Real Estate Brokers = Expert Advice?

Ryan Frank has an interesting piece on Happy Valley, or "Foreclosure Valley" in the Oregonian today.

One part of the story featres the Andersons, an older couple who speculated on a $600+k house in Happy Valley and lost over $100k. That sounds like less than a 20% loss until you realize that they didn't put any money down, so it's a 100% loss. At least they cut their losses, unlike lots of others out there still holding out hope for a quick rebound.

The best line of the story though was this:

"She says she should have hired her own real estate broker for expert advice. "That was our mistake. My mistake," Aloma says, hanging her head, blinking back tears."

Expert advice? The same Realtors who didn't believe Portland prices would drop? The same Realtors who only get paid on a sale, so of course it's a good time to buy!

No Aloma, your mistake was not looking at reality and realizing that growth had peaked and was declining, that the party was over. But don't beat yourself up too badly, that data was nearly impossible to find in 2006. At least today it's not.

10% off Any House Nationwide! - Except Portland

This truly smacks of desperation. As featured in the Portland Business Journal, "NW markets just say no" Caldwell Banker is trying to run a national promotion for 10% off any house listed with them. However the PNW STILL thinks that we are immune, and not in as bad a shape as the rest of the country, even as prices have dropped over 7% and continue to fall.

"The Portland and Seattle affiliates of Coldwell Banker Corp. are refusing to participate in a nationwide sales promotion designed to push the housing market past the “tipping point” to recovery.

Starting today, Parsippany, N.J.-based Coldwell Banker is pushing a 10-day sales event, boasting 10 percent discounts on the price for homes listed for sale with Coldwell Banker affiliates. The campaign is being promoted nationwide, leading to confusion in markets where franchisees are refusing to participate.

In the Northwest, Coldwell Banker affiliates in both Portland and Seattle say the “sale” undercuts the role of professional agents and aren’t participating. Not only must agents take a cut in commission, but sellers receive 10 percent less than their asking price.

Gail Fisher, president of Coldwell Banker Barbara Sue Seal Properties, which has about 440 agents in the Portland area, said the national sales event is inappropriate.

“We feel that every situation for pricing for a property is very individual,” she said. “I feel it sells short the services we have to offer for our clients.”

An across-the-board 10 percent price cut isn’t right for every property and ignores the professional skills agents bring to the table when they list homes and work with sellers to set realistic prices."

There are so many things wrong with the story I don't know where to start. But I'll try.

"Starting today, Parsippany, N.J.-based Coldwell Banker is pushing a 10-day sales event, boasting 10 percent discounts on the price for homes listed for sale with Coldwell Banker affiliates. The campaign is being promoted nationwide, leading to confusion in markets where franchisees are refusing to participate."

First off, from a marketing perspective, if it's being promoted as a national promotion, it truly has to be a national promotion. Consumers aren't stupid, they can see through false claims. And you'll need a lot more than 10 days to blow out the 9+ months of inventory we're currently sitting on.

"In the Northwest, Coldwell Banker affiliates in both Portland and Seattle say the “sale” undercuts the role of professional agents and aren’t participating. Not only must agents take a cut in commission, but sellers receive 10 percent less than their asking price."

Here are the two big issues. Sellers still haven't accepted the new pricing rules, and are chasing the market down. Realtors can't do the math that says that any sale at any price is better than none, or Anything > Zero.

“We feel that every situation for pricing for a property is very individual,” she said. “I feel it sells short the services we have to offer for our clients.”

An across-the-board 10 percent price cut isn’t right for every property and ignores the professional skills agents bring to the table when they list homes and work with sellers to set realistic prices."

So Gail, just how successful have you been when it comes to setting realistic prices? If prices were set properly we wouldn't be sitting on 9 months of inventory right?

"However, Fisher said the Northwest housing market has not stalled to the same degree as the more bubble-prone regions of the country, namely Florida and California. A sale might work in a market where prices have collapsed."

Sigh, still repeating the "we didn't have a bubble mantra" Gail? For anybody that still thinks we didn't experience a bubble, here once again is proof that we did. And while the PNW is late to the party, we're definitely at the party now.

"In Metro Portland, the median price of homes sold in August was $280,000, down about 7.3 percent from this time a year ago, according to the Regional Multiple Listing Service. Any drop in price results in a corresponding drop in the commission paid to the agents who broker the eventual sale."

This comment hides the real issue. While prices are only down 7%, sales are down over 30%, so total commissions are down over 35%. Look at what's happening to the auto industry with 30% drop in sales and you'll understand why real estate agents are freaking out. Many are making no money, and the rest are making much less. Only a few creative real estate agents who saw the impending meltdown and have changed their strategy are making any more money.

"In a video explaining the sales event, Jim Gillespie, president and chief executive officer of Coldwell Banker Co., said the event will help bring about a recovery in the housing market and help buyers take advantage of a new $7,500 tax credit available for first-time home buyers. The event will help move the market over the “tipping point” to recovery, he said."

Again, just so everyone knows, that $7500 tax "credit" is actually an interest free loan that you much pay back over 10 years. We I can't lie with my marketing but the government can is still beyond me.

"A survey of Coldwell Banker agents in the United States found that 56 percent think prices in their market are too high and that 77 percent believe their sellers have unrealistic expectations about the value of their homes.

Nearly 80 percent said when homes are priced appropriately, they attract buyers and sell faster."

Homes will not only need to be priced right, but buyers will actually need to have a real income and a real deposit. And banks will need to have access to credit to be able to offer loans. We have a long way to go before all that happens.

Thanks to Portland Gentrification for the link.

It's Lovely! I'll Take It!

Someone had the brilliant idea to compile bad realtor photos into a single blog, much like some of the individual posts that have popped up here.

The site is called "It's Lovely! I'll Take It!" and is worth a look.


As always, keep sending local versions to me and I'll post them here, such as these posted in the comments of a previous entry.
Seriously, if this is the best your Realtor can do, either hire a professional photographer, or fire them and hire a new Realtor. There are lots of good ones out there looking for work, there's no excuse for putting up with this.

Who Are the Speculators?

My wife and I hit on an interesting theory this weekend, as we were looking at yet another Realtor used houses salesperson-owned property featured above(MLS #8051133, 3807 N. Borthwick Ave.).

I believe that more and more Realtor agent-owned investment properties are going to go on the market to raise cash, as the typical Realtor used house salesperson's income has been slashed by 40%

This property just came on the market while still being renovated. We did a quick drive by and noticed the massive amounts of peeling paint, the inch of moss on the roof, and my wife commented that the front porch looks like it's about to fall off. At first I was surprised to see it was owned by a Realtor agent, but then it started to make sense.

The gravy train is over. Lots of Realtor used houses salespeople bought income properties over the past few years during the years of double-digit appreciation. Now that sales are off 40% I imagine a number of them must be hurting for income. Hence they are selling off the investment properties to raise cash. And I assume they need cash badly enough to not even invest a little effort into curb appeal before trying to sell it.

The irony of course is that the more Realtor used houses salespeople that start dumping properties, the more it's going to drive the market down, continuing the cycle. I don't have facts to prove that more investment properties are on the market than usual, but based on our looking it feels like there are.

This is yet another sign that things are going to get a lot worse before they get better.

Ruffling a Few Feathers

Apparently I have ruffled a few feathers over on Trulia when I asked if their heatmap data was based on RMLS (inflated) figures, or on assessor data (more accurate IMO).

The thread is here if you'd care to join in.

Frankly I'm tired of having to keep portlandmaps.com up whenever I see a house listing, to get the true picture of the size of the house. I heard from a Realtor that RMLS requires Realtors to input the total size of a house (including unfinished basements and attics) not just livable space.

I realize that the assessor data can be wrong, but I feel that it's more accurate than the size data that RMLS posts. I'd like to see them change this policy, what do you think?

Those Crazy Realtors

A local real estate agent (who shall remain nameless) recently sent a friend this Op-ed piece from the Wall Street Journal. along with this comment:

"Here is an interesting article I thought you might enjoy. It is a bit wordy but very good national information about the real estate market. Remember, the article is referring to our market nationally.

Oregon real estate is still relatively strong!"

Wow. 2 pages is wordy? Are her clients illiterate on average?

I also love that this piece really refers to the national market, and specifically talks about new housing starts, neither of which really apply to Oregon or Portland specifically.

But my favorite is the last line. If relatively strong means we've only dropped 7% when the rest of the country has dropped 10% or more, then yes, we're relatively strong.

It must be exhausting staying that optomistic all the time!

Hey, it's the new REMAX bubble!

jasper pointed out the advertisement, thinly disguised as a news story:

" MAX EQUITY ROUNDTABLE SUGGESTS POSSIBLE “NEW REAL ESTATE BUBBLE” THEORY"

Here's an excerpt. Warning: Please put down anything you might be drinking, or else you might end up spiting it all over your PC due to spontaneous laughter.

"BEAVERTON, Ore. — Is a new real estate bubble forming? Executives at RE/MAX equity group think so. Gary Taylor, principal broker at the firm’s Sunset Corridor office and head of the company’s panel who studied recent market data and the prevailing theory, recently released the panel’s findings.

Local brokers are seeing steady sales through this “new market”. Last month the Portland Metropolitan area had 1,384 closed sales, up 27.6 percent from January 2008 (1). What the brokers are hearing is a real demand from individuals with a sincere desire to buy, but limiting factors are hindering their ability to execute a transaction."

Ah yes, the old monthly sales increase ruse. What they forgot to mention was that sales in Portland were DOWN 29% year over year. The February bump is seasonality, it happens every year. Yawn.

"Some of the factors that the panel identified in the current market:

Contingencies. Brokers are seeing a higher than normal amount of contingent offers, relative to total sales. These contingencies usually include the potential buyer’s ability to sell their primary residence."

Ah I see, this is a "wishful thinking" bubble. I wish I could sell my house, so I could buy a bigger house. The reality is, with no entry level buyers thanks to the elimination of funny money and zero down loans, others can't trade up.

"Deals, Deals, Deals. Brokers are hearing from their clients that are confident that the market may have hit bottom and is on the way back up. This has resulted in buyers acting on aggressive marketing tactics from local builders, as well as sellers trying to market their property. "

This would be the "hearsay" bubble. We hear there are buyers out there! Of course people are acting on builder incentives, I might be tempted by 50% off too!

"Financing Woes. The tightening of the ability for many to get mortgages may be true, but that has not affected the desire of buyers. In the last two years, there have been nearly 2 million new households formed (3), and it’s likely they will soon be in the home buying market. "
More wishful thinking. Those new households now need real savings to buy a house, and most people don't know the meaning of savings.

Gary Taylor and his team must be real geniuses to spot this bubble before the rest of us, I'd like to thank him for bringing it to our attention!

Portland insiders see signs of improvement?

The O has a story yesterday covering the recent luncheon on the local real estate market that was attended by 16 local brokers. "Portland real estate insiders see signs of market improvement"

Thanks to Ryan for asking one of the 10 or so questions I sent in. Here are a few of my favorite comments.

"At a housing industry lunch forum, the brokers said they started noticing fewer potential buyers visiting their listings about last April.

The evidence that the bottom is near?

Brokers point to the fact sellers are finally willing to give up a bit on their price to sell faster. They also point out that real estate insiders themselves are now snapping up investment properties."

Really? They're snapping up investment properties? Show me one. Nothing concrete was mentioned in the article.

Nothing I analyzed last year (2-4 unit buildings) made a positive cash flow with 20% down, most would need 40% down, and then you're looking at a 1% return on your investment. Unless you include speculation on price inflation, but that looks to be over. So I predict prices will have to soften to come back in line where investment properties actually provide a decent ROI and cash flow without hoping for 10% YoY appreciation.

But let's look at a concrete example. Here's a four plex for sale for $415k. With a 44% down payment ($182k) you're looking at a 0.06% cash on cash return. That's not 6%, that 0.06%!

I know interest rates are in the proverbial toilet, but even my savings account pays more than that.

If there are good deals out there, this outsider hasn't found them. You must need to be an insider.

Here's one of the questions I submitted to Frank:

"Why are Realtors afraid to admit the market is softening and will likely decline over the next few months?

"It has," one broker said.

"It's all past tense," another said.

"It has declined," Davies said. "It has softened. But actually the last 60, 90 days have been just like they were last year. It's very active."

Becky Jackson at Realty Trust Group Inc. in the Pearl District said: "When you're speaking to a buyer today you may not be able to say perfectly that it has passed. You might still see something for the next few months but you're not going to know what is the last day of the low market."

Just like they were last year? Sales are down 30% from last year, that's "just like last year?"

It's all past tense? Wishful thinking again. It's all future tense! The decline has just started here.

"Kathy MacNaughton of Realty Trust Group said: "What you say privately and publicly is different."

"How so?" I asked.

"I don't think it does you any good to say the market is tanking. And it's not. We know that. You've heard that today. But I will tell you that probably six months ago I talked to my buyers privately and said, 'You know what, we have to be very careful. I see signs in this market of settling.' And I think all of us did the same thing.""

Prices might not have tanked, but I would say that a 30% decline in sales is pretty much tanking. I know in my industry if we were down 30% from last year I, and 75% of my coworkers, would be out of a job. And if I told my manager that a 30% sales decline was just like last year I'd be fired on the spot.

Would you buy a house from this Realtor?

Here's another incredible story of a couple about to lose their house, and the amazing part is that the woman is a Realtor and should know better.

A larger than life mortgage.

The analyst kicks in at about 2 min 45 seconds into the story, and basically lays into them.

The cliff notes version:

• Couple buys house in Livermore CA for $1.5M
• Couple elects to take a negative amortization ARM, and only pays $2800 a month
• Full mortgage payment is equal to 70% of their gross income
• Couple racks up an additional $100k in finance charges on $1M loan, which is added to principle
• Principle reaches 110% of original loan value and bank requires them to pay full monthly payment.
• Payment jumps to $8000 a month
• Couple freaks out, asks to renegotiate loan at 2% for 40 years!
• Bank offers 5.75% for 38 years, or a $6000 payment
• Couple still can't afford mortgage at a rate most would be thrilled with
  

Again this couple wants us to feel sorry for them, but in the video she admits freely that she didn't read the loan paperwork. I also believe they were speculating, as even if they refinance to a 38 year fixed loan (as the bank offers) they still can't afford the mortgage.

I'm scared to think of how many customers she offered "advice" when she obviously has no clue what she's doing herself.

The value of this house has now fallen about 30% to roughly $1M, so they're looking at foreclosure, but vow to "fight it". Right.

I swear, I couldn't make up stories this crazy. I'm just not that creative!

Free Fall Friday - All of Portland?

At least one Realtor blog is now predicting a decline in prices for the Portland metro area in March. "Portland Home Prices Finally Fall in March"

I have some doubts about his methodology, but I give them props for going on record as predicting a decline, and I imagine they will soon be run out of town by the Portland NAR.

What's the Difference Between Sales and Marketing?

Sales knows they're lying.

Over on SocketSite there's a great example of why some of us are suspicious of Realtors, and salespeople in general.

The Only Appropriate Headline: “What The Hell Were They Thinking?”

This goes back to my comments earlier about 632 NE Russell, which I don't think Alixe really internalized, so I'll repeat it again.

If I catch you lying, misrepresenting, fibbing, stretching or omitting the truth about one aspect of a sale, I can only assume you're doing the same elsewhere. You've now made me suspicious of everything else you say.

Is it really worth it?

Is the Wheelbarrow Included in the Price? - 5244 NE 18TH AVE

Here's my free tip of the day to all the realtors out there.

Your text might read: "No expense spared or corner untouched remodel." and "This your dream remodel"

But the first thing I notice in this photo is the dead lawn, and no landscaping. Which means I'll be investing in those as soon as I move in, or not if I've blown all my money on a deposit


The workers in the background above and the wheelbarrow, unfinished deck and crap in the driveway in the second shot scream "we just rushed through this and cut a few corners to get this onto the market before our financing runs out".

You only get one chance to make a first impression, the little details matter.

RMLS# 8020503

Are Short Sales a Good Deal?

BLOG.FranklyRealty.com: Short Sales Are "Fake Listings." Only 5% Close!

I saw the post above today on short sales, which reminded me of this conversation we had a few weeks ago.

Has anybody here tried to buy a short sale? I expect to see more of them as foreclosures increase, but they always seemed to be fraught with danger to me, and Frank confirms that.

The real estate fallout spreads

I had dinner with a customer last night who works for a major US retailer.. He mentioned that they had done some analysis recently looking for potential growth areas to target this year, and as they were analyzing the overall real estate segment, two sub-segments showed major declines recently. Realtors, and mortgage brokers.

The fallout from the popping of the housing bubble is starting to spread into my day job.

The elusive exclusive buyer's agent

Perplexed asked in a previous thread

"Has anyone ever used an exclusive buyer's realtor?

In this day where it's a buyer's market agents who only represent buyers should be in a great position."

And in a follow-up post:

"Here is what I found. I know of no one who has ever dealt with any of them, which is why I asked.

http://www.carlahomes.com/

http://www.dreamstreetre.com/

http://www.worldstar.com/~pdxpro/

Read the document at the lower left on the last link. It is an interesting discussion of what to watch out for."

Here's the document he's referring to, which I think is a good source of info for potential buyers:

I haven't used an exclusive buyer's agent, but I have given the subject of buyer's agents a bit of thought.

One issue I see is that if you've acted as a seller's agent and never sold a house, you don't know all the inside issues that would help with negotiation.

But I think the biggest issue is the basic principal-agent issue and misalignment of interests between the buyer and buyer's agents such as:

1. The buyer stands to benefit from a lower price, while the agent benefits from a higher price due to a greater likelihood of sale and a greater commission.

2. The buyer might be in a position to wait as long as possible for a good deal, but the agent only makes money on a sale, so is inclined to push for a sale.

Those are the two big issues I see, I'm sure there are more. But it seems like #1 could be eliminated with a different payment structure, such as a flat fee plus bonus for discount. Or a retainer plus hourly rate.

I really like the idea of paying a flat payment with a bonus for a discount, based on the amount of discount. Does anybody know of any agents using a payment structure like this? To answer Perplexed's question, has anybody used an exclusive buyer's agent and what were the results?

Advice for real estate agents (quit now!)

Seth Godin has an excellent post that all real estate agents should read. His advice is that you should either:

1. Quit.

2. Specialize, and become the best at one small niche of your market.

#1 is easy. #2 is scary and hard. There is also option #3 which is to keep doing what you've been doing for the past few years, and watch your business die slowly.

#2 isn't that hard as much as it's scary and counterintuitive for most people. And for those that say they don't have time, I found the time to build and contribute to this blog, and I have no incentive other than to help other frustrated buyer's like myself who are tired of the status quo.

I see Charles Turner doing an excellent job at #2, and I have seen a few other Realtors starting to specialize. But I see plenty of others that are still trying to take orders in a the new sales world.

I'd love to hear stories of Realtors that are reinventing their business during the downturn.

Salespeople vs. Order Takers

The old saying that "a rising tide floats all boats" is true of all industries and this was certainly true during the real estate bubble. Almost every real estate agent looks good when the market is growing by 20%, but in a flat or declining market, the true sales experts really shine. A true salesperson can can continue to grow their business and close deals even as the market declines.

This year will differentiate real salespeople from the order takers. The real estate agents that know the real market conditions, know how to properly price and market a property, and know how to negotiate will survive the slowdown. Those that jumped in during the past few years for the easy money (the order takers), or those who have become lazy over the past few years of easy sales, are starting to find out if they have the skills to survive or if they were really just taking orders.

One reader (Neal) recently asked if I know of any good real estate agents. In order to remain neutral I don't want to recommend anyone, but here is what we are looking for in our ideal agent to help us find an investment property:

1. Knowledge of the neighborhoods we are interested in, their appreciation potential, as well as rental potential;
2. The ability to identify comparable sales for target properties;
3. Excellent negotiating skills;
4. An insider's network to help find deals that might not be on the MLS; and
5. The ability to see opportunities that we might miss.

Whether you are looking for a buyer's or seller's agent, make sure you interview a few different agents to ensure they have the experience and skills that match your needs.

Relisting the same old property

Here's a question for the realtors out there:

Is it legal to pull a house and relist it immediately? Is there a waiting period required?

Here's an example. This triplex in the SE was just re-listed as MLS #8007641. It has been on the market for over a year listed as #6019453, and obviously didn't sell.

I've seen this happen with a number of the properties I have looked at, and besides being dishonest, I just wonder if it's also illegal.

Anyone care to comment?