Phoenix Area Real Estate Blog

The above Dilbert Cartoon has been amusing me constantly since I saw it over a week ago. It also seems like a great lead-in to the question, “Should you rent or sell your Phoenix home today?’ To talk about that question, I’m going to have to make up some numbers. These numbers will be SWAGS or Guesstimates, but not Zestimates. To be honest, and no offense to Zillow, I hope my guesses are better.

Last November I wrote about renting or selling your Phoenix home. Since November I’ve revised my thinking enough that’s it’s well worth touching on again. One thing that’s added to my revisionist thinking is that since the start of 2008 I’ve been taking on about 1 new client under property management each week. That’s ~25 new landlords over the last 5 months where we almost always begin our relationship with the same level setting discussion of whether to rent or sell.

To start the discussion, we first consider whether they can sell today and at least pay off the mortgage on the property, or is it currently worth less than it is mortgaged too? If you cannot pay off the mortgage, and you don’t have enough personal wealth to make up that shortfall, the only way to sell the property would be via a short sale process. This is the #1 reason landlords tell me they need to rent. They cannot afford to sell, are unwilling to ruin their credit in a short sale, and/or feel morally or ethically bound to becoming a landlord, rather than telling the bank to pay for their problem.

I have a couple of clients with equity…but only a couple. For them, the second part of the consideration for whether to sell or rent today, is how long would they be willing to hold the property as a landlord if they choose to rent today? Some tell me, “I’ll rent it for a year, and then sell it next year, when the market bounces back.” If so, I begin a direct, sobering discussion about what I believe the true timeline will actually be.

Lets dive a bit deeper into the timeline consideration

Most of the rental properties I manage are currently valued between $200k-$300k. While market conditions are improving, it’s still fairly obvious to me that home values are still declining. How much lower will they go, and when will the decline end are the two questions I am asked most often. Right now, my answer is, “At least until November 2009 and about 10% lower than today”. If your home is worth $250K today, at the bottom of the market, I predict it will be worth $225K, and that bottom will be no sooner than November, 2009. As the owner of 9 rental homes, my personal residence, and a vacation home in Arizona…that’s painful to write.

Ok, another 10% in 18 months - that’s not pleasant, but then we’ll start to see some increases, right? Sure. Historically, Phoenix housing prices rise by 6% annually. In November, 2010 your $250K home will be worth $238.5K. In November, 2011 your $250K home will be worth $253K. Over 3 years from now, it will be worth essentially the same as it is today. That’s a long time to wait, to be at the same point you are today.

But you really won’t be at the same point you are today. To rent the home, you’ll have to continue to pay your mortgage, continue to pay for my property management fees (I’m cheap, but I’m not free), continue to pay property taxes and insurance, and continue to pay for any repairs/damages to the property. For most of my clients, they are in a negative cash flow situation of at least $5,000/year…and some of my clients are far worse off.

So 3 years from now, the break even point to today isn’t really $250K, it’s really $265K. That means the true break even point from today will be 4 years from now, if the losses on the property are kept to $5,000/year.

Like I said above, I’m creating a timeline based on two fundamental guesses: There is still a 10% price decline and prices will start to go up from that decline in November of 2009.

Getting back to the question at hand

Based on this, should you rent or sell today? As Steve Berg commented on my post from November, if you have a 10 year horizon, renting now could make a lot of sense. The pace of population growth in Phoenix has slowed, but it is still growing. A growing population will always create demand, which will eventually offset the current over-supply problem, resulting in prices in Phoenix rising at a higher rate than the national average. Historically, real estate investors are some of the world’s wealthiest people. If you can afford to hold, although you didn’t get into real estate by choice, it may not be a bad thing.

Personally, I’m still bullish on the Phoenix real estate as an investment. I currently see buying opportunities I honestly wish I were better equipped to act upon. Most of the best opportunities are in the far outlying areas of Phoenix, beyond the scope of my property management business, but good deals can be found in almost every part of the city, they just aren’t as frequent.

Last week a tenant called saying he had no water in the home. The city of Scottsdale had come out and verified there was water being delivered to the home and that there were no current delivery problems. The hose bib where city service enters the home was flowing water as usual, but no other faucet, toilet, etc., had water.

This home had a water softener, so I immediately assumed there was some type of blockage in the softener. I advised him to attempt to bypass the softener, which he did. That didn’t change anything. Lack of water is an emergency situation, even more so than lack of AC, so I called up my after hours plumber (it was 6pm), and headed over myself to meet the plumber and see what the problems was.

The plumber and I arrived within 2 minutes of each other. He too suspected the water softener, and suggested the cheapest and easiest solution would be to cut out the old water softener, and close up the loop, eliminating the blockage that seemed to be coming from the softener. The next day I could discuss with the landlord whether he’d like to put in a new softener. So the plumber cut it out and left this in place of the water softener.

We then re-checked the water supply in the home, but there was still no water. UGH. I was really hoping that we hadn’t just cut out a perfectly fine water softener, for no reason. That’s when we noticed resin was coming from the improperly terminated drain line for the softener. The green tube sticking up here is the same green tube going through the hole in the wall. This was found in the rocks beside the home, just 10 feet from the water softener location. That yellow stuff is resin, a somewhat sand-like substance that’s actually a synthetic. It’s not supposed to ever get out of the softener, as it’s used to attract the impurities a softener is designed to eliminate from the water. Apparently this particular softener had failed catastrophically.

Once the plumber saw the resin in the drain line, he knew it would also be in the pipes throughout the home. A quick inspection of some of the faucets in the house found this resin gumming up the faucets, preventing the flow of water. Considering the scope of the problem, my mind started racing, as I considered just how long the tenant might be without water.

Then the plumber had a very good, money saving idea. He suggested turning on the water at the far back hose spigot for the home. So we did. Initially, it didn’t seem like anything was coming out. But after a couple of minutes, a drip was developing, and we could clearly see resin was accumulating under the spigot. After 5 minutes, I snapped this photo. That was at about 8pm.

We watched this steady stream of resin come out of the hose bib for a good 15 minutes, when it finally “cleared” and water began flowing normally. At least one gallon of resin was sitting on the ground under this hose bib when it finally cleared. Putting my hand in the water, there was still a bunch of resin in the water, but we knew that the line would eventually flow clear and normal.

At this point, the plumber left, as this was too large a job to complete this late at night. I contacted my normal handyman, who came out the next morning and finished the job (at a 50% discount to what my emergency plumber quoted me). The fix was primarily a matter of going to each faucet/water supply and opening them up and letting them slowly clear. Bathtubs were the easiest to fix, toilets were the most difficult. All of the toilet floats needed to be replaced, and a couple of other fixtures were also replaced.

In the end, it took my handyman 10 hrs to get the whole house cleared of the resin from the failed water softener. Fortunately, the tenant was without water for less than 24 hrs, and was extremely supportive considering the impact.

As we were assessing the situation, the plumber told me that he had seen 40-50 of these failed water softeners. He added, that the ones that seem to fail are the “inexpensive” $400-$500 softeners. The softeners his company sells cost ~$1400, but come with a lifetime warranty against this problem. Should it ever fail in this way, they would stand behind any downstream impacts.

The softener that failed was a Kenmore brand. The landlord contacted Kenmore and they told him the failure was rare. They didn’t offer to pick any of the expenses he incurred from this rare failure, however.  My advice from now on, to anyone considering the purchase of a water softener, is to investigate the warranty of the softener.  Saving a few hundred dollars today, could cost you much, much more in the future.  This particular Kenmore unit was just over 5 years old.

There are currently 38,298 single family homes for sale, down by 134 from last week. There are 5339 sales currently pending, up by 46 from last week. And 4051 homes closed escrow in the last 30 days, up by 206 from last week. Broader Maricopa County is now below 9.5 months of inventory, based on this week’s numbers. The following are the 10 city-by-city breakdowns I am following:

*All data comes via ARMLS, and is presumed to be reliable, but is not guaranteed. All numbers represent single family detached homes only. Condos, townhouses, timeshares, vacant land lots, and manufactured homes are not represented in these numbers. All sold properties were sold in the last 30 days.

All trend indicators are relative to the previous week’s update:

Positive move upward Positive move downward

Negative move downward Negative move upward

.

This week’s update occurs on Mother’s Day.  We certainly hope every mom had a great Mother’s Day.  Judging by the numbers, there are probably a few happy moms in Maricopa County right now, as all of the numbers show the current trend toward a generally positive direction. 

There are 38,432 single family homes for sale, down by 87 from last week. There are 5293 sales currently pending, up by 269 from last week. And 3845 homes closed escrow in the last 30 days, up by 191 from last week.  Broader Maricopa County has almost exactly 10 months of inventory, based on this weeks numbers. The following are the 10 city-by-city breakdowns I am following:

*All data comes via ARMLS, and is presumed to be reliable, but is not guaranteed. All numbers represent single family detached homes only. Condos, townhouses, timeshares, vacant land lots, and manufactured homes are not represented in these numbers. All sold properties were sold in the last 30 days.

All trend indicators are relative to the previous week’s update:

Positive move upward Positive move downward

Negative move downward Negative move upward

.

In Maricopa County, there are 38,519  single family homes for sale, down by 780 from last week.  There are 5024 sales currently pending, down by 170 from last week.  And 3654 homes closed escrow in the last 30 days, up by 66 from last week. The following are the 10 city-by-city breakdowns I am following.

Editor’s Note:  Clearly something is wrong with the numbers for Mesa and Chandler from last week.  My best guess is that last week’s number for those 2 cities included all housing types, not just single family homes.

*All data comes via ARMLS, and is presumed to be reliable, but is not guaranteed. All numbers represent single family detached homes only. Condos, townhouses, timeshares, vacant land lots, and manufactured homes are not represented in these numbers. All sold properties were sold in the last 30 days.

All trend indicators are relative to the previous week’s update:

  Positive move upward

  Positive move downward

  Negative move downward

   Negative move upward

.

That’s right, I’m going straight to the point.  This is real estate transparency at it’s clearest.  I want to win an iPhone, and I need your help to do it.  In January I wrote that I needed a smart phone, and I’ve held off the purchase for various unknown reasons, so the need still exists.  Today, the reason revealed itself (the universe works in mysterious ways).

Here’s all you need to do to help me win.  Click on the new Property Qube link there below my ugly mug on the left sidebar.  If you are reading this in a feed reader, here’s the button and link I’m referring to:

After you click that, I’m asking you to join Property Qube and connect to my network.  It’s free.  It won’t hurt.  No one is going to come and bother you in the future.  The person (agent or otherwise) that can get the most connections in the month of May will win an iPhone.  I want to be that person.

Ok, you may be thinking to yourself, I like Steve a bit, but what good is this Property Qube thing anyway?  Why bother joining?

Here’s what Property Qube is:  It’s a social networking website that’s seeking to help buyers and sellers connect with each other and real estate agents in mutually beneficial ways.  Naturally, that means you can find listings of homes for sale or for rent on Property Qube.  They’ve also got a pretty cool Q&A section where you can ask a question and get an answer.  Plus they have social groups.  Create a group of indy coffee drinkers from Amarillo, Texas and invite your friends to hang out on Property Qube and chat real estate (or coffee) if you like.  Wanna create a blog about your home buyer, selling, or remodeling experience and have it seen by like-minded people?  Property Qube would be good spot.  If you already have a blog that’s real estate related, you can have your posts syndicated (in a Google friendly way) to Property Qube to garner extra visibility.

Having been at Property Qube since near its inception, what I like about Property Qube is the environment is pretty relaxed.  Unlike similar sites, the agents helping folks on Property Qube are doing so to help first.  There isn’t a competition based system that encourages agents to answer each and every question asked.  This leads to fewer answers, admittedly, but from what I’ve seen, it also leads to better answers.  For agents looking for a more relaxed environment to offer their services within, Property Qube is a place worth considering.  Likewise, for non-agents looking for a place to discuss real estate in an non-competitive environment, Property Qube is well worth considering.

Have I convinced you it’s worth a try?  I sure hope so.  If I have, click on the link and join my network.  I can’t promise to make you rich or save you millions, but I will promise to graciously thank each and every person that joins my network for helping me win.

It wasn’t very long ago, when the best way to find a tenant for a rental home was to place a sign in the yard, and an ad in the newspaper. It wasn’t a great way to find a tenant, it was simply the best way. Using MLS has always been marginally effective, primarily because the compensation offered via co-brokerage makes it barely worth the cost of gas to the agent to tour around 5 or 10 rental homes. That’s a sad statement, but if the financials aren’t driving your business, what does?

A few years ago, craigslist burst onto the scene. I remember the first time I heard about craigslist. I had just sold a client a new home in North Phoenix, and she was hoping to find a roommate. She mentioned craigslist to me as something that folks in California were using.

Fast forward to today and my own marketing plan for managing homes for rent. Without a doubt, craigslist is the #1 most effective tool for me in finding a tenant to rent a home. My statistics in that regard tell me that 60% of all inquiries about a home for rent come from someone seeing my ads on craigslist, but over 90% of all tenants I have placed, were the direct result of craigslist. Let me repeat that: 90% of all tenants I have placed, found out about the home on craigslist.

Other than craigslist, I have co-broked a rental listing via MLS 1 time. That could have been avoided, but the terms of the co-broked tenant were too good to pass up. I have rented a home via the sign in the yard a couple of times. Every other time, the source of the successful lead was from craigslist.

Why does craigslist work?

I believe it works, because that’s where the majority of the inventory for rental homes in the greater Phoenix area is located. If you are looking for a rental home, you’ll find a very high percentage of all of the rental inventory in craigslist. People searching for a home for rent are going to search at the one place where they think they can find most, if not all, of the inventory. And inventory is king. Like content for a web site, inventory is paramount to a home listing source. The majority of the rental searching public has learned they can find homes on craigslist, so they search there.

To enhance my rental listings from the majority on craigslist, I use PostLets.com to create a virtual flyer, which I use as the ad on craigslist. That virtual flyer gets syndicated to other listing sites, like Google Base, HotPads, Trulia, etc., but I rarely get a response from those sites. On the rare occasions I do get a response, the home was rented long ago. The virtual flyer I make looks something like this when seen on craigslist:

While the typical “good” craigslist ad looks like this:

Which ad catches your eye better? Which do you think will get better results? There are a few people that will be put off by the commercialism of my ads, but overall, my response rate is too compelling for me to consider changing.

WordPress Statistics

The other thing I do in my craigslist ads, to gauge their effectiveness, is provide a link to my blog similar to:

Each time someone clicks I learn two things. 1) the person was interested enough by the craigslist ad, they wanted more info. 2) today, we had XYZ interested people.

Thanks to WordPress stats, I know exactly how many people click through to the blog:

If I’m not getting click throughs, the likely answer is the home is priced too high for the area, and thus there isn’t much interest in the home. Rental prices are extremely narrow in the precision with which we need to price them. It can be the case that being too high by $25/month can cause a rental listing to languish.

Craigslist just plain works in Phoenix. It may not work in every part of the US, but at least here, it’s hyper effective. I won’t go so far as to stop using a sign or stop using MLS, but for the foreseeable future, I’ll continue to use craigslist with each and every rental listing.

Starting today, Sunday, April 27, 2008 I will be doing a Maricopa County market update each Sunday for the indefinite future.  I will be doing these updates for the 10 cities in Maricopa County that I do the vast majority of my business.  (You’ll notice a predominantly NE Phoenix area focus).  For this first week, I’m not going to provide any historical information, but in subsequent weeks, I’ll provide historical trending indicators.

A few disclaimers to get things rolling, of course.  All data comes via ARMLS, and is presumed to be reliable, but is not guaranteed.  All numbers represent only single family detached homes.  Condos, townhouses, timeshares, vacant land lots, and manufactured homes are not represented in these numbers.

In Maricopa County, there are 39,299 single family homes for sale, 5194 sales are currently pending, and 3588 homes close escrow in the last 30 days.

The following are the city-by-city breakdowns:

.

One promise I make my clients who list their home for sale with me, is that I will gather feedback and share it with them.  As a recipient of all types of feedback requests, I know what I like, and what I don’t like.  For example, I’ve yet to meet an email feedback request that I like.  I could go on and on about all of the misuses of email, but feedback, honestly, has to be near the top of that list for me.  They always seem to ask the wrong questions, and are so impersonal, I can’t see how they provide legitimate value the majority of the time.  Instead, I prefer to have a discussion over the phone, rather than a one way dialogue in email or on a web form.

That was the best feedback I’ve received in years.

That’s what Jaime Honigman in my office told me after she finished getting feedback from me on a showing for one of her listings in Desert Ridge on Friday.  Admittedly, providing feedback to an agent in your own office, versus a faceless agent you’ve never met in person, is likely to result in a better exchange of information.  However, I doubt I would respond differently to anyone else, as long as the discussion doesn’t move in a direction that detracts from my fiduciary obligations to my client.

For this particular showing, my clients spent nearly an hour in the home.  They were interested, they knew the area, they had a number of questions, and they provided me with feedback that I could pass along.  Sometimes I get a nugget or two to pass along, while other times all I really get is, “we didn’t like it.”

During any feedback request, price will invariably be a topic.  The typical question is, “What do you think of the price?”  The typical answer is, “My client’s think it is too high.”  As a buyer’s agent, if you answer anything other than that, you are probably not serving your client’s best interest.  Knowing this, I don’t like the typical question.

Instead, I beat Jaime to the question and asked, “How did you establish your list price?”  I believe this is a far better angle to approach the subject.  Jaime highlighted comparable properties, and how the seller’s decision to price the home was based on those specific comparables.  What a perfect answer.

Property condition should always be a discussion topic when asking for feedback, so we discussed the upgrades in the home versus other homes in the area, which are this home’s #1 selling point.  We also discussed the carpet.  This particular home has dirty carpet.  When a buyer sees dirty carpet they will naturally assume an attempt to clean the carpet has failed, and that it won’t come clean and thus needs to be replaced.  If a seller hasn’t attempted to clean their carpet before the home is listed, they are making a mistake that could cost them thousands instead of hundreds.

Another topic that should be discussed when gathering feedback surrounds convenience.  Showings need to be as convenient as possible, so if any aspect of getting into the home wasn’t convenient, we want to know about it.  Was the lockbox difficult to find?  Was the door difficult to open?  Were the pets in the property trouble-some?  What can be done to make future showings more convenient, if this one wasn’t.

And finally, I always seek to answer any questions the buyer’s may have that aren’t answered in the listing or aren’t obvious when viewing the property.  In this case, the HOA fee wasn’t noted in the listing and was something my clients asked about. I know Desert Ridge has an inexpensive HOA, but I couldn’t remember the exact fee off the top of my head.

Earth day was a few days back. It came and went with little fanfare at my household. That was unfortunate. It came and went with absolutely no fanfare here on the blog. That was a mistake.

Acknowledging this error, I’ll simply draw your attention to a few of the greener posts from the past:

APS encourages Phoenix home owners to go greener

Ladies and Gentleman start your showers

Perfect REALTOR’s car? Lexus LS 600h L

Looking ahead, I’ll be researching solar energy for residential homes, and the rebates that SRP and APS are offering. I’ve been on the lookout for anyone that is going through the process of installing a solar electric system, so that I could monitor the process. Unfortunately, such a situation hasn’t fallen in my lap yet. Therefore, I’m making a call to any readers, if you are considering a solar electric system, or have already installed a solar electric system, I’d love to chat!