Jail Bait

For years, the condo conversion craze has turned abandoned warehouses, firehouses, & schools into hip personal dwellings. And then there's this:


Daily Real Estate News May 28, 2008

Maine: Why Not Buy an Old Stone Jail?

Anyone looking for security should check out the place just listed by Dawson Commercial Realty in Bangor, Maine.

It’s a roomy, brick and stone county jail in the middle of Skowhegan. Constructed in 1897, the 14,000 square-foot building is for sale for $200,000 and comes complete with razor-wire fencing. There are no zoning or permit-use restrictions, but Philip Roy, chairman of the Somerset County Commission, says only buyers with profit in mind should apply.

"I'd like to have it go back on the tax rolls of Skowhegan, and I'd also like to see it create jobs – ultimately, that's what we're looking for," he says.

Source: The Associated Press (05/28/2008)

Further Analysis of the Quarterly Comparisons & Some Suggestions

I usually laugh when I hear national news regarding "the housing market" or "the real estate market". My reasoning is simple: All real estate is local. You've probably heard this statement a lot lately, so I apologize for adding to the cliche parade. This statement, however, is not only true, but it helps provide perspective when all of the housing news is dire.

Don't get me wrong, I am not here to sugar coat anything. Many markets across the country are down in some shape or form. Inventory is high, loan commitments are harder to obtain, and therefore, there are fewer buyers capable of absorbing the large inventory of listings. Still, depending on how one measures the different housing numbers, not every market is suffering.

I've analyzed three zip codes in the Louisville area for the past couple of years. My comparisons measure sales volume (total number of single-family home sold), high sale price, low sale price, median sale price, & average sale price. I then compare those categories for each quarter against the previous year's applicable quarter (i.e. year over year). To me, this is a more accurate comparison than to compare in a straight line quarterly sale figures. Granted, no measurement timeframe is perfect, but at least this type of analysis should help to equalize weather conditions & the frequency of holidays. Both of these factors are influential with regard to home sales.

Just looking at the 1st quarter of 2007 versus the 1st quarter of 2008, a few trends appear to hold across the board: Sales volume decreased substantially (20% in the 40205 zip; 54% in the 40206 zip; 32% in the 40207 zip), median prices are up in all three zip codes (11% in 40205; 9% in 40206; 11% in 40207), & average prices are up in all three zip codes (9% in 40205; 36% in 40206; 15% in 40207). So how do we make sense of such conflicting data?

From my perspective, it's pretty simple: The best products still sell, and they still sell for a good price. The problem for home sellers is, there's not as much overflow to help diminish the inflated inventory. Simply put, the buyers that are out there & actually capable of purchasing a home have the luxury of being picky. Once they find a home to purchase, there's still plenty of good choices available for the remainder of the smaller buyer pool. Buyers are more patient. They expect to get a fair, if not, great deal, and they're willing to look long & hard to find it. Since there's fewer buyers competing for the available properies, homes that look tired, cluttered, dumpy, and/or out-dated don't sell--unless they are offered at a discount. Few home sellers want to discount their price to a level that is required to sell it, and even fewer are willing to do a few things to their home to make it stand out. Thus, inventory remains high, and sellers remained convinced that the reason their home isn't selling has to do with something other than these two factors.

My question is: WHY? Many buyer objections can be mitigated with little expense to the seller. Simple things like cleanliness, fresh paint, & minimal landscaping can mean thousands to a seller, or at worst, these changes could be the difference between a sale & a home sitting on the market for months.

It's time for sellers to be proactive in regaining leverage in the transaction. Everyone believes leverage is clearly on the side of buyers, however, sellers can put serious pressure on prospective buyers to act fast by pricing their homes accordingly & sprucing up their homes so that every buyer that walks through the door perceives that this home is too good to pass up. In this current market, leverage might be more important even than location, location, location.

1st Quarter 2007 vs. 2008

1st Quarter 2007: 40205

# of Sales-------High--------Low--------Median--------Average
----54--------$795,000-----$118,000-----$219,200-------$246,355

1st Quarter 2008: 40205

# of Sales-------High--------Low--------Median--------Average
----43--------$700,000-----$118,500-----$242,500-------$267,465

--------------------------------------------------------

1st Quarter 2007: 40206

# of Sales-------High--------Low--------Median--------Average
----61---------$475,000-----$36,000-----$149,000-------$171,718

1st Quarter 2008: 40206

# of Sales-------High--------Low--------Median--------Average
----28-------$1,050,000-----$66,000-----$162,976-------$233,798

--------------------------------------------------------

1st Quarter 2007: 40207

# of Sales-------High--------Low--------Median--------Average
----100------$1,260,000-----$120,500----$206,500------$260,903

1st Quarter 2008: 40207

# of Sales-------High--------Low--------Median--------Average
----68-------$2,300,624-----$123,000----$230,000-------$298,990

--------------------------------------------------------

4th Quarter 2006 vs. 2007

4th Quarter 2006: 40205

# of Sales-------High--------Low--------Median--------Average
----76---------$1,000,000---$119,900----$218,000-------$243,179

4th Quarter 2007: 40205

# of Sales-------High--------Low--------Median--------Average
----84---------$779,500-----$139,00-----$215,000--------$252,778

---------------------------------------------------------------

4th Quarter 2006: 40206

# of Sales-------High--------Low--------Median--------Average
----40--------$1,150,000-----$68,204-----$199,000-------$251,546

4th Quarter 2007: 40206

# of Sales--------High--------Low--------Median--------Average
----39---------$500,000-----$65,000-----$195,000-------$216,038

-------------------------------------------------------------

4th Quarter 2006: 40207

# of Sales-------High--------Low--------Median--------Average
----88--------$2,350,000---$120,000----$210,000--------$284,858

4th Quarter 2007: 40207

# of Sales-------High--------Low--------Median--------Average
----66---------$880,000-----$112,337----$250,000-------$323,256

-------------------------------------------------------------

3rd Quarter 2006 vs. 2007

3rd Quarter 2006: 40205

# of Sales-------High--------Low--------Median--------Average
----103------$925,000-----$102,000-----$210,000--------$247,795

3rd Quarter 2007: 40205

# of Sales-------High--------Low--------Median--------Average
----85--------$823,800-----$103,000-----$250,000-------$273,777

---------------------------------------------------------

3rd Quarter 2006: 40206

# of Sales-------High---------Low-------Median--------Average
----42--------$725,000------$60,000-----$170,000--------$248,415

3rd Quarter 2007: 40206

# of Sales-------High--------Low--------Median------- Average
----69-------$1,250,000-----$25,000-----$200,000--------$272,694

----------------------------------------------------------

3rd Quarter 2006: 40207

# of Sales-------High--------Low--------Median--------Average
----116------$1,850,000----$130,000-----$230,000-------$305,868

3rd Quarter 2007: 40207

# of Sales-------High--------Low--------Median--------Average
----102------$1,137,500----$117,000-----$228,000-------$269,187

----------------------------------------------------------

2nd Quarter 2006 vs. 2007: Finally Catching Up

It's been awhile since I've posted comparison numbers for the three zip codes I've been monitoring for the past couple of years. I've finally caught up, and the figures are below for the 40205, 40206, & 40207 zip codes in the Louisville area. The numbers are based on the Greater Louisville Association of REALTORS MLS. As usual, the data include only single-family homes. Condos were excluded from this analysis. Enjoy!

2nd Quarter 2006: 40205

# of Sales:-------High---------Low--------Median----------Average
----105--------$1,700,000----$102,000----$203,608---------$247,244

2nd Quarter 2007: 40205

# of Sales-------High----------Low---------Median---------Average
----115--------$1,500,000----$117,000------$226,950--------$253,850

-----------------------------------------------------------------

2nd Quarter 2006: 40206

# of Sales-------High---------Low---------Median----------Average
----63---------$1,138,000----$67,500------$168,500---------$217,149

2nd Quarter 2007: 40206

# of Sales-------High---------Low---------Median---------Average
----66---------$800,000-----$39,900-------$182,000--------$221,496

------------------------------------------------------------------

2nd Quarter 2006: 40207

# of Sales-------High---------Low---------Median---------Average
----118-------$1,427,500----$114,000------$225,000--------$299,473

2nd Quarter 2007: 40207

# of Sales-------High---------Low---------Median---------Average
----139-------$1,025,000----$118,000------$215,000--------$283,927

-------------------------------------------------------------------

Derby

The Derby happens tomorrow! It's a great time to be in Louisville.

Short Sale Tax Implications--REWIND

I need to set the record straight it seems, as I've run across information that disagrees with my post regarding short sales & the tax implications for the sellers of short sales. It appears that back in December of 2007, President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007 which, for all intents & purposes, removes the former tax consequences that accompanied this type of forgiven debt. So instead of the seller of a short sale being taxed on the shortfall of what is owed on his/her home, the seller can sell his home short with no Federal tax liability. This is truly remarkable, and it's important to note that this law expires on December 31, 2009.

Most importantly, however, is that sellers of short sales consult their CPA or tax professional to ensure that they are completely & professionally informed of any tax consequences that could result from selling their home for less than what is owed.

Here's the article:

The IRS Forgives Until December 31, 2009

Thursday, May 01, 2008 - By Thomas M. Mitchell

If being in default and the threat of foreclosure aren't troubling enough, the thought of the IRS coming around after the fact is sure to keep sellers up all night. They have all heard the stories of being tracked down by the tax man to pay taxes on “forgiven debt.” To them it’s like a bad dream turned into a nightmare, all summed up and justified by a bunch of letters and numbers. But not every code section is necessarily a 4 letter word.

Code Sec 108(a)(1)(B),(C) – better known as 1401, means everything to some homeowners in today’s market … but it only has meaning in light of HR 3648. Then again, Section 163(h)(3)(b) is really the key to the whole thing. Make sense to you?

It doesn’t to your homeowners either. Staring foreclosure in the face they want to know if there is anything they can do. Can you sell their house before the deadline? In most cases your answer would be no because they are completely “upside down” but there are cases in which a short sale could work. And when you broach that subject one of the first questions they may ask is “what is our tax liability if we agree to a short sale?”

While the correct response is that you are neither a tax lawyer nor a CPA, you need to be able to let them know that if they qualify there are some options that may resolve that issue. And it all ties back to December 20, 2007, when President Bush signed into law a new measure giving tax breaks to homeowners who have mortgage debt forgiven. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

Why is this so important? In most instances, debt that is forgiven or cancelled by a lender must be included as (ordinary) income on the seller’s tax return and is taxable. There are a number of terms within the bill that are central to the issue, such as “Acquisition Indebtedness” – and you need to know them.

And don’t forget December 31, 2009. That’s the date when this tax break expires. It only applies to debts discharged from January 1, 2007 to December 31, 2009. And tell your sellers that “being insolvent” as a result of bankruptcy doesn’t count.

http://nationalrealtynews.com/content/templates/default.aspx?a=963&template=print-article.htm

What is a Short Sale?

Short Sale as defined by the author:

A real estate short sale results when a home owner's lender approves the sale of his/her property for an amount less than the home owner owes on the property.

In most cases, the home owner is either entering into some stage of foreclosure, or realizes that he/she is nearing entrance into foreclosure. Many lenders actually require the home owner to fall behind on paying the mortgage in order to agree to sell the property short of what is owed, however, it's my opinion that those days are running out.

Given the high foreclosure rates in much of the country, these mortgage holders have many reasons to sell their holdings short instead of pursuing the more costly avenue of foreclosure.

It's also usually advantageous to home owners who fall behind on payments to pursue short sale approval from their lender. A short sale is not as damaging to a home owner's credit as a foreclosure. In a short sale scenario, the borrower is not responsible to pay back the shortfall, but would be responsible to pay taxes on the amount as a forgiven debt. Beyond that, it's difficult to get a read on where that borrower will stand regarding future home purchasing, and it typically varies from lender to lender. Certainly, a short sale does constitute some type of credit penalty, however, as of now, it's still less of a penalty than undergoing a foreclosure.

Going forward, it will be interesting to see how banks & mortgage companies handle new borrower applicants who have gone the short sale route. It's by no means a new problem, but a problem that is increasing in frequency by the day.

The other side of this coin is the purchaser(s) of a short sale. As I've said before regarding buying foreclosures: Just because it's a foreclosure does NOT mean it's a great deal. Similarly, just because a buyer chooses to purchase a short sale does NOT mean it's a good deal. And when I say "good deal", I'm only referring to the economic investment value.

Don't get me wrong, there are many advantages to purchasing foreclosures & short sales, but it's important to do one's homework regarding the value.

An advantage to purchasing a short sale is the prospect of getting a good economic deal on price. Another advantage is dealing with a lender who views the property as more of a serial number or liability than the home owner who views the property as his or her home with all of the emotional attachment that home ownership brings. In other words, it can be a rather sterile transaction. The process can be a little less like a poker game. It's more cut & dry.

The disadvantages to purchasing a short sale have mostly to do with time investment, patience, & fewer options on negotiating the terms of the deal. It can take days, weeks, or sometimes months to get to the closing table.

As banks & lenders realize a need for system implementation in the short sale arena, the time investment will likely lessen, but until then, it's smart to lower one's expectations regarding the promptness of the lender's response. In short, be patient. This is easier to do when the purchaser is certain that the deal is worth waiting for, but no matter how good a deal a buyer thinks he or she is getting, it's often difficult to play the waiting game.

The other disadvantage to embarking on a short sale adventure is negotiating the terms. Typically, buyers & sellers compromise somewhere to make a deal work. In the case of a short sale, the lender who must approve the sale perceives that they are giving up a lot in the form of sale price, so they want to dictate the other terms of the deal. Most of these sales are "as is", so the buyer can perform inspections on the property, but the seller/lender will forego any resonsibility to make repairs, corrections, or replacements to the property. This isn't always the case, but for the most part it is.

The lender/seller will also likely stipulate a fairly aggressive deadline to close the sale. This is ironic in a sense because it is often the lender that drags its feet in responding or approving the offer, only to then demand a quick close.

My advice is be prepared to wait, but while you're waiting, work closely with your agent in coordinating all of the details that result in a smooth closing. That way, when the lender says it's time to close, you're ready to proceed quickly.

For more information or a list of short sale opportunities, please e-mail me at cthomas@mulloyproperties.com

*Disclaimer: The information included in this post is based on the experience of the author in representing sellers & buyers in short sale transactions, and should not be relied upon for tax or credit purposes. Specifically, the processes and results of executing a short sale can vary dramatically depending on the situation.

Short Sales in the News

More Banks Consider Short Sales

After about a year of dealing slowly and reluctantly with short sale offers, many banks are reconsidering, looking for solutions that will allow them to recoup debt in foreclosure situations.

Observers say that if the trend continues, it will reduce or eliminate the need for taxpayer bailouts.

The National Short Sale Center, which helps short buyers negotiate with banks, says three-quarters of its short offers are approved now, up from maybe half six months ago.

"Before, people on the phone at banks didn't even have the authority to negotiate. Now they're calling us with numbers," says Pam B. Canada of nonprofit NeighborWorks in Sacramento, Calif.

To be sure, many agents and counselors think banks still have their heads in the sand. "They're out to get the last dime, even when people don't have a dime," says real estate practitioner Heidi Mueller in San Francisco as she heads to an auction sale on the courthouse steps.

Source: Forbes, Bernard Condon (04/07/08)

Mortgage Fraud on the West Coast

Feds Charge 19 With Mortgage Fraud

Federal prosecutors announced 19 indictments Monday in a mortgage scheme that stole nearly $13 million in home equity and victimized more than 100 home owners.

Under the scam, home owners facing foreclosure were promised lower home payments and cash up-front if they agreed to add another name to their home’s title. The victims were led to believe they were paying rent to the investors to give them time to get their affairs in order, according to officials.

Prosecutors say the scam was headed by Charles Head of La Habra, Calif. Prosecutors say additional indictments are likely as they continue investigating.

In all, prosecutors say Head defrauded 115 financially strapped home owners in 22 states of at least $12.6 million. The fraud began in and continued through 2006.

Victims ranged from first-time home buyers to the elderly and cost 90 percent of the victims their homes, said Assistant U.S. Attorney Ellen Endrizzi.

Source: The Associated Press, Aaron C. Davis (03/24/08)

This is nothing new. These types of scams are likely in full force all over the country.

The premise is actually not all bad, as these types of arrangements are sometimes fair & actually helpful to the homeowner. It's never a good idea, however, to allow an unknown party to basically add themselves as part owners to a property without the third party having any responsibility to pay the mortgage. From what I can tell from this brief account, that's what happened.

It's an arrangement where an unscrupulous third party shows up to save the day without ever intending to make any payments on behalf of the troubled homeowners who do have payment responsibilities to their lender.

Museum Plaza Groundbreaking

Groundbreaking ceremonies for the much anticipated Museum Plaza skyscraper are set to occur this Thursday, October 25, 2007. More details here.

It's exciting to me to see what's happening in downtown Louisville. The naysayers were many with regard to this project at its inception, but it certainly appears the promise of such a huge undertaking will come to fruition.

Metro Housing Corp. Stats

Here are some interesting statistics just released by Metro Housing Corporation regarding the Louisville Metropolitan Statistical Area. It's an interesting read that basically reaffirms what we pretty much already know: Foreclosures are increasing, as are rents. There's good info about income vs. rental cost. Check it out.

A Peak at the Million Dollar Home Market in Jefferson County

In some areas of the country, $1,000,000 won't get you much as far as housing is concerned(Manhattan for example), while in other areas, Million Dollar homes are relatively scarce. The Louisville Market has its fair share, but they are not at all prevalent. I thought it might be interesting to see how this tiny segment of the Louisville Market has evolved since 2000.

My research is based on the Greater Louisville Multiple Listing Service's records. I culled the sales of Million Dollar Homes from each year since 2000, and compared the data. Included are sales of new & existing homes & condominiums that sold for $1 Million Dollars or more. Excluded are raw acreage/land sales or any parcels or properties that could be developed for commercial use (including larger condominium conversions). Only properties located within Jefferson County were included.

Here are the results:

Year--# of Sales---Low--------High--------Average----Median
2000-----12-----$1,000,000---$2,275,000--$1,360,352--$1,190,000
2001-----13-----$1,060,000---$2,250,000--$1,333,846--$1,250,000
2002-----16-----$1,008,212---$2,098,000--$1,319,388--$1,168,750
2003-----13-----$1,000,000---$1,525,000--$1,234,904--$1,225,000
2004-----19-----$1,000,100---$2,250,000--$1,368,598--$1,200,000
2005-----39-----$1,000,000---$2,650,000--$1,442,262--$1,300,000
2006-----31-----$1,000,000---$2,880,500--$1,393,704--$1,195,000
2007*----38-----$1,000,000---$2,250,000--$1,308,770--$1,233,210

*=through 10/17/07. Additionally, there are 4 PENDING sales that would qualify upon closing.

Currently, there are 83 properties listed for sale that meet the criteria. At the current pace, that's over two years worth.

Since I'm not much of a proponent of looking at an entire metro area as one market, I broke down the areas in which these Million Dollar sales occurred. Here is a geographical description of each area represented in the Louisville Area:

Area 00: The Central Downtown Business District, loosely defined as north of Broadway, east of 9th St., south of the Ohio River, & west of Baxter Ave.

Area 01: Old Louisville/West Louisville/Shively, loosely defined as south of Broadway, east of 44th St., north of I-264, & west of S. Brook St.

Area 02: Butchertown/Highlands/Germantown, loosely defined as north of I-264, east of I-65, southwest of Lexington Rd.

Area 03: Brownsboro Rd./Crescent Hill/St. Matthews, loosely defined as east of Story Ave., south of the Ohio River, west of Rudy Ln. at I-264, north of I-64 at Cannons Ln.

Area 07: Fern Creek/Hikes Point/Jeffersontown

Area 08: Douglas Hills/Hurstbourne/Middletown Anchorage

Area 09: Anchorage/Lyndon/Prospect/River Rd.

Year-----Area------# of sales
2000----- --00------------0
2000--------01------------0
2000--------02------------2
2000--------03------------3
2000--------07------------1
2000--------08------------0
2000--------09------------6

Year-----Area------# of Sales
2001-------00-------------0
2001-------01-------------0
2001-------02-------------0
2001-------03-------------4
2001-------07-------------0
2001-------08-------------5
2001-------09-------------4

Year-----Area------# of Sales
2002-------00-------------0
2002-------01-------------0
2002-------02-------------0
2002-------03-------------4
2002-------07-------------0
2002-------08-------------5
2002-------09-------------7

Year-----Area------# of Sales
2003-------00------------0
2003-------01------------0
2003-------02------------2
2003-------03------------2
2003-------07------------1
2003--------08-----------6
2003--------09-----------3

Year-----Area------# of Sales
2004------00-------------1
2004------01-------------0
2004------02-------------2
2004------03-------------2
2004------07-------------0
2004------08-------------6
2004------09-------------8

Year-----Area------# of Sales
2005-------00------------0
2005-------01------------0
2005-------02------------2
2005-------03------------12
2005-------07------------0
2005-------08------------8
2005-------09------------17

Year-----Area------# of Sales
2006-------00------------5
2006-------01------------0
2006-------02------------2
2006-------03------------9
2006-------07------------0
2006-------08------------4
2006-------09------------11

Year-----Area------# of Sales
2007-------00------------0
2007-------01-------------1
2007-------02------------7
2007-------03------------6
2007-------07------------0
2007-------08------------5
2007-------09------------20

Current Active Listings FOR SALE
Area 00: 4
Area 01: 1
Area 02: 3
Area 03: 18
Area 07: 3
Area 08: 21
Area 09: 33

So What Does It All Mean?

I'd say the data suggests that purchasing a home for over $1 Million Dollars is a bit of a risk in the Louisville Market. Don't get me wrong, it's encouraging that the total number of sales of these type properties is increasing. The values on the other hand are fairly flat, so be sure to have the home in tip top condition when needing to sell. Buyers in this range demand a lot and at times are hard to come by. Despite the challenges, this segment of the market is doing better than others in the area. More on that later...

What is that?

I take pride in the pictures I take of properties I represent. Pictures of a property are crucial in attracting today's home buyer. In fact, I've spoken with quite a few buyers who won't even consider looking at a home unless the on-line listing features interior photographs of the property. So when I was alerted to this website created by a Wisconsin REALTOR & featuring some of the worst real estate pictures he's been able to compile, I had to post it here. Having viewed hundreds of terrible real estate photos myself, I empathize with his viewpoint. Enjoy!