The Risky Loan Flap And What’s Next

By Joel Persinger
YourRealEstateDude.com

The media has been buzzing and people have been chattering about all the bad news surrounding risky loans for weeks. Everybody seems consumed by the fact that foreclosures are up, lenders are going down the tubes and the politicians are donning their superhero outfits and promising to come to the rescue of the poor innocent homeowners who were swindled by the bait and switch antics of evil lenders.

Only this morning a friend of mine sent me an article announcing the California Legislature’s plan to “Clamp down on risky home loans.” As I read the article I kept asking myself, “Why doesn’t somebody write something that isn’t just a lot of finger pointing and political grandstanding?” Nobody else appears to be ready to do so, so I will.

It is fair to state that some lenders sold loans that were not in the best interest of the borrowers and that some borrowers were eager to take risks that were foolish in the extreme. Some lenders took unfair advantage in order to make a buck. But it is irresponsible to insinuate, as some media stories have, that every lender who provided a buyer with a risky loan is a crook or that every borrower who took out such a loan is a victim. Some borrowers had delusions of grandeur and made foolish decisions based upon what their itching ears wanted to hear. In cases of which I am personally aware, borrowers made decisions in direct opposition to the specific advice given them by knowledgeable professionals. So, for your sake, I’m putting all finger pointing aside and taking a look at how this situation might affect the market.

As real estate markets ebb and flow, one of the factors that affect them is the availability of money. When money is easy to get, people find it easier to buy a home and sellers find it easier to sell one. However, when money is more difficult to get, buyers have more trouble qualifying for loans, purchasing a home is more difficult and selling a house is more challenging as well. But what does that have to do with “sub-prime” lenders going into the tank and the government stepping in to create more regulation? The answer lies in the availability of money.

By way of example, I received a courtesy call from a loan broker yesterday concerning clients with questionable credit scores. He was curious if I had any clients with poor credit. In his words, “It’s going to be much more difficult to get them a loan.” According to this loan broker, some lending institutions he works with have stopped taking loan applications for sub-prime loans. A sub-prime loan is a loan offered to a borrower with a poor credit history. If this trend continues, it has the potential to remove these poor credit buyers from the marketplace, further reducing the number of available buyers.

If the corresponding reduction in the number of available buyers is significant, it will mean that sellers may need to make further adjustments in their strategy to be more competitive. Price reductions and incentives such as paying the buyer’s closing costs may be just the start.
While it still remains unclear exactly what effect, if any, these issues may have on the market, if you’re planning on buying or selling any time soon you would be wise to keep your ear to the ground and your eye on the horizon.

Everything is negotiable

By Joel Persinger
YourRealEstateDude.com

Many years ago a friend of mine performed what I believed was a minor miracle. He went into a retail store and made a deal. I was looking for a portable keyboard stand at the local music store and had gone in with him to check prices. I had been to the swap meet many times and knew how to haggle, but I was firmly of the belief that such deal making was not possible with firmly established stores. My buddy, on the other hand, was not held back by such belief. Knowing that my birthday was coming up, he went back to the store later that day and purchased the stand as a gift for less than half the asking price. When he told me about the deal I asked how he did it. He said, “Come on, Dude! Everything’s negotiable.”

In the same way that I once believed that haggling with a retail chain was taboo, it is a common misconception in real estate that everything is standard. In fact, almost everything about a real estate transaction is negotiable. Negotiable items include commission paid to the realtors, the price paid for the property and the terms of the agreement. Many sellers seek to negotiate the commission paid to the agent and most everyone haggles over the purchase price of the property, but few buyers or sellers negotiate the terms of the agreement. This is due to the misconception among buyers, sellers and real estate professionals that a real estate transaction is a standardized process and therefore most parts are non-negotiable. Nothing could be further from the truth. The timing of taking a property off the market is one example.

In a standard real estate transaction an offer is made on a home that is for sale. When the offer is accepted or an agreement on price and terms is reached, the home is placed in escrow and taken off the market. The seller’s agent marks the property as “pending” in the multiple listings and all advertising stops. When the property closes escrow and the sale is completed, the sellers move out, the buyers move in and “Everyone lives happily ever after.” But what happens when the escrow doesn’t close?

In a market such as this one, it is common for escrows to “fall out”. In other words, the buyer can’t or won’t continue with the purchase and the escrow doesn’t close. Generally, there are no back up offers because the property was taken off the market when it entered escrow. As a result, the property would be placed back on the market and advertising would have to ramp up all over again. This is less than ideal for the seller since the process of selling the property must start back at square one. One way to avoid this situation is to negotiate non-standard terms.

I recently had a client who received an offer on his property from a buyer who had a large down payment and appeared to be ready to buy. I advised my seller to insist upon terms that would allow him to keep the property on the market to obtain backup offers until such time as the buyer had demonstrated that the loan was firmly in place and that she was ready, willing and able to purchase the home. The buyer agreed to the terms, we placed the home in escrow and the property remained on the market. About a week later the buyer cancelled. But, in this case, the marketing of the property had never skipped a beat. The seller was in a much better position to continue marketing the property because we took the approach that everything is negotiable and in every market there are ways to hedge your bet. This is only one example of many. So, keep an open mind and start haggling.

The Power Of The Home Inspection

By Joel Persinger
YourRealEstateDude.com

Some years ago home buyers and their agents discovered the value of having a professional home inspector take a critical look at a house before escrow closed. The idea was a good one because it helped protect the buyer against undisclosed defects in the property while providing an opportunity for the buyer to request repairs before the sale was done. Consequently, professional home inspections became a staple of buyer representation in real estate. What continues to surprise me is that very few sellers take advantage of the same type of inspection.

Let’s take a look at the process that follows a home inspection during an escrow. The buyer and seller settle on price and terms and the property enters escrow. Once the property is in escrow the buyer hires a professional inspector to look over the property and provide a written report detailing his findings. The buyer’s agent takes that report and uses it as a basis for writing a “request for repairs”. This is a document used to ask the seller to make repairs to the property prior to close of escrow. If the seller refuses to make the requested repairs, it’s a sure bet that the buyer will ask the seller for money. Either way, the seller generally ends up paying.

For years I have been advising my clients to have a professional home inspection done at their expense prior to putting their homes on the market. Beyond the obvious fact that it helps you cover your rump from a disclosure point of view, there are two reasons why you should consider doing this when selling your home. First, with the home inspection completed in advance you will already be aware of what the buyer’s inspector is going to find before you negotiate the purchase price. You may even want to make some repairs before placing the home on the market. Second, should the buyer’s inspector claim needed repairs that are not reasonable, your agent can use your inspector’s report as a tool to negotiate a deal.

Just such a situation occurred with one of my clients last year. The home had been remodeled and a room addition added. Following my advice, my client hired a professional inspector to take a look at the house prior to placing it on the market. Once in escrow, the buyer’s agent brought an inspector to inspect the property. The buyer’s inspector wrote a scathing report about the property including his opinion that the roof needed repairs worth $5,000 and the electrical breaker box was wired incorrectly. The buyer submitted a “request for repairs” in which he asked for $7,000 from the seller to address these issues. I called my inspector who was happy to come back to the home for a follow up. He compared the report generated by the buyer’s inspector with his own and re-inspected the items in question. In his opinion, the roof showed some wear in one section but was serviceable and the breaker box was fine.

Armed with this information and the fact that my inspector has 30 year experience, I contacted the buyer’s agent and got the buyer to back off. The buyer agreed to have the seller select an electrician and roofer of the seller’s choice to take a look at the property. The electrician gave the breaker box a clean bill of health and the roofer quoted a cost of $1,200 to make the needed repairs to the roof. The bottom line is that my client spent $450 to have an inspection done in advance and saved $5,800 when it came time to negotiate the request for repairs. So, if you’re thinking of selling your home and you have the urge to pinch every penny along the way, my advice is to pry open your wallet and pay for a home inspection in advance. It just might be the best money you ever spend.

Don’t shoot the messenger!

By Joel Persinger, GRI
YourRealEstateDude

Real estate is the only industry I know of in which the service provider is expected to provide hard work and professional advice without any guarantee of payment. When you visit your doctor to get a diagnosis, you are expected to work out paying the bill ahead of time. When you visit your attorney, you provide a retainer and sign a fee agreement before he spends more than the customary first consultation with you. Your tax adviser is the same. If you want your tax returns after he’s prepared them, you had better bust out your check book and start writing.

Your attorney, doctor and CPA will all happily give you the straight honest facts even if you don’t like them. After all, that’s what you paid them for and you have paid them. Your real estate agent, on the other hand, hasn’t been paid and won’t be unless you buy or sell the property. Anywhere along the way, if he tells you something you don’t like there’s a good chance that you can fire him without paying him a dime and hire another one. Many people do just that. The result being that the agent put forth time, money and effort and never got paid. Is it any wonder that many Realtors are afraid to tell their clients the plain, unvarnished truth?

I hear people complain about real estate agents all the time. They complain that agents make too much, work too little or simply can’t be trusted. No matter the reason why their house didn’t sell or their purchase fell apart it always seems to be the agent’s doing. Often, when I am talking with someone who is passing along such laments, I find out that prior to hiring the agent about whom they are so eagerly complaining, they had employed another one but fired him when he told them something they didn’t like.

Any experienced Realtor will tell you that sellers don’t like to hear that their property isn’t worth what they think, and buyers don’t want their agents to tell them that using a risky loan to buy a giant house they can’t afford is foolishness. Nevertheless, when the house doesn’t sell or the risky loan blows up in their faces, the first person to catch the blame is the Realtor. The simple truth is that people are all adults when they make crazy deals, but they’re all victimized children when the deals go wrong.

Over the last several years I have had many clients come to me with the desire to do very risky things. Hot real estate markets such as that which we had a few years ago will do that to people. They see dollar signs and lose all good sense. In each case, I gave them the straight truth and advised against taking such risks. I am glad to say that most took the advice to heart. Those who didn’t, fired me and hired someone who told them what they wanted to hear. Now that the market has changed dramatically, I’ll leave their current bad situations for you to imagine. I suspect that you won’t have to imagine very hard.

As your real estate dude I’m hear to remind you that your Realtor should be one of your trusted advisers whom you expect to give you straight forward, truthful advice regardless of whether it’s what you want to hear. When an experienced, professional Realtor tries to protect you by giving you advice even when you don’t want to hear it, he’s risking his job in the process. Such a person is a trustworthy advisor worthy of your respect and loyalty and his or her advice might just save your financial fanny. So, no matter how much the advice may run counter to your plans, listen, consider it carefully and please, no matter how tempting it might be, don’t shoot the messenger.

Selling your property “As is”

By Joel Persinger

Unlike selling a bicycle, old book or stuff at the swap meet, selling a home “as is” requires a bit more openness on the part of the seller. California real estate law requires a seller to disclose any material facts that the seller is aware of that affect the value or desirability of the property. But, what exactly is a “material fact?”

Not being an attorney I can’t give you the “legal beagle” answer, so you’ll have to settle for the real estate broker version. In my experience it is best for the seller of a home to consider the definition of “material fact” to include anything that might be of concern to a buyer, past or present, no matter how off the wall it may seem.

About fifteen or sixteen years ago I ran into an agent who told me a nightmare story that had happened to one of his clients. In this case, the agent in question was representing the seller. It seems that the seller believed his home to be haunted. Unfortunately, he never told the agent, buyer or anyone else involved in the sale. The property closed escrow without a hitch and the buyers moved in happy as a lark to be in their new home. A few weeks went by and all was right with the world. Then one day, the buyer was out working in his new front yard when a neighbor strolled by and said, “Hi, you must be the new neighbors. How do you like the house?” “We love it”, said the buyer. “Oh, that’s great” responded the neighbor, after which he asked the killer question, “Seen any ghosts yet?” As you might imagine, the buyers were no longer happy in the house. They got an attorney and went after the seller and the agent. It was a giant mess.

This example may seem outlandish, but I have seen disputes arise over the fact that the seller never told the buyer that the neighbor’s kid played the drums all afternoon, or that one of the neighbors in the cul-de-sac had wild parties every weekend. Conflicts have arisen because the seller never told the buyer that the roof leaked the previous year. Sellers sometimes think these things aren’t important because they’ve hired a roofer to come out and fix it. But then suddenly, a month or two after the sale the rainy season comes, the roof leaks again and the neighbor stands in the driveway and hollers to the buyer, “Getting the roof fixed again? The guy who lived here before had the same problem last year.”

As your real estate dude, here’s my advice: disclose, disclose, disclose and if you have any questions as to whether you should disclose something, disclose it twice! If you know something about the house or the neighborhood that might blow up in your face when the buyer finds out about it, don’t keep it to yourself. If you do, just like the ghost in the first story it’ll come back to haunt you.

Real Estate Contracts: Read before you sign!

By Joel Persinger (Your Real Estate Dude)

It has long been my policy to carefully explain real estate paperwork before asking my clients to sign. You might be as amazed as I usually am to find out that most of my clients have never had anyone take the time to explain contracts to them prior to their experience with me. Even more surprising is the fact that most folks I run into are accustomed to signing real estate related paperwork without ever bothering to read it.

Given the fact that most of my clients have never suffered financially as a result of signing without first reading what they sign, it would appear that a great percentage of the time such trusting behavior does not leave any lasting negative effect. But does the appearance of a low percentage of problems brought about as a result of signing without reading make the policy a good one? I suppose the same question could be asked about the policy of young ladies walking out to their cars alone in dark parking lots late at night. I am sure that most of the time the young ladies make it to their cars just fine. But, most people would agree that making a habit of walking into dark parking lots alone is foolish in the extreme.

I try to stay away from absolutes when giving advice. However, in this case an absolute is warranted. It is always a good idea to read and clearly understand any paperwork before you sign it. The general appearance that things seem to work out for most people regardless of whether they read first does not change the fact that just like young ladies in dark parking lots not everyone escapes unharmed.

I am aware of one case in which a real estate loan “professional” left a wake of destruction involving several families who simply trusted that he was looking out for their best interest and signed whatever he put in front of them without question. Some time later, when the consequences of the deals the lender had struck came to light, each of these families were stunned that the loan broker would put them in such precarious financial positions. Each declared they had no idea what kind of loans they were signing up for.

As a new real estate agent in early 1990, I was present at “training” appointments with sellers during which their agents simply flipped through the paperwork while saying, “Initial here, sign here, initial here, sign there, etc, etc.” The agents never bothered to explain the details and the sellers never asked. It surprised me then and the fact that it is apparently still a regular occurrence with some agents surprises me now. I should probably mention that I was also privy to the “explosions” that occurred when those sellers finally realized what they had signed. In these and countless other examples, it was the clients who were hurt most when things went bad.

I know that we live in a world in which all of us would like to have less responsibility and have reason to point our fingers at the other guy when things go wrong. In the examples I have given we might be justified in doing so to some degree. After all, the other guys in these examples were not as upfront and forthright as they should have been. Just the same, this does not absolve us of our responsibility.

When we sign things we make agreements or promises and you and I will likely be held to those promises even if we claim not to have fully understood them at the time. “I didn’t know” or “He hoodwinked me” are weak defenses at best. My hope is that having read this article, you will be better prepared and more willing to safeguard yourself from such an eventuality by following this age old and simple advice; before you sign it, read and clearly understand it.

Is your rental property an asset or a liability?

By Joel Persinger

It seems that were ever I go someone says, “I understand you’re in real estate.” This last week a fellow said exactly that and began to quiz me regarding his rental properties. As it turned out, he had some rentals which were clearly assets and others which were liabilities and he could not figure out the difference.

In school we are taught that an asset is something that we own and a liability is something that we owe. But, this is not exactly correct from an investment point of view. Somebody once said, “When you’re not working an asset with feed you and a liability will eat you.” I don’t know who said it first. What I do know is that my grandfather must have said it to me a zillion times as I was growing up and I’ve read similar quotes in several books I could mention. The question is, “What does it mean when we apply it to real estate?”

Real estate investments come in all shapes and sizes, but for the purpose of this discussion we’ll break them into two categories: short term/speculation and long term/cash flow. Both of these investments can yield a positive result as long as you don’t get them confused.

Short term or speculative real estate investments are like stocks you buy and sell as a day trader. You buy them low and sell them high. Generally, there is a quick turn around measured in weeks or months at the most. This practice is commonly called “flipping” and is basically the practice of buying distressed properties, improving them and selling them. Since these properties are held for a very short time before being sold they are very seldom rented out. They are not really the assets of an investor as much as they are the inventory of a dealer.

Long term or cash flow properties are purchased for the money they generate in rental income. There are also tax benefits, but we’ll get into those another time. When an investor purchases a long term rental property, cash flow is king. The property has to bring in more money in rent than the cost of having it. If the property generates a positive cash flow, it puts money in the investor’s pocket each month after all the bills are aid.

When the market’s hot, some folks buy properties as rentals with negative cash flow speculating that values will go up so they can sell the property in a year or so and make money. What they have done is mix the concepts of long term cash flow and short term speculation. The result is that they have a long term investment that takes money out of their pocket every month and cannot be sold in the short term for profit. As I am sure you can imagine, this is not a good situation to be in.

My advice to you as the new investor is to keep it simple. Throw the get rich quick ideas out the window and buy properties that have positive cash flow. The rent money will come in whether property values are rising or falling and the next time we bump into each other you won’t have a problem in mind when you say, “I understand you’re in real estate.”

FREE Home Buying Seminar - February 24th

Finding and buying a new home can seem intimidating. So, we've put together a seminar that takes the mystery out of the process, outlining in simple steps how to get into your new home.

When: Saturday, February 24, 2007
Where: Mission Federal Credit Union
Time: 9 a.m. to 11:30 a.m.
Address: 5785 Oberlin Drive, San Diego

Here's what you'll learn:
This seminar will teach you how to find your dream home, save thousands on your purchase, and navigate the buying process from start to finish.

To register for this event, call Mission Fed at 858-546-2039 or e-mail carleenj@missionfcu.org. See you there!

New Seminar "Escaping The Debt Trap" March 17

The class is on building your financial future by understanding credit scores And eliminating credit card debt.

With rising energy costs, interest rates, and new bankruptcy laws, many individuals have little remaining in their wallets at the end of the month to meet their credit card obligations. But, missing a payment can be costly and hurt your credit. Attend this FREE seminar and learn:

• Alarming statistics about credit card debt
• How your credit score is determined and ways to increase it
• The facts about zero percent offers


• The negative impact one late payment has on your credit card accounts and how that affects your wallet
• Key signs to recognizing when you are in too deep
• How to maximize cash flow using home equity

Attendees will receive a step-by-step plan on how to pay off credit card debt.

This seminar is hosted by Shanne Sleder (The Loan Dude)

March 17, 2007
10:00 a.m.
13137 Poway Rd
Poway, CA 92064

Please RSVP (760) 294-3789 or ssleder@clarionmortgage.com

Selling real estate short

By Joel Persinger (Your Real Estate Dude)

During the boom market we experienced not so long ago, sellers were reaping record profits and buyers were snapping up every property they could find in the hope of getting into the game before home prices were out of reach. In the midst of that feeding frenzy, loan products popped up that made it possible for people to buy homes they could never have purchased otherwise. Often such purchases were made with no money down.

Some folks who already owned homes used such loans to pull out most or all of the equity from their home so they could “invest” in more homes. Being new to the real estate investment business, many purchased homes as “investments” which had negative cash flow. That is to say that the rental income did not cover the expenses associated with the rental house. This means the “investor” would have to go into his pocket every month to make up the difference.

It was a miraculous time in real estate during which many people I talked to spoke of getting rich quick and riding the boom all the way to retirement. But, as history teaches plainly, after every boom there is a bust. Along with the market slow down has come a long line of troubled home owners. Many are in a financial bind with their personal home, others with an “investment” property and some with both. In many cases, the owner owes more on the property than it would sell for in the current market. The owner cannot refinance because he already owes too much on the property and he can’t sell because he can’t sell it for enough to pay off the current loans. The property owner is truly between a rock and a hard place. Quite often the property has to be sold to avoid eventual foreclosure. When this happens and the property must be sold for less than what is owed on it, it is called a “short sale” or “selling short.”

There are an astounding number of people in this unenviable position at present. I showed some properties to clients a week or so ago in Oceanside and was amazed at how many “short sales” we encountered. Of the ten homes we planned on visiting that day, five were being sold short. The sellers were obviously in financial distress and I am sure they would have loved to have my clients offer to purchase their homes.

The problem is that selling short is a very complicated and challenging thing to do. Among other things, it requires the approval of the lenders in questions. As you might have guessed, lenders are not thrilled about losing money. Gaining the lenders approval can be an exercise in jumping through multiple hoops of fire. There are also potential tax consequences, damage to the seller's credit rating and a host of other issues that must be dealt with in order to get the property sold.

The bottom line is that selling a home short is not for the faint of heart. Neither is it for the inexperienced real estate professional. If you are forced to sell your property in a short sale, my advice is hire a seasoned professional Realtor who has experience with short sales. Don’t forget to also seek both legal and tax advice before you proceed. If you are selling short, you have a perilous road ahead of you. The last thing you want is to get waylaid by unforeseen dangers along the way.

The Consequences Of Following Bad Advice

By your real estate dude

This week has been busy with phone calls from folks whom you might say, enjoyed the hot real estate market of a couple of years ago a little too much. At the time, money seemed to grow on trees, or at least on houses at any rate. Just like kids in candy stores many folks grabbed all they could eat without realizing that a belly ache was just around the bend.

Lenders were coming out of the woodwork to offer “miracle loans” with interest rates bordering on 0%. There were loans for everyone and just about any desire could be realized. Mortgage people were like magicians waving their magic laptops like wands and producing money out of thin air. People were magically purchasing houses they could never have bought before. Others were buying toys galore by pulling the equity out of their homes at interest rates that almost made it look like free money. All the while, long time real estate and loan professionals were being called “old school” and “out of step” because we urged our clients not to go for the money grab. Happily many listened, but sadly many did not. The truly sad thing is that often the lenders and agents who helped these folks get into a mess abandon them when it comes time to clean it up.

A broker friend of mine in El Centro called me about just such a tale. A woman called him to complain that she had purchased a home from another broker and was now in serious hot water. Her broker, who also acted as the lender, had sold her an $800,000 home with a “no money down, fully adjustable, negative amortization loan”. “Negative amortization” means that the monthly payment is less than the actual interest owed for that month. “Fully adjustable” means that as interest rates rise, her house payment rises as well. The net result is that, her house payment has doubled due to rising interest rates and the woman actually owes more on her home after making the payment than she did before. Her payment is not enough to cover the interest that is owed on any given month.

She was able to finance the $800,000 because the appraisal that was performed at the time of the purchase inflated the value of the property. My broker friend estimates that the home was never actually worth $800,000. It was worth closer to $750,000 at the time of purchase, but the appraiser overstated the value to get the loan funded. Due to the softening real estate market, the current value of the house is about $700,000, but the owner now owes over $800,000 because the unpaid interest is adding up.

When my friend explained this sad news to the woman she was heartbroken. She told him that her broker had advised her to make this purchase, that he had brokered the loan for her and selected the appraiser. She said she did not truly understand what kind of loan she was getting at the time. My friend had never spoken to the woman before and naturally asked who had referred her to him. There was a long pause after which she said, “The broker who sold me the house.”

Hopefully, you have been spared such a horrible experience and are not suffering from the money grab belly ache. But, just in case you are ever tempted when the market booms again, I remind you of an old children’s poem by Mary Howitt called “The Spider and the Fly.” The spider hoodwinks the fly and has her for dinner by flattering her and telling her just what she wants to hear. The moral of the poet’s story and this column are the same and I don’t think I can improve upon Mrs. Howitt’s rendering; “And now, dear little children who may this story read. To idle, silly, flattering words, I pray you, ne’er give heed. Unto an evil counselor close heart and ear and eye, and learn a lesson from this tale of the spider and the fly.”

Getting divorced & selling a home

By Your Real Estate Dude

A few days ago, I received an email from an old client asking me for any advice I might have for a friend of his who is going through a divorce and needs to sell a house as a result. I gave him a list of the basics, and after looking through them I thought perhaps I might share some of these things with you. Hopefully, you will never need them.

It goes without saying that divorce is a very emotional process. It is quite common for couples to let things go during a divorce simply because they are overwhelmed. Sometimes they do so because they are feeling hurt and want to cause the other party harm. Either way, emotions run high. As a result, the house can be a major bone of contention. It is with this in mind that I generally make the following five suggestions to my clients who are in this situation:

1. As far as you are able, put your differences aside in order to get the home sold. Couples will sometimes use the sale of the home as a weapon against each other. This is generally in neither side’s best interest. My advice is, put aside the emotional desire to lash out and do what it takes to get the house sold and move on with your lives. That means: pitch in to make the payments or agree to split the profit or whatever it takes to save as much of the equity you’ve built up as possible. Nobody wins if the house doesn’t sell and you lose thousands of dollars in the process.

2. Hire an agent who works with divorcing couples often. If you and youre spouse cannot communicate with each other without arguing, your agent should be able to help you come to some basic agreements regarding the house. I represent divorcing couples often and have found that the agent can make or break the process. The agent should: refrain from taking sides, work to the best interest of both parties, listen patiently and be diplomatic but truthful and forthright even when it’s difficult. When the agent spends more time hiding then helping, you have the wrong agent.

3. Keep the house payments current. I cannot tell you how many couples have come to me after their house payments are three or four months behind hoping for help. In most cases, they could have made the payments but were unable to come to an agreement regarding who paid for what. If the payments are not made, the bank will probably foreclose and you risk losing your entire investment.

4. If you are in a financial bind over the house, price it aggressively in order to sell it quickly. This means you will walk away with less money in the end, but something is better than nothing.

5. Don’t confuse your Realtor with your attorney. Your attorney represents only you and is there to look after your best interest in your dispute with your spouse. By contrast, your Realtor represents all of the owners of the home equally and has a fiduciary duty to each of them. He is there to look after the best interest of both of you in the sale of your home. Therefore, he cannot and should not get involved in your dispute or take sides.

I realize that none of these suggestions are easy to accomplish and hopefully you will never find yourself in need of them. But if you do, following these guidelines might just save you from losing not only your marriage but your shirt.

Foreclosures are up. So, what’s the big deal?

By Joel Persinger
YourRealEstateDude.com

It seems that wherever I go these days someone is talking to me about something discouraging they have read or heard about the real estate market. Last week, a client of mine had a party at his home to show off all the improvements he’s made prior to putting the home on the market. While I was there, I ended up in a discussion with a friend about foreclosures and what effect the rise in foreclosures is going to have on the market in the coming years.

Based upon the rise in foreclosures and the “struggling economy”, this gentleman has become convinced that home prices are going to drop like a rock in the coming year; perhaps even to the level of prices some five years ago. Since his argument was based upon his impression that the economy is struggling mightily and that foreclosures are a major indicator of coming trends, it might be instructive to take a hard look at the economic facts.

With very few exceptions, economists tell us that the nation’s economy is doing quite well. The same can be said of the local and state economies. The forecasts offered by the Burnham-Moores Center for Real Estate at U.S.D which were released in December are prime examples. But, if you still aren’t convinced, just talk to the retailers who cleaned out my wallet over the holidays! They’re probably still counting their profits.

It is true that some sectors of the economy are not doing as well as others and that the real estate sector has experienced a slow down. However, it is quite normal for some economic sectors to out-perform others. In fact, I can’t remember a time when this was not the case. Nevertheless, unemployment is down, consumer spending appears steady and even though fewer California homes sold in 2006 than in 2005 the price of homes in California still went up! The California Association of Realtors reports that the median price of an existing single-family home in California increased 1.4 percent in the month of November alone. This increase isn’t huge, but it flies in the face of the conventional opinion that home prices are dropping like stones. Appreciation has slowed dramatically, but home prices are holding steady and even increasing ever so slightly on average.

The other piece of the argument was foreclosures. It is true that the number of foreclosures has increased and such events make great headlines. But, what no one seems willing to tell you, is that the number of foreclosures is such a miniscule percentage of the number of homes sold or owned at any given time that it makes the foreclosure number hardly worth mentioning.

According to data provided by San Diego based InnoVest Resource Management, mortgage lenders recorded 9,058 notices of default in San Diego County in 2006. This is just under twice as many as were recorded in 2005. A notice of default or N.O.D. is the document that is filed by a lender to start the foreclosure process. The filing of a N.O.D. does not automatically mean the home will be sold in foreclosure. On the contrary, there are many opportunities for the owner of the home to make good on the loan and keep the house. The statistics on InnoVest’s website show that less than 20% of the homes for which a N.O.D. was recorded in 2006 were actually sold by the lender. That means that over 80% were never actually foreclosed upon. If we then take the 20% figure as the actually foreclosure number roughly 1,812 properties were sold as a result of foreclosure in San Diego in all of 2006. That is less than 7% of the homes sold, not including duplexes, vacant land, etc. The figure would actually be lower still if the month of December were accounted for. November is the last month for which current data is available from the San Diego Association of Realtors for 2006 sales.

The foreclosure number becomes even less significant the more we work the figures. For example: if you divide the number of foreclosed upon properties by the total number of homes in San Diego County on which there is a current mortgage loan, the resulting percentage doesn’t even hit the radar screen.

So, as you’re listing your new year’s resolutions for 2007, consider a resolution to look on the bright side. There are good things just around the corner for real estate and I wouldn’t want you to miss out by listening to the naysayers.

Reading the tea leaves of real estate. What's up for 2007?

By your real estate dude.

You may not have noticed this, but our national culture has become one in which “talking heads” and “experts” rule the day. Just about every “news” program on television spends the better part of the broadcast segment asking experts to give their opinion about whatever they think is going on. Newspaper and magazine articles often do the same. The “experts” forecast and analyze everything from the weather to the war and we read or watch their opinions with great interest allowing our moods and thoughts to be shaped along the way. I do it, and I know you do too. Look at you. You’re reading this column!

This past Monday (December 18th) was a field day for talking heads. It was the “Seventh Annual Residential Real Estate Conference” put on by the Burnham- Moores Center for Real Estate at USD. The gathering of developers, investment gurus, real estate prognosticators, mortgage lenders and economists was quite large with many of the “movers and shakers” present and accounted for. During the presentation, a group of PhDs and industry experts gave their predictions for the coming year. As an official “talking head”, I was invited to attend. Here is how it went.

A well known investment guru and two PhDs in economics made lengthy, complex and impressive presentations, followed by a panel including an economist, a major developer and the president of a major San Diego real estate firm. The first presenter’s message was upbeat and optimistic. In his opinion, the market is experiencing a normal correction, there never was a real estate bubble and all will be well going forward. As I followed along with his presentation I was feeling pretty good about the market and wrote in the margins “Don’t worry, life is good”.

Just about the time I was feeling great about the coming year, the second presenter took the stage. This PhD spent his allotted time depressing the life out of everyone in the room with dire predictions of a sagging market. My note in the margin read “The sky is falling”.

Then, at the very pit of the room’s despair, the third presenter bounced upon the stage with a grin. His twenty minute message left my margin note proudly stating “It’s a normal market; no big deal; life is good”. Just as I wrote this the lady seated next to me leaned over and whispered, “I’m not sure if all this is good or bad”.

To put the icing on the cake of our confusion, the panel took the stage. Not surprisingly, they could not seem to agree on much. During the question and answer period I asked how so many experts can possible read the same data and come up with so many differing forecasts. They’re only response was, “Welcome to economics”. My margin note read, “They haven’t got a clue”.

So, where does that leave you and me as we try to sneak a peek at the future of the real estate market? It leaves us with the only valuable thing coming out of Monday’s conference. It was both the simplest piece of information to gather and the last presented.

Almost at the conclusion of the conference, the host decided to close with a parlor trick. Each table had an electronic keypad to allow the audience to answer three simple questions about the coming market. It was a gimmick meant to compare the audience opinion with that of the “experts”. But then, the audience was full of experts. It took only five minutes. Each table voted and the votes were tallied and presented on the big screen. My margin note… “The opinion of the audience was overwhelmingly positive; it’s going to be a good year”.

Representation vs. Sales

by your real estate dude

Some time ago I closed an escrow that had me wanting to dust off my soap box, grab my megaphone and shout opinions to every passer by at the nearest street corner. Fortunately, I write this column, so I don’t have to strain my voice or get pelted with tomatoes by those who may disagree with what I am about to say.

In every industry there are things that rise to the level of pet peeves for those who work in the business, and I am no different in that I have pet peeves when it comes to real estate. While some peevish things are just irritating, others can cause genuine and lasting harm. It is one of the latter that I am going to tell you about today.

The greatest pet peeve I have with regard to real estate can be found in the fact that many do not clearly understand the difference between representation and sales. While real estate agents are often looked upon as “sales people”, the truth is that a real estate agent has a fiduciary duty to his client under the law. The fiduciary duty is one that requires the agent to act with the utmost care, integrity, honesty and loyalty in dealing with the client. In plain and simple English, the agent is to act in the best interest of the person whom he or she represents. Unfortunately, agents sometimes lose track of whose interest they are representing. Take the escrow I mentioned earlier for instance.

I was representing a client in the sale of her home. We received an offer to purchase the house and I began negotiating with the buyer’s agent on behalf of my client. My goal, as the seller’s representative, was to get the best possible deal for the seller.

The buyer’s agent made some mistakes at the outset by drafting the offer in an incomplete manner. This gave me the opportunity to take advantage on behalf of my client and save her the cost of a few items. So, I drafted a counter offer which clearly shifted the cost of certain items totaling about $3,000 to the buyer. I told my client that the buyer’s agent would surely catch it and negotiate these items out of the agreement, but it was worth a try. After all, as my grandfather use to say, “If you don’t ask, you don’t get.” As it turned out, the buyer’s agent was so eager to get the “deal” that he just had his client sign the contract as written and never raised the issues.

Twenty some odd days later, the buyer received the estimated closing statement with an itemized list of the buyer’s costs. The buyer was blindsided and upset. Right there on the list of costs were items generally paid for by the seller. But, the buyer, without being forewarned by his agent, had agreed to pay for them.

As you might imagine, the buyer expressed his displeasure and I received a frantic call from the buyer’s agent. It seems that the agent was upset that I had negotiated effectively in favor of the seller. During the call, I explained my responsibility as my client’s representative and that my job is to look after my client’s best interest. With a sound of disappointment in his voice, the buyer’s agent said, “When we started this deal, I thought you were a nice guy”.

This agent did not understand where his loyalties should have been. While I viewed my job as one of “representation”, he viewed his as “sales”. During the transaction, he was a “nice guy” and was happy to give up whatever it took to make the deal. I was pleasant to work with but took every opportunity to get the best possible arrangement for my client. While the buyer’s agent’s loyalty was to the “deal”, mine was to my seller.

Make no mistake; there are hundreds and hundreds of good, honest and trustworthy real estate professionals working hard for their clients in San Diego County. While some forget where their loyalties lie, and become more concerned with making the sale than with their client’s best interest, it is by no means accurate to label every agent as self serving and mercenary. The important thing is to be able to tell one from the other.

The easiest way to find a good agent is by referral. As the old saying goes, “Word of mouth travels faster when it’s bad”, so get referrals from friends whom you know and like and trust. If their real estate agent took good care of them, you’ll probably have a similar experience. One way or the other, if the agent seems more like “sales” than “representation”, my advice is to kindly excuse yourself and find someone else.

‘Tis the season to be buying

By your real estate dude

I know I’m stating the obvious, but in case you’ve just returned from outer space, Christmas is right around the corner. Christmas, or at least the commercialized version of it, is everywhere. The retail onslaught is relentlessly pursuing each of us on television, radio commercials, print and every other form of advertising devised by man. ‘Tis the season when retail stores try with all their might to make their sales for the year and everyone, it seems, is focused on the holidays to come.

So much so in fact, that many of us become afflicted with a strange illness about a week before Christmas called “short timer’s disease.” You’ve seen it in your workplace; people just going through the motions waiting for Christmas vacation to start. Some desks are already empty and many companies are working with a skeleton crew. Nobody likes to admit it, but most folks are more interested in shopping and company Christmas parties than they are in working as the day draws nearer. Like I said, “’tis the season.”

Just about every business has a seasonal component to it. For retail, this is the time to rake in the bucks. But, for real estate this is down time. While people everywhere are swarming the malls, raiding internet retailers and marking time at work, thousands of homes are for sale without anyone paying them any attention. If you’re trying to sell, this time of year can be a bit discouraging, but if you’re buying this is the right time for you.

Come January, things traditionally start to pick up for real estate, but from now until the end of the year the real estate market slows to a crawl. The beautiful part for buyers is the almost total lack of competition. Sellers are more likely to bend over backwards to make you a deal during this season because you will probably be the only buyer they have.

So call me Santa and take my advice. If you’re ready to buy, take a break from the malls, grab your Realtor, go house hunting and make an offer. You might be surprised by the happy result. After all, ‘tis the season to be jolly!

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You don’t have to be smart!

By Your real estate dude

Just the other day, I found myself talking with a fellow who had asked me for advice some time back and not taken it. He probably doesn’t remember asking me or the advice I gave him at the time.

It was a strange scene, becoming almost surreal as he began to speak, like one of those movie flashbacks. There I was, standing next to him listening as he lamented his current circumstances. His face looked long and tired. Suddenly, it was as if I was transported back in time. In my mind’s eye, I could see him standing in almost the same exact spot a year or so ago excitedly asking me for my advice regarding his plan to take out some very risking loans in order to realize his dream of becoming a landlord. I was about to give him my answer, to share the advice he so quickly discounted, when I was thrust back into the present once again just in time to hear him tell me what a terrible financial mess he was in. As he finished his tale, his last words were, “but, you know more about this real estate stuff than I.”

As I walked out to my car, I couldn’t help remembering a rule my grandfather had taught me when I was growing up. It has echoed in my memory ever since, “You don’t have to be smart, just hang around smart people.” Sure, Grandpa was a do-it-yourselfer when it came to some things, but there were certain things, according to my grandfather, that you just didn’t take on by yourself. You didn’t do your own taxes, you didn’t represent yourself in legal matters and when it came to investing, you didn’t do much of anything without first consulting professionals who had been successful at what you were trying to do. And above all, when they gave you advice you listened!

Over the years, I have surrounded myself with smart people who have experience and knowledge in areas I don’t, and who are more interested in my welfare than a paycheck. When I have a tough investment decision to make, I start asking the right people and listening carefully to what they say. I’m not perfect at this you understand. On a couple of occasions, I have gotten too big for my britches and thought I knew better. I ignored the advice I received and believe me, I paid for it just like the fellow I told you about a few paragraphs ago.

The important thing is what I get to pass along to you. I have learned that my Grandpa Charlie was pretty smart after all. He knew what he didn’t know and he was smart enough to heed the advice of others who did. In doing so, he increased his chances of being successful and you can too.

Wants verses needs

By your real estate dude

When I was a kid my mother used to say that my eyes were bigger than my stomach. I was constantly piling more food on my plate than I could ever possibly have eaten. It was never more evident than during the holidays, which is probably why I thought to write this. Thanksgiving and Christmas dinners were feasts at which every member of my family was magically transformed into a glutton, often with a bellyache not far behind.

Over the years since, it could arguably be said that I have spent most of my adult life working with people, many of whom suffer from the same disparity between desire and necessity. Consequently, I have come to the conclusion that most of us have an almost uncontrollable desire to have more than we really need. I have not yet decided whether we are born with it. However, I do know that our culture teaches us to be materialistic to the extreme and often to our own detriment. I see this phenomenon regularly in real estate.

Earlier this year I received a call from a young lady who stated with some urgency, “We need a bigger house. I’m having a baby and we need more space.” Naturally, I asked, “How big of a house do you have in mind?” Without hesitation she announced, “At least 3,500 square feet with no less than 5 bedrooms.” It seems that her current home was about 2,800 square feet in size with 4 bedrooms and 2 and one half baths. I was thinking to myself that this new child must be her fifth or sixth when I asked, “How many children do you have?” As if it should have been obvious to the most casual of observers, she replied, “Oh, this is our first.”

After I recovered my composure, my next leap in logic was that she must have some elderly parents or other family members living with her that would account for such an urgent need for a 3,500 square foot house. In fact, her family consisted simply of her husband, herself and the child she was about to deliver.

I inquired about her financial picture briefly and it became quickly apparent that she and her husband were going to be stretched to the absolute limit if they purchased the new home she was describing. In fact, they were already uncomfortably tight in their finances. Frankly, I was very concerned for their welfare and spent the next few minutes explaining my concerns and trying my best to talk her out of it. No deal. She was dead set on making the purchase and insisted that her husband was as well.

Obviously, this is an extreme example, but it is one of many I could cite and they all have the same theme. The couple’s desires far out stripped their needs and their finances, in many cases to their own detriment. You might say their material eyes were much bigger than their financial stomachs. The result is often a bellyache of a situation in which the house they buy owns them rather than the other way around.

In spite of the strong desire for “more” and “bigger”, there are some ways to keep from finding yourself in such an unenviable position when buying a home. One is to make a list of your needs and your wants with the understanding that the two are not the same. I generally suggest to my clients that they make two columns: one entitled “must haves” and the other “would be nice”. It is most important that you be honest with yourself and that you write in the “must haves” column only those things that you absolutely need. Everything else goes under “would be nice”.

The result will be a more focused and honest appraisal of your situation. You will be able to review every interesting property based upon the bench mark you have created with your list. Most likely, you will end up with a home that fulfills all of your needs and has some of the characteristics that “would be nice”. At the same time, you may save yourself from a financial disaster. Unlike many who do not use this process, you will own your home instead of it owning you.

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

By Shanne Sleder (the loan dude)

Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here.

Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames.

If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate.

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.

Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.