By Joel Persinger
YourRealEstateDude.com
When I was a kid, one of the game shows my parents most liked to watch was called, “Truth or Consequences.” As far as I know, that show has been gone for decades. But, what is still with us is the idea that lies can bring about terrible consequences.
On a daily basis, my staff and I work with homeowners who are in terrible fixes. In most cases they either purchased their homes using risky loans or were not entirely truthful when filling out their loan applications, or both. While it might be considered foolish, there is nothing illegal or immoral about taking out a risky loan. However, telling bald faced lies on a loan application is a crime. It’s called, “Fraud.” Some lies are as simple as indicating that the buyer is going to live in the home, when he is actually going to rent it. Others are more serious, such as the buyer telling the lender he makes more money than he actually does. Regardless of the severity of the lie, it is still a lie and can carry serious consequences when (and I say when, not if) the lender becomes aware of it.
The other notable area in which folks often get themselves into hot water is during the sales of their properties. I was reminded of this yesterday as I talked with a friend from church who had expressed a desire to purchase my car. As he marveled at the car’s excellent condition, I felt it prudent to also point out its faults. People can get excited about cars, particularly a convertible when summer is just around the bend. As evidence of this I could mention the fact that he gleefully put the top up and down several times. But, the moment I mentioned that the air conditioning needed to be charged and that the sound system was on the blink he began to take a much more serious look at the vehicle.
This is precisely the kind of behavioral shift that home sellers want to avoid. They know that home buying is an emotional process and they don’t want to chase a hot buyer away by telling him things about the house that might be bad. I’ve actually had sellers tell me, “It’s not a lie if I just don’t tell them.” Actually, it is a lie. It’s called, “a lie of omission.”
So, to illustrate how important the truth really is, it is an indisputable fact that the real estate and lending markets would not be in the pickle they are in if people had simply told the truth. Here are the facts, like them or not. Some lender’s lied when they neglected to tell their clients about the dangers of risky loans. Some buyers lied when they told lenders that their incomes were greater than they really were. Some sellers lied when they failed to mention that their homes were in worse shape than advertised. And yes, I hate to admit it, but some real estate people lied too. Even the politicians have gotten into the act by telling lies about what happened and who is responsible. Perhaps we all should have watched that old game show a little more often. As you may remember, it was called, “Truth or Consequences.”
Tuesday, April 22, 2008
Monday, April 14, 2008
A Solid Strategy And Great Tactics Are Vital to Your Success.
By Joel Persinger
YourRealEstateDude.com
I am often asked the “Should I…” questions that are on most people’s lips the moment they run into a real estate professional. Lately the questions have come in the form of, “Should I buy now or wait until later.” In case you have been looking for a real estate agent to ask just that question, I thought I might answer it for you here.
It’s probably a safe bet to say that everyone knows the real estate market is experiencing a serious downturn. The press has been shouting the news of the sad and frightening aspects of the bursting “real estate bubble” for quite a while now. But, they haven’t talked about the good part. This is the part that honest to goodness investors capitalize on. Now, I’m not talking about the folks who call themselves investors because they jumped on the bandwagon when things were so good that it was almost impossible to fall off. I’m talking about real investors, folks who have taken the time to learn the ropes, develop winning strategies for success and tactics with which to implement those strategies along the way.
Real investors, like my grandfather when he was still around and like some of the clients we serve in my office, see great opportunity when everyone else is wringing their hands lamenting disaster. When the press is shouting, “Foreclosures are up, the end is near” investors are thinking, “Foreclosures are up, what a great opportunity!” The difference between the two is nothing more than understanding how things work and having a solid strategy and good, nuts and bolts tactics with which to succeed.
At this point, you’re probably thinking, “That’s all fine for you, Joel. But, how does that help me? I’m not an investor. I just want to buy a home.” The answer comes when you think about association. When I was a kid my mother, looking at the boys I knew from school, would say, “Don’t hang around those boys… they’ll get you into trouble.” By the time I was five years old I had learned that bad character corrupts good morals. Then my grandfather started to teach me one of the most valuable lessons I have ever learned in life. Over and over as I grew up he would tell me, “You don’t have to be smart, just hang around smart people.” And so, I learned that foolish people who do stupid things would bring me to harm and wise people who do smart things could help me succeed.
Following these simple lessons can help you succeed as well. In order to be successful as a buyer or seller in this market, you have to work with people who know what they’re doing. The way you find them, is to look for agents who work with REAL investors. Those agents know the ropes, because real investors won’t work with them if they don’t. Once you find one; be respectful of his time, don’t be afraid to pay him well and put on your thinking cap… you’re on your way to success.
YourRealEstateDude.com
I am often asked the “Should I…” questions that are on most people’s lips the moment they run into a real estate professional. Lately the questions have come in the form of, “Should I buy now or wait until later.” In case you have been looking for a real estate agent to ask just that question, I thought I might answer it for you here.
It’s probably a safe bet to say that everyone knows the real estate market is experiencing a serious downturn. The press has been shouting the news of the sad and frightening aspects of the bursting “real estate bubble” for quite a while now. But, they haven’t talked about the good part. This is the part that honest to goodness investors capitalize on. Now, I’m not talking about the folks who call themselves investors because they jumped on the bandwagon when things were so good that it was almost impossible to fall off. I’m talking about real investors, folks who have taken the time to learn the ropes, develop winning strategies for success and tactics with which to implement those strategies along the way.
Real investors, like my grandfather when he was still around and like some of the clients we serve in my office, see great opportunity when everyone else is wringing their hands lamenting disaster. When the press is shouting, “Foreclosures are up, the end is near” investors are thinking, “Foreclosures are up, what a great opportunity!” The difference between the two is nothing more than understanding how things work and having a solid strategy and good, nuts and bolts tactics with which to succeed.
At this point, you’re probably thinking, “That’s all fine for you, Joel. But, how does that help me? I’m not an investor. I just want to buy a home.” The answer comes when you think about association. When I was a kid my mother, looking at the boys I knew from school, would say, “Don’t hang around those boys… they’ll get you into trouble.” By the time I was five years old I had learned that bad character corrupts good morals. Then my grandfather started to teach me one of the most valuable lessons I have ever learned in life. Over and over as I grew up he would tell me, “You don’t have to be smart, just hang around smart people.” And so, I learned that foolish people who do stupid things would bring me to harm and wise people who do smart things could help me succeed.
Following these simple lessons can help you succeed as well. In order to be successful as a buyer or seller in this market, you have to work with people who know what they’re doing. The way you find them, is to look for agents who work with REAL investors. Those agents know the ropes, because real investors won’t work with them if they don’t. Once you find one; be respectful of his time, don’t be afraid to pay him well and put on your thinking cap… you’re on your way to success.
Monday, April 07, 2008
Is a Deed in Lieu of Foreclosure The Best Solution?
By Joel Persinger
YourRealEstateDude.com
With so many folks owing more on their homes than the properties are worth, many have elected to sell their houses in short-sales (sales in which the lender accepts less than what is owed). However, some people are opting for what is called a, “deed in lieu of foreclosure” (signing the property over to the bank to prevent a foreclosure from occurring). But, is this the best solution?
At a recent “broker’s breakfast” hosted by the San Diego Association of Realtors, real estate brokers and managers gathered from around San Diego County. The subject was foreclosures and the attendees heard attorneys representing both the California Association of Realtors and the San Diego Association discuss the problems and issues presented as a result of the large number of foreclosures flooding the market. Among the subjects discussed, was the practice of lenders offering a “Deed in Lieu” as an alternative solution to foreclosure or short-sale.
As a general rule, when homeowners are facing foreclosure they fear three major consequences: damage to their credit rating, the lender chasing them for the difference between what they owe and what their home is worth (the deficiency) and the possibility of having to pay taxes on that difference. The overriding reason why many homeowners elect to sell their homes in short-sales rather than allowing them to be foreclosed upon is in order to minimize the damage in all three of those areas. The question at hand was, “Does a deed in lieu of foreclosure accomplish the same goals?” Unfortunately, the answer is not simple.
The problems with accepting a deed in lieu of foreclosure as your chosen solution can be summed up in a four word quote by one of the attorney’s who was presenting at the morning breakfast. He said, “Deed in lieu? Careful!” While it may be tempting to just give the property back to the lender and wash your hands of the whole mess, the truth is that many lenders won’t let you do that so easily. According to this attorney, some lenders have adopted the practice of offering a deed in lieu of foreclosure while reserving their right to come after you for any deficiency after the home is eventually sold.
This does not mean that a deed in lieu is not the best solution. It simply illustrates the need to check with qualified professionals who have your best interest at heart before agreeing to anything. A short list of those professionals should include an experienced real estate broker, a qualified attorney and a Certified Public Accountant or tax attorney. Most importantly, do not sign anything without fully understanding what it says.
YourRealEstateDude.com
With so many folks owing more on their homes than the properties are worth, many have elected to sell their houses in short-sales (sales in which the lender accepts less than what is owed). However, some people are opting for what is called a, “deed in lieu of foreclosure” (signing the property over to the bank to prevent a foreclosure from occurring). But, is this the best solution?
At a recent “broker’s breakfast” hosted by the San Diego Association of Realtors, real estate brokers and managers gathered from around San Diego County. The subject was foreclosures and the attendees heard attorneys representing both the California Association of Realtors and the San Diego Association discuss the problems and issues presented as a result of the large number of foreclosures flooding the market. Among the subjects discussed, was the practice of lenders offering a “Deed in Lieu” as an alternative solution to foreclosure or short-sale.
As a general rule, when homeowners are facing foreclosure they fear three major consequences: damage to their credit rating, the lender chasing them for the difference between what they owe and what their home is worth (the deficiency) and the possibility of having to pay taxes on that difference. The overriding reason why many homeowners elect to sell their homes in short-sales rather than allowing them to be foreclosed upon is in order to minimize the damage in all three of those areas. The question at hand was, “Does a deed in lieu of foreclosure accomplish the same goals?” Unfortunately, the answer is not simple.
The problems with accepting a deed in lieu of foreclosure as your chosen solution can be summed up in a four word quote by one of the attorney’s who was presenting at the morning breakfast. He said, “Deed in lieu? Careful!” While it may be tempting to just give the property back to the lender and wash your hands of the whole mess, the truth is that many lenders won’t let you do that so easily. According to this attorney, some lenders have adopted the practice of offering a deed in lieu of foreclosure while reserving their right to come after you for any deficiency after the home is eventually sold.
This does not mean that a deed in lieu is not the best solution. It simply illustrates the need to check with qualified professionals who have your best interest at heart before agreeing to anything. A short list of those professionals should include an experienced real estate broker, a qualified attorney and a Certified Public Accountant or tax attorney. Most importantly, do not sign anything without fully understanding what it says.
Monday, March 24, 2008
Are home loan programs changing?
By Joel Persinger
YourRealEstateDude.com
Although we have relatively constant weather in San Diego County, that is not the case in many other parts of the country where there is an old saying, “If you don’t like the weather, wait five minutes.” Where my younger sister lives in Florida, this is most certainly true. One minute it’s raining and five minutes later there isn’t a cloud in the sky.
While you might think it far-fetched to use a weather analogy to describe the current home lending market, given our current market dynamics, we could easily adopt a similar saying such as, “If you don’t like the current loan market, wait five minutes.”
Just last Wednesday, my entire staff was present at a meeting presented by an expert in government loans such as those offered by VA, FHA and CalHFA. It was quite an eye-opener for an old real estate dude like me. Government loans have been out of the picture in San Diego County for more than a decade simply because there were better options to choose from. The government loans were available during that time. They just weren’t as attractive as the many non-government programs that were around. However, with the recent tightening of the non-government lending market, “Govi” loans have begun to shine a little brighter.
As the meeting progressed you could have read the shock on everyone’s faces as we discovered that 100% financing was still available using government loans such as CalHFA. For all practical purposes, 100% loans had become a thing of the past among non-government lenders. As a result, we couldn’t get over the fact that they were still possible using government loans. Well… that was on Wednesday. By Saturday CalHFA had announced that the rules had changed. “If you don’t like the weather…”
While many people like to watch the stock market, it is the bond market which has the most immediate effect upon home loan interest rates. Every day my email is jammed with hundreds of messages about the lending market in general: at least six or seven of which are short messages about the bond market which read like this, “The bond market is up by ___ basis points”, followed later in the day by, “The bond market is currently down by ____ basis points”, and so on. Each one of these six or seven daily shifts in the market effects the mortgage rates for that day. What a roller coaster. “You say you don’t like the weather? Just wait.”
So, with loan programs and interest rates that are moving targets at best, how is a borrower supposed to count on anything? It isn’t easy. One thing’s for sure, borrowers who chose to work with knowledgeable, experienced loan officers who have their ears to the ground and their noses to the grindstone are far better off. Now is not the time to be working with amateurs.
YourRealEstateDude.com
Although we have relatively constant weather in San Diego County, that is not the case in many other parts of the country where there is an old saying, “If you don’t like the weather, wait five minutes.” Where my younger sister lives in Florida, this is most certainly true. One minute it’s raining and five minutes later there isn’t a cloud in the sky.
While you might think it far-fetched to use a weather analogy to describe the current home lending market, given our current market dynamics, we could easily adopt a similar saying such as, “If you don’t like the current loan market, wait five minutes.”
Just last Wednesday, my entire staff was present at a meeting presented by an expert in government loans such as those offered by VA, FHA and CalHFA. It was quite an eye-opener for an old real estate dude like me. Government loans have been out of the picture in San Diego County for more than a decade simply because there were better options to choose from. The government loans were available during that time. They just weren’t as attractive as the many non-government programs that were around. However, with the recent tightening of the non-government lending market, “Govi” loans have begun to shine a little brighter.
As the meeting progressed you could have read the shock on everyone’s faces as we discovered that 100% financing was still available using government loans such as CalHFA. For all practical purposes, 100% loans had become a thing of the past among non-government lenders. As a result, we couldn’t get over the fact that they were still possible using government loans. Well… that was on Wednesday. By Saturday CalHFA had announced that the rules had changed. “If you don’t like the weather…”
While many people like to watch the stock market, it is the bond market which has the most immediate effect upon home loan interest rates. Every day my email is jammed with hundreds of messages about the lending market in general: at least six or seven of which are short messages about the bond market which read like this, “The bond market is up by ___ basis points”, followed later in the day by, “The bond market is currently down by ____ basis points”, and so on. Each one of these six or seven daily shifts in the market effects the mortgage rates for that day. What a roller coaster. “You say you don’t like the weather? Just wait.”
So, with loan programs and interest rates that are moving targets at best, how is a borrower supposed to count on anything? It isn’t easy. One thing’s for sure, borrowers who chose to work with knowledgeable, experienced loan officers who have their ears to the ground and their noses to the grindstone are far better off. Now is not the time to be working with amateurs.
Whom does your real estate agent represent?
By Joel Persinger
YourRealEstateDude.com
With the rapid expansion of the foreclosure and pre-foreclosure markets, many real estate professionals have forgotten whom they represent, particularly when the agent represents a seller who is in the throws of a foreclosure. While that agent would most likely have been hired by the seller, he or she would also be required to deal with the lender. The lender would have a financial interest in the home and could stand to lose money if the home was sold for less than what was owed on it. It has been my experience that many agents in this situation cannot seem to figure out whether they represent the seller or the lender. Indeed, I have found that some brokerage firms have no more clue as to whom they represent in these cases.
Just recently, I wrote an offer for a client who wanted to purchase a property which was in pre-foreclosure. The seller had missed some payments. But, the lender had not yet begun the full process of foreclosing on the property. My client was a sophisticated buyer and understood the process of buying such properties. I called the seller’s agent and explained the situation, outlined my client’s intended approach and asked if the agent and the seller were willing to move forward. The agent got back to me later that same day and told me that he had explained the situation to his client and that the client wanted to move forward with the deal. The next day my client tendered an offer. As previously agreed, the offer was low, but only for the purpose of beginning the negotiation with the lender.
Four days went by without a call from the seller’s agent acknowledging that he had received the offer. So, I called him to follow up. He told me that he had not presented the offer and did not intent to. I asked why. He said he did not feel that he was doing what was right by the lender. I asked him whom he represented. With an incredulous tone he replied, “The seller.” I answered, “Then why are you worried about the lender? Shouldn’t you be more concerned with getting your client out from under that house?” He scoffed at me, and ended the conversation. My client did not buy the house. In fact, he has elected to wait until it goes into foreclosure and buy it directly from the lender. In the meantime, it’s still on the market, unsold. The lender has begun the foreclosure process and the seller is in more hot water than ever before. This seller’s agent did not understand whom he represented. Does yours? My advice is, make sure your agent is looking after you before you hire him. Otherwise, you could end up in the same boat as the gentleman in this story.
YourRealEstateDude.com
With the rapid expansion of the foreclosure and pre-foreclosure markets, many real estate professionals have forgotten whom they represent, particularly when the agent represents a seller who is in the throws of a foreclosure. While that agent would most likely have been hired by the seller, he or she would also be required to deal with the lender. The lender would have a financial interest in the home and could stand to lose money if the home was sold for less than what was owed on it. It has been my experience that many agents in this situation cannot seem to figure out whether they represent the seller or the lender. Indeed, I have found that some brokerage firms have no more clue as to whom they represent in these cases.
Just recently, I wrote an offer for a client who wanted to purchase a property which was in pre-foreclosure. The seller had missed some payments. But, the lender had not yet begun the full process of foreclosing on the property. My client was a sophisticated buyer and understood the process of buying such properties. I called the seller’s agent and explained the situation, outlined my client’s intended approach and asked if the agent and the seller were willing to move forward. The agent got back to me later that same day and told me that he had explained the situation to his client and that the client wanted to move forward with the deal. The next day my client tendered an offer. As previously agreed, the offer was low, but only for the purpose of beginning the negotiation with the lender.
Four days went by without a call from the seller’s agent acknowledging that he had received the offer. So, I called him to follow up. He told me that he had not presented the offer and did not intent to. I asked why. He said he did not feel that he was doing what was right by the lender. I asked him whom he represented. With an incredulous tone he replied, “The seller.” I answered, “Then why are you worried about the lender? Shouldn’t you be more concerned with getting your client out from under that house?” He scoffed at me, and ended the conversation. My client did not buy the house. In fact, he has elected to wait until it goes into foreclosure and buy it directly from the lender. In the meantime, it’s still on the market, unsold. The lender has begun the foreclosure process and the seller is in more hot water than ever before. This seller’s agent did not understand whom he represented. Does yours? My advice is, make sure your agent is looking after you before you hire him. Otherwise, you could end up in the same boat as the gentleman in this story.
Saturday, March 01, 2008
Is now a good time to buy?
By Joel Persinger
YourRealEstateDude.com
This past Friday I had lunch with an investor friend of mine who regularly buys distressed properties. We were having a meeting to discuss the work my agents are doing in finding such properties so that his investment group can buy them, thereby helping our clients get out of there financial binds. During our conversation some interesting subjects came up. I thought you might find one of them interesting.
The investor was telling me about some of the networking groups he had been part of over the years. He was helping me identify some potential business opportunities. Right in the middle of a sentence he paused, looked at me with a puzzled expression on his face and said, “I can’t believe how much some of these groups have shrunk in the last couple of years. All those people who were so excited about buying and selling a few years ago are gone.” I asked, “What about you?” He said, “I’m still in. I’m glad their gone. It makes things easier for me.”
When I was a boy my grandfather, a long time real estate investor and broker, asked me what I thought would happen if my grandmother’s favorite department store had a sale. I replied, “She’d be there all day.” Then he asked me what I thought would happen if that same store raised its prices by half. I said, “She’d never go.” With a giant smile upon his face, he exclaimed, “Exactly! And yet, people do precisely the opposite when it comes to real estate. Remember that, Joel. That little fact about human nature will serve you well some day.”
My investor friend was expressing amazement at witnessing the same phenomenon that my grandfather had taught me about forty years earlier. When prices go up, people scratch and fight for the chance to buy real estate. When prices go down, they all sit back, holding tightly to their wallets and wait for prices to start going up again so they will feel safe enough to buy. If you take a moment to apply that way of thinking to the supermarket or department store as my grandfather did, you will quickly recognize the insanity of that approach.
Whenever I point this out, many people say, “But, you can’t find any deals in this market!” You should know that I’ve been hearing that same statement for my entire career. Indeed, I heard it a number of times from those who were watching my grandfather make money in troubled times forty years ago, while at the same time denying that it was possible for him to do so. Even my investor friend said it at lunch the other day. But, unlike many others he didn’t forget the most important part of the statement. He said, “You can’t find any deals in this market, unless you know how.”
This brings me back to another lesson my grandfather drilled into my head from the time I was six years old. Over and over he would remind me, “Joel, you don’t have to be smart. Just hang around smart people.” So, if people are telling you that finding a deal in today’s real estate market can’t be done, you are hanging around the wrong people. I encourage you to take steps toward meeting people who know where the deals can be found and how to find them. Because, the fact is that now is the time to buy!
YourRealEstateDude.com
This past Friday I had lunch with an investor friend of mine who regularly buys distressed properties. We were having a meeting to discuss the work my agents are doing in finding such properties so that his investment group can buy them, thereby helping our clients get out of there financial binds. During our conversation some interesting subjects came up. I thought you might find one of them interesting.
The investor was telling me about some of the networking groups he had been part of over the years. He was helping me identify some potential business opportunities. Right in the middle of a sentence he paused, looked at me with a puzzled expression on his face and said, “I can’t believe how much some of these groups have shrunk in the last couple of years. All those people who were so excited about buying and selling a few years ago are gone.” I asked, “What about you?” He said, “I’m still in. I’m glad their gone. It makes things easier for me.”
When I was a boy my grandfather, a long time real estate investor and broker, asked me what I thought would happen if my grandmother’s favorite department store had a sale. I replied, “She’d be there all day.” Then he asked me what I thought would happen if that same store raised its prices by half. I said, “She’d never go.” With a giant smile upon his face, he exclaimed, “Exactly! And yet, people do precisely the opposite when it comes to real estate. Remember that, Joel. That little fact about human nature will serve you well some day.”
My investor friend was expressing amazement at witnessing the same phenomenon that my grandfather had taught me about forty years earlier. When prices go up, people scratch and fight for the chance to buy real estate. When prices go down, they all sit back, holding tightly to their wallets and wait for prices to start going up again so they will feel safe enough to buy. If you take a moment to apply that way of thinking to the supermarket or department store as my grandfather did, you will quickly recognize the insanity of that approach.
Whenever I point this out, many people say, “But, you can’t find any deals in this market!” You should know that I’ve been hearing that same statement for my entire career. Indeed, I heard it a number of times from those who were watching my grandfather make money in troubled times forty years ago, while at the same time denying that it was possible for him to do so. Even my investor friend said it at lunch the other day. But, unlike many others he didn’t forget the most important part of the statement. He said, “You can’t find any deals in this market, unless you know how.”
This brings me back to another lesson my grandfather drilled into my head from the time I was six years old. Over and over he would remind me, “Joel, you don’t have to be smart. Just hang around smart people.” So, if people are telling you that finding a deal in today’s real estate market can’t be done, you are hanging around the wrong people. I encourage you to take steps toward meeting people who know where the deals can be found and how to find them. Because, the fact is that now is the time to buy!
Thursday, February 28, 2008
When Will The Market Get Better?
By Joel Persinger
YourRealEstateDude.com
At least three or for times a week someone will take me aside and ask me, “When will the market get better?” Of course I always find myself asking, “What do you mean by better?” and the answer is almost always equivalent to, “Back the way it was when things were good.” “Good” is the buzz word for the time a few years ago when prices were sky rocking upward and houses were selling so fast that real estate professionals could hardly hang up the “For Sale” signs before the properties were sold. Unfortunately, these good times were not normal and, as anyone who reads the paper can tell you, the prognosticators predict that such a market is not likely to return any time soon.
This very fact has brought about a burning in the bellies of many homeowners which is stoked by worry over declining home values and when, or even if those values will ever climb back to their previous highs. Real estate values, having experienced an unbelievably rapid increase over a short period of years, have dipped dramatically as the market has adjusted to that unprecedented, unrealistic and meteoric rise. As news persists of ever declining prices with no end in sight, more and more homeowners are starting to sweat.
Like any other market, real estate ebbs and flows. The tide comes in and the tide goes out. History has proven that it never comes in without later going out and it never goes out with later coming back in. The tide came in and stayed in for quite a while. Many people enjoyed swimming in the warm water and some, overcome by the euphoria of the times, foolishly braved those good days without sunscreen. Somehow, the tide staying in as long as it did protected them from getting burned. But once the tide went out, those who could no longer stay in the water started getting pretty hot and many have gotten themselves a might bad burn. It will take quite a long time for the pain caused by the changing tide to pass. But, pass it will and the tide will come in again. However, in the meantime this tide has left thousands of foreclosures and soon to be foreclosures behind on the sand.
When a market is flooded with distressed properties such as foreclosures, the owners of those properties sell them at a discount in order to move them quickly and thereby cut their losses. The result is that the values of surrounding properties which are not distressed are driven down as well. It will take many months for all those properties to be foreclosed upon and resold. In that time, banks will price them very low and continue to reduce the asking prices in order to get them sold fast. That will cause home values to continue their decline as this bloated inventory of distressed properties are reintroduced to the market.
So, how long will it take? Truthfully, no one really knows for sure. Most predictions I have heard have estimated that our current market will stick around for another year or two and that it may take eight to ten years until prices reach their previous highs. The only thing I know for certain is what anyone who has ever watched the tide at the sea shore can tell you. When the tide stays in a long time, it tends to stay out a long time as well. But, give it time. It will be back!
YourRealEstateDude.com
At least three or for times a week someone will take me aside and ask me, “When will the market get better?” Of course I always find myself asking, “What do you mean by better?” and the answer is almost always equivalent to, “Back the way it was when things were good.” “Good” is the buzz word for the time a few years ago when prices were sky rocking upward and houses were selling so fast that real estate professionals could hardly hang up the “For Sale” signs before the properties were sold. Unfortunately, these good times were not normal and, as anyone who reads the paper can tell you, the prognosticators predict that such a market is not likely to return any time soon.
This very fact has brought about a burning in the bellies of many homeowners which is stoked by worry over declining home values and when, or even if those values will ever climb back to their previous highs. Real estate values, having experienced an unbelievably rapid increase over a short period of years, have dipped dramatically as the market has adjusted to that unprecedented, unrealistic and meteoric rise. As news persists of ever declining prices with no end in sight, more and more homeowners are starting to sweat.
Like any other market, real estate ebbs and flows. The tide comes in and the tide goes out. History has proven that it never comes in without later going out and it never goes out with later coming back in. The tide came in and stayed in for quite a while. Many people enjoyed swimming in the warm water and some, overcome by the euphoria of the times, foolishly braved those good days without sunscreen. Somehow, the tide staying in as long as it did protected them from getting burned. But once the tide went out, those who could no longer stay in the water started getting pretty hot and many have gotten themselves a might bad burn. It will take quite a long time for the pain caused by the changing tide to pass. But, pass it will and the tide will come in again. However, in the meantime this tide has left thousands of foreclosures and soon to be foreclosures behind on the sand.
When a market is flooded with distressed properties such as foreclosures, the owners of those properties sell them at a discount in order to move them quickly and thereby cut their losses. The result is that the values of surrounding properties which are not distressed are driven down as well. It will take many months for all those properties to be foreclosed upon and resold. In that time, banks will price them very low and continue to reduce the asking prices in order to get them sold fast. That will cause home values to continue their decline as this bloated inventory of distressed properties are reintroduced to the market.
So, how long will it take? Truthfully, no one really knows for sure. Most predictions I have heard have estimated that our current market will stick around for another year or two and that it may take eight to ten years until prices reach their previous highs. The only thing I know for certain is what anyone who has ever watched the tide at the sea shore can tell you. When the tide stays in a long time, it tends to stay out a long time as well. But, give it time. It will be back!
Tuesday, February 19, 2008
The Era of Assigned Responsibility
By Joel Persinger
YourRealEstateDude.com
Like most of us, I never thought I would end up sounding like my parents or grandparents when I grew up. Well… as the old saying goes, “Never say never.” My grandparents were born at the turn of the last century. When I was a young boy they would subject me to long lectures about how much different life was during their time and how much people in my time seemed to have lost their moral and ethical compasses. “Be careful not to grow up like that, Joel,” my grandmother would say.
Admittedly, that was a long time ago and things were quite different then. No one in my family ever locked their cars or even bothered to take the keys out of the ignition. My Aunt Peggy, who was born in 1888 in Indian Territory Oklahoma, didn’t even own a key to her house. Even if she did, it wouldn’t have made a difference since none of the locks worked. Like most of the men of that time, my Great Grandpa Jim, the local barber for decades, carried a revolver everywhere he went. Those old folks, God bless them every one, had this crazy notion that people were responsible for taking care of themselves as well as for their own choices and actions. When I made good choices, I got the benefit. But, when I made poor ones, I was taught to stand up like a man, admit that I had messed up and “take my lumps.” As a result, I grew up understanding all too well that this is a world which functions on the principle of natural consequences.
Human beings learn best by failure. It is the pain of falling off the bicycle which motivates us to learn how to stay on it. It is the shock of discovering gravity the hard way following our first baby steps which motivates us to keep putting those shaky little feet in front of us in an attempt to avoid hitting the floor again. This is why my grandfather and mentor always told me, “You win or you learn.”
When we refuse to take responsibility for our actions and failures, we deprive ourselves of the opportunity to learn. This is why so many people today seem to repeat the same mistakes. Instead of owning up to their failures and learning the lessons that they teach, it has become all too common for today’s “learners” to shift the blame to others and thereby assign their responsibility to someone else.
All this past week I have met with clients who have lamented the painful position in which they have found themselves after having made poor decisions in the financing of their homes. Most of them are about to lose their houses and are beyond the help that might have been available had they acted sooner. In each and every case, they told me how wronged they had been by the lender or real estate agent with whom they had worked to purchase or refinance their property. None of them took any responsibility upon themselves.
I am not here to excuse the predatory practices of unethical and unscrupulous loan officers and real estate agents. Thousands of folks have been badly hurt by such people. But, that does not release us as individuals from the responsibility we each bear for our own welfare. Each homeowner who has been hurt chose the loan program they used. It’s their signatures on the bottom lines. They are the ones who elected to buy more house than they knew they could afford at the time. Let us not forget our own involvement in selecting the unpleasant paths we are on.
It’s a hard thing to hear if you are in that position and I will probably get myself into trouble for saying it. But, if we refuse to take responsibility for our actions, then we cannot and will not learn from our mistakes. As someone once said, “those who refuse to learn from history are destined to repeat it.” So, here’s a little of the hard medicine my Grandpa Charlie gave me as a kid. “You win or you learn. There is no losing. You only lose when you refuse to learn from your mistakes.”
YourRealEstateDude.com
Like most of us, I never thought I would end up sounding like my parents or grandparents when I grew up. Well… as the old saying goes, “Never say never.” My grandparents were born at the turn of the last century. When I was a young boy they would subject me to long lectures about how much different life was during their time and how much people in my time seemed to have lost their moral and ethical compasses. “Be careful not to grow up like that, Joel,” my grandmother would say.
Admittedly, that was a long time ago and things were quite different then. No one in my family ever locked their cars or even bothered to take the keys out of the ignition. My Aunt Peggy, who was born in 1888 in Indian Territory Oklahoma, didn’t even own a key to her house. Even if she did, it wouldn’t have made a difference since none of the locks worked. Like most of the men of that time, my Great Grandpa Jim, the local barber for decades, carried a revolver everywhere he went. Those old folks, God bless them every one, had this crazy notion that people were responsible for taking care of themselves as well as for their own choices and actions. When I made good choices, I got the benefit. But, when I made poor ones, I was taught to stand up like a man, admit that I had messed up and “take my lumps.” As a result, I grew up understanding all too well that this is a world which functions on the principle of natural consequences.
Human beings learn best by failure. It is the pain of falling off the bicycle which motivates us to learn how to stay on it. It is the shock of discovering gravity the hard way following our first baby steps which motivates us to keep putting those shaky little feet in front of us in an attempt to avoid hitting the floor again. This is why my grandfather and mentor always told me, “You win or you learn.”
When we refuse to take responsibility for our actions and failures, we deprive ourselves of the opportunity to learn. This is why so many people today seem to repeat the same mistakes. Instead of owning up to their failures and learning the lessons that they teach, it has become all too common for today’s “learners” to shift the blame to others and thereby assign their responsibility to someone else.
All this past week I have met with clients who have lamented the painful position in which they have found themselves after having made poor decisions in the financing of their homes. Most of them are about to lose their houses and are beyond the help that might have been available had they acted sooner. In each and every case, they told me how wronged they had been by the lender or real estate agent with whom they had worked to purchase or refinance their property. None of them took any responsibility upon themselves.
I am not here to excuse the predatory practices of unethical and unscrupulous loan officers and real estate agents. Thousands of folks have been badly hurt by such people. But, that does not release us as individuals from the responsibility we each bear for our own welfare. Each homeowner who has been hurt chose the loan program they used. It’s their signatures on the bottom lines. They are the ones who elected to buy more house than they knew they could afford at the time. Let us not forget our own involvement in selecting the unpleasant paths we are on.
It’s a hard thing to hear if you are in that position and I will probably get myself into trouble for saying it. But, if we refuse to take responsibility for our actions, then we cannot and will not learn from our mistakes. As someone once said, “those who refuse to learn from history are destined to repeat it.” So, here’s a little of the hard medicine my Grandpa Charlie gave me as a kid. “You win or you learn. There is no losing. You only lose when you refuse to learn from your mistakes.”
Thursday, February 14, 2008
What are interest rates today?
By Joel Persinger
YourRealEstateDude.com
It is an inescapable reality that the easiest questions to ask are often the most difficult to answer. The most common question of this type in real estate lending is, “What are interest rates today?” At first glance the question seems quite simple and most people who ask it expect a hard number which they can be assured will apply to them if they chose to get a loan. The problem is that providing an accurate answer off the cuff is impossible, to say the least.
Every borrower has a different financial picture from every other borrower, and the specific pieces of information required to fit a specific borrower to a specific loan are numerous and complex. By way of example, the process of determining what interest rate a particular borrower will be quoted for a home loan depends upon the type of loan, the amount borrowed, the borrower’s credit score, the ratio between the value of the property and the amount borrowed, the ratio between the borrower’s income and current debt, the type of property purchased, the borrower’s intended use of the property and so on.
As simple as we might like it to be, there is no such thing as a one size fits all interest rate for home loans. Just as a clothier must work hard to help a customer select a business suit which is of the correct style, color and fit to help that customer look his best, so must a lender work hard to fit a loan to the specifics of a borrower and that borrower’s needs. For example: a borrower purchasing a $450,000 house as a personal residence with a 20% down payment, using a 30-year fixed rate loan with a credit score of 780 is going to pay a completely different interest rate than a borrower purchasing the same house as a rental with 30% down using an interest only loan with a credit score of 680. Since each customer and each situation is different, each loan and corresponding interest rate will be different as well. This is why good loan officers when asked the “what are interest rates today?” question will often respond by asking for more specifics about the borrower’s situation.
The problem is further exacerbated by the rapid tide changes within the current lending market. The days in which my grandfather went to the local bank to talk with the bank manager to discuss a loan are gone. In those days the bank loaned only the money it had on deposit from its customers. My grandfather could get a loan in the blink of an eye simply because the bank manager knew him personally and knew that he was a good credit risk. It was a relationship. It should also be noted that, because the banks only loaned the money they had on deposit, interest rates were determined by that bank and were often the same for long periods. They were much easier to predict and count on.
Today, the mortgage market is like a giant, interconnected spider web reaching across the world. It involves not only the bank on the corner, but banks across the world as well as the stock and bond markets in every nation. As the saying goes “When one part of the world’s financial market sneezes, the rest of the world catches cold”. Markets ebb and flow depending upon the actions or inactions of people, companies and governments all across the globe. Consequently, the interest rate that is quoted at noon on Monday may be completely different than the rate which will be quoted just one hour later. Adding this level of volatility to the already complicated process of fitting a specific loan to a specific borrower can make quoting rates off the cuff like predicting how many times a specific gambler at a specific craps table will throw a seven on any specific day.
So, the next time you ask your mortgage loan professional about current interest rates, perhaps you’ll better understand why that question always seems to be answered by more questions. Without the specifics, any interest rate you’re quoted is useless.
YourRealEstateDude.com
It is an inescapable reality that the easiest questions to ask are often the most difficult to answer. The most common question of this type in real estate lending is, “What are interest rates today?” At first glance the question seems quite simple and most people who ask it expect a hard number which they can be assured will apply to them if they chose to get a loan. The problem is that providing an accurate answer off the cuff is impossible, to say the least.
Every borrower has a different financial picture from every other borrower, and the specific pieces of information required to fit a specific borrower to a specific loan are numerous and complex. By way of example, the process of determining what interest rate a particular borrower will be quoted for a home loan depends upon the type of loan, the amount borrowed, the borrower’s credit score, the ratio between the value of the property and the amount borrowed, the ratio between the borrower’s income and current debt, the type of property purchased, the borrower’s intended use of the property and so on.
As simple as we might like it to be, there is no such thing as a one size fits all interest rate for home loans. Just as a clothier must work hard to help a customer select a business suit which is of the correct style, color and fit to help that customer look his best, so must a lender work hard to fit a loan to the specifics of a borrower and that borrower’s needs. For example: a borrower purchasing a $450,000 house as a personal residence with a 20% down payment, using a 30-year fixed rate loan with a credit score of 780 is going to pay a completely different interest rate than a borrower purchasing the same house as a rental with 30% down using an interest only loan with a credit score of 680. Since each customer and each situation is different, each loan and corresponding interest rate will be different as well. This is why good loan officers when asked the “what are interest rates today?” question will often respond by asking for more specifics about the borrower’s situation.
The problem is further exacerbated by the rapid tide changes within the current lending market. The days in which my grandfather went to the local bank to talk with the bank manager to discuss a loan are gone. In those days the bank loaned only the money it had on deposit from its customers. My grandfather could get a loan in the blink of an eye simply because the bank manager knew him personally and knew that he was a good credit risk. It was a relationship. It should also be noted that, because the banks only loaned the money they had on deposit, interest rates were determined by that bank and were often the same for long periods. They were much easier to predict and count on.
Today, the mortgage market is like a giant, interconnected spider web reaching across the world. It involves not only the bank on the corner, but banks across the world as well as the stock and bond markets in every nation. As the saying goes “When one part of the world’s financial market sneezes, the rest of the world catches cold”. Markets ebb and flow depending upon the actions or inactions of people, companies and governments all across the globe. Consequently, the interest rate that is quoted at noon on Monday may be completely different than the rate which will be quoted just one hour later. Adding this level of volatility to the already complicated process of fitting a specific loan to a specific borrower can make quoting rates off the cuff like predicting how many times a specific gambler at a specific craps table will throw a seven on any specific day.
So, the next time you ask your mortgage loan professional about current interest rates, perhaps you’ll better understand why that question always seems to be answered by more questions. Without the specifics, any interest rate you’re quoted is useless.
Wednesday, February 06, 2008
Does paying your agent less really save you money?
By Joel Persinger
YourRealEstateDude.com
Just about everybody loves a bargain. That’s why retail stores are packed with bargain hunters each year on the day after Christmas. But, some folks hunt for bargains in the wrong places and find that saving pennies often causes them to come up short when the dollars are counted. Such is the case when it comes to skimping on paying your real estate agent.
This past week one of my agents came to me with an often heard lament regarding a client who wanted to cut the amount of commission my agent would receive. My agent tried to explain the situation to the client. But, in the end the client would not budge and the agent moved on. Out of curiosity, I asked my agent why she didn’t take the job. She said, “I didn’t want to lie.”
In order to gather some perspective, it may help to understand how a real estate profession gets paid when he or she sells a home. In the case of the agent who represents a seller, the seller agrees to pay the agent a fee which is generally a percentage of the sales price. That fee is then split with the agent who represents the buyer. Most of the time, they split the fee in half with each of them receiving half of the fee. For example: a seller may agree to pay his agent 6 percent of the sales price with his agent sharing half of that fee with the agent who represents the buyer. Thus, in this example both the seller’s agent and the buyer’s agent receive 3 percent of the sales price as their fees. From time to time, the seller’s agent might find the buyer himself. In this case, the entire fee of 6 percent would be paid to the seller’s agent since he represented both the seller and the buyer in the transaction.
Since these percentages can represent a significant fee, some sellers insist upon paying their agents less. What they don’t realize is that such fee cuts do nothing to help them reach their goal of selling the property. In many cases, fee cuts accomplish the opposite by motivating agents to sell other properties instead.
My agent was negotiating with a client who insisted upon paying her less if, in the process of marketing the home, the agent found the buyer herself and represented both the seller and the buyer in the transaction. The seller was willing to pay 6 percent as long as the buyer was represented by another agent and the fee was split between the two agents. But, if my agent, who was going to represent the seller, also found the buyer, the client was only willing to pay 4 percent. The seller told my agent that another agent whom the seller was also interviewing was happy with this arrangement. My agent tried to explain that what seemed like a deal was really nothing but smoke and mirrors. But, the client could not see the truth.
The seller was hunting for a bargain that she was never going to get and the other agent was not going to tell her. Given the simple fact that there are thousands of real estate agents actively attempting to sell property, the odds are against the seller’s agent actually finding the buyer. The seller’s agent is one person and there are thousands of buyer’s agents out there. Situations in which the agent represents both seller and buyer are very rare. Therefore, the discount the seller was trying to get was meaningless. Even if the odd chance for my agent to sell one of her client’s properties came along, she would naturally work harder to sell one of the properties that paid a full commission. Consequently, it is almost a guarantee that my agent’s seller will never pay only 4 percents since her agent will never work to find a buyer for her house. It was just a way to make the seller feel like she was going to get something so that the other agent could get the deal. Perhaps now you understand why my agent said, “I didn’t want to lie.”
The bottom line is this. Some bargains are not bargains at all. When it comes to real estate professionals, the old adage is often true, “you get what you pay for.”
YourRealEstateDude.com
Just about everybody loves a bargain. That’s why retail stores are packed with bargain hunters each year on the day after Christmas. But, some folks hunt for bargains in the wrong places and find that saving pennies often causes them to come up short when the dollars are counted. Such is the case when it comes to skimping on paying your real estate agent.
This past week one of my agents came to me with an often heard lament regarding a client who wanted to cut the amount of commission my agent would receive. My agent tried to explain the situation to the client. But, in the end the client would not budge and the agent moved on. Out of curiosity, I asked my agent why she didn’t take the job. She said, “I didn’t want to lie.”
In order to gather some perspective, it may help to understand how a real estate profession gets paid when he or she sells a home. In the case of the agent who represents a seller, the seller agrees to pay the agent a fee which is generally a percentage of the sales price. That fee is then split with the agent who represents the buyer. Most of the time, they split the fee in half with each of them receiving half of the fee. For example: a seller may agree to pay his agent 6 percent of the sales price with his agent sharing half of that fee with the agent who represents the buyer. Thus, in this example both the seller’s agent and the buyer’s agent receive 3 percent of the sales price as their fees. From time to time, the seller’s agent might find the buyer himself. In this case, the entire fee of 6 percent would be paid to the seller’s agent since he represented both the seller and the buyer in the transaction.
Since these percentages can represent a significant fee, some sellers insist upon paying their agents less. What they don’t realize is that such fee cuts do nothing to help them reach their goal of selling the property. In many cases, fee cuts accomplish the opposite by motivating agents to sell other properties instead.
My agent was negotiating with a client who insisted upon paying her less if, in the process of marketing the home, the agent found the buyer herself and represented both the seller and the buyer in the transaction. The seller was willing to pay 6 percent as long as the buyer was represented by another agent and the fee was split between the two agents. But, if my agent, who was going to represent the seller, also found the buyer, the client was only willing to pay 4 percent. The seller told my agent that another agent whom the seller was also interviewing was happy with this arrangement. My agent tried to explain that what seemed like a deal was really nothing but smoke and mirrors. But, the client could not see the truth.
The seller was hunting for a bargain that she was never going to get and the other agent was not going to tell her. Given the simple fact that there are thousands of real estate agents actively attempting to sell property, the odds are against the seller’s agent actually finding the buyer. The seller’s agent is one person and there are thousands of buyer’s agents out there. Situations in which the agent represents both seller and buyer are very rare. Therefore, the discount the seller was trying to get was meaningless. Even if the odd chance for my agent to sell one of her client’s properties came along, she would naturally work harder to sell one of the properties that paid a full commission. Consequently, it is almost a guarantee that my agent’s seller will never pay only 4 percents since her agent will never work to find a buyer for her house. It was just a way to make the seller feel like she was going to get something so that the other agent could get the deal. Perhaps now you understand why my agent said, “I didn’t want to lie.”
The bottom line is this. Some bargains are not bargains at all. When it comes to real estate professionals, the old adage is often true, “you get what you pay for.”
Monday, February 04, 2008
The dirty little secrets of real estate
By Joel Persinger
YourRealEstateDude.com
Just about every industry has its dirty little secrets that only the insiders know and that are almost never revealed to those outside and certainly never explained to the customer. Real estate is no different.
Just the other day, a friend of mine told me about a lady who had been referred to him by one of his other clients. Apparently, she contacted him to talk about selling her home and was quite concerned about the declining market we are currently experiencing. During the conversation, she quizzed him regarding the level of marketing he would use to sell her home. Apparently, she had spoken to another real estate agent prior to talking with him. As the story goes, she was thinking about hiring the first agent because he had promised to place her home on hundreds of websites and to do much more advertising than any other agent might. To prove his worth, this first agent had claimed to have a track record of selling homes faster than any other agent due to his fabulous advertising strategy.
The dirty little secret is that the first agent’s promises amounted to nothing more than smoke and mirrors. He really hadn’t promised to do anything that most other agents don’t do. Any time a real estate agent places a property for sale in the Multiple Listings Service, hundreds, if not thousands of websites all around the country pick it up and place it on their pages. Claiming the unique ability to place a client’s home on “Hundreds of websites” is disingenuous to say the least.
While it is true that some websites offer additional services by subscription, such as the ability to post additional photos, the simple fact is that the property will appear on the site in most cases anyway, just because it has been posted in the Multiple Listings Service. Therefore, in most cases, the additional marketing that is promised is a fallacy and provides no additional benefit to the client whatsoever.
To illustrate this, let’s take a look at the first agent’s claim that he can sell homes faster because of his advanced marketing strategy. When I asked my friend what his response was to this claim, he said he explained the advertising fakery to the client and helped her understand that price is really what will get a home sold. If a seller prices a property low enough, it will sell quickly. At that, the client told him that she was somewhat disappointed in the first agent because he wanted to list the property for sale at about $50,000 below the latest comparable sale price. It appears that the first agent’s record of selling homes quickly is due to his ability to convince his clients to sell their homes for less, rather than results obtained through his terrific marketing.
Basically, the advertising was a hook. The agent was pulling clients in with promises of advertising while pricing the homes low to get them to sell fast. He told his clients that the homes sold because he did more marketing. But, in truth they sold fast because he priced them well. My grandfather would have called such a person a “snake oil salesman.” So, here’s the truth without the snake oil. If you want to sell your home in this market, you will need to price it low. Hopefully, now that you know that you can avoid the flimflam man and hire an agent who will tell you the truth.
YourRealEstateDude.com
Just about every industry has its dirty little secrets that only the insiders know and that are almost never revealed to those outside and certainly never explained to the customer. Real estate is no different.
Just the other day, a friend of mine told me about a lady who had been referred to him by one of his other clients. Apparently, she contacted him to talk about selling her home and was quite concerned about the declining market we are currently experiencing. During the conversation, she quizzed him regarding the level of marketing he would use to sell her home. Apparently, she had spoken to another real estate agent prior to talking with him. As the story goes, she was thinking about hiring the first agent because he had promised to place her home on hundreds of websites and to do much more advertising than any other agent might. To prove his worth, this first agent had claimed to have a track record of selling homes faster than any other agent due to his fabulous advertising strategy.
The dirty little secret is that the first agent’s promises amounted to nothing more than smoke and mirrors. He really hadn’t promised to do anything that most other agents don’t do. Any time a real estate agent places a property for sale in the Multiple Listings Service, hundreds, if not thousands of websites all around the country pick it up and place it on their pages. Claiming the unique ability to place a client’s home on “Hundreds of websites” is disingenuous to say the least.
While it is true that some websites offer additional services by subscription, such as the ability to post additional photos, the simple fact is that the property will appear on the site in most cases anyway, just because it has been posted in the Multiple Listings Service. Therefore, in most cases, the additional marketing that is promised is a fallacy and provides no additional benefit to the client whatsoever.
To illustrate this, let’s take a look at the first agent’s claim that he can sell homes faster because of his advanced marketing strategy. When I asked my friend what his response was to this claim, he said he explained the advertising fakery to the client and helped her understand that price is really what will get a home sold. If a seller prices a property low enough, it will sell quickly. At that, the client told him that she was somewhat disappointed in the first agent because he wanted to list the property for sale at about $50,000 below the latest comparable sale price. It appears that the first agent’s record of selling homes quickly is due to his ability to convince his clients to sell their homes for less, rather than results obtained through his terrific marketing.
Basically, the advertising was a hook. The agent was pulling clients in with promises of advertising while pricing the homes low to get them to sell fast. He told his clients that the homes sold because he did more marketing. But, in truth they sold fast because he priced them well. My grandfather would have called such a person a “snake oil salesman.” So, here’s the truth without the snake oil. If you want to sell your home in this market, you will need to price it low. Hopefully, now that you know that you can avoid the flimflam man and hire an agent who will tell you the truth.
Monday, January 21, 2008
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.
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.
Monday, January 14, 2008
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.
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.
Monday, December 31, 2007
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.
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.
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.”
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.”
Monday, December 10, 2007
Hope for the best. Prepare for the worst.
By Joel PersingerYourRealEstateDude.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.
Monday, December 03, 2007
The Professionals Only Market
By Joel PersingerYourRealEstateDude.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.”
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.”
Sunday, November 25, 2007
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.
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.
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