The March sales numbers from the Center for Regional Studies finally got released today, and some very interesting (and disturbing, if you are a seller) trends are emerging. 55% of all resale SFR’s and condos recorded by the Assessor’s office were REO’s county wide. In both January and February, 35% of recorded sales were REO’s.
Using Guy’s "Special Conditions of Sales" figures, REO’s representing roughly only 10% of the MLS listings are accounting for 55% of actual resales. Private party resales actually fell from 107 in February to 79 in March. I’ve had 2 Chase agents and several agents from other brokerages tell me that they are no longer accepting owner listings. Looking at these numbers, it looks like an extremely wise business decision - the tail is wagging the dog.
Sales numbers gleaned from MLS data can’t distinguish new builder homes listed on the MLS from actual resales. Factoring Diane’s monthly sales numbers down 8% to get rid of manufactured housing, her resale figures are 7% over CRS’s numbers in January, 22% over in February, and 31% over in March. I am not criticizing or debating the validity of anyone’s figures here - each of us has our own methodologies, so the trend lines are all that is really important. And I realize there might be a huge surge in manufactured housing resales (not), but it seems to me that builder sales through MLS listings are becoming a significant and unreported percentage of resales.
60 comments
So some realtors won’t even take a Joe Six Pack listing? They only want REO listings? Or to get that 3% builder commission?
This should not come as any news to readers of this blog. For about 18 months now, many here have predicted that the day would arrive when builders and REOs would decimate the resellers. I invite folks to go back and read the comments from as far back as 18 months ago predicting this. The only difference is that back then, we were called doom and gloomers. Today, it’s amusing how so many suddenly seem to agree with us. All the Joe Six Pack resellers (and their still delusional realtors) who are not willing to follow the builders and the banks down are just going to be taking up space on the MLS for a very long time.
“Agents…are no longer accepting owner listings?” Wow! I don’t remember this being predicted 18 months ago.
If agents won’t accept owner listings, it seems to me sellers will soon be forced to drastically lower their asking prices. Just curious RI, when do you predict this will happen?
If these numbers are accurate, I think our Oracle from Spanish Springs’ prediction that the median sales price won’t drop below $245K or $240K tops is completely out the window.
I’m most interested in seeing April’s sales data - I’m very interested in how quickly [and by how much] the median sales price has dropped [remember, some of us felt the drop would be marked and in very short order].
I think that resellers, for the most part, will continue to hold out. I don’t think the majority of them will ever “drastically” lower their price. They may drop the price, trickle by trickle, with a 3% price reduction, or some such thing, every 3-4 months. They will continue to convince themselves that for whatever reason, THEIR house is different. Even though their house is in a track with 15 other houses basically just like it on the same street, THEIR house is different. I think there will be great resistance to following the banks and the builders down, so that most sales going forward will be builder sales and REOs. I think it far more likely that most resellers will just continue to take up space on the MLS, riding the market down, all the while clinging to the belief that THEIR magic buyer for THEIR “special” house is just a day away.
I completely agree with RI. This belief in the “specialness of my house” is quite powerful. It is to some degree understandable because people get emotionally attached to their houses. That’s a big reason why the builders are inflicting damage on the private sellers,to them a house is a commodity, not an enotional experience.
So the private sellers will continue to delude themselves while the banks set the comps. Just look at the abundance of overpriced used houses, especially in the over $500k range. Every one of these self-deluded pseudo-sellers will tell you “my house really is special” and “I’ll be damned if I’m going to give it away.”
I also agree that most “Joe Six Pack” sellers will just continue to ride the market down. Not only have they convinced themselves that their house is special, but that their individual circumstances are special. As in “I have to get such and such out of this house….” or ” I put X dollars into this house, and I need to get it back” or ” I paid this much and I need to get enough to come out even” or “I owe such and such” or ………….
I don’t think most resale sellers will do a “drastic” price reduction. They will do those silly 4% price reductions as they ride the market down. Oh sure, there may be a few here and there, but most will continue to live in denial because their situation is “different”.
What a seller will accept may depend on what they paid. I realize this doesn’t make any economic sense but that’s how people think. (There was a link to a NY Times article about this here a few weeks ago).
I saw this firsthand in Hawaii in the 90’s. There the real estate market crashed along with the Japanese real estate market. But prices didn’t really go down. They just sat there. There was virtually no activity. Sellers wouldn’t take less than they paid, and buyers wouldn’t pay the asking prices. The market just froze up. Eventually things loosened up after 2000, probably because inflation brought the nominal value back up to the point where sellers no longer believed they were “taking a loss”. But that took over ten years.
From this perspective the builer and bank sales are a good thing since they may be the only thing keeping the market moving.
I too saw what happened in Hawaii after the Japanese bubble burst. I lived there in the 90s.It took at least 10 years for the Hawaii market to bottom out because sellers kept on clinging to the idea that the end was just around the corner. I remember how realtors were calling the bottom every month for years.
The closest thing to the bubble we had here was the Japanese bubble of the 80s. It was an enormous bubble that had spread to Hawaii because of the big Japanese presence there. It took Hawaii more than 10 years to bottom. It took Japan 17 years. I’ve seen this before, and I think talk of a bottom being on the horizon is foolish. Just my opinion from somebody who’s been through it.
Interesting observations by the group as to resellers’ perceived unwillingness to sell for less than they think they’re entitled to.
I personally think DonC’s observations are accurate - it depends upon what a particular seller actually paid for his/her property [I guess that goes into the mindset re: what a particular seller thinks he/she is entitled to].
I can tell you that in Incline Village we are starting to see some very substantial price reductions [far more than 3%] by REAL sellers who’ve owned their homes for some period of time [thus their purchase prices were lower and what they perceive they’re entitled to, given the current market, is presumably less]. And we’re starting to see quite a substantial number of new listings [especially at under $1M] actually priced to sell. Still quite a bit of price resistence, especially above $1.5M, but virtually nothing is selling above $1.5M for the reasons voiced here by RI and others.
This is part of the reason why I personally believe it’s going to be a very interesting summer and fall. If REOs are THE properties that primarily sell between now and the end of summer when demand is at its peak; agents won’t accept new listings from resellers; what happens to resellers come the fall? It’s kind of like what happened if we declared war but no one showed up to fight?
I guess if resellers are in a position to continue waiting out the market [like Hawaii (although Senator, I know Hawaii and Reno’s no Hawaii)]; that’s what will happen. But I just can’t believe the REAL Reno/Sparks sellers can continue to hold out forever [but maybe I’m wrong Allen Murray?]. At some point they have to face reality and if they’re unwilling to do so come the fall, they’ve in essence bought into holding out for another 8 or more months until the spring/summer 2009!
So are the majority of resellers [especially in the $500K> price range] so well healed they’re able to continue waiting out the market for another year? If not, something has to give, doesn’t it?
Unless a seller has a nice positive cash flow to cover his expenses, I would think hanging on to a depreciating asset and paying PITI every month will have an eventual end. Draining one’s financial future for the sake of “getting what they deserve” in the way of a sale price makes no sense to me.
Think of all the sellers who would have been getting on with life if they had listed 10-15% below market last summer ! For many of these sellers the train has left the station-it started to pull out a couple of years ago, and for whatever reason(s), they weren’t paying attention.
I agree that in general sellers will hold out without major price reductions. Just because nothing is selling doesn’t mean most sellers “need” to sell now and will slash their price or even have the option to do so. Chances are that most of the houses in foreclosure have negative equity and the homeowner (seller) didn’t have the option to reduce the sales price below what they owe. I also agree with the notion that we will be at bottom for a long time. Smarten asks if sellers can continue to hold out “forever”. I would say many sellers will hold out for years until the market comes back and just stay put and enjoy their home. Us sellers just need to buckle up for a while. I know this slow market has hurt me. So far I have sold my Rolex Daytona, my ‘66 427 Corvette convertible, and my 502 big block crate engine that I had planned for my ‘50 Cadillac convertible, and one of my work trucks. I’ve also gone back to work. Times are tough aren’t they?
It appears from Mike’s numbers that the banks are now setting the market prices in Reno. Why is this significant? Because they banks know they can sell their assets only at prices people are willing to pay - not what was previously paid. Hence the +50% and growing in REO sales.
Private sellers now have three options:
1.) Delist and continue to live in their home (and afford it) which is why homes are normally built
2.) Reprice at or below REO levels (if they can afford to potentially take a loss at sale)
3.) Default and add to the REO market - either now or when the money runs out.
4.) Rent it out…and see #2-3
Seems to me that unless a record gold mine and/or oil well is discovered under Reno, we are many years (if not a decade or so) away from any sort of a bottom in Reno…
Allen Murray posted:
“Us sellers just need to buckle up for a while. I know this slow market has hurt me. So far I have sold my Rolex Daytona, my ‘66 427 Corvette convertible, and my 502 big block crate engine that I had planned for my ‘50 Cadillac convertible, and one of my work trucks. I’ve also gone back to work.”
These don’t sound like the words of someone who can actually afford a “million dollar house” - but more like those of someone under severe financial strain. I never did buy into the notion that you “don’t need to sell”, Allen - because your house wouldn’t be on the market it you didn’t.
You stated that when you first listed your house, you looked at the recent sold comps as well as listings in order to determine your price. That was a year ago. Since prices have fallen substantially, have you looked at recent sold comps and listings, including the short sale a few doors down in order to accurately re-price your anchor? Methinks the answer is no. You’re another seller who’s “riding the market down”.
If I had to guess Allen, I’d bet that you’re just another contractor who’s over levered in real estate. You got caught up in the euphoria, and are now stuck servicing the debt on your most expensive build to date. Unfortunately, you’re not alone - so perhaps your over-inflated ego may not be bruised beyond repair.
Haha…I was wondering where you were Bantering Bear…..hugs and kisses=)
Yay Hawaii! Sorry for focusing in on that one point, but I am in Hawaii right now, on the Big Island. It’s safe to say the same thing is happening here that’s happening in Reno; my friend Rhonda was forced to move from Hawaiian Paradise Park just south of Hilo because the house she is renting was foreclosed on; Land prices and homes are taking a nose dive on the island right now. You can buy a decent 3 bedroom home in the Hilo area for $250,000 nowadays, on an acre of land in Lava Zone 4 (meaning you are pretty darn safe from future lava flows). Being 2500 miles from the mainland definitely doesn’t make Hawaii immune to the same currents of turmoil going on in the real estate market on the mainland.
Am I right that a short seller will receive a 1099 for the difference between the sale price and the amount owed? If so, there will be long term consequences to many well intended families who purchased their home at inflated prices only to be subject to a short sale. A bad decision made worse form many years to come.
Yes, the foreclosed upon taxpayer will receive a 1099 for the forgiven debt. HOWEVER, with the legislation passed for homeowner relief, one just fills out an IRS form to submit with one’s taxes to make that taxable ‘income’ go away. One may not be able to file electronically, since it’s a very brand-new form.
Going back to work is a bitch, Allen. I’m facing it myself!
You are listed with one of the big boys, yet your house is getting no play anywhere people could find it outside the traditional MLS. No CL. No photo blurb in the Sunday RGJ. Haven’t checked Homes & Land recently, but I don’t recall any coverage there, either. David’s advertising budget seems to equal his faith in selling your house anywhere near asking. You get what you pay for. Low percentage of success = minimal investment = lower percentage of success.
David has another listing in the same price range that I follow for chuckles. As far as I can tell from casual conversations with the owner, there are mandatory price reductions called out in the listing agreement after certain time periods. And I find the property all over CL and the RGJ and the other RE publications. Some times a motivated agent can get things done. So try motivating David and see what happens.
hi, am new to this blog. until recently, we were planning on relocating and buying in reno this summer. areas of interest were saddlehorn, st james and the estates at mount rose. any advise?
Hi Doofus, thanks for your concern. My house has been in Homes and Land, Craigslist, and in the RGJ recently. However, it is my belief that fancy ads don’t sell houses, price is what sells. I am sure that everyone looking for a $1.2m home in SW Reno is aware of my listing. It actually got shown yesterday. Funny you mention Dave, he was on Ch 2 news tonight and said he is getting busy, and has written 2 offers in Somerset in the last 2 days. Also, I was pretty much joking about selling my stuff off and having to go back to work, I just wanted to get a rise out of BB and it worked, for a while, I thought he quit stalking me=)
Relocating Buyer, most of the advice you will get on this blog is very negative and they will recommend that you wait as they believe prices still have a long ways to fall. It is my belief that they will continue to fall some, but if you plan to stay in your house for more than 5 years, this is an great time to buy. There are good deals out there in all areas and interest rates are below 6%. If we hit bottom early next year, and you purchase next summer on the possible upswing, your selection will be less, and you will be essentially paying the same price. That’s my $.02, I’m sure others will chime in. Cheers!
“However, it is my belief that fancy ads don’t sell houses, price is what sells…Also, I was pretty much joking about selling my stuff off and having to go back to work, I just wanted to get a rise out of BB and it worked…”
Nice try Allen, but I don’t think you’ll convince anybody with that load of BS. Those big egos sure have a way of getting in the way, don’t you say? I’ll be the first one to post your NOD to the blog. Warren Buffet once said “You never know who’s swimming naked until the tide goes out”. In your particular case, we don’t have to wait.
Bantering Bear, are you in love with me????
bantering bear lives here! everyone already knows this.. He obviously has NO life at all!! dam! what a loser!
If one were to focus simply on fundamentals, Reno’s current median home price of $280K is, in my estimation, about 21% above what Reno’s median income of $60K is capable of supporting.
An individual with a $60K income qualifies for a $180K mortgage. With a 20% down payment of $40K, that individual can afford a $220K home.
When Reno’s median home prices fall to $220K then the Market will be back to normal. However, given the fact that there are more vacant homes in the U.S. than ever before (I recall a reference in these posts of Reno’s vacancy rate being around 40%) it would not be unreasonable nor surprising for the median price fall below $220K.
As they say, only time will tell.
Am I right that a short seller will receive a 1099 for the difference between the sale price and the amount owed?
Last year, Congress passed a bill making forgiven debt, up to $2M, on a primary residence non-taxable. It applies to 07, 08 and is set to expire next year.
HELOCs are included, *if* the money was used to buy, build or improve the property.
Correct as to the new legislative “grace” provided on foreclosure-imputed income. This bill was signed into law long after discussions on this blog last year regarding debt forgiveness income tax consequences.
The Mortgage Forgiveness Debt Relief Act of 2007, was signed on 12-20-07. It applies to purchase money indebtedness or qualified construction/improvement loan indebtedness related to a primary residence. Not good for second homes; not good for refinances with cash-out, except refinanced loans qualify up to the prior purchase money loan balance. HELOCs only qualify if proceeds used for primary home improvement/enhancement (not ordinary routine maintenancel certainly not for using HELOC to pay-off credit card debt)
Hi relocating buyer! I’m also considering moving to Reno, took several trips there last year with another one scheduled for June and I’ve been watching the prices almost obsessively (and reading here as well). I think now is as good a time as any, and next year will still be a good time.
Prices in the 3 areas you mentioned are coming down - St. James Village has several listing way under a million now, and the Estates have several (may be short-sale/REO) around $750,000 at the moment as well. What I didn’t like about the Estates is, like most new developments, there’s a lack of mature landscaping. Also, there was talk here I think about the developer being in dire straits. You’ll need to check that info out. If the developer bails, the Estates will have many unbuilt pads for a long time, and you’ll need to find out about what occurs with the HOA fees, etc. in that event.
Speaking of developments, does anyone here have any info on Ryder’s Mountaingate?
Relocating Buyer: I bought in the general area you are describing - a community called Monte Rosa (which has taken a beating on this ‘blog’). The builder is local, Home Crafters. I love my home, the community, the location, the amenities, and frankly the value. When choosing a neighborhood, being below Thomas Creek on Mt. Rose highway is the difference between buying a snow SHOVEL vs. a snow BLOWER come winter. You will have A LOT more snow up in the areas you describe. Now, some like that, some dont. I personally, dont.
Homes have weathered the price drops very well, and all my neighbors are really nice people with a lot of pride in their homes. May want to check the community out to compare. There are actually several under construction now.
No this is NOT an ad you jackal’s. I really do live in Monte Rosa.
WBV
When I looked last year, Monte Rosa was not even half built out - has that changed? They did have the most beautiful model home I’ve ever seen - on the best location ever - on its own small promontory with incredible views. However that model had already been sold, and so had the few homes (5-6) with views along the view ridge. An agent was trying to flip one of the view homes. All the developers had stopped building at that point - and would only build upon a purchase contract. So is anything even for sale there?
“Jackals”, haha, that’s a good description on some of the posters on this blog. I have a different name that starts with Jack….but has a different last syllable. Congrats on your satisfying home purchase.
On a different note, but related to REO’s, I just got off the phone with a realtor friend of mine who was representing the buyer on a short sale in SW Reno. Seller listed property for $575K, buyer offers $595K since they knew it was a good deal. Bank demands an appraisal which came in at $610K. Buyer agrees to the $610K based on bank’s appraisal. Bank then rejects the counter offer at $610K and counter’s at $650k with a reduction of realtor’s commission from 3% to 2%. Buyers were scheduled to do their final walk through this Saturday, now the deal is off. As a seller, it doesn’t disappoint me that the banks are holding tight, but it seems ludicrous that the bank would counter higher than their own appraisal.
Tom, I have a question for you.
You have given your opinion on foreclosure-imputed income and 1099s and I for one appreciate it. But what really is foreclosure-imputed income?
Example 1: I default on a $200K purchase money mortgage; it goes to foreclosure sale; my lender bids in the then amount owed [and let’s just say for simplicity purposes its bid is $200K ]; and, the property reverts to the lender. Is there any foreclosure-imputed income and if so, what and why?
Example 2: Same as 1 but the lender’s bid is $150K. Are you going to tell me there’s $50K of foreclosure-imputed income?
If so why? I ask this question because in Nevada [unlike California] there is no antideficiency legislation. So if the lender in example 2 proceeds in the correct procedural manner, I as the borrower still face liability for the $50K deficiency. In other words, there’s no relief of indebtedness. So why is there foreclosure-imputed income?
Example 3: A short sale where the lender AGREES to accept less than the original mortgage amount. Rather than relief of indebtedness, why isn’t this a simple contract modification?
Thanks in advance.
thank you all for your advise. our concerns are mainly newer neighborhoods, which according to the statistics, are unable to survive the current economic climate. have been reading the campbell letter and his numbers are alarming. we had planned to buy in reno in june or july, but some claim the housing market, combined with higher gasoline prices, is beginning to change the quality of life. hope that is untrue. thank you for your time.
It’s amazing to read about a market that has become so toxic that REO’s rule the roost. I am in Raleigh, NC and though foreclosures have risen we still relatively balanced. I’m using balanced loosely… Sales are down roughly 25% over last year.
Gina: Regarding Monte Rosa construction. I know they just sold one of the spec homes that was listed for some time. I was happy to see it sell for a good price (more than mine which is good for comps since our square feet and lot are larger). There are 2 homes on my block sold and under construction, another 1 or 2 being built for spec, and i heard (rumor) they are doing pretty well sales wise. Not bad all in all for that type of community and that price range in the current climate.
The model you are thinking of has to be the Plan 10 with the casita (the same model I have). Its the plan that won Home Crafters all the awards. Its really, in my opinion and in the opinion of some of my real estate friends, the best model home in Greater Reno[dash]Tahoe.
Neighborhood wise, the folks at the Galena Market are moving forward with their nice retail center in the neighborhood which will sport NO SPORTS BARS in favor of some better community services and eateries.
Financing a home like ours is going to be any buyer’s challenge. The values are there for the taking, but you have to have IMPECCABLE, and i mean IMPECCABLE credit to get a jumbo loan these days. Frankly i have NO PROBLEM being scrutinized by a bank…would have saved us all a lot of problems if these rules had been in place for the last 24 months.
I bought a crack house (no joke, white power swatztikas in the closets even!! score!) back in 2005 for 200k
Crap neighborhood 89431 area code on prater between pyramid and mccarren
3 months later got an offer for 240k turned it down as I had a prepayment penalty rider of like 10k (shoot me?)
New roof, new windows, ripped out carpets refinished original wood floor, painted in and out, new kitchen, remodeled bathroom yata yata yata
All in all about 20k++ cash + labor costs for work I didnt do (windows/roof)
Trying to short sale now, 199k to 179k to 159k have had about 8 viewings in the 2 months its been on market
No offers, bout to go down again
200k ( new home buyer 80/20) @ 10% and I make 68k
Each loan was sold 2-3x
I dont care to recoup my money nor keep the house
I want out of dodge and not to owe anyone, can accept destroyed credit.
Any suggestions on what to do?
Suggest any foreclosure lawyers to talk to?
e m a i l
ptdump gmail com
Foolish, if getting out of Dodge means getting out of town, just leave. If your only goal is not to owe anyone, just leave. Despite all the talk on this blog about Nevada having no anti-deficiency legislation, which is true, the reality is that banks just don’t go after residential borrowers on foreclosures. It just does not happen. Especially if the deficiency is only going to be around $50K. Ain’t gonna happen. If you want to be really really sure, just move to Alabama. You really think the bank is going to go to the time, trouble, and expense of getting a deficiency judgment here in Nevada and the additional time, trouble and expense of domesticating a judgment against you in Alabama? For $50K? No way.
Now before one of the more contentious and argumentative readers on this blog decides to trash me, let me say I have worked in the banking real estate business for 20 years. And I have never seen a bank go after a residential borrower for a deficiency. A commercial borrower yes. A residential borrower, never. It just does not happen.
I challenge anybody out there to refer us to one verifibale instance of a bank suing a residential borrower for a deficiency here in northern Nevada.
TroubledLoans said he/she “ha[s] never seen a bank go after a residential borrower for a deficiency…It just does not happen. I challenge anybody out there to refer us to one verifibale instance of a bank suing a residential borrower for a deficiency here in northern Nevada.”
No I’m not going to trash you but IMO your statement is equivalent to being a mortgage loan broker and telling your client-borrower to lie on his/her loan application [whether it’s income, intent to owner-occupy, etc.]. “I’ve never seen a bank actually check. I’ve never seen a bank actually go after a borrower.”
Well I have. In the early 80s in Hawaii, it was standard practice. In fact after Hurricane IWA destroyed my property and I defaulted, Honolulu Federal Savings and Loan actually came after me [if anyone’s interested, I’ll explain how I (legally) beat the rap].
At about the same time in Silicon Valley, I saw it happen several times [refis, investment properties, five plexes or larger (situations not exempt from California’s anti-deficiency legislation)] when the value of the security was equal to or less than the amount owed.
The foreclosing parties were the same institutional lenders [or their predecessors] that operate in Nevada today. So I feel it’s irresponsible to suggest to a borrower to just walk away [why not just file BK (especially if you don’t care about your credit)?].
I think so many banks in Reno may not be pursuing deficiency judgments because they really don’t have a direct stake in the outcome. By and large they have sold these loans to various investors and merely retain the servicing rights. So when there’s a default, they matter-of-factly foreclose. The problem though is there are different ways to foreclose and the way that results in a deficiency judgment requires the filing of a lawsuit and going through a process that takes longer.
But to answer your challenge; yes I’ve seen judicial foreclosures [the ones that result in deficiency judgments] prosecuted many, many times. If it’s not going on in Reno, I predict that in short order it will as lenders [or the investors they service] lose more.
I am confused… Why are people buying new homes when they still seem to be priced well above the same model that is 2-5 years old in the same neighborhood???
I moved here 2 years ago on a relo move and decided not to buy b/c prices were so high and value non existent. Thank God! Even at a $200k loan I could have lost a ton and been living in a tiny house with no resale.
…Now my lease is up. I am scared of buying now and losing 10%-20% more. But I will have to move to pay rent for another year. Am I crazy to consider buying now when I could wait another year?
I don’t see how TroubledLoans post is the equivalent of a loan broker telling a loan applicant to lie.
When the bank makes a loan it makes a deal. The deal is the bank will loan the money in exchange for the borrower’s promise to pay. If the borrower does not repay, for WHATEVER reason, the bank gets to seize the collateral. That’s the deal the bank makes. Where’s the equivalent of the lie? How has the bank been misled?
Thomas V, the bank DOESN’T agree to seize the collateral if you don’t pay and that’s the extent of the deal. You agree to pay and if the security you’ve posted isn’t sufficient, you’ve got a problem.
When the bank loans you money so you can purchase a car, does the bank agree to seize the car if you don’t pay and that’s the extent of the deal? Same concept as here. You can not only lose the collateral you’ve posted, but a whole lot more.
So for someone, especially associated with a lender, to recommend to a defaulting mortgagor that he/she should simply walk away and not worry about further liability, again IMO, is irresponsible.
Ignoring the potential for personal liability when defaulting on your mortgage, is the equivalent of ignoring the potential for personal liability when lying to a lender. In both instances, according to TroubledLoans, the borrower doesn’t have to worry about it because he has never seen a bank go after either borrower.
That’s what I mean by the equivalent.
Hi Gina,
I looked at Mountaingate twice as they have a plan that my wife and I really like. Prices aside we couldn’t get past the airplane noise. Both times we went the planes are flying right over the place. $650k to start and be in the flight path is ridiculous. I can remember three planes crashes on that end of town as well.
omg, this is one of the best comment threads i’ve seen on this blog for a long time. please, a moment of silence for the undisputed komment king, mikey.
- am + bb = true love?
- derrick didn’t get burned at the stake?
- the so-called jackals cover every lame seller delusional statement i’ve ever heard? wow, welcome to my world.
- hot tip = buy now on the big island? yeah.
- relocating buyer: my two cents = look now, but the $500K+ category i think is headed for armageddon in the next year. be cautious.
- johnhenry lowered the median price estimate for balance in the market? kewl…
- gina, keep watching. patience is a virtue.
- WBVega, Homecrafters does good work and rumor has it that they’re one of the stronger builders in town. So hold tight and enjoy your wonderful home and location.
- JPGraves, yes, REOs are beginning to rule the roost. welcome to our meltdown market.
- Foolish Buyer, thanks for your honesty. Hopefully one of my jackals will come forward and relieve you of your pain…
- Troubled Loans, leaving is probably a good option for many. some already are.
- Smarten, luv ya. what more can i say?
- RI, yes you were right, we were wrong. FYI, RI is like EF Hutton. So when he talks, you all known what to do…
Everyone, thank you for being here and contributing what you do. This entire coversation makes us all just a little bit smarter, and I sincerely appreciate all your input.
Best of all, nobody started a hissy fit over their stock portfolios and net worth… good job, guys! (Yeah, and it’s always the guys, sorry to say.)
Thanks Perry, I had no idea that area was in the flight path. Thanks Diane. I’m not moving this year - we have a business and it would be a big deal to move. Just sitting tight. I’m visiting friends and seeing a concert in June. I think Reno has a long ways to go before stability in RE. From where I sit in coastal L.A., retirees and other potential California-to-Another State people are stuck. Nothing’s moving, and I think the sluggishness will continue for a long while. If we don’t see good activity this summer, the slowness will continue for at least another year if not a lot longer. So the California spigot is definitely turned off for now.
Smarten, here is a quick follow-up on your question as to discharge-of-indebtedness income imputed as a result of a home foreclosure or forgiveness of debt in connection with a short sale.
First, the whole subject, at least up to $2 million of relief as to primary residences, for married taxpayers filing jointly, is now moot, based upon the December `07 legislation I referred to previously. So under present law, the comparison of states with or without anti-deficiency judgment legislation is more for academic interest than practicality; of course, this temporary provision may not be made permanent, and the analysis will resurrect itself at that time.
Generally speaking, when the purchase money loan obligation is subsequently forgiven by the lender, the amount borrower originally received as loan proceeds which exceeds the “value” received by the lender in the short sale or foreclosure is reportable as income, because borrower no longer has an obligation to repay the lender. “Obligation” and just what that means becomes the key, not whether or not the particular state permits deficiency judgments, or whether the lender pursues judicial or non-judicial foreclosure. The bare or empty obligation may be remaining in a state with no anti-deficiency judgment legistlation, but that is not the end of the story. If the lender (and more importantly whoever owns the note at the time) has WAIVED the right to pursue a deficiency as part of the short sale negotiation, so that the debt is forgiven, than there is a forgiveness. The forgiveness takes place because the lender by waiver has created an estoppel document, which borrower can raise as an affirmative defense in any deficiency collection litigation. The borrower’s representatives will generally negotiate for this waiver, otherwise the cooperative short sale technique has little appeal for their side; they want their client off the hook, not carrying the possibility of being a defendant into the future. (The insolvency exception will typically allow most people in this position to bargain for the trade-off of the waiver for the imputed income tax risk.)
If lender wants to fully preserve rights to a deficiency judgment, it would foreclose (in California by judicial rather than private non-judicial foreclosure), and NOT waive any rights to pursue the borrower. Or lender could agree to short sell with no waiver or release. Then I believe the borrower could claim at audit conference that there was no forgiven debt, as his personal estate is still responsible for the deficiency. Or he could urge the insolvency exception, “I was broke before this event and I still am, thus my personal estate has not been enhanced by the event; no imputed income if I am insolvent both before and after the discharge.” But whether the IRS will accept that argument or not can vary from audit to audit, e.g., the Service would argue that the size of the potential deficiency compared to the finances of the borrower establishes that borrower is not worthy of pursuit by the lender. Thus the defense that there is technically a claim of preserved liability on the debt is frivolous. The insolvency exception is a question of fact, also. Smaller deficiencies and weaker taxpayer/borrowers may skate by, but a larger claim and some physician with high earning potential,for example, would have a harder time with the appellate conferees. It becomes a negotiation.
As mentioned at the start, the present legislative grace makes all of this analytical planning largely unnecessary for borrowers in difficulty.
I hope this is of interest. Sorry for the length of the post; there are no 20 second sound bites in these tax matters.
Stillnotbuying
My 2cents - buy a home that you can afford and can accommodate you for a long time. Although I see doom and gloom Reno is still an attractive place to live and raise a family. I just bought a home in SW Suburban b/c it is an area I always wanted to live. What will my home be worth in 1yr..? 5yrs…? 10yrs…? does anyone know? Probably not. What I do know - I love the home, the area, and my family will enjoy living there for a long time. Better yet - I don’t have to move again!
Correction… my reference above in the computation should be to present unpaid balance of the original loan, not to original loan proceeds
Tom, thanks for the explanation of the inputed income on forgiven debt. I’d add that one other alternative for the borrower is to argue that the bank or lender failed to disclose or mislead about some salient term or condition, in which case there would be no forgiveness since the deficiency was cancelled out by this counterclaim. But as you say, it’s not really important at the moment.
TroubledLoans, I don’t doubt your experience with past practices, but I’d wonder whether banks might change that practice as more borrowers default. If the numbers are large enough then setting up an “assembly line” law firm whose purpose is to go after individuals who default and then turning that judgement over to a collection agency might become cost effective. (All the pleadings would be basically the same so it becomes more like wills rather than normal litigation). Additionally there may be some fiduciary issues that make it safer for the banks to obtain a judgement.
Smarten
Having been a long-time HonFed customer with some deposits there at the time they made your loan, I am surprised they came after you when hurricane IWA destroyed your place in 1982. Did you sell the property for its land value only, and that’s what left the balance due on your loan? And how did you avoid the deficiency judgement — move off island? That used to be a way to avoid paying the state general excise tax judgements, and I know a BK lawyer who would regularly advise his clients to do so.
BTW I enjoy reading your posts b/c they seem to have a seasoned, experiental basis to them.
If you sell your house for less than you bought if for (note, not less than you owe) you cannot take a loss on your taxes. Correct me if I’m wrong, but if you rent the house out for a while, or make every effort to try and rent it out, it becomes a “rental property”. If you take a loss on a rental property you can write it off your taxes over a period of years.
Banks notwithstanding, if you are relocating you can turn the property into a rental for several months to a year, then sell it for less than you bought it for and eat the payments made with hopes of recoup via taxes. (right?)
I’ve been sitting in the SW renting and waiting for the right house with the right price. Unfortunately people with houses for sale can’t get my suggestion to rent it to me for a year and then I’ll buy it for appraised value. I’m just guessing, but I’d bet their real estate agents bury the suggestion as they know they will get screwed out of an easy commission.
Kimo -
Thanks for the comments. Honfed made me purchase private mortgage insurance [PMI]. But it NEVER made a copy of that policy available to me…until after it filed its judicial foreclosure. It was then I discovered it was insured against any deficiency and that insofar as me the mortgagor was concerned, the PMI carrier waived the right to come after me for any loss [as long as the security was single family owner-occupied]. Although my property was a condo, unlike an apartment building it was “single family.” And it was owner-occupied as my second residence. When I discovered the foregoing, Honfed agreed to bid in the full amount owed [so there was no deficiency] at its foreclosure; it agreed to waive any claim for a deficiency; and I agreed to not oppose the foreclosure.
But I knew others who were foreclosed against [and by this lender] who like me had PMI yet didn’t know the protections available. They ended up with deficiency judgments.
Faust. I can appreciate so much where you are because I’ve been attempting [unsuccessfully] for many months to secure a lease/option where the option price is determined at the time it’s exercised. It’s as if you’re speaking a different language to these people. Somehow they think you’re actually going to exercise your option if you select some price today and fmv is 20% lower two years. Or they think they can coerce you into excercising your option at their inflated pricing simply because you’ve agreed to pay more than fair market rent and don’t want to lose the excess which would otherwise go towards an above fmv price. If prices increase, these sellers will be the first people to AVOID honoring your option [so much for a win-win to both sides]. Do these people think we’re stupid?
Lease/options in today’s market [in my experience] are really nothing other than indirect vehicles to extract above fmv for a property that the owner has been unable to extract after his/her property has been listed for sale for many, many months [if not years]. I don’t think these suggestions are being buried by agents; they’re being buried by the sellers themselves. So I wish you luck, but I wouldn’t hold my breath.
Faust - capital gains and losses can get complicated in a hurry. But yes, assuming you could prove the house was an investment (lived in for less than 2 out of the last 5 years?), you could deduct the captial loss. You could either use it to offset capital gains or as an offset to ordinary income at a rate of $1500 or $3000 a year.
Thanks for all the useful info, esp. RI/BB/Smarten, I’ve been watching and waiting for a nice house in Saddlehorn, Arrowcreek or St James. St James seems to be picking up, at least 2 houses are pending of the 7 or so in the 890-1 mill. range. Saddlehorn is still very expensive and there’s not a whole lot on the market. Arrowcreek is also stagnant, yes there are a lot of Bella Terra and Montelana homes and a few in Granite Pointe but then it’s steep up in price from there. I’d really like to know: what is a fair price/sq ft for a custom home , let’s say St James with land, +/-view? Saddlehorn? Arrowcreek custom vs. semi-custom? Do you think a whole lot more houses will come on the MLS this summer/fall.
Everyone talks about recession but I see one BMV/Hummer etc after another driving around here picking up kids at Sage Ridge (20,000/child/year)It seems that this doesn’t effect them?!?
Any comments/advice???
hi first time buyer, noticed you are not looking at estates at mount rose. any reason? new houses with large lots, but are they not desireable? thanks for your comments.
First Time Buyer - Are you really a “first timer” and looking at the higher end of the market?
To answer your question, I personally don’t look at a cost/square foot. A perfect example in St. James Village would be 106 Londonderry - a very reasonable [in a vacuum] $180/square foot. But who needs [or wants to pay for] 5,000+ square feet?
My personal price target for St. James Village is in the mid-$700Ks for about 3,200+/- square feet. If that equates to a more expensive [at least than Londonderry] price/square foot, then so be it.
The higher end of the Reno market is only now starting to come down in price. So I say, we’ve got a way to go [but I think we’ll get there]. Good luck!
Hey Diane. Do you think this “first time” homebuyer can qualify for local first time municipal financing for his/her intended St. James Village purchase[only kidding]?
FormerLurker: My 2cents - buy a home that you can afford and can accommodate you for a long time.>
My 2c - wait and buy next year or the year after and get much more home for the same $ or the same home for much less $. In the meantime invest that down payment and come out even more ahead when the market is ready.
I agree with you anent Reno being an attractive location to live - after all I choose to live here, too. But remember: you can live somewhere without buying a home.
I think you’d agree that it’s never financially beneficial to overspend, especially for such a very large purchase as a house.
Thanks for the comments!
Relocating buyer: I initially thought I wanted to live in Callahan Ranch for the views and also being out of the trees (maybe lower fire hazard?) but I personally don’t like the Mount Rose estates or most of Callahan Ranch. Cross Creek is nice but expensive and the 4 houses I looked at were not finished that well for almost a million.
St James is great but very far and with gas prices like they are, the beauty may fade.
I’ve been warned by quite a few “reno” people that the Galena area is destined for a blaze sometime soon. I was here during the Arrowcreek fire and that was scary. But I guess there’s been worse.
I’m also from So Cal where we have fire season, mud-slide season, earthquake season and riot season, so this isn’t that bad after all.
Smarten:Yes, believe it or not I truly am a first time buyer and I hate moving so I’d rather purchase a HOME that my family can be happy with for many years to come! I see our HOME as a place for my kids to grow up, not as an investment I plan to flip in a few years but I still don’t want to pay and arm and a leg or lose a substantial amount of money in the next few years. Therefore I am quite picky. I also don’t want to work like a dog to support a house payment. Life is too short for that. I moved here to enjoy all Reno-Tahoe has to offer, not work my life away to keep up with the Jones’.
I have already qualified for a large loan and the more time goes by before we purchase, the bigger my down payment will be. Some of it is invested in stocks doing fine so far and so I can wait for that “perfect HOME” I hope.
I really appreciate your insight into the Reno market:)
I didn’t read “former lurker’s” comment before, it seems he/she has the same ideas about this as I do, I just have not found anything.
I’m sure this is asked a lot but what do you all think about Zillow and their Zestimates?
Smarten: I think 700’s are reasonable as well, I can’t understand how normal it seems to many people to spend 1 million or close to that on a home, I think people have lost reality to what that amount of money is.
Londonderry 106 is a strange story, did it foreclose or what? as is and owner to fix interior and landscaping… add another 200+ for that alone! and to heat 5000+ sq ft is very costly in itself.
Hi Relocating and First Time,
We too have just relocated to Reno with work.
We flew down a couple of times and looked – didn’t buy, even with some pretty good agent pressure that this was the best we could do. Most of the houses that we looked at then are still on the market and dropping their price ;-).
We opted to rent and look around a little bit more. We found a decent rental house on Craig’s list, requested a month to month so that when we found a house we liked at a price we felt was fair we could move. We know that our rental was listed for sale all last year and didn’t sell, so it finally went on the market as a rental. Could our rental house be foreclosed on? Sure! We aren’t too worried, as we believe that the bank would prefer to be generating some income from the property rather than add to the market with yet another property they will loose money on!
We have our cash stashed and it is just making more money waiting for the perfect house.
My take on neighborhoods that we have looked at:
Somersett – nice place and neighborhood feeling. Don’t jump on me, where we come from stucco is not ever used and so it’s not quite as offensive to us as most of you on this blog. Don’t like the earthquake factor. Love the schools!!! This would be very high on our list because of schools.
Caughlin Ranch – If we found the right house we could easily live there. Some of the areas are not as nice as others.
Saddlehorn – fantastic neighborhood, a little bit more of a commute, still over priced. Sellers will get the memo and prices will start to come down. Watching homes here very carefully.
Arrowcreek – Really great neighborhoods. Love being closer to skiing and the views are stunning. Same thing, great schools, will jump if the prices come down.
Mountain Gate – too much noise.
Estates at Mount Rose – very new so not a lot of landscaping and there is a lot for sale. Really close to Mt. Rose Highway.
Mountreux – for us it sort of had the snob factor, great place, too formal for us.
St. James – If I worked from home this would be my home, but I don’t, so we will skip it.
Hi 3 wombats:Donnybrook (Callahan Ranch)is going/went to the courthouse soon, not a bad house at all!
I heard there is a fault line/s in Arrowcreek and most of SW.
Sommersett’s pool/rec area puts Arrowcreek’s to shame!!!! And yes they have great schools, kids programs, neighborhood feel but my drive would be way too far!
Agree with Mountreux comment, spectacular area and homes built like they should be but still a bit over the top for us!
Mountain Gate-nice models, not cheap when you start adding upgrades, what do they really offer other than a “gate”?