Melissa Savenko's Richmond Real Estate Review

Tick Tock, Tick Tock - First Time Homebuyers Need to Be Writing Contracts NOW

Folks, there is tons of real estate-related news in the paper these days, lots of it having to do with foreclosure prevention programs, new principal forgiveness programs, the state of the real estate markets, how the Federal Reserve is going to manage the economy once it stops buying mortgage-backed securities at the end of this month, etc.  BUT....

For the next 35 days I am going to be pretty much "All First Time Home buyers, ALL THE TIME!"  The $8,000 first time buyer tax credit expires on April 30, 2010.  The "new" $6,500 replacement home buyer tax credit expires the same day. 

Now replacement home buyers, having by definition been through the home buying process before, understand that it takes several days, often several weeks, of negotiation to get a property under contract.  That is particularly true in the current environment when the buyers are asking for all kinds of concessions, like closing costs, or appliances, or home warranties, or your first-born child....you get the idea.  So the replacement home buyers seem to have their act together on timing.  They are looking hard now, and ready to write a contract in the next week to 10 days.  [NOTE:  These buyers also for the most part seem to be fairly unmotivated by the relocation tax credit. That makes sense to me, but is a topic for another day.]

Some first time home buyers, having not been through the home buying process before, don't understand that they need to be pre-approved from an acceptable lender before any seller with any sense will even consider an offer.  Then, negotiating a contract takes days, if not weeks - unless you are writing an all cash, no contingencies offer, and I'm not seeing those from anyone but investors buying foreclosures or short sales.  Then, once the contract gets negotiated, it has to get through to closing, which means through financing, inspection, appraisal and termite, all contingencies which could derail a deal between contract and closing. 

We real estate agents are getting increasingly agitated, since we are intimately familiar with the time line and potential pitfalls in a house sale, especially in this very trying environment.  So we're telling our first time buyers to "buy, buy, BUY - NOW!", and some of those buyers are suspicious of our motivations.  [NOTE: Why are these buyers suspicious of our motivations?  That's also another topic for another day.  My very short answer:  It seems the first time buyers are disproportionately likely to be using a real estate agent they found on the Internet or picked up at an Open House.  Which I do not understand AT. ALL.]

So, if you are a potential first time home buyer, and if you haven't gotten started, or you are JUST getting started, and if that $8,000 is a big deal to you, then get on the stick QUICK.  And find a real estate agent to help you, if you don't have one.  But for goodness sakes, interview a few different candidates before you make a decision.  If you would definitely interview several agents to sell your house, why wouldn't you interview agents to sell YOU a house?

By Invitation Only - Bank of America Announces a New Loan Forgiveness Program Announced

Bank of America has announced that it will be forgiving some principal amounts to keep some struggling home owners in their homes.  The program is not open to everyone - it will be extended to certain bank customers.  But for those individuals and families that get the invitation, what it means is BoA essentially waves its magic wand and...POOF!  Some portion of your mortgage debt just disappears forever.  BoA could choose to reduce a $200,000 note to $150,000 - $50,000 in debt forgiveness just like that.

BUT....as with anything, the devil is in the details.  And I'm not sure how reducing someone's principal balance matters if someone in the household has lost a job or had a serious pay reduction, which is now what's driving the record number of foreclosures, IMHO.  Yes, your monthly payments would be lower, but if a household went from making $100,000 in income a year to $50,000, knocking a few hundred dollars off a monthly mortgage payment doesn't matter.

What I don't understand is why the banks don't have loan FORBEARANCE programs, like some other forms of lending do.  For example, you can request a forbearance on certain federally insured student loans.  I did it last year for my law school loans.  The process is simple and painless - talk to someone on the phone, submit a few forms explaining the circumstances that justify the forbearance (hello, 40% reduction in income!), and presto, chango!  You get anywhere from 6 months to a year of forbearance, to not pay the loans.  Now, the loan balance is still accruing interest, and that all gets tacked on to the principal amount due, but you, the borrower, get a bit of breathing room if your income situation is expected to be temporary.

Why can't banks and other lenders do the same thing with mortgages, in appropriate cases? 

Historic Rehabilitation Tax Credits as a Community Revitalization Tool

I love historic properties, and it makes me happy to see wonderful pieces of historic architecture being adapted to modern uses.  In my career, I am lucky to work with various developers and individuals who quite often use historic rehabilitation tax credits.  I myself have used tax credits in two residential renovations.  Tax credits are a GREAT tool for making certain development that meets certain objective criteria workable and economic.  This editorial from yesterday's Richmond Times-Dispatch, "Tax Credits Can Revitalize a Community," explains tax credits in more detail.

These are state and federal programs that actually WORK.  These are programs that pay for themselves.  Virginia should be proud for being one of the most progressive states in this arena.  Pat yourselves on the back, people.

New Real Estate Website for Consumers - Check It Out

The Richmond Association of Realtors has rolled out a new, consumer-oriented website with all kinds of resources about all things home related. Check it out at www.REsourceHome.com.  I haven't had the chance to fully explore it, but it looks like a good thing.  Information is power, people. I think all consumers, especially individuals buying or selling real estate, SHOULD educate themselves about the relevant market.  But I strongly believe a good realtor is still a necessity.  Information does not = knowledge.

22% of Sellers Hate Their Real Estate Agents - Or at Least Really, Really, REALLY Don't Like Them

This article from RISMedia popped up on my screen today, "Only 22% of Home Buyers Are Happy with Their Agent - What That Means to You and How to Get Past It."  From my read the title is inaccurate, it should be called "Only 22% of Home SELLERS Are Happy with Their Agent."  But what do I know.

I also think the article - written by and directed at real estate agents - is pretty unfair to most seller-consumers.  Here's the excerpt that rubbed me the wrong way:

According to the study, 64% of sellers said “the house took too long to sell” and 51% said, “We didn’t get the price we wanted.” Thus, the disaster fomented by Wall Street has been neatly transferred onto the backs of real estate agents. It’s no comfort to realize that while some Wall Street ‘Investment Banker’ is spending his seven-figure bonus on that house on the Vineyard and the newest Bentley, the public’s anger at the financial crisis has trickled down to those not responsible for it.

The very people you are working your butt off for, blame you for their unrealistic expectations and in many cases, agents are enabling that by not setting sellers straight on the new realities of real estate pricing and financing. It is doubtful that the consumer will wake up anytime soon. Anyone with an ARM can no longer afford can blame you. Anyone in a house worth 30% less than what they paid for it can now blame you as being the reason for their dilemma. That’s much easier than blaming their own greed or naiveté, of course, but who ever wants to take personal responsibility anymore? Certainly not consumers, it would appear!

The simple reality is selling in the current environment is a VERY stressful proposition for everyone involved.  Laying all the blame on the sellers isn't fair.  [Now blaming Wall Street, I'm ALL about that, but that's a topic for a different day...]

Here is the unfortunate fact:  There just aren't enough buyers out there.  If a seller is selling NOW, he or she or they have to, and that ain't a fun place to be.  Likely there is a death, divorce, illness, job loss, or possible relocation in the picture.  ALL of those situations are stressful.  Maybe the seller is one of the 5-7 MILLION households seriously delinquent on his or her mortgage.  That situation requires special compassion, and more time and attention. 

I do think we agents can do a better job of managing expectations and should share with sellers the cold, hard truths about the market.  If you can't, maybe you need to focus all your time and attention on buyer side representation.  But for agents who are taking on listings, here are just a few suggestions:

• Price compellingly, not competitively. 
• Make sure your sellers KNOW that it is likely the sale will take longer, and be more stressful, than he or she or they have ever anticipated. 
• Set up a communication schedule with your client, so you are BOTH on the same page about the when, where and how often. 
• Explain to your client that even after a contract is received, transactions take longer, and are more complicated to close, than ever before.  Expect bumps.  Then work like the devil to make sure those bumps never materialize.
• Tell your client on the front end if he or she or they are ever feeling uninformed or confused, to call you for guidance or an update.  IMMEDIATELY.
• Most importantly, be patient.  Be kind.  Do not judge.

Here's the reality:  This market sucks.  The tax credit incentives are coming to an end (April 30, 2010) and no one knows what the heck the market is going to  look like after that date.  I personally suspect, although I hope I am wrong, that the housing market is going to come to a screeching stop, but for (i) investor buyers, (ii) some first time buyers, and (iii) other lucky folks with money who are taking advantage of the HUGE amount of buyer leverage.

BUT, if agents do their jobs well and with compassion, and help these sellers through difficult and perhaps even traumatic times, maybe, just maybe, we can change the public perception of real estate agents from skeevy, opportunistic salesmen/shysters to dedicated and committed professionals.  I really, really hope so. 

An Interesting Observation About the High-End Real Estate Market in Richmond, Virginia

A couple weeks ago I wrote about the fact that a full 92.5% of pending sales in the Central Virginia Regional MLS  - homes under contract, but not yet closed - had a list price of $400,000 or less.  There were a few $1M+ listings under contract, but not many.

Well, here's something I've noticed in the Fan, especially on Monument Avenue, and wondered about:  the highest priced listings seem to be selling at a pretty daggone steep discount of sales price to list price.  The price discrepancies are even greater if you consider a home's starting list price before price reductions.

I was goofing around today, double-checking the pending sales over the last two days, to see if the under $400,000 sales figure trend was holding.  It certainly appears to be.  I noticed two homes that pended at list prices over $1M, and I thought I'd take a deeper look to see whether or not my casual observations of the high-priced listings being more heavily discounted than the average listing seemed to be consistent across the market. 

YOWZA.  Here's the sales history of the two homes:

House 1:  Listed July 2009 at $1.875M.  Reduced August 2009 to $1.599M.  Withdrawn from the market in November 2009.  Put back on the market in February 2010 at $1.599M.  Reduced in March 2010 to $1.399M.  Pended March 13, 2010, although I suspect the closed price will be less than the $1.399M.  The house was reduced over $475,000 over the course of nine months.  Gulp.

House 2:  Purchased in August 2008 for $1.225M.  Put on the market in October 2009 - just over a year later - at $1.149M.  Price reduced in mid-November to $1.099M, then again in February 2010 to $1.069M, finally goes under contract March 15, 2010.  So there is not as big a price reduction over time here as House 1, but these folks paid almost $200,000 more for the house - assuming they get full price - less than 2 years ago!

What does it mean?  For people who are able to purchase in the upper price ranges, you can command even greater price discounts than the average buyer, because there just aren't that many qualified $1M+ buyers out there. 

Just goes to show, the pain in this recession is broad, deep, and wide.  But what is pain for some folks is opportunity for others.  Tough times, people, tough times.

Even More Foreclosures Coming - What Does That Mean?

OK, I received and read this Washington Post article on the projected wave of MORE foreclosures on Friday, but I decided I didn't want to post anything that depressing right before the weekend.  But if I'm supposed to be blogging about anything and everything real estate-related, this is a pretty big deal.

The gist of the article is there are many, many homeowners who are seriously delinquent on their mortgages who are NOT currently in the foreclosure process.  According to the article, between 5 million and 7 million homes are eligible for foreclosure but have not yet been repossessed.  According to a class I am currently taking to become a Certified Distressed Property Expert ("CDPE"), there were only 4.9M TOTAL SALES in 2008. So, if the Washington Post is correct, there are more potential additional foreclosures than there were sales in 2008 - not including the additional non-foreclosure inventory on the market.  That's scary stuff. 

And I wold like to debunk the myth that these homeowners were all - or even mostly - irresponsible individuals taking out exotic mortgages to purchase more home than they could afford, as some commenters would have you believe.  Many of these people are hard-working folks who are dealing with dreadful circumstances in this economy - job loss, pay cuts, illness, divorce, a death in the family.  People, a lot of these folks were "A" paper borrowers, with 20% down and good credit.  But if Mom is the only breadwinner, and she loses her job, or has her pay cut 25%, and then the family has some additional unexpected expense, such as an illness or hospitalization - well, it doesn't take much to go off the rails. 

What's the answer?  I don't know.  Until people have jobs, they can't make mortgage payments.  Create incentives for small business.  Eliminate excessive regulatory burdens.  Make the loan modification and short sale process less ridiculously opaque, time-consuming and stressful.  All easier said than done, I know, but it's the best I can come up with.  I don't claim to be an economist, but until there is job growth, I suspect we will have a housing crisis.  For those of you who are holding your own, or even doing well, be kind to those people who are not.  It's the least you can do.

New City of Richmond Businesses - A Bike Shop and a Specialty Market

Richmond BizSense reports the opening of two new businesses in the City, both in the VCU area.  Balance Bicycle is opening at 312 Brook Road and Sprout Market and Cafe is opening at 1 N. Morris Street.  Sprout is a creation of the owners of the former All-Star Deli on Lombardy and will serve food with "locally sourced ingredients," per Bizsense.

[ASIDE:  I think this means there will be more VCU students riding their bikes in the Fan and surrounding areas. Now I know is good for the environment, but I just gently ask that all those City bikers OBEY THE TRAFFIC SIGNALS.  It's a big problem in the Fan, especially at the four-way stops.]

Sprout sounds quite like Ellwood Thompson, the natural food market located at the intersection of Cary and Thompson at the top of Carytown.  I bet Sprout works gangbusters, because there is nothing equivalent in the VCU area.  And there are LOTS of teens and 20-somethings that are big into the natural/local food trend.

In fact, I think both of these new businesses are examples of the strength of the larger green movement.  I also think the locations are evidence of the strong environmental consciousness of the Gen Y'ers.  This is a trend that is going to continue and only grow more significant, IMHO.  And that's a GOOD thing.  Remember, green is the new black.  [;)]

Foreclosures in Chesterfield and Henrico UP, in the City of Richmond DOWN - What's Going On?

BizSense reported yesterday that foreclosures in Chesterfield and Henrico Counties were up significantly this week, while foreclosures in Richmond were down over 50%. 

Is this evidence of the "death of suburbia as we know it?"  I'm not sure.  I think it might be. I will say large portion of the prospective buyers I see, particularly in the historic areas of the City, are down-sizing Baby Boomers from the surrounding counties or outside of the area altogether.  We've still got the perennial urbanites - artists, Gen X'ers, Gen Y'ers, young professionals, academics, students.  But we've added families with children and downsizing Baby Boomers.  So while our supply of "product" - these closer-in City homes - remains the same, our demand has increased, or at least remained stable in these uncertain times, as the pool of prospective buyers has increased.

I think more bad news on the foreclosure and distressed property front is coming.  I am taking a course to get my Certified Distressed Property Expert ("CDPE") designation, and the numbers are both staggering and sobering.  More on that topic in another post, but enough depressing news about the market for today.  How about this weather, people?

Old Ukrop's Stores Getting a Facelift - And Local Companies Are Doing Most of the Work

I am telling myself that I will not like, nor will I frequent, Martins.  Consider it a one-person protest and homage to Ukrop's (R.I.P.).  But, the new grocery player on the Richmond scene is good news for the local construction industry, which is benefiting from Martin's re-do of the 25 Ukrop's stores.  And the construction industry is SORELY in need of some good news, as we all suffer the worst economy since the Great Depression. So maybe I will begrudgingly reserve judgment on Martins.  But I'm not happy about it....