Most home buyers have at one time been a home seller. Most home sellers have at one time been a home buyer. And yet both buyers and sellers often forget what it was like to be in the other position, even if it only was recently that the shoe was on the other foot.

When you were selling a home, what would your reaction have been to an offer 20 percent below market value? Would you have rationally said, “well, this is a buyers’ market so this is natural” or would you have questioned the parentage of the buyers? If you’re like the vast majority of sellers, you’re in the latter category.

Conversely, when you were buying a home, would you automatically offer not just the list price but a few dollars more just because the home was that special or would you offer less to establish a negotiating position and try and uncover the seller’s real bottom line?

Purchasing real estate in Phoenix or elsewhere isn’t a complex dance. Everyone knows the rhythm and the steps. You bid here, we counter here, agreement comes there and all end up (relatively) happy at the end.

What complicates things is emotion but with a little empathy and a reach back into our memory we ought to be able to set some of that aside in the effort to attain the goal.

That’s the one rule that works, the only rule we and the Flint Tropics have. Everybody Love Everybody.

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There’s nothing like a trip back in time to give some perspective on just how far the Phoenix real estate market has shifted the past several months.

This morning I was talking to a client about where the market was at the start of November when a particular property was purchased from a lender. Here are what the absorption rates looked like then:

Phoenix Real Estate Inventory: November 5

And this is where the market stands as of this past Tuesday:

Phoenix Real Estate Inventory: June 30

The obvious question is how could someone have seen this coming? And the somewhat self-serving answer is to watch the inventory updates here on All Phoenix Real Estate. If you had been following the weekly updates you would have seen the tide turn at the beginning of April. And the current market wouldn’t be a surprise.

The key to any decision is information … those who have it can make the most informed choices, those without or with only partial information are left to wonder.

Yesterday, buyers from Alaska closed on a second-home in Queen Creek. The notion of previewing each property before making an offer gave way to the reality of the speed with which homes were selling. Fire off the offers, then use the inspection period to see what kind of shape the home might be in.

On our 15th offer, we found success. Relatives in the area joined the home inspector for the walkthrough and these folks have a home which, with a little work, will be a terrific property in which they can escape the snow.

(Quick aside: I still recommend making a trip to the Valley before purchasing, just to get the lay of the land. These folks had done just that not so long ago.)

These folks read the signs, adjusted their strategy and got their property. Adjustments are necessary. It harkens back to Einstein’s definition of insanity, to do the same thing over and over again expecting different results.

Wishing we could go back to the higher inventory levels of November is pointless. That’s not where the market is. And, depending on who you listen to, it’s not where we’re going to be again anytime soon.

Such is the case of the Canadian dollar, which rallied past the 90-cent mark. There was speculation among some readers that the Canadian dollar would keep rising until it was back at par as it had been in 2007. Don’t settle for 91 cents went the message, hold out for the full dollar or more.

If you watch the currency markets you know how this worked out … the Canadian dollar has slid backward over the past couple of weeks. It’s still stronger than where it was only a few months ago but not as strong as it had been a few weeks back.

Adjust to the current market and you’ll succeed.

What’s the big thing to watch in the current market, at least for Tobey and me? Price movement or, more to the point, the lack of movement despite the decrease in inventory and increase in demand. The flattening of the price curve stands in defiance of everything we know about the law of supply and demand. And that’s because of a variable that’s been added to the equation.

If you remember my old analogy about the Phoenix real estate market being like a car stuck in the mud. The accelerator’s being pushed to the floor but the tires keep spinning, unable to gain any traction. Why? The lenders are standing to the side with a water hose making even more mud. How? By continuing to price homes below current market levels in order to initiate a quick sale.

Price new homes to the market at the level of the past sales and they’ll still move. Maybe it will take 10 days instead of five, but they’ll still sell. And then you’ll see prices move …

… assuming the assinine HVCC laws don’t continue to serve as a further anchor. (Note to the folks in charge - if most investments come with the required caveat “past performance is not an indicator of future results” then how is it that we’re now requiring appraisers to factor past declines into future values? Assume the market will remain down, hold the prices down accordingly and you have the self-fulfilling prophecy.

(Buyers do the same thing, or at least did back when there was room to maneuver on the price of bank owned properties.)

Banks tend to be fairly unintelligent when it comes to selling real estate so it might take them a bit longer to figure out proper pricing. And there’s a slight chance they just won’t.

If they do, though, and the prices start reacting to the laws of supply and demand as they should, are you prepared for the change?

If you’re reading this website, you’re well on your way.

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These days, with homes in the Phoenix real estate market often selling within a handful of days and no time to preview or show before writing an offer, it seems I’m spending more and more time simply writing contracts.

Should one get accepted then I move into the regular mode - ordering and attending inspections, coordinating the transaction between the lender, buyer and escrow, negotiating repairs (unless it’s a bank owned home and no repairs are being made) and all the rest of the work that goes into a successful home purchase.

But 95 percent of the offers I’m writing aren’t getting there. And since my role is a bit more limited - I have less overhead when I’m not driving hither and yon to show homes to a buyer before he or she makes a decision - I’m wondering. Is there a place in the Phoenix real estate market for an agent chargining an up-front, pay-per-contract-written fee?

DOJ fun prevents me from using real numbers. But let’s say I started offering a service where a buyer pays me $XX per contract that I write. Should one prove successful, the amount paid would be credited back out of the commission paid either in full or at most up to the amount of the commission.

If you’re serious about purchasing, would you be willing to pay to have the time that it takes to research a property and write a contract?  Does a program such as this sound better or worse than charging an up-front retainer of a certain amount on homes under a certain price point?

Of course, the obvious flaw is there are hundreds if not thousands of local agents who will write the contract for free. Some of these are the same ones who will flaunt local MLS rules and hand buyers the lockbox codes without thinking twice.

Still, the quickly multiplying contracts sitting in my Documents folder makes me think that this might be a path worth pursuing.

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For the past several months, I’ve been fielding about an inquiry every two days about homes appearing on the Phoenix real estate market for under $50,000. These homes, though, aren’t always the deal they appear to be. Here are a few of the reasons why:

1) Financing. As you drop below $50,000 you’re approaching the lowest level where a mortgage can be obtained. And getting that mortgage depends on the condition of the home. No stove? No FHA loan. No air conditioner and other major repairs needed? No conventional funding available either.

2) Condition. When the median price for a home in Phoenix is well over $100,000 and you are looking at homes at one-third to one-half that price, might there be a reason? Often the key is condition - homes under $50,000 almost always are going to need some work. It’s just a matter of how much and how much it’s going to cost. In some cases, by the time you’re done with the repairs, you paid far more than you ever expected to pay.

3) Location. Sub-$50,000 homes are available only in a handful of locations. Steak tastes on a meat loaf budget isn’t going to work.

4) Competition. Few homes under $50,000 receive less than one offer. Most are getting multiple offers in the door the first day or two the home’s on the market, and many of these offers come through sight unseen. Buyers are firing the offers first, getting a home secured, and then using the inspection period to find out what they bought.

Truthfully, this phenomenon stretches well about $50,000. I have a couple closing on a house in Queen Creek tomorrow that we secured on our 14th or 15th contract.

The bottom line with any real estate, but particularly with these homes, is you get what you pay for. If you’re searching for the lowest sector of Phoenix real estate, you’ve got to expect the homes aren’t going to be pristine and aren’t going to perfect (and they’re not going to be in Scottsdale.) If they were in better condition, they wouldn’t have bargain prices attached.

Got more specific questions? E-mail address is at the top of the page.

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One of the requirements of obtaining a $15,000 loan from the city of Phoenix to purchase a bank owned home is that the purchase price needs to be no more than 85 percent of the home’s appraised value.

Setting aside the reality that such a scenario is virtually impossible in today’s Phoenix real estate market, such a requirement will do little more than crush further the home values in a given neighborhood. If the intent is for the owner to have immediate equity, the reality comes nowhere close.

Let’s say our potential finds a house. And, luckily enough, there are three identical homes that have sold, all at $100,000 (and for these purposes, we’ll make them completely identical - no adjustments would need to be made by the appraiser.)

What’s the home’s appraised value going to be? Of course, it’s $100,000.

Except the rules of Phoenix’s program say that the home can’t be purchased for more than 85 percent of appraised value. Miraculously, the lender agrees to these terms and sells our buyer the home - we’ll call it Home A - at $85,000.

That’s $15,000 in instant equity, right? Well, not so fast …

Another potential buyer comes along a month later and finds an identical home to Home A and to the previous comps. Enter the appraiser who pulls the most recent comps for this new home, Home B, and finds the last three sales were at $100,000, $100,000 and … yep … $85,000. What Home A appraised for doesn’t matter. It’s the sold price that counts.

Average out the last three sales and now you have a value of $95,000. The buyer on Home A still has $10,000 in equity (with $5,000 of paper equity gone), and others who own the identical home have watched their home’s value fall 5%.

Better yet, the buyer for Home B also is using Phoenix’s $15,000 loan program and the bank, defying the odds, agrees to sell the home for 85 percent of the appraised value of $95,000 -  $80,750.

What does that do to the value of Home A? The last three comps now are $100,000, $85,000 and $80,750 for an average of $88,000 and change.

Another $7,000 in paper equity, gone. That $15,000 equity cushion has dropped to just over $3,000 in the span of two sales, one of which the actual sale at 85 percent of appraised value.

This is supposed to be a good thing? Wouldn’t it seem much better to let the market work itself out as it has done for the past few months rather than artificially attempt (and fail) to create equity?

Fortunately, this will remain little more than an academic exercise thanks to the program’s near-impossible requirements. Sure, there may be a lender or two willing to sell for 85 cents on the dollar but as we’ll see in tomorrow’s post, lenders are too busy chasing imaginary high bids to even consider a city-enforced lowball offer.

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