Archive for Bites of Buckwheat
June 25, 2008 at 3:18 pm · Filed under Bites of Buckwheat, Mortgage Bites
Continuing trouble for two of the Country’s largest mortgage lenders
KIRO TV reported that Governor Gregoire is making moves to remove Countrywide Mortgage’s license to do mortgage business in the state of Washington this morning. This is just the most recent problem Countrywide has had to deal with. Countrywide is currently being sued by the State of Illinois (for defrauding borrowers) and being sued by the State of California. I wonder what the Bank of America stock holders think of their purchase now. I guess they wouldn’t be able to call it Countrywide anymore.
Edit 6/26/2008 - Gov. Gregoire announces $1,000,000 fine for Countrywide
Edit 6/26/2008 - The Department of Financial Insitutions has added this banner to the front page on their website.
Washington Mutual is facing difficulties of it’s own. Union members picketed WAMU’s last shareholders meeting in reaction to the news that WAMU has arranged a $7 billion (yes, billion) cash infusion to try to hold back the floodwaters of bad loans on their books. The shareholders question if $7 billion is enough. You can read the details in the Seattle PI.
In a related article, the PI reported the rather stunning numbers involved in Washington Mutual’s move into credit cards for borrowers with “blemished” credit. Although WAMU insists it is a “very prudent, fiscally conservative approach”, the article reports that the bank added 660,000 new credit card customers in the first quarter of 2008. Mr. Dreman, of Dreman Value Management, LLC (whose company owns 28.8 million shares of WAMU stock) stated “They’re up to their necks in everything bad”.
I’ll ask the obvious question. Does it make sense to use new high risk credit card accounts to offset the losses from high risk mortgages?
June 14, 2008 at 5:57 am · Filed under Bites of Buckwheat, Bites of Kitsap, Real Estate Bites
If you own or are looking to purchase waterfront property in Kitsap County, better not count on Zillow to get the value right. If the property has a daylight basement, you’ll likely have the same problem with a Zestimate. That’s because Zillow has trouble with these types of property values in Kitsap. The disturbing thing is we have thousands of properties in one or the other of these categories!
Here are the problems. Kitsap County has so much waterfront the Zillow valuation engine gets seriously confused. For example, if you want to see a Zestimate for a property in Manchester, Zillow is likely to include as comparables, property on the South end of Bainbridge Island. As anyone who lives in Kitsap County knows, there is a significant difference in the values of waterfront property between these two communities. Although the two properties may be geographically close (if you happen to be a crow), they are tremendously different in almost all other aspects, and widely separated by road. Zillow hasn’t corrected this yet.
Properties with daylight basements also produce mixed results. If the daylight basement has not been finished for use as living area, Zillow ignores it. If it has been upgraded, Zillow still ignores it! You can tell by comparing the square footage listed on the County Assessor’s website with the square footage Zillow displays. (You can look up any property in the County, by address, here).
Think about how many hills we have here in Kitsap. Properties with finished daylight basements are very common. Bremerton has them, Silverdale has them, as well as Port Orchard, Poulsbo, Seabeck and every other corner of our County.
In a recent conversation with Jim Avery of the Kitsap County Assessor’s Office, I learned that his department has tried to rectify these problems with Zillow. The Assessors Office contacted Zillow’s data provider to point out the discrepancy. Nothing has changed. The Zestimates continue to be innaccurate.
In addition to that, even if the property is not waterfront or does not include a finished daylight basement, the data available at the Assessors Office is data collated in 2007. Our real estate market is moving too fast to rely on data that could be up to 12 months old.
This raises many questions. Kitsap County is a great place to live. We have mountains and plenty of waterfront. But, so do many other states in the US. Do all the states with waterfront properties and daylight basements share the same problem we do?
So, be wary of using free online tools to make large financial decisions. Hire a reputable local Appraiser if you want an accurate idea of local property values. If you are not quite ready to invest several hundred dollars on a full appraisal, check with an experienced local real estate agent. They have access to information that is much more up-to-data than the information Zillow is relying on.
Sellers who rely on a valuation tool like Zillow can also make a costly mistake. Overpricing a property in Kitsap County’s already listing-saturated environment, could cost a seller months of wasted time, while prospective buyers ignore it.
Related Articles
A Zillow thread
Another Zillow thread (our Assessor pointed out the problem to Zillow almost a year ago)
June 13, 2008 at 4:43 am · Filed under Bites of Buckwheat, Bites of Kitsap, Buyers, Real Estate Bites
“Do you think its okay to help a client who wants to buy a new home now, so she can then let her current home be foreclosed on?”
This question was posed to me 2 weeks ago in a meeting at my office. The Loan Officer asking the question has been originating loans for many years. She’s a wonderful person, but suffering from a lack of business just like many other Loan Officers around the country. It was an unexpected meeting as we no longer work together. She just stopped in for a visit. We were catching up on each others lives, both professional and personal.
This was the first time I heard of a new form of Real Estate Fraud called “Buy and Bail”. The process goes like this. A homeowner, realizing that they have either no equity in their home, or worse yet, negative equity, attempts to buy a new home, with the intention of letting the old home go into foreclosure after the new transaction is complete. In order to pull this off, the homeowner often provides the lender with a Lease Agreement to artificially inflate their income so the homeowner can qualify for both mortgages at the same time.
After my initial “You’ve got to be kidding me” response, I asked some more questions, thinking maybe I had misunderstood the buyer’s intent. I hadn’t. This was a deliberate, planned attempt to get a new mortgage by misleading the new lender. The buyer had no intention of telling her new lender what she was planning.
This story is morally repugnant on so many levels, I don’t even know where to start. My first reaction was, “this client will have a difficult time finding real estate professionals willing to get involved”, then I found out the client already had a Real Estate Agent working for her, and the Agent was fully aware of what the client intended. The client also had engaged a willing Loan Officer to handle the new mortgage.
I told my friend simply, “If you have information about a transaction that you deliberately withhold from the lender, you are colluding in a deception”. I walked away, shaking my head, hoping she had heard me and would stay as far away from this transaction as she could.
A Wall Street Journal Article
Yesterday I was not surprised read an article in the WSJ, detailing an instance of this scam that is happening in California. The buyer not only thinks nothing is wrong with her plan, she has let herself be quoted in a major newspaper. Her Real Estate Agent’s quotes make it obvious the Agent sees nothing wrong with the plan either, calling it “a business decision”. I hate to state the obvious but “a business decision” to screw a lender, is not a good “business decision”. And any Agent who helps promote it puts themselves in legal harm’s way. The same goes for any Loan Officer who might get involved. And any appraiser (if they are privy to the plan). Not to mention the (probably ficticious) “renter” who signs the lease agreement.
Difficult economic situations, like we have in America today, are just that; difficult. It doesn’t give any of us the right to lie, cheat or steal to improve our own financial situation. Nobody forced this woman to buy a house in the first place. She bought a home, most likely, because she thought she would benefit financially. She made a decision, hoping to improve her personal situation. Now that she finds her decision has hurt her, she wants someone else to pay for a bad decision.
If you are a consumer, and have heard of this ploy as a possible way out of your negative equity, go talk to a lawyer as fast as you can. If you are a Loan Officer; run. And the same goes for any Real Estate Agent who might read this article. Contact your brokerage’s attorney before getting involved. This isn’t the newest opportunity in real estate, this is dangerous territory.
Related Articles
The Sacramento Bee
The Motley Fool
A Sacramento Blog (read the comments on this one)
Bloomberg - FBI diverts agents to investigate mortgage fraud
June 2, 2008 at 7:45 am · Filed under Bites of Buckwheat, Bites of Kitsap, Buyers, Guest Writers, Sellers
First allow me a personal comment. I came into this job ten years ago following eight years in the real estate business as both a sales associate and managing broker. I knew how to do a CMA for prospective sellers (and buyers) and I had a fairly good idea how the fee appraisers did their job. I knew nothing about mass appraisal as done in the assessor’s office. I was immediately impressed by the sophistication of mass appraisal and the standards established by the International Association of Assessing Officers (IAAO).
Mass appraisal can be a complex process but let me try to simplify it for the purpose of universal understanding. I’d first like to make a comparison to CMA’s and fee appraisals. The CMAs and fee appraisals select sales of properties (usually three) similar to a property being evaluated and then make necessary adjustments to the sale prices in order to match the subject. In mass appraisal all valid sales within a neighborhood or other grouping of properties are used. I will try to explain in a simple way how this is done. There are two key ingredients mass appraisal:
- A database is built containing information (characteristics) important to value on each of 112,000+ properties in the county. We call the characteristics variables and work hard to ensure the accuracy of the data. Although we use others, those variables most important to value are lot size, and view quality, plus dwelling size, quality, style, condition and age. With the land and view classifications we use actual sales of vacant and improved parcels to develop base land rates and view quality adjustment factors. With the dwelling and other site improvements we use national cost and depreciation rates. These rates allow us to account for the relative differences of all properties in their individual characteristics.
- Step two is to annually adjust the result derived from step one to the actual market in Kitsap County. We do this by dividing the county into about eighty market neighborhoods, measuring the previous year’s sales against our current assessed value, and then make global adjustments (up or down) to all properties within each neighborhood. In this process the important variables mentioned in step one are also tested using the same measuring of sales to assessed value to make sure that the rates are working appropriately. It is important to understand the timing of our value determinations. The value for which this year’s taxes are based is our conclusion of value on January 1st last year. This means that the value used for taxes due on April 30th is actually a value from 16 months ago.
In the interest of brevity I have not discussed the way in which we adjust unique properties using land influence factors and dwelling relative desirability factors. I have also not discussed the appeal process, where we actually do a mini fee appraisal to verify that our rates and adjustments are producing a reasonable result. And I have not discussed the mass appraisal of commercial properties, where we rely most on an income approach. I welcome further discussion on this from any and all readers.
May 29, 2008 at 10:31 am · Filed under Bites of Buckwheat, Bites of Kitsap, Real Estate Bites
If you would have told me yesterday that a conversation about Kitsap County Property Taxes and the process behind the machine would fascinate me, I would have given you a tolerant smile.
Today, on the other hand, fresh from a 90 minute discussion over coffee with Jim Avery and Rich Jacobson, I have a different view altogether. Jim is clearly passionate about what he does. And it’s tough to not respond in kind to his obvious enthusiasm. Maybe it was the caffeine that had us all talking so fast, but I doubt it. Jim has the rare fascility of making a subject you would think of as drier than toast, interesting.
We covered quite a bit of territory over coffee including:
- How accurate are tax assessments
- How does the Senior Citizen Exemption work and how many people does it affect
- 2 huge holes in the Zillow Valuation Model for Kitsap County Properties
- How many property owners challenge the County Assessment each year
- What happens when they do
There was way more to cover than just this. But it will take me a little time to digest what was discussed and even more time to write a post as interesting as the conversation. Stay tuned though, if you have had questions about Kitsap County’s process for establishing how many dollars you will spend for your Property Taxes, we’ll try to get them answered in a following article.
Mr. Avery has also written a guest article SoundBite will be publishing, full of information about what he and his Department do all day.
May 28, 2008 at 7:10 am · Filed under Bites of Buckwheat, Bites of Kitsap, Sellers
All over the county you can see real estate with for sale signs that have been languishing for months. Is it just another sign of a slow market? Or is it the more subtle sign of too aggressive pricing in what has become a Buyer’s Market? Astute real estate sellers keep emotion out of the process. They don’t look back at what used to be with longing for “the good ol’ days”. Pricing real estate based on today’s market is critical to a quick sale.
Selling your property quickly in a slow market does not mean you need to give it away at fire sale prices. It does mean you need to be pragmatic. You need to learn what the real value of a home is.
When reality and fantasy clash
Owning real estate in Kitsap County or anyplace else in a Seller’s Market is exciting. We mentally count the money we are making, as we imagine what price we can (maybe, might, if-everything-goes-right) place on our property. We mentally spend the imaginary money! That’s even more fun. Almost as good as the real thing. We gleefully congratulate ourselves on being property owners in a rising market. And then, we make a mistake. We start believing the fantasy, and resenting the reality. Fantasy feels so much better!
Don’t get me wrong, I like to daydream as well as the next guy. It’s fun. I’ve spent hours with a calculator figuring out what I could (might, maybe, if-everything-goes-right) make on investments I’ve considered. I’ve gotten all animated, talking a mile a minute, to my long-suffering wife and any friends within earshot about what I believed was the next, greatest investment. Whew, it’s fun to float that imaginary balloon! But, of course, that’s not reality, that’s fantasy. They each have a valuable place in my life. Real Estate though, is no place for the fantasy.
The difficulty (and rising angst) comes when we realize our market has changed. We are no longer in a Seller’s Market. We’re now in a Buyer’s Market. Without our noticing, and seemingly overnight, the real estate market shifted, and our imaginary “profit” begins to slip away. And, we don’t like it one little bit! Few people easily give up profit daydreams.
Let’s price it high and see what happens…
This is often the first thing sellers will try in a market that has slipped away from them. It can be a serious mistake! Pricing a property too high in a competitive real estate environment only accomplishes one thing. It gives all the realtors a property to use to illustrate why other properties (not yours) are a better value. Imagine this conversation:
Mr and Mrs Jones, we have 3 beautiful homes to look at today. They are all about the same size, in similar neighborhoods. But, as you’ll see, there is quite a bit of difference in the prices. I’ve saved the best value for last. We’ll look at the most expensive of them first.
And off Mr and Mrs Jones go, to look at your house. It’s the first one on the list!
This all-to-often scenario is still being played out around Kitsap County today, even though the Seller’s Market slipped away almost a year and a half ago! Don’t forget, for every month a house sits unsold, another mortgage payment needs to be made. Time is eating up the profit.
What happens next is perfectly natural when you think about it.
The market leaves it behind!
Everything from an apple to designer jeans will get “stale” the longer it is “on the shelf”. Real Estate is no different. When we go to the local grocery store we innately avoid the merchandise we saw there last week. We want the fresh stuff! Fresh is always better, right? It doesn’t take long for merchandise to get stale. You will pass up apples that are a week old, jeans that are last season’s, corn that is several days old and houses …. well, 3 or 4 weeks is a long time in the real estate market. Real Estate Agents also tend to look past “stale” merchandise. It’s almost instinctive. I have no doubt if I were an Agent, I would do the same.
Day after day, Realtors go to the office, grab a cup of coffee, fire up the computer and begin browsing through properties listed for sale, mentally comparing them with the needs of their clients. As they browse through the list of properties, it’s perfectly natural for them to browse right past the property they saw yesterday, as well as the properties from last week and the properties from last month are all but invisible.
Don’t let your house become invisible. While a price reduction later might get some attention, it won’t have the impact that pricing right will. The market is impersonal. It will take no notice of what you want.
Enthusiasm Sells!
Have you ever noticed how hard it is to resist a salesperson who is excited about the product they sell? Their enthusiasm is contagious. There is an irresistable feeling of excitement. Colors seem brighter and features take on new value. It doesn’t matter if the product is a mattress, a tuba or a house. Enthusiasm gets attention.
A well priced property creates enthusiasm in Real Estate Agents. They eagerly grab the phone, calling their clients to share the details of a property that is freshly listed with a fair price. Now, your house is the last one on the “Jones” list. Other properties are used to highlight what a good value your property is!
Stories from the “Glory Days” are just a distraction
While there are stories of homeowners making $50,000, $100,000 or even more in a few short years investing in real estate, it’s not normal. If it was, thousands of people here in Kitsap County would be very wealthy. But that is not the case. These stories are passed around like urban legends, gaining weight as the go. But unless you have spoken with the original seller, remember, they are stories, not fact. They can’t be relied on.
It’s important to gather information from as many sources as possible the ensure you are not over-pricing your house. Several well-known online tools are available (but I wouldn’t rely on them). The county courthouse is not too far away (a much better source, but time consuming). Tthe best source of up-to-the-minute information is the Realtor community. Realtors have access to data about recent sales in every neighborhood in Kitsap. This data is as fresh and as relevant as you could possible want.
In addition, Realtors are often aware of upcoming events that could affect property values. They know when a developer is planning a new tract of homes. 100 new homes in the $250,000 price range will affect the value of the $350,000 house you may be selling a quarter mile away. Realtors knew of the condominium auction in downtown Bremerton before it got into the local newspapers.
Don’t kill the messenger
I’ve had the good fortune to work with several exceptional Realtors in the last 5 years. It is uncanny how accurate a good Agent’s opinion of value is. Even though the Agent has never spoken to the Appraiser, the Agents original estimation of what a home is worth, is consistently within a few thousand dollars of the final Appraisal. By that I mean within $2,000 to $5,000. Not within $10,000 to $20,000.
Unfortunately, many sellers are still trapped in stories of the Glory Days. When the best source of information (real estate agents) doesn’t tell them what they want to hear, the Agent becomes the bad guy.
Everybody loses when this happens. The seller loses time. The Realtor loses heart.
March 19, 2008 at 1:12 pm · Filed under Bites of Buckwheat
Every Thursday morning at 8AM, Yours Truly, and Buckwheat (aka Mark Flanders) hook-up for some wonderfully strong fresh brewed Java at
