Please Read the Real Estate Fine Print
December 13th, 2009 categories: Market Trends, Real Estate News
”IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS”
Unknown
This morning’s Boston Globe ran a story of a real estate investment venture gone bad. Sound familiar?
In this case, a young Virginia Beach couple, among others, were sold “a bill of goods”, left high and dry, broke, and are facing a lengthy legal battle to simply try and reclaim their good name. If there ever was a real estate swindle that exemplifies the worst aspects of the buying and selling of real estate, for profit or not, it’s this one. It has all the necessary elements:
1. The Promise of Easy Money
2. The Smooth Talker
3. Fraudulent Loans
4. Fabricated Appraisal Figures
5. A Gross Lack of Due Diligence
This is but one of the many tragedies left as a result of the housing market run amok. Kind of like teenage boy on steriods driving a school bus without a governor (you know, the device that restricts their speed). Before you invest your time, effort, and your money into any venture – especially one that sounds too good to be true – please take the time to do a risk analysis, and ensure that the road ahead isn’t full of quicksand!
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Is Permanent Relief Too Good To Be True?
November 30th, 2009 categories: Real Estate News, Relocating
Today’s announcement that the Obama Administration plans on forcing mortgage companies to permanently reduce monthly payments for troubled homeowners was met by a mixed reaction. While the action’s sponsor, the White House, said one thing, many others took a more realistic wait and see attitude.
The Department of Housing and Urban Development’s (HUD) new initiative is part of the Administration’s efforts to provide relief for homeowners who are laboring to pay their mortgages, and is another piece of the effort to stabilize the housing market. The initiative, according to HUD, wants to extend to those already receiving trial modifications to their home loan, a permanent modification to their mortgage. In simple language, what does that mean? A lower payment.
While borrowers have understandably embraced the new program, mortgage lenders aren’t nearly as willing. To ensure their participation, the Administration outlined steps to hold their feet to the fire.
Servicer Accountability
As part of the Administration’s ongoing efforts to hold servicers accountable for their commitment to the program and responsibility to borrowers, the following measures will be added:
- Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae “account liaisons” are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer’s plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.
- Servicers failing to meet performance obligations under the Servicer Participation Agreement will be subject to consequences which could include monetary penalties and sanctions.
- The December MHA Servicer Performance Report will include the data on permanent modifications as well as the number of active trial period modifications that may convert by the end of the year if all borrower documents are successfully submitted, sorted by servicer and date.
- Servicers will be required to report to the Administration the status of each modification to provide additional transparency about situations where borrowers face obstacles to moving to the permanent phase.
While the new initiative is certainly welcome by homeowners whose mortgages have become a greater burden than they can bear, its viability is only as good as the rules it is guided by. The process is riddled by paperwork, and paperwork and the U.S. government sometimes don’t mix too well. Additionally, while the gov’t plans on using a carrot and stick approach when dealing with lenders, only time will tell how well their daily monitoring works in practice.
Former Chief Credit Officer for Fannie Mae, Edward Pinto, calls the new initiative’s goals “a pipe dream”. What do you think? Is it simply eyewash? Or, is the initiative good for homeowners and the economy?
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Our Economic Helter Skelter
November 26th, 2009 categories: Market Trends, Real Estate News
“Sooner or later in life, we all sit down to a banquet of consequences.”
Robert Louis Stevenson
Is a Federal Housing Administration(FHA) crisis on the horizon? With FHA’s insurance reserve ratio falling to the lowest level in history, at 0.53 percent, there are some who believe the FHA is the next subprime crisis waiting to happen. One of those is homebuilder, Toll Brothers Inc., CEO, Robert Toll. Toll predicts that just like the failed bank bailouts, the FHA will be next in the handout line. And, with the reserve ratio as low as it is, he may be on to something. According to a Congressional mandate, the ratio should be no lower than 2.0
In addition to the alarming FHA news, this week’s Wall Street Journal reported that nearly 25 percent of all homeowners are upside down with their home mortgage. In other words, they owe more on the mortgage than their home is worth. Well, considering how values have fallen since ‘05, that isn’t too surprising.
While the recent encouraging national home sales figures provided us a glimmer of hope amidst the current economic downturn, today’s sobering news concerning the viability of FHA home loans, and the depressed values of properties, bring us back to reality. So, what are we to believe? Are things getting better? Is the First Time Homebuyer’s Tax Credit frenzy skewing sales numbers, or, are increased home sales “genuine”? Are these numbers more akin to a mirage? Instead, are we stuck in an economic tailspin for months, or years to come?
In the competition to provide us the latest and greatest updates on where the economy is heading, we see indications that are both promising and discouraging. Where the housing market may be going, we don’t exactly know. But, fortunately, one thing is for sure, there will be homes both bought and sold. So, perhaps we’d best stick to the present, and as they say, the future will take care of itself. After all, as someone once said, “Predicting the future is easy. It’s trying to figure out what’s going on now that’s hard.”
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More Good News
November 23rd, 2009 categories: Real Estate News, Relocating
Invariably, in the course of conversations with friends, one of the topics that normally arises, is the subject of the homes. Usually, the mention comes in the form of, “How’s the housing market?”
Other than the dramatic shock to financial markets during the year following the height of the housing market and subsequent rapid fall in home prices, the sales market has been fairly predictable. Once lenders got a grip on the deluge of foreclosures and short sales, and this glut of properties began to be adequately handled by them (O.K…so, they’ve still got problems with Short Sales, but they’re getting there), the housing market has been relatively stable.
Today’s latest news on the surge in home sales isn’t news to those of us in the business. As one prospective home buyer in the latest USA Today article mentioned, the market is “insane….I’ve never seen a market like this before.”
That, after having finally securing a home following unsuccessful offers on 20 Las Vegas homes. And, while the rush to “get in” and take advantage before the First Time Home Buyers tax credit offer expired can partly be credited with the robust sales numbers, it doesn’t hurt that home prices, in many locations nationwide are 30-50% less than they were in 2005, or that interest rates are rock bottom.
Many believe that home prices have stabilized. But, with more foreclosures and Short Sale properties landing on the market weekly, we may not have seen the bottom quite yet. With extension of the tax credit, and mortgage rates in a low holding pattern, the surge in home sales numbers may, if we’re fortunate, become a trend instead.
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Cleaning Up the Short Sale
November 5th, 2009 categories: Market Trends, Real Estate News
Have you ever been in an uncomfortable position or arrangement that you couldn’t get yourself out of? If your answer is no, then lucky you. Most of us have run into these predicaments a time or two. So, what’s the solution? What steps can you take to try and improve a difficult situation you might be stuck in. And, no, divorce is NOT an option.
Let’s be honest, the “Short Sale” isn’t going anywhere. I know what you’re thinking, “Of course it isn’t going anywhere(in other words, no action by the lender!)”, but, what I mean to say is, they’ll be here for a while. In other words, we’ll be seeing plenty more of them in the the next few years. As long as the economic downturn is with us, there will be homeowners in states of distress who are unable to pay their mortgages. So, how do we turn this lemon into lemonade? (And, believe it or not, it takes more than a lot of sugar!)
Earlier this week, a few local Brokers and Instructors had the opportunity to sit down with Lem Marshall, the Special Counsel to the Virginia Association of Realtors(VAR), to discuss ways the Realtor community can improve the short sale process. By improve, we mean, enhance the chances of a successful short sale. During his presentation, Lem volunteered some helpful hints at how Realtors can maximize their chances of succeeding in dealing with Short Sales.
He began by reminding us that on average, about one in four short sales transactions, nationwide, are successful. While the real estate community doesn’t control all the variables involved in the process, there are a couple of items we do influence. It is those items or factors, if handled and executed properly, that can sometimes mean the difference between success and failure. While Lem conceded that lenders are the main short sale players doing most of the transaction decision making, Realtor’s decisions and actions, if done incorrectly, doom the transaction.
The starting point for Realtors in any transaction, but especially in Short Sales, is competence, according to Mr. Marshall. Understanding the process involves an appreciation for all the moving parts. To begin with, the agent must know what they are doing, and what they’re dealing with. Agents will consider and interact with four main participants in this transaction; the other agent, the property, the client, and, most importantly, the third party, or lender. Let’s begin by looking at the importance of understanding the first two.
THE OTHER AGENT
Since a short sale is a special type of real estate transaction, understanding what’s required takes more than a license to sell real estate. Being aware of what the agent on the other side (especially the Listing agent) of the transaction knows about short sales is important in considering the likelihood of success. If they know what they’re doing (proper valuation of the property, good communication with the lender’s representatives, etc), then chances for success – all things being equal – are probably fairly decent. If they don’t know what they’re doing and are unfamiliar with what’s required, then watch out! You’ll be doing a lot of hand holding (with the other agent, as well as your client), but may be doomed from the beginning.
It’s unfortunate, but until specialized training in short sale procedures is mandatory for all agents handling these transactions, many agents will be unprepared to properly handle what’s necessary. The Certified Short Sale Professional (CSP) course provides agents a comprehensive examination of the requirements of the entire process, and what is required for success. Other than actually handling a short sale transaction, it’s about as good as it gets in preparing agents for dealing with the short sale of a home.
But, as mentioned earlier, if you’re dealing with an inexperienced agent, and that simply means, in this case, one that is inexperienced with short sales, that’s not been trained, then the chances of success are minimal. Why? Because, it is imperative that the Realtor is aware of the specific ins and outs of this unique process. To begin with, the listing agent must be able to properly price the property to be sold.
PROPERLY PRICING THE PROPERTY
Absent a proper valuation of the short sale property, the lender has little incentive to consider any proximate offers on the property by prospective buyers. Real property is worth what someone is willing to pay, nothing more…or less. Believe it or not, lenders are aware of this.
Determining what price a home should be marketed for, whether a regular home sale, or a short sale, depends upon the use of accurate comparables. In other words, what are like or similar properties in the area selling for? Successful Short Sale Specialists advise that these properties be priced just below ($10,000-$15,000 below) the lower price range of similar homes on the market. Remember, lenders WILL be appraising these homes, or ordering a Broker Price Opinion (BPO), at the least. Lenders aren’t going to give these homes away, they’re trying to limit their losses while getting the property out of inventory. So, accurate pricing by the listing agent is a must. Banks, like any normal home reseller, will be asking for market value, or maybe, a little less. That doesn’t mean 20-50% below market value, despite what you might hear from uninformed experts.
Improving the success rate of short sales involves an understanding of what’s required, and the successful completion of the necessary steps by all the parties involved in the operation. For Realtors, not only must they know what’s needed in order to succeed, but it also helps to know what the other side of the transaction knows, as well. With a good idea of what the other agent and their listing have to offer, agents will be better able to communicate effectively and accurately with their client(s) and the third party that’s involved. Those are just the initial steps on the path towards completion of a winning short sale.
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Are We Being Led, or Led On?
September 23rd, 2009 categories: Real Estate News, Relocating
Leadership has been examined, discussed, practiced, criticized, admired, and mischaracterized for almost as long as humans have been around.
But, for real estate professionals, where does ”leadership” come into practice? Do we lead anything? Are we led by anyone? The obvious answer is, of course leadership is practiced. And, yes, there are indivduals leading us in our profession. But, if that’s the case, what kinds of leadership do we see? Are they leading us in the right direction? And, who is leading who, to do what?
What Does Leadership Look Like In the Practice of Real Estate?
As real estate agents, our job is advise, counsel, and, among other things, educate our clients. At the end of the day, we are paid to influence or persuade. Is that leading? Of course it is. As most of us would agree, leadership is the practice or art of persuasion. The ability to lead is based upon the faith or thrust that those being led have in their leader. Aren’t our clients trusting us when we advise them on market conditions or price? How about when we make recommendations to sellers on staging their home or preparation needed before placing it on the market?
What is their faith in our capabilities based upon? A positive history with us as a previous client? In the case of a new client, what leads them to place their trust in you as an agent? Was it your amazing marketing presentation? And, what about buyers with their new agent, what is the basis for the selection of agent? A recommendation from a friend? The agent’s track record? Good interpersonal skills? Does it really matter? When all is said and done, isn’t it the result that’s most important? While the result is certainly very important to the buyer or seller, how the agent leads is sometimes more important than what the result is.
Agents are considered to be ”independent contractors“. One of the benefits that comes with that capacity is freedom. Since independent contractors aren’t “employed” per se, but instead, work for themsleves, they are free to operate under their own set of rules. Within limits, of course. They are bound by the professional code or operating guidelines of their profession. For Realtors, these guidelines are the Realtor Code of Ethics and Standards of Practice. And while Realtors are well aware of what they should or shouldn’t do, most of their clients aren’t. In other words, in most cases, they wouldn’t be aware of misconduct by their agents unless it hit them in the face. And to be honest, while Realtors take pride in what the Code stands for, sometimes their practice of it leaves something to be desired.
How are Realtors held accountable for the practice of their profession? Do owner/brokers hold their agents accountable for their lack of professionalism or malpractice? If so, how? Do these brokers consider it more important for those new agents to get out and sell houses as quickly as they can, or to be well grounded in their Code of Ethics?
More importantly, if the Code is the cornerstone or building block of the practice real estate, how familiar does an agent have to be with their Code of Ethics before they are given a license to practice? In other words, what are those in leadership positions in the real estate profession requiring of their community of agents? What example are they setting and what standard are they accepting from those they are leading?
In real estate, like other professions, there are those sitting in leadership roles that are simply placeholders. Normally they’re in the position for affirmation and little else. Certainly not to seek change, and God forbid, to make waves! I’m reminded of a former classmate of mine from a recent leadership program, who, when asked why he was there, responded, “To check the block”!
There are those who believe that our leadership challenges aren’t much different than those of other professions. But, instead of minimizing the difficulties we face, perhaps we need to be asking instead, how we can transform our profession to one that is second to none when it comes to the public’s trust, instead of one that’s on par with Used Car Salesmen, according to Donald Trump.
But, let’s not get the cart before the horse. Before we take a look at some sugggested avenues of improvement, let’s take a look at some anecdotal evidence on where the real estate ethical compass rests today. We’ll begin that examination in our next blog entry.
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