Foreclosure/REO Property - "Real Estate Reality"

Note to Self:
"After 25 years, you should KNOW better!"

25 Years!  
That's how long I've been a Real Estate Broker... 
Helping Buyers and Sellers and Investors navigate the mine fields of several crazy market swings.  In 1986, as a newbie, they gave me a manual "mortgage calculator wheel" to help figure monthly payments... and the mortgage interest rates on the wheel STARTED at 10%.  Why?  Because there were no available rates under that.  When I came back from Berlin, Germany with the Army in 1980, to work at the Pentagon, I bought a house with a rate of 16.75%.  So don't complain if you feel abused today with a 4.5% rate.

So, with all this experience and wisdom, I should have discipline and smart business sense, right?  I should look them in the eye and tell them they have little chance to be successful in certain types of transactions, right?  Well, I do... most of the time.  Here's the deal - I have a strong desire to help people get what they want, as far as their Real Estate Goals are concerned.  And I feel pretty good, knowing that's the heart and soul of how I approach things.  If a guy tells me he wants to buy a house, I'm going to work it for him, like a dog on a bone.

But lately, I've been experiencing a lot of push-back from specific areas of the market... and I don't like my lack of self discipline, in how I've responded.  Two quotes come to mind:

• "Knowing that the task was absolutely impossible, I doubled my efforts anyway." (Unknown)
• "A man's got to know his limitations."  (Dirty Harry/Clint Eastwood)

Wow!
"I can get a great deal, right?"

Here's the cheese to go with my whine.  Buyers call me and say something like, "Frank, I found this house at 3113 Chatham Road online, and it's 2,400 square feet, with 4 Bedrooms, for only $119,500!"  "Can you show it to me?"  And I immediately start to think, "Oh, Oh..."  because I KNOW it's an REO (Real Estate Owned - Bank Foreclosure)  Of course my buyer wants to see it, however, it's been on the market for only 3 days and it's listed at a "teaser price" - crafted to create competitive bids.  They race to get a "lender qualification letter" to show they can get a mortgage.  They want to offer less than the asking price, have an inspection contingency, make it subject to their bank's appraisal, and offer a $1,000 max escrow deposit.

So, what's the problem?  As soon as our offer goes in and 5 days have passed, we are told by the listing company that we need a "Multiple Offer Disclosure Form" and that "Highest and Best" offers are now due "by Noon tomorrow."  There are 12 total offers and ours is the only one that's not "cash with no contingencies."  These investors can usually close in 15-30 days and also are not timid about going over the asking price.  They realize the value presented and they know we are at the bottom now.  BOOM!  SPLASH!  (That's the sound of being blown out of the water)...

In Flagler County, Florida today, there are 685 homes For Sale, from $35,000 to $4,200,000.  Only 17% are distressed (short sales/foreclosures) and only 5% are REO/Bank Owned.  Sounds pretty OK?  Sure, BUT in the "Under $150,000," market it's different... Way different!  There's only 175 of those homes and 63% are distressed... with a whopping 35% being REO/Bank Owned!  And that is exactly the market segment that draws all the "investors with cash" looking for rental properties.  And they are driving "Mom and Pop with a mortgage" out of the segment.

I'm not saying that's bad, because it's not.  Actually, it is helping to clear out the market bottom, which is essential to real recovery.  But my "lesson learned" is this:  Keep my "non-investor" buyers with mortgages in the "normal" market and away from REO enticements.  Short sales are OK now (and I'm shocked to hear myself say that).  BUT, stay away from REO's!!!  Fool me once, shame on you.  Fool me twice, shame on me!

House Hunting - 2010 Style

 Saturday morning - Starbuck's Italian Roast - and the Daytona Beach News-Journal... My eyes catch "Shopping for homes when there's too much to buy!"  The author, Ilyce Glink, says there are "Eight things" you can do, as a buyer, to be successful in this market:

1. Create a wish list.
2. Create a reality check.
3. Get pre-approved for your mortgage.
4. Pick a neighborhood.
5. Pick a Real Estate Agent (...Like Me!)
6. Search the Internet to do elimination.
7. Do "drive-bys" to eliminate more.
8. Look only "at or below" your qualified price.

Now, I'll add a little to her take on things...  I'd combine #1 & #2.  Just make one list.  You'll know if your list is close to realistic or not.  If you can go to $200K here in Palm Coast, FL and you want a pool, we can make that happen.  And to think in 2005 there were NO HOUSES OF ANY KIND HERE UNDER $200,000!!!    But if you say you want "Direct Oceanfront, 5 bedrooms, pool, granite counters, etc." for under $200K, then you'd be joking, right?  Right?

On #3, I'd get more than "pre-approved."  I'd get "approved" for a mortgage.  Actually make your application and start the process.  Then, when I find you your new home, we just need an appraisal.

#4 - Agree.  Pick where you want to be.  If you want to be in Flagler Beach, then Palm Coast or Bunnell won't do.  If you want a salt water canal with Intracoastal access, then that's where we focus. 

Let's combine #5, #6, #7.  The right agent will make all the difference in the world.  Massive experience can really help if things get dicey.  Also, you won't get silly statements to try to "sell" you a particular house.  In 25 years of doing this, I know that you'll put it on your "no way, Jose" or your "possible" list within 2 minutes.  We won't waste time on houses you wouldn't buy.  The internet is not a threat to a good agent, it's an efficient tool.  And drive-bys are a great way to save boatloads of time.  A $99 GPS can save us three days of mind-numbing elimination.

I disagree with her on #8.  This quarter, 70% of our listings in Palm Coast, FL don't sell... because they are overpriced.  Maybe it's worth making an offer at the right price.  Plus, it's just a ridiculous buyer's market and there are bargains to be had.  If you qualify for $350,000, I'll ask you if you'd like to see up to $375K (maybe even $400K) if I can prove a price point of $350,000 or less.  But you are in charge of that decision.



Choices!  Choices!  Choices!

 Let's meet and talk about what you want!  I'll help you get it!

"Root Canals & Rabies Shots?"

As a professional Real Estate Broker, I often find myself getting on the band wagon with others...

We all complain that the media just can't seem to report anything that even hints at being positive. To be fair, there hasn't been a whole lot of fun stuff to talk about lately ( although I was ecstatic today to see my favorite gas station had slashed the price of regular, from $4.19 to $4.17... Yesss! )

So I'm reading the Wall Street Journal this morning, and this jaunty little segue catches my eye: "As Welcome as a Root Canal or Rabies Shot, here come more Housing Data..." ..."The numbers are expected to offer fresh reminders that neither the financial sector nor the broader economy can leave the Intensive Care Unit just yet." The gist of the article is that we have a huge over-supply of "Vacant and/or For Sale" homes. "The Law of Supply and Demand suggests this doesn't bode well for the future direction of home prices." Awhhh, Come On Now! "To get this vacancy rate back to near normal, over a million homes will have to find new owners." But, here comes the Grinch... Mortgage interest rates are starting to creep up!

I feel like I put on my SPF 15 ( not the Papa Bear "4" or the Baby Bear "50" ) back in 2005... went to the beach... and went in the water to cool off. Problem is I got caught in a Rip Current and have been swimming parallel to the shore for three years! Shouldn't this be letting loose? Oh, well, it can't get worse, right? But what's that in the water ahead? Is that a fin?

"We're Worth It... Now More Than Ever"

I'll be the first to admit it... We're just like you and your profession... a group who fits nicely under a "Bell Curve" (Normal Frequency Distribution for you statisticians out there). Some of us are "exceptionally good"... with loads of experience, education, technological profiiciency, and customers happy to refer us to their friends... really able to consistently deliver the "Wow!" factor. Many are "average," that's not a bad thing, in that they get the job done and meet acceptable standards. Some, sadly, are "not very good"... and they give the rest of us a bad name. Just like doctors, lawyers, teachers, nurses, mechanics, pastors, builders... and any other profession or service you can name. Right now, the real estate world is upside-down and there are some things you should know:

• Many sellers are angry or confused... or both. Their sense of entitlement is overwhelming, as they firmly believe that the value of their home cannot - EVER - go down... "because this is America!" Nearly every consultation with a seller begins with, "We're not going to give our house away." In this market, having a realistic seller is akin to having a bucket of gold.
• There are really THREE (3) MLS databases:
• The first is called "Fantasyland." This is where the above-referenced sellers have their homes listed at "pre-2006" prices. They are hoping and praying and playing ostrich. They haven't read the paper...
• Secondly, there are the "Short Sale" listings. This is where folks go who are trying to avoid foreclosure. Investors go here too, because they think it's a "get out of jail free" database. They don't understand that banks are in the business of making money and are exceedingly reluctant to let people off the hook... who have other assets! Today, "short sale" listings have become a catch-all of teaser prices. WARNING: If you get involved as an agent or a buyer here, do your homework and be prepared to wait a long time (90-120 days) for an answer. HINT: The answer is often, "No." In order to end up with a successful closing, list prices should be about 10% below market - to prompt offers. Offers, on the other hand should be close to market, in order to elicit a positive response from the bank. Regarding price? Make sure the relationship between your offer and the mortgage payoff amount makes sense. The bank won't take "$150,000... on a house appraised at $275,000... with a payoff of $350,000."
• The third database is where motivated sellers (Harry and Mary Homeowner, Banks, REOs) are listed and are ready to do business... today.Today, there are 10,809 "Sold" properties in our database, from the past 36 months. Of these, there are 77 short sales. That's about six tenths of 1% of the database. Hardly a panacea for great deals.
• Just because it says "foreclosure" or "REO bank-owned," does not automatically qualify them for Investor Nirvana. Look at all your options, as there may be Mom & Pop sellers who are highly motivated too.
• Because you peruse the Internet sites and see lots of homes for sale, does not mean you "know the market." If I go to a medical web site and look at photos and read all about knee replacement surgery, I'm still not an orthopaedic surgeon. This is a tough business sometimes... and we are fully immersed. There is an amazing amount of "turmoil" under the surface of a real estate transaction. With 22 years of real estate sales and training agents and sales management, personal investing, constant reading and personal education... along with chairing our Arbitration Committee and conducting mediation of real estate related disputes... I (and others like me) can really help you make good decisions.

This market won't last forever, Thank God. There are plenty of signs that initial recovery has started. We are really busy! It's not like 1999-2005... and it's not a lot of Waterfront, Canals, and Hammock Beach, but we are busy. Why? Because those that missed the boat last time around, don't want to miss it again. As the lower end clears out, the funnel will flow more freely for the rest of the market. Hallelujah!

"I Guess We Made Him Mad"

...Well, well, well. It's all clear to me now!

The real estate market has been in a mess for nearly three years now. We all have theories, as to "why." I'm really good at those, you know... You could look it up. But 90% of the statistics, as presented by 72% of all economists, contain 37% flawed data, 65% of the time. You could look that up too.

So, quite a long time ago, it seems that God was displeased with His people's performance here on earth. It rained for 40 days and 40 nights in a display of torrential might. Everything was lost, save for Noah and the inhabitants of the Ark. As I looked at the sky (see photo above) I couldn't help but see the significance of the imagery. We've made Him mad again. There is no other earthly explanation for the cloud formation and/or this real estate market.

But Good News! When the rains subsided, Noah and the survivors enjoyed a new beginning - a clean sheet of parchment - a chance to start over. I'm sensing that is so in the real estate market right now. I can't tell you how busy we've been the past month or so. It's mainly in the lower price ranges (under $200,000), as those who missed the last opportunity to become homeowners, are coming out of their slumber. Prices and interest rates are low. There are lots of motivated sellers and bank foreclosures. The paper is full of bad news, but then again, it always is. There is plenty to indicate we're either at... or very close to... "the bottom." Things are moving, as the force of pent up demand gains momentum. Like my buddy John just said, "The bad market will be over, when the people decide it's over." It's a great time to buy... Don't wait, or you may be singing the "I Cain't Bul'eeve I Missed The Freakin' Boat A'gin" Blues :-)

Real Estate and Football"

What's the "Real Deal" going on in real estate today? Everywhere you look, the headlines, magazines, and news shows focus on "Gloom," "Doom," "Housing Slump," BUT... and it's a BIG BUT (no pun intended)...

... It's truly a "matter of perspective." Take football, for example. How are you enjoying the season? As a Patriots fan, at 12-0, things are sweet. However, if you're a Fin follower, at 0-12, well now that's a little different deal. The Sports Page headlines are wildly different in Boston than Miami, right? How about a root canal? Personally, I don't care for them all that much. But my neighborhood dentist? - He rather welcomes them. "Same - same" for a fender-bender. The drivers? No:-( The body shop? Yes:-) Then there's quadruple bypass surgery. The patient? No:-( The cardiologist? For sure:-) ... I'm guessing you see where I'm going with this. So along comes a recent edition of "Smart Money Magazine."

• Headline: How Bad Is Housing Slump?
• Gist of it: "It's official: The U.S. real real estate market has fallen into its worst slump in 16 years."
• More: Builders are hurting.
• A little more: Industry stocks are in trouble.
• Even more: Easy (Translation: "stupid") financing is gone. (Excuse me, but I'm having trouble seeing this as a "bad" thing)
• Finally: We haven't seen the bottom yet. (That would be the pricing bottom)

The perspective issue? In a nutshell: In most cases, it's not fun being a seller right now. (However, there are a few circumstances where selling could actually be a good thing in this market... but that's another Blog post...) But being a buyer? Where are the headlines: "For The Love Of God... Buy A House NOW... Before It's Too Late" ??? I know this much. When you try to "time the market," you usually lose. We may not be at the bottom, but we're getting close. Take an average house here in Palm Coast. I'd rather buy it today at $250,000, than take a chance at missing the potential bottom of $240,000... and end up buying it in a bidding war at $275,000 when the market starts a turn-around.

"Uncle... Uncle... I Give... I Give"

Remember when you were a kid - and some other kid would get you in a headlock and give you a "noogie?" If he was mean enough, he wouldn't let you go until you said, "Uncle." To this day, I don't know why that was the ticket out of the headlock, but it usually worked. Except with Johnny Calahan, that is, which was particularly yucky, because the guy drooled... a lot... I'm talkin' "need to change your shirt" drooling. Well, my blog reading friend, this real estate market is Johnny Calahan on steroids. We've been in his drool-enhanced headlock for nearly two years, screaming "Uncle... Uncle... I give... I give" - but Johnny doesn't seem to want to let us go just yet. I've been in Tampa this week and, according to their media over there - they are hurting more than most. The mystifying part of all this is the behavior of buyers. In Tampa... and Palm Coast... and San Diego... and New York... and Nebraska, etc., etc. It's a "Buyer's Market," but - There Are No Buyers. Nope. Nowhere to be found. Just a few bottom fishers. "Let's see, you bought it for $350,000 in 2003. It's worth $310,000 today. So, I'll offer you $195,000. Cash."

I read about a lady in Ormond Beach who is offering a 1998 Honda CR-V to convey with her house. "They can even have the dog," she said. Believe me, it sounds bizarre, but it's nothing much. I was selling real estate in Great Falls and McLean, Virginia, when the market crashed in 1989. One day everything was over $1,000,000. Then the next day it was "so not over $1M." I'm not exaggerating when I tell you that a scenario like this was not a stretch: "Beautiful 7,500 sq.ft. custom on 5 wooded acres. Price slashed from $4,500,000 to $3,950,000. Realtor bonus of $25,000 at closing with broker's permission. Two weeks in Maui at seller's condo free to purchaser. New Mercedes SL-350 to buyer for acceptable contract and closing before 12/31/1989." Now that was a crazy market... Then I get back to Palm Coast yesterday and the News-Journal ( http://www.news-journalonline.com/ )Business Section headline blares: "Area Target For Foreclosures." Great. Just great. It seems that we are in the prestigious "Top 500 Foreclosure Club." ( Check out this interesting YouTube video: http://www.youtube.com/watch?v=hvV8yPy1nDw&mode=related&search= ) That can't be good for marketing. Eric Estrada and Garfield the Cat would be shocked. It sounds sooo different from all that "We're the #1 Fastest Growing County in the Country" stuff we got to say for a couple of years. Want some good news? It's usually this bad... right before we hit bottom... and things start to turn around. I'm thinkin' we're in the "Pre-Rebound" stage. Maybe not today, but I smell change coming. Soon. You'll know it's happening when you see real estate agents sniffing around SUV dealerships again... and going out to dinner more than once a month.

"Seller's School"... Conspiracy?

We were eating breakfast at The Pier in Flagler Beach this morning and discussing recent appointments we'd had with potential home sellers. We were fairly certain that it would take a while for yesterday's blog post: "Newspaper Readers: Beware!" to sink in - and for us to reap the benefits! In the meantime, it has become quite apparent that there is a very real conspiracy afoot... We believe that there exists a clandestine "Seller's School" - a place where our future clients go to learn their scripts and dialogues. Let's take a look at a "listing presentation" (that's what we call it when we meet with you to obtain the right to represent you in the sale of your home) with a seller who has recently graduated from this secretive academy: Knock, Knock. "Well , hello there. Come on in and let us show you around our home. Let's start here in the living room." "Before we do that, perhaps we could sit at the table and talk about a few things?" "No, let's do this first, so you can see how valuable our home is! Now this carpet is pure wool - very expensive - and it has worn beautifully since we installed it - brand new - in 1987." "I don't want to appear critical, but is that cat urine I smell?" "Maybe, but Fluffy has been in cat heaven for over a year now and we open the windows, so it's not a problem." (Scribble, Scribble) "Now, moving along, we realize the kitchen is small and the appliances are older, but we see that as a valuable plus. It's easy to keep clean... and it's impossible to find Harvest Gold anymore. The older style Formica counter-tops are care-free, compared to granite and the fiber-board cabinets are much less expensive to repair than real hardwood. And who can reach the top of those silly 42" ones they try to push off on people today?" (Darn... This is gonna' be tough. They've been to "Seller's School") "... Thank you for showing us your home - we appreciate the tour. Now let's discuss the business side of things. How do you see the market affecting what you'd like to accomplish?" "Oh, we're very optimistic! One of the agents we interviewed yesterday (Was that the eighth one, honey?) said things were really picking up now - and that if we listed with her, she'd sell it quickly. They even said they'd put pictures of our house in the paper every day!" "Wow... sounds unbelievable! Now we like to talk to our clients about having realistic expectations. We approach it as a function of several important factors: Price, Condition, Location, Current Inventory, and Marketing, being critical..." "That's all well and good, but we need $150,000 clear out of this, so we can build over on the water. And, by the way, how much is your commission?" "Folks, we can show you current comparable sales that indicate a market price in the $275,000 range. With your current $180,000 mortgage payoff, our 6% professional fee, and a conservative 2% closing cost... that leaves you with only a little over $70,000 clear. That's about $80,000 shy of what you say you need." "Well, we think there's a buyer for every house and one will come along, if you people would run enough ads in the paper. And, another thing - we don't want a sign or a key lock-box, because we don't want the nosy neighbors to know we're for sale. And we don't want it shown unless by appointment, when we're home, and we're gone a lot. We want to list it with you, because we heard you were good, but we'll only do a 30 day agreement (like the nice man advised in the News-Journal)... and we'll only pay a 4% commission. etc., etc., etc. When can you start?" (Dear God, please help me.)

"Well, they certainly left in a hurry. You just can't find a good agent these days. Hey, I know! Let's do this "For Sale By Owner!" That way we can really maximize our profit! It should be easy, because we've been to "Seller's School!""