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Category Archives: client protection

Posting from the Rain…

*** This is re-posted from my blog on Active Rain***

I heard voices…

And they were smart voices.

Wandering around in the Rain, there have been scores of bloggers pointing out that the federal government trying to “fix” the foreclosure crisis.  Now, Inman News is saying the same thing.   (the link will only be good until it goes behind the curtain)

Most families facing foreclosure today were on weak financial ground, he says, and “will defy every effort” at workouts. “Even extraordinary rewrites will beget re-default, the poorly maintained house creating deeper loss in the ultimate foreclosure, the troubled inventory overhanging the marketplace and preventing recovery,” Barnes writes.

And goes on to say…

In an effort to prevent foreclosures, consumer groups and Senate Democrats want to give bankruptcy judges the power to cram down mortgage loan modifications over the objections of lenders. (see recent blog post, and watch Inman News headlines Monday for details on how the cram down provisions in S 2136 have been rolled into a more sweeping foreclosure prevention bill, S 2636).

Supporters of cram downs say voluntary efforts by loan servicers to engage in workouts with borrowers haven’t done much to slow the pace of foreclosures, and that any increase in mortgage rates won’t be as drastic as the industry predicts.

Although Barnes didn’t address cram downs in his latest column, I thought it was interesting that he raised foreclosures and mortgage market liquidity in the same breath, and concluded that it’s the credit crunch, not foreclosures, that pose the biggest threat to a recovery.

They also point out…

Pavlov and Wachter’s December 2006 paper, “Aggressive Lending and Real Estate Markets,” looked at the use of ARM loans in 22 Los Angeles neighborhoods where prices fell more than 21 percent between 1990 and 1995. Perhaps not surprisingly, prices fell harder in neighborhoods where ARM loans were more prevalent. But the study’s most surprising finding was that it wasn’t the higher default rates on ARM loans that sent home prices plummeting, but their lack of availability during the downturn.

So, a lot of people that study these things are saying that the government, trying to provide relief is doing EXACTLY the wrong thing.  Of course, it is populist to go after the banks and talk about corporate greed and not personal responsibility.  (BTW, remember that those ideas are coming from both sides of the aisle).  Instead of helping people and getting us past this, it will only delay and increase the severity.

The cry of all of the people that aren’t being foreclosed are losing value is a valid one… but, is it not worse to drag the problem out and make it take a decade for price recovery than to let the market find its bottom and work through it in just two or three years?  Would those responsible borrowers and homeowners not be better served by the restoration of their equity sooner, rather than later?

Feel free to post links back to other blogs with arguments on both sides of this issue.  (Note:  I did not post links to A/R blogs that echoed this sentiment.  There are a lot.  I have read a bunch of them.  Feel free to post links to your blog.  I didn’t want to miss a good one… and there are many.)

Game on…

“Agents” buying buyers… Good idea?

Ok, let me just kind of wade into this one.  I’ll start by saying that Clark Howard and I will probably be on different sides of this issue…

There is a company that hasn’t operated in the Atlanta market yet, but they base a large portion of their business on buying buyers.  It goes like this…

If you are buying a home, they promise to refund a portion of the commission from the sale of the property to you upon completion of the sale.  In effect, it is free to the buyer money that came out of the pocket of the seller (because that is who paid the commissions).

While I am certainly a free-marketer, and have no issues with this company’s business model, there are a couple of flaws:

  • It only works in a full-commission environment… and they spend a lot of time trying to defeat that same full commission environment.
  • It doesn’t draw the highest quality agents.
  • The company flatly states that they can’t afford to spend the time to actually take the “client” to show properties, or even be involved in the search.  The “client” is left to seek out their own properties to view, and find a way to view them.

Let’s look a little deeper at these issues.

Beginning with the first, while telling their sellers that they just have to spend too much money, they give the money to buyers.  If sellers didn’t spend the money, this company couldn’t attract buyers.  So, if their wish to reduce commissions came true… their business model would fold.

On the seller side, I spend a lot of money marketing the property for my clients.  I also spend a great deal of time.  We can’t just enter it into the MLS, and then wait for the flood of offers…  On the buyer side, I spend a great deal of time.  Not just time with the client, but time spent locating properties, previewing properties to save them the time of looking at ill-suited homes, and time learning the contracts and changes… as well as time to learn how to deal with issues and other things that allow me to provide better service to clients.  Finally, with buyers I spend a fair amount of time researching properties prior to offers to make sure that the offered price is fair to the buyer… just offering a percentage of the listed price is NOT assessing a fair valuation.  If I reduce the money from these activities, I would have to reduce the time and activities in order to make it up in volume… Do you get good service at Wal-Mart compared to specialty stores?

Finally, to add a little more to the previous paragraph, and more deeply talk about the third issue…  There are plenty of places for consumers to search properties.  I have a search of all of the MLS listings on my search page.  There are plenty of other options as well… with some level of efficiency.  But, if I were to just send my clients out to see all of the properties on their own, how would they do it?  Drive by?  Open House?  Knock on the door and ask the owner?  How much time would be wasted in their search?

Or better yet, should they call up the listing agent and have them do all of the work… just so that this company can swoop in at the last minute and claim a portion of the sales fee?  That is what they recommend to their clients.

So, if you are looking for a lawyer to represent you in court… do you get the low bidder?  What about when you get your taxes done?  Is the firm that says they’ll do your whole tax return for $29 really the one that is going to make sure you are protected and that everything is accurate… and that you are getting all of your deductions?

Of course not.

So, while it looks great on the surface, real estate is a big investment.  It might be a little better to have someone that actually cares to consult.

You’re fired…

I’m not Donald Trump… and you probably aren’t either, but you might share something in common.

Back way before I started in real estate I was in the commercial photography business.   I was a photographer as well as a professional photo assistant.  I loved the work.  I had a pretty good client base for the assistant business, and was reasonably busy.  I also learned a LOT of things.

One of the things I learned that carried me well through that business, as well as during my time with Wolf Camera (I went from clerk to store manager to big mall store manager in about three years).   The little tidbit I learned was this:

I didn’t have to be fired.  They could just not call me back in.

I was a contractor.  I wasn’t an employee as a photographer or assistant.  To get rid of me, there were no forms that needed to be filled out.  There were no burdens of proof.  I didn’t need three warnings.  All my clients had to do was not hire me to work the next day.  They didn’t even need a reason.  At the end of the day, or the end of the shoot… I was not working for them any more, so they could just not hire me for the next job.

I would love to say that I always got the call back… but I didn’t.  Sometimes I was glad…  But, I did have some great people that I worked with, and they called me back time after time.  I added value to their business, and represented them well.

So, what does this have to do with the here and now?

It isn’t quite as easy as it was… but if you hire me to represent you in either the sale or purchase of a house, you can fire me.  I am confident in my abilities, and I don’t have a problem having an “out” in the contract that lets you fire me if I am not doing the job to your satisfaction.  Many agents believe that a six month listing contract or a six month buyer’s agency agreement means that they own the client for that time period.  While I don’t think any go into the deal thinking that they will just blow off their client later, it happens.

It won’t happen with me.  Or, you can fire me.

I don’t think you will…

(Just a note.  This was to be published on 2/11/08, but didn’t post.  I had to repost it and change the date.  Sorry for any confusiuon)

Value really up or down?

I can’t find a direct link, but I keep hearing about a survey of homeowners (possibly conducted by Zillow) that finds that 3/4 of homeowners nationwide (77% is another number I have seen) think that the value of their home has appreciated or at least held its value since 2006.  About half of those people thought that the value had increased, and the other half thought the value stagnated in 2007.

I hate to break this to a bunch of people, but in most markets… the roughly 35% of people that think their home increased in value last year… are wrong.  A few are right.  There are some areas around Atlanta that went up and kept reasonable volume.

I’d love to see real numbers for this area.

If you are looking to sell a property in Gwinnett County, GA, I’ll give it to you straight.

Is it time to buy or sell a house in Gwinnett County, GA?

It depends on a lot of things.

If you have to move… it doesn’t much matter if the market is good or bad, you have to move, so the only advice I can offer is to make sure that you are priced competitively and that your house is in top condition.  Landscape it, stage it, get great photos, and price it right… it will sell.

If you have to move, but can afford to hold the property as an investment property, it might be a good deal for you.  Obviously you need to consult a tax professional and maybe your accountant as well, but if you rent your home out for a few years, you might still be able to avoid capital gains taxes if it is sold within an appropriate time frame… unless the IRS rules change.

Assuming that you are in a position to carry the property between renters, if the market comes back within the appropriate time frame, you may get enough more at sale to make it worthwhile.

Let’s say that the house would have to sell for $200,000 in the current market.

  • If your carrying costs are about $1700/mo.
  • And the rent would be about $2000/mo.

you would gross about $7200 over two years.  More importantly, you might see a price increase up to 5% (might be more or less) which might add up to another $10,000.

That is $17,000 in two years.  It is sort of a hedge play on the price of the new house…

If you are moving up, the timing might be good.   You aren’t going to see the same pricing on the house that you sell that you might have seen in 2006.  Of course there are micro-markets that are running counter to that.  But, for most areas, selling now will yield a lower amount than a few years ago… and buying the next house will yield a similar discount.

So, if you “lose” 5% on your $300,000 house, and “get” 5% on your new $400,000 dollars, you are trading the $15,000 loss for a $20,000 gain.  That means that on the transaction, you are $5,000 ahead.

Couple that with great interest rates if you have good or great credit, along with the huge inventory on the market, and the result is that price selection and terms are great for many move up buyers.

If you are downsizing… it isn’t looking so good.   Look over the last two sections.  If you can work the deal without your equity, and you don’t mind the work of owning a rental, you might be in good shape.  If not, everything in the last section will be working against you… unless you are in one of the hot pockets where selling is easy, and buying in a different area.  I’m not going to work the math like I did above, because it is exactly the same… just putting you on the negative side.

If you are an investor, there are opportunities.  Don’t think that you can find flips all over the place.  This is not that type of market, and flipping is always dangerous.  But, there are properties on the market that can be cash-flow positive from the moment they are rented.  So, not only are the making money in the long run, but they are producing positive cash flow.

Investors are scooping up deals right now.

The bottom line is that for some, this isn’t a bad market.  For others, it isn’t much different than it was a few years ago.  Still, for many, this isn’t a good time to move.

If you are thinking about your move, give me a call and we can talk about the specifics of your property.

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