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Michael Heraty
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Foreclosure Homes and Other Realities of the Market of 2009

Tuesday, January 19th, 2010

Last weekend I was working with a local young couple looking to purchase their first home here in Pagosa Springs. They both graduated from high school here and returned after pursuing their educations along the Front Range. They are both employed locally and have a new baby daughter. They are conservative with their finances and plan to only take on an amount of mortgage debt they feel totally comfortable with. The loan limit they have set for themselves is significantly below the amount the bank approved. We set out to look at several homes that fit within their guidelines. All of the homes are bank-owned or “foreclosure homes”. We found one that interested them the most and reviewed the details listed in the MLS. On Monday I visited the courthouse to obtain the recorded history of ownership and lending activity on the property.

The home was listed for sale in the $150,000 range. It had been on the market with the current listing agent for about 150 days, first listed with the agent at an asking price of $176,000. Previously, it had been listed by another agent at a price of $255,000. When I checked the ownership history of the property I found that when it had been foreclosed by the lender, the loan balance was over $230,000. I also determined that it had last sold in July of 2007 for $230,000. Based on the current asking price of roughly $150,000, the sales history would indicate the property had declined nearly 35% in just over two years! If my customers are successful in purchasing this property, they will not likely find themselves in the type of trap a few years out that many overly optimistic borrowers are now in. They are approaching homeownership in a sensible manner, with their eyes wide open and some intelligent boundaries in place. Because of this, I have no doubt, they will make a good investment that will help them grow a good nest egg for their young family.

A second example of a bank-owned home on the market with an interesting sales history. Presently the home is priced $114,000. It last sold in January of 2007 for $200,000, indicating a decline in value of 43% over the last three years.

A third property I looked into is currently offered for sale at $250,000, having last sold for $329,900 in September of 2006. The loan balance when the bank took it back was just over $273,000. Interestingly, there was an additional home equity line recorded in the amount of $90,000, indicating total debt of $363,000 against the property. Does this seem like extremely imprudent lending practices by out of area lenders, or is it just me?

In looking at these three examples, one can see that yes, there are some bright spots within our real estate market; especially for the first time home buyers. In addition to some very good prices, some of these lender-owners are offering incentives such as contributions towards the buyers closing costs and two year homeowner warranties. In some cases, the smarter lenders are even offering bonuses to the real estate agents.

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Posted in Foreclosures | No Comments »

What About 35-Acre Ranch Properties?

Tuesday, March 24th, 2009

Over the last 15 years throughout Colorado, many of the large ranches have been bought up and developed. In most cases the popular parcel size is 35 acres. The reason for this is the Colorado Subdivision Act, passed in the 1970′s which defined a subdivision as any splitting of land into two or more tracts either of which is less than 35 acres. Under this regulation, parcels split into less than 35 acres come under significantly more regulations, both from the county and the state. To stay outside of those regulatory statutes, developers typically size the parcels to a minimum of 35 acres.

In the typical Pagosa Springs ranch development, a large ranch is divided into 35-acre parcels after laying out the roads, utilities and open space areas. Usually the developer will record protective covenants and establish annual assessments to cover the maintenance of the roads, fencing and common areas as well as a property owner’s association to administer the covenants compliance and other tasks. In the Pagosa Springs area, annual maintenance assessments run from a low of $600 to a high of $5,000.

In many of the ranch developments around Pagosa Springs, owners have opted to retain agricultural property tax status by maintaining livestock grazing within the ranch. In the typical arrangement the cattleman pays a small amount per head or per pair as a grazing fee and grazes the land from about May to mid October. This arrangement results in a substantial property tax savings for the parcel owners. By having an agricultural status on the land the taxes will typically be less than $100 per year. (This figure will go up of course, once a home is built on the land). By comparison, a 35 acre tract with a market value of $400,000 without agricultural status would run in the neighborhood of $4,000 or more per year.

So, what other costs are involved in owning a 35-acre tract near Pagosa Springs? Usually the costs are limited to the property taxes and the annual property owner’s association assessments. For some tracts the total annual carrying costs can be as low as $700. So, when looking at a ranch parcel as a potential investment, it is important to be sure the 35-acre tract is in a qualified grazing lease arrangement. You also want to be sure the property owner’s association is adequately funded. If it is not there could be substantial special assessments in the future. You also want to be certain that the roads are well built and that the private water system is in good shape. Replacement of roads or water system components can be very expensive. Well run property owner association will keep a prudent reserve for capital repairs and replacements.

Overall, the 35 acre market in Pagosa Springs has softened somewhat over the last five years, except for those parcels that are closest to town. It seems fewer people are interested in owning acreage that may be 20-30 minutes from town. We also know that many 35-acre tracts were purchased in past years for investment. Some owners have experienced significant losses in their stock portfolios and have decided to sell their land to try to offset some of those losses. We have seen more people looking to own land closer to town, most often within a 15 minute drive, especially if they are looking at living here full time. Nevertheless, an investment in a 35 acre tract can be rewarding in terms of future value if you follow these guidelines:

-Be careful when considering tracts more than a 15 minute drive from town.

-Choose a tract with an impressive view from the building site. Be sure the quality of the site won’t be compromised by an adjacent parcel in the future. (Some ranches have protected building envelopes, most do not.)

-Be sure the parcel is served with central water and that the system is sufficient to supply the entire development at full build-out.

-Look for a ranch that will retain agricultural property tax status. Without this your carrying costs will be significantly higher.

-Be certain the property owners association is adequately funded and well managed, talk with the directors about their plans for the future.

-Carefully review the protective covenants and architectural guidelines and be sure there is full compliance within the ranch.

-Don’t invest in a 35-acre tract with the plan to flip it in a year or two. You should be prepared to wait a minimum of 3-5 years if you expect to realize any significant appreciation in value.

If you follow these guidelines while working with an experienced Pagosa Springs real estate broker, you should do well. The supply of ranch tracts is limited and it is likely that new developments will be more expensive to bring to market in the future. There will always be those that dream of owning their own little Colorado ranch property, and a good number of those will follow through and make a purchase in the years ahead.

Feel free to contact us at 970 264-7000 to discuss any of the 35-acre ranch developments here in SW Colorado.

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Posted in Ranch | 1 Comment »

What is the Pagosa Springs Land Market Doing?

Friday, March 20th, 2009

Much of my writing over the last couple has been on the residential real estate market within Pagosa Springs. Much of our reader interest has focused on this component of the market and recently others have inquired as to the market conditions for home sites, small acreage and larger land parcels in the Pagosa Springs area.

I reviewed the sales statistics for land transactions for the last 12 months as well as the same periods going back for five years. No real surprises in that the market transaction and dollar volume peaked in 2005 and has been a steady downward trend ever since. Year to date sales figures reveal the market is down by 50% in transaction volume and 86% in dollar volume as compared to the same period one year back. This is bad news for Sellers, but good news for Buyers. There is plenty of inventory to choose from and land prices have come down from the peak period, with Sellers starting to aggressively re-price their listings now that spring is here.

Yes, there are still a lot of land offerings that are unrealistically priced, and, often the Sellers are either not informed as to where the market has moved, or they are not really serious Sellers and have decided to wait as long as it takes for the market to meet their price expectations. For Buyers that are serious about becoming involved in land ownership, we think this is a good time to start looking. We do have a couple of caveats.

First, don’t be concerned about trying to pick the perfect bottom of this market cycle. If you do, you will likely miss it, never invest, and become one of many “I could have’s” that you hear about at cocktail parties and other social gatherings.

Second, market conditions are not conducive to the buy and flip strategies of the past. You should be prepared to buy and hold your land investment for 3-5 years.

Third, when looking at land, remember that here in Pagosa Springs, what sells is location and view. You also want to be sure the property has good utility service, especially central water, and good maintained access.

And Fourth, use an experienced Broker that really understands the land market. It is not the same as the residential market. Use the research a good Broker can provide in terms of price trends and help with locating the areas that are likely to appreciate the most when the real estate cycle starts upward again. A good Broker will save you time and make you money. Use their services.

Call me anytime to discuss any real estate ideas or concerns you may have.

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Posted in Land for Sale | No Comments »

Should you Buy a Foreclosed Home? Part 1

Friday, January 30th, 2009

The first thing you should know is that buying a Pagosa Springs foreclosed home is fraught with risks. Before you decide to head down this path, you should determine whether you are a good candidate to buy a foreclosed home as well as the risks and benefits of buying at each stage of the foreclosure process.

At a minimum you need to consider three factors: your homeowner experience, your present financial situation and your access to qualified Pagosa Springs real estate professionals who have experience with Pagosa Springs foreclosed homes. If you are lacking in any of these three areas, do not proceed any further.

By owning Pagosa Springs foreclosed homes you gain experience about the cost over ownership beyond the monthly payments. You understand property taxes and insurance, and know your way around what it costs to maintain a foreclosed home. Your financial condition is equally important because you may need substantial cash reserves to handle the repairs and clean up required to bring Pagosa Springs foreclosed homes up to required standards. It is often difficult, especially in the current Pagosa Springs lending market to obtain mortgage money for foreclosed home repairs and upgrades. You should also ask your Pagosa Springs real estate broker to help you shop for and obtain pre-approval for your Pagosa Springs home mortgage before writing an offer. You also need to work with Pagosa Springs professionals that have specific real estate experience in dealing with foreclosed homes. You can read more about our Team here. These foreclosed home transactions are not the same as buying a Pagosa Springs home from a private party, builder, or bank. There is much more risk involved with foreclosed homes and the services of a Pagosa Springs real estate professional will help you effectively navigate the risks. Buying a Pagosa Springs foreclosed home is not a good opportunity for the inexperienced “do-it-yourselfer”.

Properties may be purchased in Pagosa Springs in one of several stages of the foreclosure process. You may negotiate with the seller that is in default on their home mortgage for a “short sale”, provided the lender is in full agreement. Here again, I strongly advise you to utilize the services of a Pagosa Springs real estate broker with experience in the arena of foreclosed homes. You may be able to negotiate with the existing homeowner to bring their payments current, greatly reducing the damage a full foreclosed home will do to their credit rating. In exchange for this, your real estate broker should be able to structure a very favorable purchase price. You could choose to purchase the foreclosed home at the Trustees Auction at the Pagosa Springs county courthouse. There are specific requirements regarding payment and participation in the auction. Often times, the lender will be the only bidder due to their mortgage balance being in excess of the market value. If this is not the case, you may do well to bid at the auction for Pagosa Springs foreclosed homes.

Posted in Foreclosed Homes | No Comments »

Should you Buy a Foreclosed Home? Part 2

Friday, January 30th, 2009

You may also choose to wait out the foreclosed homes auction and purchase the Pagosa Springs foreclosed home after the bank has taken it back and any statutory redemption period has expired. Often times the Pagosa Springs bank will discount the asking price of foreclosed homes too far below what they sold at the auction for. Working on foreclosed homes requires much more patience than buying conventionally from a private party. Banks typically take longer to make decisions and their paperwork is more complicated and lengthy. This is where a Pagosa Springs real estate broker with ample experience dealing with Pagosa Springs foreclosed homes can save you time and money.

Whichever way you decide to proceed when buying a Pagosa Springs foreclosed home, it is imperative that you do your homework. Have your Pagosa Springs real estate broker help you gather accurate, comparable sales data. Be sure to look at the trends of prices and levels of inventory before determining what your offer on the foreclosed home will be. As a rule of thumb, most Pagosa Springs foreclosed home investors will not buy foreclosed homes unless they feel they will be buying them with at least a 20% discount below where they foresee the market being 90-180 days out. Be sure you have the foreclosed home inspected by a reputable Pagosa Springs home inspector. Check for mold, radon, and other potential hazardous conditions. Carefully check the title documents, including anything recorded under the owner or borrowers name to uncover any potential title problems with the foreclosed home. Be certain that you obtain an Extended Coverage title insurance policy. You may call our Pagosa Springs office to discuss the advantages to this type of policy, especially with foreclosed homes.

Buying foreclosed homes in Pagosa Springs can be a financially rewarding experience, if done right. Be sure you have a sufficient level of homeownership experience to understand what you are getting into. Remember, carefully consider the financial commitments from a borrowing and cash requirements perspective. Equally important, be sure you are working with a Pagosa Springs real estate professional that has experience with foreclosed homes. You should also consider having a qualified attorney review all documents ahead of signing anything.

Posted in Foreclosed Homes | No Comments »

Born’s Lake Ranch

Tuesday, January 20th, 2009

Nestled deep in the San Juan National Forest is a rare “In-Holding” known as “Born’s Lake”.  (The photo at the top of this page was taken last summer at this Pagosa Springs Ranch.) This extremely private ranch was homesteaded in the 1890s by Henry Born. Henry and his family worked the ranch in Pagosa Springs until 1960 when the Born family passed ownership of the Ranch to a publishing family from back east, who have owned and enjoyed this pristine setting in Pagosa Springs ever since.

Born’s Lake Ranch has always afforded its owners a level of privacy and seclusion outside the view of the public in Pagosa Springs. Here, wonderful memories can be created and enjoyed without the intrusion of any spectators. It is rare to find a property in Pagosa Springs with the natural beauty, tranquility, and solace offered at Born’s Lake Ranch. The ranch encompasses 155 acres totally surrounded by the San Juan National Forest. Born’s Lake features 17 surface acres of mirrored glass Rocky Mountain water, a 3-tiered waterfall, and a dramatic canyon with the West Fork of the San Juan River flowing through it.

From the shore of Born’s Lake you can enjoy the reflections of the snow-capped peaks that surround this Pagosa Springs Ranch. From your row boat you’ll look down through crystal clear mountain water to hundreds of hungry Brook and Rainbow Trout. Hike to several spectacular waterfalls within the property as well as numerous creeks and streams.  Or perhaps you would enjoy scouting the wildlife in Pagosa Springs which includes elk, deer, fox and even mountain goats and an occasional big horn sheep.  You can also hike out to a National Forest trail that leads to Rainbow Hot Springs and across the Continental Divide. Whether you are looking for a family compound in Pagosa Springs to enjoy making memories, a hunting lodge, or a corporate retreat, you will not find anything as private and spectacular as Born’s Lake Ranch. This Ranch in Pagosa Springs has been carefully guarded and controlled by the caretaker to assure its private enjoyment for years to come.

Posted in Ranch | 1 Comment »

Steps To Buying a Pagosa Springs Foreclosure

Friday, January 9th, 2009

Everyone seems to be interested in Pagosa Springs foreclosures. I thought it might be a good time to write a short article on this topic. There have been plenty of articles in the media over the last year about how many properties are going into foreclosure. Yes the numbers across the county are staggering, and on occasion, there are some good values to be had within the foreclosed or bank-owned residential market. Pagosa Springs foreclosures are higher than normal, though not nearly as high a percentage as you read about in markets such as Las Vegas, Phoenix or Sacramento. Still, it is worth some time to look at how to make a good buy within the foreclosure market.

In the Pagosa Springs area, our clients typically rule out any mobile or modular home that is bank-owned, at any price. There are simply too many headaches involved for most people with a Pagosa Springs foreclosure that is bank-owned mobile or modular home. Most are within two specific subdivisions in Pagosa Springs, Aspen Springs or Pagosa Vista. In the case of Aspen Springs, the first problem most buyers have trouble with is the fact that the area has no protective covenants, and no central water and sewer. Many residents have their water delivered and stored on-site. This is a tough condition to overcome in the resale market. The other subdivision is Pagosa Vista, which is essentially a manufactured home subdivision on the west end of the Pagosa Lakes area. Many of the residents are renters and market rents in that area do not provide an attractive return for most owners.

As you move forward looking to buy a Pagosa Springs foreclosure, you should first decide what your objective is. If you are looking to buy a foreclosure and expect to be able to flip it for a quick profit, you may want to re-think that option in today’s market. Unless you are able to purchase a very desirable home for a tremendous discount, you may need to be prepared to hold the home for 1-3 years, hopefully benefitting from rental income until the time is right for selling. When looking at bank-owned or Pagosa Springs foreclosure properties outside of those two areas, the first thing to do is to take a look at the outside of the home. Does it appear to be in good shape? How does the siding look? Does the roof have plenty of life left in it? Has the outside been maintained or does it suffer from deferred maintenance? If the wood siding has not been properly treated it may take $2-$5,000 to bring the condition back up to what it should be. Are the windows all intact? Once you get inside, look at the condition of the floors, the cabinets and countertops, bathroom tubs and showers. Are all the appliances and fixtures in place? How is the paint. If everything looks okay at this point, you will want your agent to order a title condition report to be sure there are no liens or other clouds on the title of Pagosa Springs foreclosed property. Find out if a survey has been done recently. You may want to check with the property owners association to be sure the home is in full compliance with the protective covenants. Be sure there are no encroachments or unrecorded easements or other conditions that would affect title.

If you decide this is a home you want to own, have your broker arrange for a qualified Home Inspection Report. We want to know everything you can about this Pagosa Springs foreclosed home before you commit to purchasing it. This report will cost you between $350-$500. It can save you thousands of dollars. Once you have thoroughly reviewed the Home Inspection Report, the condition of title, the survey and visited with the property owners association, you should focus on determining what price you are willing to pay, and be sure your broker has helped you pre-qualify for any financing you may need if you are not going to pay cash.

Your broker can help you by going over all of the comparable sales data in the area, paying special attention to the most recent sales. You will also want to review all of the comparable Pagosa Springs foreclosure listings on the market. You need to know how many homes like this one have sold in the last year and how many are on the market. Is the inventory growing or shrinking? How long should it take you to re-sell this home? What are comparable rents in the area? Is there sufficient demand for this type of rental home that you can earn a good return on your investment? After you and your agent have gone over all these details you will have the agent prepare an offer on the foreclosed home. Make the offer as clean as simple as possible. The managers of bank-owned properties favor those offers that do not have any financing or inspection contingencies. Be patient as you wait for a response. Typically the managers of bank-owned properties do not respond as quickly as private owners. It may take up to 10 working days just to get a written response. If the offer is accepted you are on your way, if it is not, you and your broker will have to make a revised offer, assuming the bank’s figures don’t exceed the maximum you are willing to pay. Call me anytime to discuss buying Pagosa Springs foreclosures. I did a great number of foreclosure sales during the 1980′s and I can save you time and money.

Posted in Foreclosures | No Comments »

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