Maryland and Virginia Real Estate and Homes Blog

                                                   * * * *  HARD CORE REAL ESTATE TALK  * * * *

REAL ESTATE AGENTS AND BROKERS NEED TO GET A GRIP ON REALITY AND LEARN THE FACTS ABOUT THE HOUSING INDUSTRY IS IN RECESSION.  BY ALL LOCAL AND NATIONAL NEWS REPORTS, IT IS REAL.

A recent opinion based survey conducted by INMAN on December 1st shows that I am not alone in my opinion that the recovery from this housing industry recession may take several years.

However, I don’t rely on opinions.  I rely on FACTS.

FACT OR FICTION?  It is not in my nature to harp, kick that dead horse, or be pessimistic.  However, when it comes to the housing market and the real estate industry, I rely on HARD CORE REAL ESTATE.   I RELY ON MY OWN RESEARCH of the FACTS.  Numbers do not lie. 

• Property values are down.
• Sales volume is down.
• Consumer traffic is down. 
• Unemployment is up.
• The economy is in recession. 

This isn’t necessarily pessisism as much as the results of reality based observation of the facts of my market which is Maryland and Northern Virginia.  Thanks to ActiveRain, I also have a window into local markets across the country.

OUR BROKERS CAN LEAD.  For the survival of agents in our business, it is critical that brokers come to grips with reality.  If the agents and brokers who interact with the public continue to present a rosy picture to the consumer, we will lose all credibility with the home buying and selling consumer.  We sold a lot of real estate when home prices were escalating faster than the contracts could close and buyers were realizing a 20% gain the next year.  We can also sell a lot of real estate today, if we accept the fact that the housing industry is in recession and use that information to formulate our personal business plans.

TURN THIS HOUSING RECESSION INTO OPPORTUNITY TIME.

If we face reality and understand that the housing market is a reflection of the national economy, we will have some credibility throughout the recovery, when it comes, and it will come.

FACT:  The economy is in recession.

FACT:  The housing market is in recession.

FACT:  Foreclosures and short sales are an increasing percentage of active listings of homes for sale and and will continue to increase as home valuations continue to fall, unemployment continues to rise and the government continues to rescue the banks and Wall Street and leaves the average home owner to fend for themselves.  

FACT:  Americans are a home ownership society.  Paying rent on property owned by investors is not an attractive proposal to most consumers.  Even if home owners understand that they will not realize high equity gains for some years, owning a home offers a quality of life that Americans desire.  We’re an independent society and having control of our home drives many home buyers.

FACT:  Many home owners will be unable to sell their homes because the property will not appraise for more than market value which, in many cases, is far less than the mortgage balance.  The move-up market is non-existant for the vast majority of home owners.  Since the move-up market has historically been a large percentage of real estate sales, agents and brokers need to focus marketing dollars and energy on alternative market segments.  That fact will result in fewer sales and reducing sales dollar volume.  This will also probably result in a reduction in the numbers of licensees competing for the reduced number of home buyers.

FACT:  Relief from the government will be targeted to segments of the market that are already in distress leaving millions of home owners hostage to a property with a mortgage balance higher than the market value of their home, making sale of the property impossible.    

ALL OF THE ABOVE CANNOT BE SUGAR COATED BY REAL ESTATE PRACTITIONERS.

However, real estate agents and brokers can survive the market recession if we are smart and quick on our feet.  How?

1.  Sell those foreclosures.  First time home buyers and buyers looking for good prices are excited about the discounted prices offered by foreclosed properties.  Many of the foreclosures on the market today are in locations and communities popular with home buyers.  Learn how to prepare our buyers

2.  Sell short sales.  These properties are discounted and the appraisal are a guide to the bank’s willingness to accept far less than present day market prices.

3.  Sell financing.  Look for marketing opportunities with special financing for home buyers.  First time home buyer financing can make sales happen.  Research grant programs for lower income buyers and first time home buyers.  They are out there.

4. Research loan officers.  Form relationships with lenders who are willing to offer special financing opportunities for your home buyers.  If a loan officer or mortgage company is not willing to help find more than the usual financing, find one that will.

5.  Get a grip on your market.  Last year’s market is gone.  Accept the fact that our average sale price is going to be reduced dramatically for the foreseeable future.  Homes that were selling for $450,000 3 years ago are now selling for $300,000.  Expect to have to work harder to maintain gross sales volume with the reduced sale prices.

6.  Examine your household budget.  It may be necessary to adapt a more modest life style to survive as a real estate sales person in this housing recession.

WHAT IS YOUR JOB GOING TO BE IN 2010?  We, real estate agents and brokers, can survive and thrive this housing recession if we are smart, know the market and be willing to do what works, not necessarily do what we have always done.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail. 

                          BUYING FORECLOSURES IN MARYLAND AND NORTHERN VIRGINIA

RULES?  WHAT RULES?  Banks are non-learners.  Banks do not know how to sell real estate.  Therefore, they establish systems within their own 4 walls and require/demand that the rest of the world to abide by the rules without even knowing the rules.  Only through experience can we anticipate the usual lack of communication, repeated delays, cancellations and general lack of professionalism that we, as real estate practitioners, have come to expect with contract management. 

ADVICE TO AGENTS.  Don’t complain to your buyer client about the problems associated with buying a foreclosure.  EXPECT THE PROBLEMS and prepare your buyer.  “As we discussed, the bank has not responded to our offer within the time frame that they promised.  No surprise there.  I’ll stay in touch and keep trying to get information.  If they require more information, I’ll get to you as quickly as possible.” 

WHAT RULES?  In fact, I doubt that there are any rules.  Certainly no established published rules as we would know them.  If there were rules, we real estate agents and brokers would learn them and try our best to present contract offers that followed the rules.  We could give timely advice to our home buyers to expedite bank acceptances.  However, banks perform like dictatorships. 

• Banks will dump a contract offer without explanation. 
• Banks will dump a contract up to the date of settlement if a better offer comes in. 
• Contracts mean nothing to a bank.  The addenda give them the right to do what they wish. 
• Banks can counter a contract offer to far above list price without even changing the list price in the MLS. 
• Banks have no sense of what consitiutes fair play or even good business. 
• Banks routinely cancel good contracts because of arbitrary deadlines. 

I’ve sold foreclosures for 25 years.  The process has not changed one bit in all those years with the exception that the volume of properties owned by banks, thanks to their own perfidy, incompetence and greed.  Don’t forget that some of the banks with the largest inventories of foreclosed properties were also some of the largest perpetrators of mortgage fraud.  They’re still around.  They’re just wearing a different hat when selling their “assets”.  They didn’t follow the rules for making the loans.  Why should we expect these banks to treat the consumer with any sense of ethical conducts now??  We shouldn’t and, if we are smart, we will prepare our buyers to expect nothing more.

KNOWLEDGE IS POWER.  Will we continue to offer our services to home buyers interested in buying foreclosures??  Of course.  This is a niche that is timely and profitable for our agents, not because we want to sell foreclosures, but because, at this particular time in our market, foreclosures and short sales offer more value for our home buyer clients than other listings.  However, we know the pitfalls and frustrations for buyers when trying to secure a contract on a foreclosure. 

We closed 3 foreclosures in November.  That’s our job.  If we’re going to look out for the folks below, we’d better work smart and not let our buyers think that buying a foreclosure, while they are sometimes a good buy, can be difficult to achieve the dream of home ownership.

Lenn Harley, Homefinders.com, 800-711-7988.

WHERE DO YOU PLAN TO ADVERTISE YOUR SERVICES IN 2009?  Following is Chapter 1 in a series examining real estate advertising for real estate agents.  Real estate agents are usually the members of a brokerage who generate the sales and manage the transactions that keep our industry alive.  We represent home buyers and sellers.  However, most real estate agents are responsible for generating their own buyer and seller business.  We are also targeted by many entities for whom we, the real estate agents, are the lead. 

HOW DO REAL ESTATE AGENT PROMOTE OR ADVERTISE THEIR SERVICES? 

LET ME COUNT THE WAYS:

• Real estate magazines
• TV advertising (Cable)
• TV advertising (Commercials)
• Radio advertising
• Newspapers
• Internet Pay-Per-Click
• Internet directories
• Web site(s)
• Blogging
• Internet networks
• Floor duty
• Buying leads
• Door hangers
• Open house
• Title companies
• Loan officers
• Cold calling
• Door knocking
• Home buyer seminars 
• Yard signs
• Listing brochures
• Direct mail
• All that I forgot

Over the years and before my real estate life, I’ve used all of the above with the exception of:  Buying leads, Title companies, Loan officers, Cold calling and Door knocking.   Take what you will from this series.  Hopefully, we’ll learn from each other and manage our advertising dollars well in 2009. 

GETTING READY FOR 2009.  Planning your advertising budget will serve to keep you (1) in budget (2) on schedule (3) safe from the cold callers who claim to have a “unique” new web site or place to put an ad.  Where are you going to spend your advertising money?  What advertising media or programs did you use in 2008 and what can you identify that your know produced business, buyers or sellers?

SPEND THOSE ADVERTISING DOLLARS CAREFULLY.  Most agents and brokers who have been in the real estate business for any length of time have probably used many of the advertising ideas above.  Over the years, I have used many with varying results and have come to the conclusion that “it’s all in the numbers”.

YES!  IT’S ALL IN THE NUMBERS.   STOP THROWING MONEY AWAY!   Investigate that medium, service,venue or web site before you spend your hard earned money.  Few agents have the advertising background to be able to determine the ROI (return on investment) for their advertising dollars.  Too often I hear agents try to justify the use of a particular advertising activity with “I got enough business to pay for the ad or leads or . . . . .”.   To have done nothing would have been more profitable because the time and $$$ to manage the advertisement with no positive ROI could have been used for other activities that could have shown a positive ROI. 

In this issue:

Real estate magazines - Real estate magazines were once a great way to advertise listings and make the phone ring in “targeted areas”.   Through consolidation of the areas, the magazines have become less “targeted”.   Further, I can’t justify the cost of an ad in a real estate magazine for an ad that will have a shelf life of 2-4 weeks.  IMO, the magazine ads are only cost effective for large brokerages that can benefit from “institutional advertising” for market share.  For individual agents, the numbers are just not there to justify the high cost of advertising a listing or service.  This medium has changed over the years and agents can now have their own telephone number in the ads.  Still, the magazines do not generate sufficient numbers of contacts to justify the short shelf life and high cost. 

TV advertising (Cable) -Advertising a listing on cable will reach a local audience.  One would presume that the audience would be folks in the market to buy a home.  The cost for these short ads is reasonable and they serve the purpose of satisfying sellers that their listing agent is wonderful.  However, most of these shows are now dominated by new home builders and, like it or not, most resale homes, even the luxury properties, do not show well when compared to the new home builders model homes and well trained new home representatives presentations. 

TV advertising (Commercials) - Very expensive for 10-20-30-60 second spots.  With the exception of institutional advertising for large real estate companies or brokerages, the cost of TV commercials is extremely high.  The production costs for a 30 second TV ad is likely to be several $$$$thousand dollars.  Broadcasting a 30 second ad on cable TV (i.e. Comcast) is going to be $$$$thousands more and the advertiser has limited control over the schedule or placement of the ad in the rotation or area covered.  Local or National media is even more expensive although the ad will reach a wider audience.  However, most individual agents do not cover a geographical area wide enough to justify the cost.  Targeting the ads to a desired audience is not always possible. 

Radio Advertising - Usually cost effective only for large brokerages.  Brokerages who can pay the cost of “drive time” radio spots who can provide quick response to inquiries may benefit.  The wide spread use of cell phones was very helpful to radio advertisers who relied on direct response.  Consumers needing real estate services could respond with a timely (immediate) telephone call.  The key to profiting from radio spots is being available to the consumer when the phone number is broadcast. 

Chapter 2 coming soon:

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail.

THE ONLY SALE THAT COUNTS IS THE ONE THAT CLOSED!

THE ONLY COMMISSION CHECK THAT CAN BE DEPOSITED IS FOR THE SALE THAT CLOSED!

WHAT IS OUR BUSINESS?   Our business is real estate brokerage.  Our business is not conducting house tours.  One of the most important lessons new agents and some seasoned agents learn is to identify serious non-contingent home buyers. 

IDENTIFY THE BUYER’S NEEDS and GOALS?  A very important task for an agent early on when speaking with a new prospective buyer client is separating the serious buyers from folks who are more interested in negotiating than buying.  We often meet prospective buyers who are in a month-to-month lease and faced with the option of renewing their lease or buying a home.  Our task is to identify those folks who are excited about home ownership from folks who “will buy if the price is right”.  These consumers will often try to control the market rather than understanding the dynamics of what determines a “good price”.  When hearing these words, an agent must understand that they may be dealing with a consumer is likes the idea of home ownership, but is more interested in negotiatingthan finding a home.  These consumers have no cognizance of what it costs an agent in time and expenses to prepare for and conduct house tours. 

OUR TIME IS IMPORTANT TOO.  Is it possible that they are not ready to buy?  How much time should an agent devote to folks who want to look, but are not anxious to buy??

DOES THE BUYER NEED A HOME?  If so, they are most likely going to make reasonable offers.  Further, if they do make a very low offer and lose a property to a better offer, they usually learn that the market isn’t going to treat them in any special manner.  Their next offer should be in the ball field and should result in reasonable price, terms and conditions for both buyer and seller.

You’ve done everything right to get the buyers to a point of buying a home.

1. Qualify the buyer and establish credit worthiness,
2. Identify the areas of choice,
3. Select the best property listings in the price range,
4. Preview the homes and select the best on the market to show the buyer.
5. Adjust the criteria based on the tour. 
6. Go back to #2 and repeat #3 and #4.

WHEN QUERRIED ABOUT MAKING AN OFFER, YOU HEAR THAT DREADED:   “WE’RE NOT IN ANY HURRY”?  Well, what are they waiting for?  Fact is, when non-contingent buyers continue to repeat the “we’re not in any hurry”, the likelihood of them buying at all is, in my experience, remote.  An experienced Buyer’s Agent will:

TIME TO SELECT A HOME TO BUY.  By this time, the buyers have seen the best of the best in their price range and areas of choice.  It’s time for the buyers to make a decision and start the contract process.  They have expressed interest in one or two listings that meet all of their criteria. 

LEARN “WHEN TO HOLD THEM AND WHEN TO FOLD THEM”.  When asked about their plans for buying, the answer will, at that time, determine whether you put those buyers on the back burner or continue to show them MORE OF THE SAME.  If their response is “We’re not in any hurry.”, it may very well be time for the agent to move on to other things or other prospects.

THESE ARE, IMO, NOT SERIOUS BUYERS.   Agents handle this situation in many ways depending on their personal client load.  While our agents handle only 2-4 buyers at a time, we do not have time to spend with folks who are not serious buyers.  The success of the Buyers Agents in my network depend on identifying serious buyers, identifying the best homes that meet the buyers criteria and going to contract.  Agents who are committing a Saturday, Sunday or any day to buyers who have already seen the best on the market may not be using their time wisely.  

MAKE A PLAN WITH YOUR BUYER AND STICK TO IT.  It’s a good idea speak seriously with new buyer clients about what to expect in the home buying process; identify good homes, preview the best, get pre-approved, make offers, negotiate and go to contract.  If buyers understand early on that the goal is to buy a home and not to just tour listings, the agent should not hear the dreaded “We’re not in any hurry”.

Agents who are doggedly showing more and more homes to buyers who are not making a decision may be losing better opportunities and could be available for a new buyer referral from Lenn.  When I contact an agent in my network about a good buyer referral and they are already booked with buyers to whom they’ve been showing homes for 2 months, I have to question the agents perspective.  Either the agent is not working with motivated buyers or the agent has become too “comfortable” with a buyer. 

HOME BUYERS HAVE THE BEST OPPORTUNITIES FOR GOOD PRICES AND FINANCING AVAILABLE FOR MANY YEARS.   If they are not buying NOW, it may very well for an agent to simply say:

NEXT!

This post inspired by Tracy Santrock’s excellent post describing her experience discovering that her content had been stolen and used by a competitor.   I could surely identify with her feelings of shock, disappointment and finally outrage.  I have felt those same emotions many times, each time I discover one of my location maps on a competitor’s web site.  Not unlike my experience, Tracy discovered her content on a competitor’s blog by accident. 

CONSIDER THE IRONY.  In my case, I was reviewing Baltimore real estate agents’ web sites looking for a referral agent.  I saw a comprehensive web site for the area of my search and when I started to tour the web site, I ran into not just one, not just 3, but between 11-13 of my maps on that web site.  He has also used my unique demographic presentation.  This was about 4 years ago.  How I discovered my unique maps on another agent’s web site was as interesting as what transpired following.  I love irony. 

I came to a web site and saw a link to Baltimore County and “BAM“, right in the solar plexus, MY BALTIMORE COUNTY MAP.  So I looked at other links on the site;  Anne Arundel County, MY MAP, Montgomery County, MY MAP and so on.  It’s been some time now but I believe that there were 11-13 of my maps on that agent’s web site.  I contacted my attorney and my copyright adventure began that day.  Not only did the agent lose the opportunity to receive 4-6 Baltimore County referrals each month, he eventually paid me $41,000 in damages for Copyright Infringement.  His broker paid about $10,500 and two other agents who were sharing that web site paid about $7,500 each. 

PRE-ACTIVERAIN.   Before ActiveRain, I often review local web sites and contact site owners looking for good referral agents.  My Internet presence generates far more business than I or the brokers in my network can help.   Needless to say, that agent was not invited to join the Homefinders.com Referral Network.  That cost him too. 

You gotta love the irony.

BRYANT TUTAS ASKED:

• ‘Lenn, I wonder how much it would cost to write down all mortgages to market value? And it would have to be all whether they are delinquemn or not or it wouldn’t work. Let’s say a max of 95% of true value. Any idea?”

GOOD QUESTION BROKER BRYANT AND ONE I’VE THOUGHT ABOUT A LOT.

How much it will cost depends on how it would be done.  Selective write-downs at the hands of the mortgage companies is hardly fair.  Actually, I’m not sure the amount is as important as the formula for a government guarantee of payback by the mortgagor to the mortgagee.  A government backed mortgage insurance plan similar to the FHA loans or guarantee would be one idea.  Not something designed by the fools in Congress or HUD or Fannie Mae or Treasury.  

NO WINNERS OR LOSERS.  I’m thinking of a plan designed to insure the banks from loses from ALL defaulting insured loans and not picking and choosing the winners and losers.  To work, the plan would ahve to be universal and comprehensive.  However, what it would do is put all American home owners on an even scale and bring back the real estate industry, meaning purchase and sale of real estate, essential to the financial health of the US economy.   

By wiping out the artificial appreciations (2004-2005) that are now financed and defaulting left and right, folks who need to sell would be able to sell and folks who wanted to buy would be able to buy at affordable prices for home owner listings and not just foreclosures and short sales.  We could end the short sale and foreclosure boom and replace it with new real estate market driven activity.

NOT ALL HOME OWNERS DEFAULT.  MOST MAKE THEIR PAYMENTS.  However, the payments are causing the financial bankruptcy of a huge percentage of American families.  Once the mortgages were written down to an amount or percentage based on assessed value, or market value, the government would only have to insure the home owners that defaulted.  Surely not all home owners would default.  In fact, only about 10% would default based on defaults in the past for unemployment, etc. 

I’m not sure what the average write-down would cost, but I would estimate about $150,000 averaging loss of market value across the country.  Based on reported reduction of median home values it could be significantly less.  However, If 10,000,000 home owners defaulted, that would cost the treasury ONLY about $1,500,000,000,000.  $1.5Trillion.  It is surely a better formula for recovery than selective bank write-downs by foreclosure and short sales.  The government would have to insure the bank write-downs of only the defaults, which are going to happen anyway. 

CONGRESS HAD A WAY OUT AND REJECTED IT.  Don’t forget.  The market value of the homes has already been written down, by the market.  It is the mortgages that are still out of line with the market value.  When a home owner owes $50,000 or $150,000 or $250,000 MORE than market value, that home owner is held hostage to the house and the mortgage company.  They can’t sell.  They can only default and face short sale or foreclosure.  There was a proposal in Congress that bankruptcy judges be given the authority to write down mortgage balances to market value.  Congress didn’t pass that one.  No wonder.  Congress considers anything other than a small hand-out to the American tax payer a bad idea.  So, the home owner is limited to loss of everything with no way out of a home that they clearly cannot continue to sacrifice their financial life to support. 

I COULD LIVE WITH THAT.  What they’re doing now is going to cost that much and more.  Yet, the American home owner is not benefiting ONE SINGLE DOLLARby bailing out Wall Street.  I can hear a cacophony of outcries from folks who don’t believe that anyone should be rewarded for speculation.  Of course they shouldn’t.  However, not all home purchases by the American home buyer in the years 2004-2005 were speculation.  On the other hand, ALL SHAREHOLDERS AND CORPORATE EXECURIVES ON WALL STREET that managed the sale of securities for Mortgage Backed Securities were knowingly and deliberately speculating.  Yet, it is the Wall Street investors that are being bailed out and not the American home owner. 

The catastrophe ahead of us is inevitable.  The question is, whom do we protect, the Wall Street crowd that orchestrated this melt-down or the American home owner? 

IT PAYS TO BE BIG.  IT PAYS EVEN MORE TO BE VERY BIG.  CITIGROUP IS THE BIGGEST AND IT APPEARS THAT THEY GOT THE MOST, SO FAR. . . . .

• $20,000,000,000 CASH TO CITIGROUP.
• $306,000,000,000 GUARANTEES TO CITIGROUP.

CITIGROUP’S BAD MORTGAGE-BACKED-SECURITIES PORTFOLIO ARE GUARANTEED AGAINST LOSS - - -LOSS TO CITIGROUP, THAT IS.   

THERE IS NO GUARANTEE FOR THE AMERICAN HOME OWNER FOR THEIR LOSS OF HOME VALUE.

THERE IS NO CASH TO THE AMERICAN HOME OWNER TO HELP THEM MAKE THE MORTGAGE PAYMENT ON A HOME THAT IS NOW WORTH ALMOST 1/2 OF WHAT THEY PAID FOR IT. 

WHAT DOES THE FUTURE HOLD FOR THE AMERICAN FAMILY?  I wonder what our real estate market will look like 5 years from now when most of the ARMs have reset and when many home owners are making payments on mortgages that are 1/2 of their gross monthly income.  Wages are increasing at about 3% a year, but unemployment is going up and that should put downward pressure on wages. 

With the percentage of the family’s morthly gross income going for housing, the family will not be able to follow their financial plan, if they have one.  The scenario for the average American family struggling to make their mortgage payments is not a pretty picture. 

• The college fund will dry up because the parents needed the money for the mortgage payment.
• The roof will continue to leak because there’s no money to replace it after paying the mortgage payment.
• Dad’s not home much any more because he needs more overtime to make the mortgage payment.
• Mom and Dad are driving 8 and 10 year old autos because they can’t get financing on replacements and don’t have money left over to save after making the mortgage payment.
• There’s no money for life insurance for the family after the mortgage payment. 
• No more payments are made to the 401K because the family has to make the mortgage payment.
• Family vacations are not planned because there is no extra money after paying the mortgage. 

HOW MUCH MONEY IS LEFT IN A HOUSEHOLD BUDGET WHEN THE MORTGAGE PAYMENTS REQUIRES 39%-45% and 51% OF THE FAMILY GROSS MONTHLY INCOME?? 

• The median income for men is about $45,113 a year.
• The median income for women is about $35,102 a year.
• The median home price is about $229,100. 

When the family purchased their home in 2005, they paid $400,000 for an 15 year old property, their dream home.  Their home was priced at the average price for their location for the 2005 real estate market.  They qualified for a mortgage loan with 10% down.  Their mortgage loan was a 3/3 year ARM starting at 5.5% and resetting to 7.5 in 3 years and then 9.5 in 3 more years.  That means that in 2011, their interest rate will be 9.5%.  Taxes are about $400 a month and home owner’s insurance is about $50 a month. 

• PI on their $400,000 home in 2005 was about $1,932. 
• Taxes on their home is about $400 a month.
• Home owners insurance is about $50 a month.
• MI is about $120 a month. 
• Their total mortgage payment in 2005 was $2,502, or 39% of their combined family income.

39% of the monthly gross income for a mortgage payment is high.  However, this American Family is very thrifty and has saved a 10% down payment, have no car payments for their 4 and 6 year old cars and pay their credit cards off every month.  So, with good credit scores, they qualified easily.  They anticipated refinancing their mortgage loan prior to reset in 2008. 

• In 2005, their mortgage payment was $2,502 @5%.  Their combined income was $6,400 a month.
• In 2008, their mortgage payment went to $2,965 @7%.  Their combined income is $6,600 a month.
• In 2011, their mortgage payment will go to $3,466 @9%.  Their income will be about $6,800 a month.

This anticipates the average rise in income of about 3% a year. 

• In 2005, this family’s mortgage payment was 39% of their monthly gross income. 
• In 2008, the family’s mortgage payment went to 45% of their monthly gross income.
• In 2011, the family’s mortgage payment will go to about 51% of their monthly gross income.

In 2008, when our family contacted their loan officer about refinancing their home mortgage, they were unable to do so because the market value of their home had fallen to $300,000.  The family is now “upside down” and owes more than the value of their home. 

WHERE IS THE RELIEF FOR THE AMERICAN HOME OWNER WHO STRUGGLES TO MAKE THEIR PAYMENTS? The mortgage companies are stubbornly clinging to their belief that the American home owner will continue to pay for a home that is worth half what they are paying for.  Sooner or later, the American home owner will be bled dry and then another round of foreclosures and short sales will begin.  No family with children can continue to make mortgage payments of 45 to 51 percent of their gross monthly income. 

SOME EXPENSES ARE MANDATORY.  Federal taxes for a family in this income bracket are not high.  However, they have Social Security taxes of 7.6% a month.  Monthly payments for their share of health insurance is about $200 a month.  Groceries for a family of four is increasing every month.  Gasoline and maintenance and insurance on their vehicles is about $600 to $800 a month.  There is simply no money left in a family budget after making their house payment, if they have a budget.  Budgets don’t work when the expenses outstrip the income.  The family begins to make minimum payments on their credit cards and begins to go deeper in debt each and every month. 

This is a typical American home owner who purchased a home in 2005 and is headed for financial disaster. 

WHAT IS THE SOLUTION?  Until we have a national write-down of mortgage balances, the home owner will not survive.  The banks may, buy the home owners will not.  As with our hypothetical American family home owner above, folks will continue to go farther and farther in debt.  Real estate taxes are likely to increase as towns and cities feel the crunch from loss of property values and the concomitant loss in revenue. 

TRICKLE DOWN ISN’T HELPING THE AVERAGE AMERICAN FAMILY BECAUSE THE BANKS ARE NOT HELPING FAMILIES.  THEY ARE HELPING THEMSELVES and THEIR SHAREHOLDERS.  Those same shareholders who benifited from the stock value and dividends in 2004, 2005, 2006.  IMO, the focus on helping the banks survive has been wrongheaded from the beginning.  Those same banks benefited from the housing boom are now benefiting from tax payers and the tax payers are being left in the dust.

This has been the most wrong headed government program I’ve ever witnessed.  It’s easily worse than the farm bill, the transportation bill and other government give-aways. 

GOVERNMENT GIVE-AWAYS TO THE CONSUMER?  I seem to recall that there was a “stimulous” program some months ago?  I can’t recall the details, but for our family above, it would pay for their grocery bill for about a month or two.  The stimulous that put money in the hands of the American family was about $300 for a single person or about $600 for a family for about 120,000,000 households.

BAIL-OUT TO CITYGROUP FOR GUARANTEES AND CASH - $326,000,000,000.

WHAT’S WRONG WITH THIS PICTURE?

PREVIEWING HOMES IN LEESBURG YESTERDAY WAS AN EXPERIENCE.  I’d like to say it was an adventure.  However, what I come away with is the knowledge that, if any of the listing agents contact me for feedback on any of the four homes I previewed, and I hope they do, they won’t like what they’ll hear.  In fact, several times during the tour, I had to ask myself if the listing agents had even seen the property. 

AGENT FEEDBACK for homes previewed in Leesburg, Va, November 19, 2008.

House #1.  Short Sale.  4 BR, 3 1/2 BA, Colonial, $380,000, 5 years old.  2616 sq. ft.  Owners paid about $650,000 in 2005.  House is beyond filthy throughout.  The carpet would have to be replaced.  The kitchen is filthy with builder’s standard cabinets and appliances.  The oven range door is broken and half off.  Entire house needs renovation and redecorating and it’s unlikely that the systems have been maintained.  House would need about $75,000 for renovation for flooring, kitchen renovation, deck.   Will not show.

House #2.  Foreclosure Sale.  4 BR, 3 1.2 BA, Colonial, $405,800, 5 years old.  2873 sq. ft.  Owners paid about $550,000 in 2004.  House has been stripped of appliances and lighting fixtures.  Very shallow back yard backing to another house (Small lot development).  Lots of hard wood.  Would need about $10,000 for appliances and repair.   House has promise if price is right.  Will show.

House #3.  Short Sale.  4 BR, 3 1/2 BA, Colonial, $420,000, 8 years old.  2595 sq. ft.  Owners paid about $590,000 in 2006.  House needs a good cleaning.  Corian (not Granite) in kitchen, but cabinets and appliances are good quality.  Nice floor plan with angles and style.  Large deck and good back yard.  Large MBR.  Will show.

House #4.  Regular listing??  5 BR, 3 1/2 BA, Colonial, $418,888, 3 years old. 3038 sq. ft.  Owners paid about $650,000 in 2006.  House needs a good cleaning.  Nice floor plan with lots of hardwood.  Good kitchen with Granite, upgraded cabinets and appliances.  No deck making the back yard inaccessible from main level.  Nice finished basement.  Cul-de-sac lot.  Will show.

WHAT DID THE PREVIEW TOUR SHOW ME? 

• The homes all need a good cleaning. 
• Every occupied (3 of 4) home had dirty dishes, pots and pans all over counters, range, etc. 
• Carpets were all dirty. 
• Bathrooms were all very messy and dirty. 
• The distressed real estate market is hitting home owners hard. 
• Homeowners appear to be throwing in the towel and just wanting out. 
• Supra and Sentrilock are a waste of time and money.

Also clear is the fact that, although our boards have succumbed to the high tech key box systems, only one home previewed yesterday was secured by the latest fancy-dancy high tech keybox.  Combo boxes still rule.  REALTORS are made to stand in line for system upgrades, pay high fees, use their USB ports for keypad updates, junk up their hard drive with Supra and Sentrilock software and generally suffer mightily when the dang thing fails in the field, and it will, fully 50% of the homes I’ve accessed in the past 3 weeks were secured by a combination key box.  Oh well.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail. .

NEW HOME AGENTS SHOULD NOT IGNORE THE BUYER’S AGENT!

Touring new home models is a lot of fun.  Buyers love the models.  This agent loves showing them.  Some of the things I love about selling new homes are:

• We don’t have to be concerned about condition.  IT’S NEW!
• We don’t have to be concerned about warranties.  IT’S NEW!
• We don’t have to be concerned about listing status.  IT’S NEW!

Things we do have to be concerned about are:

• What features in the model home are standard and which are upgraded?
• What customization is possible?
• What is the build-out time?
• What incentives are the builder offering on to-be-built and inventory homes?
• What type of financing is available?  This is important when construction financing is offered.
• What is the builders’ closing percentage in the community in the past XXX months? 
• More questions based on location, price, time frame needed. 

I admit I love to sell new homes.  New home buyers in my area are not referred to agents in my network.  I work with them myself if they are interested in new only.  In the past 10 years, since the real estate bust in about 1998, new homes have been my specialty and I’ve always sold more new than resale.  I’ve geared my advertising to that niche and, if we know anything about Internet advertising, targeting advertising works. 

NEW HOME TOURS BEGIN WITH KNOWING THE BUILDERS’                                                                                  AND GETTING TO KNOW THE BUILDER’S REPRESENTATIVES.

Over the years, I’ve sold homes offered by almost every major builder in my market area and learned which ones to avoid.  Then, once the availability of builders is identified in a search area, the next step is to get to know the builder’s on site representative (”rep“).  Smart builders’ reps respect and assist buyers’ agents. 

The buyers I’m working with at this time are old clients.  I sold them their existing home 10 years ago.  We’re old friends.   I’ll watch over them like a MOTHER HEN, my alter ego when I’m showing homes.  Since I have sold over 500 homes myself and managed agents who have sold thousands more, I have experienced just about anything and everything that can happen in a home sale transaction, new or resale.  So, when we visit a new home model, I want questions about my buyers directed to me because I know what to disclose about the buyers than they buyers may understand.  We will negotiate in this market and I don’t want the buyers to reveal anything that would diminish their negotiating position. 

WHY DOES THE BUILDER’S REPRESENTATIVE TRY TO TREAT ME LIKE A POTTED PLANT?   I’m sure the representative is trained to speak directly to the buyers.  However, last Sunday, we experienced an agent that went too far.  She, the builder’s rep persisted on ignoring me, even though I was there.  My buyers were registered and kept deferring to me when the builder’s rep continued asking them questions directly.  I instruct buyer to defer to me when a builder’s rep asks question of them directly. 

BUYERS AGENT MEANS MORE THAN CHAUFFEUR.  As the builder’s rep continued to ignore me, I had to just interrupt one of her questions of my buyers and say:

“PLEASE DIRECT ANY QUESTIONS YOU HAVE TO ME?  I’m right here.”  Direct enough, right?  Apparently not so.  As I continued to fill out their “required questionnaire”, the agent peppered me with questions about my buyers.

Rep:  “HAVE THEY BEEN PRE-QUALIFIED?”  (Builder’s loan officer in next office)
Lenn:  “They are very well qualified?  Can we have a price list for the models?”

Rep:  “WHAT PRICE RANGE ARE THEY QUALIFIED TO BUY?”  (Builder’s loan officer listening)
Lenn:  “Any price range you have in this community.  Can we have a price list for the models?

Rep:  “WHEN TO THEY WANT TO MOVE?”
Lenn:  “When they find what they want.  Can we have a price list for the models?”

Rep:  “HAVE THEY SOLD THEIR HOME?”
Lenn:  “My buyers are non-contingent.  Can we have a price list for the models?”

Rep:  “WHAT MORTGAGE PAYMENT ARE THEY LOOKING FOR?”
Lenn:  “That depends on what your mortgage company is offering.  We don’t even know the prices of the models.  Can we have a price list.”

SO SHE RENEWED HER BARRAGE OF QUESTIONS TO MY BUYERS. 

Rep to my buyers:  “Why would you want to move to Indian Head?”

Buyers’ agent Lenn:  “What’s wrong with Indian Head?”  “Can we have a price list.”

Rep to Lenn:  “Nothing, I just wondered why they are looking in this area.”   “I’m getting a package together with prices.” 

Lenn:  “We’re just beginning our search.  We have no idea about this community until we see the prices, standard features and lots available.”

AS YOU CAN SEE, IT WAS A STRUGGLE TO GET A PRICE LIST, SITE MAP, FLOOR PLANS AND OPTIONS.   As it turned out:

• The house was very nice and priced right.
• The builder is national and my experience is that they do a good job with quality and warranty matters.
• The builder’s mortgage is offering very good pricing for financing. 
• The options are limited, but the builder is pricing based on an economy of scale for construction costs.

So, in the end, my buyers haven’t ruled out the community/builder, but have a very bad feeling about the builder’s representative.   They came away with the feeling that the builder’s rep would be difficult to deal with.  At this time, my buyers are leaning towards resales.  The builder’s rep didn’t make buying new construction very pleasant. 

NEW HOMES ARE WONDERFUL.   HOWEVER, THERE ARE SOME GOOD OPPORTUNITIES IN RESALES TODAY.  Next stop, resales in Herndon and Leesburg.  Or, more resales in Charles County.

Stay tuned. 

SO YOU WANT FEEDBACK FROM ME? 

GOOD FOR YOU!  I’m willing to help, but, don’t make it so hard. 

I’m a confessed feedback skeptic, myself, but I’m always willing to help a fellow agent.  If listing agents have been convinced that they need feedback to sell a property, so be it.  However, if agents want feedback on property showings, why do they place so many barriers between the listing agent and the showing agent????? 

HEY!  I’M HERE!  PICK UP THE PHONE AND GIVE ME A CALL. 

MY BUYERS ARE SERIOUS AND QUALIFIED.  I am working with some lovely buyers to whom I sold a home in Charles County ten years ago.  Normally, a Southern Maryland buyer would be referred to an experienced agent in my network.  However, since these folks are old clients, I’m up.  It was very nice renewing an old friendship. 

THEY HAVEN’T DECIDED ON THE AREA.  Mrs. Buyer works in DC around 19th &E.  Mr. works in Tysons Corner, VA.  So, we’re looking at several areas and transportation is critical.  A one hour commute is fine.   Two weeks ago, we toured Woodbridge, VA.  Last Sunday, we toured homes in Charles County, MD.  They don’t yet know where they wish to buy.  They just know that they need a larger home, with a basement, large kitchen, large master bedroom, and a 2 car garage.  The smallish home they now own in Waldorf was purchased when the wife was still in the military and they expected to be here only 3 years.  They have no basement, a small kitchen and a 1 car garage.  Ten years later, they are still here and want a bigger and newer home.   We toured about 4 new home builder models and 3-4 resales on Sunday. 

THE FEEDBACK CALLS HAVE BEGUN

Last evening I got a loooooong phone message asking for feedback on one of the resale homes we toured.  The street name was in the message.  So, I looked up the listing and, for the life of me, I couldn’t recall the appearance of the interior.  I remember two homes in that area.   One is very nice and the other was not.  How could I leave meaningful feedback? 

Sadly, there were no interior photos in the listings.  Further barriers to meaningful feedback were:

1.  The call was not from the listing agent.  Are they too busy?  How long does it take?  If the listing agent had called, I’d have returned the call and asked for a general description of the interior.  Then I could have advised that:

• Wonderful house.  The house is very nice, clean and presents well.  My buyers are considering it but they are not near a decision and have many more homes to preview before making a decision. 

OR,

• Would not consider.  The house has dirty carpet, warn hardwood in the breakfast area and foyer.
• The back yard is a swale only 8 feet from the basement door making the back yard useless.  No deck. 

2.  The caller left a number to call for feedback that only takes messages.  If feedback is important to anyone, the listing agent or someone who has seen the house should be making the call or receiving the messages. 

FEEDBACK CAN BE USEFUL.  I recall one feedback call from a listing agent that resulted in my buyers making a successful offer on the property.  The listing agent called to find out what my buyers thought of the property and after some conversation, it became clear to me that my buyers could make a successful offer.  The buyers were out of town and based on the conversation with the sellers agent, we made that property the #1 of 3 homes on which they would make offers. 

If that agent had simply had an assistant or service leave a message with a feedback phone number, I doubt that they’d have purchased that property since it was on the high end of their price range, which, of course means overpriced.

I REMEMBER WHEN FEEDBACK CALLS WERE MADE BY THE LISTING AGENTS.  We would have a conversation about the property.  If there was any buyer interest, I would get helpful details such as the Sellers’ need for closing dates, etc.   Sometimes terms and conditions are more important than price.  You can’t learn anything by simply leaving a feedback message number.

ANOTHER BARRIER TO FEEDBACK.  If history prevails, about 3 weeks from now, I’ll probably get a feedback call for a house we toured last Sunday.  The feedback call will probably come from an assistant who has never seen the house. 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail.