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Saturday, January 31, 2009

It's good to be number one...

I tried to look up the origin of that phrase, which is used quite a bit by sports teams and athletes; but I couldn't find any definitive source for it.

Anyway - it is good to be number one in real estate, too. We got the market share numbers for 2008 for our market area from the local MLS and our Milford office is number one again this year in the Milford market. Our margin over the number two broker actually increased a bit this year. we have 10.19% of the market and our nearest competitor has 6.69%. The number three broker had only 4.46%.

I always start thinking about what people remember about events or ranking, especially about the number two in any ranking. Like which horse finished second to Big Brown in this year's Kentucky Derby or who finished second to Usain Bolt in the 100 meter dash at the Olympics this year? Team sports might be easier, but I suspect that many don't remember who finished second in the National and American Leagues this year - Tampa and Philadelphia played in the world series, with Tampa finishing second there. And what of momentous occasions in history? Who was the second man on the moon and what did he say? In an era of Blogs and text messages and Twitter, we all tend to have shorter memories that focus only on the winners, if they focus at all.

So what broker was number two in this market? Who really cares or will remember, anyway. Sellers want to go with the winner, in order to get the best representation in a tough market. That's us and I couldn't be happier. The real estate business is by its very nature made up of lots and lots of small operations - small franchisers, mom and pop shops and even sole-proprietor brokerages (often a husband and wife team off on their own). Real Estate One is the exception in Michigan. It is the largest real estate company in the state, with the most agents and locations and the widest reach within the market. Our Milford office is just one of the 73 locations throughout the state operating under our three real estate brands - Real Estate One, Max Broock and Johnstone & Johnstone - with over 2,000 active agents covering the entire lower peninsula.

So, go with the winner - Real Estate One - if you need to sell your home or you are looking for a new home. One result of being number one that REO agents have the best rates for advertising, have programs that provide the widest exposure on the Internet and have the most marketing programs to choose from for your home.

By the way the answers to the questions raised above are as follows:

Eight Bells was second at the Kentucky Derby

Richard Thompson of Trididad and Tobago was second to Bolt

The Dodgers in the National League and the Red Sox in the American League finished second in those leagues in 2008

And 18 minutes after Neil Armstrong set foot on the moon, Buzz Aldrin climbed out and his first words were - "Beautiful, beautiful. Magnificent desolation." Does anyone remember that?

The number two broker in Milford in 2008 was Keller Williams Commerce office and Coldwell Banker Schweitzer, which doesn't have an office in Milford, was number three; but, who will really remember?

Friday, January 30, 2009

Life is like playing the banjo...

From the Jack’s Winning Words Blog comes this sage bit of advice - “Life is like playing the banjo—just stick with it.” (Steve Martin). Jack put some more words with that Steve Martin quote to make it even more meaningful. A lot of jokes are made about banjo playing. Maybe that’s why Steve Martin put it into his comedy skits. I read about a lady who played the banjo with a violin bow and made it sound like a church organ. Sometimes life looks strange and weird, like a banjo. But, depending on how you play it, beautiful music can be heard. Stick with it.

Good advice in these times of financial turmoil. I suppose how we all react to and play out the situations that confront us now will determine whether we are happy or sad, joyous or mad. It would seem to be a waste of time and energy to get mad at things that we can’t change and sadness just leads down to depression, if we let it get out of hand; so it’s time to try to find things to be happy about and to try to lead as joyous a life as possible.

My wife and I take joy in a variety of little things, like going out 2-3 times a week to see if we can spot any deer. We seldom get skunked (no deer at all) on our outings and quite often will see 20-30 deer on an outing. Occasionally; however we spend the whole time looking and maybe only see 1-2 deer (or maybe none at all). Rather than wallow in disappointment, we remind ourselves that it’s the hunt for the deer, as much as seeing them that makes going out worthwhile. Carolyn often says, “If we wanted a guarantee that we’d see one, we could go to the zoo.” See what a Pollyanna I live with!
Now, obviously some things weigh heavier than others on all of us; and, the current economic situation is something that no amount of deer spotting will make go away or mask over. For those things having faith can be the difference between falling into despair or making it through the situation. There are all sorts of self-help and management books on coping with situations in life, but I’m sure that Jack would tell you that the one book you can always count on for help is the Bible.

So, I’ll keep plucking away on the banjo that is my life; hoping to occasionally make beautiful music, but mostly just keeping on keeping on. After all the alternative is infinitely more unattractive. Maybe I’ll try that violin bow thing and see if a change makes a difference.

Wednesday, January 28, 2009

Loan modification – what do I need to do?

Yesterday we discussed the 5 myths that people should avoid when thinking about trying to get a loan modification, sometimes called a workout. Today we have more good advice from Ralph R. Roberts, consumer advocate and spokesperson for Federal Loan Modification Law Center, LLP. Ralph recently released a list of the top requirements needed for loan modification qualification. Many of the requirements are the same as would be needed later for justifying a short sale, so you might as well get them together now, while there’s still a chance to save your house. If worse comes to worse, at least you’ll be prepared to go after a short-sale agreement with your bank.

“Homeowners facing foreclosure may consider loan modification a possible solution but often wonder whether it’s worth the time and effort,” says Ralph. “While the truth is that you won’t know until you actually apply, there are several factors that you will most certainly have to address.”

The following list is designed to help consumers understand the most important types of information they will need in order to qualify for a loan modification:

1. A statement showing your willingness to keep your house. Your lender wants to see that you are committed to a long-term solution.

2. A hardship letter describing the event that has made your monthly mortgage payments unaffordable. Hardships can include loss of job, reduction in pay, medical illness, costly medical bills, a sudden and significant interest rate increase on an adjustable rate mortgage (ARM), and so on.

3. Your ability to afford a reasonable lower monthly payment. Lenders can employ several different methods to lower your monthly payment, including dropping the interest rate, spreading payments over a longer time period (For ex. 40 years rather than 30), reducing the balance due, forgiving late payment penalties and fees, and rolling missed payments into the balance due. If the lender is unable or unwilling to reduce the monthly payment to an amount you can afford, you won’t have a successful loan modification – nor would you want to.

4. Supporting documentation, including W-2’s, current credit report, pay stubs, federal income tax returns, bank statements, and so on.

To read Ralph’s full article on this and other topics related to loan modification please visit

It’s important to not put off gathering the items on this list and to make the call to your lender to see if they will do a loan modification. More and more banks are moving in that direction as they try to avoid an increased inventory of foreclosed homes and as they try to work with Federal officials who are now pushing them in this direction. The banks can’t help you; however, if you never call as ask for help. When you do, you’ll need to be prepared with the items in this article. So get started, now.

Tuesday, January 27, 2009

5 myths about loan modification that you can avoid.

Quite often, when people get into situations that put them at risk of losing their homes, they unfortunately are misled by some of the bad information that is out there – call it urban legend or myths they’re still wrong. There are still things that could work to keep them in their homes.

From a press release by Ralph R. Roberts, consumer advocate and spokesperson for Federal Loan Modification Law Center, comes this list dispelling the top five myths about loan modification (with appropriate additional comments - ed.)

MYTH #1: My bank wants me out of my house or my bank wants my home. Wrong! Banks and other lending institutions do not want to foreclose. They earn more money if you can make your payments. When they foreclose, they not only lose your monthly payments, but they also have the expense of foreclosing (attorney fees), rehabbing the home, and then selling it (agent commissions). In today's market, there's a good chance they'll have to sell the home at a loss. This is all good news for you – it means the bank is highly motivated to make a deal with you. But they’ll never get that opportunity if you never ask them.

MYTH #2: My credit score is bad so I won't qualify. Unlike the option of refinancing out of trouble, which requires you to apply for a new loan, loan modification simply adjusts the terms and perhaps reduces the balance of a loan you already have. Your credit score is much less of a factor in determining whether you qualify for a loan modification. In addition, a successful loan modification can actually improve your credit score over time, especially if it prevents you from ending up in foreclosure or bankruptcy. Remember too that you r credit score is much higher at the start of this process than it will be if you go through a foreclosure.

MYTH #3 I am not late on my mortgage payments so I won't qualify. / I have to miss a payment to be eligible. Early on, this was true. In fact, some early eligibility requirements stated that you had to be 61 days delinquent in order to qualify. In other words, you would have had to have missed two full payments. The truth is that the eligibility requirements are constantly changing and differ among lenders. Many lenders are now working out loan modifications with borrowers who are up to date on their payments. It’s difficult to determine whether you qualify until you actually discuss your situation with the lender or with an attorney who is knowledgeable and experienced in loan modifications. The biggest mistake that people make is not taking the time to discuss their situation with the lender before they get behind and trying to see if they will entertain a loan modification.

MYTH #4: I would be better off walking away or declaring bankruptcy than modifying my loan. Walking away from the home and filing for bankruptcy are certainly two options, but they are rarely the best options when you are facing foreclosure. If you simply walk away, the lender is unlikely to pursue legal action against you, but in some jurisdictions, the lender can pursue a deficiency judgment against you to collect the difference between what the lender receives for your home at auction and what you currently owe on the balance of the mortgage. Filing for bankruptcy may be better than just walking away, but it can leave a blemish on your credit history that makes it difficult to borrow money in the future. A successful loan modification is almost always a more prudent choice.

MYTH #5: It’s too late. I have already received a foreclosure notice. As long as you still reside in the home – that is, you didn’t voluntarily abandon it, and the home hasn’t been sold at a foreclosure auction – you may still have time to work out a loan modification with your lender. The sooner you take action, the more options you have available and the more time you have to pursue the best option, but you can still negotiate late into the process. By contacting the lender or, better yet, having your attorney contact the lender on your behalf, you demonstrate a good faith effort to work out a solution and can often buy yourself extra time to negotiate a loan modification. If the Sheriff’s Sale hasn’t already taken place you may still be able to do a workout or modification. Once the Sheriff’s Sale has taken place the best you can hope for is a short sale agreement with the bank, with them agreeing mot to pursue a Deficiency Judgment.

For more about the loan modification process and what you might still be able to do, visit Ralph Robert’s Web site If you are beyond the Sheriff’s Sale point already, with no real hope of being able to keep the house, visit my site for a no-nonsense approach to using a short sale to save as much of your credit as you can.

Monday, January 26, 2009

Is the normal market dead? What about the regular Realtor?

There was an article in the Sunday Oakland Press quoting a local Realtor as stating that the "owner occupied" housing resale market is dead. That owner-occupied market is what I would call the "normal market" - the market for homes that aren't in distress or foreclosed already. These are owned by the regular bill-paying folks who didn't get in over their heads, who didn't get behind and default and who didn't abandon their houses to the banks. These are folks who, for perfectly valid reasons, just want to sell their current homes.

It may be that they have retired and want to downsize or move to a retirement home that they might already own. Maybe they have an opportunity for a better job and need to sell their current home so that they can move to accept that position. Maybe they are some of the few lucky workers who are getting promotions and raises in companies that are not associated with the automotive industry. Whoever they are, and for whatever reason that now wish to sell their homes, is the market dead to them? Are there no buyers for anything else, other than foreclosed homes?

Sometimes it feels that way. I track weekly sales in my little patch of the real estate market - the Townships of Milford, Highland, White Lake, Commerce and Lyon. In that market the sales of non-foreclosed homes has recently been only about 30% of the total sales. This past week there were only 12 sales, ranging in price from$70,000 up to $453,000 and not a single sale was not distressed - 100% of the sales were foreclosures. I've seen that a couple of time before. Now keep in mind that in that market there were about 1200 homes for sale, so that means that only 1% of the houses on the market sold during the week and all of them were foreclosures. If the rest of the market - the non-foreclosure, owner-occupied homes - isn't dead, it sure is super slow. January is always slow, but a year ago there were 16 homes sold in the same markets and only half half were foreclosures.

The average time it takes to sell a normal house was already about a year or more and it is getting worse. Until we get rid of the overhang of foreclosed houses and re-instill some consumer confidence in the economy overall that trend is likely to continue. That also means that Realtors who didn't make the jump into foreclosure homes are hurting big time. Many have stopped taking normal listings, because they see them as just money pits, with lots of marketing costs and little chance for a return within a reasonable time frame. Many are leaving the business, unable to make a living off the piece of the listing side of the market that is left for them, especially with the stretched out time to sell.

And remember from a few weeks back that the buyer-side of the market has actually shifted much further that what I just reported. The Owner-Occupied aka.Traditional Retail Sales homes actually make up only 16% of the overall sales, with foreclosures, short-sales and leases now making up the bulk of all sales. So, on the buyer side of the business, agents have to be out selling foreclosures and short-sales, or doing leases, which generally take more time and result in less income.

There is a shakeout underway in the listing side of the business that may end up leaving a few large brokers/teams at one end of the spectrum and a few part-timers hanging on at the other end, with little in between. The big brokers and teams that made the jump to foreclosures are doing OK, albeit at a greatly reduced commission rate per sale, since many banks insisted on a volume-driven wholesale business model for that business. Many of the part-time hangers-on have a spouse working full time to provide the primary income, so real estate is just a supplemental income source for them.

And what about the rest of us - the "regular", full-time Realtors who somehow missed the foreclosure boat but who are still trying to make a living from this job. I'm not sure that most will survive in the business, if this mess isn't turned around soon. One can, after all, only cut back on the cost side so much. There are still bills to be paid to live, food to buy, our own mortgages to be met, kids in school and medical coverages to be considered. After a while going 2-3 months between sales and commission checks catches up to even the best cost cutters and you realize that you need to generate an income somehow. Thus the rise of what is euphemistically called the dual-career Realtor - the agent who has a part-time or full-time job doing something else to make ends meet, but who keeps an active real estate license and still tries to do real estate in the evenings and on weekends.

I'm not ready to throw in the towel on real estate, yet. I've got some good listings, albeit most are regular, owner-occupied homes; and I have a few buyer clients with whom I'm looking (ironically most of them are looking for foreclosures). I have a supportive wife at home and of course there's Little Mary Sunshine at the office. I don't see a way to break in to the foreclosure listing business and I'm not sure that I'd want to if I could. What I've got to figure out is how to make most of what I need make off listings from that little slice of the market for regular homes. As Paul Harvey might say - stay tuned for the rest of the story.

Sunday, January 25, 2009

Setting things straight...

A couple of days ago I blogged about avoiding getting a lemon if you are buying a new build home. Portions of that post were taken from a story that first appeared on the MSN Real Estate Web site. One line in the article that I used contained the line - OSB is much less water-resistant than plywood. It tends to absorb and retain water, which leads to dry rot.

Well, that drew an immediate email from the APA (formerly called the American Plywood Association) which represents plywood and OSB manufactures, who took exception to that characterization of their product. I certainly didn't mean to impugn OSB and pointed out to them that the line in question was in fact a quote attributed to a fellow out in California who works with homeowners associations (hardly a strong qualification to be quoted on building materials, I will admit). I had gone on in the post right after that line to wonder about building sites where building materials like flooring or roofing are left exposed to the elements for any length of time.

Anyway, I decided that, since I'm certainly not a building materials expert either, I would see what's out on the Internet about OSB and its water proof characteristics. One good article that I found is by Tim Carter, a nationally syndicated newspaper columnist who also authors the Web site Ask the Builder. Tim wrote in an article about Plywood and OSB -

Rain falls on many, many homes as they are being built. In fact, rain storms left standing puddles of water on my own home's plywood sub-floors for days. The plywood was not affected long term because I used the right grade. Make sure that you use plywood or OSB that is stamped EXPOSURE 1. This labeling is your guarantee that waterproof resins and glues were used to bond together the wood. EXPOSURE 1 plywood and OSB are made to withstand repeated rainfall with little or no damage during a normal time frame construction project. To prevent rot and loss of strength, they must be allowed to dry and then have permanent protection from moisture. If you want plywood or OSB that can be permanently exposed to weather and rain, then purchase those products that bear the EXTERIOR stamp or label.

Some OSB panels react differently from plywood when they get wet. When OSB is manufactured the cut edges are sealed with a special waterproof paint. Carpenters destroy the watertight integrity of OSB each time they make a cut that exposes wood fiber edges. These cut edges are prone to swelling after they get wet. It is possible to seal these edges after they are cut, but it may be tough to find a carpenter willing to take the time to perform this extra step.

To read the entire article, which also includes how OSB is made and how it compares to plywood and other building materials, go to the Ask the Build site via this link

Hopefully that will clear things up for my readers and square things with the APA folks. What Tim says makes sense and it makes sense too that exposed edges might be an issue, if not properly sealed. We certainly have seen that problem with wood siding on homes, at least with some defective wood siding from Louisiana Pacific years ago. MUch of that siding is still out there on homes and still causing problems.

OSB is now the most commonly used sheeting material in new construction and is even used to build up floor joices. So, it is a fact of life and it would appear from my research that it is a good product with characteristics manufactured into it for the various jobs that it is used for. Maybe the best advice comes out of Tim's article that the buyer should watch to make sure that the right type of OSB is being used for the various places that it is deployed in the build.

Saturday, January 24, 2009

Is 2009 the “bottom out” year?

Portions of this post were released at the Builder’s Home Show in Las Vegas this year. A panel of housing experts on Tuesday projected that builders' woes will deepen this year, pushing the prospect of a recovery into 2010 at the earliest.

"We do expect '09 to be the down year, to be the bottom," David Crowe, chief economist for the National Association of Home Builders, said during a news conference at the International Builders' Show, which runs through Friday.

The outlook reflects grim forecasts that call for home prices, new construction and home sales to decline this year, while mortgage defaults, foreclosures and unemployment continue to rise. That dynamic has kept the housing market mired in a slump and homebuilders large and small in the red. The U.S. economic downturn, meanwhile, has crippled any hopes for a near-term housing recovery.

Crowe said he expects the number of new homes constructed to fall by 29 percent this year from last year, but then jump by 34 percent in 2010. He sees new home sales falling 14 percent this year. Locally, we expect most of our stalled development projects to stay dormant for the year. There are only 1-2 builders doing any new home or condo building in our area right now.

"But we are expecting that trough to occur sometime in the middle of this year, and for us to come out the other end of '09 on an upswing," Crowe said. He noted that the upswing won't be as strong as in previous recoveries because there are too many unsold homes on the market.

"We won't be able to get through those in one year, and we'll still probably have house price declines," Crowe said.

Frank Nothaft, Freddie Mac's chief economist, said he expects the U.S. recession to be "relatively long, relatively deep." He projects the U.S. unemployment rate will rise to 8.7 percent by the fourth quarter of this year. The U.S. rate hit 7.2 percent last month, but here in Michigan we broke through the 10% level to 10.3% in December according to local reports.

"The single most important trigger event leading to (mortgage) delinquency is unemployment," he said. We could add that a lot of homeowners locally have gotten into trouble not because they lost their jobs, but because most overtime has been drastically cut back and it was that overtime that the homeowners counted on to pay the mortgage.

Not surprisingly, Nothaft's outlook also calls for default rates on mortgages to keep rising this year, particularly on home loans made to prime borrowers. He also expects home prices to continue to decline into 2010, but says the housing market should begin to show signs of improvement beginning in the second half of this year as government efforts to stimulate the economy kick in.

David Berson, chief economist for mortgage insurer The PMI Group Inc., said the company's latest risk index shows that 97 percent of the nation's metropolitan areas had a greater probability of home prices falling over the next two years.

"The risk went up ... almost everywhere," Berson said.

In more than half of the major metro areas, the risk of home price declines was greater than 50 percent, he added. In our area there are projections of further value reductions ranging from 9% to 15%.

The panel cautiously noted that low mortgage rates, falling home prices and population trends bode well for a turnaround — eventually. I wonder how long that is- eventually?Now if you’ll excuse me, I’ve got to go outside and look for a rainbow somewhere. I need to find a reason to put on a happy face.

Friday, January 23, 2009

How to avoid buying a new-build lemon

There aren't a lot of new-build projects going on right now in this area, but that will change and this advice will be helpful if you plan on buying new. Portions of this post is based upon an article by Marilyn Lewis of MSN Real Estate

When you buy an older home, you're often buying into the implied promise that a home that's held up for 50 years won't suddenly fall down around your ears. My old historic home has been standing since 1885, so I’m pretty sure that it isn’t going to fall down any time soon. But when you buy new home construction, all bets are off if you haven't thoroughly researched your builder. During the recent housing boom, many builders raced to keep up with escalating demand. When builders work fast, the chances of cutting corners and inadequate supervision increases. So while you are unlikely to experience a serious problem with most new-builds, it pays to do your due diligence and protect yourself upfront from a bad builder.

Among the most common problems reported are:

Foundations without proper grading, without sufficient rebar for support or without soil testing for stable ground (allowing foundations and homes to crack and fail);

Windows without flashings (allowing water in);

Roofs without felt backing or those that were improperly nailed (allowing leaks); roofs with no vents or soffits, so air won't circulate in an attic or crawl space. If there's water intrusion, too, the whole attic can be filled with mold and you won't even know it's happening..

Improper installation, voiding manufacturers’ warranties on building materials.

J.D. Power finds the most-common new-build complaints overall involve:

Landscaping (about a third of buyers report a problem);

Heating and air conditioning (three in 10 report issues);

Cabinet quality problems (less than a third of buyers report problems).

Many defects originate in one of three key areas: a building's design, workmanship or materials:

1. Design: Not all designs that look great on paper translate into sturdy, easily maintained structures. Unless you've got money for expensive repairs, avoid complicated or unusual designs — particularly in a condominium.

For example, contemporary designs featuring unusual, flat or complicated roof angles look sophisticated and hip but are particularly prone to problems. With flat-roofed buildings and a short pitched roof overhang, you have a higher degree of likelihood of water intrusion … it's easier for rain to hit the siding and windows and find its way inside. With the complicated, multi roof-line designed every roof valley represents another opportunity for the roofers to make a mistake that will allow leakage, too.

2. Workmanship: Everyone in the construction chain — from developer to subcontractor — faces pressure to cut expenses; that can lead to a lack of quality control, Thompson says. The chance of errors rises on a work site where there's pressure to finish fast, only intermittent supervision and unskilled crews, particularly where a lack of English prevents workers from understanding instructions or reading manufacturers' installation guidelines. Builders often choose subcontractors for their low bid; then the pressure's on the sub to work fast. Without a builder's representative at the site, no one will catch their slapdash work and missteps.

Improper installation of windows and roofing material is a "very common" defect, with missing or poorly installed flashing being the most common issue, along with improper or lack of caulking of doors and windows.. These problems let water leak into the walls causing rot, mold and structural weakness. Other frequent problems include:

Paint slapped onto unprimed, bare wood, increasing the odds it will lift right off, exposing wood to moisture.

The omission of the rubberized membrane in which windows should be wrapped to prevent leaks. Adding to a homebuyer's outrage, such omissions void a manufacturer's warranty on the windows. There is also a rubberized membrane called an ice guard that should be installed under the first few feet of the roof along all eves. Of course all roofs should also have drip molding along all edges, which sometime gets forgotten in hasty roofing jobs.

3.Materials: With new construction, many problems can be traced to weak materials. Sometimes unscrupulous contractors or hurried crews substitute cheap materials for the better quality specified on a contract. Also, cost and availability dictate a trend toward newer, less-expensive materials. For example, with the dwindling supply and high price of higher-grade wood, OSB — oriented strand board — is often used in place of plywood for exterior sheeting and sub floors. OSB is much less water-resistant than plywood. It tends to absorb and retain water, which leads to dry rot. Have you ever driven by a new construction site when it’s raining and the rain is getting all over everything because there was no roof yet? Did you ever wonder how good that is for the exposed flooring inside?

Wood foundation materials, for another example, typically have warranties for just 20 to 30 years. Doesn't this mean that the product manufacturer is not promising that the foundation of the home will last longer than that? What is the owner supposed to do after 20-30 years, put in a new foundation?

Once a house is finished, however, a smooth, handsome envelope of new siding, sheetrock and paint offers no hint of problems beneath the surface, like an incorrectly poured foundation, errors in framing and wiring or shoddy application of the home's internal moisture barrier, all of which can lead to horrific problems. You'd think that problems would be caught by local building inspectors. But they, too, are overworked and moving fast, so they may perform spot checks, not a thorough inspection, critics say.

The National Association of Home Builders says consumers should be active participants in construction by:

Attending the pre-construction orientation meeting and getting to know the superintendent. Most quality builders offer such a meeting.

Understanding the deadlines and process for making selections and adding options.

Visiting the site periodically during construction and reporting any concerns to the superintendent. If something doesn’t seem right and you can’t get a good explanation, get professional advice from a specialist — a certified home inspector specializing in new construction, for example, or another electrical contractor, or your local building official.

Attending your home's pre-drywall inspection, which is hosted by your construction superintendent and meant to familiarize you with what's behind the walls.

Attend the pre-closing walk-through with the builder. Get the builder to acknowledge in writing any items that need to be addressed.

Also, as a rule of thumb, get a lawyer to review any home contract before you sign. Discuss your concerns about quality and ensure the contract addresses them.

So the bottom line is that it’s up to your – the buyer – to make sure that you get the quality construction job that you think you are paying for fro the builder. If you aren’t up to the task, you have two options – go buy a used house or get help from a home inspection professional to inspect and report back to you as the work progresses and include that cost in your buying decision.

Thursday, January 22, 2009

Caring and sharing…

“An individual has not started living until he/she can rise above the narrow confines of his/her individualistic concerns to the broader concerns of all humanity.” (MLK Jr) from the Jack’s Winning Words Blog. While I’m sure that Martin Luther King, Jr. had greater things in mind than this, I find that just sharing with other agents in our little Real Estate One Milford office brings me a greater sense of living. The real estate profession can be a rather lone-wolf environment, if you let it become that; since every agent is an independent contractor, who basically works for him/herself. That can be especially hard on new agents, struggling to get started in the business. There is just so much new to learn that it can be overwhelming for “newbies.”

Fortunately, we have an active mentoring program in our office, which I participate in, helping new agents get started in the business. That is very satisfying and would likely be enough; however, I also have taken the opportunity to help all of the agents in our office with various technical, computer-oriented things. I have a long background with computers and was in the computer industry when the PC was invented and introduced to the market. I feel very comfortable around PC’s and with using many of the applications that are critical to the success of a real estate agent. Thus it was kind of natural that I became the office “tech support” for many agents. I don’t mind all of the questions and help out whenever I’m asked.

Now I’ve got the chance to go a step farther. We have started a little club in the office to help agents with marketing mailings – newsletters and postcards – as well as other promotional and marketing materials. Since I have been doing a newsletter for about 7 years now and have done extensive postcard mailings, I volunteered to help out with that too. I’m really focused upon teaching the reps who want to learn how to use the tools that we have available to us – MS Publisher being the most used. To my way of thinking it’s like that old saying “Give a man a fish and he’ll eat for a day, but teach a man to fish and he’ll eat for a lifetime.” So, I’m trying to teach everyone who wants to learn how to use Publisher to create his or her own newsletters and postcards, as well as other marketing materials, such as personal brochures. It is great fun to see the light bulbs come on as people realize what they can do with their new knowledge and skills.

I also do a lot of Web development work and get to help agents with that tech realm, too. We are about to embark on a program to get every agent on Facebook and LinkedIn, two social networking sites. I have accounts on both, but in this case I’ll probably be as much a student as a teacher, since I need to better understand how to make use of social networking in both my personal and business lives. There always seems to be something new to learn and that’s a good thing. I hope I never stop learning and I hope that I always have the opportunity to share what I’ve learned with others; because sharing always seems to provide returns that are greater than what I’ve invested into it.

So, if you’re looking for a place to launch a new career in real estate, keep us in mind. You’d be hard pressed to find a company with more training programs and won’t find a local office with a more supportive environment in which to make that career change. We also have an upbeat and supportive manager and a great administrative support team. And look me up when you get here, if you need help with your computer stuff or Publisher or your Web site. I’m happy to help.

Wednesday, January 21, 2009

Keep on keepin’ on…

From yesterday's Jack’s Winning Words Blog come these words of advice - “If you’re walking down the right path, and you’re willing to keep walking, eventually you will make progress.” (Barack Obama).

Our office manager (you remember Little Mary Sunshine) uses a similar line with me every time I march Mr. Grumpy into her office for a visit. She says, “You’re doing all of the right things. Just keep at it and things will start to happen for you.” I am want to ask her when the good things will happen, but that’s just Mr. Grumpy talking again.

In this market it’s sometimes hard to see what the right things are. Because of the dramatic shift in the market towards foreclosed homes, it’s hard to figure out what the right thing to do is to get a non-foreclosed home sold. Certainly adjusting the price to the market is critical, but one can’t really expect a normal seller to compete directly with foreclosed houses on price.

My advice has consistently been that they must win on the 3-C’s of real estate – Condition, Clutter and Cleanliness. They must represent the no hassle, move-in ready choice that is a little higher in price; but, oh, so much easier to imagine living in without major work. Everybody out looking is taking a look at foreclosed houses; however, not everybody out looking ends up buying one.

Most buyers discover how much damage may have occurred in a foreclosed house, either through neglect or some overt act of vandalism or theft. Some buyers are willing to take on the challenges of major remodeling or repair projects to get that super deal; but, more and more are ending up saying, ”You know, I just don’t have the time, the money and the skills to take on such a large project.” I suspect that they are the smart ones. Too many foreclosed homes are boomeranging back onto the foreclosure market with half-done reclamation projects by exhausted (financially and physically) would be foreclosure home rescuers.

So, I continue to walk down the path of trying to help regular homeowners sell their homes and helping regular buyers find just the right new home. I’ll keep doing my Web sites and my newsletter and keep mailing my postcards. The main thing that I’ve committed to do differently this year is to make those phone calls that I have avoided in the past to follow up better with prospects and clients alike.

I’m hopeful and optimistic that the path that we are starting to take with President Obama will get us to a better place. It certainly has to be a better path than we were on under Bush. The end point for our journey is not yet in sight and won’t be for a while (many might say there never will be an end point); but with the goals of peace and prosperity, health and happiness, and understanding and compassion in mind we set out on this journey with President Obama together. Let’s be patient and persistent (sounds a lot like real estate these days) and confident in our belief that we will make progress if we just keep moving. Now, if you’ll excuse me, I’ve got calls to make.

Tuesday, January 20, 2009

Year end and year total market numbers for REO

From Dan Elsea, President of Real Estate One’s brokerage operations come these overall market stats for December along with our company numbers for the month and the entire year.

Following the market, our units were up nearly 10% (to 14,934) with volume down 18% (to $1,970,938,890) for the year. For Southeast Michigan, December ended like the rest of the year, a continued settling of home values with a significant increase in the number of homes pending. It is rather remarkable that the number of homes sold and leased have continued to grow (2008 over 2007) considering the economic uncertainty that hangs over the State. Granted that increase has come from the under $100,000 home value segment (the segments above $100,000 declined in terms of units in 2008); however those sales do create additional activity. Most are first time and investor sales that have a higher turnover rate as do leases, driving the move-up price range sales as home inventories shrink. Median home values took a significant drop in 2008, falling 38%, most of that is from the shift of buyers to those lower priced homes, as opposed to value declines. The Case/Shiller numbers are a better indicator of true home value changes at around -12%. (Ed note: The Case-Schiller Report is a monthly report on the real estate market that is released by Standard and Poors. The report is written by Robert Schiller and Karl Case of MacroMarkets LLC. Robert J. Shiller is a professor of economics at Yale and chief economist of MacroMarkets LLC)

Northwest Michigan moved in a different direction with the number of homes sales off by 20% while the average home price declined only 6%. As a positive sign For Sale inventories have begun to decline however it is logical that further price declines can be expected in northern markets as well.

Total Company Summary Dec-08 Full Year 08
# Buyers to Open Houses 573 35,614
# of Showing Appointments 8,222 211,860
# of Homes Sold/Leased 1,028 14,934
# Web Inquiries (Unique Visitors) 96,175 1,385,400

For Dan’s full report, visit my Web site – and look on the Real Estate Market Statistics page

So, basically we are selling more houses than ever, but most of them are houses that are under $200,000, with the majority under $100,000 in the metro area. That is certainly consistent with what I’m seeing out here in the Milford area market. Most sales – running about 70% lately – are foreclosed houses, with the majority under $200K and many under $100,000.

Another thing that I’ve noticed in the last few months in the township markets that I track is that a large number of houses are selling below their SEV values – that is they are selling for less than ½ of what the county assessor last said that they were worth. In many cases that’s because they have been trashed or otherwise severely damaged in ways that dump their value down significantly. Some have mold, some have been stripped or vandalized and most just showing the ravages of neglect and improper winterization (or lack of winterization) in their plumbing. What a shame. Many were really nice houses a few years back.

Monday, January 19, 2009

8 Reasons to Update Your Homeowners Insurance

Based upon an article by Allison Bisbey Colter, that first appeared on, this post gives you some good reasons to check your homeowners policy and perhaps make an appointment to get an update review of your coverages. While you’re at it you might as well get some comparative prices for the updated coverage, so be sure to call Eric Chase of InsuranceOne at (248)263-0080 and get his quote on what you need. You’ll be glad you did.

Your home is probably your biggest investment, so once a year you should review your coverage to see if you're adequately protected. Here are some reasons you might need to tweak your policy.

1. You've made your place safer.

Insurance companies extend credits for alarms, sprinklers and other safety devices. Just ask. Just adding carbon monoxide detectors or fire extinguishers to your home may qualify you for a discount.

2. Rebuilding costs are going up.

The market value of your home, which includes the land, and its replacement value aren't the same. When you're insuring, you're covering the house, not the land, so don't over insure. However, the cost of rebuilding usually increases year to year, so review your coverage occasionally, especially if your latest remodeling projects significantly increased the value of spaces like your kitchen or added living space to the house.

3. You've got more stuff.

The amount of stuff you own, and need insurance coverage for, will vary over the years. Do a home inventory occasionally to value the goods in your home, and adjust your insurance coverage appropriately. While you’re at it, make sure that you take photographs of your more expensive items, so that you have more than just sales receipts to document their replacement value.

4. You've remodeled.

"Something as simple as a bathroom remodel can impact your home value and should be discussed with your agent," says Madelyn H. Flannagan, vice president for education and research at the Independent Insurance Agents and Brokers of America. Putting $30-40-50,000 or more into a kitchen remodeling project and then not protecting that investment with the proper level of insurance is just foolhardy.

5. You work at home.

If you're running a business from home, you could have limited or no coverage under your home policy. If something happens to the house, what would you use to replace the business equipment that was lost?

6. You've bought some expensive items.

If you have an extensive collection of jewelry or artwork, you may need additional coverage. Even if it’s not extensive; would you want to just be “out” for the cost of your artwork, jewelry, furs or other valuables if disaster struck. You really have to be able to prove (and have insurance for) the value of that expensive painting over the sofa, unless it was a $19 special by a starving artist.

7. You want to protect your liability.

Homeowners insurance also covers you against lawsuits for bodily injury or property damage to your family or other people visiting your home. Most standard home and renters insurance policies provide at least $100,000 of liability coverage. However, there is additional protection that you might want to consider adding if you have more assets to protect. Let’s face it, $100,000 won’t even cover you for spilling a cup of hot coffee in someone’s lap these days (just ask McDonalds) and any slip and fall lawyer worth his salt will get twice that much just for taking the case against you.

8. You live in an older home.

Standard homeowner's polices won't cover you for damage from sewer or drain back-up or other mishaps that you might experience in an older home. Check with your insurer about other types of insurance coverage you might need. Also check to see that lots of things that you think you are covered against don’t have exemptions if you live in an old home, especially one that has not had it’s plumbing and electrical systems updated. You’ll blow a fuse if your old fuse box shorts out and starts a fire that isn’t covered.

Now I know that taking time to check your insurance coverages, and maybe talking to an insurance agent, ranks right up there with calling your doctor to schedule your bi-annual colonoscopy, but both need to be done if you re to remain healthy, bodily and financially, so just do it. Neither one is as bad as you imagine while you are putting them off.

Sunday, January 18, 2009

Read the fine print before buying 4-wheel drive...

After being out and about following several recent snowstorms, I’m convinced that there must be fine print somewhere in automotive sales contracts that advise buyers that purchasing a 4-wheel drive vehicle requires the buyer to give up all knowledge of the laws of physics that pertain to momentum, as well as most of their common sense when operating the vehicle on snowy or icy roads.

That must be the case, because there can be no other explanation of why those drivers insist on passing everyone else who might be proceeding at a sensible pace or why they have such looks of puzzlement and anger when you pass them off the road in a ditch later. Of course there could be some secret shot of testosterone that is administered to these buyers as part of the vehicle delivery process. That might explain it, too.

I’ve also noted that these same characteristics seem to extend to many snowmobile operators, who somehow come to believe that any snow covered neighborhood street is instantly turned into a snowmobile racecourse. And apparently things like stop signs in those neighborhoods don’t apply to snowmobiles, something that I was unaware of until now. Of course, I’ve observed in Milford that stop signs automatically become “slow down some” signs for even automobile drivers, once it has snowed.

So read the fine print in your next automobile sales contract, especially if you are buying a vehicle with 4-wheel drive capability. And, avoid that proffered cup of coffee. That may be where they slip you the testosterone Mickie. Remember that just because you can go faster in the snow, doesn’t mean that you must. Maybe you can even post a reminder on the visor above the driver’s side that states, “bodies in motion tend to stay in motion”, so that you don’t get lulled into the belief that four wheel drive will let you navigate those slick corners with abandon.

Saturday, January 17, 2009

Living more fully in the moment…

“Yesterday is a cancelled check; Tomorrow is a Promissory Note; Today is the only cash you have—so spend it wisely,” from the Jack’s Winning Words Blog. That is a phrase that Jack remembers his mom using when he was a child. It speaks to the wise use of time and of focusing upon the time you have each day, instead of agonizing over the past or fretting about the future. Certainly we all need to remember and learn from the past and plan for the future; however, becoming obsessed with either leaves us little time for energy to live for today.

I find this to be a daily struggle – not so much worrying about the past or future, but the part about using my time wisely today, each day. In real estate there are a thousand things that you could be doing, a few hundred things that you should be doing and a few things that you must do consistently to be successful. I read somewhere recently that as we get older we are more easily distracted and that may be a contributing factor to my penchant for letting too many of the things that I could be doing get in the way of the few things that I should be doing.

I spend way too much time on this Blog, for instance, and not nearly enough time making calls to prospects. Why? Because I enjoy this and I have a natural aversion to making calls, especially cold calls or unexpected calls to people. If they call me I usually do very well and I enjoy the conversations, it’s just the act of picking up the phone and calling someone that I know isn’t sitting there just waiting for me to call that somehow is a daunting task for me.

So, am I going to stop Blogging and become a phone cold-calling machine – not likely. I have resolved to start making calls to my prospects, a few initially and hopefully many more as I gain confidence; however, that is not ever likely to become as natural a part of my makeup as it is for me to sit here Blogging away about a great variety of topics. I enjoy working on my Web sites too, because they represent a similar, passive and disconnected method of communicating, as are the newsletters and postcards that I send out.

However, as I opined in entries in this Blog earlier this week, real estate transactions are not impersonal and disconnected (except for investor transactions). They are usually highly emotional events that invite and require very personal involvement on the part of the Realtor. I enjoy that part, too. Somehow I’ve got to figure out how to better bridge the gaps between those two aspects of the business more often and more consistently. Perhaps the secret lies in those unmade phone calls. We shall see.

Friday, January 16, 2009

Tough talk for tough times…

I have had to have quite a few tough conversations with clients who are trying to sell their homes lately and sometimes I have to use fairly tough talk during those sessions. Let’s face it; we are in tough times. I, for one, have watched my retirement investments tank for the second time in the last decade and watched as my house lost a quarter of its “value” in the current market. I’m not happy about either one; but, they happened and I have to get on with life and try to survive as best as I can.

The last time my retirement accounts went into the pooper it took 5-6 years before they recovered to near what they were and I suspect that it will be that long, or longer this time, too, before they recover again. When that last happened, the bubble that burst and the recessions that followed weren’t keyed off housing, so my house at least retained most of its value. This time is different and the results have been different. The housing bubble burst this time and dragged everything else down with it. This time both my investments and my home are worth less – way less.

That is the point that I have to drive home with current home sellers. It is especially hard with older sellers – sellers who are not old enough to remember the great depression, but who have owned the same home for 20-30 years. For them (And indeed for all of us), this is the first time EVER that home values have declined like this and they just can’t seem to accept it and deal with it. These are people for whom their home was a major part of their retirement plan and likely their major “investment.” Sell the old homestead and retire on the profits was central to their plan.

Now I have to tell these folks that the $200-300-400,000 that they counted on getting for their homes is gone and that their homes are only worth about 3/4 to 1/3 of what they planned on having in hand from the sale. I’m not having a lot of happy meetings about that. The truth is that the market is cruelly efficient at any point in time. It just doesn’t care what you “need” for the house or what you “want” for the house or even what you owe on the house. The market just says, “Here is what other houses like yours are selling for, so that ‘s what yours is worth.”

In today’s market that also means, “here is what foreclosed houses just like yours are selling for, so that’s all you can get, too.” It may not be quite that bad, but it’s close and foreclosure prices are impacting what any seller can expect to get. So, as much as I hate the trite phrase,” It is what it is;” I end up using it myself more and more these days. (Pause for a big ironic sigh here). These are tough times that eventually require that I have those tough talks.

Thursday, January 15, 2009

The unique house dilemma…

There are always people who have the desire for something unique, whether it be a piece of art or custom made jewelry or rare and expensive cars. Some desire to have a unique home; so, they have a home custom designed and built for them. That’s great until it comes time to sell that home. Finding another person with the same taste and desires can be a real challenge for the Realtor.
There are many unique niches in the homebuilding world. Ultra-modern designs, often angular and perhaps flat roofed are fairly rare in Michigan, but lots of very expensive examples exist. Log homes and timber-frames homes are another niche that is popular in Michigan, because of that warm, “Up North” feel. Post and beam houses (of which timber-framed houses are a sub-category) is also a popular niche category and actually not all that rare. Earth houses (those home that seem to be buried on 2-3 sides and may even have an earth “roof” are fairly rare in this area, but not unheard of. A relatively new category is the green, super-efficient houses that may use solar or geothermal heating and be super insulated.

As great as all of these homes may be, they present quite a challenge to the real estate world. Just trying to come up with a price is the first challenge, since there are rarely many “comps” available to compare them too and usually very few that have sold recently. Most of these homes are more expensive to build that the run of the mill colonial or ranch style home, so the owners have more in them and expect to get more out of them upon sale. The build premiums can be anywhere from 20-50% more than a normal stick built home, and that doesn’t take into account any upscale interior features, which many have.

I’ve had this challenge a few times, with post and beam and timber-framed houses. I tried to do the research to determine the build cost premium and then tried to gauge the market’s willingness to pay that premium. That’s the rub. There are just so many great houses on the market today – most of them of traditional style – at really great prices, that it is hard to recommend much of a premium for the unique style. In fact the uniqueness itself is such a limiting factor on the potential buyer pool that it may act to detract from the market value; especially as today’s buyers factor in how hard it might be to sell later.

Still, these are for the most part wonderful homes. Many provide interior layouts that can’t be duplicated in “normal” homes and are often great entertaining homes. They certainly provide the modern equivalent of the “character” that so many love in the old Victorian homes; character that you just don’t get in a tract home. Often these custom-built homes are also in unique settings, since they are not normally to be found in the midst of subdivisions; and those settings are themselves often spectacular with views for which the house was designed to highlight.

So, how much is that worth? In general, for the same square footage of living space it might be 20-30% more to own a truly unique niche home; maybe more for a spectacular timber-framed house or for a home designed by a famous architect. After all, you haven’t really “arrived” if all you have is the biggest house in the latest upscale subdivision. It’s only when you have a house that no one else has that you can truly savor what you’ve accomplished. At least that my story as a Realtor and I’m stickin’ to it.

Wednesday, January 14, 2009

A house with a view…

I get to overhear quite a few comments about the views, when out house hunting with buyers. Many buyers really take the time to look around at the views afforded from the house and that is very important to them. I've never been one to have big "view" concerns; but, I can appreciate that it is an important "asset" of any property. Once you've got your hands on a good view, there are some things you can do to enhance it. Much of this is from an article by Marilyn Lewis that first appeared on MSN Real Estate.

In the scenic Blue Ridge Mountains of northern Georgia, home buyers and developers capitalize on mountain views. In that region, lots with a "short-range" view (stretching a mile or two in the distance) run $50,000 to $70,000. The ability to cast your eyes three to five miles out will cost you up $70,000 to $90,000, and a 20-mile mountaintop vista runs up to $175,000. Add water -- a river or a lake -- and a broad, unobstructed long shot of the mountains fetches $175,000 or more.

Other factors can dilute a view's value, though -- proximity to town, the condition of roads and the potential expense of preparing a steep lot for construction. Mountain landowners often must work for their views. Because all of the lots are wooded, the only way you can get the view is to cut trees. In Michigan we are blessed with lots of views involving woods and water, though few real mountain views – My Holly and My Brighton just don’t rate all that high on the View-o-meter.

Here are some tips for buying and enhancing views:

1. When buying view land, notice trees whose growth could block your vista. In large developments, builders often trim trees to sell lots, but buyers let them grow back, to the frustration of neighbors who lose views. If your view would depend on trimming trees, make certain those trees are on your land. Don't count on a neighbor to trim his trees for you -- most won't.

2. Learn local ordinances and development rules before you buy. In Fannin County, Ga., for instance, property owners may not cut more than 50% of the trees (topping and trimming is allowed) bigger than eight inches in diameter and located 2,200 feet above sea level or higher. Contact government planning departments and read developments' covenants, conditions and restrictions. Also, if trees on a city or county right-of-way are likely to grow up and block your view, call the municipality's street department to learn the rules and practices for tree trimming. Milford, like most cities and Villages in Michigan has local ordinances about what trees a homeowner can remove and what permits are required.

3. When selling view land, do not -- repeat: do not -- cut down all the trees. Once you take the trees down, they're gone. Besides causing environmental damage, you'll limit your pool of interested buyers, many of whom love trees and want to preserve them. Keep buyers' options by asking a skilled arborist to open a narrow "window" through the trees, carefully revealing just 5% to 10% of the view while preserving the trees' shape and integrity. We also have lots of wetlands in Michigan and tearing them out to fill in with a lawn or to open up a view can land you in serious (like in big fine) trouble, so check before sending in the chain saws and dozers.

4. Choose careful pruning of selected limbs over removing the tops of trees (Read "Five Reasons to Stop Topping Trees" at, which can injure or kill them. Using recommendations from friends and trusted professionals, hire an arborist skilled at precision pruning, not a logger skilled in wholesale tree removal.

5. Trim trees in spring if you can. Branches are bare and you can see the view you want to achieve.

6. When enhancing the view from an existing home, choose which trees or limbs to remove by looking through the most important windows in the house. Artfully expose the view, removing as little as possible. Work carefully and thoughtfully: The embrace of a tree in many cases frames a view, enhancing it.

7. Work alongside your arborist to get the result you want. Stands back on the deck or porch and point out which limbs to cut. Do it very selectively. To paraphrase an old carpenter’s saying – look twice and cut once.

8. Finally, enhance the enjoyment of the views that you have through remodeling. Open up the views by adding windows and orient your entertaining and living spaces around the views. Most remodeled lakefront homes in Michigan are essentially a wall of windows on the lake side of the house, with the main entertaining areas and quite often the master bedroom oriented in the house to take advantage of the water views. Most of the older lakefront houses didn’t start out that way.
A house with a view is definitely worth a premium. How much the view is worth in today’s market is debatable; but, the fact that one house has a great view and a similar houses doesn’t might be the biggest factor impacting which will sell.

Tuesday, January 13, 2009

Investing – buying without passion…

I have to correct myself a bit on yesterday’s post. There is a type of sale that I deal with where there is little emotion involved; where it truly is “nothing personal, it’s just business.” Those are sales made to investors. I was out recently looking with a young investor couple and it quickly became obvious how little emotion was in the process and how much it was about the ability to fix the place up and flip it. There’s certainly nothing wrong with that – more power to them, if they can pull it off.

You would think that buying without any passion in the game would mean that much better decision are made; and, for the most part, that’s true. Investors look at house dispassionately. They are investments, after all. But, they too can make major buying mistakes for reasons that somehow elude the logical process that one might think is in place with investors.

Investors need to understand the surroundings of the investment property. Is the neighborhood on it’s way up or down? Is it in a growth area or one that is shrinking? Are there any environmental issues in the area? Who maintains the roads and what plans are there in the Township, Village or City Master Plans for any changes to the roads or for sewer lines? What’s the normal turnover rate for the area – are there a lot of homes for sale and do houses sell quickly?

Those questions and many more are why investors, even savvy ones who have been investing in real estate for quite a while, need a good local Realtor to work with when entering or considering a new area in which to invest. It is especially important for young, first-time real estate investors to partner up with a good Realtor. There are just too many potential pitfalls to real estate investing to start off on the wrong foot by buying a troubled house in a troubled area that provides little potential for return.

Now is a great time to invest in real estate, either for your own use or purely as an investment. Prices and mortgage rates are at historic lows and there are plenty of properties out there that would make great investments. I’d advise that you not look just at foreclosures, but rather put together a model of what the ideal investment property for you would look like; especially for those looking to build a rental property portfolio. You can either buy a fixer-upper and put money into it or buy a regular house at the currently depressed prices and immediately rent it out without putting more money into it. Obviously those looking to “flip the house” need to find a foreclosure that doesn’t need excessive repairs and one that is marketable once it is fixed up. A good Realtor can help you evaluate the marketability of the house.

So, if you are an investor, let me help you with that purchase without passion by supplementing the data that you would otherwise have to help you make a better decision. I may be the only person grinning at closing, but that’s OK, too.

Monday, January 12, 2009

Laughter and tears – it’s all there…

Real estate is an interesting field to be in, due to the range of emotions that are involved in the business transactions. There is a line in the God Father movies that goes “It’s nothing personal, it’s just business.” Well, in real estate it’s hard to consistently take that approach or as someone recently advised me – “don’t cry with your clients.” It’s hard not too.

Real estate transactions generally occur because other things in life have already occurred. The happy transactions may take place because a young couple (maybe married or maybe just engaged) has finally saved up enough to buy their first house. What an exciting day for them when they finally close on it. Other transactions may take place because someone finally got that big promotion that they’d worked so hard for and can now finally afford that bigger house (that one is rare right now in Michigan). Still other happy house buyers may be moving into the area from out of state for job-related reasons and they’re all excited about their new home. Those are all fun to be a part of as a Realtor.

These days, I also have a number of clients are in that life-stage where retiring and downsizing are their goals. That can be a mixed emotions transaction environment, since they have to let go of the old family home (maybe for less than they had envisioned), before they can move on. I have a discussion with them about the fact that the memories of it as a home will never go away; but, that they must now view it as a house - a product to be sold. It's always hard, if not impossible to get them to paint over the marks on the kitchen doorway where they preserved the growth spurts of various children. The new owners may have to be the ones to do that. Still, most are ready to move on to a new stage of lkife, so those end up happy, too.

Then there’s the flip-side of the happy transaction coin, which all-to-often is driving real estate transaction these days. Someone got laid off when their plant closed and now they have to sell to move to a new state to find work. Someone got divorced and now the family home must be sold as a part of the settlement. Someone lost a loved one and now can’t afford to stay in the family home. These are all sad reasons for transactions and ones that quite often involve lots of tearful sessions as the reality of the situation sets in and we have to discuss what they can get into today’s market. I hate to have to tell them that in addition to the pain that they are already in, I can’t even get what they owe on the place; but, that is the reality of the market today for many.

So, how successful am I at taking the approach of “it’s nothing personal, it’s just business?” Not very. I laugh and have a great time with the clients who are making happy purchases and I am saddened and commiserate with the ones who are facing the hardship of foreclosure or taking a big loss on the family home. My job then it to try, as best that I can, to get them out from under the burden of that house with as little loss as possible. If it is a short sale, the goal is to get the sellers out without any deficiency judgments against them for any unpaid balances.

As the professional in the meetings that I have with them, I try to maintain composure and a professional approach, in order to bring some stability into an otherwise very emotional atmosphere. I try to make sure that they understand the position that they are in and what their options are (if any). Then, I try to make sure that they only make decisions once they understand everything and have gotten past any temporary emotional issues. It’s just never a good idea to be signing anything while one is crying about it.

One of reasons that I try to maintain a balance in my practice of real estate is so that I don’t get overloaded myself with only the grief-filled transactions. This past weekend I spent Saturday and Sunday showing foreclosed houses to buyer couples – one of them a young engaged couple and one a couple looking for that perfect retirement home. So, I got a breath of the happy side of the business. I’ll have to return to the sad-side soon enough, but for that short period, it was nice to have Mr. Happy in control again.

Sunday, January 11, 2009

The era of the $1,000 house...

From a recent CNN Money report comes this story. The real estate market is so awful that buyers are now scooping up homes for as little as $1,000. The last ime that these homes were this cheal was likely back in the 20's when many were built. There are 18 listings in Flint, Mich., for under $3,000, according to There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.

In Detroit for instance, Realtor Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.

Fixer uppers
These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances. Often buyers are legally required to rehab these homes to bring them up to code. In Detroit (and many cities right around Detroit), buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report and have those repairs inspected and passed by the City Building Inspector. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in. But even factoring in these costs, they're still bargains. And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties. In the Detroit area many abandoned foreclosed houses have been stripped of all plumbing and electrical wiring, amking them a real challenge to rehab.

Rehab money
Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases. Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan. He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.

Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing. Most of the buyers are investors who have the wherewithal to rehab the porperties and turn them into rentals, but some are being bought by young, first time buyers with dreams of fixing them up and living in them. Many of them get in over their heads and the properties end up back in foreclosre with half of the fix-up projects done, when the young buyers run out of money. Those "boomerang" foreclosures make up an increasing percentage of the new foreclosures. I generally advise great caution and lots of thought and planning before taking on a project like this; and sometimes my clients listen to that advice.

Saturday, January 10, 2009

The housing market headwinds

From a report in U.S.News and World Report by Luke Mullins, here's a look at the factors that will be blowing against the housing market in 2009:

1. Recession. After months of speculation, the National Bureau of Economic Research made it official in early December 2008, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a Nov. 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. "We now estimate that real GDP is falling at a 5% annual rate in the current quarter, and we expect this to be followed by declines of 3% and 1% in the next two quarters," the economists said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3% in our forecast versus 2.7% then)." The recession will exert downward pressure on the housing market in a number of ways.

2. Higher unemployment. The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing -- in early December it was at 6.5% -- but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate will hit 9% by the end of 2009. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned," the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. "A job is necessary for a home," says Mark Zandi, chief economist at Moody's "Without [a job] you can't get [a home]." In Michigan we are already running at over 9% unemployment.

3. Consumer confidence. If consumers are worried about the state of the economy and their jobs, they are much less likely to make the biggest financial investment of their lives: buying a house. With a leading survey showing that consumer confidence in the United States dropped to 28-year lows in November, downward pressure on this front will be working against the housing market as well. "You generally don't buy a home unless you feel pretty good about your economic situation," Zandi says. "No one feels good [today]." Obviously until we get some resolution on our automotive industry mess, Michiganders are going to stay in their fox holes.

4. The underwater effect. A recent Zillow report found that one in seven American homeowners has negative equity, meaning they owe more on a home than it is worth. (For those who bought a home in the past five years, it's nearly one in three.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics. We are alread down in value in Michigan anywhere from 25 to 40% from the 2005-6 high point.

5. Tighter credit. As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70% of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing. So even though rates are at historic lows, too many people just can't qualify to take advantage of the rates.

6. Slowing household formation. At the same time, the pace of new household formation is slowing, which further chips away at housing demand. Richard Moody, chief economist at Mission Residential, says the development is linked to three factors: More singles are moving in with each other; young adults are returning to live with their parents; and fewer immigrants are entering the country. "For those three reasons, you are seeing a slowdown in the rate of household formation," Moody says. "And to the extent that the economy and the labor market remain weak this year, which I think they will, then that's going to continue."

7. Radioactive effect. Despite lower real-estate prices and cheaper mortgage rates, the pain inflicted by the housing bust will frighten many would-be buyers away from the market next year, Larson says. "Enough of your 'average Joes' have been burned very badly and will be burned by the time this is all over that investment money is not going to flood back into the market," Larson says. "Any recovery, in my opinion, will be gradual and is going to take time."

8. Foreclosure sales. A huge problem for the housing market in 2008, foreclosure sales will continue weighing down the market next year. "There was a surge this year," Zandi says. "But next year [there] will be even more." While that will give buyers an opportunity to go bargain hunting, it's bad news for sellers. "It puts more homes out there for sale at a very deep discount," Zandi adds.

9. Subprime mortgages. While resetting subprime mortgages may not be a leading factor behind the decline in home prices, as they were this year, such products will again be working against the housing market in 2009, Thornberg says. "There are still lots of subprime mortgages out there that are going to reset not just in 2009, but 2010 and 2011," he says. "And so that's going to be a consistent problem for a while, although it is probably reduced in magnitude [from 2008]." In Michigan we have been running at about 50% of all home sales being foreclosure sales and that doesn't look to improve anytime soon. We are now seeing increasing default rates in Alt-prime mortgages, those just below prime, but not considered to be sub-prime.

It's always hard to find the bright spots in reports like this. I suppose the fact that sales are still being made, that rates are better than ever and that there's more to choose from on the market than ever are all good news for those who are out shopping for a house.

Thursday, January 8, 2009

Home ownership and tax suburban legends

From a recent article by Kay Bell comes this advice about five popular myths (suburban legends) about home ownership and your taxes. Owning a home tops the dream list for most Americans, and for plenty of good reasons. It's a shelter for your family, a gathering place for your friends and a good long-term investment. Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill. But, as is often the case with the U.S. tax code, home ownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.

Here are suburban legends about taxes and home ownership that could cost you.

1. My mortgage interest will reduce my tax bill.
This is true for the majority of homeowners, but not for all. And this tax break won't work forever. To take tax advantage of your home loan's interest, you must itemize and come up with a total that exceeds your standard amount. On 2007 tax returns, the standard deductions are $5,350 for single taxpayers, $7,850 for head of household filers and $10,700 for married couples who file jointly. These amounts increase a bit each year to account for inflation.

"Given home prices these days, most owners are itemizing," says Mark Luscombe, principal tax analyst with CCH of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other non-home deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions. But most is not all. Taxpayers who buy a home late in the year, for instance, might find the standard deduction is more beneficial, at least initially. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts. Timing also could reduce or eliminate other home-related tax breaks. "Quite a few states have real-estate taxes that are calculated in arrears (Michigan calculates and collects taxes ahead in most counties, but not all). That is, they have already been paid or mostly paid (by the seller) by the time you buy," says Tollaksen. "In the first year, you're seeing taxes that are someone else's responsibility so you're not getting the full tax value of your real-estate taxes."

2. All costs related to my home are deductible.
There are no two ways about this one. It's flat-out false. Association fees and property-insurance costs are not deductible. Neither, in most cases, is private mortgage insurance, which your lender probably required if your down payment was less than 20%. However, a new law changes the deductibility of PMI for mortgages originated or refinanced between Jan. 1, 2007, and Dec. 31, 2009. If you got your mortgage and policy in that time frame, you might be able to deduct your insurance-premium payments. The law also extends beyond private insurance to others, including FHA, VA and rural housing. There are some limits, though. The PMI deduction is phased out for taxpayers with adjusted gross incomes exceeding $100,000 and is totally eliminated once adjusted gross income reaches $110,000.

Don't try to deduct basic maintenance, repair or home-improvement costs either. If you try to write off these expenses, expect to hear from the Internal Revenue Service and to pay a higher tax bill (and possible penalties and interest) after you re-figure your taxes without the disallowed deductions. However, you still need to keep track of these expenses. If you convert the home to rental property or sell it, these costs will affect the property's tax basis. A home's basis is critical when it comes time to sell. And selling is also a tax area in which many people fall for myth No. 3.
3. I must use money from my home sale to buy another residence.
This used to be the only way to get around a tax bill on a home sale. Even then, you were only able to defer taxes by purchasing a new residence of equal or greater value with the profits from your other house. When you sold your final house, you'd owe those long-deferred taxes you had rolled over throughout the years. Home sellers age 55 or older were allowed a once-in-a-lifetime tax exemption of up to $125,000 in sale profit. But on May 7, 1997, home-sale tax law changed. Still, a decade later, many homeowners are confused about the tax implications of selling. If the last time you sold the house was before 1997, you're thinking of those old rules. Don't worry. Most taxpayers still get a nice break. Now, if you live in the house for two of the five years before you sell, the IRS won't collect tax on sale profit of up to $250,000 if you're single or $500,000 if you and your spouse file a joint return. An unintended consequence of the new law is that, when the new rules took effect, people basically quit keeping records related to their homes. Now with inflation in the housing market, a lot of people are selling homes in excess of the allowed gains without any way to show that their tax bill should be less. So, keep those receipts, especially for the big projects.

4. Putting my child on my home's title is a smart tax move.
Worries about taxes on a residence sometimes lead homeowners to fall for this myth. It's a particularly tricky one, because it combines confusion about residential taxes with the even more complex estate-tax area. The thinking is: My son or daughter won't have to worry about this when I die. The goals: Avoid probate, keep the home in the family and get the property out of the parent's estate for those tax purposes. Such a move, however, could produce other tax problems for your children. Unless the child moves into the newly deeded house with the parent and lives there long enough (two of the previous five years) to make the house the child's main residence, too, the son or daughter won't get the $250,000 or $500,000 residential tax break when the child later decides to sell. Without establishing primary residency in the house, either before or after the parent passes away, the child's ownership is viewed as an investment property. Other parents opt to simply add a child's name along with theirs on the title to the house, known legally as a joint tenancy. It doesn't mean that all the owners live in the home, but simply that two or more people hold title to the property. This, too, can produce tax complications. Generally, when someone inherits a property, its value is stepped up. That means when the owner dies, the property becomes worth its fair market value that day. But if the child co-owns the property with his parent, the child doesn't get to fully use stepped-up basis. Tax law considers the addition of the child's name to the title as a gift. And, along with that half of the home, the child receives half the basis that his or her parent has in the property. This is known as the property's carry-over basis. And it could be costly.

Consider, for example, that you bought your house many years ago and your basis in the property is $50,000. You add your daughter to the title. When you die, she inherits your half of the home, which by then is worth $250,000. A buyer offers $300,000 for the home. Pretty good deal, right? From a real-estate perspective, yes. But not when it comes to your daughter's tax bill on the sale. Rather than owing taxes on just $50,000 more than the house's stepped-up market value, your daughter will owe on three times that amount.

Doing the math Parent owns home with a basis of: $50,000
Parent adds child to title, "giving" child carry-over basis of: $25,000
At parent's death, house is worth $250,000, producing on the inherited half a stepped-up basis of: $125,000
Home subsequently sells for: $300,000
Child's total adjusted basis (line 2 plus line 3) is: $150,000
Taxes due on sale profit (line 4 sale price less line 5 basis) of: $150,000

What had been done with the best parental intention turned out to carry a big price because of this home ownership tax suburban legend.

5. If I take a capital loss when I sell my home, I can write it off.
This myth, like No. 2, was probably also started by wishful homeowners. Sorry, it's just as wrong. It is true that real estate, like any other asset, has the potential to go down as well as up in value (as well we know in Michigan). But unlike most of those other holdings, you cannot write off any loss you suffer if you must sell your main residence for less than what you paid. That's because your residence, under tax law, is considered personal property. When you sell your home for a loss, it's not like other capital items. You don't get to deduct personal property that you sell for a loss. Any more with what is happening to home values it’s sort of like buying a car and that old saw about that fact that it loses 40% of its value the moment that you drive it off the lot. Michigan home buyers in the 2006 to 2008 era watched in horror as the new home that they just “drove off the lot” dropped anywhere from 25-40% in value. You do, however, have to pay tax on gains you make when selling personal property.

Now, at least you now know the difference between fact and fiction when it comes to your residential property, which will help you make appropriate real estate and tax decisions in the future. Home buying is about more than the tax consequences; however, it’s good to be able to discern facts from the fiction that often surrounds the process.