Selling • July 29, 2012

A Tale of Two Short Sale Forums: Bank of America and Chase

by J. Philip Faranda

On Thursday and Friday I attended two consecutive forums for real estate agents on short sales put on by Chase and Bank of America respectively. Both forums were informative. Both forums sent a clear communication that the lenders wanted to make the short sale process better. And both forums also sent very differing messages about the culture of each institution. I won’t beat around the bush. The most memorable phrase from the Chase forum was “a graceful exit” for the homeowner. The most memorable phrase from the Bank of America forum was “we did not cause your homeowner to default!” and “I am not taking questions at this time.”

One session was run by a bunch of men in dark suits. The other was run by a singular woman with a charismatic presence, an infectious smile, and a dynamic gift for running the room- if your cell phone rang (they requested them to be set to silent), you had to get up and dance. If you think she was the “graceful exit” person, you’d be wrong. The guys from Chase were mostly loan officers and some supervisors of their short sale and REO departments. The presenter from BOA was a short sale negotiator.

Chase gave us a thick handout with copies of each slide from the presentation for our notes. The presentation was clear about their process and how we could best do things to get our short sales approved. The prevailing message beyond procedure was that of empathy for how hard we work as agents and of compassion for the sellers who faced hardship. They were generous in the question and answer session, and I left encouraged that Chase was serious about getting short sales done so we could best help those facing hardship and move the economy forward. I was really impressed.

Bank of America’s presentation was far more regimented. They did not have a handout, but we were told after that one would be emailed to us. I was glad I brought my tablet for notes. The slideshow was equally informative on their process as Chase’s, but the tone of the session, as well as how questions were handled, left me a little disappointed. No mention of the difficulty we face in the field. Nothing about what our seller clients face. And some subtle references to irritation bank negotiators get when agents submit incomplete or erroneous paperwork. Questions were written on index cards and handed in at the end. The presenter read some and answered them without any interaction or follow up with the person asking.

One particular question was emblematic of the prevailing attitude: The question asked why BOA still sent offers to modify loans to homeowners actively working on a short sale. Such letters cause issues. The answer was disappointing. “It’s the homeowners CHOICE! It isn’t about YOU and your COMMISSION!” What the presenter missed was that these letters are disruptive. They often created false hope among people who previously failed at loan mods and are enduring enormous stress. Some take these offers seriously, to their own peril when they abort a successful short sale only to have another loan modification flame out. They aren’t offers to modify. They are offers to apply.

Failed loan modifications are the poster child for the futility of the housing crash. I found her answer obtuse and insensitive. There was an official from BOA who was eager for my feedback afterward and asked to remain in touch. Good on them for that. But dozens of agents walked out at the end not knowing she was there.

The only criticism I have for both banks in common is the continued lack of commitment to review the broken BPO (broker price opinion) valuation process. I can draw a clear correlation between failed short sales and BPOs performed by people from out of the market area, often 3-4 counties away. That remains broken.

It is possible that had I not attended the Chase session the day before that I would have a more more positive view of the Bank of America forum. Chase hit a home run. Bank of America succeeded in making it clear that they were serious about short sales working, but they dropped the ball in other areas of PR. No bank has any business shouting that they had no hand in the hardship caused by the crash. They all did. Chase seemed eager to get things right all around. BOA made it clear that this is debt settlement. Not very warm.

In short sales, where people are facing foreclosure, the loss of their home, financial strain and hardship, and we agents are their only link to get their lives back in order, compassion and a little bit of warmth both go a long way.

Full disclosure: I am a Certified Distressed Property Expert (CDPE) and have closed dozens of short sales for seller clients.

Mortgages • July 24, 2012

Should Interest Rates be Raised? Probably Yes.

by J. Philip Faranda

If there is one thing we can learn from the real estate market of the past 5 years it is that mortgage rates alone will not cause a recovery. When rates went below 6%, then 5%, and now below 4%, the results have remained largely forgettable. But what few consider is the long term damage that such low rates may cause down the road.

Each year that we accumulate another round of 30 year fixed mortgages at ridiculously low rates, we sow the seeds of another bubble in 20 years. One of the calling cards of the crazy spike we saw from 2001-2005 was low inventory. In lieu of other options, buyers seeking to get their offer accepted bid prices up crazily. In another generation, we’ll have a whole era of homes purchased during the current time period where many owners will be reticent to sell simply because their rates are low and it will make economic sense to remain in their homes longer. Fewer homes for sale translates to lower inventory and upward pressure on prices.

In the 80’s real estate spiked despite double digit rates. Rates don’t affect buyers as much as lenders (or governments) think they do, but they matter to sellers, especially those who are empty nesters or on fixed incomes. The only way to entice a reluctant seller is with more money; that puts even more pressure on prices upward.

The smart thing to do might be to gradually raise rates to a sane level, where we don’t cause a generation of holders on because of their low rates. It won’t matter as much to buyers, who have historically bought no matter the prevailing rate, and it will minimize future problems.

As crazy as it may seem in this day and age where bust seems the norm, we are unwittingly planting some seeds of boom in the future, and not the healthy kind. So long as those in charge of managing the money markets of the nation view matters in election cycles and not the long term, we remain in danger of a boom/bust cycle and not a more stable or sustainable market. The outlook should focus on long term stability, not timing elections with hot periods.

Commentary • Selling • July 18, 2012

Real Estate Jargon is Terrible Marketing

by J. Philip Faranda

For the 100th time, I read a real estate write up that fell well short of the space limit, but was filled with acronyms and abbreviations that you’d need a Berlitz book to decode. I think it fair to say, after more than 4 months on market and no buyer, that this would be called a marketing fail. The amount of effort it takes to write out the entire phrase “Sliding Glass Doors” instead of the current “SGD” is negligible. Buyers don’t stick around to decode. There is too much inventory to move on to.

And of course, the sellers, who could easily see this marketing fail if they simply Googled their address once in 4+ months, are oblivious to it, because no seller would be OK with that.

We’ve all been in situations where industry jargon has confused or annoyed us. When a physician speaks to us like a colleague instead of a lay person needing explanation, it is disconcerting because confusion doesn’t mix well with health matters. It is the same when we speak with an electrician, a cop, and 100 other professions where the stakes are such that clarity goes hand in hand with peace of mind.

WBF or WB Fireplace instead of simply “Fireplace” or “Woodburning Fireplace” is another fail.
EIK instead of “Eat in Kitchen” occurs so often I no longer question it, but to a consumer out for the first time it can cause fits.
The same goes for MBR instead of “Master Bedroom.”

I could go on an on. Sometimes I’ll see abbreviations and acronyms in write ups where they simply don’t have the room-sometimes. But once in a write up where it doesn’t absolutely have to occur is too many. Moreover, I can tell you that there are other ways to get the same or better message with fewer words. But that is another blog.

Thou shalt not confuse thy prospective buyer.
Thou shalt always give thy client thy best.

Industry News • Mortgages • Selling • July 15, 2012

Is That $30,000 Incentive to do a Short Sale for Real?

by J. Philip Faranda

A number of short sale clients have shown me letters, mostly from Chase, offering them an almost incomprehensible amount of money if they’ll do a short sale. It would seem hard to believe, in a world where short sale sellers typically walk from closing with the clothes on their back and no proceeds, that lenders would suddenly offer them tens of thousands of dollars to sell for less than what they owed the bank. But there, in real living color, I have been shown these letters, right at the kitchen table, with numbers to call for verification and everything.

We’ve looked into it. The ones from JPMorgan Chase are legitimate. In some cases, Chase is giving a $30,000 incentive to underwater borrowers to complete a short sale. I have verified it through attorneys, Chase, and several Chase officials, and the explanation has been the same: Chase wants to close out these assets and they’d prefer not to foreclose. In the cases I have seen, the loans were originally Washington Mutual mortgages acquired by Chase when they absorbed WaMu in 2008. Chase paid $1.9 billion for Washington Mutual’s assets in 2008 after they were shut down by the FDIC. They did not pay face value for these mortgages. They can afford to sell them at a loss and even pay an incentive to the borrower and still remain in the black- and safely distant from the robo-signing scandal headaches.

According to a senior VP at Chase I have known for many years, other banks are doing similar incentives. Wells Fargo bought Wachovia. Bank of America bought Countrywide. And they can, in house, offer a far better cash incentive in many cases than what sellers could get under the HAFA incentive of $3,000, which many people often do not even qualify for. Not only that, under the TARP rules, the banks can claim a loss on the face value of the loan on their taxes. And that appears to be what they are doing.

Not every letter a delinquent homeowner gets in the mail promising them cash, incentives, and other goodies is legit. As a matter of fact, much of the mail I have been shown by delinquent homeowners struck me as a scam. But I have to say, in the case of banks like Chase, those large incentives to complete a short sale are a fact.

WHATEVER you do, however, never do it alone. If you are in New York or Connecticut where I work, contact a lawyer and check everything out before you ever deal with the bank directly alone and without help. We have a team including lawyers and a CPA who can make sure that our clients make all the right moves and have their backsides covered. Forewarned is fore armed.

Buying • Selling • July 15, 2012

Yet Another Reason to Avoid Over Pricing Real Estate

by J. Philip Faranda

I am working with an extremely nice pair of clients right now -due to a job transfer to Westchester County, they are moving to the area from out of state. They sold their own home quickly, and we have been out and about looking. The selection process has brought us to a number of homes, some of which were gone before we could make an offer. It has been an education.

You see a lot out there, and one particular home was quite a good fit-unfortunately, it seemed overpriced by about 10%. Sometimes you have to employ a strategy, and in discussing the merits of making an offer, my advice was that while an offer might be percived as low, it might fly and circumvent those souls out there watching the home online waiting for the price to drop. My client then shared a doubt that many buyers may have when dealing with an overpriced home.

What if the real reason it is overpriced is because it would be a short sale at true market value?

GOOD QUESTON. And yet another reason why overpricing real estate is destructive to a good closing. Sellers who resist pricing their home more realisitcally often say that buyers can “make an offer.” Well, what if the high price makes them wonder if making an offer is a waste of time?

We already beat our heads against the wall trying to explain that when real estate is overpriced, the only offers you get are from people who are comfortable with low-balling. Reasonable people are uncomfortable with a large spread, even if the offer is actually fair. Most people don’t even bother coming out to look at overpriced homes. Why bother? They watch online, and wage a war of attrition with the seller over a period of months-sometimes years-until the price fits their sense of value.

The fear of it really being a short sale is a new one, and in this case, it could well have been legit. We made an offer that was 22,000 higher than a very comparable home- and the counter was still in the stratosphere. The listing agent did an admirable job of advocating for their price, but couldn’t back it up with market activity- just well stated, elegant and clearly experienced salesmanship. But no clear comparable sale. In the end, I translated some of her references to mean that, at our price, they would indeed be upside down. Or, perhaps, not have enough money to make their next move.

Still, they were another casualty of overpricing, and I was told we weren’t the first offer that didn’t pan out. As time goes by and it becomes a stale lisitng by autumn, it could well become a short sale as reality sets in. If so, my buyer was prescient.

Market Statistics • July 8, 2012

First Half of 2012 Westchester Real Estate Market Ends With a Strong June

by J. Philip Faranda

I’ll summarize the first half of the 2012 Westchester real estate market for you in one sentence: More people are buying single family houses and they are paying lower prices. According to the Hudson Gateway Multiple Listing Service, we had the most June closed transactions for a non-tax stimulus market since 2007, but the median price was almost $50,000 less than last June.

For June 2012, there were 501 closed sales at a median price of $660,000.
For June 2011, there were 436 closed sales at a median price of $709,625.

For the 2nd quarter of 2012 that just ended, 1156 sales closed at a median price of $620,000.
For the 2nd quarter of 2011, 993 sales closed at a median price of $620,000.

The year to date sales totals show 1889 closed sales at a median price of $575,000.
The first half of 2011 had 1715 closed transactions at a median price of $592,450.

1369 homes are under contract at a median asking price of $625,000. 1369 pending deals is a mammoth number, almost twice the number of pending transactions 6 months ago. That speaks to the busy season more than an overall trend, and I unfortunately didn’t chronicle that stat from a year ago (kicking myself for that). Available inventory is 3997 available homes, down 253 from last month. Inventory is shrinking, which actually gives sellers leverage. When buyers have fewer options, it forces them to play ball with the seller rather than move on.

In my personal observations, more buyers are out there making deals. Overall they are as cautious as ever: the New Normal gave us more 2nd and 3rd visits with parents and contractor friends, laundry lists of questions, and more thorough due diligence-no changes there. But the scale has tipped on buyers following through this year more than in years past. One of the common themes of the New Normal was virtual paralysis with buyers-indeed, they weren’t buyers at all in many cases, just lookers. We’d show buyers dozens of homes, only to have them give up, or walk from deals if a problem or disagreement arose. Now buyers are sticking with it more. It’s not surprising. You can’t put life off in perpetuity. People want to get on with their goals- family, children, roots, and putting things off a year or two might be ok, but not five.

It isn’t just the buyers. Sellers are getting more realistic. Banks are not resisting short sales the way they did in 2009 and 2010. Pragmatism, absent or mathematically impossible in years past, is prevailing.

We will, absent another crisis, see a slow steady crawl of flat values and modest transaction gains going forward with a few additional caveats:

Banks will have to manage their inventory of foreclosed homes better than years past, meaning they cannot flood the market again and drive prices down.
The mortgage market will have to continue to ease up on unrealistic underwriting that prevents qualified borrowers from being able to get approvals.
Government economic management will have to focus on what works.

The last point is crucial. The government can sabotage a recovery or referee it. Raising the FHA loan limit was smart. Proposing mandatory 20% down rules, as some politicians tried in the QRM debacle, was dumb. To see what I mean, consider June 2007 when the market was artificially affected by the $8,000 tax stimulus. Westchester saw 634 homes close that month, far more than this past June. But after the stimulus ended, the market was dead. In the end, it made no difference.

Overall, we are looking at a better 2012 than 2011, which is the first organic (non government stimulus) uptick Westchester has seen in a very long time.

Commentary • July 2, 2012

Why This Capitalist Opposes Fracking

by J. Philip Faranda

As I read the discussions online regarding hydrofracking upstate, I find the resulting polarization and pigeonholing to undermine the dialogue. I do not believe that people who are against fracking to be only tree-hugging left wingers, and I hold myself up as the counter point. My street cred as a free market capitalist is not half bad. I run my own company that I started in a spare bedroom in 2005, and have grown it to an enterprise that provides full and part time income to 32 people. And in a depressed industry like real estate, where government bailouts to brokers are unheard of and regulation the norm, that doesn’t happen by accident.

I am against hydrofracking.

One of the things you learn in business is that corporations are amoral. Not IMmoral- amoral. They are unencumbered by conscience. They simply have to abide by rule of law, and if the law doesn’t support more profits, then they seek to change the law, which is what we are witnessing now. I consider Governor Cuomo, who has earned my respect in other areas, to have failed protecting upstate’s long term well being in exchange for a percieved short term economic “upper” fracking promises.

Another thing you learn in business is that when principals hide behind confidentiality or proprietary secret, as we are witnessing with the energy company’s refusal to divulge what exactly they’ll be putting in the ground forever, that they are often avoiding self incrimination. There was a time when asbestos was extolled by industry as the miracle compound. It was put in homes, schools and even hairdryers. It didn’t take decades to know asbestos could kill you, but it did takes decades to eradicate its use, and even then it took lawsuits to make a difference.

I sold real estate in Rochester, NY in the 1990s and the city blocks that suffered contamination by Eastman Kodak’s activities will be forever stigmatized, and rightly so. What Kodak did to property values, the environment and the unfortunate residents was a crime. I could cite example after example of Big Industry selling poison, such as tobacco, lead paint and fast food to name just a few, where the argument in favor of slowly killing us was “jobs.” It is a short term obfuscation of an unsustainable economic model.

Hydrofracking is no different. The capitalist argument against hydrofracking looks past the immediate and the short term into what a sustainable model would be, and that would mean non fossil fuel alternatives that keep us from ruining the earth, the ground water, and the ecosystem. We have the technology to develop more sustainable power from wind, water (Croton Gorge anyone?), solar and renewable sources, but lack the economy of scale to do so because the established industries refuse to re-tool. This has to stop.

The reasons Asian companies are eating our lunch is because they have 100 year plans. We evaluate quarterly. Think about that the next time you see a Toyota. Or a Pontiac. We are seduced by the short term profit because our society’s short attention span doesn’t have the backbone or patience to think long term. And in the long term, there is no science that supports what fracking will do to us or our grandchildren.

Follow the money. The scientists who argue in favor of hydrofracking who are not on payroll are chicken’s teeth. The science is a secret because it is profitable to keep it so. The stuff dissolves rock-DUH. And we scream “jobs” in the short term while ignoring the many, many lessons of history at the risk of our own. We need to pull the bandaid off and devote our resources to energy that will sustain future generations and protect our environment, because if the ecosystem goes, we aren’t far behind.

The first line of the REALTOR code of ethics, adopted a century ago, states “Under all is the land.” We should listen.

Company News • July 1, 2012

On Membership in Westchester Real Estate, Inc.

by J. Philip Faranda

After I started the firm, began to transact business and became aware of who was who in the Westchester real estate market, I became aware of an entity known as Westchester Real Estate, Inc. After meeting some member brokers and seeing the familiar gazebo logo, I logged onto their website and read the following on the “about” section:

Westchester Real Estate, Inc. is a consortium of the most prestigious, reputable, independently-owned real estate firms in the northern suburbs of New York City, with affiliations throughout the entire NY metro area and beyond. Our unique affiliation means you are connected with the best…the best companies, the best agents, the best service.

We selectively choose our member companies based on absolute professionalism, unwavering ethical standards, significant market share, and dedication to outstanding customer service.

In perusing the member companies, it was almost intimidating. Multi generational, well established firms opened for decades seemed to be the profile of the typical member firm. There I sat in my home office (my parents’ old bedroom) with a $50 used fax and tiny handful of agents. Someday…

Over the years I did business with virtually all the member firms, and in every single transaction I was dealing with a professional.

Today, July 1, 2012 is our first day of official membership in the consortium. “Someday” is today.

Obviously, the mission remains to always do a great job for our clients, or this loses its meaning.

I’ll refrain from more blathering, suffice to say that this is one of the few times I’ll say publicly that I miss my father and older brother, and wish they could be here to share this with me and Ann in person.

Market • Market Statistics • June 25, 2012

Note to Self: Check the Calendar, Stupid

by J. Philip Faranda

A buyer I have been working with has told me that the choices in his price range have dried up considerably compared to years past when he was not ready to act. Another agent with whom I am working with on a deal in northern Westchester County has observed that inventory is down.

These are “anecdotal examples” of market conditions, but, like my gut feeling, they are not scientific, nor are they statistics.

So, I dug back to one of my market reports from a year ago and started to compare the second quarter for Yorktown in 2011 to the second quarter this year. I expected inventory to be down and sales to be up. Instead, I found some peculiar numbers: 27 sales at a median price of $380,000 in Yorktown for 2011, and a mere 22 sales in the second quarter of 2012 at a median of $379,000. Worse, inventory was UP- 156 listings to 150.

The one piece of good news- actually, great news- is that the 44 pending sales this year tower over the 26 at the end of the second quarter least year.

Then, it dawned on me. We aren’t at the end of the second quarter yet. The second quarter ends June 30. This is June 25. And guess when there are a slew of closings? You guessed it, at the end of the month, especially a month like June when school ends. It would just be a smart thing, if I am going to compare time frames from different years, to make sure that, you know, the current year’s second quarter is actually complete before I judge.

Extrapolating from the numbers thus far, the observations look like they’ll be correct. But I’ll wait until early July before I say so. Please excuse me while I drink some coffee and mutter to myself.

Commentary • June 24, 2012

The Rite of Passage

by J. Philip Faranda

About 2 years ago, I wrote a post entitled “You Aren’t in the Real Estate Business” about things that eventually happen to us in the industry that aren’t terribly happy rites of passage. It was a long list, and had the usual pitfalls of our industry- losing deals, foibles of dealing with the public, and other things that make us just a tad masochistic to do this for a living.

As a broker with a team that includes newer agents, it still kind of hurts to see a rookie go through one of these experiences, and just such a thing occurred to one of my newest agents yesterday. She had been working with a buyer for a number of weeks- phone calls, shwoings, emailing listings, picking my brain about how to handle their needs, and then she got the phone call. They bought a home with another agent.

It never occured to either one of us that they were dealing with another agent.
I wonder if those folks realize that unless they close with an agent they put through those rigors that the agent will never get paid for their efforts.

The details of the story are largely unknown to me, and we may never know all that occured when the buyers were not with us. They said it was a home they saw months before meeting my agent, although that really doesn’t make it OK- we still could have helped. If a buyer walked into an open house and dealt with the listing agent back in March and nothing materialized, then got a phone call from that agent that the price was reduced, they could easily have said they would contact their agent and explore moving forward.

Or, they were simply playing the field, operating under the false assumption that using multiple agents would cast a wider net. That’s not terribly honorable, and doesn’t really work out so well for the consumer experience either, since the MLS database is the same marketwide. Some people just disappear; at least in this case we had a heads up.

Early in my career, I devoted an enormous amount of time to a family looking to buy their first home. They contacted me through a mailer I sent their apartment complex, I prequalified them with my mortgage contact and we helped them fix some credit issues so they would actually get a loan, and then we saw dozens of homes together over the months. On two occasions, we made offers that were accepted but fell through because of issues on the seller’s part. When the last one occured on a Friday, I arranged a monster day of showings for them on Saturday, putting everything else on the back burner. They called me that morning and said they were ill and couldn’t make it. The following day they walked into an open house and bought the place directly through the listing agent, who basically told me to jump in the lake when I contacted her. At that time, buyer brokerage agreements were rare.

I’ll never forget when the loan officer called me Monday and warned me that they applied for the mortgage on a home I didn’t sell them after all we’d been through. I’ll never know if the listing agent, who didn’t work for them, arranged the sort of deal they could have procured with true representation. I lost a sale, but I doubt they were ahead either.

What can you say? It happens to the best of us. Welcome to the real estate business.

A Tale of Two Short Sale Forums: Bank of America and Chase

Should Interest Rates be Raised? Probably Yes.

Real Estate Jargon is Terrible Marketing

Is That $30,000 Incentive to do a Short Sale for Real?

Yet Another Reason to Avoid Over Pricing Real Estate

First Half of 2012 Westchester Real Estate Market Ends With a Strong June

Why This Capitalist Opposes Fracking

On Membership in Westchester Real Estate, Inc.

Note to Self: Check the Calendar, Stupid

The Rite of Passage

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