The highs and lows of parenting and real estate.

Desert Ridge Listing – The Story of a Shortsale

I have a new listing going live today, but you’re so sweet and nice for coming here to read my blog, that I wanted to tell you about it first. It’s in Tatum Highlands, which is just North of the Desert Ridge area in Phoenix.

3 bedrooms and a loft
2.5 baths
2 car garage
2368 square feet
Pebbletech pool
Granite in the kitchen

It’s a great house and she has it decorated so sweetly. It’s really like a model. I wanted to say to her, “Darling, you’re making my job too easy, really. Don’t you want to pour some red wine on the carpet and move a pool table into the dining room up against a wall so that it’s both pointless and makes the room look ridiculously small? Or affix religious or political stickers to the back glass sliding door that can’t even be removed with acid?”

That said; it does have its flaws, as any property does. And I believe in being honest about what’s going on with a house because a potential buyer is going to see everything once they walk in the door anyway, so I really want a buyer who comes to the door wanting what we have to offer. So, the main issues with the house in my opinion are:

1. It’s a big house for only 3 bedrooms. Plus it’s a two-story, which makes it unattractive to retirees, who might want only 3 bedrooms. But, the good thing is the loft has a huge walk-in closet (as do all of the other bedrooms). So it really just needs a little drywall and a door to make it into a fourth bedroom.

2. There’s carpet in the master bath. Huge pet-peeve there for me. But it’s a minimal cost to tile the bath.

3. It’s a shortsale. Which, in this market isn’t uncommon, and it’s a Bank of America, Equator file, so it should go quick.

Otherwise, the house is neutrally painted, has spotless carpet, granite in the kitchen and huge closets in every room. It’s a fabulous house with a gated pebbletech pool and a nice grassy yard. It should make some family very happy.

In light of my rant about my past clients who ended up in short sale or foreclosure, however, I want to tell a little background story on this house and these sellers. I feel like people who just read the news about the foreclosures and haven’t been through it themselves have a misconception that it’s mostly people who couldn’t really afford the houses they bought anyway or who were destitute by the time they lost the house. In my experience most of these people aren’t like that.

The couple who owns this house (don’t worry, I got their permission to tell the three people who read my blog this. Or I will get their permission. At this moment I haven’t written it yet, so I don’t have their permission yet. But I’ll ask first, swear. By the time you’re reading this I’ll have permission, is what I’m saying.) was also my client three years ago when they purchased the property. They were a friend of a dear friend of mine who recommended me to them. I took them out to look at houses once or twice just so they could get a better idea of the area, before the husband accepted a job in civil engineering out in Scottsdale. They were moving here from Detroit and the abysmal employment situation there. It was a positive change for them at the time. They were sad to move away from family, but ready to have stable jobs and a new adventure out here. Of course, when they were actually ready to pull the trigger on a purchase I was 8.99 months pregnant with my youngest, so I dragged my contracting, bloated belly out to Scottsdale to meet them and do a warm hand-off (while trying not to give birth on the table between us) to my partner-in-crime and fellow Elizabeth to complete the transaction. While I delivered the Tiny Tornado, Lizzie showed them property and managed to find them their dream house, for $380,000. They put down a hefty 20% (almost $80K) and closed in 30 days or so.

Fast forward three years to present day. I got a call from them a couple of weeks ago to discuss selling the house. The wife had been laid off from her job (in the construction industry) and the husband’s civil engineering job was drying up as well. His firm had notified him they would be transferring him to Orange County, California. Because this sounded less than attractive to them (higher cost of living, even farther away from family), the husband had applied for another job in Ohio, and he got it! They were planning a move back East, closer to the family they missed and to a job with government security, benefits and a raise for him. It will be a happy move for them.

When we sat down to discuss the house, however, the numbers didn’t add up to a smooth exit. In my professional opinion, they would need about $40K in cash to cover the deficit between what they could sell it for and what they owed, and then another $16Kish in real estate commissions and closing costs, just to walk away (without even considering the $80K they put down and which will, in any option, be lost). And of course they don’t have $56,000 sitting around totally liquid. Who does these days? You there, raising your hand in the back, please email me your address so I can come visit you tomorrow night and bring you a cookie. In my black ski mask and silent shoes. All real estate agents can pick locks; it’s a fact. Didn’t you know?

After ruling out the concept of paying to sell their house, we discussed the idea of renting the house out until it could be sold for enough to cover the debt and sale. This seemed like a viable option until we really put pen to paper about the numbers. Basically, they couldn’t rent it for what they owe monthly on the mortgage. They would have to pitch in $300-400 per month to cover the mortgage, taxes and HOA fees. In addition, there would likely be thousands of dollars over the years in upkeep (even though renters are totally known for being really fastidious in areas of pool maintenance and carpet cleanliness. And I caught a leprechaun yesterday and he took me to his pot of gold). Plus, the market hasn’t even normalized yet, and even when it does, ‘normal’ equity gains are 3-5% per year. So let’s pretend the market normalizes in two years and we start to regularly gain 4% in equity yearly. 4% of $250K is $10K. Thus, it’s going to take, at best, another 5-6 years after that to regain the equity necessary to sell the house and break even. The smart bet is on 10 years, though. Thus, if they have renters in the house ALL OF THE TIME (which is unheard of in the world of investment properties) for the next 10 years and they pay $300 per month in addition to the rent to cover the mortgage plus taxes plus HOA fees, that’s $36,000 out of pocket just to sell it to break even. Plus $5,000 or so in upkeep. It’s almost as unattractive as finding the cash to sell it outright. Not to mention the fact that this is a best case scenario. Worst case looks more like: they can’t find renters, it sits empty for long enough they’ve drained their reserve funds paying the mortgage and their rent in Ohio, a water pipe bursts and they don’t know about it quickly because they’re in Ohio and the bottom story floods and molds, and they have to let the house go to foreclosure (and probably they get pink eye. Because pink eye always goes along with worst case scenarios).

This couple weighed their options and considered the consequences of a short sale. They would take a moderate to considerable credit hit and wouldn’t be able to buy a house for at least two (possibly closer to four) years. But no anchor of ‘the Arizona house’ around their necks (and waking them up with nightmares) for the next 10 years. They decided a short sale made the most sense. They will be listing their house and taking an offer to the lein-holder as a request to renegotiate their contract. I’m told this happens in the corporate world all of the time.

These people, in my experience, are much more commonly the people who are short-selling properties. They are normal, responsible families. Life has thrown them some unpredictable twists and short-sale (or sometimes foreclosure) makes the most sense.

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