Real estate poker game misses a full deck
Realtor Notebook
By Teresa Boardman, Thursday, May 15, 2008.Real estate is local, but my experiences over the past several months are similar to those of real estate agents around the country. My job is like playing poker without a full deck. Not all of the homes I list will sell. A few years back getting a listing almost guaranteed a paycheck, and no agent would admit that they can't sell every listing. Today, the only guarantee is that listings will generate expenses, and sometimes we need to say no to a potential seller.
Preapproved buyers used to get loans. These days a buyer can be preapproved until the rules, or "guidelines" as the underwriters call them, are changed. Homes used to appraise for just about whatever amount a buyer offered. That's no longer true as homes now appraise below the asking price.
Buyers still use a lot of 100 percent financing, which in some cases works out to 106 percent financing. Sometimes buyers offer more than the list price, but the seller's bottom line is still below the asking price after they pay the buyer's closing costs. Some lenders are saying they will no longer lend more than the asking price. There goes another card from the deck.
Sellers can't come down in price because they are already bringing as much money as they can possibly find to the closing. They still don't need any money to buy another place, at least for now they don't. They just do it backwards -- they bring the same amount of money to the closing when they sell their home as they would have brought when they bought it if they had made a down payment or paid their closing costs.
Working with foreclosures is not fun. They are now a larger segment of the market and ignoring or avoiding them is impractical. Foreclosure buyers may bid on four or five bank-owned properties before the answer is yes, and in most cases that yes or no answer doesn't come for a few days, weeks or months. I often wonder if the real estate writers who write about working with foreclosures have ever worked with any themselves. The process of buying foreclosures upsets buyers, and their agents do a lot of extra work for a smaller check when it is over. Some agents do nothing but foreclosures, and they make up for the smaller checks by selling more units.
The news media have some funny ideas about the real estate market. When they are not talking gloom and doom and the end of the world as we know it, they are giving advice about staging and telling buyers how to "get a deal." They don't understand that for sellers who are upside down on their mortgages there are no simple answers and that buyers' wages have not kept up with housing prices. Buying a home is still a stretch, and high gasoline and food prices are making it even more of a stretch.
This isn't meant to be negative; it is just a dose of reality for those who are in the industry, but not necessarily in the field. When the real estate market changes, Realtors' jobs change, and some agents get other jobs.
The advice that I am reading and listening to for Realtors and for consumers seems to have not kept up with the market. There are ways to make money as a Realtor and there are ways to cut expenses and even ways to find new cards to replace those that are missing from the deck.
Every day is a challenge and every buyer and seller a gamble. The rules are ever-changing and the surprises keep coming, but it isn't a good idea to get too used to the current market because it will change again.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.
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Submitted by Mack Perry on May 15, 2008 - 4:56am.
The deck of cards has gotten smaller. Conventional loans have always had risk based interest rates that were tied to a borrowers credit score. I heard yesterday that FHA loans were going to the same type risk based model.
Submitted by Michael Taylor on May 15, 2008 - 5:37am.
Great post Teresa, these are some extremely challenging times in RE. I couldn't agree more about listings nowadays; we really need to be picky about which listings we accept and be willing to say no when a home is not marketable.
Mike Taylor
Carmel Real Estate Agent
Submitted by Michael Daly on May 15, 2008 - 5:46am.
So true Teresa. The rules have changed and most agents are standing around like deer in headlights, hoping they will change back. I don't think that's going to happen.
What's the new definition of insanity?
Doing the SAME THING in a DIFFERENT ENVIRONMENT
and expecting it to WORK!
Michael Daly
Re/Max Beach Properties
The Hamptons , North Fork and Shelter Island
Submitted by Wayne Herman on May 15, 2008 - 5:48am.
Great reality check! For agents doing conventional or typical marketing and relying on a sphere of influence, times are tough. I've always been a proponent of taking what the market is giving us and that's short sales, foreclosures and REO's right now. The economics of listing homes is precarious at best in this market. At a time when sellers are in need of good, experienced agents they are less able or willing to pay full commissions. But, as you say it'll change so don't get too comfortable.
Submitted by Mott Marvin Kornicki on May 15, 2008 - 6:35am.
I've been in the real estate business nearly 30 years and the current market is indeed so different than in years past. I feel that whatever I learned and experienced is no longer useful! Change is inevitable and constant.
Mott Marvin Kornicki, Broker
www.WaterwayRealty.com
Submitted by Teresa Boardman on May 15, 2008 - 7:32am.
Michael - you hit the nail on the head. Our brokers, coaches and others in the industry seem to beleive we just need to work harder. maybe we do but we also need to work smarter and access the risk that each buyer and seller bring.
Submitted by John Davison on May 15, 2008 - 12:56pm.
Thank you Teresa. Thank you for not blowing smoke up my fanny like the countless number of "spin doctors" that pen their optimistic thoughts on a daily basis through various real estate web sites. Thank you for giving us a perspective from the trenches, when we are inundated with delusional commentary from the Lawrence Yun's of the world, as they scribe their thoughts from their ivory towers. Thank you for speaking honestly and not exaggerating like the vast number of Realtors I encounter each and every day who tell me they are doing great, contrary to the sales data on the local regional association web site.
I've been licensed for a year and a half and was blessed to transact $2.5M in sales in my first year in the business (2007). In short, I kept my head above water and barely made a living. This year I'll be lucky to break the $2M mark. Working harder is hardly the answer if there is no money to operate the business, so I split time working a second job. The worst part of this, is not being accessible to my clients as much as I would like to be. I get through it all, because I know things are going to get better. It may take 2 or 3 or 5 years, but lending restrictions will loosen up a little, foreclosures will peak and decline, and prices will hit the trough and stabilize.
It's articles like yours that provide me with more inspiration and motivation than all of the words penned by the "spin doctors". Personally, I don't think Yun and Company know what they're talking about. Read the predictions of the economists from a year ago and compare them to the situation today. Most of them are now admitting that they understated how bad things were and how it's going to take even longer to recover than expected. Stop listening to the "spin doctors" (unless it's "Pocket Full of Kryptonite" - great album!) They are just as bad as the doom-and-gloom media. One has their heads in the clouds and the other in the sand.
There are many cards missing from the deck. My wife often tells me the same thing about myself! We created this mess (along with the mortgage brokers, bankers, and desparate buyers). Now we have to wait for the wound to heal. For anyone else who feels the desparity from time to time, you're not alone. Stay positive, but be realistic. Do what you have to do to take care of the one's you love, but don't live in a fantasy land, thinking that things are going to "normalize" any time soon. Keep on educating yourself and be open minded enough to listen to the thoughts and ideas of others in this business. Be honest with your clients and do what's right, not what's convenient. Most of all, don't listen to people who don't walk your walk each and every day. They get paid to sit on the sidelines and prognosticate. My Magic 8 Ball is more accurate than most of them! Hang in there folks. We'll all be fine, in due time, and Lord knows that time heals all wounds.
Submitted by Michael Espiritu on May 15, 2008 - 5:18pm.
Michael Espiritu, Broker
Copeland Wealth Management/ CWM Real Estate
Redlands, CA
Submitted by Michael Espiritu on May 15, 2008 - 5:26pm.
I could not agree w/ Michael's comments more.Lawrence Yun and his economic forecasts have been so far off the mark it is bordering on laughable. To me he has zero credibility.
The Economic Report given by Yun last October had the brilliant statement that oil would not go above $100/ barrel??? We lose credibilty w/ our clients by people who paint a rosy picture when we are in trying times. There is definitely opportunity in this market but the public should be getting a realistic view of the economy, how we ended up in this situation and how can we get out of it.
Very little has been done and what has been proposed has not helped the people it was initiated for. It would be refreshing to get someone who tells it how it really is. I don't need a motivational seminar. I am looking for real answers to the issues facing our industry.
Submitted by Lenn Harley on May 16, 2008 - 5:15am.
Great analogy. We're working with a few missing cards, the worthless loan approval, the Draconian appraisal, the bank that plays hard to get and worse, the short sale listings that aren't.
Thanks Teresa.
Lenn Harley
Homefinders.com
http://www.homefinders.com
Submitted by Maurice Stewart on May 16, 2008 - 9:07am.
Hey Teresa,
As John D said " Thanks for not blowing smoke up my fanny"
Listen guys, it's a different game and we need to look at things differently.
Here are some suggestions:
Foreclosure Prevention: There are numerous programs on the table to keep homeowners in their homes because there are insufficient bridges to house us all. Make money counseling these millions of "at risk" families.
You can interceed on behalf of the homeowner to have the lender write down loans to where the DTI meets fannie mae's benchmarks.
Somer counties have grants to bring the arrears up to date. Learn Loss Mitigation and it will sustain you for the long haul.
Contact your local Housing Authorities and ask about expiring contracts under the Family Self Sufficiency Program (FSS) where families are housed in the county projects while accumulating money to be used for downpayments on homes. Some participants have as much as $25,000 in escrow so they are now the buyers to go after. Under the CRA program these loans can be underwritten by local banks and placed under their portfolio program.
It may be a good idea for us to all talk and share ideas. Please email me, I will share some of my findings with you.
Thanks guys
Maurice
ccna@mindspring.com
Submitted by Ralph M on May 22, 2008 - 6:46am.
Good post! It is time for all of the real estate associates to wake up. This market will be very good for us in weeding out the inexperienced in all of the professions. Just like mother nature, the weak must die and the strong will adapt and survive.