There Is No Substitute For Good Advice

By Joel Persinger
YourRealEstateDude.com

King Solomon once wrote that “plans fail for lack of council, but with many advisors they succeed”. In the constantly changing environment of today’s economy and real estate market, a truer statement could not be found. Just when it seems that some new tax law, relief bill, lending product or government action has solved all the problems that the real estate market is facing, some expert sifts through the details and finds that the fix doesn’t apply to everyone. Often times the "everyone" it doesn’t apply to includes you and me. Hence the reason for getting lots of advice.

The problem I have run into recently is that some folks unwittingly seek advice from people who are not qualified to give it. This is one of the issues that King Solomon was trying to deal with when he suggested the use of “many” advisors. In the past, my wife and I have gotten excellent financial advice from people whose kids (we couldn’t help noticing) were disasters looking for places to happen. While we were grateful for the terrific financial advice, there was not the chance of an ant on a New York City sidewalk during rush hour that we would ever have asked those same people for advice about raising our children.

Keeping this in mind, it should be noted that real estate agents have a limited ability to give quality advice when it comes to… well… real estate. For example: in most cases, real estate agents are not attorneys, tax professionals, CPAs or builders. Therefore, although they may be great sources for advice about the process of selling or buying a home, the vast majority of real estate professionals are not the best people to ask about legal, tax or construction issues. In fact, it has been my experience, particularly where legal and tax issues are concerned, that most real estate agents know just about enough to be dangerous and not one bit more. Frankly, I can’t say that I’m much different. Even though I started in real estate in 1990, am the CEO of my firm, manage several agents and pride myself on keeping up with what’s happening in the real estate industry, I am by no means qualified to give legal or tax advice.

In a market in which many folks are facing the loss of their homes through foreclosures or having to sell their homes in other than ideal circumstances, it is of vital importance that they know where to get the advice they need. When it comes to determining the risks of legal action, estimating potential damage to credit ratings or preparing for the possible tax consequences of losing a home, your real estate agent, no matter how much you may like and trust that person, is most likely not qualified to offer advice. So, as your real estate dude, the best advice I can give you about getting advice is this: first, make sure the person from whom you are soliciting advice is qualified to give it, and second, make sure you have selected an advisor who will tell you the truth, not just tell you what you want to hear. If you follow these simple rules, the advice you receive is more likely to be the advice that you need.

B of A buys Countrywide Home Loans. Is that good?

By Joel Persinger
YourRealEstateDude.com

It has long been suspected among those in the housing and mortgage industry that Countrywide Home Loans has had one foot in the grave and the other on a banana peal. As far as many were concerned, it was only a matter of time before the company slipped and fell into its tomb, never to be seen or heard from again. In fact, it was only about a week ago that there was wide spread speculation that Countrywide was on the verge of filing bankruptcy.

It all began when the sub-prime lending market started going to pot. The company was quickly overwhelmed by the sudden influx of home-loan delinquencies and foreclosures followed by a loss of investor funds. Money which had previously been available from government agencies and investment firms through the secondary money market began to dry up. This meant that Countrywide did not have money with which to fund new loans and had to incur additional debt in order to stay in business. According to MarketWatch.com, “The company borrowed more than $10 billion from banks and started funding a lot of its loans with retail deposits from its thrift unit, Countrywide Bank. It also borrowed a lot of money from the government through the Federal Home Loan Bank of Atlanta… But those lifelines began dwindling in recent months.” This left Countrywide stripped of support from investors. Stock prices came crashing down by over 80% in the last year, leaving many investors wondering why they had ever chosen to invest in the company in the first place. The only answer seemed to be some sort of “bail-out.”

This past week, Bank of America came to the rescue by purchasing Countrywide Home Loans for an estimated $4 billion in stock. That is less than one third of Countrywide’s estimated book value. It appears to be quite a deal for B of A. But, it is important to remember that along with Countrywide’s assets come its liabilities. Among the baggage that B of A will have to contend with are the many Countrywide loans which have gone bad as well as the tsunami of sub-prime mortgage litigation which may be heading Countrywide’s way.

All that having been said, this seems to be the right acquisition at precisely the right time. B of A swooped in and purchased Countrywide for a song and can easily solve the company’s funding problems. Bank of America’s retail deposit base is the largest in the United States. There will obviously be some bumps in the road for Bank of American, but all in all, this should bode well for all of the parties involved, particularly homeowners and the mortgage and housing industry as a whole. Countrywide is a huge player in the home lending industry. When huge players go down in flames just about everybody gets burned to one degree or another. Keeping the company viable by selling it to a giant like B of A can be nothing but positive.

Forecasts for real estate in ‘08

By Joel Persinger
YourRealEstateDude.com

One of the many interesting things that happened in the real estate business this December was the “Eighth Annual Residential Real Estate Conference” presented at the Burnham-Moores Center for Real Estate at the University of San Diego. This year it was billed as “Outlook 2008.”

Several hundred industry leaders representing mortgage banking firms, banks, credit unions, real estate brokerages, home builders, developers and the like, attended this early morning symposium to hear the forecasts and fortune-telling of various economists and other industry leaders. This was followed by regional predictions offered by the current graduate students and a round table question and answer period involving a panel of experts. The end result was a rather fascinating examination of the previous year’s business statistics and a host of expert predictions regarding the coming year, not one of which seemed to agree with any of the others to any great extent. This is hardly surprising. Any time you get twenty “experts” to come together and opine, you are certain to get at least twenty different opinions. As my grandfather used to say, “A camel is nothing but a horse that was designed by a committee.”

All the same, there were some general agreements and not just a few interesting little tidbits of information that came out of it. Among them was the consensus that the recent downturn in the San Diego real estate market is quite different than that which occurred in the early 1990’s. Deputy Chief Economist for the California Association of Realtors Doctor Robert Kleinhenz, Ph.D. was most eloquent in his defense of this assertion when he clarified the differences in the basic economies of the two periods and the underlining causes of the downturns. According to Dr. Kleinhenz, the housing slump of the 1990’s was chiefly the result of high paying jobs leaving the County as the companies which offered them moved to other states. I was practicing real estate at the time and vividly remember the mass migration of aerospace jobs from San Diego to Denver, Colorado during that period. Aerospace was one of many industries that left town. The result was a staggering drop in home prices during a time when interest rates were quite high. The real estate market simply came to a halt.

By contrast, today’s San Diego economy is far more vibrant and the causes of today’s real estate slump are quite different. Unlike previous real estate downturns which were caused by other forces in the economy, Dr. Kleinhenz demonstrated that, for the first time that he could discover, our current downturn has actually come about in reverse. In the past, the real estate market has slowed as a result of other disruptions in the economy. This was the case in the 1990’s. However, for the first time according to Dr. Kleinhenz, the real estate market was driven to its knees by itself. There was universal agreement between the presenters at the conference that the current sharp decline in housing sales was most radically affected by the lending industries decision to tighten underwriting standards in the second quarter of 2007, making it much more difficult for borrowers to acquire loans.

This general consensus was that lenders may loosen their underwriting standards somewhat this coming year and that changes in the law will have some positive affect on lending as well. The economists’ predictions were that prices will continue to decline slightly for the first half of 2008 and that the market, while still remaining slow, will begin to turn around in the second half of the year. It should be noted that the students who presented agreed. This is perhaps the most important piece of information, since from year to year the students appear to have been more accurate in their forecasts than anyone else. Either way, this is not nearly the gloomy picture of the coming year that many have painted. If 2008 turns out to spell the end of real estate’s downward slide and begin its recovery, it could be a happy new year after all.

New Tax Law Helps Distressed Homeowners

By Joel Persinger

One of the many wonderful things about Christmas is the fact that our leaders in both the Congress and the Whitehouse would like to be able to go home for the holidays. But, they have to get their work done before they can go. Consequently, they actually put their noses to their respective grindstones and get some things done. There’s nothing like a deadline to spur someone on to greatness. This Christmas season is no different.

As reported by the California Association of Realtors, on December 20th, just in time for Christmas, President Bush signed into law a measure that gives tax breaks to homeowners who have mortgage debt forgiven. This is a fabulous Christmas present for all those who are forced to sell their homes because of financial hardship, yet owe more on their homes than the houses are presently worth.

Under preexisting law, when a homeowner sold a home for less than the balance owed on the loan, the lender would send that homeowner a 1099 for the difference between the amount the lender received as a result of the sale and the balance due on the loan. If the homeowner had a loan balance due of $500,000 and was only able to sell the home for $400,000 the lender would likely receive somewhere in the neighborhood of $375,000 after all the costs of sale were subtracted. Preexisting law required the lender to send the homeowner a 1099 for the difference; in this case $125,000. The homeowner would then be required to pay taxes on the $125,000 as if they had actually received that money. Many such folks are already bailing like mad to keep their financial ships afloat to begin with. A tax liability of this magnitude would likely put a hole in their boats that would sink them financially for years.

As of the signing of Mortgage Forgiveness Debt Relief Act of 2007, the problems created by the “phantom tax” have been effectively eliminated for many distressed homeowners. This paves the way for many more sales to be completed without the need for lenders to foreclose. Previously, the main obstacle preventing homeowners from selling prior to foreclosure has been the fear that they will end up swamped in tax liability. As a result, many have chosen to simply walk away from their homes in the hope that the non-judicial foreclosure process might prevent their lender from sending them the 1099. It has been a choice of the lesser of two evils; sell the home for less than what is owed and suffer the tax consequences or allow the lender to foreclose and suffer the greater damage to the homeowner’s credit score. The change in the law will allow the homeowner to sell the home without the income tax consequences, rescue some of their credit rating by doing so and walk away rightfully feeling that they have done their level best to do what is right. It may also stem the tide of foreclosures which have been predicted this coming year.

As with any new law, there are rules that must be followed and limitations as to its application. For example: the law applies to loans secured by a qualified principle residence (qualified principal residence indebtedness is that which was incurred in acquiring, constructing, or substantially improving a residence), so your rental property is not going to be covered. There are other restrictions as well. So, getting good tax advice is a must. Still, for those who will be helped by the new law, it is most likely the best gift they will find under their tree this year.

Does the congress have the “Big Fix?”

By Joel Persinger
YourRealEstateDude.com

This past week the U.S. Senate passed S. 2338, the FHA Modernization Act. It did so to great fanfare. The California Association of Realtors even sent out a broadcast email to all of its members boldly stating, “Senate Passes FHA Loan Limit Increase! Big Win for California REALTORS!” This was supposed to be the panacea, the cure-all pill for what ails the housing and mortgage markets. Since the bill passed, my phone has been ringing off the hook with people calling to pump me with questions about what this is going to accomplish and how soon the market will turn around as a result of the Senate’s amazing achievement.

Politicians are a funny breed, and when you put a bunch of them together and ask them to solve a problem they have a very strange way of going at it. Committees are formed, hearings are held, talking points are issued, blustery speeches are given and promises are made all in the name of fixing the problem, which quite often was created by the politicians in the first place. Take the current state of the housing and mortgage industry, for example. Some years back, the congress decided that everyone in this country was entitled to own a home regardless of whether they could actually pay for it. So, the political folk put pressure on the mortgage industry to find ways to lend money to people who otherwise would never have a prayer of getting a loan. Thus, the sub-prime lending market was born.

Many years later we have a collapsed sub-prime market and a great many politicians who have been making blustery speeches expressing their shock and dismay at the fact that the evil mortgage industry has put so many people’s lives in unbelievable turmoil. Those greedy lenders have been making ridiculous loans to low income people who had no way of paying them back; never mind the fact that lenders would never have done it if congress hadn’t pushed them to do so. So, they march into the hallowed halls of congress, form committees, hold hearings, issue talking points, make blustery speeches and promise to fix the problem that the evil mortgage companies have caused.

I realize that by pointing out the classic role reversal on the part of congress I may appear to have become a cynic in my middle age, but there are some things that government simply doesn’t do well and fixing the problems it creates is one of them. By way of illustrating my point, let’s look at just one of the many issues plaguing the FHA Modernization Act which the Senate just passed. On the one hand, the Senate has expressed its concern that so many borrowers with no money were previously able to get loans. But, according to Shanne Sleder at Clarion Mortgage the bill that the Senate just passed by an overwhelming majority vote would reduce the amount of down payment that a borrower is required to have in order to get an FHA loan from 3% to 1.5%. This directly contradicts the Senate’s stated intent by lowing the bar, effectively allowing people with less money to get a loan. As Albert Einstein once said, “The problems that exist in the world today cannot be solved by the level of thinking that created them.”

Hope for the best. Prepare for the worst.

By Joel Persinger
YourRealEstateDude.com

The holidays have seen the government begin to wrestle with the on-going problems in the lending and housing market. Congress has been working on several bills, the President has proposed fixes for the mortgage industry and talking heads on television have thrown opinions around like snow balls in Julian. Even the Presidential candidates have started weighing in, promising the moon and the stars and anything else that might help their campaigns garner increases in the polls.

The most recent attempt to save the struggling housing market is the plan announced last week by President Bush. After meeting with mortgage industry leaders, the President announced a plan that would potentially save sub-prime borrowers whose loan rates are about to adjust upward from the “teaser” rates they currently enjoy to much higher interest rate. Without such relief, many people’s mortgage payments could almost double, potentially placing them in the position of having to walk away from their homes. Foreclosures would rise and the housing market would slide deeper into a slump.

In case you haven’t read the news about it, here are the basics. According to the Whitehouse, the plan is meant to help some 1.2 million distressed homeowners by freezing the current low interest rates for some distressed homeowners for a period of five years. There are some limitations: anyone who is 30 days late on their payment or has ever been 60 days late is excluded. Likewise, anyone whose loan adjusts prior to January 1, 2008 or is judged by the lender to be capable of paying the loan at the higher rates is also out of luck. Still in all, it appears to be a decent plan, at least in theory.

The issue at hand is the secondary mortgage market. After they have lent money to homeowners, lenders sell the loans to investors by packaging them into mortgage-backed securities. This means that anyone who has mortgage-backed securities as part of their investment portfolio (401K, money market fund, retirement fund, etc.) quite possibly owns part of these loans. So, how do you solve the problem presented by the fact that big wigs in the mortgage industry have apparently agreed to accept less interest on investments, which in many cases, they no longer own? It seems logical to me that the folks who own these loans just might not agree with the idea of getting less return on their investment, particularly when the big mortgage companies made their money when the sold the loans in the first place. Many in the industry are expecting a number of law suits to be file surrounding this issue which could delay the implementation of the plan.

How this will all flesh out nobody really knows, so the bottom line question in my mind is, “What can you and I do about it?” The simple answer is, if you are in some financial trouble or about to be when your loan adjusts, the only advice I can give you is to hope for the best. Things just might turn out all right. But, just in case the result is not quite what we’ve hoped for, it’s always best to plan for the worst by getting solid advice from professionals you trust. That way you won’t be caught sleeping.

The Professionals Only Market

By Joel Persinger
YourRealEstateDude.com

This past week I had occasion to bump into a few Realtors I know. Without exception each one asked me, “How’s business”. One fellow went on for quite some time about his single client who has, according to him, been quite a challenge. He expressed his frustration at having no choice but to work with a client who is a stinker simply because she’s the only client he has. Then he finished his lament with, “I keep wondering if this is only happening to me.” What I found most interesting was that each and every one of these folks expressed the same lament in almost exactly the same words, “It’s not that I don’t have any business, I just don’t have any business that will close escrow.”

So, why do so many real estate people have plenty of clients who want to sell or want to buy, but few, if any who can actually achieve it? The answer is simple. This has become a “Professionals Only” market.

In the terminology of “business” TV news shows, the current real estate climate is called a “down market” or “slump”, etc. Lenders have experienced serious losses due to loans going bad and have tightened the requirements that borrowers must meet in order to get a loan as a result. Sellers have to compete with thousand of “foreclosure” properties being sold by banks. Banks price these properties low so that they will sell fast. This drives prices down, often to the point that the average seller can no longer afford to sell. Thus, fewer people can buy and fewer people can sell. The situation gets worse when we consider the number of distressed sellers in the marketplace who owe more on their home than the property is currently worth. There are also those folks who are frozen in place because they can’t sell their current home in order to move up to a larger one or downsize into a smaller one. No matter how you look at it, the bottom line is that it is much harder to buy or sell in this market than it was before.

When times are good and properties are selling like hot cakes everybody who has a desire for fast cash races down to the Department of Real Estate to get a real estate license. Suddenly the market is flooded with thousands of new real estate agents, most of whom have no idea what they’re doing. Real estate firms, anxious to get their piece of the fast market pie, lower their hiring qualifications so much that just about anyone who can fog a mirror and has a real estate license can hire on. The result is a market full of inexperienced, opportunistic agents.

By contrast, our current market is agonizingly slow. Inexperienced, opportunistic agents don’t thrive in such markets because there is no easy money to be had. They have never actually established a business or built lasting relationships with their clients. Instead, they simply grabbed the business that fell into their laps during the good times. Neither do they know what to do in order to help any clients they may have now. Thing have become more difficult and complicated. Some of these opportunistic folks may hang on for a while, but most will leave the business before long leaving only the career minded, professional agents behind to serve.

So, if you are one of the clients hoping to sell or buy, where does this leave you? In my humble opinion, it’s time for you to leave the amateurs behind and look for a seasoned agent who has lived through times like these before. This is a “Professionals Only” market. Hire a professional. There are plenty of them out there.

East San Diego County Realtor Launches Virtual Brokerage

Joel Persinger, East County real estate broker and founder of YourRealEstateDude.com has launched Persinger Properties, a real estate and lending firm that doesn’t have an office!

With the growth of internet, wireless, cell phone and portable printer/scanner technology, a real estate client no longer has to go to the agent’s office. Instead, Persinger’s agents simply take their office to the client.

“I can’t remember the last time I actually had a client come to the office,” Persinger said. “The vast majority of the time, we go to them.”

This approach has been good for both the clients and the company. Persinger says clients like the extra level of service. “It’s like the old days when doctors still made house calls.”

It’s also freed up money the company would rather spend elsewhere. “I’d much rather spend money on services our clients appreciate,” Persinger said. “Why spend money on a building they never see.”

Making the choice between “Short Sale” & Foreclosure

By Joel Persinger
YourRealEstateDude.com

As the prices of San Diego County homes have come down and low introductory interest rates on many home loans have gone up, some San Diegans have found themselves owing more on their homes than the properties are worth. This has given rise to a sharp increase in foreclosures as home owners find it difficult to cope with the increase in their mortgage payments and see little incentive in holding on to homes that aren’t worth what’s owed on them. In addition to foreclosures, this has also brought about a rash of what are called, “Short sales”, and with them the age old question posed by sellers, “Should I try to sell it or just walk away?” While there is often no clear answer, the question did spark a debate among my agents during the weekly training meeting at my office this past week. But, before I share the highlights of that discussion, a short explanation of foreclosures and short sales is in order.

Foreclosure is the more commonly understood of the two terms. Essentially, it refers to the process by which a lender reclaims a property when a borrower has failed to make the required payments on the loan. The lender goes through “foreclosure” in order to sell the property for the purpose of recouping the money lent to the borrower.

By contrast, a short sale is an action taken by the borrower in order to avoid foreclosure. In this case, the borrower (or homeowner) attempts to sell the home in order to satisfy the loan. However, the value of the home has decreased to the point that the value is no longer sufficient to pay off the loan. If the homeowner places the property on the market and succeeds in finding a buyer at the home’s current market value, the lender will lose money on the deal. In this case, the lender would have to agree to take a loss for the difference between the amount of proceeds from the sale and the loan balance. If the lender accepts the deal, the property will have been sold “short” of the amount owed. Thus, it is called a “Short sale.”

The individual situation often dictates which option a homeowner will elect to take. It should be noted that there are pros and cons to each. In the case of short sales, while I have no way of confirming the assertion, I have heard many people claim that a short sale will not cause quite as great a ding on your credit report as will a foreclosure. This is often why homeowners will choose this path. However, a short sale requires a great deal of effort and significant disclosure of information. Among other things, the lender will require that the homeowner provide tax and financial records, draft a “hardship letter” explaining why the payments cannot be made and demonstrated a diligent effort to sell the property for the highest possible amount. By contrast, foreclosure is somewhat easier, in that you simply stop making payments and walk away from the property. Additionally, a foreclosure may not have the income tax ramifications of a short sale. In the case of a short sale, it is quite common for lenders to send the homeowner an IRS form 1099 for the amount of the lender’s loss. No such form is issued in the case of a foreclosure. However, as mentioned before, foreclosure may have a much worse effect upon the borrower’s credit rating.

If you find yourself in the unenviable position of having to choose between foreclosure and selling your home in a short sale, the best advice I can give is that you seek competent professional counsel prior to making any decision. At minimum, you should speak to both a tax advisor and an attorney. And make sure that both are knowledgeable and experienced.

Being thankful, even when it’s tough.

By Joel Persinger
YourRealEstateDude.com

Now that the holiday season has arrived, the traditional “slow season” for real estate has begun. Folks are starting to focus on travel plans, family gatherings and last minute shopping sprees. Not many people want to move during this time of year, so sales of homes slow down considerably. As you’re reading this, you may be thinking, “What planet are you from, Joel? How could real estate possibly slow down any more than it already has?”

Indeed, this year has been a tough one for the real estate business and for anyone whose business is somehow connected to it. The crazy rise in prices of a few years ago, the collapse of the sub-prime lending market and the resulting credit crunch have all taken their toll on San Diego’s real estate marketplace and, more importantly, on San Diegans. Sales of both new and existing homes have been down dramatically, mortgage loans are more difficult to get even though interest rates are at historic lows, home prices have gone down to the point that many sellers simply cannot sell or even refinance and many real estate and lending professionals have either left the business or are on their way out and just don’t know it yet. Support industries have also suffered. Residential construction is a prime example. As you drive around San Diego County you don’t see all that many homes being built anymore. This means leaner times for contractors and the companies and workers they hire.

Tough times like these make being thankful during the season for “being thankful” that much more challenging. That is, unless we chose to focus on the positive. Your home may not be worth as much as it was before, but if you have one to live in, you are ahead of many millions of people around the planet who cannot say the same. We live in one of the richest cities in the richest state in the richest county in the world. Your bills may not get paid on time and maybe they won’t get paid at all, but you probably ate this morning. So did I. We’ll both probably eat well tonight too. In this city we have good, clean, running water, electricity that works well over 99% of the time, we can go where we please when we please and unlike the Middle East, where many of us have family or friends in harm’s way over the holidays, nobody blows up marketplaces, weddings or schools here. We even have it better than our counterparts on the East Coast. We have no snow drifts or blizzards. If we want snow, we go to Julian and play in it for a few hours before taking the short drive back to weather that is the envy of the world. Let’s face it, here the sun shines bright and the skies are clear almost every minute of every day.

Yes, times are tough financially for many of us, but when you really, honestly think about it, the blessings outweigh the curses in almost every case. So, as the year winds down and the holidays begin, I urge you to think about the good things, focus on the positive and have a blessed and happy holiday.

Is a Reverse Mortgage Right For You?

By Joel Persinger
YourRealEstateDude.com

I received an email from a friend the other day inquiring about the viability of a reverse mortgage for his parents. It was one of several I have received recently and the tone of each and every one of them has been the same. The kids are worried that their parents are making a horrible mistake by opting for a reverse mortgage. So, what exactly is a “reverse” mortgage anyway?

A reverse mortgage is nothing but a tool to help older folks improve their lifestyles by accessing the equity in their personal homes without having to make a mortgage payment. While a normal home loan comes with a monthly payment which includes the interest on the loan, a reverse mortgage simply adds the interest due each month to the loan amount. The loan and the interest are paid back when the borrower moves or passes away. Thus, a senior with a reverse mortgage can borrow against his equity without having to make a payment.

The scary part for most people is the idea that the loan amount will get bigger each month because the interest is being added to the balance due. In other words, if you borrowed $100,000 against the equity in your home by using a home equity line of credit at an interest rate of 8.75 percent, you would have to write a check each month to make an interest only payment of $729.17. However, if you borrowed the same $100,000 at the same 8.75 percent interest using a reverse mortgage, the monthly $729.17 interest would simply be added to the amount you owe. You would never make a monthly payment.

This is an almost magical concept for many seniors. When a senior is barely making ends meet, eliminating the mortgage payment can do wonders for their financial picture. Likewise, many seniors who have small or perhaps no mortgage payments are struggling to survive on the fixed income of social security. A reverse mortgage allows them to use some of the equity from their home to supplement their income without risking the loss of their home. Yes, you read correctly. A reverse mortgage does not place a senior at risk of losing his or her home. In fact, the very concept of a reverse mortgage is designed around the idea of allowing seniors to live at home as long as they wish.

There are many misconceptions about reverse mortgages, so here are some of the basics. Everyone who is on the title to the home must be at least 62 years of age, there must be sufficient equity in the home, the home must be the borrowers personal residence, there are no mortgage payments, there is no income qualification and no required credit score, the loan does not need to be paid back until the last borrower sells, moves or passes away and neither the borrowers or their heirs will ever owe more than the value of the home at the time that the loan comes due.

While this all sounds great, there are some negative points as well. The loans are expensive compared to other types of home loans. This is due in part to the fact that the lender is insuring against you or your heirs ever having to pay back more than the home is worth. There may also be some hiccups for those who have gotten remarried to a younger spouse. As I mentioned earlier, everyone involved must be at least 62 years of age.
But, for most folks who have equity in their homes and who need to supplement their retirement incomes or would just like to improve their lifestyles, reverse mortgages could be just what the doctor ordered.

San Diego Real Estate Will Bounce Back

By Joel Persinger
YourRealEstateDude.com

As with congregations all over town, my church got together this past Sunday and held a service in which the minister addressed the tragedy caused by wildfires throughout our beloved San Diego County. Following the service, I had time to visit with some friends, and the subject of the fires and their effect upon the real estate market came up.

This is not my first exposure to devastating wild fires. That came in September of 1970 when I stood on the porch of my parent’s home in Harbison Canyon and watched as the fires, which would eventually kill six people and destroy 175,000 acres, raced threateningly down the mountains some two miles on the other side of the valley toward us. The fire reached our land in less than ten minutes.

We were foolish in the extreme back then. My stepfather and a few of the neighbors decided not to evacuate, choosing to stay and try to save their homes instead. With little knowledge or understanding of wildfires, they tried to clear brush around the houses as my mother and my brothers and I watched helplessly through the picture window from our living room. By all rights, the fire should have burned up the house and the rest of us with it. Miraculously, both my family and our home survived. 382 other homeowners were not so lucky.

Over the almost forty years since that day, I have seen many wildfires in San Diego County. Obviously, none of them have risen to the severity of the Cedar fires of 2003 or the firestorm of last week. But in each case one bit of similarity has held true. Rather than shrink back from the challenge or adopt a “that’s their problem” mindset, the people of San Diego County, as well as many companies and corporations, have rallied around the victims with just about every kind of support. And, in each case, while the real estate market was effected in the short term to one degree or another, it has bounced right back.

I spoke with several clients and business associates on Thursday and Friday of last week. It may be the parent in me, but I just wanted to make sure they were in one piece. During my conversations I was told of the many plans to help the families who have lost their homes or whose homes have been severely damaged. A senior executive at one lending institution told me how frantically her company wanted to help the victims of the fires. I must admit that this response came as a complete surprise to me. It lifted my spirits to see the hearts of those with whom I work day after day and their earnest desire to help following such a tragedy.

There is a lot of bad news out there and we all know that the home loan and real estate markets have slowed to a crawl. It may well be that this past week’s events will slow things down further. But, have faith. The people of San Diego County are resilient and so is the Southern California real estate market.

Will This Week’s Fires Effect Real Estate?

By Joel Persinger
YourRealEstateDude.com

With San Diego County experiencing the worst fire storm since the Cedar Fires just a few years back, it seems almost mercenary to talk about real estate. A much better thing to be thinking about at present is how to make certain our families are safe and what we might do to support our first responders and those who have lost their homes. Nevertheless, it is important to understand how this tragic event might affect the market for those whose homes are for sale and survive the fire.

As we all know, bad news for the real estate market has been all over the place this past week or two. Just two weeks ago the California Association of Realtors released its California Housing Market Forecast for 2008. In it, the association detailed its prediction that home prices and sales will continue to decline in the coming year, although to a lesser degree that in 2007. In addition, frightening front page articles appeared in both the San Diego Union and the Los Angeles Times detailing this year’s drop in home values and the agonizingly slow speed of the current market.

It is true that the real estate market is not doing well in San Diego and that next year, while expected to be slightly better, is still likely to be quite challenging. The fires probably won’t help matters and are sure to have some effect. Exactly how they will affect the market and to what degree nobody knows for sure.

Loans may be more difficult to cash in on in the short term. For example: I received a call from a mortgage banker this afternoon urging me to take any money I might need from my equity line as soon as possible. I asked why and he said, “Because lenders are freezing equity lines as fast as they can because of the fires.” It seems the lenders don’t want you to take money out since there is a chance that your house might burn down.

Homes sales and prices may decline further. Many folks are put off by natural disasters. Buyers may hold off from moving into an effected area immediately after such an event. People who live in the effected area may move away out of fear or as a result of emotional trauma. Homes may be more difficult to buy. Following the Cedar fire, some insurance companies refused to issue home owner’s insurance in San Diego. If the buyer can’t get insurance, the lender won’t lend and the buyer can’t buy the house.

On the other hand, homes which have been damaged or destroyed are going to need to be repaired or rebuilt, debris will need to be cleared and Infrastructure (such as power and telephone lines, roads, fences and so on) will need to be replaced. This means business for contractors and jobs for their employees. Insurance companies (and perhaps the government) are going to be spending quite a bit of money putting San Diego County back together.

Folks whose homes have been damaged or destroyed will need places to stay. Rentals may be easier to rent and some folks may just buy another house and be done with it, rather than move back to a fire hazard area.

The only thing we know for sure is that, while many of these short term effects may hurt, the real estate market will march on. We are in a down cycle in the market for sure, but, sooner or later it will come back up.

Tips for selling your rental property

By Joel Persinger
YourRealEstateDude.com

Many of the people I meet in my career have a desire to own rental property. They have read all the books, watched all the late night infomercials, attended “Hype” seminars and listened to friends or family talk enthusiastically about how well they were doing investing in real estate. Still, running a rental “business” is not quite as simple as the infomercials make it appear. One of the most challenging aspects of the business often rears its ugly head when it comes time to sell the property while the tenant still lives there.

It is an inescapable fact that tenants aren’t generally pleased when their landlord puts the property they are renting up for sale. Even the nicest tenants can become nasty and uncooperative once the “For Sale” sign goes up. Uncooperative tenants will make both you and your Realtor miserable. They will argue with your agent, make unrealistic and sometimes downright ridiculous demands and often make the property very difficult, if not impossible, for prospective buyers to see. When and if they do allow a buyer to be shown the property, they will leave the place such a mess that the buyers cannot possibly imagine purchasing the place.

Though the situation may seem impossible to overcome, there are some steps you can take that may improve your chances of getting your property sold without starting World War III. The first step is to hire an experienced Realtor. It is best to hire one who has extensive experience selling tenant occupied property.

It is also positive to make a deal with your tenant. I generally suggest my clients take a shot at selling the property to the tenant at a slight discount. This saves time, trouble and effort and gets the home sold to someone who is already happy to live there.

If the tenant doesn’t wish to buy, you may be able to strike a deal with your tenant by offering a monetary incentive. For example: you may offer to pay the tenant some money when the property sells in addition to returning the security deposit, so long as he allows the property to be shown and keeps it clean and presentable.

Some tenants are going to be difficult no matter what you try. When faced with such circumstances, there are two more approaches that may work for you. The first is to remove the tenant and sell the property once the tenant is gone and the property is vacant. The second is to examine your lease to see if you have a clause which allows you to enter the property with some length of written notice for the purpose of showing it to prospective buyers. If the clause exists, then instruct your real estate professional to post a written notice on the tenant’s door with the required amount of notice and show the property. Once you have shown the property a couple of times using this approach the tenant may move out of his own accord, taking the problem with him when he goes. Regardless of the approach you chose, the most important advice I can give you is to stick to your guns and treat your rental property and your relationship with your tenants like a business.

What Do Agents Say About Their Clients?

By Joel Persinger
YourRealEstateDude.com

This past weekend, I had the opportunity to hear the opinions and laments of several real estate professionals who took a few moments to share their concerns for and about their current clients. I thought you might be interested to hear what real estate agents say to each other when their clients aren’t around, so I have included their statements here for your review.

I was leaving church on Sunday when one of my skeet shooting buddies, who also happens to be a Realtor, started telling me about one of his clients. “I told her she is going to have to lower the price if she wants the house sold”, he said. “She doesn’t want to listen to me, but the house has been sitting for months. I have to push her constantly to make any price change and by the time she makes a change, it’s too late. All she’s been doing is staying one step behind the market. She never lowers the price enough to catch up with the decline in pricing”, he lamented.

Just about the time we had finished our conversation, I found that I had run myself out of time and needed to get started on my trip to Imperial Valley. My wife and I have a property in that area and I needed to check on it. Somewhere along the way I turn on the radio and found myself listening to a program focused on financial news and opinion. The fellow who was hosting the show spent thirty minutes ranting about the real estate market. He quoted figures from just about every expert and association known to man illustrating the agonizingly slow speed at which the current market is moving. Then he announced, “The only reason houses are not selling is because sellers refuse to reduce their prices. I don’t care how much you paid for your house. It doesn’t matter. I don’t care how much money you spent improving your house. It doesn’t matter. I don’t care how much your house was worth a year ago. It doesn’t matter. The only thing that matters is how much a buyer will pay, period.” His words were harsh, but his conclusion was accurate.

While I was in Imperial Valley, I thought I might stop by and visit an old friend of mine who owns and runs a real estate brokerage in that neck of the woods. Our conversation drifted across many subjects, but as you might expect we eventually got around to real estate. When I ask him if he was still having clients referred to him by out of town brokers, he replied, “If it’s a seller, don’t even have them call me. I don’t want ‘em. They won’t price their houses so I can sell them. All they do is burn up my money advertising their homes and drive me nuts nagging me constantly because their houses won’t sell the way they’re priced”.

I have shared this with you because story after story is written about the frustration felt by home owners who cannot sell, but nowhere is mentioned the frustration of agents who work in utter futility to sell homes for sellers who will not listen to advice. As your real estate dude, here’s my advice. If your house isn’t selling, reduce the price until it does. If you don’t, you may well end up selling it for even less a year from now.

The Truth about Open Houses

By Joel Persinger
YourRealEstateDude.com

When the market is hot and houses are selling faster than lottery tickets, you don’t see that many signs on the side of the road screaming, in giant letters, “Open House.” However, once the market slows and house sales begin to drag, real estate agents all over the place dust off the old, “Open House” signs and start setting them out on every street corner. With the current market downturn, agents can be found sitting in properties during open houses all over town on just about any Saturday or Sunday afternoon. But what exactly is an open house supposed to accomplish and why are agents more likely to do them when business is slow?

If you ask the average homeowner about open houses and the reason for doing them, the usual answer is something like, “Its how you sell a house.” Homeowners are almost universal in their “understanding” that real estate agents use open houses to get homes sold for their clients. In the sellers’ mind, holding an open house is an effective way to market property by getting as many people as possible to go through the home.

In truth, real estate agents use open houses for something entirely different: prospecting. When a brand new agent sets out on the journey to a career in real estate and joins his first brokerage, he is often given his first lessons in open houses. Have you ever noticed that many of the agents who are sitting on open houses are not the actual agents whose names are on the for sale signs? That is because the agents whose names are on the signs already have established businesses and the agents sitting in the houses do not.

New agents holding open houses are taught to look for opportunities with every visitor. They ask questions in an attempt to find neighbors who have stopped by out of curiosity and may be thinking about selling their homes, or buyers who may be ready to buy, but who cannot or will not buy the house they are holding open. Sure, it’s an added bonus if a buyer for the house being held open just happens to bop in, but the main focus of agents at open houses is prospecting for more business. By the way, it is a statistical fact that the chances of selling your house by holding it open are infinitesimally small. It is far more likely that any buyer who visits your open house will buy somebody else’s home. Hence the reasons why agents use open houses for prospecting.

For many years now, I have made it a practice to explain this painful reality to my clients at the outset. Surprisingly, most are actually quite happy to hear it. It seems that while sellers are convinced that open houses are a necessity in selling a home, they are equally convinced that open houses are a genuine pain in the backside. Consequently, they are usually relieved to learn that open houses are not quite the necessity they first believed them to be. Just the same, after their home has sat on the market for a month or two without a sale, even the most ardent hater of open houses starts clamoring to have them done. As testimony to this phenomenon, agents in my office held open houses for a number of my clients just this past weekend. My agents didn’t complain.

So if you want your agent to hold an open house, just remember that agents will happily do them for three reasons: to find more buyers, to find more sellers and to make you feel like they are doing something to get your house sold. Buried somewhere at the bottom of the pile of legitimate reasons they may have is the odd chance that the house being held open might actually sell as a result.

Using the shotgun approach to house buying

By Joel Persinger
YourRealEstateDude.com

You may not have been aware of it, but September 1st marked the start of the hunting season for dove in California. Each year, hundreds of dads with young boys interested in hunting, take their sons to the range for a little warm up. Then, having had a little practice and a lecture of two on hunting safety, Dads around the state trot their lads off to the countryside to take a crack at what is for many boys their first hunting experience. Doves, like ducks are hunted while they fly. They are a fast, moving target. For all practical purposes, this makes them impossible to hit with anything but a shotgun.

If you have ever watched an old western, you may recall that shotguns at one time, were affectionately called, “scatter guns”. Unlike a rifle which fires a single projectile, shotguns fire a pattern of hundreds of small round balls called shot. The pattern spreads out and gives the hunter a better chance of hitting what he’s shooting at and, therefore, a better chance of having something to cook up for dinner at the end of the day.

It might surprise you to know that this “scatter gun” approach can also work well when buying a home. Just as the bird hunter fires several projectiles at once in an attempt to get dinner, a home buyer can make offers on several houses at once in an attempt to purchase a home.

This past week I was showing property to a client in Vista. She had looked at five or six homes up to that point, but had not found anything that really got her attention. However, she did find a little neighborhood that she felt was perfect for her needs. I rounded up some homes that were for sale there and that afternoon we went looking. Within an hour we found not one, but two homes she really liked. Both were in her price range and she told me she would be happy with either one. Following my advice, she wrote similar offers on both properties at the same time.

It only took one day for the reason I advised taking this approach to become apparent. I was on my way to show the homes in question to my client’s family when I received a call from the agent representing one of the sellers. My client had written low offers on both properties in an attempt to get the best price. This agent spent several minutes with me on the phone detailing her client’s rigidity regarding price and his insistence that the property sell for more. Not long after that call, I received a call from the other agent expressing her client’s feelings of urgency regarding the sale and a willingness to take steps to make the deal work. Had my client made an offer on only one property, she may well have been stuck with a rigid, hard dealing seller and have missed a golden opportunity all together.

If you’re thinking about buying a home, remember that you have the option of writing offers on more than one property at a time. Just like the hunter who improves his odds of getting dinner by firing more than one projectile, you might well improve your odds of negotiating the best price and terms by firing off more than offer. So, call your agent, get out your pen and don’t be afraid to write.

Do you really want your agent to tell you the truth?

By Joel Persinger
YourRealEstateDude.com

Like most families, we have our little traditional games we play with our kids. One of my son’s favorite games when he was small has now become one of my daughter’s favorites. We call it, “this way or that way”. We drive along the neighborhood, pausing at every intersection so that our kids can decided whether we go “this way or that way.” The kids enjoy being in charge and exploring the neighborhoods at the same time. All of us were piled into the car playing that game earlier today with my daughter joyfully acting as navigator, when my wife observed, “There’s at least one house for sale on every street.” “Yes”, I said, “And the vast majority of them are overpriced!” The moment I said it, it got me thinking.

I have had several meetings this past week with prospective home sellers. In each case they asked to meet with me to discuss the market and the possible sale of their homes. In each case, I left the meeting without having listed their homes for sale. This is because, in every case the clients were expecting to sell their homes for much more than the current market will bear and knowing this, I gently but firmly told each one of them the truth.

They were disappointed to be sure, but each now has the information they need to make a well thought out and informed decision. In one case, the clients have decided to continue renting out the property. In another, the decision to stay put until the market changes was the best idea. But regardless of the direction each client chose to take, each situation has two things in common. First, I told the truth even though it wasn’t what they wanted to hear. Second, I didn’t make any money doing it. Which brings me back to my wife’s observation about the number of homes for sale and my comment about them being overpriced.

Real estate people make money when they sell a property, pure and simple. They may give advice to anyone who asks, but they don’t make any money doing it unless they get to sell a property somewhere along the way. Even if the client is left much better off after having received the advice, the real estate agent is still left without a dime of compensation and looking for the next client.

This explains why many agents are simply afraid to tell their clients the truth. It also explains why there are so many homes on the market that are hopelessly overpriced. After all, if the agent tells the client that her expectations are unrealistic, the client may simply hire an agent who will tell her what she wants to hear. The end result is that many agents list homes for sale, knowing full well that the price is too high because they are afraid to tell the client otherwise. Then they either wait for the seller to become frustrated and desperate enough to lower the price on their own or simply hound the seller to reduce the price until the property sells. Either way, the selling experience is an exercise in sleepless nights and excess stomach acid for both seller and agent. This, among other reasons, is why I decided years ago to just tell people the truth from the start.

So, if by chance our paths should cross and you ask me for advice about selling your home, don’t be surprised if I start out by asking, “Do you want me to butter you up like a Sunday biscuit, or would you like me to tell you the truth?”

“The only thing we have to fear, is fear itself”

By Joel Persinger
YourRealEstateDude.com

I have heard from many clients this past week who have expressed their concern and downright fear for the future of our country and their individual prosperity. The news surrounding the financial market, the real estate slump and the almost daily diet of “Chicken Little” news stories screaming, “The sky is falling” have left many of us in a kind of zombie-like funk.

It is at times like these that I am most grateful for being old enough to remember a few presidents and to have parents and grandparents who told me stories about the difficulties and the leaders of their time. While I remember the, “Ask not what your country can do for you…” speech of President Kennedy, my parents and grandparents were moved by the first inaugural address of President Franklin D. Roosevelt. An address which was given during one of the most challenging times our country has ever faced.

Over the years, as they told me stories of the “Great Depression”, I sat wide eyed with amazement at the challenges they endured and the hope they were given by the words of the president they affectionately called “FDR.” It was a sad and difficult time to be sure. Those of us who are not old enough to remember or have family who could tell us the stories can only imagine, with an almost clinical detachment, the hardships faced by our nation at that time. Yet, even so, there is some truth in the notion that history repeats itself to one degree or another. It is with that thought in mind that I sat down this morning and read FDR’s speech once again.

As I read the speech, I became more and more grateful for the blessings of today and the simple fact that the present American economy bears little or no resemblance to the crippled and devastated marketplace of that era. In fact, I became convinced that the hardships we face today are minor by comparison, and on a comparative basis, cannot justifiably be called hardships at all. The overwhelming majority of our citizens are employed, interest rates are still amazingly low, the supermarkets are brimming with food, the lights still go on when I flip the switch, water still comes out of the tap, gas is still plentiful and I can still fill up my car for about half the price paid by my counterparts in other countries. “But,” you reply, “My house has been on the market for months, nobody is buying and I’m afraid that my 401K is going in the tank!” I understand these things. My properties aren’t worth as much as they used to be and my retirement funds are in jeopardy too. The difference is that I refuse to be guided by fear.

Fear is what is holding things back. Fear is what has caused buyers to hold off from buying your house. Fear is what caused the financial markets to fly wildly in every direction last week. And so I ask myself, “Fear of what?” Buyers certainly cannot be afraid of current real estate market conditions. After all, this is a buyers’ market. Interest rates are great and buyers have all the clout. The leaders of the financial markets could not have been driven to panic by the fact that they were losing money, because they weren’t losing money until they became afraid of their own shadows and began to panic.

Just as in any time of trial, the first thing we must do in order to survive is to get hold of ourselves and decide here and now that we will not panic. In the 1930s our country wasn’t going into the tank, it had already gone. Yet, in the face of those heart-wrenching circumstances, FDR offered the best encouragement anyone could have given. He said, “This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself…” If you are sitting on the fence, paralyzed by a fear that is keeping you from buying a home, don’t let fear win out. Look at the reality of the market. This is a buyers’ market. You have all the advantages. But it won’t last forever, so grab the opportunity while you can and don’t look back.

Is the lending market drying up?

By Joel Persinger
YourRealEstateDude.com

This past week I received a couple of emails and a phone call or two from lenders addressing some changes in company policies. It would be fair to say that some had to do with loan approval requirement and programs and others represented changes in response to an increasing number of fraudulent loans that the lending companies have gotten stuck with.

A few of the lenders in question have tightened their requirement for borrowers. As a result of these changes, it appears that borrowers are going to have to produce more information, have better credit, have a history of solid employment and jump through other such hoops in order to get a loan. Basically, the lenders want the borrower to be able to prove that he or she can actually repay the debt. This may not sound like a novel approach, but it stands in stark contrast to the recent real estate boom, during which time just about anybody could get a home loan as long as they could fog a mirror and maybe sign their name with something other than an “X”.

In the case of another lender, I received a copy of an internal memo which addressed the fact that the lender had experienced a problem with fraud. According to the memo, some loan officers had generated a significant number of fraudulent loans. This resulted in loans that could not be resold on the secondary money market. Many lending companies generate loans and then sell them, thereby earning money for generating the loan and recovering their investment once the loan is sold so that they can lend that same money over again. When lenders cannot sell a loan on the secondary market, they must hold the loan and service it themselves. This means they cannot recover their investment quickly and, therefore, potentially have less money to lend when you and I bop by asking for a loan.

At just about the time I received these emails and became concerned about the availability of money for home loans, I received a telephone call from one of San Diego County’s larger credit unions informing me of a program they are offering in which there are first time home buyer loan packages with 30 year fixed rate loans as low as 6.5%. Given these apparently mixed messages, what is the average guy on the street to think?

The bottom line is that some lenders have been hurt by their own foolish lending practices. During the real estate buying frenzy that occurred a couple of years ago they lent money to people who should never have been able to get a loan. Then they dreamed up crazy loan packages that amounted to nothing more than ticking time bombs which are now blowing up all over the place leaving a wake of short sales and foreclosures in their path. Unscrupulous loan brokers and loan officers started popping up all over the place as a result. Fraud became a serious problem. This was a hard and costly lesson, and it is only natural that they should tighten their requirements after having learned it. But does that mean that there is no money to be had? If the credit union I heard from is any indication, the answer is “NO”.

The credit union representative who called me was excited about the home lending business. She has loan programs that are very competitive and money that is available to lend, but the borrower has to be able to pay it back in order to borrow it. What a concept! So, don’t let the “bad news” get you down. If you have good credit, a good job and have been responsible with your money, you may find that the home loan you’re looking for is waiting for you just around the corner.