Modern
726 North East Capitol
Salt Lake City, UT 84103
Architect: Stanley Hallet
Year: 1988
Sq Ft: 3,742
Bed/Baths: 4/3
Neighborhood: Capitol Hill
24 May 2011
Salt Lake's 1,000 Coolest Homes
Mid-Modern
2188 Dallin Street
Salt Lake City, UT 84109
 | |
Year: 1964
Sq/Ft: 5.730
Bed/Bath: 6/4
Neighborhood: Country Club
18 September 2007
Earnest Money
When a realtor advertised “experience” I used to discount the claim. Not any longer. Recent market events require the guidance of a knowledgeable agent. One area is the recommended amount of earnest money offered by a buyer. Last year I would recommend a substantial amount of earnest money. The market was competitive. Often times there were multiple buyers for almost every home. The higher the earnest money the more confidence the seller had in the buyer. There was also an underlying motive. If I suspected sellers would get multiple offers, the earnest money was a guarantee they would continue with the contract. For example, I had one buyer who had an accepted offer on a $300,000 home. It was a great deal verified by the appraisal which came in at $335,000. The seller had another offer for more money. Had we only agreed to $1,000 earnest money (liquidated damages for a broken contract) the seller could have paid the $1,000 to the buyer and accepted the $10,000 higher offer for a $9,000 profit. But we agreed to $15,000 earnest money so breaking the contract wasn’t attractive to the seller.
But as you have no doubt heard, the market has changed. There are substantially more homes on the market and sales have substantially decreased. Additionally, lenders have fewer funds to lend. They have severely tightened lending requirements rejecting even some qualified buyers. But more alarmingly, some have failed to fund after documents have been signed at the title company. While that might seem like an inconvenience it can risk the earnest money. There is no provision in the Real Estate Purchase Contract for a bank failing to fund at closing. This isn’t just hypothetical. It actually happened three times in our office alone. Conversations with title agents have confirmed our experience wasn’t unique.
Now if you had $1,000 earnest money the seller might be willing to work with you, but now that $15,000 earnest money encourages the seller to take the earnest money because the buyer failed to fund. The seller can lower the price of the home slightly to encourage new buyers and pocket the difference. The loss of the money can be challenged but that involves a fight no one wants to have.
The moral of the story is to hire a buyer’s agent that has seen both sides. They can help avoid the problem all together. Part-time agents, new agents and those with few transactions most likely won’t see the train wreck coming. Make sure you have an experience requirement when selecting a realtor!
Gary B. Howard
But as you have no doubt heard, the market has changed. There are substantially more homes on the market and sales have substantially decreased. Additionally, lenders have fewer funds to lend. They have severely tightened lending requirements rejecting even some qualified buyers. But more alarmingly, some have failed to fund after documents have been signed at the title company. While that might seem like an inconvenience it can risk the earnest money. There is no provision in the Real Estate Purchase Contract for a bank failing to fund at closing. This isn’t just hypothetical. It actually happened three times in our office alone. Conversations with title agents have confirmed our experience wasn’t unique.
Now if you had $1,000 earnest money the seller might be willing to work with you, but now that $15,000 earnest money encourages the seller to take the earnest money because the buyer failed to fund. The seller can lower the price of the home slightly to encourage new buyers and pocket the difference. The loss of the money can be challenged but that involves a fight no one wants to have.
The moral of the story is to hire a buyer’s agent that has seen both sides. They can help avoid the problem all together. Part-time agents, new agents and those with few transactions most likely won’t see the train wreck coming. Make sure you have an experience requirement when selecting a realtor!
Gary B. Howard
10 July 2007
Endangered Species: Buyers
The Bald Eagle was recently removed from the endangered species list, a notable achievement for those of us who remember the days of the pesticide DDT. But Salt Lake County real estate agents are finding buyers endangered too and the culprit is not as easy to directly link as the eagle’s chemical nemesis.
On July 6, 2007 the WFRMLS showed 5,913 active listings. That’s up over 1,500 from March 20, 2007. Last year there were around 4,700 active listings in July. What’s startling is the fact that the number of June sales was only 1,307. That’s 624 fewer closings than the June 2006 number of 1,931. February, March, April and May had noticeably lower sales as well. More inventory and fewer closings puts what we’ve all been noticing this year into perspective. It’s become a buyer’s market.
The cause of this market change is as hard to pinpoint as the cause of the Bald Eagle’s soft eggshells. Some of the disparity can be discounted as a result of a trick employed by many real estate agents. After 90 days most agents will withdraw a listing only to have it appear again a couple of days later. This will then show both on the MLS and statistically as a new listing. Most agents narrow their searches to those listed within the last 30 days. If a property is listed for a long time, savvy buyers are suspicious, and might question the pricing or the quality of the listing. Current statistics have been somewhat skewed as a result, but the fact that agents have to employ this trick indicates something is wrong.
Interest rates are one of the culprits. People are quick to get spoiled. Rates below 6 percent, although historically rare, are today’s expectation. Now that rates are hovering around 6 5/8 percent, buyers have become hesitant. Two sizeable markets have also dried. Sub-prime and no-document loans have all but evaporated leaving those with marginal credit out of the buying market. What’s more, price stabilization has all but eliminated the investor market.
But the DDT of this story is the national press’ coverage of the housing bubble. Although national conditions have little bearing on the Salt Lake County market (like politics, all real estate is local), buyers have suddenly gotten shy. Certainly the greed factor encouraged by rapid appreciation is gone. Some even think prices here will drop. However, given the parity between the Salt Lake County market and surrounding metropolitan areas, our influx of outsiders, and our strong economy, that is highly unlikely.
Three markets will remain strong. The first is the entry-level market. Condos priced around $150,000 still have plenty of demand. Single family housing below $300,000 should also continue to thrive. There is still plenty of local demand and the economy here is one of the strongest in the nation. First-time buyers are looking to get away from the highest rents we’ve ever seen. The third market is homes with unique appeal. People are buying homes as places to actually live in again, not just as investments. However these homes will stay on the market longer.
It will take a few months for buyers to make a comeback. The Fed is looking to provide a remedy for the ailing housing market so interest rates should remain stable or even drop slightly and all indicators point to a continued aggressive Salt Lake County economy. As more workers from other higher-priced markets enter the Salt Lake area, the number of new home buyers should also grow.
So with a little care and patience the number of buyers should eventually rebound. I’ll let you know when, like the Bald Eagle, we can confidently remove buyers from the housing market’s endangered species list.
Gary B. Howard
On July 6, 2007 the WFRMLS showed 5,913 active listings. That’s up over 1,500 from March 20, 2007. Last year there were around 4,700 active listings in July. What’s startling is the fact that the number of June sales was only 1,307. That’s 624 fewer closings than the June 2006 number of 1,931. February, March, April and May had noticeably lower sales as well. More inventory and fewer closings puts what we’ve all been noticing this year into perspective. It’s become a buyer’s market.
The cause of this market change is as hard to pinpoint as the cause of the Bald Eagle’s soft eggshells. Some of the disparity can be discounted as a result of a trick employed by many real estate agents. After 90 days most agents will withdraw a listing only to have it appear again a couple of days later. This will then show both on the MLS and statistically as a new listing. Most agents narrow their searches to those listed within the last 30 days. If a property is listed for a long time, savvy buyers are suspicious, and might question the pricing or the quality of the listing. Current statistics have been somewhat skewed as a result, but the fact that agents have to employ this trick indicates something is wrong.
Interest rates are one of the culprits. People are quick to get spoiled. Rates below 6 percent, although historically rare, are today’s expectation. Now that rates are hovering around 6 5/8 percent, buyers have become hesitant. Two sizeable markets have also dried. Sub-prime and no-document loans have all but evaporated leaving those with marginal credit out of the buying market. What’s more, price stabilization has all but eliminated the investor market.
But the DDT of this story is the national press’ coverage of the housing bubble. Although national conditions have little bearing on the Salt Lake County market (like politics, all real estate is local), buyers have suddenly gotten shy. Certainly the greed factor encouraged by rapid appreciation is gone. Some even think prices here will drop. However, given the parity between the Salt Lake County market and surrounding metropolitan areas, our influx of outsiders, and our strong economy, that is highly unlikely.
Three markets will remain strong. The first is the entry-level market. Condos priced around $150,000 still have plenty of demand. Single family housing below $300,000 should also continue to thrive. There is still plenty of local demand and the economy here is one of the strongest in the nation. First-time buyers are looking to get away from the highest rents we’ve ever seen. The third market is homes with unique appeal. People are buying homes as places to actually live in again, not just as investments. However these homes will stay on the market longer.
It will take a few months for buyers to make a comeback. The Fed is looking to provide a remedy for the ailing housing market so interest rates should remain stable or even drop slightly and all indicators point to a continued aggressive Salt Lake County economy. As more workers from other higher-priced markets enter the Salt Lake area, the number of new home buyers should also grow.
So with a little care and patience the number of buyers should eventually rebound. I’ll let you know when, like the Bald Eagle, we can confidently remove buyers from the housing market’s endangered species list.
Gary B. Howard
27 June 2007
Downtown Theme Park
A friend of mine frequently says Utahns are quick to settle. We settle for over salted chain restaurant food, common chain store fashions and with few exceptions we settle for uninspiring architecture. No case demonstrates the later more than the City Creek Center development. Certainly the LDS Church has the right to develop their property as they see fit and yes it will be nice to get something developed downtown but you would think a religion that professes to be divinely inspired would choose a more inspired design. San Antonio has the Riverwalk, we’ll have a fake City Creek. Portland has a large thriving downtown and we’re about to repeat the mistake we made 30 years ago and limit ours to a few city blocks. Lehi gets Frank Gehry and Salt Lake gets Taubman Partners. If we’re going to make Salt Lake a chain store theme park, let’s not settle again. We should at least get a roller coaster to go with our Futureland sky bridge.
24 August 2006
Foreclosures: The New Buying Strategy
In Utah where everyone looks for bargains, the lure of buying foreclosed properties is strong. But the business has changed over the last three years and the changes require an adoption of new purchasing strategies in order to realize foreclosure opportunities.
The biggest changes came in the forms of proliferating foreclosure management companies and the increased securitization of mortgage loans. Lenders are no longer limited in the ways they can dispose of foreclosed properties. The current market gives institutions a lot of options.
In the beginning, banks had to unload REOs (REO is an acronym banks use that stands for real estate owned) themselves and most had no system or internal department dedicated to the sale of properties whose loan had gone bad. Loan managers usually had to handle the bank’s recovery program. Loan managers don’t make money selling property; they make money managing new loans. In addition, they had to admit the loan was bad and that put into question the criteria they used to make the loan in the first place. So the goal became “get the REO off the books.” The banks could then get on with the money making side of their business, loaning money. Here is where a vigilant buyer could find a deal that made investment sense.
However, the dramatic increase in foreclosures over the 2002 through 2005 years presented a mounting problem, one that inventive entrepreneurs were quick to capitalize on. Another change occurred when the securities market for mortgage loans also dramatically expanded.
In 1990 there was an estimate $45 billion in securitized mortgage loans. In 2003 that number had grown to an estimated $800 billion. (Some sources say $600 billion, still a significant increase.) Here’s what that means to the average real estate investor. A bank has a certain amount of money to loan. As that fund becomes scarcer, it becomes more valuable. The natural market inclination is to lend what’s left at a higher rate, but competition from other lenders created an uneven market. Larger institutions, the ones with more money, could still lend at a lower rate. They had a competitive advantage. The local savings and loan was at a substantial disadvantage.
Securitization allowed investors to buy pools of loans from several lenders. The local savings and loan can then make a loan, quickly sell it to a market fund and recoup their loan money. That fund may be looking for a long term interest return, the revenue from loan originations fees or other incentives that make the purchase attractive.
Pools of several hundred to several thousand loans are now combined and include varying numbers of risky loans. Adjustable rate loans are also included and given a value. Large institutions such as Cargill, Chase Bank and ABNAmbro can now have purchased thousands of loans that may go into foreclosure.
The point of all of this is that now there are only a few institutions servicing bad loans instead of thousands of small banks, credit unions and savings and loans. In fact, many people still refer to these properties as “bank owned” when actually the bank is far removed. This concentration of foreclosures provided the incentive to deal with defaults in a quicker more organized manner and the asset management company was invented.
Asset management companies are organized on several levels. Some will contract with a large investor and oversee the sales of foreclosed property. Some will actually buy the portfolio of bad loans and take possession of the properties. Some operate in several states and have thousands of repossessions. They employ several property managers to determine the value of each property and mange the sales process. They will contract with local real estate agents to sell each one.
The goal of the asset management company is to sell the property at the maximum market price and pocket the additional money. They are structured for this process and are willing to take more time to sell the property as opposed to the local bank who just wanted to be rid of the bad loan. The resulting change means buyers of REOs must adapt to the changing market if they want to realize profits from these purchases.
The New Buying Strategy
The change in the market requires buyers and their agents to fundamentally change their typical search pattern. Most agents search listings that have been on the market from 1 to 14 days. The current market structure seems to recommend that listing on the market for 80 to 90 days would be better. While an asset management company is willing to wait longer to sell a property, they still have to sell their portfolio to generate revenue. As time goes by an asset’s price will be incrementally lowered. The first price reduction will come somewhere between 14 and 30 days, the second between 45 and 60 days and the third reduction will come between 60 and 90 days. After that time, the banks will request a new price evaluation and will most likely lower the price again. After 120 days the company will seriously consider all offers and at 150 days will often sell to the remaining highest bidder.
Of course the better properties will sell first and many will be gone. Also a buyer has to determine what level of repair they consider acceptable. The longer a property is on the market the more likelihood some substantial repairs will be necessary. But the longer a property is on the market also means the more likelihood the asset management company will deal. To immediately assume the older properties are not worth inspecting could mean some truly good deals will be missed. An asset manager is usually authorized to take an offer once the 150 day mark has been reached.
Additionally, new listings are frequently price high just to see if a buyer will bite. The number of good deals right-out-of-the-chute is dramatically reduced.
For the most part, realtors will hype the financial gains of buying foreclosed properties. Most don’t even know the structure of the industry. Their goal is simply to get buyers to buy.
This strategy actually gives you a reasoned approach to investing in REO properties. With a well reasoned strategy, patience, and a willingness to take on bigger projects, bank owned properties still have great potential.
Gary B. Howard
Gary B. Howard has negotiated the sale of over 200 REO properties and can be reached at 801.706.5866 or by email at gary@garyhowardrealestate.com
The biggest changes came in the forms of proliferating foreclosure management companies and the increased securitization of mortgage loans. Lenders are no longer limited in the ways they can dispose of foreclosed properties. The current market gives institutions a lot of options.
In the beginning, banks had to unload REOs (REO is an acronym banks use that stands for real estate owned) themselves and most had no system or internal department dedicated to the sale of properties whose loan had gone bad. Loan managers usually had to handle the bank’s recovery program. Loan managers don’t make money selling property; they make money managing new loans. In addition, they had to admit the loan was bad and that put into question the criteria they used to make the loan in the first place. So the goal became “get the REO off the books.” The banks could then get on with the money making side of their business, loaning money. Here is where a vigilant buyer could find a deal that made investment sense.
However, the dramatic increase in foreclosures over the 2002 through 2005 years presented a mounting problem, one that inventive entrepreneurs were quick to capitalize on. Another change occurred when the securities market for mortgage loans also dramatically expanded.
In 1990 there was an estimate $45 billion in securitized mortgage loans. In 2003 that number had grown to an estimated $800 billion. (Some sources say $600 billion, still a significant increase.) Here’s what that means to the average real estate investor. A bank has a certain amount of money to loan. As that fund becomes scarcer, it becomes more valuable. The natural market inclination is to lend what’s left at a higher rate, but competition from other lenders created an uneven market. Larger institutions, the ones with more money, could still lend at a lower rate. They had a competitive advantage. The local savings and loan was at a substantial disadvantage.
Securitization allowed investors to buy pools of loans from several lenders. The local savings and loan can then make a loan, quickly sell it to a market fund and recoup their loan money. That fund may be looking for a long term interest return, the revenue from loan originations fees or other incentives that make the purchase attractive.
Pools of several hundred to several thousand loans are now combined and include varying numbers of risky loans. Adjustable rate loans are also included and given a value. Large institutions such as Cargill, Chase Bank and ABNAmbro can now have purchased thousands of loans that may go into foreclosure.
The point of all of this is that now there are only a few institutions servicing bad loans instead of thousands of small banks, credit unions and savings and loans. In fact, many people still refer to these properties as “bank owned” when actually the bank is far removed. This concentration of foreclosures provided the incentive to deal with defaults in a quicker more organized manner and the asset management company was invented.
Asset management companies are organized on several levels. Some will contract with a large investor and oversee the sales of foreclosed property. Some will actually buy the portfolio of bad loans and take possession of the properties. Some operate in several states and have thousands of repossessions. They employ several property managers to determine the value of each property and mange the sales process. They will contract with local real estate agents to sell each one.
The goal of the asset management company is to sell the property at the maximum market price and pocket the additional money. They are structured for this process and are willing to take more time to sell the property as opposed to the local bank who just wanted to be rid of the bad loan. The resulting change means buyers of REOs must adapt to the changing market if they want to realize profits from these purchases.
The New Buying Strategy
The change in the market requires buyers and their agents to fundamentally change their typical search pattern. Most agents search listings that have been on the market from 1 to 14 days. The current market structure seems to recommend that listing on the market for 80 to 90 days would be better. While an asset management company is willing to wait longer to sell a property, they still have to sell their portfolio to generate revenue. As time goes by an asset’s price will be incrementally lowered. The first price reduction will come somewhere between 14 and 30 days, the second between 45 and 60 days and the third reduction will come between 60 and 90 days. After that time, the banks will request a new price evaluation and will most likely lower the price again. After 120 days the company will seriously consider all offers and at 150 days will often sell to the remaining highest bidder.
Of course the better properties will sell first and many will be gone. Also a buyer has to determine what level of repair they consider acceptable. The longer a property is on the market the more likelihood some substantial repairs will be necessary. But the longer a property is on the market also means the more likelihood the asset management company will deal. To immediately assume the older properties are not worth inspecting could mean some truly good deals will be missed. An asset manager is usually authorized to take an offer once the 150 day mark has been reached.
Additionally, new listings are frequently price high just to see if a buyer will bite. The number of good deals right-out-of-the-chute is dramatically reduced.
For the most part, realtors will hype the financial gains of buying foreclosed properties. Most don’t even know the structure of the industry. Their goal is simply to get buyers to buy.
This strategy actually gives you a reasoned approach to investing in REO properties. With a well reasoned strategy, patience, and a willingness to take on bigger projects, bank owned properties still have great potential.
Gary B. Howard
Gary B. Howard has negotiated the sale of over 200 REO properties and can be reached at 801.706.5866 or by email at gary@garyhowardrealestate.com
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