How Not To Research The US Property Market - US REAL ESTATE TV

Uploaded by USRealEstateTV on 04.06.2012

We have a lot of clients who, and you know, people are savvy in the internet with all
the material out there, who look at resources like Zillow and one of these real estate websites
and kind of use that as their benchmark for saying, well you know, it’s showing up as
this, how come you’re saying it’s this? I just love your insight because with your
background as an appraiser, how much merit and you know, strength to these websites actually
have? I have an almost personal hatred for Zillow
and Trulia. One thing most people don’t understand about those websites, specifically,
and there’s other similar to them. They are not research websites. If you go into
the fine print on them, you will see that it says the information on these websites
is not deemed accurate. They are ad-driven websites. Whenever you go to those, if you
look go down both the header and the side, there’s nothing but mortgage ads, insurance
ads, that kind of thing. That’s what those websites are designed, to draw traffic for
people to click the banner ads, that’s how they make their money. The information on
Zillow is pulled from what they call public records or transactions logged through either
county offices or city offices and many times, banking institutions. It goes both ways with
them. They will grossly overstate the sales on many properties and on another’s they
grossly understate the sales. And what I mean by that is, take a typical foreclosure property
that we might purchase, the property might get a deeded price of say 25,000 dollars and
that’s what goes through Mac Home counties office because that was the price paid for
the property and that’s what get reported in Zillow. But what Zillow then doesn’t
report is that there were two and a half years of bad taxes for 8,000 dollars, that there
was water bills owed, that there was Title Company fees owed, that there was title search
insurance owed, that there were two sets of realtor commissions owed and your 25,000 dollar
sale really cost you 35-40,000 dollars. And it also doesn’t put any kind of a condition
on the properties. It could be a dump, it could’ve been a burn out, it could’ve
been a pure homeowner house, it might’ve needed rehab and none of that is listed on
there. The other problem and not only does it go to why does it show a really low sales
price for this house, but also be careful even if you’re looking especially in Arizona
and Nevada and those areas for the, a lot of people will try and use that to back up
their exurbanite claims about the sales prices and what they can be. When a bank forecloses
on a property, there owed large sums of money on mortgage. The ways the laws work in the
United States is, it goes to public auction. The bank doesn’t actually take your house
back directly from the person, if someone named Albert owned a property and the property
had a real cash value of say 50,000 dollars but 5 years ago he took out 100,000 dollars
mortgage on it, still owed a hundred grand, it would go to auction. They would liquidate
the house, and whatever the bid that it brings the auction is, that money goes back to the
lean holders to pay off the note owed. Well because most people aren’t going to be able
to get out of their property, what’s owed on it by selling it in this situations the
bank wants the house back. The bank is the person who’s going to receive the funds
from this auction. So, what they do is, they go and send a blank lawyer or representative
to the auctions and they have them bid the amount that’s owed to them, that way the
bid comes in higher, they get all their money back, it never comes in higher so, Albert’s
house will sell at auction for 100,000 dollars, even though it’s only worth 50. It shows
up on public records as a hundred thousand dollar sale and Zillow reports it as a hundred
thousand dollar sale. But no money ever actually changed hands because to fulfill the letter
of the law, the bank essentially paid itself a hundred thousand dollars for its own asset
and so, we’ve seen other companies and it’s part of what we saw when we’re trying to
do some test markets. Both realtors and also just property wholesaler types would show
us numbers and say that sales in the area were a hundred thousand, a hundred and fifty
thousand dollars and when I would do the due diligence I would find that the deed that
was being quoted was what’s called a sheriff’s deed, which means it was through one of those
foreclosure auctions that was not an open market transaction and if it doesn’t happen
open market it doesn’t count in other words. And it’s just something to be very cognitive
of and it’s something that as an appraiser has been a problem for my field, on the appraisal
side even before the foreclosure crisis. Also Zillow, especially Zillow, likes to take mortgages
and record them as sales so when someone takes on a home equity loan on a 50,000 dollar house
and they take out a little 20,000 home equity to refurb the kitchen, it often will show
on Zillow as a sale and so you’ll see large homes, my own personal property, which is
worth about 200,000 dollars or so, short of sale after I bought my house at 60,000 dollars,
that was a construction loan I had taken against my own house to build the garage and do a
number of improvements to my own property. But it shows on Zillow as if at some point
after I bought it, I bought it for myself again. And so you just have to be very, very,
very careful when you’re using Zillow, any of those websites and it kind of goes the
same thing for listings. I will have owners who will send me listings for a property that
are up for twelve thousand, fifteen thousand dollars because they found them on some website.
Often times those were not available for public sale, they were either non-profit sales only.
The government regulates a lot of the foreclosures, 80% of all foreclosure sales are regulated
by the government. Let’s get too much into how the mortgage system works here but most
mortgages are insured by the feds and so when a house gets foreclosed on, the bank takes
that foreclosed note, turns it over to the feds and still gets their money back. That’s
why they don’t have a lot of success with short sales, they make more foreclosing on
you than they do in short selling your house. And so what ends up happening is the feds
will put a guidelines for who can purchase these properties because Democrats are in
power right now and they’re under the opinion that investors are evil and that we ran the
prices up and that it was all our fault that everything collapsed not that the feds were
insuring loans that they shouldn’t be insuring, that kind of thing. So, they will dictate
that how houses can only be sold to owner occupants or non-profit groups, that kind
of thing and they will set it at below market rates to sell, specifically to these individual
groups. Frankly, that’s why I say over five years, you’re going to see prices go up
because there’s not that many more Fannie Freddie homes in the pipeline. They can’t
do this for more than another 18 months or so and once the federal control comes out
of the market place, and I actually can bid on every property I want to buy, prices are
going to go up. And so, it’s something to keep in mind when you’re looking at these
different websites and seeing, you know, what is available out there.