(Westcoe Realtors, Riverside, California)…For the 7th month in a row, the absorption rate for the Riverside area has fallen to a new low of 7.4, which indicates that our current real estate market is showing increasing strength well into 2008.  As many of you who read this blog on a regular basis already know, the absorption rate is a real-time measurement of the sales activity currently happening in our Riverside area (see posted blogs for 3/03 Riverside Absorption Rate Drops 5th Month in a Row, and 4/02 Absorption Rate Drops Again). Simplified, the rate is an indication of how long, in months, it would take to sell all the available homes for sale at the latest monthly sales rate, and this new rate has fallen to a low not seen in the Riverside area since July of 2006.

The absorption rate is a critical indicator of the direction of our current real estate market, and is calculated from MLS data through April 30, 2008.  The lower the rate, the faster properties are selling.  The chart below shows the data since January of this year.

Month          Active Properties          Pending Sales (previous month)          Absorption Rate

January            2706                                             154                                          18.0

February          2776                                              221                                          12.6

March               2837                                             317                                            8.8

April                  2733                                             368                                           7.4

The important item to note here is that this lowering of the absorption rate is due not to a decrease in the number of properties for sale, but instead to the increasing number of properties sold.  Since January, the number of pending sales in the Riverside area has grown from 154 to April’s total of 368…an increase of approximately 140%.  This increase in sales shows the rising strength of the Riverside real estate market, and validates what we have been saying on this blog for months…that our market is getting healthy at a far greater pace than the media would have you think. 

While the mainstream media would have everyone focus on the number of foreclosures as an indicator of market strength, foreclosures are a measurement of market forces that happened 3-9 months ago.  We have said for months that we are in the perfect storm for real estate growth, and the above numbers indicate we are correct.  The low interest rates coupled with lowering home prices have now made this a very affordable time to purchase for both the first time buyer and investor alike.  Many properties in the price range below approximately $325,000 are receiving multiple offers as buyers are seeing for themselves that these opportunities will not last forever. 

The good news is that for now, there is plenty of affordable inventory available as more and more buyers discover that waiting on the sidelines is not where they need to be.  No one rings a bell at the bottom of the real estate market, but as we have said before, anyone who purchases a home now will be incredibly thankful they did so 4-5 years from now.  Those who wait (assuming you can afford a home at this point) will pay the increasing prices that will result from “everyone” who will jump in and purchase at that later date.  By that time, the foreclosure properties available will have dwindled to a much smaller number, and prices will begin to rise because of the lack of inventory.

In the end, there is nothing happening here that has not happened before.  Home prices drop to incredibly low levels, smart buyers buy when most others are not, and then those smart buyers sit and reap the rewards of getting in early.  This real estate cycle has repeated itself over and over, and our current cycle appears to be no different.  Eventually, the market heals itself, the masses are told not be scared anymore, and then they all start to buy..thereby driving the prices up. 

The question you need to ask yourself is simply this…do I want to buy at the lower prices while others wait, or do I want to run with the herd and wait until prices rise and it becomes “safe”? 

Your call…but one look at the numbers from our MLS above, and you can see the results for yourself.  Call or email us if you have any questions or need any help in deciphering the current real estate maze. 

(Riverside, California…Westcoe Realtors)…In my posting of April 10, 2008 on this blog (Supplemental Taxes…The County May Owe You Money), it was explained about the sometimes confusing issue of Supplemental Taxes, and how quite possibly, the County Assessor of Riverside may owe you some money.  Since that posting, we have additional information that you may find helpful.

 In our original blog, it was noted that there was no mechanism for getting you a refund if indeed you were eligible for one (you need to read our original post to see if you may be eligible).  Our suggestion was that you simply continue to call, fill out any necessary forms, and then call again if you received no action.  However, after further investigation, we have more…and better…news.

 It appears that there IS an automatic mechanism in place with the assessors office to make sure that everyone who deserves a refund will get one…BUT THERE IS ONE CAVEAT…and that is that all deserved refunds will take a very back seat to the massive amount of business that is currently on the assessor’s plate.  What we mean that with the downturn in the current real estate market with regards to pricing, the assessor is so swamped (SWAMPED as in capital letters) with reassessment requests, that refunds will have to wait until reassessments are completed…and that makes sense. 

It is far more time sensitive to get the new assessments completed than to get a refund out.  We applaud the assessor for having this automatic process now in place, and encourage all eligible refund participants to remain patient.  You will get any money coming to you, it just may take some time, as we believe that the people in the Assessor’s office are pedaling as fast as they can.

(Riverside, California…Westcoe Realtors)…The rules and regulations regarding available financing in today’s real estate market change more often than Brittany Spears’ hair styles…and often with the same logic applied.  Today I wish to inform you of some new changes regarding financing condo sales, but it comes with a caveat…BEWARE, TODAY’S REGULATIONS ARE LIKELY TO BE FOUND IN TOMORROWS TRASH BIN, SO PROCEED ACCORDINGLY.  All we can say is that the following is applicable as of today, but that does not mean it will be valid or apply tomorrow.

We have mentioned before on this blog about Fannie Mae and Freddie Mac…the two largest providers of loan funds to our banking system.  To briefly refresh, these two giants buy the majority of the notes and deeds of trust generated by banks when the bank makes real estate loans in your area.  Your local bank or mortgage lender makes a loan (trading their cash for your note, or promise to pay) and then they sell the note to one of the above two entities, in which case the local lender gets more cash to loan again to someone else.  So…when Fannie or Freddie sets new guidelines, all local lenders pay attention, or  they will have no place to sell these newly generated real estate notes.

 So why is any of this relevant to you, a possible condo buyer or seller?  Because there are now new guidelines being set for anyone who is involved with a condo purchase.  Guidelines that affect both the buyer and the seller.

For the buyer, the main change is regarding the down payment percentage.  You will now need a minimum of a 10% down payment, and even that may not be good enough if the zip code you are purchasing in has been designated a “declining” market.  If that is the case, you may have trouble purchasing at all (the reason for this is very detailed and very boring, so simply ask your lender).  If you can muster a 20% down payment, then you will be OK…provided you have really good credit and FICO scores (a credit rating score that someone thinks is an indication you will actually make your payments).

For the seller, it can be even worse.  Fannie and Freddie are very concerned about condo projects, because so much of the desirability of the entire project is connected to the appearance and financial health of the association that controls the project expenditures.  For example, if the association is broke, and just skimping by, then perhaps there is not enough money to pay for proper landscaping…or new trees…or a new roof…all of which can greatly affect the pricing of an individual unit.

So much of what an association can do is dependent upon all the condo owners paying their monthly association fees, and Fannie and Freddie want to make sure that they are not lending on a unit that is in a project that is headed downhill…and you can see their point.  It is different than a single-family home, where only one person (the homeowner) is responsible for maintenance.  In a condo, one unit owner could be paying his monthly dues, but will still suffer from poor maintenance if many other unit owners are not paying theirs. 

SO…Fannie and Freddie have now instituted new guidelines for making a loan in a condo project.  Now, before they will make a loan, they want to see all legal documents pertaining to the condo project, the association budget and current financial statements, and what percentage of condos are owned by investors, and what percentage of units that are delinquent on paying their monthly association dues….and the problem is that not all this information is readily available.

This brings up a host of potential problems.  Who is really to know if a unit is occupied by an owner or a tenant…and how do you verify this…go door-to-door?  Also, what is an acceptable percentage of owners to investors?  And how about the delinquency rate?  Is that monthly…quarterly?  And what is the acceptable ratio here as well?  As with most federal guidelines, there is simply many more questions than answers at this point.

In the end, all we are trying to do is acquaint you with some of the changes that are currently taking place in our real estate arena.  My guess is that some of the regulations outlined above will be changed since they place an undue burden on the seller or local lender to verify facts that are simply not available…but changes, if any, will take time to implement.  For now, we go with what they ask…for if we don’t play by Fannie and Freddie’s rules, they will simply take their ball (money) and go home and we won’t have a game at all.  Sorry…don’t shoot the messenger.

(Westcoe Realtors, Riverside, California)…Whether it be the high-pitched, seriously toned voice of the verbal media (radio, television, etc.), or the massively large headlines of the printed media (newspapers, magazines, etc.), I always find it interesting when another decline in housing stats is paraded past our senses.  Most of the information is touted as the “latest housing statistics” according to some credible source, when in reality, almost all of these sources use data that is at least 4 months old…and that makes the resulting article or commentary not a particularly accurate depiction of the current real estate market as we see it in the “real world trenches” in which we operate every day.  Let me give you an example.

 In today’s local paper, on the top front page of the Business Section, is an article in very big bold print that says “NEW HOME SALES FALL 8.5 PERCENT”.  It is an Associated Press article out of Washington, and it sites a number of sources to let us know that for the month of March, 2008, new housing sales “plunged” to their lowest levels since 1991.  There is additional doom and gloom, and a few analysts who also offer their opinion on why we should all panic, etc.  You get the idea.  However, let’s analyze this a bit…and please understand that I am not picking on our local paper.  One can see the same type of headlines in any paper or magazine in the country.

 First, and very importantly, any story that originates out of Washington, or is reputed to be about any national trend, generally has about as much relevance to you in your local community as a as a space walk does on what you eat for lunch…there is simply no connection.  Granted, quoting national statistics might make for entertaining cocktail banter, but as far as giving you much of a picture of what is happening with real estate in your own backyard, no way. 

 All of real estate is local, not national.  Heck, we have incredible fluctuations just within our local Riverside city market.  You draw a 2 mile radius circle on a Riverside map, and I guarantee you will cross at least 3-4 sub markets with varying real estate pricing and activity.  What is happening in Orangecrest may be completely different from what is affecting sales in the Wood Streets…or Lake Hills…and generalizing doesn’t cut it. The same is true where ever you live.

SO…when you see any article, or hear any news clip…if it references anything outside your immediate area, take the message with a large grain of salt.  This is especially true when we live in California, since we are not necessarily like the rest of the nation on so many things.  Even within our own state, we have enormous divides.  Northern and Southern California bask in their differences.  Just in our own area, what is happening in Orange County and the beach cities in real estate is a far cry from the current markets of Los Angeles or Riverside.   So be aware of where the “story” you are hearing or reading is originating from, and gauge your level of concern accordingly.

 Next is a discussion of the data all these sources quote, AND THIS IS HUGE IF YOU WANT TO OPERATE IN A REAL TIME DATA ENVIRONMENT…which is critial in the real estate world. 

Almost all stories will quote statistics based upon CLOSED sales, not on CURRENT SALES IN ESCROW…and this makes the data, and resulting story, at least 90 days old, maybe more.  The key here is understanding that a closed sale in March will have generally entered escrow in January or February…and then when all those March closings occur,  it takes a few weeks to aggregate the data…especially if it is a national source.  So what you are left with is an article appearing today, April 25, that is really an indication of what was happening almost 4 months ago! 

Don’t blame the media…they do not have access to the real time data we real estate professionals work with every day…but don’t take their word as current gospel either. 

As another example, Westcoe Realtors posted on this blog space, on April 2, 2008, a blog entitled “Absorption Rate Drops Again”.  This article is a discussion of some very important real estate information, AND IT IS BASED UPON DATA THAT IS ONLY 2 DAYS OLD…data that will effect what the press will report approximately 2-3 months from now…and in this market, that 2-3 month time lag could spell disaster for someone who is buying or selling.

My point here is not to bash the media (although they do make it easy sometimes), but to enlighten the public as to the meaning of the articles that are being written.  We all know that negative news sells (just like people slow to see a car wreck on the freeway), but what sells is not necessarily accurate on a real time basis.  The bottom line here is that if you want accurate, up-to-the-minute information about real estate, or pricing, or market activity, get with a real estate professional (I can make a very biased suggestion for more than a few here at Westcoe).  They are the ones who work in this arena on a daily basis, and they are the ones you should consult. 

Think of it this way.  If you were buying or selling some stock, would you like the pricing information now…or are you willing to wait and make your decision tomorrow on what you read in the paper? Fortunes are made or lost in minutes in the stock market world, and waiting until the end of the day for your information would be unheard of.  In real estate, the same principal applies.  Perhaps not as immediate as what you need for a stock market decision,  but surely you want your information based on today, and not 3 months ago.

SO…enjoy your newspaper, television, radio, and Internet..but don’t rely on them for your own real estate buying or selling…call us…we are a lot more current.

(Westcoe Realtors, Riverside California)…Unfortunately, this is a question that has been posed to some of our real estate agents far too often in this challenging market.  For all the reasons that have been so widely documented, this question is on the mind of many homeowners…and while we are not attorneys or tax professionals, we do have some idea of the general nature of the consequences if you, indeed, simply walk away from your home.  However, before we can give you a simplified response to this question, we need to offer a few definitions first.

 Basically, there are 3 ways you can “lose” your house…short sale, foreclosure, and simply walk away…and it is important you understand the difference between the three.

SHORT SALE…In this example, the homeowner negotiates with the note-holder(s) to accept less than what is owed so the homeowner can sell the home.  The note-holder takes a loss on their loan (which they were probably going to have to do anyway), but  is saved from losing even more money by having to complete the foreclosure process.  The plus for the seller is that potential tax and legal issues are no longer on the table, since the lender “accepted” the loss.  This is generally the best for everyone, but also the most difficult to arrange, since many of the loans are not even owned by the originating bank anymore, and communication with someone who can actually make a decision is almost impossible.  But it is worth a try.

FORECLOSURE…Here, for whatever reason, nothing could be worked out with the existing note-holder(s) and after a lengthy process, the home is actually “sold” back to the note-holder at a public auction.  Once the note-holder gets the property back, they sell the home in whatever way they desire (real estate agent, auction, bulk sale, etc.).  In this process, there are minimal tax consequences for the person who lost the home, but there can be legal issues, depending on how your original note was written, what type of loan was on the home, and the mood of the lender.  For this, you would need an attorney, since there are too many variables to cover them all here…just be aware legalities may be hiding around the corner.

WALK-AWAY…In this case, the homeowner, for whatever reason, simply leaves the keys on the counter, and tells the lender the house is theirs.  In essence, the homeowner simply walks away…and this has some serious repercussions which is why we are covering it in today’s blog.

 Lastly, before we can finally answer the walk-away question, you must understand the role Freddie Mac and Fannie Mae play in just about every real estate loan made in our country.

Banks and Mortgage Companies actually meet with potential borrowers, explain loan programs available, qualify the borrower, and eventually make the loan…but the money for the loan is generally coming from Fannie Mae and Freddie Mac.  Once this new loan is made by the bank, they have a piece of paper (the note) but no cash…so they sell the note to Fannie Mae or Freddie Mac, get more cash, and now they are back in the lending business…and Fannie Mae or Freddie Mac get the monthly payments.  This is a simplified version of how the lending world works.  SO…since the money essentially comes from one of these two wall street giants, ALL LOANS ARE WRITTEN TO FREDDIE MAC AND FANNIE MAE GUIDELINES.  They are the giants that set the rules by which everyone must play…or they will take their money and go home, and there won’t be much to lend.  It’s their way, or the highway.

Now that you have a little background, we can move on to the answer of what happens if you simply walk away from your home.

First, Fannie Mae will ban you for up to 5 years from receiving a real estate loan in which they are involved, and even after that 5 year time span has passed, they will require a 10% down payment and a FICO score of at least 680.  A FICO score is a number that reflects, through a complicated and somewhat secretive process, your creditworthiness.  All lenders use this scoring system, and the higher the number, the better.  Fannie Mae MAY give you a loan after 3 years if there is documented hardship as to why you left your home, but the key word here is documented…and since you simply walked away, there is generally little documentation on file with the lender to support your position.

Freddie Mac is even tougher.  They can count your walk-away against you for up to 7 years, and are currently reserving their right to pursue legally whatever deficiency rights they may have under the terms of the note…so you might want to consult an attorney on this one, as each note is written differently.

Also, on a walk-away, you may have significant tax consequences.  Simply put, you may have to pay taxes on the balance of the loan you never paid back to the note-holder.  In a short sale, the note-holder “forgives” your unpaid balance, so you have no tax issues…and in a foreclosure, the property is “sold” for it’s current value, so the tax liabilities are basically moot.  However, in a walk-away, the note-holder didn’t forgive anything, and the property was not “sold” back to the lender…so the tax burden can be totally your responsibility.  This is potentially a huge issue, and I would highly recommend that you consult a tax professional before simply leaving your keys on the counter.

The bottom line here is that it may sound cold, but the lender lent you the money, and you agreed to pay…and your agreement to pay was not contingent upon your keeping your job, spouse,  house value, health, or whatever.  Yes, there are extenuating circumstances that can lead to real and unexpected problems with your ability to pay, and they can mitigate your situation…BUT YOU NEED TO TRY TO WORK WITH YOUR NOTEHOLDER TO ATTEMPT A SOLUTION.  If you don’t, and simply give into the temptation to “just walk away”, then the consequences can come back to haunt you in many ways, for many years.

No one likes what is happening to the families who are having trouble with their house payments…but our best advice is to communicate with your note-holder, and then at least consult with an attorney and tax professional.  The good news is that the laws regarding this current housing situation are changing rapidly, so perhaps the government will enact some new programs or regulations that will make all of this less penal…so we again suggest you consult an attorney or tax professional for any up-to-the-minute changes…because what you don’t want to do is make a bad situation turn into a really horrible situation.

Riverside, California (Westcoe Realtors)…If you have purchased property in Riverside County in the past 9 months to a year, chances are the Tax Assessor owes you money. Why is that?  Because of a very confusing process called supplemental taxes…which we will attempt to explain here.  However, before we can get to supplemental taxes (and your possible refund), you must first know a few things about how regular property taxes work.

Property taxes are essentially figured at 1% of your sales price.  They can actually be a little higher once the city ads on a few things in your area, but for conversational purposes here, just know that your property taxes on your new purchase will be 1% of what you paid for your property.  These taxes can either be paid in your monthly payment to your lender (called an impound account), or you can pay twice per year to the County Assessor when they are due. 

The Assessor works on a fiscal year, not a calendar year.  Their fiscal year begins July 1, and ends June 30…and the due dates for your property taxes are December 10 and April 10.  The December payment is called the “first half taxes” (only the government could call a payment made in December a ‘first half’ payment), and the April payment is called the “second half taxes.”  The December payment covers the time cycle, or taxes due, from July 1-December 31, and the April payment covers the cycle from January 1-June 30.  It is important to understand that instead of collecting monthly, the Assessor simply collects twice per year.  Thank goodness this is all the tax info you will ever need to know.

So…let’s talk about supplemental taxes…and our conversation begins with the close of escrow on your  new purchase.  When you closed escrow, all existing taxes then currently in place on your home were prorated as of the close of escrow.  This is a fancy way of saying that the seller paid the taxes on the home right up until the day it closed, and then you took over from there. 

HOWEVER (and this is a very key point), THE PRORATED TAXES PAID THROUGH ESCROW WERE BASED UPON THE SELLERS EXISTING TAX BILL…NOT YOUR NEW TAX BILL.  The County hasn’t figured your new amount yet (how can they…you just closed escrow), so escrow can only use the bill that is already in place…and unless you are paying the seller exactly what he paid for the home,  you can bet your taxes will be different…and, until the Assessor issues you a new tax bill for your new amount, you will continue to pay the taxes of record…the old sellers taxes.  So…what happens now?

 What happens is that the County Assessor will eventually “catch up” with their records, and when they do, two things will occur.  First, they will issue a new, accurate tax bill that you will now pay.  If you pay your taxes directly, then it will be sent to you, and you will begin this new payment with the next date tax payments are due (either the December or April date explained above).  If your tax payments are made by a lender from your monthly payments (impound account), then the bill will be sent to your lender, and they will make the new payment when due (and raise your monthly payment accordingly).

The second thing the Assessor will due is issue you a SUPPLEMENTAL TAX BILL, WHICH IS A BILL TO GET THEM CURRENT FROM THE DATE YOU CLOSED ESCROW ON YOUR HOME, TO THE DATE THE NEW PAYMENT WILL NOW BEGIN.  In other words, they not only want you to start paying the new, accurate tax payment with the next payment due, they want to “catch-up” with the accurate tax payment you should have been making the minute you closed escrow.  Let me give you a numerical example that may help.

 Let us assume the old seller paid $240,000 for his home way back when he bought it, and you come along a few years later and pay $480,000 for it now…a situation very, very common in the years 2000-2007.  I use these numbers, because if you apply the 1% property tax rule, the old seller’s taxes were $2,400 per year ($200 per month, if broken-down on a monthly basis), and your new taxes will be $4,800 per year ($400 per month).  Let us also assume that you closed escrow on March 1st. 

Here is how the taxes would work…and remember, everything tax wise is figured on the 6 month cycle I described above.  When you closed escrow, the existing tax bill of record is the annual $2,400 ($200 per month) from the old seller…and the prorations done in escrow would have meant that for the 6 month tax period that was in effect at the close, the seller would owe the 2 months he lived in the home (January and February), and you would owe the remaining 4 months to finish the cycle (March, April, May, and June).  So on your closing statement, it would show payments of $400 for the seller, and $800 for the buyer.  This would get everything paid until the end of the current 6 month tax cycle, at which time, the Assessor may have your new tax bill ready, and you would then begin to pay your new taxes of $4,800 per year ($400 per month, $2,400 every 6 months).

 Now note where the supplemental tax bill comes in.  You can see that for the first 4 months you actually owned the home, YOU UNDERPAID YOUR TAXES BY $200 PER MONTH…OR $800 TOTAL…AND THIS $800 UNDERPAYMENT WILL BE THE AMOUNT OF YOUR SUPPLEMENTAL TAX BILL.  All a supplemental tax bill does is get you caught up to your actual tax bill, which always comes later.  Why does it come later?  Because the Assessor needs to collect all the data on the sales of properties in Riverside County and prepare the new tax bills…and this takes time.

 So, as I noted in the title to this blog, WHERE DOES MY REFUND COME IN?

Well, in my example above, we assumed that the new price you paid for the home was greater than the price the old seller paid, and hence, you had a new higher tax bill.

BUT WHAT IF THE PRICE YOU ARE NOW PAYING IS LOWER THAN WHAT THE OLD  SELLER PAID…THEREBY GENERATING A NEW TAX BILL LOWER THAN THE OLD ONE?  This situation is very possible in the past 9 months, given the changes in our market place.  So what happens now?

 I’ll tell you what happens.  YOU ARE PROBABLY OWED A REFUND FOR WHAT YOU OVERPAID AT THE CLOSE OF ESCROW.  Chances are the old bill is higher than your new bill, so you were probably charged too much at the close of escrow (don’t blame your escrow officer…they MUST prorate on the existing tax bill).   

However, the real kicker here is that you will not necessarily automatically get your refund…you may have to ask the Assessor for it…and you may have to ask for it more than once.  The Assessor system automatically programs for INCREASED SUPPLEMENTAL TAX BILLS…BUT IT DOES NOT AUTOMATICALLY PROGRAM FOR REFUNDS.  Hey, it’s the government…what can I say. 

As a note, when we at Westcoe discovered what this market change had done with supplemental taxes, and that our clients were now owed refunds in many cases, we were told by the Assessors office that they would look into the matter…but currently had no policy for automatic rebates.  Hard to believe, but so be it.  We have called a few times since, but have no new information to report.

In summary, I honestly feel the Assessors Office for Riverside County will ultimately do the correct thing…but getting a government bureaucracy to make a change is like trying to turn an oil tanker…it just won’t happen very fast.  In the meantime, we simply encourage our clients to continue to call the Assessor to inquire about their refunds.  For now, it is all you can do.

I hope this blog today wasn’t too technical, and the bottom line is that if you are unsure if you are owed a refund, simply ask your agent…they should be able to tell you.  And if they cannot, then call us…we will tell you whether we worked with your or not.  We really are here to help.  

Riverside, California…Westcoe Realtors…We recently posted a blog about regular sellers, and the special issues facing them today in a world dominated by bank owned properties (see I’m Not a Bank…Can I Still Sell my Home?).  Today, I want to delve deeper into a certain segment of those “regular” sellers…the High Range Seller.  Specifically, where have their buyers gone, and what can they do to sell in our current real estate climate.

 In order to fully understand the answers to the above question, it is imperative that you totally comprehend the changes that have occured to our local real este market in the past couple of years.  To assist you with this, I have supplied a chart below that compares the 1st quarter of 2006 with the 1st quarter of 2008, broken down by price ranges and unit sales.  Please take a look.

                                                1st QUARTER 2006                             1st QUARTER 2008

Price range                      Units Sold         % of sales                        Units Sold             % of sales

$1-$300,000                         52                      8%                                 387                          53%

$300,000-$400,000            243                     39%                                190                          26%

$400,000-$600,000            255                     40%                                120                          17%

$600,000 plus                     80                       13%                                28                            4%

                                       ____                                                       _____

                                   630 total unit sales                                    725 total units sold

This chart represents the total properties that sold in these quarters in the Riverside area.  Now, what does it all mean, and how does it affect our high end sellers?  Well, let us examine some conclusions to be drawn from the changes this data highlights.

FIRST.  The low range sales for 2006 are totally defined differently than the low range for 2008.  In 2006, THERE WAS NO INVENTORY BELOW $300,000…and now look at it.  It is interesting to note that the two lowest catagories for 2006 show a total of 47% of the market sales…as compared to 79% for 2008.

 SECOND.  Conversely speaking, the two highest price catagories for 2006 represented 53% of the total unit sales, as compared to only 21% for 2008.  Not that tough to see that there are far fewer sales in the higher price ranges today as opposed to 2006.

THIRD.  The lower prices of today are represented by the massive number of unit sales in the lowest price catagory in 2008 as compared to 2006.  In 2006, about the only property you could find under $300,000 was a few condos or some seriously messy single family homes.  Today, it’s like Willy Wonka in his Chocolate Factory..take your pick from a huge selection below the $300,000 level. 

FOURTH.  This lower pricing that now exists is the reason that the total unit sales are up from 630 in 2006 to 725 in 2008…a gain of 15%.  This is why, painful as it is, this real estate market correction we are currently experiencing is beneficial in the long run.  It is allowing first time buyers back into the market at a price and monthly payment they can actually afford.

 So…Let’s go back to our original question.  Where are our high-end buyers?  Well, they are here, but they are hiding for a while, and will take a little time to come out and play.  

 Basically, you must understand the ”food chain” as it applies to real estate.  Low range buyers (first time buyers, etc.) start the process.  Those sellers of the low range houses then become the buyers for the mid-range properties…a simple trade-up process…and those sellers of the mid-range homes become the buyers for your high range home.  However, understand not every low-range seller becomes a mid-range buyer, and not every mid-range seller becomes a high-range buyer.  There is some attrition along the way.  Think of it like a pyramid…lots of buyers along the bottom, but as you climb higher, there are fewer and fewer buyers. This is how the real estate market has always worked, no matter what cycle we are in.  Lows feed the mids and mids feed the highs.  But what about now?

 THE PROBLEM NOW IS THAT A LARGE PERCENTAGE OF YOUR LOW RANGE SELLERS ARE BANKS WHO WILL OBVIOUSLY NOT BE TRADING UP.  Therefore, the feeding chain is broken, and that is the problem with our high end market.  We now have so many fewer buyers trading up, and that problem is passed up the food chain.  In essence, when the plankton are not as available, the whales get a little hungry…and the numbers in the chart above totally verify the “thinning” of this market for the whales.  So what do you do as a high range seller?

 Simple…if you find yourself needing to sell in todays market, you need to be incredibly realistic about what you face.  Look at the chart again.  ONLY 4% OF THE SALES IN THE 1ST QUARTER OF 2008 TOOK PLACE IN THE HIGH PRICE RANGE  CATAGORY.  You have a small number of fish in your pond that are looking for your bait…so you better have the most attractive bait around.  That means the condition and price of your home better be the best of what is for sale, or those miniscule high range buyers (28 for the year so far…the 4%) will buy another home that is.  I know this sounds tough, but such is your market at the moment…and tough love is never easy, but generally needed. 

In time, the market will improve when the banks get out of the home ownership business (a business they would only be too happy to leave), but until then, be realistic.  Sorry, but this is the best advice I can give…and the most practical.  Hang in there, and you can always call Westcoe (here comes my plug) for details on your particular home.

Riverside, California…According to statistics compiled from the local MLS, the March 2008 absorption rate for real estate in the Riverside area has dropped from last months 12.6 to a new low of 8.8.  This new 8.8 rate is the 6th month in a row this figure has declined, and is at a level not seen since October of 2006.

The absorption rate is calculated to show the length of time it would take for all available properties to sell given the most current sales rate, and it is a good measure of current market activity.

This declining absorption rate indicates the real estate market is returning to a more healthy level by showing that the available inventory of properties for sale is selling at a faster pace.  It is derived from dividing the amount of exsiting properties for sale by the most recent sales activity from the preceeding month.  The table below shows the details.

Month          Active Properties     Pending sales (previous month)     Absorption Rate

Sept. ‘07           3234                                       82                                                39.0

Oct. ‘07             3196                                       88                                                 36.2

Nov. ‘07            3191                                      105                                                28.0

Dec. ‘07            2940                                      105                                                25.8

Jan. ‘08            2706                                      154                                                18.0

Fe. ‘08             2776                                       221                                                12.6

Mar. ‘08         2837                                        317                                                  8.8

While the available inventory supply has declined almost 10% since October of 2007, the real change here has occured in the number of properties selling monthly.  Sales activity during this same 6 month period has increased over 300%, from 82 sales in October to 317 for March.  What does all this mean?

It means that this web site has touted for months that the current real estate market is one of the best times to purchase real estate we have seen in almost 10 years, and that the buying public agrees.  While we take no pleasure in some of the events that have caused this decline in pricing, the simple fact remains that we are swamped in great real estate buys.  It is now possible to purchase positive cash flow rentals with 10-20% down with a fixed 30 year loan.  This was unheard of just 12 months ago.

As we have said before, the prudent investor or first time buyer will hasten to purchase a home in this current market.  It simply doesn’t get much better than this, and this convergence of low prices and low interest rates have created the perfect storm for home buying.  It is an amazing cycle we are in, and will not last.  Once the Fed sees any strength in the real estate market, they will begin to raise rates accordingly. 

So…you can strike while the iron is hot, and 5 years from now wish you had bought all you could….or you can succumb to the media hysteria and remain on the sidelines while those individuals who flew in the face of the media “experts” in 2008 reap the benefits.  The choice is yours, but at least 317 people who purchased in Riverside have figured it out.  Hopefully you will too, as at the moment, there is plenty to go around.  Give us a call here at Westcoe…we will be glad to help. 

Riverside, California…A real, live body, human being seller has got to feel a bit like the red-headed stepchild in this current real estate market…seen, but no one asks them to play in the latest real estate games.  There is so much conversation about bank repos/REO’s that the poor “regular” seller feels like he has been tossed aside like wide ties and green shag carpet…adored once, but now seemingly forgotten.  However, all is not lost.  If Travolta and Brittany Spears can make a comeback, so can you…the normal, regular seller in today’s bizzaro real estate world….but here is what you have to know.

First, I know you are tired of hearing about banks.  So are we, but what can I say?…They are here to stay for a while (like your in-laws, but they may stay even longer), so you might as well get used to them.  They are the enormous elephant that is not only in the room, but is wandering the entire house.  So instead of fighting them, you are going to have to live with them for a while.

What does that mean?  It means that you must take them into account when pricing your home.  Buyers want bargains, so you are going to have to give them one.  Now, before you panic, understand that you WILL BE ABLE TO SELL YOUR HOME FOR MORE THAN THE PIECE OF GARBAGE THE BANK OWNS DOWN THE STREET.  If you have upgrades, pools, spas, nice flooring, etc, and the “money pit” owned by the bank does not, then you will get more for your home…you just need to realize that the “more” you will get must still represent a bargain to the ultimate buyer.

Contrary to popular opinion, there are still “normal” buyers out there…buyers who do not know a hammer from a tire jack.  Not everyone is Mr. Fix-it.  These “normal” buyers simply want a nice home, ready to live-in, and they know that they will  have to pay more for the home than the stereotypical REO…BUT THEY STILL WANT A BARGAIN BASED UPON TODAY’S REAL ESTATE MARKET.  Remember, the average REO is simply that…average.  If your home is well above average, then you can get a well above average price…above average price being defined by 2008 standards, not 2006.  Don’t dispair…your buyer is out there, but you have got to be realistic about what they will pay.

 Secondly, to also be successful with your sale, you MUST UNDERSTAND THE KEY TO SELLING IS FLEXIBILITY.  Here is an example we all know.

 You decide to drive from Riverside to Orange County on the freeway…and no matter when you plan to make this drive, you know there will be traffic and other cars to contend with.  A question?  When you merge on the freeway, do you really think you will be able to drive in one lane at a constant speed for your entire trip…or will you change lanes and speeds as often as it takes to get you to your destination as quickly and safely as possible?  We all know the obvious answer, and the same applies to selling your home.

When a good real estate agent (shameless plug for Westcoe here) lists your home for sale, the price they quote you at the time of the listing is merely a snapshot…a snapshot of the market at the exact time you decide to play the selling game.  This “picture” will show you all your competition…properties for sale, in escrow, and closed escrow…and all this data will paint a picture that will dictate where you fit in.  HOWEVER, LIKE THE DRIVE TO ORANGE COUNTY, YOU MUST REMAIN FLEXIBLE AND BE PREPARED TO CHANGE LANES AS OTHER CARS (houses) ENTER THE PICTURE.

All too often sellers price their home and then think they are done with that issue, when really they have just begun.  Your price is effective and relevant the day you list the property for sale (at least you hope it is), but that price potentially may lose it’s relativity by the addition of new listings, sales, or closings as time passes.  What worked on day one may not be applicable on day 30.  Again, a good real estate agent will advise you of this, and give you all the new data so you can adjust your picture if needed…much like you change lanes and speed on your freeway drive.  You cannot stay stagnant in your car, and you cannot stay stagnant on the real estate freeway either.

 In the end, we know these are difficult times for every homeowner.  Equity is tight, and good news is scarce, as the media tries their best to hide the good news behind the sensational news that is good for ratings.  However, rest assured that a good real estate company (Westcoe, for example) can guide you through these murky waters.  We have done it before, and understand what you need to do.  Just stay calm, stay patient, stay flexible…and leave the driving to us.

Riverside, California…Repo’s, REO’s, Foreclosures…they all mean the same thing, and unless you have been in a real estate time warp, then you know that these terms are the latest buzz in our industry.  Our current economic business cycle includes far too many banks having to take back properties that they really don’t want, and this has led to an explosion of REO (real estate owned) properties now owned by banks that are on the market for sale.  These properties are generating a huge interest in buyers looking to get a deal, and since this segment of the market is here for a while, I thought you might like the REAL INSIDE SCOOP on what is happening with an REO property, and what to expect if you get involved with a purchase.

 A LITTLE BACKGROUND

Let’s first discuss how an REO property gets to an agent to be sold…because the lender doesn’t just grab the yellow pages and pick a Realtor in the town you live.  In fact, banks really don’t want to talk to the Realtors much at all. 

Understand that the bank made the loan on your home with the singular desire not to be where they are right now…in the real estate ownership business.  They would have been delighted to simply collect their monthly check from you, and go merrily on their way…of course, sellers would be happy with that as well.  And while they expect a few “casualities” along the way (they know there will be a few foreclosures), BANKS ARE TOTALLY UNPREPARED TO DEAL WITH THE VOLUME OF REPOSSESSIONS THEY NOW MUST HANDLE.  In fact, many times the noteholder isn’t even a bank, but merely some wall street investment company that wouldn’t know a home from a snowmobile…they just bought the note from your originating bank to collect your monthly payment.  Now this investment company needs to get involved in the seedy side of the mortgage business, and they are ill-prepared to do so.

SO…what does a foreclosing bank do?  Once they have acquired ownership of the property (a very short sentence for a very long process…more on this some other time), the bank essentially has two options, depending on how they are internally set up:  they will either work through their local branches to get the names of good local real estate agents who have the capability to handle this very specialized branch of real estate sales (the person for the bank who does this is called an asset manager), or they will make one call to what is called an “outsourcer.”  The outsourcer has contacts throught the real estate industry, and the lender is spared from having to deal with hundreds of real estate agents…they will now only need to deal with one…the outsourcer.

Why is this important to you, a potential buyer?  Because it will make a difference in the communication process for your purchase, which I will describe in a moment.  Also, understand that both a bank who works directly with their agent, or a bank who works with an outsourcer…both want to minimize the number of agents they have to deal with.  So, once a good relationship has been established, and the bank/outsourcer sees the agent representing them can do the myriad of paperwork and reports that they require, the bank/outsourcer will send as much business as possible to that now trusted agent…and in this market, the amount of property banks now own and must sell is staggering. 

My point here is that you really need to understand the incredible amount of pressure, deadlines, and paperwork a real estate agent who works in this line of business must handle.  I am not asking you to feel sorry for them…just understand the volume of properties they handle because it will make your process of purchasing easier if you know where they are coming from. 

IN OTHERWORDS, THESE AGENTS ARE BURIED, AND YOUR TRANSACTION WILL BE AFFECTED ACCORDINGLY.

Now that you have a little background, here are some specifics you need to understand in order to get the most from your REO purchase…and while we understand that every bank is different and that much of what follows is a generalization, it will be close enough to have some relativity to any REO purchase.  I will also assume, for conversation sake here, that you are represented by your own agent, and that the bank is represented by theirs.

COMMUNICATION/RESPONSE TIME…Due to the situation I have described above, the first thing you must understand in a REO transaction is that the normal communication time frames are thrown out the window.  Not only is the REO agent buried with possibly over 150 properties in some stage of care (listings, evictions, foreclosure process, repairs in some cases, escrows, etc.), but as we outlined above, the person they will deal with for a response (either the outsourcer or the asset manager) is worse.  Therefore, while everyone wants to give you the most prompt service possible, it’s not going to happen like a singular seller with a singular offer.  Think of our grocery store…one patron, one checker and you are in and out.  However, go during the rush hour, and you have one checker and 10 store patrons, and you are going to wait to get your groceries, no matter how tense you get.  In the REO business, it works the same way…SO STAY PATIENT.  You will get an answer, but it will take time, and stewing about it will not help.

MULTIPLE OFFERS…That’s right, even in this market.  Banks may be stupid (maybe that’s how we got here in the first place!), but they are not dumb.  They MUST sell the property, and are willing to take the loss in order to move it off their books in a timely fashion.  When all this mortgage meltdown started, they tried to make a few bucks on their REO’s, but not now.  Taking the financial loss is not personal for them, so most of them take a very aggressive approach to selling this unwanted possession.  Yes, some still have not gotten the message, and are therefore pricing their inventory too high, but most have seen the light, and are being very aggressive…and those are the properties you want to buy anyway.  SO…understand that you are not the only one out there who sees the value of purchasing a property now, and prepare yourself that you will probably be competing with other buyers such as yourself on the purchase of this great deal.

WHICH MEANS NO LARGE PRICE DISCOUNTS ON THE PROPERTIES YOU WANT…Please re-read this twice, because I know it goes against the infommercial you saw last night at 3:00 am from the guy with the lei around his neck and a huge boat in the background.  Trust me, he is wrong.  Generally speaking, these properties are already priced to sell..and while the lender understands they will get “wet” on the sale, the do not want to take a full “bath”.  Trust your agent on this one (may I suggest a Westcoe agent?), because once you get in the multiple offer situation, many banks do not deal with endless counteroffers amongst all the buyers…they do not have the time.  Mostly they just simply accept the best offer and move on.  SO…if your agent tells you the price is already discounted compared to comporable properties, DO NOT ATTEMPT TO DISCOUNT THAT WHICH IS ALREADY DISCOUTED.  The banks and their agents know this game, and will generally not play.

 REPAIRS vs. “AS-IS”…This one is not as universal, because lenders are currently all over the map on this one. 

Some lenders put a price on the home in it’s current condition, and will not fix anything… but their price reflects this.  Your agent will have talked with the listing agent about this (hopefully), and take your cues from your agent…but be careful here.  You should still have a home inspection on this so you are aware of what you are getting into, and you may have a problem with your appraiser…because the appraiser is there to protect the new bank’s interest, not necessarily yours…so simply because you and the seller are willing to close the transaction on this “disaster”, the appraiser may insist on some repairs being made.  After all, the new lender does not want to be in the same boat as the “old” lender.  Every situation is different, so be aware.

 Other lenders have either done all the fix-up work they intend to do, or have allotted a certain amount of money for repairs…repairs that they will only be too happy to have you do while they credit you some money for your efforts through escrow.  If you go this route with the credit for repairs, be careful…your lender may not like you getting any money back at the close of escrow, since you may run off to Vegas with the repair money instead of doing said repairs…so check with your new lender on their policies.

I guess the bottom line here is that most of the time, you will be purchasing the home in its current “as-is” condition, and we would advise you to get a through home inspection simply for your own piece of mind…AND DO NOT EXPECT THE BANK TO DO ANY WORK ON THE HOME AS A RESULT OF YOUR INSPECTION.  In rare cases, they may, but mostly, they will simply cancel your sale and wait for another buyer.  Remember…the price should already reflect the current condition of the home.

 TO SUMMARIZE

 Buying any property is exciting, and if you have read anything on this blog at all, you know we think it is a great idea to buy at this time for many reasons…and since most of the motivated sellers at the moment seem to be banks, chances are you may be dealing with an REO.  It can be a frustrating process if you are not prepared for the differences outlined above, or you can reduce some of your stomach acid if you simply understand a few fundamentals…fundamentals we have outlined above.  We hope this helps you in your purchase as you enter the sometimes bizarre world of REO’s…and if you have any questions, by all means give us a call at Westcoe.