A local lender has informed me that the the minimum FICO score for an FHA mortgage is now 620. I remember vividly getting people approved in the 90’s with scores barely above 500. It didn’t happen routinely, but 580 did.

I find this ironic: rates are fantastic and prices are down, but if someone gets caught in the undertow of the recession they can’t take advantage. It’s like cheap real estate on the moon; all you need to do is figure out how to get there and it’s yours. These people pay taxes to bail out the lenders to the tune of almost a trillion dollars, and what do the lenders do in return? Shut them out. It is just another sign that, stimulus program or not, the lenders don’t want to extend credit.

The FHA program was not broken and didn’t need repair. I am not a “storm the Bastille” kind of guy, but it is a disgrace if lawmakers allow this to stand. I support the banks eliminating bad loans, but I don’t support them only making loans to the elite. FHA is for the little guy. At least, it was.

Inman News has been running stories this month about the supposed controversy and big changes coming to how real estate professionals are paid. Here are some of the headlines:

• The industry debate over compensation
• 6 percent is dead
• A fee-for-service future
• End of the independent contractor
• ‘Offer of compensation’ must go

Did I not get the memo? I’ve heard lots of talk about the Stimulus Bill, Alex Rodriguez taking steroids, and how much of a lock the late Heath Ledger is for an Academy Award, but I never heard that there was a revolution coming in how real estate brokers are paid. I don’t begrudge the frown on the face of a home seller when I sketch out a net sheet on what they can expect in proceeds after their sale. That line item with the broker fee is far larger than the New York Transfer Tax in my figures. But most people agree- that’s baseball! By the time the pie is split between 2 companies and two salespeople, nobody is getting rich on that one transaction. Moreover, when people see the offer of compensation offered by recent sales, they know that it is suicide to offer a smaller commission to buyer agents.

Most of the Iman articles are very long on assertions, but very wanting in facts or a plausible, logical case. For instance, in the article  Offer of compensation’ must go, the author asserts that the MLS inventory ought not have a commission offered to buyer agents. Instead, those agents should be paid by their buyer clients, who will be “empowered,” because the seller isn’t paying the commission. I respectfully disagree. If buyer agents were paid by buyers, buyer agency would virtually disappear; no buyer wants to pay another fee above the largest expenditure of their life when they could have gone right to the listing agent and saved that fee right off the top. Right or wrong, that is human nature.

There is no more controversy about how agents are paid today than there was in 1996 when I was first licensed. You have a small percentage that doesn’t want to pay a commission, and the rest who feel it is the cost of doing business the right way in the largest transaction of their life. However, if you want to get clicks and comments, publishing these articles in a series to as to contrive a movement that does not exist might get you more water cooler attention.

Not long ago, I wrote a post entitled “Brokerage is Alive and Well.” In it, I briefly discuss why real estate brokerage has actually thrived in conditions that have virtually destroyed the brokerage models of other assets, such as stocks. While I in no way would poo-poo any change that might affect my livelihood, I have yet to see the evidence that there is any substance to the controversy other than an effort to stir the pot.

The market is efficient. If there were a better way of structuring real estate brokerage, a new model would have taken root and grown organically rather quickly. It hasn’t. A few well -capitalized ventures such as Foxtons and Iggy’s House  have made waves, but they dried up when the investment capital ran out, because they weren’t profitable on their own merit.

And if something is not sustainable by it’s own merit, it will not bring about the change that some claim is coming.

Many who grew up in Ossining, NY like I did will remember an old, overgrown algae-covered man-made pond near the Chilmark Shopping Center known simply as The Reservoir. It was the Village’s water supply for much of the pre-World War II era, was then was replaced by water towers, and in subsequent decades became a derelict mess. When I was growing up in the 70’s and 80’s the Reservoir was used for skating (AT OWN RISK, as the sign said) and hanging out.

The water towers had their share of graffiti, and nobody really knew what good the Reservoir was. I learned to skip rocks there,and I spent many hours of my youth sitting quietly, watching the water, either alone or with some friends after buying baseball cards and candy at Chilmark Pharmacy. In the Spring and Autumn when the foliage wasn’t too thick we’d ride our bikes around it. I had a 5-speed with high handle bars and a banana seat. 

In the earlier part of this decade, the Village cleaned the place up,  added a blacktop ring around it for walking, installed some park benches & tables, and dedicated it as Reservoir Park. An aerator was installed for the algae, and the towers were repainted. Mayor Perillo was vilified by some for the improvement expense, but most, like myself, applauded the move. It is an extremely popular place to sit, walk the dog, stroll the kids, and spend quiet time. The SKATE AT OWN RISK sign is long gone, replaced by 3 LAPS = 1 MILE.

More thoughts here.

Did you know we can all get rich because of the down market? Today I probably passed the thousand per week mark in email solicitations for websites I have never heard of, who will immediately

• Send me short sale leads
• Send me loan modification leads
• Get me REO business
• Send me fully qualified, “ready to buy now” buyers

and about 30 other bullet points. All I need to do is give them anything from 40 bucks to over $1,000 and I’m in. One pitch was so well done I actually registered on their website for $40 per year (although for a little more I could have had a “lifetime” membership). The same parent company sent me another solicitation, and it prompted me to go to their website and attempt to log in. I was unsuccessful, so I emailed them about the mistake. No mistake, was the reply. Same company, different family of websites. So they aren’t in the business of generating business, I replied, they are in the business of registering agents on their websites for future spam. No reply.

That outfit is getting fat on registrations for utterly nothing. They send a first class letter to bank asset managers asking them to use their directory for BPO and REO agents. Yeah, like that will happen. Can you imagine an asset manager acting like my 6-year old son and saying “Oh! I got a letter!” insead of tossing the junk mail?

Here’s the lesson: Some scheisters out there know that agents are often struggling. So they cyber panhandle these agents, promising to get them out of the doldrums for $50 or $20 per month, or in some cases (such as the now infamous REExperts, who are reduced to a Facebook page after scamming over 1000 agents out of $3500 each), lots more. These are sirens on the rocks. Don’t bite, or you’ll get bitten.

If something were truly worthwhile, as I have told some of the phone scammers, I’d be willing to pay a referral fee from the closed business. That’s far better than $80 per month, I told the guy. But they wouldn’t go for that, because they know it won’t work on their end.

Truly worthwhile endeavors don’t need to solicit you. Be suspicious and keep your money.

Some buyers are reticent to work with one agent exclusively. They think it wise to use more than one agent, perhaps because they think it helps them shop around. Maybe they distrust agents. But that philosophy is tough to manage and it backfires. 

We got a call from one such buyer who turned out to be writing simultaneous offers with different agents. One offer was with our agent on another firm’s listing, and another was with an agent from another company on one of my listings. It took 4 days to piece it all together.

It also got, as you might imagine, very messy. I have a heartbroken agent who jumped through hoops all week with a buyer who ended up not buying the home they found together, and several other headaches, the details of which are too lurid even for a “members only” posting.

I know full well that most people are reticent to sign an exclusive buyer agency agreement with a licensee whom they have known for only a few days. However, it is getting so that some people need to be flushed out early, as regretable as that terminology sounds. We should be more open about the need for that agreement, even for a very short term if need be. I think that most people have more scruples than this buyer, but it all goes back to the importance of the following statement: If you want me to work on your behalf, you need to hire me.

There continues to be a series of article at Inman News about the compensation of real estate agents. The latest article, entitled “6 Percent is Dead,” the owner of a web-based company chimes in with his view. A version of my response is below:

I have not read every article in this series, but the two I have read were written by an agent whose blog paints a picture of frustration who is muses for a salary; and a web-based firm which doesn’t do traditional brokerage in a market where local listing agents have to accompany every single showing (no easy feat).

Inman may get alot of chatter and mileage from these articles, but in light of the failure of Foxtons and Iggy’s House, Real Estate never had the massive Internet-fueled sea change we saw in travel, insurance and stock brokerage, which revolutionized entire industries almost overnight.

I’m also a little tired of people poo-pooing the role agents play in the home buying process. The “I saw it first on the ‘Net so I don’t need a broker” game is tired, inaccurate and obtuse. You saw it on the net first because you were on a broker’s website and they figured out how to make it play into their model. The rest of the process is so clunky, complicated and drawn out that the best brokers who do the most business drive the traffic while working at companies where they can earn the most for their expertise.

In the meantime, non-traditional brokerage remains virtually the same percentage of the market as FSBO was before the advent of the Internet. My own observation is that commissions have risen in my marketplace since 2005, when there was a legitimate question as to how much work it was to sell a listing.

Having an interest in two companies, one “traditional” and the other “non-traditional,” I can see it better than most. Brokerage is needed because of the landscape, the best brokers will work where they can earn the most, and that is why the talk of changing business models has only yielded failed companies and more talk.

Somewhere between the anti-trust cabal of “standardized” commissions and the wildly inaccurate predictions that agents are unneeded because people will add homes to their Internet shopping carts, the market has already spoken. It remains a percentage commission based system. Water falls to it’s own level and cream rises to the top. It is no mistake. Examples to the contrary are anecdotal and less and less common.

Agents are utterly crucial in the transaction of real estate. The best agents who do the most business will work where they can earn the most. Moreover, the agents who are surviving (and some are actually thriving) in the current depressed market are forces to be reckoned with.  Rumors of our demise are premature.

Debbie Clifton wrote a thoughtful piece on how friends listed their house with someone else. I can relate. About two months ago I got an email from a dear family friend. She was my 82 year old mother’s college roommate, her life-long friend, and my oldest brother’s Godmother. She sat with us when we said our last goodbye to my dad and then again with my older brother’s passing. I think you get the picture.

The email said that she had listed her co op apartment for sale and to please keep it in mind if I had a buyer. Now obviously, this friend knows I am a broker. She knows I am a good broker. She didn’t forget about me, because she wrote the email. But she chose another agent without even interviewing me. Am I hurt? No, but I am curious. I certainly could have used the listing (I’d view it as a fairly salable property) and I think I could have sold it by now. It hasn’t sold yet.

I’m not going to ask her why she listed it with another agent. She had her reasons, and talking about them might make her uncomfortable. Maybe she meant to interview me but the first agent she spoke with talked her out of it. This much I know- my mother’s friend owes me nothing. The thing to do is see if I can bring a buyer, and if it expires, make a note to gently convince her that I am a viable option. If she tells me it is uncomfortable to do business with the son of a close friend or something else, I’ll have my answer.

The Universe doesn’t owe me a piece of the action. I have snatched my share of listings from the more obvious or expected agent my whole career. Sometimes the ones that might seem natural for me don’t go that way. On the whole, I win far more than I lose. In the meantime, I’ll try and bring her a buyer. If I am successful, I’ll make some money, feel vindicated, and help a woman who has known my mom for twice my lifetime to get to the next chapter of her life.

Why can’t the hundreds of thousands of NAR members who have to pay for our health insurance as individuals pool our buying power together and get group coverage? I pay $1200 per month for my family’s coverage. We are on our 5th or so insurance company since were were married in 2001 and this is our 2nd go-round with Blue Cross. What an odyssey.

Most if not all real estate licensees are self employed independent contractors. Some of us are married to teachers, union members, and corporate types who have health insurance with their jobs. For those us us who aren’t, we have to pay for health insurance as a small independent business. And we pay through the nose for that health insurance. The NAR has about one million members. Many in our ranks have married our health insurance, so they are fine. What about the rest of us?

My question, isn’t original or new but it isn’t asked enough. Why can’t the hundreds of thousands of NAR members who have to pay for our health insurance as individuals pool our buying power together and get group coverage?

I appreciate what the NAR PAC does on the legislative level. I do benefit from the affinity program discounts and benefits. They offer help with auto and E & O insurance. Good stuff all. But isn’t something wrong with this picture when I pay 1200 clams every month, Joe Blow Realty down the street pays the same, and all the others in town buy the same product and we can’t get a dime’s leverage from our collective buying power? We DO have buying power, do we not? Hell the Long Island Board of REALTORS have their own CREDIT UNION. NYSAR has an endorsed health insurer but every time we’ve looked into it their premium has been the same for REALTORS as for anyone else in the public (we wouldn’t save a dime with them- we’d lose, actually). And when we had GHI ( a prior incarnation of the endorsed) they stunk. 

At the risk of sounding like Dr. Evil, we have ONE MILLION members. That is gigantic buying power, even if parsed down to the state level. I’m all for rent a car discounts, but we can do better.

I want my trade association to do more about this crucial necessity. I pay dues, Lord knows they hold me to high standards, and not enough of us are making noise about this.

I’ll repeat that. Not enough NAR members are making noise about this.  Health insurance is a big deal.

I am home tonight, alone & playing Mr. Mom with the Little Begotten, while Mommy is in Queens cleaning the in-law’s apartment to prepare it for the market. Her parents have been in Seoul, Korea for the past year and unfortunately my father in law’s health precludes him from returning to the States. Sad. Given our busy schedule, Valentine’s day was the perfect day for Ann to spend the day at the apartment.

I’ll miss the place. My wife grew up there. It is the root of all her childhood memories. I remember the first time I was there, in December of 2000, for my first-ever dinner with my future in-laws. I also remember the time we spent there after we were married, sharing a great deal of time together with her parents. My fondest memory of the place was the night Ann told me that we were expecting a baby, all of 2 months after we were wed. It was one of the few times in my life I was speechless.

That baby is now in the next room with his 3 siblings. He’s no baby anymore. Luke is an ebulant 6-year old who loves reading, chess, and building things. He’s also not at all happy that he won’t see his mother until tomorrow, after she crashes at Grandma and Grandpa’s place and takes the train up tomorrow morning.

As much as he feels out of place, I feel out of place too, not just because I am wearing an apron, but because my wife and I will start wearing the hat of home sellers again. Don’t get me wrong; I love the broker we’re hiring. He finishes my sentences. But we too will undergo the process of sweating out showings, feedback, offers, negotiation, mortgage, co op board approval, moving 30 years of life out before closing. It isn’t easy. It will make us better agents, as empathy usually does, but it will be another hat to wear.

And that is why I am wearing an extra hat tonight. Not the most romantic Valentines day, but like John Lennon said, life is what happens when you are making other plans.   

Luke in his hanbok on his Tol (1st birthday) with Grandpa and Grandma

My BA is in English. I am far more of a man of letters than of numbers.  I’ve always sort of disliked math, unless it was related to money or baseball stats.  But there are times when numbers are clearly more imprtant than letters. Take for example a recent conversation I had with an agent on one of my listings:

Me: This is a short sale. It is contingent on price approval from the seller’s lender.

Her: Has the short sale been approved yet?

Me: No, we haven’t had an offer yet. But when we do, I can assure you that we’ll get it done as smoothly as possible. I have done dozens of short sales.

Her: Oh, I am a short sale expert too. I’m a certified pre-foreclosure(or whatever) property expert.

Me: (scratching head, going through metal rolo-dex because I never heard of the person): Oh? How many short sales have you closed?

Her: Well, none yet.

So here we have a person who has paid her money, gone to a class, and gets to put some initials after her name. And the first time she’s on hold for 40 minutes with a loss mitigation department she may well decide she’ll never do a short sale again. And she’ll be cutting her teeth on the file of some poor slob who thinks he’s in good (expert) hands.

I don’t see how it can possibly be anything other than MISLEADING to bill oneself as an “expert” or “certified”  at something one has never done. I think classes are just fine, but many professions require an apprenticeship before giving someone their wings. This is so for appraisers,  electricians, plumbers, physicians and many other fields.

Everyone has to start somewhere, but there are right and wrong ways of getting into short sales. And, believe me, the WRONG way is to fly solo on the back of an unsuspecting public. If you want to earn commission in short sales, there are two good ways of doing so if you are a neophyte:

• Work for a broker who does a high volume of short sales
• Find short sales and refer them to someone who does lots of them in exchange for a referral fee.

I wouldn’t want a neophyte performing open heart surgery on me, defending my life in court, or caring for my autistic son. I want the BEST, no matter what the initials after their name are. It should be the same with real estate transactions that must close to avoid a foreclosure. Sadly, the direction our profession is going is to obfuscate who is truly qualified for short sales, to the detriment of our clientele. It also does a disservice to the GRIs, ABRs and CRSs of the world, whose initials DO mean something of value.

To the consumer: Don’t count the letters after their name, count the number of successful short sales they’ve closed.

Just a random thought, and I’ll feel better after saying it:  the next agent who asks me how I got all my listings (especially the ones in “their town”) will be told the following:

I prospect at funeral homes. I attend all wakes in my area, and I hand out my business card to all the bereaved. I make sure my brochure is in all their lobbies too.

Some people ask innocently. Those I can finesse. Some ask almost out of reflex and they don’t really expect to get the keys to the kingdom. But some deserve the above answer, and you can tell- they have a brief hesitation of actually considering it, their eyes even wondering why they hadn’t thought of it yet.

I’m not the first to express this pet peeve (although my solution is creative). Andrew Monaghan said the same thing a while back with respect to his niche.

You know what? I do feel better.

Remaining in touch is the best way to generate referrals and repeat business. You don’t need lame excuses to remain in touch with old clients. Here are 5 things I’ve done in recent months for people I’ve done business with:

1. Help them grieve their taxes. Unless you sell in an area where prices are rising, the taxes on homes you’ve sold in recent years may be reduced. I just emailed 4 recent sales to someone who bought a house with me in 2006 and it looks like his assessed value should go down by $50,000.
2. Market updates. People are curious about how much a new listing as asking or what a nearby home sold for. Better that they ask me than another licensee.
3. Make them hip to your blog. Past clients may wonder what your thoughts are about the stimulus bill, where the market is going, or just how you are doing in this economy. Tell them. Clients are a built in readership, and they select themselves- no emails for them to delete and they visit when convenient.  
4. Service directory. Most of my clients use the lawyer, lender and home inspector I refer. I also have a filing cabinet filled with plumbers, carpenters, electricians, landscapers, chimney sweeps, heating & cooling firms, oil companies, and other sources that homeowners need. I may not be the good housekeeping seal of approval, but whoever I refer will make me look good for doing so.
5. Network them too! I count among my past clients physicians, restaurateurs, free lance artists, contractors, insurance brokers, roofers, teachers and dozens of other professionals. If someone needs E & O insurance, a tutor, artwork or a new driveway and they ask me if I know someone, why wouldn’t I give business to the people who gave business to me?

Many of us market ourselves by saying we want to be our client’s only agent, or their REALTOR for life. These things are an easy way to make that so.

I sold my first short sale in the 90’s. I have over 10 in my pipeline. I am known in my marketplace for the specialty. Buyers are justifiably interested in the savings a short sale can offer. However, few buyers are prepared for the process, often because it is new terrain for their agent as well. Forewarned is forearmed. Here are some things that you should be prepared for if you have a short sale in your sights:

1. You must be prepared to wait…and wait. Occasionally, we get some short sales where everything just clicks and the thing is done almost as quickly as a regular sale. Those are the exception and not the rule. Typically, and it all depends on the lender, short sales can take months. Here is part of what is going on behind the scenes: the lender’s loss mitigation department is inundated with short sale applications. Often, the negotiators are rotated every 30 days. Faxes get lost. Responses take a long while, and the seller’s negotiator (typically the agent or in New York, the lawyer’s office) can be on hold for an hour waiting to speak with a human, only to hear that they were given the wrong fax number last week. It is a maddening, daily battle. Be glad you aren’t in the front lines. Eventually, it gets sorted out.
2. You are buying the house AS IS. Just like with a bank-owned foreclosure, it is “an as” is transaction, because no principal has the funds to remedy any physical issue with the house. Get an inspection for sure, but understand that unless it is an environmental problem, the lender won’t address anything and the seller cannot financially.
3. You WILL get clear title. In an approved short sale, none of the seller’s back taxes, arrearage or other issues convey to you. The lender is hitting the reset button and releasing all liens. That may not mean that a non-conforming bathroom shed or finished basement is compliant, but financially the title is whole.
4. No, you may not speak with the bank. Some buyers get frustrated with the process and figure that all they need to do is speak to someone and fix the short sale. They cannot. The lender will speak ONLY with the borrower or an authorized party about the mortgage being worked out for the same rules of confidentiality that prevent your bank from talking with anyone about your finances. Even if you were to get hold of a loss mitigator, your input will be as welcome as if you walk into a stranger’s operating room or onto a construction site.
5. You probably can’t “steal” the house. As a matter of fact, your offer may not even be submitted unless it is your best offer. Once the seller’s hardship package is approved, the bank will order a BPO (broker price opinion) or appraisal to ensure that the sale price is in line with market conditions. You might get a $400,000 house for $365,000, but you won’t get it for $250,000. Short sales are good deals, but they are seldom steals. Which brings us to this point:
6. The lender may counter your offer.  The house may appraise considerably higher than your offer, or your offer may indeed be too unrealistic. If the bank counters you, look on the bright side: the finish line is in sight! If the counter isn’t to your liking, the smart move is to counter back. If you simply walk away, you may have nailed the seller’s coffin, who has, in good faith, been working and waiting just like you have been. Negotiate. If the seller chose your offer to submit to the lender over the others, you should operate in the same good faith and negotiate. The lender may still come down some.
7. Once approved, you have a deadline to close. The biggest irony in real estate is how glacially slow lenders are in approving short sales and how impatient they are to close once they rubber stamp one. Typically, it is only 15-30 days to close or the offer is rescinded. Therefore, you should have your act together with regard to your appraisal, rate lock, inspections, and so forth. When that approval come down the pike, you need to be prepared to pull the trigger.

My view is that if the short sale process were easier and more streamlined, the market would stabilize far faster, doing the economy a world of good (are you reading this, Mr. Obama?). Unfortunately, the process we work with now is often bloody difficult more often than not, with lots of moving parts and a shifting landscape. Understanding that going in can lessen your frustration and minimize the confusion of a process that is anything but simple. Few worthwhile things are.

One of the biggest thorns in my side is how Zillow offers to estimate home values for consumers. It never fails to amaze me how I can walk through a home, sit with the owner, apply my 13 years of experience to a detailed market analysis, quote the owner my best price opinion, and then be told with a straight face “but Zillow said it is worth $50,000 higher.” I have had irate buyers call me at 9pm, almost screaming that they just overbid on a home because Zillow said it was worth $25,000 less.

There was a time that I just thought that Zillow hated agents. After watching the site evolve and reading Sara Bonert’s writing, I no longer hold that opinion. I believe that Zillow does want to be a valuable tool. Sara tipped us off to Zillow’s self-published accuracy statistics, which are very instructive.

According to Zillow’s own data, in my own Westchester County, Zillow’s median error is 18.3%. Now, this is Zillows own data, which to me speaks volumes.

What they are saying is that they aren’t throwing agents under the bus, or that they are 2nd-guessing our local knowledge. 

Consumers who use this feature would be well advised to read the small print and take this into account when using the zestimate feature. Knowing that this transparency is evident at Zillow gives me far more peace of mind in dealing with their valuations.   

There is some debate going on in some Inman News stories as to whether or not agents ought to be on salary in order to improve the industry. The author, Buz Hurley, is actually an Active Rain member and has a few blog entries.

I don’t see it. It wouldn’t improve the quality of service, for one thing. It would kill it. I offer as an example the failure of Foxtons here in the New York Tri-State area. Foxtons gave their agents a $35,000 salary and a smart-looking Mini Cooper to drive.

I wouldn’t work for $35,000 if you gave me a Bentley, and that’s why they closed up shop. The best agents, who do most of the business, remained at their companies where they would make more money.  

The market has already determined how we should be paid. Agents who want the security of a salary may not truly be cut out for real estate, or should get a part-time job. I did that in 2000 when I moved back to Westchester and became a loan officer (which, by the way, is also straight commission). I bartended for a year to pay the bills while I built my business. It ended up putting me in contact with some good prospects later on when I started my company.

Commission-based compensation pays us based on our production. The better you produce, the better you’ll be compensated. It ensures that you’ll give your best. I love that. I don’t see how anyone would hire an agent who gets paid whether the house sells or not. Where is the incentive to give your best if the paycheck comes Friday no matter what? I have dug out deck footers in rainy 40 degree weather for Certificate of Occupancy issues just to get a deal closed. Why? I had a commission on the line.

I am sure there will be more alternatively styled real estate companies with agents on salary, but they’ll never grow organically from the ground up- it will always be well capitalized from venture investors and make waves while the money lasts, but they won’t last because security is not why the high producing agents are in our business.

Consumers who hire an agent should want just that-production.