Sacramento Real Estate Blog

Happy Halloween everyone! And if you’re wondering what’s the scariest thing on most home buyers’ minds today, you’ve come to the right place for an answer. Although most buyers are excited about the opportunities REOs (foreclosures - REO stands for Real Estate Owned by a bank, for the uninitiated) present in today’s real estate market, especially in the greater Sacramento area, I find that many are also concerned about buying a home that can have many unseen problems which may not show up until long after escrow closes. Today, I am here to address some of their concerns. Boo!

How a Home becomes an REO
As explained earlier, an REO is a foreclosure. When you buy a home in California, unless you pay cash for it, chances are you will have to finance the purchase. A home is financed in much the same way a car is financed - you sign legal documents called “a note” for a loan. The lender gives you the money which you agree to pay back with interest over a term of (usually) 30 years. If you default on the loan, the lender can then take the home back and sell it to someone else. The legal process of taking the home back for default on a note is called foreclosure. Although the process in California includes a trustee who is given the note and who is notified by the lender to begin foreclosure proceedings in the event of non-payment the basic idea remains the same: default on the mortgage and lose the home.

The lender is required by law to send a homebuyer who has defaulted on the loan a Notice of Default. This notice is recorded at the county clerk recorder’s office in the county where the property is located and is a document of public record. This means that anyone with an interest in the property may see it. The notice states when the lender is planning on foreclosing, ie. the date of the trustee’s sale and the outstanding amount the homeowner can pay to cure the default and stop the trustee’s sale.

Usually, as you can imagine, the default is not cured and the trustee auctions the property to anyone who will buy it. If there are no buyers at the trustee’s sale, the house becomes a foreclosure and is referred to as an REO - real estate owned by the lender.

What you should Know about an REO as a Homebuyer

Most lenders are not in the business of real estate; they are in the business of finance. And so, the house acquired by a bank through a foreclosure is usually put back on the open market. To come up for a sales price for the property, the bank hires a Realtor® and asks for a BPO - a Broker Price Opinion. The Realtor® appraises the property based on similar properties also known as “comps” and offers to list it. Since most foreclosures are fixers, they are usually placed on the market for a substantially discounted price.

As a home buyer of a bank owned home, your concerns are justified. An REO is usually a fixer. The most obvious reason for this being the family that was foreclosed upon was low on finances. If they didn’t have enough to make their mortgage payments, chances are there are quite a few things about the house that went unrepaired. This is also called deferred maintenance. Deferred maintanence can be a small problem, like a leaky faucet, or can hide bigger problems, like a leaky faucet that rotted the bathroom sub-floor.

You should also be aware that as a purchaser of an REO, you don’t receive full disclosure about the house. The bank is not required to provide you with a Transfer Disclosure Statement, partially because the lenders have never been in the home and are unaware of what exactly is wrong with it. They are also unaware of other problems a property may have, like boundary line disputes, and are unable to let you know if, say, there has been a death on the property.

How to Resolve your Concerns

Does this mean you are left completely at the mercy of Chance when you decide to buy a foreclosure? Sure, the price is deeply discounted, but does that make up for everything else? While that may be a question only you and your pocketbook might be able to answer, here is the most important pointer to take the sting out of potential problems: Always, always, always get the inspections!

Brokers recommend a variety of inspections, including pest, roof, septic system and a complete home inspection. Disregarding any of these inspections can be a big mistake on the part of a homebuyer. While most banks will not repair any items listed as potential or real problems during these inspections, you can get an idea of how much work is involved in making the home as habitable as you want it and decide if the asking price is worth the risk and work involved. The price you pay for the inspections (approximately $1000 for all included) is well worth its weight in gold.

You, The Smart Homebuyer

Okay, great! So you got the inspections done! The home seems structurally sound, but it looks like the roof can’t be certified. Can you knock off $10,000 from the asking price because the lender won’t put a new roof on? Not so fast! You should take into account the fact that the lender has already figured deferred maintenance into the price of the house. While there is no overt harm in making a lowball offer, you should also apply the comps in the neighborhood and balance them against your own timeline and budget for a house. Also remember that escrows today take longer (45 to 60 days as opposed to the 30 days from a while ago) because lenders are more careful about checking documentation.

With so many bargains out there in foreclosures, if you are serious about buying a home at a deeply discounted price, chances are you will find what you are looking for. So, go ahead. Get the facts, look hard and deep and don’t be scared to make an offer when you find the right one!

Residents of Sacramento have reached a new level of understanding about the real estate market, I think. While conversations during the real estate boom revolved mainly around how much their home had appreciated, now the talk is mainly around how much the market has been affected by the recent foreclosures. They seem to take a macrocosmic view of real estate as it is as opposed to the simplistic microcosm they were living in just about five years ago.

But the statement I hear most often is, “I wish I had some money right now. I would buy the entire street!” And while many are concerned that the market might continue to fall further, many others have taken the leap. We’ve seen the numbers rise for sales over the last year in every neighborhood and Sacramento county as a whole. Clearly, there isn’t as much anxiety over prices falling further today as there was a year ago.

Or is there?

Investors see this in the stock market every time - the tendency of most people is to think they are going to swoop in when the market is low, buy up everything and then make a ton of money by selling high. The reality is that most people feel confident buying a stock that has already performed well and then end up selling it when it is obvious it will not go any higher (at best) or when the price falls (at worst).

We see the same thing in the real estate market. When the prices of homes were headed up, homeowners were reluctant to sell and people felt more comfortable buying. There was not enough inventory for all the buyers. A home saw multiple offers on the first day it was listed and sellers couldn’t believe their luck. We see the opposite today. While many swear they want to buy a house at the bottom of the market (or close to) they are now holding off. The old adage of “Sellers sell in a seller’s market, but buyers don’t buy in a buyer’s market” is holding true, at least anecdotally. The overall numbers however are telling a different story. Clearly, some people are buying. These will probably be the same people selling when the time is right.

It’s time to review the numbers. It’s time to see what you can afford and head out there and start investing in the future.

Sales of existing homes have doubled in Orangevale since last September, with foreclosures and short sales making up the bulk of all sales. While no short sales sold last September, this month we have 6 short sales. And foreclosure sales have almost quintupled from a mere 4 last September to as many as 19 in September of 2008.

Clearly, there have been bargains to be found in this little community of Orangevale - the 95662 area code of Sacramento county. The sold price per square foot has fallen 18.8% from $215.13 to $174.69. And the average sale price has fallen 23.9% over last September to rest at $270,590.

Based on the last 12 months of sales inventory is at 5.6 months and based on the last 6 months of sales, inventory is at 4.2 months. Again, we see short sales making up the bulk of active listings in the area at 15.5 months and 11.8 months respectively.

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Not much has happened in the Land Park area of Sacramento and that might be a good thing. While a year ago at the same time, there had been no foreclosures for sale and only one short sale, this year we see two foreclosures sold and no short sales. This is a good thing. Calm and quiet in a certain neighborhood - in terms of real estate, especially - might be just what we need for prices to stabilize.

Unfortunately for Land Park residents, the neighborhood is not completely immune to the rest of Sacramento county. Although the majority of properties that sell here are non-distressed (85.7%) the price per square foot has still fallen 18.7% over last September. It now stands at $284.63 per square foot. The average sales price is now $382,786 - a drop of 17.8% over last September’s average.

There might be some real opportunties for buyers looking for a bargain in Land Park in the short sale category if lenders are willing to work with the sellers. In a relatively stable neighborhood such as this, there are currently 12 short sales and 2 foreclosures listed. Inventory for all sales currently sits at 5 months.

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Hardly anyone is happy about the events of the past few weeks.  To be sure, there are a few dubious winners.  Those for whom predictions of economic doomsday is a hobby have had the satisfaction of saying "I told you so".  Meantime, the executives at Goldman Sachs and other financial firms are reaping the tasty harvest of their well bought Congressmen.

For the majority of us — who find plenty to enjoy in the misery that actually visits us without savoring the anticipation of future misery — the economic crisis and the financial bailout have a tough time.

In real estate, our own fears for our future business are compounded by the fact that we know that other’s fears about their future can be a self fulfilling prophecy.  People who are afraid cut back on their spending, and for most of us the largest share of our budget is housing. 

A symptom of the overall terror is that a lot of my friends in the industry are looking to the security of other part time or full time jobs, with varying degrees of success.

What Happened When The News Broke?

As Congress was using the time honored mugger technique –  threatening you with great harm that handing over your money will forestall — anecdotally it seemed like the sky fell.  The phones just stopped ringing for about a week or two, and email inquiries trickled off to just about nothing.

That was pretty scary, though fortunately we’re starting to see people starting to look at homes again.

Even though on the face of it we thought our business destroyed, the weird thing about the awful news of the last few weeks is that it’s hard to prove (in a numerical way) how much of an impact this bad news really had.  Sales this month have continued strong.  With 1,369 sales in Sacramento County to date in October, we’re already 54.9% of the total volume for October of 2007, and although divining month end numbers is more of an art than a science, we’re looking at probably 1,600 to 2,200 sales for the month, with 2,020 being my best guess.  This is in line with what we’ve been seeing in the last several months.

What About the Immediate Future?   The Story of Sac County Pending Sales

Of course, the real story is in the pending sale numbers, since these tell the tale of homes going into escrow since the crisis.  Here again, it’s hard to find a pattern that shows people are so scared that they’ve stopped buying homes altogether. 

There are about 4005 homes that are pending sale (in escrow) in the MLS in Sacramento County.  Absent an economic disaster, the pattern we expect to see is that the more recently you look, the greater the relative percentage of pending sales you’ll see.  This is because as time goes on, those pending sales either fall out of escrow or close escrow. 

In the presence of an economic disaster, you’d expect to find this pattern violated, but we really don’t.  Of the 4,005 pending sales in Sac County, 2,013 went pending since October 1.  As I write this on October 25th, 597 homes have gone pending in the last 5 days (since the 20th), and 1318 have gone pending in the last two fifteen days.  Assuming 50% of all pending sales in the last fifteen days would close escrow (I think the actual numbers are higher but I don’t have the real "average close rate" to use), we’d be looking at about 1,318 sales for November — better volume numbers for November, 2008 than November, 2004’s 1,094 sales and almost as good as November, 2005’s figure of 1,446 sales. 

Sure, that’s not as good as recent months, but it’s still much better than last November’s pathetic total of 809 sales.  And in general, we’d expect it to be down somewhat from August through October, because sales almost always trend downward in November and December.  And to be sure, those November numbers are projections — not real numbers.

Price (Not Consumer Confidence) Is King

If Elvis is "The King" in rock and roll terms, traditional wisdom in real estate is that price is king.  What we’re seeing at least so far in October is that this is true even in a down market (assuming of course that a lack of credit is a mugger’s ploy and not a reality).  With mortgage rates down since August and prices continuing to fall, on one level we’re all running from our own shadows, but meantime, back in the real world, the buyers are still out there — at least for now.

With that I’m sure someone will accuse me of being unduly optimistic — again! — which actually is a funny position to find oneself in given my systemic pessimism.  Shhh… don’t give away my secret.

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While I was having my early morning cappuccino today, made with a rather indulgent birthday gift I gave my husband, this impassioned email sent to us by someone who had been to our website caught my eye:

“Their loss is your gain” Very tacky marketing! We loved that home & left it in great condition. We worked with your representive [sic], I actually that [sic] about sending her a thank you note. Were [sic] is your empathy! I truly hope someone can purchase the home that I designed & finish it right. I hope that you are happy that your posting sent me & my family into tears again. OUR LOSS? Yes we did have a loss I am sure you do not care about exactly what our loss was/is. Did it occor [sic] to to [sic] that terminal illness could have played a roll [sic]? You should think again before marketing a foreclosed home in such a ruthless way.

I hurried off a reply explaining that the marketing was not ours. We never use tacky terms like that and are hugely empathetic to sellers in this market, especially ones that have ended up in a foreclosure / short sale situation through no fault of their own and genuine financial hardship. Unfortunately, there are so many others that simply want out of their homes because they are so called “upside down” in them that even the banks are having a hard time distinguishing between the genuine cases and the ones that just sick of falling house values.

So let me reiterate: this post is for those with genuine financial hardship. Here are some of the steps you can take before you decide to walk away from your home.

Determine if there is Genuine Hardship: As I mentioned earlier, some people in this market simply want out of their homes and the mortgage agreement because they see the value depreciating. Depreciating value in itself is not a reason for the bank to accept a short sale. You must prove genuine financial hardship. Remember that the mortgage agreement you signed when you bought the home is a contract and letting someone out of a contract requires a strong reason. Depreciating value of an asset is in itself not a good enough reason.

Get on the Phone: The single biggest mistake people make when they are beginning to have trouble making payments is to avoid all phone calls. As a landlord, if the rent doesn’t get to me in the specified time and the tenant does not call, it is my first red flag. I can tolerate the rent being late for a long time if there is communication. Your mortgage holders have the same thinking. They really don’t want to foreclose. They just want the payment. So, your first response to a difficult financial situation should be to call your creditors. That would include your credit card companies, the IRS, your mortgage holders and so on. You might be able to get your mortgage holders to rewrite the loan (and have a different monthly payment and terms) and stay in your home.

Keep in mind also that a home is a secured debt, which means it is secured by your house. If you stop making payments, the mortgage holder can take your home. Your credit cards are unsecured debt. If you stop making payments on those, the credit card companies cannot technically come after your home. If you have the stomach for it, you can keep your home and see about negotiating with other creditors.

Begin Building a Case: A banking job is very paperwork-heavy. Remember the thick stack of documents you signed as a home buyer? Well, to get out of it, the stack will be just as thick. Start collecting any and all documentation of your hardship. Collect bank statements for the last entire year, tax returns for the last five years, pay stubs for the last year and all other documentation you have which shows and documents the reasons for your hardship. This may include a letter from your employer if you have lost your job, a medical letter if you have a disability or illness, medical bills, IRS bills - anything to establish in the eyes of the negotiator that you are not someone who simply wants out. A paper trail is very important to a successful short sale.

Start Looking for an Apartment or Rental Home: Do not plan on living in the house until the date of the foreclosure. While this might seem like a good idea on the surface because you are not making mortgage payments and getting free rent, remember that every month of a missed mortgage payment hurts your credit score - something most landlords check when you apply for a place to live in. Even if the short sale does not go through, you will have to leave and need a replacement place to stay. There is no doubt about that. Your credit is going to be in a downward spin. The smartest thing you can do now is get a place to live and explain to the landlord that you are losing your home.

Try to get an Approval or a Dollar Amount: This is unfortunately the toughest part of a short sale. Before you call a Realtor®, send in the paperwork to the bank and try to get an idea of what price they will accept. Lenders are notorious for not telling you their price and having you wait for an offer before they send someone out for a broker price opinion. The problem with this approach is that the buyers tend to get tired of waiting and walk away. If you can get the bank to send someone out before an offer comes in, it saves time (lesser time also means your credit will be hurt less) and you are more likely to get a home buyer to make an offer. This does require that your paperwork be complete however, so make sure to get that sent into the bank and follow up with them.

Call a Realtor®: At this point, all a Realtor® has to do is advertise your house as an approved short sale, be open to an offer and send it over to the bank for final approval. Approved short sales can close in less than sixty days. Also remember that you do not have to pay either Realtor®, as would be the case in a traditional sale where the seller pays the Realtors® involved. In this case, the lender would be the one making the payment for services rendered. That is why the lender will often ask for a net sheet from a title company before the final approval is issued.

Don’t Forget your Accountant! Your short sale or foreclosure may have tax ramifications and perhaps legal ones as well. Be sure to talk with your tax preparer and attorney regarding these. Deciding to walk away from your home is a difficult and painful process - one that we hope you never have to do. But if it is inevitable, I hope the tips in this post help.

The number of foreclosures sold in Antelope this September has almost quadrupled since last September. While only 16 foreclosures sold in the 95843 zip code then, this September saw 63 foreclosures sell. A strong rental market in Antelope is probably responsible for investors jumping in and picking up properties priced extremely well, resulting in the Antelope stampede John spoke about a few months ago.

Apparenty, the stampede isn’t over yet.

Interestingly enough, short sales in Antelope seem to have finally started catching up with the rest of the sales. Consider this fact: While a year ago, houses that sold in Antelope were almost equally divided between distressed sales (foreclosures and short sales) and non-distressed sales (private sellers), today the balance is completely off. Most sales this September were foreclosures (67%) and short sales (19.1%) while private sellers accounted for only 13.8% of the sold units.

As you can probably predict, this imbalance between distressed and non-distressed sales has not helped prices rise or stabilize. The average sales price this September dropped 23.1% over last September’s average to rest at $219,705.

The pocket area of Sacramento (95831) is a relatively stable market, perhaps the most stable in Sacramento county. (I say that with some disbelief at this point, after the East Sacramento market update. However, do keep in mind that the 95817 zip code of East Sacramento includes Curtis Park as well as Oak Park and the market swings wildly between the two neighborhoods. Curtis Park is mostly owner-occupied and Oak Park mainly investment properties.)

And if bad loans and foreclosures are to blame for the recent downturn, Pocket area residents must be managing their finances well. As a pretty hot market in the real estate boom, its average sales price has dropped a mere 14.6% over last September to $298,663. I know, I know… I said “a mere 14.6%” but if you compare it with the rest of Sacramento, you’ll see what I mean.

Price per square foot has fallen to $172.31 - a drop of almost 20% since last September and that seems to have inspired home buyers to acquire on average a home approximately 100 square feet bigger than last year at the same time.

Non-distressed properties still make up most of the sales - approximately 63% which might account for some of the stability. However, they are still lower than last September’s numbers where 85% of homes sold were non-distressed. September 2008 saw 8 foreclosures sold as compared with 2 last September.

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Perhaps the hardest thing for home buyers, whether this is their first home or whether they have bought many others before, is deciding what the home is worth and the price to offer the seller. Buyers are usually caught wondering if they should offer full price, or over asking price, if they should try a lowball offer or actually listen to the advice of their Realtor® and send in a reasonable offer which allows room for negotiation and ensures both parties some wiggle room on the negotiation table. Since this question comes up pretty regularly, let’s discuss the pros and cons of each.

The Full Price Offer

Drumroll, please! Of course, this is one of the offers that is the most liked by the seller, unless it’s over asking, but that comes with its own set of problems we’ll discuss in a minute. A full price offer is usually made by buyers in stable markets for a house they really love. Usually, there are no other offers on the table.

What happens? If everything goes according to plan and the buyers are not overstretched on their budget, the seller accepts and everything moves on slowly but surely. An incredibly boring escrow closes and leaves everyone happy. The sellers walk away getting what they wanted, the buyers wonder if they paid too much, but soon get caught up in decorating and enjoying their new home and forget their buyer’s remorse.

The Over Asking Price Offer

Writing an offer over the seller’s asking price shows nervousness on the buyer’s side. It is usually made in a market where prices are headed up or when the listing is priced extremely low to encourage multiple offers. The sellers in this case are aware that they have the upper hand and can command a good price. In the recent real estate boom in Sacramento, most homes appreciated by the time escrow closed and buyers came out richer just a month after making an offer, so sellers felt the need to earn some of that future appreciation by pricing the home pretty aggressively.

However, there is a problem with such a strategy. When the real estate market is headed up, there are usually few or no comps available for an appraiser to ascertain value. The difference then has to be made up with cash from the buyer or the price has to be readjusted to reflect the value of the home as determined by comparable properties. (By the way, when the market is headed down, there is a whole set of other problems with comps appraisers have to provide. Nervous lenders usually request more than the usual number to ensure some level of stability in house values.)

The Lowball Offer

Lately, these are the most commonly found offers. So you can probably guess that these offers dominate a buyer’s market, when supply is high and demand is low. Prices are usually headed down or seem to be headed down and foreclosures abound.

On the surface, the lowball offer seems like a good idea. Home buyers often make these offers to sellers in the hopes that they are in a win-win situation. They think that either the seller will accept and they will have purchased a house at a rock bottom price or the seller will come back with a price closer to what they have offered.

The reality, however, is quite different. With so many lowball offers floating around (most from unqualified buyers and other frivolous tire-kickers) the sellers lump even the most qualified home buyer into the to-be-ignored file and never get back to them. As a result, there is no negotiating, the sellers feel insulted and what could have been a reasonable purchase dissolves into nothing but a bad taste in the mouths of both parties involved.

The Right Offer

If you ask me, the right offer is always dependant on a variety of factors. Mainly, how much does a homebuyer like the home? Are there other houses like this one available? What do the comps look like in terms of price per square foot? Does the home buyer know his options when it comes to financing the home and does he really understand his mortgage? How many other offers are the sellers considering? What is the strategy behind pricing the home at the listing price? How soon and why are the sellers moving? All these questions would help determine the right offer price.

That being said however, I think serious home buyers in today’s Sacramento real estate market would do well to make every effort to come across to sellers as reasonable and ready and willing to make the home purchase with a little negotiating. I think if they are armed with a letter of preapproval, a decent good faith amount and an offer that is not too wild, chances are sellers will discount the price. Get off on the wrong foot however and none of this happens. Going in with unreasonable demands or a “my-way-or-the-highway” attitude only results in wasted time and effort by the potential home buyer, the buyer’s agent, the seller and the listing agent.

What would I do? I’d be sure to get the right Realtor®, ask the right questions and then make the right offer. I would take the advice of my Realtor®.

This is pretty depressing - throughout the recent fall in home prices, Realtors® and some homeowners have taken heart in the East Sacramento market. Unfortunately, East Sacramento (zip codes 95817 and 95819) seems to have faced some bad weather in September along with the rest of Sacramento county.

It’s easy to tell where the storm is coming from: foreclosures. Compared to last year in September when only 2 foreclosures sold, this September 21 closed escrow. This September also tipped the scale toward the foreclosures in that most sold listings (53%) were foreclosures. To offer a contrast with last September, we have only to know that 91.3% of all units sold then were non-distressed sales.

The sold price per square foot dropped 35.9% over last September to $190.40 - average sales price dropped a whopping 48.4% over last September to end at $214,285.

In the more interesting news: the average sold listing was 1125 sq. ft. this September as compared with 1395 sq. ft. last year, suggesting perhaps that people are buying smaller homes - about 300 feet smaller.

Sacramento’s Elder Creek and Fruitridge areas include the zip codes 95820 and 95824.  Since last year two things have happened, and one of them implies the other.  First, prices have fallen — a lot.  Secondly, demand has increased — also a lot.  This common "demand curve" pattern is one we see demonstrated over and over again, and September’s numbers for Elder Creek and Fruitridge are as good an example of it as we’ve seen anywhere.

Unit volume has quadrupled in this area from year to year.  Last September, only 25 homes sold in the Elder Creek and Fruitridge area, whereas this year there were 106 sales.  The vast majority (80.2%) of the new sales were foreclosures, 2.8% were short sales, and 17% were non-distressed.

At the same time, sold price per square foot has been cut almost in half.   Last year the average sold price per square foot was $178.31, while this year the average was down to $91.25, a decrease of 48.8%.  Over the same time, the median sale price dropped 52.9%, from $188,000 in September of 2007 to $88,500 in September of 2008.  This year the average home sold for $105,586 in Elder Creek & Fruitridge, down 47.4% from last year’s average of $200,679.

Inventory in Elder Creek Fruitridge is at 7.1 months (based on one year of sales) or 5.1 months (based on the last six months).

A few buyers have asked me why certain real estate brokers will not show them property or even put them in their car without first signing a buyer - broker agreement with them. In fact, when I was working at one of the bigger brokerages, I was expressly warned that unless I got a client to sign one of these very serious contracts, I was not to take them inside a home listed for sale at all. “At the very least,” one manager said at a sales meeting, “Get the Agency signed.”

It was easy for us green agents at the time to lap all this up as bringing us one step closer to being great real estate salespeople - soon on our way to making our first $100,000 in commissions (ha!) but now I believe the manager may have had other motives besides giving us confidence in real estate sales. Today, let’s look at what this contract is.

The Buyer Broker Agreement
Actually, the title should probably say the buyer broker agreements. There are three: the exclusive buyer representation agreement, the non-exclusive representation and one that calls itself simply the buyer representation agreement. They all say The essential difference between the three is simply the amount of commitment expected by the broker on the buyer’s part. They vary from the buyer hiring one broker exclusively (named, uncreatively enough, the buyer representation agreement - exclusive) to the broker agreeing to be simply one of the agents the client can hire (the buyer representation agreement - nonexclusive). The third leaves all the above negotiable.

How the Buyer Agreement Benefits You
I know most clients are afraid when it comes to signing anything before the offer is written or they have found the house they want. They fear that they will be tied to one broker or have to pay the Realtor® even if they don’t find their dream home. While this is a legitimate concern and will be discussed in a minute, buyers should remember that most real estate contracts are written to protect the buyer in many cases. The verbiage of the buyer representation agreement binds the broker to look for a house for the client as much as it binds the client to the broker. In other words, the commitment works both ways. If the broker isn’t doing his job, the buyer should be able to fire him.

What you Should Look For if you Sign These
So along those lines, here are a few things you should consider before you sign one of these agreements. (By the way, you should know that I actually had to go looking for these in my forms because I haven’t used one for years, but some real estate agents swear by them and so do some home buyers, so I feel the need to tell you about them.)

1. Is this exclusive? First off, if you trust your Realtor® and believe her to be the only one you will look for homes with, you should get an exclusive agreement. If not, sign a non exclusive contract.

2. The timeline: Check how long the Realtor® is committed to showing you homes and if that matches your timeline for finding a house.

3. Compensation: If you wish to pay your broker out of pocket (may happen if the price of the property is extremely low, as in the case of some mobile homes) the amount will need to be agreed upon and included. If not, most brokers get paid by sharing the commission with the seller’s agent and this line should say “as noted in MLS.” It is important that this line not put a percentage like “3% of sales price” because if the seller has only agreed to 2.5% of the sales price, you as the buyer will be responsible for the difference.

A Powerful Tool
One of the best things about the buyer representation contract is that it gives us as Realtors® permission to go prospecting for the right home for our homebuyers. If you don’t find the home you want, we can then legally advertise the fact that we have a home buyer who wants a certain home. It gives us permission to knock on someone’s door and broadcast a definite need. To me, that is the best use of this agreement and can be a powerful tool for any home buyer. So don’t immediately get on the defensive when a Realtor® offers you this 4 page contract. Read it over and see if you can negotiate it to help & protect your needs as much as you think it protects those of the broker.

With prices falling in Carmichael and throughout the rest of Sacramento County, buyers took advantage of bargains this year and generally purchased more homes this year than last.  In Carmichael, volume was up 26.3% over last year, with 48 homes selling in September versus 38 last September.

The average sold price per square foot in Carmichael fell 21.9% from year to year, from $224.79 in September of 2007 to $175.55 in 2008.  This is about $45.00 per square foot more than the county-wide average.  The average home sold for $304,816 in September, down 19.1% from last September’s average of $377,007.  The median home selling price fell 23.1%, from $357,500 in September of 2007 to $275,000 in September of 2008.

37.5% of the sales in Carmichael in September were non-distressed sales.  Another 47.9% were foreclosures, and 14.6% were short sales.  That 14.6% figure is another good example of how the number of short sales getting approved seems to have increased somewhat lately, perhaps as banks begin to get a feel for just how much money they can lose by going all the way to foreclosure.

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Buyers continued to pay a substantial premium for a Downtown Sacramento address in September, with average prices more than double the county-wide average.  Although the average sold price per square foot was down 20.1% from September to September, this year’s value of $277.34 was up slightly from the previous month, when the average sold price per square foot downtown was $259.48.

The average selling price downtown in September was $399,364, down 10.3% from last year’s average of $421,924.  The median selling price in Downtown Sacramento was $375,000, up 1.7% from last year’s median selling price of $368,750.

Even though it comprises the two zip codes of 95814 and 95816, Downtown Sacramento is very small in terms of the number of homes that sell every month, averaging only about 13 homes per month over the last year.  September’s volume was low at only eleven homes, broken down as exactly one foreclosure, one short sale, and nine non-distressed homes.

There are 87 homes in inventory downtown, which works out to be about six months of inventory.  Twelve of these are short sales, but there are no foreclosures currently active.  At 86% of all available homes, non-distressed sales make up the lion’s share of the inventory.

Related links:

For the first time in several months, El Dorado County enjoyed a year on year unit volume increase in September.  As I write this in October, taking the best figure for inventory we have, El Dorado County has 10.4 months of unsold inventory, down from the 11.4 months I reported in September.  September’s unit volume was 36.4% higher than last year’s so it does appear that some of the prices in El Dorado County have gotten to the point where buyers are getting more interested.

About three fourths (74.5%) of the homes in inventory are non-distressed sales, with another 15.7% short sales and 9.8% bank owned homes.  Like everywhere else, however, foreclosures are priced lower than other homes, so when you look at sales figures, the number of non-distressed homes drops to 48.4% of all the units sold.  With 161 units selling in September, that means 78 were non-distressed.  Another 19 were short sales (11.8%), while 64 (39.8%) were bank owned foreclosures.

Sold price per square foot fell 21.7% from year to year, from $224.49 in September of 2007 to $175.75 in September of 2008.   The average selling price fell 21.3% during the same period, from $485,485 to $382,319, while the median selling price fell 15.2%, from $424,500 to $360,000.

Related links:

What Metrolist calls Sacramento’s Arden-Arcade area is a fairly heterogeneous mix of neighborhoods, including the areas in the four zip codes 95841, 95821, 95864 and 95825.  Nevertheless we follow tradition by simply calling it Arden-Arcade or Arden-Arcade Creek.

Overall, this area continued to command higher than average prices in September, though like most areas in Sacramento the numbers are down significantly from last year.  The average home sold in Arden-Arcade for $167.78 per square foot, down 26.4% from last year’s average of $228.09 per square foot.  With this year’s crop being significantly smaller than last (1358 square feet versus 1656 square feet), naturally the average sale price fell even more, 39.7%, fro $377,873 in September of 2007 to $227,954 in September of 2008.  The median price fell 44%, from $339,500 to $190,000.

Volume rose from year to year in Arden-Arcade, though not as quickly as in the rest of the county.  Unit volume rose 47.3% from September to September.  There are about 6.5 months of active inventory in Arden-Arcade, 48% of which are non-distressed homes.  The other 52% are either short sale listings or bank foreclosures.

Related links:

Like Elk Grove, Sacramento’s Rosemont area experienced price drops in September that were somewhat less sharp than the county-wide average, while enjoying a more pronounced increase in volume.  Sixty-eight homes sold in Rosemont in September, one home short of triple the number a year ago, which was twenty-three.  Of these 68 homes, 43 were bank foreclosures (63.2%), 10 were short sales (14.7%), and 15  were non-distressed sales (22.1%).

The average sold price per square foot in September in Rosemont was $134.76, down 24.76% from last year’s average sold price per square foot of $178.94.  The median selling price was $188,350 in Rosemont, down 24.5% from last year’s median 245,000.

The average sale price in Rosemont in September was $188,350, down 23.2% from last year’s average of $255,635.  It’s a sign of how much the market for foreclosures has heated up that (as we recently reported for Elk Grove) the average home sold for more than asking price.  In Rosemont in September, the average buyer paid an average of $1,635 over list for their home, a little more than 8/10 of 1% over list.

Another sign of the high activity in Rosemont is the extremely low inventory — between 3.2 and 4.3 months, depending how you count it.

Related links:

Fueled overwhelmingly by the sale of properties that are either in foreclosure (or about to be), the real estate market in Elk Grove posted another banner month for unit volume in September.  Indeed, by a statistical coincidence, exactly three times as many homes sold in Elk Grove this year as last year in September, with 91 homes selling in 2007 and 273 in 2008.

Although the increase in volume was more dramatic in Elk Grove than in Sacramento County as a whole, prices in Elk Grove fell somewhat less sharply than they did county-wide, but even with that lost 29.5% of their sold price per square foot value in a single year.  Last September, the average home sold in Elk Grove for $179.62 per square foot, so with an average size of 2,091 square feet, this worked out to an average price of $375,637.  This year, at an average of $126.72 per square foot, the average home of 2,096 square feet sold for $265,701.

Almost three fourths (73.6%) of the homes that sold in Elk Grove in September were already bank owned.  Another 13.6% were short sales.  Non-distressed sales were the smallest category of all, at 12.8% of the total.  if you look at the last six months of sales in Elk Grove, there are 3.9 months of inventory.  Even if you average the last twelve months, you still get a low inventory number for Elk Grove, at 5.1 months.

With the huge demand for distressed homes, it’s not surprising that buyers are competing heavily for the best priced offerings.  In September, with an average list price of $263,564, the average buyer paid $2,137 over list price.  Or put another way, they paid 100.81% of the list price.  Still, that’s not bad from a  buyer’s point of view when you consider the homes their buying are almost $110,000 cheaper than last year!

Related links:

As we’ve reported several times, the market for real estate in Folsom is generally stronger than in other areas of Sacramento County.  Of course, in this market, such a judgement is often a relative thing.  Folsom prices are falling, just not as fast.   There are foreclosures in Folsom, just not as many.

Forty-nine homes sold in September in Folsom, up 22.5% from last September’s volume of 40 homes.  51% of these were non-distressed, about 10.2% were short sales, and 38.8% were bank foreclosures.

The average home sold in September for $422,079, down 11.4% from last year’s average of $476,339.  The median price fell 9.2% during this time, from $449,500 in September of 2007 to $408,000 in September of 2008.  The average sold price per square foot in Folsom in September was $190.47, down 12.2% from last September.

Although the increase in unit volume has not been as dramatic in Folsom as it has been in other areas of Sacramento County recently, inventory numbers are still healthy in Folsom, with 4.7 months of inventory overall, and 3.9 months of inventory for non-distressed homes.

Related links:

I’ve just begun some preliminary work on revising the community section of this web site.  If any section of the site needs it, it’s this one, since it hasn’t been updated since the site was born in 2003.  (In fact, sometime during the fun of the last year or two I took the link to the community section off the home page because it’s looking so long in the tooth).

The update will make the community pages more dynamic and and more complete, integrating elements from this blog on the one hand and our database of active and sold homes on the other.  Once that’s well underway, I’ll probably make some changes to the blog to add links back to the community pages, so when you read a market update you can instantly browse homes, etc.

I estimate it will be about 1-4 weeks before I have something ready to show, but when I do I’ll make an announcement here.

I realize that some of my readers just bookmark this URL or are reading me outside of an RSS Feed Reader, but those of you who aren’t may have noticed that the format of the feed has changed recently. 

I’ve been experimenting with different ways to do this to see if I can see a change in some of the scraper sites.  Yes, I know, I shouldn’t be changing my feed around because of those idiots — I should be fighting more aggressively with attorneys or rocket propelled grenades or the like.

Anyway, if this is inconveniencing any of that miniscule but intrepid brand of tasteful people who subscribe to me, please drop me a note and I’ll see about switching it back.

It’s that time again.  The agents and brokers who subscribe to Metrolist have entered  their sales data for the previous month, so we can take that data and mine it to within an inch of its life.

As we often do, let’s start with Sacramento County, which experienced a sharper than usual drop in the sold price per square foot from the month before.  In September, the average sold price per square foot was $130.50, down 7.4% from the August average of $140.87, and 35.2% from a year ago, when the average sold price per square foot was $201.35.  In September, the average home in Sacramento County was 1595 square feet in size, down 6.1% from 1699 on average last year, and sold for $208,212, down 39.2% from last September’s average of 39.2%.  The median sale price in September was $185,800, down 40.6% from last year’s median sale price of $313,000.

With prices down so much, unit volume continues to be high compared to last year.  Indeed, in September we sold 2084 units, up 60 units from August, and more than doubling last year’s pathetic showing of 803 units.  We’ll have some charts appearing soon that show the unit sales and price data back to about 2004.

As usual, the bulk of the demand in September was for distressed properties.  Bank owned foreclosures (also known as "Real Estate Owned" or REOs) accounted for biggest piece of the pie, making up 69.7% of the sales in September.  With banks still slow to approve short sales, however, this category made up the smallest percentage of the sales at 10.5% of the sales in September, even though at present they make up 43.4% of active listings.  Finally, non-distressed sales comprised some 19.9% of the sales in September.

Related links:

Here are the numbers for various types of sales for the last 30 days in the greater Sacramento County (including Placer County and El Dorado County). Note that because of the lag in reporting sales, numbers for “Total Units” are typically slightly lower than the real totals.  After more than a year of hearing banks would start moving on short sales, it does look as though we’re seeing a little movement on them now compared to previous months, but the numbers are still pretty low in that category.

Sacramento County

Placer County

El Dorado County

The Boy Who Cried Wolf

When I was a child I had a book of Aesop’s fables, a book full of great children’s stories. Each story not only included a moral lesson, it explicitly told you at the end what the moral lesson was.

A lot of our idioms in English come from Aesop’s fables. "Sour grapes" for example.

Another example that’s relevant to our purposes is a story called "The boy who cried wolf." We all know the idiom, and probably most of you had the same book I did, where the shepherd boy cried wolf so often that the villagers no longer believed him, and one day they didn’t come running, and a real wolf came and scattered all the sheep.

If you didn’t have the book, no worries. You have a computer. So here, you can read the story, and learn the explicit moral at the end:

Nobody believes a liar…even when he’s telling the truth.

Fast Forward to The Daily Show

More than two and a half millennia after Aesop wrote his little stories, Jon Stewart aired a segment about how eerily similar the fear-mongering of the Iraq War was to the fear-mongering of the Paulson bailout.

If you’re mad at me for going on and on about the Paulson bailout: I apologize.

But here’s the thing. There weren’t any weapons of mass destruction in Iraq, and nobody believes a liar, even when he’s telling the truth.

The Credit Crisis So Far

I don’t want there to be a credit crisis, because as I said yesterday, it would hurt my business. So if it turns out there is one, I hope you won’t say I encouraged it to happen by saying "Bring it on", because I never said that.

Still, at the risk of seeming to taunt the credit crisis that everyone has been told to be so afraid of, here’s how the credit crisis is playing out as of Thursday. According to Freddie Mac:

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.10 percent with an average 0.6 point for the week ending October 2, 2008, up from last week when it averaged 6.09 percent. Last year at this time, the 30-year FRM averaged 6.37 percent.

The 15-year FRM this week averaged 5.78 percent with an average 0.6 point, up from last week when it averaged 5.77 percent. A year ago at this time, the 15-year FRM averaged 6.03 percent.

So let me see if I understand this correctly: we’re in the middle of the biggest life-threatening credit crunch since the Great Depression, and mortgage interest rates are lower than the (historically somewhat low) rate they were at last year. During the worst finance news week in recent memory, the 30 year fixed loan went up a whopping 1/100th of 1% from the previous week.

No, John, You Don’t Get It — It’s Short Term Loans That Are In Trouble

Yes, it’s quite possible I don’t get it.  I’m not an economist.

But let’s look at some short term rates.

Everyone’s talking about short term loans and the LIBOR. That must be really in the crapper compared to last year, right?

Bloomberg warns: "Libor Soars, Commercial Paper Slumps as Credit Freeze Deepens". Pretty scary. OK, I’ll bite, what are the numbers?

Per Bankrate.com, again as of Thursday:

Soaring, is it? Down over a point from last year on the 1 month, 3 month, and 6 month figure is "soaring"? If that’s soaring, I’m an eagle.

But still, we’re told we need to be scared.  If it’s not the Libor, it’s the "Libor-OIS spread" we need to worry about.   Well, maybe we do, but I have a sort of knee jerk reaction whenever someone tells me I need to be scared:  I think they’re trying to manipulate me.  Naomi Klein gets it.

Be Afraid.  Be Very Afraid.  Drop Dead NOW from Fear (After You Sign This Check).

In the thirties, Roosevelt told people a lot worse off than we are now:  The only thing we have to fear is fear itself. 

Today we’re told we need to be petrified. Anderson Cooper has taken to interviewing Suze Orman. We’re told that any minute now we’re going to have a flood of biblical proportions. Meantime it’s not raining, it’s not cloudy, barometric pressure is high, but trust me, they say: we’re going to have a flood of biblical proportions.

Trust me. Iraq has weapons of mass destruction.

Trust me. The check’s in the mail.

Trust me. Of course that dress doesn’t make you look fat.

Trust me. Congress will still respect me in the morning.

Update:

Well, it looks like at least one Congressman gets what Jon Stewart and I have been saying:

Here are the sold prices per square foot for various areas of Sacramento County.  I’ll let you make what you will of this.  Feel free to compare to last month’s numbers and make even more of what you will.  (That way you don’t run out).

At some point I need to add the unit volume numbers in since sometimes we’re really only looking at one or two sales so the number is less significant.  But it gives you an idea.

Meantime, both the winner and the loser in terms of price change is East Sacramento, so like Bill Clinton and the definition of what “is” is, it all depends on what you mean by East Sacramento.  If you mean the area of East Sacramento that includes, among other things, Oak Park (95817), homes lost 62.7% of their value from year to year.  On the other hand, if you mean the area of the East Sacramento that has, among other things, the Fabulous Forties (95819), homes lost only 2.2% of their value from year to year.

Bonus question:  which neighborhood more accurately reflects the socioeconomic bracket toward which the $700 Billion Paulson Bailout is targeted?  Oh, excuse me:  I meant to say the $810 Billion Paulson bailout, now that the Senate has made it “better”.

Come on, class warriors!  You know this one…

Related links:

Well, here it is October, and we have a few days to wait before the real estate sales statistics for September are robust enough to publish.  So that leaves me with a day or two to reflect on the bailout, and try to flesh out what I think it all means from the perspective of those buying and selling homes.  I’ve made no secret of my opposition to the bailout — indeed, calling it a bailout just now instead of an “economic rescue plan” should have pretty much given my position away. 

You’d think I’d be pretty excited about the bailout’s defeat, though as a Democrat I found it surreal in the extreme that we’d finally get an opposition party to the anti-constitutional mayhem of George W Bush — and that the opposition party would be (largely) his own Republican colleagues.  More encouraging, perhaps, was the analysis done by Nate Silver of FiveThirtyEight.com that shows that the people who killed this thing were — you’re not going to guess this one — the people of the United States, acting through their representatives!

Wow.  Surprise, surprise.

Predictably, Time Magazine spun the events of the last few days not as an unusual triumph of representative government, but as a failure of Congress to lead.

And when they needed it most, our nation’s leaders found they had squandered their ability to exert influence over the people who chose them to lead.

No, we didn’t choose them to lead, you corporate mouthpiece jerk — we chose them to follow!  House of “Representatives” – get it?  Of the people, by the people, FOR the people.  Get it?

But Enough About Politics?  What About the Impact on Real Estate?

To give the people calling the bailout an “economic rescue plan” their due, there really are several issues afoot here, and we can discuss them separately.

1. Does the economy need rescuing?
2. Is it the role of government to rescue the economy?
3. Would the Paulson plan have succeeded in rescuing the economy?

I believe the answer to question one is that the economy in particularly bad shape, so yes, someone with better ideas than me should do some intelligent things to it.  My answer to question two is that the question itself is miserable, being on a par with this one:  Is it the role of a husband to help his wife up after he beats her?  No, no, no!  The role of the husband is not to beat her to begin with, but to do things that will render her prosperous.  Government broke the economy by deregulating it (in concert with other ill considered policies like not fixing our trade deficit and cutting taxes while having a war).  Having broken it, they then proceeded to try to minimize the negative impact on the same rich people they were helping out when they deregulated it.  If Paulson’s bill had repealed one or two acts passed in the late 1990s that rolled back the New Deal protections that would have prevented this fiasco, I would have been for it.  Throwing money at a broken, deregulated economy without fixing it is like helping your wife up just so you can hit her again.  This is the core of my opposition to the Paulson Plan — that it needed to solve the problem in the long term while fixing it in the short term.

As for my answer to question three, my honest answer is “I don’t know”, but with that, I’m in good (or at least:  wealthy) company.  Paulson doesn’t know either.  Neither does anyone else.  I do think it’s result would have been to artificially inflate the price of mortgage backed securities, credit default swaps, and (to a lesser extent, but ultimately) real estate.

So Now What?

Well, if credit completely dries up, it’s an understatement to say that that’s not good for my business.  Nor is it good for anyone buying or selling a home  (unless you mean by anybody the guy with plenty of cash).  Over the last two years, there has been a gradual shift toward programs like FHA, as well as a tightening of lending standards that, in my opinion, has been mostly healthy.  Writing reasonable loans to people who have the means to make the payments should have been what lenders were doing all along.

On the other hand, turning off the spigot entirely would sure be a bad thing for a lot of people.  Personally, as the market has declined, I’ve been less personally frightened by (actual) falling prices than by the (potential) specter of an extremely tight money supply. 

I don’t need to tell you how bad a large scale stoppage of credit would be.  The government’s been scaring you for two weeks with that, and the details are well known.  The government saying this possibility is immanent is not that frightening — because they lie so much I don’t trust them.  What scares me is that guys like Robert Kuttner are saying it, too, and I trust him.

Meantime, I think the effect of a Paulson bailout or one like it would be that it would work or it wouldn’t, but all it would do would be to prevent a worst-case scenario of credit drying up.  Short of preventing the worst results of that, I don’t think it would have had much effect on prices.  The help for those already in foreclosure might have done some good, but preventing the next wave of foreclosures means reforming the system at all levels:  from the mortgage broker, to the banks, to the credit agencies rating the paper, to Wall Street. 

It also means educating consumers.  I’m happy to say I’ve tried to do this all along with my standard buyer speech:   “There are two prices — the one you’re comfortable with and the one the lender will give you.”  (Of course, those of you who hate Realtors® can blame me, too, if you want, for all the good it will do.  Let me know if you can move the DOW by hating me, and I’ll invest and then start hating me, too).

Ultimately, having an economy that relies solely on the real estate market is completely unsustainable.  People need to buy the houses, after all, and they need to have a job to buy one — at least in most years except 2004!

Update:  After writing this I learned that the Senate is voting on an awful version of this bill today, so calling it defeated may be premature.  Having repeatedly waged war on behalf of the top 1% of the wealthy against the American people, it was probably naive to think Congress would let us off this easily.