Category Archives: Seattle Real Estate Stats

Trading Houses instead of “cramdown”

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Sometimes a solution that seems obvious to me, is not talked about at all.  So I’d like to throw this out there for what it’s worth. Let’s say a lender approved someone for a $650,000 loan back in 2006, BUT using sound ratios and current mortgage rates, they really only qualify at $500,000. 

Instead of the taxpayers paying $150,000 to “cramdown” the mortgage to $500,000 to help them stay in a house they shouldnt have bought in the first place, why not do a “do over”? Have the lender give them the $500,000 mortgage they should have given them in the first place, but on a different house?  Add a requirement that they most move to and buy a house of someone else who got in over their head. Seems simple to me. Just go back and do it correctly.

Have the people move to a house at today’s reduced prices, that they actually qualify to live in.  Then sell the more expensive house OR play “musical houses” by moving someone who should have had a loan of $650,000 into their house.  Move everyone around into pre-foreclsoure houses at the prices they can actually afford.  Then only sell the ones left at the end.

There’s a lot of talk about “the house of cards”…well let’s reshuffle the deck and deal again.  Move people to the house they should have bought in the first place, instead of having bunches of vacant bank owned properties.  Better than the taxpayer helping them live in a house they couldn’t afford in the first place.

Wouldn’t work for everyone. But this solution added to loan mods and some other solutions, just might work in areas over-run with foreclosures and bank owned properpties.

Buyers: Write Your OWN "Seller Disclosure Form"

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It amazes me that buyers and buyer’s agents don’t sit down and write their own addendum to the Seller Disclosure Form.  In the hot market it likely would have scared the seller, and lost you the house in mulitple offers.  But this is a Buyer’s Market!  Where are the changes as we shift from seller’s market to buyer’s market?

My number one piece of advice for buyers and buyer’s agents today would be to supplement the Seller Disclosure Forms with some REAL questions you would like answered by the seller.

You know the forms at best run up the middle between seller’s interests and buyer’s interests.  You know the forms are geared to “a smooth transaction” and closing for the agents and all parties.  So why do you accept their questions on the form as being all you need to ask and know?

I’ve written a skazillion posts over the last three years on what buyers need to know that no one tells them.  Not the seller.  Not the agent.  Not the home inspector.  Why not put these questions in as an addendum to the things you want the seller to tell you?

Recent comments from Jerry the Seller who wants to keep the buyer’s Earnest Money, are the impetus for this post this morning.  Read the comments of Jerry the Seller and weigh in…should the buyer get their Earnest Money back…or should Jerry get to keep it?

Be smart buyers!!!  Write down the questions YOU want answered, and make the offer contingent on your getting and reviewing those answers.  Don’t merely rely on the questions someone else deemed “enough” for you to know.

Sunday Night Stats – At Bottom

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Many buyers are waiting for the $15,000 tax credit for homebuyers in 2009 to be signed into law, as well they should.  This will continue to keep the volume stats down through the month of February as to closings. If the bill is signed by the 16th of February or so, as expected, you will begin to see volume pick up in March. 

The other thing that buyers have been waiting for, are signs that prices are “at bottom”.  While median prices for King County continue to slide as short sales and foreclosures continue to impact sold prices Countywide, we are seeing two emerging trends as to “bottom”.  20% for non-distressed property and almost but not quite 40% for distressed property, more like 37%.

Who determines “bottom” as to prices?  Sellers and real estate agents would love to control prices, but the buyers of homes ultimately control home prices.  While we wouldn’t expect to see prices bottom with continued bad news as to layoffs, buyers are consistently calling the bottom at 20% under peak pricing for non-distressed property.

The odd thing about the stats on this is that it doesn’t seem to matter how long the property is on market.  If it takes the seller 800 days on market to get to 20% under peak prices, the property sells.  If it takes the seller 65 days to get to 20% under peak prices, the property sells.  In several cases when the property gets to 20% under peak prices, there is more than one offer.  BUT rarely do those offers push the price much under the 20% under peak range.

Exception seems to be when the homes sold at peak values did not have remodeled kitchens and baths, but the property sold today does have a remodeled kitchen and baths, and possibly an addition as well.  In those cases, the sales can be as high as 11% to 14% under peak pricing.

Because every neighborhood has a different peak value, and peak MPPSF, you can’t do whole zip codes or a whole County using median statistics.  You have to find the peak price in each neighborhood for each house sold, and calculate the % off peak of the sale.  A tedious chore.

House #1 – Redmond – peak pricing $249 MPPSF – Home sold at $210 PSF, 16% under peak with a remodeled kitchen of 8 years ago.  The odd thing about this house is that in September through January, this home sat on market at 16% under peak, after first trying only 5% under peak for over 200 days.  Once the market determined the price was not going to reduce further and reach 20% under peak…it sold anyway.  This is not the norm and if the kitchen remodel had been more recent, it may have sold a bit higher and faster.

House #2 – Bellevue – Peak pricing $1.5M – this property sat on market for well over 700 days.  The minute it reached 20% under peak it sold.  This would not seem like a basis in and of itself, for calling bottom at 20% under peak.  But when you see house after house going from not sold to sold when it hits the same price point of 20% under peak, the buyers speak in unison.

House #3 – Peak pricing $1,059,000 – This is a sad one.  More than 4 buyers called this one at 20% under peak at roughly $850,000.  Unfortunately it is a short sale and the lienholder would not approve the sale price at 20% under peak, even with several multiple offers all in the same price range.  How much more proof of value to do need then several buyers in a market like this all calling current value at the same place?  This one will likely go to foreclosure and end up selling for even less than 20% under market.  Still…the buyers called the price of 20% under market the acceptable level.

House #4 – Seattle 98103 – peak pricing $425,000 – Asking price at 20% under market sold – this one was unusual as the opening asking price was 20% under market…it sold immediately…in less than a week.  Doesn’t seem to matter if the seller takes over 700 days or 1 day to get to 20% under market…it still sells either way.  This consistent price point of 20% under peak turning a property from ‘for sale ‘”to “sold”, gives us a price at which buyers determine, bottom has been achieved.

House #5 – Seattle 98115 – peak pricing $800,000 – sold when asking price reduced to 20% under peak.  This is a sad one because the owner started out at well OVER peak pricing.  Hard to believe that someone was thinking prices would actually be going up from mid 2007.  But the end result was consistent with the other properties, and a buyer made an offer when the price was within 20% under peak prices.

There are some houses selling for less than 20% under peak. There are many, many houses for sale with asking prices that are much higher than 20% under peak.  But unless it is a distressed property or an especially miserable location or condition, there are NO houses sitting on market without an offer ,where the seller is asking  20% under peak pricing.

I don’t “call bottom” nor do sellers or any real estate agent.  The buyers call bottom.  And when they consistently respond to an asking price of 20% under peak by bringing an offer…the buyers are calling bottom.  

It’s very hard for a seller to price his house at 20% under peak pricing, even if he bought it 15 years ago for much less that that.  Now it seems equally hard for buyers to see a house at 20% under peak…and pass it by.

“At bottom” has nothing to do with more activity.  “At bottom” does not help real estate agents sell MORE houses, as most sellers are not ready to price at this point that buyers have determined is the price at which they will buy.  When a given price point not only guarantees a sale, but brings multiple offers consistently at the same price point…buyers as a whole determine that “comfort zone” of pricing.  Now sellers collectively have to agree with them…or not.

Is it possible we are at the bottom?

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***Updated/Revised 4:30pm 02/08/2009 PST:  Here is the link to the “Memorandum” (.pdf document) showing how this mortgage broker, in his own words, fraudulently originated millions in loans and how the fallout will plague our economy.  Big thanks goes to blogger “Scotsman” for the getting the document to me.

——————————————-

This is how is it possible………..we may not be at the bottom.

Ardell, I share your hope.   My hope for change is that real estate and lending industry comes to grips with how out of control the core players were that led us to the crisis we are in.   If we all point incriminating fingers to other people in our industry from escrow people to mortgage brokers to agents to Wall Street, pretty soon there’s nobody else to point to.  It circles back to all the players who participated.  Too simple of an explanation of a complex problem?  Maybe.  But, it’s fix has got to start with people in the trenches who are transacting the sales and arranging the financing.

But my hope and Country fight an uphill battle because of people such as Christopher Warren, the mortgage fraudster who wrote the above missive, “how is it possible”. Christopher Warren skipped out of the country on a private plane this past Monday.

See his incredibly clear picture of what is facing our markets by his “memorandum.” (.pdf document).

If one man’s expose of what went on in lending by one person does not make you pale, then I don’t know what will.

An excerpt from Christopher Warren’s  “how it is possible:”

  • That CITI Mortgage didn’t catch correspondents Mortgage Bank of California and Bondcorp Realty Services over-financing over $30,000,000 in bad mortgages with cash-back purchases for straw buyer groups?   How many of these loans are already now owned by our government, tax-payer subsidized, FNMA and Freddie Mac?
  • That GMAC Mortgage LLC., bought over $3,000,000 in mortgages secured in the Orlando Academy Cay Club aka “The Greens

Fannie Mae Increases the Allowance for Financed Properties Owned

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It is really challenging to keep up with our constant changing guidelines.   Just this morning I was commenting over at the Seattle PI Real Estate Blog about the conventional guidelines permitting only four financed properties at a time for a borrower (more than four financed properties–no conventional mortgage for you!).    Moments ago, I received this updating Fannie’s guidelines (Announcement 09-02):

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

Just a reminder that any mortgage guidelines that you find on the internet may no longer apply!

I better hop on over to the PI and correct my comment from this morning.  🙂

What will they say in 20 years about today's new homes?

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rcg1When I look at new construction for sale I often wonder if the architect and the builder ever spoke or better yet, if the architect or the builder would ever live in the house they designed/built (I am a builder). I seem to be asking myself that question even more lately as I tour homes built from about 2005+.

I wonder, besides the financial crisis, what will this era’s theme of houses be?
It will for sure be about townhomes, but (on average) I am afraid it will also equate to poorly designed and constructed too.

I was touring a home today that made me wonder if the builder ever asked the question, “where will the couch go

7,200 sf lot West of Market Kirkland

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Awhile back, Dustin wrote a post about Pocket Listings, and we had a discussion about what “pocket listings” are, and why agents advertising them is generally against mls rules.

A pocket listing is someone who tells you they want to sell a property, but for some reason they either are not ready to, don’t want to, or can’t enter the property in the mls. 

I think this one may fall into the category of “can’t”, though I’m not totally sure.  I was recently contacted by someone who owns a 14,000 +sf lot with a house on it, West of Market in Kirkland which is zoned for 7,200 sf lots. It is a view lot, and the 7,200 sf vacant portion of the lot is on the view side (view of Lake Washington)  I believe it is unobstructable as to houses but not trees, across from Waverly Park.  Taking another walk over there today to study it further.

Back to the mls and “pocket listings”.  Clearly to put a property in the mls, you have to have an asking price.  Given current market conditions, do the builders want a 7,200 sf lot with a view West of Market in Kirkland?  There are lots of houses for sale over that way.  Might someone want to build their own custom house and get the lot cheaper by doing the short plat?

Since the lot is not two separate lots today, should the seller go to the time and expense of separating it into two lots and increase the cost of the lot accordingly?  Or in this day of the cheaper the better for a buyer, should they let the buyer of the lot participate in the short plat to save some money?

Given there is no current legal entity “7,200 sf lot” until after it is short-platted into two lots, can you even put the property in the mls, given it doesn’t exist as that legal description?

There is a note in the mls rules that you can list a property if it can not be put in the mls by reason of other mls rules, but you can’t use a NWMLS contract form to do so.  This one seems to fall into that category.

So to Dustin, since you asked, I guess there may be a “true” pocket listing…even here in the Seattle Area.  Maybe not.  Perhaps someone will shed some light on this in the comments.

FHA Mortgage Insurance Fund Down 40%

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Mortgage Law Central reports today on FHA’s Oversight Capability. 

The House Committee on Financial Services held a hearing to look into the recent Business Week story alleging that predatory lenders are alive and well originating FHA loans. The committee listened to testimony from HUD on the approval process for FHA lenders, compliance with FHA regulations, and the level of reserves in the FHA Mortgage Insurance Fund:

“Rep. Stephen Lynch, D-Mass., voiced his concern that FHA’s Mutual Mortgage Insurance Fund levels were decreasing and might go under the required two percent threshold. He said the latest data forecast, from June 2008, was done before the meltdown and he believed that the funds could dip below the 2 percent threshold.  Heist also had these concerns, stating that the results from the Office of the Inspector General’s (OIG’s ) latest actuarial study show that HUD has sustained significant losses in its Single-Family program, reducing the program’s reserves. He said that as of Sept. 30, 2008, the fund’s economic value was an estimated $12.9 billion. This is an almost 40 percent decrease from over $21 billion the year before. “The current $12.9 billion economic value represents 3 percent of the mortgages insured by the FHA,

Is Excise Tax Payable on Short Sale Debt Forgiveness?

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The Washington State Department of Revenue (DOR) seems to think so.  Background: At an Escrow Association of Washington (EAW) meeting on Nov 13, 2008, Mel Kirpes and Steve Bren from  WA DOR spoke at a regional dinner meeting where it was announced that when there is a short sale, the DOR considers the debt forgiven as additional consideration above the contracted sales price between the parties and that the DOR will be pursuing the home seller for payment of the excise tax. (Reference is a EAW letter dated Nov 25, 2008 from EAW Director Cindi L. Holstrom)
Naturally this had a chilling effect amongst escrow officers.  The DOR responded on Dec 12, 2008 in a letter from Gilbert Brewer, Assnt Director of the DOR:

RCW 82.45 imposes an excise tax on the sale of real estate unless specifically exempt from statute. “The measure of the tax is based on the total selling price of the property conveyed. The incidence of the tax is usually on the seller.  However, if the tax is not paid in full, the tax (together with any interest and penalties) becomes a lien on the real property. This is mandated by RCW 82.45.030 …which defines “selling price” as the “true and fair value of the property conveyed.” If a property has been conveyed in an arm’s length transaction between unrelated persons for a valuable consideration, a rebuttable presumption exists that the selling price is equal to the total consideration paid or contracted to be paid to the transferor, or to another for the transferor’s benefit….”total consideration paid or contracted” to be paid as including “money or anything of value, paid or delivered or contracted to be paid or delivered in return for the sale, and shall include the amount of any lien, mortgage, contrat, indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of the sale.”

Since there is an exemption from real estate excise tax in the event of foreclosure or a deed in lieu of foreclosure (see WAC 458-61A-208) this DOR opinion may unfortunately motivate homeowners to consider foreclosure a more viable option. Perhaps the home seller’s Realtor can negotiate with the lender to pay for the additional excise tax lien as well.  However, then that extra amount paid by the lender may also be subject to excise tax.
The Seattle King Co Assoc of Realtors and Washington Realtors believes DOR’s position is incorrect and problematic.  On Jan 8, 2009, The Northwest Multiple Listing Association posted a notice to their real estate agent members as follows:

“RCW 18.86 requires agents to advise their clients to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.  This duty exists in every transaction but is particularly important in short sale transactions where unique legal and tax issues exist.”

We’ve been saying the same on RCG for many years now. Short sales are way more complex for real estate agents than the average transaction and homeowners are best served when they have retained their own legal counsel to help them understand the lender paperwork as well as this current DOR trainwreck. You may be thinking, “homeowners in financial distress can’t afford an attorney.” However, some attorneys offer low cost options for homeowners facing foreclosure.

UPDATE
January 13, 2009
Department of Revenue: “After receiving extensive input from interested stakeholders and industry representatives about the nature of these transactions, we have carefully reconsidered how real estate excise tax statutes apply to these unique transactions [short sales]….we now see that these short sales are distinguishable from other transactions involving the forgiveness of debt because the seller negotiates separately with the lender for any debt reduction/forgiveness, apart from the actual purchase and sale of the property.  As a result, the loan forgiveness is not “paid or delivered in return for the sale” of the property, as required by RCW 82.45.030.”   Margaret J. Partlow, Senior Policy Counsel, Dept of Revenue. 

(Hat tip Rhonda Porter and Kary Krismer.)

Translation: We are not going to require sellers to pay excise tax on the debt forgiveness  with a short sale.

40 representatives from escrow, title, real estate, attorney, and short sale faciliator companies showed up in Olympia to help educate the Dept of Revenue. Thank you, Escrow Association of Washington, for bringing this to our attention and taking on the state head to head.