C Tann-Starr's Outside Blog

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When the Distressed Deal is Just Too Distressed - Phoenix Home Builders in Trouble

 

I am very thankful that my friend Paul made this wonderful article available for a re-blog. Enjoy!

 

As Phoenix area homebuyers look to cash in the winning lottery tickets in their hot little hands, it is worth noting that there is such a thing as biting off more than you can chew.  While market analysts and laypersons alike point to avarice as the primary machination that brought our economy to its current state, buyers need to be watchful that they don't get clobbered by the same pendulum that threatens to come careening back their direction.  As our populace accumulated far more Real property than it could actually afford at the height of the market, buyers today encounter a few substantial risks of their own.  First and foremost is the uncertainty of the status of the product they wish to buy at a deep discount.

This past fall, I was looking at a really sharp mid-century modern condo conversion project in downtown Phoenix.  Prices had come down considerably from their start point, and there were only a couple of occupied units amongst the 40 or so the development had in total.  We knew the opportunity existed to command a terrific bargain.  As a matter of fact, my jaw hit the floor when the developer later called me directly with an incredible offer on the unit my client found most appealing.  She loved the unit, I loved the price.  We were salivating.

And we passed.

I smelled trouble.  If the builder was willing to basically give the unit away to my client, what would prevent him from drastically cutting prices even further for future buyers?  The complex simply had "declining values" written all over it.  More to the point, however, I was concerned with the overall stability of the development.  I didn't want my client to move into a ghost town regardless of the price.

As it happens, our fears were well founded.  The complex, aside from the couple of units that sold a year ago, is now in the hands of the bank.  Lost to foreclosure, lord knows what will happen to the common grounds, let alone the individual units.  The poor occupants who jumped too eagerly must now worry that they will soon have squatters for neighbors and that their values and personal enjoyment of their homes will be further decimated.  As it stands, the prices on the units are now about 50% lower than the smoking deal we were offered back in the fall and declining as I type this.

I have seen too many builders pull out of developments, leaving the inhabitants with vacant lots and plummeting values for neighbors.  I'm not talking about mom & pop builders, either.  We're seeing formerly vibrant national builders circle the drain.

The long and the short of it is that you must protect yourself in this market by keeping an eye on more than the bottom line.  There are tremendous opportunities out there, but you must be dilligent in assessing the full situation.  Be aware of the risks you run when pushing for that little extra something in terms of price.  It's not always just about finding the cheapest thing that you can.

Even in this market, if it sounds too good to be true, it most likely is. 

There are resources at a buyer's disposal that can help you ascertain the stability of a builder or project.  I implore you to use them.  A good place to start is the Arizona Department of Real Estate, which features a list of home builders that are in financial trouble, tagged with mechanic liens or currently undergoing bankruptcy processes

By all means, use the current market to your advantage in commanding a great deal, just make sure that you are getting what you think you are stealing.

 

 

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Comment balloon 8 commentsC Tann-Starr • March 06 2009 05:56AM

Comments

I had not read this one yet C.  Good points.  We all need to look at unfinished developements with a sceptical eye thee days.

Posted by Paddy (Patricia) Pizappi, Real Estate Associate Broker Hudson Valley NY (Better Homes and Gardens Rand Realty) over 11 years ago

Paddy, it's true. I've had people who disrespected my buyer's offer call me back months later stating the unit is still available and would love to make a deal if we were still interested. It was too late. I talked the buyer into upgrading from co-op condo shopping to looking for a house. She has no interest in maintenance or common charges anymore. She is deliriously happy home shopping.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) over 11 years ago

Morning C, I had read this earlier and thought it was great. That's why I'd never look at property without my trusted Realtor.

Posted by Cynthia Bartch over 11 years ago

Thanks for the reblog, C.  I would have put this on the CC outside blog, but I thought it might be too locally specific.  I'll correct the oversite and do so now.

Posted by Paul Slaybaugh, Scottsdale, AZ Real Estate (Realty Executives) over 11 years ago

That's a great article and it will keep us all on our toes. One has to be careful with not just condos but new consrtuction single family homes as well.

Posted by Barb Szabo, CRS, E-pro Realtor, Cleveland Ohio Homes (RE/MAX Trinity Brecksville Ohio) over 11 years ago

Cynthia, I told my hubby if we do buy in FL (and hold our lot for the kids to develop) then I'm high-jacking one of my pals to represent us. I'm not buying without a Realtor. I did that when I didn't know any better. Now I know (LOL). I was lucky before. Now, I'd rather be smart about it. :-)

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) over 11 years ago

Awesome! Post your darling little minions as well Paul. My kids are plastered everywhere I go (LOL).

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) over 11 years ago

Barb, very true. I'm going to have a big day regarding that tomorrow. I'm trying to get people not to be so quick to do a short sale. Let it sit in the open market and let the market move. I refuse to short a home unless I have to. I want my sellers to get what ever they can for their home. If they go a payment or two behind, I still wont short it unless they hit 90 days late. That's just me...

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) over 11 years ago

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