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The Minneapolis duplex market reminds me of a puzzle my family had when I was growing up.
Called Drive Ya Nuts, it consisted of 7 nuts. The object of it was to line all of the numbers up on each nut so that they matched the numbers on the nuts next to them.
It wasn’t as easy as it sounds. And I vividly recall getting to the sixth or seventh nut, with all sides matching and me thinking I had it solved, only to discover I had it wrong.
That’s what the duplex market feels like today. I was sure there was a trend, with traditional sellers claiming more and more market share of new listings and pending sales, and average off-market prices going up. Then I looked at the numbers from the week ending July 23, 2011, and I wonder if I have it all wrong.
Pending sales were up 4 percent over the same week in 2010. I suppose that’s good news. However, the percentage of the duplex sellers who received offers and didn’t have to get a bank’s permission to sell was down 7.3 percent.
The average final list price duplexes left the market for the week at was $106,014. With properties selling for, on average, 92 percent of what they were originally listed for, this figure is likely to drop when these transactions close.
Last year, the average sold price for the duplexes that left the market during the week was $109,821.
The good news here is listings were up year over year. Now that sounds counter to the news over in the single family home market, where they’re hoping the amount of inventory on the market shrinks. In fact, they celebrated 13.2 percent fewer new listings than they did during the week in 2010.
However, duplex inventory has seemed scarce this year. So the sight of 41 new listings for the week, versus the 25 that came on during the week last year, was, for this Realtor with buyers looking, welcome news indeed.
Of these new opportunities in late July, 51.2 percent belonged to traditional sellers. This is a much stronger showing than the 20 percent market share they claimed last year.
In the single family home market, sales were up 54.3 percent over the same week in 2010. That would be staggering if not for the fact that many of last year’s buyer’s rushed to buy houses earlier in the year in order to meet the home buyer tax credit deadline.
I’m anxious to see what the rest of the year brings. If it’s anything like the puzzle, the answer will hinge on that one right piece.
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I had the opportunity to participate in a webinar with RealtyTrac’s Senior Vice President Rick Sharga the other day.
RealtyTrac is a firm that tracks foreclosure trends in 2500 counties across the country. Sharga shared unbelievable statistics; the most remarkable of which was that 70-80 percent of all foreclosures are NOT listed on the MLS.
In fact, of the 900,000 bank owned properties (REOs) in this country, just one third are listed on the MLS.
Two thirds are not.
That’s 600,000 properties of shadow inventory; an average of 12,000 per state.
RealtyTrac estimates 1.2 million homeowners are in the foreclosure process right now. Of these, just 20 percent have their properties listed for sale.
More stunning yet is that somewhere between 5 – 5.5 million property owners are seriosuly delinquent on their loans. While some will manage to get current, RealtyTrac estimates that 4 million more foreclosures will hit the market within the next three to three and a half years.
While this is catastrophic to home and duplex owners, it also represents an unprecedented opportunity. And both seasoned and first time investors are recognizing just that.
But guess what?
Even though it’s a slow real estate market, the great deals are still tougher to find and, typically, attract multiple offers.
Unless, of course, your Realtor knows where they are before they hit the market.
Last week I had a client who’s been looking for a duplex in an outer suburb write an offer on an REO that isn’t listed yet.
I have other clients doing the same. Several are watching duplexes already in the foreclosure process where the owner has refused to sell; waiting for the moment the bank gains control so they can submit an offer.
In fact, right now I am tracking over 100 duplexes, triplexes and small multi family properties in sought after Minneapolis and St Paul locations that are somewhere in the foreclosure process.
If you’re thinking about investing, there’s never been a better time. But if you’re working with an agent who can’t find you property before everyone else knows about it, you’re working with the wrong agent.
Call me. I’d be happy to help.
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The other day a duplex owner facing a short sale confessed he didn’t think he’d be able to continue to make his mortgage payment.
He then asked if he couldn’t make the mortgage, did he need to bother with the insurance payment?
The answer, according to Frank Culbertson at Farmer’s Union Insurance, is yes.
While many duplex owners have their premiums escrowed as part of their monthly payment, some pay the insurance company directly.
According to Culbertson, several missed payments result in the insurance company notifying the lender. Guess what happens then?
Since the lender has a stake in the property, namely the money they lent toward its purchase, they would like their asset protected. And, by law, they have the right to buy insurance on the property, and they will.
These insurance premiums are typically at a rate three to four times higher than the rates the property owner was paying. And the cost of them is then passed on to the duplex owner.
So what does it matter if you can’t pay them back anyway?
Well, unless your Minneapolis duplex or duplexes are vacant, you still have tenants. Now let’s imagine there’s a fire where one or more of them is seriously injured while payments aren’t being made.
Do you think the tenant or his family will not pursue legal recourse simply because you were in the foreclosure process?
Personally? I’m not that optimistic.
And even though it’s possible you may not ultimately have any liability, your attorney will charge you to prove just that. Even if you’re broke.
Had you maintained your insurance policy, odds are, your policy would have covered the costs of attorney’s fees.
Just something to think about.
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I’ve been finding a lot of wolves in s Sheep’s clothing lately.
Not in my dreams, but rather, on Craigslist.
Every now and then I scan the list of duplexes for sale on Craigslist. As I’m familiar with most of the ones listed by Realtors and active on the MLS, I narrow my search to those properties offered for sale by owner.
I do this for several reasons, one of which is finding that elusive “perfect” property for a client who’s seen everything on the MLS.
But lately when I contact these sellers I am surprised to learn the seller herself is a Realtor.
Now there’s nothing wrong with an agent selling her own property without listing it on the MLS. S he has the same rights to sell it herself and advertise it anywhere she chooses that a seller who does not hold a real estate license has.
The difference is she has a legal responsibility to disclose this information from the start. In other words, her ad should say something like, “owner/agent”.
The reason this is required by law is to protect the consumer. It is assumed the agent has specialized training that makes her an expert in her field, thereby giving her an advantage over someone who doesn’t have the same training.
It’s kind of like walking into a fight with a black belt when all you’ve done is watch Jackie Chan movies.
If you’re aware you’re doing this prior to seeing the property, you have the ability to find competent representation to look out for your best interests.
And you should.
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In today’s real estate market, many duplex home owners feel like Sisyphus: doomed to roll the boulder of their property up a hill over and over again only to watch it roll back down.
Many are realizing they either owe more on their rental property than it’s worth or, for reasons of unemployment or mortgage resets, can no longer afford the payments.
As a result, they often discover they may be facing a short sale.
Of course, with anything that’s new and unfamiliar, there are a number of misconceptions and myths about the process. According to the Distressed Property Institute, these include:
Myth #1- The Bank Would Rather Foreclose Than Bother With A Short Sale
The truth is banks nearly always lose more money on a foreclosure than a short sale. This myth is so pervasive that many banks, investors and even the federal government have stated that if someone is qualified for a short sale, the deal must be considered.
To qualify, the duplex seller must be able to demonstrate financial hardship, monthly income shortfall or insolvency.
Myth #2 – You Must Be Behind On Your Mortgage to Negotiate A Short Sale
While this may have been true in the past, lenders today are looking for a pending shortfall, insolvency, monthly cash flow shortfall or a verifiable hardship.
Myth #3 – There Is Not Enough Time To Negotiate A Short Sale Before My Foreclosure
Foreclosure is a process. In Minnesota, it can take up to a year; with six of those months occuring after the sheriff’s sale.
The foreclosing bank or home owner’s association can stall a foreclosure up to the last day of the redemption period.
Myth #4 – Listing My Home As A Short Sale Is An Embarrassment
It is understandable to have reservations about telling the world you owe more on your duplex than it’s worth. But you’re not alone. In fact, it’s estimated that one out of every eight homeowners in the U.S. is in the same situation. What’s more, forecasts predict that in the next few years, 40-60 percent of all U.S. sales will be short sales or foreclosures.
Myth #5 – Short Sales Are Impossible And Never Get Approved
Are short sales more difficult? Yes. Is there a learning curve for the property owner? Yes. Are they impossible? Nope. Agents who have earned the Certified Distressed Property Expert (CDPE) Designation are getting thousands of short sale approvals every month. These Realtors have undergone extensive training in methods to help distressed duplex owners and process short sales.
Myth #6 – Banks Are Waiting On A Bailout and Not Accepting Short Sales
OK, can any of us count on Congress to pass legislation? Probably not. And banks know this too. Consequently, banks are becoming more aggressive in pursuing short sales and working with Realtors who know how to process them. In fact, Freddie Mac recently stated the organizational goal of “eliminating distressed assets through modification or short sale.”
Myth #7 – Buyers Are Not Interested In Short Sale Properties
For Minneapolis and St Paul duplex home buyers, short sales and foreclosures are synonymous with “good deal”. In fact, in the last year, many of the rental properties in the Twin Cities that have been the best value for the price have been found in the short sale category. Listings with an experienced agent educated in the short sale process ensure a greater chance of a contract being successfully negotiated on a property.
If you’re wondering whether a short sale might be the right move for you, please call or email me. As a Certified Distressed Property Expert, I’d be happy to explain your options.
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Let’s face it, there were a lot of duplexes sold during the real estate boom.
Today, most of those properties aren’t worth anywhere near the prices they sold for.
And many of the owner occupants and investors who bought them have fallen behind on their payments, finding themselves facing foreclosure.
Some owners resign themselves to the inevitable, vowing to hang on to the duplex until the bank changes the locks.
Doing so will destroy their credit for years and, in some cases, may even endanger their careers.
And while a short sale can be a drawn out, exhausting process, it doesn’t have nearly the long term ramifications that a foreclosure does.
If you’re behind on your mortgage and haven’t been able to obtain a loan modification from your lender, here are 8 reasons a short sale may be a better decision for you than a foreclosure:
- Credit Score – A foreclosure may reduce your credit score as much as 250 to 300 points for over 3 years. In a short sale, only your late payments on a mortgage will appear on your credit report. Once the property is sold, it will be reported as “paid as agreed” or “settled”. This may impact your credit score as little as 50 points, and appear on your credit report for 18 months or less.
- Credit History- a foreclosure will remain on your credit report for 10 years or more. There isn’t a specific reporting item for “short sale”. In fact, in most cases, the loan is usually reported as “paid in full”.
- Future Primary Residence Loan – If you live in your duplex and lose it to foreclosure, you will not be able to get a Fannie Mae backed mortgage (which is most of them) for 5 years. If you successfully sell via a short sale, that waiting period is shortened to 2 years.
- Future Fannie Mae Loan for An Investment Property – an investor who loses a duplex to foreclosure will not be elligible to obtain a Fannie Mae backed investment mortgage for 7 years. An investor who successfully sells a duplex via a short sale may get a Fannie Mae backed loan after just 2 years.
- Future Loan With Mortgage Company - On any future loan application, a prospective borrower will have to answer “yes” to the question whether he or she has had a property foreclosed upon in the last 7 years. There are no questions on loan applications regarding short sales. If a owner occupant duplex owner is current before executing a short sale, she may apply for an FHA loan immediately. If she’s late with payments, she won’t be eligible for 3 years.
- Security Clearance - A foreclosure may result in security clearance revocation and, ultimately, loss of employment for members of the military, police officers, or any career that requires security clearance. A short sale, on the other hand, does not impact most security clearances, as they are not explicitly reported on a credit report.
- Current Employment - Many employers have the right to regularly check credit. A foreclosure may result in termination or reassignment. As short sales do not appear on a credit report, they do not impact employment in the same way.
- Future Employment – For the same reasons that affect current employment, future job opportunities may be lost as a result of foreclosure.
