sellers face more days on market

Sellers are facing more days on market with prices still high in the Inland Empire. 2-3 months without an offer (or an acceptable offer) are becoming common. Homes in nice condition, with curb appeal, and priced well can go in about 90 days, but listings that are lacking in these areas are taking longer and even expiring.

I still talk to people who believe that their homes should be able to fetch tens of thousands over the highest closed sale in their neighborhood. The problem is that many times, such homeowners have gone to open houses around them when their neighbors first went on the market. They don't know what the properties really sold for and when, and they might not even know that the sellers lowered the price, or the house fell out of escrow, failed to appraise, expired, and so on and so forth.

I'm currently advising sellers to list for 4 to 6 months and to be flexible. If traffic dies down, if agents aren't previewing and bringing buyers to look at the house anymore (or perhaps very few came even at first), the sellers should seriously consider lowering the price and/or increasing the commission. To help them come to a decision, they need to look realistically at the list prices of the properties that are going into escrow as well as the actual sales prices of the recently closed comparables around them because these numbers will show them what buyers are willing to pay right now.

prepayment penalties and higher prices on homes

One component of higher home prices these days are prepayment penalties that some sellers have on their loans, and the cost is being handed on down to the buyer.

Recently, I have had several clients who have had to list their homes higher than I would have recommended simply because they had prepayment penalties on their loans. The amount of the prepayment penalties (6 months interest in their cases) was high enough to make a real dent in their profits from selling their homes (and thus the down on the next house), so that they also felt that they couldn't come down much in negotiations with buyers.

Sometimes, people decide to take on a prepayment penalty because they feel that they're gaining something in return, such as a lower interest rate, or they're getting a sub-prime loan (meaning they have poor credit) and there's no other option short of buying points.

However, I have also talked with people who have excellent credit but were told that a prepayment penalty was normal. Well, it isn't necessarily, and borrowers need to ask from the start what restrictions there will be on refinancing and selling the house should their plans change.

When getting a loan to buy a home or refinancing, the borrower should get clarification of lender charges (in writing!), question unsubstantiated fees, and be willing to shop around.

Here are some useful sites on prepayment penalties:
http://www.mtgprofessor.com/A%20-%20Options/prepayment_penalty.htm
http://www.thinkglink.com/Prepayment_Penalties.htm

why are we building in flood plains?

All this talk of levees elsewhere can make us forget that we're doing absurd things in the desert, too. Just because it looks dry doesn't mean that water never comes down here. If anything, we need to remember that when there is water, it comes down fast and hard, giving little time to get out of the way.

New construction is going up on steep slopes and even in flood plains because flat land is fast becoming rare in the Inland Empire. How anyone can get insurance is beyond me. If you're considering buying a new home in a hilly area, be sure to check out natural hazard maps and zone disclosures. The builders ought to have plans for diverting the water, but I'd always ask how well those plans have been tested. After all, can anyone really know what will happen?

Here's an article from the Press Enterprise from Sept. 2005 about construction in flood plains.
http://www.pe.com/localnews/inland/stories/PE_News_Local_B_flood25.2fa7ead.html

inland empire foreclosures

The news is out from Dataquick (and has been posted by C.A.R.) that foreclosures are up. Not surprisingly, the Inland Empire leads the rest of the state in foreclosures. The fast increase in values over the past 2 years made it very tempting for borrowers to get that extra, unearned equity out of their houses. The good news is that they didn't increase their taxes, but the bad news is that they're now making similar mortgage payments to people who bought more recently.

People are always asking me to find them foreclosures on the MLS, but not much luck there. Sellers generally don't like to appear desperate at the start since they don't want lowball offers.

Foreclosure houses are generally not great deals right now. Unfortunately, people who are going into foreclosure have often borrowed a lot, sometimes as much as possible. If the loan was for 90% of the market value 6 months ago, and the market in that particular area has been flat since then, it's unlikely that the lender is going to allow that house to sell for 50%. You also have to take into account that there'll be brokerage fees, etc, even though commissions will be reduced on a short sale.
(See the numbers at http://www.dqnews.com/RRFor0206.shtm)