Glossary Posts

The difference between Bank Owned, Foreclosure, REO, and Short Sale

July 2011. This is an update and reprint of an article from June 2008. Reprinted because, sadly, it's still relevant. Updated because things in real estate are always changing. This information pertains to metro Phoenix, Arizona in 2011. If you're reading this from another locale or long after the publication date, please consult a professional in your area. We are Realtors, but we are not your Realtors; get local, professional advice.

REO, a.k.a. Foreclosure, a.k.a. Bank Owned -- the bank has already foreclosed and the former homeowner is long gone. In Arizona, there is no "Redemption Period" after a foreclosure during which the former owner can reclaim the home. Once the bank has foreclosed on an owner, it's game over. The bank owns this house outright and is selling it, almost always using a Realtor and an MLS listing. (There are extremely rare situations where a bank forecloses and doesn't obtain clear title to the home. How rare? In a combined 13 years of practice in metro Phoenix, we at ThePhoenixAgents have seen this happen once.).


Pre-Foreclosure - Treat these as "Short Sales".


Short Sale - In this case, a homeowner is trying to sell at today's prices which will not completely pay off his/her mortgage, and seller won't or can't bring enough money to the closing table to pay off the mortgage. The seller's lender will be left with a short payoff, hence the name.  If the seller can't get his/her lender's approval of the short sale, the sale will not happen.


Short Sales are sometimes great bargains for buyers, but these homes are frequently sold without any disclosures about condition, and are almost always sold As-Is. Buyers can inspect the house but Sellers/Lenders won't do any repairs.


Then, there's the Short Sale Waiting Game. Lenders are overwhelmed, they were never set up to operate a real estate brokerage in the first place, and will probably take a month or more to even acknowledge receipt of a Buyer offer. Total wait time can vary wildly depending on which bank you're dealing with. What are "normal" wait times? I've seen 2 to 9 months, with a personal record of 13 months from offer to closing (30-day escrow).


Want More Info? See all posts in our Short Sale category, or our Foreclosure category. Get even more information, and search for area short sale and foreclosure homes.

What's a Notice of Trustee's Sale?

In Maricopa County where Chris and Heather work as Realtors, the Notice of Trustee's Sale is the official notice that a bank has begun foreclosure proceedings against a homeowner.  Here's a run-down of the typical process as of today's writing.


Remember, this information is meant for Maricopa County, Arizona homeowners, buyers and sellers. Your local market might behave very differently, so consult a professional in your area.


closeup image of a portion of a mortgage applicationUsually, if a homeowner misses 3 to 4 mortgage payments, the bank that holds the mortgage may send the homeowner a Notice of Trustee's Sale. It's a 2 or 3 page document that states the original mortgage balance on the loan currently not being paid. It also lists the date scheduled for the foreclosure auction.  Sometimes the Notice is taped to the front door, sometimes I believe it's sent certified mail.


Regardless of method of delivery, the message in the Notice of Trustee's Sale is simple:  the homeowner has 90 days to come completely current on their mortgage, or make other arrangements with their lender, or the lender that holds the mortgage will foreclose, immediately and without further notice.


The foreclosure process in Arizona is very cut-and-dried. There's no redemption period, there's no additional notice required. You get your 90-day notice and that's all you get.


Homeowners who receive a Notice of Trustee's Sale may request a short sale or a loan modification, or a forbearance period, but the lender holding the mortgage is not required to agree to any of these. There's only 1 thing that obligates the bank which holds the mortgage to stop the foreclosure: if the homeowner comes completely current on the mortgage -- pays all back-owed payments, and pays off any/all penalties and fees imposed by the bank.


There are several circumstances where a Short Sale is the best of all possible uncomfortable options. Look for a post in the near future explaining why a Short Sale might be a homeowner's best option.

Fair housing laws

Theresa Boardman from the St. Paul Real Estate Blog wrote a great piece for Inman.com recently, about how confusing fair housing laws can be.

I support fair housing and I understand it and I understand why we have the laws. It is the language and the rules for following fair housing laws that I struggle with.

That language can be confusing. I cannot advertise a home as a family home or as a great place to raise a family, but on our multiple listing service homes are put in categories. They are labeled as single-family homes or multiple-family homes, condos or townhouses.

Some of my listings have two living rooms -- in the historic homes we can call them parlors. The second living room is always called a "family room." I don't understand why the term family room is not a violation of fair housing language.

We also use the term "master bedroom." I don't even know where to start with that term. Are the other bedrooms for servants? Usually a master bedroom is the largest bedroom in the house. It doesn't need to be called the master bedroom. It could be called the owner's bedroom, or simply the biggest bedroom.

She’s got a couple of great points! And as usual, it’s written in a very readable, engaging style. Love that Theresa.

As a professional Singleton, I’ve never thought about it… but now that I do, the term “family room” is a little odd.  It’s a little exclusionary, isn’t it?

I don’t have a family. Should I not sit in my family room? Should I call it a sitting room? What if I lie down on the couch while I’m in it? Then is it a Lying Room? Or is it a Laying Room? Are Laying Rooms for taking naps or laying eggs?

This reminds me of comic Stephen Wright, the other funny language guy.

 

And now I’m reminded of the original funny language guy, Gallagher.

 

Getting back to Fair Housing laws…for a real explanation click on this fair housing post. For online crime stats, demographics and walkability scores, click our “ThePhoenixAgents” Moving page.

Robo-signing

Image ID 1152432 by Stock Exchange user macaruba (image credit, StockExchange user macaruba)

We’ve all learned a new word recently: robo-signing.

The Big 5 Banks* are holding off on foreclosure proceedings in lots of US states because the employees in charge of signing off on the foreclosure documents have admitted to robo-signing up to 8,000 documents per month without reading each.

Robo-signing and the moratorium on foreclosures, so far as I can tell, doesn’t apply in Arizona. Foreclosures continue in Arizona at their usual pace. Why?

All the states so far affected by the robo-signing scandal are judicial foreclosure states. Arizona is not. In a judicial foreclosure state, the lender must file a lawsuit in court against the homeowner to begin the foreclosure proceedings. Those filing documents are the docs that were robo-signed.

In Arizona, homeowners don’t sign a Mortgage so there is no need for the lender to file a lawsuit to begin a foreclosure proceeding. Arizona homeowners sign a similar but slightly different document called a Deed of Trust. It’s the same idea as a Mortgage, just with an extra party inserted into the process. It’s a threesome: there’s a borrower (homeowner), a lender and a Trustee. The Deed of Trust system works just like a mortgage except in the cases of foreclosure.

The Deed of Trust that Arizona homeowners sign allows the lender to skip filing a foreclosure lawsuit if the homeowner gets behind in their mortgage. The lender simply mails or delivers to the homeowner a document called a Notice of Trustee’s Sale (a “NOTS” or “NoTS”, i.e. a foreclosure). Usually the lenders issue a NOTS after 3-4 missed mortgage payments.

The NOTS is the only notice of their intent to foreclose that Arizona lenders are legally required to provide. It states that the homeowner has 90 days in which to bring the mortgage payments 100% current – including any fees, fines or legal costs – or the Trustee will sell the home at foreclosure auction. On Day 91, the home is auctioned off, unless the homeowner contacted the lender and made other, mutually agreeable arrangements.

Trustees are often attorneys and sometimes the auction takes place in their offices rather than “on the courthouse steps” as in some other states. At least in Arizona, lenders are frequently unable to sell the home to anyone at the foreclosure auction. In that case the lender takes the house “back” and usually lists it for sale in the MLS through a Realtor as an REO property.

We at The Phoenix Agents track REO listings to help us visualize the overall health of the local real estate market. Want to see our stats? Click on over, to <here>.

The Big 5 Banks are: Bank of America, GMAC, JPMorgan Chase, Citi and Wells Fargo. The Big 5 is just what I call them; it’s not a real thing. That I know of.

Mortgage rates hit the mid-4’s!

A snippet of an article from CNN’s Money section:




NEW YORK (CNNMoney.com) -- Mortgage rates continued to decline this week, plunging to the lowest level in decades, according to surveys from Freddie Mac and Bankrate.


Freddie Mac's weekly report said the 30-year fixed rate slipped to 4.44% for the week ended Thursday, the lowest since the government-backed lender began tracking the rate in 1971. Last week's rates stood at 4.49%, and a year ago it was at 5.29%.



Wow!  Some of our readers are doubtless old enough (like us) to remember the early 1980s rates of 14%, 16% and higher.


Here’s a nifty chart from The New York Times that gives a great visual of the history of home mortgage interest rates going all the way back to 1900!



historic mortgage rates 1900 to 2009

What’s it mean to you, the home buyer?


If you’re buying, a 1-point drop in interest rates means you can buy more house. A lot more. Call or email us to help you figure out the numbers for your own situation. But here’s an example.

Let’s say you’re financing $150,000. . .














Amount Financed = $150,0004.5%
Mortg Rate
5.5%
Mortg Rate
6.5%
Mortg Rate
Monthly Payment
(principal & interest only)
$760$852$948

Let’s work it the other way.

Let’s say you’re trying to keep your payment at about $950 per month, for principal and interest (not including property taxes, HOA fees, etc).














Desired Payment = $950/monthInterest Rates are 4.50%Interest Rates are 5.50%Interest Rates are 6.50%
How much home can you buy for desired payment?$187,000$167,000$150,000

Holy cow! If rates drop from 6.50% to 4.50%, the homebuyer who’s aiming for a monthly mortgage payment of $950 can suddenly buy $37,000 more house for the same monthly payment.


Given that mortgage rates change almost daily, but home prices change much more slowly, home buyers do themselves a favor if they watch long-term mortgage trends instead of focusing only on home prices.



What does this mean for home sellers?


If you’ve been considering a price drop lately, you might be able to put it off for a few more weeks. The rate drop means potential buyers’ money goes further. Of course whether you need  a price drop or not depends on your situation. Check with your Realtor. And ask yourself why you didn’t hire Chris & Heather, The Phoenix Agents at Thompson’s Realty in the first place. We’re awesome and here’s some of our clients who say so.

All about Federal Fair Housing law

This is a reprint of an earlier post.



Federal Fair Housing law prohibits discrimination in the sale, rental or financing of housing because of:

  • Race or Color

  • National Origin (the country in which one was born)

  • Religion

  • Sex

  • Familial Status (whether one has children or not, whether married or not)

  • Handicap/Disability


Some states include additional groups, such as “sexual orientation”. You can check your state’s protected classes here. Fair Housing Law as it stands now is an amalgamation of various laws enacted during the late 1960s and mid 1970s.**


Notice that age is *not* on the list. Metro Phoenix has lots and lots of “active adult” communities which restrict the minimum age of their residents. As an aside, we used to call these retirement communities. Apparently we don’t retire anymore, we just get active.


The most common question I hear from buyers is “Is this a good neighborhood?”


What they’re really asking about of course, is either the crime rate or the type of people living in the area. Fair Housing law prevents me, your Realtor from telling you about the neighbors if that conversation might stray into discussing one of the protected classes. Most Realtors just don’t discuss the topic at all, for fear of violating Fair Housing law. It’s rumored that the FHA sends testers out to work with Realtors, secretly checking for violations of the law. True? I don’t know but I don’t want to find out.


Besides, my idea of “nice” or “good” neighbors might vary wildly from yours. Some people find the idea of living near folks of another race, religion or sexual orientation is a big problem. Most don’t care. My best advice to buyers in this scenario is to drive through and walk through the neighborhood yourself, at different times of the day, to see what you see. Talk to your potential new neighbors. Visit a grocery store, or a park in the area. See if you feel comfortable in the area.


As for crime, I can and will point you towards websites that list crime statistics, usually by ZIP code. I usually beg off answering the ‘crime’ question, because one person’s ’safe neighborhood’ is another person’s ‘fringe neighborhood’ is another person’s ‘hood.’


Housing not covered by the Federal Fair Housing law





  • Single family housing not sold through a broker


  • Owner-occupied housing of no more than 4 units (you own a duplex & rent the other side)


  • Housing operated by private clubs which limit membership (co-op’s)


The first bullet above applies to For Sale By Owner homes. Selling it yourself? Discriminate all you want. I’m kidding of course, but the government can’t interfere if you want to sell your home yourself but intend to refuse to sell it to Australians born in New Zealand who practice the B’hai faith.


The second & third bullet points don’t apply much in metro Phoenix. But there are  some duplexes and fourplexes in our Valley, and even a few co-op’s down in South Scottsdale. No one can force you to rent the other side of your duplex to a family with 17 kids if you abhor children. Similarly, the co-op board reviews applicants who want to purchase a unit, and they make their own rules about who can move in.


For more information, see the Federal Fair Housing booklet and information about updates to Fair Housing law. Think you’ve been discriminated against in housing? The National Fair Housing Advocate Online can help. Note that all these resources apply to housing you buy. For help with rental situations, see the Arizona Residential Landlord Tenant Act.



Related Posts

**As a side note, I do actually remember overhearing a mortgage banker telling my just-divorced Mother in the early 1970s that they couldn’t possibly transfer the mortgage on our home from “Mr. and Mrs.” to just “Ms.” because. . . well, she was a woman. . . don’t you see. . . she could get pregnant, and then how would she pay the mortgage? When you think about it, it’s really astounding that was only 40 years ago.

All about the Phoenix monsoon

This is a reprint of a post from summer 2009.

When I was a kid and we moved here in the late 1970s and early 1980s, the knee-jerk reaction answer to "When's the monsoon?" was “August”.

With the heat island effect, it seems like the monsoon arrives earlier and lasts longer each year. In 2008, the National Weather Service announced they would date the monsoon season in Arizona from June 15 to September 30 each year. In prior years, the weather services had dated the beginning and ending of the monsoon season based on meteorological readings of the barometric pressure, temperature, humidity, etc.

According to Wikipedia:
The North American Monsoon (NAM) occurs from late June or early July into September, originating over Mexico and spreading into the southwest United States by mid-July. It affects Mexico along the Sierra Madre Occidental as well as Arizona, New Mexico, Nevada, Utah,Colorado, West Texas, and California.

Monsoon With a Dust Storm Chaser

Monsoon with a dust storm chaser originally posted on Kathy Anderson’s AZ Active Retirement Living blog
Monsoon Clouds Over Phoenix Skyline

monsoon over downtown Phx image courtesy of The Downtown Phoenix Journal
Monsoon near Quartzite Arizona, 1976

AZ monsoon near quartzite, AZ 1976 CDouglas Stockdale on DouglasStockdale DOT com photo courtesy of, and copyright by Douglas Stockdale
Video of Monsoon Storms

Here’s a really exciting video about Phoenix monsoons created by the local CBS news affiliate, channel 10 (hat tip to Kathy Anderson for linking me to it). The video clip is undated but it appears to be a retrospective of the 2008 monsoon season, which was one of the Valley’s 10 worst.

In the video, CBS reporters talk to a hi-rise condo owner in downtown Phoenix who shot video of the August 28 (2008?) storm as it swept across town, blew out the windows in his condo, and then proceeded to dump cherry-sized hailstones into his living room!

At about the 6:28 minute mark of the video, there’s a mind-boggling shot of a huge dust storm surging across the Valley. It reminded me instantly of the videos of the 2004 Indonesian tsunami.
Just the Facts, Ma’am

Are you the type who likes detailed statistical information instead of shocking videos? Here’s the National Weather Service explaining the meteorological in’s and out’s of monsoons. Local news AzFamily Channel 3 has some more great statistics on wind speeds and dollars’ worth of damages during monsoon season.
Related Posts and Information on Other Sites

What’s a mortgage rate lock?

Courtesy of a finance blog I read regularly, Dan Green at The Mortgage Reports. He explains mortgage rate locks better, and quicker than anyone I’ve ever encountered.



A Rate Lock Commitment is a bank's promise to honor a specific mortgage rate for a specific period of time.  It's a contract, of sorts, in which the lender says: "Provided you close on your loan in the next however-many days, we'll make sure you get your locked rate."

Want more information? Lots more? Visit the Consumer’s Guide to Mortgage Lock-Ins by HSH Financial Publishers. In addition, the Federal Reserve publishes a pamphlet about mortgage rate locks.

The Credit Crisis, in Video

Found this amusing little video this morning, courtesy of a company called XPLANE. They're very much like Common Craft, who I love.


Clocking in at a little under 4 minutes, it explains the recent US financial meltdown simply, easily and with cute little stick figures and audio.  I think it must have been created last fall sometime, just as the first giant government bailout was announced.


Enjoy. Or not, depending on your political leanings and general anger level.



What Does AWC-I Mean?

AWC means Active With Contingencies, at least in the metro Phoenix real estate market where we work. In plain English:




  1. The seller accepted a buyer's offer,

  2. They're under contract, but

  3. There are contingencies that must be satisfied before the sale can close, and

  4. The seller might accept backup offers.


Some common contingencies, in years past:




  • the buyer has a home that must sell before they can buy a new property

  • the seller instructed his/her Realtor to continue marketing the home, hoping for backup offers

  • the seller accepted a buyer's option offer to buy the home


However, in metro Phoenix today, the most common reason homes show up as AWC-I is that they are short sale homes with an accepted offer that's awaiting bank approval. (edited August 2, 2009: 89% of the properties in the AWC-I status are short sales. If you see a property coded AWC-I there's only a 1 in 10 chance that it's not a short sale.)


How long does it take to wait for short sale approval? Depends on the bank(s) involved with the seller's mortgages. Sometimes the seller's lender approves the deal in only 60 to 90 days; sometimes the seller's lender takes 6 to 9 months to approve the buyer's purchase contract. Sometimes, the seller's lender rejects the purchase contract, or demands different terms (issues a counteroffer).


Can a 2nd buyer offer more money than the 1st buyer, and get the home? (edited with more current info, Spring 2011) This sometimes happened in 2008 and 2009. As of mid-2010 and beyond this almost never happens. Bumping out another buyer is actually a serious breach of contract law and most Realtors will never do it. But banks are the ultimate "deciders" in a short sale situation, and banks frequently don't act as if they feel bound by contract law. So, in theory a 2nd buyer could bump out a 1st buyer, but in day-to-day reality in metro Phoenix, this almost never happens.


Did you know AWC homes show up as Active (for sale) in many national real estate websites? AWC is a hybrid, in-between status that metro Phoenix uses that isn't recognized by a lot of the national websites like Zillow and Trulia. It can be really frustrating for online shoppers to see homes marked Active that are really sold, and just awaiting final approval of the closing.


For more information, try reading some more articles in our Foreclosure category or our Short Sales category.  Ready to search for homes online? We offer the best access to the live MLS data, updated in real-time!  Search only foreclosure homes... search only short sale homes... or search all Phoenix-area homes.  Have additional questions? Contact me by email, phone, Facebook or Twitter and I'll be happy to chat.

Real Estate Glossary - Pot Shelves

No, these are not a place to keep your stash. Or your mis-spent youth. Although they often become the reliquary of all things green.



Starter Home KIT normal

See up above the kitchen cabinets where the fake green plants sit? That’s sort of a pot shelf.


Here are some more.



pot shelves in LIV RM

pot shelves in FAM RM blurry

Just to prove that it’s not only working class families who don’t know what to do with pot shelves:


pot shelves at 2M This photo is from a home listed for sale at $2,000,000.  Two million smackers and still we can’t figure out how to effectively utilize pot shelves. Personally, I put pot shelves in the category of “everybody says they want one, but then nobody uses it once they move in.” Kind of like garden tubs.



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When Is It Monsoon Season in Phoenix?

A former client’s question prompted this post, so thanks Jon!


According to Wikipedia:




The North American Monsoon (NAM) occurs from late June or early July into September, originating over Mexico and spreading into the southwest United States by mid-July. It affects Mexico along the Sierra Madre Occidental as well as Arizona, New Mexico, Nevada, Utah,Colorado, West Texas, and California.



When I was a kid and we moved here in the late 1970’s, the knee-jerk reaction answer to "When's the monsoon?" was “August”.


With the heat island effect, it seems like the monsoon arrives earlier and lasts longer each year. Last year, the National Weather Service announced they would date the monsoon season in Arizona from June 15 to September 30 each year. In prior years, the weather services had dated the beginning and ending of the monsoon season based on meteorological readings of the barometric pressure, temperature, humidity, etc.



Monsoon With a Dust Storm Chaser


Monsoon with a dust storm chaser originally posted on Kathy Anderson’s AZ Active Retirement Living blog

Monsoon Clouds Over Phoenix Skyline


monsoon over downtown Phx image courtesy of The Downtown Phoenix Journal

Monsoon near Quartzite Arizona, 1976


AZ monsoon near quartzite, AZ 1976 CDouglas Stockdale on DouglasStockdale DOT com photo courtesy of, and copyright by Douglas Stockdale

Video of Monsoon Storms


Here’s a really exciting video about Phoenix monsoons created by the local CBS news affiliate, channel 10 (hat tip to Kathy Anderson for linking me to it). The video clip is undated but it appears to be a retrospective of the 2008 monsoon season, which was one of the Valley’s 10 worst.


In the video, CBS reporters talk to a hi-rise condo owner in downtown Phoenix who shot video of the August 28 (2008?) storm as it swept across town, blew out the windows in his condo, and then proceeded to dump cherry-sized hailstones into his living room!


At about the 6:28 minute mark of the video, there’s a mind-boggling shot of a huge dust storm surging across the Valley. It reminded me instantly of the videos of the 2004 Indonesian tsunami.



Just the Facts, Ma’am


Are you the type who likes detailed statistical information instead of shocking videos? Here’s the National Weather Service explaining the meteorological in’s and out’s of monsoons. Local news AzFamily Channel 3 has some more great statistics on wind speeds and dollars’ worth of damages during monsoon season.



Related Posts and Information on Other Sites



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Real Estate Glossary - Coffered Ceiling

Usually seen in upscale (read, expensive) homes. Encyclopedia Brittanica online uses this definition:




in architecture, a square or polygonal ornamental sunken panel used in a series as decoration for a ceiling or vault. The sunken panels were sometimes also called caissons, or lacunaria, and a coffered ceiling might be referred to as lacunar.



coffered ceiling 1


coffered ceiling 2 more


coffered ceiling 2


If the builder or homeowner wants to you to think they’re really fancy-schmancy, they extend the coffer into squares. This is usually seen in the office/den or the dining room.


coffered ceiling boxes


Coffered ceilings have been around for a long time. An example from the 15th Century - a flat-panel coffered ceiling with gold overlay, in the Duomo, a medieval cathedral in Pisa, Italy next to the Leaning Tower.


coffered ceiling example 15thC Pisa Duomo ceiling picture credit to Wikipedia user Lofty


A modern example, from the Washington Metro station, Washington, D.C., USA, upper level tracks (circa 1968).


coffered ceiling in Wash Metro picture credit to Wikipedia user Kkmd


If you’re so inclined, Google Images has a great stock of different types of coffered ceilings.



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Banks "Hoarding" Foreclosed Homes?

Folks in the real estate industry have been debating for months about whether or not there’s a “shadow inventory” of homes banks have already foreclosed on, but have not yet listed for sale.


The theory says banks will eventually open the floodgates, list all their hoarded inventory and home prices will take another shocking nosedive. They follow up by saying don’t buy now, wait until the banks let loose and prices drop another 20%.


So, is there a shadow inventory?


Not according to Mike Orr. He runs the statistics-packed subscription real estate website The Cromford Report, which focuses on the greater Phoenix real estate market.




This is palpable nonsense.


Let’s look at why the shadow inventory is relatively insignificant:


First, we need to establish how many properties have been foreclosed but not yet sold to a third party. It takes much time and effort to establish this, particularly because government entities are not required to file an Affidavit of Value when they deed property. They get an "A-3" exemption. However Tom Ruff of the Information Market is up to the challenge and has counted all the trustee sales, searched for subsequent sales to third parties, accounted for all the A-3s and produced a spreadsheet of shadow inventory counts by ZIP code within Maricopa county. There are a total of 18,386 homes within Maricopa county in REO status.


How many of these are in the ARMLS system as of this morning?





  1. 5,213 are active


  2. 7,170 are pending (i.e. in escrow)


  3. 477 are temporarily off market (in many cases because multiple offers are being negotiated)


Thus there are 12,860 accounted for. So the "shadow inventory" of REOs not currently being marketed through ARMLS for Maricopa is 5,526. No doubt many of them will be listed in the next few weeks.


Is this number likely to cause a flood? Absolutely not. This represents less than 1 month of supply based on the current rate of purchase of REOs through ARMLS (which is 5,556 as of today). In fact if this is the only new supply, the inventory of active REOs will fall over the next month, just as we expect. The trustees would have to increase the rate of their sales substantially to keep up with the current market demand for REOs.


So we can conclude, at least for Greater Phoenix, that shadow inventory is a fake issue.



I’ve got to say, so far I’m with Mike Orr on this point. The amount of buyer interest in bank owned homes continues sky-high. Nearly every buyer I’ve worked with this spring & summer who’s focusing on bank owned homes has faced multiple offers, bidding wars, and is often losing out to cash investors.


That’s the case from the very low end (sub-$75,000) all the way up through to the high $400,000s. I haven’t been looking at bank owned homes above $500,000 in the past 2 to 3 months, so can’t knowledgably comment on what’s going on up there. Any readers with first hand knowledge of making offers on bank owned homes above the half-million mark? Please comment.



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Note: I originally picked up on Mike’s story via Irene Hammond’s Click to Arizona website.

Sunday Stats

bar-graph-by-miamiamia-id-987804photo credit to MiamiAmia, courtesy of StockExchange. See the entire series for historical perspective.

Time for another edition of the Sunday Stats


2-15-2009-11-48-12-am

Background and Color Coding: red is bad, green is good, inasmuch as it means the stats are moving towards a balanced market. Most local experts/forecasters and Realtors use 6 months' supply of inventory on the market as the benchmark for a balanced market. Months of inventory is a measurement of how long it would take to sell every house currently for sale, if no new houses were listed for sale and sales continued at the current monthly pace. In metro Phoenix, balance is usually reached at about 5,000 sales per month and about 30,000 to 35,000 homes for sale.


There's a whole lotta green going on, and that's good news. I find it interesting that the green in the sold columns is mostly in the ZIPs I consider outlying parts of metro Phoenix. ZIPs closer to downtown Phoenix, particularly 85012, 13, and 14 continue to suffer with too much inventory for sale and not nearly enough selling. That seems to make sense, at least as much as it follows the old real estate adage "drive until you qualify."  That's a saying that basically means that a buyer who's intent on getting exactly what he wants often has to drive outwards from the downtown core to get to a place in the suburban sprawl where what he wants is affordable. That seems to be holding true in our downturn just as much as it held true in the price run ups of 2005 and 2006.


Green in the Pending columns but red in the Sold columns (like you see in most of the ZIPs from 85012 to 85024) seems to indicate either (1) a coming 'bulge' of sold homes, or (2) more likely homes that go under contract and then the deals fall apart during the home inspection ("Due Diligence") period.



2 Phoenix Area ZIPs Where It's GOOD to be a Seller


The media is filled to bursting with the phrase "buyers' market" and almost every person I talk to thinks "nothing is selling", "nobody can get a mortgage" and "sellers are taking pennies on the dollar these days."  No so!At least not everywhere.


It's good to be a seller in ZIPs 85379 and 85053. There's just about 6 months' worth of inventory on the market, and properties are generally selling quickly (if they're right-priced). Some specs:



ZIP 85379



  • Average time on market is just 48 days

  • Average sales price is a mere 2.05% less than the final list price (7.89% less than the original list price)

  • Average sold price is $149,349 ; median sold price is $143,000


ZIP 85053



  • Average time on market is 54 days

  • Average sales price is only 3.51% less than the final list price (14.08% less than the original list price)

  • Average sold price is $100,178 ; median sold price is $97,000


But just who are those lucky sellers who are getting nearly full list price in just a few weeks?? Banks. The stats above are for bank owned homes in both ZIPs. And banks are just about the only ones selling anything in these ZIPs (bank owned homes account for 77% of sales in 85379 and a whopping 89% of sales in 85053).


Banks are selling in the 85022 ZIP too. They're taking just a few days longer on average (66 days on market) but are getting a wee bit closer to their original asking prices (homes sold, on average, for 12.89% of original list).


What's the difference between ZIPs 85379 / 85053 and ZIP 85022? In the former, 15% of homes for sale actually sold in the past 30 days.  Things aren't so rosy in 85022, where only 3% of homes for sale actually got sold in the past 30 days. If you're a buyer looking to be in the 85022 area, take this info with you and drive a hard bargain when you make offers on properties! That seller you're negotiating with has only a 3 in 100 chance of selling if she/he doesn't make your offer work.


Till next week, this is your stats lovin' Realtor signing off.

Help Me Help You

Was it Cuba Gooding, Jr. in Jerry Maguire who said that? Dunno. Anyway, it reminded me of something.


Read a short article today in a Woman's Day-type magazine about things you can do to make your doctor's visit more efficient and effective. Over the years, I've developed a similar "article" which I email to folks who find me via this blog. The below is pretty much straight out of that email.


Buyers who have the answers to these (or most of these) questions firmly in mind are ready to go house shopping efficiently and are likely to find The One more quickly and with less frustration.





  • How long have you been actively looking for a home? How much longer do you want to spend looking?


  • Have you been looking online only, or have you been to open houses?


  • If relocating to Phoenix, do you plan to find a house first, or a job first? The Valley is ginormous, and the rush hour commute from Northwest to Southeast corners could easily be 2 hours.


  • How long do you think you’ll own?


  • House, condo or patio home? What’s your tolerance for yard work?


  • What size home is ideal to you?


  • Are you OK with an older home, or do you feel more comfortable with newer construction? Keep in mind that in the metro Phoenix region, “old” homes were built 30 to 50 years ago, not much more.


  • Do you have pets that we should consider when looking? Or hobbies that require unique storage space?


  • What does “fixer-upper” mean to you - paint & carpet, or replacing drywall & cabinets?


  • Is a private pool in your own private backyard a must? A nice thing? Or out of the question?


  • Is our first meeting a buying trip or looking trip? The answer will help me prep the most pertinent info for you.




Please note that the purchase contract used by all Arizona Realtors requires buyers to submit proof of their ability to pay when they make an offer. Getting a mortgage? You’ll need a Loan Status Report (LSR). Talk to any lender for about 15 minutes and you’ll get one; have them send it to me. Paying cash? A copy of a bank statement will do. I do require that buyers have this proof of ability to pay before we get in the car to go looking at houses.


I’m bound by the Realtors’ Ethics Code of confidentiality and a duty to protect your financial best interests.


I’m also bound by federal Fair Housing law. I can’t say “this is a bad neighborhood” or “this is a good neighborhood.”  But I can and will say “If you have concerns about that neighborhood, you should drive or walk through it on different days of the week at different times and see what you think. Meet some neighbors if you can. When all else fails, trust your gut.”


Don’t forget you can check out various neighborhoods online. See the links on our Moving page.


Related Posts:



Earnest Money

money-under-magnifying-glassWHAT IT IS


Earnest money is the amount of money a buyer submits with an offer to purchase a house. You actually write a check (or a copy of the check) and send it with the purchase offer.


Earnest money proves the buyer is 'in earnest', or serious about buying that house. If the seller accepts the offer, the earnest money is immediately deposited with the escrow/title office. It becomes part of the purchase price of the house.


A personal check is usually acceptable for earnest money.


Working with a lot of Canadian investors lately has taught me that many Canadians call it the "Deposit".



HOW MUCH IS RIGHT?

A really common question I'm asked by buyer clients (especially first time buyers) is, "How much earnest money is the right amount?"

Technically, I'm not supposed to tell you. At least that's what I remember from my rookie training classes. If I'm remembering correctly, I think this was a rule dreamed up by the legal eagles in our profession. They worry that if Realtors simply tell clients what to offer, how much to put down, how much earnest money to offer and so forth. . . . well, we're essentially price fixing and could be sued later by disgruntled buyers who are having buyer's remorse.


I used to be a paralegal and have lawyers in the family, so I'm pretty ultra-sensitive to the myriad of ways agents get themselves sued. Since I like to keep on the right side of my company's legal department, and since I haven't got a brass farthing worth suing me over, I won't state a 'proper' earnest money amount here.


But it's typical to put 1% to 2% of the purchase price up as earnest money.


HOW MARKET CONDITIONS CHANGE EARNEST MONEY


2005 and early 2006 were boom-boom years in the metro Phoenix real estate market. Sellers received multiple offers after only days or hours on the market. Sale prices were frequently above list price, and buyers often waived many of their usual inspections and contingencies just to secure the house. This is an extreme seller's market.


In a seller's market earnest money often amounts go up. Buyers are competing against each other to buy the few properties available and increase their earnest money and/or down payments to make their offer look better than others' offers. I commonly saw earnest money amounts in the tens of thousands. It wasn't unusual to see earnest money amounts that were 4% or 5% of the purchase price, or more.


Today we're in an extreme buyer's market. In many cases earnest money amounts have dropped as a result. I've recently seen purchase offers for average priced homes ($200,000 to $300,000-ish) with earnest money of only $1,000 (that's less than 1%).


Properties that first time buyers typically buy (condos, any property under $125,000-ish) often bring earnest money amounts at $500 and under. Some cash-strapped first time buyers using FHA loans even ask that earnest money be refundable at close. They often apply that money to the closing costs. (see more about buying with little or no money down here.)


EARNEST MONEY EXAMPLE


For example: Buyer looks at a house with an asking price of $299,900. Buyer makes an offer of $280,000. That $280,000 is made up of - (1) $3,000 earnest money, (2) $40,000 cash down payment, and (3) a promise to get a home loan for the remaining $237,000.


RULE OF THUMB


One rule of thumb about earnest money is, "put up as much earnest money as you can afford to risk." The risk bit is important. Earnest money is forfeitable if the buyer breaches the contract. In plain English this means that if you, the buyer, back out of the purchase after your Due Diligence period, the seller has the right to keep your earnest money as compensation for the lost time on the market.


Related Posts -



What's A Fixture?

My broker Jay Thompson explained "what's a fixture?" on his real estate FAQ blog, which I'd like to expand on. Normally I think everything Jay does is perfect and no expanding is needed. Buuuut, I'm running a little low in the inspiration department, even lower in the time department, and I realized that I haven't written a Glossary post in a long while. Plus, some new trendy household items can cause confusion.


Briefly, fixtures are items attached to the house using screws, nails, glue or similar means. Where things get a little tricky lately is with items some of the newer must-have pseudo luxury items, such as:




  • satellite dishes

  • flat screen TVs

  • those fancy new bathroom mirrors that look like art because of their beautiful frames

  • the trendy new bathroom cabinets that look like a piece of free-standing antique furniture and often have (expensive) marble tops


Two other possibly confusing items are




  • above ground pools (OK, they're uncommon these days, but not extinct by any means)

  • heavy concrete patio benches or garden gnome type decorative items


If you follow the rule of thumb - is it attached using screws, nail or glue - all of the items in the first list are attached, are therefore are fixtures and therefore must stay with the house when it's sold. Following the rule of thumb again says all the items in the second list aren't attached and therefore go with the sellers.


If one were of the attorney persuasion, one could make an argument that the antique-look bathroom cabinets aren't technically attached, it's the plumbing that's attached, and so the plumbing stays but the cabinets don't... and [insert lawyerly babble here].


Court room arguments aside, I'd bet that most sellers with these items in their home expect to take at least some of the items when they move out. In my experience, satellite dishes have become almost disposable and most sellers expect to leave them behind, while most buyers expect them to stay.  So we generally have agreement there.


But sellers often spent lots of time and money tracking down the fancy schmancy bathroom mirrors and expect to take them with, while buyers don't want to spend said time/money tracking down a replacement and therefore expect the mirror to stay. Many buyers don't want the above ground pool... but then again many sellers don't want to take it down and take it with and are secretly hoping the buyers will just take the darn thing and spare them the misery of dealing with it. And so on.


It can put you in a pickle if you assume too much on either side of the deal. Save time and trouble up front! Sellers - it's best to specify in the listing agreement, and the MLS, and on flyers in the home whether these items go or stay. Better yet, get it out of the house and replace it with something that stays. Buyers - ask your Realtor to specify in the written purchase offer whether you expect these things to go or stay.

When's The Money Due?

Like a lot of metro Phoenix Realtors, lately I've been working with lots of out of town buyers (especially Canadians). These buyers are often used to the way purchase transactions are handled in their hometowns, but somewhat baffled by the way we do things in metro Phoenix.


From the standard AAR contract, line 13, "Close of Escrow ("COE") shall occur when the deed is recorded at the appropriate county recorder's office."


Notice it doesn't say anything about the buyers and sellers being present. Recordation is handled by the folks at the escrow office who record the sale documents online with the Maricopa County Recorder's Office.


Many buyers from the East Coast, the Midwest and even Canada are used to "closing" describing a giant conference table with the Buyer, the Buyer's Realtor, the Buyer's attorney, the Seller, the Seller's Realtor, the Seller's attorney a notary public and a title officer. Oh, and donuts too.


Buyers and Sellers in metro Phoenix don't have to hire lawyers to represent them. They can, but don't have to. Documents can be handled via express mail and email/fax. Money can be wired. No need to come to Arizona for your Arizona closing.


If buyers do plan to come to town for their closing, it could be helpful to arrive about 2 or 3 days before closing and plan to stay for 2 to 3 days afterwards too. That way you can sign the documents in person, pick up the keys in person, and then spend a few fun days moving stuff in and decorating.


Now, down to brass tacks. When's the money due?


Earnest money is due immediately upon contract acceptance. Usually the buyer's Realtor delivers it to the escrow officer in person or through a messenger. The escrow officer issues a receipt for the money received. Personal checks are acceptable unless negotiated otherwise by the parties. Buyers should note that their earnest money is cashed right away, so it must be liquid funds.


Any cash down payment is due on closing day. (Buyers paying all cash should apply this paragraph to their situation.) Arizona is a good funds state, which means that money for closing real estate deals must be "immediately available." Cashier's checks and wire transfers are acceptable. Contrary to logic, cash is not acceptable. Buyers who send a wire transfer should note that the USA Patriot Act slowed down the US wire system significantly. Expect your wire to take an entire day to transit the system. It will probably take less than 8 hours, but if it takes the whole day, at least you've planned ahead and not delayed your own closing. Got insomnia? You can read all 132 pages of the actual Patriot Act here. By the way, if you read the entire Act (and especially if you actually understand it) you should run for Congress immediately.


Buyers getting a home loan should be aware that by signing the standard AAR purchase contract you've agreed to sign all loan documents "no later than three (3) days prior to COE" (line 69). This language has been in place for 3 years, but I still sometimes encounter lenders who aren't aware of the requirement. Buyers should also note that lines 68 of the standard AAR purchase contract binds them to two further responsibilities: (1) making diligent and timely efforts to provide their lender with all the documentation requested, and (2) ensuring that their lender provides status updates to both agents. This means that the seller's Realtor is approved to talk to the buyer's lender about the progress towards getting a loan approval.


That should cover all the angles on getting money to the table in a metro Phoenix residential real estate purchase. Got more questions? See the FAQ files or related posts below.