No, really..we’re serious! SIKE!

For some time now, NAR and the government have been screaming and yelling, “You’d better hurry up and buy a house before the tax credit expires Nov 30!” Yet, before the deadline even hit, the tax credit was extended and expanded.

You know what this says to all the folks who jumped through hoops to buy and settle on a home before Nov 30? “SUCKERS!!!”

I’ve had buyers take vacation and sick leave and sneak out of work early to preview properties just so they could get into a house before November 30. They saved every last penny for a down payment and money to fix up the property and call it their new home. They were stressed out and frustrated because they felt the clock ticking and November 30 approaching quickly.

But now, they realize that they could have waited…

…and saved vacation and sick leave for an actual vacation or when they’re really sick. They could have gone out for dinner or to a movie all those times they didn’t because they now have an extra 4 months to save money. They could have saved themselves from all the stress involved with rushing to find and buy a home by November 30.

From where I come from, it goes a little something like this, “Let the early birds/adopters reap the greatest benefits because they were the first to react and took the biggest risk in doing so. Those who waited to see what happened took on much less risk and therefore, should reap fewer benefits.”

But that’s not the case here. Those who waited and didn’t jump to make the November 30 deadline will get the exact same amount of tax credit as those who jumped through hoops to get in before November 30. That just doesn’t seem fair.

Adding insult to injury

And to add insult to injury, many of the folks who recently bought their first home, but could not get the tax credit because their incomes were above the limits as the guidelines originally stood would qualify under the new, higher income limit guidelines.

If the tax credit keeps getting better, why would anyone jump on the tax credit now? The government is rewarding those who do not buy and wait until the “extended” tax credit comes out (again) rather than those who already did. Doesn’t this defeat the purpose of the tax credit in the first place – to stimulate the housing market by enticing people to buy now rather than wait until…?

What should have happened?

If they kept the tax credit going (whether they should have or not is a totally different discussion), they should have waited until after November 30 to come out with the news and should have significantly decreased the amount of the tax credit and kept the income limits the same, if not lower them. This would reward the people who jumped through hoops through November 30 and shown the ones who didn’t, “See… When we say you had better take advantage of something before the deadline, we mean it!”

But I guess that makes too much sense and is way too fair…

Between 2006 and the end of 2008, the market in the Washington, DC metro area and most of the US was horrible. But then 2009 rolled around and the market did an abrupt 180. Rates and points started falling. Inventory started plummeting. Buyer demand increased. And prices started rising.

Today, the market is insane. Buyers are fighting 5, 10, 15+ other offers when bidding on properties. Even being the highest offer doesn’t mean anything anymore because people are submitting all cash/non-contingent offers – even on properties priced above $700K. Prices in the Washington, DC area (and others) have risen 5, 10 even 20+ percent.

This makes little sense to me. The general economy is crap. Banks are still going belly up left and right. Foreclosure filings are hitting new records monthly. Unemployment is at a 26 year high.  Hyper inflation is just dying to come out of the bag. All the signs still point to a troubled economy and market.

So what’s behind such market conditions?

Supply

Inventory plummeted for a variety of reasons – one of the biggest being that banks are not putting the homes they have on their books up for sale on the open market. Rumors have it that over 70 percent of the properties that have been foreclosed on are not on the market (yet) and that it’s being done on purpose. I thought that a while back and had and off-the-record conversation about this with someone who confirmed my suspicions.

What’s a possible reason for banks holding on to these properties and not selling them on the open market?

Here’s one…if they keep them off the market, they help inventory stay down and prices go up (as we’ve already seen in 2009). If prices go up in general, so do all the properties they have on their books. Voila! Instant money/profit for the banks!

Another possible reason…banks getting into the real estate business. Based on conventional thinking, those who hold the listings hold the power (and money). I don’t necessarily agree with this notion, but we all know that banks typically base their decisions on conventional thinking so it probably makes sense to them.

If banks end up holding the majority of real estate inventory in the country, imagine how much power they think they will have. In an economy based on profits and earnings, the idea of that much power and money is pretty attractive and makes you go, “hmm…”

Demand

Yes, prices being low has gotten a lot of buyers off the fence and into the market thanks to greater affordability. And yes, low rates have helped. But there have been a lot of artificial factors such as the $8000 first-time home buyer federal tax credit.

So what happens when these programs go away one day?

The artificial demand that the programs created will go away as well. And we all know what a drop in demand does to the housing market and values.

Mortgage Rates

Speaking of low rates, can anyone give me a good (and real) reason that rates are this low? Rates are supposed to a reflection of the level of risk in the marketplace. Not sure about you, but “risk” is a word synonymous with today’s market and economy on almost every level.

IMHO, one main reason that rates are still low is because the government has been buying up MBS’s left and right and bailing out banks. But the money they’ve been using was borrowed from you and I and the money will eventually run out (or the dollar will be worth 5 cents). Btw…don’t forget that we have to pay all that money back – with interest

The government has effectively kept rates artificially low by placing the risk on them, but the risk they’ve taken on will ultimately come out and be passed on to consumers. Isn’t that just delaying the inevitable? Or is there some grand-master plan that passes the risk on to some really cool aliens that we’re playing Hold ‘Em with at Area 51 right now?

What’s the “real” deal?!

Am I totally off base (aside from the alien comment) or is there a legitimate reason the market is the way it is? Is it sustainable? Is it just a temporary blip up before prices plateau or go back down as some are predicting? Are banks trying to get into the real estate business?

So many questions yet, so few “real” answers that go beyond the first layer of the onion.

None. That’s right…NONE!

No, I don’t mean not wearing any clothes (save that for the French Riviera or a deserted beach somewhere). I mean that it’s not your clothes that make you a “professional”.

There are people that wear suits that fit them 30 lbs ago and there are people that know what a tailor is. There are people that think “dry clean only” means the gentle wash cycle and low heat and then there are people who know their local dry cleaner owner by name. For the sake of this post, I’m going to assume that you’re the latter in each example above.

Assuming that you dress the part, which depends on your location and local customs, your clothes will give a first impression when meeting in person. But that first impression is only part 2, 3 or even part 10 of your actual “first” impression (so is it actually a 2nd impression?).

These days, many consumers are getting their first impression of you on-line, well before they ever meet you IRL.

• If your blog was their first impression of you, how professional of an image did your blog convey?
• What about your Twitter profile and updates?
• What about your Facebook profile?
• Have you updated your LinkedIn profile lately?
• What about your Google Reader shared posts – what image are they conveying?
• What are your friends and clients publicly saying about you on-line?

To be considered a “professional”, you need to convey your professionalism and act like one on-line as well as IRL. Without doing that on-line, you’ll never get a meeting IRL.

Take a look at your on-line presence…

• Does it convey professionalism?
• Do you come across as credible and knowledgeable?
• Would you consider hiring you as a Realtor if you came across your on-line profiles?

If you can’t say “yes” to these questions with certainty, save a shopping trip and money on a suit and take another look at your on-line presence.

And the beauty of it is, the more professional your on-line presence is, the more casual you’ll be able to dress when you do meet/work with your clients IRL You may soon find your clients asking you to “dress down” or “dress more comfortably” because they’ve dressed down themselves and are comfortable enough with you to see you in jeans or even a t-shirt and shorts.

Are we witnessing the greatest example of collusion in US, if not world history right before our very eyes?

col-lu-sion [kuh-loo-zhuhn] – noun …a secret agreement, esp. for fraudulent or treacherous purposes; conspiracy: Some of his employees were acting in collusion to rob him.

Currently, the number of bank-owned/REO properties on the market is estimated to comprise only 30 percent if not only 5 percent of the total foreclosed property (REO) inventory on banks’/financial institutions’ books. The remainder of the REO inventory is being held back from being sold by the banks/investors who own them.

But why?

An immediate sale of all properties on the open market would crush the housing market. An increase in inventory of that amount and at that rate would create a Buyer’s Market like we’ve never seen before. Market values would plummet. This would cause even more home owners to say, “Screw it!”  and let their homes go into foreclosure. That would cause market values to plummet even further and the US economy could potentially collapse.

Even if the US economy could take it overall, this scenario would, at the very least, crush banks and lenders. Every property that is on their books would be worth less and less as market values plummet. This would decrease the value of those institutions even further. Without much, if any TARP money to bail them out, some banks would be faced with Chapter 13 bankruptcy. To add salt to the wound, banks/lenders could be staring at yet another wave of foreclosures from home owners that bought in the last few years, many of whom only put down 3.5% percent using FHA financing.

The way for banks/lenders to avoid this scenario is to slowly leak properties on to the market adjusting the valve as they deem fit, which is what is happening as you’re reading this. By releasing only a few at a time and causing a decrease in overall inventory, they are causing the market to start stabilizing. This is happening right now – most likely in your town right before your own eyes.

For example…in the Washington, DC area, inventory is down over 50 percent from last year and almost 70 percent from 2007. Why? Partially because there are more people that can’t afford to sell. But it’s mainly because the number of REO properties on the market has decreased dramatically. There is very little inventory and buyer demand has doubled which has caused prices to stabilize. In some pockets of Northern Virginia, market values have increased by 2, 5 even 10 percent since January 1, 2009 (yes, you read that correctly – I can send you comps/examples if you don’t believe me).

In essence, banks are artifically controlling the housing market and values.

But this can’t be a “one bank” scenario. No one bank has control over the majority of the REO’s in the country. Nor does any one bank have the gift of telepathy or mind control to persuade other banks to not flood the market with their REO’s without their knowledge or consent. Several if not many US (and international) banks/lenders must be on the same page as one another for this to work.

col-lu-sion [kuh-loo-zhuhn] – noun …a secret agreement, esp. for fraudulent or treacherous purposes; conspiracy: Some of his employees were acting in collusion to rob him.

It’s very hard for me to believe that banks are not colluding with each other to save their a$$es by stalling the sale of REOs sitting on their books at this very moment.

But wait, there’s more…

Those within the US government “strongly suggested” a foreclosure moratorium back in October of 2008 and again in the beginning of 2009. This was intended to “help save those who were about to be foreclosed on” by giving them a few months to save up money and get back on their feet with their payments or getting loan modifications. We all know how that turned out…

So what was the real reason they pushed for those foreclosure moratoriums? And why haven’t the foreclosure floodgates opened now that the foreclosure moratoriums have been lifted?

Those foreclosure moratoriums had the exact same affect on the housing market as holding back REOs from being sold – it artificially decreased housing inventory helping cause prices to start stabilizing and get buyers off the fence and into the market (aka artifically controlling the housing market and values).

Here’s another question for you…which came first, the banks holding back REOs from the market or the government’s request for foreclosure moratoriums? Not quite sure because they both started happening at about the same time (must be coincidence).

NAR and many others have fought vehemently to keep banks out of real estate for this and other reasons. Yet, here we are witnessing banks in cahoots with each other with their hands deep inside the real estate cookie jar doing the very thing we were afraid of them doing in the first place. Is it that no one cares or that everyone is turning a blind eye?

It seems that whenever I speak with someone about the real estate market, they end up quoting some national media’s latest story on the real estate market. That usually leads to an explanation (and often times healthy debate/argument) about how the article they’re quoting is just “noise” and not relevant because our local market conditions are very different from the majority of the U.S.

Noise is distracting and can be harmful. It can cloud your judgement and cost you thousands (literally). It’s like a jackhammer constantly going off outside of your window while you’re trying to make an extremely important decision.

Much of mass media’s articles are “noise”. They run national, not local news stories so, much of the time, the information has very little to do with your local market. Mass media knows that many of those reading the article will apply the information to their decisions in their local area . Yet, I have never read an article that says, “Your local real estate market may be very different so take this article under consideration, but not as gospel”.

What’s relevant is information and data regarding your local real estate market. I would even argue that “local” is sometimes too broad – you have to go “hyper-local”. This type of hyper-local, relevant information can mostly be found in local media, local real estate blogs and other local sources. It’s relevant information that will help you make an informed and educated decision which will save you time, energy and money.

Now, I’m not saying that all mass media only runs pieces on the national real estate market. I’ve seen some improvement with some mass media such as the Wall Street Journal – they wrote a news story entitled “Bidding Wars Emerging on Foreclosures” which was actually a local real estate story. The WSJ made it clear what areas they were talking about and got their data and input from local agents they interviewed in those areas.

The WSJ article is a good start, but as a whole, mass media has a long way to go. For now, people have to start filtering out the noise and focus on what’s relevant. And if not, guess we’ll all just keep having healthy debates.

I ran across some buyers a while back that were telling me they weren’t happy with their buyer’s agent. They ended up firing their agent and hired me because they were “not pleased with the buyer’s agent attitude nor ability”. The odd thing is that the buyers asked me if I would be willing to give their previous agent a referral fee. 

Being that I was a bit confused by that, I asked them why. They said that they “felt bad” because the agent had put in time and effort and “wouldn’t make any money for doing so”.

When I asked them for more detail on what the agent did for them, they said, “They sent us a few emails with listings and showed us two homes.”

Think about that for a second…

They think that sending a few emails and showing two homes warrants making a commission of (in this case) $3750.

Does that mean that they think that’s all we’re good for - emails and opening doors? By them asking my broker to pay the other agent’s broker $3750 for sending a few emails and opening two doors, the answer seems to be yes.

But consumers expect more from us, right? They sure say they do. And their actions usually back up what they say.. After all, these buyers fired their previous agent and chose someone they felt had the proper expertise and knowledge to represent them.

But in this situation (and other similar situations), the consumer is contradicting themselves. So which one is it?

Sometimes, the only answer I have is to scratch my head…

I do not believe that ignorance is an excuse so I blame the agent. But I equally blame their broker. Their broker is supposed to be overseeing and managing them (hence the name “Managing” Broker).

Are brokers really “managing” their agents?

Some brokers are not – they’re failing to oversee or manage many, if not all of their agents. Heck, some brokers don’t even look at their agent’s paperwork nor the listing in the MLS before or after it’s been submitted. This is sad and inexcusable. It’s also a HUGE liability for the agent, the broker and the livelihood of the entire office – owner, staff, brokers and agents – and all of the clients the office represents.

The $300,000 mistake…

In my local MLS, the Metropolitan Regional Information Systems (MRIS), the policy for broker co-operation and compensation is as follows,

Compensation specified on listings filed in the service (the MRIS) shall appear in one of three forms:

a) by showing a percentage of gross sales price

b) by showing a definite dollar amount

c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system

Keeping the rules/regulations you just read in mind, let me share with you what I often see written in the “Broker co-op” (aka compensation) field of short-sale listings: “50%”

Now imagine that a property/listing that had “50%” in the “Broker co-op” field sold for $600K (I ran across such a listing several days ago). What impact does having “50%” in the “Broker co-op” field have on the commission?

Think about that for a few seconds…

Tick….tick….tick…

It means that the Listing Broker owes the Selling (Buyer’s) Broker $300,000 in compensation/commission.

The Selling Broker should (and from what I hear, always does) win their case in arbitration – the MRIS rules and regulations are clear, concise and the listing broker (and the agent) signed a legally binding form that says (in more words), “I have read and understand all of the MRIS rules and regulations in their entirety and I agree to follow them as part of being a member of the MRIS”.

Now imagine if a Listing Broker had to pay out $300,000 to a Selling Broker – in this market. If it’s a small or medium sized office, that one huge payout could potentially put the office out of business. Even a large office of 100+ agents would have a tough time swallowing a sudden $300,000 hit like that.

And think about what would happen to everyone that worked in that office if the office closed – their licenses would be sent back to state, they’d have to rush to switch offices (and all the headaches and money that goes along with that) and their clients would technically be without a broker or agent (that’s a whole ‘nother set of troubles in itself).

One “little” mistake and look what can happen.

Agents

Know what you’re doing. Not knowing is not an excuse – learn, learn and learn some more. Don’t just do something because others are doing it – that doesn’t necessarily make it “acceptable practice” or right. And if you haven’t done it or experienced it before, ask your broker. If they “don’t have time”, tell them they’d better make time.

Brokers

You’d better start truly managing, overseeing and leading your agents. This recent market has brought significant changes to the rules of old and a complete new set of rules have been created - you better know them and more importantly, your agents better know them and follow them.

By not managing or overseeing your agents properly, you’re putting yourself, the owner, every agent in your office and every client your office represents at risk. There is no excuse for not managing and overseeing your agents – none whatsoever. It is your job and you get paid to do so. So do your job.

Or…if you really, really like me and want to pay my broker $300K in commission for selling your $600K listing…don’t do your job :)