David Boyer’s Blog

Tammy Burns, one of my colleagues, brought me an interesting counter-offer a couple of days ago. It was from an asset manager representing a lender/owner of a foreclosed home. More on the counter in a minute. Here’s the background.

The asset manager had instructed the listing agent to price the property at a price far below that of competing homes. This pricing strategy has the affect of creating multiple offers and a “bidding war” on the listing. We have seen this occurring more and more often here in Las Vegas and many of us have had owner-occupant buyers lose out to investors in these wars. As far as it goes, it can be argued that this is an effective pricing strategy, and as long as the appraisal for the buyer comes in there is no problem. As always, the appraisal keeps a lid on the most egregious abuses of this strategy.

But wait, I have had evidence passed to me (as yet unconfirmed) that appraisers have been instructed to start giving more weight to available listings and little if no weight to replacement cost. So, if my buyer offers $140,000 for a home that would cost $175,000 to replace, but there are comparable listings available for $85,000, we’re going to have trouble getting an appraisal for enough to allow my buyer to purchase. Well, okay you might argue, isn’t that what an appraisal is supposed to do? Doesn’t that protect my client from overpaying for a home? You bet, but remember, the home would cost $175,000 to replace!

Now, back to the counter from the asset manager. It was an “irrelevant appraisal” clause. We used these back in the days when home prices were jumping up every moment. The clause states that the Buyer will waive their right to cancel the agreement if the property does not appraise. In other words, if my $140,000 home only appraises for $130,000, the buyer’s loan is based upon the $130,000 appraisal and the buyer has to come up with the additional $10,000 to purchase my home. Obviously, for most buyers struggling to come up with a down-payment, an additional $10,000 is an impossibility.

Well, what we have is one side of the lending industry using a pricing strategy quaranteed to increase prices. Another side of the lending industry is instructing appraisers to use an appraisal method guaranteed to result in lower values. And now, the first side is demanding that buyers agree to higher prices regardless of the appraisal value. Neat trick huh?

That’s correct! There actually are sellers out there willing to test the market who are neither in trouble nor underwater. In this market it seems that is certainly rare. I’m proud to represent both homes.

The first one is a wonderful custom home in the southwest part of the Las Vegas Valley. It is on nearly an acre and has 2300+ SF, PLUS an 1800SF partially finished basement, PLUS a den/study of nearly 200SF that does not qualify as living space because it is tucked under the eaves. All in all over 4000SF on a huge lot, with spectacular view of the LV Strip! Here’s a link to pictures and a virtual tour:

http://tours5.vht.com/PAN/T50023367

The other home is another custom home, this one in the “Henderson Highlands” with a 1/3 acre lot. This home features over 2400SF, PLUS a lush back yard with pool/spa and waterfall, PLUS city views, PLUS covered RV parking big enough for more than one boat or trailer! Here’s the link to the pictures and virtual tour for this home:

http://tours5.vht.com/PAN/T50021524

For anyone who has read my rantings in the past, you know I am not fond of the lending industry in general–although I have solid respect for the lenders I have grown to trust. Unfortunately, these are few and far between.

Today I had a series of emails with a loan officer working a transaction for a property I have listed. Here’s the story. My Seller is a probate estate. They buyer is the renter in the property being sold. I’m hired for a small fee to handle the paperwork. The buyer is a hard-working waiter at one of the hotels on the Strip. He is using a special program put together by the Culinary Union to finance most of his down-payment. The Seller is paying all of the closing costs for the Buyer.

The union official running the program puts the buyer with one of the several lenders who can do the loan. Everything goes along just fine until the loan officer decides he doesn’t like the inspection results. I haven’t seen the inspection but I guess there are 3 or 4 areas marked “needs improvement” or some such thing. It is no matter to Buyer or Seller. After all, the Buyer has lived in the property for some time, and certainly knows the property better than either the executor of the estate or I do!

Well, the officious little idiot at the loan company sends me an email, letting me know I MUST prepare an addendum to the contract “waiving the inspection.” I inquire as to how we can act like the inspection never took place. Isn’t that a misrepresentation? Well, we must do so, or the underwriter will see the inspection and stop the loan until repairs are completed. How will that happen I ask. Since when does the underwriter see the inspection? Since, it seems a loan processor decided the purchase offer “required” the inspection and therefore there must be a copy in the loan package. When I pointed out the specific language that said the inspection could be done, but was not required, I was told that the processor had not read it that way, and would not change the interpretation!

I’ll decide tomorrow, after talks with my broker and perhaps our company counsel, what I can do about this fool. You’d think that with all the publicity surrounding loans and loan applications that everyone in the process would be aware of and careful about what goes into a loan package. Well, you’d be wrong–just like me!

Does anyone else feel like the lender/sellers out there are taking advantage of a loophole in the law, allowing them to ignore known defects, indeed even hiding some? How about the addendum that allows an inspection by a buyer, specifically states that no copy of the inspection may be given to either Seller or Seller’s agent. I think they call this concept “plausible deniability.”

NRS 113 allows for exceptions to disclosure:

Yes, I know I promised to blog more often as a New Year’s Resolution!! Boy was I off base!! No excuses though, let’s see if I can do better.

Today, I’m giving some thought to the new year, with new administration, and lots of change. I’m looking forward to seeing what changes will take place. One change I’m seeing relates to the real estate industry. With the large inventory of homes available, we are showing our clients many more homes than in the past. If the client makes an offer on a short-sale listing, it will take several weeks (or months) to get an acceptance. In the meantime, most are continuing to look at homes, often making more than one offer.

 At the same time, if the client makes an offer on a bank REO, they are often turned down the first two or three times. Of course the client usually continues to look. So, at the end of the day, we are often showing 40, 50, 60 listings or more to get a sale. A couple of years ago, we were only showing 10-15 listings to get a sale. Oh well, I’ve seen a lot of inventory over the last several months, and that’s not a bad thing!!

I hope the holidays have been great for you and that 2009, with all it’s challenges, provides you with opportunities, enjoyment, hard work, and most of all good health. I resolve to write more often in 2009 and to comment more on what I see in the market and in the world around me.

I have a buyer with a good job and good credit. We were approved by a lender I have known for years in September, and wrote a contract on a home. The contract was approved, but because the FHA will not make a loan for the purchase of a home that has been owned for less than 90 days (somehow this will keep investors from buying and flipping homes) we could not actually start the process until November 12. Since that time, the FHA underwriter has come back to us twice for more “conditions” and keeps delaying giving the final approval for the loan. We are now out of contract and have to get an extension from the Seller. I hope the Seller, who has been completely patient up to this point, will continue to be!

The turkey and fixings were devoured, although not in record time. Pecan pies were consumed. I hope your Thanksgiving was special as well.

Now we start working on 2009, and our plans for the first quarter. Well, actually we started quite some time ago, but by making plans now, the first quarter won’t be a complete waste of your time. It’s time to ask yourself several a couple of questions. First, Is my home priced to sell in TODAY’S market? Second, Do I really NEED to sell? (By the way, if your answer to the second question is Yes, then pay close attention to the first question!)

Statistics, of course, can be used to tell almost any story. That said, the records that I watch tell me that sales on our MLS are still well up from 2007, although prices are still being pressured in a downward direction. The reason for this seeming contradiction is that lenders are still foreclosing homes at a record rate, which continues to bring a lot of supply to the market. Since the law of supply and demand never goes out of effect (no matter what politicians of all parties try to tell us!), this constant replenishment of supply, without a corresponding increase in demand, tends to exert downward pressure on prices. With Fannie Mae and Freddie Mac placing a moratorium on completing foreclosures from mid-November through January 9, it will be interesting to see how the supply of repos is affected when the November and December MLS figures come out.

If we can get more buyers off the sidelines, and we should, with FHA and VA rates being below 6% for 30-year fixed rate loans, we could see a real decrease in the supply of homes starting off the year. If lenders continue to become more aggressive in doing loan modifications and workouts instead of foreclosing homes, we will definitely see a decrease in the supply of homes. With an increase in the demand, and a decrease in supply, we could even see a firming of prices and maybe even a slight increase in value. Even if the increase in slight, the emotional impact on Buyers and Sellers could be dramatic. We can only hope, but I am planning for it–are you?

It is early morning, with the sun just coming up over the bay, and I am having a cup of coffee while thinking of the many things I have to be thankful for. Mostly it has to do with the health of my family, with whom I am sharing the holiday.

But I am also quite thankful that I get to practice real estate in Southern Nevada, that I get to work with quality people, and that we are seeing an increase in activity, which means that (finally) we may be coming to the bottom of our cycle. The next months will continue to be a challenge, but with a lot of hard work, we will emerge with values firming up and supply going down.

For now, I just want to wish everyone a Happy Thanksgiving!

Here in Las Vegas, with unemployment reaching historic levels, we are still selling homes at nearly twice the rate we were in 2007. According to MLS statistics, sales are picking up almost every week. Of course, prices are still going down, because lenders are still foreclosing homes at record rates, flooding the market with more inventory.

All the pundits who claim that no one is making loans, and that no one is buying, are obviously wrong! (So what else is new??!!) We on the Jack Woodcock Team still get calls on our listings every day. Is there anything out there you want to see?