Thursday, December 22, 2005

Holding Off On Second Offer

I spoke with the agent for this property again. I told her I noticed that the property was still available and I would like to make another offer on it. She remembered me and said I would have to do "much better" on my offer. I was able to get a bit more information. The listing said the property fell out of escrow and the seller wanted a quick close and had reduced the price $10,000. Based on that, I made the assumption that the owner needed to sell the property in order to complete the purchase of another property. That may not be the case. I found out from the agent that the property is currently empty and the seller is living elsewhere. So the motivation from holding up another purchase is gone, but in its place, there is motivation of holding on to a vacant property. The problem is the former motivation is much stronger than the latter. If a pending purchase is being held up, there is a large, daily motivation to sell, but if the property is vacant, the motivation is more in the monthly timeframe - due to mortgage and HOA payments.

So I'm a bit torn as to what to do. I was planning on submitting another offer about $5,000 higher than my first offer. Given this new information, I'm fairly certain that would be rejected as well. Instead, I think I may wait and see if the property is still available next week, between Christmas and New Years. If it is, the seller should have the prospect of another needless mortgage payment firmly in mind and may be more receptive. Also, during the holiday lull (which is also going on right now), there may be fewer offers to choose from. I suspect the seller may be waiting until after the holidays to see what offers she might get. Hopefully, if Christmas comes and goes and the place is still unsold, her resolve might weaken a bit.

On a different note, I was checking my referrer logs this morning and noticed that over 25% of the last 100 visitors here came via a link at Blueprint For Financial Prosperity. I'd like to thank Jim for the nice blurb and link. Welcome to those that have come from there!

Wednesday, December 21, 2005

Another Offer Submitted (Updated)

I put in an offer yesterday on a condo that looks like it's in pretty good shape. The listing said the seller needed a quick close, which is what caught my eye. When I talked to the listing agent, I was a bit disappointed to learn that the seller was looking to close around the middle of January. That's almost a month away and not really what I would consider a "quick close." However, I submitted an offer anyway, at about $35,000 under the list price. Based on my research, that would still net the seller about $15,000. I haven't gotten a response yet, but they have until 4:00 PM today. I am preparing myself mentally for the "this offer is ridiculous" call. I plan to point out that my offer is not contingent on financing and is about as close to a sure thing as one can get. I won't be falling out of escrow.

The previous property I made an offer on is still for sale. If it's still available tomorrow, I will submit another offer. Supposedly, this is another seller who wanted a quick close.

UPDATE: Just got the call and yes, the exact words used were "ridiculous offer." I made my speech about my offer being a sure thing and the agent said sarcastically, "and all she has to do is give up $35,000 of equity." I replied "She wants a fast close and everything comes with a price." (By the way, I came up with my figure by taking 76% of the listing price.)

One thing she did say was that the fact that I was not using an agent would not save the seller 3% commission because she had a listing agreement that specified she would pay 6% commission no matter what. Well, either the seller signed the worst listing agreement in history or that agent is lying. The listing agreements I have seen say the full commission will be paid to the listing agent only if the agent also acts as a buyer's agent. She would not be acting as my agent and therefore should not get paid for doing so.

Oh well.. Another one to put in the file for follow up in a week or two.

Friday, December 16, 2005

Another Offer Made And Turned Down

I love it when real estate agents feign surprise or outrage at your offers. I came across a property in the MLS today that had just fallen out of escrow. The description said the seller reduced the price by $10,000 and that the seller wanted a quick sale. The property just came back on the market within the last day or two, so I checked it out and quickly put in an offer that was $40,000 under the asking price, but all cash and "as-is." About two hours later, I got a call from the agent, who asked "Is this offer for real?" In situations like this, I've found if I keep my answers short, the other party tends to talk more, so I just said "Yes." She said "It's listed for $160,000 and that's already been reduced $10,000." I said "Yes, but the price I offered is what I can pay to get the return I want on my investment." The agent seemed put off and said "The buyer wants me to tell you she's rejecting this offer." With a pleasant tone, I replied "OK, but this is an all cash offer and I can close as quick as you want. I won't back out of escrow." I was told the buyer still was rejecting the offer. I thanked her and hung up.

In retrospect, I should have done a few small things differently. First, I should have asked if she would tell me why it fell out of escrow. That might have allowed me to emphasize the pluses of my offer better. For instance, if it fell out due to the buyer being unable to get financing, I could tell her that was guaranteed not to happen with me, since I was paying all cash. Second, instead of re-emphasizing my ability to close quickly, I should have again mentioned it was an as-is offer and that I would not back out from something the home inspection might turn up. (The house was in very good shape, by the way.) This and the financing issue are the two most likely reasons for falling out of escrow, so I should have shown how those would not be a problem with my offer. Instead, I emphasized fast closing, which was mentioned in the listing, but probably wasn't that big of a deal at this point, since it had only been back on the market a day or two. But, in my defense, I did get the agent's call while I was shopping at Costco and I was caught a bit off guard.

I'm not put off in the least about losing this property (or the agent's attitude of treating my offer like it was a joke). Active Arizona MLS listings are at levels that haven't been seen in years. It is no longer a seller's market. It may take a while for Realtors and sellers to realize this, but they will eventually. It's just a matter of time before I come across the truly motivated seller that will accept my offer. Until then, I'm treating this as a declining market and keeping my bids low to be a bit conservative.

Wednesday, December 14, 2005

Are Banks Reluctant To Foreclose?

This article on slate.com puts forth the notion that banks are afraid to foreclosure on delinquent homeowners. The author makes the argument that foreclosures cause a hit to the bank's balance sheet and create bad PR, so banks would rather let mortgagees miss more and more payments than take their houses back. Lower foreclosures also helps keep the bank's stock price high.

I'm not sure I agree with this. As the author states, in Louisiana and other hurricane-damaged areas, it does seem to make sense not to foreclose. But everywhere else? I can't see it. Banks balance sheets contain entries for non-performing and under-performing loans, so the balance sheet still takes a hit. (And this is not even considering the lack of income non-payment of loans causes the bank, which also shows up on the balance sheets.) If investors see lots of underperforming loans on the books, I think questions are going to be raised about the bank's business practices: Why is the bank lending to deadbeats? Why is the bank continuing to lose money on these loans rather than cut their losses? Now, I do think banks have a bit of wiggle room here. Because of the hurricanes, they can claim higher than normal amounts of non-performing loans and get away with it, which allows them to hold off on foreclosures across the nation and not just in disaster areas, since they most likely aren't going to break out the loans by state in the financial reports. But this is a temporary reprieve and dragging it out will only delay the inevitable. Indeed, it will make it worse as each month that goes by without a payment is that much more money the bank has lost.

It also appears that current data does not support the author's conclusions. The article is based on data up to the second quarter of 2005 - data that is several months old. As I mentioned before, foreclosures have actually increased nationwide in the last couple of months. (And interestingly, that article attributes part of the rise to increases in foreclosures in hurricane disaster areas - exactly the opposite of what the Slate article predicts.)

Friday, December 9, 2005

Offer Turned Down

I guess the agent was not able to convince his seller to take my offer. I never heard back from him and my offer expired at 4 PM yesterday. If the seller is really strapped for cash, and based on the agent's suggestion of a 7 day escrow and non-refundable deposit, I think he is, I may hear back from them. Then again, it might just be that the agent wants to sell this property more than the seller - he works for "Scottsdale Luxury Properties" and this thing is anything but a luxury property! Oh well. On to the next one!

Thursday, December 8, 2005

Offer Possibly Accepted

Got a call from the agent for Property C. He is going to take my offer to his client and he thinks his client will accept it. He wanted to know if I could close in 7 days. I have no problem with that, but I had to check with my escrow company if they could move that fast. He also wanted to know if I would make my $1,000 earnest money deposit non-refundable upon contract acceptance. I agreed to that. The agent said the guy needs money and this would sweeten the offer, given that it was already $40,000 below the asking price.

I called up the escrow officer I used for the sale of my last property, since she was so helpful. She definitely remembered me :-) and said there was no problem closing in 7 days.

So now I'm just waiting to hear back from the seller. And of course, I have the usual self-doubts now: should I have offered less, what if the house is a disaster, etc. I've called my agent to request some comps to see if her values are in line with my values. It's a bit scary now, given the current price declining environment. I suppose if I get cold feet, I can back out at the counter-offer. The seller will need to write a counter to change the COE date and make the deposit non-refundable. I told the agent those changes were ok, so if I do back out, it will probably piss him off, but better that than be stuck with a bad deal.

Back Into The Swing Of Things

With the holidays approaching, I felt I really needed to at least get some offers out there. I figure there probably aren't too many people buying houses this time of year, so I'd have a better chance at getting my lowball offers accepted. I've had this thought in the back of my mind since before Thanksgiving, but I just been so busy. Even though I'm still really busy, I managed to make some time for research yesterday..

I spent a couple of hours searching the MLS for motivated sellers. I came across several properties and narrowed the list down to three. I then called the agents and got some information about each property.

Property A was a small house in Mesa. The listing said the seller was motivated, but after talking to the listing agent, I didn't get that feeling. I can't pick out any one thing that made me feel that way. It was just a feeling. Anyway, the property was at the upper end of my price range, so I passed on it.

Property B was a house in Phoenix. The listing said the owner had passed away and a son was selling the house. It was being sold "as-is" and the owner knew there was a leak in the roof, but would not fix it. This sounded good, so I called the agent and was told the property was actually owned by three sons (which I already knew from a property records search) and that they had a couple of offers already. The agent was meeting with all three sons that afternoon. I didn't have a chance to write up an offer and fax it in and was planning on doing that this morning. Just for the heck of it, I looked up the property again this morning to see if the sons had accepted any of the offers. The status is no longer "available", but "TOM," which I believe stands for Taken Off Market. I haven't spoken to the agent yet, but I'm guessing the sons did not accept any of the offers and took the property off the market for some reason. Perhaps they want to wait a bit before selling, perhaps there are estate issues. I don't know. I'm going to go ahead and fax in my offer anyway. Maybe it will generate a phone call from the agent with some more details. Given that three people are involved and they have already received a couple offers, I don't expect my offer to be accepted.

Property C was a small house in south Phoenix. Again, the listing said the owner was motivated and to bring all offers. The agent told me the owner currently lives in Show Low and is at the property only occasionally. A records search shows he bought the property in 1995 for about $46,000. The agent said he's put in new electrical, new plumbing, and one year ago, he put in a new roof. The picture shows the outside to be in ok shape, but you can tell it's vacant. I figured with the owner living 150+ miles out of town, he's probably well motivated. I faxed an offer yesterday afternoon that was about $40,000 under the list price, but, as always, I included a cover sheet pointing out the positives of my offer: all cash, quick closing, and pointed out that I was not using an agent, so the seller will save X dollars in commission (where X is 3% of my offer). No response yet.

I also talked to a Realtor about getting daily MLS listings emailed to me. His website allows you to set that up yourself, but the only criteria I could specify was price range and cities. He called me up after receiving my request and I told him what I was looking for and that I was hoping to get a listing of properties that used certain keywords in the listing agent's comments field. He said he thought he could do that and would set me up. I see this morning I've gotten two emails from him, but I haven't checked them out yet, so I don't know how successful he was.

Friday, December 2, 2005

Foreclosures Increasing Nationwide

I found a news article on The Creative Investor from RealtyTrac which states nationally, foreclosures were up almost 19% in October over the previous month. At that rate, 1 in every 1,422 households in the nation has entered foreclosure. The states with the largest number of foreclosures were New Jersey, Texas, and New Mexico. Here in Arizona, the foreclosure rate actually dropped by 6.9%.

What surprises me is the Arizona statistic. Actually, in looking at the data state by state, 25 states had a decrease in the number of foreclosures. So half the states in the country experienced a decrease in foreclosures, but the increased numbers in the other states more than made up for them. I would have expected increases in more states. As interest rates rise, it seems inevitable that those with variable rate mortgages will fall behind. However, there is some lag between the interest rate increase and mortgages going into default, since the mortgage company will usually give the home owner a couple of months of being late before starting foreclosure proceedings. Expect more increases in the future and prepare yourself for the opportunities they present!
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