Peekskill is one of the older River towns in Westchester County. I have blogged about Peekskill before, and I have done quite a bit of business there. It is by far the northernmost city in Westchester county, and in addition to being affordable, the quality of life there seems to improve by the week. This is the market data for July of 2010 for single family homes in Peekskill, and all information is sourced from the Westchester-Putnam MLS.

Prices are way down. Median price last month was $305,000 and July of last year was $310,000, but this July it was $184,500. There were only 4 transaction with 75 homes actively for sale.

Now is a god time to buy real estate in Peekskill. Get yourself a free Listingbook account and check out homes for sale in Peekskill. It is absolutely a buyer’s market here. 

Yorktown is a larger town in north Westchester County between Cortlandt and Somers. It is is very suburban in character- think post-war/baby boom subdivisions with ranches, splits and raised ranches and with larger colonials in the newer developments. It is served primarily by the Yorktown and Lakeland school districts, and it has abundant shopping and parks. Yorktown has always been a popular place to land for southern Westchester and Bronx residents who wanted to move north to the suburbs. Downtown Yorktown Heights is located at the intersections of routes 202 and 118 and is home to the Triangle shopping Center, the iconic Friendly’s restaurant, The Pennysaver of northern Westchester, and plenty of other commerce. It is also the site of the Drivers License test course, where the Boss recently passed her driver license test. So we love Yorktown right now. 

This data is for the Yorktown school district only and is taken from the Westchester-Putnam Multiple Listing Service. It compares the sales of single family homes from July of 2010 to July of 2009.

Yorktown’s market was a mixed bag this July. June was very hot with 22 closings, so a cooling off shouldn’t be surprising.  Median price was certainly up, but the transaction total was a rather lean 8. However, with 25 homes pending sale there is little to worry about. 

To check out the 133 available properties Yorktown has to offer, register yourself for a free Listingbook account. 

I have posted before about my philosophy with real estate investor clients. I don’t dislike newbies or amateurs, but I sure do a good job of scaring them about the realities of how expensive a mistake in real estate can be. I know investors who spent $400,000 on properties before the sub prime crisis hit, expecting to sell at $550,000. 18 months later, the house sold for…wait for it…$400,000. Did they break even? NO, they lost big time because of the overhead, taxes, cost of money, and carrying costs. The Great Recession created a great many ex-real estate investors. 

Our best investors pay cash, know what they are doing, are risk averse but decisive, and are eager to make a deal happen but not foolhardy. They have gotten people out of hot water, saved neighborhoods from a vacant foreclosure, helped renters buy their first home, and made strong profits for themselves in the meantime. They don’t watch cable TV shows about flipping houses. They are unimpressed by the amount of money they have in the warehouse, because it is working capital, a tool as much as a truck or plow for their respective trade, and typically devoid of ego. Ego doesn’t make money. 

They also are known more for the possible deals they pass on than the few they do make, because there are way more frogs out there than princes. They never speculate on a property or opportunity they don’t fully understand. Warren Buffett was once asked why he didn’t own more stock in Microsoft, and his explanation was a lesson for us all: He’s not a software guy. He doesn’t know the business, and just because the stock does well doesn’t mean he feels right about buying it. Buffett knows insurance (his area of expertise, actually), Cola, Razors, candy, and other products. That’s where he makes his hay. An investor of mine who does well turning cape cods around will never buy a 30-unit apartment building because even though it might have fantastic cash flow, it is beyond the scope of his expertise- maintenance, management, rent collection, that is not something one wants to learn on the fly with huge money on the line.

An investor in 2010 with brains buys what they know. They don’t leverage much, if at all. They take risks that are calculated but not speculative. And they are also intelligent enough to use an agent like myself who speaks their language. 

If you have the funds to pay cash, know the business and the risks, and are looking for a transaction with a good margin, we should talk. 

If you want to learn the business, are not a cash buyer, or just dream of being a big investor, I’ll talk to you. But what I tell you might scare you away. 

The term “Vulture Fund” is used sometimes in real estate and other investments, and, as the metaphor suggests, is money earmarked for the purchase of a distressed asset. Often the instrument purchased is debt; if you have a loan or credit card you go south on, after it is charged off by the creditor it goes on the secondary market, and there are entities like collection agencies and lawyers who buy the debt for pennies on the dollar and then go after YOU for the full amount, plus interest and fees. 

A Vulture Fund in real estate is not exactly the same. Simply put, a vulture fund in real estate is money used to buy a distressed property. It could be a foreclosure, a home with a defaulting mortgage, divorce situation, or other seller who needs to sell so badly that they will trade off time and certainty instead of holding out for top dollar or “market value.” With the property values in Westchester County, the reward can be high, but the risk is considerable. Two years ago, former New York governor Elliot Spitzer made the news when he considered starting a real estate vulture fund. 

While the name is rather pejorative given the form it takes in other assets such as debt instruments and stock buyouts, in real estate a vulture fund venture is often preferable to the cycle of receivership, where the lender takes over the property and the area gets another vacant foreclosure. Often, real estate investors who operate so-called vulture funds here in Westchester and the surrounding area are getting a distressed seller out of hot water, preventing a foreclosure, saving the credit of the seller and sparing the neighborhood from another blighted property. Are all operators like that? No, some are indeed opportunistic to a fault. However, the investors we are fortunate to work with have a heart. 

If you hear the term “vulture fund,” ask about the context. One of my investors is very different from a debt collector. Often they are at opposite ends of the spectrum. 

Earlier this summer I was contacted by a Manhattan resident who found me on the Internet and wanted me to show her and her husband some seven figure priced homes in an affluent suburb about 2 towns over. They chose me for a number of reasons, and our communication prior to our first meeting was promising. I scheduled 5 homes that fit their criteria and met with their approval, and we met at the first home, which was one where the listing agent was to accompany the showing. This is rather common in higher priced homes, and all but one showing would be accompanied. I don’t consider it ideal, but the bigger and more complex a home is, the more value a professional listing agent can bring. 

I said a “professional” listing agent. 

As we walked through the home, the discussion rapidly evolved from all the facts about the house and its features to my buyers, where they live, what they do, why the town we were looking in appealed, and so forth. Now I am watching the listing agent chatting with MY people about THEM. This woman was standing in a master bedroom kibitzing with my people about Manhattan neighborhoods and where SHE lived 25 years ago. 

You see where this is going, right? 

• Prohibition 1: “Did you, Are you, Were you, Will you” In other words, engage with the buyer in nothing personal. It’s not your job to bond with them. You don’t need to match their intimate, personal needs with the house. That’s their agent’s job, and it may be done in a half hour at a coffee shop. I’d just have you sitting at the kitchen table reading a magazine, but if you have to trail us, play it straight. 

Then the phase 2 of client meddling began: “Did Phil tell you about the Park and Ride for the commuter train?” “Did Phil tell you what week of June you can grieve the property taxes?” ” Did Phil tell you how much train station parking passes are?” Of course we just met, so the answer was no. And this “professional” agent with the $2 million listing proceeded to subtly chip away at my new relationship with the buyers who chose me after research and work online. 

They never called me again. The houses, and we are talking about 5,000 square foot homes with all the trimmings of affluence one could expect in suburban New York for $2 million, were put in the back seat. 

• Prohibition 2: “Did your agent tell you…?” There is no upside to this question, and it is a not so subtle way of disempowering the buyer agent. Buyer agents do not always have an opportunity to recite a master’s thesis on all the nuances of the surrounding community, the history of the subdivision, or the extracurriculars offered in the local schools. I’ve got news for you: if your listing doesn’t feel like home, it won’t matter. 

Now, anyone who knows me will rightly conclude that I am not the sort of guy to take this sort of thing sitting down. The rather overt passive aggressive suggestion that a buyer is with the wrong agent and not the local expert on the diner menu or PTA minutes is not working for the seller, it is working for oneself. And it is not professional, it is mercenary. That’s another blog.

Here’s the upshot: If you are a listing agent accompanying showings, the buyers are not your client. They are there with the agent they have selected and you need to respect that. Sell the house. Blab all you want about why the owner chose the bamboo floors, Venus de Milo faucets on the master bath tub, and kitchen island shaped like Guam. Play it straight, because you might be doing a deal with the buyer agent and you need good will going forward. 

Epilogue: This post started as a draft earlier this week. I have since heard from the prospective buyers, who emailed me back that they wish to remain in the city for now. I believe them, as none of the homes we saw that day with that listing agent have sold yet. 

Epilogue II: If you like this post, you might be interested in my thoughts on this post: 

Banning of Yield Spread Premium is Death Knell for Mortgage Brokers

Three days ago, after 43 years of life, 9 years of marriage, and 4 children, Ann passed her drivers test. I know it may sound crazy that a suburban wife and mother, to say nothing of a partner in an active brokerage didn’t drive, but that was how things were. When we met in 1999, Ann lived in Queens, New York, and many city folk don’t drive because they don’t need to with the subway, buses and cabs available. And that was how it was with her. We moved to Westchester not long after we got married, but we kept putting off the license because of babies, business, babies, life, and, um, babies.

Suddenly, it was 2010, we had 4 children who needed shuttling to everything, and we had only one crazed driver and a stir crazy mom at home. It wasn’t easy taking the kids to activities and being there for every grocery trip. So, this summer, with all the kids at camp and no pregnancy to deal with, we prepared Ann in earnest for the test. Not to take it; to pass it. There was plenty of practice, good coaching from yours truly, and about 100 parallel parks. In early August I told Ann she was ready and to register for her test. It was a little scary, but we got August 17 as the Big Day. She passed with flying colors. 

On the way home, we both exhaled like we had after one of the kids was born. THAT’s over. I told her I bought my last maxi pad, and she laughed. She’s already taken Catherine to the grocery, run errands, and taken the brood to the park. She has the ability to get out of the house now, and I no longer have to worry if I am not close and someone needs to be driven. Like many good changes, we wonder how we did it before. 

Just a friendly reminder from a New York -based broker swimming in the shark tank of liability that discussions between brokers on commissions, M & Ms, jelly beans, or anything relating to compensation for brokering real estate is a big problem and potential liability for your broker. Two agents constitute discussions between two brokerages. 

Big problem. Not a little problem. A big problem. I am talking about a 5-figure fine. Capeesh? 

If an agent from Broker A brings up commissions to an agent from Broker B,  if the Broker B does anything other than, say, run away or politely change the subject, the two brokerages could be engaging in price fixing. This is not reactionary, goody two shoes or paranoid. Cases brought up on Sherman Anti-Trust examples include a broker announcing at a cocktail party that he was raising his commission within earshot of other brokers. It doesn’t matter if the post is Members Only, veiled in jelly beans, or only discusses a buyer agent commission. You expose yourself and your broker to massive liability in bringing up or engaging another licensee on the subject, and there is no upside to the matter. It is simply not an envelope prudent licensees should ever push. 

One blog post on Active Rain this morning even had discussions of boycotting a broker who didn’t pay enough. Another comment mentioned an industry standard. Talk about a hornet nest. 

All commissions are negotiable. Period. You do what is in the best interest of the client. Period. 

If you disagree with me, ask the compliance officer at your association. Watch his lips quiver. You simply cannot do it, and especially on a platform with Active Rain’s reach, you can cause catostrophic damage to your firm. If you have to ask if it is an anti-trust problem, it probably is. 

I originated mortgages full time for 5 years in the early 2000s. I worked for both mortgage brokers, who place loans with 3rd party lenders, and, as they are termed in New York, mortgage bankers, who are direct lenders. Up until recently, it was hard for a guy off the street to distinguish between the two- the mortgage application verbiage used and process, to the borrower, was pretty much the same. Even as a loan officer, I saw enormous parallels: the qualifying software was the same, and the rates and pay structure were similar. We either earned money on the front end paid directly by the borrower, often referred to as “points,” or were paid on the back end by the lender in the form of a Yield Spread Premium (YSP) for brokers or a Service Release Premium (SRP) for bankers. The nomenclature differed, but the net effect was the same: the higher the interest rate, the higher the commission (premium). 

When the Subprime Meltdown hit in 2007 and the Financial Crisis hit in 2008, mortgage brokers carried the PR chum bucket for bad loans. Even though Ameriquest, Countrywide and dozens of other major players who were direct lenders failed, it was mortgage brokers, and their yield spread premiums that were often the culprit in both the cyber world and polite company. There were arguments over the true purpose of the YSP. 

The banking industry and major media, in their best mad as hell voices, lobbied hard for YSP to be outlawed, and this past week, they succeeded. Yield Spread Premiums are now against the law. 

From the Fed: 

Today, lenders commonly pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (commonly referred to as a “yield spread premium”). Under the final rule, however, a loan originator may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers’ loan costs, such as by increasing the interest rate or points. Loan originators can continue to receive compensation that is based on a percentage of the loan amount, which is a common practice.

As with many governmental “solutions,” this is outwardly politically expedient but will only hurt the public in the end. Why? Because the playing field is now completely tilted in the favor of large lenders, who keep their version of YSP. Smaller lending entities who previously dealt with brokers will be elbowed out of market share, and mortgage brokers now play by rules so severely tilted against them that they will go out of business. The baby has been thrown out with the bathwater, because brokerages, for all their flaws, were serving a need the bigger banks would often not. 

The Service Release Premium, the banker’s equivalent to the Yield Spread Premium, is still legal. Direct lenders get to play by their own rules now. Whether you agree with the YSP or not, banks still have the back end option with SRP. Brokers, who often had the capacity to place a loan with literally dozens of lenders, do not. Whatever abuse there was with YSP is still available to lenders in the form of SRP. The lobbyists saw to that. It wasn’t enough that YSP was required to be disclosed on the HUD-1 while the bankers SRP was not; they had to kill it, and cut the jugular of brokers. Who needs competition? 

Here’s how it plays out for the borrowers in 2011: If you have good credit and are a W-2 employee, you can call your own shots the same way it has always been. But if you are self employed, have less than great credit, or need a niche product in our diverse society, you’ll have no mortgage broker to find that specialty loan. Instead, you’ll have your choice between a large, monolithic lender’s single portfolio and a small community bank, both of whom will scoop the cream off the top and throw the rest back, with the exception of their Community Reinvestment Act requirements. There will be no mortgage broker to find your niche product because they won’t be able to operate profitably. 

Banks already adjusted to the stupid things they were doing 5 years ago. Underwriting a loan now is as hard as it ever was prior to the Federal Housing Administration’s genesis in the 1930s. We are rapidly heading toward a world where large big box lenders will be like huge telecoms, with consumers choosing either their loan portfolio or renting. Smaller community banks will be there for well credentialed people, and ironically, the folks who screamed about killing those evil brokers who were opening doors the big banks wouldn’t open, will lament their extinction. Who loses? You. Big banks just did an end around past their most egregious offenses and the government played Washington General defense for us. 

Happy? 

My prior posts on Yield Spread Premium