patrick.net

Seems it would be useful to plot a Case-Schiller graph with a ten-year moving average?

Mark,

You ARE aware this is a housing "bear" blog, right? Unless you're prepared to make an embarrassingly low lowball offer I'm afraid we can't condone that. If you ARE seriously considering buying, what are your motivations, particualrly now?

Tax advantages? Fear of being "priced out forever"? The prestige that comes with being a "loanowner"?

I'm not trying to be mean here but the dollars you've saved up for "earnest money" would be better spent attending our BLOG PARTY! :)

speedingpullet ,
Oddly enough all the other ratios fall into historical norm when adding inflation to late 90's as base.

Owning 120xrent
Rent cover mortgage
Payment 20-30% of takehome
Etc Etc Etc

While yes, your base is 1999 in LA is feasiable, up here in the Bay Area our 1999 prices were already out of wack, given that a few drove prices with free money(IPO Cash-Out). Our prices already doubled by 1999-2000. I would say 1997-98 would be a better base for us in SF Bay Area.

That first bubble was all madness as well, which prices have yet to correct for!

Mark,

"Earnest money" is soooo 2005 --like writing love letters & feeding squirrels. We're entering a New Paradigm now, and that paradigm is a real bitch. She says: "take what I'm offering or go pound sand".

Note to delusional wanna-be sellers: SILSIH

Mark,

Schwew! (Close call). Remember her @ Patrick.net friends don't let friends buy ridicuously overpriced POS! :)

Now, (and I can't believe I'm saying this) I would approach this the same way subprime ARM'ed to the teeth FB's went about it! Pretend you're qualified to pick up each and every property provided that fits your "investment criteria". Don't own a bimmer? Borrow a friend's! Tell them you represent a consortium of sophisticated and well moneyed investors looking to "build positions" in _____ area. In short.... bullsh@t 'em! Believe me, they'll be guys out bottom feeding, guys like FAB won't have to fake it (but he's probably pretty well recognized in those circles). In fact, his moves might be construed as a buy signal to others! That's the tough part. Not broadcasting your intentions. Guys like us? No probalo. Use your anonymity to your advantage.

NBFA (Not bottom feeding advice)

I nominate HelloKitty's New Era tips for buying in a down market:

“Make sure to ask for all appliances, furniture, and clothing. Sellers will have to cave in. If the wife is hot, make sure to ask for a ‘date’ with her too, they can only say no. Also always ask for the sell to write a 2 page report why they deserve to have you buy thier property, if they reveal financial distress subtract 10% from offer price.”

Sound crazy to you? Imagine going back to 1996 and telling desperate sellers that in ten years people would be writing "love letters", feeding squirrels and groveling on their knees before imperious sellers. Wait a few years and see...

Mark asked about "Good Faith" deposit.

God help you! ... you made a deposit and a two dozen others as well.
so the con walks away with all your cash. Man good luck. A least-worst case you most likely are financing the realtors operations (rent salaries and other costs) to keep them afloat.

There is no such thing as "Good Faith Deposit". You just be "punked"!

LOL! Why do you need to make a Good Faith Deposit if so many buyers are making "multiple offers". If you walked away wouldnt there be others ?
Or maybe there are no other multiple offers!

HARM,

You're in rare form today sir! That's why I made the distinction of saying "earnest money". Like our man Ace, I've never heard of a "Good Faith Deposit". Good Faith Estimate maybe?

I'm only half kidding about the misrepresentation discussed above. Think about this, subprime FB without two nickels to rub together is offered a no money down McMansion, BUT (and get this) he wants to SHOP for the best rates! If it worked on the way up (I'm willin' to give it a shot on the way down!) :)

I want to chart the utility function for trolls?

Do trolls dream? Do they appreciate sushi? What would they do if they had 24 hours with Liv Tyler?

In my dreams, theOtherside is Liv Tyler. No need to graph the utility function.

Sorry Randy, in your dreams. In your dreams. :(

I actually have a lot of respect for Casey Serin. He has a lot for me to learn.

“Sales of existing homes were up 3.9 percent in the Midwest and 1.6 percent in the South, while sales were unchanged in the West. Lereah said the reluctance of sellers in the West to trim prices was holding back a rebound in that region.”

lunarpark,
That seller "reluctance" is a reluctance to enter into short sale territory, given the lack of equity most sellers in CA and the rest of the West have.

We now have a parallel meaning for 'graph the utility function'...

bahHAhahahaha. sniffle. heh.

Randy, that's prime.

I figured I could troll some car dealerships and waste their time

Every time I walk into a Toyota dealership, I buy a car within two weeks. I have never bought a Toyota-brand car though.

Be careful.

From that same article:

The Realtors said they're hopeful that prices could start to turn around later this year. Pat Vredevoogd Combs, a Grand Rapids, Mich., Realtor who is president of the trade group, said the weakness in pricing should help bring in buyers who had been priced out of the market during the white-hot boom years.

"Overall, home prices should rise slowly this year, and many buyers have an opportunity now that was only a dream during the five-year boom," she said in the group's statement.

There are SO many things wrong with these two paragraphs:

- So, a couple percentage points drop in prices will finally make homes affordable for those who've been priced out?

- Does anyone really think that MI of all places is going to have a comeback in housing prices this year? Dream on!

- What's up with "The Realtors"? It's already silly enough that Realtor (TM) is capitalized - why the "The" now? It sounds sorta like "The Mob"...

Person,

Do most of your "leg work" over the phone! Tell 'em your "putting out a bid" for a 2007 ____. Say something like "could ya' fax it over to me?" They'll probably suspect you're BS but at least you're not like 99% of the J.O's they have to deal with! If they say something like "If I can get you in below____ would we have a deal?" Would you come down? Say "sure" and fax 'em you're business card and say "but you DO realize I'll be looking at other bids, right?".

Now before any of you judge, please try and remember we're coming off of 5 years of armpit high BS so... "I'M" supposed to feel bad here?

I’d like to think of me and my friends are civil people, but on occasions that people I know almost or did get into a fistfights (since grade school) happened in car dealerships.

Wow. What happened?

skibum,

Where "reluctance" is concerned you are absolutely right! For all the cussin' we've done about subprime it actually turns out that it is our friend. Had these people bought w/sensible financing packages they may have been able to hang in their forever. Now? No so much.

Of course, then again had they bought on sensible terms we wouldn't have a bubble now would we? But the fact remains this will be a significant catalyst in getting these "squatters" out!

More food for thought RE: the existing home sales numbers from the WSJ below.

Pretty good take on the issue, IMO. All I can add is, I didn't realize that Omar Shariff is now a housing analyst! Man, Lawrence of Arabia is a great movie.
:)

**********

Home-Sales Surprise
March 23, 2007 12:34 p.m.
Federal Reserve policy makers say that the housing "adjustment" is "ongoing." But some investors could be wondering if what really needs adjusting are their bifocals, after home sales came up hot last month.

U.S. home resales actually advanced 3.9% during February to a 6.69 million annual rate, the National Association of Realtors reported today, trumping forecasts of a decline that came amid worry that buyers might be having problems securing financing. For those tuned into the subprime scarefest, that may seem a truly puzzling result. But the encouraging headline reading may just be the rustling of vultures' wings, as scavengers descend on the market amid a decline in home values. The median home price declined 1.3% in annual terms during February, the seventh consecutive month that prices have eased. Also troubling, more homeowners appear to be dumping their homes on the market, which means prices may decline to an even greater extent. The inventory of existing homes for sale surged 5.9% during February to 3.75 million, a backlog that would take more than six months to work off at the current sales pace. Economists say that means anyone looking to celebrate the end of the housing correction may want to keep their streamers in storage. Steven Wood, the chief economist at Insight Economics wrote that the inventory problem needs to be eliminated first.

That could be a tall order. Easy credit is drying up fast thanks to the unraveling of the subprime mortgage sector, herding a pack of potential buyers out of the market and eliminating them as candidates to sop up all that extra supply. Even the reliably optimistic David Lereah, the chief economist for the realtors, thinks the subprime fiasco could wipe out a quarter of a million home sales in coming years. (To be sure, some housing bears think that's a pretty Panglossian estimate, and that the toll may turn out to be much higher.) The inventory problems aren't the exclusive province of new or resales markets, either. The chief executive of KB Home, which reported some flimsy earnings yesterday, said the "persistent imbalance" between home supply and demand "is fueling intense competition and pricing pressure among homebuilders and other participants in the new home and resale markets." With a number of subprime lenders going into the tank, or no longer dishing out new loans, the squeeze may get even worse.

Some economists believe that the national data may be masking acute problems in particular markets, as well. Joseph Brusuelas of IDEAglobal pointed out that a very strong condominium market in New York City that is being bolstered by fat income gains for the Wall Street set may be obscuring "the real problems in Miami, Las Vegas and several other urban areas at risk when the condo sector unwinds." And other say that balmy winter weather may also have caused some funny business in the data. Omair Sharif, strategist at RBS Greenwich Capital, pointed out that the existing-home sales are recorded at contract, "so February's data mostly reflect transactions that occurred in January." Temperatures during the first half of January were downright tropical by normal Northeast standards and Mr. Sharif wrote that that "likely contributed noticeably to the 14.2% surge in sales in that region."

Am I interpreting this incorrectly, or are people asking for a deposit when you simply make an offer?

I can see after you have negotiated a deal that both people have agreed to, but is this money that people are asking you to put down before that point? Is this 'Are you serious about this?' money?

More food for thought RE: the existing home sales numbers from the WSJ below.

Where is the food? :)

The effects for the subprime meltdown are yet to be seen.

Person,

Offer to pay the salesman for sex. Regardless of the gender. Keep at it claiming that he/she was 'sending you signals' and mention his provocative dress. Show him some cash and say you know he did it for your friend.

"not the monetry system" LOL!

I'm just sooooo tired of all the BS being a one-way street! Well in the REIC's case (maybe more like a circle j@rk). Realtwhore makes outrageous and unverified claims about "future appreciation" without the slightest hesitation. MB slimes FB into the "belief" that this is affordable and then the FB needs to BS his way out of noose by finding a GF.

It's high time the REIC learns they may be running a monopoly, but they do NOT have a monoply on bullsh#t! They must have a hardy yuck on us "non-insiders" for signing on the dotted line without getting a commission and kick-backs on the financing end! A real yuck.

SFW, are you inciting crimes? :)

Mark, we all had to endure the headline. But you need to get past those headlines.

The majority of the RE section was not news but paid real estate advertising. The first real story they did was around last year mid 2006.. after advertising was pulled.

Guess what the story was about... Risky mortgages... Ha! LOL!

Realtwhore makes outrageous and unverified claims about “future appreciation” without the slightest hesitation.

It is up the the person to accept or reject any such claim.

Person,
The key to "escalating" is to really lead them on and give the impression that you are just oh-so-close to pulling the trigger and buying, and then come up with questions/concerns/issues at each step along the way. Dragging things out like this will really piss them off as they can just taste the sale but can't quite "consumate" the deal...Keeps 'em hanging on, and they get more and more impatient and pi$$ed the longer this lasts. Pardon my French, but - it's like a c*cktease leading on a guy with a raging boner.

This works for home sales too, speaking from personal experience. When we sold (in '05-06), our buyers were pains-in-the-arses. They made an offer, we made a counteroffer, back and forth with the usual stuff. After the final offer was accepted, they came up with all this nit-picking BS along each step of the way - fixing stuff that in my opinion was normal wear and tear, changing the closing date 2-3 times, and a few other minor things. By that time, we were already 1 month into the deal and figured we were still getting a decent price and didn't want to waste more time by putting the place back on the market as a potential consequence of playing hardball (we were moving across country), so we bit the bullet and worked through most of that crap. The market in Boston just past the stalled-out peak back then, so in a slower market with clearly falling prices, getting additional concessions during the later phases of negotiation can be pretty fruitful.

"It is up the the person to accept or reject any such claim."

There are a few, but there are so many idiots out there! and lets face it ... the many in the RE industry are robbing the public blind.

"Mark Says:
March 23rd, 2007 at 9:30 am
General question here for a “newbie” to house-hunting–
In order to make an offer, do you have to put in a “good faith” deposit? I understand these kinds of deposits can be anywhere from 1-5K. It seems like it’d be hard to negotiate with multiple sellers if your money is tied up with 1-2 “good faith” deposits”.
Thanks for the advice! "

To be clear. You normally write a check at the time you submit the offer. That check is only then cashed an put into the escrow at the time the offer is accepted.
You write the check for a couple of reasons.
1. It shows you are serious, and keeps things moving. There is no offer accepted, now we have to shake out the deposit from the buyer. It all goes smoothly, the offer gets accepted the check is in escrow and things move from there.
2. This was alluded to in the question. Yes, the money is tied up during the negotiations after the initial offer. This is only fair since the seller is locked into the deal at that point. Unless someone is looking for multiple properties, they should not be negotiating on other properties after a deal is made.

and put into the escrow,

sorry keyboard is acting up.

We've been offering fair-market-value + a decent premium for homes we would really enjoy living in for some years for over a year now.

Very few seller agents/sellers have even responded. Only a couple times have responses been 'serious' (meaning willing to give on price, not just everything_but_price).

The problem is all the negotiation skills in the world won't help if there's no possible deal. In negotiation lingo, there is no zone-of-possible-agreement.

It's like this (RP = reserve price, your max, seller's min):

You ---- $(buyer)RP ___[No_Deal_Possible]___ $(seller)RP ---- Seller

Until the seller quits viewing their RP as the lowest they can go before having better alternatives than doing the deal, there will never be a deal. We've discussed endlessly what will make the seller drop their RP. But the main sticking point for the seller is their "mental accounting". Essentially, unless something forces the seller to refactor their mental accounting, like a looming foreclosure, a divorce, had-it-with-waiting to move into the retirement community, etc., they are very unlikely to move their RP by enough to meet your RP.

And of course many people think that us here have our RPs stuck too low. We don't believe that by and large, but in reality both parties RP will move, or there won't be a deal.

You ---- $(seller)RP __[Deal_Zone]___ $(buyer)RP ---- Seller

Randy, I believe "fair market value" is whatever price being transacted in the market. So if you are offering "fair-market-value + a decent premium", you will be offering way over asking and we will have to tickle you. :)

There is simply a disconnect of what the "fair market value" in the future will be.

Malcolm Says:

To be clear. You normally write a check at the time you submit the offer. That check is only then cashed an put into the escrow at the time the offer is accepted.

Ok, I want some first-hand input from our regulars here: is this the norm for states outside CA? I don't believe this is generally true (pre-bubble at least) for CA, though I could be wrong as I haven't been through the process yet myself.

You write the check for a couple of reasons.

2. This was alluded to in the question. Yes, the money is tied up during the negotiations after the initial offer. This is only fair since the seller is locked into the deal at that point. Unless someone is looking for multiple properties, they should not be negotiating on other properties after a deal is made.

I have a few problems with this line of reasoning:

--Why is it prefectly "fair" for the buyer to have several $grand tied up in escrow, while the seller is free to continue "entertaining" multiple offers from other prospective buyers, inciting bidding wars (real or imaginary) all they want, and then backing out for any reason?

--If s/he is so serious about accepting the offer, why isn't the SELLER expected put up a "good faith deposit" of their own? In the end, the buyer is the only one who is truly bringing any money to the table in a RE transaction and the one who is accepting the greatest risk --by far.

"There is simply a disconnect of what the “fair market value” in the future will be."

LOL! agreed! Just like Yahoo at $350/share before it nose dives to 10/share

HARM,
In Massachusetts at least, yes, a "good faith" deposit is de rigeur. The concession from the seller is that once they accept your initial offer and the money is tied up in escrow, they are not supposed to entertain other offers (ie, no open houses, showings, newspaper listings, etc.) and the local MLS is supposed to show the property as "under agreement". Their cost in this matter is having their listing pulled off the market during negotiations. Pretty fair, I'd say.

I have a few problems with this line of reasoning:

"–Why is it prefectly “fair” for the buyer to have several $grand tied up in escrow, while the seller is free to continue “entertaining” multiple offers from other prospective buyers, inciting bidding wars (real or imaginary) all they want, and then backing out for any reason?"

They can't. It is very easy for a buyer to back out, but a seller is more likely to end up in court. They can't field other offers except as a backup. Pretty much as a seller when you say accepted you are locked in.

"–If s/he is so serious about accepting the offer, why isn’t the SELLER expected put up a “good faith deposit” of their own? In the end, the buyer is the only one who is truly bringing any money to the table in a RE transaction and the one who is accepting the greatest risk –by far. "

Normally the buyer is the person paying for something. This is just nonsense, but even so the seller has many costs they have to pay for so they are putting their money up. Sell a house, and you will know first hand. They have to often come out of pocket to make the negotiated repairs, as well as termite clearance. Sometimes these can be paid from the proceeds, but the point barely merits a response.

I would show them my wallet or checkbook in my hand and
say do you want to talk or watch me leave.

(1) Your allowing the other party to take the lead in negotiation.
(2) You may need that cash for real deposit on a better deal.
(3) No such thing as up front cash from what your saying.
#uck'em... only crooks do that.
(4) no contractual obligation on your part to give any money no services have been preformed. ..

Are you blind man?

#2 is why I would let you leave.

#1 the buyer leads the negotiation the whole way. They normally have 14 - 21 days to come up with additional demands, and the deal can only get better for them.

#4 Yes there is, that becomes part of the contract. One way to end the contract early and dump a flaky buyer is when their good faith check bounces. Then you know to walk away.