"We did everything right."
In the last few weeks two ABC News reports have suggested—no, they've come out and said, in so many words—that even homeowners who do everything right are getting bit in the butt by that old devil real estate. "Real estate is so bad these days", they've said, "that it's not playing by the rules".
As the foreclosure crisis starts to age as a news story, and the mass media inevitably and almost imperceptibly loses interest, apparently it's no longer much of a story when homeowners who did everything wrong get bit. But when even homeowners who claim they did everything right end up with teeth marks, it's a new news story: Something Must Be Very Wrong With Real Estate. Real estate turns rabid.
Except that there seems to be some confusion as to the rules real estate should be playing by.
In ABC News' December 27 report, "Buyer's Market; Seller's Nightmare", Long Island homeowners David and Susan Stempel tell us they somehow own one more house than they need or want, even though they did everything right. According to reporter David Muir, the Stempels "had a buyer [for their old home]. The contract was signed. And they bought their next home...But in this faltering economy, the nervous buyer pulled out", so now the Stempels are stuck with two homes, even though, as Susan protests, "We did all the right stuff. Everybody said, 'Don't buy a home until you have it sold'. Well, you know what, we had it sold".
I feel for the Stempels, and for every other homeowner who can't sell or, to be more accurate, hasn't figured out yet what it takes to sell in this market. But I'm going to go out on a limb—work with me on this—and suggest that the reason the Stempels own two houses today is because they didn't have their old house sold. Which suggests that the Stempels didn't do "all the right stuff".
What happened? We're not given the details, perhaps because they'd get in the way of a good story, but it's likely that the buyer's purchase offer had a contingency or two. A contingency is a period of time, typically ranging from a few days to several weeks, during which the buyer can cancel the sale without penalty. This is the same sale the Stempels are calling a done deal, just because they had a piece of paper that gave the buyer an escape hatch as big as a Hummer. Or perhaps the buyer's offer had no contingencies, although this seems unlikely in an uncertain market populated mainly by nervous buyers, and he bailed anyway. Or perhaps the buyer did release his contingencies, then looked around, saw home prices declining and figured he'd be money ahead even if he walked away from his earnest money deposit.
In any case, someone (their agent?) didn't tell the Stempels that a home sale isn't over until it's over: until the buyer releases his contingencies if any, the buyer's lender funds his loan, the buyer puts the balance of his down payment into escrow, and the deed records at the county courthouse. Until then, anything can happen and, in a shaky real estate market, often does. Or perhaps someone did tell the Stempels and, in the elation of the moment, they didn't believe it.
But the bottom line is that someone didn't do everything right, and it may have been the Stempels. In fact, it probably was the Stempels.
A home sale isn't over until it's over. Life's best-kept secret. Who knew that a real estate transaction, the biggest, most expensive, most complicated, most stress-filled financial transaction most people will ever have, especially when played out against a background of deflating home prices, a declining stock market, a derailed economy and headlines suggesting we're marching to Armageddon—who knew something like that could be any trickier than buying a shirt?
Then I happened to see the same reporter's January 12 report, "Phoenix: Real Estate's 'Ground Zero'", which spotlights a market where "home values [have] plummeted 41 percent since 2006". And in some parts of Phoenix, "steep competition to sell has pushed housing prices even lower".
When Betty and Heath Hirschi bought in Phoenix in 2006, "they seemingly did everything right. They made a sizeable down payment and took a 30-year fixed mortgage". So far, so good: no 100 percent financing, no adjustable-rate loan with a low low teaser, no "option ARM" that let them sink deeper into mortgage debt.
So far, so good, except that when gas prices went up last spring, the Hirschis decided to sell. "They wanted to be closer to Heath's office...moving would save gas money on the 25-minute commute". That's when they discovered that the home they bought two years ago for $308,000 can't find any takers today, even at $130,000.
Remember, they did everything right and (big worldly lesson coming) Look Where It Got Them. "We put up a huge amount of money. We saved up to buy a home and it's all gone. There isn't even an easy way to get out of our house. We're kind of stuck here."
But as I see the shots of their glaringly new tract home, and of the neighborhood that looks like it was bulldozed out of a farmer's field a few minutes ago, something clicks: this is Modesto. This subdivision in southwest Phoenix, hammered by foreclosures and falling prices, is like all those thousands of McMansion subdivisions that sprang up out of Central Valley fields overnight and were bought by people who couldn't afford, or didn't want to pay, Bay Area prices. Central Valley subdivisions that have seen prices drop catastrophically. Central Valley subdivisions that have some of the highest foreclosure rates in the nation these days. Owned, or until recently owned, by people willing to trade a long commute to the Bay Area for a fancy new home out in the boondocks instead of a sixty-year-old dump in a far more convenient but perhaps marginal neighborhood or no home of their own at all. People who thought they were beating the system and doing an end around those high Bay Area prices. People who bought where there's no there there, not because Nowheresville was tops on their list but because it was cheap. And it was cheap because it wasn't tops on anyone's list, even during the good times, but especially during the bad.
People who forgot, or never heard, the first rule of real estate: location, location, location.
Real estate's best-kept secret. Who knew?
Now, I feel for the Hirschis, and the Stempels, and anyone else scratching his head these days and saying, "We did everything right and Look Where It Got Us", but I'm a bit of a skeptic and I had this hunch. I don't know Phoenix, and the Cordes Road address mentioned in the ABC News report means nothing to me, but I can Google map as well as the next person and, sure enough, the satellite view shows it way out on the outskirts of Greater Phoenix, clusters of dense raw treeless housing interspersed with multitudes of vacant fields. You can almost see the "New Homes Coming Soon" signs, and in better times they'd be there. Zoom out and Cordes Road is the one part of Phoenix with as much green undeveloped land as gray. "New Homes Coming Soon". Then remember that Heath doesn't like his "long" commute, and realize that the Hirschis were part of one short-term (and perhaps short-sighted) trend when they bought way way out there and are part of another, now that they're trying to get back to civilization, and remember what trends do to prices, especially where there's no there there, and we've got a little bit of Modesto in Phoenix.
Maybe the Hirschis didn't do everything right.
Location, location, location. And it's not over until it's over.
Who knew?
Sometimes people do everything right and still get bit, but it's rare. Not so rare are the people who think they did everything right and didn't.
That's the story here although, as so often happens, it's not the real estate story the media thought it was reporting. Which is so often the story on the media.