Changes to Portland’s real estate market bring out some interesting ideas for those who are looking to take advantage of the foreclosure situation. Sellers are often tempted by alternative avenues proposed by parties operating just under the radar of Oregon’s Real Estate Agency.  Funny how these folks won’t get licensed.

Let’s look at a recent example of a Tigard real estate listing in southwest Portland, a desirable area with convenience to everything.  Searching for hot deals in RMLS brought up this jewel:

Pre-approved Short Sale, can Close in Days!  3500 sq ft on 2 levels, 4 bedroom 2 bath, new windows, wheelchair accessible, etc, etc, etc…Sold AS-IS  $325,000.

Pictures didn’t look too bad.  Sure, it wasn’t pristine and may need a bit of sweat equity but the price was fantastic based upon description and comparable sales in the area.  Location was great, close to everything.  All factors point in the right direction.

So we arrive at the house and it looks a titch worse than in the pictures.  Beautiful kitchen shots had been taken before the owner decided to remove appliances and rip out the cabinets.  Blackberries had actually engulfed one entire side of the house as well as several trees on the property.  Garage doors were falling off and pretty much toast, but that was no biggie compared to all the soffit and window sill dry rot issues.  Oh well, still a good deal, she’s a fixer.  We’ll also have to overlook listing comments about being wheelchair accessible since there were about 4′ elevation differences all over the place and no ramps.  In the sales industry these little details are called “puffing.”  Works for the some people I guess…

People Promoting Win-Win Situations Are Often the Winners

A quick phone call to the listing agent reveals not only is this property a short sale but there’s another party involved who expects to be paid for her amazing negotiating skills.  Essentially what happened is that the seller was contacted by this win-win negotiator just prior to going into foreclosure.  Negotiator paid some of the overdue payments and/or fended off foreclosure proceedings temporarily while property was advertised for sale.  Through her incredible abilities she also convinced the seller to give her an assignable contract for sale of the house.  That contract needed to be bought out in order for any other buyer to proceed.  Cost to buyer was $15,000 (she would then assign her interest to the new buyer).  This buy-out money would not have gone towards the seller’s overdue payments/loan balance and would have essentially cost the buyer $15k more in purchase price.

What a great win-win situation!  Wait… I only count one winner, where’s the second?  Nothing like having a third party negotiator step in and take advantage of an already bad situation.  There are several of these “professional negotiators” out there now.  In fact, many are weaseled into RMLS listings.  The buyer is expected to pay for professional negotiation services of which they are not even receiving representation.

Another Avenue for Sellers in Trouble

One of the best solutions for sellers is to contact a reputable real estate broker well before foreclosure.  It’s their job to negotiate with banks, advertise, secure the best price and generally represent the client’s best interest.  No special win-win third party negotiators need to be paid!!!  Note that not all brokers deal with short sales and some that do have a special team (complete with weasel fees).  Hiring the right real estate broker will benefit sellers, banks and property buyers in the long run.

If you’re looking to buy Portland real estate, you can’t do better than to do it through us here at www.maxwellsinclair.com.

The Portland housing market has felt the same pressure as everywhere else in the US and prices have slid 20% off the 2006 peak in many cases.  RMLS figures for January just came out and there’s a 19 month supply of homes for sale, this is a record amount.  Fantastic time to be purchasing if your job is secure!

Tax credits for first-time home buyers will help stimulate Portland real estate.  Driving renters into homes pushes our housing market forward.  As money conscious renters see advantages of home ownership the market will change.  Couple that with an $8000 check and renting doesn’t look nearly as attractive.

Watch Oregon’s unemployment rate and as numbers plateau, not necessarily improve, this can be a sign of market bottom.  Many fence sitters are going to jump off, make the decision to purchase, and start the pendulum swinging towards a traditional appreciation trend for homes.  One thing’s certain in all this economic mess… Portland’s house prices will go back up!

Check out an outline of the Tax Credit for buyers. government_affairs_tax_credit_chart_021308

OK, have to comment on recent influx of hype regarding how fantastic lease options are.  Since investments in Portland real estate have chased the national numbers we knew that there’d be new schemes making headlines and sure enough, The Oregonian newspaper picked up on it.  Interesting that this subject comes up more prominently while house sales are slow.  Maybe there’s a reason?

A quick overview of lease options

Agreement is made between buyer/tenant and seller/landlord.  Buyer may come in with zero down or thousands to “purchase the option.”  Seller is essentially renting his home for a premium in rental payments and contributing this premium amount towards buyer’s down payment.  At the end of the lease term, say 12 months, buyer has an option of purchasing the house for a preset amount.  Should buyer choose to not exercise his option he forfeits down payment and/or rent premiums.  While contracts can vary significantly, this is the overall premise.  Buyer is purchasing the Option to Purchase, it’s not free!

Why do a lease option?  From a prudent financial or conservative buyer standpoint… beats me.  From a seller/landlord standpoint, go for it.  These definitely benefit the seller in our current market.  A few years back this scenario may have benefited the buyer… maybe.  Though, in a hot real estate market why would a seller jeopardize an immediate sale by taking a risk on lease options?  He probably wouldn’t and that’s why these deals weren’t around in 2005 – 2006.

Immediate gratification

Many Portland home buyers choosing this avenue are doing it for one reason.  Financial issues.  Most likely that financial issue means not qualifying for the purchase, waiting for another house to sell, or bad credit.  Here’s a stretch; The best reason for obligating yourself to a lease option is that a particular house is so incredibly perfect that nothing like it will ever be available in the future, it’s one in a million.  Not leveraging yourself further would be catastrophic!  Now, how many buyers fall into this category?

The sales pitch

1. Get into a house while cleaning up your credit.  Lease options do get you into a house, at significant cost.  If you’re cleaning up credit could this money be applied towards the credit problems, accelerating a good credit rating?  What if mortgage rates go up before credit is repaired and buyer still doesn’t qualify?  Lease option money is out the window.

2. Get into a new house while waiting for your old house to sell.  Lease option again gets you into a new house.  One of the risky things about Portland’s current real estate market is that selling a house is not a quick process.  Putting the cart in front of the house is part of the reason we’re in this housing predicament.  Buying before unloading the old property means double mortgage payments.  If you really have to move into a new place, rent (with no option).  Payments will be lower than those with a lease option.  Plus, if the market does slide another 10% in 2009 then that option price originally set is not going to be very attractive!

3. Get into a new house while building landlord/rental history.  This was a new one to me but recently had to hear the pitch from a mortgage broker on why lease options were a viable avenue.  Theory is that lending guidelines have tightened and banks are requiring that keeping an old home as a rental requires it’s track history to be 6 months long before rental income can be counted.  Again, if you really have to move into a new place, rent first.  You’ll be money ahead on a monthly basis and in 12 months you may not even want the house you’re lease optioning!

Opportunities to buy a house in Beaverton, Lake Oswego or anywhere around Portland’s metro areas have never been greater but think twice about doing it via a lease option.  For more information on Portland real estate visit our website.   www.maxwellsinclair.com

Short sales listings will inevitably be part of almost every Portland real estate search result.  In fact, Portland’s RMLS (Regional Multiple Listing Service) has actually added ”bank owned” and “auction” fields for agents to use during listing input.  While getting a great deal on the purchase is in front of most people’s minds, actually closing one of these dynamite short sale houses becomes a little testing on the nerves.

Banks seem to throw logic out the window on occasion… of course these are also the organizations who loaned money to anyone that could fog a mirror a few years back.  Did you know mortgage brokers actually referred to some loan programs as “the liars loan?”  Ya, that didn’t have disaster written all over it.  Good news for buyers though due to all this foreclosure/short-sale turmoil.  Portland prices have dropped significantly, back to early 2005 or even 2004 in many cases!

Foreclosure and short sale prices lead the market with aggressive pricing.  It’s very difficult for average resale sellers to compete with someone who’s dumping a house next door due to financial difficulties.  Your neighbor owes more against the house than what current market will bear and is losing his shorts.  Hence, the term “short sale.”  Actually a better definition might be; A mortgage in excess of what’ll be netted out from the house sale, banks have to agree to take this loss.

A common selling situation:

Market analysis is done.  Looks like the property should sell for $500k based upon recent sales within the last 6 months.  Property is listed but no offers come in after 1 month so price drops $20k.  Still no offers, another month passes.  Price drops again, now list is $460k.  This pattern continues for several months until we get to the point at which the $500k property is now $380k.  Wow, what a deal!  Unfortunately, it’s now considered a short sale because seller still owes $450k against the property and doesn’t have any money to pay the shortage.  Multiple offers come in.  Best offer is $385k.

Listing agent goes back to the bank and asks for the rep’s blessing, approving such a sale.  Rep orders the BPO (broker price opinion)/Appraisal.  Appraiser looks at comps and the offer, comes up with a value of $425k.  Bank says NO SALE at $380k.  So, how do we get the place sold?

Ammunition to use against (il)logical banks

Here’s the compelling argument that can be used to leverage a lower sale price:  Show the bank RMLS history.  Your buyer’s agent can produce such.  Fact is that the property was listed for a higher price and didn’t sell.  Market value is determined by buyers, not appraisers, not sellers or real estate brokers.  Although a market analysis was done showing what theoretically a home is worth the bottom line is that buyers are not willing to pay such.  Real value is at $380k in the buyer’s eyes.

Bank representative must make a choice.  Go with the bird in hand, request a higher amount (forcing more market time/counter offer), or foreclose.  In a declining market which avenue is most cost effective for the bank?  You’d be amazed how many banks will accept this logic, some won’t.  But hey, “He who has the gold…”

Visit the site for information on Portland Real Estate and advice on investing in real estate.  Search Portland Oregon homes for sale at www.maxwellsinclair.com