Commentary • May 3, 2012

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

by J. Philip Faranda

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

by J. Philip Faranda

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.

Buying • Market Statistics • April 24, 2012

Cold Spring & Philipstown Market Report 1st Quarter 2012

by J. Philip Faranda

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

by J. Philip Faranda

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!

by J. Philip Faranda

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:

Suspend your disbelief. Not every house is one where the seller can’t exert leverage. Multiple offers do happen, especially in the Spring.
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

by J. Philip Faranda

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.

Buying • Commentary • Selling • April 16, 2012

What is a Silent Second Mortgage?

by J. Philip Faranda

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?

by J. Philip Faranda

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.

Commentary • Selling • April 12, 2012

Name Recognition Means Nothing to Home Buyers

by J. Philip Faranda

If you are searching for homes online, do you care who the listing broker is?

I’ll go out on a limb and say that unless you have had a specific negative experience with an agent or broker, if a house fits your needs you could care less if it were listed by Attila the Hun, Rasputin, Herbie the Love Bug, or Kronos, Ravager of Planets.

This goes for both consumers and buyer agents. Most sellers get this, but a select few make the mortal error of listing with a name rather than the merit of an individual agent. That can cost. If you want to sell real estate in 2012, you have to understand how buyers and buyer agents think. They input their criteria into the search fields and hit “enter.” The results will come out in a list of homes, and they sift through the places to separate the best from the also-rans. Among the highest regarded choices, curb appeal, condition and price rank highest among reasons for a home making the short list.

No one chooses (or eliminates) a home because of who the listing agent or broker is. It is antithetical to the process. Do you care where the peanuts in the peanut butter were picked? No, you just want peanut butter. Do you care who installed your toilet? Probably not, as long as it flushes. Yet there are a few sellers out there that are hung up on the name recognition of the broker as if buyers care. They don’t. Buyers are tuned in to WIFM- What’s in it for me? I never in 16 years ever heard a buyer say “we bought the house because it was listed with ABC Properties” or “we want to see this house because it is listed with Joe Agent.”

Sellers should hire an agent based on that agent’s qualifications whether they work for a prestigious firm with a name that sounds like a high end law practice or if they work for a mom and pop. It isn’t the company. It is the agent. Their track record, their marketing plan, their references.

Track record.
Marketing Plan.
References.

Those are the things that should matter to the seller. Name recognition is the booby prize. It may sound nice, but it doesn’t sell houses.

Real Estate Tips • Selling • April 11, 2012

Offering a Credit is Inferior to a Price Reduction

by J. Philip Faranda

The market in Westchester County is very price sensitive; with a median price above $500,000, that is understandable. The stakes are high, and goofs cost dearly. In some markets, a cash poor buyer may be attracted by a seller incentive of sorts, such as a small credit for closing costs or repairs. However, there is no way to search for such an offering in our marketplace; you can search by price point, square footage, location, school district and even physical amenities like pools or garages, but givebacks are not a criteria.

The same goes for homes listed where the buyer agent is offered a bonus or enhanced commission. Even if we wanted to get paid more than average for selling a house, there really is no plausible way to convince a client to make a place theirs if it doesn’t feel like home. If they love a place, they’ll want it no matter what their agent is paid. If they hate a place, you could offer me the crown jewels; there is no ethical or pragmatic way to make someone buy a home they don’t want. Buyers are, therefore, often leery of what could be perceived as a gimmick.

My experience with sellers who offer a buyer a credit or their agent a bonus is that they have an attachment to price above net proceeds. Money does talk. And it speaks loudest in the list price. If a sellers wants to throw some money at making their property more attractive, it should be in the form of a price reduction. If a buyer needs help with closing costs, they’ll already know that on the advice of their agent and loan officer and structure that in the offer for the place they want.

The danger with offering a giveback to either buyers or agents is twofold. First, it does not make the place more visible as I explained. But worse, even when a buyer makes their offer and negotiates a seller down from asking price, they will still want their credit back! For example, consider a home listed for $509,000 and the feedback is that the main bath is outdated, and maybe the carpeting is drab. My advice to the seller would be to lower the price to $499,000 for a higher perceived value and more eyeballs on the property. But instead of reducing the price, the seller instead instructs me to offer a $10,000 remodel credit to the buyers. A buyer comes along and negotiates an accepted offer of $488,500. And sometime prior to contracts they’ll also demand that $10,000 credit. Now we have a problem.

There are those who say that the credit can be taken out of the negotiations to avoid suck a pickle. Not that easy. Once offered, you can’t put the smoke back in the cigar. If the credit is for a full priced offer, the buyer will simply view it as a price reduction from the outset, or money the seller was already willing to part with, and use that as a baseline. If a full priced offer is not a condition of the credit, then its removal is viewed as a bait and switch. In other words, it causes more problems than it solves.

If you are a seller, and you want to throw more money in the pot to move a property, do it where it speaks the loudest and with the fewest complications: lower the price.

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

Buyer Mistake: Not Being Pre Approved

Cold Spring & Philipstown Market Report 1st Quarter 2012

Extend the The Mortgage Forgiveness Debt Relief Act

Êtes-vous prêts? Partez!

A Busy Spring Doesn’t Mean the Market Has Recovered

What is a Silent Second Mortgage?

What is Buying Your Own House Back?

Name Recognition Means Nothing to Home Buyers

Offering a Credit is Inferior to a Price Reduction

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