pearce at 206.931.9945 for more information.

I just listened to a great call with an eye towards what we can expect in the year 2010 in the housing and rate market.  A great point was brought up about the cost of waiting.  Right now the government has pushed some major incentives into the market.  In December of 2008 the government announced a purchasing program that pushed rates roughly 1% lower than where they were the previous month, and had been for almost a year.

The Government is also allowing for a TRUE TAX CREDIT of $8000 for first time home buyers that is set to expire in April.  These 2 things can make a huge difference for a first time home buyer.  If you wait to buy and rates go up the roughly 1% that most experts are forecasting, you would be looking at a cost of about 5% of your loan amount upfront to buy down your mortgage rate back down to current levels, on a $200,000 loan that is $10,000.  Add to that the loss of the tax rebate, that is nearly $20,000, or about 10% of the purchase amount.  A more impressive number is the lifetime cost of a mortgage that is 1% higher than the available rate today.  The 30 year cost of a $200,000 loan with a 1% rate increase is $45,000.

This is a call to action, if you are debating buying your first house, or moving up to a larger home, please consider the cost of waiting.

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.

help

One of the most frustrating forms of a real estate transaction of late is the “short sale.” We’ve had a lot of questions lately about this kind of sale, so I want to address some of the primary questions and myths.

1) A boy named Sue: There are a lot of misconceptions about short sales, starting with their name. A “short sale” is not a denotation of time – short sales actually take a long time to close. A short sale is a real estate transaction where the seller owes more for the property than the property is currently worth. In other words, the seller doesn’t have any equity and in order to sell, the bank is going to have to agree to accepting less than what they’re owed. For example, John Doe bought a property in 2007 for $380,000. It’s now 2010, and the local real estate market has tumbled. In a “choose-your-own-adventure” twist, let’s say that John (1) got divorced, (2) lost his job, (3) is transferred out of state, (4) develops a medical condition that forces a move, or (5) simply can’t afford his home anymore. John’s house is now worth $340,000, and since closing costs for most sellers run about 9% of the purchase price, if he was able to sell his home for $340,000 his net proceeds would be $340,000 (sales price) – $30,600 (closing costs), or $309,400. John owes the bank $380,000, so in order to sell, either John has to come up with $70,600 (which he doesn’t have), or (more likely) the bank is going to have to accept $70,600 less than what they are owed. The bank is going to end up short – so, this is a short sale.

2) Mr. & Mrs. Scott Free…: For a seller, deciding to sell your home as a short sale is not an easy one, and so we are always going to encourage our clients to consult with a bankruptcy attorney and their financial adviser. The primary benefits of a short sale to a seller will be reflected in their credit report – if they want to buy a home again in the next 2-3 years, then a short sale will be less damaging to their credit than a foreclosure and/or bankruptcy. The other benefit is simply timing – due to the overwhelming amount of short sales in recent history, the government has instituted The Mortgage Forgiveness Debt Relief Act which runs through 2012. Under the provisions of this act, sellers that short sale their home will be forgiven the potential tax burden that would otherwise occur because of debt forgiveness. For example, if the bank forgave John Doe (in the example above) a debt of $70,000, the IRS would normally treat that as taxable income, and now John Doe owes taxes on the amount the bank forgave. Because of The Mortgage Forgiveness Debt Relief Act, this forgiven debt will not be taxed, and John won’t owe taxes because of it. There are exceptions to this act, which is why we encourage our clients to speak to their lawyer and their financial adviser. Still – the primary benefit of selling a home as a short sale is that it can be less damaging to your credit.

3) …or not? Why wouldn’t I sell my home as a short sale? While the bank may agree to accept less to get the property sold, this doesn’t always leave the seller off the hook for the remainder of the balance. Indeed, there are cases where foreclosure is a better option for clients than a short sale (in short, talk to a lawyer and your financial adviser). If the bank (or banks) has agreed to a short sale, they’ll often forgive most of the debt, and may ask the the seller to sign a promissory note for a lesser amount, perhaps in the form of an interest-free or low-interest long-term loan. In a short sale the seller may not get off completely scott-free, and may have remaining debt after the sale of the home. Still, this debt will generally be much less than the amount forgiven.

4) I want to sell my home as a short sale – what should I know and do? Contact a bankruptcy attorney and discuss your options (if you don’t currently have a bankruptcy attorney, call us for a referral to one). It might cost a couple of hundred dollars, but it could save your credit and a lot of pain and suffering. Contact a financial adviser to see how a short sale or bankruptcy would affect your assets and the future of your assets. Contact a listing agent that has experience marketing short sale properties, and make sure that they work with an experienced negotiator that is going to negotiate on your behalf with the bank. Be prepared – this is usually a long and frustrating process, but working with a team of capable people will save you some suffering. We have enough experience to know what banks will and won’t pay for, and which banks are going to take a long time (national franchise banks) and those that might respond more quickly (local banks).

5) Who pays the real estate agents? And the excise tax? We don’t work for free (not on purpose anyway), and the State of Washington is going to want their 1.78% excise tax on the sale of your home, so a lot of people wonder how these get paid in a short sale transaction. For the most part the bank pays these fees. They usually negotiate these fees down, so the real estate agents might make a little less, and the buyer might have to kick in a little money to get the bank to move forward to closing. The State of Washington doesn’t forgive excise tax easily, so the banks have to pay excise tax if they’ve agreed to a short sale.

6) I’ve heard buying a short sale can be a great value. They can be, but for a buyer, there’s nothing short about a short sale. The process can take 6 weeks or 6 months (even longer – one of our short sales took 2 years!). The seller doesn’t have any money, so the properties usually aren’t in great condition and they aren’t going to be paying for any repairs. Yes – there is value to be had, but only for the patient. If you’re looking for a real value, focus on bank-owned properties. There’s a reason banks agree to short sales – on average short sale properties cost the bank about 15% less than if they were to take that same property through the entire foreclosure process.

Moral of the story: if you’re thinking about selling your home as a short sale (or if you’re a buyer thinking of purchasing a short sale property), you need to call us. Everyone’s situation is different, so the internet won’t give you the answers you need. Let us sit down with you and go over your options. We’re happy to help even if we don’t end up listing your property. Please fill out the form below and we’ll be in touch to help counsel you through this difficult process.

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