If you’ve ever purchased a home, you have had a Realtor tell you that you should get a home inspection. Even if you rent or lease property, you may have had to open your door to an inspector performing “due diligence” as part of the landlord’s purchase/sale of the property. When you are spending hundreds of thousands or even millions of dollars on something, it only makes sense to make sure all is as it appears to be, right?

Well, as real estate values have declined, taxable values have declined in many places as well. The result is that many local governments are getting squeezed by lower revenues in a time where prices for just about everything but housing are going up. If you look closely, even the Fed has had to admit this was so. And in turn, that means local governments are having to cut corners here and there.

That brings me to today’s local newspaper, which informs me that Las Vegas Has Scrapped Some Structural Inspections. As nearly as I can tell from the limited scope of the article, the inspections involve the blueprints and plans rather than physically going on site and looking at the structure. I welcome comments from anyone who can correct me on this point, and will update this article accordingly. Honestly, I’m not worried about the safety of “strip malls… and big box stores” — the owner has too much to lose if it collapses and so much as injures a single person — but I have a little concern over the exemption for “tract homes”. Homeowners often don’t do the same kind of preventative maintenance that commercial real estate would have; not a big deal over the course of 5 years, but what about 20 years? A small problem can easily become a big one reaching across an entire neighborhood of homes in that time. At least one local lawyer “believes the city’s cost-cutting move could create more problems for local residents. He suggested eliminating the reviews would lead to more litigation over construction defects.”

While many experts feel that these inspections were duplicating inspections that also occur on the state and/or county level, it’s still a good idea to remind everyone that the last line of defense when it comes to avoiding a real estate nightmare is the property inspection.

Of course, there are some things that you can look for yourself and decide whether a property is even worth considering. Your level of “handiness” and willingness to do a lot of repairs will of course come into play. That being said, here’s This Old House’s Tommy Silva on What to Look For Before the Home Inspector Arrives and 18 Red Flags from Samuel Tamkin, who notes that “Of course, all of these problems can be fixed but for a price.”

As for choosing an inspector and what that inspector will do, here are some resources to get you started. Your broker’s office may have a list of inspectors that they have done business with in the past, and more information about the inspection process.

It’s a Caveat Emptor kind of world out there. Protect yourself with a property inspection when buying real estate.

Let’s imagine a nice little community of 400 homes. It’s a perfectly average American community, and it could be anywhere: in town, in the ‘burbs, in the countryside.

Thanks to the often-cited statistic that 68% of Americans own their homes, we can deduce that perhaps as many as 32% are rental homes, or 128. However, we are going to assume there is an apartment complex down the road, and that only a third of that number are in fact rental homes. We’ll round down to 42.

Because it is a perfectly average community, roughly 5% are currently available. Most of them are for sale or lease. A few have sales/leases pending — the sign is still up, but only because the deal hasn’t actually closed yet. Another few are being prepped for sale/lease, but frankly if you made the owner an offer out of the blue he or she would likely take it.. That’s 20 homes. A lot of these homes are currently not occupied.

Right now, 2 of them are in foreclosure, like one out of every 194 homes nationwide — more than double last year’s figure. Once the bank takes them back, they will be added to the list of homes currently available.

In addition, since 6.8% of American homes are currently financed at least in part with a ARM sub-prime mortgage, there’s 27 homeowners that don’t know what their payment will be next year. Since there are 75.1 million home owning Americans and “over 7.5 million first-lien subprime mortgages outstanding”, you can see that one out of every 10 homes in this average community are involved in the subprime mess in one way or another. That’s 40 homes. There is reason to suspect that a disproportionate number of these homes are currently rented, because a lot of investors had to resort to subprime lending. Suddenly, Hope Now’s efforts seem quixotic.

So let’s take a look at how this could play out in the next few months. Those two foreclosures alone will drive our available homes figure to 22, an increase of 10%. This doesn’t seem like a big deal in one community of 400 homes, but multiplied out across a metropolitan area, it can be huge. The bank does not particularly want to own this property, and in many cases is willing to sell at a loss. This drives down prices across our community: why would buyers pay more to a private owner, when they can get a comparable bank-owned home for less?

This in turn creates another problem for our homeowners with subprime and ARM mortgages. Some of those people would like to refinance, but can’t. Some now owe more than the current market price; that combined with whatever personal financial issues resulted in them having this mortgage in the first place prevent them from getting affordable refinancing. Some of these people are going to have to sell their homes, if not simply walk away. If as few as 2 of them do so, we have raised available housing by a total of 20% across the community.

We haven’t even discussed the impact of a major lender going out of business. While the mortgages owned by such a lender would be sold off — they are assets, after all — that would reduce the pool of available lenders, and available funds with which to make mortgages for honest, bill-paying homeowners. It obviously also reduces the money available to people trying to refinance. In a nutshell, that is why the government has to “bail out” some lenders: not because we are rewarding their bad behavior, but because of the impact on the public.

Most of the currently discussed legislative solutions focus on owner-occupied homes. The reasoning is that investors should have known better and it’s only fair that they sleep in the bed they made. This reasoning fails to account for the decent, rent-paying residents of our community. If these homes are foreclosed upon, the leases are generally terminated, leaving the resident to scramble for a new home through no fault of his or her own. Does that seem fair to you? Furthermore, by leaving these homes out of the “solution”, we have the potential of adding dozens of homes to a real estate market that normally only has 20 available units. The law of supply and demand suggests that is a recipe for plunging prices, a problem which already exists.

Problem exacerbated by the solution.

But what if our community isn’t perfectly average? According to the latest foreclosure data:

In the first quarter, 1 of every 54 homes in Nevada received some type of foreclosure filing - more than any other state. Its largest city, Las Vegas, had 1 out of every 44 homes go into foreclosure.

Stockton, Calif., had the highest foreclosure rate out of any U.S. metro area, with 1 out of every 30 homes receiving a notice - nearly seven times higher than the national average. The Riverside/San Bernardino region had the second highest rate in the quarter, with one of every 38 homes in default.

Only two metro areas in the ranks of the 20 hardest hit were outside the Sunbelt - Detroit, which ranked sixth in the nation with 1 in every 68 households in default, and Cleveland which saw 1 in every 105 homes go into foreclosure.

That means that if our typical community is in Nevada, there’s 7 homes in foreclosure; if it’s in Las Vegas, there’s 9; Stockton, there’s 13; Detroit, there’s 5 or 6; Cleveland, there’s 3 or 4. Multiply all the problems above accordingly. And keep in mind that these problems are currently impacting the economy in a negative way.

Any real legislative solution to these issues must take into account all parts of the problem: lenders, homeowners, real estate investors, renters, even home builders and investors who purchased mortgage backed securities. To implement half a solution is worse than no solution at all.

Cross-posted on The Moderate Voice and ShortWoman.

You have probably heard that current inventory of homes available is at a high level, and prices have dropped.  That being the case, some savvy property hunters are out there looking for great deals.  Even though the extraordinary percentage of foreclosures and short sales poses special challenges for prospective buyers, some things don’t change.  One of those things is that buyers need to get into a property to make an educated purchase decision.

So, suppose you already have a great Realtor who has already helped you narrow things down and pick maybe a dozen or two top choices.  Furthermore, that Realtor has already made appointments for you to see some of these homes.  What things do you want to bring with you when you go?

Comfortable clothing, including shoes!  Sometimes you don’t have a lot of choice  in the matter — perhaps this is an impromptu viewing after a particularly good out-of-town job interview — but remember that it could be a long day.  There could be all kinds of surprises.  Would you rather face it in a suit and dress shoes, or a pair of machine washable pants and sneakers?  Don’t forget that you will almost certainly be looking at a lot of back yards too, so remember your sunscreen.

Measuring Tape.  I recommend at least 12 feet, but 25 feet is better.  Sure, the MLS says the room is 10′ X 12′.  It probably is pretty close to that. But is there enough room between the door and the window to fit a particular piece of furniture?   Would you rather find out now, or on moving day?

Flashlight.  Some of the homes you see in today’s market are likely to be vacant. Some of those vacant homes will not have the power turned on.   Some rooms, including the garage, will not get as much daylight as you might like to have for looking around. Even if the home has power, you might want to look around a crawlspace, attic, or some other inadequately lit space.

Clipboard and Pen.  You may see a lot of homes in the course of a day.  Even if you rule the majority of them out, you will still want to take some notes on your favorites such as “carpet must go” or “is 3rd bedroom big enough?” or “have inspector check kitchen window for leaks”. Ideally, you can write your notes on the MLS sheet your Realtor gives you.

Digital Camera is Optional.  Unless, of course, there is a decision maker that cannot be with you!  Some Realtors are hesitant to take you out in such a situation, but many times it is unavoidable. Pictures can make your remote “other half” a real part of this important situation.  Go ahead and take lots of pictures of your favorites.  You can email them to friends, family, or whoever. You will be glad you have these pictures a few weeks later when you are trying to remember whether there was wallpaper in the hallway.

Pre-Approval Letter from your Lender, and a Checkbook.  These days, you can’t make an offer on a house without a letter that says your mortgage is ready to go.  And you certainly can’t make a purchase offer without an Earnest Money Deposit, or EMD.  Sure, you don’t need these things physically with you, but you need to be able to lay hands on them within hours.

Your brain.  It’s easy to fall in love with a house.  It’s also a potential path to disaster.  You can be emotional about your home, but you should not be emotional about your investments; and a house is a huge investment.  People who make this decision based on too much emotion and not enough reason tend to overlook problems and pay too much money.  Look at it with critical eyes, and remember that there are many others for sale.

Good luck.  I’m here to help!

It turns out I am not the only person who is taking a hard look at the various fees that mortgage companies are trying to squeeze out of people. “Slowly but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers.” Over and above the miscalculated interest, the sloppy record keeping, and the fees upon fees that can keep people from ever being able to put their loans in good standing, some lenders are adding fees back on after judges have tossed them out and discharged a bankruptcy!

The Christian Science Monitor reports that some potential home sellers are deciding not to play the game at all and pulling their property off the market. Eventually these homes will come back, as the owners find themselves needing to sell rather than wanting to. Others will someday decide that the market has improved enough to chance a new listing. Some will sadly end up in foreclosure and become REO properties. Short version, this trend helps shore up supply now but bodes ill for some future date.

And now for a completely different kind of real estate, French lighthouses. Interested in a tough historical preservation project?

Speaking of foreign real estate, you probably don’t know how lucky we have it here in the states in some ways. Let Robert Brady spell it out for you: “Believe me when I tell you that, when it comes to business (that is, the purchase of real estate), the agent you’re working with is not working for you. Buyers’ agents don’t exist outside of North America. In many of the markets I recommend, real estate agents aren’t regulated or even licensed.”

A message to all those Realtors out there: I know about “Realtor Standard Time” and I know that things happen, but you still have to make an effort to be on time. Got that? Would it have killed you to call and let somebody know you were going to be late?

In a move that surprises nobody who has thought about things for a few minutes, economists have found that housing prices have declined most in places where the commute is longest. I suppose if you can work remotely, you can get some screaming housing deals in the far-flung ‘burbs right now. In the meantime, remember that the Las Vegas Valley is relatively small; I can be on the opposite side of town in a half hour…. traffic permitting of course.

And last but not least, two fun if kitschy tours of Vegas: the mob history tour (hey, they’re all legitimate businessmen!); and the haunted Vegas tour.

That’s all for tonight!

Maybe you saw today’s news that pending home sales are at an all-time low… well, a low since the National Association of Realtors started compiling those figures in 2001. It’s down 1.9% from last month and 21.4% since last year! Of course, not all regions had the same performance. To listen to the market gurus talk on CNBC this morning, you would think that a long, dark road is ahead for our nation as they made fun of the NAR for daring to predict yet again that there would be a recovery real soon now. Alan Greenspan even did an exclusive interview with CNBC where he disavowed any responsibility for the current mortgage mess.

Meanwhile, a small chorus of experts is joining me in saying that “Southern Nevada’s housing slump is on the verge of hitting rock bottom, if it hasn’t already done so.” Of course if you have been looking at the actual data for Las Vegas residential real estate on a regular basis (and many thanks to Tim Kuptz for making this available every week in an easy-to-read format), you have already seen inventory start to fall and pending sales start to rise. It’s going to take some time to get through the excess inventory, and it’s going to take time to get back to “normal” levels of short sales and repossessed property (bank owned or “REO”). There may even be a little more room for prices to fall in the short term. However, our housing market on the right track at last. When all is said and done, Las Vegas is still ranked #9 nationally in population growth, and all those people moving here still need places to live.

Let’s start off with Mortgage Concepts Every Buyer Should Know. This important little article is must-read stuff for those trying to become first-time homeowners.

Maybe you knew that once you have a mortgage with a bank, the bank can sell that mortgage? Fannie Mae is a company (and former government subsidiary, it’s complicated) that buys those mortgages, freeing up your bank to lend money to somebody else. Fannie is in the process of tightening the rules on exactly what mortgages they will buy.

If you are losing your home, your mortgage holder might pay you to not trash the place on your way out! So please think twice about stealing the plumbing fixtures or leaving holes in the wall. You could use some cash, couldn’t you?

Speaking of leaving a mess, I was recently showing a bank-owned home where it appears that the previous owner locked the cat inside and let them pee absolutely everywhere. There was just too much pee to be explained by anything else. I can only hope this poor animal had food and water, and was safely removed from the home. For pity sake, please provide for your pets! Even if you don’t see pets as family members (in which case why did you get them?), your kids do. Do you want your kids wondering if you will leave them behind when money gets too tight? The flipside of this problem is that your local animal shelter or rescue group probably has some great new pets hoping to find a new home.

A new book called Greed, Fraud and Ignorance tells us even more about how we got into this mess.

These same problems might play out worldwide, as “Overvaluated housing [is] not limited to U.S.”

And lets close with a group of articles on the things Congress is doing to help the situation: it looks like homebuilders are getting a big tax break (yay for keeping construction workers employed, but the last thing we need is artificially inflated supply of new housing); there is little help for homeowners, well, maybe not even that; and both parties want to get something done so they can look voters in the eye this fall and say they did something. Not that there is a simple fix to this situation that doesn’t involve a time machine, but I’d settle for things that were actually helpful and don’t make the situation worse.

You might have heard about some figures released earlier this week:  February saw an 8.2% drop in sales prices with a 2.9% rise in sales.

Even so, many people still refuse to believe the market value of their home has dropped, and if they want to sell it they will have to take less money.   The banks have gotten this message:  most of them have dropped their prices, and that is part of why bank-owned property is moving fast in Las Vegas.

Oh!  And here’s a little follow-up on bogus foreclosure “rescue” schemes:  the Feds have indicted 20 people who defrauded over 100 people out of their homes in California.

One fascinating aspect of our current market is that some houses blow off the market in days, while others languish for many months. While price is certainly an aspect of this phenomenon, it is not the sole factor. Nor is it all in the condition of the home. I am blown away by the fact that people will buy houses with no toilets, or with missing windows, or with huge holes in the wall, and gladly pay up for the privilege.

At the beginning of this week, there were over 17,700 single family homes available and another 4700 condominiums and townhomes. Half of them are vacant; almost one in 5 is a “short sale” where the mortgage balance is greater than the purchase price. These people need to sell their homes, and they need to do it quickly. Just short of 1 in every 10 listings is bank-owned (REO), and they account for over half our sales! That isn’t because banks are underpricing, and it isn’t because repos are necessarily nice places to live. People are getting into bidding wars on these properties, and eventually paying more than asking price in many cases! And then other bank-owned properties have sat, gathering dust, for months upon months.

So what is the difference between the houses that sell quickly, and the houses that simply don’t sell at all? And who is to blame for the ones that don’t sell? Remember, if the market is really declining, a fairly priced house can become a wildly overpriced house over the course of a 3 or 6 month listing agreement. There are many reasons that a quick sale is a good thing, so it is worth our time to consider how to make a home sell quickly. So here is a short list of things:

1. Of course, price still matters. If you walked into the grocery store and told them you had to buy a pound of ground meat for fifty cents, odds are very good you would not get it. If they told you they had to have $15 for a loaf of bread, you wouldn’t buy it. In fact, you would leave the store and go somewhere else — and so do home buyers when the list price is too high! Sadly, your monetary needs do not change the market value of your home. Remember that every for-sale sign in your neighborhood is competition for buyers. Clinging to a need you can’t and won’t get may cost you even more in the long run. After all, you still have to pay the bills. Listen to your Realtor about current market conditions. If she says your price is too high, listen to her.

2. Of course, the condition of your home still matters, too. Volumes have been written about “staging”, the process of preparing your home for sale. I bet there’s one in your local library, or that your Realtor can give you specific tips relevant to your home. The sad fact is that most people have a hard time looking past your clutter, your dirt, your un-done list of little maintenance chores. The last is of particular importance, because prospective buyers will wonder what other maintenance hasn’t been done! A clean house just seems nicer than the same house with dirty carpet and a scratched up front door. Really good REO agents know this, and at the very least send a cleaning crew to spruce things up.

3. Be reasonable about showing your home. Buyers can’t decide whether to buy if they can’t get in the front door. What they can and will decide is that your place is too much trouble. Go ahead and let the Realtor install an electronic lockbox so people can see the place while you aren’t around. The electronic ones available in most areas are very good — I have yet to see one broken into — and can only be accessed by Realtors via an electronic key system. Most are programmed to allow showings only during certain hours. If you are in a situation where you cannot allow people to be in the home unattended, seriously consider waiting to list until that situation is resolved.

4. Don’t put in unreasonable requirements. You know that if you say you will sell your home to “only Good Christians” or “No Blacks”, the Federal government will kick your butt? Well, there are other requirements that are legal but still not reasonable: “must prequalify with XYZ Mortgage, no exceptions” comes to mind. Some requirements are understandable but still not fun to deal with, such as unfortunate cases where sale is subject to court approval.

5. Make it a good listing from the start. If Jane Average does a search on REMAX.com and finds 82 houses that fit her needs, what is the first thing she’s going to do? She’s going to eliminate everything that doesn’t have pictures! And if she still has 50? She’s going to cut everything that only has one picture! Then and only then, she will read the description in the comments while looking at the pictures and online tours. Which would she rather tour: “Bank Owned-Addendums required-Property sold AS-IS. Information is not guaranteed-Buyer to verify all. Spacious two story home with upgrades and pool. Vacant now, show anytime!” or “REMARKABLE, CLEAN, HIGHLY UPGRADED HOME. Energy efficient windows w/custom treatments. Wood laminate floors in entry & kitchen. EnergyStar rated appliances. Big cement patio. Master bdrm separate from other rooms. Antique custom cabinet/sink combo in bath.You will be impressed.” She probably won’t even call Joe Average over to the computer until she’s narrowed things down to 10 or so. House-hunting isn’t what it was even 10 years ago. More people are using the internet — not the newspaper — to pick a short list of homes before they ever get in a Realtor’s car.

6. Be aware that things change. A wise man once said that the only thing that doesn’t change is that everything changes. Both Realtors and their clients need to be aware that market conditions change all the time, and that their strategies must therefore adapt to the way things are, rather than the way they used to be, should be, or the way we want them to be. Prices change, desirable neighborhoods change, the “best” schools change, the kinds of property people want to buy changes, interior design changes (thank goodness). Don’t fight change; adapt to it.

Don’t make things harder than they need to be.

A combination of aggressive mortgages, maxed out home equity lines, and dropping home prices mean that home equity rates in the United States have fallen below 50% for the first time since World War II.  This is of course related to housing being in the “deepest decline since the Great Depression.” There has actually been a major shift in the priorities of debtors, and homeowners are more willing to walk away from their homes than ever before.

This of course means that lenders are becoming more risk-averse — they don’t want to loan money that Joe Borrower might not pay back, and they really don’t want to worry about liquidating Joe’s house down the road.  In fact,  not only are people with good credit having trouble getting refinancing, you can’t get financing at all in some areas for certain kinds of real estate.  For example, if you want to buy one of those 800 high-rise condos currently available in Las Vegas, make sure you have a large cash down-payment.  I can’t blame the banks for not wanting to get involved in what is essentially a niche market, but it does make life “interesting” in our local real estate market.

Even if the current housing problems are not over, I find it very encouraging that pending sales were unchanged — not lower! — in January on a nationwide basis. On a local basis, things are doing even better here in the Las Vegas Valley (many thanks to Tim Kuptz for making sure this data is regularly available to the people who want facts instead of vague impressions).  Bargain hunters are swooping in trying to catch REO (foreclosed and bank owned), short sale, and vacant property at prices that they haven’t seen in years, knowing there is a finite amount of buildable land in the Valley.

Also encouraging on the national level is that the FHA has come out with the new conforming mortgage limits, adjusted for regional conditions.  You can find your local limits here;  in the Las Vegas Valley, it’s $400,000 for a single family home, last revised this past Wednesday, March 5, 2008.  Trust me, I can help you find a nice place to live for $400,000;  what part of town do you like? The FHA getting involved is great news, because everyone expects them to ride in for the rescue, much like they did in 1935.

In the meantime, this might be a great time for some renovations,  but remember these bits of advice:

To ensure that your renovation will pay off, make improvements that others will appreciate as much as you do….  [Some] projects… are a matter of personal taste, and they may not add value in the eyes of a future buyer…. Also, don’t compromise long-term value for short-term convenience.

How true.

According to the NAR, a REALTOR can help you get more money out of selling your property — even after commissions.  Doubters will of course point out that these numbers were put together by an organization with a vested interest in the outcome.   Even so critics and economists who doubt these figures concede that REALTORS provide valuable services to their clients and will never be completely replaced by such things as websites that allow sellers to list their FSBO (”For Sale By Owner”) homes for a flat fee.  A new study from Stanford spells it out:

Sellers potentially benefit from [real estate] brokers’ services in a variety of ways. First, brokers provide promotional services. They help prepare a house for sales, circulate flyers, place advertisements, hold open houses, and recommend the house to individual buyers. Second, they often assist with negotiations. Third, they screen prospective buyers, facilitating and potentially accelerating the process of matching buyers and sellers. Fourth, they provide access to the Multiple Listing Service (MLS), which lists all homes available for sale. Fifth, they provide market information and recommendations pertaining to the appropriate asking price. Sixth, they often assist with paperwork and legal documentation.

It’s a short version of the list, but it gets the point across.

Of course, the same report comes to a couple of interesting conclusions:  They did not find the same improved pricing that NAR and other research has reported, but they did find that  “[sellers] who use brokers sell their houses more quickly.”

That’s an important finding!   We are currently in a national real estate market where sales are at the lowest level since 1999, prices are declining over time, and we have an average of 10.3 months supply of housing on the market right now.  Locally, inventory has declined to a mere 21.22 months. Add to that the fact that foreclosures are up 57% since last year and 8% since December — including over 45,000 actual bank repossessions! — and it is clear that a lot more homes are coming on the market, either as short-sales or as REO (bank owned) property.  Even if Congress manages to pass Senator Dodd’s HOLC proposal, a lot of people will need to get out of homes they simply can’t afford.

Do you have 21 months to sell your home?  No!  Of course you don’t!

And are you prepared for the fact that if your home sells 6 or 10 months from now, you may very well get less for it than if you were to get a buyer 30 to 60 days from now?

Yes, selling a home more quickly is a big deal, even if you don’t have to relocate quickly.  In a declining market, time on market is money lost on market.

To get my free publication on how a REALTOR can help you titled “50 Things a Licensed Real Estate Agent Does”, or to get help finding or listing property, be sure to call me or click the “Contact Me!” link to the side.

Looking forward to seeing some of you at the Desert Shores Dojo this Friday night!