There is an article in today’s NY Times asking the old question of whether using a broker is right for some home sellers. The piece invited comments, and I shared my thoughts. I’ll adapt them for this post. 

I am a broker who does business in Nyack, where the first two homes in the report are located. Ms Corvino’s issue (she has elected to sell her own home after 230 days with a broker) is not whether or not she has an agent; it is the fact that the home is overpriced, and not by a little. MLS records indicate that she bought the home in late August of 2005, literally the apex of the market bubble, for $810,000. MLS records also have her giving herself almost 10% appreciation in her 2008 attempt to sell when she listed it for $892,000, and at some point she lowered to (hold onto your hats, folks) $880,000. In reality, the value was most likely in the low to mid 700’s and may even be in the 600’s as I type this. Real estate didn’t go up 10%, especially if the home was not renovated. It went down 10%. 

Given the fact that she purchased the property with a piggyback 2nd mortgage with a balloon payment, she is most likely upside down, which would make her, at best, a short sale. The fact that she can make a website and pay for a fancy yard sign will not ameliorate the mathematical challenge she faces. So while she attempts to “save” 40k in equity which no longer exists, a default on the balloon could become a financial catastrophe. I’ll bet her broker advised her to lower her price and she demurred. Brokers often tell sellers what they need to hear, and we are dismissed for trying to make a quick buck. 230 days later, she will sell her own overpriced, outdated home on Facebook. I’ll look for that follow up report in the coming weeks on the Times.

This Times article will no doubt get many eyeballs on the lady’s home (it got mine- check out 46Voorhis.com), but unless she can lower her price, she’ll have to face the reality that the public is ambivalent about the debt structure that determined her pricing strategy. I have blogged about this very fact last month. WebMD.com is not about to replace physicians either. 

This For Sale by Owner is missing the first rule of home selling, which is the price the house right. A good broker would help her price the place, deal with a short sale if need be, and help her avoid a balloon payment default. Serious business, folks, and not something you can avoid just because you know how to make a website. So long as sellers are their own worst enemy, good brokers will gain market share. There are too many moving parts in a real estate transaction for the industry to mirror travel or discount stock brokers. A good broker remains worth their weight in gold. 

Given the number of blogs on the difficulties agents experience on short sales, I thought I’d take another shot at a canard that banks are now using to justify more delays, and that is the following:

“The investor is reviewing the file.”

This is typically followed by 60 days of nothing. 

Now, I don’t argue that the investor is reviewing the file, I simply question the wisdom of the investor reviewing one file at a time. 

Let’s go back to mortgage 101: when a mortgage application is underwritten, it is reviewed by an underwriter to ensure that it conforms to the standards of the investor, which for example, could be Fannie Mae or Freddie Mac. Fannie and Freddie then buy these loans by the thousands in bundles. If Fannie Mae and Freddie Mac manually reviewed every new mortgage application one at a time we’d just be getting around to closing all the contracts written in 2007. It is utterly absurd for them to do so. Commerce would cease.  

We have read a great deal on how the Obama administration and others are working to streamline short sales. Well, I don’t personally see, nor have I read, any examples of the system getting any better. None. 

It should take as much time to approve a short sale as it does to underwrite a mortgage application. The process is parallel to approving a loan.  Once title is run and there are no other liens, they should issue an approval or denial, period. It completely analogous to verifying borrower qualifications, appraisal and title on the buying side. The bank negotiator is reviewing the borrowers finances, verifying hardship, and getting the home appraised.

It’s simple. It has always been simple.

The only difference I can see is that the lenders have to be dragged, kicking and screaming, into taking a loss that, were the home foreclosed, would be far larger. Of course, once the bank does take back the house they are in a hot hurry to sell, to the point where they bully the buyer like an abusive relationship. These are the same buyers who have to sit on their hands for 4-6 months waiting for the bank to take a smaller loss in a short sale. 

It is a mystery why banks resist short sales with such passion. They have enormous culpability in current market conditions. There is a word for people who would set your house on fire and then trip you when you run for a fire extinguisher, but I won’t repeat it here. We’ve got to stop the barriers, impediments, obstacles and straw man red tape delays so we can begin a more meaningful recovery for earnest homeowners who have lost their jobs and equity. We are minimizing lender losses for goodness sake. It only makes sense, but asking the industry that screwed everything up to use common sense is a muse anyway. 

Now someone please show this blog to Mr. Obama.  I’m going to go watch Fight Club. 

Today is the 5th birthday of Gregory, our 3rd Treasure. Gregory is on the spectrum for Autism, and attends a special school with an extensive ABA (applied behavioral analysis) program. It has help him enormously. He is great with eye contact, affection, and being “there.” We are still working on boundaries, executive functions, and meaningful speech. 

Gregory looks almost exactly the same as I did at his age. It is really uncanny. That is a hell of a trick to pull off when your mother is Korean. It will be “that” month in our house until January 14, when Catherine turns 6. They’ll both be 5 until then. 2004 was quite a year. 

Gregory’s special needs have posed quite a challenge to use. Managing expectations is difficult, because sometimes he amazes us and other times we unintentionally do things for him he ought to do himself. Patience.. you don’t know patience until you have a child with special needs. Sleepless nights (children like Gregory have unreliable sleeping habits) are growing less common, but his knack for timing is amazing. He seems to know what mornings I need to wake up early so he can wake up at 3am and play, loudly. 

Through it all, his mother has been his greatest advocate. I work out there in the field while she mans command central for the business at home, often with all 4 home from school. You don’t know multi tasking until you’ve seen double jointed, ambidextrous Renaissance Mom at work. 

So happy birthday to you Gregory. We love you very much, and you are 25% of the reasons that Dad and Mom work so hard. I hope you understand that someday. 

When I graduated college in 1989 (ouch), I decided that I wanted to follow my older brother in sales. So, I interviewed insurance companies and financial planning firms, only to find that I was ill-suited to that industry. I was advised to make a list of my 100 closest friends and relatives and tell them I was in the insurance business. I wanted no part of that embarrassment; I went into sales for a publisher. After Catholic school from grade 2 to my BA, I’d still rather talk to nuns and principals than solicit friends and family. 

Nuns. Franciscan nuns. 

In Philadelphia. 

In 1996 I was convinced by a college roommate to get into real estate with him and his father. 

In Rochester. Where I knew nobody. Even if I did have the cajones to contact my sphere of influence , they were 300 miles away. I didn’t even know any of the nuns. 

Fast forward to 2009. I’ve been back home in Westchester since 2000, I have been on Active rain over a year and Facebook for at least 6 months. Facebook has been a virtual college and high school reunion for me, and it has enabled me, effortlessly, to reconnect with old friends, some of whom have real estate needs they have shared. 

The first closed yesterday. An old wrestling teammate from high school, whom I haven’t seen in person since 1989 and lives in Maryland, referred me to his younger brother. Michael and Stephanie are recently married and had been through at least 2 other agents. They made a couple of offers, but nothing panned out. Michael is not his older brother; he’s deliberate, cautious, and reserved. He also had suspicions about the agents whom he was dealing with, for good reasons. 

Given the nature of the referral, trust was not an issue. Plus, it helps that I know what I’m doing a little bit. We made an offer on a short sale several months ago, and it was not an easy process. But I did my job, we stayed in communication, they used the attorney I referred, and together, we got through to closing with a happy successful closing. 

There is a nuance to using social networking that is for another post; however, I have to say that the medium has more than potential, it gets results if done right. Return on investment: Pretty high! 

I’ve got Croton on Hudson on the mind lately. It isn’t because my older brother has lived there for 30 years or because I camped at Croton Point Park as a young scout dozens of times. It could be because the only Bed and Breakfast in all of Westchester County is here, or maybe the numerous excellent restaurants. The real reason Croton is on my mind is because I’ll be leasing office space there in the near future, and I intend to do more business in the area in 2010.

Downtown Croton is idyllic- small shops, food, boutiques, and towny-type places that date back prior to my youth.    

 The Village has one of the biggest train stations on the Hudson line of Metro North. It is a major interchange, and even Amtrak stops here.  

The views of the Hudson River from many points on the Village are breathtaking, and I think we get a little spoiled after seeing it every day.

If you want to know more about Croton, the NY Times did a very nice piece on the village last month, and included a very good slideshow also. I highly recommend them. Of course, I like my own photos of the place.

Terms are often overlooked because people are so preoccupied with price in this economy. However, they are, in many cases, just as important as price. I often have buyers question what difference the size of their down payment makes to the seller, since the money is just as green if it comes from the lender is it did their bank account. In a zero sum world, this is true. But context is important, and there is an immutable law that cannot be avoided:

Guarantees cost money. Certainty costs money. 

If you are going to put 20% or more down on a house, your lender will not require you to pay for mortgage insurance (PMI). If you put less than 20% down, PMI is required. PMI hedges the bank’s bet that the loan will perform. But it is more than that- the bigger the down payment, the more likely the loan will get approved. The reason for this is simple: the less value of the home is borrowed, the more likely the borrower will repay. Therefore, a low LTV (Loan to Value) is attractive to loan underwriters. The lower the LTV, the lower the risk. 

So the size of the down payment will determine the peace of mind of the seller and their confidence that they are dealing with a qualified buyer. The ultimate down payment is 100% down. From there certainty erodes. So if you are buying a home in Westchester or the surrounding counties with 3.5% down, you ought not balk if the seller is concerned. Selling a home is tough these days, and it would be tragic to have a house off the market under contract for 60 days only to have the deal fall through. Big down down payment deals seldom fall through. 

I am a big fan of FHA mortgages, not because they are common in Westchester, but because I did dozens of them in Rochester. However, until recently, FHA mortgages in Westchester County were as rare as hens teeth because the FHA loan limit was so low there were few Westchester homes that were eligible. With the changes to FHA loan limits and the fall of prices, they have become common, but agents and sellers alike are still not yet used to them. I have seen sellers take a deal 5 or 10 thousand less because of the larger down payment. Again, certainty costs money. So if you are going FHA on a Westchester County home, keep that in mind when you are formulating your offer. Terms matter, and down payment is a big factor. 

Peekskill, NY now has a wonderful Dog Park! Opened October 31, 2009, the project was started by Peekskill homeowner (and dog owner) Michael Sellers, who devoted a year and a half to getting the city to dedicate unused park land to the project. The park now has a board of directors, a terrific website with plenty of pictures, and 50 visitors a week. It has also made the local news several times, including Journal News coverage of a visit from Santa Claus just 10 days ago (and you thought he just dug reindeer). You can read the story by clicking on the link on the park website.  

To take underused parkland and transform it into a place where people and enjoy themselves and build a community is a special undertaking, but then again, you have to know Mr. Sellers like I know him. I sold him his house in Peekskill 3 years ago. As fortunate as he told me he feels about putting down roots in Peekskill, I say that the city got the better part of the deal when it landed Michael Sellers. Hats off to my client and friend. 

My dog Max would approve!