Westcoe Realtors, Riverside California…This is a question that gets asked fairly frequently in our industry…and the typical answer perpetuates an Urban Myth that started who-knows-where…because while most Realtors would answer “no” to the title question of this blog, nothing could be further from the truth. In reality, the seller most certainly can sell and close a new escrow with buyer #2 without giving back buyer #1’s good faith deposit.

First, let me throw in the usual caveat here that we are not attorneys, and if you have a particular situation that requires more than the generic information posted below, please consult your legal representation.  However, what comes below is based upon 33 years of real estate experience.

So…in the typical scenario, buyer #1 enters escrow with the seller, and everything is swimming along nicely right up to the point when it isn’t.  In most cases, it is the buyer who wants out of the transaction.  Understand here that for purposes of answering our question at the top of this blog, the reason for the buyer wanting to “bail” is immaterial.  The buyer could be totally justified in wanting out, or the buyer could be the biggest jerk in the land…it doesn’t matter (as for who gets the deposit, it would matter….but for the seller to re-sell the home, it doesn’t).

Anyway, once the buyer has decided to not continue the purchase, the normal procedure is for the buyer’s agent to notify the seller’s agent of the reason for the discontinuance of the sale…and at that point, if the seller disagrees with the buyers reasons for  wanting out, the fun begins.

Again, in most cases, an argument ensues as to who is entitled to the deposit money that is being held in escrow, as generally the buyer wants it back, and the seller wants to keep it because they feel the buyer’s reason for blowing up the sale is invalid.  Naturally, if they both agree on who should have the deposit money, all this is a moot point, as the money is  mutually released, and all press on.  However, if there is a disagreement on who should get the money (and usually there is), then what happens?

Well…the buyer (or buyer’s agent) tells the escrow officer to cancel the escrow and refund the money back to the buyer…and escrow, being a neutral third party, types up a cancellation amendment stating the buyer wants to cancel the escrow and receive the deposit money back.  This amendment is sent to both the buyer and seller, and naturally, the buyer signs it and sends it back to escrow…but what about the seller? 

Understandably, the seller is not going to go for this, so the seller (or seller’s agent) ALSO calls escrow, and asks for a cancellation amendment stating for the escrow to be cancelled and for the money to be sent to the seller…which of course, the seller signs and sends back to escrow.

Now what?  Escrow has one amendment signed by the buyer (deposit money to be refunded to the buyer), and another amendment signed by the seller (deposit money to be sent to the seller), but there is certainly no agreement between the two parties.  So what happens now?

The law in a case such as this is very clear…escrow can only release the money if one of the folowing three events occurs:  1. The buyer and seller mutually agree on where it should go, which is not the case here.  2. Escrow receives a court order instructing them on where it should go, which is usually the result of either the buyer or seller suing the other in small claims court.  or  3.  After 3 years, the money is sent to the State of California in what is known as escheat.  What the State does with the money is anyone’s guess, but off to the State it goes.

So…back to our original question at the beginning of this blog…Can the seller put the house back up for sale, accept another offer, and close escrow #2 if escrow #1 is still hanging there with no outcome of the original deposit?

YES, YES, YES…because both parties are on record with their respective cancellations that this escrow and sale are to be cancelled.  The dispute now exists as to the disposition of the deposit, not the property.  In other words, the buyer has said to cancel the escrow and the seller has said to cancel the escrow…they agree on that.  They just don’t agree on who should get the money.  Therefore, you now have a dispute over the deposit, not the property, and the seller is free to sell the home to someone else and close escrow with the new buyer #2.

The only time the seller could not sell and close the new escrow #2 is if buyer #1 is on record as still wanting the home, and is fighting the seller over the property instead of just the deposit money.  An example of this would be if the seller cancelled escrow #1 because he got a better offer from buyer #2 and simply wanted to make more money.  Here, buyer #1 would still want the home, and may therefore have a legal claim (to be decided by the courts…and for this, you will need an attorney)…so for the seller to simply try to take the home out from underneath buyer #1 would be very foolish on the sellers part.

In the end, there is no way to cover all the possibilities that could occur in a situation such as this.  Every escrow and sale is different..but just remember…if the dispute is over the deposit, the seller can go ahead and re-sell the home.  If the dispute if over the home, then everyone better check with their attorneys.  Hope this clears up the Urban Myth of what a seller can and cannot do with their home and escrow.

 Take care, and as always, if you have any questions you would like to see addressed in this blog, let us know.

Westcoe Realtors, Riverside California…One of the many trends we began tracking in 2009 was the huge disparity in the process of purchasing (and selling, for that matter) “affordably” price homes vs. homes in a higher price range.  We randomly took the $350,000 price level as our dividing line, and began statistically comparing those two, distinct markets…and boy did we discover some differences…differences that we have reported here almost every month.

Well…we now have the final years tally for comparison, and it completely bears out the fact that in our Riverside area (and Inland Empire area as well), we really are a “tale of two markets.”

For the entire year of 2009, there were 5,168 properties that closed escrow in the Riverside area at a price range of $350,000 or less.  Of those closings, 3,379 were at a price that was “equal to or greater” than the original list price.  Or, in percentages, 65% of all homes below the $350,000 price level sold at a price at least equal or greater than the list price.  That is a huge percentage of homes that were possibly “overbid” by frantic buyers wanting to take advantage of the lower pricing of the last year.  This is not new, as we have blogged many times this past year about the frenzied, manic, and fast-paced market for entry level homes in the Riverside area.

It should also be noted that is you just look at the figures for the past 6 months of 2009, the percentage of overbids rises from 65% to 71%…indicating a trend caused by the lack of housing inventory.  Overbidding is on the rise, and since it was 73% for the month of December, it looks like it is here to stay for a while.

Now…contrast these figures above with those from the “higher” priced level above $350,000.

For this higher price range, the figures change dramatically.  In all of 2009, there were only 570 homes that closed escrow above the $350,000 level, and of those only 50% (283) were overbid…which is still a large overbidding percentage, but albeit from a much smaller pool of sales.  In fact, only 10% of all closings in 2009 occured at this higher range.

If you total the two categories together for an overall percentage of overbid closings, the combined number is 64%…still a massive number in any type of real estate sales market.

So what does all this mean?

It means that our “entry level price range” market is on fire…a huge number of sales, and an even larger number of potential buyers who are not afraid of real estate as an investment in the future since they are willing, at a 65-71% rate, to pay more than list price for a home.  Statistics such as these are the reason we are very bullish on the future of real estate in our area.  Remember, the average home in this price range has multiple offers (which leads to the overbidding)…which means that for every sale, there is at least one other person/family (the “losing” bidder who is still in the market to purchase a home.

This is why, as real estate professionals, we go crazy when the major banks hoard their foreclosures for bookkeeping purposes (or because they are horribly inefficient, take your pick), because at least in the Riverside area, we have willing buyers for almost all of what they have to sell…they just need to get their housing inventory to the market.  This is why we stump repeatedly for the banks to let loose with their repossessions and let us clear them out of the marketplace.  

For the ”higher level” price range over $350,000, things are a little different.  Yes, there are still overbids on the foreclosures in this price range too, but as a general rule, this market is a little slower, and not a frenzied as the lower price level.  It is still active, but it only represents 10% of the total sales in Riverside.  It will improve in time, but not until the banks sell-off all their excess foreclosures…because the only way the higher end market begins to appreciate and get stronger sales numbers is when sellers of the lower price homes use their sales equity to purchase the higher priced homes…and those lower priced sellers have no equity because the majority of them are banks, who are obviously not going to repurchase a higher priced home.

In the end, this market will run it ’s course in time, but the magic question is….how long will it take?  There are guesses galore with all the pundits and real estate “experts”, so who knows when that date will happen…but one thing for sure is that it cannot happen until the banks get out of the real estate homeownership business…a sight we would all like to see happen soon.

Westcoe Realtors, Riverside California…This is the time of year when most real estate companies try to out-do themselves with predictions about what will happen in the coming year…but the heck with that.  They are just opinions, and no one really pays much attention anyway.

So instead, we thought it might be more useful to simply state a few facts about our local, Inland Empire real estate market as it stands today…or to quote Jack Friday from the old Dragnet series (yes, I am dating myself…you younger types can Google it)…”Just the Facts Ma’am.”

Fact #1…We are still an area dominated by two distinct real estate markets, separated by price.  In arbitrarily picking a line at the $350,000 price range, in 2009 there were 4,746 closings in Riverside below this price, and only 521 above this price.  This means that roughly 90% of all sales occurred at the “affordable” range, and only 10% above it…and in order for the higher price range to begin to see any significant action, there needs to be more sellers at the low prices using their equity to move up into the higher prices.  Unfortunately, most of the “affordable” range sellers are banks or distressed sellers, neither of whom are looking to buy a more expensive home.

Fact #2…Available housing inventory is way down.  Homes for sale in Riverside dropped over 55% from January 2009 to January 2010…from 2,385 to 1,034.  This reduction is available inventory is really playing havoc with our markets, for reasons we will outline below after we lay out a few more facts.

Fact #3…Major banks are hoarding their repossessions, keeping them off the market.  Why?  The optimistic amongst us think that the banks are concerned about the possible negative effect of dumping their repos on the market…but when was the last time you saw a major bank care about the general public?  The more cynical of us feel that the banks are actually “hiding” all their repos (and yes, reporting laws have changed and banks can indeed hide their repos) to make their books look good for Wall Street.  Either way, the result is the same…and there are estimates of thousands of foreclosures in the Inland Empire that are unavailable and unaccounted for at this moment.

Fact #4…Buyer demand for “affordable” housing is higher than ever.  We cannot speak about other parts of the country (or even California for that matter), but here in the Riverside area, we could easily sell every bit of the bank foreclosure inventory thrown our way.  We consistently have 5-15 offers on any reasonable, “affordably’ priced home for sale, and the limited supply coupled with almost unlimited demand creates a very frenzied marketplace.  Jobs and the economy aside, prices have fallen so much since 2007 that more and more people who were priced out of the buying equation can now afford to purchase a home.

Fact #5…Since the real estate meltdown of 2007, the new regulations imposed upon the appraisal industry have everyone running scared…and as a result, in our opinion, housing values are being kept artificially low by nervous appraisers who find it almost impossible to let market prices rise.  Simple economics dictates that limited supply coupled with massive demand should lead to rising prices unless some outside force is acting upon the market…and in this case, that outside force is the constraints and new regulations placed upon the appraisal industry that keep prices from rising.

Fact #6…Interest rates for new hosing loans are extremely low…for now.  There is a lot of pressure on the Fed to raise rates as soon as the economy shoes any consistent signs of life, so if you want today’s absolutely awesome 30 year fixed interest rates, you need to get on board that bus now…for the powers-that-be want the bus to leave the interest rate station as soon as possible in 2010.

In conclusion…Our market will weather this storm as it has all others, and the real estate sun will shine again…but when?  If the banks would just let us sell what they have, then we could see our market turn around almost as quickly as ti tanked.  If not, then this dual market of “affordable” price vs. “higher end” price will continue far longer than it should.  That makes for a lot of very frustrated real estate professionals, buyers and home owners who are left to wade through a market that should not have to exist.  However, we are stuck with what we have…for the one prediction we can make is that until banks get out of the home ownership business, we cannot have a sustained, reasonable real estate market.  It’s that simple…and let’s all hope that happens in 2010.

Take care, and let us know if there is any real estate issue or topic you would like to see addressed in our blog.

Westcoe Realtors, Riverside California…There was an article in the Riverside Press Enterprise last week in which 2-3 real estate agents were quoted as saying that their inventory of bank foreclosures had risen in December because the banks were now beginning to release some of their repossessed properties.  Well, we’d love to see that happen, but for now, the numbers just don’t bear that out.  Maybe for the few agents in the article, but for the entire Riverside area as a whole, it’s not happening yet.

 Below you will find the latest inventory statistics from the local MLS regarding the number of properties available for sale. (and yes, I know this will come out crooked when you read it…programming glitch, because it is straight when I type it!)

Month                    Properties for Sale           Month                     Properties for Sale

January, 2009                 2385                        July                                  1184

February                           2238                        August                             1100

March                                 2106                       September                      1056

April                                   1883                        October                            983

May                                    1646                        November                       997

June                                   1332                         December                       1050

Now, let’s look at this…and please note, the number of available properties for sale in January, 2010 was 1034.

First, there is no increase that I can see.  The inventory numbers for the year are off over 50%, and since October, there is less than 50 properties separating these 4 months.  If you really want to micromanage the data, then you can note that January 2010 saw a decrease from December…but for statistical purposes, it appears that while our inventory took some serious drops throughout the year, it seemingly stabilized a bit beginning in October/November.

Second, by many accounts, there are tens of thousands of unaccounted for bank repossessions in the Inland Empire area…so where are they?  You’ll get as many different answers to that question as there are people in the room, but we can tell where they aren’t….THEY AREN’T FOR SALE, THAT IS FOR SURE.  Theories abound, but the simple reality is that they are not being released for sale in the market…and trust me…they are not being held for loan modifications either.  Loan mods represent a very small part of our market.  Yes, there are some, but not many compared to all the properties in some stage of foreclosure.

Thirdly, we cannot emphasise enough that until banks get out of the home ownership business, our real estate market cannot equalize and begin the road back to recovery.  As long as the banks hoard their repos (for whatever reason), there are no “move-up” sellers to purchase the more expensive homes, appraisers remain extremely conservative because of all the unaccounted for repos that are somewhere (and therefore they will not let prices rise for fear a flood of repos are coming soon), this market will extend for a far longer period of time while we are forced to wait this out, and the massive demand of buyers that we now have will continue to remain incredibly frustrated at the lack of available homes to purchase…HOME PURCHASES THAT COULD GET US OUT OF THIS MESS.

So…while we beg, plead, and pray for our inventory to rise as the Press suggests, for now, that is only a wish, and not a reality.

Take care, and let us know if there is any issue you would like to see addressed in this blog.

Westcoe Realtors, Riverside California…Well hello everybody.  I took some desperately needed R & R over the holidays, but we’re back and ready to rock and roll with real estate in 2010.  However, before we head into 2010, let take a look today at some of the issues that have been in the media for the past 30 days or so and bring you up to speed.

Loan Modifications…lots of talk by the Obama administration about demanding that lenders do more on their loan modifications, but the bottom line here is that this still represents a minuscule portion of what is happening in our market.  In reality, we have all seen that the administration really has very little power over the lending industry (this is not a political statement…either party would probably be in the same boat), so the government can huff and puff all they want about loan modifications, but the simple truth is that they are very complicated, hard to do, and therefore still have a very long way to go.  Better, but by no means good.

As an aside regarding loan modifications, please be aware that if you have your loan modified, your credit score will drop substantially…and this surprises some people.  Remember…a loan modification is another way of saying that you cannot pay what was promised when the loan was originated, so technically speaking you are in default on the original note and want it modified…hence a drop in your credit scoring.

Short Sales…Getting better, but still a black hole quagmire, depending upon who the lender is.  In a real estate nut shell, a “good” lender to work with will probably get you a closing in 4-5 months…and a “bad” lender will take 9-10 months….and that is assuming that you can make the sale happen at all.  Yes, this is ridiculous, and yes, this is a lousy way to do business…but that’s the market we have, and there is nothing we can do about it except try to work within the “rules” set down by the banks.  Again, the Obama administration is attempting to pressure the major lenders to do a much better job, but good luck with that.  In the end, stay patient, and hope for a little good luck along the way.

Bank repos…they are still locked away in a drawer some where, waiting to be sprung on the market at some random time in the future.  The formula for when banks release their standing inventory is as secret as the KFC chicken recipe, but we still maintain that the banks are far more interested in looking good for Wall Street than they are in ridding themselves of their foreclosed properties.  Remember, some banks can hide their loan losses right up until they sell the property (not when the repossess it)…so stay tuned for further notice, and expect the number of repossessions available for purchase to remain scarce.  Wish we had better news here because we all need these properties to get released and sold, but we do not control the flow…only react to it.

New Housing Starts…They are way down, and will stay way down for many years.  Do not look to new home building to be a part of this market for quite some time.  The reason is that prices have dropped so low that builders in our area simply cannot build and make a profit…so they will pass until they can.  It makes no sense to build a home for $275,000 that can only be sold for $250,000.  Some builders even feel tract land has no value…as in ”0″…for this reason.  Therefore, in most cases, the only new homes being built today are by lenders who have had to foreclose on partially built tracts and thereby have no choice but to finish the building and sell at a loss.  Otherwise, this market has a long way to go before builders come back to build.

All of the above have had some media attention over the past month, and so we hope this information brings you up to speed on exactly what is happening at the moment.  As we head into 2010, we will, as always, make every attempt to keep you informed on anything that affects the real estate market in our Riverside area.

 In the meantime, lets just keep our heads down and keep plowing away, because for all the hassles associated with our housing market at the moment, we still have one of the greatest places in the country to live…just look at the weather maps this week!

Take care, and let us know if there is any information you would like us to address on this blog. 

Westcoe Realtors, Riverside California…This was a question posed to us by one of our many clients who owns a home, is making the payments, is not going to lose it, but wonders when the market will begin a comeback.  In other words, when will the market favor those who retained their homes and not lost them during this economic mess?

Well, that is a very good question…and while our crystal ball may be no more clear than yours with regards to any sort of specific date for permanent recovery, we can tell you what to watch for that will indicate we are heading towards a long term pricing recovery.  Right now, we are getting some starts and stops with regards to housing pricing because some of the following are in alignment for increased pricing…but when all four below are lined up, then we can assume the recovery is here to stay for a while.

Demand

In order for housing prices to sustain long term growth, demand has to be stronger than supply…and we have that right now.  In fact, our demand for housing in the Inland Empire is so strong, that we have far outstripped our available supply of homes.  Therefore, we are currently in great shape in this department. 

Our demand is also strong because of very favorable interest rates available for home buyers in today’s market.  Fixed, 30 year financing can be obtained at around 5%, which is a very low rate when viewed historically.  These rates  could still rise and be affordable, so we should be fine here for some time.

Lastly, on the demand side, the unemployment figures can affect demand as well, but even though unemployment has reached approximately 12% in our area, remember that leaves 88% of the people who may still be able to purchase a home at the low prices of today.  We are not suggesting that 12% unemployment is OK…just that the media forgets the other side of that equation sometimes.  For now, the unemployment issues have not adversely affected the demand for housing in our area.

 Supply

 As we said above, demand needs to exceed supply for prices to rise, and we have that now as well.  In fact, we are currently suffering from a huge decrease in supply that is seriously adversely affecting our marketplace.

In one of our more recent blogs, we indicated that the amount of homes for sale in the Riverside area in January of 2009 was approximately 2800… and as of November 2009, that number had fallen to around 980.  This has lead a huge dogfight for the available properties, multiple offers, and more importantly, very frustrated buyers and real estate professionals.  This frenzy has caused many potential buyers to simply get out of the melee and sit on the sidelines for a while, content to let someone else fight this battle.  Those that do remain patient and stay in the mix are rewarded with a home at a historically great price.

So…given that supply is down and demand is up, why aren’t we ready to state that prices are beginning their long term rise?

Because of the two market forces listed below.  Supply and demand has lead to some of the starts and stops mentioned at the outset of this blog, but for a sustainable pricing growth, we need the following two areas to “shape up” as well…since they are both artificially holding us back.

Repos

In a very recent blog, we offered that the banks are artificially holding on to their foreclosures for extended periods of time in an effort to make their quarterly profits look good for Wall Street…and nothing has happened to change our minds in this area.  As a result of this “slowdown” in moving through all the repos and potential repos, our local real estate market is being prolonged because we have very little to sell.  The Catch 22 here is that as long as banks remain in the home ownership business, this market cannot sustain recovery…because the repos will always be there to undercut the pricing desired by a “normal” homeowner.

Therefore, what is best for our local market is for all the foreclosures (estimated at tens of thousands in the Inland Empire area) to move through as quickly as possible…and if the banks opened their “repo closets” and let them all out, our demand could easily handle what they gave us.  However, the banks feel that what is best for them is a long, slow trickle of homes being let out of the closet so they can control when they take their losses…and look better for Wall Street.  That is the conundrum of our supply market…and who do you think will win that battle…the local real estate market, or the banks?

Yeah…the banks.  That’s why we will take longer to get out of this market than most people think.  The banks will simply not let us get where we want to go in the time frame we want.

The Appraisal Industry

The appraisal industry got blamed for far too much of the market run-up of the early 2000’s…and as a result, there have been so many changes to this branch of the selling process that everyone in it is now running scared.

Centralized appraisal management companies have created havoc with local appraisers, but more troubling is the fear local appraisers have of the “appraisal review” process. 

In today’s market, because of the fear that now dominates the appraisal industry, almost all local appraisals are “reviewed’ by an appraisal reviewer…who’s primary concern is not the buyer or seller, but the bank and his/her own skin.  This appraisal reviewer rarely sees either the subject property or the comparable sales, can be 2 states away, and only knows what their computers tell them…and what their computers tell them is that our area still has lots of foreclosures to come, so prices must still be on the decline.  It doesn’t matter that each property generally has 10-20 offers, or that the banks are holding the repos from the market which could all be sold, or that our demand for housing is through the roof…all they see is a computer screen that shows many more repos to come.

The result of this convergence of data is that many of our local appraisals are being slashed by reviewers from afar…reviewers who ultimately have control of our rising…or not rising…housing prices.  It is not unusual for the local appraiser to have their appraisal slashed by up to 10%…and once this happens a few times, the local appraiser looks bad, and may not get any more appraisal jobs.  Therefore, they see the writing on the wall, and start keeping the prices down on their new appraisals…and the snowball just keeps rolling down the hill.

Until this entire industry stops being afraid to let the market expand, and starts allowing for the growth that is ready to explode in our area, then supply and demand can do what they want…the housing prices will be artificially be held down by the appraisal industry…which is what is happening at our local level today. 

Therefore, until the repos and appraisals get sorted out, we cannot begin a sustainable housing price recovery.

In the end, real estate markets come and go, as will this one.  The frustration is that if everyone would just relax, this market would go away much sooner.  We will get there eventually, but until then, as a “normal” homeowner, at least you now know what to watch for to see when the market will finally start the sustained price increases you have been so patiently waiting for. 

Westcoe Realtors, Riverside California…We have chronicled many times in this blog the frustrating procedure a buyer must endure these days when purchasing a bank owned property….the multiple offers, the overbidding, the lousy communication, etc.  However, we have never told you what happens once the Real Estate Gods smile upon you and your offer is accepted.  We cannot cover it all at one time, so today, we will simply prepare you for some of the disclosures the bank will require you to sign.

First, there is the “As-Is Disclosure”.  This is the mother of all disclosures, for the bottom line here is that the bank is telling you they take absolutely no responsibility for the condition of the home…that is all on you.  You can have the home inspected by whomever you want, but in the end, whatever issues your inspection discovers are going to be yours to fix.  Sometimes, depending upon the nature of the specific items shown in the inspection report, you can get the lender to so some…I repeat some…of the repairs.  But in most cases, they will simply tell you NO. 

Why?  Because they sold the home to you at a price well below what they could have gotten if they fixed the home up, because they have already lost tens if not hundreds of thousands of dollars on the home, because the decisions are really made by someone at a desk 5 states away who could care less about what you need, and because if you don’t sign this disclosure, one of the other 20 people whose offers were rejected in favor of yours will.  This sounds incredible cold, but such is the way of the foreclosure world when they have what you and 20 other people want.

The second disclosure you will find in your paperwork is the Mold Disclosure Form.  In this document, the lender is telling you that they have no idea if this home ever had a water leak, but if it did, there may be mold and it is your problem, not theirs.  You can’t really blame them for this, because they have never seen the home, do not know of any of the history of the home, and this is a total “Cover their a– form” in case your child develops a third eye after 5 years of mold exposure that they knew nothing about.  This why you should have a home inspection…so a professional can look at the home for you. 

As a note, you can ask your insurance agent for a CLUE report, which will at least tell you if any of the previous owners have ever filed a water related claim.  In almost all cases, if a claim has been filed, then that means that the problem was solved to the insurance company’s satisfaction…which is what the insurance company would require just before they cancelled the previous owners insurance.  But at least the problem would have been dealt with.

There is also a new disclosure form that is making the rounds…it is called a Drywall Disclosure…and this has to do with the recent revelations and claims regarding drywall that was manufactured in China and shipped to the states for use in new construction.  The bottom line here is that it appears some (much, most?) of the drywall made in China during the housing boom and used in various parts of the States now is alleged to create fumes, vapors, etc. that can lead to a rash of health problems.  So far, most of the use seems to be in the East and South, but who knows?  This is all a fairly new phenomena in our industry, but since the bank who owns your repo may be doing business all over the United States, then this form is one you will need to sign.  Check with your inspector for how one knows if the drywall is from China or not.

The above represent the major disclosure issues in most foreclosure properties, but each lender can add some more, depending on their mood, and current lawsuit status.  Some lenders are not as picky as others, but you will never know until you get into escrow.

In the end, you as a buyer always have the right to refuse to sign any of these disclosures…but understand that the bank will then cancel your contract and sell the home to someone else.  With regard to these and any other disclosures required by the banks, they are non-negotiable on this issue.  Sign them, or they will move on.  You cannot reason with them, or negotiate them away…it is the banks way, or the highway, and no amount of conversation will change this policy by the banks.  The bank will make sure that when you purchase your repo home, that you cannot come back and sue them for any part of it’s condition.

No one wants you to purchase a home unaware…but for now, we all have to play by the banks rules, or they will take their ball (repo) and go home…and no will get to play at all.

 Take care, and as always, let us know if there is any real estate issue you would like to see addressed in this blog.

Westcoe Realtors, Riverside California…According to the latest November 1, 2009 MLS statistics for the Riverside area, available housing inventory remains at historically low levels, which has led to a drop in sales of 14% from the previous month of October.  As has been chronicled in this blog many times, the artificial withholding of foreclosed properties by banks from the resale market (see blog post of 10/16/2009) has finally taken a toll on the number of properties sold, as the reduced inventory has led to a drop in sales of over 14% from the previous month…and from the sales high point of March, 2009, the drop in the number of sales is almost 30%.

In raw numbers, there were 983 properties available for sale on October 1, 2009, and that number held statistically steady at 997  for November 1.  However, there were 483 properties sold in September, and that number dropped to 415 for the month of October, or 14%.  Since the demand for housing is still at an enormous pace, the reduction in the number of properties sold in October can only be attributed to the incredible reduction in  available housing inventory.  Since January 1, 2009, the amount of available properties for sale in the Riverside area has fallen from 2385 to its current level of 997…a reduction of 58%.

Closed escrows will always lag about 30-60 days behind the sales (average escrow period is approximately 45 days), and closings for September were also down as well…from 503 in August to 463 in September…a reduction of almost 8%.  Once the closing figures become available for October, it would be no surprise for them to be down as well.

The actual numbers for since June are as follows: (please note:  the following columns are equally spaced when written, but will come out crooked when posted…software “bug”…what can I say?)

Month                    Active Listings                    Sales                    Closings

June                              1332                                 519                        587

July                               1184                                 488                        520

August                          1100                                 457                        503

September                   1056                                 483                        463

October                         983                                   415                        Not Avail.

November                     997                                   Not Avail.             Not Avail.

For the next few months, should the inventory numbers remain stabilized, then all the other numbers will stabilize as well, once the time lags are accounted for.  What happens from there is any-one’s guess, as we remain committed to the fact that this market cannot begin a full and steady recovery until all the bank foreclosures are out of our system…and at the rate the banks are strategically doling them out, that could be many months away.  Only time will tell.  Until then, the real estate purchasing market place will simply have to contend with an artificially controlled market, multiple offers, overbidding, and all the other frustrations that come with purchasing a home in today’s unique real estate market. 

Westcoe Realtors, Riverside California…Right now in our Inland Empire area, there currently exists a huge (as in massive) gap between the incredible frenzied activity by buyers in our real estate market, and the appraisal industry…whose job it is to establish a value for the home so the new bank can make the proper sized loan for the buyer.  Appraisers took far too much heat for the real estate meltdown of the past few years, and as a result, between the new regulations enacted to “protect” the buyer, and their own fear of reprisal from “appraisal reviewers”, this market is not expanding at the rate is should.  Let us explain.

Most people assume that there are two parties to the sale of a home…the buyer and the seller.  However, unless the buyer is paying all cash for the home (a rarity in today’s times), there is actually a third player to the purchasing game, and that is the lender…and in the end, we must all play by the lenders rules, or they will take their ball (in this case, their money) and go home…and no one will get to play at all. 

The representative for the lender in this game is the appraiser, who evaluates every property the bank is asked to make a loan on for a buyer.  The appraisers job is to make sure the home is worth at least what the buyer is paying, therefore protecting the lender from making too big a loan on the property. 

Most of the time, in a normal real estate market (whatever that is!), since the buyer, seller, real estate agents, and the appraiser are all looking at the same data regarding value, establishing a price for the home everyone can agree upon is relatively easy.  Yes, there can be some discrepancies in establishing a value for some amenities (views, lot size, upgrades, etc.), but most of the time everybody gets on the same page….except for this market.

As you are aware from previous blog posts, right now our purchasing market is in a frenzy.  We have a very limited number of homes for sale relative to previous markets, and this is creating multiple offers on almost every property reasonably priced for sale, and over 65% of all homes that close escrow do so at a price that is equal to or greater than the original list price.  In essence, buyers are forced to “bid” for homes against other buyers, and as a result, the home generally sells to the highest bidder.  That is our market…fast, frenzied, and totally tilted towards the seller…which should lead to rising home prices.  Simple economics dictates that huge demand and limited supply leads to a rising price for that which is in demand…in this case, housing.

However, that is not happening yet.  Why?  Because of the third party in this game…the appraisers.

Now please, this is not a bashing of appraisers.  No angry comments from appraisers please.  We know you have a tough job.  However, until the appraisal industry as a whole becomes less concerned about the past, and more tuned to the current market, then our housing prices will remain relatively stable…because the problem is that we can sell the houses for higher prices, but the appraisers are afraid to let the market grow…because right now, appraisers are continually bringing in their appraisals at levels far below the actual sales price.  As a result, the bank will not lend the buyer the money they need to purchase the home, and the entire transaction blows up…only for the home to sell again at the same “high” price to another buyer who totally wants the home…and the process starts over again.

We actually had one appraiser last week tell one of our agents that they were more afraid of an appraisal review (the process where a supervisor, who has not seen the property, slashes the price for reasons unknown, since we never get a chance to discuss it with the reviewer) than they were having the transaction fall out of escrow.  You see, the slashing by the reviewer makes the appraiser look bad…the mere falling out of the sale simply looks like the appraiser is “protecting” the bank.  Therefore, this appraiser readily admitted that the low price they were giving the home (sold for $220,000, appraised at $180,000 because the appraiser used comparable sales from 4 miles away, not the 1/2 mile radius that we used to establish the $220,000) was because they were in fear of getting reviewed!  As a result, the buyer, the seller, and the bank all lost out on a sale that they all wanted…simply because of a low appraisal.  And ironically, the only person who gets what they want in this scenario is the appraiser, who gets paid up front by the buyer.  Everyone else loses, and the cycle begins anew.  We have sellers who are so frustrated because they have 20 people who want their home and are willing to pay a price for it, only to get slammed to the floor with a low appraisal.

The bottom line here is that fear rules the appraisal world these days.  The reviewers, who many times sit behind a desk in another city or state, only know that the Inland Empire area appears on many lists as being one of the top 10 areas in the country for foreclosures…so naturally, the prices must be falling…right?   No, they are not.  This is like slamming the barn door after the horse has escaped.  Yes, our prices have fallen a huge amount from their highs of a few years ago…but our market is besieged with buyers who now want to take advantage of these low prices and purchase a home.  Our market is ready to bounce back if only the appraisers would stop looking back, and start looking forward.  Maybe that is not the case in hard hit areas like Detroit, or other areas of the country…but right here, in Riverside and the Inland Empire, we are chomping at the bit.  Isn’t that what the government and all it’s stimulus packages want to happen? A resurgence of the housing market?

In the end, this situation will ultimately remedy itself over time…but the question remains…over what period of time.  We could be basically out of this mess and on our way to recover if not for the issues addressed here.  Only time will tell when we can begin the march forward.  Until then, we will continue to do what we can with what we’ve got…no matter how restricting it is for all our sellers.

Westcoe Realtors, Riverside California…The local Press Enterprise reported yesterday that on a nationwide level, housing starts were below projections…and this news seemed to startle some on Wall Street.  For those of us in this business who work in the sales trenches on a daily basis, our only response was surprise that anyone in the world could be surprised that housing starts are down.  Unless you have been dwelling on another planet unaffected by the economic issues of the past couple of years, reduced housing starts are a “no-brainer”…and here’s why.

Understand that builders are hampered by such a long time frame between when they purchase land and when they actually have a product to sell (permits, environmental reports, plans, city regulations, etc) that unless they have a really good crystal ball, they are very hesitant to get involved unless they know the market will be good for selling when they are ready.  Holding on to vacant land until the market recovers is how one becomes an “ex-builder” in a hurry, so they want to get in and get out as quickly as they can….anywhere from 12-24 months.  So, until anyone can tell a builder what the market will be like in 12-24 months, most will simply pass and wait…which means once the market actually does get better, the builders will be about a year behind.  Hence, building starts are down, and will remain down until this market becomes stronger…or at least predictable.

Next, there is also the issue of pricing.  Right now, in the Inland Empire area, prices have fallen so much that it would be almost impossible for a new home builder to sell his finished product and break even, much less make a profit.  In fact, one large builder said that land in our area has a negative value…meaning that even if you gave him the land for free, he could not build a home and make a reasonable profit (let’s say around 10%).  In essence, it would cost him more in building and labor costs than he could make by selling the home…and last time I checked, no builder is going to take all the risk to lose money.  In essence, unless the land owner is going to pay the builder to take the land off his hands, the builder will simply wait until housing prices rise enough to make a profit.

All this means is that housing starts will remain down until housing prices start to rise again…and who knows exactly when that will happen.  Almost all of the new homes being sold now were already in the process when the real estate market began its swoon, and therefore the builders had no choice but to forge ahead and finish what they had started.  They were damned if they stopped, and damned if they continued, but continuing was the better of two evils.  However, that does not mean they will volunteer for this path again…which implies that housing starts will continue to decline until there is hope that pricing will rise again…and even then, unless a builder has taken a huge gamble and tried to “predict and jump the market”, new homes will be 12-24 months behind the rising price market.

Take care, have a good weekend, and let us know if there is any issues you would like to see addressed in our blog.