Virginia Foreclosures! The new FEVER!

The FEVER was lost for two years, but it's BACK!

My Virginia Real Estate blog showcases the trends before you ever knew they existed. This is a new trend, and it is on fuego. Problem is, is it real?

The message is slightly different, but the bottom line is still there: Buy Foreclosures, Flip and Get Rich!

In the past it was Buy New Construction, Wait a Month, Flip and Get Rich. (see my post on Taxi Drivers pooling their money during the top of the housing bubble)

This technique is also known as the Greater Fool Theory. If you can buy it low, and sell it to a greater fool thinking he can do the same, you will profit. Rinse and repeat until the world comes crashing down like a pyramid of cards (oh and it did for some).

So now I see people wanting to rebuild the pyramid, and they want in on the ground floor.

When five people say to me within 2 weeks "If you hear of a place that is a steal, let me know, I might buy it."

Sorry, but if it is that much of a steal, and I hear about it first... You won't buy it because it will be sold. To me.

The problem is 50% off steals don't exist. See the post on Parkside Alexandria Auctions starting at $225,000!!!, but ultimately they got bid up to an unflippable (word not recognized by MS Word) market price (see Virginia Auctions Results Show post).

This new breed of wannabe opportunists think that the market is dead and nobody is buying... but THEM of course!

They are the brilliant ones alone buying at the bottom. Did you know that Parkside got 1500+ registered buyers to walk their community? All looking for what was quoted to be a "once-in-a-lifetime opportunity." 1500 people trying to buy from people down on their luck. You are not alone.

So back to these 1,500 people.

What are they doing? They are wasting their time and the time of their Realtors (not me, I just send people to this blog post).

Many Realtors are using foreclosures, short sales, bank owned properties, REOs as bait to bring in clients, hoping that a few will settle for 2-5% off instead of 50% off.

Even this post was written to be picked up by Google for people looking for "Fairfax Foreclosed homes" stuff. The difference is, I'm telling them it does NOT exist (well maybe in Herndon). So if bargain buyers contact me, most likely we will all be on the same page, that I can help you get the best "deal" possible (see:"Buyer's Market?" No Such Thing As a "Good Deal") but don't have unrealistic expectations.

When my termite guy's (not a profit sharing ABA) wife stumbles upon my Parkside $225,000 Auction blog (along with a poker buddy), you know it's a trend. So this post was written just for her. (NOTE FOR REALTORS: this is why blogging is efficient. Write it once, and post it, with no need to repeat yourself. Oh how I plan to link to this post in the future, and you can too.)

Foreclosures sound great, but aren't nearly the deal of the century, 50% Kmart blue light special that many think they are.

Buying and fixing up properties is a real, but tough, business. There is no get-rich-quick system that I know of that works. And if I did, I probably wouldn't tell you. I would just do it and get out of residential real estate. If you become a flipper and are going to buy a run-down property and fix it up, you better know what you are doing. And in a slow market, you better leave room to sell it well under market, otherwise you'll follow the market downward.

And as for people looking to buy their own home to live in, and solely looking for Arlington or Virginia foreclosures, you will most likely be sadly disappointed. Yes you should add them to your search, but they are infrequent and many are fake. Yes many "short sales" or "3rd party approval" listings are fake, but not all.

An upcoming post will get into how Short Sales only close 50% of the time. Also an upcoming post showing how one of my agents bought HER own home from a bank. So make sure you sign up for this blog via email at blog.FranklyRealty.com in the upper right corner.

- Written by Frank Borges LL0SA= FranklyRealty.com

(please report typos)

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Beware of Inflated Appraisals: 1st Major Lawsuit

When two of my blog readers send me WSJ articles on the same day, you know something big is up.

Appraisals 101: An appraisal is a report that is supposed to be a 3rd party impartial review of a property (usually under contract) to make sure the price is in line with recent closed sales (not counting houses still "for sale"). This protects the bank from buyers buying overpriced houses, which are at higher risk for default.

I first wrote on this topic of inflated appraisals: Builder Tricks Part 3! Independent Appraisals & Fiduciary Duty. I showed why builders try to require "in house lenders" that happen to have appraisers in their back pocket that miraculously make the numbers come in. Ultimately consumers who suspect foul play should pay $300-$400 and get a real "independent" appraisal of their purchase.

First let's understand the position that some appraisers are in.

• Transaction volume is down 20%. (I'm not talking prices, but quantity of deals)
• As prices fall, it is harder to make the numbers come in (especially with new construction).
  
• Appraisals are subjective. "If I push it another $10k, or $20k, I can probably still argue my defense."
• If your appraisals stop "coming in" (hitting the contract price), even though you are supposed to be "3rd party" and unmanipulatable (MS Word says that isn't a word, but I disagreely), you will stop being hired.
• Suddenly, you can't buy lunch.

So eAppraisalIT got sued by NY Attorney General since "eAppraiseIT’s president, sent emails to his superiors at the parent company... [that they] would “roll over” and submit to Washington Mutual’s demands on appraisals."

Why is this important to you if you are buying today?

Many contracts have an appraisal clause/contingency that allows you to renegotiate or back out of a contract if the property does not appraise, even for new constructions put under contract months or years ago.

By knowing that these shenanigans exist, you won't simply say "oh well, it appraised, so it must be fine." Now you will say "who appraised it, and who do they work for, ME or the lender wanting the deal to occur."

Why is this important if you are NOT buying today?

If a system's checks and balances are off kilter, and no longer checking or balancing, fraud affects everyone.

If just one neighbor falls prey to these practices and

• Can no longer afford monthly payments
• Can't refinance since the house was overvalued
• Forecloses or has to liquidate their property for $50,000 under fair market,
• You effectively just lost $50,000 in equity.

This matters to everyone. This is just the beginning too. Most of the spotlight has been on lenders and their aggressive practices. Now they are going after the support services that are part of the conspiracy. The problem is it is harder to prove. Rarely do you get an email from the president showing a hand caught in a cookie jar.

I still see stuff everyday.

• True Story: One builder closed a property $70,000 under asking price. Upon closing, they properly listed the property as "CLOSED," thus showing the close price. A day later they CHANGED it to "WITHDRAWN." This is supposed to be an MRIS/MLS (up to) $3,000 violation. Net result, appraisers can't see it (they search "closed" properties) and I know a buyer that followed their skewed appraisal and overpay by $50,000. I have reported this MLS data fudging 3 times over 2 months to MRIS with no action/reply so far.
  

• True Story: A client with their own lender said "For $200, we can make the appraisal come in [$20,000 higher] to refinance your property." This stuff is happening everyday.
  

- Written by Frank Borges LLOSA- Broker FranklyRealty.com

p.s. Please note just like there are shady agents, there are shady appraisers, but that doesn't mean that they are all shady.

p.s.s. Please email me typos and email or post your examples of questionable appraisal practices.

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Parkside Alexandria Auction: The Results Show

NVAR Realtor update: Have you voted for me yet? Voting ends Thurs Nov 2 at NOON! Go to www.NVAR.com/vote Know a No. Va. Realtor? Let them know. More info at www.ChooseFrank.org

This is the Results Show for the Parkside of Alexandria Auction yesterday (Sun. Oct 28) at Hilton in Alexandria. As background make sure you read: Parkside Alexandria 47% Off Auction

About 300 people showed up. Of which, over 100 were registered buyers with an auction number. About 50% of those had attended an auction practice the night before. Also about 75% of the 100 were 1st-timers at an auction.

To the right is the price sheet and my notes with what went for what.

Below is a Youtube of an Auction for a 2br 2 level townhouse. Minimum bid is $225k


The event was publicized as a "one-in-a-lifetime opportunity", as if units MIGHT go for $225,000 for a 2 level 2 bedroom 1.5 bath townhouse. Well that didn't happen. For the units starting at $225,000, they were immediately bid up to $275,000 and the range ended at $287,000, most sold at $300,000, and the highest close was $306,000. Keep in mind that some units are MUCH closer to 395 and some came already upgraded with Hardwoods and Granite.

The developer even added Hardwood floors midstream as a "free upgrade" for SOME units that currently have carpet.

The 3 bedroom units had a minimum price of $275,000 with a "Last Asking" price of $390,000. These units sold for a low of $351,000 and a high of $362,000.

Below is a video of the 3 bdr with a minimum starting bid of $275k

Now did these people get a great "deal." Maybe. I'm not sure. What I can tell you is it wasn't at a "no-brainer" price that investors could buy it and easily flip it the next week for a $40,000 profit (don't think the thought didn't cross my mind), but if a buyer was looking to live in it, and was considering the units at $340,000 list, sure, they got 10-15% off.

If you are still interested in a unit, let me know. Sometimes they have units that come up if one of the buyers backs out. Megan, an agent with FranklyRealty.com used to live at Parkside and recently sold a unit there for $330,000. She knows the pros and cons for each unit. I believe the developer is now cooperating with Realtors (they were giving 66% less for Realtors during the Auction vs during regular sales), so it shouldn't cost you anything to have representation.

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

Videos at YouTube.FranklyRealty.com

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Parkside At Alexandria 47% Off! 30 Condo Auction!

Update, Mon Oct 29 07: After reading about this auction, go over to the Parkside of Alexandria Auction RESULTS show (with videos).

Update 2-21-08: Eos 21 Just announced an Auction. More soon.

Just on the heels of my article New Construction Bargains: Risks or Rewards? on whether the "deals" at new condo constructions like Phoenix Condos in Arlington, were good ones, I get an email about Parkside Alexandria having an Auction on Oct 28th 2007.

Their advertisement is based on a "Minimum Selling Price"* of $225,000. These units went for as high as $425,000 in the heyday!

If they sell for that price, that is about 47% off! So NOW is it a good deal?

Again, I'm not saying to avoid new constructions since they might offer a deep discount versus a similar resale unit, but you have to look at their inventory levels and the risks of them unloading units like the condo townhouses of Parkside Alexandria.

Remember, it can ALWAYS go lower! No matter how much of a deal you think you are getting, it can always go lower. So when do you buy? Perhaps only when you are ready for the long term hold and can ride out any waves, or like I say in my Attn. Market Timers! The EXACT Best Day to Buy!, the day that you stop caring about finding the best day to buy, and simply want to enjoy YOUR house.

So what about this 47% off sale? Is that a good deal? Is THAT the bottom? I don't know, but, like a broken record... it can always go lower. You would think that at that level of slashing, it can't go down any more, but you never know. Nobody would have thought that they would have pulled back from $425k to $325k. That would be unheard of! Now at $225k... ???

Mad Money's Jim Cramer put it well... He said the single best time to buy the Nasdaq Index was when it fell from 5,000 to 4,000. But so was 3,000, and 2,000 and 1,500!

Is your risk LOWER than somebody that bought a house at $300k or $400k, sure, but there is still risk. Risk has to be evaluated and measured versus the potential reward and return. Will buyers at $225,000 make a killing? Very possibly. Is it a "no brainer" for a Virginia real estate investors to jump in? I don't know. Not for me, but then again, I'm too conservative and conservative people miss all the great opportunities.

* Minimum Selling Price MSP is a "reserve auction."
Sometimes reserve auctions are fake since the reserve isn't published and is sometimes right up near list price. They can be designed to entice potentially interested buyers to bite. For example if three people put in low balls below the reserve, the homeowner will just counter like a regular contract.

At the Parkside at Alexandria the MSP is published and is significantly under list price, with the hopes of attracting enough buyers to hopefully have people bid up from $225,000 to as close as full list price as possible. But then again, they might all go at $225k (for the 2 level townhouse). I'll try to go to this event and report on it. I bet the attendance will be pretty good. Here is more info: ParksideAlexandria.com Here is the ad

What will other builders have to do to avoid the INCREASE in buyer fears that this will create? Will they agree to put $50,000 in escrow for a year to insure that the builder won't drop auction off the rest of the inventory? If they don't offer some insurance, buyers might just wait and wait and wait and these auctions might become more frequent because of it.

Which project will be next??? Sign up for this blog (upper right corner of blog) for free to make sure you are kept up to date on the marketplace. or Subscribe in a reader.

Feel free to forward this email to others that might be interested.

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

Here are other new construction communities: Parkside of Alexandria, Eclipse, Parkside of Courthouse. Condominiums at Carlyle Square, Bryon, Palatine, Phoenix, Turnberry Tower, Odyssey, Hawthorn, 1800 Wilson, Westlee, Vantage Merrifield Town Center, Bromptons, Brittany, Bearings in Old Town, Renaissance 2230, Park at Courthouse, Butterfield, Mercer. Parkside Alexandria

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New Construction Bargains: Risks or Rewards?

Many Virginia condo builders have bailed before completion of their projects, voiding thousands of contracts (see: Arlington Condos Trend: Back to Apts). Meanwhile, other builders, including single family home (SFH) builders, decided to plow through the rough market.

Earlier in the year, builders (condos and SFH) were finding buyers were backing out of new construction contracts. Some left 2-7% deposits on the table, some fought for their deposit (ask for specifics). Can you blame them? If a property has dropped $70,000 and you put a deposit for $20,000... um, I know that stinks but why not just leave your deposit on Monday, and go in on Tuesday and buy another one for less?

So now the builder has inventory that they need to move and fast! The liquidation sales are here! And "These prices won't last!" But are they a good deal? I've said before that (No Such Thing As a "Good Deal") but now I want to specifically look at new construction homes.

The decision is VERY tough for buyers.

You can buy a new place:

• Get a $10k-$100k "savings" on a new construction vs a similar new resale (or off the sticker price) BUT
  
• Risk further liquidations, dropping your unit value another $50,000+

Or you can buy a resale:

• It might cost $5k-$15k more, BUT
• The lower supply, reduces Supply and Demand risk.

I've heard from a source in a new construction project that they were considering hiring an auction house out of Boston to dump the rest of their 30 units, once and for all! So a buyer might get a $50k "deal" today, to find their value dropped $50k the next day.

Supply and demand is crucial, and with new constructions, it can be out of whack.

For example, take my Clarendon Condo (please take it!!) I saw as many as 40 of the 400 units (10%) on the market at one time. That was bad, prices tanked faster than other Arlington condos. Down $150,000 from the top price to the current lowest price.

Meanwhile the new construction Phoenix Condos in Arlington two blocks away has about 180 total units. Only 31 have closed and about 20 are under contract. They still have 130 units to move!

One agent just told me they got a steal of a deal there. They were able to get a deep discount off list from the builder through the sales office: McWilliams Ballard. She was brilliant. She made them show her actual HUD1 statements of other units (since nothing recorded yet on the MLS or tax records) and she went down from there.

But what about the other 130 units? Are they going to sell for the same or more? Probably not.

But her final price was $100,000 UNDER a comparable list price for 2 units in my building!

When she initially asked about my building vs the Phoenix, my first reaction was "All else being equal, I'd rather buy where there is less inventory, so you have less downward risk"

• Sidenote, when I say "all else being equal" I mean after you account for the % off list you can get on the resale, and you adjust for amenities, view, floor, size etc.

I might, if you were ready to buy, go as far as recommending paying $10,000-$20,000 MORE for a unit in a location with less inventory risk (5% at Clarendon 1021 vs 72% at Phoenix)

But the decision gets tougher if that spread is more like $50,000 to $100,000.

Another example: A Realtor that I highly respect is currently focusing on new construction. She was thrilled that she got $70,000 off list (about 10%) for a home 2 months ago, yet last weekend at a "big sales event" she got another client $125,000 off at the same community!

So her first client effectively LOST $55,000 in 2 months!

What? You want me to: "shut up and tell you what to do"?

1. If you decide to buy, make sure your horizon is long enough, otherwise rent (See Video: Don't Buy).
   
2. Pick exactly when to buy (read Attn. Market Timers! The EXACT...)
3. Calculate the difference between this "Sale" unit to the AFTER NEGOTIATED price of the resale. Maybe even put in a few offers into resales and SHOW THEM what their competition is (see "Round Robin" Buying)
4. Get copies of HUD1s (closing statements to prove sales prices) and look at subsidy and parking spots (sometimes a $30k spot gets thrown in, make sure you compensate for that)
5. Ask about how many they have left, and get proof! (watch out Wilson 1800 in Arlington likes to make you think they are "almost out" until they suddenly "release more")
6. Use a knowledgeable Realtor, you don't get a better deal going in alone.
7. Consider putting into the deal a $30,000 escrow to be given to the buyer if further price reductions occur.
8. If it is a preconstruction consider putting a clause to reduce the price if other units sell for less (but watch out, see Lowest Price Guarantee)
9. Be patient when negotiating. You can either get a FAST and high deal or a SLOW and low deal. Slow play it.
   
10. Pray

Written by Frank Borges LL0SA- Broker FranklyRealty.com

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Builder Tricks Part 3! Independent Appraisals & Fiduciary Duty

Frankly, builders are in a heap of trouble with excess inventory! (Just take a glance at Brian Brady's mortgage blog for more details.)

So with this trouble comes questionable practices in order to unload properties. Get a Realtor (the price is built into the condo, you won't get a better deal without one) to represent YOUR best interest.

I already called out one Arlington Condo builder with my: Beware: New Constructions Illegally Not Disclosing Seller Subsidies. After that article came out, that builder suddenly started disclosing their $50,000 seller subsidies. And Builder: Guaranteed Lowest Price* where builders use subsidies and decorator allowances so as not to technically drop the sales price and have to recalibrate earlier contracts.

Well I found yet another builder expanding on those tricks. This time the builder will list a property and the day it closes, it will withdraw the listing! Why? Because when a place is listed for $599,900 and closes for $529,000, they don't want the public to know. Also the tax records (where I found the sale) does not allow for disclosure of the seller subsidies (the MLS does require it).

So not only are they hiding a $70,000 price drop, the seller subsidy could range from $5k to $25k. By hiding this data, the appraisals can be kept up for future closings! Sounds to me like fraud, but that is just my opinion.

Speaking of appraisals, if you are buying a new construction and using their "preferred lender," I have heard of multiple situations where the builder is applying pressure on the lender to "get it done," which is code for "fudge the appraisal so the numbers work."

And that is code for JAILTIME. That is FRAUD.

If you suspect something fishy is going on, pay the extra $200-400 and get your own independent appraisal (without mentioning what the lender's appraiser came up with). If they come in over $15,000 different, somebody got some explaining to do (insert Ricky Ricardo voice).

After the independent appraiser's report is complete, ask him to look at your lender's appraisal report. If he says it appears fraudulent, report it to the FBI. Yes the FBI is very interested in hearing about fraudulent lender practices.

Now one last word about lenders. I don't want you to think that they are all crooks, or even that some are. But you have to understand the phrase "fiduciary duty." That is defined as "The legal responsibility for investing money or acting wisely on behalf of another." Agents have that duty with their clients... but lenders don't.

Again, lenders, albeit nice, helpful etc etc, they do NOT have a fiduciary duty to look after your best interest. Their duty is to their employer. So know your rights, get that second appraisal and don't get bullied into a fraudulent loan.

Lenders, I hope you didn't find that offensive. Appraisers, what do you think about faulty appraisals and how do you suggest handling it? Do you ask the appraiser that is "off" if he really wants his appraisal reviewed by the state board (or who else would you recommend?)

Best of luck,

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (Now paying $1 per typo)

Feel free to forward this to friends. To subscribe to this blog via email, go to http://blog.FranklyRealty.com and look on the right side of the page to sign up.

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Builder: Guaranteed Lowest Price* WITHOUT THE ASTERISK

The first builder I noticed offering "Pricing Guarantees" was The Park At Courthouse. I thought the idea was brilliant. A promotional plan that would give buyer's some security in their preconstruction purchase, in case prices dropped.

So in theory, if you bought a place for $400,000 and a few months later, that exact or similar unit dropped to $390,000, you would get notice that your unit is now $10,000 cheaper for you.

This was even featured in the Washington Post (thanks to me) on Dec 2006 Read Article. Supposedly they have already made 3 price corrections for past buyers.

Now comes the MISSING ASTERISK.

1) They won't say the amount of the price corrections (we asked). This leads me to think that they were probably just token $5k or $10k adjustments and more used for marketing future units. The ability to say "we have dropped 3 times" sounds good. But if you don't disclose the amount, it is just marketing in my book.

2) Seller subsidies don't count! Let me repeat that. SELLER SUBSIDIES DON'T COUNT in the guarantee.

Example:

• Joe buys for $400,000
• Builder drops prices to $395,000
• Joe gets a $5,000 reduction
• Builder keeps prices at $395,000 and offers $20,000 in closing costs for newer sales
  
• Joe gets NO REDUCTION or Extra closing costs. The "guarantee" doesn't apply!

Joe effectively is paying $20,000 MORE than the other unit, even though there is a "guarantee."

3) Free upgrades don't count!

Example:

• Joe buys for $400,000
• Builder drops prices to $395,000
• Joe gets a $5,000 reduction
• Builder keeps prices at $395,000 and offers $20,000 of upgraded kitchen and bath
• Joe gets NO REDUCTION or upgrades. The "guarantee" doesn't apply!

So what is my point?

1) If you bought here or anyplace similar, talk to a lawyer before you close on your unit. It might cost you $500 or $1000 but save you over $20,000

2) Use a Realtor when you buy units like this. We might not know everything, but knowing something like this can save you $20,000. The builder either pays your Realtor to represent you, or they give a bonus to the sales staff. The cost to you is the same.

3) Make sure your Realtor writes into the contract that the guarantee should be based on NET and include all subsidies and upgrades as provided by an audit (write in the ability to check their books).

Ray, an agent with FranklyRealty.com wrote more about this Park At Courthouse, Arlington Condo

Don't miss the comments! And make sure to sign up for future blogs on the right side of the page.

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6

Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

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Arlington Condos: Joule Converts to Apts. Next up: Zoso & Phoenix?

Joule condos, formerly owned by Ed Peete (Arlington Virginia) recently announced a transformation from condos ownership to apartment rentals. Canceling hundreds of contracts in the process.

Update April 3rd 2007. Email me, I have a nearly official word that Zoso is going rentals!!

A dozen local condo developments have taken this route and I predict that Zoso condos (also from Ed Peete) in Arlington will be next.



How can I make this prediction? Lets look at the obvious facts:

1. Ed Peete just did it with the Joule condos in Arlington.
   
2. Only 60% have been sold at Zoso. That is nothing. The bank will require certain milestones be met and I bet that most of those sales were in the first 6 months, with maybe a sale or two every month since.
   
3. Pricing. The units were priced at Clarendon 1021 values (across the street) when flippers were making an $80k profit. Now 1021 sellers are lucky if they break even. (see NY Times Article)
   
4. Withdrawn MLS listings. They withdrew their listings on the MLS on Dec 26th 2006. What company trying to feverishly sell their condos would withdraw from the MLS?
   

Why does this matter to buyers?
One savvy business man recently told me "I spoke to the builder... they are claiming to be on target for their delivery dates. They are definitely keeping it as condos."
He would rather know the truth so that he can get on with finding his perfect condo. Instead he gets strung along for over a year and then is left with nothing.

How can the contract allow for them to tear it up?
Most new constructions contracts have a clause that outlines the penalties for purchasers that back out of deals. However there is a clause that allows the seller to back out of the deal with no penalty (maybe you will get some interest on your deposit). This lack of mutuality (read court case on Mutuality) is being contested by some lawyers (email me if you need a lawyer), and is being used by buyers to get out of new construction contracts.


How can a buyer get the facts and expose their Achilles heal?
First of all if you haven't bought a new condo yet, have your Realtor try to strike the clause that allows the seller to get out with no penalty. Or specify some damages. Whether it be $1,000 or $20,000 or your deposit amount.

If you already bought a place and they tell you they are "definitely keeping it as condos", then they shouldn't have any problem writing up a little bitty addendumy-poo to the contract that calls for damages if they lie to you verbally. Watch them shake in their pants and run for the hills.

Why are developers giving up?
A brief history... In the olden days, New Constructions were a great deal. Builders would sell units at 15-25% below market price in order to be able to sell 200-400 units. It is simple supply and demand. If you want to sell 200 of something, you better come in super low to make sure you sell out.
But then the market rocketed and flippers were able to pocket the 20% discount AND realize the 20% jump in the market (during the 1-2 yr development). I know a lady, straight out of college that made $80,000 just 2 weeks after closing.

So the developers saw everyone getting rich and they wanted their
money back! They also saw buyers line up in the thousands (3,000 for Clarendon 1021) and they started selling units at current market prices (no more discounts). Buyers were buying hoping for the same run up, since it was a "sure thing". (See my blog on a flipper that lost $150k)
Sure enough, with Clarendon 1021 the first 10 sellers made a killing, as much as $100k. But then the next 10 made $50k and the next 20 were lucky to break even, with some losing over $30k.

Zoso and Phoenix condos in Clarendon Arlington meanwhile priced their units at the TOP of the market when the flippers made $100k.

You know it is a bubble when you hear about 4 taxi drivers that decided to get rich and pool their money together to buy a new construction. Where are they now, I wonder.

So what happens when you sell "60%" of the building for $100k over the current prices nearby? You have un grande problemo (that means a "big problem" in Spanish). You can't drop prices for the rest of the units, or the current purchasers will want out. But if you don't drop, nothing sells. (Some builders have resorted to illegally fudging the MLS, see blog, which is why you should use a Realtor!)

Why does this matter for the Arlington area?
It helps the existing condos. Simple supply and demand. Remove the supply and people buying will look next door at 1021. Now does this inside scoop mean you should run out and buy at 1021? Yes. Absolutely, and from me, so I can get filthy rich! Nah, but each conversion back to apts. definitely can't hurt. And of those 100 buyers, lets say half are investors, maybe half of the rest (25) might look nearby. 25 active buyers? That helps values.

And for those of you that dislike Realtors, you'll love this... When a condo development decides to convert to apartments a week before closing, guess what the Realtor gets? ZILCH!

So did you get anything out of this? If so, return the favor by sending this or another blog of mine to a friend (even if they aren't in this state, since information is power) and sign up for this blog via email (see Feedlitz form on right). Thanks!

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid.

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Beware: New Constructions Illegally Not Disclosing Seller Subsidies

(Thank you to MRIS for warning agents about illegal MLS fudging, perhaps due to BusinessWeek's story that referred to my blog. More at the end)*

Now I have reported to MRIS another violation.
Lets see what they do about it.

New Construction Fudging the Reporting of Seller Subsidy... how conveeee....enient.

Before I get started on tricks that the builders are using to unload inventory, did you know that it doesn't cost you anything to have a Realtor represent you? The cost is the same to the buyer, oftentimes the on-site sales agent gets the double commission. Sometimes a "free" buyer agent can save you even more, even if you think you already squeezed $100k out of them, who cares, if your buyer agent knows they recently dropped a place $200k around the corner. Price drops are relative, and a good Realtor can help protect you. See I Need A Buyer's Agent! But For My Car.

So back to builder fudging. On the MLS, when a listing closes a Realtor must enter in the closed price. This can easily be verified by the tax records once it comes out. A Realtor is also required to post the seller subsidy amount. The "seller subsidy" is the "cash back to buyer" or "cash toward closing costs" and it is a marketing scheme to make a listing look more favorable, even though I tell my buyers to ignore them and just to net everything out. A $515k place with $15k back should be viewed as a $500k. Don't let that marketing confuse you.

• Damn side note: I once had a listing for $325,000 and an agent said "but the developer is offering an amazing $15,000 in incentives, will you match that?" The builder's price was $350,000. I said "Sure. I'll double it! I'll give you $30,000 back with a price of $355,000, Deal?" So make sure you NET everything out!
  

Anyhow, the builders are in a bad situation right now. Especially Arlington County condos in Virignia. They have already sold a ton of units at a great price, but they need to sell the rest of their inventory without pissing off the current owners and people under contract.

So how do they do this?
Well one way is through fudging the "seller subsidy". If a place is $600,000 and they want to drop the price to $580,000, they will instead give $20,000 worth of "seller subsidies" or "cash back." Effectively the sale is $580,000, but it gets recorded in the tax records as $600,000 (which is fine). The part that is not fine is they are leaving off the subsidy information on the MLS. Insert Dr. Evil's voice: How convenient!

How do I know they are fudging the MLS?

• The graph to the left shows one builder's last 40 sales. Not one included a seller subsidy. Meanwhile I have been in their sales office. As with EVERY builder, they give huge seller subsidies. Yet not one is posted here, as required by the MLS.
  
• The box on the right side of the graph are 50 Arlington Condos sold in 2006. About 40% have seller subsidies.
  

Why does seller subsidy disclosure matter?
If you are considering buying a $500k condo in Arlington, you will look at the past sales as one of a dozen metrics to value a home (I wish I could show all my tricks on pricing and offering on homes, but the competition might be reading this, email me if you want a sample). If the builder just sold a nearly exact unit for $500,000 and recorded no subsidy, you might actually consider buying the unit near $500k. However, if you knew that there was $20,000 cash back, and the net price was actually $480,000, that is basically a Honda Civic value of information ($20k).

So in conclusion, make sure your buyer agent knows the market well and knows about tricks like those and other listing agent tricks that could cost you $20,000.

For all those super smart people that think like my Mom (read Mom Blog on not trusting Realtors) did "I don't need no stinking buyer agent," this stuff happens all the time. (shameless plug here: sign up to get emails of new blogs, the sign up box is at the bottom)

And you all think all we do is push paper and get you to buy quickly?

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

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*Thank you to MRIS continued: I would like to thank MRIS for warning agents about MLS fudging.(the local MLS system) for posting a bulletin board on Matrix (the back end Realtor system) warning listing agents that Data MLS fudging is illegal and will not be tolerated. I believe my MLS Data fudging Blog (Part 1 and Part 2) and the resulting Business Week article probably lit a fire under them. While I wanted to copy and paste that notice, it was gone after 24 hours. Oh well. Update: I found the link to the notice.

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Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor

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