Bits & Bytes on Friday

I thought this story was worth telling. Many small builders are paying a big penalty in this market.

The first six weeks of the year, contracts in my office were up approximately 100% above those same six weeks in 2008. A sign? Too soon to tell, but it's nice to see some good news!

Finally, some input from consumers backing up what I've come to believe about virtual tours. I'll grant you it's not a scientific sample. But I'm taking it as reinforcement!

I'm highly competitive by nature, although I hide it well! There's a listing contest in our office. Whoever gets the most new listings by the end of March wins. Here's the thing, I talk most sellers out of selling because in this market if you don't HAVE to sell in the next 12-24 months, you should probably not even try. But if you no someone who really does need to sell...I'd love to win!

Plant A Row

The good news is that spring is coming! You can see it in the buds on the trees and the bulbs poking their shoots above the ground!

The bad news is that the economy is likely to make it a rough spring and summer for a lot of people locally and around the country. 

The good new is: you can help!

Fauquier County is going to participate in the Plant a Row campaign. This is a nationwide effort started about a dozen years ago. Local gardeners are asked to plant one extra row to feed local hungry families.

I'll be coordinating the local effort here in Fauquier. Most gardeners produce more than they can eat in a good year. Why not do it deliberately this year and help your hungry neighbors?

The guidelines are simple. Clean off the excess soil on vegetables but don't wash them. This helps them stay fresh longer. Keep in mind that these vegetables will need to stand up to some local travel and handling. The fresher they are, the better. Please don't donate the damaged, rotting fruit and vegetables.

Signing up to help is simple! Just send me an e-mail at Julie@JulieEmery.com and let me know you're participating. I'll add you to the e-mail distribution list and get you some information on where to drop off the fruits and vegetables. 

Once you drop the produce off it gets delivered to local food banks, pantries and distribution centers.

If you don't garden we can still use your help! You can help us get the word out! We'd be happy to give you flyers you can distribute or post in places where lots of people can see them. We'll also need volunteers to help transport and sort produce during the growing season. Let me know how you'd like to help and we'll put you to work!

We can't fix the entire economy. But maybe we can make sure no one in Rappahannock goes hungry this year!

Sad Ending

A smarter agent/blogger would no doubt have waited to write this blog. Emotions are still pretty raw.

I learned today that a house I have listed for sale in Fauquier has gone into foreclosure.

We've had this listed as a short sale for at least seven months. For slightly less than six months we've had an offer on the table, an offer very close to what the bank's own BPO came in at. We've been unable, despite daily phone calls, to get the bank to move forward with that offer.

In the interim, as the house has sat empty, it's been repeatedly vandalized. The first incident resulted in the theft of both heat pumps. The most recent theft involved copper plumbing and the water heater.

And, over these six months, property values have continued to decline.

The bank is now sitting on a property worth substantially less than the offer they had in their hands.

The owners will have a foreclosure on their credit record rather than the short sale that would have been less damaging.

The potential buyers have wasted all these months and so many hopes and dreams on a house they won't be buying any time soon.

I'm out many months of work for no compensation at all.

And, it didn't have to work this way.

This is the first short sale that I haven't been able to get to settlement. I'll admit to being angry as well as sad.

Would I take another short sale where this same bank held the note? Absolutely not! Will I be warning other agents about dealing with this particular bank? Of course!

If there are days I seem less than sympathetic to the losses being suffered by many financial institutions, here's a good reason why.

The Other Good Deal

While bargain hunters have been avidly focused on foreclosures and, to a lesser extent, short sales; another segment of the market also offers some spectacular bargains.

Builders who have inventory already built want to get rid of that inventory quickly. In this area, builders haven't been building spec homes for some time now. These homes are generally homes where a contract fell through. Occasionally, you'll see a model home for sale where the builder has finished building in that subdivision.

These homes can be tremendous deals. Builders don't want and usually, can't afford to sit on inventory. It ties up cash they need to pay off loans and move forward with other projects. And, so they're typically priced attractively to start and an even better deal can be negotiated.

Unlike typical new construction, these homes may have the basement already finished. And you're likely to see a fair number of upgrades already included. And, if you don't like exactly what you see, don't be afraid to ask for what you want. While they're not going to gut the house and redo it to suit your taste, there is probably room for some changes.

True, there aren't as many of these bargains as there are foreclosures. But you also don't have as many of the problems as arise with a typical foreclosure. The odds of you settling on time and being in your new home when you expect to are exponentially higher with new construction. You're likely to receive an answer to your offer much more quickly. And there's much less likelihood of last minute deed problems.

There are still builders with inventory in most local counties, including Fauquier, Culpeper, Prince William and Loudon.

If I was a buyer in the market to buy, I'd be looking for some of these gems.

Where's The Money?

Virginia was awarded $38.7 million from the federal government to buy foreclosed homes. This was part of the Housing and Economic Recovery Act of 2008. And, Virginia's been trying to get rid of it ever since!

The program is called the Neighborhood Stabilization Program. The funds are designed to allow local communities to purchase foreclosed homes and then to rehabilitate, resell and/or redevelop these properties to stem the decline of housing values in a neighborhood.

And, even better, it's then possible to combine this with other programs to help local police, teachers, firefighters, etc. to become homeowners.

So, why is the Commonwealth having so much trouble giving this money away?

They recently sent representatives to the mid-year Virginia Association of REALTORs meeting to drum up interest among real estate agents. The Commonwealth has sponsored a series of seminars around the state to inform localities about the program and how to apply. And, still, much of the money goes unused.

I know it's not because local communities don't have a problem with foreclosures! Ask anyone in Lakeview in Culpeper if they'd like to see some homes bought up by the government to help stabilize housing prices!

So, I'm going to theorize why the money sits there.

1. Local governments view the burden of taking this project on as requiring too many resources. There is, of course, paperwork to be submitted. Appropriate neighborhoods must be found and data on the property values and vacancy rates obtained. The requirements state that a qualified pool of buyers must be available. Once homes are bought with this money, they must be rehabbed and then sold. Potential buyers must be screened, etc. This probably all sounds overwhelming to local governments already spread thin.

Solution: Partner with local real estate agents, Habitat for Humanity and other local groups who can contribute expertise. Form a task force to make this happen. I'll volunteer my time to make this work!

2. A belief that there aren't any neighborhoods that qualify. They're looking at neighborhoods that have somewhere in the neighborhood of 10% foreclosure rate.

Solution: But "neighborhood" is defined by the local entity and as long as you can justify why you chose that as a "neighborhood" it shouldn't be too hard to find areas that would qualify. Heck, last time I checked there were enough foreclosures in Rappahannock County to qualify!

3. The word hasn't gotten out and local governments don't know about the program.

Solution: I'm doing my bit here. I hope other bloggers will add their voices. Local press can help. And local communities of individuals who might benefit, i.e. teachers, police, fire fighters, can let their local governments know they'd like to see this program used here.

The Housing Rescue Plan

I'll admit I'm disappointed. I am underwhelmed by this package.

Will it help some additional homeowners? Yes, absolutely. Will this have a serious impact on the overall housing market? I seriously doubt it.

First, the plan is that if you owe more than your home is worth, you'll potentially be able to refinance at a lower interest rate. There are financial incentives to both banks and mortgage servicers to do these loan modifications.

Here's where I see the problems.

First of all, the new first mortgage must not exceed 105% of the current value of the home. The problem is, most of the people in trouble are much further in the hole than this. If you bought your home three years ago, put almost no cash down and have seen the value of your home decline by 40-50% this plan is of no help to you. And, that's a pretty common scenario in this area.

This plan is still entirely voluntary on the part of the lenders. Like every other plan announced thus far, it depends far too much on banks being willing to participate. There is a little carrot here, but it's a very small carrot that seems unlikely to be very effective.

The plan still does not require any reduction in principal. Until the banks are required to reduce the principal, to take their lumps, I don't believe this problem gets fixed.

And, maybe just as importantly, as long as the banks books continue to not reflect the real value of homes, I don't believe they can ever recover, nor will their stock prices.

It's a wishy washy plan and I'm disappointed.

The $8000 tax credit in the stimulus plan will do more good than this.

2/20 7:30 p.m. update:

I've been reminded that the details aren't going to be available until March 4th.

I've also been reminded that there will be a mandatory component for those banks that took TARP money.

I hope I'm wrong and this is wildly successful!

Killing Dual Agency

My friend (and fellow VLA alumni), Jim Duncan, announced his move to Nest Realty Group this week. It's a new firm in Charlottesville that will NOT practice dual agency.

Jim's latest video blog talks about why he's making this move, how hard it is to kill this outdated practice and what he's hoping consumers will see.

I'm honored to know Jim and applaud him for having the courage of his convictions.

It's long past time to kill dual agency once and for all! The only ones benefiting from this practice are real estate agents. Consumers and the agents who get this will have to work together to end this practice!

Time to Help Homeowners

The Huffington Post's lead story today is a suggestion that it's past time for the government to pay less attention to helping banks and more to helping homeowners.

The story is dead on in its cataloging of the ill effects of foreclosures on the rest of the economy.

And, if there were no foreclosures the banks would not be in trouble in the first place!!

I'm stilling trying to figure out why this hasn't sunk in to anyone but Sheila Bair at the FDIC.

I'd also like to know when Virginia will adopt the Philadelphia Residential Mortgage Foreclosure Diversion Program.

If tomorrow's announcement by the President isn't "good and solid and big and bold" I hope homeowners everywhere scream bloody murder!

January Market Statistics

It's time to take a look at what the market results for January had to say. And, once again the picture remains positive if you're looking for good sales numbers.

In Culpeper the sales for January dropped by about 50% from the previous month. But lest you think that's a negative, that's still about 30% higher than at this time last year. Inventory continues to shrink, down to about a 16 month supply right now. And, based on the number of contracts written, things continue to sell. This is all good news for sellers. The bad news remains that what is selling is primarily foreclosures and they're selling at a steep discount. The average sales price fell about 40% year over year. And, as long as the foreclosures continue to hit the market, pricing will remain depressed. More on the picture later.

In Fauquier County we see the same kind of patterns with inventory falling to a 15 month supply. Sales fell there in January as well, but again, that may have more to do with the holidays than with any specific market forces. And, the number of contracts written remains strong. In Fauquier sales prices were more stable in January, falling only 4% year over year. That's one month's data so it's too soon to tell if that's an anomaly. With 15 months of inventory I'd be surprised to see any significant strengthening of prices in the short term.

Prince William County is the place to be if you're a seller, but may be becoming problematic for buyers. We're down to a five months supply of inventory. That indicates we've got a pretty balanced supply of inventory there. And, my experiences there bear that out. As I was showing homes this weekend in Prince William, a smaller percentage of what I showed were foreclosures or short sales. But prices are still down significantly, 34% year over year.

Rapphannock County also saw inventory shrink this month, falling to 73 homes for sale. That's a pretty fast turn around from the high of 103 we saw in October. Some of that is attributable to sales, but much more of it is from properties being withdrawn from the market. And, even in Rappahannock County there are foreclosure sales. One occurred just down the road from my house this month.

The real estate market may be about to see some changes, however. In anticipation of the President's announcement on Wednesday of a plan to help the real estate market, many banks have now announced foreclosure moratoriums. The banks include giants such as Citi and Bank of America. And Fannie Mae and Freddie Mac had already announced foreclosure moratoriums of their own. With only five months of inventory available now in Prince William County we may be on the verge of seeing some price stabilization at the very least over the next couple of months. Depending on what happens after the moratorium there's even the potential for some price increases.

If I were buying in Prince William county I'd be tempted to jump sooner rather than later. As I believe this is the best combination of inventory, prices and incentives you're likely to find for the next several months. In Fauquier and Culpeper inventory levels are high enough that I think you could justify waiting a couple of months to see what will happen. And, in Prince William, it's possible that next fall the edge would go back to the buyers again. But that's a little too far out to predict without knowing what actions we'll take from DC.

Update on Stimulus Package

There are now two versions of the Stimulus Bill, a House version and a Senate version. You can compare the two versions on CNBC's website.

The $15,000 tax credit made it into the bill. The reduced mortgage interest rates did not. However, there's some talk about stripping the tax credit in the conference. Now might be a good time to talk to your legislator!

There is still some hope for the reduced (4%-4.5%) mortgage interest rate. The bill allocates $50 billion for the Treasury to use to reduce the incidence of foreclosures. Lowering interest rates would certainly help in that effort.

Stay tuned!

Paragraph 7

The interpretation of Paragraph 7 of the local real estate contract came up recently with a buyer client. I'm sure my client isn't the only buyer to wonder about definitions for this paragraph so I thought it would make a good blog post.

Here is the language of the contract:

Purchaser accepts the Property in the condition as of the Contract Date except as otherwise provided herein. Seller warrants that, except as otherwise provided, the existing appliances, heating, cooling, plumbing, electrical systems and equipment, and smoke and heat detectors (as required), will be in normal working order as of the Possession Date. Seller will deliver the Property in substantially the same condition as on the Contract Date and broom clean with all trash and debris removed. Purchaser and Seller will not hold the Broker liable for any breach of this paragraph. Seller will have all utilities in service through Settlement or as otherwise agreed.

The phrase in question is "normal working order".

This phrase is, unfortunately, open to interpretation. For example, when you bought your oven, it was calibrated at the factory so that when you turned the dial to 350 degrees, that's exactly what temperature you got. However, as your oven has aged, there's a pretty good chance that there's been some slippage. 350 degrees may now mean 360 degrees. Should "normal working order" mean that it must heat at exactly the precise temperature it did when new?

Typically, this phrase has been taken to mean, if it's working at the same level as it was on the contract date, that's good enough. That's barring any negotiation on this point in the home inspection.

My client questioned whether "normal working order" shouldn't really mean "to current code". And it definitely is not interpreted in that way. If the home was built in 1940 there is no requirement that it meet current code. Although, renovations/additions must have met the code at the time they were built.

As with all contracts in Virginia, remember that this is very much a "buyer beware" commonwealth. Do all your due diligence and take it seriously. When you get to the settlement table it's too late!

The Real Estate Stimulus

The Senate, yesterday, passed an ammendment to the stimulus bill that would create a $15,000 tax credit for home buyers for the next year. It would apply to anyone buying a primary residence, new construction or an existing home. It passed by unanimous voice vote and appears to have no serious opposition.

That doesn't ensure it will still be in the final bill, but the odds appear pretty good.

Today the Senate is likely to vote on a provision that would lower mortgage rates for purchases or refinancing to 4.5% or lower. Again, it seems like there's a good chance of passage.

All this is very good news and could bring out a lot of new buyers in the next few months. And, one senator suggested that this would not be the end of the help for the real estate market.

Are we about to turn the corner? Stay tuned, but I'm feeling pretty optimistic today!

Loudon County Mold House

In case you missed it, there was an article in the Metro section of Sunday's Washington Post regarding a new home in Loudon County where there was a significant mold problem.

The family got sick and sued the builder. The family won and was awarded over $4 million.

People buy new construction, in part, because they believe they won't have to deal with problems like this. Buying new construction is no guarantee of anything!

The other thing to watch for out of this is an increase in paperwork. Real estate related lawsuits are inevitably followed by an increase in paperwork. There will surely be new mold disclaimers, especially in new construction.