Carl Medford's East Bay Focus

I made a life changing decision a few years ago. I remember the event vividly: the exact time, location, and the intensity of the moment are burned into my memory. I was at California’s Great America theme park in Santa Clara and it wasn’t one of my finer moments. The decision made then has altered the way I live my life, has helped preserve my sanity and, more importantly, has maintained my dignity.

I swore off the Flight Deck, Vortex and Invertigo rides at Great America.

I like the park. And I’m not against the rides. My kids can ride them all they want. Me? Not so much. I know my limits, and, unfortunately, my inner ear sensitivity appears to be on the increase since grey strands have begun poking their way through my scalp. I no longer enjoy the sensation of having my inner organs totally rearranged as I’m propelled upside down through the machinations and turns of the local twisters. And, the truth is, I don’t need a roller coaster with the word “Demon” in it to get an adrenalin surge these days.

The Bay Area real estate market this past year has provided a more volatile, thrill generating, gut wrenching and nausea inducing ride than any theme park death defying machine I’ve ever been on.

This post is not going to explain the tax credit. A recent search on Google revealed thousands upon thousands of hits for articles doing just that. As an example, Laura Saunders of The Wall Street Journal does a great job of explaining everything. And there are tons of posts here on Trulia chiming in as well. If you don’t understand the tax credit by now, your name might very well be Rip Van Winkle.

I want to ruminate on the EFFECT of the tax credit.

If the buyer mania resulting from the previous tax credit was any indicator of a consumer-based response to a government incentive program, then I predict that the newer “improved” tax credit will cause an even larger ripple in the months that lie ahead.

I believe a serious analysis of the past 12 months would verify that the credit performed as hoped in the Bay Area. After carting around dozens and dozens of hopefuls and putting record numbers of first-time homebuyers into their first home, I can vouch from personal experience that there can be no doubt that the tax credit incentive played a large part in the market mania this past year.*

And mania it was: standing in line to view homes, competing in multiple offers on virtually every property in sight and watching as diminishing prices at the bottom of the market screeched to a halt, waivered for a brief moment and then began to climb.

It’s been quite a year. And, it appears, we ain’t of the woods yet.

The tax credit has been revived. Not just brought back to life, either. It’s been reincarnated as a bigger-badder version of it’s previous self. In addition to re-upping the existing $8,000.00 credit to first-time homebuyers, now we have an additional $6,500.00 credit for existing homeowners as well.

I therefore want to make a couple of predictions. This is not Realtor-hype to get you to “Buy Now!’ or self aggrandizement. It’s not belly-button gazing or myopic wishful thinking. These are the careful thoughts of a seasoned Realtor based upon real market conditions and a bag full of experience.

Prediction #1: The market is going to continue its red-hot pace for the next six months or so.

Please say it isn’t so. Wish I could. We’ve had to reinvent the way we do business to keep up with the market. We’ve had to devise new strategies to compete with the dearth of inventory and excessive number of buyers and multiple offers. It has not been easy – in fact, it’s been a lot of very hard work. Exhausting work. I seriously want the market to slow down. I wish it would take a chill, sit back, get a load off its feet, sip a cool one and mellow out.

Don’t think it’s going to happen, unfortunately. As the window for the previous credit drew to a close, the market visibly cooled. However, as soon as the new credit was announced, my phone started to ring again. And ring. With continued low rates and record low prices and now the new credit, I believe we are going to keep rolling.

Prediction #2: In addition to the existing record number of first-time buyers entering the market, we’re going to see an additional second layer of buyers enter as well.

It’s no secret there are thousands of buyers out there right now. Thousands upon thousands. And I believe the new credit for existing homeowners will add yet another entire layer of buyers to the market. As if things weren’t crazy enough already.

Here is where it gets interesting: I’ve personally seen rabid buyers willing to pay an additional $40,000.00 for a property just to get the $8,000.00 tax credit. I know – didn’t make any sense to me either. Knowing human nature as I do, I don’t think it’s too hard to imagine a fence-sitting seller seeing this new credit as the incentive needed to get off the rails and get their house on the market in order to move up. Even if it costs WAY more than the credit to do so.

And there are others of the saner persuasion who’ve realized that now really IS the best time to move up – the margins are as low as they will ever be, the lower segment of the market is slow inching upward … it just makes good financial sense. The credit will probably be the gentle nudge they’ve needed to get going.

If this happens, we’ll see much needed inventory entering the market, especially at the bottom. We might also see the soft “middle” segment of the market start to firm up – it’s been very soft in most regions of the Bay Area. Unfortunately, I don’t think this will affect the top of the market very much – there are currently too many factors pushing the top of the market down.

However, we’re still going to have a SERIOUS problem to contend with.

With an extra layer of buyers out there, we’ll need MORE inventory. And inventory has been at an all-time low. The rush of buyers to get in before the credit expired literally drained inventory bone dry. If banks continue to regulate the flow of REOs (and I think they will), then we could be in for another long haul. I personally do not believe we’re going to see a flood of inventory that will adequately meet market need any time soon.

Keep in mind: THIS IS FOR THE SAN FRANCISCO BAY AREA.

There are many other parts of the country (and California, for that matter) that are going nowhere fast. Which brings up a sidebar (read “pet peeve”): I WISH the National Association of Realtors would stop trying to spin the market. NAR's Chief Economist Lawrence Yun recently made comments at NAR’s annual conference in San Diego that, while probably true for some segments of the Bay Area market, are VERY doubtful for many other sections of the country. It’s embarrassing to hear the continued hype and Pollyanna promises. And posts across the country are already mocking the comments and predictions … My intent in this blog has always been to present opinions and projections based on real market data and having both feet in the local market on a daily basis. The fact that we do a large volume of transactions hopefully adds to our credibility: this is not wishful thinking here.

SO …

A credit extension, more projected buyers, record low inventory levels, unbelievably low interest rates and talk of ARMs (adjustable rate mortgages) being reintroduced … you do the math.

Whatever happens in the Bay Area, it won’t be boring. So take a quick breath … and then hang on tight. The first half of 2010 promises to be quite a ride.

(*I’m not discounting the effect of record low prices and interest rates – all in all, there were seven factors contributing to the market mania.)

You’ve heard the stories. A “friend of a friend” obtained a property at a huge discount through “interesting” means. These stories (read "urban legends") are as difficult to substantiate as life on one of Jupiter’s moons, mermaid sightings and leprechaun enslavements. Adding to these speculations are the countless real estate seminars promising to teach you how to become Donald Trump II.
 

Attend the seminar, buy the books and CDs and NOW … you are ready to become a real estate expert.

Herein breeds the notion that there’s a possibility that “you too” can get the deal of a lifetime if you only have the right connections or know the hidden “secrets.”

I am contacted almost daily by prospective buyers who’ve seen an internet link for a property that appears to be listed hundreds of thousands of dollars under market value. Buyers I know spend hours looking for such illusive deals. They’re hoping that maybe, just MAYBE today will be their lucky day, the Blue Fairy will wave her magic wand and, in the same way that Pinocchio became a real live boy, their fantasies will materialize into a real live house.

To be honest, you have a better chance standing in front of a one-armed bandit* in Reno feeding in a bucket full of coins.

Let me clarify two things as clearly as possible:

(1) If it’s too good to be true … (do I REALLY need to finish this)?

(2) If that deal was possible, I’d have bought it myself. WAY.

Here are the top four myths:

1.    There is a “secret sauce.”

Wrong. No sauce. No secrets. And just like there’s no secret sauce that magically adds fifty years to your life, there are no “magic deals” out there. Bargains, if they’re to be found, are the result of meticulous groundwork, tedious searching and lots of hard investigative work. Once in a while, if you’re constantly searching, a “deal” might fall into your lap. But the amount of time required tracking down deals such as this, the hours spent pounding the pavement, knocking on doors, making phone calls, sifting through endless pages of tax documents, running multiple cost analysis spreadsheets … adds up to more than a full-time job in and of itself. Come to think of it, they actually have a job title for someone doing that … “investor.” And the normal prerequisite for the job description is a large supply of cash …

For the remainder of mortals with normal 9-5 jobs and a limited bank account, the best place to find a home is to contact a highly trained Realtor and have them search the MLS (Multiple Listing Service – the place all Realtors place their listings) for you.

2.    There is a secret source of listings.

This myth declares that banks have a secret source of listings you can access once you know the “secret handshake.” Also not true. Foreclosed properties are currently found in two places. If you are a well-connected, savvy investor, you can bid for foreclosed homes on the courthouse steps (see Myth 1 above). But beware - it’s not a place for the timid. As for the remainder of foreclosures? Try the local MLS. Banks have figured out that’s where they’ll get the most bank for their buck.

3.    You can get a great deal at an auction.

Thinking “Auction”? Nowadays, the only properties that make it to the auctions are those rare specimens that aren’t lucky enough to get sold on the MLS or by other normal means. Think … TOTALLY TRASHED, DUDE. As in … black mold. Serious physical damage. Contractor’s special. Serious fixer-upper. Fire special. Etc. Not the kind of home Suzy-First-Time-Homebuyer is really going to realistically buy. And … you will have other people bidding against you. Buyer beware – if you aren’t careful or don’t have a lot of experience, you’ll end up paying WAY more than it’s worth. Click here to read more about auctions.

4.    Pre-foreclosure is the way to go.

How about “Pre-Foreclosure?” Let’s make this one REAL simple. Once a home goes into pre-foreclosure, it shows up on sites like RealtyTrac.com, ForeclosureRadar.com and others. That single action triggers a frenzy of activity which results in the unlucky homeowner being bombarded with countless “invitations” to various methods of disposing of their home. It’s at this point that most of these poor folks stop answering phones and start throwing out huge amounts of unopened mail. As for knocking on their door to talk to them? Get in line. And don’t be perturbed when they don’t answer …

Or introduce you to Max the Doberman. 

In addition, in the current market, 99% of these properties are upside down (they owe WAY more than the property is worth) and to get the property, you’d have to pay off their existing obligations (even an intellectually challenged individual can figure out that this is not a smart option) OR negotiate a settlement with their banks. The last time I checked, this latter option was called … a short sale. You can find a ton of those already on … the MLS.

One last thing here … RealtyTrac advertises on Trulia, and therefore posts notices of defaults that look like listings. What often looks like a spectacular bargain is just … an advertisement to sign up for RealtyTrac. IT IS NOT A CHANCE TO BUY A 3,000 SQUARE FOOT HOME IN MISSION SAN JOSE FOR $36,564.67. Pullleeeez … Click here for more information.

Looking for a great deal? And who isn’t?

My advice is to find the best Realtor you can – one who can teach you the ropes and negotiate on your behalf and let them lead you …

Home.

(*A “one-armed bandit” is a Vegas-style slot machine gambling device. I was just informed some people don't know what these are. Who knew?)

Additional links:

Gone In a Flash (Auctions - Part 1)

Get Out Your Magnifying Glass (Auctions - Part 2)

When Is The Price Not The Price? (I’m TOTALLY Frustrated About This…)

Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems

It goes without saying: we owe our freedom to our vets. Their commitment and sacrifice have laid the foundations for all that we hold dear in America. This was never truer than after World War II. In an attempt to honor vets returning home to set up new lives, the Veterans Administration inaugurated VA loans to ensure that vets would get a shot at owning a piece of the country they’d served to protect.

Unfortunately, while vets may have helped win wars on foreign soil, their VA loans are losing the battle here on the home front in the Bay Area.

On the surface, VA loans look great. Introduced in 1944, VA loans enable veterans and other qualifying military personnel to buy a home with no money down. To ensure a decent living environment, the loans require homes being purchased to meet minimum standards for health, safety and property condition. Additionally, the properties must appraise for the sales price. Finally, sellers are required to pay a substantial chunk of the transaction closing costs.

Viewed separately, these guidelines, designed to protect and provide for veterans and their families, appear wonderful. Add them together, however, and they establish a formidable defensible perimeter difficult to assail here in Bay Area counties. In fact, it could be said that the very regulations designed to get vets into a decent home are actually keeping them from using VA loans to secure those very homes.

It is causing a lot of frustration.

Due to the current Bay Area market’s significant housing inventory shortage, almost every available property in the lower half of the market is garnering multiple offers. With bidding wars in full swing, it’s not unusual for offers to be driven higher than the value at which a property will actually appraise. While not a problem for cash offers, sellers entertaining VA loans must ensure that the price DOES NOT exceed appraised value. To add injury to insult, VA appraisers have been known to appraise on the low end of the scale. It's a lose, lose scenario.

Leslie Berkman, The Press-Enterprise states, “Some real estate professionals accuse VA appraisers of being too conservative, while others applaud them for exercising prudence that was lost in appraising during the real estate bubble.” Whatever the reason, and no matter how noble it may be, in the current Bay Area economy it most often means “no home.”

With sellers calling the shots and multiple offers to choose from, they typically select those providing the best price and terms. Strike One. Paying a vet’s substantial closing costs as required by VA loans also fails to pass muster. Strike two.

And then there’s strike three – property condition. Many homes being sold are foreclosures (REOs) or short sales. In both cases, they’re sold “AS-IS” by banks very unwilling to pay for any repairs required to bring properties up to VA standards. And it goes without saying that many REOs have issues that must be fixed BEFORE escrow can close.

It’s easy to understand the VA rules requiring homes to have both a Section 1 AND Section 2 clearance. However, VA appraisers have been known to be very tough when evaluating homes. In some notable cases, issues called out by VA appraisers that had to be repaired prior to close of escrow have included relatively minor items such as peeling paint. In many cases, vets have had to pay for repairs out of their own pockets BEFORE a property closes just to ensure that the deal will go through. And that violates the very concept behind VA loans.

While a great idea that has helped many vets across the country get a home of their own, here in the Bay Area, VA loans are not winning the day.

The bottom line is this: in multiple offer situations where VA loans are contending with other loans or cash offers, they get outflanked every time.

And that is just not right.

Hosted by newly appointed Trulia Mayor Carl Medford and sponsored by Trulia, the recent Free Trulia Educational, Social Networking and Wine Tasting Open House was a great success!

In an event located in Fremont, CA at 4490 Glidden Way, approximately 40 Realtors and other real estate professionals gathered to enjoy the hors devours, Wente wine, espresso bar and opportunity to get to know each other.

Many of those who gathered for this event are regular contributors to Trulia Voices, the largest online real estate community in the world. It was a wonderful opportunity for those present to actually meet other individuals whose online contributions have contributed to the success of the Trulia Voices platform.

Trulia was represented by Vicky Gkiza, Sr. Product Manager, Community Products (responsible for the oversight of Trulia Voices) and Irit Epelbaum, Product Manager, Agent Products (administrator of the Trulia Pro program). Those in attendance were provided with a presentation of the new Trulia Pro Plus platform and opportunity was given to ask any questions regarding Trulia’s various venues and products. Practical advice was also given for establishing an effective online presence.

Some in attendance affirmed that they’ve built their client base as a result of their interaction on Trulia.com.

Trulia is currently rolling out a new Trulia Pro product, and a demonstration was given with an opportunity for those present to try the new Trulia Pro Plus application for free.

The event for real estate professionals was from 3-5:00 p.m., and then opened to the general public for a Twilight Open House from 5-8:00 p.m. A number of individuals stopped by hoping to meet Trulia Voices they’d seen online, sample the buffet and to see the wonderful home in which the event was hosted.

Special thanks to Glenn and Donna Gebhardt for allowing the event to be hosted in their lovely home.

For many real estate professional attendees, this was a watershed event providing a much needed impetus to help move their careers to the next level. Some, who drove in from as far away as South San Jose and Walnut Creek, are clamoring for similar events to be held in their own specific regions of the Bay Area. Others, unable to attend, are already asking for another local event so they can be present the next time.

All in all, it was a tremendous success and the beginning of a Trulia networking phenomenon that may have national implications.

One can only hope.

In the words of Rudy Bachraty, Social Media Guru at Trulia …

“Trulia, along with Trulia Mayor Carl Medford, is hosting a free educational, social networking and wine tasting Open House event in Fremont, California. When it comes to social media, some people refer to it as an online cocktail party. Well, we’re bringing the online connections that have been made, offline for a little party of our own.”

Part 1 (3-5 PM): Real Estate Professionals Educational & Networking Session

· Meet Trulia Personnel

· Learn Online Marketing Tips

· Learn the Power of Blogging and Establishing a Significant Online Presence

· Network with other Real Estate Professionals

Part 2 (5-8 PM): General Public - Networking event open to all

· Welcome to all Home Buyers, Sellers and all fellow Trulians!

· Meet local Trulia Voices you’ve seen online

· Wente wine bar, espresso bar, hors devours

The hardest sell in the universe ...

Is not selling refrigerators to Eskimos, snow shovels to Egyptians or timeshares to Hawaiians ... it's convincing a homeowner to list their home at market value. More often than not, they have an “emotional” value they’ve established for their home and they won’t be happy listing for less. Even though all the data, logic and reason state otherwise, they believe their home is “special” and deserves SO much more than the identical house down the block ... 

This mindset often gives birth to the notion of “testing” the market. Wanting the best price and terms, they figure they’ll price their home higher than it’s logically worth, “Just to see what happens.” After all, there must be at least one person out there who shares their “unique” perspective about their home and is willing to pay over market value … just because.

There are some SERIOUS flaws with that logic:

1.    Buyers avoid overpriced listings.

They figure if the seller didn’t have enough sense to price it right, they’ll probably be unrealistic other ways as well. And most often, this is correct.

2.    Buyer’s agents are looking out for the best interest of their clients.

If a buyer does look at an overpriced listing, their agent will run the comps and show them what the true price really should be. And any offer will reflect the current comps, not the seller’s “emotional value.”

3.    If it’s priced too high, it won’t appraise.

WON’T. Even if a buyer is willing to pay your price, an appraiser will only assess your home at market value. To make up the difference, a buyer will need to contribute extra cash. The odds of a buyer willing to pay way over market who also has a lot of extra cash are up there with a snowball in a hot place. And this has been made even worse by the recent advent of HVCC (The Home Valuation Code of Conduct). MANY appraisals have been coming in lower than expected.

4.    Listings become stale and lose value very quickly.

Overpriced homes get fewer showings, quickly grow “stale” and lose value. In fact, overpriced listings usually end up selling for less than if they’d been priced correctly to begin with. If they sell at all.

So where did this idea of testing the market come from?

From manufacturers of cosmetics, cleaning products, breakfast cereals, and the like. They “test” the market with their new ideas. Marketing groups inject their product into specific geographical and demographic areas, evaluate reactions to their products and then determine an effective price point. If they don’t get a good response in one location, they’ll change the product a bit and then go to a different locale. If necessary, they’ll change the product and try again. And again. They also keep changing locations until they find an area that accepts the product. They keep at it until they either get it right or determine that they need to scrap the idea and move on.

And … newsflash … the price they’re determining will actually be slightly UNDER market value. When they launch their new product, it will be at a low, promotional price in order to gain market traction.

So how does this relate to “testing the market” with your home?
 
NOT AT ALL!

Whereas a manufacturer has: 

· An extensive R&D Team ...

· A skilled marketing department with a budget of millions ...

· Multiple chances to test a product in varied markets ...

· The ability to “tweak” the product as they go ...

· The financial stability to launch the product UNDER current market value …

A home seller has …

One house. One market. One chance.

So leave "testing" the market to those making jalapeño chewing gum and moose musk shaving lotion. Because if If you don’t get it right the first time, the only true test will be of your patience as you lose time, money AND, potentially,  ... 

A sale.

I have only ONE complaint about this video …

That I didn’t think of it first! 

Having the “distinction” of successfully closing a large number of REO (foreclosed homes) transactions in which we represented the buyers, this video "highlights" many of issues we’ve had to contend with. While watching it the first time, I couldn’t figure out if I should laugh or cry …

You decide.

For additional musings on REOs, see the following posts:

(1) Top 10 Things I HATE About REOs: AND 3 Startling Consequences

(2) How To Buy An REO – Top 17 Questions Answered

(3) Bank Tactics Causing Repeat Of Crash Conditions in San Francisco Bay Area

(Thanks to San Diego Castle Realty and Kris Berg for producing the video!)