June 2017 - Phoenix Real Estate Update


1)  The Greater Phoenix Real Estate - Why Don’t Good Houses Sell?

2)  STAT Newsletter

3)  Boeing to Move Hundreds of Jobs to Mesa

4)  Words of Wisdom for Buyers and Sellers in Hot Phoenix Market  

5)  Tales From the Trenches - Are Surveys Important When Buying or Selling Vacant Land?


1)  The Greater Phoenix Real Estate - Why Don’t Good Houses Sell?

Pat Hune, Broker, June 2017

With the very low inventory of housing in the Greater Phoenix area it would seem every house listed for sale should sell.  In June 2017 80.5% of the listings that changed from Active or Pending status successfully closed while 19.5% cancelled or expired according to the Cromford Report. What the report does not say is why nearly 20% of the listings cancelled or expired.  To my knowledge there is no database that tracks why listings cancel or expire or why escrows are cancelled.  I came up with some reasons based on my experience and an informal survey of title companies, lenders and other realtors 

Cancelled and Expired Listings

Here are the common reasons a listing expires:  a) the price of the house is too high for the market, 2) the price is too high for the condition of the house, 3) the house has a location objection i.e. backing to the freeway or close to power lines, or 4) some other objection like a solar lease which the buyer may not qualify for or want to pay.  If the house is not getting any showings then the price is too high for the market. If there are showings but no offers then the price is too high for the condition.  In this case either the condition goes up or the price goes down. If neither happens then the listing eventually expires.  

Cancelled listings could have a variety of reasons like a) seller can’t get the price they want, b) house needs too many repairs and the seller cannot or will not do them, c) seller changes their mind about selling, or d) the seller owes too much, can’t get enough to pay off the loan and does not want to do a short sale.

Cancelled Escrows

Title companies and lenders report the number one reason escrows cancel is repairs. In February 2017 the Arizona Association of Realtors changed the purchase contract.  The previous contract called out specific systems the seller had to warrant, i.e. guarantee, to be working.  All heating, cooling, mechanical, plumbing, and electrical systems (including swimming pool and/or spa, motors, filter systems, cleaning systems, and heaters, if any), free-standing range/oven and built-in appliances had to be in good working condition plus the buyer could ask for other items. If the seller did not want to warrant these systems then the buyer signed an “As Is Addendum” when the contract was signed.  The new contract says “Buyer and Seller agree the premises are being sold in its present physical condition as of the date of contract acceptance.”  This does not mean the buyer cannot ask for repairs.  But it tends to lead the seller to believe the buyer has no right to expect repairs to be made.

It may seem reasonable for a house to be sold as is.  However if a buyer has limited funds he or she may not have the money to do expensive repairs like the roof, plumbing or HVAC unit.  Home Warranties help a little but only if the system is in good working condition at close of escrow.  If the seller says no to the buyer’s request for repairs the buyer has two options - agree to take the house as is or cancel based on the way the repair request form is constructed.  Once escrow cancels the sellers have a decision to make. If the seller knows the plumbing needs replaced because the inspector detected a slab leak the seller must disclose this material fact to a future buyer.  The next buyer might request the seller repair or reduce the price to compensate. Like a buyer the seller may not have the money to make the repair.  If no other buyer is found and the seller still needs to sell the price of the house may be reduced dramatically to attract a buyer with the money to fix the issues.

The second reason for escrow cancellations is the house did not appraise for the contract price. The main reason appraisals do not meet contract is because the appraiser used comps outside of the area where the subject property is located.  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.


2) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market and Contributions from the Cromford Report

(Note the numbers are reported one month behind.)  STAT is produced monthly by the Arizona Regional Multiple Listing Service.  This is the database realtors use to list homes for sale and the source for historical sales. ©ARMLS 2017

Housing Supply Going Down

The housing supply in the Greater Phoenix Area continues to be low. At the current monthly rate of sales if no more houses came on the market the inventory would run out in 2.4 months.  In June 9,358 sales closed up 9.7% from a year ago.   Active listings dropped 12.3% to 18,398, listings under contract dropped 3.7% to 12,388 and the monthly median sales price increased 6.1% to $242,000 according to the Cromford Report.   

Housing Prices Going Up

Last month STAT projected a median sales price for May of $239,900. The actual median sales price was $240,000, $100 higher than the $239,900 projected by our mathematical model. Our mathematical projections have been trending slightly lower than the actual results. Looking ahead to June, the PPI projects a median sales price of $245,000. With limited supply and steady demand, particularly at the lower price points, the median sales price will increase again this month. 

MLS sales volume in May was 9,641, 11.1% higher than the 2016 total of 8,676. Sales volume in 2017 is higher, with 39,790 sales in 2017 compared to 36,230 for the first 5 months of 2016. It should be noted, there was one more business day in May 2017 than in May 2016. If we look at a daily sales average, there were 459.9 sales per day in 2017 and only 433.8 sales per day in 2016 or a 6.02% increase. Like May, we enter June with fewer residential listings practically under contract this year. We begin June with 7,156 pending, 4,249 UCB and 583 CCBS listings giving us a total of 11,988 residential listings practically under contract. 

This compares to 12,425 of the same type of listings at this time last year. If my observations are correct, even with fewer listings under contract this year, sales volume in June 2017 will exceed last year. 

Click here for the June STAT Report


3)  Boeing to Move Hundreds of Jobs to Mesa

AZ Central, June 2017

More jobs are coming to Mesa.  Boeing will transfer employees from its internal services division in Seattle to its Mesa facility in the next two to three years, according to the aerospace behemoth. The company would not confirm how many positions will transfer to Mesa.  The Seattle Times reported that hundreds of employees will be asked to leave Seattle and head south.  The Mesa facility — which opened in 1982 but did not become a Boeing operation until after a merger in the late ’90s — is one of the city’s largest employers with 3,700 employees. The northeast Mesa facility, near McDowell and Higley roads, is most known for producing Apache Attack Helicopters.

Boeing making multiple changes - In a statement, the company said its Shared Services Group will make several changes in the coming years “to remain successful in our highly competitive market.”  “The moves include efficiencies gained from automation, adjusting our management structure and we will be consolidating and relocating some work that supports enterprise-wide services over the next few years to Mesa and other Boeing sites,” the statement said. The company would not say whether it intends to pay for employees’ relocation, or if it will hire Arizona workers if not enough employees choose to relocate.  “We are just at the start of having conversations with our employees to help them understand the process and get their feedback. We understand that changes like this impact our employees and chose to talk directly to them about this early in the process to give them the greatest opportunity to consider the right path for them as we work through this,” Boeing said in the statement.

Relocation a boost for Mesa - Representatives from Mesa said they did not have many details on the relocation process, but spoke highly of Boeing’s Mesa operation.  “We have a great relationship with Boeing’s local office in Mesa and we look forward to working with our partners to welcome employees and their families once the final decision is made to relocate to Mesa,” Economic Development Director Bill Jabjiniak said in an email.


4)  Words of Wisdom for Buyers and Sellers in Hot Phoenix Market  

Phoenix Business Journal, May 2017

For Buyers:

More buyers have turned to new homes so far this year.  Overall year-to-date new home sales are up 26% compared to last year as builders continue to add much-needed supply to the marketplace.  All price ranges over $225K have seen large increases in year-to-date sales, with builders focusing heavily on adding inventory between $275K and $500K.  While the median price for new homes is significantly higher than MLS resales ($311K vs. $242K), by the square foot they’re actually quite competitive when compared by price range across a broad territory.  Example, for new single family homes sold in Maricopa County between $225K and $250K, the annual average sales price per square foot is $122, compare that to $132 for MLS resales and $133 for renovated homes sold by flip investors. This pattern repeats itself the higher you go in price.  It does not ring true for buyers looking to live in a specific area, however, when compared by zip code new homes typically are more expensive than their neighbors. 


For Sellers:

The continued lack of supply in the market means that existing homeowners are seeing increased solicitations to sell their home outside of the local MLS.  Normal, non-distressed sales that were sold non-MLS have risen nearly 13% year-to-date compared to last year.  However, based on the annual average sales price per square foot, these non-MLS sales have sold for nearly 15% less than their MLS competitors.  While the gap may vary, this trend holds true across all price points and cities with MLS competition.  Sellers should be wary of solicitations to sell their house directly to a buyer. Typically these buyers claim they will pay market value but there is no way the buyers can make money on the resale if they pay market value.  Unless the house is a candidate for a flip, meaning the house needs a lot of repairs and updating, the seller will be losing significant money.  For example a $350,000 house sold at 15% under market directly to a buyer outside the MLS might cost the seller around $50,000.  If the seller had used a realtor it would have cost $21,000 assuming a 6% commission.  Sellers should consult with a real estate professional before selling their house outside the MLS.


5)  Tales From the Trenches -  Are Surveys Important When Buying or Selling Vacant Land?

Pat Hune, Broker, 1st Southwest Realty

Recently a client, Dr. Watson*, asked for my help selling a vacant lot.  Watson thought she had access to the property down a road that passed over two adjoining lots.  Initially the owner of the immediate adjoining lot, Sherlock*,  was resistant to allowing Watson access.  Sherlock said Watson had no right of way. He also said there were no easements of any kind on his lot.  This meant Watson had no access to her property.  A right of way is generally established by recording an easement granting to whomever owns an adjoining lot the right to cross.  In some cases an easement can be established due to constant use by someone. (To keep this article brief I am skipping Easement by Prescription. This is a very complicated issue and typically requires court action.)    

Watson was adamant the access to her lot was over Sherlock and the neighbors lot. W spent hours digging through recorded documents both online and hard copy.  The description of the location of the easement was called out as the SW quarter of the NE quarter etc which is very hard for a layperson to translate.  The only way to determine the location of the easement was to hire a surveyor at a cost of about $1,800.  The surveyor reviewed the documents and looked at satellite pictures. He immediately confirmed there was an easement but the location was on the opposite side of the lot. The surveyor visited the property and marked the location of the easement.   The results did not make anyone happy.  The first problem was there was no easement where Watson thought it was located when she bought the property.  The second problem is Sherlock built a fence over Watson's easement.  The third problem is neither Watson or Sherlock have a right of way from the other neighbor lot that lies between their two lots and the road.   

How did this happen? The original owner who split the lots was the one who established the easements.  Somehow the easements were established on the wrong side of the property.   The second issue is when Sherlock bought the property he did not review the title report nor did he have a realtor or lawyer helping him.  He probably relied on the seller telling him there were no easements other than the one across the neighbors lot which was not true.  Sherlock may not have purchased the property and he certainly would not have built the fence over Watson's easement.  

How will this be resolved?  One way would be to ask for an easement across the adjoining neighbor’s lot so Watson and Sherlock have access to their lots.  We can only hope the neighbor will be agreeable and not want money.  There will still be a cost involved for creating and recording the  documents.   Once the easement is established Watson and Sherlock to record new documents removing the easement where Sherlock built the fence and establish a new easement. That way no future owner of the property can force Sherlock to remove the fence. 

To make it more interesting when Watson moved the for sale sign to where the easement was located the next door neighbor said Watson had no access down the road.  Once again the survey was used to make sure Watson could access the property.

The moral of the story is whenever you are buying or selling a property, especially vacant land, always get a surveyor to confirm what you are buying. 

*Names have been changed.