San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

Let me just start by saying this is my effort at sharing an experience I encountered today so that newer agents out there do not fall into the same trap.  Hopefully someone can walk away having learned something positive from this experience.

I have always believed the first rule of negotiations is to know where you stand before you engage the other party. Pretty elementary, right?  Sort of the first rule of negotiations 101.

Well, it seems that little gem of advice is sometimes lost to Realtors out there who proclaim themselves as  being “professional negotiators” as if that were a special badge of honor that only a handful secretly receive.  We Realtors are all negotiators, it just seems some are better prepared and do the prep work to insure they do not look incompetent.

Unfortunately, these days, in their desperation to close any deal, agents sometimes open themselves up to ridicule and more importantly, do their clients a dis-service by not being adequately prepared when they negotiate. Not only will they not get a deal, they may possibly lose the client whom they failed to protect.

I am engaged with a veteran agent (probably 30 years in the business) who is on the buy side of a deal.   The deal is taking longer than anticipated because one of the lenders is dragging their feet in coming to a decision on a short sale.  Everyone is frustrated including me, so I understand his impatience.  But nothing can happen until the second approves the deal.

But today he was trying to re-negotiate the price on the deal in a back-handed way which I did not really appreciate.  First, he claimed that the prices in the complex were falling drastically in the past two weeks and he now believed his client was over-paying for the property.  I told him if he believed that to be true, then his clients had the right to back out and I would return the deposit; I have a back up offer that will be glad to fill in.  (His claim of prices in the complex dropping is incorrect).   Secondly, he claimed we may not close in time to claim his client’s $8,000 tax credit because we cannot, at this point close escrow by June 30 (This is true).  Finally, he claimed his client was further harmed because the California Tax Credit (up to $10,000) had been exhausted within 2 weeks of it being announced (This was news to me) and he couldn’t get that either, so he wanted to reduce the offer price.

I understood the message he was trying to convey: 1) that the prices in the complex were falling and 2) the California Tax Incentives had run out and his client was depending on that.  He was claiming his client was hit with a double whammy.  Well, I would have been sympathetic if he had verified these claims before he made them to me and tried to unilaterally re-negotiate the contract.

1.  He was simply uninformed about the prices in the complex.  They were not falling dramatically, an identical unit had come on the market only 7 days ago for nearly $10,000 more than the price he offered to pay.  This is basic stuff, you check the comps before you talk prices.   2.  His claim that the Tax Credit fund had been exhausted, was again, an incorrect claim.  http://www.ftb.ca.gov/individuals/new_home_credit.shtml The fund is only 57% depleted!  I have no reason to lower the price; I am thinking he should raise the price since the house looks like a better deal now than before.

I shot down the grounds for his argument in 5 minutes.  He could easily have verified the information if he took 10 minutes to go online and look them up before he made these false claims to me. This is an individual who has been selling real estate for probably close to 30 years.  This was simply embarrassing for him and certainly did not make his client’s case any stronger.  Now I question whether I want to continue to do business with him or simply deal with the back up offer.   What was he thinking?  All he managed to demonstrate today was that he doesn’t know the first thing about negotiating and now has planted a seed in my head as to whether he is a competent agent or not.

Folks, check the comps and do your due diligence before you start making claims which could back fire on you and your clients.  That’s your job.

The debate has been whether the Federal Tax incentive was effective or not.

Let’s look at some numbers.   First Time Home Buyers who were eligible for the tax credit purchased 44% of all homes in March 2010, pushing up total home sales by 6.8%. 44% of all purchases.  I think that is a very strong argument that the program was effective.   I’m sure we will learn more as we get the numbers for April, when the program ends.

http://www.dsnews.com/articles/existing-home-sales-jump-68-in-march-2010-04-22

The buzz in the recent weeks around here for me has been about the newly resurrected California Tax Credit.  It is certainly causing the fence sitters, who thought they did not have enough time to qualify for the Federal Tax Credit,  to dive head first into the purchase market now they have more time to qualify for another program that is possibly worth more.  HOWEVER, THERE IS A SMALL WINDOW OF OPPORTUNITY where a buyer may BE ABLE TO QUALIFY FOR A TOTAL OF $18,000 combined credit.

To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.   Please check with your tax professional for specific details.

The issue for the California Tax Credit is that it is limited to $200 Million in total, hence it the fund runs out before the deadlines, you will be left holding the bag like last year.  First come First Served basis again.

Here is a quick side by side comparison to help clarify matters of concern.

Just got a letter from CAR President announcing that Gov. Schwartzenegger signed into law AB 183 which will provide up to $200 Million tax credit to home buyers of both new and existing homes that are purchased between May 1, 2010 – December 31, 2010.

Highlights:

* principal residence

* credit equal to $10,000 or 5% of purchase price, whichever is lesser amount

* credit to be taken in equal amounts over 3 years

* must live in home for at least 2 years

With the Federal First Time Home Buyer Tax Credit set to expire if the buyer is not in contract by April 30,2010, this is the perfect complementary plan to continue to encourage California Home owners to purchase throughout the remaining year  so that we can continue to deplete the excess inventory of distressed properties that are out there  and will continue to hit the market place in the months to come.

Fantastic Job Governator!

http://www.mercurynews.com/breaking-news/ci_14524392

Unfortunately we set a 30 year record in January 2010: more people are out of jobs than they have in 30 years up  from 12.3% in December 2009, but there seems to be an upswing  as 32,500 people gained employment in the same month.  A mixed message.

Regardless of how we interpret the data, one thing is very clear: there is a direct correlation to reduction in home buying behavior and unemployment. Regardless of what people may say about homes being more affordable now than ever before, if there is no sense of security in employment front, there will be no home purchases!

So what does this mean?  All this effort in providing tax credit incentives is great, but unless and until there is a concerted effort by the State and  Federal Governments to tackle the issue of unemployment and more importantly, to improve this number, there will be no increase in home purchasing activity.

In fact, as long as more people are losing jobs, they will start or continue to fall behind in making their mortgage payments, which will increase  the activities in the distressed properties market, which will result in home prices falling, which then will continue this drag on the economy as industries related to real estate continue to suffer and lay off more employees.  Truly a vicious circle.  Right now, 1 out of 6 home owners is behind in their mortgage payments.

So we all should pressure our politicians in D.C. to stop playing politics and get at the job for which they were elected: improve the economy by creating more jobs.  Everything else is secondary.

As everyone knows, the volume of FHA loans funding first time home purchases has increased dramatically in the past two years.  It went from 3% to about 50% of the mortgage market today.  It is a great product for first time home buyers who want to capitalize on the current first time homeowner tax credit offered by the government.

However, because the down payment requirment is 3.5% of the purchase price, many buyers who use this product often have limited access to additional cash that may be required to address some of those unforeseen situations that sometimes arise when purchasing a home.  This is especially true when they are trying to compete on multiple offer situations and they need additional funds to later for repair work.    From my own experience, most FHA buyers walk away from certain homes they like because they simply do not have funds for repair work.

However, this does not necessarily have to happen.  What their agents are failing to inform them is, there is something called a FHA 203(k) loan which was designed specifically with this type of need in mind.   The 203(k) is a repair program which can be rolled into one single loan.  It is the lifesaver for those who want to buy a home that may require repair work.

I am a real estate expert, so I will not get into the specifics of this loan product, but a good loan agent should be able to explain thing in detail about this wonderful product which escapes the radar of many home buyers.  If you are in Silicon Valley and don’t know a good loan agent who can explain this useful product to  you, then contact me and I can set up introductions.

Until January 31, 2010, it is forbidden for a property to be purchased using an FHA loan if the property had been owned by the seller for less than 90 days (unless you are a bank trying to unload an REO property).  In a nutshell, it was very difficult for buyers to purchase a home which was remodeled for a flip by an investor; or simply from an investor who just purchased it with the intention of re-selling it quickly.    (We won’t get into the rationale behind the prohibition here today.)

Given the amount of interest in the marketplace for first time homebuyers trying to use the tax credit incentive to finance their first purchase, it was quite challenging to find good properties for buyers to purchase here in Silicon Valley.  This also contributed to lots of properties receiving multiple offers.

As of February 1, 2010, that prohibition will be lifted for one year.  (Click here for the specifics).    Now buyers using FHA loans (which according to some stats say represents up to 40% of all financing) can have access to a source of properties which was not available until now.

This change should: 1) encourage investors to purchase more properties from distressed markets knowing they can turn around and sell them immediately without incurring additional carrying costs and/or 2) encourage FHA buyers to purchase more properties from these investors.

Either way, this act along with other proposals should help deplete the inventory of distressed properties out there, so we can more quickly lead back into a normal housing market.

In less than a week 2009 will leave us behind and we will greet the new decade by welcoming 2010.   In the last 3 years of the past decade, we have seen a dramatic shift in the real estate market place.  A shift that most of us could not fathom in the beginning of the passing decade; yet reality bit us hard and we got to live through an epic correction in the real estate market place.

Are we out of it yet?  Of course not. Have we by-passed the worst of it?  Probably.

However, as long as Silicon Valley’s unemployment rate remains above 11% and the dreaded shadow inventory along with the toxic option ARM fiasco about to recast in the coming couple of years, things will not be back to normal and we will not be completely out of the woods for a few more years until the market fully corrects itself by ridding itself of the excess capacity of distressed properties.

But, I don’t want to imply that there is only gloom in the horizon.  According to newly released sales data from CAR (California Association of Realtors), we here in Santa Clara County did fairly well in the past 12 months: the median price of our homes increased by 17%! I am quite certain that increase was largely fueled by the First Time Home Buyer Tax Credit Incentive program.

We went from $515,000 in November 2008 to $605,000 in November 2009. (Chart A)  That is certainly a step in the right direction towards price stabilization on the one hand, but a bit disconcerting because the affordability index has now fallen for two consecutive quarters and is now on a declining slope.   (Chart B)

I personally don’t believe it is in our best interest to get back to the peak prices of April 2007 when the median home price reached $868,410 (Chart C) and only about 25% of the first time homebuyers in California could afford to buy a median priced home (keep in mind that the median price in California is significantly less than Santa Clara County).  As the data in Chart C demonstrates, the median home price is inversely proportionate to the Affordability Index.   It is better for us to have lower prices so more people can afford to become home owners.  But regardless of what I think, the market will dictate prices.   We will see next year how the market reacts to the changing economic factors.

There has been quite the debate as to whether the Federal Government’s credit to first time home buyers actually helped stimulate purchasing activity or not.  The premise was based on the notion that in order to stimulate the depressed housing sector, an $8,000 credit towards first time home buyers would give incentive to those who otherwise would be renters into taking the dive into the world of home ownership.

The argument on the opposing side was that the program was merely wasted stimulus money because those first time home buyers who were going to buy were going to buy anyway because bargains could be had, so giving them a tax credit did nothing but throw money at people who were going to buy anyway.

Which side was correct?

Some recent sales data may shed some light into whether the Federal Incentive was a success or failure.

http://www.google.com/hostednews/ap/article/ALeqM5hnu6sB3PemlhadTaizNLLJMgRONAD9COFKEO0

According to the article above, November pre-owned home sales increased 7.4% over the previous year and translated into 6.54 Million homes sold.  The surge is the highest in the past 3 years.  Much of that activity was attributed to the tax credit.

“About 2 million homebuyers have taken advantage of the credit so far, the National Association of Realtors said Tuesday. The group forecasts that another 2.4 million will use it by the middle of next year. First-time buyers made up about half of all transactions last month, driving sales up 44 percent above last year’s levels, a record jump.”

The results of a Campbell Survey which is conducted on Real Estate Agents nationwide on a monthly basis reveal an interesting side effect to the extended tax credit.  The extended tax credit also permitted existing home owners to participate in the program by permitting them a $6,500 tax incentive.

Rather than seeing a lot of activity by the first time home buyers as anticipated, there was, instead, a dramatic spike in current home owners participating in purchasing activities.

“The first-time homebuyers started to lose interest in October when it appeared that Congress wouldn’t extend the credit. When the credit was finally extended in early November, current homeowners jumped at the new opportunity for a tax credit on their home purchases.”   Said Thomas Popik of Campbell Surveys, explaining the results.

Regardless of whether it was the first time homebuyers or current home buyers, what is clear is that there was a dramatic increase in sales activity as a direct result of those tax credits, which means the program was successful in getting people to buy homes.  And that is a good thing for everyone.   What is clear is when homes are sold, that leads to jobs in ancillary industries like mortgage brokers, home inspectors, Title and escrow professionals, handymen and contractors, hazard insurance sales professionals, lawn care professionals, etc……

There have been some changes to the Homebuyer Tax Credit program which President Obama just signed.  Now the program has been expanded beyond first time homebuyers.  Here is a chart which compares the old and the revised version of the program.  In either form, the program is heading in the right direction in taking distressed properties off the market and helping stabilize prices and the real estate market in general.