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Just How Positive Should We Be?

Posted by Walter 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.

The 3.8% Tax Scare

Posted by Walter at 4:41 pm

Feb 272012

There’s a scary email that’s been making the rounds for some time warning folks that the “National Association of Realtors” is “all over” a 3.8% sales tax that was part of the Obama Health Care Bill… the retiring generation is getting screwed, etc. etc. It doesn’t mention that the sky might be falling too. This tax has been called a transfer tax and a sales tax, but it’s actually neither. Unfortunately some REALTORS have jumped on the scare bandwagon because they are afraid this have a big negative impact on the real estate business.

Without getting all political, I will say that I’m not a fan of the Health Care Bill, but this sort of criticism of it is unfounded. I’ve been referring folks to the Snopes Urban Myth site for years on general principles… and would suggest the same for this except there’s an even better source: the National Association of Realtors has addressed this with some facts. There’s short blog post and video that explains the tax in simple language. Again, I’m not saying that I’m supporting the tax, but it is no where near what this email claims and since this email just isn’t going away, I decided to post about it here.

For starters, if (and there’s a big if) it were to apply, it would only apply to individuals earning more than $200,000 per year and couples with a joint income of greater than $250,000. Additionally, it is not going to apply to the sales price of a home–it MIGHT apply to a portion of investment income. In other words, it MIGHT apply to a portion of the capital gain acheived. It is NOT a real estate transfer tax and it is NOT a sales tax on real estate.

Again, I’m not saying it’s a good law or a good tax–but criticizing it with scare tactics, exaggeration, and just plain wrong information accomplishes nothing. NAR (National Association of Realtors) has actually produced a free brochure outlining several different scenarios.

If you receive the scary email, don’t forward it. Objecting to bills, laws, and taxes needs to be done with diligence and solid facts–not scare tactics. The tax is scheduled to take effect in 2013 so it would be wise to get educated.

By the way, the information I’m referring to was actually written and posted in November 2010–which just goes to show you the power and durability of fear. People are quick to forward the scare… most won’t forward a link to the facts!

Ignorance is bliss!

Posted by Walter at 7:29 am

Feb 242012

But it’s not a defense. You might blissfully speed down the highway. But don’t try telling the police officer who stopped you for going 60 MPH that you didn’t know the speed limit was 30 MPH. I doubt he’ll say, “Oh, ok! Have a nice day!”

When it comes to real estate the problem becomes the number of laws that potentially impact a real estate transaction and trying to stay “on top” of them all. The National Association of Realtors recently developed a list of some 23 Federal Laws that may apply to a real estate transaction. I’ve decided to offer a link to it here primarily for the benefit of students–many of these laws affect what we do as we facilitate transactions. Consumers may, however, find the list at least interesting — if not intimidating! Remember, these are just federal laws. There are also state, county, and local laws and ordinances.

http://realtormag.realtor.org/law-and-ethics/feature/article/2012/02/23-federal-laws-apply-real-estate-sales

The short road from “no thanks,” to “leave me alone!”

Posted by Walter at 8:08 am

Jan 172012

: “Leave me alone!”

Nearly every day I have to delete emails or “zip flyers” from other agents who feel compelled to “market” their listings to me. In some cases these flyers come as huge files that take forever to download… in other cases they represent properties outside the area I tend to work in. Some clearly violate real estate/fair housing rules and a majority violate the “CanSpam” act.

I used to respond directly to the sender with suggestions and observations, but I found the odds were about equal. Half would thank me; the other half would basically tell me to “mind my own business” because they are busy doing their fiduciary duty to their client.

Since I’m pretty obsessive about fiduciary duty (there are actually seven listed in Maine Real Estate Law) I decided to do a little more research on the outside chance I was missing an opportunity to serve my clients. On occasion, I’ll ask my real estate students about “marketing” and what they think it means — especially in terms of fiduciary duty to the clients they represent. Many take the position that “all exposure is good.” I challenge that thinking with this suggestion: “Then I hope you are taping your business card to the wall of every public restroom you use.” How’s that for a technique that is low cost with lots of exposure!? (Pun intended.)

Maybe it’s because I’m an instructor that I tend to wonder what we are teaching our clients with some of the stuff we do and don’t do. I also tend to wonder how much our clients know and don’t know. I do know that when there’s an online real estate discussion, it is clear many do not know basic real estate law and practice. Heck, I see it in my own practice.

Now admittedly, a seller is unlikely to get into legal trouble if the agent representing them violates one of those laws previously mentioned. But a seller does need to monitor their agent’s performance to be sure their “marketing” program is efficient, professional, and not so intrusive that people are responding “leave me alone.”

There’s Nothing “Fair” About Fair Market Value

Posted by Walter at 6:58 am

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.

No Whining!

Posted by Walter at 5:25 am

Dec 052011

As if to reinforce my previous post, I read a news item this morning pointing out that pending sales are up but along with that REALTORS are reporting a signficant number of “settlement failures.” (A settlement failure happens when a buyer and seller agree to a “deal,” but something happens and the sale doesn’t actually take place.) The talking heads are of course blaming this on the lenders. (By the way, the statistics on the failures are not hard numbers-they are based on a survey of REALTORS who are reporting they are experiencing the problem.)

One comment posted to the story by a REALTOR included the observation that the “entire industry is being held hostage to ridiculous underwriting standards.” I confess to chuckling a bit.

I have an idea for her. I think she should start making $100,000 plus loans, asking herself just how much assurance she wants that her borrowers are going to pay her back. My guess is she’ll want some underwriting standards, documentation, and won’t be making loans to just everybody. If she can come up with enough money, she can turn an entire industry around.

(Just to put the lending risk into perspective, a separate article notes that in cases where the lender or federal government modified mortgages to assist the borrower nearly half are in foreclosure again anyway.)

There’s no doubt that mortgages are a lot harder to get now than a couple of years ago. Personally, I’m not sure that’s a bad thing. But to those who are whining, I would suggest that unless we are going to start opening our own banks, “it is what it is” and we (REALTORS) need to start dealing with it. Whining about it isn’t going to help one bit.

We can’t continue to shout, “It’s a great time to buy!” because it’s only a great time to buy for those who can and not everyone can.

My personal experience is that it’s not THAT difficult–there are lenders with money to loan who have reasonable expectations. Buyers (and agents) who are looking for the slam dunk are going to be disappointed. You do have to work for the mortgage and the sale. Sorry.

Salesmanship is NOT a dirty word!

Posted by Walter at 6:43 am

Nov 282011

For a long time now I’ve been “preaching” to those who will listen–”It’s high time for those of us in the real estate industry to realize we are not in the business of selling houses; we are in the business of helping people make intelligent decisions regarding real estate.” I would call your attention to the fact that I said “selling houses.” I didn’t say “We are not in the business of selling.”

Some years ago I wrote a short booklet called Salesmanship Is Not a Dirty Word. I can assure you that I’m not “anti-sales.” I happen to think that selling is an important skill–even if we have to call it something else to make it palatable.

So this morning I read an article on RIS called Warning: Your Sales Techniques May be Under Fire. It’s actually a pretty good piece. The author notes that while brokers have traditionally been “selling information” (because of the historical emphasis on the multiple listing system) things have changed. Buyers now have all that information available to them thanks to the Internet. (I wonder how that information gets there… hmmm.)

Therefore, he somewhat rightly concludes, buyers of real estate are looking for someone to “assist and consult.” But, like all good ideas, when you push this to the extreme it doesn’t work. “No dialog, technique, or pitch needed,” he goes on to say. That’s where the author lost me.

This is the age-old debate–it’s not a new one based on some new paradigm. Every industry has always had salespeople who put their personal gain before their customer’s. Real estate is no different. Well, except for one thing, maybe.

If you hire me (or somebody else) to “assist and consult” with you… wait. How are you going to decide to hire me? Will you draw my name out of a hat? Should we develop software that is a random broker generator to pick your broker for you? (Banks are doing that with appraisers these days–interesting back story there.) No, I think we’re probably going to have some dialog and while we may not like calling it that, I’m going to “sell” you on the value of hiring me.

Let’s assume, however, that somehow you do manage to hire me without any influence on my part. So if we assume I’m not supposed to use sales techniques, let’s consider what that means. If you’re a buyer and you decide to make an offer on a home I’ll just submit the offer and we’ll see where the chips fall? Or maybe you are about to make a truly “bad” decision… you don’t want me to try to talk you out of it, right?

See, when we write articles like this we can afford to be conceptual and puristic. When we’re out in the trenches we have to deal with reality.

If you’re entering the real estate market as either a buyer or a seller I think you absolutely need a broker who knows how to sell and is pretty darn good at it. Remember, it’s about perspective. He or she is supposed to be using that skill on your behalf–not on you for his or her own gain.

Unfortunately, the information aspect of this business makes it very easy to end up working with a broker without much thought. You call a number on a sign because the house looks interesting. You don’t think about selecting your broker. You’re leaving that to chance. Wouldn’t it make sense to find out what that broker’s perspective is?

I often tell students that they’ll make their biggest mistakes in the business when they are broke. Why? Because it’s about perspective. It becomes very easy to put the transaction (sale) ahead of the client when you can’t make your mortgage payment. Just like in dating; desperation isn’t pretty. Don’t hire a desperate broker.

Customers and clients really do need a sensitivity to this–is your broker truly working in your best interest? Extreme cases are relatively easy to spot because you feel “pressured.”

There are two questions you should be asking yourself constantly:

Do I feel like I am making my own decisions with all the information and options available to me?
Do I feel like my broker is my partner-working with me?

If the answer to either question is not a resounding “yes,” it’s time to reassess your relationship.

But is it mortgage fraud?

Posted by Walter at 9:43 am

Nov 052011

This past summer the FinCEN (Financial Crimes Enforcement Network) reported a steep increase in the number of SARs (Suspicious Activity Reports) for the first quarter–a 31% increase. While some talking heads are screaming that mortgage fraud is on the rise, that’s not an accurate conclusion when you read the details. Many of these reports are about activity that took place in 2006-2007.

So once again, the sky isn’t falling. It appears, incidently, that many of the current problems are related to loan modification and debt elimination scams. While we tend to think of mortgage fraud as relating to the application and closing process, there is, in fact, another aspect where borrowers are committing fraud to reduce or eliminate their mortgage obligations.

According to the report, current reports include “activities such as loan modification and foreclosure rescue scams, flopping, and falsified claims of identity theft. Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.”

So whether you are attempting to modify your current mortgage or applying for one… there are a lot of activities and documents involved. Are you (intentionally or otherwise) commiting mortgage fraud?

Just about everyone knows the old expression “if it looks like a duck…” But mortgaging is complex. A simple guideline is this: anytime your financial situation or the details of the purchase are not submitted openly and honestly, you are treading in dangerous territory. Things that might sound harmless should be questioned.

For example, if a buyer and a seller make a “side deal” with money changing hands, that deal must be disclosed to the lender. Failure to disclose all aspects of the transaction could be considered mortgage fraud.

The point here is to create awareness, not paranoia. Aggressive honesty is a good policy. Do not hestitate to question any instructions you receive that seem a little “off” and under no circumstances misrepresent your financial situation or the details of your transaction to the lender!

Low Downpayment Buyers Note!

Posted by Walter at 9:59 am

Aug 302011

Occasionally taking what appears to be a minority position has its rewards! Several months ago I posted a plea for some objectivity regarding the proposed Qualified Residential Mortgage Requirements. While much of the industry is predicting doom and gloom over the proposed requirements, there’s much to be said in favor of them.

Well, in an article published by RIS Media, I’m joined by a writer who at least somewhat shares my perspective. He offers an interesting twist, however, by pointing out an impact of the doom and gloom predictions. “It seems the speculation and debate surrounding QRM is causing some low-downpayment home buyers to believe they will not be able to obtain financing.”

Interesting–and it makes sense. Those who are crying that these new requirements will “kill” the real estate market, are actually contributing to the depression?

What’s actually needed right now is concrete, objective information. Yes, underwriting standards are higher, but at the same time rates are at historic lows. Those lows mean lower payments and lower payments mean more people can qualify based on debt ratios. Prices are lower. There’s a lot going on that makes it feasible for many more people to buy and “low down payment” mortgages are not going to cease to exist.

The best advice for potential real estate buyers is ”turn off the television and put down the newspaper and contact a real estate and/or mortgaging professional and get some credible information regarding your specific situation.”

Real Estate vs Home Ownership vs…

Posted by Walter at 10:05 am

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.”

Older Entries

boomsmaonline.com

Just How Positive Should We Be?

The 3.8% Tax Scare

Ignorance is bliss!

The short road from “no thanks,” to “leave me alone!”

There’s Nothing “Fair” About Fair Market Value

No Whining!

Salesmanship is NOT a dirty word!

But is it mortgage fraud?

Low Downpayment Buyers Note!

Real Estate vs Home Ownership vs…

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