February 2016 Phoenix Real Estate Update

Phoenix Real Estate Update

I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  You can search the MLS from my website at www.greathouseaz.com.

Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or email at ftr9558@cox.net.


Pat Hune



1st Southwest Realty


Search the real MLS from my website!

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity


1)  STAT Newsletter 

2)  Rental Market  

3)  Multifamily and Commercial Real Estate Trends

4)  What are Service Animals?

5)  Real Estate Briefs

     a)  Maricopa County Assessor Uses Aerial Photos to Measure Houses and Raise Property Taxes

     b)  Is Inventory Relief Coming for the Entry Level Home Buyer? 

     c)  FHA Escrow Holdback Limited to $5,000 

6)  Tales from the Real Estate Trenches 

     How many negotiations are there when buying a home?



1) STAT Newsletter Link -(Note the numbers are reported a month behind.  The MLS has renamed to reflect the report is for January but published in February.)  STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   


January STAT  

STAT Newsletter and Real Estate Market Highlights

Commentary by Tom Ruff of The Information Market

Our selling season starts when the Super Bowl kicks off. This wisdom is reflected in the number of pending contracts currently in the MLS. Historically, pending contracts hit their low water mark in early January. Pending contracts are increasing daily and this ascent will continue through the next three months. Traditionally, pending contracts peak between late April and early May. It’s too early to project what’s in store for 2016 but we’ll have a much clearer picture when March and April sales numbers are reported.

Back to January. January often brings in the lowest monthly sales volume in any given year. This year there were 5,131 home sales in the MLS, a 7.3% increase over last year for January 2016. The monthly median sales price in January was up 7.9% year-over-year and down 2.3% month-over-month. 

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” 

One of the greatest anxieties a potential seller faces is the list price. In analyzing recent ARMLS sales data we know that a home sells for 98% of the list price on average. If a home is over-priced, the seller has to be very patient. If priced too high without a price adjustment, it will probably end up being cancelled or expire. 

Homeowners, who purchased in 2011 when market prices bottomed, are selling their homes for 1.82 times their original purchase price. The people who purchased in 2011 also account for the highest percentage by year of current home sales, 8.49% of all home sales over the last four months originally purchased their homes in 2011. 

Our last Pending Price Index projected a January median sales price of $212,000 with the actual median coming in at $210,000, off by less than 1.0%. Sales volume in January as reported by ARMLS was 5,131, which is 169 fewer sales than our projected volume of 5,300.  Looking ahead to February 2016, the ARMLS Pending Price Index projects a median sales price of $209,900. We begin February 2016 with 5,877 pending sales and 3,484 UCB listings giving us a total of 9,361 residential listings under contract. This compares to 8,789 listings under contract at this time last year.  STAT is projecting 6,200 sales in February with little to no change in home prices. This year is a leap year, which adds one more working day to our calendar. As a final projection for February, STAT projects the number of women asking men to marry them will spike on February 29th. 

2)  Rental Market Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.

January Rent Stats

3) Multifamily and Commercial  Real Estate Trends

Current Phoenix market trends data indicates an increase of 2.7% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of 16.2% compared to last year's prices. County-wide, asking prices for Multifamily properties are 2.6% higher at $62,870 per unit compared to the current median price of $61,700 per unit for Multifamily properties in Phoenix, AZ.  There has been an significant increase in the sales prices for duplexes, triplexes and fourplexes with very little available under $225,000.  

Loopnet Commercial Trends


4)  What are Service Animals? 

Pat Hune, 1st Southwest Realty, January 2016

Tenants have told landlords and property managers the tenant's pets are service animals to avoid paying pet deposits or to get around a no pet policy.  The type of pets would vary including cats, snakes, turtles and pot bellied pigs and sometimes even chickens.  Many landlords and property managers agreed to waive deposits as they did not want to discriminate against a disabled person who needed a service animal as it could result in a Fair Housing Violation.  One tenant moved in a dog and 10 puppies.  When the property manager told her she could not have all these pets she claimed they were all service animals.  The Arizona State Legislature 11-1024 has defined what a service animal is giving landlords and property managers the exact definition.  Tenants will be disappointed they can no longer claim every animal as a service animal.   Service animals are not to be confused with comfort animals which this legislation does not address.

5. "Service animal" means any dog or miniature horse that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual or other mental disability. Service animal does not include other species of animals, whether wild or domestic or trained or untrained.

11-1024. Service animals; rights of individuals with disabilities; violation; classification; definitions

A. Any person or entity that operates a public place shall not discriminate against individuals with disabilities who use service animals if the work or tasks performed by the service animal are directly related to the individual's disability. Work or tasks include assisting individuals who are blind or have low vision with navigation and other tasks, alerting individuals who are deaf or hard of hearing to the presence of people or sounds, providing nonviolent protection or rescue work, pulling a wheelchair, assisting an individual during a seizure, alerting individuals to the presence of allergens, retrieving items such as medicine or the telephone, providing physical support and assistance with balance and stability to individuals with mobility disabilities and helping individuals with psychiatric and neurological disabilities by preventing or interrupting impulsive or destructive behaviors. The crime deterrent effects of an animal's presence and the provision of emotional support, well-being, comfort or companionship do not constitute work or tasks.


5) Real Estate Briefs

a)  Maricopa County Assessor Uses Aerial Photos to Measure Houses and Raise Property Taxes

Pat Hune, 1st Southwest Realty, February 2016

One of my clients received an interesting letter from the Maricopa County Assessor’s Office. The letter said there had been an arial assessment of the rental house he owns.  The “flyover” showed the livable square footage was larger by 159SF than currently reflected in the tax records.  Therefore the property taxes would be increased in 2017 for this additional livable square footage or about 12.6% more than in 2015.  The change could be appealed 60 days from receipt of the 2017 Notice of Value.  The notices are scheduled to be mailed on March 1, 2016.  

My client was questioning the accuracy of the arial assessment.  I agree it could be incorrect.  One example would be a storage room that is not heated or air conditioned but is under the main roof.  Looking at the house from the air it would appear the storage room was livable when in fact it is not.  If an appraiser was trying to determine the livable square footage the storage room would be excluded. And what about the covered patio that has been converted to a screened in Arizona Room?  An appraiser would not consider this livable square footage since it is not heated or cooled.   

So how does an owner challenge this increase in square footage if they do not believe it is accurate?  One way is to hire an appraiser to measure the house.  Appraisers will typically do this for a nominal fee of $200 $300.  The owner would submit the appraiser's measurement to the assessors office if the livable square footage is smaller than the arial canvass.  In my opinion there will be many challenges to the increased square footage.  Appraisers will probably see an increase in requests to measure the livable square footage of the house so the homeowner can fight the property tax increase.  There is no question as to whether or not it will be worth the appraisal measurement expense as once this tax increase goes into effect it will be there forever. 

Text of the letter

“The Maricopa County Assessor’s Office canvassed over 45,000 properties for the 2017 valuation cycle. We compared recently updated street and aerial photography to our property records.  Included in the canvass project was your parcel at 1234 Easy Street, Phoenix, AZ.  

As a result of this canvass, one of our appraisers updated our property records to include what currently exists on your parcel.  (The letter includes a chart that shows the livable square footage measurement before and after the canvass and the increased livable square footage of 159SF.)  Based on the updates to your property’s characteristics, a Rule B calculation of the Limited Property Value (LPV) per A.R.S. 42-13302 will be applied for the 2017 valuation year as required when there is:

1) a change from the prior year’s Full Cash Value (FCV) of +/-10% and/or

2) the square footage of the improvements increased by 5% or more.

The statutory Rule B calculation sets the LPV “at the level or percentage of the FCV that is comparable to that of other properties of the same or similar use or classification.”

The canvass review helps ensure our records are as accurate as possible, and the properties in Maricopa County are fairly and equitably valued.  If you have any questions regarding this letter, you may contact our office at (602) 506-3406, or visit our website for more information. . . (Note the website the letter refers to does not exist on the assessor’s website.)


b)  Is Inventory Relief Coming for the Entry Level Home Buyer? 

Various sources including Jon Boughtin, National Association of Realtors, Mark Sunnucks, Phoenix Business Journal and On Q Financial, February 2016

Lack of New Homes and Resale Inventory Shortage Creates Sellers Market

The number of Phoenix homes sold in January was at the highest volume since 2013, and third highest since 2006. Nearly seven years of little or no new construction of single family homes has created an inventory shortage and resulted in a seller's market.   The inventory shortage has increased prices as the median list price in 2015 increased 5.1% year over year to $229,500.  Many real estate experts think the demand is going to continue to increase every year due to boomerang buyers.  A boomerang buyer is someone who let their house go to foreclosure.  Foreclosures peaked in 2008 when 3,000 to 4,500 sold per month with over 80% of sales at less than $250,000.  The number of properties being offered for sale was unprecedented, commonly reaching or exceeding 750 properties a day in Arizona, and averaging 300 a day in Maricopa County alone.  These buyers had to wait seven years before they could buy again while short sale buyers only had to wait three years.  Every month more of these buyers are eligible to buy again.  Not every house that went to foreclosure was owner occupied as there were quite a few investor owned properties.  But there were a lot that were owner occupied.

Multifamily versus Single Family Construction

Home builders who are ready to build again are struggling to find desirable land and labor to build homes.  The light-rail in Phoenix and Tempe has led to a frenzy of multifamily developments within walking distance of a light rail station.  However Chandler, Gilbert, Scottsdale and even Mesa are also experiencing a multifamily building boom.  All of these properties are luxury designs with granite counters, upgraded cabinetry and flooring.  This has resulted in record high rents.  All in all developers are seeing far better return on investment building a multi-story apartment building versus a single family home.  This is extending the single family home inventory shortage.

A multi-family housing example is Darryl Berger and Matt Blank who are going to the west side — with a $51 million bet on the rental real estate market.  Berger, Blank and his brother, Samuel Blank, are real estate investors and developers who buy land and properties and build new homes for rent. They are taking their business model to the Vistancia development in Peoria and Verrado development in Buckeye.  The pair have bought real estate and developed new rental townhouses and single-family homes in Gilbert and Chandler. This is their first foray into the West Valley.  Operating under a business venture called BB Living, Berger and the Blanks have bought 134 lots in Vistancia from Lake Pleasant Partners and 122 lots in Verrado from the McRae Group of Cos. for a combined $5.1 million.  Matt Blank said they are looking to development new rental three- and four-bedroom townhomes in the subdivisions. Rental prices range between $1,250 and $1,650 per month. Sizes range between 1,570 and 2,000 square feet, Blank said. (Article by Mark Sunnucks, Phoenix Business Journal, Feb 12, 2016)

Entry Level Housing Shortage Potential Solution

Condos are perfect for the entry level buyer as they are typically the lowest priced real estate.  Currently condos do not qualify for financing if more than 51% are rentals, the community does not have a condo certification or if one person owns more than 10%.  This has forced buyers to either pay cash or take out a loan on another property.  This restriction has kept condo prices low though they have increased over the years.

Jon Boughtin of the National Association of Realtors reported in February 2016 the US House of Representatives had voted to advance legislation that will expand opportunities for homeownership through the bill H.R. 3700, the "Housing Opportunity Through Modernization Act.”  This act will reform the current Federal Housing Administration restrictions on condominium financing.

Condominiums are among the most affordable homeownership options for first-time homebuyers, as well as lower income borrowers, but barriers to safe, affordable mortgage credit for condos still exist. H.R. 3700 takes a number of steps to address those concerns.  These include efforts to make FHA's recertification process "substantially less burdensome," improving a process that is often costly and which condo developments must repeat every 24 months. H.R. 3700 also lowers FHA's current owner-occupancy requirement from 50 percent to 35 percent and requires FHA to replace existing policy on transfer fees with the less-restrictive model already in place at the Federal Housing Finance Agency.

Additionally, the "Housing Opportunity Through Modernization Act" streamlines the process for exemptions to FHA's rule requiring that condominium projects have no more than 25 percent of the space dedicated to commercial use. This effort is in line with the Department of Housing and Urban Development's initiative to promote neighborhoods with a mix of residential housing, businesses and access to public transportation. Finally, H.R. 3700 includes further support for rural housing loans and multifamily housing initiatives.

Kate Stinson, On Q Financial, has been watching the bill’s progress through Congress.  Kate said "This legislation has not been fully approved yet.  We have been watching the Bill HR3700 progress through Congress.  According to the FHA Condo rule administrator, there still may be some changes to the initial Bill.” 

If the bill is passed it could provide welcome relief to the entry level buyer by opening up the condo market to financing.  It would also help sellers with condos in qualifying communities as increased demand will push prices up.


c)  FHA Escrow Holdback Limited to $5,000  

Michael Lara, Academy Mortgage Corporation, February 2016

The FHA Escrow Holdback guidelines have recently been updated. Escrow holdbacks are used to hold funds in an escrow account until repairs can be completed. This accommodation allows the loan to close and the borrower to occupy the property while the work is finished.  Repairs are limited to minor, incomplete items of no more than $5,000 based on the appraiser’s opinion or contractor bids.  Funds for the escrow can be provided by the buyer or the seller.  Limited to incomplete items not affecting habitability, safety, marketability, or structural soundness of the property. 

This is not to be confused with the FHA 203K Rehab Loan. With this loan you get money to buy the house and extra money to remodel the house all in one loan.  Your intended home--given its condition--cannot act as proper security (i.e. collateral) for the mortgage loan. What HUD/FHA does is fill in that gap between the house's current equity and the amount of the loan by insuring the loan. FHA is sort of like the rich uncle who steps in and says, "I will act as a backer for this loan until the house can be improved.”  Except the rich uncle may not care if he gets paid back while FHA definitely wants the repairs completed and the money repaid.  The minimum amount for repairs is $5,000 and the maximum is $35,000.  There are two appraisals - one as is and one after a list of repairs have been completed. The repair funds are held in escrow and the work must be done within six months.  Buyers should contact a lender who specialized in renovation loans as they are more complicated than normal loans.


6)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty

How many negotiations are there when buying a home?

A few months ago I was helping some clients buy their first home.  As we went through the process they asked a lot of good questions about each step.  I reminded them each step is a new negotiation. 

1) Contract - The first negotiation is the contract. It outlines the terms including price, earnest money, length of the  inspection period, who will pay the HOA transfer fees (HOA disclosure fees are required to be paid by the Seller), what appliances will convey with the property and any seller concessions or contributions to buyer’s closing costs, etc.   

2) Inspections - The next negotiation occurs during the inspection period which is usually 10-15 days.  The home and termite inspectors are the key participants in this phase.  But if there appears to be potential plumbing, electrical, structural or roof issues then contractors for each these specialities should be scheduled during the inspection period.   Most contractors will give free estimates.  These estimate are crucial to the next stage of the process. (Note septic inspections are required to be completed by the seller.)

3) Repairs - Once the inspections are complete then the buyer needs to decide what repairs he or she will ask the seller to complete.  No house is perfect so it is up to the individual buyer to decide what is important.  In some cases if the buyer does not have the money or skill set to make a repair then they may ask for a lot of repairs.  In other cases the buyer may only ask for a expensive items like a roof replacement.  My philosophy is if you never ask for a repair you will never get it.  The worst thing that can happen is the seller says no.  I feel it is to the buyer’s benefit to include estimates so the seller knows what the out of pocket cost may be. The seller then decides if they will make all the repairs, some of the repairs or none of the repairs.  Or the seller give the buyer an allowance to cover the repair costs.  Remember even if the seller says the house is sold as is and the buyer has signed the As Is Addendum it does not preclude the buyer from asking for repairs.  Especially if the repair is something that could not be determined until the house has been inspected by a professional.

4) Appraisal - It is up to the buyer to decide when the appraisal will be ordered.  This is driven by the inspection results.  If the buyer decides they will buy the house even if the seller does not make any repairs then they will tell the lender to order the appraisal.  I recommend the buyers do this as soon as possible because appraisals seem to be taking longer.  Appraisers can also ask for repairs to be completed so there needs to be time for the repairs to be completed and the appraiser to return to the property to confirm they are done to his or her satisfaction.  If the buyer decides they will not buy the house unless certain repairs are completed then the appraisal order is delayed until an agreement on repairs has been reached.  There is no reason to waste the buyer’s money on an appraisal until the seller responds to the repair request. 

One of my colleagues gave me an example of why it is important to finalize the repair negotiations BEFORE discussing the appraisal.  In this case the seller had not responded to the repair request.  The appraisal came in and it did not meet contract.  The buyer’s realtor immediately informed the seller’s realtor.  The seller responded he would not do any repairs because he had already reduced the price (the final contract price was less than asking) and he would not do repairs and reduce the price more to meet the appraisal.  Of course it is unknown whether the seller’s response would have been the same regardless of when he received the appraisal but now the buyers will never know.

If the appraisal meets contract the buyer is not required to provide a copy to the seller nor tell the seller the appraised value.  (Sometimes the seller will be upset if the appraisal is higher than the contract price. It is better not to disclose this information until after close of escrow.)  If the appraisal does not meet contract then the buyer is required to provide a copy to the seller.  The seller can either reduce the price to meet the appraisal, reduce the price half way between the contract and appraisal or refuse to reduce the price.  If the seller does not reduce the price to meet appraisal then the buyer would have to increase their down payment to cover the difference. It is up to the buyer to decide what they want to do based on the seller response.  Depending on the difference in price the buyer may not have the money to make up the difference.  In this case the buyer can cancel and get the earnest money back as long as they have not removed the appraisal contingency in the contract.

5) Appraiser Requested Repairs - The appraiser can ask for repairs regardless of whether it is an FHA, VA or Conventional loan.  For example peeling paint on a house built in 1969 would be required to be fixed to eliminate the potential danger from Lead Based Paint. Depending on the cost it is typical to have the seller pay for these repairs.  The reason is if the deal falls out the next buyer will have the same issues.  An FHA appraisal is good for 90 days.  So if the next buyer is an FHA buyer then the repairs will have to be completed anyway.  However sometimes the buyer will volunteer to do the repairs if it is something simple like missing outlet or switch covers rather than wait for the seller of complete them and possible delay the closing.

So there you have it.  Residential real estate purchases can have up to five different negotiations.