Archive for August, 2008



Sometimes talking with a Realtor can be like a conversation with your doctor. The shift in the housing market has resulted in a new language; one that leaves many people either saying, “Huh?” or scrambling for a dictionary.


For example, REO is a term we’re starting to hear more of. And no, it has nothing to do with REO Speedwagon.

So what is it? Well, REO is an acronym for “Real Estate Owned”. This a label for a property that has gone through a sheriff’s sale without receiving a bid for more than the loan amount. Most of these properties do not sell because there is more owed on them than their fair market value. The previous owner was unable to redeem, or pay off, the loan in the six month period that following the auction, and the bank has taken title and control of the property.

We often hear these properties referred to as foreclosures. In actuality, foreclosure is the legal proceeding during which the lender gets a court ordered termination of the property owner’s (mortgagor’s) legal right of redemption.

Semantics, I know. But if you hear the term REO, it’s safe to assume the bank is in control.

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Rear View MirrorHas the housing market bottomed out yet?

I don’t know. Nobody else does either. It’s one of those things you realize only after you’ve driven past and notice it in the rear view mirror. And, statistically speaking, MAAR’s recently released Weekly Activity Report for the week ending August 16, suggests there may be some sunlight in addition to the dark clouds.

For the week ending August 16, MAAR reports the sales of single family homes were up 33 percent over the same week last year. That represents an increase of more than 200 units. Believe it or not, these numbers compare favorably to 2006; down just 2.5 percent from that record-breaking year.

The total number of new listings also dropped by 18.4 percent over last year’s figures, with the number of properties actively for sale in the marketplace a full 7.1 percent below 2007 inventory levels.

Of course, the duplex and small multi-family sale highway has actually been and continues to have more light and promise than it did in 2007. Duplex sales ending August 16 were up 233 percent over last year. While this year’s group of properties consisted of 85.7 percent lender-involved properties, this is actually down from recent weeks, when that figure was consistently above 90 percent. Last year at this time, just 62.5 percent of the transactions involved lenders.

While I don’t have hard data, there also appears to be an emerging pattern of properly priced owner-occupied type duplexes selling very quickly. Of course, this may simply be my gut, which is a bit like forecasting tomorrow’s weather by wetting my finger and holding it up in the wind.


FSBOIn this tough housing market, many property owners are attempting to save money by selling their duplexes themselves. On the surface, this line of thinking appears to make sense. Most Realtors in the Twin Cities market charge anywhere from 5-7 percent to list and sell a property.

Why not save this money? After all, if you’ve already lost equity in the changing market.

While this seems logical enough, it is, in fact, a myth. I know what you’re thinking. “She’s a Realtor, of course she’s going to say that.” So let me offer some proof.

1.  You’ll Under Price Your Property.

I try to stop in to as many For Sale By Owner (FSBO) properties as I can. Sometimes I have a client looking for a very specific property, and for all I know, the one down the street with the hardware store sign might be it.  On more than one occasion, the minute I got in my car to drive away, I was on my cell phone, looking for a buyer. In one instance, I knew immediately the owner had under-priced his property by at least $70,000. By the time I found an interested party (the next day), it had been sold. To a Realtor.

2. You’ll Have Access to A Smaller Pool of Buyers

Once upon a time, it was possible to put a sign from the hardware store and sell to someone who happened to drive by. Heck, there was even a time when buyers drove up and down the streets looking for “for sale” signs.

Today’s consumers, however, can’t afford the gas. And they are incredibly Internet savvy. They scour the MLS looking for their dream home, using multiple web sites and search engines. If your property isn’t on the net, it almost might as well not be for sale.

Most agents I know are, at any given time, working with between eight and twelve buyers. Usually these are people at various states of readiness; often simply looking for the perfect opportunity.

Realtors frequently ask other agents if they know of anyone who has or is looking for a specific property; with many sold before they ever hit the MLS.

We all know demand helps raise the price. If one knows about your home, it won’t sell for as great of a number as it would have were there multiple buyers vying for the chance to own it.

3. It Costs Money to Put It On The MLS

In the Twin Cities there are a couple of companies that, for a fee, will help an owner sell his or her investment property. Fees typically range from $100-$300.

4. You’ll Pay A Commission to the Buyer’s Agent Anyway

The MLS is, essentially, a co-op among real estate brokers. It’s a way for Realtors to share information about the inventory they have. Putting a property on the MLS, is like saying, “Hey, if you bring me a buyer, I’ll pay you this.” Payouts to buyer’s brokers in the Twin Cities market average between 2.7 and 3.5 percent of the sales price.

Now all you’re saving is the other half of the original 5-7 percent commission. Read the rest of this entry »


InspectionWith the change in the current housing market, many would-be sellers are turning to renting their homes in lieu of a sale. And, they often forget one thing that many first-time landlords do: the government.

No, I don’t mean the IRS. Rather, the city government; places like Minneapolis and St Paul. Both require landlords to have either a valid rental license or a certificate of occupancy before a property can be leased.

In Minneapolis, whenever a property is converted to rental usage, it must be inspected for compliance with the city’s minimum housing standards. Of course, this is not free. The city charges property owners $1000 for the initial inspection. This is in addition to the annual license fee, which is $61 for the first unit and $19 for each unit under the same ownership in the same building.

St Paul does things differently. They require a certificate of occupancy, which is issued after an inspection by the fire marshall. Every rental property, from single family homes to large apartment complexes that are not owner occupied are required to comply. The fee for this is $50 per unit.

So, who’s going to notice? Well, if you get caught, Minneapolis is going to charge you an additional $250 for the first unit, and $20 more for each additional unit. Failing an inspection in St Paul, on the other hand, results in bigger fees for each additional time the inspector has to visit until non-compliant problems are solved.

Still think you can get away with it? Tenants often know this rule. Experience says, the minute you have to enforce a noise rule, or ask for delinquent rent, they’ll call city. So much for that idea…


Weight LifterAround August 1 of last year, lending standards tightened. That action played a large part in many buyers staying put.

I know what you’re saying. Well, that’s nothing compared to this year, right?

Guess again.

I can’t tell you why. Maybe the Olympics inspired buyers to get up off  of their couches and start working out by walking through houses. Or, maybe it’s that we it is actually a really good time to buy property at discounted prices.

Pending single family home sales for the week ending August 9 were up 21 percent over the same time last year. Last week also saw 11.3 percent fewer listings come on the market than a year ago, with the total number of active properties on the market being a full 6.4 percent lower than this time last year.

Meanwhile, small multi-family sales continued to log impressive gains. Pending sales for the week were 157 percent ahead of the 2007 mark.  Lender’s were involved with 90 percent of this year’s transactions, compared to just 62 percent of last year’s weekly activity.


Money HousesLast week, the National Association of Realtors reported the Pending Home Sales Index (PHSI), which is an indicator based on purchase agreements signed in June, rose 5.3 percent nationally over their May mark. While an improvement, this number is still 12.3 percent below the June 2007 mark.

Again, while this data reflects activity in the single family home, town home and condo markets, it is nonetheless critical information to have. When it comes to small multi family property, owner-occupied duplex sales probably most closely mirror single family statistics. Many home-owners find duplexes to be an affordable entry point into more expensive neighborhoods, or a means of buying a little more house in such a location.

What’s especially interesting to note is there were gains nationwide. Here in the Midwest, the index was up 1.3 percent over May, but was 13.3. percent below a year ago. In the South, there was a 9.3 percent increase, which is nonetheless, 16.6 percent below June of last year. In the West, the index rose 4.6 percent in June, and while still lagging, this figure is just 1.7 percent below last year’s mark. Meanwhile, in the Northeast, the June figure rose 3.4 percent, but trailed last year’s volume by 15.4 percent.

The always optimistic NAR also projects that as many as 2.5 million first-time home buyers will take advantage of the $7500 temporary tax credit in the new housing bill. If they do, existing-home sales would be likely to rise 7.0 percent in 2009 over this year’s expected figure.


BalloonsOK, I’ve cleaned my ears, then hit “rewind” and “play” about six times now. And I could swear that Realty Times is reporting that the recently released Standard & Poor’s Case-Shiller housing index indicates home prices were up in the Twin Cities.  Nationally, only seven markets reported an increase.

Click on the Real Estate Outlook: Prices Up in Certain Cities and see if you hear it too.

For the actual statistics that contained in the national report, go to Standard & Poor’s and select the May, 2008 report.


ForeclosureOne of the challenges in the current market for the Twin Cities Realtor’s associations has been spotting trends in terms of trends with lender-involved properties, vs. those being sold by a traditional seller. Until recently, it was impossible to discern what percentage of properties on the market involved lender-owned properties or short sales. Consequently, it was also virtually impossible to determine how traditional sellers were fairing.

In an effort to address and decipher these issues, the Minneapolis Area Association of Realtors released a comprehensive report yesterday detailing the full impact of the mortgage crisis in the Twin Cities market.

Highlights of the report include:

  • “Over the past year, the inventory of lender-mediated properties for sale has almost doubled, while traditional inventory has declined by 16 percent
  • Of all current active properties for sale, 21.7 percent are foreclosures or short sales.
  • Traditional homes continue to hold their value better than foreclosures and short sales. The Q2 median sales price of foreclosures and short sales has fallen by 11.7 percent in the last two years while traditional homes has declined by only 3.4 percent.
  • The prevalence of lender-mediated homes varies greatly from area to area. A full index of MLS areas and cities is included in this report. “

While the report does not address small multi-family housing (duplexes, triplexes and fourplexes), it nonetheless provides useful information to investors. To see the full report, click here.

Hopeful Signs in Twin Cities Duplex Market

said on August 12th, 2008 categorized under: Twin Cities Real Est


Last night MAAR released its weekly activity report for the week ending August 2.  While it may be too soon for outright optimism, there are a few less reasons for despair in Twin Cities real estate market.

Thumbs Up 2For the fifth straight week, and the ninth of the last twelve, there were more purchase agreements written on houses than there were during the same period last year.

Overall, sales were up 2.2 percent from their mark last year. In fact, in the last three months, pending sales have been steadily .6 percent ahead of last years.  And, get this. New listings for the week were 19.8 percent lower than last year, making the average number of new listings over the last three months 12.8 percent lower than one year ago.

While all of this is good news, we’re not there yet. The average number of days a house sits on the market before it sells is 146. This is 13.3 percent higher, or 19 days longer than it took one year ago.

Meanwhile, Minneapolis and St Paul area duplex sales continued to chug along. Pending sales were up 195% over the same period last year, with 41 registering accepted purchase agreements, vs the 21 that did last year.

It’s clear the mortgage crisis had really begun to impact the market around this time last year, with 61.9% of those purchases being lender-involved transactions. Sales for the week this year, however, were comprised of 92.6% foreclosure or short sale properties.


BeachIn the past, one of the most lucrative tax loopholes for real estate investors was the provision that allowed an owner to move into a rental or investment property, and after living there for two years, realize and capital gains tax free, up to the individual $250,000 or married couple $500,000 limits.

In Minnesota, this benefit was especially attractive to those eyeing retirement in warmer climates. Why? Well, let’s say you wanted to retire five years from now. Both the Florida and Arizona real estate markets are, perhaps, in even more dire circumstances than the market here. Theoretically anyway, it might be a great time to pick up that vacation condo on the beach in Santa Barbara.

If you found a bargain, you could rent it out until you were ready to retire. It’s reasonable to assume that over enough time, that property will increase in value. Well, that appreciation is taxable. However, if you moved into the home for at least two years, Congress said they would not tax you on that increase when you sold.

As of January 1, 2009, that is no longer the case. When the president signed the Housing Bill into law two weeks ago, the rules changed.

Now, any properties purchased after that date will be subject to an amended version of this law. Investors will now be asked to pay capital gains taxes for the years of appreciation when they did not live in the property.  So, if you owned a condo in Phoenix for five years, and lived in it for two, you would be taxed for the three it was tenant occupied.

If you’ve been thinking of purchasing a vacation property, or an investment property to ultimately move in to, a wise strategy may well be to act before year’s end. In all the doom and gloom of the coverage of today’s market, not one prognosticator has ever said the market housing prices will never increase again. When they do, it would be awfully nice to be able to shield those gains.

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