Ruin Sity Gaide

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I love this comment posted by David Losh over on Seattle Bubble.  I decided to give it it’s own post before it faded away into oblivion. 🙂

“If you do come to the internet for information about a home purchase or sale you are in the wrong place. This site (Seattle Bubble)  has excellent financial crisis dialog, but is very short on Real Estate information. It does provide much more information than a Ruin Sity Gaide, but still this is just entertainment.  The internet Real Estate sales business model is a very long way off if it will ever be viable. radfun hired the expodia.com sales person to push the Real Estate sales agenda on line. Sellers with problems flock to the online Real Estate sites along with the week end warrior home shoppers. It’s a mish mash of confusion that radfun happily collects fees for. In time it will be obvious this was just a continuation of a problem rather than a solution. Be very careful of what you think you will learn about Real Estate online. These are sales people looking to collect your money for doing nothing, that’s the business model.”

"Over-priced" Houses That Don't Sell

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As I wander through the various message boards, I often read about people’s frustration regarding “over-priced houses that can’t possibly sell”.  To a buyer who likes the house, and is waiting for the price to be within reason, this can be very frustrating.

What they fail to understand is that every house that is for sale, is not necessarily going to be sold by the current owner. 

1) Divorce – Often in a divorce, one of the spouses is offered an option to buy out the other spouse.  In a market like this one, sometimes the agreed upon price must be tested.  Say the spouse who is leaving wants the buyout price to be $600,000. Let’s say they bought it for $400,000 and put $100,000 worth of improvements into it.   They put it on market for $$599,000 and keep reducing the price to $519,000.  Then it goes off market (this is a real case) and it never comes back on market.

Meanwhile, a buyer has been watching it, who wanted to buy it for $485,000.  He’s been watching it for 7 months.  He feels “used” and frustrated that it went off market before it hit an asking price of $499,950 .

Once the value was proven to be $400,000 plus $100,000 at best, the two spouses agree on the “buyout” amount, and one of them gets to stay in it.  It was only ON MARKET to prove to one of the spouses that the price of $600,000 was unrealistic.

2) Passive Aggressive – saying YES and meaning NO.  Husband and wife have a fight and the wife calls an agent to list the house, planning to get a divorce when the house sells.  Husband signs the listing paperwork at a price at which he knows it won’t sell.  He appears to be cooperating with the sale, and blames the market for the wife’s failed plans 🙂  They make up at some point, take the house off the market, and live “happily” ever after…until the next fight.

3) “Mom, you HAVE TO move” – Well meaning children tell Mom she’s too old to live in that big house all by herself.  She’s tired of hearing it, and agrees to put the house up for sale.  High price and awkward showing instructions.  “Can only be shown with listing agent present’ or “Can only be shown on weekdays from 10 a.m. to 4 p.m. and not on weekends”.

Sometimes these homes are on market from April through October, every year, year after year, with the price increasing every year.  Kids wonder why Mom’s house won’t sell, but they stop bugging her about her need to sell it.

4) Short Sale – Bank approves a sale price of $450,000.  House sits on market at $450,000.  No offers.  Owner can’t lower it below what bank has indicated they will take.  Bank won’t reduce the amount they will take, because they have an appraisal at $450,000.  House sits on market until someone buys it at foreclosure.  Some owners keep reducing it every couple of weeks, but mls says they can’t offer it at a “fake” price not ratified by the Bank…big Catch 22.

So when you look at the inventory of homes for sale, understand that they will not all be reduced to a price at which they will sell.  Often you will not get the real story about the seller’s motivation.

2009 is the Brightest Year

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Last night was “Chinese New Year” and unlike 2008, which was “a blind” year, 2009 is “a bright year”.  Now before you get all excited about this Year of the Ox, let me explain what “bright” means.

Remember the movie “Wait Until Dark”? The fear and damage caused to the blind woman, when simply being touched with a scarf, by her “torturer” in her darkness?  It wasn’t WHAT he was doing…it was that she couldn’t see it coming…couldn’t see who and what it was.  That was 2008.

In the ancient culture  of Chinese New Year, the  “eyes” of the year are on February 4th. The dates that encompass each year are determined by the cycles of the moon. Some years, like 2008 have NO February 4th, and so are blind years.  Others have only foresight, with February 4th in the beginning, but not at  the end.  Some years have only hindsight, with February 4th at the end of the year, but not at the beginning.

2009, which started last night at the first new moon of 2009, has two February 4ths, giving us “the brightest” of years, with both foresight AND hindsight.   The year begins on 1/26 and ends on 2/13 this year, so 2/4 comes around twice. Bright doesn’t mean GOOD, it means if you don’t see it coming…and if you look back at the end of the year and “wish you had” done things differently…then you were choosing to bury your head in the sand, and you refused to see the handwriting on the wall.

  1. Thinking about flipping a house?  Think again.
  2. Thinking low priced home sales all around you, are not going to affect your property’s value? Think again.
  3. Think the real estate market is going to come back to the point where all people with a real estate license can make a decent living?  Think again.
  4. Think Obama is going to turn this market around by the 2nd Quarter? Think again.
  5. Think throwing good money after bad is going to save the economy? Think again.

If you bought a property in July of 2007…bite the bullet – or stay in it.  Wishing the market is going to get back there soon, is not going to make it happen.

In a “bright” year, you know what to expect and you base your actions accordingly.

  1. Try to get a loan mod, ONLY if you can afford the resultant new payments.
  2. If you see no hope of your income getting back up to anywhere near where it was when you bought the house; let it go to foreclosure, wave goodbye, and reduce your expenses.
  3. If you are a move up buyer, understand the house you buy is also down in price, and reduce the sale price on the one you are selling accordingly.
  4. If you are afraid of losing your job, stop buying toys you don’t need to have, and put 3-6 months of expenses in the bank, just in case.
  5. Recognize that Obama as President means we have the Leadership to help us do what WE need to do…not an Il Salvatore with a magic wand.

It’s a bright year…use it wisely.

Obama plans on tighter regulations for mortgage brokers

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From the New York Times

The Obama administration plans to move quickly to tighten the nation’s financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
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Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.

None of this should be a surprise for regular readers of Raincityguide.  I’ve been talking about tighter rules for mortgage brokers since 2001 and here on RCG for two years.   Mortgage brokers will always argue that they are already tightly regulated. In some states, brokers have tougher regulations than consumer loan companies.  Hey, wait a minute.  Is President Obama going to let the consumer loan companies slide by without proposing tougher regulations for them as well?  The top two largest predatory lending lawsuits were against consumer loan lenders Household Finance and Ameriquest. Both companies settled out of court and “admitted no wrongdoing” even though there was lots of evidence that their sales people were meticulously trained by management on how to do wrong. 

Maybe tougher minimum sanctions and penalties are in order as well.  We must also realize that these new regulations mean nothing without enforcement.  I would rather see the states be in charge of enforcement than the federal government (well, with the exception of Florida where they have proven their supreme incompetence.) We need only to look at RESPA and the miserable job HUD has done trying to enforce this massive piece of regulation since 1975.  So if it’s going to be up to the states, then the industry should prepare for a higher cost of doing business as a mortgage broker or consumer loan lender.  This will be passed on to the consumer in the way of higher fees, rates, or both.

What do you do with a Zillow Zestimate?

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In the post below, I have shown comparisons of Sold price vs. Zillow Zestimate and Cyberhomes valution of the most recent recorded sales.  Why do we need to know this, and how do we use this information?

1) Short Sale vs. Zestimate – Was buying a short sale worth the extra hassle?

SS#1 – the Zestimate is identical to the 2008 assessed value. The Cyberhomes value is also almost exactly what the owner paid for it in March of 2006.  So neither was needed, as most buyers would look at assessed value and what the owner paid for it. This short sale is good for an “end user”, but not for an investor.  The discount of 5% under the Zillow Zestimeate and 10% under the Cyberhomes value equals the hassle, no more and no less for this buyer.  But there was a buyer before this buyer who waited around for 60 days for the bank to not approve the original offer price.  The first buyer flushed out what the bank would take.  The second buyer had the advantage of the first buyer’s hassle factor.

SS#2 – This is a good one.  The assessed value, Zillow Zestimate and the Cyberhomes values are all about the same.  This is down where current prices are about equal to 2008 assessed values in Auburn and Federal Way.  So this sold for 20% under fair market value and 30% under what the current owner paid for it. Hard to see the hassle factor, as it looks like they didn’t put this one as pending until they had bank approval, which was 10 days or so before it closed. This one is a stereotypical good Short Sale from the buyer’s standpoint and the Zestimate and Cyberhomes valuations and assessed value all confirm the discount.

Now that you know what a good and bad short sale looks like relative to a Zestimate, et al, you can see that SS#3 = not so good, SS#4 = Zillow’s way over on this one.  Assessed is $717,000 Cyberhomes is $794,000, the owner paid $803,000 for it in 2006, so not likely the Zestimate of $937,000 is correct. Compared to the Zestimate it looks like a screaming deal…but in reality it’s about the same as SS#1…OK for an end user but not for an investor.

For those who wanted to know Original Asking Price, I don’t know how it helps you to know that was $1.4 million on a property whose value is clearly just under $800,000?  Maybe I’m missing something, but asking price is never part of my valuation for  a buyer client.

Bottom line, looking at the Zestimate AND the Cyberhomes value AND what the owner paid for it and when AND the 2008 assessed value (not 2009) and the improvements or lack thereof, tells you a lot more than “the comps” these days.  Looking at comps is dangerous, as if you go back even 4-6 months, you are looking at prices that are higher than today’s current market value.  That may change into the second quarter…but the full area trend is MUCH more important right now than what the neighbors’ homes sold for back in June or July.

Zestimate vs. Sold Price

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“Tsuru” over in Seattle Bubble comments, asked me for a comparison of Zillow Zestimates vs. Closed Sale Prices in the current market.  To be sure the Zestimate isn’t picking up the recent sale, I’m using the latest 50 or so sales recorded in the mls for King County in the last few days.  42 are single family homes and 8 are condos. I’m only showing the data for the single family homes, but thought you’d like to know the breakdown of the sales for the last few days.

I think I saw David G. at Zillow and someone from Cyberhomes going at it recently, so let’s throw Cyberhomes in the mix too.  As usual, I am posting this as the results come in…so I have no idea how it is going to turn out.  Let the best “man” win 🙂

Also of particular interest are the number of sales that are Short Sales and Bank Owned or other “stressed” sales, many, and very few of those indicated so in the Public view vs. Agent fields.

Sold Price Zestimate                Cyberhomes

$262,000 SS*                 $275,000                  $292,552

$365,000                         $301,500                   $398,192

$287,000 BO*                $311,900                   no result

$530,000 CO*                $743,000                  $695,991

$140,000 BO*                $186,957                    $196,698

$210,000  SS*                 $269,500                   $274,417

$282,500                           $320.000                  $281,461

$285,000                          $276,000                   $276,134

$347,500                           $334,000                  $347,910

$480,000                          $422,500                   $483,891

$550,000 ES*                  $705,500                 $688,842

$565,000 NC                      none                              none

$652,500                              ” N/A”                       $661,320

$190,000 BO                     “no result”                 $234,017

$269,950 SS*                    $285,400                  $282,102

$279,900                           $413,000                  $272,349

$517,000 BO                     $682,500                “$0-Foreclosure”

$450,000                           $454,500                 $518,982

$176,000 BO                     $312,500                 “0-Foreclosure”

$267,999 NC                           n/a                                     n/a

$740,000 SS*                   $937,000                $794,218

$325,000 CG                     $547,000               $567,171

$420,000                           $410,000                $402,384

$451,050 CR                     $637,000                $559,188

$850,000 NC                         n/a                               n/a

$835,000                           $802,500                $811,305

$915,000                            $831,500                $875,266

$850,000 NC                          n/a                              n/a

$370,000                           $367,000               $428,766

$636,500                            $702,000              $676,200

$650,000 SS *                   $707,500              $662,000

$360,000                            $347,500              $376,152

$475,000 BO*                   $584,157               $585,199

$292,500 NC                            n/a                              n/a

$305,000 NC                           n/a                              n/a

$309,950 NC                            n/a                              n/a

$373,000                            $342,000             $352,252

$386,000 NC                               n/a                         n/a

$389,950 NC                               n/a                          n/a

$400,000                            $391,000             $392,337

$577,000   TR                   $467,500             $405,413

$416,000                            $468,500              $484,506

*disclosed in Agent Remarks or owner field, but NOT in public remarks

SS = Short Sale. CO  = Corporate Owned, CR  = Corporate Relocation, BO  = Bank Owned, ES  = Estate Sale, NC = New Construction, CG  = Completely Gutted, TR = Totally Remodeled

Geographically, most of the short sales, all except one, are South.  The first sales are in Federal Way, Auburn, then Burien, Kent, South Seattle, over Mercer Island, Eastside, Bothell, North Seattle on the Green Lake/Greenwood side, then North Seattle up through Shoreline. That is how the mls code numbers run from 100 through 715.

Today we come together…

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american-flag1Quiet tears stream down my face…

My whole life, and all that I have witnessed and experienced, flashes past as if in fast forward  in my brain…

I believe in God…I pledge myself to this Country and its people…

Words I once heard very long ago, and have never forgotten, come to the forefront…

“Keep us, O Lord, from all pettiness…and let us forget not…to be kind.”

It is a great day…truly the first day…of the rest of our lives.

Nationalization and "Bad Bank" Analysis

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Dr.Paul Krugman “Wall Street Voodoo”

“recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.”
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“What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value

1st burn ban of 2009 in effect in Pierce County

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I am on an email notice list with Puget Sound Clean Air Agency and they’ve sent out a notice that the first burn ban of the year has been put into effect in Pierce County. Here is their release in its entirety:

Message from the Puget Sound Clean Air Agency

Stage 1 burn ban called for Pierce County

First Puget Sound-area burn ban of the season and first since a new state law went into effect

January 16, 2009 — Due to stagnant weather conditions and increasing air pollution levels, the Puget Sound Clean Air Agency is issuing a Stage 1 burn ban for Pierce County, effective at noon, January 16, 2009.

Air pollution levels in King, Snohomish and Kitsap counties do not warrant implementation of a Stage 1 burn ban at this time. Clean Air Agency staff are closely monitoring these conditions and will take additional actions as necessary if conditions degrade to unacceptable levels.

Stagnant weather conditions are entrenched over the Puget Sound area and are expected to persist through Monday. These conditions greatly increase the potential for air pollution to reach levels considered unhealthy for sensitive population groups, especially in Pierce County. In many areas persistent fog and mixing are providing some benefit and helping to keep pollution levels in acceptable ranges.

During a Stage 1 burn ban:

  • No burning is allowed in fireplaces or uncertified wood stoves, unless this is your only adequate source of heat. Residents should rely instead on their home’s other, cleaner source of heat (such as their furnace or electric baseboard heaters) for a few days until air quality improves, the public health risk diminishes and the ban is cancelled.
  • Natural gas, propane and pellet stoves or inserts ARE allowed.
    No visible smoke is allowed from any wood stove or fireplace, certified or not, beyond a 20-minute start-up period.
  • All outdoor burning is prohibited, even in areas where outdoor burning is not permanently banned. This includes recreational fires such as bonfires, campfires and the use of fire pits and chimineas.
  • Burning of storm and flood damage debris is also prohibited.* The Clean Air Agency encourages people to take advantage of free flood-debris disposal coordinated by their county.
  • Burn ban violations are subject to a $1,000 penalty.

This ban is in effect until further notice.

Clean Air Agency staff will continue to monitor the situation to determine when the burn ban can be lifted. You can check conditions and forecasts at www.pscleanair.org/airq/aqi.aspx .

The Washington State Department of Health recommends that people who are sensitive to air pollution limit time spent outdoors. Air pollution can trigger asthma attacks, cause difficulty breathing, and make lung and heart problems worse. Air pollution is especially harmful to children, people with heart and lung problems, and adults over age 65.

This is the first burn ban of the season and the first since a new state law went into effect lowering the air-quality trigger for calling a burn ban. The trigger level was lowered to align with the U.S. Environmental Protection Agency (EPA) health standard for fine particle pollution, which was tightened in 2006 to better protect public health. Answers to frequently asked questions about burn bans can be found at www.pscleanair.org/airq/burnban/faqs.aspx .

For additional information visit www.pscleanair.org