Just How Positive Should We Be?

 Posted by at 10:06 am
Mar 102012

I’m a fan of Scott Levitt’s Tuesday Tactics Newsletter… and in a recent issue he led with this quote from Gil Stern:

Both optimists and pessimists contribute to our society. The optimist invents the airplane and the pessimist the parachute.

He ends his thought-provoking column with the recommendation that we shouldn’t jump out of a plane expecting to find a parachute on the way down.

Scott is at least alluding to the real estate market because at least indirectly it’s the business he’s in. I just have to support his plea for “realistic optimisim.”

There’s been a tendency recently to encourage the power of positive thinking (which is not to be underestimated)–especial among real estate types. You’ll see the campaigns on television… “it’s a great time to buy!” and you’ll hear it from those who seem to think that emphasizing the positive will automagically make things better.

Personally, I’m reminded of the the observation “If wishes were horses, beggars would ride.”

The real estate market is not great–that’s about as positive as I’m willing to be at this point on that subject. But I agree with Scott on another point. Belief in our own ability to assess situations and overcome problems is where optimism is best deserved and applied.

So if I challenge the press releases indicating positive trends, I’m not being negative. As I’ve said before, the market doesn’t need to control us and we, in fact, determine the market–individually and collectively.

I guess it’s okay to wish for a horse, but in the meantime it makes sense to keep walking in the direction we want to travel. It’s probably okay to wish upon a star too, but we might also try catching one.


Merry Christmas!

 Posted by at 7:06 am
Dec 222011

Greetings of the Season!

While it has become traditional, it is not habitual! The holidays are a great time to say “thank you” and to recap the past year.

About this time last year I announced that I was “moving to Mallett” and I’m pleased to say that decision has proven even wiser and better than I thought. The move has allowed me to focus my brokerage business and become more localized while working with some great folks. I certainly do not miss the commutes to Newport!

This no doubt contributed to the fact that I’m having a fairly busy year in spite of the market situation. But I still believe that my fundamental focus drives my success. Diagnosing problems and understanding clients’ needs has always been important; given the increasing complexity surrounding the buying and selling of real estate, now it is vital. More than ever you need a partner who knows how to learn and who knows how to teach.

And speaking of teaching, I am now teaching at least six real estate pre-licensing courses every year. Those of you who know me well know that teaching is my first love. This year also saw growth in enrollments in the courses I’ve offered through the Piscataquis Valley Adult Education Cooperative. Next year will include a “solopreneur” series for folks who want to start a business on a very individual and fundamental basis. A collaboration between the Cooperative and Piscataquis County Extension will create a “You Can” series of classes for folks interested in traditional skills (agricultural, homesteading, domestic). I’m working on a course called “Cash as a Crop” that will look at ways to raise and save money in this difficult economy. (It probably won’t include investing in real estate!)

Because of this increased emphasis on training and education, I’ve redesigned a second website that includes “brain leaks and musings” as well as information about courses I’m teaching. You can even sign up for email announcements of future courses.

My “work” with the kids continues… every so often someone will decide that being around the kids is keeping me young. I’m not so sure about that, but I do know that being with them is rewarding and I learn a lot from them. And they are definitely good for an occasional laugh. I enjoy their problem solving abilities and their view of the world.

I still believe that the real estate market shouldn’t control us; we should look ahead and consider what we need and want to accomplish. If you follow this blog you know that I firmly believe the statistics do not control us; we create the statistics by the actions we take and the skills we apply. That is also true of life. These are times when it’s easy to feel discouraged and uncertain. But just a slight shift of focus and we can look ahead and find opportunities all around us.

Thanks for your confidence and the opportunity to work with you. Do let me hear from you… and have a meaningful holiday and a new year filled with health, happiness and prosperity. The video below just might help with some Christmas Spirit.

Dec 132011

Wikipedia defines fair as “in accordance with the rules or standards; legitimate.” One of the more memorable definitions I’ve encountered was offered by a student a few years ago. He said that whenever his kids whined “Dad, that’s not fair,” he would remind them that a fair was actually a place where pigs go to compete for ribbons.

In real estate classes, I “force” students to memorize the definition of fair market value, but we also want to be sure we understand that definition because it’s a pretty important term to sellers and buyers. It’s a lengthy definition, but the core of it is “that price… which a ready, willing, and able buyer will pay…”

Arriving at the fair market value for a property involves both science and art. I’ve brought the topic up because according to a recent survey nearly three-quarters of home sellers think their homes are worth more than the price the agent determines. Where it gets really interesting is that the same survey indicates that 68% of all home buyers believe homes are overpriced. And, yes, it’s possible for both of those things to be true at the same time.

In the article I read, one professional suggests that the problem is “fixing the credit system.” There’s a leap I really do not understand. (The suggestion is that would bring more qualified buyers to the market and increase demand.)

The law of supply and demand is still at work. In general, we are currently working with high inventory (supply) and low demand. That low demand is not totally the fault of the credit system. There are many qualified buyers who are sitting on the sideline for lots of reasons. Most of those reasons fall into the category of “fear” and they are all about the future and mostly about the economy.

This all gets simpler when we recognize that homes are bought and sold one at a time. Things would get really simple if we could remove the emotion from that process. We might then be able to get those sellers who think they aren’t getting enough and those buyers who think they are paying too much together. This means we have to get price into perspective–hard to do for sellers who are faced with a mortgage payoff that exceeds the current market value.  But let’s not forget that it’s also hard for buyers who want to buy more home than they can afford.

(One concern I have that I hesitate to raise–the cost of home ownership is about a lot more than the sales price. I’m afraid that the current situation is making it very possible for buyers to buy homes they cannot ultimately afford. That’s probably a different topic. For today, buyer alert: don’t let low pricing lure you into making a bad purchase.)

 The talking heads will probably continue to over-simplify things. In truth, there’s always been a tendency for sellers to over value and buyers to under value. What makes the current situation unique is the disparity. We might do well to worry a bit less about blame and “fair” and more about buying and selling. Simple, really. Not easy.

Nov 222011

I can write headlines with the best of them! I admit I thought about making this headline Piscataquis County Real Estate Sales ACTUALLY Increase. Regular readers will know that I rarely let a statistical headline go unchallenged–including my own.

The latest press release from the Maine Association of Realtors tells us that for the month of October, unit sales are up 6.78% over last year. That’s good news. That ever-so-spongy number called “median price” is down for the same period, but not much (.90% from $166,500 to $165,000). That’s also good news. While one month does not a trend make, it would appear that prices MIGHT be stabilizing a bit.

In my “home” market of Piscataquis County the news for the “rolling” quarter (August, September, and October) is good. Unit sales are up 14%. However the media price continues to be down–dropping 6.1% to $77,000.  Remember, that median selling price means half of the homes sold for less that $77,000 and half sold for more than $77,000.

Since I’m capable of creative statistics, I will usually take the number of units sold times the median sales price–admittedly an interesting but not statistically valid approach. Doing so, suggests that dollar sales in Piscataquis County also increased approximately 7%.

My non-scientific sense is that things have, in fact, “picked up” a little. But I wouldn’t get too excited.


Source of data: Maine Real Estate Information System, Inc. Note: MREIS, a subsidiary of the Maine Association of REALTORS, is a statewide Multiple Listing Service with over 4,600 licensees inputting active and sold property listing data. Statistics reflect properties reported as sold in the System within the time periods indicated.



Taxation Without Representation?

 Posted by at 7:44 am
Oct 292011

When it comes to property taxes, I rarely hear from people who do not think they pay enough. At a town meeting once lots of people were complaining about their assessed value. “There’s no way it’s worth that much!!” I couldn’t help but suggest that I wondered if they’d have that same perspective if they had called me because they needed to list it for sale.

I suppose there’s an interesting discussion to be had regarding the difference between assessed value (for tax purposes), appraised value (for mortgage purposes), and market value (for listing and sales purposes). But for today let’s touch on one aspect of property taxes–with the understanding that I am not the expert or final authority. Questions should be addressed to your local assessor or tax collector.

One area where we have some ability to “control” our taxes is in regards to vehicles such as campers or tractors. Many out of state purchasers are surprised when they get their first tax bill and discover it includes an assessment for the camper they left parked there. “I thought if it had wheels…”

Here’s the deal, as explained to me by one former tax assessor.

If you make the camper immovable (take the wheels off, build an enclosure around it), it can become part of your assessment and property tax bill—for tax purposes it becomes real estate.

 If the camper is “movable” there are two possibilities:

  • If it’s registered (in any state) it would not be taxable as personal property. (If registered in out of state you’d need to provide a copy of the registration to the assessor or have it visible in the window.) Note that if it’s registered in Maine you will pay excise tax. This gives rise to the observation that taxes are inevitable.
  • If it’s not registered it will be taxable as personal property. (Although a lot of times that doesn’t happen because the assessor hasn’t been to the property or otherwise noticed—they can, however, go back and collect those taxes for some period of time.)

 A lot Mainers “shop” those two possibilities to determine which is cheaper since if it’s registered you will pay an excise tax every year. The only way to do that is to ask the town tax collector for both amounts.

The problem with the whole complicated scenario is that enforcement really varies from town to town—and some Mainers can get very creative when it comes to avoiding taxes. I recall complaining to a fellow citizen about needing to register several trailers. He looked at me as if I’d grown a second head and said, “What the heck are you doing that for? All you have to do is register one and then keep switching the plate!”

He did not, of course, add “Just don’t get caught.” I suspect he’d been doing that for so many years he was sure it was proper procedure.


Don’t Blame The Lenders

 Posted by at 5:05 am
Oct 192011

I’m actually having some fun these days working with a buyer client and lender to put together some “unconventional” financing by today’s standards. But it also makes me a little crabby when I hear people whining about lenders and blaming them for everything that’s wrong with the economy and real estate.

But then again I also smiled when I heard what Greg Rand, CEO of OwnAmerica, had to say on “Rand on Real Estate”–his radio talk show. Admittedly he focuses on the commercial market, but he also makes a point that’s worthy of some thought. Lenders aren’t trying to make things difficult; they are simply returning to standard lending practices they were using a few years ago.


Aug 242011

Ultimately, it's about decisions!

In an article titled “The Emergence of a New Real Estate Industry” Greg Rand offers some interesting statistics from a number of sources.  One that I found particularly interesting was the observation that according to the U.S. Census 34% of households are renters–and that number is growing at a significant rate. He also quotes a survey conducted by Move, Inc. suggesting that investors (as differentiated from home owners) are three times more likely to buy a house in the next three years.

He uses this statistics to support his conclusion that a new industry is emerging. While it’s not clear to me what he thinks that industry is, he seems to be suggesting it’s about a lot more than home ownership.

I’m not sure if I take issue with him, but I would opine that one of the problems with this business has been the narrow view the industry has taken. We’ve tended to think that “real estate” is all about owning a home and that’s something everybody should strive to do. (We’ve acknowledged that there are investors, but have tended to put them into the commercial segment.) In short, we’ve never even pretended to offer “full service” because we still think the real estate business is about selling properties.

This is a short term outlook in an industry that thrives on the long term. If all we do is decide we should be serving investors as well as homebuyers (I would think we’d benefit from clearly identifying the difference between them), we’re still going to miss the boat.

Our ads need to stop reading, “If you want to buy or sell, call me!” What they need to say instead is “If you want to make an intelligent decision about real estate, call me.”


Sales Statistics Released

 Posted by at 7:06 am
Aug 212011

The Maine Real Estate Information System (MREIS) recently released sales figures for July showing that statewide unit sales were up 23% this year over last year–a fairly impressive number. Personally, I think this is a “blip” that may continue into August and possible September, but I do not think it will stay at that level much longer.

Regular subscribers/readers know that I enjoy looking at the statistics by county and the three month “rolling average.” Pistcataquis County is a relative bright spot!  Well, maybe.  Let’s play with those numbers a bit. A comparison of this year (May through July) over last yields a 23% increase in unit sales. Before you get too excited, remember that this county’s numbers are always relatively small: sales for 2011 were 43, for 2010 35.  Eight more homes sold this year over last year.

You may also know that I’m not a big fan of the “median price” statistic–unless you’re dealing with really big numbers (unit sales) the median price is a relatively meaningless number.  (The median price is the “halfway” price; NOT the average price.) However, it’s the number we are given, so lets work with it. During those two periods, the median price decreased by 17.86%, from $85,100 to $69,900.

In case you don’t have your calculator handy:

  • 35 sales x $85,100 = $2,978,500 in 2010.
  • 43 sales x $69,900 = $2,446,500 in 2011.

Again, I know the median price isn’t a good measure, but applying it shows us that things aren’t so much better this year. Now please don’t call me a prophet of doom. I’m merely suggesting some critical thinking needs to be applied whenever statistics are released. I’m also fond of pointing out that you do not have to be the victim of statistics; your decisions actually help create them.



Time to Lower the Price?

 Posted by at 7:41 am
Jul 132011

We’ve had our property on the market for a while and there’s been very little interest. How long should we wait before reducing the price?

Tough question, and maybe not the correct one to be asking. The first question I’d ask is whether or not your property is priced properly–at or near market value. Assuming it is, I’d look at recent sales activity in your town/market. One way to do this is to calculate what’s called an “absorption rate.”

Let’s say there are currently 75 residential properties on the market  and in the past six months there have been 26 sales… statistically speaking there is a 1.44 year supply of inventory.  So if you’re priced correctly and your property has been on the market for a couple of weeks… well, calm down. In that situation, unless we get ahead of the current 75 listings, it could take a year and half for your property to sell.

Reducing the price is only one of the ways to get ahead of everybody.  There’s a lot of emphasis on price these days, and the tempting conclusion is to think the price sells the property. What sells the property is locating a  ready, willing, and able buyer. So the real question we need to ask is “how are we going to find a buyer?” Part of that consideration is “are we priced too high to attract a buyer?” If you’re close to market/appraised value, the answer is “probably not,” so sit tight.

(Bear in mind market value can change very quickly and you should be revisiting your price position regularly. And don’t forget that market value is both science and art.)

The exception to this is when a property ends up priced so low a buyer can’t resist it. I remember years ago my mother came from shopping once with a container of “drip” grind coffee. We pointed out that she didn’t have that kind of coffee maker and she replied, “But it was so cheap I couldn’t resist it!” That’s an example of price “creating” a buyer. 

So price may “create” a buyer. But you still have to ask yourself “How many buyers can I create by reducing to an irresistable price?” Remember that if you only consider price you are competing with foreclosures… and that IF you can create a buyer with an amazingly low price that buyer STILL needs to either have the money or the ability to borrow it. I have a couple of low priced properties that generate frequent calls. Most of the calls start with “will the owner finance?” Guess we didn’t create a buyer after all–or at least not a qualified one. Would you be surprised to learn that another question is “Is that price negotiable?”

If you make it all about price… it will be all about price! Sell your property, not your price.


May 252011

Amid the entire current flap, you’ve probably heard some noise about legislation to change the QRM (Qualified Residential Mortgage) requirements. As I understand it, the change would mean:

  • Certain mortgage types would be eliminated
  •  You would need to put a minimum of 20% down
  •  You would need a minimum 690 FICO score
  •  The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)

This has caused quite a stir and a certain amount of “the sky is falling” hype. Even the National Association of Realtors has issued a “call to action” requesting REALTORS ask members of congress to defeat this legislation. I’m not so sure that’s a good idea.

First, we need to understand that this doesn’t mean only those who meet the criteria above are going to get a mortgage. There will still be programs available for people who don’t; they’ll just be a bit more costly in terms of interest rates and other costs. (And why shouldn’t lenders be able to charge more for higher risk loans?)

Second, we need to learn the lessons of history. Relaxed borrowing standards are partly responsible for the mess we’ve been in. Accuse me of over-simplification and I’ll probably plead guilty, but let’s not ignore the fact that a ton of “bad loans” were made At least one source reports that delinquency rates are 2 to 2.5 times higher for “non-QRM” loans.. We can debate the reasons, but this seems to be a bit of an effort to set a standard that suggests mortgages should be made to people who can afford to make the payments and have some equity in the balance.

I think that makes sense.

For a slightly different perspective, let’s assume you have your property listed for sale and I’m your agent. Let’s also assume you don’t have a mortgage on it… maybe it’s a second home or piece of land. A buyer approaches us with an offer to purchase but asks for owner financing. No problem, right? He’s offering full price! You’ll get to charge interest…

So far I’ve left out one important detail. When the buyer made that offer I asked him why he was requesting owner financing. He replied, “Well, I just lost my house to foreclosure and can’t get a mortgage.” (Believe it or not, I’ve had this happen more than once and the buyers often don’t “get” the fact that if the bank isn’t going to loan them money, the seller probably won’t either.)

“Ah,” you say. “Let’s make the deal. So what if he can’t pay? I’ll just take the property back and keep any payments he does manage to make.” Before we make the deal, here’s an easy assignment. Call an attorney and ask her just how easy it is to foreclose and how much it costs. Oh, and did I mention that after you finally manage to foreclose Continue reading »