Monthly Archives: November 2010

Foreclosure Moratorium Adversely Affect Real Estate Market

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Last week we reported some preliminary findings on the local SW Florida real estate market pending release of official numbers this week.  Well, it’s official as the numbers are out.

The foreclosure moratorium has taken its effect on closings and prices.  Single family home sales were down 28.10% from last October’s figures, and down 7.8% from last month’s figures.  Median home sales prices were down 1.75% from last October, and down 4.66% from last month’s figure.  Median sale price for October 2010 stands at $90,000, essentially where they were back in 1996.

SW Florida Real Estate Single Family Home Prices Chart
SW Florida Single Family Home sale Prices

The shame of it all is that the temporary freeze isn’t going to cause more delinquent owners to stay in their properties.  If they don’t pay they won’t stay.  We are all in agreement that banks need to follow rules when foreclosing, and especially when evicting people.  As a practical matter prolonging the time a home sits before a bank can sell it hurts the neighborhood, the real estate market, and the economy.

The LA Times recently did a study on the effects of foreclosures on the market, and they compared California and Florida as sister states with closely aligned foreclosure statistics.  The California market is up in price about 20% from the bottom in April of 2009 versus Florida where prices are struggling to find a bottom in many parts.

The study concludes that California is more efficient and less complicated making it easier for banks to seize and resell homes when homeowners don’t pay.  Florida is one of 22 states that require repossessions to be approved by a judge, which adds time and tasks to the foreclosure process.  By extending the process, they’re extending the rebound time.

The LA Times article also looks at the Standard & Poor’s/Case-Shiller index which also shows prices up in many cities in California while down in the major cities of Florida.

We can’t change Florida’s law, so we’re stuck with the process of slowly bringing foreclosures to the market over time.  What we’re not in favor of is arbitrarily adding to that time.  We were especially critical of Obama’s foreclosure moratorium which slowed the recovery process back in 2009 by slowing down the process even further.

The government’s intention was to somehow provide retention for struggling homeowners, and while it was a noble cause it was a flawed scheme that wasn’t well thought out and did more harm than good.  If a homeowner lost their job, tacking on extra interest and increasing payments later on wasn’t going to make the home more affordable if the homeowner already couldn’t afford it.  Raising the payment later wasn’t going to help any struggling homeowner who was in trouble, and it certainly wasn’t going to help the market.

Real estate is 32% of GDP (Gross Domestic Product) which means it would ultimately hurt the economy as well.  The government finally got the message and laid off on the popular with voters but largely ineffective moratorium on foreclosures, and along came the bank issue failing to properly follow procedures on some foreclosures in those 22 states.

We are seeing the effects of that now which is prolonging the recovery.  Last week we predicted sales would be off 8.45% from last month’s numbers and official numbers indicate they were down 7.8%, so we were pretty close.  We do see some pent-up demand and an increase in pending sales activity which could bode well going forward.

We are going to keep a close eye on inventory levels, both distressed sales and non-distressed sales and pending sales.  We’ll track these against actual closings and monitor for any changes in the market.  So far since the moratoriums began Oct 1 for occupied properties, we’ve seen an impact, but there are signs this will be made up in coming months.  With season upon us we’d hate to miss any sales opportunities as buyers are buying sooner this year.  The sooner we get these properties to the market and sold, the sooner our real estate market can heal like California is doing and the sooner our economy can improve, which I think everyone can agree on would make for better times in SW Florida and across our nation.

The good news is the signs are there.  All we need now is time, action, and results, and with a little luck we’ll be on our way and 2005-2010 will be in our rear-view mirror.

Market is on the Move

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This month is particularly interesting to study the latest real estate statistics as we really wanted to see what effects if any the foreclosure moratoriums would have on the market, and already we’re seeing some interesting data.  Watching these stats move feels similar to watching a heart monitor and patient’s vital signs.  I guess these statistics are the vital signs of our local market, so let’s dig in and see what the signs are telling us.

October Distressed Sales Chart Lee County Florida Real Estate
October 2010 Distressed Sales Chart- SW Florida

Some of these statistics interact with each other in a cause and effect way.  For instance, some foreclosure listings were pulled in October and distressed sales were down in October.  Distressed sales were up in Cape Coral, partly because foreclosure closings rose by 34 sales, and partly because short sale closings rose by 14.  Everywhere else short sales and foreclosure sales were down.

Inventory levels rose in Fort Myers 3.12%, but fell in Cape Coral and Lehigh.  Countywide inventory levels are up less than 1% from the previous month.

Closings were down about 8.45% in October from September levels.  Fort Myers sales were down 16.49%, Lehigh down 20.21%, but Cape Coral was up 6.88% over the previous month.  Cape Coral can be explained by the increase in foreclosure sales and short sales, and this may account for why the rest of the county’s sales were down as well, because the rest of the county’s distressed sales dropped.  So there seems to be that cause and effect in play we mentioned earlier.

Going forward pending sales are up county wide, and Lehigh Acres leads the way with pending sales up 5.44% over pending sales last month.  Cape Coral is up 1.92%, and Fort Myers is flat.  We track pending sales as pendings lead to closings, however not all pending sales close, so it’s just a vital sign we track.

We have noticed an up tick in buyer call activity and Internet traffic, so there is definitely buying interest in our market.  Banks have begun to release the foreclosure moratorium, so inventory levels may stabilize which will help transactions move forward.

Total distressed sales have fallen 4 straight months, but this could change as inventory levels have been driving sales numbers.  Demand is in the market and this is a case whereby supply is dictating certain aspects of the market.  Any disruptions to supply will temporarily affect sales numbers, and this should not be misinterpreted as decreased demand.  This past month’s results were supply driven.

Keep in mind these are internal tracking we compile and not official sales numbers which won’t be released until next week.

Where will the market head from here?  We believe supply will even out as banks get on top of some of the affidavit issues which plagued some of their foreclosures, and it may force some banks to work a little harder at completing short sales, which would be a good thing.

We are heading into season, and if this year is anything like last year, there was serious demand from our northern friends last season which could bode well again for this season.  This season “Feels” a lot like last season, as traffic has picked up on our roadways, as has real estate traffic, phone calls, and Internet traffic.  This season could be a chance to work down even more inventory, and it would be nice if that excess distressed inventory is available while the visitors are here rather than gracing our presence after they leave.  We’d just as soon sell and dispose of it now than have it come back and haunt us later when the demand might be less.

When it comes to supply, I say “Bring it on”.  We don’t feel holding it back shadow inventory serves any greater good and only prolongs agony later.  Others may disagree and argue that saturating the market further drives down prices, but so does an expanded process.

Ask anyone in the job market if they’d rather have a very deep recession lasting 3 years or a deep recession lasting 6 years.  I think most would rather take their medicine and get it over with so the healing can begin sooner rather than later.  Here in SW Florida we’ve been dealing with a declining market for 5 years now, and many would like to just get it over and begin that healing process.  We don’t want banks or government deciding to prolong the agony SW Florida has suffered for 5 years, as jobs and our local economy takes its cue from real estate.  The sooner we heal this market, the sooner construction jobs and the economy bounces back, and who wouldn’t be in favor of that in SW Florida bout now, or anywhere for that matter?

Visitors are here, pending sales are rising, and inventory is stabilizing, so let’s hope for a great season and a good 2011.

Is Buying at Auction a Good Deal?

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Like anything else, buying at auction can be a good deal, or a rotten deal depending on what you buy and what the terms are.  While there can be upside at an auction sale, the downside is much more frightening and should never be attempted without proper advice and education.

Is Buying at Auction a Good Deal
Is Buying a Home at Auction Always a Good Deal?

Each month we see big auctions advertised on billboards, newspapers and such touting bargains.  I’ve attended several auctions and I’ve learned many things.  In this article I’ll attempt to educate you on some of the things to watch out for that you might not know about.

Is Buying at Auction a Good Deal?

At one auction I noticed a group of people in front and another group in back.  One group kept bidding up the property to prices higher than market value and I wondered why.  Later on I discovered that when they won the bid for some reason they didn’t finalize a contract and the property went back out for re-bid.  This happened as many as 2-3 times per property.  At the end of the night when the crowd had thinned the property was purchased for much less by an investor who really wanted the property.  Essentially it was off the market all night tied up in contract sessions.

Another thing to look out for is reserve versus absolute auction.  An absolute auction means the property will be sold to highest bidder no matter what.  If it’s reserve, you never really know what the reserve is and they try and negotiate with you after you’re awarded the winning bid, so be prepared.

If you’re buying a condominium, or even in a homeowners association for that matter, I would look not only at the property, but also the association.  You may purchase and be the only one paying condo or HOA dues.  This may also make it impossible to sell your property to anyone but a cash buyer as lenders will not lend if the association doesn’t meet certain requirements.

Many are surprised to learn that the title work isn’t sufficient to actually sell the property.  Some have learned they may need to file suit to Quiet Title after they receive what they thought was good title to property.  There is a difference between insurable title and marketable title, and title policies today can exempt many things leaving you the purchaser holding the bag.

The property may also have many defects that aren’t known or get lost in the shuffle, and the buyer inherits them.  At one particular auction I’ve attended, once you put down your non-refundable deposit, you lose it regardless of whether you cannot get the mortgage (even if they promised to give you one at the auction) or if the property has major defects.  You simply MUST inspect the property beforehand or you will most likely be surprised afterwards.  I saw one home when the back half of the home was missing, and the buyer lost their deposit of 10%.  Additionally, if the air conditioner gets stolen prior to closing or damage occurs to property between auction and closing, it’s the buyer’s responsibility, so you are taking All the risks.

You also want to research code enforcement liens, fines for improper permitting, etc.  I had a house listed in Cape Coral with about $70,000 in fines, and a lot in Cape Coral with over $90,000 in fines by code enforcement.  We recently sold a $20,000 lot in Ft Myers with over $200,000 in fines.  In each case we rectified the problems before closing or didn’t close at all in the latter case, but this would not be true at an auction as the buyer would be stuck assuming those fees.

I attended one auction whereby the winning bidder put down their 10% and agreed to finance the unit through the bank at the auction.  They were approved on the spot for financing.  The problem is the property did not qualify because too many people weren’t paying their dues, and the loan was denied on that basis.  The new lender was the same lender selling the property at this foreclosure auction.  The lender obviously knew the property did not meet FNMA guidelines but they sold it to a buyer obtaining financing anyway, and in fact approved their loan.  The buyer was astonished to learn that after being approved, they were later denied, and their escrow deposit was being retained by the seller (the bank) for non-performance of the contract.

Like we said in the first paragraph, sometimes a good deal isn’t a good deal when it’s rotten.  You must thoroughly investigate the property, the association, the contract, the market, the financing, and the title work before you bid or you run the risk of being let down later.

If everything checks out to your satisfaction upfront, we would also encourage you to set limits on what you’re willing to offer so you don’t get caught up in the moment and overpay, only to find out later it doesn’t appraise and your loan is denied and deposit forfeited, unless of course you’re a cash buyer and don’t mind paying too much.

Like anything, an auction is just another way to buy and sell, and no matter which vehicle you use, please be sure to work with professionals and do your homework upfront.  You’ll be glad you did later.  Happy house hunting!

Open Houses as a Marketing Tool

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Many Realtors have mixed feelings on the effectiveness of open houses, and you’ll hear varying answers as to whether they should be utilized in marketing a home.

Some Realtors have grown tired of sitting an open house only to waste the afternoon away with no lookers or interest from anyone.  Other open houses are filled with prospects and it indeed helps sell that home, and maybe a few more in the area.  So what factors influence whether an open house will be successful or not?

Open House Weekend

Advertising an open house definitely helps.  Several weekends we’ve found agents with competing homes in neighborhoods we market open up the paper to see where the open houses were, then abruptly put up signs pointing buyers to their open house hoping to pick off a stray buyer and sell their listing.

The problem with this strategy is indeed the competing home may be located in the same area, but may not be posses the features in the ad that drew them to the open house to begin with.  Some agents promise open houses every weekend because they’re on a shoe-string budget and they win by either attracting a nosy neighbor who may be interested in selling their home, or picking up buyers who may not be qualified for the open house, but qualify to buy something else.  Either way the agent drums up business for free by using the seller’s home as a store-front to attract buyers.

We believe an open house can be an effective tool, but shouldn’t be used as the primary tool.  It’s simply an additional tool, and it may not be right in all instances.  For instance, if the seller is located in a gated community and the HOA doesn’t provide easy access on the scheduled open house day, getting buyers to the home can be difficult.

Open houses are a time when you’re showing the home to absolutely anyone and you’re never sure how qualified the person walking through the door is, or what their intentions are.  If a home has a lot of valuables or small personal items, it may not be wise to hold that home open.

We find that buyers just want to see the homes and get a feel for the market.  Online buyers want access to the listings first.  Agents can provide open houses via online virtual tours, and this can be especially helpful for rural properties, gated communities, or homes with lots of knick knacks.

If you’re going to do an open house for your tiny house, buyers generally want it to be worth their time, so holding several at once can be a tool to get buyers off the couch and out looking.  The buyer never knows which open house will capture their interest, but if there are several to look at, perhaps one will and it becomes worth their time.  It’s the same concept as builders doing a Parade or Homes.

We have a tour of 6 homes scheduled for this weekend, and we find that when we do multiple homes traffic at each home increases significantly versus holding just one home open. A list of homes we have on tour this weekend can be found at Topagent.com

All buyers want to see the goods (Listings) but some want to meet the Realtor and just get a comfort feeling on which agent might be good to deal with.  Buyers sizing up agents at open houses make decisions not only on the particular home, but on a possible agent to work with in the home buying process.

You can choose to open your home up, and doing so may produce mixed results.  Advertising helps, and having an independent 3rd party there to show your home really pays off.  Buyers rarely tell the owner what’s really on their mind as they don’t wish to offend, but finding this information out is critical to a sale.  Buyers will tell an agent things they would never tell the owner.  Too many times we’ve seen owners hold out hope for a sale because the buyers said how much they loved the home, when in reality they bought another and had little to no interest.  Or worse, sellers have refused to work with an offer because they felt a better offer was coming because they met the buyers and heard nothing but wonderful things about their home at the open house.  Sellers feel strung along when that offer never comes when the buyer seemed to rave about the home.

Open houses are not the end all marketing strategy, but if used in conjunction with an overall pricing, marketing, and sales strategy can be an effective additional tool and should be weighed with benefits and risks to ascertain whether it should be utilized in the sale of the home.

Discuss with your listing agent the pros and cons of holding an open house and with some planning and a little luck, it just might help you sell your home or find your dream home.

View our latest video SW Florida Real Estate Market Update-Foreclosures-October 2010