High Density Smart Growth: The Utah Pioneer Solution

A colleague of mine forwarded a brilliant and insightful .pdf from the APA Conference last year.  I thought I would share it with you.


APA Oct 2010 Strong Roots Sustainable Communities
It makes for a quick read, but it emphasizes the importance of smart planning and harkens back to the "Plat of Zion" of the early days of the Church of Jesus Christ of Latter Day Saints. A fun read for sure.

The Ghost of Christmas Present: Death at My Doorstep

One of the properties that I manage is a freaky five-plex next door to me.  One of the units is a little hut that sits in the backyard of an old Victorian era subdivided house. When I took over management from the owners, I made sure to introduce myself to all the tenants.  In the hut, I met Allen, a 60-something veteran.  Our meeting was congenial and polite but could I tell Allen appreciated his privacy.

Joel, one of the other tenants in the neighboring building, was a friend of Allen's and would check in on him from time to time.  Earlier this week, Joel called me saying that he hadn't seen Allen in a few days.  His mail was starting to pile up in the box and he didn't answer his door when he knocked to check in on him.  Given the time of year I told Joel to watch the place for a couple more days in case Allen had gone to visit family.  I typically try to avoid barging in on tenants unless there is an obvious emergency. 

We opened Christmas presents this morning as a family.  After enjoying our family time together I got a call around noon from Joel.  He was very concerned and felt like something was wrong since Allen hadn't shown himself.  Something in my gut told me that this situation wasn't going to end well.  I dressed in my grubbies and headed over.

Joel and I walked to the back hut and knocked on the door.  No answer.  Allen's dog mildly barked...a lot less enthusiastically than the few days prior.  Joel was concerned something had happened to Allen.  I reached for my keys to unlock the door and, as I put the key in the lockset, I caught the smell of death. My heart sank and I stepped back. I didn't open the door but told Joel that I believed that Allen was no longer with us.  I called 911.

The police arrived, and as it turns out, Allen had changed the locks so the only way to access the property was via kicking in the front door.  The officer's legwork got us in the unit.  Sure enough, Allen had expired, probably about seven or eight days prior based on the condition of his body.  He was laying on a futon casually with his legs crossed.  Unfortunately, putrification and the decomposition process had already begun in earnest.  It was quite overwhelming to the senses.  Interestingly, Allen's dog stayed close to protect his body.

The police and CSI began to process the scene and Allen's body was finally removed.  Now we have the exciting chore of cleaning the unit.  Any volunteers?

There is a great take away lesson from this experience for everyone:  Remember how your mother and church leaders told you not to look at naughty magazines or watch naughty movies?  There is a good reason.  You never know when you are going to die.  Your last act on this earth could be watching a naughty movie when your heart fails, and your landlord has to call the police a week later to kick in the door so they can take care of your body, and your naughty movie is still playing on the television that never got turned off because you died.  There are better ways to be found dead.     

  

Treasure Hunt: Obtaining Non-Conforming Use Certificates in Ogden

I was speaking to a client the other day and he was relating a problem.  He owns a triplex in Ogden and has been renting it for a number of years.  Then, suddenly, Ogden City zoning enforcement notifies him that his property is not zoned for a triplex.  The city has no record of a non-conforming use certificate.

So, how do we fix this problem?  Ogden City typically will grandfather a multi-unit property if it can be shown that there was use going back prior to 1952.  But where do you find this information?  The answer lies in the archives of the Weber County Library.

On the  main floor in the south end of the building is a reference desk.  Hand the lady your cell phone and tell her that you want to see the "Polk Directories" for any year you can think of off the top of your head that is before 1952.  Might I suggest 1951 as a good start.

The Polk Directories is like an old phone book but without phone numbers.  It lists addresses and the names of people living at the property.

They are also full of cool old advertisement for local businesses.

If you are needing a non-conforming use certificate, you will be looking for multiple names at the same address.  Unfortunately for my client, it appears his property was subdivided after the cut off date for grandfathering.  It looks like we will be seeking some alternative solutions for his property woes.

Turf War: The Battle of Jefferson Ave.

Someone suggested recently that I share some stories of our experience transforming Ogden's neighborhoods.  Some of our best stories come from our move to our current home on the 22nd block of Jefferson Ave.

In May of 2005, Kim and I purchased 2227 Jefferson Ave.  We had fallen in love with the Arts and Crafts architecture of the home and it was just the right size for our growing family.

The home had been abandoned and was inhabited by transients. So, prior to purchase it required that we secure the property (see plywood on the windows) and patrol the home to keep unwelcome folks out.  After we purchased the home I placed a sign on the door and windows that read:

WARNING!

DO NOT ENTER

TRESPASSERS WILL BE SHOT!

I thought I would speak in a language that people could understand.  It seemed to work.  I only had one problem with someone stealing the old water heater from our basement once we cut out the old plumbing.  The joke was on them.  

In September 2005, after fixing up the home we moved in.  At that time, about 50% of the neighborhood was abandoned or in some state of foreclosure.  The folks inhabiting the homes surrounding us were nefarious at best.  Our "suburban family" appearance clearly shocked some of our neighbors who were not accustomed to the presence of upstanding law abiding folks.  I could almost hear one of them exclaim: "Oh man! The Peterson's moved in. There goes the neighborhood!"

In a way, that exclamation would be prophetic.  Kim and I were determined to overturn the lawlessness of the block. 

The spring after we moved in, I was planting flowers along our front sidewalk.  That afternoon a man driving a truck pulled in across the street with two ladies in the cab and a pair of mattresses in the back.  He unloaded the mattresses into the apartment and the ladies took up roost on the front porch.  About 30 minutes later, very nice cars with single gentlemen began to troll slowly up and down our block.  The girls would whistle, the car would pull over and a "transaction" would be negotiated through the window.  When a deal was made, the lady would hop in the car, they would leave, and she would be returned about 30 minutes later.  I was shocked at how open this "business" operated.  

I decided I wasn't going to tolerate that going on across the street from us.  I dressed up in my white shirt and tie, grabbed my clipboard and digital camera and took up a position on my front porch.  Then came the next unsuspecting "John".  The girl whistled and a negotiation commenced.  That is when I waltzed out into the street and walked up behind the car.  I took a picture of the license plate and wrote it on my clipboard.  Then I waltzed back to my front porch with a big grin on my face. 

The guy and the girl both were shocked.  He slowly drove away while she backed up onto her porch and went in the house.  No more "Johns" showed up that day.  The next day we repeated the choreograph, and again later that week.  Clearly, this routine was bad for their business.  

Finally, one Saturday, the ladies were sitting on their front porch ready for work as I sat on my front porch dressed in my Sunday best with my handy clipboard and camera.  The girls whispered to each other and finally one of them started to walk across the street toward my home.  I met her half way in the middle of the street.  Our conversation went like this:      

Hoochie Mama: "Hey, why you bein' so nosey!" Fingers pointing at me.

Me: "Hi, I'm Jeremy.  I am the neighborhood watch captain.  It's so nice to meet you!  What is your name?" I was smiling and extended a handshake. (I boiled my hand later.)

Hoochie Mama: "Uh....Melinda...." At this point she became really disengaged from our conversation.

Me: "Well, I have been noticing lots of folks coming into the neighborhood I don't recognize and I am writing down the plates just to make sure everything is on the up and up...."

At that point, "Melinda" just nodded her head, went back to her friends and that was the end.  The girls moved out about a week later. 

Our next play was to purchase the home next to us.  

 

This home had been in the foreclosure cycle for over 7 years.  It was abandoned and bank owned when we purchased it.  We proceeded to fix it up and rent it out.  The change in curb appeal put further pressure on the neighborhood to clean up.  

Our next challenge was probably our scariest.  In 2007, the fourplex two doors down was a den of iniquity.  It was poorly managed.  I begged the owners to sell it to me and finally they capitulated after being stiffed on rent too many times.

The property was a mammoth 4700 SQFT project.  I had multiple restoration projects going on at the time and I had a problem:  My insurance company would not insure the property unless it was occupied.  At the same time, my contractor's painter said he needed a place to stay.  I struck a deal, I told him I would exchange paint for two month's rent.  If he painted two units, I would let him live there for free.  I would pay him to paint the other two.

Unfortunately, as soon as my painter moved in, strange traffic started to frequent his place.  It appears that he was part of the  same crowd that I had just eliminated from the building.  I complained to him to no avail.  Of course, the two units that needed painting were not done well either.  I ended up doing a lot of the painting myself. 

About two weeks before our two month agreement ended, my painter moved in a roomate.  "Steve" as he called himself was a 40-something hispanic guy with a shaved head and who had spent half of his life in prison.  The only shirts he owned were red and the only socks he owned were of the knee high variety.  Steve was friendly enough and liked to talk.  He would chat with me while I was doing the work that my painter was supposed to have done.  Our conversations were captivating because Steve explained the entire street racket to me.  He talked about how a dealer could make $3,000 a week pimping and selling drugs.  He explained how to cut drugs for higher profit, hook the ladies on crack, turn them into slaves, put them to work on the street, and make a great living doing it all.  He had quite the entrepreneurial mind.

In fact, he was so ambitious, he set up the same operation he described to me with it's home base in my painters apartment.  D'oh!  I approached Steve and we had this conversation:

Me: "Hey Steve, I noticed your lady friends seem to be doing a lot of business right here.  Can I ask you to ask them to move their business down the block?  We are really trying hard to clean up this part of the street if you haven't noticed."

Steve: "Oh, you know I can't do that.  You gotta pay me some protection money to tell these ladies to move."

Me: "Steve, I am not going to pay you to ask the ladies to move.  I will just go and talk to them myself and see what we can work out."

At that point, I went about my business with the intent to negotiate some kind of "change of venue" for the folks within next couple of days.  Steve beat me to the punch though right after our conversation.  Basically he went to his minions and said: "See that guy over there? (Pointing at me.) He lives in that house. (Pointing at my house.) He drives that car. (Pointing at my car.) He says this is HIS neighborhood, not yours.  He says you can't be here.  That is what HE thinks."

What a wonderful way lighten up the day.  This exchange led to a "turf war" so to speak.  The pimping and dealing continued.  At the same time some truly scary dudes started loitering around the properties.  These were the type of guys that would have no problem knifing you, dumping you in a trash bin, and grabbing a beer afterwards.

Things came to a head when my painter overstayed his lease and I had to threaten to evict him.  During that exchange he says: "Hey you better watch your back!  Me and my buddies (Steve and the scary dudes) have been figuring out a way to shut you up PERMANENTLY."  At this point, not having dealt with the underworld before in such a confrontational manner, I was honestly terrified.  I went to the store to get some milk.  That didn't help calm my nerves.  Ultimately, I ended up at my Bishop's home asking for a blessing.  That was a wonderful personal experience which I won't share here.  I went home and talked to the wife and we felt it was best to move her and the kids to her sister's house for a few nights.  I stayed home waiting for a Molotov cocktail to fly through my front window.

The next day the neighborhood was completely different.  The street was eerily quiet.  No hookers.  No pimps.  No junkies looking for a fix.  My painter had a "midnight move out" and took his jolley entourage of ne'er-do-wells with him.  No retribution ever occurred.  We finished the renovations and have rented the building out to excellent tenants ever since.

 
I learned some priceless life lessons during this experience.  Here is a recap:

1.  Evil will prevail if good men (and women) do nothing.

2.  Street thugs are impulsive and only act out violently on impulse as opposed to thoughtfully and carefully planned violence (i.e. the mofia).  Hence, the lack of retribution.

3.  Street thugs honor their own code of justice which is different from the law you and I live by.  Upstanding citizens trump street code thuggery by creating the threat of law enforcement.

4.  Street thugs need to maintain street credibility.  Posturing, insults, and threats help maintain that credibility even if they are not acted upon.  Violence occurs during an escalation of insults and threats between thugs to maintain street credibility. (See item 2)  Upstanding citizens don't need street credibility and thus have dominance over those that do.   

Since the time years ago when these lessons were learned, many more homes in our neighborhood have been purchased and rehabilitated.  We have excellent neighbors and tenants that are thoughtful and community oriented.  The push for restoration continues and we have just a few remaining homes to complete the work.  You can check out some of the cool before and after videos representing the work that has been accomplished in Ogden.

Tenacity and perseverance are rewarded.  
 

Oops! I Stepped in HUD: Top 6 Reasons to Avoid HUD Homes

Once in a great while, I experience something so ridiculous that I find myself bereft of words to express myself.  I had two experiences like this recently working with buyers to purchase two HUD homes.  One client was an owner-occupant.  The other was an investor. The grievances are many and poignant. Hopefully, by sharing our ulcer-inducing experiences, you will come to the same conclusion I have regarding HUD homes.  Here are six reasons you should think twice before placing an offer on a HUD home:  

1.  Appraisal Aggravations - When entering a purchase contract, HUD boasts that it will provide an appraisal it has conducted on the property in advance.  This sounds sweet and endearing doesn't it?  Well, there is a catch. If the appraisal expires sometime during the contract period, the buyer has to pay for a new appraisal at their own expense.  In marketing we call this the bait-and-switch.  What would otherwise be a selling point of HUD homes turns instead into a slap to the face of buyers.  This happened to my clients during a recent purchase.  The new appraisal cost an outrageous $690.  HUD refuses to order a new appraisal at their expense unless the buyers cancel their contract, lose their earnest money, and start over by winning the competitive bid process again.  Nice!  

2.  Field Service Insanity - HUD contracts with independent companies such as Sigma out of San Diego and AMS to make sure the properties are secured and winterized. A buyer cannot turn on the utilities for an inspection or an appraisal, unless they work through one of these companies.  You would think this would be easily done through a phone call to an 800-number or via the internet.  No!  Instead, buyers are required to fill out a form, include a cashiers check for $150 (non-refundable), snail mail it to their office, then wait three more business days for a response.  The only contact number is a long distance area code.  Then they send the buyer an email granting permission to turn the utilities on at the buyers expense and then only for a 3 day window of time.  Of course, buyers can only hope that both their home inspector AND appraiser (if HUD's appraisal has expired) have an open calendar to fit into this brief 72 hour window of opportunity.  Typically, this coordination has not gone well and utilities have to be turned on multiple times...at the buyer's expense of course.   

I am aware of an experience where the field service provider would not give permission to turn on the water.  Yet, HUD also required that ALL systems be checked including plumbing in order for an appraisal to be completed.  So, one person says don't turn the water on and the other person says that it has to be turned on to complete the transaction. The buyer's were caught in a wasteful bureaucratic crossfire and charged late fees for it by HUD...for more on this read on...

3.  Extortion Fees - HUD charges $25 per day that a buyer extends past the original contract deadline.  They charge buyers $375 at a time.  They refund the difference at closing or waive the fee if the delay is their fault...unless you are an investor.  If you are an investor, you are charged the fee even if the delay is HUD's fault.  HUD could drag its feet indefinitely and run the meter up while investor-buyers wait to close on a home.   

Also, the field service providers charge $150 to re-winterize a home when the water has been turned on during winter months.  But, local plumbers only charge $90 for the same service.  The field service providers are making $60 to make a phone call to local plumbers.  How do I become a field service provider?  This parasitic fee fleeces all buyers.

4.  Non-Refundable Earnest Money - Investors are charged a much larger earnest money deposit than end-user buyers. To add injury to insult, HUD deems the investor's earnest money NON-refundable upon contract acceptance!  Investors are also granted NO due diligence period. HUD unreasonably expects investors to spend money inspecting the property before they even know if they can buy it or not. This totally contradicts market practices. 

5.  Commission Forfeiture - If a contract extension request is not completed on time, HUD forfeits the buying agent's commissions!  Now, doesn't that give you a warm fuzzy feeling all over?

6.  Deadline Nonsense - HUD requires to be notified 5 business days in advance to set up closing.  That means that once docs are ordered and received by a lender, HUD takes up to 5 more business days to close the file.  This adds another layer of aggravation to buyers who have cleared today's difficult underwriting standards to wait around an extra 5 days to close.  Keep in mind that many buyer's contracts have to be extended (and thus pay the $25 per day "extortion" rate) to fulfill this requirement. 

There are more complaints but this should be enough. The HUD home system is convoluted and completely contradicts market tradition...let alone being a buyer friendly enterprise.  Rather than creating incentives for homeowners, the system badgers them with fees, deadlines, and bureaucratic nonsense.  Who wants to put up with that?   

My buyers had terrible experiences during this process.  I refuse put my clients through this needless hassle any more.  You and I deserve much better than what HUD has to offer.

 

JUST SOLD! Super Bargain Breadbox Cottage

I just closed with a buyer on this super bargain home.  This was another exasperating HUD home experience.  Look for a post soon with all the mind blowing details of the journey to close this house.

To show you the intrinsic value of this property here is some background history.  The home sold in 2006 for $98,000.  Then it went into foreclosure and it was listed for sale in August 2011 for $65,000.  We viewed the property in October and the next day the sellers reduced the price to $58,500.  We immediately placed an offer for $56,000 and our offer was accepted.

With 4 Beds 2 Bath and a 2 Car garage, the home retails for about $120,000 in the market place.  Rents are estimated around $850-$900/mo.  My clients plan to repair and rent the home for positive cash flow.  Repairs are estimated at less than $10,000.

Congratulations to my buyers on an excellent purchase! 

If you are in the market for a bargain investment property like this one, contact me today.   

Coming Off the Mountain: Chart of Ogden Valley House Prices

A reader emailed me the other day and asked the following question:

I know it is just a guess... but when do you think the bottom would be for prices in Eden, Huntsville and Liberty?

Excellent question!  To answer that I dived into the sales records and produced this chart:

This is monthly data with a 12 month moving average (black line) superimposed over the top.  As you can see, the resort area experienced a wild ride as home prices doubled in the space three years! Commensurately, they have been cut in half again in nearly the same time time. 

Based on this chart, I believe that "rock bottom" will be found in 2012.  So, if you like skiing, mountain biking, and fresh mountain air, and you are in the market for a resort property, contact me and lets find an affordable bargain in Utah's hidden gem of Ogden Valley. 

Hungry Hungry Repos: Banks Take Preemptive Possession

One of the things I do as a Realtor is help folks sell their homes on short sale.  To find these clients, I use one of the oldest prospecting methods in the book...the door knock.  Usually, I show up and let the owner know their home is headed for foreclosure and then discuss some options with them.  As you can guess, it's a sensitive conversation.  However, it has been a source of business for years. 

While I was scouting homes today I noticed a curious thing.  Of the homes on my list, 60% of them had keyboxes on the front door with notices from bank-contracted asset management companies saying that the home was vacant.  This is very interesting because the banks do not own the homes.  Yet, somehow the property has been deemed vacant by the lender and the property has been rekeyed...all before the property is even returned to the bank via trustee sale.

How would you feel if I rekeyed your home on a whim while you are on vacation?

I wonder if these folks participated in a deed-in-lieu of foreclosure with their lenders.  Either way, to find 60% of my prospective short sale list "pre-possessed" by banks is a pretty alarming development.

I inquired with Bill at CalculatedRisk to see if he had any insight.  From his response, it appears that most trust deeds allow a bank to protect the collateral on their loan in the event that a home is in danger of being damaged.  Winter weather can pose a real threat via plumbing which might explain the preponderance of pre-possessed homes.

Let's see what happens when I contact the owners and let them know their homes have been re-keyed.  

Video: Interview with a Perspective Tenant

Ever wondered what it is like to be a property manager?  Being a property manager is both a science and an art.  Here is a humorous video I made looking inside the all-too-important perspective-tenant interview.




Being able to ask probing questions and assess risk while being courteous and professional at the same time are important skills for any landlord.

Making Ogden Water Realtor Friendly

In a recent Realtor political luncheon held during the Ogden City mayor's race, one of the questions that was posed to the Mayoral candidates was this: What are you going to do to make Ogden City a friendly place for Realtors to do business?

One of the particular complaints Realtors have had against Ogden City over the years is its unhelpful demeanor when it comes to turning on water to vacant homes.

Why make such a fuss about a seemingly small issue?  Well, current loan underwriting standards and traditional market practice have been to conduct inspections and appraisals on property.  These inspections require that utilities be turned on.  If they aren't on, you can't inspect the systems.  If you can't inspect the systems, then the buyer assumes a lot more risk and will either not buy the home or demand a significant price reduction.

So, what? Well, from a city perspective, either one of these outcomes is undesirable.  The city looses water revenue from homes that sit vacant.  Plus, the longer homes sit vacant, the lower their property value goes and thus the assessed property taxes as well.  Putting up road blocks to homes being sold is a lose-lose proposition for the municipal coffers.

I had a conversation today with city staff sharing some of my thoughts.  They assured me that they have been working diligently to change the culture at the Ogden City Utility Department and make it easier for Realtors and buyers to turn the water on to vacant homes.

They asked that Realtors take notes about their experience with the City Utility Department and report in a few weeks to give feedback.  Let's be vigilant and hopefully we can make Ogden one of the most Realtor friendly cities in the county.

If you have any recent experiences you would like to share, please email them to me and I can share those when I report.  

JUST SOLD! South Ogden HUD Home

I recently closed on a house with a buyer shopping for an affordable home.  During our shopping experience we stumbled upon this property on 39th Street in South Ogden.  

The home was a HUD property and listed at $87,200.  It had previously sold for $128,000 in September of 2008.  We placed an offer at $85,000 with $2,550 in seller concessions.  Our offer was accepted.

Then began the long winding bureaucratic road to close the transaction.  I will elaborate on my client's bewildering experience in a later post.  Let it suffice for now that HUD homes are not the wonderful thing they are touted to be.     

Anyway, congratulations to my client's for bearing through the tediousness of it all and coming out in the end with a bargain property that meets their needs.

Buyer Loyalty: Blowing In the Wind and Driven by Waves

My client loyalty rate is extremely high.  I have never had a listing client leave for another Realtor after an expiration (that was not mutually agreed upon first).  I make it a practice to leave my protection period at "0" on all my listing agreements.  I am that confident in my ability to service and provide for my clients.

With buyers, I typically spend some time getting to know them and sign the buyer-broker agreement when we write an offer.  Typically, I will invest about 8 to 10 hours of my time showing houses and answering questions before we reach that point.  In seven years in the business, I have only had one person bail and work with another real estate agent before we signed the buyer-broker agreement.

Well, today we get to increase that number to two clients in seven years.  It is certainly a bitter cup to drink from, especially in today's marketplace.  It also may be a sign that Realtors must be more diligent about getting agency agreements authorized up front before investing the time, energy, and gas money.

We all need professional sharpening from time to time and I will consider this the lesson learned from this experience:  Loyalty appears to be a scarce virtue.

Wind Storm December 1, 2011

Well, we all felt the effects of the windstorm on Thursday December 1st.  Our home lost power at 4:10am and we were without power until 10:30pm that evening.  I have no idea how our pioneer forefathers entertained themselves in the cold dark winter months.  Here is a video I scrapped together from some scenes around my neighborhood.  Special thanks to Dave Willis for forwarding the smashed car photos.


For another great video on the Davis County area click HERE.

Real Estate Bloodlines: Scenes from the Secret Recorder's Vault

I went to do some historical research today at the Weber County building.  I wanted to find out who has owned my home since it was built in 1908.

My quest led me to the Weber County Recorder's Vault.  Located in an inconspicuous hallway on the 2nd floor of the Weber Center, the first thing I noticed was the security coded doorknob and a handwritten note "knock to enter".

Upon knocking, a pleasant elderly woman answers and wisks me into the room.  The room smells of old books.  As I cast my eye around the room, I see rows and rows of disproportionately large books carefully organized.  Their scale is awkward and almost cartoonish.

The clerk asks what I am looking for.  When I respond,  I am handed a note with a handful of letters in the alphabet.  She pulls out a book stamped with a letter on the cover and shows me how to read the cryptic cursive handwriting from the 1800's.  Then I am on my own.

My abstract search reveals some interesting facts about the creation of our home (look for that in a later post).  When I am done, I look at the clock. What I thought was just a few minutes was actually an hour and a half.  I am late for my next appointment...  

Nanny State Real Estate: The Rise of the Ridiculous

It seems that with the increase in bank owned inventory there has been a proportionate increase in ridiculous Federally mandated safety fixes to properties.  Here is today's example:

My, doesn't that look pretty.  I am so grateful that Uncle Sam, in his well-intended way, has mandated these to protect us from ourselves.  Had these shabby railings not been there, I would have flung myself off the terrace and onto the driveway below. 

Upon reflection, it's remarkable that mankind has survived the ages without handrails....

Notice that there is only one person in all of these pictures.  I am sure the rest of them died of neck and back injuries sustained when their governments failed to mandate handrails.

Housing Roulette: Short Sale Odds Against the Buyer

I have some clients I am shopping with who have recently shown an interest in short sale properties due to their apparent attractive price points.  The thought of shopping for short sales with owner-occupants instinctively made me cringe.  It has a reputation as being a notoriously bad experience.  However, I wanted to double check the market to make sure the expectations I established with my clients were correct.

So, let's say you are a buyer and want to play the short sale roulette.  Here are some things you need to know:

1.  Short sales constitute 18% of all active listings but only make up 10% of the sales.
2.  832 short sales were listed for sale in the past 12 months.  Only 270 (or a measly 32%) sold.

So what does this mean to you?

For starters, it means that if you find the perfect home that meets your every need and it's a short sale and you place an offer on it, you have a roughly 1-in-3 chance of closing on the sale (assuming you are the only person putting an offer on the property).  Why only 1-in-3?  Well there are many variables at play in short sales that do not affect traditional listings. Here are a few:

1.  Bank Stubbornness - By definition, a short sale is the "shorting" of the debt owed on the property that allows it to be sold at a more agreeable market price.  Since the bank has to approve what kind of haircut they will take, many times they will keep that point too high to make a transaction work.  There are many behind the scenes reasons for this counter-intuitive behavior but the fact is that it still happens.  If the bank won't play ball, the home goes to foreclosure and comes back as an REO listing.

2.  Bank Bureaucracy - Many times, particularly if the seller is participating in HAFA, the process can take a very long time to complete.  I had this happen on a listing and the it took so long to get the sale approved that the market had changed significantly to the downside.  Thus, it rendered our sale price unattractive relative to contemporary market pricing.  In this case, a buyer will usually excuse themselves from the transaction and the home will go to foreclosure.  It will come back later as an REO listing.

3.  Seller Absconding - Because of the large length of time involved, many times sellers will lose patience and move on with their life out of frustration. One time, I had a short sale I negotiated for six months only to have the seller disappear and change his phone numbers.  This happens more often than you think.  Because short sales become extremely time sensitive once approval is gained, absent sellers can ruin a short sale pretty quick.  When sellers abscond, the home will go to foreclosure and come back later as an REO listing. 

These are just a few of the pitfalls associated with closing short sales.  From a buyers perspective you have a 1-in-3 chance of getting the home if you are the only one making the offer.  What happens if you are one of multiple offers?  Well your odds get worse with each additional offer you are competing against.  If you were competing against 5 offers, your chances would be about 1-in-15.

Of course, on a case-by-case perspective the market isn't as perfectly predictable as these numbers.  Knowing the listing agent, their negotiation style, and trustworthiness goes a long way to helping you understand your odds.  However, in the broad picture, there is still a lot of uncertainty in the business of buying short sales.

Most of the owner-occupant buyers (as opposed to investor-buyers) I have worked with prefer to avoid short sales altogether and stick with the more reliable and less frustrating realm of REO and bank owned properties.  They can be just as much of a bargain as short sales but without the hassle.

Photo of the Day: Mt. Ogden Views

I was driving about today and was fortunate enough to have my camera handy:

This was take from about 23rd Street and Taylor Ave. in Ogden. Enjoy!

REO Worst Home Improvement Gallery

I had the opportunity to preview a few REO homes with a client recently.  We stumbled upon a home that had some "improvements" that were too funny to pass up.  I came back with my camera to document the do-it-yourself comedy.

 

On first impression, this home seems like a cute brick bungalow from the 1920's.  However, upon closer inspection some interesting surprises await...

First up is the swamp cooler support structure.  It's made out of landscaping border lumber and scraps.  It appears that the level and square were unavailable the day it was made.  

On the interior we find that the swamp cooler was ill fitted for the window woodwork.  However, that is an easy fix with a hammer and brute force.  

Something is amiss with the fireplace.  It turns out the fireplace is electric.  Notice the wire and plug sticking out of the bookshelf...then notice the outlet on the floor.  

 

Yellow foam is a cure-all for any home improvement problem.  It's also handy for making your bathroom look like something from a horror movie. 

Sometimes basements can be scary.  What better to make you feel safe and keep you company while you shower than this friendly vent register....  

 

...of course, assuming you can get to the shower without electrocuting yourself first.

Make sure while you are on the loo taking care of business, that the business from upstairs doesn't drip on your head.  

 

 

Plumbing is expensive.  Best to just avoid installing it when possible.

 And to close the sale, this home comes with a 2-year home warranty!

There you have it folks.  Some of the "best" improvements I have seen in quite a while.  I hope you grinned like I did.

The Rent Price Penalty

As with all things in life, risk is tied to compensation.  Consumers see this relationship particularly in borrowing money.  The payday loan office charges over 300% interest because so many of their loans go to collections.  The risk of lending is very high.  Banks will increase the interest rates on car loans made to individuals with bad credit.  Since most people operate on a fixed budget, the higher interest rate translates into a higher payment for a smaller amount of money.  That smaller amount of money translates into a dumpy car.

This same dynamic typically plays out in the housing market.  Folks with great credit present a low risk.  They can borrow inexpensively.  Since their interest rate is low, their budgeted payment allows them to borrow more for the same payment than someone with bad credit and a high interest rate.  Thus, those with good credit can afford to live more lavishly than their bad credit friends.

So why do I bring this up?  Well, risk runs in many directions.  Tenants typically pay more for a rental space than they would if they owned something.  However, sometimes the spread is not that great.  In fact, during the housing boom, rents were LESS than mortgage payments.  That is normally a good indicator of an overheated market.

Today though we have just the opposite situation.  Good credit buyers are shunning ownership right now and running to rentals instead.  This pushes up demand and rents on the best rental units.  How much does it push up the rents?  Lets look at a recent example:
 
459 20th Street (which you may recognize) has been for sale at $89,900.   Let's assume that a purchase is based on a 4% interest rate with a $3,150 down payment.  The monthly payment for a buyer comes out to $527 (principal, interest, taxes and insurance).

Yet, despite this very low payment, buyers have not been forthcoming.  However, we just leased the property to the second tenants to look at the place for $695 a month net.

As you can see in this case, the tenants are willing to pay 32% MORE to rent the property than to own it.  That is a remarkable thing.

Even more remarkable is that this is not a rare situation.  Demand for rentals is high while demand for ownership is low.  That leaves an abundance of bargain homes in the marketplace that need investors to own and rent to tenants for much more than the mortgage payment. 

It makes sense to be one of those owners.

Video: Market Seer Explains How World Works

A colleague of mine passed this video along in an email today.  I thought I would share this most insightful exchange between an antagonistic British hostess and a hedge fund manager who understands economics.  He explains how the housing market works at the very first.  (Note: The reasons he cites for the market bust are the exact same reasons real estate is such a great investment right now.):



I hope you found this video as enlightening as much as I did.

Enforcement: Ogden City Boots Dishonest Landlords From Discount Program

As a member of the Utah Apartment Association, I get a regular trade publication called the Landlord Times.  In today's edition was an article entitled Ogden City Disqualifies Dozens from Good Landlord Program.  Here is a excerpt:

Ogden City recently revoked the Good Landlord status of dozens of Ogden Property Owners who violated their agreements with the city, forcing them to pay thousands of dollars in extra fees to the city.

Participants in the Good Landlord program in Ogden agree to run background checks on all applicants, deny applicants with certain high risk factors, evict tenants who commit crimes, and comply with city ordinances and codes.  In return, the city reduces the per unit license fee as much as $143 per unit. 

Although I hear a lot of old timer landlords complain about this program, I have had nothing but good experiences following the guidelines in my business practice.  In fact, the class that the UAA puts on to train participants in the program has been a valuable business education tool.  It teaches landlords how to run their business like a business instead of a hobby.  It empowers owners to make their rental respectable instead of flophouses.

If you own rentals in Ogden, take heed to honor your agreement with the City if you are participating in this program.  Everyone benefits when you do what you say you will do.   

Affordable: House Payments 40% Below 2006 Levels

An interesting headline courtesy of Housingwire this week in Monthly mortgage payment almost 40% cheaper than 2006. Here is an excerpt:

Housing affordability improved dramatically because of declines in both prices and mortgage interest rates, according to David Stiff, chief economist at Fiserv.

"The monthly mortgage payment for a median-priced single-family home is now $700, compared to $1,140 in 2006 — a decline of nearly 40%," he said in comments on the latest release from Fiserv.

Even more interesting is this snippet:

Stiff said national purchase mortgage payments now account for only 13% of monthly median family income, down from 23% in the first quarter of 2006, and the lowest percentage since 1971.

That should give us some historical perspective.  How low can house payments go?  Not much more in my opinion.  The only scenarios that I foresee pushing house prices meaningfully lower would be a pandemic or a Zombie Apocalypse.  

We're On The Cusp: Charts Show Prices to Rise or Massive Overcorrection

I had a conversation on Friday with a client about house prices and how the market "feels" like such a good value.  My client remarked: "Houses are a better value than they were in 1999 when I got in the business!"

This comment caused me to reflect on market dynamics for a moment.  The housing market in Utah peaked in 1999 but the peak we experienced in 2007 was leaps and bounds better.  Time has a way of distorting perceptions because of economic changes and inflation. So, to verify if my client's gut feeling was correct, I decided to do some heavy analysis and compare sticker prices with Consumer Price Index "Inflation-Adjusted" prices.

The findings are shocking in my opinion:

First, lets review the above market history since 1979.  Let's follow the brown line for a moment. If you purchased a home in 1979 worth $100,000, that home today would be worth approximately $340,000.  Between then and now, your home would have declined in value five separate times from five separate market peaks.  However, each successive market peak exceeds the previous one which brings you to today's price point. 

Now lets look at the blue line.  In real "inflation-adjusted" terms, your home would have declined in value for 12 years even though its sticker price was increasing during that same time. Your home's value lagged abnormally behind inflation quite a bit from 1979 to 1992.  Then, in the early nineties, this distortion corrected and there was a tectonic increase (both real and nominal) in the value of your home.  After peaking in 1999, the real price plateaued and stabilized again until our most recent housing bubble . 

The lesson to take away from this is that, when adjusted for inflation, housing is a fairly stable and predictable store of value.  Is it any wonder then that it has been such an excellent tool for creating and maintaining wealth?

Now lets look at the latest housing bubble to measure the local market's progress in finding equilibrium. 

This chart is the same as the first except we zoom in on the years 1997-2011.  Again, here we are looking at inflation adjusted prices.  A quick glance at the chart confirms my client's assertion that homes today are indeed a better bargain than they were in 1999.  In fact, we are very close to the market trough of 2004.  Keep in mind that this data is six months old.  Today we may already be at parity with the previous inflation adjusted market trough.  We won't know until a few months when today's data is finally released.

Regardless, what we are seeing is that we are at or very near the natural equilibrium point for housing.  There are a couple questions now that need answering:

1.  Will the market over-correct?

If it does, that will set up the market for another scenario like the early 1990's when real and sticker price values vaulted after lagging behind inflation.  I don't know anyone who bought real estate in the early nineties who is doing poorly.  It may be wise to watch this metric.  An over-correction is a boon for investors and new home owners. 

2.  If the market does not over-correct, what's next?

Once the market hits its natural equilibrium point, which on this inflation adjusted chart is around the $100,000 mark, will it hit bottom and plod sideways again?  If it does, with inflation increasing, that means that house prices will have to increase with it to maintain that equilibrium.  This very well might be the case.    

Either way, we are at an important junction.  We will either enter a super-bargain phase of the market. Prices hold.  And it becomes nearly impossible to go wrong purchasing investment real estate because of its relative value to the dollar. Or, the market will start to see rising sticker prices as nominal values try to keep up with inflation.

Whatever happens, it appears that brighter days are just around the corner.