Two Breaches don’t make a Right…

We do a lot of transactions that involve buying or selling properties that are ‘distressed’ properties.  The dictionary defines distress as:  a state of extreme necessity or misfortune.  A distressed property might be anything from a vacant, bank-owned home, a pre-foreclosure that involves tenants being forced to move, or a traditional sale where the sellers are forced to sell and must walk away from a large down payment that has been lost to them in a declining market.  Currently, 60%-70% of all homes closing in the Phoenix Metropolitan area would fit into this category.

Distressed sales are never ideal for the sellers or residing tenants and can introduce a myriad of possible problems at close of escrow for a potential buyer.  What happens if the property is damaged or ‘trashed’ before Close Of Escrow (COE)?  What if the occupants leaving take appliances, fans, or fixtures that are supposed to convey or stay with the property?    What if a vacant property has had vandalism that has altered the condition of the home? 

What remedies do you have as a buyer of a home if one of the above problems arises shortly before close of escrow (COE) or recordation?

There is a short answer to this question and a long answer.  Most people want to know if they can refuse to close until the property is ‘whole again’ or demand some kind of compensation for the damage before close of escrow.  So here is the short answer:  Just because the other party has breached the contract, doesn’t give you a legal right to breach it as well.  How can you be breaching the contract by refusing to close escrow?  You agreed in the contract to close on a specific date.  Remember your mother telling you two wrongs don’t make a right? – Yep, it’s still true.

This post was originally 5x the current length it is now, because I started with the long answer.  The long answer involves taking a detailed look at the purchase contract we use in Arizona to define what the parties have agreed to in terms of:

1. the condition of the property
2. the inspection periods
3. the seller warranties
4. the seller’s obligation to inform the buyer of changes in the property
5. remedies the non-breaching party has against the breaching party

Suffice it to say that there is much that can be discussed and a great deal of detail along with different ways to circumvent through the above mentioned items.  It is imperative that your agent has extensive and skilled knowledge at trying to pro-actively address and protect you as much as possible.  For instance, Julie and I feel it prudent to conduct 2 walk-thrus of the property before close of escrow. The first walk-thru should be completed about 6 or 7 days before close of escrow and then a second one done a day or so before the close of escrow, after any occupants have vacated the property.  Will this earlier walk-thru guarantee discovery of a potential problem? – No, not necessarily (especially if the breach hasn’t occurred yet).  Might it help you discover a problem  before it’s too late to put into action some of the built-in remedies allowed for a breach of contract – specifically a 3 day cure notice delivered to the seller? – Absolutely!

Ultimately we will tell you this, when the property isn’t handed over in the same condition as it was when the contract was agreed upon, the solution is not as easy as the buyer refusing to close escrow and you could be forced to make some tuff decisions at the last minute.  Make sure you are prepared for the possibilities and realize that this is one of the inherit risks of getting a great home at rock bottom prices.

Thanks for reading!  

 

Etiquette and Manners for purchasing Short Sales in Arizona

Since Short Sales etiquette is not included in the Emily Post’s Etiquette Daily, I thought I might share a few things I have learned and observed the last 2 years that short sales has become a regular part of my real estate business.

1.  Short Sale and Pre-Foreclosure are the same thing.

2.  Make an extra effort to view a home advertised as ‘short’ or ‘pre-foreclosure’ when the occupants are not around.  They don’t want to talk to you.

3.  If you happen to run into owners or occupants/tenants while viewing a home advertised as a ‘short-sale’  Don’t ask them questions.  If it’s a tenant, they might not even know that the owner is selling short and the owner might not be ready for them to know that yet.  If it’s an owner….they are losing their home, this is not the time or place to ask questions.  have your buyer’s agent discuss details with the owner’s listing agent.  Don’t put the owner on the spot to discuss details of their uncomfortable position.

4.  Just because someone is selling short, doesn’t mean that they do not deserve the same etiquette when scheduling appointments, keeping appointments, locking up and leaving your business card.

5.  When writing a contract, DO NOT ask for any of the owners personal property  including appliances, furniture, lawn equipment, etc.  Don’t add insult to injury – they are already losing their home don’t ask for the few personal items of value they DO get to take with them.

Do you have a right to ask questions and find out specifics about the situation of the homeowners’ situation?  If you are a consumer/buyer – you have the right to ask your agent.  If you are an agent you better ask questions!  Don’t ask the owner though, ask the co-operating agent.  You need to find out some specifics regarding how many liens, amount and status of the liens, who holds them, at what stage the foreclosure is in, what documents have been sent to the bank etc…that is your job and you better do it – via the listing agent.

If you have additional items of etiquette for us to consider please leave a comment.  Thanks for reading.

Tipping Point – Arizona Housing Market

The million dollar question for the last several years in the Phoenix Metropolitan area is “when will the housing market hit bottom?”  This leads us to ask, “how does one define the ‘bottom of the market’? ” I am no statistician by any means, but you can only define “bottom” by looking backwards.  One can’t state that we are at the bottom now without knowing what will happen next month and the month after.  Usually when we talk about trends and defining trends in real estate, we want to see a four month consistency, or ‘last quarter’ type of stability.  If March or April of 2009  is the bottom of the market price-wise, we won’t know until mid to late summer.  We can only look back to determine with any certainty what the data tells us in relation to the broader picture.

Having said that we are definitely at a tipping point in the greater-Phoenix housing market.  Let’s look at both ends of the supply and demand  scale that impact our sales price.

Supply is the inventory of homes we have available for purchase.  At our peak in October 2007 we had 58,334 homes available.  To contrast this figure with the other market extreme of 2005/6 our inventory of homes was at a whopping 8,342 in April of 2005.   (Normal inventory is about 32,000 active listings) Now let’s look at the decrease in inventory over the last several months.

Phoenix Housing Market Decline First Quarter 2009

Now lets take a look at the supply side of the Phoenix housing market.  Pending sales is our most current indicator of the demand for homes.  While closed sales is arguably a more accurate indicator, because not every pending sale ends in a closed sale.  Closed sales again are looking backwards.  Pending sales are a more immediate picture of current demand.  So what do the pending sales in the Greater Phoenix housing market tell us?

Highest amount of Pending Home Sales than any other time in history in Phoenix Metro area

As the above chart indicates, are pending sales are through the roof.  As this chart is 2 weeks old now, our pending sales are even higher now at over 14,000 units.  We are currently several thousands units above what are previous high in the 2005 market.  I don’t know that we could have any clearer indicator of demand except what agents and buyers are experiencing out in the trenches right now.

Here is what I have heard from other agents in the last week. “I Can’t believe their were 18 offers on that house”,  “2 of the 5 properties I was going to show my buyer went under contract last night”  “The listing agent told me not to bother to write on homes if I was going to ‘low-ball’ – thing is, we only came in $5,000 under asking price – the listing agent told us we were the lowest price offer he had of 6.”

Thanks for reading.

‘Special Warranty Deed’ When Purchasing Foreclosed Home in Arizona

When conveying title on a resale home in Arizona the seller will usually convey title with a ‘general warranty deed‘; an exception to this is when that resale home happens to be a foreclosed home.  When purchasing a foreclosed home in Arizona, the seller (bank) will offer you a ‘Special Warranty Deed’ instead of a ‘General Warranty Deed’.  So what is the difference and how does it effect the purchaser/buyer?  Tiffany Malcom, branch manager at Grand Canyon Title in Gilbert, AZ explains what you need to know about a General vs Special Warranty Deed.

A general warranty deed is a promise to the buyer that the seller will warranty any prior problems with title, not just during the seller’s ownership, but back along the chain of ownership.

A special warranty deed, on the other hand, limits the seller’s promise (or warranty) to title problems that come up while the seller owned the property, but gives no warranty for problems prior to that point. They only owned the property long enough to build the homes so they aren’t willing to warrant buyers against something that happened to cloud title before they may have owned the land. Foreclosure property is another example where you often see special warranty deeds. The bank, like the builder, has no close relationship to the property and won’t bend over backwards to promise anything about the condition of title before they acquired the property through foreclosure.

These days, title insurance is the buyer’s best friend. Title insurance insures the buyer against past ownership problems, old liens, boundary issues, and so on. There may be exceptions in the title insurance policy, and owners should know what their exceptions are. For example, without a survey, a title company won’t insure against problems that a survey would have made known — encroachments, for example. That’s an exception and they won’t pay for problems that would have shown up with a survey. But unless there’s a specific exception, any other past title problems are covered.

For any other questions you might have on Title Insurance or Escrow procedures feel free to contact Tiffany Malcom @(480) 831-6066.

What kind of value does ‘Expertise’ Add? Can I measure it?

I have a confession to make.  It is sometimes a struggle for me to put into words the value that being a local full-time REALTOR can add to a transaction.

I can describe the process I go through with a seller for marketing their home, the method in which I communicate with them and others, and my business practices.  I can analyze statistics, market share, days on market, average sales price list to sales price from public data to make sure we are competitive.  I quite enjoy educating my clients in the mechanisms, steps we go through once an offer has been made on a home, accepted  and escrow is opened .  The items above are easy to put in an outline and describe to my clients in a clearly quantitative way.  You can measure these things and ‘see’ them quite clearly.

If the public has so much information available to them and discount brokers and limited service real estate companies will put your home on the MLS for you….why do you need a avail yourself of a local full-time real estate agent professional to sell your home or represent you as a buyer’s agent?

The answer is: “Expertise”, and expertise is not as easily defined, measured or visible to the non-practiced or unknowing eye.

Expertise in Timing

One of the families in my neighborhood had their home for sale with another agent for about 9 months.  (I only sell about 1/4 of the homes in my neighborhood as I have made an active decision not to market to my neighbors in any way.  I want to be a neighbor and friend; not the pushy salesman that happens to live in the neighborhood that my neighbors run from every time they see).  This particular seller had decided to take their home off the market for awhile and do some re-modeling of the Kitchen and Master Bath (which they asked me to come over and consult with them and I happily did).  While the home was off the market with their real estate agent,who happened to live in a different town, they had put a “For Sale By Owner” sign up on their home.  In the middle of November 2008 I ran into the wife and asked her how the work was coming on the kitchen.  While we were chatting she told me they were planning on taking their For Sale By Owner Sign down since the holidays were coming and ‘people don’t really buy’ and the market is ‘so slow’ during November and December.  I immediately started shaking my head “No” as I explained to her that while that may be true for the market in general, in the Mesa Groves area that we lived in, we actually get a burst of activity during the holidays and sell quite a lot of homes.  The timing for our area of Mesa was different then the market in general.  That neighbor showed the home in December of 2008 to someone that purchased it.

Expertise in Local Research

Do you know what Zillow is reporting as their own reliability for valuing homes in Arizona,  right now?  Zillow reports only 23% accuracy within a 5% sales price for the Phoenix Metro Area (see chart below).  That means that the other 67% of homes they have estimates sell for a sales price AT LEAST 5% different then what they estimate the home is worth. Only 65% sell within 20% of their estimate!  A starting point? – possibly, but by no means an expert authority on what a home is worth.

Do you know what the average ‘list to sales price’ is for the home you are making an offer on is?  What is the average Days on Market (DOM) for your neighborhood in the last 6 months?  How does your subdivision compare with the area or city average?  How many of the closed sales in your neighborhood, area of town, or city were foreclosed homes versus non bank-owned homes (or traditional sales)?  Does any of that matter?  Possibly, possibly not.  However, to find what is pertinent, I often have done much more research then is visible to my clients.  Any of the clients I have worked with will tell you that my primary weapon in negotiating besides a level head is knowing more than the other party.  I will attempt to analyze your position from every possible angle in order to be prepared ahead of time with market knowledge.

Where do I get my information from?  I use information from the MLS, the county assessor’s office, research outlets that I subscribe to, other agents, as well as my own knowledge of the market from experience.   I believe in the value in having your homework done when it comes to trends and facts.  My clients benefit from this involved local research and can’t learn this expertise themselves on the internet.

Expertise on the Contract

2006 –2008 I spent 80 hours in ‘official’ continuing education classes.  I spent many more hours in ‘non-credit’ continuing education.  A majority of that education is contract specific information.   Add to this that I have been using the contract full-time, that I consult with other agents using the contract and you might guess I am pretty-well versed on what the standard AAR contract is about.  If you are represented by yourself or an Uncle that works full-time for at another job and ‘dallies’ with real estate part-time on the weekends are you going to have any expertise available to you when it comes to the nuts and bolts of the contract?  Will you fully understand what you are signing?  Will you recognize if the other party is trying to pull a fast one on you?  There is a lot of money involved here, are you willing to ‘hope’ you have it right?

Expertise in Negotiating with Relevant Parties

Some of my clients are amazingly skilled at negotiating.  While I absolutely love negotiating and get a ‘rush’ from the banter and  back and forth of it all, I in no way have a “corner on the market”, so to say.  While my clients are not experts on the contract we use and limited by that knowledge, some do quite well with the larger ideas and ‘net proceeds’ aspects of a contract.  However, there is a lot more to negotiating then just finalizing the contract. On a listing, I start negotiating with the buyer’s agent from the very first phone call.  I know what makes my house unique from others in the neighborhood because I have done my research.  Every conversation I have with an agent, I am always pushing my client’s agenda and making my client’s case.  This is important because those agents make recommendations to their client in writing up the offer to purchase.  Often times, I have negotiated more money for you before the deal has even come across my fax machine.  Valuable?  Absolutely!  Can I measure this and communicate this to you in a quantitative way….not so much – but the value is there nonetheless.

What about negotiating to keep the deal alive?  I know the specific questions and dialogue to have with the other agent, the lender, and escrow agents during a transaction to identify possible problems and negotiate through them before they become deal killers.  Having a business practice of consistently checking in with all parties involved during the transaction allows me to monitor and negotiate as needed.

What about negotiating the repairs during the inspection period?  Negotiating with banks on foreclosed homes and short sales (could be another several blog post all to themselves)?  There is a lot of value on expert negotiating in a transaction that I bring my clients.

Expertise in remaining a Detached Consultant

A home purchase  or sale of a home can be, and often times does provide emotional turmoil at some point during the transaction.  Very rarely are there zero ‘snags’ or obstacles that need to be navigated through.  Often times, these can be trying for the buyer or seller who have an emotional stake in the outcome.  Most often I have dealt with the particular obstacle, or a variation thereof, and can keep a level perspective.  I want to provide the facts and alternatives to you in an unbiased way to assist you in accomplishing your goal.

Expertise in having access to Other Experts

The most common question I get as an agent is, “How is the market?”.  The second most common question I get is, “Do you know someone that I can call about …..(fill in the blank)?”  Clients and former clients know that I have had experience with all sorts of tradesman from housecleaning, handyman, roof repair, home inspectors as well as trade specific experts like lenders, escrow companies, real estate attorneys, property managers, etc….

Not only do I know of all sorts of people I can pass along for your own independent evaluation, but what about people I consult with during the transaction on your behalf that you might not even be aware of?  For example, my managing broker, Trudy Moore, is only a phone call away.  She is the managing broker for the largest real estate broker in the Southwest United States and is privy to all sorts of information that a smaller or independent broker might not have access to.  In addition, my broker has real estate attorneys on retainer and access to the AZ Department of Real Estate legal hotline.

I also have access to the research department at my local preferred title company that can often pull tax information, deed information, lien information, parcel history etc that is not easy stuff to get a hold of.  Often times I will have them pull information for me in my research and you might not ever know about it.

One of my clients works for Southwest Gas and has helped me get meters turned on at the last minute for inspections that otherwise would have caused days of delay.  I have several clients that are custom home builders that I have some times called to consult with on a specific issue.    I don’t overuse my connections with people, but I tend to become friends with my clients and we often have a reciprocal on-going relationship that last years after the transaction has ended.  Sometimes I am able add value to my service because of these relationships.

While I hope to knock your socks off with my marketing plan, tools and cutting-edge use of technology, and those things are easily measurable; it is much harder to define the ‘expertise value’ that I bring to a transaction.  This blog post is already well past the “ideal length” and I must let you get on with your day; but I hope I gave you some things to consider.  Please don’t hesitate to call or email with any questions, comments or concerns; and as always, thanks for reading.

This information is copyrighted by Tiffany Cloud 2009

Why 7.1% Unemployment in Arizona is ‘Good’

Image via Wikipedia

Of the states hardest hit by the housing bubble, Arizona’s unemployment rate is by far the lowest.  Historically Arizona has always benefited from a lower than average unemployment rate compared to the rest of the country.  When looking at the last 10 years statistics we had several years of 3-4% unemployment and average about 5%.  Yes, we are currently at a a decade high of 7.1% but that is still below the National average of 7.6% (Jan 2009), even though Arizona had the largest drop in home values in the nation for 2008 at 34%.  Think about it, with THE LARGEST DECLINE of home values in the nation wouldn’t one expect our unemployment rate to be much higher?

Let’s compare Jan 2009 Unemployment Rates in AZ to a few of the other states hit hard by the housing bubble:

	Current Unemployment Rate	Difference from National Average	Highest Monthly Unemployment Rate from 1985-2008
Arizona	7.1%	- .06%	7.7%
California	10.1	+ 2.5%	9.9%
Florida	8.6%	+ 1.0%	8.9%
Nevada	9.4%	+ 1.8%	8.4%

- data Bureau of Labor Statistics

Do I suspect that the  Arizona unemployment rate might go higher?  Sure, most likely; but let’s keep the rate in perspective with the rest of the nation, the other ‘bubble states’ and the fact that we are #1 for housing decline in the nation.  Unemployment is bad.  7.1% in this economy??….I can live with that.

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Mesa’s Historic ‘Citrus Corridor’ Explained

You might hear it referred to as “Mesa Groves”, “Citrus Sub-Area”. “Citrus Corridor” or just “The Groves”, they all refer to a protected sub-area in North-East Mesa, Arizona where estate size housing lots abound in and around 80-year old Citrus Groves.

There are many unique things that set this area apart from any other area in Mesa or the Valley. According to the City of Mesa’s Citrus Sub-Area Plan, the purpose of the sub-area is, “to provide estate-type residential uses and characteristics associated with large lot residential development.” Approximately 89% percent of the roughly 3 square miles is zoned R-35, low-density single-family housing, with schools and parks making up another 5%. In addition to miles of large estate size lots, a double row of citrus trees line most of the arterial streets and are incorporated into many of the sub-divisions and private lots. Consequently, The Citrus Groves Corridor has it’s own microclimate which can be 10-15 degrees cooler at night than the adjacent desert areas.

In order to protect and maintain the history of what remains of the once 1,000 + acre groves, developers are strongly encouraged to follow guidelines set forth in the Mesa Citrus Sub Area Plan.

Below are a sample of a few of the Guidelines of this Area Plan that promote a rural experience:

• All Garages Should be side or real entry
• All walls should be of solid masonry construction using natural stone, stone veneer, brick or decorative block in keeping with the rural theme.
• Minimum lot size should be no less than 30,000 square feet.
• Citrus Trees should be maintained with flood irrigation when possible.
• In the Citrus Sub-Area, all new residential development should promote and encourage custom home development on R1-35 zoned lots.

You are going to see a lot of mature citrus, grass and beautiful custom homes in this area.  While there is still evidence of a dessert, it is greatly muted by an abundance of green. From November to March is not uncommon to see an occasional John Deere tractor loaded with a trailer full of citrus driving down the street. People drive from all over the Valley to the few local citrus stands and stores that still remain in the area. In fact, Winter Visitors love to ship the fresh citrus to family and friends back east and beyond during the winter months. Several city parks, award-winning schools, a few churches and a couple of antique stores are also a part of this unique citrus sub-area. It is not a surprise, that The Phoenix Business Journal 2008 Book of List, states that Mesa’s wealthiest zip code, 85215, is a part of this unique area.  The Groves are bordered by Loop 202 freeway on the North with easy access to Scottsdale and Tempe and less than 15 miles from Sky Harbor International Airport and Arizona State University.

As of March 4, 2009, ¾ acre lot homes in The Mesa Groves are listed from $339,900 to $3,150,000. The average list price per square foot is $263 and the average listing has 5688 sq/ft. If you would like more information on homes in this unique area, please give me a call 888.668.4629 or email me Tiffany@CloudHomes.com