Strong September Sales and Building Perils

The September housing market in Sarasota continued to show strength.  Sales of existing homes stayed steady and applications for new construction rose last month.  With all that in mind, there are still some concerns, especially with new construction.  Several builders are failing and putting their clients at risk if they can't complete the homes they started.

As the inventory of homes drop, more and more people look for the opportunity to build something new.  In order to protect yourself in the building process, Berlin Patten published an article this week that addresses this topic.  Below are their recommendation:

While there is no substitute for engaging a qualified attorney to address the nuances associated with all construction contract negotiations, some general issues to consider prior to entering a contract for new construction are:

1. Construction Timeframes.  Does the contract provide for a definitive commencement date and completion schedule, and are there penalties if the builder misses those marks?
2. Change Orders. Is the scope of the project very clear, and what is the written process (and price) for requested changes?
3. Deposits. Does the contract require a substantial amount of upfront money be paid to the builder?
4. Draw Schedule. Does the contract provide for a sufficient number of draws so that the money paid to the contractor is  proportional to the work performed to date?
5. Inspections.  Does the contract permit inspections as a condition to each draw, and, more importantly, as a condition to final payment?
6. Punch List.  Does the contract address the manner in which punch list items are to be completed and by when? Does the contract require final payment prior to the completion of punch list items?
7. Lien Waivers.  Does the contract require lien waivers as a condition to each draw, and more importantly, as a condition to final payment?
8. Holdbacks/Final Payment.  Does the contract provide for an adequate holdback from each draw, as well as a reasonably sufficient final payment, to better insure that there will be sufficient funds to complete the project if the builder fails to perform?

If you are considering the prospect of building, these import considerations will help in ensuring you sleep better at night.

Buy It now!!!

September-November is usually a time when realtors in Sarasota are gearing up for the season and recharging their batteries.  But this year is different.  I was just talking to a realtor next to me and he had made 7 offers the past week on behalf of a client and he only got one.  He got into highest and best offer scenerios and lost out on all of them.

That got me to thinking....Is It the Right Time To Buy?

I have said it before, but I am confident in saying it again, it is time to buy!!

Why?

The economy had hit its stride in the early 2000's, and Sarasota was red hot.  Most people who wanted to buy at that time felt like they had missed their chance as properties had become too expense to buy.  The window closed quickly and those properties were unattainable to the average person who visited Sarasota.  They left in hopes of finding properties that were within their reach.

8 years later and prices have dropped by 50% in Sarasota.  Interest rates that hovered around 6.5% 6 years ago are now at historic lows sitting around 3.5%. This may be the perfect time to purchase that second home.

In 2006 lots of people may have seen that perfect home when they were in Sarasota, but at $400,000 it was slightly out of reach.  Today, that same home might sell for $250,000.  When you also take into account that interest rates are nearly half of what they were 6 years ago, people have to give second thought to whether this is the right time to buy.

Let's look at the numbers and see what impact falling prices and rates have on a purchase today:

DATE                          PRICE               INTEREST RATE                          P&I PAYMENT

2006                            $400,000                   6.50                                           $2,528..27

2012                            $250,000                   3.50                                           $1,122.61

If you are in a position to make a purchase, now may be the time!!!

A Bike Ride Leads to a Startling Discovery

I just recently returned from my annual pilgrimage to Rangeley, Maine with my lovely wife, Marie, and our two boys, Zach and Chris.  We had a wonderful time.  While there, I love to ride my bike or get into my car and look at properties.  It is just something I enjoy doing.  I must have done it at least 3 times while I was in Rangeley.

One of the things I discovered on several of my bike rides was the number of properties that were on the market.  I do not think I had ever seen so many active properties for sale.  I spoke to one agent and he told me that he had 115 listings.  That is just one agent in one office.  Stunning!!  My jaw hit the floor.

I began to wonder if things in Sarasota were going to look as bleak as it looked in Rangeley when I got home.  So, upon returning to Sarasota, I got on my bike and started doing my daily ride from my house down to the end of Siesta Key.  The last time I had taken my bike ride on that route was early July.....so nearly a month had gone by since my last ride.  I was stunned.  I could not believe how many real estate signs said, "Pending" or "Sold". I must have seen 10 or eleven signs that reflected a change status on property signs.

Upon getting home from my ride, I visited a house down the street that was having a garage sale.  I asked the tenant if they were moving.  She said the new owner wanted them to stay.  I asked, "Did you just sell the house?"  She informed me that her previous owner had put out a sign and sold the house in 3 hours.  I looked out on Webber Street and noticed that several new houses on the market were already pending.  To me, those would be the last houses selling with all the inventory on the market.

The market has changed.  We are in a different place than we were in 12 months ago.  The numbers released by the Sarasota Association of Realtors reflect a market that is red hot.  We almost topped 1,000 closings again for the month.

If you are thinking about buying, don't wait.  Most people are 6 months behind where the market really is.  So, if you think it is at the bottom now, the bottom was probably 6 months ago and is now on the upswing.  If you don't believe me, get out on your bike and try to find some properties that are not pending.

Are Low Ball Offers a Thing of The Past?

This is always a tricky topic as everyone seems to have a differing opinion of the market and its stability.  I like to think that we have stabilized and these low ball offers are tougher to come  and harder to get accepted by Seller's.

I consider a low ball offer to be 25% off the asking price.  Now, one must take into account that if the property is grossly overpriced, the offer may only be off  by 10% in realty.  When there is a glut of Seller's, as has been the case in the past few years,  the prices were falling.  But in the last few months, we have seen the inventory fall to less than a 4 month average.  A healthy market is at about 6 months of inventory.  That means that if no more new listings came on the market, it would take 6 months to sell everything.  Ask local realtor's in Sarasota, and they will tell you they can't get enough listings.

If that is true, low ball offers are not even likely to be countered, much less accepted.  What usually happens is a more realistic Buyer comes along and will pay what the property is worth. Or the Seller counters less than 1% of the asking price.

I have an example of someone thinking they could STEAL a property.  The property was built in 2007 to the highest standards.  It had all of the new updated impact windows, tile roof, gated community, etc.  Under air was 3,548 square feet with a 3 car garage and an enclosed pool area.  It needed about $7,000 in repairs.  The bank asking price on the property was $279,000 or $78 a foot.  To replace the house would have cost at least $100 a foot according to sources I spoke to in the building industry.

I took my client to the property and there were two other agents there.  I told them it was a fantastic deal and I encouraged them to offer more than the asking price.  They discussed it amongst themselves and offered $800 more than the asking price, or $280,000.  I explained that there would be 6 offers on the house and they would not get it at that price.  I suggested a price just north of $300,000.

Well, as you might have guessed, they did not get it.  Now they call me and ask if they can offer more on the property.

I think people still believe that we are in a downward turn, but I would beg to differ.  There are going to be a handful of deals out there, but guess what the other 5 people are doing who did not get that property?  They are out there looking, too.  It wasn't like just one individual had made an offer on the property, there were many. 

Happy House Hunting!

Banktruptcy as an Option has Obstacles

Many folks today are using bankruptcy as a way to lengthen the foreclosure process and allowing them an opportunity to stay in their homes for a longer period of time.  For most, it has been a savoy move.  But that train of thought may be changing.

Berlin Patten recently published an article that could be helpful to people who are considering bankruptcy, and especially those who are trying to stretch out the time that they might be hoping to stay in their homes.

Here is the article:

 

Many homeowners resort to filing bankruptcy in order to stop an imminent foreclosure on homestead property when no other legal options are available.  While, in most cases, the mortgage holder can still foreclose on the property, it cannot do so until the property is released from the bankruptcy estate.  This can take several weeks or even months (if not longer).  Traditionally, where real property in bankruptcy has no equity, the trustee eventually abandons the property, as a sale would not yield funds to pay unsecured creditors.  However, it has come to our attention that some bankruptcy trustees and third parties have found a way to profit from underwater homes in Chapter 7 bankruptcy.
  

In a recent bankruptcy case pending in the Tampa Bankruptcy Court, the Trustee served a notice to an unsuspecting homeowner that their home was going to be sold in three weeks time.  However, the property is encumbered by a mortgage and has no equity.  The notice stated that the Trustee was selling the property to a land trust "as is" for $1,500.  This means that the Trustee was essentially selling title to the property with the mortgage still attached.  Thus, the new owner of the property would only keep title until/unless the mortgage holder foreclosed.  The obvious question resulting from this scenario is: why would anyone pay for property that will eventually be lost in foreclosure? 

Further investigation revealed that the land trust purchasing the property actually reviews bankruptcy filings to see if the homestead property is the subject of a "slow paced" or early stage mortgage foreclosure. When they find one, they approach the bankruptcy trustee to acquire the property, which they can accomplish relatively quickly in bankruptcy. They then evict the homeowner and rent the property out to a third party until the bankforecloses.  Given that it can take over a year for a bank to foreclose on a property, the land trust stands to gain a considerable profit from its $1,500 investment.  The bankruptcy trustee benefits from its commission on the sale and will obtain $1,500 to pay the debtor's creditors.

Should this practice gain momentum, the ability of homeowners to use bankruptcy as a means to protect their homes (or as a means to remain in their homes longer) will be lost.  In fact, this practice could result in a much swifter eviction process for homeowners than would be the case outside of bankruptcy. In other words, the bankruptcy filing could backfire on an unsuspecting homeowner. So homeowners considering bankruptcy as an alternative to the voluntary sale of their property should be very careful. For further information regarding options for homeowners facing foreclosure and/or bankruptcy, contact an attorney.

Berlin-Patten, PLLC.

2012 Will Be The Year of The Short Sale

While Sarasota seems to found its footing in the real estate market the past few months.  Yes, pending sales are up 38 percent for January.  not only are the numbers of units up, but so are prices.  In January of 2012, a total of 963 contracts were signed.  Single family homes have risen to a median price of $162,000.  So, what is going to happen in 2012?

I think there are two scenarios:

1. There certainly seems to be some inertia gathering around the housing market and prospects for a strong 2012 seem to be in the making.  The inventory is down, rates have remained low and Sarasota continues to get great publicity as a destination for people who are looking to invest or want to purchase a second home.  I am predicting a strong year for our area.

2. We still have some pressure from foreclosures.  If you look at the tax records that are available to realtor's, there are still a large number of foreclosures that are looming out in the market place.  Another stress on the market will be people who want to short sale their primary residences in 2012.  They may have been waiting to ride out the foreclosure process and drag out the proceedings, but after 2012, there will not be tax forgiveness given with regards to the 1099 someone might receive at the end of the year .  The government enacted legislation in 2008 that would give relief to  homeowners who might have had a large tax burden otherwise.  The cap on the forgiveness is $2,000,000.  Even at a 15% tax rate, a $2,000,000 mortgage forgiveness would save a homeowner $300,000 in taxes.  These factors will cause many people to go ahead and put their homes on the market.  This will keep home prices depressed, but I think we will see some relief as these short sales get absorbed into the market.

If the banks are smart (that will of course be questioned), they will slowly release their foreclosed properties back onto the market.  I think that will be one of the keys as to whether Sarasota makes a strong comeback in 2012.

Bank of America Deal Can Put Money in Your Pocket

Bank of America is offering up to $20,000 to people who will put their house up for sale if it is in the foreclosure process.  Bank of America contends that thousands of people will benefit from the the new program.  To date, only 60 Floridians have received anything from BOA (BAC) through the program.  The program lasts until August of 2012 and the hope is there will be thousands more who will take advantage of the program.

Bank of America said that the program is being offered to qualified homeowners (homesteaded properties) who will list their property and get an offer that is acceptable to the bank.  The owners would get 5% of the unpaid mortgage balance as of August 2011, with a minimum payment of $5,000 up to a maximum payment of $20,000.  The guidelines state that the sales price will not impact the payout.  My guess is that the rules and guidelines are a moving target and in flux.

Why is Bank of America offering the incentive?  The goal is to save the lender thousands of dollars in attorney fees, taxes, carrying costs if it goes to foreclosure, damages to the house that hurt the value, and court costs.  It also helps the bank get their bad loans off the books.

I guess you have to make a decision as to whether it is worth it to try the program.  If you are paying $5,000 and can fight the foreclosure for 3 years, it may not make sense to try the program. But, if you are along in the foreclosure process, it might make sense to give the program a try.

The other aspect of the program that might be more  appealing is the fact that the bank may waive the deficiency.  If that is the case, that would be a win win situation for a homeowner.

If you want to discuss your options, feel free to email me and I can put you in touch with a foreclosure attorney.