Chico Real Estate Reality

This is a Real Estate Blog, right? It's logical to assume that you're going to get some commentary when a GREAT BIG story appears on the front page of the paper about a local developer being charged with fraud (and more), right? The fact is that I DID post a very critical column on the issue, too critical, and I was advised to delete it, which I did. The advice was good I believe. After all who am I to judge until all of the facts are known?

Every real estate office and meeting this week features this great big elephant in the middle of the room. It's the topic on the minds of many of our customers and all of our associates. But we are justifiably cautioned not to jump to conclusions or point fingers...we are expected to not have too strong an opinion.

The point I was trying to make in my deleted post however is still valid; that too often when the term real estate is used in the media: "Real Estate Developer Charged..." or "Real Estate Lender Arrested..." all people hear is "Real Estate". And when people think real estate they think agent. And so to some people every story about some under-handed, illegal, profit-scamming REAL ESTATE scheme becomes just another hash-mark on the list of reasons to dislike real estate agents.

Not fair! The Realtors that I know are all highly ethical, family oriented and community minded individuals. They coach kids sports teams, serve on City commissions, sit on the boards of local charities and hold blood drives. And they take their commitment to the best interests of their clients seriously.

And so...let us all reserve judgement on the recent headlines until all of the facts are known. In the meantime let's try to remember that when you see the term Real Estate used in the newspaper it just might be a story about all of the good things Realtors do!

In Real Estate jargon the term 'farming' describes the process of actively seeking, contacting and cultivating potential home sellers via door-knocking, phone-calling and by mail. Does it work in Chico? Absolutely! Here's how a chance meeting at an open house turned into a successful search for a California Park lakefront home.

About 3 months ago while holding an open house at the Sierra Lakeside condominium complex a friendly gentleman wandered into the home for a quick look around "let me know if you ever get one of these right on the lake" he said offhandedly as he started to leave. "Do you mean it?" I replied, immediately thinking of how I might locate a seller willing to part with their home on the water. "Definitely" he replied.

The following day I composed a postcard with a colorful photo of the lake and a description of what I was looking for, and mailed it out to about 40 owners of lakefront condos in both Sierra Lakeside and Windmill Falls. After a week with no response I moved on to more pressing projects.

The following weekend while hosting another open house in a different location I had a call from Mary. Mary had fixed up a lake-view condo for herself but a job change prevented her from occupying it, so she had been renting it out for the last 4 years. She hadn't been thinking about selling but since she'd gotten my letter she'd at least "find out what it's worth". As it turned out it was worth slightly more than she had thought, and she encouraged me to run it by the gentleman that had inspired my search.

When Steve saw the view of the lake he was hooked, and offered to pay Mary's asking price. Within 3 weeks of Mary accepting Steve's offer we had Steve's home for sale and a month later it too had attracted a buyer. Both sales will conclude the end of June, just in time for the buyers to receive the Federal Home Buyers tax credit.

Farming works! All you need is an agent willing to put in the extra effort to search for the specific home-type you're seeking.

Many Chico area families who have either recently lost their home to foreclosure or short-sale, or are expecting too, are left wondering "what do we do next"? With home-ownership a thing of the past and credit red-lined for a minimum of 3-7 years most return rather dejectedly to renting a home or apartment. For those determined to begin anew in the home ownership game there is one option...seller financing.

With housing prices so low, the best time for buyers to get back into ownership is now, just when they're still reeling from losing their home. By purchasing now, with values down as much as 40-50% there is actually a chance of building equity again, a condition that has not existed for about 4 years locally. With their credit shot - seller financing is likely their sole method of getting back into the game.

It may be a tough sell but it's possible. With gobs of homes on the market and prices low, sellers who own their home free-and-clear have the ability to carry a personal loan and may find it to be one way to move their property or to compete with low priced bank-owned homes. With so much coverage of unemployment, income reduction and the huge number of foreclosures, sellers may also be more apt to understand the circumstances behind a buyer's recent default. One of the keys is for the buyers to be completely upfront and honest about their situation.

Did the default happen because of a predatory loan? A reduction in income? A temporary job loss? Have most of those issues been resolved? Does the monthly cost of the home they'll be buying fit within their revised budget? Was their credit good before their job loss or change of income? It is to their advantage to offer the answers to all of these questions right alongside their offer to purchase. Overcoming the seller's reluctance to work with the buyer by honestly explaining the circumstances behind their default may be just what it takes to get them on the buyers side. A Realtor can help by explaining the benefits to the seller.

Down payment may be a problem. Most people who have recently defaulted on their homes are unlikely to have the standard 20% down payment many sellers may require. Aside from borrowing the money from sympathetic family or friends, perhaps the seller would consider a smaller down (e.g.5-10%) and/or a staggered down payment. Let's say the seller agrees to a $10,000 down payment, might they also agree to letting the buyer make four installments of $2500, two before allowing the escrow to close the escrow and two more within 60 days after the close? It's worth trying...we've seen it work!

Few listed properties advertise that the seller will carry so buyers should ask their Realtor to enquire about seller financing for homes in their target price range (a buyer should figure out what they can afford in monthly payments and work backwards to arrive at price), some listings state whether the home is owned free and clear or encumbered. To keep payments very low while getting their foot back in the door of ownership - buyers should consider older manufactured homes on land. Pre-1979 mobiles can not be financed commercially, thus the owners generally MUST carry the financing.

Advice to buyers in this situation: Keep trying, if they can demonstrate that they were a reliable mortgagee before their financial problems, can earn a seller's trust, and are being realistic about the amount they can afford, eventually they should be able to find a seller willing to give them a chance!

Well that dreaded date has past - the 'sun-downing' of the Government's Home Buyer Tax Credit on April 30. Things got pretty busy there in April, our Chico office opened dozens of escrows in the final weeks of the month. Now the big question is: with the tax credit over will people still buy?

The tax-credit fever, combined with the first weeks of warm spring weather even seemed to incite sellers into a listing frenzy. Mark and I substantially increased our listing inventory in April and we were able to find buyers for a couple of them soon after putting them on the market. Those that we didn't find buyers for are now waiting to see if there are enough 'non-tax-credit-motivated' shoppers out there to continue the increased purchasing activity.

One positive sign is that sellers know that there may be a window of opportunity left in the spring/summer buying season to complete a sale, and many are pro-actively adjusting the price of their homes weekly to assure that it stay's fresh in the mind of buyers and to find that 'sweet-spot' pricing that motivates buyers to take action.

Savvy sellers, educated by the market and driven by a long period of anemic sales are making the right choices to keep the momentum started by the Home Buyer Tax Credit alive.

I was in the Los Angeles area (San Fernando Valley actually) last weekend to visit some friends and was amazed by property values. I know what you're probably thinking: that it's incredible how high real estate prices are in metropolitan areas. In fact, it's the opposite that amazed me...how similar Chico prices are to prices in San Fernando!

My friends home is very cool, not unlike a lot of properties you see on the outskirts of Chico - a rambling 60's vintage ranch-style home with a garage-to-den conversion, knotty cedar interior walls, on a deep lot with an in-ground pool and a detached guest house...like something you might find off of Garner, Hicks or Keefer.

At the top of the market in 2005-2006 they received an assessment of the homes value at approximately $950,000, much higher than it would have commanded in Chico at that time. But now it seems things have equalized. While home values in the San Fernando Valley dropped like a lead sinker, home prices in Chico suffered a much smaller decrease - somewhere around 30% off of their highest.

Take a guess what the above L.A. area home is currently worth...try about $450,000. How about in Chico? I found three homes with similar qualities; one on Sheridan and two on Vallombrosa... range of prices? A low of $340,000 a high of $555,000.

In other words, Chico prices for this type of home might actually be HIGHER! But then, to compare Chico to the San Fernando Valley might be a little like comparing apples to oranges.

Gotta' give em' props - Coldwell Banker saw the opportunity to get some valuable press this morning and jump ahead of the competition by  supplying a private extension to a public program. As we've reported here many times - the Federal Home Buyers Tax Credit will sunset this coming Saturday. Indicators suggest that the program has been at least partially responsible for a dramatic monthly gain in existing home sales in the past couple of months. With the pending demise of this popular program team Blue and White has stepped in to prolong it...it is unknown whether Chico area Coldwell Banker offices will participate, but if they do expect something similar from Century 21, Keller Williams, Prudential and others. Here's commentary direct from the CB spin machine.

"The federal government did its part to encourage millions of Americans to achieve their dream of home ownership with the help of the home buyer tax credit," said Jim Gillespie, president and chief executive officer for Coldwell Banker Real Estate LLC. "As the credit expires, Coldwell Banker Real Estate is encouraging buyers who haven't found a home yet to continue looking, while bringing a new audience of home buyers who were unable to qualify for the tax credit into the market. We are confident that this private sector solution will represent a significant step toward continued recovery of the housing market."

"The Buyer Bonus Sales Event will allow participating Coldwell Banker home sellers to essentially extend the benefits of the credit," said Gillespie. "Without restrictions such as household income caps, the Coldwell Banker Buyer Bonus Sales Event allows for greater participation for all homebuyers. And our sellers have a unique opportunity to allow their home to stand out from the competition in their marketplace."

The home buyer tax credit that we have been touting for months is about to sunset...has it done any good and will buyers rush to take advantage of it in these last 2 weeks? "Yes" and "Sort of"...

The market is definitely more active now than it was when the tax credit was extended last fall, it now has a pulse and blood pressure is rising! Multiple offers are not unusual on well priced or particularly appealing Chico area properties. Those pesky short-sale and bank owned properties are still around but now they're more like just another option for buyers who are shopping. Is this a function of buyers wanting to take advantage of the tax credit? According to my buyer clients the tax credit isn't what induced them to start looking for a home, but it has definitely created an incentive to find a home sooner (before April 30) than later.

Example: I worked with a buyer for several months and he found a 'short-sale' (pre-foreclosure) home he really liked, so we made an offer. Because the short-sale process is so dysfunctional and the banks so poor at handling them, we had waited almost a month and a half just for a response to his ALL CASH, 14 DAY CLOSE OFFER. Two weeks ago, with the tax credit deadline looming he abandoned the home he most wanted and opted for a very nice home that did not require bank approval to sell. The compliant sellers agreed to almost every request and we closed escrow in record time.

If not for the federal tax credit who knows how long we might have waited for the bank to respond to our offer? There are numerous tales of banks taking six to eighteen months to process these.

  The The Chico market has 'felt' significantly busier the last few weeks - we've personally listed four properties and sold three, but is it indicative of a 'trend' or just a seasonal 'bump'? Some prognosticators are forecasting a 'turn' in the market.

According to Michael Brush in an article for MSN Money, eight months of rising home prices has buyers itching to make a deal while prices are still low. Expert investors such as Warren Buffett, Michael Rehaut of JP Morgan Chase and George Putnam of The Turnaround Letter are now actively considering investments in residential housing. They stress that savvy investors are getting in early, with a time horizon of three to five years.

More conservative investors like Stu Feldstein of SMR Research expect a moderate pickup in the next two years followed by a stronger recovery during 2012-2015.

Low housing prices, low interest rates and pent up demand are all factors being considered in these rosy predictions. The true test should come in May, as Federal Home-Buyer tax incentives expire...then we'll find out how strong our market really is!

Just when everyone (myself included) seems to be lamenting the complications involved in lengthy short sales and foreclosures, cash comes along to save the day! Yes, believe it or not, homes can and ARE being bought for cash these days AND the transactions are simple and quick. Here is a case study from the past week:

The San Jose Inheritance.

Ron's father left him his 50+ year old home in San Jose, purchased for $5,000 in the 1950's. Even in our deflated market the home sold for $415,000. Ron banked the cash and came to stay with relatives in Gridley, where he had spent time as a child.

Being careful with his money, Ron determined to get the best buy possible and save the rest of the money for his future. Fortunately for Ron (unfortunately for others), homes in the Gridley, Live Oak, and Biggs area have seen incredible price drops. With Ron's money and prices low it seemed that getting him into the home would be simple, but there was a hitch...

Enter the short sale/bank-owned property problem. Even with CASH  in hand and an offer of 14 days to close, we could not get a response from the banks that controlled the short sales, had to compete with multiple offers for bank owned properties or had to look at eviscerated houses where distressed owners had removed appliances and trashed the interiors. Even cash seemed impotent.

Then along came a home in small-town Biggs. One year old, custom-built with upgraded amenities and a detached shop perfect for Ron's music recording hobby. The anxious seller, knowing how difficult to sell Biggs had become in the current climate was extremely accommodating on price and every other aspect of the transaction. Two weeks from the day that our cash offer was made Ron began moving his things into his new home.  

Having just sold two Chico condominiums and listed two others it occurred to me that perhaps the golden era of the condo is finally upon us, when the much maligned townhouse realizes it's full potential in the real estate pantheon...or not.

A recent article intimated that condos or condo-like housing developments would be the dwelling of choice in the coming decade, as retirees, empty nesters and young buyers recover from the real estate bust and prepare for a more fiscally conservative, low maintenance and socially connected housing plan. So I did a little data sleuthing to find out just how condos are faring in today's marketplace.

As the bubble 'leaked' and housing sales slowed in 2006 condos took the first and worst blow as buyers retreated to the more predictable values of single family homes. Now that it appears that we are on the backside of the slump condo sales are actually holding their own, with price per foot values approaching those of single family residences (SFR).

Looking at sales within a five mile circle centering on downtown Chico from October 2009 to present, there have been 33 condos sold compared to 420 SFR's, although this figure is deceptive due to the fact that there exist far fewer condos in the area. Houses still sold quicker than condos, averaging 74 days on the market compared to 129 for condos. More telling is the closing gap between average price per foot. While houses sold at $166 on average during this period, condos (always cheaper to construct) sold for 87% of what houses sold for - or $145 per foot.

If you too suspect that condos may be the newest old thing in the coming years, there are currently 40 of them for you to choose from.