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Westcoe Realtors, Riverside California…OK…before we get assailed by Vets and all those honorable groups that advocate for our well deserving Veterans, please understand that at Westcoe, we love and honor all the men and women who have given their time and efforts to support our country…and our right to continue to own property, etc.  That is not lip service…we totally respect both the individuals and the families they leave behind.  So…don’t unleash the hounds on us yet.

However, for all you vets out there who are trying to purchase a home…we are not so in love with the VA loan program that our government offers to all vets to “help” them purchase a home.  In fact, your VA loan program is really hurting you when it comes to purchasing  a home…at least in many parts of Southern California.  Let us explain.

There is a great article in the Riverside Press Enterprise this morning written by their real estate writer Leslie Berkman, in which Leslie quotes a home builder who says the strict and very conservative appraisals that come from VA appraisers are keeping homes from closing for the very vets the program is trying to help.  As a result of these common practices with regards to VA appraisals, many new home builders “shy away from VA offers because of the frustration with the process.”

As the leading independent real estate firm in the Riverside area, all we can say to the above is a very loud “AMEN.”

In theory, the VA loan was designed to help all vets with the purchase of a home.  The basic features of this type of loan that make it easier for a vet to purchase are the zero dollar down payment feature (3.5% for FHA, 10% or more for conventional loans), and the fact that the seller can also pay 100% of the buyers closing costs.  In essence, a vet can move into the home with no money out of pocket.  This is a great program for all vets, and is highly supported by the Realtor community.

The problem comes with the “guidelines” that the Veterans Administration has put on the lenders who make the loan.  In reality, the very governing body that administers the loan program is making it almost impossible for the vet to close the loan, because the “junk” that comes with this loan usually blows most sellers out of the water.  Sellers want to work with these vets, but the VA makes that very hard to do…especially in this real estate market.

Why?  Two reasons.

First…In an attempt to “protect” the veteran from  overpaying for the home (as if they need any protecting),  so many of the VA appraisals come in with a lower value than the sales price.  This kills the deal for the seller, who while wanting to work with the vet, cannot take thousands of dollars less than what they thought they were getting.  Granted, if the appraisal is low, there is an appeal process, but good luck with that.  In the real world, getting an appraisal changed is highly improbable and very cumbersome to try.  Most sellers just pass and let the escrow fall out, thereby keeping the vet from getting the home.

Also, once a VA appraisal has been made on a home, it stays there for 4-6 months….which means the seller is stuck with it even if another vet comes along and wants to pay a higher price.  So in the example above, not only did the conservative appraisal keep the original vet from getting a home, it keeps all future vets from getting the home unless the seller wants to take the lower price.  We don’t run into this issue nearly as often with FHA or conventional appraisals.

Secondly, the other issue with VA appraisals is the general nature of the work requirements noted by the appraiser.  Again, we see many times that the appraiser calls out for so many items to be fixed or checked by the seller, that the seller says “forget it”, and moves on.  It doesn’t matter if the home inspector (who is hired for this exact purpose) says the house is OK, it doesn’t matter if the vet is happy to get the home for a little lower price because the vet can make the repairs…none of that matters.  The bottom line is that the appraiser is required to call out “everything” ( including some really, really picky things), and all of this costs the seller money…so the seller has no choice but to say “no.” 

Understand that both FHA and Conventional appraisals are not held to this same standard, so sellers are more inclined to work with those type of financing than subjecting themselves to the unrealistic rigors of a VA appraisal.  It’s almost as if the VA is saying that the vets are too stupid to make this type of decision themselves, so the VA will do it for them…with the net result is that the vet simply can’t buy the home!

Lastly, remember that in our current market, almost 2/3 of all available homes for sale are either short sales or bank repos…which in most cases, means the home may need anything from paint and carpet, to major repairs.  In either case, the price reflects the work needed, because one thing is for sure…the seller in a short sale (who is getting no money from the sale) nor the bank that has lost tens of thousands of dollars is not going to make any repairs…which then blows the veteran buyer out of the water because the VA will not allow the buyer to accept the home unless all repairs noted on the appraisal are completed prior to the close of escrow.  This is a serious Catch-22 here…the VA is “helping” so much they are preventing the very thing they are trying to do.

In short, the VA is killing the home purchasing ability of the veterans they were designed to help.  Does anyone really think that an individual who is qualified to serve in the military is not capable of fixing up a home…or making their own repairs if the price is low enough to make that feasible?

In the end, everyone wants to help the vets…and most sellers, given the choice would gladly pick a veteran to purchase their home…but not if it’s going to cost them thousands of dollars to do so.  It is our fervent hope that the VA does something about their unrealistic loan program, and put one in place that rewards these heroes, and not hurts them.  They deserve it.

Westcoe Realtors, Riverside California…Oh My God…the national media is at it again.  Sometimes we just want to scream at all of them to simply “give it a rest”.  If there is one more “expert” with yet another opinion of what the latest national financial crisis will bring (last week it was the debt ceiling, this week is the S & P credit rating drop),  that will bring the total amount of experts in our country about equal to the total amount of our Federal debt!  Please…would all the “talking heads” simply report what is actually happening, and not fill the airwaves with all their speculation.

Here is a perfect case in point.

Last Friday (8/5/11), Standard and Poors Credit rating company down graded the USA and it ’s credit rating from a AAA to a AA+.  Over the weekend, everybody had an opinion on what that would do to our economy, 401K accounts, credit card rates, mortgage rates, etc.  All of the commentary was negative, and the “experts” simply couldn’t get enough air time to expound on the doom and gloom headed our way.

Considering this event only from the real estate aspect (hey, that is what we do), by all the shouting over the weekend about the world stopping spinning and us all flying off the edge, you would have expected yesterday to be a huge bloodbath in the mortgage market, with interest rates for home loans rising like skirt lengths in the fashion industry.  So what actually happened?

Mortgage rates for 30 year fixed rates dropped yesterday to new lows!  Wow…all that hot air by all the experts, and rates actually dropped.  Today, Tuesday, August 9, 2011, you can get a 4.5% 30 year fixed rate on a home purchase for no points.  Doesn’t sound like disaster to me.

How can this be?  Look at the stock market.  How can rates go down when the stock market took such a beating yesterday?  Easy…because the stock market is risky…and the factors that affect home loans are not.

Here is how it works.  The 30 year home loan rates we all pay when we purchase a home are way more tied to the United States Treasury sales than to the stock market.  The stock market is sexier, and reported on all the national news, but the Treasury sales are where to look if you are trying to figure out home loan rates…and yesterday, the treasury sales were at lower interest rates than the week before.

Why?  It’s called flight to safety.  If you are another country (for example, China) and you have millions or billions of dollars to invest…or if you are a giant Wall Street mutual fund with that same massive amount of money to invest…then when things become uncertain, you head to safety…and right now, nothing is more safe than United State Treasury Bonds.  If you bought a 30 year treasury bond (you lend the government your money and get a bond that matures in 30 years) you would get 3.715% on your money.  That is not very much interest for 30 years, but it’s better than losing 600 points on your Wall Street investment.

So…investors with massive amounts of money to invest flee to something safe…and when you have a lot of investors who want to lend money to our country because it is considered safe, the United States pays a very low interest rate on the money it is borrowing because it is considered a better risk that anything else out there.  Think about it.  Wall Street is a mess…Europe is shaky at the moment, with all the problems in Greece, and now perhaps Italy and Spain…no other country’s stock market is any better than ours…so what’s left?  U.S. Treasury bonds, that’s what.  If safety is your thing, then that is where you need to be.

What about the credit down grade?  Didn’t that mean that the U.S. is not as safe on Monday as it was Friday? 

In a word….NO.  The down grade by S & P was simply a political statement about those knuckleheads in Washington who can’t seem to agree on the time of day, much less a Federal budget.  Our country was no more risky on Monday than it was on Friday…as proved by all the investors who wanted to invest long term in the United States at very low interest rates.

So…instead of having higher mortgage rates, we have lower rates, because your home loan is more a function of the lower U.S. Treasury action than anything else…and when their rates drop, so do yours.  We can’t speak here of all the other things the experts are touting (credit cards, etc.), but we can tell you that when it comes to home loans, the word “panic” is not currently in our vocabulary.

The moral of this story?  Well…the next time Chicken Little is running around telling the world that the sky is falling, look out the window and wait until it happens before you give it any credence…and for God’s sake, turn off the TV!

Lastly, kudos to Leslie Berkman of the Riverside Press Enterprise, who in today’s paper, is the only person who got is right.  She must have had her TV off this weekend.

Westcoe Realtors, Riverside California…I used to have a friend, that whenever anyone asked him, “Hey, how you doing?”, his response was always,”Compared to what?”  It came to be the running joke amongst us all, but in retrospect, he may have had a point….because these days, when someone asks us as Realtors…”Hey, how’s the market?”…it really makes sense to answer…”Compared to what?”

If you look at our local real estate market compared to the beginning of the year, then our answer would be that we are improving.  Sales are up almost 30% from January, interest rates are fairly steady and still very affordable, and inventory is also very steady with an equal choice between bank foreclosures, short sales, and regular, seller equity standard sales.  While there really is no “selling season” here in Southern California, our market usually gains it’s strength in the spring, and this strength usually holds steady until the holiday season in November.

However, if you compare our market to the same time period as last year, then things are not quite so rosy.  The total sales for Riverside were down 26% in March of this year as compared to last year, and for April, the number is even higher…a decline in unit sales of 41%.  So what gives?  Do we need to panic?

In a nutshell, no.

The bottom line here on the numbers is this…the last two months of 2010 and the first two months of 2011 were horrible.  No way around it, no way to sugar coat it.  November, December, January and February were abominable.  No real reason, but in our opinion, simply the accumulation of many issues that were seasonal in nature.  Our market normally slows over the holidays, and this year, there simply seemed to be a ”hangover” from the end of 2010 to the start of 2011.  However, 4 months ”do not a market make”, so there was no reason to panic…and we didn’t.

Sales began to rise in late February, and they continued to gain steam through March and April.  May, even this early in the month, seems to be even more active yet, so it looks like things are headed in the right direction.

As a note here, when sales “tanked” in the 4 months mentioned above, there were lots of media reports indicating doom and gloom with regards to the real estate market.  First, we hope you ignored any reports that were national, and not local, in nature (read last week’s blog), and secondly, this brings up the point that micro analyzing monthly data can be hazardous to your health…at least your real estate health.

Just like when you are driving your car “straight” down the road, in reality, you are making minor adjustments to the steering wheel, because your car is not driving totally straight.  It is really weaving, although very slightly, left and right, and you are making very, very, subtle course corrections to keep the car going “straight”.  If you were to analyze any of your car driving like the media likes to pounce upon minute real estate data, then you would totally panic in the car, because each time your car weaved microscopically left or right, you would think you were headed off the road.

The same is true for our real estate market.  Markets are made over many months, not just a few.  Any case can be made for just about anything if you analyze only a very small amount of data.  Our real estate market will weave just like the car, only our weaving will take a few months, not a few feet.  In the end, you need to give the market time to make course corrections, just like you make with the steering wheel in the car. 

So, what does all this mean?  To us, it means that our market is headed back to “straight” after weaving for a few months.  Right now, sales are headed upward, and we see no major changes from what we have dealt with in 2010.  Our market is not better, and it is not worse…it is stable…and for now, stable is not a bad thing.  So rest easy, and we’ll let you know when it is time to panic…and that time is not now.

Take care, and have a great week.  

Westcoe Realtors, Riverside California…So…what do the above have in common?  Let’s see…one you wear, the other wears on you (no, that’s not it)…one has a closet, the other hangs in your closet (no, that’s not it either)…one can be colorful, loud, and embarrassing in public (no, that would be ties and mothers-in-law)…

…Oh, I’ve got it.  They both run in cycles without fail.  Yes Toto, this too shall pass.

OK, silliness aside, in response to an article about Westcoe in last weeks Press-Enterprise newspaper, we made the comment that real estate markets always come in cycles…and that no matter whether we are in a booming cycle or a “not-so-booming” cycle (like now, for example), the one constant is that things will eventually change.  Count on it, plan on it…book it Danno.

Some of our clients and readers called or emailed us with basically the same type of comment, which was…..Are you sure?  Well…yes, we are sure, and here is why.

As a society in general, we all have a rather short attention span…which, depending upon the age of the person you are talking to, is getting shorter every year.  Maybe that is true, or maybe I am just getting older…but for sure, our attention span is usually fixated upon whatever is directly in our face at the moment.  How many times have you seen a story where the headline appears to be from the events of today, only to find that it was written 10-50 years ago?  Enough to know that all things cycle. 

The economy, wars, immigration, government intervention (either too much or too little), congress and their budget issues, good and bad presidents, and yes…ties and real estate…are but a few of the subject matters that always seem to have their good and bad periods…and today is no different.

During the Jimmy Carter years (1977-1981), did you know that interest rates for real estate loans climbed as high as 18%?  Sounds impossible in light of today’s 4.5%-5% rates, but it’s true.  Can you imagine what it was like to purchase a home with an 18% loan rate?  Trust me…as a real estate agent who weathered that market, it was brutal…but sales still took place.  A loan of $150,000 cost a buyer $2,251 (principal and interest only) per month, compared to the meager amount today of only $771 for the same loan.

At that time, all of us in the business thought the world as we knew it was over.  Real estate was dead, it would never come back, prices fell because of the fewer sales and we assumed that they would never hit their previously high prices, and loan interest rates would never dip below 10% again.

And what happened?

We had a real estate boom that began around 1982-83 that lasted until the very late 80’s.  Home prices rose dramatically, interest rates fell to very affordable rates (below the 10% level), and the major question on everyone’s mind was…”Why didn’t I buy more homes when the prices were lower a few years ago?”

In the early 90’s, real estate cycled again in the negative spiral.  Prices dropped dramatically, the economy was dire, locally March Air Force base closed in Moreno Valley (not totally, but enough to greatly impact our area), and all looked pretty bleak.  The slogan for many business people became “Stay alive until 95″, but 95 came and went with no upturn on the horizon.  Real estate foreclosures reached 35% in Riverside and neared 50% in Moreno Valley, and like Chicken Little, everyone thought the sky was falling.  No one had ever seen foreclosure rates like this, and certainly everyone knew…absolutely knew…that real estate could never recover from such disastrous foreclosure rates.

And what happened? 

Our real estate market exploded, prices climbed faster and higher than a Michael Jackson hit album, and we rode an approximate 10 year boom cycle like no one had ever seen.  Everybody and their brother was talking about real estate, flippers, equity, how much money that had made, etc.  Life was good, and of course, this would go on forever…until it didn’t…and here we are again…4 years into yet another real estate cycle…4 years into a cycle where all the experts and cable TV talking heads continue to inform us daily that real estate is dead, it will never come back, that interest rates will rise and lead to more doom, double dip is on it’s way, the American Dream of home ownership is gone, blah, blah, blah.

In the end, you can believe what you want, and listen to whomever floats your boat…but no matter what anybody says, don’t under estimate the power of history.  Underlying all the current negativity is the basic desire that home ownership represents more than just numbers.  Home ownership represents every person’s desire to paint their walls whatever color they want, tumble with the kids in their own backyard on their own grass, and play the music as loud as they want. 

You can hang with the pundits if you wish…but I will place my faith in the power of the historic cycles that have always preceded any current real estate market…in which case, like the wide ties hanging in my closet, I will wait…because I know that both my ties and my real estate will come back.  They always have.

Westcoe Realtors, Riverside California…Let us state up front that today’s blog is an opinion, and not one that we can prove… but 35 years in this business plus a healthy dose of conspiracy theory in honor of the upcoming Halloween holiday makes this apropos…and we think accurate.

Unless you’ve been on the island with Tom Hanks in Castaway, you know about short sales…ie: the bank chooses to let the seller sell the home they cannot make payments on anymore for less than is what owed.  The alternative is a foreclosure, and the short sale is beneficial to both the seller and the bank.   The bank generally sells the home for more money than if they foreclose (yards are green, pool is blue, no vandalism, no foreclosure fees, etc) and the seller takes a lesser ”hit” on their credit. 

So…everybody wins, right?  Well, if that is the case, then why do the banks deny so many short sales, and when they do allow one to proceed, why is the time to process from start to finish approximately 4-5 months longer than a regular sale? 

Ah….the ultimate question…and the start of our ”behind the scenes” theory.

There are two main reasons the banks give when confronted with their “slowness/denials” on short sales…they are not staffed enough to handle the amount of short sale requests, and they are concerned about home owner fraud.

Ok, that all may be true, but those are symptoms, not the disease…and both are easily cured.  If the banks really wanted to make the short sales happen then they would simply hire more staff…staff for the processing of the request, and staff to ferret out the very small percentage of frauds.  Come on…we the public may be stupid, but we are not dumb.  This is a very solvable problem…and no comments about the cost of adding the extra staff.  Banks have hired staff for their foreclosure departments without any problems, so why not hire workers for the department that saves you more money?

Well, here’s why (in our opinion). 

In April of 2009, a little known change in Federal accounting methods allowed banks to avoid writing down the loss on a foreclosed property until the bank resold the property.  Until then, the had to write down the loss when they took the property back.  Now, they can wait.  However, on a short sale, the banks must write down the loss immediately upon the sale of the property to the new owner.

Therefore, with a short sale, the bank cannot control when they take the loss on their books like they can with a foreclosure…and with the number one priority of a bank being quarterly profits and stock prices for their shareholders (and not the people they lent money to on a loan, like the rest of us) the banks are far more interested in making themselves look good for Wall Street than in helping our a homeowner with a short sale.

Don’t believe us?  Think about it.  With a foreclosure, the bank is in total control of when they decide to sell the home and take the loss.  Therefore, banks know how their overall profit and losses are going for a quarter, and they can decide just how many properties they can “sell”, write down the loss, and still look good for the stock market…and trust us, the price of a banks stock drives almost all decisions the bank makes.  CEO’s get paid to make the stock price rise…not make some homeowner who is causing the bank a loss on a loan a little happier.

That is why the banks are in no hurry to either make the short sale, or have the short sale process close in any time fashion that resembles sanity.  Stalling or denying the sale are simply the avenues for the bank to control when they take the loss on their books.

However, you won’t hear any bank exec spout this on TV, because it is not exactly quality PR.  Instead, the bank public relations departments spew out the reasons we hear all the time about how they cannot make the short sales happen in a timely fashion.  Really?…really?…when was the last time a huge national bank did not get what they wanted?

In the end, you can believe the TV sound bites we are fed on a daily basis, or subscribe the what we have written above…the choice is yours…but may we add the definition of the famous Occam’s Razor for you to ponder…

…”The simplest explanation is usually the right one”.  We’ll roll with that.

Westcoe Realtors, Riverside California…This may be hard to fathom, but rarely does an escrow close on time. Shocking, I know…but when you are relying on approximately 20 different people/organizations to do their job in a timely fashion, most of the time someone drops the ball and the escrow closing is delayed.  Since about 90% of the time the delay is caused by the buyers side of the equation (at least in a “regular” sale escrow….short sales are a different story), the question of the day is this:  What can a seller do?

Well, the first recommendation we have is for the seller to take a deep breath, calm down, and if the delay looks to be short (a week or less), then just roll with the situation and close it when you can.  Yes, we know you have plans, vans, and deadlines to meet, but such is life in the real estate fast lane.  Some problems are simply unavoidable, and while your agent will attempt to control as much as they can, even we are not the masters of our entire real estate universe…so when some low-level person in a far-away lenders office sits on your paperwork for a few extra days because their boyfriend/girlfriend dumped them for the roommate, really…what can we do?

However, if the delay looks to be longer than a week or so, does the seller have any type of remedy for the costs the delay will cause the seller?  Yes…sort of.

Let us assume that the delay will be 2 weeks or so…maybe longer.  Again, assuming the reason for the delay rests with the buyers side of the transaction (usually the new loan is delayed for some reason), then it is not unreasonable for the seller to ask the buyer for some type of compensation…and this compensation usually comes in two forms.

The first form is that in exchange for the agreement to extend the escrow for the 2-3 weeks needed, the buyer agrees to release some of the money on deposit directly to the seller as “non-refundable”…which means that if the buyer fails to close the escrow for any reason, the money is the sellers, and is “non-refundable”.  This type of compensation is usually used when the ultimate closing may be in doubt, because at least the seller now has some of the buyers money to compensate them if the escrow does fallout.  If the escrow does indeed close during the extended 2-3 weeks, then the seller has received no additional money for the delay, but they did have some peace of mind with the buyer’s money in their wallet.

The second form of compensation is generally used when the closing is not in doubt, just the time frame.  Here, the seller can ask for a “per diem”.  This “per diem” is usually a daily charge to the buyer for getting the extension, and is generally figured at 1/30th of the sellers monthly payment…or it can just be some figure pulled out of the air that all parties agree to is fair.  In any event, this money is added to the buyers cost of purchase, and paid by the buyer at the close of escrow.  The good news here is that the seller is actually getting some extra money for the delay…but if the escrow fails to close, then the seller gets nothing since the “per diem” was based upon a close of escrow that has not taken place.

There is also a third option, which is a combination of the release of deposit and the “per diem”.  This can work too since it is the best of both worlds…

…BUT ALL OF THE ABOVE COMES WITH A DISCLAIMER…and that is this:

Don’t get greedy.  Every situation is different, and let your real estate agent be your guide…but it is highly possible that the delay, while caused by the buyers side of the transaction, is not really the buyer’s fault either.  Sometimes, “you-know-what” happens and the buyer is just as frustrated as you are…and if the buyer feels the seller is simply not being reasonable, or trying to get extra money at the buyers expense, then the entire transaction can blow-up over something very silly.  Be careful here, and tread lightly, because if you lose focus on the big picture by getting tense over the little picture, it could be far more costly than the inconvenience of a 10 or so delay.

In the end, let your common sense be your guide…and when in doubt, understand you will get far more with sugar than you will with a stick.

Take care, and as always, let us know if you have a real estate issue you would like to see addressed here.  Thanks for reading. 

Westcoe Realtors, Riverside California…Given that we have been saying for some time that we have this massive demand for property in our area, interest rates are really affordable, and that many properties are having 10-20 offers submitted for the seller to pick from, some of our clients are wondering why home values are not rising faster?  Common sense would suggest that with so many more buyers than sellers, prices should be increasing…at a much more rapid pace than they are. 

So why aren’t they?  While we are beginning to see some price increases, why aren’t home prices rising faster?  Simple…the appraisal industry.

Ok…before we get a call from a bunch of angry appraisers, please note that today’s blog is not an incrimination or indictment of any singular appraiser.  But the simple reality is that the appraisal industry has undergone so many changes and “improvements” in response to the real estate market meltdown of the past 3-4 years that it is now almost impossible for home prices to rise in reaction to the intense buyer demand. 

The appraisal industry took far too much heat for the rise in prices in the early 2000’s.  Unlike the horror stories that the government wants to put out about “appraisers in the pocket of banks, burying unsuspecting buyers in overpriced homes”, the reality is that this type of activity represented a microscopic percentage of business.  Yes, there were bad appraisers…just like there were bad real estate agents, bad banks, bad loans, etc….but the appraisal industry was no more responsible for the rapid rise of home prices than anyone else.

However, the appraisal industry was an easy target for politicians bent on producing the latest sound bite for the national news.  As a result, the rush to “protect the buying public” from this latest evil was a number of new laws enacted that has had hurt the good people who were left behind…and that is sad. 

How?  Let me count the ways.

1.  Appraisers no longer work for the banks, but for a corporate intermediary.  This is to keep an “arm’s length” between the appraiser and the bank.  “No more bank pressuring the appraisers” shout the headlines.  Now, when an appraisal is needed, the bank calls the appraisal company, and this company sends out a random appraiser…an appraiser who may be from over 100 miles away!  No longer can the bank use a local appraiser familiar with the idiosyncrasies of the area.  Come on…do you really think an appraiser who generally appraises in San Clemente can really understand Riverside…or visa versa?

2.  Since appraisers can no longer contract with their local bank and must now contract with the appraisal company, they have had to “expand” their areas in order to survive.  This leads to situations like the one mentioned above…with an individual appraiser assessing value on a property way outside the areas in which the he or she usually works.  This makes for easy misunderstandings on value…especially in an area like Riverside, where for the most part, we are not sectioned into tract after tract like Orange County, and our properties are much older (which does not mean worth less).  There is far more “interpretation” required in Riverside than in most other areas.

3.  After the appraiser is done with the valuation, many properties are then subject to a “review appraisal”…which is a fancy way of saying that someone else will review the value given by the first appraiser (another “safety” precaution to keep the banks and appraisers apart from each other).  What the public doesn’t know is that this “all-knowing” review appraiser rarely sees the property or surrounding neighborhood, but is instead sitting at a computer somewhere (several counties or states away) simply looking at numbers on a screen.  They have no personal knowledge or understanding of the area of the property, just data and pictures on a screen.  And guess what?  If they decide in their remote wisdom that the property value is too high, they issue a new value that everyone is stuck with…end of story.  Yes, there is an appeal process, but good luck with that.  So, in the end, someone who has never seen your home is deciding whether you can sell it for the value all the local people seem to feel it is worth.

4.  If the local appraiser gets his appraisal price “slashed” too often by the review appraiser, then it looks bad for the local appraiser and he is not given as many appraisals to do by the company.  In essence, the local appraiser learns very quickly to stay ultra conservative with the original appraisal so as not to get his hand slapped by the review appraiser.  Even if the local appraiser knows that the original value reflects the true value of the area, they can be reluctant to go out on any type of limb for fear of getting slapped and losing business.  Hey, they have families to feed too.  So…they continue with the conservative approach.

5.  The cost of appraisals has gone up for the borrower…by as much as $200-300.  Why?  Because there is now a middle man (the appraisal company created between the appraiser and the bank), and this company wants to get paid too.  In the old system, all the money for the appraisal went to the appraiser…now it goes to the appraisal company, and the company pays the appraiser…and many times the appraiser makes less now than before.  That’s why they take appraisal assignments farther away from their base areas…to make more money since they now make less per appraisal.  And naturally, this price increase is passed on to the borrower who is ordering the appraisal to get his new loan on the home.

6.  Lastly, understand that the appraiser is the only person in your entire transaction who gets paid whether the transaction closes or not.  Everyone else (the Realtors, title, lender, termite work company, escrow, seller) only gets paid when the sale closes.  This creates a huge difference between who is vested in closing your sale and who isn’t.  We actually had one appraiser tell an agent that they were more afraid of their review appraiser than they were of the transaction falling out (this said after the valuation was brought in over $50,000 below what 20 buyers had wanted to pay for the home)…and beside, they had already been paid, so what the heck?  This is a unique example and is in no way indicative of most honest appraisers, but it can happen…just like bad situations could happen the old way too.

The net result of all this is a severely changed appraisal industry that currently seems more interested in holding prices down than letting a free market work it’s magic.  We cannot tell you how many times we have a transaction in which a low appraisal blows it all out of the water.  Think about it.  The buyer, seller, Realtors and bank all want the transaction to happen…but the appraiser holds all the keys…both the local appraiser and the review appraiser.

It may not seem fair or right, but it’s what our government has mandated we deal with to “protect” us all.  This is not a political rant, but merely a statement of the facts, and why these facts keep our housing market from freely reacting to elemental supply and demand forces.  Maybe things will lighten up in the future…but for now, we must all play by the appraisers rules, or they will take their ball and go home…and no one gets to play at all.

Westcoe Realtors, Riverside California…Of all the paperwork that gets shoved in your face when you purchase a home, one of the most important (and generally most boring) is the preliminary title report.  And yet, no document is more important than this one, for it will make sure you understand exactly what comes with the property after it is transferred from the old owner to you.  In essence, what warts will transfer with this sale?

In most cases, the title prelim lists every recorded document that goes with the property.  Generally, this includes any existing loans the seller has against the home, the current property tax status (with any back taxes owed the responsibility of the current seller), any easements that may affect the property (ie: does anyone have the right to cross your property for a specific reason), any legal judgements recorded against the current seller (with most of these needing to be taken care of from the sellers funds at close), etc.  These are the basic items found in a preliminary title report.  There can be more of course, but these are the basics.

However, there is a new item popping up on many bank owned properties, and unfortunately, in many cases, neither the bank nor either agent knows about it until well into the escrow period…and this new “recorded little nasty” is a code violation from the city in which the property is located.

Here is how it works.

From a political and visual standpoint, most cities are tired of the general deterioration of bank repos.  You know the story…dead yards, broken windows, stolen appliances etc.  Neighbors complain on deaf bank ears, cities get blown-off as well, and the only remedy for these angry residents and local politicians is code enforcement violations.

Generally in a code enforcement violation, once a property has been reported to the city/county code enforcement section, then the code enforcement officer can enter the property and cite away.  The citations can cover a multitude of issues…landscape violations, trash accrual, building violations, etc.  The end result is a list of items that must be fixed, and this list of items is noted and recorded against the property.

Unfortunately, the communication between the code compliance department and the bank that owns the property is poor…mostly due to the bank.  So while this new code violation is recorded against the property, no one knows about it until it shows up on a title prelim during the escrow period…many times only days before the close of escrow.  Now what?

Well, the first thing that has to happen is for either the buyer or seller to accept responsibility for the items listed.  It should be the sellers (the bank) responsibility, but that does not mean they will accept it.  The chain of command in dealing with the selling of a bank repo is cumbersome at best, and throwing a new (and potentially large) cost at the bank near the end of a transaction can wreak havoc.  Many times the bank will simply refuse to pay the costs of the repairs required.  Disregard the fact that if this escrow falls out they will now know about the code violations and will have to disclose same to the new buyer they will need to find…the reality is that banks generally don’t operate with any amount of common sense.

So…if the bank won’t accept the responsibility for fixing or paying for these code violations, that leaves the buyer.  At this point, is the purchase price is a good enough “deal” that fixing the violations still makes economic sense for the buyer, then full speed ahead.  However, in most cases, the buyer didn’t plan on this little surprise either, and they cannot (or will not) accept responsibility, and the sale falls out.

In the end, as in almost any escrow, when there are surprises, everything gets re-negotiated between the two parties, and hopefully, some common sense prevails…because unexpected surprises are no fun for anyone.  However, as we all know, common sense is not so common…so if you find yourself dealing with one of these code violation issues, we hope your end is a successful one.

In the meantime, be sure to read your title prelim very carefully so you know exactly what you are buying.

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.