CommentaryReal Estate Tips May 14, 2012

Regarding Agents Returning From Hibernation

We recieved two voicemails from an agent who had called to show one of our listings. They were so over the top nasty that my Queens-native wife and I looked at each other stunned that a licensee would leave a permanent record of such hostility. I recorded the messages and sent them as an attachment to her manager. We’ll see if that gets any response. I’d certainly want to know if one of my team were to act so unprofessionally.

The details were unimportant except to point out that Centralized Showings, the company we use to set appointments for our listings, had the gall to ask this associate broker for her license number to verify her identity. She balked at this, and a big part of her message to me was that her license was not something she typically carried around with her. In looking her up on the MLS, the bulk of her career has apparently occurred prior to the real estate decline. She has not become acclimated with the New Normal like the rest of us who have been working in this environment since 2007 when the sub prime domino was the first to fall.

Some agents are not primary bread winners. They can go into hibernation when the market goes pear-shaped and return when the coast seems clear. The problem in 2012 is that when your experience is all with low-hanging fruit and not the current, more difficult climate, the return is not easy. And yes, that even reaches something as seemingly simple and mundane as setting up a showing. In January of this year, three boards merged to form our current Hudson Gateway Association. This caused some difficulty with 3rd party vendors who rely on membership databases, but the remedy, taking 3 minutes to verify your identity, is simple and harmless. Unless of course you are out of practice and you are still operating like it is 2005.

But the details are unimportant. The next thing that those of us in the industry have to be mindful of is that as the market levels off and improves in some areas, that part time and inactive agents will be returning to the fold with a frame of reference that is completely unfamiliar with the current landscape. And they will be neophytes about new mortgage requirements, short sales, and all the other obstacles that are another day at the office for those of us who have been around. They will get their sea legs under them at the expense of clients who are unaware that they have been primarily on the sidelines for years, as well as those of us who will be on the other sides of transactions with them.

Forewarned is forearmed. Beware the agent returning from hibernation if you are a consumer or an agent who may close a deal with one. As I tell prospective clients all the time, the operative question to ask an agent you are considering doing business with is what they have done the past 12 months. If they make a vague reference to Tommy John surgery or a pilgrimage to a Tibetan monastery, ask about the past 24 months. I wouldn’t want to undergo surgery with a doctor who hasn’t held a scalpel since 2009, nor would I want my life defended in court by an attorney who just returned from 3 years in a cabin. Real Estate transactions can have life changing consequences. There are some agents who have not been very active since 2007 or 2008, and they should be upfront about it.

Market Statistics May 7, 2012

April 2012 Westchester Real Estate Market: Better News

If I were not seeing it with my own eyes I would not believe it. But after witnessing bidding wars on 2 of my own listings, one in Ossining and another in West Harrison, I have to say that the Spring real estate market in Westchester is stronger than I expected. It might be the pent up demand after 4 years of malaise, low rates, the simple societal adjustment to the new normal, or all of the above. But April’s numbers did show an undeniable improvement in a variety of ways.

In total, for April, 2012, there were 283 single family homes sales closed in Westchester at a median price of $550,000.
In the same period of 2011, there were 249 closings at a median of $535,000.

That is just under a 14% improvement in transaction totals and a 2.8% rise in median price.

Year to date, the numbers are almost as encouraging.

In the first 5 months of 2012, Westchester had 1014 closings at a median price of $521,250.
In the first 5 months of 2011, the county had only 971 closings at a median price of $550,000.

Median price is down slightly overall, but the public is buying more.

More good news: The number of homes under contract has spiked to 1239 properties under contract or pending sale, and the median asking price is $659,000. That makes sense; once the lower priced homes sell, “move up” buyers purchase more expensive homes. And that is what we are seeing. But even if we put the median price aside, the number of homes under contract is almost 300 deals more than last month. That tells me that April’s numbers were no anomaly, and that May could end up being an even stronger month.

Lastly, there are 4224 homes available in inventory, giving buyers a plethora of choices. That is still roughly 15 months of inventory. It remains a market slanted toward buyers, but a healthier market at that, and in rare cases, the sellers are starting to gain leverage. Time will tell if this strong Spring ushers in a recovery or is a temporary bump. Given the changes I see in buyer attitudes, we may see an uptick in consumer confidence and the seeds of a recovery.

Check out the available homes for yourself. Conditions may have finally hit the sweet spot where prices and buyer sensibilities have made a match.

 

Commentary May 3, 2012

60 Seconds of My Life I’ll Never Get Back Again

<phone rings>

ME: J. Philip Real Estate, this is Phil, how may I help you?
Telemarketer: Is this Mr. Philips?

ME: *sigh* Yes, this is Phil.
Telemarketer: Hi, This is <Whatever> with <Company>, and I am calling to see if you’d like to do business with the 20,000 people who shop at the Briarcliff Manor  A & P supermarket in every month? Are you familiar with the Briarcliff Manor A & P?

ME: I know the A & P, but I am not going to buy print advertising  on supermarket carriages and walls. We have had more success with our Internet marketing.
Telemarketer: So if someone called and said they found you at A & P you would tell them you didn’t want to sell them a house?

ME: I would never do something that illogical. We are happy to do business with anyone no matter how they find us. I simply don’t think it fair to my clients to devote resources to a marketing effort that is not as finely tuned as my Internet efforts.
Telemarketer:  Don’t you think your clients would appreciate you getting your name out in front of the 20,000 people who shop at the A & P every month?

ME: My clients appreciate that I built my company through marketing  targeted at people who are specifically seeking real estate online, not people seeking milk and eggs.
Telemarketer: OK. Have a nice day.

Buying April 30, 2012

Buyer Mistake: Not Being Pre Approved

I have wagged my finger at both buyers and sellers on the current real estate market, and today it is once again the buyers’ turn. While we are indeed far from an overall recovery, all real estate is local and in Westchester we are in a busy spring sales cycle. In more than a few locales, there are multiple offers on some select, well -priced properties. In those cases, I am witnessing a unique way for buyers to fall on their spear: not providing a mortgage approval letter.

No matter how many times we preach to buyers of the imprtance of being pre approved, there are still those who insist they’ll get one only after they find a house, and there are still to many enabling agents who are willing to show them properties. It is living dangerously of course, because if you don’t know of a mistake on your credit, identity theft or an old debt, you could be in for weeks or months of work you don’t know about until it is too late.

In the sellers’  case, no home owner is going to tie their home under contract with a buyer until that buyer has been rigorously checked out. To not do so would incur the risk of missing out on all those May and June buyers and face going back on the market later in the summer. That is costly, and can easily be avoided in most cases by simply calling a loan officer to verify the buyer’s ability to perform.

In a best case scenario, a well qualified buyer without a pre approval letter can miss a weekend and be outbid by someone with their act together. In those cases, they lose the house. Even if they are comfortably bankable, the house is gone, because they didn’t prove so soon enough and someone else did.

I am seeing two cases where the buyers are out in the cold in the past week. There are competing offers, the other offer has similar price and terms, and guess what? A good solid letter from a lending institution with a loan officer’s signature and direct number for any questions come from their competition. Contrast that with a wink and a promise, and the seller’s decision is easy.

Spring comes but once a year. We are seeing a tenuous balance between the old buyer’s market of the past few years and what we hope is the seed of a recovery, but at the very least a busy cycle of the season. Given the amount of money changing hands in a home sale and purchase, it seems simple enough to spend 10 minutes on the phone with a loan officer to make sure you aren’t wasting your time. Caution is still the operative word on both sides, and it behooves buyers to make sure their house is in order before they find a house they love.

BuyingMarket Statistics April 24, 2012

Cold Spring & Philipstown Market Report 1st Quarter 2012

The first quarter of 2012 for the Cold Spring and Philipstown area indicated a very slow quarter compared to the same period last year, according to the sales data from the Empire Access MLS.

In the first quarter of 2012, there were 3 sales in Philipstown and Cold Spring at a median sale price of $392,500
In the first quarter of 2011, there were 8 sales at a median price of $520,000.

To be sure, it is a slow start.

Currently, there are 7 homes under contract pending sale at a median list price of $299,000. Clearly, the buyer activity is on the lower end of the spectrum.

Buyers do have a unique opportunity: There are 64 homes active and available on the market right now in Philiptown at a median price of $549,450. Does this mean that the available inventory is overpriced? No! It just means that the first quarter trended toward lower cost properties. What is available is an awesome opportunity for buyers to choose from a huge inventory of some great homes in a spectacular area.

The villages of Cold Spring and Nelsonville are charming and filled with convenience and beautiful architecture. The Cold Spring train station is right on the Hudson, down the hill from a beautiful downtown filled with shops, art and eateries. It is a well regarded destination for Manhattan weekenders.

In Philipstown outside the villages, you have bucolic beauty, privacy and lots of room to roam. We have a beautiful sprawling ranch on 8 acres listed that even has its own pond! $474,900 buys it and it is worth it. Click here for more information on this great example of Philipstown real estate.

Selling April 23, 2012

Extend the The Mortgage Forgiveness Debt Relief Act

In the fall of 2007, after the sub prime crisis hit but long before the real decline hit the country in the gut, the Bush administration signed a bill into law that allowed regular borrowers to avoid a massive tax bill for the forgiven debt resulting from a short sale. Prior to that time, people who sold their home in a short sale would often get a 1099 for the discharged debt from their bank, causing them to sustain a tax liability. The Mortgage Forgiveness Debt Relief Act changed that.

It is a good law. Americans facing a foreclosure or short sale already face hardship and financial difficulty, to say nothing of stress. To have a tax bill for money you’ve never seen helps no one.

The law is set to end at the end of 2012. Unlike the tax stimulus of 2009 and 2010, which had to end sometime, the MFDRA should not have to end, certainly not anytime soon. The times we are in right now are actually worse than when the law was put into effect, and while it has helped untold scores of people, there are still more who would benefit from extending the law. Almost 30 million homes remain underwater and short sales remain a huge chunk of the market in many parts of the country.

Right here in Westchester County where a starter home can be over half a million dollars, a short sale can involve clients who are often underwater by six figures. To be destitute and forced from  ownership with the accompanying credit consequences is bad enough; but to owe Uncle Same tens of thousands of dollars on top of that is unfathomable. The citizenry benefits from a capital gain exemption on their primary residence up to a quarter million for  single person and half a million dollars for a married couple. If it simply isn’t the American way to tax people on a capital gain, why should those facing a more substantive hardship on a paper gain?

What will end up happening if it runs out is that more people facing an upside down mortgage (no equity) will instead elect to deed their house back to the bank or hunker down until foreclosure because they fear a massive IRS debt, pushing more foreclosures on the market than we already have to face. Foreclosures have already caused us here in Westchester to lose an average of 25% of property values since the peak, dramatically more in some places. We don’t need a single extra foreclosure. Owner occupant sales, short or not, are a superior alternative. If you complain that a neighbor did a short sale on their house, consider how you’d feel if the place were sold by the bank instead.

There is another consequence to allowing the law to run out, and that is the borrowers who start living off the societal grid out of fear of a ruinous IRS bill. We are starting to see people return to buying again after a short sale now. Would they do so if they had a big tax bill 4-5 years ago when they had a short sale? I doubt it. They’ll hide behind rented curtains the rest of their days. How does that help anyone?

We should extend the law another few years at least if we cannot make it permanent. The millions of people it was passed to help still need that help, and we should not witness them losing protection over something as unfortunate as timing.

Buying April 19, 2012

Êtes-vous prêts? Partez!

25 years ago I was a proud member of the Villanova University rowing program. You might know it as Crew, and we reviled the redundancy of those who would say “Crew Team.” I was a coxswain all 4 years, and my job was not to row, but to be the one crew member who sat in the stern, steered the shell (the boat), and cajoled the rowers down the course. I was the coxswain. And I never said “stroke, stroke,” that is a fallacy. As a matter of fact, much of what I said will remain on the water between me and my guys.

Our home course was the Schuylkill River in Philadelphia, one of the more notable venues in the USA, and there was a regatta (race) virtually every weekend of the spring. To this day, 23 years since my last race, the words “Etes-vous pret? Partez!” get my adrenaline going like few others. The term means “Are you ready? Row!” and those were the words used to start every race. Once those words were spoken, the die was cast for me as a coxswain; The boat needed to be pointed perfectly toward my mark, my rowers needed to be sitting ready with their oars set right in the drink, and their minds needed to be ready to check into The Racing Zone for the next 6 minutes of hell until we crossed the line 2000 meters downstream, hopefully in first place.

In short, once the referee got on the bullhorn and was finished asking “Temple? Set. Penn? Set. Villanova? Set… etes vous pret?…” we knew there was no turning back, no mulligan or do-over, and we had to execute. Like I said, few words get my attention like those to this day.  All our practice, training, missed parties, burning lungs, sore legs, calloused hands and wet socks were meant for that moment. It was go time. Batter up. Hike. Go. There was a moment of time standing still after the question, and when we heard the “P-” of the “partez!,” my guys pulled in synchronized fury.

Every endeavor has that moment when it is time to execute. Stop talking, start doing. In real estate, there are times like that as well, and few embody that go moment like the Spring when there are multiple bids on a well appointed, well priced home and the seller asks for all parties to submit their highest and best. Even in a down market like ours, the circumstance does arise on some special homes. They could have a view of the Hudson that no contractor save God could add. The kitchen could be superior to those of even more expensive homes. Whatever it it, when the listing agent calls for highest and best, the buyer agents know that there will be no second chances, no do overs, and no turning back. It is now or never.

For any buyer who is involved in such a transaction, I have two things to advise:

  1. Suspend your disbelief. Not every house is one where the seller can’t exert leverage. Multiple offers do happen, especially in the Spring.
  2. Your highest and best is your highest, and your best. Bid a number that if you don’t win, you are at peace that you gave it 100%. Don’t offer something that is so high you’d regret acceptance or so low that you wished you had another chance. You probably don’t get a second chance.

To the buyer agents out there, the same advice applies. Sharpen that pencil and advise the client to give their highest and best such that they are at peace with any outcome. It is indeed go time, and there is no turning back. Don’t get bogged down in what happens in a few steps because those you are competing with are going to get their clients prepped and revved.  Our best outcome in college crew was a first place finish, and I as coxswain would be tossed off the dock into the water to celebrate. The best real estate outcome is a happy long term home.

Market April 16, 2012

A Busy Spring Doesn’t Mean the Market Has Recovered

The cyclical nature of the real estate market has always seen a peak in activity in the spring months. We are busy. This is causing a misconception that the market is “turning around” or that we are finally witnessing a recovery. I see many colleagues and sellers alike announcing that the market is back or similar sentiments.

While I am a member, I have never been one to parrot the NAR ad slogans in the media, and I would warn those of you who think that we have turned the corner to exercise a measure of caution. Consider a restaurant that is busy on a Saturday night. There is a line at the bar, all the tables are filled, and the waitstaff is hustling to fill orders. You might conclude that this is a successful place. However, check back on a Monday lunch or Tuesday dinner. They may not be doing so well then, and you can pay your bills from one or two good days.

The same lesson goes for the real estate market. We can’t judge a year based on two or three busy months. We are supposed to be busy in the spring. There should be multiple offers on select, well appointed and aggressively priced properties. But it remains to be seen if a busy April translates into closings in June.

Understanding this will help people avoid mistakes borne of irrational exuberance. Assuming it will always be this way, thinking that our problems are behind us or making plans based on optimistic projections are the very types of mistakes that contributed to our housing collapse. I am seeing sellers resist sensible price adjustments or rebuff buyers because they think another is right behind them. And all too often, when a home remains unsold in the late summer, they wish they could get a mulligan for the buyer they rejected back in the Spring.

I think it is great that we are busy now. I think it is wonderful that people are making offers and contracts are going out on properties that I have listed. But before we start raising prices or strong arming well meaning buyers, let’s do what smart businesspeople do and plan for the worst while we hope for the best. If we are in the early stages of a recovery then it is a fragile time that will not grow from hubris or overconfidence.

BuyingCommentarySelling April 16, 2012

What is a Silent Second Mortgage?

In all real estate transactions involving a mortgage-which is most of them-all details of the transaction are recorded on a government form known as a HUD-1. A purchase can have more than one mortgage- the bank can loan a second (subordinate) mortgage, or in some cases, the seller can hold a second mortgage as well. In Westchester and metro New York, there are three lawyers at the closing table (buyer, seller lender)  along with a title company. And if a second mortgage is permissible by the primary lender and all parties, it is recorded on the HUD-1 and everything is A-OK.

A silent second mortgage is mortgage that is not recorded on the HUD-1. It is considered a “side deal” and is typically a violation of RESPA (Real Estate Settlement Procedures Act). In other words, a silent second mortgage, or any other side deal that is not recorded on the HUD-1 for that matter, is often mortgage fraud.

The temptation to do a silent second mortgage occurs when there is a roadblock in closing a transaction and the parties are trying to avoid the pain of adapting to the circumstances. For example, suppose a house is priced at $400,000 and the seller agrees to a $385,000 sale price with a $10,000 seller concession back to the buyer to help defray closing costs. That would be a $395,000 contract price and the HUD-1 would reflect $10,000 back to the buyer and $385,000 net to the seller.

However, the house does not appraise for the $395,000, but instead only appraises for $387,000. The buyer still needs the $10,000 concession to pay their closing costs, and does not have the extra cash to make up the difference. The deal will therefore either die or the seller will have to absorb the $8,000 shortfall and net only $377,000. The seller is unhappy about this, and proposes to the buyer that instead of the $10,000 being a concession, that the buyer agree to pay back $8,000 to the seller as a second mortgage that is recorded after closing. They cannot put it on the HUD-1 because the mortgage does not allow for subordinate financing. The buyer might agree because they don’t want to lose the house. The seller is trying to avoid netting less money.

This is “fraud.”

While it may be tempting to grease a difficult transaction with a silent second or similar side deal, it can get all parties, including the lawyers and agents, into hot water. And no sale is worth jeopardizing one’s career for. To do the right thing, the buyer either has to get more money elsewhere or lose the deal, or the seller has to take less money. And as much as that stinks for either party, it sure beats losing your license. If something cannot be documented on the HUD-1, it should not be practiced.

Selling April 13, 2012

What is Buying Your Own House Back?

The illusion of the spring market is that of abundance here in Westchester and all over the country for that matter. In spite of the overall down market, April and May are when the buyers are out, looking, making offers, and mainly scooping the cream off the top. Upon occasion, we see a seller get a fairly respectable offer and then fall into the trap of thinking that it is 2005 all over again.

For example, consider a home priced at $500,000 that gets an offer of $450,000, which is not uncommon. A good agent will guide their seller client through the ping pong of negotiations, taking into account the market activity and anything they can read on the other side with the buyer and their agent. A good listing agent will evaluate signs from their counterpart representing the buyer, often speak with the loan officer to double check qualifications, and generally draw on their skill and expereince to advise the seller on maximizing the number that can be gotten from the buyer. After protracted negotiations, the buyer raises their bid to $490,000 (this is a hypothetical example, remember).

The seller is at $500,000. They originally hoped for more money.

They are still getting showings.
Zillow says the house is worth $517,000.
They recall all the work and improvements they made on the place over the years.
A home they were considering buying once they sold comes off the market, taking the edge off the urgency they may have felt a week prior.
Their cousin in Petaluma is incredulous, because the same house out there would be $600,000 easy, or so they say.

The seller, mindful of all these things, makes the fatal mistake of assuming that they could get more money if they held out for another, better offer. After all, these buyers were the clowns who originally offered them a crummy $450,000!

And the seller, against the advice of their agent, tells the agent to make a best and final counter offer to the buyer of $495,000.

The buyer walks and buys another home a few blocks away that just came on.

The seller bought back their house for $5,000. They were the high bidder. They get the house. Again. Three months later in July, they reduce their price to $475,000. They close with another buyer in October for $455,000. That $5000 counter offer cost them $35,000, and another 6 mortgage payments.

This should never happen when a buyer and seller are only 1-2% apart. But it does happen, because the seller is tempted by the sirens on the rocks of the spring rush.

Making that last counter for 1% or less of the asking price of the house is known as buying the house back for $5000. Spring comes but once a year. Be very careful about getting to absorbed in the wheeling and dealing. People don’t want to go back and forth- they want a home. Listen to your agent. If they advise you to take something that close, take them seriously. We all have a story like this.

I know all too well the anecdotes of the pushy agent who jumps up and down for their client to take a lowball offer.  This is not one of those times. When the buyer is within a mortgage payment or two of your number and your agent is telling you this is it, strike while the iron is hot. Don’t buy back your own house for a marginal amount. It could save you far more money in the long run and avoid a protracted extension of market time as a stale listing because you let one slip through your fingers.