EID Rate Hike

In case you haven't heard (thanks to all who forwarded e-mails), El Dorado Irrigation District is proposing a huge rate hike (80% over the next 5 years). Up till now I was hesitant to post anything about the protest, since I was worried they might default on their bond obligations. The literature I read made it sound like they needed the money to pay for infrastructure projects etc.

Well, now I am pissed off. I just saw today that the proposed rate hike is not all about covering the cost of water projects. Apparently there were some massive pension increases (35%) approved back in 2004. This seems really irresponsible to me. Times have changed. I understand that forecasts were calling for continued revenues, but revenues have changed drastically. Everyone should be asked to sacrifice, not just the rate payers.

Copied below is the e-mail I received from several folks explaining the situation:

EID is proposing a series of rate hikes starting with 35 percent in 2010, 15 percent in 2011 and concluding with 5 percent raises for the following three years, 2012-2014. The notices began arriving last week in your bill. Altogether it compounds out to an 80 percent increase in five years. The first rate hike is planned to go into effect a week before February, 2010.

The notices start a 45-day deadline for ratepayers to mail written protests to EID. Protests must include the assessor's parcel number of the property in which the person signing the protest letter has an interest, either as the owner or a tenant paying the utility bills. Only one written protest per parcel is counted.

Under the terms of Proposition 218 if 51 percent mail in objections to the rate increase within 45 days the rate increase is defeated.

What Were they Thinking?

This tale just keeps getting more bizarre by the minute. The short sale saga I told earlier this month, just took a very weird twist. It was just listed on the MLS #90072959 for a whopping $692,900. This is the exact same house, that sat on the market for over a year for $550,000, and then dropped do $475,000 for over 6 months.

As mentioned in the last post, according to the Bee database, it was bought for $359,100 recently. Why on earth would they list this house so ridiculously high? It has done nothing but deteriorate since it was last listed. Perhaps they sunk a couple 100k into fixing it up....unlikely. I have an appraisal that valued the home at 460k.

Good thing we didn't wait around to buy this one from the bank.....it will certainly be interesting to see how much it actually sells for.

Frustrating Foreclosure Findings

Last year my father bought a foreclosure in Stockton. It wasn't an easy process. The bank was slow to capitulate, the realtor was pushing a lower offer that she was double ending etc.

With many other homes for sale on his street, my father is now attempting to purchase another foreclosed home for his mother (my grandma) so she can be nearby, but still feel independent. After much wrangling with my grandmother, he still had the bank to contend with. When he went to sign the papers on this modest home, he was in for a nasty surprise. The bank (BofA)included an addendum, which was over 15 pages, and was downright atrocious about it (giving a 2 hour window to sign etc.). As much as this home made for the ideal situation for my grandmother, I was pleased to hear that he walked away. In my mind, no home is worth signing away all rights and releasing all liability (and then some), the way they require in their addendum (especially on a home priced less than 100k).

We were in a very similiar situation and eventually walked as well. Our take away from the process, when bidding on a foreclosure, ask for the addendum up front.

Something to Chew On

As some of you may recall, for the past couple months, there has been very little NOD activity in the markets I track. The NOD count for Folsom, El Dorado Hills and Auburn, has basically been halved.

Prior to today, I attributed this drop-off to the new law that became effective in California, SB1137. But, best I can tell, that law only added 45 days to the process. Thus we would have expected a pick up in NOD activity around late-October, as lenders complied with the law that became effective Sept, 8, 2008.

But here is where my conspiracy minded brain starts to ruminate. It wasn't till this week, 75 days, after SB1137 went into effect, that I began to see a pick up in NOD activity. Hmm, perhaps these lenders were holding their breath, waiting for the government to relieve them of these troubled assets.

When Paulson announced that the TARP funds were no longer going to be used to purchase mortgage-assets, they went back to business as usual. This idea came to mind, primarily because I had heard rumors in the blogosphere that Countrywide was not foreclosing or sending NODs while it was in the process of being bought by BofA. No idea if any of this is true or even possible, but it does seem like a plausible explanation given the timing.

Coincidence or conspiracy......thoughts?
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So does anyone know what has happened to Housing Tracker? It was one of my favorite sites for historical context and housing statistics.

Poser's Unwelcome

It seems incredibly trivial to talk about Sacramento real estate issues as our financial system is crumbling before our eyes, but my shady business practice alert is sounding.

I have noticed that every time the topic of down payment assistance (DPA) comes up on the Sac Bee, or anything even vaguely related, it is then commented on buy "firsttimebuyer," who then sings the praises of DPA. If I had to guess, its part of the PR campaign of Sacramento-based Nehemiah Corp. of America to win back the hearts and minds of the populace. I checked and this particular "commenter" became active this August on the Bee's website.

The timing and comments all seem very suspicious, and if it is someone from that organization posing as a "first time homebuyer" then their business practices are even more shady than the media gives them credit.

Over the last two years that I have surfed the local Sacramento real estate blogs, there have been plenty of investors, real estate agents, mortgage brokers, towing the line. But I have never seen such blatant and specific support for a particular financing issue from a single commenter (even a post with url leading to a Nehimiah sponsored website). Shame on them for this ethically questionable conduct.

While I like the theory of DPA, the practice seems fraught with peril and needs to be outlawed, at least until the housing crisis is over. DPA's wouldn't be needed if housing were more affordable for every day folk. DPA's inflate the demand for housing, and with that demand prices become inflated as well, reducing affordability. So I am not really seeing the benefits, since DPAs seem to be a self-fulfilling prophecy....the more they are used, the more they are needed. Is it just me, or does putting low income folks in homes with 100% financing in a declining real estate market seems like a really bad idea?

Of course, my usual caveat, when I am talking about things way outside my realm of expertise. I don't know much about DPA's except the recent news sound bites. I am sure there are some redeeming qualities........which "firsttimebuyer" will continue to extol.

Too Shady to Sell

Some of you may remember an earlier post on a home near downtown Folsom, that was too good to be true. Well I guess they learned their lesson, and have now included the adjacent parcel and dropped their price even further. The new MLS listing number is 80062942.

Glad to see these shady sales tactics are not being rewarded by the market.

Too Good to Be True

I particularly like to browse listings on ZipRealty near downtown Folsom. I happened upon this one yesterday and immediately e-mailed my agent to get a little more info on it.

500 Sibley in Folsom, looks like a gem at first glance (older well cared for home near light rail and downtown Folsom). MLS 80023909. The lot size on the listing is really small, but the pictures show a large lot so I assumed it was a typographical error.

Well my agent called today give me the low down. Apparently they have split their lot into two parcels. And both must sell together. But it allowed the seller to drop their asking price on the home by 175k.

I guess desperate times call for desperate measures and dirty tricks. Sigh...and that home looked so lovely.

(From the mapping feature, it looks like the home is located next to a cemetery...too much bad juju in that case).

Riddle Me This.....

How can sales be occurring at their normal seasonal levels, but pending (homes under contract) are way up?

My Theory:

Because escrow periods have gotten much longer (dealing with the bank, on both sides likely takes longer....buyers are finding it harder to get financing and the banks selling the homes take forever to make decisions).

Another Sign of the Times

Went to do my normal screen scrape today on the http://www.metrolistmls.com/ site, and found some very interesting changes. In the "status" column which used to just tell if it was pending, or if there was a release clause.......we now have an expanded list of terminology:

• AR indicating the property is Active w/Release Clause ,
• AS indicating the property is Active and a Short Sale,
• ASC indicating the property is Active and a Short Sale with a Contingency,
• AC indicating the property is Active with a Court Approval requirement and
• ACC indicating the property is Active with a Court Approval requirement with a Contingency.
• PSB indicating the property is Pending and accepting back-up offers.

One other positive development, they have stopped indicating that someone is using a discount agent. (Really, why should it matter to a prospective buyer what agent a seller is using. I think its was just the Realtors way of discriminating against those who threatened their lucrative business model).

Another note on the screen scrape.....I have stopped tracking all but the basic statistics these days. With over 150 listings, I don't have the time or desire to keept track of the details anymore.

Recourse of Course

In a fit of procrastination, I did a little research on the whole "recourse" issue. From what I had gathered, California is a non-recourse state. Meaning, the bank can't go after all your stuff, if your house doesn't fully satisfy the debt you owe the bank in a foreclosure.

However there appears to be an interesting twist to all this. According to the CA Franchise Tax Board, loans can become recourse if they are not made with purchase money. In other words, if you refinance your home, it is now considered to be recourse debt. The bank can get a deficiency judgement against you and go after all the goodies you bought while you weren't paying your mortgage.

So now I am wondering if all this seemingly charitable activity the banks have been reporting, "working out the terms of the loan with the borrower" is just a ruse to make the loan a recourse loan. You refinance to a lower rate, and can now "manage your payments" for a bit, and unbeknown to you, the bank now has recourse to seize the hummer you bought while being foreclosed on.

Please keep in mind this is all purely uneducated speculation on my part. But if I were a bank with a non-recourse purchase loan in California, I would do what I could to get my borrower to refinance and turn it into a recourse loan (and what do you want to make a bet, this recourse info is buried on the back of page 12 in fine print).

If I am reading all this correctly, I don't think I want to purchase with the idea of refinancing later when rates go down.

Agent Inquiries Only

Hard to believe it in this market, but us buyers still get treated shabbily when inquiring on a home. Below is my most recent run-in with an agent who obviously hasn't gotten the message that some RE buyers are sophisticated enough to make decisions for themselves.

There is home in my favorite neighborhood that is now listed for rent (the same neighborhood where we made an offer two weeks ago). I kinda recognized the place as having been sold in the last 4 years (my agent sent me all the recent sales so I could do my homework on this neighborhood).

Well I called the number to find out how much it would rent for. The guy was nice enough. But the rent was way out of line, even for EDH. So I ventured to ask, if they would be willing to sell. He thought they might be, but refused to discuss it with me any further, insisting my agent needed to call him. Apparently it makes us 'serious buyers' if our agent calls. Surprisingly, he even held his ground after I mentioned we recently put in an offer right around the corner.

Of course, I was a bit insulted. But once again, I won't let a snobby RE agent get in the way of my dream home. So after doing some more homework on the place, it looks like they are speculators with almost 100% LTV.

Getting Personal

There is a reason people involve agents in a transaction. One is for the expertise they provide, and another is to have an “arms-length” transaction between buyer and seller.

During escrow on our first home, we were on rather nice terms with the seller. It was great because she introduced us to some of the neighbors, and gave us a little insight into the home and neighborhood.

In the past, my husband has suggested skirting a seller’s agent and contacting the seller directly to make negotiating easier in some circumstances (this was also before we had an agent).

Last night it came to light that a mom I know, and called to get her thoughts on transaction, actually knows the owner of the home we made an offer on.

So my question is this, what are the pros and cons of talking directly to the seller of a home (in the different stages of the negotiations)?

In some situations I can see how it would actually help with negotiations (the agent representing the buyer of our D.C. home was a first class jerk and we came very close to killing the deal during the inspection process as a result). But in others I would imagine its best to go though an agent.

That Sentimental Feeling

With Valentine’s Day fast approaching, I thought it would be a good excuse to discuss buyer sentiment (and my latest conspiracy theory…see note at bottom).

There are many in the RE industry that mistakenly believe they merely have a PR problem on their hands (and not a speculative bubble). In other words, some have been quoted saying that the negative press has soured buyer sentiment. They have theorized that their problems would be solved if the media would just be a little more upbeat about things (and many have written positive spin pieces with that in mind….I find the latest NAR campaign absolutely nauseating).

If you are buying a home to live in, as opposed to an investment, is sentiment really driving your purchase? Back in the “priced out forever days” I can see how sentiment was a factor. But now that the market has cooled and prices have dropped a bit, the artificial sense of urgency has evaporated.

Ironically, now that there are plenty of homes in my price range, I feel even more compelled to wait, since I am assured that something reasonable is out there if I needed to purchase immediately (as opposed to last year at this time when there were only a handful of homes at or below my range).

I think sentiment comes into play in the decision to look or list a home. But sentiment will not save this market because it cannot actually purchase a home. Without access to piggyback, no-doc, ARM, or interest only loans, the spirit may be willing, but the financing gods may not be (although there does seem to be a lot of anecdotal stories to the contrary). And who actually has 20% down these days unless they have come from the Bay Area?

For the financially disciplined who actually have the 20% and the access to credit, their hearts and minds are not as likely to be swayed by NAR ad campaigns and Realtor spin.

A campaign to win back buyer sentiment?
So over the last 3-4 months I have started to wonder if members of the REIC (especially NAR operatives) have been posting on some of the RE blogs in an attempt to try and turn around buyer sentiment. While this might sound a bit far fetched, I think it would be a perfectly logical action to take if someone thought they had a buyer sentiment problem.

BT on conspiracy theories
I happen to love conspiracy theories. For instance I am still holding out hope that we will find out who really killed JFK and why, since very few can resist a death bed confession/memoire. The mastermind behind it should be getting up there in years right about now.

Making Apples to Apples Price Comparisons

Many of the new developments in the foothill communities tack on additional monthly fees for HOA and have special tax assessments (Mello Roos). These can add up very quickly. Here in Serrano for instance, according to their website, the two fees typically come to $296 a month.

I believe this is why we are seeing so many home priced “below market” in this Serrano now. Once you include the present value of these additional fees and taxes, the homes are at or slightly above market value.

Below is a quick chart I use help determine the tradeoff between extra fees and home purchase prices. The monthly fee/tax value is on the left, and the present value of those fees/taxes over 30 years is at the intersection with the interest rate. So for example in Serrano, the $296 a month at 6% interest could have bought you around $50,000 more home elsewhere, or adds $50,000 to the home price if you are looking at in Serrano. Of course you do get something for the HOA, like front yard maintenance, so you might want to use a slightly lower figure, but this may be offset by future increases in the HOA.

If you use excel you can estimate this easily using the PV function (but don’t forget to divide the interest rate by 12 or multiply your payments by 12 so that your interest rate and your payments are in the same increment).

On a side note, recently spoke with a mom who lives in Serrano. She actually works in an RE related field, but the developer was not upfront with them, and they didn't find out about all the extra fees unitl it was too late. Developers hold all the cards and all the information.....so be very very carful when purchasing a new home!

House Swap?

Looks like desperate times call for desperate measures. I spoke with my dad over the holidays (who doesn’t know about my secret life as a RE blogger), and he was telling me how they were trying to work out a “house swap” with someone in El Dorado Hills.

Background: Dad sold his home in Stockton, and moved to Puerto Vallarta to retire about 6 years ago. They have been trying to sell their home in PV for the last 2.5 years. With the proceeds, they want to buy a cheep home in the states for summers (they were looking in Pollock Pines) and one in Mexico for the winters. If they were to do the swap, they would simply move back to the States.

Luckily, my dad has found some of the online tools like Zillow, and has realized that these people are still asking 2005 prices for their home. All of the folks he has been in contact with are underwater on their homes and looking for a way out.

Sample Contract Language

Attached is some sample contract language that helps buyers gain a bit more leverage when making an offer. I make no claims that this will stand up legally or otherwise....so please use at your own discretion....(I suggest you have your agent carefully look it over). Another twist on this theme is to have the offer expire within a certain time frame.

"Buyer is concurrently making offers to purchase other real property. This offer is only one of the offers being made by Buyer. Notwithstanding the submission of multiple offers, Buyer intends to only purchase one property at this time. Therefore, Buyer’s receipt of a duly signed acceptance of another offer before Buyer personally (not Buyer’s agent, if any) receives Seller’s written Acceptance of this offer, shall be deemed as a withdrawal of this offer and Buyer’s deposit will be returned to Buyer. In such event, Buyer will attempt to inform Seller of said withdrawal as soon as reasonably practicable."

Help Me be a Better Bargainer

One of the main reasons I am so addicted to housing data, is because I am terrible at bargaining. I am a softy, which means I typically play good cop (getting very excited and emotional about an item, pointing out its attributes), while Mr. BT plays hard ball on the negotiations. These roles also tend to play out in our parenting styles as well =).

The best negotiating tactic, given my personality inclinations, is to play the innocent intellectual role, using data as my weapon of choice (I really love it, but I can't figure out why its priced 10% over comps). Hence the only suggestion I have been able to offer is to use publicly reported builder data as a basis for negotiations.

Yes I have time and a relatively low rent payment on my side….but becasue I don't bargain well, it just means I am likely to walk away, as opposed to trying to negotiate a better price or contract terms for the house I want.

All this to say, I would love to gather input on tactics that have worked for others. I will compile suggestions and put them in a separate post on the sidebar since I know many of you are finding homes that are now within range.

For example, a previous commenter suggested changing the standard contract text to allow the buyer to make multiple contingent offers, which I thought was pretty brilliant because it prevented sellers from shopping the offer.

We're selling homes!!!

I always like to have a safety home (think safety school when applying to college) in mind just in case something catastrophic happens and we needed to buy right away (or if I just can't take the beige rental wall any longer).

Up until yesterday, that safety home was in the new Blackstone development in EDH. With incentives the Lennar homes were priced well under resales and I could justify the outrageous HOA & Mello-Roos with comparisons to gym fees and the solar energy discount.

Bit of background.....bit of rant.

When we first visited the development shortly after opening (mid summer), we initially spoke with Peter (he was very condescending with us). After that experience we were pretty turned off. The homes were at least 50K over priced.

But decided to check back a couple months later since we were in the neighborhood, which was when we met Patti, who seemed much more open and honest, and was really trying to help us find a place we liked. We were glad we checked back cause the list price had taken a haircut of around 20K - 50K (in just 2 or so months of opening).

So I had stopped in on Friday talk to Patti again and see if they had any year end specials going. But she was gone and Peter wouldn't give out any details. He remembered us, not sure if it was from the initial visit or not. He insisted several time that they were selling houses, and then asked my price range. I replied under 500k. He then motioned to the list prices, basically telling me there wasn't much that fits that description (they do have a couple list under 500k). I left, rather disgusted.

Did he really have to do that? Who the hell believes that the list price is actually what they are selling for? I think they might have sold 2-3 homes a month since they opened....that doesn't seem like much to me. But perhaps its enough so jerks like Peter feel free to treat folks as if they aren't worthy of living in his development. So that is why Lennar at Blackstone has been removed from my safety list.

There are now some nice resales, under 500k going in the 150s a square foot around here. They are a bit bigger than we are looking for, but seems the mid sized homes aren't budging as much in price. So I am off to find a new safety house.

Update: So about an hour and a half after this posted, I got a call from...wait for it.......Peter! Very suspicious timing if you ask me. Not going to post the details of the call, till we make a decision either way......cause its tempting. Quite a bit bigger than we were looking for...but I have gotten rather used to our rental that's about the same size.

Exactly why is our primary residence is considered an investment?

Somewhere along the way, a dogma was established, perhaps by the RE industry, that we should think of our home as an investment as opposed to shelter.

I can see purchasing a home because it makes financial sense when compared to renting. But does that make it an investment? For example we often purchase cars because it makes more financial sense than renting or leasing? But they are not considered investments because they rarely appreciate in value.

I think we have been conditioned to think of a home as an investment, because there is an implicit assumption that homes primarily appreciate in value. But looking at most inflation adjusted charts we see that is not necessarily true historically.

There are very few things that we actually use (which deteriorate with age), that are considered investments. The only other things I can think of are jewelry and artwork (and they don't really deteriorate much). Do we take out loans using them as collateral? Rarely. (Personally I hate the idea of art as an investment….seems contrary to the whole idea of art).

Collateral is the only aspect of a home that really seems characteristic of an investment. We can take out loans against our homes. But homes are not very liquid assets. As many have learned the hard way, just because you can use it as collateral, doesn’t mean you should.

Expert Advise

From this week's Dear Miki column Folsom & El Dorado Hills Telegraph:

"Last night our real estate agent came over to the house and showed us a comparative market analysis (CMA). After much discussion on the value of our home, "Marge" suggested that we wait until the market is on the upswing. Although Roy and I don't have to sell, we told her we wanted to give it a try. I almost fell out of my chair when "Marge", our agent for the past 20 years and the recipient of our referrals, refused to list our house. What kind of service is this? I'm so burned up that I am calling all our friends and telling them not to use her because she is just too lazy to work harder."

Response:

"A CMA is designed to give facts which can be qualified and quantified, by giving number of bedrooms and baths, approximate square footage, size of major rooms, amenities, home's age, property taxes, homes' currently for sale list price and those sale price of those that have closed escrow. Basically, it tells you in black and white how your home stacks up with the competition."

Ensuing random discussion about whether CAR telling people not to test the waters is legal issue.....then last paragraph.....

"Give her a break! She has no time to coddle your curiosity by spending money on marketing your home, when she must feed family and pay a mortgage. Who knows, she might even be working part-time at a department store to pay the bills."