R E A L E STA T E U P DA T E INSIDE THIS ISSUE: Selling Considerations Inventory Trends Buying and Investing Median Sales Trend Regional vs. Distressed Market Statistics Summary
Summer 2009
DEAR FRIEND, “Real Estate is GREAT”...thank you for asking! Interest rates are considerably lower than a year ago. Inventory trends are becoming more balanced. Confidence is building. Values are incredible. Real Estate in the Northern Virginia markets is indeed great! Key indicators tell us the “bottom” is likely behind us. Enthusiasm for this perspective needs to be tempered by a thorough understanding of an individual’s circumstance as well as where within our region a property is located. Real estate remains a local business. Media reports generally discuss national statistics. Florida, California, Nevada and Arizona continue to experience negative trending. Our team services communities throughout Northern Virginia, where the recent market direction is largely positive. However, even within our footprint, we experience diverse trends across different areas and price ranges. Market performance certainly varies by price range. Modestly valued homes are moving at a brisk pace while in many segments, sales in higher price brackets are lagging. Investors are very active in the lower end of markets which experienced the greatest decline in value. Navigating a real estate transaction has never been more complex. In some segments, foreclosures and short sales account for more than 80% of settled transactions! Purchasing a property involving an institutional seller adds layers of risk not associated with a private sale. We are again seeing multiple offers at lower price points and investors, in many cases, are beating out first time buyers by offering to pay cash rather than finance the transaction. We firmly believe the worst of this storm is behind us. There will certainly be new challenges. We are convinced that when we remain positive, understand the facts, plan thoroughly, and execute with resolve, our buyer and seller clients will prosper.
ARTIFICIAL STIMULUS An unprecedented amount of government money has been applied to our financial system in effort to stabilize banks and seed economic recovery. These dollars were intended to buy up non-performing residential mortgage loans which many believe to be the root of the problem. While the money didn’t go towards the purchase of “toxic” assets, the taxpayer’s investment has accomplished a moderately positive impact on the housing sector. Artificially low interest rates are spurring demand. Tax credits are available to first time purchasers and those who have not owned a property in the last three years. Incentives for banks to modify existing loans and refinance adjustable rate loans to fixed rate product have created a somewhat limiting impact on inventory. While Government remains focused on supporting the housing sector, this focus will wane once a recovery trend is proven. Recovery is underway in our Region. The DC Metropolitan Area is typically “last in” and “first out” of recessionary periods. As dire as circumstances might seem, our trending is among the most positive in the country. With respect to housing, those waiting for the national media to declare the recession over will have missed a considerable portion of the opportunity as the Northern Virginia market heats up ahead of the national trending. There exists a window of opportunity for both purchasers and sellers. Buyers benefit from a reasonable selection of property, low rates, and low prices. Sellers with equity can upgrade substantially; there is a higher demand for the price range they are selling than for the one in which they will purchase. Distressed sellers will likely find their lender more open to a negotiated payoff now than they might when government influence is retracted in the future. Those considering a real estate transaction will be most effective by understanding the dynamics, making a five year plan, and committing to that strategy. Merely waiting may no longer be productive, many signs point to the same conclusion: NOW is the time to act!.
Real Estate Update
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Seller’s Considerations RECOVERY TREND The Washington Post once referred to Prince William County, Virginia as “The Ring of Fire” for foreclosure activity. Prince William is now the most active market within the Region. The graph to the right demonstrates an abrupt decline in inventory while sales activity has returned to levels not seen since 2005. Most segments of our market have followed a similar pattern. However, inventory build was not as steep and recovery trends tend to be more gradual. Consistently, the direction is looking positive for 2009 and beyond.
SELLING STRATEGIES Those considering upgrading locally have the best of both worlds. Demand for property in lower price ranges is stronger than for those in the higher brackets. It is also likely that the new purchase money will have a lower interest rate that the existing mortgage. Finally, lower price points are moving quickly while the destination property may have been on the market for a protracted period of time. Buying low (new purchase) and selling high (existing home) is a very real opportunity. Single transaction sellers realize that prices have fallen, but many are not precisely aware of what their home might bring in the current market. At today’s value, some are not willing, or able to sell. It is our responsibility to help them structure and implement the best alternative strategy. Refinancing to a low fixed rate, renting the property, or both may be the appropriate solution. Helping sellers who are compelled to sell their home for less than the amount owed has become a core competency. “Short selling” is a very complex negotiation which involves much more than having the lender agree to clear their lien for less than the amount owed. Continued liability for the unpaid balance is variable based upon the seller’s profile. Tax consequence for forgiven amounts will vary dependent upon the purpose for which the money was borrowed and the property use. Unless resolved prior to settlement, the short seller will have no choice other than to deal with what comes down the road. In our business, providing excellent customer service to sellers goes well beyond just helping a seller clear the lien. It requires that we clearly understand the client’s situation and then help them to execute the best solution for their situation. It’s the “harder right over the easier wrong” thing. Selling a property is not always the right answer. Short selling without understanding the full consequence is never the answer; unresolved items could cost a family hundreds of thousands of dollars. Representing short sellers is not a marketing position; it is a responsibility that we embark upon very seriously.
VALUE TREND The District of Columbia has weathered this downturn with a modest five percent decline in median home value. This is in stark comparison to the fifty-six percent decline in Prince William County over the same time frame. Within these market segments, performance can vary substantially by community and property type.
SALES VELOCITY Sales activity is trending most positively in those areas experiencing the most substantial decline in values. There are segments where sales have remained flat or even declined slightly over the prior year. The overall trend is positive and should remain so. Buyer-side confidence has returned.
Real Estate Update
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For Buyers and Investors
THE BUYER’S OPPORTUNITY There are segments within our market that have endured the distressed sales cycle. Within specific price ranges, property values have stabilized and are once again appreciating in value; some in a rather robust manner. The rate of sale below the median home value is significantly stronger than for those properties valued above this mark (graph above left). Months of inventory (MOI) refers to the number of months it would take to sell all currently available property if no others came on the market. The cash sale rate (graph above right) defines the increase in investor activity. This statistic has always been a valid leading indicator and without exception, this buyer profile is more active across the region. In Prince William County, cash buyers now account for twenty three percent of closed transactions; a five hundred percent increase above the statistic for 2006. Rates of return are very favorable at these values resulting from the ability to secure low interest, long term fixed-rate financing. A growing portion of the inventory within our market is either Bank Owned (foreclosed) or Bank Influenced (“short sale”) property. These homes present a favorable value proposition, however, the process of acquisition can be difficult, frustrating, and very prolonged. These transactions involve risk not typically involved in a resale transaction.
BUYING FORECLOSED PROPERTIES When making an offer to purchase a foreclosed property, the initial offer will be written on a standard Board of REALTORS® form. Initial acceptance will be verbal and the contract will be returned unsigned by the lender with the addition of a “Bank Addendum.” The terms and conditions set forth in the bank addendum will supersede any conflicting terms within the standard contract forms. The addendum is written by the bank, protects the bank, and generally will not be executed by the bank if altered in any manner. When presented with the Bank Addendum, the purchaser will usually be given forty-eight hours to sign and accept the addendum. Contingency periods will often run from the “verbal acceptance” date. The Addendum will offer the purchaser inspection rights but stipulate that the property is being sold “AS IS.” Language generally will extinguish contingency periods for typical financing and inspection automatically at an expiration date. The Addendum may call for an earlier settlement date than the original contract specified. In the event the purchaser delays the closing, the addendum will stipulate a per diem penalty. If the bank is unable to meet the settlement date, there are typically provisions allowing them to extend settlement up to 120 days without compensation to the purchaser. During this 120 day period, the purchaser remains legally bound, and must wait patiently for the Bank to resolve the delay. The limit of liability to the bank for non-performance is the return of the earnest money deposit. As you can see, these transactions are rather “one-sided”.
BUYING “SHORT SALE” PROPERTIES Acquiring a “short sale” property (those where the Seller’s net proceeds will not clear all liens) is considerably more challenging than acquiring a foreclosure. The purchaser and seller enter in to a contract to transfer the property at a price which is less than the amount the seller owes. There is generally no advance agreement in place with the lien holder to accept less than the amount owed. The contract is binding upon the purchaser, however, the current owner’s obligation to perform is conditioned upon the lien holder’s approval to accept less than the amount owed. As such, these listings usually contain reference to “third-party approval”. Only when the contract is in place does the lien holder begin evaluation of the transfer (sale to the new Purchaser). The Seller’s hardship package includes a financial profile in a format very similar to a loan application. Fee appraisals are completed to assess the bank’s position in the property. The lenders primary focus will remain collection of the full amount owed. This process can take as little as several weeks and as long as several months - - with absolutely no guarantee of the sale being approved at all! The lien holder and the seller may be running parallel courses toward foreclosure or loan modification. Foreclosure would render the pending short sale contract void and force purchasers to begin their home search all over again. If the seller is successful in obtaining the loan modification, the seller stays in the home and again, the purchaser returns to square one. Even when the lien holder approval is obtained, the terms of the approval often alter those set forth in the contract. Lenders are just beginning to have adequate staff to manage this internal process and only a small, but growing, percentage of this transaction type are making the settlement table. (Only about 10% to 15% of short sales in our area result in a settlement!)
S U M M A RY Visit online at
We are still in an transitioning market. We don’t know where it will go or what shape it will be in when it returns; however, it will return. We can tell you that our Team has seen a significant increase in sales activity in 2009 compared to the last few years.
www.TheART of RE.com
Rates are low - - Prices are down - - Affordability is at its highest point in decades!!! If you are considering a real estate transaction, thorough analysis and competent representation are essential. There is tremendous potential for profit, as there is also the risk of loss. If you understand the underlying facts, you can make good business decisions; logically and without emotion. Finally, if you are currently working with a Broker, this is not a solicitation. If you have a real estate question, we will be happy to answer it or find the answer. When you have a real estate need, we appreciate the opportunity to compete for your business.
MEET THE TEAM “In a Bad Market, You Need A Great Team”!!! We are honored to represent so many home buyers and sellers so far in 2009!
We are in a transitioning
2008 PRESIDENT’S AWARD WINNER! The Art of Real Estate was the sole recipient of the CENTURY 21 President’s Award out of over 3,500 agents throughout the entire the Mid-Atlantic Region covering all of Virginia, West Virginia, Maryland, and D.C.!
Since the end of 2007, our listings haveThere averaged JUST 18 DAYS on the market - market. is potencompared to OVER 3 MONTHS in these same neighborhoods tial for profit, as is there at the same time.
risk of loss. If we un-
And, during this same period, we’ve exceeded all expectations by selling our listings for derstand the underlying more than 3% OVER the MLS average!!! We sell in LESS TIME and for MORE MONEY!!!
facts, we can continue to make good business We welcome the opportunity of adding you tologically our long list decisions; andof very satisfied clients! without emotion. I am a real A estate professional “WE SELL HOMES FROM FRESH PERSPECTIVE...YOURS”!
Art Hoppe
Micki Moravitz
Greg Connarn
ABR, ASP, CRS, CSP, e-PRO, GRI, REALTOR Team Leader
SALES ASSOCIATE,GRI, REALTOR, Team Coordinator
SALES ASSOCIATE, REALTOR, BS-Real Estate and Urban Development