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Friday, January 28, 2011

Two wrongs do not make it right...

I’ve been losing a lot of listing opportunities lately because I won’t play the overpricing game. I work hard to explain the current market to potential sellers, to analyze and position their home in that market and provide plenty of market data to justify my pricing advice. I also alert them to the dangers of finding someone who goes along with their fantasy pricing, just to get the listing; however, the lure of a good lie seems to win the day all too often.

I feel better about being honest and not going along with an ego-inflated starting price, just to get the listing; however, way too many desperate agents in my area seen to be willing to list homes at whatever price the seller wants, just to get the signage exposure. I’m sure that they have plans for talking the seller down on price over time; however, by then the market will have by-passed the house and they will be continually playing catch-up. Have they really served the best interests of the seller by doing that?

I know that the response to this post will be that it’s often better to wait and be the second or third listing agent for sellers like this. By then they have worn themselves down and are usually more realistic about price. Unfortunately, they may also be deep into default by then and headed for a short sale or foreclosure. In the realm of shady practices, I suppose this ethical lapse is relatively minor, compared to some of the other things going on in real estate right now. Still it is that first “little white lie” that puts one on the slippery slope of ethical failure that leads ultimately to the types of real estate fraud that we see in real estate horror stories.

So, I’ll stick to my guns on pricing to the real market and not agree to list at some imaginary market price that the seller might come up with. After all, when they are wrong on price; if I agree with them, that is just another wrong and we still don’t have it right. If we can’t start the relationship on an honest note of mutual agreement and trust, then it’s probably not a relationship worth having. I may lose a few listings, but I sleep well at night.

Wednesday, January 26, 2011

How much adjustment is too much adjustment?

I see lots of articles about the home price adjustments that have com about in the current recession. Some parts of the country have experienced little in the way of adjustments because of the recession; while other parts of the country have gone through depression-like price slides. Looking into it a bit, it would appear that certain parts of the country just didn’t engage in the kinds of mass self-delusion about real estate values during the so-called “housing bubble.” Having not run the prices up rapidly, they really didn’t have any false value to lose when the bubble burst.

There are many theories as to why certain parts of the country didn’t get themselves into the trouble that the rest of us are going through. One explaination that I think might make sense is that those states may not have been influenced by the big, reckless banks/lenders that led the inflationary charge – lenders like WaMu and BOA and CountryWide. Perhaps the banking laws in those states were different and worked to discourage those cowboys of the lending world from taking over the lending business there. Perhaps there were some basic value differences within the citizenry (as they might claim) that made them more conservative; however, I believe it is more likely that the citizens were somehow protected by state banking laws from the lure of the cheap and easy money that was flowing during those heady years. The big money went to where state laws made it the easiest to lure the suckers into the game.

But, now we are in the adjustment period, where artificially inflated values have fallen back to earth and in many cases well beyond. That begs the question of how much adjustment is too much. There are creditable sources who put the inflationary run-up at about 40% over the course of the bubble build-up. If that is true, or even close to true, then we have certainly reached the equilibrium point locally and gone beyond. Home values in this area have dropped between 30-40% since the 2005/6 peak and are still dropping, albeit now at a slower pace. One wonders, just how far will the local market fall below what would have been the expected normal value, at a historically adjusted appreciation rate?

This is likely an overshoot on the down side and some adjustment will need to be made to get things back to where they should have been. Some areas locally have already greatly overshot the mark, falling 50% or more in places like Detroit, Pontiac and Ypsilanti. I mean, once you get down to the point where houses are selling for under $5,000, how much further can you go? It is certainly possible right now in many of those areas to buy houses for less than the assessed value of a vacant lot.

Some of the continuing drop is due to the unemployment situation in those areas, where unemployment rates approach 50%. After a while the combination of falling home prices and stubborn unemployment tends to become a vicious cycle that feeds upon itself. So, how much is too much? I think we are there already in this area.

Hopefully, we can reach the inflection point needed to start back soon. In the economy in general, the Fed tried to use what is effectively a zero interest on money to help restart the economy. In housing in many areas locally we are approaching a zero cost point. That has attracted a flurry of investor buying and we are rapidly turning our cities into rental property zones. Maybe that is our fate locally – a retreat from home ownership, back to the old days of the row tenements of rental apartments and houses. A pity perhaps; but, maybe inevitable.

Tuesday, January 25, 2011

The unthinkable has happened...

When one is as digitally dependent as I am for my businesses and my communications it is almost unthinkable that my main portal to that digital world could crash; but that's what has happened. Yesterday the disk drive in my laptop bought the farm. I had a hard windows stop and then nothing. The thing just wouldn't boot again. I suspected the disk drive right away, but hoped against hope that it might be something else or (foolishly) that somehow the disk drive (or the data thereon) might be able to be rescued. It was not to be.

The repair shop tried everything they know, but the disk is toast. They did say that they know a company that can take the disk apart and try to reconnect pieces to other components in order to get the data off - but for a hefty price. I won't go that for to save myself the work necessary to rebuild my digital world.

Fortunately I do have backup software; but, like most I don't use it in as disciplined a fashion as I should. As luck would have it, I did do what I hope was a good image backup just 10 days before the crash. I use Macrium backup software, which is supposed to pull a full image backup of my C drive. That would save my bacon, if I can now get it to restore. I've been a naively trusting soul up to this point, so we shall see.

Like the panicky miscreant swearing to God that he'll lead a Godly life if he is just rescued from whatever mess he is in; I've been swearing to myself that I will be more diligent about making at least weekly backups, if only this backup image works when I try to restore it. The other thing that something like this gives one pause to ponder is how much of the stuff that is in that backup I really need? As I took stock of the things that would be a major pain to have to manually recreate, I realized that there is much more stuff that I have been backing up that I really don't need and should probably discard.

I'll keep you posted on how the restore process goes. The shop that is repairing the laptop is putting is a bigger disk (they no longer make the smaller type that was in mine before the crash) and reloading the OS and basic apps. That means I still have a bunch of apps to reload, which for many will mean having to find the registration codes for them and then updating them again from the base level that is on the disk or in the original downloaded install files. That will be the major time consumer. It's going to be a looooong week.

Monday, January 24, 2011

Expanded real estate statistics available...

If you live within the market areas that I cover and report upon there are now new statistics posted on my Web sites - www.movetomilford.com and www.themilfordteam.com

I have expanded my weekly coverage of the homes that have sold in the area to now cover nine local markets - Milford (Village and Township), Highland, White Lake, Commerce (including the Villages of Walled Lake and Wolverine Lake), South Lyon and Lyon township, Brighton (City and Township), and now West Bloomfield Township, Green Oak Township and Hartland (Village and Township).

You will be able to find weekly updates on what has sold in those markets, along with a running Year-To-Date total for each. There is also historical data going back three years for some of those markets.

I report the listed (at the time of the sale) and sold prices and calculate the percentage of listed price that the sold price represents. I also report the State Equalized Value (SEV) for each property, which represents 1/2 of the assessed value. I calculate the sold price as a multiple of the SEV to see how close to 2.00 it really comes. In addition, I show the days on market (DOM) for the house, as well as the square footage of the house and then show listed price per square foot and the sold price per square foot.

I think these statistics are of value to both sellers and buyers. Sellers can get a realistic and current look at the market in their area to help them with pricing of their own house for the market. Buyers can also get a feel for the local market before deciding upon a offer price.

So, visit either of the sites shown above and click on the Real Estate Statistics choice or the What's sold locally choice to view the latest reports. The, if you are a potential seller, give me a call and let's discuss how these statistics relate to your house and the price that you might get. If you're a buyer just starting on your quest for a new home, use these statistics to show you where the best deals might be, then call me and I'll set up a an automated search for you in those areas and show you the homes that you think you'd like to see.

Monday, January 17, 2011

Intrinsic value – no such thing for houses…

Recently I blogged here about appraisals and the negative impact of low appraisals. That begs the more fundamental question about the value of houses, which may be explored by trying (as we all do) to answer the question, “What’s my house worth?”

The correct response to that question should be another question back to the homeowner – “Worth to whom or for what purpose?” In reality most homes have little or no intrinsic value. There is value in the land that the house sits upon and if one reduced the physical structure to piles of the wood, metal, glass and other content that make up a house, there would probably be some salvage or scrap value to those materials.

There are many different ways of looking at or determining the value of a home, depending upon who is asking and for what purpose. There is what we realtors try to determine and hope to achieve, which is the so-called market value – what is someone else willing to pay for the property. Then, as was discussed in the blog about appraisals, there is the loan value of the house – what will some lender loan against the property. That seems to be some factored variation on the market price. Then there is the assessed value – what the local tax assessor says the property is worth for tax purposes. There is also an insured value – what your insurance company says it would cost to rebuild the house if it was totally destroyed.

Which of these “values” is correct? They all are. They are values that are established for different reasons and to serve different purposes. Realtors certainly hope that the market value that they come up with and list the property for sale at is close enough to the appraised value of the buyer to be able to get whatever mortgage that they need. Homeowners are conflicted. They would like the assessed value for tax purposes to be as low as possible, but they want the appraised and market values to be as high as possible when it comes time to sell. The homeowner might also wish that the replacement value, which drives the insurance bill, was a little lower.

Some homeowners might be surprised that the efforts that they made to lower their tax bills, by fighting with the local township or city over the assessed value could come back to haunt them. After all, Realtors have access to the Public Records Database (PRD) and the homeowner than was successful in convincing the tax assessor that his property is only worth $200,000 can very well turn around and claim that it is really worth $400,000 when it comes time to sell. Well, he can; but his listing agent will have some explaining to do to potential buyers and their agents.

The insurance thing is a bit more complex. I’ve had owners tell me that they won’t sell for less than the place is insured for – the replacement cost. That’s not a very realistic view of things. A home built for $100,000 in the late 80’s might have a market value of $200,000 today, but is could also have a replacement cost of $300,000, just due to the impact of inflation and current building costs today. Insurance values are based on things like square footage and finish quality and the current cost per square foot to build a place of similar size and quality. In some cases, replacement would really be impossible. I live in a historic home that was built in 1885. If it is destroyed no amount of rebuild money will ever really replace it.

So what is the value of my home? I bought it in 1999 for $305,000. It went way up in “value” during the boom (at one point nearing $400,000 at market prices) and then way down in the bust (now hovering around $275,000 at what I estimate its market value to be). My insurance company has it insured for $425,000 to rebuild, but the tax man says it is only worth about $260,000. I don’t know what an appraiser might put it at, and I suspect that I don’t want to know right now. Which of these number represents what my house is worth? All of them, depending upon who is asking and for what purpose. So, what’s your house worth?

Sunday, January 16, 2011

Appraisals killing deals…


In essence that’s what a page 1 story headline said this morning in the Oakland Press here is Southeastern Michigan. The story, which had several accounts from would-be first-time buyers basically was focused upon the role of appraisers and the HVCC guidelines in several real estate deals that went south after accepted offers. One appraiser was quoted as saying. “It’s not my job to keep your real estate deal together;” apparently in response to complaints by a Realtor of a low appraisal.

I’m sure that appraisers hate these types of stories because they end up with explanations that are way too simplistic for a very complex situation. The story had the usual complaints that the HVCC system resulted in appraisers who were not familiar with an area being assigned by appraisal management firms to do appraisal work there. That argument makes the assumption that the appraiser is somehow not competent enough to do the homework for the area that he/she needs to compensate for a lack of intimate local knowledge. That’s not an argument that really holds water, especially for appraisers with lots of years in the business. Just like a Realtor can do the homework in order to competently show houses in an area that they may not usually work in, appraisers, I’m sure, can and do put in enough time on-line and perhaps in the area to gain a sense of confidence about the appraisals that they render.

Another line of reasoning in the article is probably more valid and that has to do with appraisers being a lot more conservative these days with appraisals. The article sited the wild, pre-bust days of appraisals somehow always getting to the number that was needed to do the deal for contrast. I suspect that it is true that appraisers are receiving assignments from banks who do want them to bake in some level of risk of further price erosion, due to the continuing decline of the market. One can call that being conservative, but it is really just being risk-averse, which is the stance of most lenders these days. It’s really just the inverse of the boom days, when Realtors, lenders and appraisers baked in continued high levels of appreciation into the analysis for every loan.

So, is there any real evidence that the appraisers themselves are contributing to a continued and self-fulfilling downward home value spiral? I suppose that like the overshoot on the up-side, when homes were appreciating at double digit rates, there will be some overshoot on the downside, too. But that is not the fault of a single set of practitioners within the real estate process chain?

At the base of the problem are the lenders themselves who have overreacted to the beat down that they’ve taken form prior bad loan decisions. Then the Realtors involved have perhaps contributed by allowing (maybe even encouraging) low-balling by clients on almost every deal. That can’t help but drive values down for everybody. Perhaps some of the appraisers themselves have made mistakes or used bad comps or ended up caving in to guidance to be conservative in the appraisals, but I suspect that HVCC allowed most of them the freedom to at least think that they no longer had to be beholding to any of the parties involved.

Most appraisers that I’ve met or worked with really do believe that they are rendering honest and supportable valuations for the homes that they appraise. I may not like it, but I have no particular reason to doubt it. None of us are happy with where values are right now and where they are still headed. In my own research, it looks like the appraisers are doing a much better job that the local assessors in keep up with the market prices.

The article pointed out that HVCC will be replaced this year by new rules that have come out of the financial reform law that was passed last year. Apparently the new law will retain the arms-length relationship barrier between the lenders and the appraisers, but encourage more communications with others (read that as Realtors) involved in the sale. Many Realtors had already found ways to at least get valid comps to the appraisers and this may allow more information about a specific area to be exchanged. Unfortunately it appears that the much hated middleman - the appraisal management companies – will still be in the loop. These companies are disliked by both the appraisers (because they effectively control the pay for the services and have cut what an appraiser can make) and the Realtor involved (because they are the one supposedly responsible for making “out of area” assignments).

We shall see if the new law makes any difference. I suspect that thinks aren’t going to change much until we get more stability in the market, which means that we need to get through the next round of foreclosures and short sales and get to a point where those sales are no longer dictating market pricing (no matter who says they don’t use them). Until the banks feel better about the market and the appraisers feel better about the direction of the market, we will continue to have this conflict between how we, as Realtors, want things and how the market dictates they will be.

Saturday, January 15, 2011

Getting prepared...studying the numbers...

How many times have I heard, “My house is worth what?”, when I delivered the bad news about the current value of someone’s home? Some of these were homes that I helped the owners buy back in the early 2000’s. Even with all of the press and TV news coverage locally, many people just cannot deal with the 30-40% loss in what they thought was the value of their homes or at least what it was when they bought.

I’m doing some research this weekend, in preparation for publishing yet another post on the impact of the recession locally and to use in listing meetings I’ve decided to look at three typical sub-markets within the market that makes up the little Village where I live. I will take a look at some typical starter homes, some typical mid-market move-up homes and then some of our luxury homes. I’m fortunate to have 3-4 examples of fairly homogeneous starter home neighborhoods, 2-3 mid-market developments and a couple of luxury neighborhoods. I might also look at the historic home segment, since they make up the core of the Village housing stock.

What I want to analyze are a few different cuts at these markets. I want to use sold data to find the averages and medians for each market among homes that have sold over the last year or two. Then I want to strip out the homes in that sold group that were bank owned or short sales and see what the numbers are for non-distressed homes. I know that the distressed sales had an impact, but when you take their artificially low sold prices out of the CMA numbers one should get a better idea of what a typical, non-distressed seller might expect.

Next I want to look at these neighborhoods fro the taxman’s perspective – the assessed values – and see how they have declined in value for tax purposes and how close that matches the market decline. A cursory view of that gap in the past has indicated that the assessors are lagging far behind the downward market price drift, maybe as much as 1/3 to ½ of the decline behind. The local assessors made big cuts last year, but assessed values are still well above market values. I hope to determine by how much.

Why go to all of that trouble? Well, we are looked at by the general public as being the experts on all things about real estate with current home value perhaps being one of the biggest areas of expected expertise. I think it is important to have data about the local market available, not just a few comps; and to know what that data indicates about value trends in that market.

If I’m going to look a potential seller in the eye and tell him that the house that he bought in 2006 for $400,000 is worth $275,000 on today’s market, I’d better have proof. Further, if I’m going to ask for a 1 year listing because the average DOM for that price band in running 12-15 months, I better be able to back that up. At least that’s the way that I feel about it. The data is all there in the databases that are run by the local MLS’s. It’s really a matter of taking the time to find it and analyze it. I’ll let you know how my little study comes out.

Friday, January 14, 2011

Are we becoming a nation of twits?

Are we on our way to becoming a nation of twits? I would submit that there is growing evidence of a dumbing down of society in general to the A.D.D. level of Twitter. Not much holds readers’ attention beyond a sentence or two. We are used to sound bites on the evening news and short snippets of news delivered in staccato fashion by various news headline sources. On-line so-called social networks all seem to be focused upon short interchanges between members and our phones have become vehicles for short texting exchanges in a bazaar shorthand that further shortens the time required to communicate.

Still, there are hold outs, islands of more leisurely and complete communications between people. Starbucks comes to mind. I have written here before that Starbucks shops seem to be the snail equivalent to all of this electronic haste (like the postal service which offers snail mail; Starbucks offers a place to sit and talk directly to others, sort of snail texting or snail email).

When Twitter first came out I signed up and tweeted away, normally several times a day. After a few months I noted that most of my tweets were really pointers to longer dissertations somewhere else – a blog post or a pointer to a full article on some Web site. The content limitations of a tweet were just too great for my style. I’m still on Twitter, but now all of my tweets are really just notifications of blog post here and elsewhere. The same is basically true on my Facebook page.

The sad proof of what is happening to us as a society can be seen in the failures of many large and once proud newspapers and the troubles being suffered by the major bookstore chains. Too few have the inclination (they would say the time) to sit and read, much less to actually formulate and write a few complete sentences to express a thought or opinion. Rather they spend time ROFLing or LOLing or whatever some of those other texting shorthand things are supposed to mean.

Don’t get me wrong. I love what you can do and find on the Internet. After all the Internet is the vehicle responsible for the invention of blogging. Before that one could keep a journal or maybe write a letter to someone (or to an editor) or self-publish a book; however, there was no good way to engage in a communication of self expression that was not directed to a specific other person or group. However, the Internet has also spawned Twitter and IM ( which led to texting) and other forms of communicating that have dumbed-down the process.

I find it ironic that much of this technology is grouped under the heading of “Social Networking.” I t seems to me that almost nothing could be less social than sitting by yourself in front of a computer screen, typing away about yourself. Why not go out and actually talk to someone face-to-face. Maybe instead of Facebook we could call that FaceMe. Just a thought.

Tuesday, January 11, 2011

That's Enough Already (my own little TEA party movement)...

As reported in Inman News yesterday Source: “Short-Sale Incentives Revamped Again,” Inman News (Jan. 10, 2011) and reprinted by Realtor.com comes this story of changes to the HAFA rules.

Loan servicers will have 30 days to send a borrower a short-sale agreement that includes the list price or acceptable sales proceeds under recent changes made to the Home Affordable Foreclosure Alternatives Program, aimed at distressed borrowers who don't qualify for other government loan modification programs.

Once a sales contract has been initiated, loan servicers then have 30 days to approve or reject the transaction. The stricter timelines are believed to help speed up the short sale process, which has faced numerous complaints for how long it takes lenders to review and approve short sales often causing buyers to walk away.

The stricter timelines were apart of several revisions the Treasury Department recently announced to its HAFA program — the second major revision to the program since its launch in 2009.

Another big change: Loan servicers will no longer be restricted on paying second-lien holders, allowing them more freedom particularly when dealing with second-lien holders when borrowers owe less than $100,000.

Loan servicers used to be restricted to paying second-lien holders no more than 6 percent of outstanding loan balance (with an overall limit of $6,000) in exchange for releasing subordinate liens. Second-lien holders have been another big obstacle to completing short sale transactions.

HAFA’s new directives also now forbid loan servicers from deducting vendor expenses from commissions paid to real estate brokers.

The rules are effective Feb. 1. It does not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency such as the Federal Housing Administration (FHA).

One cannot help but ask when reading releases like this, “Is this good news? Will it really help?” There is still nothing in these new rules that give he loan servicers what they really want – relief from the losses that they are taking. The grains of salt that one must take with each new announcement have become enough to choke the proverbial horse. Still, maybe bits and pieces of these new guidelines might help, especially the part dealing with second loans.

It is apparent that people in the current administration want to help resolve the current housing meltdown and that they have good intentions. What is also apparent is that they don’t have the means (or political will and capital) to really do much that is meaningful. The current mess is just too deep and too wide for easy fixes or fixes that don’t cost too much. That is true if the goal is to try to keep everybody whole. In fact, that cannot be done. Somebody’s going to lose and lose big-time here. It can either be the fat-cats on Wall Street who made this mess or Joe Taxpayer who is an innocent bystander to much of this crisis. Who do you think will end up getting the Ziggy on this? After all, has anyone ever written articles that Joe Taxpayer is too big to fail?

So, hitch up the wagon mama; eventually, we’re gong for a ride to pay for all of this. The Bandaids and bubblegum that have been holding this whole thing together are starting to get stretched a bit too far. At some point soon, there is coming a day of reckoning for Fannie and Freddie and BOA and Wells Fargo and a few other biggies that will provide the final bang of this housing bubble burst. Make no mistake, this Trillion dollar turkey is headed to our taxpayer plates.

Personally, Id rather have it happen soon and get it out of the way in one humongous admission of the failures of the past; so that we can get on with the future. I’m tired of the endless trickle of bad news, foreclosures and short sales and the continued slow erosion of home values. I’m fed up with foreclosures and short sales making up 50-60% of the sales in my market. I’m sick of showing 30-40 homes worth $30-40,000 to buyers who still want to low-ball their offers.

That’s enough, already. I’m too old for this stuff. Let’s get this over with and get back to something that resembles a sane and balanced market. Take your HAMP and HAFA and HEMP (not yet a Federal program, but one with more promise that those that are currently in place) and shove them. Let’s have a WTO program (no, not World Trade Organization, this would be Write Them Off) and get on with life. I don’t suppose that this will happen, but it feels good every now and then to just say it out loud.

Monday, January 10, 2011

Finding hope a little bit at a time…

I read all of the articles about this Federal agency or that making predictions about how things are getting better (or at least that they hope that they will soon). I also get the NAR cheerleading news – “really the dust on the horizon is the cavalry and not more Indians.” But what I really look for are local signs that things are changing for the better.

I’m starting to see a few local indications that things might be better in 2011. We had 11 local new-build developments in my home township going into the recession, some very small and a few fairly ambitious. All 11 developments stalled out during the recession. In some cases the developers and builders went bankrupt and exited the business. People in those projects are in a form of real estate and legal limbo, since most are site condo projects with not enough finished development to form a HOA to take over from the developer.

It will also be interesting to see how the courts resolve some of the issues that were created in Michigan by the use of site condo rules for developments. When those went bust, some were eventually sold off parcel by parcel by the banks that took over from the developer. One has to wonder what happened (or will happen) with the condo association responsibilities that the original developer assumed had for the development. Who owes (or will owe) what for the maintenance and insurance of the common areas, which in most of these developments includes the roads? We’ll see how that plays out in the coming years.

Recently, however, I’ve noted that at least two of these developments are building new units/homes again. Two out of the eleven might not sound very impressive, but these developments have all been stalled for at least three to four years; so, any activity is a very positive sign. The developments that have restarted appear to be run by developer/builders who were smart enough to shut things down quickly as the economy tanked and positioned well enough financially to ride out the worst of the downturn. They are local people who turned to home improvement project business to tide them over during the long drought of new building.

I haven’t visited any of the newly started homes yet to see if any are being built on spec or whether they are all bespoken homes. It will also be interesting to see the size and content of these homes, which are what would be classified as “move-up” homes, not starter homes. There has been much written about builders moving a bit downscale to accommodate the reduced buying power of their potential clients. I would not be surprised to se a little less square footage and less upscale content.

Still, it is good to see anyone building anything these days. I would assume that there is also pent up demand for smaller start-up or retirement homes that will result in new developments for those, too. We have to have a place for all of the Boomers to downsize into soon; and we’ll need places soon for all of those people who were displaced by foreclosure on their McMansions.

For now, it’s time to find hope and some joy in the re-emergence of a few local builder/ developers and the few new-build starts that are popping up locally.

Saturday, January 8, 2011

Why conventionsl wisdom may be wrong...

A recent blog post on Active Rain (click here for the full post) provided some good insights into why a sellers thought that the second mortgage holder should be glad to get whatever is offered to them may not be correct –

- Unbeknownst to the homeowner, his second lien holder bought insurance against his default. They will now collect on that insurance. Depending on the terms, that may not have been possible if they agreed to a short sale.

- The homeowner's loan with them was full recourse, and they now intend to hound him mercilessly for the deficiency and/or sell that right to a collection agency

- The bank in question has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the pittance offered by the first under the short sale scenario.

The point of the post was a “not so fast” warning that homeowners who base their decision to short sell on the assumption that the second mortgager that they have will be happy to get pennies on the dollar, may be dead wrong.

In most short sale scenarios that I’ve been involved with lately that had a second or even a HELOC in place, it is the second mortgage holder that is objecting to things. That is often caused by the fact that the primary mortgage holder assumes the lead in negotiations and often offers the second mortgager a pittance. The norm in this area is $3,000 to the second mortgage holder. That may work with a HELOPC at a $5-10K range debt range; however, it doesn’t sit well with a company holding second mortgage notes worth $20-30K.

I’m five months into a short sale right now (on the buyer side) where the second note holder wouldn’t budge and required the seller to find a way to pay off the note. Now that it has cleared, we are hopeful that the primary mortgage holder will agree to the terms of the short sale (which will include some back tax issues).
That’s a whole ‘nother issue – back taxes and back utility bills. More and more short sales are taking on familiar aspects of walk-away foreclosure properties. Many short sellers are in the mode of “I ain’t got no money to pay for nothin’ mode.” I’m involved with one of those, too, right now.

So the moral of this story is that a seller must negotiate with all lien holders, if there are two or more, to make sure that everyone is on board and agreeable to a short sale. You can’t just assume that the second (or third) mortgage holder will be happy with pennies on the dollar, just because you think they’ll get nothing otherwise. It turns out that you may be the one to get nothing (or worse).

Friday, January 7, 2011

Seeing the real estate market future…

What are the experts saying about the real estate market in 2011?

From the Home Buying Institute Web site comes this summary -

Current consensus: Home-buying activity will rise slightly in 2011. Home prices in most areas could decline another 6 – 9 percent in 2011. Mortgage rates will gradually increase between now and the end of next year, reaching or exceeding 5 percent. Unemployment will continue to be the biggest drag on the housing market. Foreclosure moratoriums or “freezes” will also delay housing recovery.

The Home Buying Institute has apparently been collecting the learned predictions of as many so-called experts as they can find. There is a nice long list of entries from various experts at the site. Based upon the collective knowledge and predictions of all of these experts the HBI compiled the consensus statement that is shown above.

I guess this does not come as any big surprise. It’s fairly consistent with what I’ve been telling my clients. In my little market area unemployment (or fear of becoming unemployed) is still the biggest single factor that is holding back the so-called “pent up demand” that so many optimists point to as the rationale for their rosy predictions.

The pace of value decline has slowed dramatically in this area and the 6-9% decline forecast that the HBI sees in their outlook seems to be consistent with what we are seeing. That is down from double-digit rates over the past few years.

We are still experiencing distressed sales as a large portion of our overall sales. We closed out 2010 with distressed sales still representing above 50% of our sales locally, as opposed t about 35% nationally. We also are seeing a high percentage of leases – about 25-30% of all “sales” are actually closings on leases.

I see stories in the local papers quoting economists from Zillow or Trulia or other representatives of large, national companies. Most local Realtors poo-poo those stories and tell their clients that those national level guys don’t understand the local markets. Many local Realtors especially take exception to the Case-Schiller reports. Those reports are based on data reported from local boards and MLS’s across the county or from data gleaned from Public Record Databases, so they really do reflect what’s going on locally.

The thing to remember is that these big national companies aggregate all of that data, so the little local market statistics get subsumed into the bigger picture. It may well be that a particular little sub-market – a town, a subdivision, even a county – may be a point off the curve that the overall data shows. That’s where your local agent can add his/her value to the home buyers and sellers. In order to do that, the local agent has to keep up with what’s going on in the local market.

I do on a weekly basis to research and record the sales data from my little 6 township market, but some effort is required and that means committing time each week to do the work. I track all of the sales of homes above $20,000 in my market area on a weekly basis. I chose the $20K lower limit as a means to exclude leases and sales of tear-downs from my data. There are places nearby where home values have actually fallen so far that one can buy a viable house for prices between $10-20K, but generally not in my market area. I may need to revisit that cutoff price for 2011, since local home values continue to fall. I have yet to record the first week of sales for 2011, so I can still make changes.


I also keep the old monthly sales data on-line at my Web site and now have over three years of back data available for most of the townships (I added a couple this past year, so only one year’s worth of data is there for them). I’ve been tracking things like listed vs. sold prices, sold prices vs. taxable value (what the local assessor says the place is worth) and derived data like listed price per square foot and sold price per square foot. Having that data available when I prepare for listing calls or when I’m negotiating on behalf of buyers has proven to be very valuable.

So, I can look at the market reports that are based upon the national databases from Zillow or Trulia or NAR or Case-Schiller or whoever and make my own case, based upon my own data for what that means (or doesn’t mean) in our local market. The value that might be gleaned out of those national reports has more to do with the overall view that they get of the economy than any conclusions that they express about the local real estate market – that’s my turf and I have my own data for that. To see the market reports that I update weekly, go to my Web site - www.movetomilford.com and choose the Real Estate Statistics choice or the What's Sold Locally choice.

Thursday, January 6, 2011

The Restaurants of Milford Michigan

One of the things to love about the Village of Milford, Michigan is the variety of good places to eat (or get something to eat) in town, some 31 in all. The town fathers (or whoever makes these decisions) decided some time ago to preserve the downtown area (called Main St, of course) and keep the fast food chains out on the periphery. So one can still find the McDonald’s and Taco Bells, if one is so inclined; however, the places to eat downtown are all sit-down restaurants. I say all; however, there are a few pizza places in the downtown area where one can either take out a pizza or sit at small tables and eat-in. For pizza we have Village Pizza, Jets, Benito’s, and Little Caesar’s in town and several other pizza chains that will deliver to Milford. There is also The Burger Joint, a locally owned and operated place right down town for custom-made burgers and fries.

Milford also has its share of family dining eateries and Coney Islands, which generally serve good comfort food, but which have no liquor/beer or wine service. There is Klancy’s, a long-time family dining favorite in Milford and our Coney’s – Dimitris Coney Island in the Prospect Hill mall, Americus Coney & Grill and The Villa Coney Restaurant (formerly the Big Boy) out on the south end. At the north end of the Village in the Mill Valley Center is Ruggles, which is currently a deli-style restaurant, but which is planning for a liquor license later this year. There is also a Thai restaurant – Bangkok City Thai Cuisine – which has both sit-down and carry-out service.

Then there are the places to dine in Milford, where dining means being able to sit at a table with proper linen and/or place settings, ordering a drink before diner and then having a relaxing diner served to you, with a good menu selection and good food. Within walking distance from the center of the downtown there are eight sit-down restaurants, three of which are described by some as “destination restaurants” – restaurants that people from surrounding communities drive to Milford to visit – The Milford House Bar & Grill, Coratti’s on Main (formerly Appetiser) and Cinco Lago (Formerly Five Lakes Grill). Those restaurants all have received good write-ups in local papers and attract crowds from surrounding communities on weekend nights. The Milford House is one of the few downtown restaurants that are open on Sunday’s – the other is Coratti’s on Main. The Milford House is also Milford’s premier carry out and catering place and has an ice cream storefront on Main St.

The other sit-down restaurants downtown are Gravity, Main Street Bar and Grill and Lei Ting, which features a sushi bar and Chinese food. Two others might also be walked to from the center of the Village – The Bar on the south side of the Huron River and Hector & Jimmy’s on the north side of the Village. Also on the north side is the Red Dog Saloon, which has good bar food and features bar entertainment including karaoke nights. Just a bit further south of The Bar on the south side is the Village Pizza & BBQ (formerly a Papa John’s Pizza), which features pizza, ribs, salads and subs and has a nice outdoor eating area in the summer months. In the summer months many locals walk to the restaurants from the surrounding residential areas. Milford is one of he most “walk-able” towns in the area.

Of the full-service restaurants, Cinco Lagos features a Mexican menu and Caratti’s on Main is Italian. The Milford House, Main Street Grill, Gravity, Forza and Hector and Jimmy’s might be called American Grill menus, while Lei Ting is Chinese. The Bar features what it calls a modern bar menu with several unexpected entries; whereas, The Red Dog Saloon has classic bar burgers and food. A few of the restaurants have nice bars that may feature specialty drinks, such as a variety of martinis (Gravity) or other house specialties or unusual beer &wine selections (The Bar and Coratti’s on Main).

If you drive out to the South side of the Village you will also find Forza Sports Bar & Grill (formerly The Rack Room and before that called Lou & Carl’s) and Oh Tokyo, a Japanese sushi eatery. It’s out in that area that the Americus Coney & Grill and the Milford Family Coney are located, along with McDonalds, Taco Bell, Subway, Tim Horten’s & Wendy’s, and Rio Wraps. If you keep going south from the Village you’ll find Baker’s, which most local’s just think of as a Milford restaurant and which has banquet facilities.

One nice touch during the summer is that most of the downtown restaurants (and a few of the outlying ones) feature outdoor dining on the sidewalks or in little patio areas. Some of the restaurants (The Milford House, Hector and Jimmy’s and Baker’s) feature live weekend entertainment during summer months, too.

I won’t try to rate or review these restaurants, although I have eaten at all of them (or had carry-out from them). Everyone has different tastes and I would go to different ones depending upon whether it is for breakfast, lunch or diner. For diner, my wife and I prefer a nice sit-down place where we can get a glass of wine and one which has a fairly wide menu. If it’s a Friday night we would likely choose a place with good sandwiches or lighter fare; however, for Saturday nights we prefer a full menu from which to choose (along with the requisite glass of wine). The Coney Island/Deli restaurants provide great places to go for breakfasts and perhaps lunches. The point is that you have lots of choices and some very good places to eat in and around downtown Milford, so come and enjoy.

Wednesday, January 5, 2011

Steady progress ahead, but little excitement…

There are lots of stories and anecdotes that could be cited to support the wisdom of a “slow but steady” approach to things. As I look back over the real estate market data that I’ve collected for the past few years and especially at the 2010 data, I can see that we seem to have reached the bottom of this recession-driven market and are at long last headed in a better direction. The turn-around certainly isn’t very dramatic, just a slow easing of the downward spiral and an ever-so-slight upturn over the last few months of 2010. It is, as a well worn and perhaps overused analogy states, like turning a huge oil tanker – a slow process.

In my market here in Michigan, we still have a fairly hefty overhang of distressed properties – either already foreclosed or in some state of delinquency and headed in that direction. Short sales and foreclosures averaged above 50% of overall real estate sales for all of 2010, with no end yet in sight. We also continue to have one of the higher unemployment rates in the country – officially at 12.7%, but estimated to be as high as 25% if the people who have given up are counted, too. Yet there are people out buying. I’m hitting a lot of investors right now, who are out bottom-feeding on the great foreclosure deals that are there right now. They are providing a service by buying, fixing up and renting out these places. Otherwise many displaced people would have nowhere to go. Leases make up about 25% of our local real estate transactions right now.

I read all of the press about things getting better, some of it wishful thinking or self-serving cheerleading from various real estate sources. I see those articles in our local papers, too; but they almost always come with some local grain of salt thrown in about our market, especially the Detroit Metro market. We certainly have market pockets in our state where things never got all that bad – the western side did better that we did in southeastern Michigan and our college towns fared better than others. We also have pockets that have been hit even worse than has been widely reported – Detroit, Pontiac, Flint and Ypsilanti come to mind.. In those areas one can find thousands of houses for under $10,000, which is less than the land values should be.

I’m convinced, however, that we have turned the corner and that the worst is behind us. I’m trying to help my clients understand that this does not mean an immediate return of the lost value in their homes. As I’ve opined here before, that value is gone and will never return. Prices will eventually recover somewhat, maybe even completely; but that won’t mean that lost value has magically returned. Even on the price front, I’m advising that it will take at least a decade to get back to 2005-2006 price levels, if ever. We are not yet seeing real appreciation in most of my markets, just a slowing of value loss – a leveling out of the market. Real appreciation in property prices will perhaps occur later this year, but then so will inflation, the net of which may wipe out any true value gains.

So, like the turtle in the race with the rabbit, we will likely see a slow and steady improvement of things in the real estate market. In any one month we may even slip back a bit, as banks dump more foreclosed inventory onto the market; however, overall I expect that we’ll start to see more and more move-up buyers return to the market (that’s where the so-called “pent-up demand really is) as the economy improves and people get a little better feeling for the future. It appears that we’ll be in for a prolonged drama in Washington and perhaps a few scary moments as the new Tea-party Republicans flex their muscles. Fortunately, Washington is so dysfunctional that they probably won’t even get the disruption that they have in mind right. Still it might provide amusing fodder for the nightly newscasts.

All-in-all let’s hope that 2011 is the year of the unexciting turn around in our real estate markets. It will pay to keep an eye out for whatever the sleazy scam artists come up with to make a fast buck in that type of market. They moved on from providing questionable loans to packaging up questionable investments based upon those loans to providing fake loan modification services and now will have to come up with another way to scam the public and investors on real estate. Perhaps they are the ones posting those “Cheap Bankruptcy” signs along the roadways.

It would somehow be ironically appropriate if the idiot who took out a no-doc mortgage without having a job and was foreclosed upon by the investor owners of the pool who bought the loan, now had to declare bankruptcy because the company that he pre-paid for a loan modification went under and is now offering bankruptcy assistance for a slight up-front fee.

Happy New Year!