Hoisted again…

Some time back I wrote a blog post that I titled “hoisted by our own petard” in which I discussed how a decision on real estate developments in Michigan that was made some years back has come back to haunt the state. Michigan made it easier on developers by allowing a development classification that is called a site condo development. The site condo development approval process was very much faster, too; which allows developers to get a quicker return on their land and infrastructure investments. All good stuff for the developers, or so they thought.

But, it turns out, there are some downsides too that were not considered at the time (hmmm, unintended consequences of the actions of lawmakers, who would have ever thought). Since site condos are considered to be a special type of condo development they are subject to the rules that govern condo complexes, especially by lenders. Lenders look at things like the percentage of the complex that is complete and the percentage of the complex that are rentals or the percentage of the complex that already have loans guaranteed by FHA. Based upon those percentages, which they also equate to risk factors, they may or may not lend on a property in one of those developments. Most of these rules were not a problem until the economy tanked and many site condo developers went belly up with largely unfinished projects. Now buyers and sellers in those site condo developments are having trouble. I received the message below in response to that original post and thought that it warranted an additional post.

We put a cash offer on a site condo "lot" or unit as it is legally described as, in S.E. Michigan ... and we were denied a CONVENTIONAL building loan with 25% down!!!!!! We pre-qualified for the loan and everything. We have credit scores in the 800's and stable jobs, etc. National banks don't understand "site condos" and wouldn't make an exception to their rule of building a single family residence on a condo unit. We appealed and then were told that the by-laws state that the HOA could put a lien on our house if we defaulted on the HOA annual dues. The dues are $800. The bank thought that was too high of a risk and denied our loan. All over $800/year!!!!!!!!!! I'm so mad. This is killing Michigan!

There are all sorts of unusual or stupid things happening in real estate all over, but Michigan would likely be in the running for a prize on America’s Dumbest Real Estate Market Scenarios, if that were a reality TV show, We are one only a few states to have adopted the site condo development class and most out of state banks (which is most banks) don’t understand it or how to deal with it. So they just deny people loans, so that they don’t have to work to understand the market here. This would be akin to a bank denying money for borrowers in Louisiana because they don’t understand the concept of organizing local governmental bodies into Parishes instead of Counties, so it must be a higher risk. Some idiot somewhere could conclude that Parishes have something to do with the church and decide not to loan to religious groups. Sound crazy? No, it’s just ignorance and that’s what’s really impacting our Michigan site condo market – ignorance on the part of out of state lenders.

I refuse to participate in this recession...

“Refuse to accept the inevitable.” (Unknown) – from one of my favorite sources – the Jack’s Wining Words blog. It is particularly important in the midst of the worst recession that most of us have ever seen to refuse to be lulled into accepting things as they are as inevitable. That acquiescing attitude has given rise to the phrase “it is what it is”, which so many use as a way mentally shrug and accept a fate that they seem to think is inevitable.

As I’ve opined here before, I hate that phrase. I think it is what you make it, not just what it is. It is what we allow it to be for us and for others. If we don’t accept what is as the inevitable, then we have the power to change things for ourselves and for others. So, I choose not to accept the inevitable and not to accept that it is what it is. I intend to kick and scream and fight and scratch and rage against the inevitable of this recession until it is over. I know that I will not have beaten the recession, but neither will it have beaten me.

I also continue to be amazed at how many clients that I get after they have called another agent who either refused to call them back or just was too lazy to call them back.
How anyone can pretend to be a businessperson in this economy and yet refuse to call potential customer back is beyond me. I have a new client that I picked up on Saturday because she needed to look at houses in the evenings and wanted to start that day. She had called another agent who told her that she just wouldn’t work on a weekend evening. Say what! As a Realtor I accept that I’ll have to work at many times when I may rather be with family or friends, but which are the only times that my clients have available. I certainly try to hold back times for family, but I also try to make myself available when my clients needs dictate.


So, call me. I’ll call you back and I’ll work as hard as necessary to find you the perfect new home. Now is a great time to be a buyer – the choices are great and the prices are the lowest that they’ve been in decades, plus mortgage rates continue to be super. And if you want to sell, but you’ve been told that nothing is selling right now, call me. I refuse to believe that I can’t sell your house. You certainly won’t find anyone else who’ll work harder or longer to make that happen. I do not accept it to be inevitable that your house won’t sell. In fact, maybe your house is just right for one of those buyers from above.

Finding houses for the sandwich generation…

I’m working with a few buyers right now who are a part of the so-called “sandwich generation”. These are mostly baby boomers that find themselves in a position where they still have children of their own to care for at home and now they have become caretakers for their parents. They are “sandwiched” between the younger and older generations in their families.

Many of these people have the means to buy a second house in which to place their parents, which is where I come in most of the time. Some are trying to find bigger homes with built-in in-laws quarters and I can help with that, too. One of the things that has happened already in my market is that the low hanging fruit is already gone. Lots of early retirees or pre-boomer retirees have already bought up most of the available ranch homes as they downsized.

The obvious candidate houses, which would meet the needs of the elderly, are ranch-style homes, likely built in the 1990’s or beyond. I say that because they usually have open floor plans with larger master suites and larger kitchens that are desired. There are lots of 1950’s and 1960’s ranch homes in the area, but most have tiny bedrooms, only one bath and narrow hallways and doors. That’s just how they were built back in those decades.

I’m also recommending that my clients look at modern Cape Cod homes, which became all the rage in this area in the late 1990’s. At least in our area they were usually built with everything for the owners on the first floor. Usually there are a couple of bedrooms and a bath upstairs in that style house, too; which would be OK for the occasional guests. Most have large master bedrooms with a master bath that has both a shower and tub, plus a walk-in closet. Many of the houses that we might look at have finished basements, too; but that doesn’t mean a lot to someone confined to a wheelchair or using a walker to get around.

Other things that I look for to meet the needs and desires of the elderly include nice Florida rooms or three-season porches; wide doorways (or the room to expand existing doorways); wide halls; a first floor laundry, an open, walk-in shower with seat; an open kitchen with room to maneuver a wheelchair; a low entrance or one which would accommodate the installation of a ramp; and a low- or no-maintenance exterior which hopefully has been landscaped with perennials. Family caregivers have enough to worry about without having to take care of a high maintenance second house, too. I always recommend that they look at condos, if they can convince the parent(s) involved to do live in a condo (a high percentage still want the appearance of independence that regular house brings, so I also recommend detached condos).

It is also possible to find homes that were designed and built to accommodate an in-laws suite. Well-designed in-laws suite have their own entrances and everything that the resident needs contained within the suite. The same rules about halls and door and other features that will accommodate an elderly resident apply to these homes. Many times owners will have redesigned their walkout basements into these guest or in-laws suites. That might work, but it is much less accommodating to the resident who must still find a way to get upstairs to visit with family, unless an elevator was also built in with the remodeling.

So, I’m out looking for those perfect houses for the sandwich generation to buy for their parents. At least they’re doing something other than shipping them off to a managed-care home somewhere.

I don’t make this stuff up…

I have been doing a lot of Comparative Market Analyses (CMAs) lately for people in lots of different price ranges ands certainly in differing houses and different personal situations. In almost every case I get push back on the news that I break to them about the current value of their houses. So I have to explain that I’m not just making this stuff up. I track the local market that I serve on a weekly basis, recording and charting all sales, as sell as the inventory and the days on market averages. For weekly sales I have three years worth of data on line that they can go look at. I know what houses are selling for in my market. Got to my Web site http://www.themilfordteam.com/ and chose the Real Estate Market Statistics

It seems that somehow each seller starts out thinking that, like some real estate variation on Passover, the Angel of Devaluation has magically skipped over their home and it is still worth what it was three years ago when they bought it or last had it appraised for a refi. They know that there are 3-4 foreclosed homes in their neighborhood, but that can’t be affecting their home’s value. They heard that Fred down the street sold his home for about what I’m recommending, but after all his home wasn’t as nice as theirs – they paid a lot extra for the silver foil flocked wallpaper back in 1973 and it has held up well and what about that “new” hot water heater that they put in back in 1985. And the roof has got to have another good 5-6 years left on it. And then comes the statement – “you messed up on pricing my house – it’s worth a good $30-40,000 more than you’re showing me. I won’t give it away.”

I don’t make up the data; I just record and study it to see what I can learn from it. We have a unique home value number in Michigan called the State Equalized Value or SEV. That number is assigned by the county assessors and is supposed to reflect ½ have of the value of the house. Generally, taxes are based upon that SEV number, although we also have a Taxable value number that can be lower (don’t even get me started on how we got into the mess). Please notice that I only used the term home value and not market value. In the “good ole days” (defined as pre-bubble and pre-bust), one could double the SEV and get fairly close to what the market value might be. In fact, before things got really crazy houses were generally selling for between 2 to 2.3 times SEV (higher for lakefronts and upscale homes). Well, for the last 2 years the market has trended down so much that we are now seeing sales run between 1.5 to 1.7 times the SEV for owner-occupied homes and at or below SEV for foreclosed homes and some short sales. So I keep that number in mind.

For a long time we were also seeing homes sell for between $120 to $180/Sq Ft, with smaller homes selling at the higher number (less Sq Footage to spread infrastructure costs over). Now homes are consistently selling in the range of $85 to $115/q Ft. Lakefront homes still command a slight premium, but nowhere near what they used to command. I keep these figures in mind, too.

I’m really not sure who is the worse to deal with; Bob and Sally who have owned their home for 30 years, or, Ted and Alice who bought at the peak of the market a few years back. Ted and Alice are underwater and they likely know it; but Bob and Sally haven’t kept up with the market since their last refi, which was 6-8 years ago and it was looking pretty good then. Bob and Sally bought their house for nearly $400,000 at the peak and it is now worth maybe $250-275K. Ted and Alice bought their upscale house in the mid- 70’s for $90,000 and watched it appreciate up to nearly $400,000 several years back. They’re sure it’s still worth at least $300K. After all the guy down the street sold his for more than that 3 years ago and his house wasn’t as nice as theirs.

Let’s face it, Ted and Alice are toast and are likely to just walk away or try to do a deed-in-lieu. Bob and Sally, on the other hand, are candidates for the world longest listing period, since they will fight any price reductions kicking and screaming. Eventually they will sell for far less than they could have had at the beginning of the process had they not so adamantly disagreed with what I told them. Maybe I’ll still be their listing agent, but most times not. By the time it sells they may have had 2-3 other listing agents.

I don’t make this stuff up. I’ve lived through both scenarios.

It’s not that your daughter’s ugly…

Sometimes talking to my sellers and trying to explain to them why their house isn’t selling is like trying to discuss why someone’s favorite daughter didn’t win the beauty pageant. It’s not that their daughter is ugly; it’s just that she was competing against other girls who were significantly better looking. Maybe the losing daughter was a few pounds overweight or a few years older than the other girls (and it showed) or just didn’t have the talent or the interview skills – there are always reasons and some are easier that others to explain in ways that won’t offend the parents.

The same is true with houses, especially in the current market in Michigan. I show a lot of houses in the $200-300 price range, which in Michigan is a good price range and in which you can get a nice house in the 1,800 – 2800 Sq Ft range. Many of those houses would have sold in the $300-400K range a couple of years ago. Most have 3-4 bedrooms, 2 and a half baths, 2-3 car garages, full basements and nice yards (most under 1 acre) in newer neighborhoods. Many were built in the 2000’s.

But then the differences start showing through. Some have nicely finished basements, while some are still sitting there on raw concrete basements with maybe an old piece of carpet thrown down for the kids to play on. Some have hardwood floors while some are carpeted wall-to-wall directly over parcel board flooring. Some have fireplaces and some don’t. Some have nice decks or patios out back while some still have boards across the door wall to prevent you from opening them and falling out the back. Some have walkout or daylight basement and some have dark regular basements. There are lots of differences like that that make if fairly easy to distinguish and rank the similar houses in the subs.

Then you have to try to also rank them against similar sized houses that were built in different eras. That 1970’s house that is of similar square footage and may be on a bigger lot or that early 1980’s house in what was an upscale sub at the time. How can you compare them? Not very easily, it turns out and not very directly. Most of the older houses have such different floor plans that making direct comparisons is impossible. Sometime in the mid- to late-1980’s builders in this area changed directions to start building houses with everything for the owners on the entry level vs. the traditional colonial floor plan of all bedrooms up. They also started building floor plans around great rooms and gourmet kitchens. So, now the best of the 1970’s traditional colonial homes look really dated. They don’t have great rooms with volume ceilings. They don’t normally have large, gourmet kitchens. They don’t have master bedroom suites with huge master baths and walk-in closets. They aren’t ugly; they just don’t fit in well in the current beauty contest.

In addition, many of the homes built back in the 1970’s and early 1980’s have wallpaper and wood paneling everywhere. That was big back then. I know because I did it to my own house back then (and later had to strip it all off). And there was a color thing going on in the baths and kitchens back then that has stayed with many of the houses built in that ear – turquoise and harvest gold and pink or mauve was all the rage. Many of the houses still have all of those old, colorful baths and sinks and toilets in them. And in the kitchens you’ll find Corian cabinet tops if you’re lucky, but mostly just Formica. Unfortunately many of these houses have been in the same hands since they were built, so little, if anything has been updated, including the mechanicals (if it ain’t broke, don’t fix it). By now almost everything major is at or near its end of life – furnace, water heater roof, etc.

So, now those owners put their 20-30 year old houses on the market, convinced that they can compete in the teen beauty contest that they are entering. The outcome is predictable. They may get a few showings but no offers or they may get a few offers that they consider to be low-ball. In most cases those low-ball offers actually reflect what the market price of the place is, based upon the need to do extensive updating. And then I get to have the “your daughter’s not ugly, but…” conversation with them (again). I get the “it was good enough for us for all of these years…” push back and the “I won’t give it away…” retort or the “well then, they should just make us an offer…” rationalization. Maybe that’s when I lead them from the backstage vantage point in their daughter’s dressing room out to the front of the stage to see what the other contestants look like (a few visits to similar active homes). Sometimes there is a catharsis that comes out of that, but many times it’s just further denial of the truth, “well, I’ve never liked those big high ceiling room myself, I think they’re ugly.”

Eventually, even the most stubborn owner will eventually capitulate to the feedback from the market and price the property to sell. Unfortunately that is all to often when they are on their 2nd or 3rd listing agent and well into their 2nd year on the market. By then they have probably lost $25-50,000 more than they needed to had they priced properly in the first place. In our market houses continue to lose about 1.2%-1.4% per month in value; so, being adamant that their not really ugly daughter of a house can compete with the younger houses costs owners between $2,400 to $5,000 a month. Ouch! Was that a blemish that just popped out on your daughter’s face?

Size matters...at least in real estate.

The 2008 Real Estate Company Ranking for the U.S. are out in the latest Realtor Magazine (the trade magazine of the National Association of Realtors (NAR)) and I couldn’t help but report the results to you. Real estate companies are ranked by two different metrics –the number of sides (transactions) that they close in a year and the dollar volume of that business. Those two numbers often result in different rankings, since a company could close lots and lots of very cheap deals and end up ranked high in transaction sides and rank lower in dollar volume. That happened to Real Estate One this last year, due to the unusually high percentage of sales of foreclosed homes in Michigan.

Across the United States Real Estate One ranked 13th in transaction sides, with 14,851 closed transactions for 2008. AT the same time we ranked 38th in dollar volume with $1.986 Billion in sales. That’s pretty darned good in the current Michigan economic environment. The report, which ranked the top 100 real estate companies in the U.S. had only three other Michigan companies included in the report – Coldwell Banker Schmidt of Traverse City was ranked 44th in transaction sides and Greenridge Realty, Inc. of Grand Rapids ranked 71st in transaction sides. In the dollar volume ranking Coldwell Banker Schmidt of Traverse City also ranked number 90.

And what of the other local franchise operations in Southeastern Michigan? They didn’t make this report because they are all fairly small operations. While some of them like to try to trade on a national franchise name, most do relatively small amounts of business when compared with the companies that make the top 100 list. Same make inflated claims of about selling more real estate than others – it’s all hot air. Reports like this one put those claims into perspective. No other company in Michigan sells anywhere near the amount of real estate as Real Estate One does, no matter how you measure it.

And what does this mean to you if you are trying to buy or sell a house? Well it means more agents and more programs and bigger advertising budgets and wider Internet exposure and lots of other things that come along with being the biggest, no matter how you look at it. Size does matter. Size means leverage. Leverage with the media and leverage with the providers of tools and marketing materials for our agents. It means getting the best deals on ads in the papers and the best deals with Internet sites. It means having a relocation staff and a foreclosed property staff. It means being able to offer our clients special deals on things like storage or moving or security systems or other things that surround the real estate transaction. It also means being able to offer buyers one of the best search sites on the Internet for finding a new home and having the mortgage resources available in-house to help with the financing of that new home and the title company in house to help with the closing.

So think about it when it comes time for you to list your home or to find a new home. Ask yourself, “Why would I not go with the number 1 real estate company in Michigan?” Maybe you have an answer that makes sense to you, but I certainly can’t think of one. In real estate bigger is better and we are the biggest in Michigan. I’m proud to be a part of that.

The housing market in the Twilight Zone…

The old TV series by Rod Serling called “The Twilight Zone” used to present a lot of episodes based upon irony. Serling liked to use dramatic techniques, like not showing the faces of the actors or lighting them from behind, so that you couldn’t quite make them out . One episode that I remember involved a group of people who spent the entire ½-hour episode discussing in horror how ugly another person, who was never shown during the bulk of the show, was and how she was so different than them and should be cast out of the society. You could never quite see the speakers or the subject that they were discussing, but the disgust of the “regular” people was apparent. At the end, of course, Serling through us a curve ball when he finally allowed the subject girl to be seen. She was stunningly beautiful (by our standards). The Serling allowed the speakers during the episode to be seen and, of course, they were horribly deformed and ugly.

That Twilight Zone episode is a great match to today’s real estate market. The sometimes ugly and many times horrible neglected and, one might say, deformed (deteriorated at least) foreclosed houses are setting the standards by which buyers are judging the market, at least on price. We are truly in a Twilight Zone in housing right now. Decrepit, run-down foreclose or short sale houses are setting the market price standards and getting lots of traffic and sales, while truly beautiful owner-occupied house are being shunned. It is a market that Serling might have found worthy of an episode or two.

So, what are we to do as Realtors to recapture our market and bring it back into the real world? Can we afford to ignore the foreclosed and short sale segment of the market? No! That would be tantamount to suicide. But what we can do is to better educate our clients (especially the amateur investors) and better counsel them about the risks of buying a foreclosed or short sale house that go along with what they see as the obvious rewards.

There are really very few truly professional investors in the market these days – people who really know what they are doing when they buy a run-down foreclosed house. That’s one reason that there are so many “boomerang houses” in the market – those that were bought by naïve “investors”, only to return to the foreclosure market 3-6 months later. As Realtors, we’re probably not doing enough to prevent that from happening. We should be giving better and stronger advice to amateur investors, when we encounter them. Many times that advice should be “Don’t do it.”

What else? I certainly try to advise sellers on how to do the best that they can to sell before bailing out on a property. But, in reality, the economy has taken so much value out of the market that almost a third of the people that I run into are underwater on their homes – they owe more than the home is now worth. They can get relief by refinancing because the banks just won’t talk to them, even with all of the Federal rescue and refi programs. I sometimes feel like I’m also caught in the Twilight Zone as a Realtor. I’m at a loss here, so feel free to jump in and post your advice.

Don’t be insulted; it’s just the market…

I get offers these day (and make some, I must admit) that the sellers get insulted at and just reject outright. When the sellers are insulted there is no negotiating with them. In fact many try to say that they won’t even entertain any further offers from the buyer, because the buyer in their minds is obviously trying to steal their house and is not a serious buyer.

I suppose that there are some cases of buyers out there running around lobbing low-ball offers at everything, to see if they can steal a house or two during this recession. For the most part, however, these are just normal buyers who are trying to buy a house, but who have been conditioned by the market to low-ball. After all, all of their friends and family keep telling them that they should do that, because obviously every seller is desperate and on the edge of (if not already in) foreclosure.

In fact there are lots of foreclosed and short sale houses at very attractive prices on the market, some of which might also be in fairly good condition. And, there are a number of sellers who undoubtedly are near the edge and may be getting desperate. However, the majority of the owner-occupied homes on the market are being offered by sellers who want to move and may even need to move, but who do not need to take a loss on a sale, at least not yet.

What has happened is that the buyer pool has read a lot about desperate sellers and heard a lot about great deals being offered by those sellers and maybe even seen a few short-sale deals go through. So, now, they are conditioned to treat every sale as if it is a short sale or foreclosure sale. They always want to start of their bidding at 15-20% off the asking price. They believe that the sellers will meet them half way, or maybe better.

That’s not happening these days. Banks have gotten much better at pricing the homes that they own to the market and they expect to land somewhere between 95 – 97% of asking price – more if the buyer is also asking for seller concessions to cover closing costs. Owners are also expecting bids above 90% of asking price and hoping to get into that same 95% range, especially if they have to give concessions, too.

Certainly it’s still possible that the owner is overpriced for the market, even though he/she has likely been getting advice and even pressure from the listing agent to lower the price to better reflect the market. In those cases maybe offering 10-15% off is the only way to get the negotiations started near where they should have been in the first place.

So, don’t get insulted if you get an offer for 15-20% off asking price. That’s just the nature of the market these days. Instead take the opportunity of having to respond to this offer to have a serious discussion with your agent about your asking price and about the worth of your home in the current market. You may not like what he/she has to tell you and it may be time to re-examine your reasons for selling to see if it is really what you want to do.

The market is unlikely to come to you if you are overpriced. You can stomp and rage and bellow and pout about the market and all you will get is a big yawn.
If you absolutely cannot sell for what your agent tells you is the current market value for your house, then take it off the market and either wait for a market recovery (likely a decade) or start negotiating with your bank for a short sale or deed in lieu foreclosure.

In the meantime, remember that every offer, no matter how ridiculous it may initially look to you, is the starting point for negotiations that may lead to a sale. Nothing limits the negotiations like a flat out rejection. Don’t do that. Calm down, talk it over with your agent and make a sensible counteroffer or counter proposal (using a Seller’s Response to Offer instead of a counteroffer).

You may have to remind the buyer of all of the features of the home and of it’s condition when compared to a typical foreclosure home to help him understand why your home is worth something more than what he would have offered for that lesser, foreclosed home. The main thing is to try to come to an agreement on what that something extra is and both sides will likely have to give on that point.

Creating the illusion of help…

Recently I heard a report in the news that only a few thousand people have actually been helped by all of the Federal programs that were created and ballyhooed in press conferences and telecasts as our saving grace. Like much of what comes from politicians at almost every level, this was high drama, meant more for the press and photo-ops that it provided for them than for the little people in the trenches who are battling to save their homes. Not a day goes by when either President Obama or some Congressman or Senator doesn’t remind us all of the bills that they’ve passed in Washington to help us all out here in the boonies.

It goes a a little like this…”Harrumph, harrumph, harrumph, we’ve passed legislation that will encourage the banks to make loan modifications rather than foreclosing on homeowners.” To which the banks replied – “Yawn!” “Harrumph, harrumph, harrumph, we’ve asked those banks who took TARP money to do everything in their power to enable homeowners to modify their loans, so that they can stay in their homes.” To which the mortgage lenders replied, “Yeah, right.”

Why the lack on compliance on the part of the lenders? Two reasons – there are no real penalties in the bills that asked nicely for them to cooperate (their lobbyists did a better job that the homeowners’ lobbyists) and the banks would rather wait to see if maybe the Feds will eventually buy all of these bad loans off their books. That’s also why they aren’t in a rush to do short-sales. The lenders are all awaiting the creation of the rumored “bad bank” to buy up their bad assets.

In the interim, everybody concerned, the politicians and the lenders all need to appear to be doing something, to be empathetic to the plight of the constituency (or at least a part of it, the contributors to their campaigns being the only constituency that they really care about).
So, they go on… “Harrumph, harrumph, harrumph we’re passing bills to protect the little guys, the homeowners. It is unfortunate if the lenders will not join us in this collective harrumph. Now where’s my next press conference scheduled?” Politicians have become such masters of illusion that they should be required to join the magicians union.

Meanwhile, out in the trenches, when the illusion of help fades away and the reality of losing their houses sets in, the natives are getting restless. At some point there will be a revolution, likely a quiet one, but a revolution none the less, that will sweep from office all of these self-serving illusionists and put some solid hard working citizen-politicians in power. Of course, they'll have to rent a place to live in Washington, since they probably will have lost their homes in the "great recession" and be unable to get mortgages from the friendly, TARP-funded bankers.

Starting Over…

Lately I’ve been encountering a number of people who are being forced to start over in life, many with little or nothing to show for their time up to the present. That can be particularly disturbing when these are people in their 50’s and 60’s. Most, through no real fault of their own, have found themselves out of work and about to loose their homes, after decades of successful living. Some certainly contributed to their own problems by over-spending or over-reaching for the American Dream of home ownership, but most are just innocent victims of an economy gone terribly awry.

As I talk with these folks I sense a lot of emotions bubbling below the surface – fear, anger, frustration – all jumbled up. There is certainly fear about what happens now – how to start over at a late age with no home, no savings (many depleted their savings trying to save their homes) and in many cases no jobs. There is anger, but with no real focus. Who do you get mad at for what has happened to the economy that swept you along with it? You can only beat yourself up so much for what were in retrospect maybe some poor financial decisions.

And there is certainly plenty of frustration to go around. There is so much conflicting advice about what to do or not to do; and many of these people have tried the frustrating experience of trying to work things out with their banks. I have one client who has shared with me his frustration of just being able to find someone to talk to at his bank for whom English is a first language. It’s bad enough to have to try to explain your hardship situation to someone who understands English, much less trying to find understanding from someone half a world away for whom English is a second language that they are still learning.

It is also frustrating to most to be told that in order to be considered for help they must already be in pre-foreclosure – in other words, the banks are saying don’t even call me to discuss modifying your loan or a short sale unless you are already 2-3 payments behind. By the time that they will talk to you, most banks have already put you on the road to loosing the house. And most lenders are still not cooperating on short sales, since that means they must agree to take a loss, before they’ve even foreclosed on the property. Many are also still pursuing deficiency judgments against the mortgage holders for the balances.

I suppose that it is that sense of frustration that is driving so many to seek the protection of bankruptcy. I advise against that, until it is the last resort, since going through bankruptcy seems to have the most negative impact on ones credit and takes the longest to recover from. So, I spend quite a bit of time these days trying to find places for these people to start over in – rentals, leases, and land contracts. There is something uniquely sad about showing a 50-60 year old couple who just lost their McMansion to foreclosure through a 1,200 Sq Ft, 3 bedroom 1 bath rental home and listening to them discuss how they could live there until they get back on their feet.

For many the realization that they will never get back to life as they knew it has set in, but for most this is viewed as a temporary setback and they even talk of buying the place as a rental unit when they get back to the life that they are used to. Hope springs eternal and that's a good thing. We all need hope, which for many of us is bolstered by faith. We may have to start over and that is disappointing; but, it is also a bit exciting, too. After all, it is out of struggle that one eventually finds rewards. Wow, it's a good thing that Pollyanna was here to save this otherwise dreary post. So, call me and let's get you started over again.

Living in a modern Mayberry...

This weekend is the Shop Rock and Stroll event in downtown Milford, Michigan, which means that Main street is blocked off and there are inflatable jumpers and other things for kids to do while parents enjoy sidewalk sales and later listen to old fashion rock and roll while having a beer or a meal on the sidewalk or in the street. This is one of about 8-10 events that happen throughout the year in Milford for which Main Street is closed off.

That started me thinking about Milford as the epitome of Mayberry – the mythical town in the Andy Griffith TV series Mayberry RFD. Mayberry was one of those sleepy little towns where everybody knew everybody else and where I imagine that had parades and festivals, too; although I don’t recall that every being shown on the TV show. They had Floyd the barber and Gomer and Guber Pyle and Aunt Bee and Opie and lots of stereotypical friendly neighbors and friends. We have our own equivalents to many of the characters here is Milford, albeit more modern versions of most of the stereotypes.

Then there’re the events. We had the Fourth of July Parade last weekend, along with fireworks in nearby Kensington Metro Park. Those events were preceded by the Memorial Day parade a month earlier and the Little League Parade down Main Street before that. And, of course, in the fall we have the annual homecoming parade, complete with the King and Queen, down Main Street and a rally/parade for every home game of the local Milford High football team. Then there are the Ladies Night Out events in the Spring and Fall where the local merchants and eateries/bars rollout the red carpets for ladies who come to shop late and enjoy a night out.

This past Thursday (and every Thursday during the summer) there was the farmers market and a concert in the park. Next up is Milford Memories, our major street fair that occurs in August and then following that, in September, will be the Milford Home Tour, which is a weekend full of events – the Home Tour, an annual car show on Main Street (closed off again), a tractor show and this year a “Tin Can Campers” show out at nearby Camp Dearborn – something for everyone in the family. After that will be the Halloween parade up and down Main Street in which the kids parade in costume and the Main Street merchants hand out candy. The final big event of the year will be the Christmas parade, which occurs on the weekend following Thanksgiving.

Another thing that I love about Milford is that it does still have a useful downtown, where you can go to get more than knick-knacks or antiques or cutesy tourist stuff. There are real stores were real people can buy useful everyday items. Sure there are our destination restaurants, too; and that’s also a part of the charm. But there are clothing stores and shoe stores and toy stores and candy stores and dog treat stores and kitchen supplies stores and more. It is just some much more inviting and useful than a downtown completely devotes to cute, but worthless junk. Milford is also one of the most walkable places to live around. You can see Milford’s “walk score” and compare that to where you are at http://www.walkscore.com/ .

I mean, come on; is this Mayberry or what? You’d be hard pressed to find a more idyllic hometown in America than Milford and you’d certainly have a hard time finding one that has more going on week after week and month after month. I credit the very active and innovative groups at the Huron Valley Chamber of Commerce, the Downtown Development Authority and the Milford Historical Society for sponsoring and running these events. An active, vibrant town like Milford doesn’t just happen by accident and there are lots of people behind the scenes planning and coordinating and running these events. That’s why Milford, unlike Mayberry, is a happenin’ place to live and visit, not a sleepy little backwater. Somehow, I think Opie would have grown up and approved of Milford.

Scary things and home buying...

I got an email today from the folks at http://www.asbestos.com/ asking if I'd consider adding their site to the links that I maintain here and on my various Web sites. So, I went to their site and looked around - it certainly looks like both a legit site and one that has lots of good information about mesothelioma, the type of cancer that is caused by asbestos. So go there and read about it.

That got me to thinking about all of the scary things that can be found in homes and which cause some would-be home buyers to back off of a sale, most times unnecessarily. Now, don't get me wrong; every one of the dangers that I'm about to discuss are very real and can cause serious health problems, including death. That sounds like one of those pill commercials on TV doesn't it? Here are some of the biggies to watch out for when buying a home.

Obviously the presence of asbestos in or on the home. Many older homes have asbestos wrapped pipes, especially those with steam or hot water heat. Many also were sided with asbestos siding or have floors covered with asbestos-based tile. Some may have also been insulated with vermiculite, which was later discovered to have asbestos embedded in it. There are lots of potential sources in most older homes. It is also true that most of that asbestos is "locked into" the products that it was used in, whether that be siding or tile or even wrapped pipes. However, the unsuspecting home owner may undertake some remodeling project that involves demolition of some of these things without realizing that the very act of breaking up the product that the asbestos is in will release the deadly asbestos dust that causes mesothelioma. So my advice is to get a good handle on where the asbestos is in your house and NEVER disturb it without a professional involved.

Radon is perhaps more prevalent in our area as a carcinogen. Radon is a naturally occurring gas that is a by-product of the decay of uranium in the ground. The glaciers that once covered Michigan resulted in good natural soil conditions for the release of Radon, so lots of our houses test positive for it. Many houses already have Radon remediation systems installed. Radon seeks the lowest level in the house and it seeks a way into the house around or through cracks in the basement floor. Remediation system are installed that create a vacuum under the basement slab and capture the Radon and exhaust it out of the house. Buyers should always get a radon test for any house that has a basement that is used, or will be used, as living space.

Mold is likely the third leading cause of both problems and failed real estate sales. It is unfortunate that misinformation and general FUD about mold has caused such concerns. Literally every house has some mold, most of it simple, non-toxic, everyday mildew. But there are the occasional cases of the dreaded “black mold”, which is a toxic mold that can and does cause serious health problems. A good home inspector will find any mold in the house and may be able to identify to or at least collect a sample and send it off for identification, if it looks suspicious. Mold, like Radon can be easily remediated and does not have to be a show stopper on any sale. What you do need to get is a good remediation estimate to pout into your offer as a contingency addendum.

Gases venting from sources like new carpeting or paint or even Chinese wallboard can be another source of major health problems. I have had clients who would become ill upon waling into a newly carpeted room. Ingredients in the glues of some new carpets include Formaldehyde, which some people are allergic to and which can make them violently ill. There are lots of court cases right now against the distributor of a specific brand of Chinese-made wallboard that apparently contains toxic chemicals that make homeowners sick.

So are all of these potential health risks reason enough not to look at buying a new home? No, but they are reasons to get good inspections and to visit the home enough times and for long enough to see if just being there makes you feel ill. You really don’t want to close on a house and go “home” for the first night, only to wake up ill or to discover years after you bought the place that it has been exposing your to cancer causing sources. I certainly won’t say buyer beware so much as buyer be informed and then take action on that information.

Are we in a lenders' market?

I read a very good blog on ActiveRain this morning, which took the position that we are in a "Lenders Market" right now. You can read the entire blog, written by William Johnson, a San Diego Realtor, at http://tinyurl.com/lxgsvy .

William began by defining the more normal Buyers' and Sellers' Markets that we tend to swing back and forth between. We haven't seen a Sellers' Market, where there's low inventory and multiple bidders on every property at asking prices or above in quite some time (in fact I've never seen that in my 7 years in the business, but the "old-timers" tell me that we had a market like that here in Michigan back in the 70's). We've been in a Buyers" Market for several years, where there is more inventory than buyers, with buyers in control of prices and very slow sales. And perhaps a year or two we likely entered into a Lenders' Market, where lenders control much 0f the available inventory and st their own prices and rules for sales. As I have been reporting for some time now, the sale of foreclosed properties has dominated the market for the last year, with 60-70% of all sales being foreclosed properties. That gives the lenders control of the market. What the lenders have done with that control is the rub.

Early on, most lenders were simply overwhelmed by the flood of foreclosures. Most did not have adequate staffs in place to handle the workload and most had inadequate policies and procedures in place to deal with the property management aspects of taking over foreclosed properties or with the marketing of those properties. That gave rise to a whole host of sleazy operators in both the property management field and in the real estate sales field. We all suffered through those early stumbling, bumbling days and having to deal with some of the sleazy people who were initially given rein over foreclosed properties. We also had to deal with interminable delays in bank processing of offers, often waiting months to get an answer on an offer. It was terrible.

The banks have gotten better. They have developed better systems for handling the foreclosure workload and they have hired better people to manage the properties and to market them. There are still a few of the original sleazebags holding on, to be sure; however, most people who are representing foreclosed properties now are doing a decent job. There are still issues with short-sales, but many of the issues are being caused again by sleazy operators who are misrepresenting themselves to sellers and mishandling negotiations with the lenders.

So, even though they have become better at it, the fact remains that the lenders are in control of a major segment of the market inventory (generally about 15-20% of the active inventory) and that is the segment in which most of the sales activity is taking place. In that segment the lenders make all of the rules. They throw out almost all of the normal real estate Purchase Agreement terms and conditions and impose their own terms. Why and how? Because they can and because they just do, if you want to buy a property that they own. There is no appeal or higher authority to turn to in real estate. In more normal times there is a quid pro quo in the market, largely brought about by the Code of Ethics of the real estate profession and it's practitioners. The lenders have no such code and do whatever they want.

So, until things settle down and we get rid of the foreclosed properties overhang on the market, we will likely be at the mercy of this Lenders' Market. It is a market that is destroying home values everywhere as lenders dump foreclosed houses at well below normal neighborhood averages. It is a market that allows abandoned homes to blight neighborhoods and endanger residents. It is a market currently being fed by the twin beasts of bad ARM mortgages that are resetting and the impact of layoffs in our primary local industry. It is a market being exacerbated by a slumping overall economy and a high unemployment rate in our state.

What is a potential home seller to do in this market? My best advice is to understand that the market that you are entering requires a very aggressive pricing strategy, but that you are not necessarily competing directly against the lenders and their foreclosed inventory. Their inventory is often distressed and in need of major repairs and investment to bring them back up to a livable state. You need to have you r home in tip-top shape – clean, uncluttered, all maintenance up-to-date, and as updated as you can afford to make it. You are really competing against other owner-occupied homes, so make yours stand out from that crowd. It will likely already be in much better shape that the foreclosed houses that the buyers may look at in their search. Your advantage can (and should) be that your home represents a move-in-ready proposition.

It's hard to establish a price

I'm working with several buyers right now and, of course, they want my advice on prices for houses that they might make offers upon. Now you might think, "just tell them to low-ball them all." That seems to be a trend lately, but it is not a winning strategy most of the time, especially with foreclosed homes. Banks have changed their pricing strategies and are now pricing very close to what they will accept for the foreclosed houses that they have in inventory. So going in a low-balling an already low, foreclosure price is just a waste of time. It's particularly a bad strategy on houses that have multiple offers. The winning bids on those houses is generally a little above the asking price, which leaves all of the other bidders wondering why the bank didn't take their low-ball bids - well, duh.

What's particularly hard these days is providing pricing recommendations for normal, owner-occupied houses on the market. Most are priced a bit above the market average, which is itself subject to influence from foreclosed houses. So, recommending something less than the asking price in these cases is the right thing. However, it is a much finer balancing act to reach just the right price for one of these homes - one that the owner will accept (begrudgingly most of the time) AND that an appraisal will support. The appraisers are the main problem right now, since they are still appraising with future value drops in mind and they are taking more and more of the foreclosed home sales into account in their calculations.

You really end up in a quandary if the appraisal comes in $10-20 thousand less than what you have bid. That's not all that unusual these days. There is a saying in real estate that a property is worth what someone else is willing to pay for it. That would be true if mortgages and appraisers weren't involved - if real estate were a cash transaction. But it's not. So, the question on an appraisal that comes up short is, "who is gong to make up that difference?" Usually the seller will be expected to concede some or all of the value difference, but sometimes a compromise is reached where both sides contribute to the shortfall in appraised value. I've had sales go both ways. I've also had sales fall apart because no solution could be found and the disgusted seller just took the property off the market.

Now, I understand that appraisers are just doing their jobs, and factoring in the continued devaluation that the market is still experiencing. I've had to tell sellers that "this is all you can get in the market today" or buyers, "I know you really like the house and feel that it is worth what you bid, but the bank takes an impersonal, business-oriented approach and this is all that they will loan on it." It's a very disappointing position to be in from either side of a deal. Will those values come back some day to support the price that the appraiser couldn't get to right now? Of course they will, but how long that will take is anybody's guess. So. I'll keep plugging along, doing the best that I can to figure out what a fair price would be for specific homes and then working out compromises when the appraisals come in. I just hope this whole housing mess bottoms out soon, so that we can get back to a more sane approach to things.