Sin City Residential Blog 

Real estate investors, who were a driving force behind our real estate recovery, have been pulling back from the market. The main reason? Deals are shrinking up and return on investment (ROI) is more difficult to realize these days here in Las Vegas. This is not surprising given our strong appreciation over the last few years both nationally and locally.

When you look back at 2009, you’ll see that one third of the houses for sale nationwide were foreclosures. At the same time 25% of the buyers were also investors. Individual investors as well as hedge fund backed corporations purchased homes on the cheap and rented them out. (I did numerous deals during that time period, which represented both groups-some with one another.) Near the end of last year the National Association of Realtors reported that investors now make up less than one fifth of buyers. Turning a profit has become more difficult and subsequently investors have become much pickier. 

Cash buyers here in Vegas have also dropped down to roughly 20% of the market, down from their peak of nearly 59% of market share! 

Generally, investors have gravitated towards single family homes and condos under $200,000. Often times this squeezed out the first time home buyer who couldn't compete with all cash transactions. With the investor pool leaning down, is this good news then for first time home buyers? Well it depends on how you look at it.

Nationwide housing is still up from last year. Similarly Las Vegas is also up 12% year-over-year when compared to 2014. At the same time mortgage rates are inching up and the Federal Reserve has said they will be raising rates soon (Although they’ve been hinting at this for years.) While this will have little effect on cash investors, it may make it more difficult for the average family to afford a home.

Some economists have argued that homes are a bargain when compared to the bubble era. I don't think that is a realistic comparison however, since prices were completely outside of anything I'd deem normal back then. I base affordability on a variety of factors, such as median household income, employment opportunities and local economic factors.

Investors obviously, are different than your everyday-garden-variety home buyer. They are in the market to make money, while you're in the market to find a place to call home. (IE, a place to live, possibly raise a family and build memories.) For the majority of people, a home is not an investment. Emotionally speaking it is an asset perhaps, but unless it is providing cash flow, it's simply a tax deductible place to live.

With investors pulling back and the median home price for Las Vegas holding steady over the year, 2015 and 2016 will hopefully provide a more level playing field for first time home buyers.

Given the change in the Las Vegas estate market we have begun to see multiple offer situations over the last year or so. When properties come on the market and are priced well they can garner quite a bit of interest. This often leads to a multiple offer scenario.

One may naturally assume that the highest offer always wins the bid. While this does ring true it most certainly is not always the case. There are many things that are appealing to a home seller in Las Vegas or Henderson, other than the price.

What do the sellers want?

The first step, if possible, is to try and get an idea of the seller’s profile. Most buyers think that a quick close is alluring, but this isn't always the case. The sellers may require additional time before close. It’s important to ask the listing agent the right questions so you can put together an offer that reflects their needs. What can you do to accommodate the other party?

Inspection contingency 

Personally I like a short inspection contingency period. I think this works well for both the buyers and sellers. If a standard contract says the buyer has 10 days from an executed contract to inspect the property, trim it down. Typically, in a competitive atmosphere, I will write a contract that has a three day inspection contingency. In other words, as soon as that contract is signed, let’s get the inspector to the home. The sooner the contingencies are met, the better.

Mortgage contingency

Shorten the mortgage contingency date. Again the quicker we meet those contingencies the happier the seller is. Also from the seller’s point of view, if the financing cannot be obtained, it’s still minimal time off the market and protects their position.

Cash is King

No mortgage contingency and no fussing with banks. Enough said.

Mo' Money! 

Increase the escrow deposit. A general rule of the thumb is that a good faith deposit should equal one percent of purchase price. Serious buyers bump that percentage up to 1.5-2% when making an aggressive offer.

Finally

Try not to take it personal and remain calm. Buying a home in Las Vegas, Henderson, or Boulder City can be an emotional process to begin with. Trying to purchase a property in a multiple bid scenario can be downright exhausting. Write up a strong offer, cut down the contingency deadlines, bump the escrow and be flexible with the closing date. Good luck!

You've signed the listing agreement with your Realtor and are ready to sell your home in Las Vegas. You've cleaned, updated, painted and staged your property. You've priced it correctly to reflect current market trends and feel confident about getting a contract. What’s left when it’s time to have potential buyers view your home? You've got to exit stage left. To put it more bluntly: Get out.

Think about it from a buyer’s perspective for a moment. Would you feel at ease to discuss a property with the owners present? Would you be more inclined to stay longer while the owner was standing around? Probably not.

In fact, whenever I've shown homes for sale in Las Vegas and Henderson with the owner present, we always ended up going through the home quickly. Worse yet are owners who follow the buyers around or feel they must give a tour of the home. Can you say awkward?

Years ago I had a very difficult client. He had a beautiful home in a desirable gated community inside an A+ school district. We had showings every week and were quite busy. Feedback is very important to me, from both the buyers and their agents. What I was finding out was that the client would not leave for showings. Not only that, but he would always find a way to crank up a dialogue between himself and the buyers. Sometimes he would follow them around. Other times he would follow them to their car. One time he even invited them back for dinner!

Right away I explained the importance of being out of the home for showings and he promised he would take his dog for a walk from that point on. In all fairness he was fantastic about the showings themselves. I could give him fairly short notice and the house would almost always be available to be viewed. For a short while he complied, often walking his dogs. But then he started a new trick, he would leave just as the buyers were arriving and then start a conversation “on the way out.”

Subsequently feedback was always along these lines:

“Lovely house, but kind of weird with the owner there.”

“Owner followed us around the home the entire time.”

“Owner told us he was FIRM on his price.”

“Owner said he really didn't have to sell the home.”

On and on it went. The client simply wouldn't leave during showings. He turned off many buyers for a variety of reasons, but mostly because it appeared (incorrectly) that he would be unwilling to negotiate. I would explain to the agents that they should simply submit an offer as a starting point, but the owner had already left an impression. No offers came in.

Buyers don’t need a tour guide. They need space to view a property and time to think about it.

I’ve never seen buyers look at closets, cabinets, windows etc with the homeowner standing over their shoulders. In this case the buyer may feel more like a guest that must remain considerate, rather than a consumer who is taking an extensive look at a product. The less distractions potential buyers have the better.

Sellers too have a lot that they are worried about. Most of them are anxious about selling their home and everything that goes along with it. Because of this, they tend to talk too much. I watched my old client put himself in a weak position (even telling them he was getting a divorce) and turn away buyers by discussing issues he had with his neighbors. He simply could not help himself and was completely unaware that he was sabotaging sale after sale. (Or maybe...he was?)

I've seen other sellers feel they must provide every intricate detail of their property as buyers walk through. If they want to know something, they will ask their Realtor for information or check the real property disclosures provided on the Las Vegas MLS. 

In the end, it’s best to get out of the home for all showings. Your presence will only hinder the sale, not help it, regardless of your intentions.

So what finally happened with that client’s home? It eventually sold, but was one of the longest listings I’d ever had. He was actually out of town golfing when the buyers came through. True to form though, he talked continuously at the closing table about his neighbors and their parties (I'd imagine he wouldn't have been as upset if he was invited- just a hunch.) At that point though, it was a little too late for him to kill the sale.

Just barely.

The Shadow Inventory that Wasn’t in Las Vegas

Not long ago there was a lot of speculation over “Shadow Inventory” that was supposedly being held back by the banks and how it would affect real estate not only in Las Vegas, but in many cities across the country. Many foreclosure “experts” predicted a second wave was out there and would eventually flood our market once again, wrecking havoc on pricing and bringing our recovery to a standstill. Estimating the actual amount of shadow inventory however, could be difficult to quantify they said. As it turns out the second hit never came and probably never will.

Then vs. Now

The first wave of foreclosures was primarily a result of property owners who took out loans for homes in Las Vegas that they could not afford. These buyers eventually defaulted at some point along the way. The majority of these scenarios have already played out as lending standards have become much stricter over the last several years.

Furthermore the distress sales we are seeing now are primarily buyers who lost a job, which represents a much smaller group than the first.

Short Sales, then vs. now

Another factor is that banks have begun to expedite the short sale process in Las Vegas and Henderson thereby avoiding foreclosure altogether. In short (no pun intended of course) a short sale is when a bank agrees to accept less than is owed on the home. A once arduous, slam-your-head-on-the-desk-daily process has been leaned down to become more efficient. In fact some banks had begun experimenting with paying their home owners in order to leave the property. One part incentive and one part “bribe," this program ensured a quick exit and a home that is left in good condition. While this may sound remarkable, some banks had even offered upwards of 30 thousand dollars for home owners to agree to a short sale and leave the property in good condition.

Undoubtedly many readers may share an incredulous gasp upon hearing something like this. And while it may not seem fair (it's not-but neither is life) it has and will continue to keep the foreclosure rate down for Las Vegas and Henderson. Ultimately this has helped shed excess inventory and stabilize our real estate market.

Realty Trac data shows that nationwide we’re seeing a similar story. Short sales are up from previous years and foreclosures are down. 

More interesting is that banks are finally getting a clue. All too often I’ve seen banks turn down (or just screw up) short sales. Subsequently the homes would go into foreclosure. After taking possession of the property they often would end up selling for an even larger discount, which made absolutely no sense to me. Apparently after years of this, they have finally figured out that working with home owners also works to their advantage (what a concept, I know.) The National Association of Realtors reports that an REO discount is roughly 20 percent, when compared to 14 percent for short sales.

(On a side note, I actually have a friend who this happened to. Strangely enough he found an older home, which was originally built by his Grandfather, as a short sale. He made an offer which was accepted by the seller. Unfortunately after months of fumbling around by the bank, the deal fell apart. My friend was crushed since he had a deep emotional attachment to this home and it meant a lot to him to purchase it.

Well wouldn't you know that a few months later it came back on the market as a bank owned home. This time however the price was 50% less than it was prior as a short sale! He ended up getting his Grandfather's home for a song.)

What’s the skinny?

Yes we have more REOs on the way, but it’s not anything to be concerned about. Notices of Sales give us a good idea of what to expect for the Las Vegas and Henderson real estate markets. However this is completely different and does not mean we should expect another foreclosure crisis is looming. A more likely scenario would be future interest rate hikes impacting housing affordability, putting downward pressure on home prices, and increasing our inventory. But excess inventory that's off the books, aka "Shadow Inventory", that is going to suddenly be unloaded onto the Las Vegas real estate market? I don’t see that happening. 

Despite all the positive growth in the Las Vegas and Henderson real estate market over the couple of years, positioning a home correctly from the start is as important as ever. In fact in today’s market, it’s more important than ever. The last thing a seller wants is to have their property sit on the market for months on end and become a stale listing.

Home owners sometimes don’t like to hear this, but aggressive positioning from the start is one of the best ways to get under contract quickly here in Las Vegas. In any market, buyers still place a heavy emphasis on value (perceived or other.) Potential buyers often look at price first and everything else second. All those amenities may be nice, but what’s the asking price again?

What do you mean by aggressive?

Before I go further, I want to point out that “Aggressive” in this case, does not mean “below market.” Not by a long shot.

While a seller may be stuck on a particular price, they also may get stuck with a property that doesn’t sell. Aside from the buyer’s psychology, it’s also important to factor in the carrying costs while a home sits on the market. Possible mortgage payments, insurance, taxes, and HOA fees are true costs when factoring the net proceeds of a Las Vegas home sale.

For those who are able, “under pricing” a property by 3-5% will not only make it more competitive, but could possibly create a bidding situation. At the very least it will take a lot less time to sell and appeal to a much larger pool of buyers in the Clark County. Let me explain what I'm talking about below.

Run the numbers

For instance when positioning a home, I generally like to look at the price per square foot of sold properties inside the last six months. Lets say comparable homes in North West Las Vegas are selling for 130 per square foot, but the average asking price is 135 per square foot, I suggest the owner list their residence at 130 per square foot. This is hard to look at in terms of raw dollars, because it appears that is much lower than competing properties. But that’s the point entirely. It’s more alluring to potential buyers because it’s perceived as a deal, but in reality you’re asking (and getting) full market price. I’ve done this for years with much success and quick results, regardless of market conditions. It was especially effective when housing started to drop a few years back. I’ve also sold all of my personal and investment properties with this method.

Obviously in our latest seller’s market, this method would have been irrelevant, since homes were often selling for more than original list price. Lately though we have begun to see sale-to-list price ratios under 100% again. Keep in mind too that the market data has shown that the median home price here in Las Vegas has stayed consistent over the last 9 months or so. Inventory may be low, but in terms of asset prices, they remain stable. 

What is sale-to-list price ratio?

A sale-to-list price ratio is exactly what it sounds like. You take the final sale price and divide that by the list price, and then express it as a percentage. So if the sold price of a home was $150,000 and the list price was $155,000, then the sale-to-list ratio would be 97%. Similarly if the sold price was $150,000 and the list price was $145,000, then the sale-to-list ratio would be 103%.

Conclusion 

Given the recent trendlines for the Las Vegas real estate market (median price holding steady, and sale-to-list ratio dipping) I believe this would be a great time to implement such a strategy. Overpricing a property will most certainly rain on your parade. 

Last week the Mortgage Bankers Association (MBA) reported that nationwide mortgage applications have fallen nearly 5%. Higher interest rates combined with increased mortgage insurance premiums and tighter lending standards have hit applications hard. Refinance requests were also down.

During the start of our housing recovery, the Federal Reserve purchased mortgage-backed securities and Treasuries (Quantitative Easing) as a means to keep interest rates low and spur growth. This worked well, but when the Fed hinted at winding this program down in this year, interest rates jumped. Despite this uptick over the last year, interest rates are actually still low by historical standards.

Refinancing loans have been the most adversely effected, with some smaller mortgage refinancing companies actually closing their doors. While the real estate market has gained strength over the last few years, it hasn't been busy enough to fill the void left by the lack of refinance applications.

Right now, the reduction in loan applications has some in the mortgage industry worried. Adding to the woes, The Federal Housing Administration (FHA) has raised the mortgage insurance premiums while simultaneously introducing stricter underwriting requirements. Once insurance premiums are added into the equation, borrowing money may become too expensive for some borrowers.

With the days of the "low-doc" and exploding ARM loans in the rear-view mirror, mortgage requirements have become tighter for both lenders and borrowers. Lenders now will require that debt does not exceed 43% of the borrower’s income. In addition, underwriters must thoroughly scrutinize bank records, tax returns, pay stubs and other paperwork prior to proceeding.

Quantitative easing has certainly boosted consumer buying power and moved markets, but the reality of low wages and unemployment persists in different areas of the country. Remember that real estate is local and is greatly varied within each community.  As QE winds down, employment data and median household income will become more important than ever, especially in how they relate to affordability.

Eco 101 says that affordability drops as money becomes more expensive. Buyers will get less house for the money and this will put downward pressure on prices. It would be easy then to conclude that interest rates have an inverse relationship with home values. As rates rise, the value goes down and vice versa.

Others have emphatically argued that this is not the case, and have provided historical data as evidence. I'd argue (also with historical data) that the price increases were a direct result of the Fed's bond buying program. Cheap money created a floor and played a pivotal role in fueling our housing recovery. Also keep in mind, that it wasn’t too long ago when we were abruptly reminded that housing values can go down. Finally, factor in the combination of stricter lending standards, higher insurance premiums, less demand and a growing inventory. 

Regardless, you should only buy a home when you're fiscally sound and it should be at a price you can afford. All other economic data should be considered as secondary to that. 

Anyway, let’s see what happens next.

-Jason

Well Prepared Homes = Sold Homes

Your Las Vegas Realtor can and will do many things to market your home: Great photos, aggressive online marketing, emailing agents in the immediate area upon listing it, virtual open houses and much more. But what can the seller do when it’s time to put their home on the market? Some of these may sound obvious, even cliché, but everyday listing agreements expire and homes do not sell for a variety of reasons. While real estate in Las Vegas and Henderson is currently in high demand, home owners must still work in tandem with their agent to expedite a sale.

First things first

This is no longer your house, but rather a product to be sold. This is a tough concept for many people to wrap their head around. Family photos create a profile for the home, in particular that it’s yours and not the buyers. This is subconscious stuff here, but it’s true. A potential buyer will be more likely to view the home as their own if you are out of the picture (pun intended.) Take ‘em down.

Clutter

This is a touchy subject. You could have the most beautiful home in Elkhorn Springs, but if we can’t see it then it’s hard to sell it! Kitchen counters and bathroom counters should be clear. Kids toys should be picked up. I understand an Imelda Marcos shoe collection (I support my wife’s endeavors what can I say?) however it must be neatly put away, leaving as much floor space as possible.

Clean

Home should be in showroom condition at all times. Don’t like cleaning? Once it’s sold you’re off cleaning duty.

Light

When I show homes one of the worst things is to walk into a dark house with clients. If you are able, allow as much natural light into the home prior to showing. Open blinds and curtains. Also turn on lights in all rooms. I cannot stress enough how much of a difference this makes. This goes for taking pictures too, dark photos of a home do more harm than good (although this is on your Las Vegas real estate agent, not you.)

Do you have a something to showcase?

Then showcase it! Years ago I had a beautiful lake home for sale. A custom built sprawling estate with stunning views of the lake behind it. One day I showed the home and realized the owner was turning off all the lights, closing all the doors and worse yet closing all the blinds! You could not see the lake from any of the rooms in the house! If you live in Lone Mountain and have and amazing view of the Las Vegas Strip, or if you are in Henderson have stunning view of the Black Mountain, then by all means make sure the buyer is able to see them when the home is shown!

Finally

Homes in Las Vegas and Henderson are desirable for many reasons and the market remains strong. However that doesn’t mean it’s a sure thing when you put the sign in the front yard. Your agent has plenty of responsibilities to get that home sold and so do you.

Not yet anyway. In fact, it's actually a liability.

Yes, you heard that right: Your home is not the biggest investment you’ll make in your life.

In fact it’s just the opposite: It’s probably the biggest liability you’ll be taking on and you had better think it through clearly before making a decision. Unless you bought your home in Las Vegas with cash, or it is providing positive cash flow as an investment, it is not an asset.

About a decade ago, before the nation’s new found fiscal responsibility had come into vogue; I realized that it was common for Americans to stretch themselves thin. An unexpected job loss, or worse yet an illness, could place a Nevada family into a foreclosure situation relatively quickly, and that was when the economy was good. While the nation slowly worked out the kinks of the economic climate, a conservative approach to a first time home purchase is highly recommended. Although to be honest it’s probably not bad advice no matter how the economy (or you and your family) is doing.

“Home equity” almost seems like a concept of the past because many Las Vegas and Henderson homeowners were underwater on their mortgages. That should not dissuade a young or first time home buyer from the idea of creating equity and eventually turning your home into a true asset.

There are two ways to do this quickly and safely:

The first step to purchasing real estate in Las Vegas is simple: Buy less home than you can afford. Yes, that larger home you looked at in Aliante was alluring, and you were willing to stretch that budget a bit, but have you taken into consideration the true cost? Higher utilities, higher taxes, more work, higher insurance, and a higher mortgage payment just for starters.

Buying less than you can afford also helps create a safety net in case of financial emergency. As a couple, you should ask yourselves if one income could cover the payments if one of you were to lose their job? How much money do you have set aside for emergencies? At least six months of living expenses?

I can tell you from firsthand experience how handy this came in 2008 and 2009 for our family. In 2008 my wife was laid off from her job. Thankfully she eventually found new employment (although with less pay.) Shortly after that however, I became ill for nearly a year and was unable to work. Let me tell you, money goes quickly when you’re living off of savings!  If we had not under bought based on our needs (and had some money stashed away) we very likely could have faced foreclosure.

The second step is to buy your Las Vegas or Henderson home with a 15 year mortgage. Fifteen year mortgages help pay down equity fast, and nothing is more exciting than seeing that balance go down. The principle portion of the payment will exceed the interest relatively quickly, and you’ll be on your way. Think about it, if you bought your first home in Centennial Hills (For instance) when you were 30, you could have it paid off by the tender age of 45. What a concept: A place to live and now you also have a true asset. Imagine how life changing that is to pay off your home! Sacrifice a little bit now, for a lot more later.

Yes I’m a contrarian, so listen up first time home buyers in Las Vegas: Buy less home than you can afford and pay it off as quickly as you can. You deserve it!

Buying Real Estate in Las Vegas Nevada: The Inspection Process

Home inspection is a vital part of the home buying process in Las Vegas and Henderson. It’s important to know that no home is perfect and to keep this in mind prior to the inspection. Something will always come up regardless of the age of home. Even new construction in Las Vegas can and will have issues. I often see the same re-occurring items that come up: improper draining, improper grading, improper wiring (lack of GFI outlets come to mind), poor ventilation etc. Anticipating small issues will help prepare you for the process.

The inspector’s primary job is to give you a broad understanding of the condition of your Las Vegas home. These results often bring parties back to the negotiating table and it is imperative for both buyers and sellers to embrace a rational approach. It’s also important in some cases to provide the full inspection report to the seller. If the buyer feels that changes to the contract are warranted, the seller may offer a price drop, provide a credit at closing, or repair the property before close of escrow. But they aren't going to do this without reviewing the inspection report first.

The buyers will want to speak to their Las Vegas estate agent about what items they would most like to see addressed, after compiling a list of their greatest concerns. I think it’s important to leave off minor things, which makes the buyers seem more reasonable and less nit-picky. Likewise the buyers will want to categorize the list they are to submit, being careful to note what is the most important to them. The seller may very well accommodate all of their requests, although that usually is not the case. In other words, ask for half a dozen items (for example) to be addressed and be happy if the seller agrees to three of them. I've found that both parties like to see one other concede on something throughout the process. Humans tend to crave fairness, regardless if it's perceived or if it's real.

If a repair is a little more complex than the sellers want to tackle, I usually suggest a buyer credit as a compromise. It’s quicker and less likely to delay closing. Sellers often like this as an alternative, as there is less money out of pocket prior to close. Again in this case I recommend adopting the strategy of asking for a bit more than you'd like. For instance, asking for a credit that is above the estimated repair, hoping for a counter offer that mirrors the true repair cost. Even if they meet you in the middle, you’ll be doing just fine and both parties can be happy.