DATELINE SANTA FE

Santa Fe Real Estate Blog

203K: Financing for Problem Properties

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.

February 23, 2012 Posted by | Realtor 121 | , , , , | 1 Comment

2011 Market Review

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!

February 16, 2012 Posted by | Realtor 121 | , , , , , , | Leave a Comment

The Lost Art of Negotiating

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?

November 21, 2011 Posted by | Realtor 121 | , , , , , , , , | Leave a Comment

Third Quarter Santa Fe Real Estate

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!

November 21, 2011 Posted by | Realtor 121 | , , , , , , , | Leave a Comment

Short Sales

Selling Short

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.

September 23, 2011 Posted by | Realtor 121 | , , , | Leave a Comment

Second Quarter 2011

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.

August 31, 2011 Posted by | Realtor 121 | , | Leave a Comment

Tax Man Cometh

April is tax time and due to the overwhelming response we received from our last post regarding property tax protests we realized that a follow up was in order. There were a number of re-occurring questions so we will start with those and hopefully add some insight to how property tax works in Santa Fe.

Readers with questions about how property taxes are determined will want to go to their mailboxes this April and look for your Notice of Value. Not a tax bill, the notice of value describes your property then identifies it by tax parcel number. The different classifications that affect your taxes will be summarized such as class of property, exemptions, adjustments, and so on. You will find values for both land and improvements. For residential properties, these are market values based on sales of comparable homes.

If you do not receive a notice of value you will need to contact the Assessor’s Office. New Mexico is a self-reporting state, which means that if you do not receive a notice of value it is your responsibility to contact the Assessor’s Office. They have just begun working with a new mass appraisal software program and have a few kinks to work out so you may find errors or discrepancies on the notice. If you believe any of the information is incorrect you have 30 days from date of mailing to report them.

Assuming that the information is correct, the next step is to determine the tax.  Once adjustments are made, the new amount is multiplied by the millage or mill rate. Mill rates differ by school district and in Santa Fe County we have 4 school districts. Mill rates are higher for commercial properties than they are for residential and they go up or down depending on projected government budgets and the size of the tax roll, therefore if there is a budget shortfall the mill rate may be raised to close the gap. For the city of Santa Fe the effective tax rate is currently about $671.07 per $100,000 of assessed value. A helpful formula would be: Market Value /100,000 X $671.07. So, if you buy a million dollar home in Santa Fe your taxes should be around $6,710. 07.

If you are wondering why taxes seem to still be going up even when market values have gone done here is one explanation. Due to inconsistent market adjustments by previous Assessors there is a great disparity in valuations and many properties are assessed below market value. A 1978 statute required the Assessor to value all property at 100% of its market value but in 2003 new legislation put a 3% cap per year as the maximum amount a homeowner’s property tax could be increased. So here’s the twister, if market values drop 10% but your property is assessed 20% below market value, your taxes are still subject to a 3% increase.

The 3% cap is removed once a property sells and after each sale an affidavit affirming the sales price is sent to the Assessor’s Office establishing the market value for that property. This creates a new problem referred to as “Tax Lightening” because of the jolt the new homeowner gets when taxes are adjusted to market value. Every legislation session takes on this issue and there have been many proposals, such as rolling back everybody’s taxes to 2003 values, but as of this writing there has been no progress. We will follow up on this important issue in an upcoming post.

April 4, 2011 Posted by | Realtor 121 | | Leave a Comment

Land Bottoms Out?

Land sales just barely hold on to last years numbers but the price has come down.

January 27, 2011 Posted by | Realtor 121 | Leave a Comment

Foreclosures: Deal or No Deal

Last month several of the nation’s top banks announced a suspension in the sale of their foreclosure (REO) inventory in the 24 judicial foreclosure states which includes New Mexico. Concerns over fraudulent filings and improper procedures only compound the potential problems in store for those seeking deals on foreclosed properties. RealtyTrac, which tracks foreclosure data, reported that for the third quarter of 2010 foreclosure filings were up 4% from the previous quarter to a record of 930,437 properties. Halting the sale of these properties will create pressure in the market and we anticipate a corresponding spike in sales once the moratorium is lifted. If you are a homebuyer looking to find a deal on a distressed property, we would like to share some insights with you.

First and foremost, don’t go it alone. If you are thinking you can double down on your savings by negotiating with the bank on your own, you may be woefully mistaken. Foreclosures are challenging purchases and an experienced broker is your best strategy for success. All too often we see homebuyers who think they are getting a deal but end up overpaying on a foreclosure with many latent defects and little to no recourse.

Just because a house is a foreclosure doesn’t mean that it is priced below market value. Many banks list their REO’s at appraised value and take a wait and see approach. Use a knowledgeable agent to evaluate the property and ask him to provide you with a comparative market analysis, CMA. Keep in mind that what a home appraised for a year ago is of no value today.

Banks do not provide a seller’s disclosure and will sell a property “as is”. This means that it comes down to your own due diligence. Hire a good home inspector to provide you with a detailed report. Homes that have been winterized and utilities turned off require special attention. It is imperative that you have the bank turn on the water and electricity prior to your inspections. If they will not turn the utilities back on, back away.

If your foreclosure is a fixer upper, have a qualified contractor provide you with detailed estimates of the costs involved. Once you take the purchase price and add on the cost of repairs, it may no longer seems like such a great deal. If you are having trouble getting a loan because your lender doesn’t like that the dry wall is falling off and the kitchen has been ripped out, you may find help financing. The 203K is a mortgage that the F.H.A. offers to help homeowners buy and rehabilitate foreclosed properties.

Ask your title company to provide you with a current title binder and examine it carefully. The New York Times reported a story recently of a couple who thought they were getting a deal on a foreclosure at auction only to discover after the sale that they paid $137,000 for a second mortgage and there was a large, delinquent first mortgage in place. Ouch! In our state, the previous owner has the right to redeem their property within a certain time period so be clear that you know what that time frame is.

It’s too early to tell if this moratorium will become a major story but it is clear that foreclosure concerns will be with us for a while. Although opportunities are out there, buying a foreclosure is in no way a guarantee of value. Create a team of professionals to aide you in your purchase of a foreclosure and increase your chances of getting a deal.

November 22, 2010 Posted by | Realtor 121 | , , | Leave a Comment

Seller Financing

With the real estate market struggling, homes languishing unsold on the market and with mortgage options drying up due to the tightening regulations on lenders, an optional way to get your home sold may be to offer seller financing. Especially common when money is tight, seller financing or real estate contracts can be useful because it gives more buyers a choice and perhaps even the ability to purchase your home. This option can be attractive to both buyers and sellers so here are some tips to better understand what it is and whether it could be beneficial to you.

The sale works the same whether there is seller financing or a mortgage. The buyer and/or their Realtor present a purchase contract, conduct due diligence, present objections and work to resolve and close the purchase. The difference is in the financing whereby the seller becomes the banker. After the transaction closes, the buyer has equitable title while the seller holds legal title. Only when the terms of the real estate contract have been satisfied is a warranty deed for the buyer recorded.

For a seller whose property has not sold in these hard economic times, the real estate contract may be an option if they do not need the lump sum cash settlement. Sellers can negotiate better terms than most banks, which could mean a higher interest rate or a balloon payment at the end of the term of finance. Because of the seller’s flexibility, buyers who may not otherwise qualify for a traditional mortgage would be drawn to this option. The seller receives long-term cash flow and in some cases the tax advantages are considerable.

The restrictions on mortgage lending have pushed many motivated buyers to the sidelines due to lack of enough money down and the aspect of paying PMI (private mortgage insurance) which may just push that mortgage payment off the balance sheet. Newly married young couples and recent college graduates are good and likely candidates for a real estate contract since both have the promise of increased incomes over time. The buyer does not have to save for the large cash down payment and can purchase at today’s prices. With mortgages becoming increasingly harder to obtain coupled with the lowest prices on real estate in years, now is certainly a great time.

Concerns for sellers include the buyer’s ability to pay. If the buyer defaults then the process to clear the title can become litigious and time-consuming. And for buyers, the seller is required to deliver clear title only after the terms have been met by the buyer, which means clouds may appear on the title during the course of the term. For sellers to mitigate risks, have an attorney write the “contract for deed” and make certain you are named as an insured on the property on the insurance policies taken out by the buyer in case of catastrophe. Buyers should have an attorney review all documents and insist that an escrow company manage the payments to make certain that the payments are actually going toward the seller’s mortgage, if one exists.

Chances are that for most sales, seller financing is not the way to go. There are risks involved with this type of contract and it is best to seek legal advice prior to entering into any type of real estate contract. But it is an option that should be on the table for certain situations. Sellers can increase the pool of possible buyers while receiving better than market returns and tax benefits. Buyers who would otherwise be on the sidelines may realize the dream of home ownership and begin creating equity. This win-win situation can and does happen and may be an option for you.

November 2, 2010 Posted by | Realtor 121 | , , , , , , | Leave a Comment

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