Connecticut Real Estate Blog - Real Real Estate in CT

Zillow has finally updated their database with the sales data on a property I’ve been tracking for months.  Here’s the original post and the new information is at the end.

I’ve written a few times about Zillow.com and the (in)accuracy of their zestimates.   I’ve been tracking one property in particular on a monthly basis and I thought I would share with you my findings.  Out of respect for my clients who purchased this house, I will not give you the address but it is a real place and these are real figures.

House Description: 4 bedroom, 2.5 bath, 2200 sf, 2 car garage, colonial on 1 acre, built in 1979, full walk-out basement in Shelton, CT.  House was only one of a few available in this highly desirable section of Shelton under $500,000.

List Price: $489,900

Comps:  $499,000 and $477,000 - comparable in size, age, location, style and both sold within 3 months of this home

Offer Price: $465,000

Final Sales Price: $470,000

Appraisal Value: $470,000

Sold Date: 1/26/07

According to Zillow’s Zestimate, house was valued as follows (figures are rounded):

November 06: $460,000

December 06: $455,000

January 07: $450,000

February 07: $430,000

Some interesting facts:

• Zillow does not yet have the sales data from this property (sold date 1/26/07) and it’s now 2/16/07 - data is out of date
• Zillow is using comps for condominiums - like comparing apples and oranges, to be cliche
• Zillow is using comps that are miles away from this property even though there are excellent comps within one mile

I’ll let you know what Zillow says the value is when the most recent sales data is figured into this equation. 

March 07: $449,000 - Sales data was updated on March 14th - 45 days after the actual sale. 

Despite the house actually selling for $470,000, Zillow only factors the actual sales price in to determine the value of the property - it does not use the sales price as the best determinant of value.  Real estate agents and appraisers obvioulsy use a different methodology.

One of my readers asked that I clear up the confusion about whether buyers can use a buyer’s agent to purchase new construction.   The answer to her question is, “it depends.”  You didn’t think this was going to be easy, did you?

Like most other real estate for sale, new construction is listed for sale in the Multiple Listing Service which has in it an offer of commission for buyers agents.  Even if the property is not being listed for sale in the MLS, most builders will pay some sort of buyer agent commission.   But…

In order for a buyer to use a buyer’s agent and for a buyer’s agent to receive payment for their services,  most builders have one requirement of buyers and their agents - that the first time a buyer visits the development, model home, or builder, the buyer either be accompanied by or notify the builder that the buyer is working with a buyer’s agent.   If the buyer doesn’t notify the builder by indicating the name of the agent or agency on the sign-in sheet or by walking in with the agent, the builder feels that their marketing is what brought in the buyer. 

Most builders or their agents will have a sign-in sheet at the model home with a line for the name of the buyer’s agent.  If a buyer leaves that blank, the builder may not allow the buyer to use a buyer’s agent - even if it’s months or more later.  If the builder refuses to allow the buyer to use an agent, then the buyer can either play hardball and insist, threatening to walk away from the transaction, or buy the property without an agent.

To avoid this problem from occurring, it’s best to start any home search, whether casually or formally or for new construction or otherwise, by talking with a real estate agent.  Even if a buyer doesn’t want to commit to a contract, it works in the buyers best interest to understand the pitfalls - like this one.  

In real estate, we often use the term “executed” to refer to a purchase and sales agreement that has been signed and received by both real estate buyers and sellers. 

What this means is that the buyer has submitted an offer, has included an offer of consideration (a deposit amount), and the seller has accepted the offer without any changes.  Once the seller has signed the offer and it’s sent back to the buyer, then we say we have an executed contract.

We consider an offer to be executed even if the seller has not actually received the deposit check - in practice, many agents fax a copy of the check to the seller’s agent and then deliver the real check after buyers and sellers have agreed.  Even if that check takes a few days to get to the sellers, the buyers still have what we call an executed contract.  Waiting for the check becomes dicey in a seller’s market because other, higher, offers may come in while the seller is waiting for their deposit check.

Technically…

I took a look at my Modern Real Estate textbook and according to it, a contract is not fully “executed” until all parties have fulfilled their promises - so a purchase and sales agreement is only technically executed at the closing.  What we call an executed contract is really an executory contract (where parties still have to do something).  But, in practice, we call a purchase and sales agreement that has been signed by both sides an executed contract. 

It was inevitable - lenders are finally beginning to rethink the “put everyone in a house, even if they can’t afford it and have bad credit” strategy.  In 2006, more than 21% of all mortgages were subprime, meaning that borrowers had poor credit which meant they had to pay a higher interest rate.  In comparison, just a little more than 7% of mortgages in 2002 were subprime. 

Due to increases in delinquicies and defaults, lenders are backing away from subprime mortgages, while others have filed for bankruptcy or are on the verge of doing so. 

New Century Financial Closer to Collapse - the second largest subprime lender in the U.S.

Mortgage Lenders Network Files for Bankruptcy - Connecticut’s own subprime lender in trouble

No More 100% Loans for Countrywide - the largest subprime lender is curtailing loans to the riskiest borrowers

Lenders can no longer count on the market to save riskier borrowers - home prices are stabilizing which means borrowers won’t have the cushion of equity to fall back on should they get into financial trouble. 

The Subprime Market’s Tough Road

We’ll see what kind of impact all this news will have on the housing market.

The Office of Federal Housing Enterprise Oversight recently released their report calculating housing price appreciation in the United States.  According to the press release that accompanies the report:

My blog is popping up in a few places I hadn’t planned on.  It’s funny how a blog can take on a life of its’ own without direct input.   I thought it was interesting - maybe you think I’m narcissistic to tell you?  A narcissistic realtor?  Who knew they existed…

Realtor.org - The National Association of Realtors may not promote exclusive buyer agency but at least they’re promoting my blog.  Thanks, NAR!  I didn’t know you cared.  (In case you can’t find me, I’m listed in the blue box where it says Examples of Real Estate Blogs.)

Bloodhoundblog -  Although my site is listed or featured on other really great blogs, I mention this one in particular because of it’s status as a big dog among the real estate blogs.  Woof!

This is an article I recently wrote for First-Time Homebuyer Magazine and it appears in their March/April 2007 edition.

Lured by the potential for getting a good deal on a home purchase, many first time homebuyers consider foreclosure properties.  With the increasing popularity of websites like www.realtytrac.com and www.foreclosure.com, finding foreclosures is easier than ever.  But actually purchasing them hasn’t become any easier or safer for novice home buyers. 

While bargains can be found, purchasing foreclosure properties is a risky endeavor.  The greatest risk is the condition of the property.  When owners are not making their mortgage payments, they are also not making repairs or keeping up with regular maintenance. These repairs can quickly eat into savings and can turn that dream house into a money pit.

Foreclosures Defined

Foreclosure is the process by which a lender or other creditor seeks to take ownership of or sell property in order to satisfy a debt.  The process begins when a lis pendens or lawsuit is filed and recorded on the land records.  Foreclosure ends when the house has been redeemed by the owner (the balance of debt plus fees is paid), the house is sold to another party to satisfy the debt, or the house is purchased by the creditor, known as an REO, or real estate owned property.

In Connecticut, two types of foreclosure may be used: strict foreclosure and foreclosure by sale.

With strict foreclosure, the creditor goes to court and proves that the owner is in default.  The owner is given a period of time to “redeem” the mortgage by paying off the debt or owner may sell the property to someone else to pay off the debt.  If the owner does not redeem or sell the property, the creditor takes ownership of the property.  In foreclosure by sale, the court will appoint an attorney, known as committee of sale, to sell the property at an auction to the highest bidder.  The committee of sale will advertise the auction and will conduct the actual auction at the home.  If the creditor has to buy the house either because no one bids or the amount owed on the house is equal to or greater than the value, the property will become REO.

Buying Foreclosure Property

Property may be purchased through a pre-foreclosure sale, auction or the bank directly as an REO.

Pre-foreclosure properties are those that are in the stages between the day the property owner receives a Notice of Default from the creditor and the day the property is redeemed by the owner, sold at auction or taken by the creditor.

In order to purchase a pre-foreclosure property, buyers must contact the property owner directly.  While the contact information is generally available through the same sources that provide foreclosure listings (www.realtytrac.com, www.foreclosure.com and the Commercial Record), actually speaking with the owners can be very difficult.

Owners in default are likely experiencing financial, personal or physical hardships which have made them unable to make mortgage payments.  Homeowners in foreclosure may be in denial, angry, or difficult.  In addition, they are probably being inundated with preforeclosure investors and offers to bail them out of their predicament.

If an owner is willing to talk with a buyer, the buyer must be ready to act quickly before the creditor takes possession of the property or it’s sold at auction. Buyers will need to know the market value of the property, the cost of repairs, and how to negotiate with the buyer.  These can be more difficult tasks for the first time homebuyer, who has little expertise in these areas.  But preforeclosure properties can be the most profitable.

Properties being sold at auction are not for the novice home owner.  First, buyers often have to bid on the property without ever going inside.  Secondly, the creditor will be at the auction, ensuring the property does not sell for less than the appraised value.  They may have a minimum bid and will bid on the property along with other investors in order to keep the price high.

Another problem with buying properties at an auction is that tenants may come with the property.  If the home hasn’t already been vacated by the owners before the auction, they become tenants. Buyers are then faced with handling an eviction, which can be costly and time consuming. 

Lastly, buyers must buy properties at auction with cash, typically due within 30-45 days of the auction.

REO properties are the least risky foreclosure properties to buy.  But less risk also means less savings.   REO properties are often listed for sale with real estate agents and can be financed as you would any other property.  Also known as “bank-owned,” REOs are usually sold at or near market value, so you may not be getting that much of a deal.  Another consideration is that when you’re dealing with an REO property, the creditor hasn’t actually lived in the property and won’t know the history of the house, good or bad.  They are sold in “as is” condition, meaning the seller is not making any representations about the property’s condition. 

If you are a buyer seriously considering purchasing a home in any stage of foreclosure, you would be wise to do a great deal of homework and research before making a purchase.