Las Vegas real estate market report

Properties Repossessed by Mortgage Companies in August 2008

Just a couple quick notes on the current state of Las Vegas repossessions for August.  A national analytics company , First American CoreLogic reports that ” The Q3 2008 Core Mortgage Risk Index (CMRI) has risen 12% above a year ago and increased for eleven of the last twelve quarters. The CMRI—which forecasts delinquency risk—is currently 55% above the base period of Q1 2002, a period near the end of the last U.S. economic recession. Although significantly higher now than during this base period, the CMRI is likely to continue rising nationally over the next 18 months.” 

“An elevated CMRI signals the increased potential for financially disruptive and costly economic consequences for consumers, their local community, and mortgage financiers.”

So it appears that the information gleaned from the finance industry calls for an increasing number of foreclosures for the next 18 months before things start to subside in the housing industry nationally.

 As you can see from the picture above, (Courtesy of First American Title) the Banks took back 2,847 pieces of real estate in Clark County in August 2008. While the total number of real estate transactions sold in Las Vegas was 2,704 units.  Both of these figures include all real estate transactions including land , homes, condos, etc.

As reported in the Las Vegas Sun. Patty Kelly,  president of the Greater Las Vegas Association of Realtors said the number of bank owned properties (R.E.O.’s) accounted for nearly two-thirds of the Las Vegas real estate sales for August 2008.  That would mean that if the number is actually 61% as reported by other experts then the number of R.E.O.’s (repo’s) sold was 1,649 units.  If the Mortgage industry took back 2,704 units and sold 1,649 units and lets assume that they sell an additional 300 units at auction they took back 645 more units than they sold.  A wopping 21% deficency just for this month August 2008.

I once again reiterate that the Mortgage industry is holding back inventory from the market in an effort not to slow the price depreciation in this market.  If all the available inventory were put on the market in Las Vegas we would probably go from 22,700 units to 36,500 units. This would mean there would be a 22 month supply on the market. Not the 14 month supply based on the Greater Las Vegas Board of Realtors data.

How do you take advantage of this current market? Find a good Real Estate Agent and hire them as a Buyers agent.  Pay them to get you the best deal they can find. Make sure they know how to buy from the banks and not just through the MLS.  You can make fantastic deals in this market with a good agent.  By signing a contract with a good agent you give the agent the freedom to find you the best deals without the need to use the MLS which can sometimes have some of the highest priced homes.  The money you pay a good Buyers agent to find you a home or investment property may save you 5% in auction fee’s and 3% to the listing agent of the auction property.  It can save you 3% for the Selling agent commission if the property is bank owned but not listed.

So why use a good Buyers agent? Because they have the ability to show the Selling Mortgage Company what similar homes are CURRENTLY Selling for and have sold for in the neighborhood and can help negotiate for your best interests to get you the best deal on a particular property.  A good Buyers agent works full time helping you find an excellent property.  Yes you may have to add the commission (example 3%) to your closing costs.  If the agent saves you 15 to 20% on your purchase is it worth paying them their commission?  What most Buyers don’t realize is that when an agent sells them a home that is listed the Buyers agent commission is all ready added into the price of the home.  The only difference is that the Buyer doesn’t see the commission on their side of the closing statement but they still pay for it when they buy the home.

Play it smart call an agent, sign a Buyers Agency agreement and let them find you the best home. If the home is over the MLS then the seller generally pays anyway.

Max Schmidt is nationally syndicated through his web blog and video reports. Licensed as a real estate agent since 1977 he has seen many markets and economic cycles throughout his career and been in thousands of  home transactions. He has also been a licensed general contractor, re-modeler and developed subdivisions. Max currently sells Las Vegas homes, Henderson homes and real estate.

For the Latest in Las Vegas real estate call Max at 702-334-2200. Or email me at:Max@MaxSellsVegas. com. Your comments and questions are welcome.

Just like the famous magicians on the Las Vegas strip the major mortgage companies may not be making tigers disappear but they are making houses disappear, or at least manipulating what the buyer is seeing in the market place. It is impossible to tell how many homes are currently “Real Estate Owned” (R.E.O.’s or reposessed) by the mortgage companies and banks here in Las Vegas.  Month after month we see huge numbers piling up the number of homes bought at foreclosure auction by the mortgage companies.  These REO’s keep adding up every month minus those the banks are able to sell off (liquidate) from their inventories.  What the average Buyer understands about REO’s and the reality may surprise you.

The first thing you have to understand about Foreclosures are the shear number have over whelmed the banks and mortgage companies.  Foreclosures are not a PROFIT center and thus have not received the staffing to handle the massive influx. The staff’s are increasing but it is slow and is not keeping pace with the number of foreclosures.

The process of foreclosing is handled by a different department of the bank than the the homes that have been foreclosed on and are now REO’s.  This means that once the home is auctioned at the County Sheriffs auction the home file must be transferred from the foreclosure department to the asset management department.  These departments can be spread all over the country or may be in the same building.

Because of the way  mortgage loans were packaged and then sold off as “Mortgage Backed Securities” the company that foreclosed on the home may not be the owner of the loan and thus may not be the owner of the home.  The home may actually be owned by a retirement fund in Ireland or a multinational corporation.  Most of these mortgages are not owned by the companies that foreclosed on them such as Countrywide, Wells Fargo, Indy Mac bank, etc.. 

So now we have a situation where the foreclosing entity must receive approval from the owners of the property to sell the property and receive an agreement for how much or how little it can sell the property for.  There must also be an authorization or limited power of attorney for the foreclosure asset management company to sign in the owner (sellers) behalf.  Further their must be an agreement as to commissions, property maintenance expenses, repairs, etc. with the owner-sellers.  As you may expect this can take a while with owners spread all over the world and different corporate structures and requirements on asset sales.  It is estimated that from the time a property is sold at the Sheriffs auction to the soonest it will be placed up for sale is 3 months but more frequently 6 months.

It is estimated that the cost of maintaining, selling, and interest costs of holding a home in inventory by the owner-seller-mortgage-holder is 1% per month of the assets value.  It is further estimated by the mortgage industry that in most cases the mortgage-holder-seller-owner will receive in the range of 50% of the total investment back from the sale of the asset.

So we can now see why repossession are not immediately available for use to purchase and that by the time the mortgage-holder-seller-owner offers the home for sale they have an additional 3% to 6% in holding costs plus an additional 5% in real estate marketing costs when it is offered for sale.  According to the Greater Las Vegas Association of Realtors the average time on market for a home to sell as of August 2008 was 119 days or 4 months.

 So let’s take a look at the costs as the mortgage-holder-seller-owner sees them.

• Original asset loan plus lost interest and foreclosure costs +100%
• Loss due to foreclosure and interest costs -15%
• Loss due to market depreciation -30%
• Loss due to holding and marketing costs til offered for sale -15%
  _________________________________________________________
• Balance on investment at sale if sold in the 1st 30 days  +40%

There are other factors which may limit the mortgage-holder-seller-owners losses.

 If the property had private mortgage insurance then the top 15% of the loss will be reimbursed to the mortgage-holder-seller-owner. 

If the property was financed with a 20% second mortgage then when the home was sold at sheriffs auction this lein was wiped out giving the mortgage-holder-seller-owner a 20% edge against their total losses.

If the property had one mortgage that the balance was substantially lower than the value of the property. For instance the borrower had purchased the property before 2004 and/or borrowed less than the maximum allowable finance available at that time.

There are also factors that will increase the mortgage-holder-seller-owners losses.

If the person who defaults on the loan damages or strips the home before they exit. This can severely affect its value at sale.

H.O.A. or Home Owners Associations have the power to lien for not only unpaid monthly dues but also for violations of their rules.  They very often have the power to hire the violation repaired and attach a lien to the property as well as fines and assessments.  These can add up as most people when loosing their home quit paying their assessments, stop maintaining their property and can even vandalize the exterior causing the Home Owners Association to hire contractors to make repairs, levy fines, late fee’s and assessments on the property.  These liens must be generally cleared by the mortgage-holder-seller-owner in order to pass clear title to the Buyer.  BE CAREFUL that the mortgage-holder-seller-owner doesn’t transfer this liability to you in the “Purchase Agreement.”

If the property has a “Site Improvement District” SID and the yearly assessment as not been paid it may have gone to auction which means now that not just the yearly amount, interest (1% per month) and penalties must be paid, but the entire balance must be paid in full to clear the title.

If the property has past due property taxes and has been sold at tax sale then the property must be redeemed within the redemption period and all taxes, interest and penalties must be paid for clear title.

Other amounts that may be attached to the property may be garbage collection, sewer and water fee’s including interest and penalties.

The mortgage-holder-seller-owner usually uses and Asset Management Company to sell/dispose of its asset. This Asset Management Company may be the asset management departments of Countrywide, Indy Mac, Wells Fargo, Bank of America or it could be a specific independent company such as American Home Mortgage Services, etc..  To the asset management company the sale of a home is just an accounting decision as they keep track of all the variables on the cost side and also evaluate the value of the property on the open market through the use of real estate agents “Broker Price Opinions” B.P.O.’s and/or appraisals.

Because the mortgage-holder-seller-owner may have huge asset portfolios it may not be very fast for the asset management companies to pipeline the new R.E.O.’s that come through their system.  Slowing the stream of new REO inventory being offered for sale.

The asset management companies are hired to obtain the most money from the homes that they can.  So if they flood the market with homes then the price of home go down. If they limit the number of homes for sale in the market and thus a higher percentage are selling they can manipulate the perceived value of the homes and yield a higher price per unit.  It’s the old saying that if their is limited bread on the shelf then the price of bread is expensive but if their is a lot of bread on the shelf the price of bread is cheap.  Supply/ demand can be manipulated by not putting all the inventory available on the market.

If you have a home that isn’t selling rather than leaving it on the market and adding additional new inventory you can allow the listing to expire and and new inventory to the market that will sell. Thus holding down the number of REO’s for sale at one time while liquidating the inventory that will sell.  As the number of successful sales go up using this method then it appears that sales are rising in relation to inventory creating the impression of a bottoming out in the general real estate market. It also helps create the impression the R.E.O.’s are selling quickly and thus attracting more and more Buyers into the market.  If the plan works well then the additional number of Buyers will allow for additional inventory to be released to sell furthering the liquidation of more inventory without realizing additional drops in average sales price. We have seen an example of this strategy for years in the diamond business world wide.  The mortgage business is world wide as well now and is primarily controlled by a small group of companies.

The media has made recent declarations that sales are up in Las Vegas and the REO’s are hot and that Buyers and investors are back in the market.  What are some of the important factors in this up surge in sales besides limiting inventory?  A very important factor is that with recent mortgage legislation the Federal Government is outlawing Nehemiah after October 1, 2008.  The Seller will no longer be able to contribute to the Buyers Down payment and closing costs under the FHA loan program.  And with the conventional mortgage money being severely restrained right now FHA is about the only finance program that is currently working well for Buyers.  This means that their have been a flood on FHA Nehemiah Buyers trying to purchase a home before the program is shut down. In the statistics through September 2008 you will continue to see the number of units sold shoot up but the overall price continue to descend as these fist time home buyers close on their Nehemiah loans.  But what will happen in October, November, December and from there on?  October will have reasonable numbers of Buyer lured by the previous months sales believing that the market has bottomed out but come late November after the October sales statistics are published we will see a decrease in unit sales in-spite of our normal fall sales increases. 

“21,400 R.E.O.’s in Las Vegas

With Only 9,169 for Sale!”

You may be wondering where all these houses are that are not for sale?  Pretty much all you have to do is take a walk in almost any neighborhood in the Las Vegas Valley.  You won’t see a real estate sign because they are not listed.  Look for un-kept yards, dead grass and vacant homes.  Generally you will see a piece of paper taped in the window or on the front door.  Las Vegas City, Clark County, Henderson and above all North Las Vegas City have been up in arms about what to do with all these vacant homes and the blight that they are creating in our neighborhoods.  The Clark County Health District is over run with stagnant pools and the breeding mosquitoes that result.

If your still not convinced that inventory is being held off the market. Please take a look at RealtyTrac.com and go to Search Results for Clark County.  RealtyTrac reports that there are 21,400 Bank-Owned properties in Clark County.  The GLVAR shows as of 09/08/2008 there are 9,169 REO homes for sale.  My question is where are the 12,300 that are currently not listed for sale?  This last month the Fed’s declared that we are now half way through the sub-prime foreclosure crisis.  That means that in the next 3 to 6 months we will see the first half of the inventory to have made it to sale.  We will no longer have Nehemiah to help sell it, the conventional mortgage market will still be severely restricted as to money available as well as loan qualification requirements.  And we currently have only about 42% of the available inventory of R.E.O. homes on the market with many more to come.

Hopefully the mortgage companies will take advantage of the new government programs that will help them and the home-owners refinance with FHA at 90% loan to value under the new rescue program.  This will require them to charge off some of their debt but allow them to recover from what otherwise would be another repossession.  It remains to be seen just how much this new program will curb sub-prime loan repossessions.

But what hasn’t been talked about very much in the media is what is currently headed down the tracks which is the next wave of foreclosures.  One of the most popular loans for buyers with good credit from 2004 through 2006 was the product known as “Alt ‘A’ loans.”  These loans allowed the buyer at their option to make one of 3 different kinds of payments at any time: 1) A full principle and interest payment.  2) An interest only payment. 3) A less than full interest payment with the balance of the interest to be added back to the principle each month.  Tens of thousands of Buyers went out under this new program and bought more house than they could afford under the stated income program.  They have been paying less than the interest payments adding to the principle each month.  The mortgage industry is seeing the maximums on these mortgages to start maxing out in Feb. 2009.  This means the loan payment will reset requiring a full interest and principle payment be made from then on.  This will drive a whole new batch of generally higher priced homes into foreclosure along with the previously home owners with good credit.  This could be just as devastating as the sub-prime default wave.  The only hope may be the lenders willingness to renegotiate these loans buy partial right off of the balances and asset value and have them insured where possible under the new government rescue program.  This will not save all from foreclosure but anything would help.

So there you have the amazing magical diversion created by the master magicians of the mortgage world who know how to make thousands of houses disapear (well sort of) from right before your eyes!  The ultimate illusion in Las Vegas real estate.

Not all is bad news in my next article.  Find out about the amazing non-disappearing jobs in Las Vegas! And what the future of employment is that will dry up the excess homes we have here.

 Don’t forget to check out this months latest market statistics and comments on my website www.MaxSellsVegas.com

For the Latest in Las Vegas real estate call Max at 702-334-2200. Or email me at:Max@MaxSellsVegas. com. Your comments and questions are welcome.

I was watching TV the other night and a national auction company ad came on advertising several properties with “previous values” in excess of $150,000 being auctioned at a starting price of $1,000.  I think my mouth started salivating,  Pavlov would have been proud of my training.  Do I know better than to think I could actually buy the property for $1,000 or even $20,000?  Yes, but the greed in my soul that I would never admit to anyone (except you) still is enticed by the possibility.  And then we hear the voice on the ad telling us how people are making great buys at their auctions and we can too.  Our mind plays a trick on us seeing that low offer price and hearing that people make great buys, it tends to stick the two statements together. 

 The next thing you know you are requesting the auction brochure, getting pre-qualified for financing, arranging for the required $5,000 cashiers check and putting the dates down on your calendar to attend the open houses to this “I’m going to make some serious money” real estate auction.  Well I guess the commercial worked.  Think about it next time you see one of these ads, they make it look easy to buy.  They make it look profitable, they appeal to your greed.  They present themselves as high caliber gold plated companies representing the finest Mortgage Companies in the Country.  Wise people say ” If it sounds to good to be true then it is to good to be true.”  Unless you really know what you are doing this can be a disaster to your financial well being. 

We all know that with the proper education we can make money by gambling on the blackjack tables in Vegas.  99.999% of us don’t have the knowledge and experience to make the blackjack tables pay on a consistent basis.  I would not think of taking $200,000+ and sitting down to a table and gambling with it.

So on the designated Open House days you head out to look at homes that interest you.  You better pick about 20 so that you may try to bid on one that is reasonable as thousands of people will be bidding also.  As you arrive at the homes you realize that most do not have all if any utilities. You can not know if the pipes leak, the working order of the air conditioner, furnace, water heater, lights or any other appliances in the homes.  In most cases the yards are dead from the water and power being off.  Auction homes are usually the homes that have not sold on the market for a significant period of time.  I know of homes that were repossessed over 2 years ago that have gone up for auction.  This means that two winters ago these homes went through an unusual 7 day freeze that Las Vegas experienced. Sometimes the power is on but the agents have removed the thermostats so the air conditioners cannot be left on, running up the power bill.  How do you inspect a home without utilities?  But that’s what your left to do in an auction situation.

Wow, talk about the tables being stacked against you as a buyer! 

 Let’s start with a simple definition: Contract- “A promissory agreement between two or more persons that creates, modifies, or destroys a legal relation”- Black’s Law Dictionary.  So we can agree to waive (destroy) certain terms of a legal relationship.  If you ever read the “Terms and Conditions” for a real estate auction you will see this principle in action.  The legal eagle attorneys for the auction companies have covered the Seller and Auctioneer every way possible and then some.  In creating this armor plated shield they have left you totally responsible and on your own in biding on a home at auction.

If you succeed as the winning bidder and the home was a meth lab but someone took down the Health department condemnation certificate and you failed to contact the County to check, too bad you just bought an”X” meth lab.  The point here is no matter what may be discovered after the gavel goes down, you the successful Bidder still have to buy the house or walk away from the 5% deposit (min. $5,000) you are required to give them.

Your going to be in an auction room filled with thousands of people. If you choose one property to bid on, do you think anyone else will bid. YOU CAN BET ON IT!  And even if you are the only bidder you may want to check a couple of items in the “Terms and Conditions.”  “…the Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller and may further bid on behalf of the Seller, up to the amount of the Reserve Price, by placing successive or consecutive bids for a Property…”  So when you see the Auctioneer recognizing bids on the floor but you can’t see who placed them, he may just be enforcing the terms of your agreement and trying to get you to bid higher.  I can tell you first hand that it is impossible to see who is bidding in a room with thousands of people.  You may want to look at this definition courtesy of Luman Auction Company ” Phantom Bid - Bouncing a Bid - Bump - Bid off the Wall (ceiling, fence post, etc.) -  A false bid called by an auctioneer for the purpose of tricking a legitimate bidder into bidding more than he would otherwise have to bid to purchase the lot. The auctioneer pretends to take a bid from a bidder who is nonexistent. Then he asks the legitimate bidder to increase his bid to gain control of the lot. This is fraud.”  Normally with out agreement to the “Terms and Conditions” this would be considered fraud but the contract destroys this right as explained previously.

As you look to see who the Auction Caller is pointing at while he continues his bidding chant you will see the Bid Floor Assistant in a tuxedo flailing his hands jumping up and down and screaming soming uninteligable. I like to refer to them as monkeys in tuxedos.  Then the next thing you know you hear the caller recognise another Bidder and you once again look to see who he is pointing to and you see another monkey in a tuxedo jumping and wailing.  This is all very carefully orchestrated to draw your attention, increase excitement and make you want what you think everyone else wants. At this point the bid asking price has raised way above what you thought was a good value, but you think everybody else wants it so it must be a good deal and we all hate to loose so you raise your number once again and the monkey jumps in front of you pointing at you. (Definition: Auction Fever - The rush of competitive excitement that seizes some bidders during the bidding process)

The Auctioneer just landed a Sucker (definition-A Buyer who does not exercise ceveat emptor “Let the Buyer beware”). After a few more rhythmic calls for additional bidders he calls “Going once, going twice, SOLD  subject to confirmation” and slams his gavel. You just bought a property for more than you wanted.  Immediately a sweet young girl comes to you with a clip board and writes down the property auction number and your Bidders number on a form stipulating that you agree that you have won the bid and reaffirm that you will abide by the “Terms and Conditions.”  She is so sweet and she is congratulating you on your success as is the monkey in the suit.  As soon as you sign this little form she whisks you to the Auction Clerk who once again enthusiastically congratulates you and then has you endorse and surrender your $5,000 cashiers check before you even see any contracts.  If you later fail to sign the contracts, you just lost $5,000 under the “Terms and Conditions.” All the above happens within about 5 minutes before Buyers remorse sets in and you realize you just over paid for the property and now owe 5% more as a Buyers premium to the Auction Company.

So now your seated at an escrow companies desk in the escrow opening area and your presented with a large package of legal documents with the officer once again congratulating you on winning the auction. With your $5,000 gone you are now asked to initial and sign all kinds of escrow/purchase agreement documents without the Sellers signature. The Seller has up to 15 business days to accept or reject your bid. Check your “Terms and Conditions” you agreed to.  The escrow officer then asks you for a personal check to cover the difference for a total of 5% down on the property. Remember that if you fail to abide by the “Terms and Conditions” you loose your $5,000. You now hand over a check for thousands more to the escrow officer who thanks you and sends you out the door with your copies of all the legal documents.

So let’s review your Auction Success:
1)  You got Buyers Auction Fever and over bid on the house you won.
2) You then remembered you have to pay 5% more for the house as a Buyers Premium to the Auction Company.
3) The Auction Company already has your $5,000 cashiers check.
4) You signed purchase/escrow agreements all designed by the same lawyers who wrote the “Terms and Conditions” with the same and additional protections for the Seller and the Auction Company and nearly zero protection for your interests.

So now maybe your feeling a little squeamish about what this carefully crafted auction process has yielded you. You may be thinking that you may have the utilities turned on so you can pay to have everything checked out and make sure your not buying another $30,000 in repairs or more.  You have the right to do that right after closing but not before.  Didn’t you check the “Terms and Conditions?” and your purchase/escrow instructions? “No properties will be open for inspection or access after the auction until closing has occurred.”

I think by now you can see how real estate auctions are very carefully orchestrated to exact the most money for their clients (Mortgage Companies).  The specialist use every conceivable legal and psychological technique to lure Bidders through wonderfully produced commercials, web sites, brochures to impressive auction locations with music, huge display screens, professional formally dressed Auction Criers, Floor Assistance (Tuxedo monkeys) to using the crowd against itself.  From how they first get your money as a winning bidder to the completion of the purchase, everything is manipulated and orchestrated by them for their benefit. 

Now some of you are thinking that you can take your agent to represent you in the purchase.  What you are not recognizing is that in a normal real estate transaction your agent has the power of writing the ”Purchase Agreement” protecting your interests.  Under the “Terms and Conditions” that you accept in the auction you are forced to accept the Sellers “Purchase Agreement” without negotiations in your best interests. 

So what is my advise to anyone thinking about going to an auction?  DON’T!!!

You can generally get just as good of deal if not better through an agent and buying an REO (bank owned) property.  The agent can use CMA’s (Comparative Market Analysis) to help establish the price your willing to pay. You can have inspections done on the home you choose. You are not under false pressure to bid. You do not pay 5% more for the home as a Buyers Premium. You are not manipulated, restricted and in some cases deceived through the use of the “Terms and Conditions” of an auction agreement/contract.  You control each step of the process in buying an R.E.O.  using your Buyers agent. 

Occasionally someone makes a great buy at a real estate auction.  Occasionally someone wins millions of dollars in a slot machine. Occasionally!

By way of avoiding law suits, you need to know that all the above is to be considered personal opinion and not fact.  Please check the particular auction companies “Terms and Conditions” carefully to see what restrictions you may be subject to and the results of those restrictions. 

Finally you may wonder how I know so much about this process.  Even I have fallen victim to these specially staged auctions. The experience is first hand.  There are a very few ways that you can get out of an auction escrow so you may want to use an agent with experience in auctions if you insist on buying.  You must arrange for your Buyers Agent at least 4 to 5 days in advance of the auction and they must accompany you to the check-in desk and be present when you sign any paper work.  Agents have requirements to meet with the auction company as well.

So now you know some of the Dirty little secrets of the magical web spun by Real Estate Auctions. 

Stay tuned for my revelation of the next Magic trick in Las Vegas real estate “Repo’s now you see them, now you don’t!” Don’t forget to check out the latest monthly Las Vegas real estate statistics and commentary on front page of my site at www.MaxSellsVegas.com

For the Latest in Las Vegas real estate call Max at 702-334-2200. Or email me at:Max@MaxSellsVegas. com. Your comments and questions are welcome.