Buyers Are Exhausted

Posted on February 5, 2011 by Tim Freund

I had an enlightening conversation with a buyer prospect yesterday who had visited one of my listings over the weekend.  Her name was Ann.  I have never met Ann, though we’ve spoken several times by phone.  Ann and her husband have been looking for a home for ages.  They have a budget of about $500K, want 3 bedrooms, 2 baths minimum and a large, private lot.  If everything were in tip-top shape, they could press to $525K.  However, if the price was right and everything else fell into place, they would be willing to do the updating themselves.  My listing unfortunately while great inside, needs about $13,000 of masonry and pool plaster and pool equipment repair and at $540K asking, she told me there was just too much to do at that price.

What she said next was very telling.  “These sellers are just unrealistic.  We have seen a couple of great homes at $500K, larger than yours and in better condition, (not the same location of course), but for one reason or another, we were either too late or out bid.  And now, I’m just exhausted and I’m going to stop looking and take 6 months off; I’m done.”

Exhausted.  What a funny thing to say.  But I’m hearing it a lot more lately.  It’s not uncommon for a buyer to feel sellers are unrealistic, especially buyers that are frustrated.  Frustrated that prices haven’t fallen as much as they think they should, frustrated by investors; frustrated the government keeps slowing the flow of foreclosures, subsidizing prices with tax credits and rewarding bad borrowers with a million different unfair strategies to keep them in their homes.  It’s supposed to be a buyer’s market right?  So there should be ample properties for purchase in all ranges and sellers clearly must understand that if they want to sell, they have to offer a real value.  Exhausted.  This was not the first time I’ve had a really frustrated buyer.  I recently closed escrow with a wonderful British family that I began a home purchase dialog with in spring 2008.  They articulated the same frustration.  Frustration that sellers weren’t realistic; that investors were buying the real deals and then flipping them for more money; that it wasn’t fair, and that all they wanted was to find a nice property for them to call home.  As I said, we found that home – finally – after nearly 4 years of hunting.  It was a diamond in the rough, and a little more than they wanted to spend given the condition, but in the end had a great location and a floorplan that worked.  It was also bigger than we ever really expected to find.

The interesting thing about what Ann said was that she was just plain tired.  I called my recently closed British client and told her the story.  She said she hit that wall a few times and was really, really ready to give up just when we finally found her home.  It’s a lot of work looking and looking for a home.  It’s a lot of work when you are unsuccessful and willing to spend a half a million dollars.  It’s  lot of work and at some point it’s just no longer fun.  In fact as in Ann’s case, it’s misery.

So where is the disconnect?  Why is it so difficult for some people to find a home?  Are their expectations unrealistic?  Perhaps to a degree they are.  I have told so many buyers over the years that the perfect home doesn’t exist, and it’s really true.  Yet to sacrifice on your most important purchase, just doesn’t sit right either.

This market has made buying a home a fear driven decision.  This is no way to buy, it leads to mistakes.  I tell my clients I am a facilitator: someone to help them avoid making a mistake, make the process hassle free, to make their “Realty Dreams Reality”.  My financial adviser tells me, investing is not just about the return on investment, but return as weighed against risk and asset preservation.  Similarly, buying a home is not just about return on investment but about quality of life, personal satisfaction and long term security.

Exhausted.  Maybe Ann just needs the right Realtor.

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Diana Olick Get Your Stats!

Posted on January 28, 2011 by Tim Freund

Ok, so maybe I’d like to have Diana Olick’s job at CNBC and maybe I wouldn’t.  Diana, for those who don’t know, is the real estate reporter for financial news channel CNBC.  Diana’s role at CNBC has thrust her into the center of the real estate world and her blog, Realty Check, is a leading source for much of the news analysis on TV and the web.  As such, Diana is an easy target for those “glass half full” folks like me.

Yesterday, in the face of surprisingly positive data, Diana was left scrambling to make sense of the data for her following… naturally being Diana, she took the glass half empty approach, which is her way.  But who can blame her really?  After all, she’s become quite famous since the market turned down and thus made a nice career for herself.

So on Wednesday, the S & P 500/Case-Shiller report showed declines everywhere, save for our coastal markets in California.  Then yesterday both pending sales data and builder sales data, showed very positive improvements in the real estate market.  Adding to the discussion was stock market maven Jim Cramer, who said the market is paying too much attention to Case-Shiller.  Diana in her attempt to digest and decipher this information, wrote in her Realty Check blog, that the banks attempt to sell property at auction usually fails because the bank prices the home at the outstanding loan amount, which exceeds market value: “Since most foreclosed homes have substantial negative equity when they are auctioned, in the vast majority of cases, if there is a bid, it is too low to meet the minimum.”  “Hogwash”, as my mom used to say.  I emailed her that I want to see the actual numbers: how many homes sell at auction vs. fail to sell.  We’ll see if she responds (she won’t…).

While it is true, that many auctions fail and fall into the portfolio inventory of the lenders, there are many that sell.  This is where the savvy investors are buying all those homes that get fixed and flipped.  I know several Realtors that have formed LLC’s with investors and contractors that are buying up properties at the auction, for cash, for this express purpose.  What Diana fails to recognize or acknowledge, is that the vast majority of foreclosed properties have or had, two loans.  All of the 100% financed homes were comprised of an 80% 1st trust deed and a 20% second.  Since during the heyday in fact, every less than 20% down purchase included some form of HELOC (Home Equity Line Of Credit), there were always two loans.  Few borrowers took PMI (private mortgage insurance) because it was cheaper, and deductible, to take a 2nd TD or HELOC.  Thus, with the exception of those where the 1st TD alone exceeds the market value, many of the properties offered at auction are priced with just the 1st loan balance as a starting price – not the total debt, and predictably, sell on the courthouse steps.

To Diana’s credit, she concludes her blog with the statement, “…as always, the story of pricing will become ever more local.”  This has been my mantra for months and why for our area at least, my glass is still have full.

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Only One Can Own “The Best”

Posted on January 25, 2011 by Tim Freund

Yesterday I showed a new listing I have coming out to an agent and his client.  The agent had sold the same 4200 square foot, 5 bed, 5 1/2 bath model about 8 houses down for $950,000 in late spring; a short sale that finally closed in September.  The buyer of that home was a friend of this client and knew what her friend paid; had been to the home, seen their amenities and yard size.  My listing, which sold in 2008 for $1,350,000, is unique because it’s “The Best”.  It has the best (largest) lot, the best (fanciest) pool, the best (least obstructed) view and the best (most) amenities.  In a word, the home is loaded with every conceivable bell and whistle: heated master bath tile floors; a 108″ drop down projection screen home theater with 7.1 surround sound, natural stone everything: showers, counters, fireplaces.  The walnut distressed hard wood floors gleam as do the incredible cabinets, with hand carved grape leaf crown molding.  The list just goes on when the home is “The Best”.

So we’re walking through the home and it’s obvious the client loves it.  She spends time in the courtyard looking at the outdoor family room fireplace and the sliding awnings; she asked about the pool’s operating costs, which I explain are lower due to its solar heating on the roof.  So without a word to her agent she says she’ll pay $50K more than her friend or $1,000,000.  I chuckle and say, the pool alone is worth that, which her friend’s home doesn’t have.  I explain to her only one person can own “The Best”.  At this she chuckles too.

This banter continues for the better part of an hour as she reiterates her $1m offer, explaining to me that upgrades and amenities, lot size and view don’t justify a higher price, and what’s best to one isn’t to another; even how the home next door which is a short sale in escrow, she liked better (of course she’s lying, and we both know this).  “This is the best of this model anywhere, you just can’t find better, because there isn’t,” I say, “and only one can own ‘The Best’.”  “You are a good salesman,” she says, “Maybe you should buy it.”  “I would if I could” I tell her.  I explain that we may not agree on what “The Best” is, but surely we can agree that, “Only one can own ‘The Best’, and this, I believe, is it.”    I continue, “You can always own the second best, but if you want to own ‘The Best’, you just have to pay the price; and it will cost a lot more than your friend’s.”

She’s bringing her husband back this weekend.

The reason I relate this story, is that during this tumultuous market, buyers have become so concerned and focused with the loss and potential loss of a property’s value, that they frequently lose sight of the things that are really important to them.  I’m not suggesting that everyone has to buy “The Best”, or can even afford it, but rather that they buy the best they can at that time.  A home is so much more than an investment.  A home is your sanctuary; it’s a statement about who you are; it’s the place you create your most important memories; raise your family; determine where you’ll send your kids to school; share the final moments with those most important to you, for in this fleeting life, no one lives forever.  A home quite simply, is more than a price per foot.  When this client said, “Maybe you should buy it,” my heartfelt thoughts were, “Don’t I know it!”

Whether or not you can afford to buy “The Best”, and even what that “Best” is, only you can determine for you, but in my 21 years of selling real estate I know this much: I’d rather apologize for the payment once, than the quality forever… Zig Ziglar said that some 50 years ago and it still rings true today.  And after all, only one can own “The Best.”

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News On Short Sales

Posted on January 24, 2011 by Tim Freund

So what could possibly be new on the short sale front?  They still take a long time.  There are no guarantees that a short sale will be successful.  Approved short sales still require approval.  So what’s new?

First a few specifics:

Chase now has an application that is required for submission of a short sale – a checklist laying out the starting paperwork.  I discovered this last week when I was told by a Chase representative to go to http://www.chase.com/shortsale.  Here you can find some very simple answers to questions you may have, however, they are simple answers; the questions however, are generally far more complex.  For Chase, beginnings of the short sale process are unchanged – contact them after you’ve got an offer on your property.

Bank of America has instituted a policy and approach they call, the Cooperative Short Sale.  Using their Equator system, you can now begin the process of qualifying – yes qualifying – for the short sale, before you have an offer.  B of A states they want you to pre-qualify in an effort to expedite the short sale process and that by doing so you can shorten the approval time to as little as 10 days when you finally do get that offer.

So, is that true or false?  The answer is a bit of both.  In theory you can get the B of A approval quickly, however this presumes you have all the paperwork turned in, timely and updated, complete and without error – something most principles fail to do and in fact only the best short sale Realtors will help you through.  Further their policy only applies to their loans – not those of a second lien holder – duh right?  But most short sales do involve more than one loan and most of those, more than one lender.  And why can only the “best short sale Realtors” help?  Well I should say this is a trade secret, but truthfully success in short sales has almost as much to do with the people putting together the package (your Realtor), as the borrower filing for the short sale: How thorough are they, how much do they help the borrower navigate, collect and submit the paperwork.  These really are the keys to unlocking the mystery of most short sales. There’s a lot more to this short sale business, so check back to the Real Estate Conversation, as I will be spending a great deal of time in the coming weeks and months, sharing my thoughts about short sales as well as providing some tips and tricks to short sale success.  Feel free to email me any specific questions and I’ll do my best to answer them for you.

 

 

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All’s Quiet On The Western Front… Literally

Posted on January 20, 2011 by Tim Freund

I have been selling real estate for nearly 21 years.  In all those years there are certain truisms that play out year after year: August is the slowest month of the year for real estate; sellers typically command more money in the spring; the kitchen is the most important room in the house etc., etc., etc.

January is traditionally the 2nd slowest month of the year behind August.  Many would think December with all the holidays should be slowest, but in fact many people try to close before the end of the year for tax reasons.  January is slow for the simple fact that buyers typically don’t enter escrow in December – a requirement for activity in January.  In sales we call this pipeline; upcoming closings that fill our pipeline.  Pipeline, is to my thinking, the most important word in a Realtor’s vocabulary.  And this brings me to January.  The drawback for January is lack of pipeline.  Sure, there are some agents who had big December openings but my experience suggests they are the exception not the rule.

So how does this January stack up?  Uh, in a word, slow.  Not only is this January slow in the historical context of all January’s, but it is especially slow because of the lack of sellers. I am accustomed to receiving calls about this time, from people inquiring about selling.  Most will lead to the listings that fuel my pipeline.  This year however, has started off unusually slowly, even by January standards.  I can only attribute this to the reality that many sellers are facing: prices are too low to motivate them to sell.  They won’t make enough off the sale to buy a replacement property, or cash out.  Sure, we still have our short sales, and the REO agents will continue to get theirs, but this year seems like it’s starting very slow.  A long time resale agent friend of mine has over 1700 past clients.  He’s making 50 calls a day, and says if he’s lucky he’s getting one listing appointment for all those calls.  This of course suggests we may be in for another year of standoff between buyers and sellers.  2010 will be remembered as the year of the gentle slide: where sellers pushed back, but couldn’t push hard enough to reverse the trend.

I suppose if I had to predict I’d say 2011 will be more of the same; that is unless we see a ton of foreclosures hit the market or a strong improvement in unemployment.  In the mean time, if you know someone who wants to sell or buy, please give them my name; my pipeline is looking a little bit empty.

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Proposition 13

Posted on January 11, 2011 by Tim Freund

My parents closed on their home in Walnut Creek, California in August of 1966.  For 13 years they saw their home reassessed every year as California property values steadily increased.  In 1978 Howard Jarvis led California in what was characterized as the “tax revolt”.   The idea was that retired Californians facing an ever rising property tax bill, would be forced to sell.  Proposition 13 limited California’s property tax to 1% of the purchase price with a cap of a 2% annual adjustment.  So a revolution was born.

Properties purchased prior to 1978 were frozen for tax purposes at 1978 levels.  Subsequent purchases were frozen at their respective sales price.  So not only did the tax level stay at just 1% (contrast that with Long Island for example at 3%), but the value was also frozen.  The repercussions have been felt ever since.

When Arnold Schwarzenegger ran for reelection in 2004 he solicited advice from none other than The Oracle of Omaha, Warren Buffett.  At that time Buffett rankled Schwarzenegger backers by suggesting it was time for California to revisit the viability and fairness of Proposition 13.

Back to my mom… so Prop 13 has helped to keep my mom in her home by capping her property taxes at 1978 levels.  Her home, perhaps worth $700,000 today, is taxed as if her home was worth around $100,000, or roughly $1,200 per year.  Next door where her neighbor purchased at the height of the market, they pay roughly $12,000 per year.  While it’s true my senior citizen mom, no longer benefits from the schools as she once did, she still reaps the benefits of all other County services yet she pays just 10% for those services that her neighbor pays for the same services.  Prop 13 is not fair taxation.  Didn’t the Boston Tea Party raise a similar issue?

California is the world’s 6th largest economy and is essentially bankrupt in part because of the obvious waste in Sacramento that plagues state governments everywhere, but in large part because it’s been saddled by two horrible bits of populist legislation: Proposition 13 and the related 2/3% majority to raise taxes and pass budgets.  The 2/3 Legislature vote requirement to raise taxes was actually a component of Prop 13 and 1979 brought the same requirement for a budget’s approval.  This past November saw the end of that rule in favor of a majority approval for future budgets.

So what would the impact be on changing Proposition 13’s 1% tax limit?  I believe that a modest change, maybe a 1/8-1/4% increase, would have limited effect on most homeowners and generate the huge revenues the state requires to balance their sick budget.  After all, the 1% rate was an arbitrary number to begin with.  A 25% increase in property taxes – $400 a year in my mom’s case, would likely not break any senior citizen, the original folks the legislation was designed to protect.  Of course it would have an impact on her neighbor who is already paying $12,000 and the additional $3,000 is not pocket change.  Yet this would fatten local coffers allowing Counties to address the many needs they have, especially in light of new Governor Brown’s suggested shift from the state’s handling of most services back to the local governments.  It would benefit all levels of education, perhaps taking California universities back to the days when they educated Californians rather than out of state and international students who pay higher tuition.  It would help put more police on the street.  It would allow the state to better handle mental illness by providing the necessary funds, and it will bring us back, along with fiscal responsibility, to the forefront of the nation.  Interestingly, I believe it would also allow the state to ease taxation on small business and corporations which in turn would bolster employment, growth and the overall economy.

So mom, clearly the time has come to redress property taxation in California, and I know you agree with me.

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Case-Shiller for October

Posted on December 28, 2010 by Tim Freund

Greetings from vacation!  I just couldn’t resist a comment on these numbers…  We knew going in, October was going to post a bad month in the S & P/Case-Shiller Index, and it was, yet not entirely, specifically for California.  There are 3 California cities in the Case-Shiller 20 city index: San Diego, San Francisco and Los Angeles.  Each of these cities bucked the trend as did Washington DC and New York.  Why?

My belief is that markets with “constrained supplies” will always fair better.  It goes back to the old location, location, location argument.  To expand on this a bit further, consider the likely breakdown of those areas and you would probably find that the better locations actually went up even more and that the less desirable areas (think inland for California), went down.  What this means is, our market is showing strength as the economy improves.  Like it or not gloom and doomers, I expect this trend to continue, and no I don’t believe there’s a Santa Claus…

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Homes Sales Rise

Posted on December 23, 2010 by Tim Freund

I love numbers and I love the folks who interpret numbers (note to self: that includes you so add tone of sarcasm)…

Homes sales rise 5.6% from a month earlier!  Great news, yet the pundits and the Diana Olick’s of the world, continue to down play the positive and instead focus on the threat of rising foreclosures.  To Olick’s credit at least she acknowledges that the lynch pin of everything is job growth.  While this may seem like an obvious conclusion, it really is the butter on our toast.  With job growth comes consumer confidence, (up by the way to the highest levels since June on the prospects of an improving jobs market), and that confidence, particularly with real estate, is essential to a stable market.  After all, who wants to buy a home today that could be bought in a few months at a discount?

So the news was good and consistent with my prediction that we are going to continue to experience ups and downs.  I do not see a steady climb in the numbers or charts until we see a consistent and significant decline in unemployment.  However, I expect unemployment to continue to ease going forward and thus a gradually improving real estate market; this despite a threatening rise in foreclosures offered for sale.

By the way, distressed sales represented just 33% of all properties sold in November.  My explanation for this is that most buyers, while attracted to the price point/discount of a distressed property, can’t stomach the condition of these properties and either haven’t the cash, the time or the vision to fix them. So investors will continue to play a big part in our housing recovery.  Additionally remember that investors have the opportunity to purchase homes at the trustee sale for cash before that home goes into the bank’s inventory and onto the MLS.  This is important because if we see the banks price these homes appropriately; many of the real steals will be sold this way, fixed and then relisted at higher, market prices and in move in condition.

So over all the reports month over month are very good, albeit not great, but steady and gradual is better than the alternative, in both directions.

I am going to be shutting down The Real Estate Conversation until after the holidays, so have a safe and happy new year.

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Another Projection

Posted on December 21, 2010 by Tim Freund

The Mortgage Bankers Association came out with their projections for 2011 and 2012 yesterday and their numbers were very interesting.  Years 2008-2010 were clearly difficult for the mortgage industry.  The financial meltdown left only one real buyer in the secondary loan market: the U.S. Government through Fannie Mae, Freddie Mac and The Federal Housing Administration via FHA insured loans.  The jumbo market, once the most lucrative because it offered a yield return to the investor higher than that of the government, simply evaporated.  And while the jumbo market has come back to an extent, the landscape has been forever altered.

Over the past several weeks I have been talking predictions.  After all, I like everyone else, find my crystal ball a bit foggy and am looking for any indication of a sunnier road ahead for our economy and in particular our real estate market.  There has been so much made of the impending avalanche of foreclosures coming to the market after many of the banks halted foreclosures, in order to examine their internal process and ensure Congress doesn’t bring down the hammer on them for bad faith, fraud and in general incompetence.  In fact when I talk with my fellow Realtors there remains no consensus.  The largest camp is still towards the downside than up by a pretty large margin.  This could be that a majority the Realtors who’ve survived this market, are representing banks and investors, all of whom see the market as weakening.  I on the other hand have remained steadfastly positive, but am clearly in the minority.

So what did the Mortgage Bankers Association say yesterday?  They predict a 30% increase in purchase volume from 2010 to 2011.  Further, they predict an additional 40% increase in 2012!  Admittedly, this is on the heels of a dismal 2010 which was off more than 50% from 2008, but this is our new reality.

So there it is; another prediction to the upside.  If their numbers are correct, they are predicting an 82% increase over the next two years.  You can call me myopic; you can call me an optimist; but my belief is that the economy will lead the way and it’s getting better and that’s better for  housing and that’s better for us and clearly when a trade group like the Mortgage Bankers Association comes out with numbers like this, I myself, stand up and take notice.

 

 

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An Economic Blaze Cometh

Posted on December 15, 2010 by Tim Freund

In U.C. Santa Barbara economic professor Mark Schneipp’s 4th quarter assessment for Ventura County, he states 2010 was an up and down year and that momentum has once again shifted for the better. He predicts that our economic momentum shall continue albeit slowly until 2nd half of 2011, when he anticipates significant strengthening.

The business section of the L.A. Times boasts, “Luxury shoppers are back”, which according to the International Council for Shopping Centers is economically significant because “the richest 20% of households represent 40% of consumer spending” and I must confess, I did not know that.  (As a quick aside: So, if 70% of our economy is consumer spending, and 40% of that is spending by the wealthiest 20%, according to my math, that would mean 28% of the total U.S. economy is generated by the spending of the wealthiest 20%.  So what does that say about taxation at the upper bracket?  — hmmm…I’m going to have to chew on that one…)

Retail sales are actually showing signs of improvement everywhere this holiday season which is consistent with my belief that pent up demand, including pent up business upgrade demand, are going to push us out of recession.  If you look at the bond market’s movement over the past few weeks, clearly investors harbor the belief that the economy is gaining traction.

As I have argued, I do not believe construction will be the engine that heals our unemployment malaise.  I believe technology and general business expansion will.  Consumer spending, retail, travel and tourism, plus exports, will be the kindling for our economic fire.

So what about housing?  If rates continue to rise, how will the delicate housing recovery hold up?  Repeat after me, “Housing is local”.   I believe just about everywhere will see improvement except the hardest hit areas like Las Vegas, Arizona, Florida and the center-east of California.  The coastal communities will see improvement first.  I fact during our breakfast last week, Professor Dan Hamilton of Cal Lutheran’s school of economic forecasting, told me that California is no longer about north and south but about east and west, with west making an overwhelmingly disproportionate percentage of the state’s economy.  The effect of rising interest rates on the housing market will ultimately depend on how high, how fast.  Since rates are an indicator of economic conditions and inflation, higher rates should mean a better economy and a better economy means more jobs, less stress and ultimately better property value stability.  So while our economic recovery is not yet ablaze, clearly it is smoldering.

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