On Friday, I learned of a new land financing product that is now available in Tucson. Mutual of Omaha Bank, yes the same company that we think of for insurance, is offering a lot/land loan with 20% down, 20 year amortization and a 2 year balloon payment. There is some flexibility as it can be structured as either an interest only loan or with conventional principle and interest payments. According to Jim Roberts, the Mortgage Banker in charge, the current interest rate is 4.5%. This loan is not available to Investors buying land for speculation, instead, has been designed for borrowers interested in building a custom home within 2 years. Thus, the loan will be paid off by taking out a new construction loan. The construction loan can come from any lender, not just Mutual of Omaha.

This is a MAJOR development in what currently is a pretty bleak market for Tucson land loans. The only other products available are Washington Federal’s 20 year fully amortizing loan with 30% down at 8.75% and National Bank of Arizona’s 15 year amortization, 5 year balloon, with 30% down at 7.50% (please call the lenders to verify the current rates and terms).

Its been several years since we’ve had a lot loan with a rate comparable to a residential mortgage, and although this is not available to Investors and has a short payback term, it is a sign that at least one lender is expecting growth in Tucson’s custom home development market. I certainly hope other lenders will follow.

The land sales that are taking place today, and there are quite a few, are those that are aggressively and realistically priced. Some seller’s believe that their property has fallen 20% in value since 2005 or 2006 but in reality that number is closer to 50 or 60% and sometimes more. And unfortunately, that is true for pretty much the entire Tucson Land Market. When a market is trending downward, you not only have to price aggressively but have to price WELL BELOW current value to induce buyers to act now rather than wait for further, expected reductions. You have to leap frog below current value. Every day in the MLS system there are between 3 and 10 price reductions on land and virtually no price increases. Seller’s are trying to find the price point that will create a sale.

For example, in the MLS today, a 4 acre, custom parcel with all utilities on the southwest side that was bought for $150,000 in 2005 was reduced to $65,000. It was priced at $95,000 with no activity but now I think it will sell. Also, a gated 4 1/4 acre parcel at Butterfly Mountain (a high end Tortolita Mtn. Subdivision) which was purchased for $299,000 in 2005 was reduced to $129,000. That’s an aggressive, and what I believe, an appropriate price to create a sale in short order. I also noticed that a 1 acre lot in Coyote Ridge, an Oro Valley subdivision, that was bought for $340,000 in 2005, sold for $146,000.

Seller’s must look at the facts and Realtor’s must know how to find and present them.

I’m intrigued by the recent story of Steven Slater, the Jet Blue flight attendant who lost control when he was treated rudely and crudely by a passenger and slid down the plane’s emergency slide after cussing the passenger out over the plane’s P.A. system. Although he is potentially being prosecuted for his actions (which we know will never go to trial) he has garnered sympathy and support from over 100,000 (and growing) Facebook fans who in this frustratingly long and deep economic recession would love to voice their job frustrations, but fear recrimination and job loss as the result.

I’m surprised we haven’t seen this story before, with a Realtor being the culprit and losing it. After all, since 2006, how many times have we opened an escrow only to have our Buyer want to renegotiate the terms or price due to the declining market and then back out of the deal? How many “discussions” have we had with our Sellers about lowering asking prices yet still can offer little hope to them of selling their property? How many lenders have we seen exit the market making financing difficult or near impossible for anyone other than the most stellar? How many “commission conversations” have we had with our Seller’s being concerned, understandably, about their shrinking bottom line? How much more time is everyone spending and making how much less income? How many times have you heard agents say “this isn’t fun anymore”? How many of our friends and colleagues are no longer in our offices or even the industry? Well anyone in the business could go on and on with this list.

I can think of some pretty mischievous ways to go “Slater” but it probably wouldn’t change anything. I guess I’ll just have to enjoy the fantasies.

According to Realty Trac Inc.( probably the most well known company that monitors the U.S. foreclosure market), more than 1 million American families may lose their homes to foreclosure by the end of the year 2010. They also mention a “huge backlog” of looming foreclosures that Bank’s are working their way through. These are what are called “shadow foreclosures” . I’ve not seen recent statistics as to the number of these or when they are projected to come out of the “shadows” and become actual foreclosures. The startling thing about this number is that ,according to Realty Trac, nationally, lenders have been foreclosing on approximately 100,000 homes per year. Ten times the most recent average year is a huge increase. The States with the largest number of these are no surprise: Nevada, Arizona, Florida, California and Utah.

For Tucson this means that we will continue to see a large proportion of all sales be REO assets. In my personal Land Business, REO’s account for about 75% of my 2010 sales.To best serve our clients we should also monitor the problem assets that potentially could become foreclosures as they represent excellent opportunities for investors and end users. Short sale staff at many Banks have recently become noticably more aggressive in selling properties before they become foreclosures. Buyers need to position themselves to be able to quickly take advantage of any properties that meet their criteria. Do this by prequalifying for financing, increase the availability of cash and seek out an agent that is attuned to this segment of the market.

While sitting on a Professional Standards Arbitration Hearing last week, some of my colleagues mentioned that some Phoenix area Realtors recently got in trouble from participating in a practice called ” Flopping” while selling short sale properties. Not hearing this term before, I was surprised , a couple of days later, to see a reference to a Bloomberg Businessweek Article describing the prosecution of 2 Realtors in Connecticut for short sale fraud for this same practice. Flopping, as it turns out, is the fraudulent practice of persuading lenders to approve the sale of property substantially below the balance owed without disclosing the fact that there are buyers waiting in the wings willing to pay more for the same assets. A closing takes place and the property is immediately flipped to the new buyer at a hefty profit. There is an important distinction to be made as there is nothing illegal about buying an asset from a lender , putting it back on the market and eventually reselling it at a profit. Many Investors are taking advantage of this market in that way. I believe its also an important part of quickening the recovery as we must sell these distressed assets before we can return to a more normal real estate market. The illegal act comes however by the concealment to the lender of a subsequent buyer at a higher price being lined up ahead of time. Obviously, a buyer , with the help of a Realtor, trying to convince a lender of a particular value, while knowing that value is lower than a true market value based on a waiting purchaser is unethical, illegal and should be prosecuted.

I certainly hope not but it seems recently that the mood of people that I interact with is taking a slightly downward, more negative turn. I’ve recently heard about continued job strife, stock market uncertainty, more pending “shadow” and actual foreclosures( shadow foreclosures are assets that Bank’s are taking back but don’t yet want to put back on the market for fear of overwhelming the market) , real estate values continue to slip and people still have little confidence to begin increasing their personal spending habits. On the other side there are a couple of brighter spots such as “move-up” builders actively buying more finished lots to construct homes in the $250,000 – $ 400,000 range and seeing strong activity in the sale of foreclosed lots and homes by both investors and end users. Its confusing as the signs seem to be mixed right now.

As intrinsically an optimist, most salespeople are, I’m holding out hope that things will slowly start to change toward the positive. What a great time for some good news from our Government; either locally or National. Come on elected officials; pose some solutions, find some answers. As we say in real estate circles; we’re ready , willing and able.

Lo and behold, in the past couple of weeks I’ve received calls from local, Semi- Custom Home Builders who are actively looking for groups of finished lots on which to start construction. Although we’re not yet talking about higher end, custom home builders; the builder’s who are ramping up are serving the move up buyer. Specifically, they’re looking for land to support 1800-3000 sq. ft. homes with beginning prices in the high $200’s that will reach into the upper $400’s with added upgrades and lot premiums. To reach an acceptable profit margin, they will pay from $60,000 – 80,000 per lot. Additionally, they are expecting to purchase the lots on a rolling option basis. This is a structure that allows a builder to purchase a large group of lots at a predetermined price but actually close on them in a gradual way over an extended period of time.Thus allowing the Builder to purchase lots from the proceeds of sales and limiting the amount of money they have to borrow. As example, I’m working on a deal where a builder will contract for 20 lots with the first of those to close this August. They’ll immediately build a model home on it and begin their marketing program. They’ll then be required to , at minimum, buy another lot in February of 2011 and every 60 days thereafter. A structure that becomes a win- win for all parties; Builder, Developer and underlying Lender.

It’s a very positive sign that the lower to middle end of the new home market is becoming active again. If interest rates stay at or near the current record lows, I think it will only be a matter of time until we’ll see this trend continue and move into the higher end , custom home segment as well.

In the past couple of weeks I’ve experienced three, seemingly unrelated events that may actually be related. I’m not yet sure what , if anything these may signal but perhaps time will tell. The first was my reading a couple of articles indicating that Federal Regulators are getting tougher on Banks and scrutinizing more closely their assets, securities, practices, loans, etc. Secondly, I was working on two transactions whereby M&I Bank was negotiating discounts on non-performing ,land secured, loans to induce the sale of these assets to individual buyers. Abruptly, the negotiations were put on hold because, we were told , the FDIC was at their offices for an extended period of time and they would be focusing on internal issues for perhaps the next 45-90 days. Finally, I’ve noticed a distinct change in attitude about selling REO Assets from one of my client Banks. They have recently become more motivated, and thus aggressive, about pricing and selling their vacant land properties. A year ago they took the position that they were satisfied, if need be, to ride out the market and wait until their Tucson Land regained a good deal of it’s value before selling it. That seems not to be the case anymore.

Are banks pushing harder to get back to normalcy by moving out REO’S?  Are the Feds more concerned than we know about the amount of bad loans out there?  Do we have a lot more or a lot fewer land foreclosures than last year,  still in the pipeline? The answers to these and so many other related questions are not clear to me. But it sure is an interesting time in Real Estate.

I was asked some interesting questions by a Senior  Officer of a local Bank the other day. She wanted to know how many finished, custom lots we have throughout Metropolitan Tucson, priced at $200,000 and above. It turns out that there are currently 695 available lots in this category. I then was asked how many have sold in the last year and how many new custom homes are being built on these. Well, the first question was easy to research; a total of 56 lots above $200,000  market-wide have sold in the last year. Interestingly, they ranged in price from $200,000 to $1,350,000 but had an average price of only in the high $200’s.Clearly, the great majority of “high end” lots are selling under $300,000 with a large cluster just above $200,000.  In looking at new construction stats for the past 12 months; 134 homes have sold with the great majority of these being production homes on small lots. In breaking these down, only 9 of the 134 were built on lots located in custom home subdivisions; under 7% of the total.

So, there is a several year supply of custom lots out there; you better be priced between $200,000 and $300,000 to have a chance to sell, and the Builders and Architects specializing in custom homes still have plenty of time on their hands.

In the past year or two I’ve been repeatedly asked how Foothills Lots values have faired in  comparison with those in other areas. It also raises the question of where the values are now in relation to the highs of 2006/2007. Several trends have been clear during this downturn: There has been continued demand and sales of the lower priced Foothills lots and Land (the Best values in the Best areas are always ahead of the norm);  Foothills homesites have not experienced as severe a drop in value as some other areas; there have been very few foreclosures among foothill’s subdivided parcels thus we haven’t seen whole subdivisions being dragged down as we’ve seen in areas such as Stone Canyon , Saguaro Ranch; there is at least one subdivision, Pima Canyon, that has bucked the trend and remained relatively strong thru the downturn.

I had a conversation yesterday  with  the  Assessor’s Appraiser responsible for the Foothills area. After going through numerous examples, of  vacant parcels that sold in 2006/2007 and resold in 2009/2010, a trend became clear. The staff member concluded that lot prices were off about 25% from the market highs of a couple of years ago. I think that number may be a bit conservative, but not far off.

The values of the highest end lots( those above $1 Million) have probably dropped 30+% but in general I concur with the Assessor on this. In other areas I ‘ve seen that number as high as 50 % and even 70% in some extreme examples. I’ve always thought that the most desirable locations tend to hold value more than lesser areas and I think the Foothills Lots example supports this notion.

I’m selling a foreclosed 3.3 acre parcel in a gated community to an Investor who is planning to quickly put the lot back on the market at a significantly higher price to achieve a strong yield in a short period of time. He was concerned that his sale will establish a new comp for the area and thus drag the market down to his price in the neighborhood preventing him from reaching his investment objective. That’s a great point to consider. This is a community where lots were selling from $375,000 – $450,000 when sales stopped a couple of years ago. There are 3 or 4 lots currently available for $295,000 – $395,000 but no signs of recent activity. At the price he is purchasing his lot, he will be able to market it at $230,000 and achieve his investment goal. In a community with few if any foreclosed properties, an individual distressed sale will not have the impact on comps that one might fear. Furthermore, bringing 1 lot on the market at a significantly lower price than the others will provide a huge advantage to that lot. Especially when it’s at a price point that is showing a strong increase of interest marketwide, ie. custom lots under $250,000. In a community that is filled with foreclosures and distressed sales, his point is a valid one. In that community you must buy a really good lot at a distressed price, not just any lot to protect your future investment.

I’ve seen a huge upsurge of activity lately in end users and investors picking up tucson foreclosed lots. We must sell off this inventory before we can see a recovery of more normal sales  take place. The quicker these sales happen, the sooner recovery comes. I’m feeling fairly optimistic that the system is working and we’re moving in the right direction.

In the past 3 or 4 weeks I’ve been hearing many Realtor’s talk about how busy they have become. This is mostly agents who represent Buyers and Sellers of Single Family Homes. And I’ve been hearing it about the lower end market (below $300,000) as well as the upper end (above $800,000).  Part of this probably can be traced to the soon to end  Homeowner’s  Tax Credit Program and the inching up of interest rates but it may go beyond that. In my own business, I too have been busy representing many Investor/Buyers who have been taking advantage of the many land foreclosures currently available . However, I’ve noticed something else. I’ve spoken to 2 Builder’s in the last couple of weeks who have contracted to begin new Custom Home Projects for clients. These are the first new custom home starts I’ve heard about in quite awhile. Matter of fact many of my Custom Builder friends have taken different positions, some real estate related and some not, to pay bills during this downturn.  On top of that, this past week, I was contacted by another Builder with a request for a lot in the Foothills in a particular elementary school district to build a home for a client he had. We found a lot and are currently negotiating a contract on it; at a price I would characterize as “retail”.  The clients had recently put their current home on the market, it had sold quickly and wanted to begin a new home project immediately. Additionally, a small new Subdivision of finished lots came on the market this week. I haven’t seen any new finished lot inventory for perhaps 3 years.

My sense is that this increased activity may be the very beginning of a real estate turnaround. Believe me, I’m not yet jumping for joy and I fully expect the balance of 2010 to be a shaky, fits and starts type of market. But something positive is happening in Tucson. Let’s see if it continues.

I just completed a transaction where I represented a Buyer who wanted to  purchase a Bank Foreclosed lot in the Wildcat Pass Subdivision at Starr Pass Resort. The listing agent, an excellent , experienced agent, had done her homework and upon my first inquiry, provided my Buyer with all the Subdivision Documents, and explained how the Bank’s Asset Manager responded and handled  all offers. We knew what to expect from the onset. The agent explained that when she received offers or counter offers, she would enter them into the Bank’s computer system and generally if she did that in the morning , she would get a response back that same day; sometimes even a matter of only an hour or two.  It was clear that the Bank made quick responses and  my Buyer and I agreed that we needed to establish a quick response, phone relationship while the negotiations were taking place in case there were competing offers.

We wrote our first offer and within a day got a response back. We were still quite a distance apart and considering our counter offer  when I found out that another offer was received by the listing agent. We went into high gear and over the next day  went back and forth with the Bank three times by having immediate availability to talk to my client and quickly email responses. I could see we were and remained a step or 2 ahead of the other offer and eventually got the property because of that.

My client was highly motivated and thus made himself available to me on a moment’s notice. In this case, it proved to be the reason he successfully got a great lot at a price well below the current market.

This week I was contacted by a Lender I had done quite a bit of business with several years ago who told me about a new Lot Loan Program she now has available. Of course that got my attention as currently there is only 1 Lender in Tucson providing what I consider a viable Lot Loan. And that loan has a 20 year amortization which pushes the monthly payment much higher than many of my clients would like. So I was anxiously awaiting the details of this new program.

When I got the details I have to say I was pleasantly surprised, although we’re not back to where we were as recently as 18 months ago when land loans were still abundant and thus very competitive. On the plus side, the loan can be used for new purchases or refinances, has a choice of 15 or 30 year amortizations and can apply to finished lots or unimproved lots where utilities are close by. By the way, this is the first program I’ve heard about in a long time that is available for unimproved land. The best part is the rate as of today is 5.5%. I mention that with a little caution as I don’t  yet have all the fine points of this program, but will shortly. The loan has a maximum 70% Loan to Value, requires a minimum credit score of 680 and has a 3 year balloon. I’d like to see LTV’s a bit higher and balloon’s a bit longer. For someone planning to build their own home 3 years is more than sufficient but for an investor, it is the bare minimum.

So this loan is not perfect but may be the best we now have in Tucson. More importantly,  I hope that it is an indication that Lenders are re-thinking their participation in Land and Lot Loans and that we may be at the very early stages of a return to a more normal mortgage climate.

Here’s  a summary I just received from a Senior Loan Officer at Bank of America that I think is right on the money (so to speak). Doug Frisch has been in Tucson many years and I respect his periodic forecasts/reports.

Although he is referring to the single family home market, his remarks are exactly what I’m also experiencing in the Land Market.

” While positive reports are starting to pop up in the media, we are still in a very fragile economy. The large numbers of short sales and REO properties competing with properties that actually have real human sellers in them has created a scenario that makes it difficult for the real home sellers to compete; as these REO and short sales prices are creating a drag on home appreciation. On a positive sign, I am seeing strong sales activity in these in these REO and short sales properties with multiple offers in many instances. …The business that is most active is the lower price ranges. This is indicative of the market in all of Arizona.”

What do you think? Are you seeing positive signs or more of the same?

Lou Jewell, ALC is a reputable land broker practicing in North Carolina. Last year he wrote an article listing 93 land Disclosure issues that a buyer or seller might come across in a rural land transaction. Although most of my transactions are more urban than rural, I have run up against many of these same issues. For anyone interested in buying or selling land, here are some issues that may come into play. Are you aware of  any: encroachments, easements, endangered species, flooding, groundwater contamination, landfills, mineshafts, odors, pipelines, tunnels or wells? How about conservation easements, capped wells or burial sites? Has the land been tested for Radon or Methane gas? Is there a possibility that any type of underground storage tank has ever been present?  How about soil settlement, drainage, earth movement,erosion,  or fissures? Do you have a survey? Is it an ALTA or standard boundary survey? Is your land subject to CC&R’S and or Design Guidelines? How about local zoning, hillside, hilltop and floodplain regulations ?

Those were only 29 potential disclosure issues rather than 93. I guess the important point is understanding the critical issues involved in the transaction that you’re considering and going into it with your eyes wide open.

As I’ve said, I think EVERY LAND OWNER should file a tax appeal this year. We’re in a downward trending market that hasn’t hit bottom yet and there are plenty of sold comps out there (most likely some are similar to your parcel) that may justify a lower value than the Assessor has put on your vacant land.  On the 2011 Notice of Value you recently received you’ll see the Appeal Deadline Date. This is the drop dead, last date they will accept your appeal so note it carefully and DON’T MISS IT.

Start by going to the Assessors website at www.asr.pima.gov. Click on the button marked, ” Appeal Process” on the right of the screen. On the next screen click on ” Petition”. On the next screen click on ” Download Appeal Forms Here”. On the next screen click on ” Petition for Review of Real Property Valuation”.  That should get you to the 3 page downloadable form that you’ll need to begin.

The first line to be filled out is in the upper left hand corner. Remember you’re filing an Appeal to the 2011 tax year and that is the year to be entered.Items 1-6 are self explanatory and need no comment. In item #7 check the Market  Sales Approach box as this will be the basis for appealing the value of your land. And here is the most important part of the form; finding good comps that are close to your parcel in location, size, characteristic and most importantly have recently SOLD for a low price and/or already have been given a  low Full Cash Value by the Assessor. You can easily look up a parcel’s FCV on The Assessor’s website by entering the parcel ID in the Quick Search area at the upper right.  Active listings with low asking prices don’t mean anything to the Assessor. They will only use sold parcels in considering your appeal.The 2 best places to find these comps are at www.tarmls.com and www.zillow.com. You might also try some of the foreclosure related sites like www.realtytrac.com. or even the Assessor’s site where you can search your surrounding area by similar tax codes.  In item #9 you are asked to give your opinion of your property’s value. Be very aggressive here based on the comps you’ve found. The Assessor will never assign your property a value lower than what your estimate is.  Also, the Assessor will likely settle on a value somewhere between their value and yours.

Good luck and get started!

Most if not all owners of Property in Pima County received their Residential Notice of Value for 2011 in  this week’s mail. This shows the Full Cash Value ascribed to your land by the Assessor’s office on which your property taxes will be based. THIS BEGINS A 60 DAY PERIOD WHICH IS THE ONLY TIME YOU CAN APPEAL YOUR TAXES THIS YEAR. I’ve talked to so many land owners this past year who have complained bitterly (and in many cases rightly so) about the unfairly high value that the Assessor has placed on their land. NOW IS THE ONLY TIME YOU CAN DO SOMETHING ABOUT IT..

The first thing to do is look at your “Total FCV” for 2011 on the form. The change in value from 2010 should certainly be lower as I’m not aware of any land or lot in any part of Metropolitan Tucson that has increased in value this past year.  Secondly, look at the actual Full Cash Value amount. The Assessor sets this amount at approx. 70-80% of Fair  Market Value. For our purposes, lets use 75% as an average. For example, if your Total FCV in 2011 is  listed as 100,000, divide that by .75 to see that the Assessor is saying your property has a Fair Market Value of $133,333.  If you agree with that amount and believe that to be a fair price that you could sell your property you may not want to appeal.  If you know that comparable property has recently sold between $75,000 and $100,000, or perhaps less because of all the recent foreclosures and short sales, I strongly suggest you file an appeal. If you aren’t sure of the current Market Value of your land find out quickly so you can make an intelligent decision. You can do this in several ways. Go to the TAR/MLS site and search sold listings in your area; check values in your subdivision or part of town through the Assessor’s site and Recorder’s site or call a knowledgable Realtor to help. I  believe, however, that EVERY LAND OWNER should take the time, do the research and file an appeal if justified. You very well may have an inflated idea of what your property is worth versus actual sales.

I was recently showing land to a couple from Iowa who were put off by the idea of building a custom home on a parcel that had a regulated wash going through a portion of it. This led to a lengthy conversation about washes in Tucson and how they effect the value, desirability and buildability of a lot. Without getting too technical (I’ll leave this to the excellent staff of Hydrologists that are readily accessible to anyone by visiting the Pima County Flood Plain Dep’t), here are some brief thoughts.

Washes, also referred to by some as runoff, arroyos, riparian areas or flood plain,  are found throughout every area in Tucson. Generally, wash areas create wonderful habitat for both flora and fauna unlike other parts of the desert. We’ll see animals roaming and hunting in them, large shrubs and trees growing in them and thick, diverse vegetation, including big saguaros, growing on their banks. The more active a wash is, the more of a defined, sandy bottom you’ll see. Depending on the size and amount of water a wash carries, the County has established safe setback areas which determine how close  a home can be built to the wash. For small washes this distance is typically 50 feet but it is encumbent upon a buyer to find out the exact setback for any wash on a property they’re considering. Washes on property lines or just outside property lines are the best case as they provide shade, beauty, privacy  and a buffer from neighboring lots with no negative effect on the land. This type of wash will generally add value to a parcel and make it more desirable. When a wash traverses, or goes through a parcel, we have to be more diligent in understanding it’s impact on the value and buildability of a lot. This is when its time to make  a quick trip to the flood plain office. In general, I’m always more concerned about washes when buying unsubdivided land versus parcels in a platted subdivision as subdivision developers are required to do extensive engineering to identify any flood plain impact on the lots and disclose the results on the recorded plat map. Buyer’s of unsubdivided land must find this out on their own.

Many people prefer having a wash area on or next to their homesite and I’d put myself in that camp. I think they are a big part of what distinguishes Tucson Land from building lots in many of the places from around the country we all come from.

They let us live at close, but safe proximity to nature and help us appreciate the natural beauty of Tucson.