[This is a true -- and ongoing -- story. Please note that it ONLY reflects the opinion of the author based on his experiences and NOT that of the Virginia Association of REALTORS^® or any of its staff or affiliates.]

I have this house, see, and I want to sell it. Have to sell it, actually — I don’t live there anymore. But I’m getting some interesting lessons in short sales, real estate law, and lender incompetence in the process.

It’s like this: We own a house in Roanoke — I should say I own it, because my wife’s name isn’t on the deed. Anyway, I lost my job when the newspaper I worked for decided it didn’t need this technology reporter anymore. Luckily, my wife was just about to accept a kick-butt job in Richmond. So we moved and rented a house in “The 804.”

Therein lies the problem: Until we sell the house in Roanoke, we’re paying mortgage and rent. That’s tough on one income, and until my freelance writing gets off the ground, that’s what we have.

So scratching my chin one day, I checked out the Web site of my lender. (Let’s just say its name begins with "N" and ends with "ational City Mortgage.") Lo and behold, there was a link, “Having trouble paying your mortgage?” Ah, I thought, maybe they have some programs to help us reduce payments or something.

I had several options, the site explained, depending in part on whether I wanted to keep or give up the house. Step number one: Fill out a form detailing my financial info so they could tell me what might work.

I did this. The form asks for a listing of my income and my expenses, what the house is worth, a copy of the listing agreement with the REALTOR^®, etc. Simple. I awaited a response.

I didn’t get it. Instead, a couple of weeks later, my REALTOR^® called to say that National City had called her. “Are you short-selling your house?” she asked. National City wanted to get an appraiser in, she told me, and was prepared to take 83 percent of the loan in a short sale.

“Huh?” I said. At that point, I had no clue what a short sale was. Was this some sort of scam? All I did was fill out a form asking what kind of programs I might be eligible for.

But wait, there was more. My REALTOR^® told me that the National City rep had given her plenty of info [...]

(more…)

Smart agents are learning they shouldn’t run from short sales anymore

This article originally ran in the May/June 2008 edition of VAR’s Commonwealth Magazine

Accept the reality: Short sales are here and, for the foreseeable future, they’re here to stay. And while some agents won’t go near them, the numbers are hard to ignore — as much as 40 percent of the market in some areas around Washington, according to Jeanette Newton, chief executive officer of the Dulles Area Association of REALTORS®.

It’s just not good business to ignore that much real estate. Even better, short sales, while not as simple as typical transactions, are starting to get easier to handle.

“In the very beginning of this, nobody knew what a short sale was, because it had been 15 years since the last ones.” So said Tony Arko of Market Advantage Real Estate in Loudoun County. Agents were reminded — the hard way — what makes a short sale different: bank approval. “Agents were getting them sold, but they didn’t realize that the bank wasn’t willing to sign off on them,” Arko said. That led to some bad blood, and, once bitten, buyers and buyers’ agents weren’t anxious to give short sales another chance.

“They’re good for buyers who have the time to wait,” said Jeff Royce of RE/MAX Choice in Fairfax. But “your typical buyer probably should avoid them like the plague.”

And lenders aren’t helping much, to say the least. “The management of these companies was not telling their worker bees ‘You need to work harder to work these things out’,” said Mary Dykstra of RE/MAX Valley REALTORS® in Roanoke. “They have an old-time mindset that the agent is the enemy.”

So short sales picked up a bad rap, and agents learned to steer clear.

The times, though, are a-changing.

Smoother sailing

When short sales first appeared on the radar, lenders weren’t interested. As Arko explained, “They were willing to (more…)

Is Illinois over-reaching, or will we see this become a trend?

“Madigan spokeswoman Robyn Ziegler said the lawsuit would be filed Wednesday in
Cook County Circuit Court. In the complaint, Madigan says that Countrywide offered
unfair loans with risky features, used misleading sales techniques and encouraged
employees and brokers through incentives to sell more high-risk loans.”

Risky features, misleading sales techniques and high-risk loans … sounds like payday loan centers.  States aren’t pursuing those businesses, is this really a good idea?

H/T to BP1 for the image

A friend of mine has a pretty darned successful play published called "The Line That’s Picked Up 1000 Babes (And How it Can Work for You!)" with, obviously, part of the plot hinging on this one, magical line.

Only in fiction is there one comment or one question that will magically solve your problems. (Although, when I used to interview people for a job, my "magic" question was "When you go home and talk about this interview, what will you say makes you hesitate to take this job?" It worked pretty well.)

That hasn’t stopped Zac Bissonnette over at WalletPop from suggesting "One question to ask your real estate agent."

The question: Do you own a home in the area where I’m looking and/or do you own any investment properties here?

There are a lot of agents out there preaching the gospel of real estate and then stuffing their commission checks in savings accounts paying 0.3%. This is a good way to screen those clowns out.

So, any clowns out there? :)

Wharton Business School’s blog this week features an interesting conversation with Professor Todd Sinai on home values, how housing should be looked at differently than stock investments, and the factors that have led to the current price declines many markets are seeing nationwide.

Here’s an excerpt:

Knowledge@Wharton: Homes have long been thought of as a rock-solid investment, the thing that always gained value and never let you down. And now, in the last decade or so, a lot of people seem to have started to look at their homes as investments — and not just speculators, but ordinary people who thought there was a huge value that they could tap in their homes. And we’ve seen that now they’re behaving like investments, like stocks, which sometimes go down and don’t always go up. Has the real estate market evolved or changed, or is this just part of a regular cycle that we see from time to time?

Sinai: Wow, you’re starting with a doozy of a question. There are a lot of answers to that. So, to take the last part first, the real estate has changed, but still, there’s a lot that is the same. So let’s start with the fact that you started with, that house values are behaving like stocks now, and they didn’t behave like stocks before, that they’re exhibiting more volatility now than they used to. I don’t think that’s really quite true.

So, what we’re seeing now that we haven’t seen in the past is actual declines in house prices — nominal house prices at the national level. We’ve seen actual declines in house prices at the local level before. If you owned a house in Boston that you bought in 1988, by 1992 you were underwater on your mortgage, even though you had put 20% down. So house prices have fallen before. The thing that they’ve done at the national level is they’ve fallen in real terms, and they’ve always gone up in nominal terms.

Well, back in the 1970s, and even the 1980s, when we had lots of inflation, it was easy for house prices to go up a lot in nominal terms but still be losing real money in real terms.

Knowledge@Wharton: In other words, the price went up, but when you factor in inflation, this is where you’re really losing value.

Sinai: Absolutely. So, comparing your house price to nothing happening, to keeping money under your mattress, is probably the wrong thing to do. Comparing it to what you could have made in some other investment is probably the right thing to do. And housing has dropped a lot in the past. So it’s evolved to a kind of asset.

Now, having said that, to think of houses as an investment, I think is somewhat different. And, I think it’s partly because, for people who are living in their house — it’s being used as a primary residence — there’s not a lot of investment value to it.

And what I mean by that is that I bought a condo in mid-town Manhattan. Let’s say I paid $500,000 for it in the mid-1990s, and it’s worth $1.5 million now. Well, if I sell that and I still want to live in mid-town Manhattan, I’m still out a million-five to buy another one. So, my investment has gone up a lot, but it just covers what I need to buy with it, which is a place to live.

And the difference between housing and the stock market is that when you sell the share of stock and it’s doubled in value or tripled in value, you can buy more stuff. If your house doubles or triples in value, you can buy the same amount of housing — unless you’re going to move somewhere else where houses’ prices didn’t rise quite as much.

So it’s a very different thing to think about in terms of an investment. And I think when people say that people are using it as an investment, what they mean is they’re using it as a line of credit.

The Short Sale has become so commonplace in some Virginia markets that we’re already able to draw on
substantial experience with these critters. Not all of what follows will apply in all markets, or in all sales within a market, or even in all sales with the same lender in a given market. As the Romans used to say,
though, “Experiencia docet” — and experience really can be the best teacher in short sales, perhaps the most taxing transaction a residential REALTOR® will have to deal with.

REALTOR®, know thy lender

Lenders today, especially those holding a snootfull of bad loans, are facing unique pressures. A 2002 Tower Group study found that the average cost to a lender of foreclosing, holding, and disposing of
a property was almost $60,000, and that number is likely a good bit higher today.

Adding to lender woes is the simple reality that the market still has a way to go before we see home prices back into historical balance with household incomes. (See The subprime meltdown) A lender might not be anxious to take a property and try to sell it 12-18 months from now, when prices might well be lower.

Lenders are no fans of foreclosures. Taking ownership of a home means it has to add to its reserves, which reduces money available for lending and other income-producing investments. That damages its balance sheet even before considering the cost of maintenance, repairs, and real estate taxes.

Trying to offload REO into a saturated market can further depress values, starting a vicious cycle of
decreased worth and further defaults by borrowers.

So if we do our homework and give the lender a deal it can’t refuse, it will have every incentive to take it.

(There is one thing to be prepared for: Short sales take a long time — anywhere from 30 to 90 days more than a typical resale. With lenders and loan servicers already overworked, it might even be longer. With short sales, patience is not just a virtue, it’s a necessity.)

REALTOR®, know thy seller

Your first task is to get all the information you can about your seller and the property, and determine whether you’re likely to be dealing with a short sale. (more…)

This post is a more extensive version of an article by the same name that ran in the May/June issue of Commonwealth Magazine. This entry is also available as a 325k PDF download.

In a wonderful scene in The Godfather, Don Corleone has convened a meeting to negotiate a peace among the warring crime families. He begins his address to the assembled mob bosses by asking: “How did things ever get so far? I don’t know. It was so – unfortunate – so unnecessary.”

It’s hard not to think of that sentiment when we examine the housing crisis we now face in so much of the country, and in so many parts of Virginia.

How did things ever get so far?

The question invites a history lesson, one that informs so much of what we must do – and must not do – to see our way through.

As we try to make sense of our predicament, it is useful to understand the principal ingredients to economic policy, especially fiscal policy (established primarily by Congress and the president in formulating tax, regulatory and other economic policy) and monetary policy (established by the Federal Reserve through its control of money supply and interest rates). It is the interplay of policy decisions in these areas that provided the fertile ground for the highly questionable decisions of lenders, borrowers and investors that led to the current unpleasantness. So join me in an interesting stroll through recent economic history for the context that we need to understand how REALTORS® should act both individually and as an association in the light of current events.

The power of the Fed

First, however, a brief explanation about how the Fed affects interest rates and money supply. Interest rates are set mainly through the Fed’s (more…)

VAR recently brought a post on Realtor Magazine’s blog to my attention.  The article talks about how Charlotte, NC agents are having it “hard at the top”.  They are in one of the few US markets which has been unfazed by the national housing downturn. That is, Charlotte has actually shown an increase in property values over the past year. As a result, NAR economists continue to parade Charlotte in the press, as if to say, “See? It’s not all bad!”

This is having unintended consequences. It turns out that because of the all the positive press about how Charlotte is weathering the national housing storm, agents there are dealing with multiple fall-through contracts and sellers who perceive themselves to be immune from the downturn of the rest of the country.

In Hampton Roads, we are going through something similar to Charlotte.  VAR occasionally points to Hampton Roads as one of the bright spots in the Commonwealth’s housing market. According to VAR’s most recent figures, the Hampton Roads market has seen values hold steady, and there are even pockets of increases.  We also have the luxury of living in a very transient environment.  We constantly have people moving in and out of our area (in large part due to the military) and the need for housing is always active in our market.

I suppose we are fortunate in that the media coverage of our local real estate market has leaned toward the “doom and gloom” of the nation at large.  Reasonable sellers (for the most part) understand that they have competition in this market and need to compete in order to sell.

Wise brokers tend to use the term “Real Estate is Local”.  That is DEFINITELY the case in Hampton Roads.  We have pockets where you can’t seem to GIVE a house away and others where multiple offers are still par for the course.

So, where IS our market?  Our market is back to basics.  Buyers want to see affordable and in great condition.  Buyers are looking for single family homes under $245,000 with no updating needed.  If they look at condos and townhouses… there are a lot to choose from so they choose the BEST for LESS.  Higher end?  Buyers want the least expensive home in the neighborhood and they expect it to be in average to good condition.  Buyers want a DEAL.  If a seller won’t negotiate, the buyer will work their way down the street until they find a seller who will.

Foreclosures?  We really don’t have that many.  They normally sell within 15 percent of market value so the “deals” are not here.  I recently was asked by a bank to complete a BPO for a property about eight blocks from the Virginia Beach Oceanfront.  The bank asked for only foreclosed comparables and the closest I could find was more than nine miles away.

The biggest downturns we have seen are in the outlying areas (Isle of Wight, Suffolk, NE North Carolina).  These are areas that became “hot” when is was virtually impossible to obtain a decent, affordable home in Norfolk, Chesapeake or Virginia Beach.  Since the majority of the population commutes to Virginia Beach, Norfolk, Chesapeake or Portsmouth, the outlying areas are feeling the pinch as commuters have chosen to live closer to their places of employment (with gas at $4/gallon).

So, we are counting our blessings here in Hampton Roads.  We still have buyers and we still have sellers.  Our inventory is up; however, our sales prices are pretty level.

On a side note…with the price of fuel so high, many vacationers are choosing to stay closer to home and we are seeing more and more tourists from the Commonwealth!  Maybe along those lines we can regain some of the lost second home market!

***Update: Lem is online now***

The Richmond Times-Dispatch hosts a special online chat with VAR special counsel Lem Marshall on short sales at noon on Friday.

Today there’s a heavy convergence of mainstream media stories and commentary from REALTORS® on how gas prices are affecting the profession and the market. Have a look:

• A lively debate continues (19 comments and counting) on a previous VARbuzz post about the effects rising fuel prices are having on the real estate profession. This VARbuzz entry was the top-clicked link in this week’s Commonwealth Online newsletter (440 clicks and counting).
• MSNBC cites Virginia homeowners who are moving closer to work to save cash at the pump. The story predicts that homes in urban areas and close-in suburbs will hold their values better than those in the exurbs.
• REALTOR® Magazine Online reports that 78 percent of Coldwell Banker agents say higher fuel costs are increasing buyers’ appetite for urban living.
• Be entered into a drawing for one of four $25 gas cards by successfully completing a crossword puzzle themed after VAR’s Convention & Expo 2008 (had to slip that in).