List to Sales Price Pressure

Posted on November 28, 2011 by Tim Freund

List low, sell fast; not exactly rocket science.  Virtually every statistic you can find shows that the highest sales price is achieved in the first 3 weeks.  Yet, Realtors have also been accused of listing low to get the quick sale.  Where in lies the truth?  I read one statistic once that said Realtors consistently list their own homes higher, take longer to sell, and get a higher price than similar homes because of it.  I believe the first two parts, not so sure about the last.  And is this market and the sales approach different in this regard than in past markets?

To begin with, let’s start with the notion that the highest price is achieved in the first month.  Why do Realtors believe this to be true?  Bodies.  More bodies come through in the first month than at any other time during a home’s marketing time.  Why?  Think of the market when a home comes out.  There is a pool of existing buyers; built up over time, that are actively searching for a home like this one.  This is the largest number of home searchers looking at the listing at any one time.  They’ve been looking and they are waiting for just the right home to come up.  After they’ve all seen or eliminated a home, a seller is dependent on new buyers entering the market.  In the beginning weeks, this pool of prospective buyers has three options and those options begin with the internet.

Option one: View and Eliminate.  While looking at Realtor.com, Zillow, Trulia, 1000OaksRealEstate.com… eh-hem… or any number of other home related sites; they see the new listing, its price, size, neighborhood, and they look at the pictures.  Then, they eliminate it from contention.  Something doesn’t appeal to them.  Perhaps its overpriced or maybe the pictures are poor, in any event, they eliminate it because they don’t perceive the value.

Option two: Visit and Pass.  They like what they see of the listing online enough to contact their agent and arrange a showing.  This is where the value comes into play, but also the Realtor’s marketing.  My mantra is the “3 P’s”; Preparation, Presentation and Price.  If the home was staged, de-cluttered, or highly upgraded, maybe freshly painted, and also priced aggressively, the potential buyer will act on option two.  If the pictures are a poor representation of the home, who would blame the would-be-buyer if they take a pass?  And who’s to blame on the selling side?  More than likely, the Realtor.  It’s their job to effectively educate the seller.  Being a real estate sales person means you’re always selling.  That selling doesn’t end when you get the listing.    Rather it continues throughout the entire process and includes selling the seller on those concepts that help them to sell.  So the potential buyer visits but for one reason or another, they pass.

Options three: Visit and write an offer.  Usually it’s visit and visit again, then write, but you get the point, now they’ve written an offer.  There’s a real estate adage that states: your first offer is your best offer.  I prefer, your first buyer is your best buyer, since the first offer is something you will likely negotiate to a price everyone can live with.  But why the first buyer?  Because they’re the one most likely to pay the highest price since they’ve recognized the value to them and are motivated to put ink to paper and write.  Once this fish gets on the line, we want to fight, cajole and reel them in; they are our best hope for the highest possible price.

The concept of 3’s that I’ve laid out – the buyer has three options, your success is predicated on the three P’s, and you achieve your highest price in the first three weeks are as true today as ever, and I would say even more so.  For this reason, price reductions are to blame for list to sales price pressure, and why pricing correctly at the outset is so important.  Reductions are how we attract buyers from the existing pool rather than only the new ones.  It’s what gets us closer to the time when we first entered the market and had a large pool of potential buyers to appeal to.  But when you reduce price on a $500,000+ home, how much of a reduction actually attracts buyer attention?  $10,000?  $20,000?  Think throwing a pebble in the ocean vs. a boulder in a pond.  To get the splash you want the reductions have to be big and that’s why you don’t sell for more by overpricing. When I examined my numbers for 2010 I found that when I sold in the first 30 days I achieved a 97.5% List Price to Sales Price ratio.  From 30-90 days that dropped to 95%, and 90 days+ it bounced back up to 97.5%.  Why? because by this time and repeated price reductions we finally found the list price it took to find a buyer and always lower than if we would have priced lower to begin with.

We know most markets have been slammed by distressed homes driving prices lower.  My Realtor friend Dave Walter puts it this way: Think of a pot of boiling water, add an ice cube – there’s little affect, but add many ice cubes and all of a sudden, your pot of boiling water isn’t boiling anymore.  This is our market and it brings the point home that if you’re not ready to sell; haven’t followed the proper protocol or your Realtor hasn’t, you are not going to sell in the first three weeks and thus leave money on the table and forced to take a lower price than you might otherwise.

I titled this blog, List to Sales Price Pressure, because in the end, we are in a beauty contest and a price war and if you lose the beauty part, you get clobbered in the price war.  Thus pricing still remains the key to this market based on the beauty contest component.  This approach is essential in any down market.  So to the question, “Is this market different than others?” we have to answer, yes but not from other down markets.  Because in a down market, it is always essential not to dilly-dally around, but rather accept the reality and price it where you’re willing to sell; or as I like to say, price it to the bone.  To do anything other, is simply the fastest way to a long, drawn out marketing period and lower sales price

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The Numbers Don’t Lie

Posted on November 22, 2011 by Tim Freund

As many of you probably know, I like numbers.  I find that I am able to better serve my clients by understanding the data.  Yesterday, The National Association of Realtors posted their Existing Homes Sales and Sale Price data for October.  Once again the numbers were fascinating.  The first standout bit of data was the Avg. Month’s Supply of Inventory.  NAR shows the Nation’s housing inventory declined 3.6% for the month and that the number of month’s supply of inventory is down 24.5% from last year.  That is a huge number.  Yes, there is still too much inventory, 8 months worth according to NAR.  However, a 25% drop in any number is substantial.

Sales in the West, Seasonally Adjusted (SA) were up 15.5% year over year, 10.5% Non Seasonally Adjusted (NSA), which in both cases helped pull the National numbers up to 13.5% SA and 11.7% NSA.  These are large figures that bode well for the future because when sales are up and inventory is down, we will ultimately stabilize and see a shift from a buyer’s market to one of balance.  Remember what that was like?  A seller lists their home and it sells?

NAR also reported on prices… as expected, prices were down year over year, but in the West while down over 2.5%  last month over September, the October prices were above 7 of the last 12 months.  In other words, prices are moving in an up and down line rather than straight up or straight down – think horizontal zig-zag.  Yes the trend line tilts south, down 4.7% YTD according to my math, but this is not nearly as gloomy as most would have guessed.

There were other interesting facts that NAR reported like a continued decline in distressed properties sold; an increase in 1st time buyers; a decrease in the number of 1st time buyers buying short sales and a decrease in the number of cash buyers and investors buying.  What this signals to me is that if the sales numbers are up overall and investors are less active, that can only mean one thing: regular buyers are buying more homes.  That’s great news.

So there it is.  A bit of a mixed bag, but for the most part, pretty darn good news and with Thanksgiving upon us, it’s news every Realtor and homeowner can be thankful for.

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In The Real Estate Red Zone

Posted on November 16, 2011 by Tim Freund

The opponent’s offense has marched the length of the field and is within striking distance. The question now is one of defense. Can the defense hold the line? Can they bend without breaking or will the line collapse and the market finally capitulate? There’s a saying in the law, “silence is deemed acceptance”. I have been silent on The Real Estate Conversation for 2 weeks now, in part because I haven’t felt like writing the gloom and doom that has infected many in my field.

So what am I talking about? It’s a tough market, a really tough market. Many Realtors I know have gone hunting, or taken up early day drinking habits. The market has been that slow and that difficult to be a Realtor. Buyers appear to have firmly gained the upper hand and while the sellers continue to resist, there is a growing sense amongst Realtors, of capitulation – a new bar that has been set; lower than before. The football analogy of the Red Zone – this is the space on a football field between the 20 yard line and the end zone – is how I’m feeling about this market. I still have sellers who are holding out for their price, however, they are not getting any showings. Of course one could argue the seasonality of this time of year and traditional slowdowns as the holidays approach, but I’m not buying it. Whether it be the changes in the loan limits, which in our area reduced conforming loan ceilings between $104K and $134K, thereby increasing borrowing costs and required down payments, or be it the continued after effects of the Federal Government near shut down, we are seeing slowness, real slowness.

For me personally, I am seeing a couple of trends. First is that I am listing more properties. This is running counter to my area trend where inventory is down 25% from one year ago. Lucky me. However, I am also seeing an increase in distressed sellers – more short sales – and oddly, as one who makes his living selling real estate, I am welcoming them because it means a reasonable seller with a realistic asking price. So herein lays the rub. My equity sellers, those able to sell without requiring lender(s) approval, are holding out for a price that the market is resisting, or worse, choosing to rent their homes out, rather than price them to sell, and move on. But in effect, this has become the Maginot Line – the line of final defense. The position by which a seller is either going to win or capitulate. In football, it’s called the Red Zone; in real estate it’s called fair market value.

Admittedly, it is difficult to read too much into the data this time of year, yet I can’t help but feel the defense is sagging and the bow has finally begun to break. Can the defense hold? Can the seller’s unwillingness to accept a new, lower price bar, overcome the buyer’s insistence for ever lower prices? If I was Knute Rockne, I would rally the troops, “Win one for the Gipper”, I might say. Alas, I am just a working stiff Realtor trying to make a living like the rest of America. The image I use a lot when people ask “how it’s going in real estate?”, is, “It’s going alright, it’s a tough market, but we’re all in the same boat pitching water just as fast as we can to stay afloat”. The take away here? I believe we’re at a crossroads, and the game can go either way. My hope is that a continuing tight inventory will push buyers to pay the price. My fear is that the increase in distressed properties will push the prices ever lower and the spiral downward will continue. Our fates are intertwined; the moment of truth is at hand; the line in the sand has been drawn and the gauntlet laid. Are you with me? If so, repeat after me, De-Fense, De-Fense, De-Fense.

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Want Scary This Halloween? Look At The Government

Posted on October 31, 2011 by Tim Freund

Thursday’s 4.6% decline in the Pending Home Sales, as reported by the National Association of Realtors, is in stark contrast with the 2.5% growth in GDP.  This is the strongest evidence yet of the effect of Congress’ ineptitude on the debt ceiling debacle this past July and August.  The damage to the nation’s confidence cannot be underestimated.  Sure Wall Street has been focused on a slowing China and a debt laden Europe, but here on Main Street, we by and large couldn’t give a rat’s rear.  But when our elected officials threatened to shut down our government because they couldn’t agree on the inevitable, it scared the snot out of us.  That’s what happened and you see that in the decline in pending sales.

Looking back, it seems so obvious.  Job growth and GDP were on the rise in spring and early summer.  Here in the RealEstateConversation.com, I said I thought the worst was over; that was in June.  Then the debate on the debt ceiling threatened to shut down the government and force the US to default on its debt.  You think Ichabod Crane was scared by a headless horseman?  Try a headless government.  And this is not a specific slap at President Obama, on the contrary it’s more of an indictment against the entire Federal Government.  Think of the States as the body and the Feds as the head.  We became terrified of the headless horseman.  And what happened?  Frozen with fear, job growth halted and reversed; housing stalled, just as it appeared that maybe it was picking up steam; the markets retreated and growth collapsed.  We went from percolating to stagnant.

Fast forward to Thursday’s numbers.  GDP grew unexpectedly at 2.5%.  Corporate profits are up across the board.  Retail sales for the holiday season are expected to be up as well.  Why then was housing down?

Pending home sales numbers are as close to real time as you can get in real estate numbers analysis.  Unlike sales numbers which are backwards looking – looking at homes that have closed after 30-60 days under contract, pending numbers are a reflection of current homes under contract; people who bought in the last 45 days.  In this case, people who bought in September.  Said another way, it reflects sales in the wake of threatened government shut down.  My assessment for our area, the Conejo Valley: Westlake Village, Thousand Oaks etc, was that prices took a 2-3% haircut almost immediately – and when you’re looking at median prices around $700,000, that’s not chump change.

But what about the he 2.5% GDP growth that surprised analysts? My take on this is that we are starting to get back to where we would have been if Washington hadn’t been so inept.  The shock and fear of the government stoppage has passed.  We are getting back to the day to day dealings with our lives.  Sure Occupy Everywhere is concerning.  Many of our youth can’t find work while saddled with exorbitant student loan debt; our Vets are increasingly detached from society, inadequately cared for after 10 years of war overseas and many are homeless; and unemployment remains excessively high at 9%, however my suspicion is that we are back to where we should have been in July had the Headless Horseman not chased our confidence right out of town.

So as we prepare for the young ghouls and goblins this Halloween, let’s hope for a better 4th quarter; one filled with job growth and an increase in home sales; that our bags are filled with sweet treats and not rocks and that the forthcoming holiday season is more like the Frank Capra film, It’s A Wonderful Life, where we rally around one another, and less like the Legend of Sleepy Hollow.  Now if only the NBA players and owners would make nice, because they’re certainly not helping anyone either.

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Finally A Step In The Right Direction

Posted on October 25, 2011 by Tim Freund

As many of you may recall I sent an open letter to the President last month begging for a refinance relief plan for underwater, but current borrowers.  Yesterday the Federal Housing Finance Agency (FHFA) announced changes to the ineffectual HARP plan.  (They are the guys that took over stewardship of Fannie Mae and Freddie Mac when they became insolvent a couple years back).  The most significant change was that they removed the cap which restricted the amount you could be underwater to 125% of the appraised value.  It’s a reflection of just how bad the valuations have gotten that 125% isn’t enough.  None the less, it addresses an important gap in the relief efforts of upstanding borrowers.  You have to be current on your payments and not missed more than one payment in the past 12 months and zero in the past 6 months.  (Yes it’s a shame that so many borrowers have strategically defaulted in an effort to get their loan modified – usually unsuccessfully – and now they don’t qualify because they’ve missed so many payments),  The good news is that I suppose the could start making payments in an effort to qualify for the program, but admittedly that seems unlikely to happen.

As I said in my blog last month, this type of program is a win-win for everyone in the country, not just those borrowers who’ve paid their bills but their home value as dropped.  It costs us nothing and should infuse the consumers with extra cash which will be spent further aiding our ailing economy.  So now borrowers are going to be able to refinance  regardless of their appraised value.  One sort of odd note is the program’s emphasis on getting borrowers to take shorter term loans to refinance into; ie: 5 and 7 year loans.  Their suggestion is that this approach will allow borrowers to pay an even lower interest rate and thereby be able to pay down the loan faster.  Personally, I like short term loans for myself – I’ve never kept a loan 30 years nor will I likely ever, however, I seldom recommend them for my clients.  Why? because there is risk that rates may rise and the payment could become too large to handle, forcing an eventual sale.  On the other hand, with rates so low, the lifetime cap is equally low.

I refinanced in January 2010 when rates spiked – typical right?  So rather than take the conservative 30 year loan, I opted for the 5 year at 3.25%.  Since the lifetime cap was 5% above the start rate, I figured that at 8.25%,  the highest it can ever go to, I would be OK.  As a point for you younger readers who only know low single digit interest rates, when I started selling in 1990, rates were 10.75%.  When I got started college rates were 18%.  Thus given a cap of 8.25%, I figure it’s a pretty shrewd bet.  Yet there is risk with this approach especially given a 30 year fixed is at an historic mid 4% rate.

As to the effect theRealEstateConversation,com had on changing government policy, I will gladly accept credit for the FHFA’s decision and also that of the President who pressured the Agency heads for their decision to modify the largely ineffective original version of HARP.  I did after all email my Open Letter To The President to every one of our 100 US Senators as well as all my local reps too and the heads of the 4 largest banks.  Alas, I was neither the first to suggest it nor did the President likely read my letter.  But I’m taking credit for it anyway.

I also take pleasure in this reflection:  In February I attended the wedding of a cousin in Newport Coast, Ca.  He’s a very successful entrepreneur selling foreclosed properties across some 13 or so states.  Knowing I was in the real estate business too, he sat me at a table with a rather high, middle-upper manager with Fannie Mae in Texas.  After few glasses of champagne, conversation turned to Fannie Mae and the whole mortgage mess.  I went into my diatribe about compelling Fannie and Freddie to allow underwater borrowers to refinance regardless of equity position.  This lady however, would have none of it.  She said it couldn’t be done, there are banks and investors and I just didn’t understand the complexity of the situation of which I spoke.  Clearly it was she that did not get what I was talking about.  Naturally the conversation became more heated as the dinner went on (I’m sure the wine had nothing to do with it).  Finally, my wife Tama, pulled me onto the dance floor (Queen’s, “Another One Bites the Dust” will do that to you).  “Stop haranguing the lady”.  She said, “Obviously she doesn’t agree with you; you aren’t going to change her mind, you’re being obnoxious and she knows more about it than you do so she’s probably right… even though I like your idea”.  Isn’t it amazing how your spouse can give you a complete smack down yet smooth it over with an, “even though I like your idea”?  Amazing.  But to that fine lady from Texas I say, “Hah, I told you so”!

Join me next blog when I solve the mystery of the universe and provide solutions for world peace.  By the way, if you want to read the specific changes to the HARP program, here is the link: http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf

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B of A: Think Like A Borrower, Not A Bank

Posted on October 20, 2011 by Tim Freund

Bank of America is under heavy fire from every direction right now.  States are suing them over inappropriate foreclosure procedures and over fraudulent loans Countrywide made, which they inherited when the bought the now defunct lender.  They have mounting nonperforming assets and they are stepping up their foreclosure filings in an effort to finally rid themselves of the problem, and their stock price is in the toilet, so they are hearing an earful from wary institutional investors, and that really makes them unhappy.  Warren Buffet gave B of A CEO Brian Moynihan his vote of confidence last month when he loaned B of A, by virtue of a preferred stock purchase, $5 billion, but even that hasn’t helped the nation’s 2nd largest bank to get over any humps; (they were the nation’s largest until JPM Chase passed them this week).  I suppose you could make the argument that the $5B kept B of A solvent, but I’m not sure that sounds any better.

The problem with Moynihan and B of A, is that are not forward thinking.  They have not been looking for solutions, but rather looking for ways to hold onto what they thought they had.  But let’s face it; the horse is out of the barn and trying to hold the door closed after the fact is pointless, futile and a failed policy.  What the giant bank needs to do, is rather than think like a bank, think like a borrower.

So what exactly does that mean and how does it change anything?  Underwater and distressed borrowers want solutions just as badly as banks do.  Starting with the obvious, borrowers who bought high, want principle reduction.  Ethically the people who’ve played by the rules (one of today’s politicians favorite labels), say it would be unfair if banks bail out some people but not all, and critics say such favoritism will lead to more people throwing in the towel and we’ll face an  avalanche of distressed properties.  Newsflash: we already do.  Moreover, as I always tell my kids when they say, “But that’s not fair”, sorry guys, no one ever said life was fair.

Consider Las Vegas.  Property values are down as much as 50-75% in some areas.  There aren’t enough jobs and the future is pretty bleak.  Suppose rather than foreclose, I say.  Suppose lenders cut the principle on these loans to market value, reduced the rate to market rate and even stretched out the payments to 40 years?  Yes, this sounds like a loan mod; but suppose B of A did this, what would happen?  First the borrower stays in the home.  Second, the bank doesn’t get the property back and all the responsibilities that come along with managing Real Estate Owned (REO).  Third B of A takes a huge haircut on this asset today rather than deal kicking the can down the road (another popular politico saying).  Reality is reality however and whether they take back the property via foreclosure and write the loss off, or cut the loan amount and write off the loss, they are writing off the loss.

I recently had a client approach me about a short sale.  We met several times in advance to discuss options.  The 1st loan was held by Litton Financial, the 2nd was with B of A.  The property had lost about 35-40% of its value from the time the loans were taken out, so the B of A 2nd was completely wiped out in reality and the Litton loan about 15% above the market value of the property.  After considering all options, and facing a mom who needed care, while simultaneously experiencing a 30% drop in pay, the homeowner decided to stop making payments.  At my recommendation he started the process of modifying his loan, but we all knew good and well, that this was a stall tactic until we proceeded with the eventual short sale.  After a couple of months, and virtually no progress on the loan mod front, Litton sold the loan to Ocwen Loan Servicing.  Naturally my client presumed the worse – he’d have to start the loan mod process all over.  However, an incredible thing happened next. within two weeks of being notified that his loan had been sold, Ocwen made my client the following loan modification offer:  They knocked off $90,000 off the principle balance to bring the loan amount about equal to the real market value (think 100% financing); they offered to maintain the duration of 25 years left on his loan, so he wasn’t starting over; they allowed the unpaid arrearages to be paid at the end of the 25 years in a balloon payment and they reduced his 7% interest rate to 2%… 2%!  All this was done by the loan servicer’s initiation, not the borrower’s. The bank thought like a borrower, not a bank.

So what do you suppose happened to my short sale listing?  By George, the homeowner is going to keep his home; the lender now has a performing asset and Litton who sold the note to Ocwen at a substantial discount, took their haircut, wrote off the loss and now doesn’t have the distressed property to deal with.  Sadly Bank of America is left with a valueless 2nd and hasn’t agreed to settle with the owner, despite the owner’s offer to do so… so they get nothing today for their share holders but a hope and a prayer that someday the home will appreciate enough to make the nonperforming asset have value once again; not exactly forward thinking, they’re still thinking like a bank.

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People Die, Get Over It

Posted on October 7, 2011 by Tim Freund

No this is not a discussion about Steve Jobs whose death affects us all in ways sadly we’ll never know.  No, this has to do with the odd stigma of “in home death” and the increasing trend of people choosing to die peacefully, with dignity, in their home.

I showed a home the other day – a little one story.  It was filled with “old people” furniture; you know the kind: the narrow backed, scalloped couch with a quilt like stitching, in a silky floral fabric.  It was a Grandma’s home.  In my grandmother’s home, we were never allowed to sit on that furniture and the same was true in many of my friend’s homes too… plastic carpet runners and arm rest covers.  In this particular home, the closet was filled with clothes; women’s clothes, no gentleman’s clothing.  Since I see a lot of homes, I make it a habit of sleuthing the story behind the seller.  This can often shed light on their motivations and give my client an advantage when it comes to negotiating.  For example, if there are only women’s things in the bath and closet, I might surmise there was a divorce forcing the sale, especially if there are no pictures of the dad or husband around, but title shows ownership in two names.  Or if there are only women’s clothes and toiletries but there are husband/dad pictures all over, this often indicates the spouse has passed away and the surviving spouse has to sell, perhaps for financial reasons.  I know, you might be thinking that this is sleazy or low, because it gives the buyer an upper hand in negotiating, knowing that the seller is in a disadvantageous or distressed position.  Remember however, that my job is to represent the buyer in this scenario.  The seller has their own representation and when I am the listing agent, I educate my sellers on the importance of “neutralizing” our situation… If you’ve been reading my blogs, you know I maintain that not all Realtors are the same.

So back to the little old lady’s home… It was clear to me that her husband had long ago passed and the empty refrigerator left me with only two conclusions:  Mrs. Seller had gone into an assisted care facility or she too had passed away.  I pointed this out to my client and that it was very possible the woman had passed away in her home.  My client immediately said that I needed to find this out because if she had passed in the home that would, “creep him out”.  I said “Really?  People die all the time…” but he had a real problem with it.  As it turned out she did die in the home; peacefully, surrounded by her family, at the tender age of 92.  Lucky lady, don’t you think?

Two weeks ago my wife’s 82 year old uncle passed away.  He was given the choice of dialysis which would mean just 3 good days a week and maybe prolong his life a few months.  This man was a tough guy from Detroit.  They called him Big Al because he backed down from no one.  Al was 5’6″.  Given the options presented to him, he told his wife from his hospital bed, “Take me home sweetheart, that’s where I want to go.”  He died 10 days later with his family around him, in the bedroom he and his wife spent virtually every night in for the past 35 years.  He went on his terms.  Lucky guy.

In California a seller is required to disclose “death on property” for three years.  It’s considered a material fact that “affects the value or desirability not known to or within the diligent attention and observation of the parties”.  The problem I have with this is that  the Baby Boomers and their predecessor the “Greatest Generation”, are more and more electing to die at home rather than in the hospital or hospice.  And can you blame them?  Yet this “material fact” costs those left with the property, thousands and thousands of dollars because of the requirement they disclose the death on property.  If they could afford to wait to sell for 3 years and one day, they would not be required to sell at a “death on property discount”.  Hardly seems right.

Some years back, I sold a home where a young man took his own life.  It was messy and very, very sad.  The parents had cleaners come in, cut out the stained carpet; it smelled of bleach.  They then packed their clothes and a few essentials, never to return.  They depended on me to get the home “sell ready”.  We painted, carpeted, refinished cabinets, scrapped ceilings, put in recessed lights, granite and new appliances.  We re-plastered the pool.  But we had a “Stigma” house and there was no way around it.  In this scenario, I absolutely should tell prospective buyers about the suicide.  It really was a material fact.  Think about buying O.J.’s home or where the Manson murders took place.  Clearly there is a duty to make a buyer aware of what had taken place.  By the way, to combat the “stigma” of the young man’s death, I brought in a holistic healer, who burnt sage and spent an hour in the home, “cleaning up the vibe”.  She said to me, “doesn’t it feel warmer already?”  I figured what the heck, who am I to say there’s not something to it?  I sold that home in three weeks in a brutally bad market, but at only about a 10% discount – not bad considering the events that had taken place.

My point here is that there are differences in deaths.  Natural death does not seem to me to be a disclosure that should be required. Unnatural or violent death, that’s something different and I understand the need to make a prospective buyer aware of this.  But if someone goes naturally I think we need to have a discussion about how “material” that event is.  I mean consider England or Europe; there’s probably not a 300 year old home that hasn’t had someone die in it at some point.  But here in America, where we are a relatively young nation, and especially so in California and those of us within the suburban sprawl even more so.  We know the history of these homes because they just aren’t that old.  But this is going to be an ever increasing problem as more and more people over the next 30 years are going to choose death with dignity, and want to pass in their home and it’s just not right that that choice should result in a lower sales price.  We consumers and we real estate professionals are going to have to accept this and come to terms with it, because one thing is for certain, we all will go at some point and hopefully like Big Al or Grandma of the little one story, in our home, surrounded by our family and buyers are just going to have to deal with it and get over it.

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Pending Home Sales

Posted on September 30, 2011 by Tim Freund

So the headline wasn’t great: sales down month over month.  National Association of Realtors economist, Lawrence Yun hung the blame on tight lending standards and lack of confidence, both of which are true.  If that’s all you read or heard, you’d conclude this market stinks.  But I actually looked at the Pending Home Sales Index (PHSI) chart NAR put out and I was surprised at what I found.

Obviously as a real estate agent in California I am specifically focused on the West numbers and those numbers were surprisingly strong.  For example, August was the 3rd highest pending sales number in the past 12 months; that’s not bad.  Moreover, it was up 8.4% Seasonally Adjusted (SA) year over year; that’s not bad either. More incredibly, it was the highest August in the past 4 years, save for 2009 which was in the middle of the Federal Tax Credit.  And for the real kicker, the Non Seasonally Adjusted (NSA) number was a whopping 28% over last month.  Nationally, that number is 9.4%.  These numbers are nothing short of astounding.

I’m always curious about how easily numbers can be manipulated.  When we look at inflation we are supposed to exclude the “volatile costs of food and energy”.  I don’t think anyone but economists exclude food and energy in considering inflation.  I know it factors into my monthly expenses.  Thus when I looked at the Pending numbers yesterday, I considered the NSA numbers.  It’s raw data.  Just a total pending sales; no looking at what month it is; is it the selling season etc., etc…  So when I saw the West’s rise of 28%, I fell out of my chair – that’s an insane number.  That’s such a big number it blows my mind to think about it.  28%??

What that suggests to me is that in spite of what everyone is saying, including NAR, there is activity in this market and homes are selling.  Sure prices are down, and many sellers are under water, but someone is buying.  Numbers can be manipulated for sure, but in the end, numbers don’t lie.

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Case-Shiller Calls A Bottom?

Posted on September 27, 2011 by Tim Freund

The S & P/Case-Shiller report on the housing market came out today.  There were a couple of highlights worth mentioning.  First was the fact that we have had 4 straight months of price appreciation.  “With July’s data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices.

At this point, I’d like you to picture a miniature me on your shoulder whispering my italicized comments in your ear.

(Me) Hmmm… fairly broad improvement in homes price… 

The report also said that mortgage defaults were declining too; “The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates, a two-year trend.

(Me) Declining default rates too?  Geez, how come that’s not what we keep hearing on the news?

Apparently, even though it’s been reported that the real estate market has been, “dans les toilettes” – that’s French for, in the Toilet – we’ve somehow got an increasingly inspired market on our hands: “As with May and June’s reports, we saw some unusually large revisions across some of the MSAs… with the revisions showing a much healthier market than previously thought…Our sales pairs data indicate that this market reported a lot more sales in May and June, which caused the revisions…”

(Me)   More sales than originally reported; a much healthier market; could it be the housing market is actually starting to recover?

Of course as is always the case with these statistical reports, even Case-Shiller, could be wrong and as these things go, they will generally find a way to hedge rather than come out and commit to something really positive.  In today’s report however, their hedge may actually be the crystal ball we always wanted: ” However, if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around… ”

(Me)  The housing market is still bottoming – bottoming as in a process of nearing the bottom?  …Not turned around, that’s not the same as declining is it? It sure sounds different…

Case-Shiller went on to say, and this I thought was the real gem in the crystal ball, “Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.”

(Me) So if we see the rest of the year play out with continued increases in home prices Case-Shiller is going to confirm the housing recovery?  That’s only a handful of months!  That means if you don’t buy soon you’ll have missed the bottom and have to buy after the recovery has started?  Does that mean interest rates are going to rise?  Holy missed opportunity Batman, you better call your real estate broker now!

Well, that’s how I read the report anyway.

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Buying A Home: Your Real Estate Compass And What’s Important

Posted on September 25, 2011 by Tim Freund

Every household is unique and every family has a certain division of labor.  In my home, I pay the bills, share the cooking and fix things around the house; my wife looks after the kids, does the laundry, over sees the family things.  I buy the cars, she buys the clothes and we share the marketing.   We all buy things either out of necessity or out of desire.  Sometimes we buy something for that instant gratification, a pair of shoes, a C.D.; a purse, a new golf club…  Everyone likes that feeling now and again of buying something just because we want it.  If ultimately it doesn’t work out, or we don’t use it as much as we thought (think waffle iron), it’s OK, because: a) it wasn’t that expensive or b) we all make mistakes.

I have made my share of mistakes.  I bought a timeshare that I paid far too much for, that was pretty big.  I’ve bought or leased many cars over the years and don’t always show the best judgment when I trade one in early, but I know that even if it costs me some money, it’s generally not a catastrophic mistake because a little out of pocket expense can correct the situation.  But when my wife and I bought our current home, it was a joint decision.  We agreed that we had to buy the very best location we could find in the neighborhood we wanted.  It cost a little more than we wanted to spend but being in real estate, I understood that buying a home is quite a bit different from a car or just about anything and we got a great location.  As a result, I haven’t moved in more than 13 years and have no intention of doing so anytime soon.  Why?  We didn’t sacrifice or sell ourselves short when it came to this all important decision.

What should you consider then when buying a home?  Aside from the obvious magnitude of the price, there are the selling costs.  I get paid 5-6% to sell someone’s property (generally of course that’s shared with another broker).  There are closing costs, like attorney fees or escrow and title; a home warranty, recording fees and transfer taxes.  In fact it typically costs a seller between 6-7% to sell a piece of real estate.  Therefore, by definition, a property must appreciate by that amount or more for a seller to break even, let alone have enough ROI (Return on Investment) to parlay that sale into a move up to the next home.

When homes were appreciating 3-5% a year on average and sometimes as much as 20% in the heyday of the boom market, making a move up was relatively easy.  The costs to sell were offset by the tremendous appreciation.  However in times of slow appreciation or depreciation, such moves are obviously more costly since there’s no way to offset selling costs.  In many areas of the country, homes simply don’t appreciate very much at all.  This means that many homeowners stay put – it just costs too dang much to sell and unless you end up making a lot more money, how do you afford to move and especially move up?  This brings me to the big question when buying a home: What’s important?

My philosophy in real estate as posted on my website (www.1000oaksrealestate.com) is: “Buy the right home the first time”.  This belief is born out of the unique nature of selecting, buying and living in a home and while it may seem overly obvious, many homebuyers fail on this account.  To begin, you have to set forth your goals (you do have a goal, right?) of buying a home.  If you are buying as an investor, you will have one goal, ROI.  If you are buying for your principal residence, the process is far more complicated because there are many moving parts: financial, logistical and emotional.  When buying your primary home, clearly affordability sets some critical initial parameters, but ultimately your price can swing a little this way or that, if the right home presents itself.  When considering a home purchase, you have to ask yourself, what are you hoping to accomplish and how will you achieve that goal?   Let’s go over some of the criteria for a typical home buyer.

Price – yeah, I get it; you can only afford what you can afford, next?  Location.  Right, and what are the 3 most important words in real estate? (Hint: it’s not “Price Per Foot”); location; location; location.  Why?  Hmmm…why indeed..?  This is where many buyers stumble.  You need to identify and analyze so many points when considering location.  For example, does the place offer your house of worship nearby; is it in the school district you want; is there quality shopping; what about freeway access; is it close enough to your place of work or your family?  This is the first “location” of “location; location; location” – what town or city do you want to live in?

The second “location” is the neighborhood specifically and again much of the same above criteria applies; what is the proximity to what’s most important to you?  This becomes especially true with houses of worship and schools.  Is it close enough for you and the kids walk there or ride a bike, or do you need to drive?  Do you like the aesthetics of the neighborhood; are there cul de sacs, hilly streets you can’t ride a bike on; is it noisy as in too close to a freeway; is it close to a hospital or cultural amenities..? again lot’s to consider.

Once you’ve narrowed down this second location (and for this there may actually be more than one neighborhood you’re considering), you need to focus on the specific home site.  In general you don’t want to side or back a busy road because even though the cost is less, so is the resale value and quality of life.  This is a perfect example of where only looking at price, can lead you to a terrible and costly mistake.  So what do you want?  Did you want a view? – a view always cost the most; or a pool sized lot?  Maybe privacy is your hot button and a flag lot or corner lot offers that… so many different criteria to think about and none of them are price.  They all affect the price for sure, and you’ll need to understand your finances, but if your dream home comes up for sale wouldn’t you pay more for it?

If you answered “no” to that question, you’ve made a mistake.  Because a home is such a huge decision, for all those costs and factors I mentioned, you must be willing to stretch for the right place.  This is not the time to be short sighted.  There is nothing worse for a buyer than buyer’s remorse or equally, the regret of the “one that got away”, which brings me to today’s market.  This is the biggest problem buyers face today: they aren’t seeing the “Big Picture”.  With the low rates available today essentially offering free money, after inflation and write-offs, now is definitely the time to stretch.  But so many buyers I meet nowadays have completely lost sight of the long term aspect of buying a primary residence.  This is the greatest opportunity in decades to buy a home, yet sadly, many buyers today have lost their real estate compass.  In the years to come, how many of today’s buyer’s will look back at their home buying decisions with regret and dissatisfaction?  And not of their decision to buy today, but rather with the home choice they made.  Only time will tell, but I think I already know the answer.

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