There are many questions about the Short Term Rental Ordinance implemented by the city in 2007 and amended in 2009. Passed by the city council to protect the quality of life in our dense urban areas and to provide safety from the impact of over crowding, this ordinance is for residential neighborhoods only. Properties located in the business and commercial districts are not impacted. Of the 350 permits allotted for the program, there are none available and there is a waiting list of approximately 15. Here are some guidelines if you are considering this practice.
A short term rental is defined as a rental for less than 30 days. Exceptions include the owner who resides full time but allows a “vacation rental” of their property for two rentals per calendar year. In that instance only, a permit is not required. Short term rentals that occur in a development containing resort facilities or those operated by an owner who resides on a contiguous lot are allowed as long as they are operated in compliance with the ordinance. Currently, only the development of Quail Run is defined as a “resort” facility. Operators of these rentals are required to obtain a permit but these do not count towards the 350.
Permit holders must adhere to a strict set of rules. These include no more than 17 rentals per calendar year and only one rental within a seven day period. Off street parking must be provided and the number of persons allowed is twice the number of bedrooms available. No recreational vehicles are allowed and there is a noise curfew of 10:00 pm. The owner of these permits must keep detailed and accurate records and pay all applicable taxes in addition to lodger’s tax, gross receipt taxes, and of course, income taxes.
Short term permits are assigned to a property and not the property owner. If you purchase a property with a permit you need to know that it does not automatically convey. The new owner must, within 30 days, make application for the transfer of the permit which includes proof of ownership, site plan, floor plan, and the $500 fee. Failure to do so means the permit will be released back into the rental pool for issue the following period. To be exact, if owners have not paid for their renewal on existing permits by March 15th, they will likely lose them. Maryanne Seiderer, the intrepid enforcer of the city’s ordinance, makes the call on the 16th of March to the waiting list. If you get a call from Maryanne, don’t delay in a return call. She’ll give you 48 hours to get back to her or else she’s on to the next name on the list. These permits have value and she’s got a job to do.
The city has taken some owners to task for non-compliance of the ordinance. Complaints include noise after 10 pm, rentals that exceed the allotted number, and the biggest problem, owners who believe that the city does not have the right to tell him what he can do with his property. While the first instances appear minor, the city has pulled permits after issuing 3 violations. For the last offense, 90 days in jail and a $500 fine could be your penalty if you attempt to challenge the city. Anonymous tips are called in for enforcement, so be advised. The city has a short fuse when it comes to the short term rental ordinance.
We recently attended a presentation at the Santa Fe Home Builder’s Association that provided good news for the housing market. The topic was the FHA 203K Loan program. Unknown here in Santa Fe, these loans have been around for over a decade but just recently exploded across the nation with 23,000 loans originated last year and a 700% increase in the last 4 ½ years. What makes these loans so exciting? These loans allow borrowers to add the cost of home improvements into a single mortgage package. Roughly one-third of the properties that are on the market today are considered distressed and buyers do not have the extra cash necessary to make improvements after closing. This is where the 203K Loan comes in.
The benefits to this program are numerous. For the buyers, it provides a single government insured loan at competitive interest rates. Currently, that interest rate is a quarter percent higher than FHA rates and allows for the standard FHA down payment which in some cases may be as low as 3.5%. For properties that are older and require work, these loans allow the sellers to market to a greater pool of potential buyers. Typically, an older home that requires a great deal of work will languish on the market until an investor comes along to scoop a deal. A recent study by Realty Trac showed that investors who pay cash are able to purchase a property for 34% less than an owner occupant. With the 203K Loan program, that seller can still obtain a fair market value for the property and allow the buyer to make the necessary repairs and renovations that work best for him.
The program has two tiers. The Streamline 203K is intended for uncomplicated repairs and improvements. The minimum loan amount is $500 up to the maximum HUD limits and may include new carpet, tile, kitchen renovations, roof repairs, and even window replacement. The Standard 203K is designed for more complicated projects and is a minimum $5000. Structural issues and projects that may require more time and permits would fall under this category and older properties may be required to be brought up to current building codes.
So how does this program work? Let’s say a buyer finds a property but it needs work, lots of work. The buyer has a team that includes the Realtor, the mortgage specialist and a contractor. Bids are created for all the work the buyer wishes to have done. A contract is negotiated between buyer and seller that reflect the value in current condition and a contingency will be necessary to allow for 203K Loan approval and additional repairs that may be required by the lender. The appraiser will factor in the value of the finished repairs and that is the basis by which the lender will determine the base loan amount. HUD guidelines have a maximum loan amount of $427,500 for a single-family home.
In Santa Fe there are many older homes on the market that would be perfect candidates for such a loan program. This is another great way to not only offer a buyer and seller more choices in this market but also to improve property values and revitalize older neighborhoods. Creating a good team that works well together and are familiar with these loans is important due to details and strict timelines. The 203K Loan is the perfect product for our local market so if you think this program might work for you, or you simply would like more information please give us a call or e-mail.
In December, we were fortunate to have Dr. Lawrence Yun, Chief Economic Advisor for the National Association of Realtors, give a presentation of the housing market and his forecast for the future. Most of what he presented was a study of extremes: never before has home ownership been more affordable yet pending home sales have not picked up; home prices across the nation have been stabilized for 2 years yet most believe that values are still falling; interest rates are at unprecedented lows and yet a conventional mortgage has never been more difficult to obtain. In a phrase coined by a silly Saturday Night Live skit we ask, “What’s up with that?”
New housing starts are at a 40 year low and new construction inventory levels are at the lowest since 1963. The trend for multiple family housing is on the rise and it’s common for college graduates burdened by student loads to move back home. Consider the consumer price index which has increased 160% in the last 30 years and includes a 150% increase in the cost of food and a 700% increase in the cost of college tuition. Conversely, mortgages have only increased 17% in that same 30 year period due to the difference in interest rates available now versus then while rents have increased 200%. It is no wonder that investors are turning back to real estate as a viable commodity to place their cash.
In Santa Fe, the final fourth quarter did see continued improvement overall in our housing industry. Most notably, new listings have gone done from 3194 homes for sale at the end of 2010 to 2604 in 2011. Pending sales were down 9% from the previous quarter but year to date closed sales did see a modest increase of 2.4% over last year. The percent of original list price a seller can expect to receive has fallen slightly to 87.9% while the days on market improved slightly to 243 days. The median sales price has fallen to $320,443 down almost $10,000 from the previous year; however, the month’s supply of homes is down almost 24% to 15 months.
The median sales price continued to decline in all areas of Santa Fe but two: the Northwest quadrant had an increase of almost 20% over 2010 for a median price of $627,500. The city Southeast north which includes the Railyard and South Capital saw an increase of 11% with the median price here at $579,000. Hard hit areas include Tesuque and Pojoaque whose prices have declined 42% from 2010 but sales here did increase 120%.
Most areas did see gains in the total amount of sales for 2011. The one exception was the Southwest County including Rancho Viejo and the Community College district out to La Cienega and Highway 14 which saw a decline of 20% of total sales for the year. For land sales it was a yet another tough year with a total of 35 lots reported sold with the average lot price at $125,000 up from the previous year’s average of $110,000.
So what is going to change for 2012? There are many signs that our economy is improving but we believe it is up to us to continue to pressure our government and financial institutions to put forth the initiatives that will bring further improvement. And while they are doing that it is incumbent upon us to keep our own sense of hope and optimism alive. The missing piece of the puzzle is consumer confidence so keep sight that our economy is improving slowly everyday and our continued appreciation of that can be contagious. Together we can make 2012 a confident year!
The holiday season in Santa Fe is the best time. The snow-covered streets, the smell of piñon wood burning in the fireplace, the cold mountain air. With the holidays come good feelings toward humanity and hope for world peace. And then, before you know it, it’s January and it’s freezing outside, the cold wind keeps blowing, the roads are slick and icy, and that warm feeling of comfort and solidarity slips. But the most notable difference of all is what happened to all those nice people?
During the holidays they were everywhere. People were greeting friends and strangers alike with the warmest of salutations and everybody was nice, really nice. Even old Scrooge was wishing everyone well and merrily going about his way. So what changes in January? Is it because we start thinking about elections, taxes, what we aren’t doing that we should be doing, and all those yucky kinds of things? So instead of focusing on that, why not make this year different, why not make it a nice year? For those who make New Year’s resolutions and even for those thinking about making one here’s an idea for how we can all start the year off right. Resolve to be nice, that’s it just be nice.
If you have already made your New Year’s resolution you can simply take what you already have and attach the words “and be nice” to the end of it. For instance, I will quit smoking and be nice. I will lose 15 pounds and be nice, I will read more books and be nice. See how easy it is?
It seems that our generation has grown up believing the unfortunate myth that “nice guys always finish last. We have heard it said by our grandparents, our parents, and maybe you’ve even caught yourself saying it. So it’s no wonder we don’t make resolutions about being nice. Unfortunately this notion has crept deep into our culture by way of the subconscious mind. Maybe that’s why Clint Eastwood doesn’t play nice guys. So before the next generation grows up believing in such fairy tales we think its time to debunk this untruth and replace it with a more positive message.
No matter what area of life we’re talking about it all gets better by adding niceness on top. How do we achieve all our personal goals? Simply identify what your goal is, focus on it daily, and be nice. All you need to do to make the world a better place is build a great family and be nice. It’s really kind of simple if you think about it. To make a difference in the world today, all you need to do is give, care, share, and be nice.
Who knows, maybe in a generation or two we will hear the young folks say something like “Only the nice come out on top”. The heart is really what’s at heart of the holidays. The heart opens our senses to appreciate everything from the cold air, to the snow-covered streets and most importantly, to appreciate each other, so let’s keep it open year round. On behalf of the Carson family we wish all our Santa Fe friends and families a healthy, prosperous and nicer New Year. Be marvelous, be brilliant, be inspired, and be nice.
As real estate brokers we basically negotiate in our sleep, its true! As we have our coffee in the morning and talk about our dreams, it often goes like this. “I had a weird dream we were really close to settling the Jones and then the buyer insisted on the fridge.” When it comes to negotiating, the one constant is that we want to win, and that’s not a bad thing or just a guy thing. Think back to those Girl Scout cookie sales and that one girl who always seemed to out sell everyone, and not by a little. It didn’t matter that she had her mother and aunt and a whole army of helpers out selling 24/7, she was a winner.
That’s what we want for our clients; we want them to be winners. In order for that to happen the process needs to be artfully crafted. So that brings in our first rule of negotiation, win-win or no deal. This may seem difficult since real estate markets tend to favor either buyers or sellers. In a buyer’s market it would seem unlikely that a seller can come out a winner, but he can. For many sellers, winning usually means price but to become a winner a seller needs to do three things. First, determine motivation. Second, establish the goal and third lay out at least three main elements that support that goal.
If a seller is not really motivated it’s impossible to determine a winning solution. In a market where there are eight sellers for every buyer, the seller probably won’t get to the negotiating stage anyway. But if motivation is strong, say to move closer to the grandkids, then the goal of selling your house can have real meaning. Now the elements that support the goal such as price, closing dates, inclusions and concessions become the artful part of the process.
Avoid framing any element as winning or losing but simply as an exploration into potential outcomes. For sellers to win in a buyer’s market they must overcome the price objection. Keep in mind that that market value is not the fault of the buyers and for all the showings, these people actually made an offer. Next, when it comes to inspection objections, think outside of the box. If the buyer wants a new cooling unit and you know that the old one is fine, offer a home warranty instead. You won’t have to pay for a new unit and the buyer gets the assurance he won’t be stuck with surprise expenses. Buyers have a list of win items, too, and something as simple as moving a closing date may save them thousands or give them peace of mind so explore ways for both parties to win and don’t be afraid to ask for what you want.
The most important way to become a winner is to keep your emotions in check. Emotions are inevitable but they tend to make bad business partners. Never let them affect your mindset or your ability to get to the “win” objective of the deal. When making concessions always keep an eye on the bottom line and have your broker prepare a net-out sheet before submitting your response. More often than not your broker will need to negotiate with you before she can negotiate for you so don’t think she is working against you. She is really trying to help you succeed with your goal. Closing is a natural progression to successful negotiations and if both the buyer and the seller get what they want, isn’t that the best outcome of all?
Last month, we went to Austin, Texas for a national real estate conference and met brokers from all over the country. The majority were thoroughly amazed when we spoke of our market, the current difficulties, and the days on market. Most we conversed with had markets with an average 90 days selling period. Sure, they had short sales and foreclosures, too, but their markets were far improved. Since we rely heavily on our feeder markets and Santa Fe was the last to feel the decline, we saw this as a sign that we, too, would be on the mend.
The Santa Fe Association of Realtors recently published their 3rd quarter statistics so it’s time again to look at the numbers. While the summer is believed to be the best to sell real estate, the wildfires kept buyers at bay. Both closed sales and pending sales were down slightly from same time last year but new listings were down, too, with 687 properties listed versus 816. Also improved was days on market at 224 for the 3rd quarter versus 243 for 2010. The average sales price was $453,823 which was a 3.8% increase over the prior year. While the median sales price dropped a fraction 1%, the average sales price tells us that the entire market is recovering.
For the different city areas, the big winner in activity goes to the Southeast city limits with a 54% increase in closed sales and a 34% reduction in overall inventory. Our runner-up was the Airport/Agua Fria district with a 27% increase in closed sales and a 9% reduction in inventory. With 90 homes still available on the market and a median sales price of $183,100 it is no wonder that Santa Fe’s housing affordability index has increased to 107, an all time high.
The Northeast city limits saw a 9% reduction in new listings and an increase in the median sales price year to date (YTD) of $560,000 over $517,500 for 2010. The Southwest city limits saw a reduction in new listings to 315 properties versus 400 for 2010. Here, the median sales price declined to $207,000 from $225,000 from the previous year. The toughest area in the city, Northwest city limits, had a 20% increase in new listings and a 26% drop in closed sales. The median sales price YTD is $266,000 down from $340,000 of 2010.
For the county, the busiest area was Las Campanas with a 76% increase in closed sales YTD. However, the median sales price here has plummeted to $860,000 from $950,000 from the previous year. The areas surrounding Las Campanas had a 26% reduction in new listings but a 7% drop in median sales price to $637,500. Tesuque experienced a 50% increase in closed sales but a 12% decline in median selling price to $695,000 from $792,500 from 2010.
Old Las Vegas Highway and surrounds had a 31% increase in closed sales and a decline in new listings. The median sales price here was $345,000. Highway 285 had a reduction in new listings but a drop in closed sales. The median sales price was $402,000. Eldorado has been consistent in closed sales YTD with a small drop in median price to $319,000. Inventory here hovers around 10 months. The area of Rancho Viejo saw a big drop in new listings and a 16% drop in closed sales. The median sales price increased 4% to $295,000. The Southwest county had a 17% increase in median sales price to $280,950 but the inventory here remains high at 26 months.
It will be worthwhile to look at the numbers again in a couple of months to see how Santa Fe finishes the year. While not all good news, there is certainly evidence that the market is improving and that is the best news!
While foreclosures seems to be on the decline, many experts agree that short sales are on the rise and will be with us for another two to four years. A short sale is a transaction in which the selling price of the property is not enough to satisfy the mortgages held against it. Approximately one out of every five transactions is a short sale and as the economy continues to flounder and home prices struggle, more and more may find this avenue the only way out of hard times. If you are struggling economically and have wondered about this option, here is what you need to know.
You do not need to be behind in your mortgage payments to do a short sale. In fact, it would be better for your credit score to avoid the derogatory ratings created by the default prior to foreclosure. A short sale will affect your credit but not as badly as a foreclosure. The banks will require documentation from you to justify the short sale process. You will need a “hardship letter” that explains succinctly your economic circumstances. You will need to provide two years of tax returns, 3 months of checking account statements, your last 2 months of paycheck stubs, and a financial worksheet. Most banks will not try to pursue the difference if they realize that you just don’t have the money.
Short sales do take time to facilitate but the systems have improved. Two years ago, these sales took easily over six months to close. Nowadays, closings have occurred in as little as 45 days. Obviously, working with a broker who is familiar with the process helps a great deal. Having all your paperwork in order will also speed up the process. Larger banks often use an intermediary called Equator. This company is web based and allows your Realtor to upload and manage all files relating to your transaction in one cohesive place. They in turn negotiate with the bank who in turn must negotiate with Fannie Mae, Freddie Mac, or investor groups since few banks actually hold the notes on the loans they service.
If you have two or more mortgages on your property, the duration of the process will take longer. You will need the 2nd lien holder to accept far less than what is owed to release the secondary lien. In many circumstances, it is this 2nd lien holder who makes things tough when asked to give up their say, $50,000 second mortgage for $2,000. In a foreclosure, the primary lien holder can wash away a second so that is the worst-case scenario for them. Still, it is dealing with those tricky seconds that make the short sales difficult.
If you are considering a short sale, hire a Realtor familiar with the process because it is detailed and requires skill. Next, get all your financial paperwork ready to be submitted to the bank. Once a reasonable offer comes in and paperwork has been submitted, the bank will order a property valuation. If the offer is above 91%, of the current evaluation, in most cases the banks will allow the transaction to continue. Based on your financials, they may stipulate you bring some cash to closing. This could range from $1500 to $10,000 dollars. Be sure your purchase contract has language for you to back out of a transaction if the bank requires cash at closing or a promissory note for the difference if you are unable to accept those terms.
Remember, these transactions must be arm’s length meaning that a family member, neighbor, or friend is not allowed to purchase your home. In many cases, these sales are a necessary way out for folks who are experiencing economic hardship. Buyers can take advantage of homes sold for less than market value with patience and persistence. While these transactions are difficult, they can be a win-win for all parties involved.
Real Estate Report Card
It’s that time again as we review our real estate report card by way of our 2011 Second Quarter Statistics. How did our enchanting city do? Our real estate road to recovery appears to be a long and winding road.
The greatest news we have to focus on is the decline in new listings, down 22% from last quarter. That means the total month’s supply of homes for sale has decreased from 19 months to 15. Other good news, closed sales were up from last quarter and also from same time last year. Remember, last year the market was inspired by the Home Buyer Tax Credit. This year ready buyers and outstanding prices were the impetus to beat last year’s figures.
Certain segments of the market faired much better than others. The city limits Northeast saw a positive change in median sales price to $545,000 and a 50% increase in closed sales to 72 homes sold Year to Date (YTD). But, Days on Market (DOM) has increased to 289 and there was an overall decline in listing price received to 84%. The Tesuque area saw a large reduction in new listings, down 37%, to 63 homes and but the median sales price fell to $712,500 from $792,500.
Across St. Francis Drive, the city limits Northwest is still struggling. Closed sales are down 35 % and DOM has increased 65% to 203 days. Prices have fallen hard here; the median price is now $227,500. Down Cerrillos Road, the Southwest city limits is also very soft. New listings did decrease over 20%, but the median sales price here is now $209,000. The good news is that Santa Fe’s housing affordability index has increased to a 97. This means that the median household income is 97% of what is necessary to qualify for the median priced home. Santa Fe saw a low affordability index of 55 in the spring of 2007.
The city limits Southeast saw a big decrease in its median sales price, from $550,000 for 2010 to $415,000 for 2011. But, DOM has also decreased to 208 days while the percent of listing price the seller receives has gone up to 91%. That suggest sellers are more aggressive in this area and they need to be because closed sales have also dropped over 20% to 37 sold YTD.
The Eldorado market has cooled a bit from the same quarter 2010 with closed sales down almost 10% to 43 sold homes YTD. The median sales price is also down somewhat to $319,000 and inventory here has actually grown a bit to 11 months. The Highway 285 area has seen a positive change in inventory with 72 homes for sale and a small increase in closed sales for the last quarter but overall the area is still falling, the median price now $429, 750 from $445,000 last year.
Las Campanas saw a huge increase in sales, up over 100% from the same quarter last year to a total of 27 sales YTD. A reduction in new inventory plus a small decline in selling price has given this area a boost. The Northwest quadrant saw a big decrease in new listings, down 37% to 123 homes for sale. The month’s supply here has been almost cut in half and the median price has increased over 20% to $673,000.
Airport Road is still suffering with a decrease in selling price, down to $190,000 and an increase in DOM to 156. Rancho Viejo and surrounds saw an increase in selling price to $310,000 but a reduction in closed sales. Inventory here hovers around a one year’s supply. Highway 14 and La Cienega saw a positive increase in median sales price up to $285,000 but a small decrease in inventory. Glorieta and Pecos saw a huge decline in median sales price, now down to $205,000.
Taking the good news with the bad, our market is surviving. Thriving here, suffering there, all part of the process on our long and winding road to recovery.
THE TAO JONES: Proverbs for Real Estate Investors
Greater than the failure of the banks and real estate market has been the catastrophic loss of faith in ourselves as a society that we are still capable of making the world a better place. Back in the 1990’s it seemed like everyone was a financial genius who knew ways for you to make money in your sleep. Now it’s easier to find someone who will scare you into the dark ages than to find good advice on investing in real estate. When it comes to succeeding at anything in life having guiding principles will improve your chances and investing in real estate is no exception. Here are a few proverbs to invest in.
“Vision without action is a daydream. Action without vision is a nightmare.” Get your sight on a goal and get going. Quick and easy short-term gains were the lure of the stock market not the real estate market. In real estate, the best plan is to earn your wealth over time, the old fashion way. The easiest expectations to manage are realistic ones so lay out your financial goals and be prepared to do the work it takes to earn it.
Unless you happen to know the winning numbers of next week’s lottery, there is no reason to keep secrets. Many buyers do not disclose their motives or ideas to real estate brokers for fear that someone else will scoop their idea and make all the money. They often want to get the information they think they need and disclose very little. These buyers are taking a huge risk and often they are so focused on a short-term gain that they end up with a long-term mess.
“None of us is as smart as all of us.” Create a team of professionals to help you execute your plan. Yes, the term professional implies that these people will be paid for their work and if you’re thinking that your profit margin is coming from doing the work of these experts, don’t fool yourself. Your investment team should consist of a real estate broker that you like and trust. A local broker with years of experience can use their knowledge to find you properties that can earn cash flow and develop equity. Next, you will need a contractor who gets along not only with you, but your broker, too. Contractors work well with investors; their knowledge and experience can trouble shoot problems that often are the difference between profit and loss. If your contractor knows that you will be a return client, they often go out of their way to give you the best of their abilities. Finally, get a property management company that understands your goals. Avoid leasing your own properties unless you have professional experience. Property management is not easy and can be contentious and litigious. Property managers know the laws and practices that will get your properties rented and keep them rented.
“Fall seven times, get up eight.” As evidenced by the remaining investors, brokers, and contractors, the key to survival and success is to get back up and keep fighting. Let’s face it, real estate investing is tough. But if you are looking for the potential to earn some money and develop long-term wealth, there are opportunities for you. Never lose sight that the journey is the reward and is best shared with others.
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