Thursday, January 17, 2008

Market Media Spin: "A Story of Partial Truths"

A few posts ago, I poked fun at all of us in the real estate industry, implying that we blame the media for everything that goes wrong. Although a grossly global accusation, there is also a smidgen of global truth to it. Unbiased reporting, as I understand it, is... well... unbiased. It should be like listening to both the prosecutor and the defense attorney. It should provide the truth, the whole truth, and nothing but the truth - so help them, God. But we know that's not how it goes down - almost ever. That's no fun. "How will we sell papers and magazines without The Spin?"
Recently, Doug Duncan, the chief economist for the National Mortgage Bankers Association, gave a "State of the Mortgage Situation" address to his lender peeps. He covered all the bases - both good and bad. He did a great job showing both the mess his industry helped create, as well as the emerging signs of recovery. However, a reporter took a machete to the talk and wrote a Doom & Gloom piece, titled: "New Mortgage Foreclosures Set Record." Although the title is true enough, he sure left a lot out. Had he been reporting on this year's World Series, he would have said: "Rockies Lose Big," and then hammered them for their weak showing. When the real story was: "Red Sox Win Again." The good stories told of the Red Sox dominance, as well as the fact that the Rockies were on the big stage for the first time, not faring so well.
Here's what the guy DID NOT choose to include from Mr. Duncan's speech:
  1. 35% of U.S. homes don't even have a mortgage.
  2. About 95% of all current mortgages are in good standing.
  3. The foreclosure mess is really focused in seven states (the other 43 are ok).
  4. There are big problems in Michigan, Ohio, and Indiana, due to manufacturing job losses. They likely would have had trouble, regardless of the rest of the market.
  5. Florida (and especially counties like Flagler, where Palm Coast was "the fastest growing city in the U.S. for 2004-2005), California, Nevada, and Arizona are suffering from over-building. 25% of the foreclosures here are with speculators who finally lost the game of "buy & flip."
  6. Only 25% of mortgages are "sub-prime," and of these, 75% are performing well.
  7. In the 43 states where things are ok, foreclosures have actually fallen in 2007... down from 2006.

There... some good news. It's out there, but it's buried under the spin :-)

(Information for this article is excerpted from the January, 2008, "Agent Direct News," from Jacksonville, FL, and the original data is from an Inman News Report from 11/16/07)

Sunday, January 6, 2008

"SHORT SALE"... ok, what does that really mean?

"Short Sale!"... We see it all the time in ads in the paper and in the Multiple Listing Service (MLS). However, many "homes for sale" that are advertised this way... really aren't.

I asked the two Realtors from RE/MAX Headquarters in Denver, CO, in the photo (above-right) to help me understand this "short sale" phenomenon. This is what they told me:

  1. A "short sale" happens when a bank is willing to take less for a final payout than the current mortgage amount (i.e. You owe $350,000 - Current market value says $285,000 - The bank agrees to take $265,000, allowing for about 7% to cover commissions and other closing costs)
  2. Short sales are not a magic solution for sellers wishing to avoid contractual, financial obligations. If the seller has assets, the bank will likely squash a short sale attempt. The seller's options are generally limited to:
  • Sell it and bring money to the closing to cover the difference between what is owed and the current market value.
  • Keep it and rent it and wait for market recovery.
  • Let it go to foreclosure (huge future credit implications)
  • Short sale - (IF bank requirements are met)

3. To attempt the short sale, the bank will require forms and statements to accompany the request, such as:

  • Loan info release "ok"
  • Cover letter
  • Listing contract
  • W-2's
  • Bank statements
  • 2 years Tax returns
  • Hardship letter
  • Financial statement
  • HUD-1 (when an offer comes - to show no profit for seller, or other abnormalities)... Title companies will do a preliminary HUD, especially if there is an existing relationship.

4. The bank is hard-pressed to give the seller or the listing agent the "bottom line" up front, because they see this as "negotiating against themselves." They will often require offers to be sent to them for approval first. This can be frustrating for buyers, as time goes by... and by... and by. It can take weeks to get a response from a dispassionate bank "mitigation officer"... even if the agent practices due diligence, does his or her homework, and establishes the relationship early in the process.

5. Contracts should be required to be "AS IS," subject to inspections, appraisals, etc. The bank won't want to be involved in fixing anything... and the seller (theoretically) should have no money to do repairs.

6. Watch out for "commission-ectomy" attempts by the bank. They figure, "Hey, we're losing... why shouldn't the Realtors?" As agents, attempt to negotiate guarantees prior to getting folks involved. When you start to take away people's money - things can get messy. Watch out how you advertise "co-op fees" in the MLS. If you offer 3% ... even with a "subject to bank approval" disclosure, your brokerage firm may end up working for free if you allow the bank to whittle away your hard-earned fee. The banks can be tough, yet don't forget that Realtors can be tough, also.

7. Remember, banks are in business to make money, not lose it. Don't get involved with a "short sale" deal unless the listing agent can show that they have done their homework and that they and the sellers are "fully involved" with the bank and their loss-mitigation department. Also, make sure to ask, "Are there any subordinate mortgages... or any other potential clouds on the title?" The bank wants to know that the seller truly has hardship and deserves the short sale. They will weigh the benefits to them (not the seller or the agents or the buyers) and determine if "short sale or foreclosure" is in their best interest.

8. Tax-wise, the seller may trade one challenge for another. Checking with their tax advisor is a good thing to do, as there are ways to legally avoid this... BUT: Often, the bank will issue the defaulting borrower a 1099 in the amount of the shortfall. It could add financial burden if the seller had to report this forgiven loan as income...

9. As Realtors in the transaction, it's wise to include a couple of addenda: A listing addendum, outlining the short sale scenario for the sellers signature... and a contract/offer addendum outlining touchy subjects (like possible commission attacks by the bank) for the agents/brokers, as well as the principals to the transaction.

There... Hope this clears things up a bit. I was impressed. These girls really know their stuff. Contact me at 386-931-1987 or or visit these websites: or If you buy or sell a house, I'll make sure these agents at HQ get a referral fee, in your name, of course :-)

Thursday, January 3, 2008

Mantra - "It will be GREAT in 2008"

Along with you, I am chompin' at the bit to kiss the memory of the '07 real estate market "Adios." Our tendency is to "blame the media" for the market downturn (as well as the war in Iraq, global warming, drug abuse, teen pregnancy, and the price of gas). They are such an easy scapegoat. Well, for the past couple of months I've been posting my views of how we got here - and what we should be doing about it. I've even made some predictions of how the coming year will be. But here's "The Big Why"... the underlying reason things will begin the recovery process this year. It's not interest rates or Federal sanctions or low prices or short sales or foreclosures or slowing new-build rates or foreign investors feasting on the weakened dollar or snow and ice "up Nawth" or any other factor... except: Pent Up Demand. That's right - you heard it here first. Everyone is sick and tired of snivelling and whimpering on the sidelines. Americans want to get back in the game. It's been over two years and we can't stand a market with no action. This is the year that sellers will truly understand their position and that buyers will come out to play again. It's called "The Beginning of a Balanced Market." Come on 2008 - Show us what you got...

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