And, as I’ve said previously in this blog, when there’s any show on the ground in Northern Virginia, driving on our roads is akin to bumper cars lite!  While that might be a bit of an exaggeration, it’s not far off.  From what the local weather channel says, yesterday’s snowfall surpassed the record level that occurred in 1932.

Of course, for many of us, being house bound isn’t something we’re used to.  Most Realtors, after all, are out with clients on the weekends.  So, the forced confinement is probably what I needed!  Life’s like that sometimes, don ‘t you think?  Forcing us to do things we otherwise wouldn’t.  Perhaps there is something to an overall design to this life.  Hmmm, I wonder if….on second thought, perhaps we’d better not start down that road.

So, are you going to be lucky enough to have a white Christmas too?  We’ll, while the snow’s here, I might as well head outside and have some fun!

During the past year or so, I’ve had the opportunity to teach a reoccurring Real Estate Technology class.  The class briefly reviews the shift we’ve seen in the methods, tools and practices in our profession during the past few years, and examines how Realtors, by leveraging these recent tools, and social media platforms, can improve productivity and their business.  One point of emphasis we touch on during the class is the use of Real Estate blogs as a means of learning the business.  Blogs, and their collaborative structure, are a free classroom.  And an interactive one at that.  And there are loads of them.  Whether it’s foreclosures, luxury homes, mortgage issues, best ways to showcase a property, or just about any other subject related to the business of real estate, or homes, there’s a blog for it.  Best of all, as I say again and again during class, they are FREE.  Classes we used to pay for are now on the web, and at our fingertips, for FREE.  So, we really have no excuse for being uninformed, right?  But, having said that, what about the content?  How much substance is there in the information we’re taking in.  What credibility does the particular author, and real estate subject “expert” have?

When absorbing information, it’s a good idea to check your sources, don’t you think?  Have you ever wondered why the Federal Drug Administration (FDA) requires certain labels or notices on food and drug containers?  Do you think it’s important to know a drug is poisonous BEFORE you take it?  Have you ever looked on the label to see what’s in that jar of jelly you’re about to open?  Well, what about Real Estate information you’re consuming?  Is that article on Short Sales written by a practitioner who is a qualified expert in that transaction?  Does that individual teaching you Ethics actually have any background in the practice, or is their “expertise” a matter of having been convicted in court of lying or something worse?  Who knew? 

One the painful truths of growing up is that most of us have to learn from our own mistakes since we fail to learn from the mistakes of others.  Another is that, the older we get, the smarter our parents seem to be.  I don’t know about you, but my parents tugged on my ear a few times in my youth telling me not to believe everything I hear.  And, you know what, they were right.  With today’s abundance of online information, let’s try and be as discriminating with what we read, as well.

Recently, I attended a local Real Estate Expo.  Arriving early provided me the opportunity to spend a few minutes discussing the state of real estate practice with the event’s featured speaker, who is recognized as one of the nation’s premier coaches in real estate.  During our short exchange, I mentioned the need for better training, and much more demanding pre-licensing requirements for Realtors.  The speaker agreed, but indicated that real estate leadership, national and local, would never let that happen for one simple reason – MONEY.   Extending the time, and the difficulty of obtaining a license means more money required to get into the profession by applicants, and a longer training time.  In simple terms, that means fewer Realtors.  Why?  Some just won’t have the dollars, and others, the time and proficiency.

But, the speaker’s words spoke volumes.  And, while he willingly voiced them, doubtless there are many others who share his feelings.

Fundamentally altering how real estate is practiced must begin with a change in what’s valued in the business.  And, as any organizational change expert will tell you, that change has got to begin at the top.  Without “buy in” from those in leadership positions, changing the standards in an organization or profession is virtually impossible.

But, one may ask, what’s in it for them?  Why should those in leadership positions in the real estate business change anything?  Do leaders have an ethical and professional responsibility to improve the way their business operates?

Have your ever wondered what the difference between leaders and managers is?  The short answer is, managers manage things, and leaders lead people.   Another simple distinction is that leaders point out the right things to do while managers ensure things are done correctly.  In simple terms, the responsibility and charge of leadership is not simply to make sure things get done, it is to make sure you and those you are “leading” are doing the right thing.  As Stephen Covey emphasizes in his book,  The Speed of Trust, this develops trust among a profession’s members, but just as importantly, the clients that use it as well.

For Realtors, the importance of trust, and faith in their practices, is the basis for their referral business.  For many, it’s the lifeblood of their practice.  For real estate leadership, trust is the bedrock of the business.  Without faith in the profession and professionals they’re using, why should buyers and sellers of real estate rely on Realtors and their profession to do business?  Simply put, they shouldn’t.  Instead, they’d be better off depending on an alternate source to place their faith in.   So, what might leadership do to fundamentally and radically transform real estate practices and procedures to enhance the public’s trust?

It must begin by realizing that the overhaul must be “transformational”, not piecemeal.  That means a new level of change featuring innovation and daring by leadership and practitioners alike.  The characterization or term, “Transformational Leadership”, was coined by Presidential historian James MacGregor Burns in 1978, to describe a model relationship between the leader and their followers.  Burns focused on a more moral and virtuous example featuring new attitudes and perspectives – in other words, a new way of thinking, and new approaches to old problems.  In many cases, this new approach requires a new “breed” of leadership.  Because, as we all know, it is certainly hard (but not necessarily impossible) to teach an old dog new tricks.

This new level of might begin by including a tougher standard for owners and brokers, the key players in our profession.  The old standard of “what they knew or should have known” is just the beginning of what this group of leaders should be held accountable for.  How about greater responsibility for the practices of their agents that are a party to a transaction?  For example, how many mistakes are made today by agents (how many of these errors result in a failure of the agent to act in the best interest of their client?) involved in short sale or foreclosure transactions due to the agent’s ignorance because they’ve had little or no training in the specifics of either type of those special circumstances?  More than a few.  In each of those transactions, specialized training is one of the keys to success.  Yet, there is no requirement for the necessary specialized training by leadership at the local, state or national level.  You have to wonder why?

Secondly, better communication standards or practices would greatly enhance the way business is carried out.  The time wasted by trying to track down agents and information due to unanswered and unreturned inquiries is enormous.  Now, are those missed or unreturned calls the fault of the managing broker or owner?  Well, not directly.  But, if their firm’s culture (not to mention, this profession’s) is one that tolerates unprofessional practices, then the blame is certainly partly theirs.  As many Realtors would admit, many firms willingly look the other way rather than confront those that are routinely guilty of these faults.

Most owners would rather not upset the money cart.  One too many admonishments might scare off the money maker.  But, what if managing brokers demanded the same higher standard of practice from all the agents they oversee, and none was “above the law”?  How easy would it be for an agent to find another enabler to practice under?

Do better practices mean a better product?  By all measures, yes.  So, why aren’t they required?  When will leadership begin to set higher standards for those practicing real estate?  Perhaps these are questions, we who practice real estate, need to be asking more and more of those who sit in the seats of real estate leadership.

As mentioned recently by Lem Marshall, the Special Counsel to the Virginia Association of Realtors(VAR), in discussing what’s needed to dramatically improve the Short Sale process, he said that improved competence by agents would go along way in making a dysfunctional process much better.  His audience was a group of brokers and owners.  Lem was making it clear to those who hold the reins of power that they are responsible for having their agents prepared to practice properly.  Demanding competency is simply good leadership.  And, after all, accountability is a strong motivator.  Let’s hope those in the audience were listening.

While Lem’s Road Show was sorely needed, in an attempt to improve a Short Sale process badly in need of repair, let’s hope it is just the beginning of a larger effort to move this profession’s leadership in the right direction.

If you’re looking for Stafford and Fredericksburg area homes, this simple resource is just that, simple, easy, and gives you homes, and nothing else.  So, take advantage of:  http://www.searchingsolutions.com/fredericksburghomebuyer.com

Take a look and keep coming back.  If you need more information than provided, don’t hesitate to call me.

The term “Short Sale” has become common place in housing markets over the past few years.  Yet, for many, what a short sale is, and how it becomes a reality, is still a mystery.  A short sale is a sale of real estate in which the proceeds from the sale are less than, or “short of”, what’s owed on the balance of the loan securing the property being sold.  

The Good

At first glimpse, one might wonder why a lender would ever entertain such an arrangment,  accepting less than what’s owed on a loan.   In most cases, the owner(s) are “upside down” with their mortgage.  In other words, they owe more than their property is currently worth.  While there are various reasons why owners are in their current distressed state, the good news is that banks have begun to embarace the short sale process.  Foreclosing on properties isn’t in anyone’s interest – especially banks.  According to the legal counsel for the Virginia Association of Realtors (VAR), the average foreclosure costs the bank approximately $65,000.  That’s not what they lose on the loan payoff.  That is simply what it costs the bank to handle or manage the foreclosed property.  For banks, avoiding foreclosure simply makes monetary sense. 

Additionally, the Administration and Congress have moved to stem the foreclosure rate and make short sales a more standardized and acceptable choice for lenders.  A push from lawmakers to improve and simplify short sales has encouraged banks to embrace this option for homeowners, avoiding further emotional and financial pain that would ensue if foreclosured on.

The Bad 

From a Realtors point of view, handling a short sale transaction is never easy.  On the selling side, there are two other major participants in the process, the homeowner (Seller) and the bank (Lender).  Each of these bring with them potential problems.  The good thing is, the homeowner is usually approaching the transaction as a motivated party.  Unfortunately, that rarely seems to be  the bank’s case.  

Complicating matters further is the lack of national standardized short sale procedures, and no mandated cummunication timelines between banks and realtors (who represent their clients).  If there’s anything more frustrating for the real estate community than their fruitless attempts to reach the proper point of contact at the bank when dealing with a short sale, I’m unaware of it.  If the short sale cummunication and coordination process was designed any poorer, it would be DOA.  But, fortunately, despite the piecemeal structure, many of the transactions do close….eventually.  But, “muddling through” is no way to conduct business.  

The difficulty in successfully executing a short sale is due to more than poor coordination and communication.  Aside from these stumbling blacks, two other hurdles must be overcome.  The first involves the banks, the other, the real estate community.

The Ugly   

While we’re almost four years into the Mortgage Meltdown, banks have yet to hire enough personnel to handle their short sale and foreclosure workload.  We’re routinely informed that negotiators and asset managers are beset with caseloads of 300 or more.  With numbers like those, how can we expect success?  Within the Realtor community, it isn’t the numbers that are the problem, it’s the lack of know how.

Many Realtors handling short sales or foreclosures lack the training needed to properly do the job.  The Commonwealth of Virginia has no training requirement for handling these types of transactions.  Many agents, if trained at all, do so after “muddling through” their first few such transactions.  Wouldn’t it be smarter to have the training prior to accomplishing the task?  How can a professional do the job without knowing what has to be done?  And, who is paying for the mistakes made along the way? 

Both Short Sales and Foreclosures have excellent certification programs available.  For the former, the Certified Short Sale Professional (CSP), and the latter, the Certified Foreclosure Specialist (CFS).  But, unfortunately, many who should be taking these courses aren’t.

Today, in many regions of the country, shorts sales and foreclosures account for more than fifty percent of real estate transactions.  Luckily, there is an abundance of information on the subject available from lenders, the real estate community, and best of all, online.  Time and experience has resulted in greater success in navigating each of these unconventional property sales approaches.  But the players involved, and the processes, have miles to go before can begin to claim the process works well.                

“It is not only what we do, but also what we do not do, for which we are accountable.“

Moliere

 Have you ever tried to improve something?  Put something together?  Assemble an item?  Did you remember to follow the directions?  Frequently, the directions are more of an afterthought instead of the “how to” they’re meant to be. 

Unfortunately, failure is an important part of the road to success.  But, if you’re like me, one of your first lessons in failure occurred while attempting to assemble that store bought item you or someone in the family had to have.  Probably, in the rush to put together the item, directions were NOT followed. (Who needs them – right?)  

Real estate practice carries with it a professional responsibility.  Our responsibilities are outlined in the Code of Ethics which serves as the “golden thread” binding us together as a profession.  They are our “directions.”  In Betty Jasmund’s estimation, they’re more than that, they are a gift. 

As the National Association of Realtors publication, Professionalism in Real Estate Practice specifies, the Code outlines our ethical obligations, based upon moral integrity and competent service to clients and customers, and dedication to the public interest and welfare.  While the Code of Ethics provides an excellent set of rules or guidelines, what are they worth if they aren’t followed, or Code violations not reported?  Or, in some cases, for various reasons, not punished? 

Ms. Jasmund, the Fredericksburg Area Assocation of Realtors, Professional Standards Co-Chairman (and one of the wisest Realtors I know), recently authored an article, Why Filing a Complaint Against an Agent is Good for Everyone’s Business, on the value of the Code, in the Association’s latest quarterly publication, FAAR Side.   While the entire commentary was instructive, perhaps Ms. Jasmund’s most significant words were:

“….in 1978 by William North, EVP and General Counsel of NAR, he stated that “the integrity of the Code and the value of its vision of the real estate industry depends utimately upon its use.”  So if we don’t use it we diminish our ability to monitor our industry.  By using the Code of Ethics we present a vision of our profession as it could be and should be.” 

The Code of Ethics has had a few changes since its origination in 1913, but its purpose has been the same; to provide clear and conspicuous guidance to Realtors about how their profession should be conducted.  Its 17 Articles leave no doubt as to the Do’s and Don’ts of how the profession should be practiced.  But, if you were to ask a Realtor you met on the street to cite any one of the Articles, they probably couldn’t.  They might be able to tell you the intent of the Code (well, at least, I hope they could), which to them would probably mean “to act in the best interest of the client, and to act with integrity”.  But, other than that, who knows what they’d say. 

That begs the question, “Should agents have better than a faint idea of what their operating guidelines are?”  And, if so, how well should they know the Code?  Well enough to know a Code violation if they witnessed one?

More importantly, as it relates to Ms. Jasmund’s point, how can we use the Code more effectively to police our profession?  In our efforts to improve real estate practice by improving pre-licensing requirements and establishing a mentoring program, shouldn’t we begin by using the one valuable resource we already have, our Code of Ethics?  It is our blanket of accountability.  In Stephen Covey’s words, “Accountability breeds response-ability.”  And that is exactly what we’re looking for.  

Current Requirements

As stipulated by the Virginia Real Estate Board (VREB), and set forth in the Virginia Code, § 54.1-2105, pre-licensing education requirements for those seeking a real estate license are:  

1. Every applicant for an initial license as a real estate salesperson shall have:

a. At a minimum, a high school diploma or its equivalent; and

b. Completed a course in the principles of real estate that carried an academic credit of at least four semester hours, but not less than 60 hours of classroom, correspondence, or other distance learning instruction, offered by an accredited university, college, community college, high school offering adult distributive education courses, or other school or educational institution offering an equivalent course.

In other words, to legally practice real estate in the Commonwealth of Virginia you need:

1. 60 hours of classroom instruction (you actually don’t have to be IN the classroom – online courses meet the requirement)
2. Passing a written examination.
3. Oh, I almost forgot, you also need a high school education, or its equivalent. 

So, having passed the state test, without having handled a contract, toured a home, negotiated a contract term or clause, or spoken to a client, a brand new licensee can “practice” real estate.  Is that adequate preparation to carry out a responsibility involving hundreds of thousands of dollars?  Is there another profession whose qualifications are as minimal?

Can you imagine a surgeon performing surgery without having gone through the steps a few times, not to mention hundreds of times, prior to going solo?  What about obtaining a driver’s license?  How many practices has the student driver had before they are operationally ready?  Before they are licensed?

One might argue that those are poor comparisons since a lack of adequate training or preparation in those professions might lead to death, whereas nothing that extreme might occur as a result of an error in a real estate transaction.  And, they have a point.  It may not result in a death, but incompetence and real estate “malpractice” could certainly costs tens of thousands, if not hundreds of thousands of dollars.

If you’re not satisfied with the comparison with a surgeon or a driver of a vehicle, what about teachers?  Are they licensed to teach without student teaching many, many times while being supervised.   What about an accountant?  An architect?  A bank teller?  In each case, minimal hands on “real life”, supervised training is required prior to the ”students” being given the OK or being certified to operate on their own.  Likewise, should this be required in our training?

In our profession of real estate, one may ask if this should be a pre-licensing criteria, or is it more suitably done after licensing, but as a first step of a mentoring program Realtors participate in once licensed and prior to operating on their own under the Broker of their choosing.  Hmmm…that’s something to consider.  For now, let’s begin by looking at improving pre-licensing training with a requirement of 60 college credit hours.

Learning is a never ending process.  While there are many constants in a real estate transaction, there are some variables that may change depending upon the client, brokerage firm, financing involved, and other related factors.  It’s important too remember that a standard curriculum can’t cover all the possible contingencies or circumstances a practitioner might face, however, it certainly should include many. 

Current pre-licensing coursework provides students with little practical instruction of how to do their job.  Its intent seems to be one of preparing students to pass a written test of concepts instead of preparing them to practice real estate.  But, in examining how Realtors are trained prior to being certified or licensed to practice, maybe we’re not asking the right questions.  Maybe we the should be asking, “What should pre-licensing instruction be designed to do?”  What outcome are we looking for?  Shouldn’t it be designed to prepare a candidate to do their job?  If not, why not?  For the sake of this series of articles, let’s assume that’s the objective.  We want to prepare Realtors to do their job properly, plain and simple.  In other words, to carry out their job related tasks in a “professional” manner.  

Proposed Requirements

1. A first step in better preparing our prospective real estate agents for their job begins with dramatically increasing their pre-licensing requirements.  This can be accomplished through augmentation of the depth and breath of the classroom curriculum.  While there is no substitution for experience, the increased use of case studies, and a more detailed examination of contracts and real estate practices, to include real estate finance among other topics, will provide candidates with a better base of practical problems and solutions to learn from.
2. To adequately prepare Realtor candidates, the pre-licensing curriculum should be expanded from the current 60 classroom hours to 60 college credit hours.  Not only would these college credit hours substantially increase students exposure to real estate material, but, doing so would also provide them with college level credit.  In accordance with state guidelines, the specific content of the real estate courses “shall be in real estate brokerage, real estate finance, real estate appraisal, real estate law, and such related subjects as are approved by the Board.”  Incorporated in this coursework should be 10 hours of “hands on” practice.  This practice includes interaction with clients, both buyers and sellers, writing contracts, negotiating terms, and experiencing the entirety of a real estate transaction from beginning to post closing follow up.  

While current pre-licensing training material provides students with a familiarity of real estate procedures (concepts can be identified if seen on a test), it does little to prepare these aspiring agents for practical problems they’ll face in a typical transaction.  Increasing classroom time, improving the course material, and providing “hands on” practical experience with real estate trasactions, are three steps that need to be taken in order to improve the pre-licensing requirements for those training to be real estate agents.  

Improving pre-licensing requirements for real estate agents is an initial step in attempting to improve our profession.  By providing new agents an improved foundation to build on, they’ll be better prepared for actual real estate practice and carrying out their job.  But, while they can now legally practice, how capable are they?  Probably capable enough to be dangerous, but not capable enough to be on their own.  And, that’s where the second step of the improvement process comes in, the use of a Mentoring program.

According to REALTOR.ORG, a short sale is,  ”when the net proceeds from the sale of a home are not enough to cover the seller’s mortgage obligations and closing costs, such as property taxes, transfer taxes, and the real estate practitioner’s commission.”   In other words, the proposed sales price is short of what is required to pay off the home loan or mortgage.  You might ask, “why would the bank/lender allow a home to be sold for less than what is owed.  To put it simply, short sales are normally done prior to a home going into foreclosure in order to save money.  Yep, to save money.  According to the Virginia Association of Realtor’s special counsel, Lem Marshall,  outside of the loss incurred to pay off the mortgage, lenders spend approximately $65,000 dollars on foreclosed properties.  So, as you can see, to begin with, it makes sense for the bank to consider a short sale in order to head off further expenses resulting from the expenses of a foreclosed property.  But, the benefits of a short sale aren’t simply financial.  There are other benefits as well.

In the communities plagued with foreclosed properties, neighborhoods often begin to go downhill in a hurry due to the lack of attention to the foreclosed properties.  Since these properties are no longer occupied, they are often neglected and rarely properly maintained.  Often, they are vandalized. 

 Click here to view the embedded video.

Remember, banks aren’t in the property management business, nor do they want to be.  But, unlike foreclosures, in the case of a short sale property, the occupants inhabit the house, and are there to look after the property.  While they may have ceased making their mortgage payments, in most cases, the owners or tenants remain in the house until it is sold, or when repossessed by the bank in the case of a foreclosure.   A short sale is also in the best interest of the home owner. 

Homeowners facing a possible foreclosure can avoid the stigma, embarassment and credit problems a foreclosure entails.  By opting for a short sale, homeowners not only can remain in their home, but the damage to their credit score is small compared to the penalty they face if their home is foreclosed on.  Most lenders report “settled” upon successful closing of a short sale instead of the term “foreclosed.”   Recent reports indicate the owners who complete short sale proceedings (who have missed 2-5 mortgage payments) have their credit score affected by only 30 to 60 points.   Conversely, for those suffering through a foreclosure, their credit score will be penalized 140 to 200 points, or more.  That’s a huge difference.  So, as you can see, a short sale in lieu of a foreclosure makes sense for all parties involved.  But, if that’s the case, why are so few short sales successful?   Why is it so difficult to get to a Win-Win scenario?  Who is to blame?  More importantly, what remedy is their for a process designed to prevent property foreclosure, yet rarely does?  We’ll leave those questions for Part II of our short sale discussion.