Its funny how lately in real estate, and life for that matter, how complicated things have become. QR Codes, Smart Phones, Text Marketing, Tags, SEO, Dynamic Positioning, Key Words, Robots, Spiders, Organic Optimization, IDX, Listing Sync, Facebook, Twitter, Zillow, Trulia, Google, Ad Words, Pay per Click, click through rate, stickiness, social marketing, 24/7 Instant News Sources ….you get the point.

But what does this all do for us? How does this make what we do for our clients better? After all having a QR code on a listing sign may be cool, but how will it work? Does the buyer driving by have to stop the car on the street, get out of the car, walk into the sellers yard to get close enough to take a picture of the sign?  Maybe the picture can be taken from the car, but is that safe?

Is communicating with your Facebook friends and clients violations of Facebook terms, and client confidentiality and potentially violating your fiduciary responsibilities?

Does your personal website or company website and BLOG really warrant the investment in time and energy to compete against the big boys and girls in the industry? I read that our local board website www.LBAR.com was one of the top 30 visited MLS’s in the country this year so far. In a town of less than 300,000 people. Imagine that beating the big boys. But what does that say for me, and the other 2,000 other real estate professionals out there who pen $25-$1,000 a month for websites and all the bells an whistles to market it and get leads? Is it worth it? Or would our time be better spent elsewhere?

Has that paradigm shifted in the market and we are yet to face it? Here is the question I am proposing here. What about the basics?

I venture to say that every professional reading this post will agree, publicly or not is a different issue, that if being 100% honest with yourself you will find the following challenge and proposed theory to be true. Here is the challenge:

Log in to your MLS or black book, day planner, whatever you use and go back search for your last 5 years business (or as far as you can go back) – closed, expireds, deleted, actives, pendings all of it and print them out, and evaluate each one. Then for as many as you can write down where that business came from. i.e personal sphere of influence, open house, referral, past client, online client, third party source, walk in, sign call convert, yellow pages, cold call…whatever your categories are, just stay consistent in placing them. Then once you have done this go through and total up how many in each category. For example of the 100 sales, X came from sign calls, X from personal referrals, X from online,….. My theory is that an overwhelming percentage came from “old school” techniques, such as personal referrals, sphere of influence, sign calls, personal generated marketing, walk ins and a small minority came from online leads from personal website, third party leads, QR codes, text marketing, etc.

NOW does this mean that these other new fangled techniques are a waste of time and money? No, probably not. Does it mean that next year that QR codes will not become a bigger percentage maybe, maybe not. But I speculate it does mean that most of our time should be spent on proven, repeatable, productive activities. Such as….well that is a post of next week, this is enough to think about for now.

The point is that we as Realtors® and other sales professionals can get wrapped up in all the gadgets and glitz, and forget about the basics. Maybe its more its important to do the basics, and then add a little glitz, and gadgets.

I met a prospective tenant yesterday at a rental property, and these are always interesting. When he expressed interest I handed him the rental application, which he filled out, but for privacy reasons all I will say is it was questionable. He works as a “cooker” at a McDonald’s that doesn’t exist, which is one big red flag I found, and he said he lived at an address I was sure was fake too right around the corner. When I saw that I asked him a few questions to see if this was for real or not…

Me – “May I Contact Your Previous Landlord for a reference?”

Prospective Tenant –  ”NO cause that’s why we are moving, he is kicking us out cause we are late on rent we are only 3 months behind, we already paid off February and now only owe the rest, so he said he is throwing our stuff out tomorrow, he wasn’t wiling to work with us because he is too rich. Shoot I don’t even know his number….so that is why we need to move in today. I got the money”

Me – Uh OK. Do you all have any pets?

Him – Yes we got a small dog.

Me – What kind of Dog?

Him – Little one

Me – What Kind of Little dog is it a Jack Russell, a poodle…?

Him – No a Pit Bull, but he is little.

Thank the Lord I don’t accept pets!

This illustrates the reason and need for someone to professionally manage your rental property for you, I mean even though this is my personal property I was renting, if all I wanted to do was rent it, he may be in there right now which I am sure I would never get the second month’s. I am sure this would not have went well…..

Sure it’s daunting out there today. Especially any theory that has a missing link, like this one, is tough to prove. What is the missing link in today’s recovery? The real estate investor. The real estate investor is a vital part of any upcoming recovery in the housing and real estate market. Without them, us, I don’t think it will be possible to recover. It’s no shame to admit that you are waiting on the sidelines. It’s hard not to do so when everywhere you look there is someone who knows the market is going to fall another 10% because Jethrow from so-and-so’s office said so last weekend at the yard sale. But sit back and think about it. When is the best time to buy anything? When is the best time to try something new? When is the best time to get into the market? Right; when it’s down, on sale, not working, when there is the right opportunity in front of you it usually is not wearing a big “Hello my name is: The Right Opportunity” sticker. (In my experience anyone with a name tag on is trying to sell you something anyway-think about it.) But if you do see one it’s up to you if you think that is weird or not, but in my opinion it will be a little harder to spot than that, even if it is just as obvious. Most people wouldn’t take any opportunity seriously that rolled in with a name tag on, but sometimes it is just that close and visible to you. It just takes you a little bit of commitment to convince yourself to say Hi and get to know it.
What is a real estate investor to do these days? What is the definition of a real estate investor anyway? Who are they? Where are they? What are they looking for? The answers are easy, every person that buys a property is an investor, whether it is for personal use or not. The traditional investors are not out there, at least not in force. Those who are are doing it behind the scenes quietly. But they all have one thing in common; they are looking for a “Deal”. The issue is what defines a deal? Is it a discount off of the listing price? If so who sets a fair listing price? What is the value? Is it a house that is below market value? Again what is Market Value these days? Is it a home that needs repairs? Is it a property with good rental cash flow? Cap Rate? Expense Coverage Ratios? Fully leased property? Wholesale? Refurbished? Good part of Town? Close to Campus? Close to Beach?…
Yes to all of these, and no to all of these. The answer is it depends, no one really knows these days. All that can be for certain is that in 10 years anyone who does not take advantage of the possibilities and opportunities out there right now, will be the same ones who ten years ago said gold was too high at $350 an ounce, and that gas will never go over $2.00 a gallon, or below $4.00 a gallon last year, said you can’t go wrong investing in Enron, or had a friend buying JDS Uniphase at $83 a share and would double his money in a week, said Google would never catch on…you know the type. The type that says it is never the right time or that his brother-in-law’s boss who-knows Chuck Norris’ friend who works for Warren Buffett thinks it is a bad idea. That type.
So what is the opportunity out there for today’s investor? The opportunity today is choice. Let’s face it good or bad the fact is there are thousands and thousands of properties out there that are empty, distressed, upside down, in foreclosure or soon to be in foreclosure. The banks and lenders are not sure what to d and what not to do. I think they are just waiting for more bailout money. (Apparently the big loan modification rescue plan is not working. The issue is just too big! Just yesterday there was an interview by Matt Lauer on the Today show of all places about how a financial newspaper columnist “quasi-genius” got wrapped up in it and is losing his house. The banks told him repeatedly they were too busy to work with him to fix the mess he was in with his loan I read that one large bank that had billions of dollars of tax bailout money, has modified 1 loan to date. That’s right 1! It wouldn’t matter if they did do it the time it would take to process it would negate half of them anyway. ) They are simply waiting, for what I am not sure, but at some point they will unload thousands of new properties on to the foreclosure market.
Checking the local commissioner sale website an average of 40 homes a week are being auctioned off for all of the upcoming sales listed. That is great except 95% of those are being purchased by the plaintiff aka the bank that has the mortgage from them, which adds to their REO inventory, which is precisely the business they do not want to be in, the property management business. All the time these and the others they already have taken back are just sitting, usually empty, or not being cared for if they are occupied. No matter how nice the neighborhood and how well they are watched, an empty house is a deteriorating house, period. Now the banks own properties that if they were to be sold even at a discount cannot be financed by the typical homebuyer as repairs are needed, as they are not in good shape they will not pass the minimum FHA guidelines in most cases. If they do the buyers will usually pass them up for others that need less work and are probably priced the same because the distressed sales are bringing their value down. This does not include the abandoned properties that are not yet in foreclosure or are simply vacant or empty and not distressed.
A new plan needs to be tried here, this is not working! Someone, The Investor, will have to step in and be a middle man and have the ability to get these properties at a wholesale type price, repair and refurbish them, then pass them to the end homeowner, or be able to use them as rental property to those that cannot or do not want to buy. The problem is they cannot get the money to do so! What about an incentive for these guys, to make feasible the purchase a responsible amount of investment property, by qualified educated buyers, and give them incentive and or subsidies to make it worth their risk and effort and allow them to have the opportunity to make a profit in the future. This does not mean the “Investor” needs to buy 5, 10 or 20 properties. I am simply stating if you own your own home already; why not look to buy a rental property in your neighborhood, or a duplex somewhere. Small time responsible investing is investing all the same. Do so responsibly, at your comfort level. This would quickly lower inventory, create affordable housing alternatives, and allow homes that otherwise could not be purchased by first time home owners, or low income home owners be available. Want specifics of my plan? Tune in tomorrow…….Day 4 for “The Plan”.

The short answer is nothing really. It’s like an empty car in neutral rolling down a hill. Yes it will roll, and it will go until it either runs off the road or hits something big enough to stop it. Why? How?  Gravity.  No not a tractor beam (Borrowed Stimulus Money) sent from the mother ship (Gov’t) pulling it downhill, its gravity it has always been here.

Compare that visual to today’s burgeoning recovery  (the car) which is starting to roll in many areas of the country the movement can be attributed to a few things.

1. The natural cycle (The gravity) for this time of year, the spring and summer naturally bring more activity, a good amount of stored up demand. (Which is in my opinion mostly due to the unfavorable, inaccurate, over generalized media coverage of the last year.)

2. Attractive first time home buyer incentives i.e. $8,000 tax credit, record levels of inventory, lower prices and increased affordability. The big if is the supposed increasing availability of mortgage financing available. (The road with a big 90 degree turn coming up)

While these are all nice, and depending on which party’s media machine you listen to, there are signs of optimism in the economy and overall direction of the housing market. There are signs of a bottoming out of the housing fall, an increased level of activity and consumer confidence in housing all over the place.

But for a true long term recovery there are a few items missing and a few time bombs (The Wall) lurking in the near future that could derail any recovery unless they are addressed; one of the most immediate being the $8,000 first time buyer tax incentive sunset of December 2009, not that this can continue indefinitely however.  At some point virtually every person with the ability to purchase a home as a first time buyer is going to do so.  Sure there will always be new people entering the market, but the level to drive a recovery will, has, level off and the effect will be less noticeable,  they cannot drive the market for ever.  Also the job market and banks starting to lend again are big deals, but those are obvious and yesterday’s news.

So what do I think is needed next? (Who can jump in our empty rolling car and steer us around that corner and away from that wall?) I think a new incentive should be introduced to spur the missing link in the housing recovery, the real estate investor.  Not the jacked-up-on-HGTV flipping-manic-fly-by-night-know-it-all-jack-of-all-trades-price-war-bidding over exuberant type of the early to mid 00’s. But the professionals, and the rational small time investor looking to take advantage of an opportunity, and to make sound quality purchases of an asset that can never be worthless.* (As I have stated many times before, if you find a piece of property that is truly worth $0, tell me and I will buy it! Chernobyl excluded).  

Tomorrow Day 3…The Investor the Missing Link

What are the few key issues that are driving today’s market?  Also what are the few missing pieces that are needed to bring the market back to a true recovery, or a true long term positive, sustainable healthy level?

That is what I am going to explore the next few days, and present my plan and my ideas. I would like your ideas too, so chime in as you please and I will use your input in the plan, good or bad. I will then present the final plan anyone that will listen, to see if anything happens….at worst we can look back and say we tried!

Tomorrow…What is driving today’s market?

Friday, January 13, 2006

2006 What Will This Year Hold?

Scenario #1:

A home that is the perfect starter home, first time buyer price range, that is in move in condition. This home was purchased by the owner a little over a year ago, and at that time got a good deal, about $8,000 under value at the time. His personal situation changed and now he wants to sell it, but does not have to, nor is he under any financial stress to. Believe it or not, not everyone selling today is! So the home is listed at the current market value based on comparable sales in the area. A few months go by and only 1 lowball offer, several interested parties but only 1 on paper. The offer is 13% below listing price. I had a chance to talk to the potential buyers and they gave me this rationalization…” The market is down, 15-20% (which in my town it is not by the way but according to the nightly news and Yahoo real estate it is apparently everywhere), they paid $X for it last year, the market is down so he would be crazy not to take this deal.” “Also we think he should pay our closing cost, pay all the taxes for next year, and you should cut half of your commission since we don’t want a Realtor to help us, we know what we are doing.” OK. Guess what I said?! (Those of you who know me can guess probably). Anyway since I am always doing what is in the best interest for the parties I represent, and I must by law, I presented the offer to my seller. Guess what he said? I quote, “Tell him that marijuana is illegal in Kentucky!” I guess he though the guy was stoned? Anyway as I analyze this I want to make three points. 1. I do not blame the potential buyers for trying. 2. I don’t blame my sellers for rejecting. and 3. I think this illustrates the toughest issue today in real estate, a lack of realistic educated decisions which are tainted by a desperate-inaccurate-biased-media. (Oops did I say it again?). They were making their offer on inaccurate market conditions, and based solely on the price the seller paid for it, or what it was worth. This rationalization makes no sense, because it penalizes the current owner for getting a deal in the past, and if that same method is used when they want to sell it then they will lose money. It is absolutely an uneducated and informed decision, by unrealistic uninformed buyers.

Better scenario #1:

Suppose the same situation had happened but each side, particularly the buyer, had accurate realistic information beforehand, and was making offers to fill their need in a realistic manner, based on realistic information and expectations. This involves “Ty’s Theory of Relativity (my apologies to Einstein, this only took me a few minutes and it took him years to prove) UUB + US = NGDA$ or Unrealistic Uneducated Buyers + Unrealistic Uneducated Sellers = No Good Deal for Anyone. (i.e. $), in which the opposite creates the opposite effect =A Good Deal for Everyone!” I know that is a deep thought…..

So suppose the buyers looked at the decision this way…Knowing they want to buy a home, they want to take advantage of the lowest interest rates in years, tax credits for first time buyers, and want to be in that price range, and on that end of town, and that school district. Which in this case are all true. Suppose they had done their homework with accurate information on the market and home that fit their needs currently on the market. Wonder where they could get that, maybe here? Suppose they had looked at all of the homes that fit their needs in the area, and suppose they sit down and do a comparison and determine which home fits their needs best, then did research to determine what the actual value of that home is and make an offer based on that. When I say actual value that is the actual value or total picture of the entire purchase not just purchase price. Actual value takes into account the overall picture, nit simply purchase price. To illustrate this I want to use another example, this time I made the mistake of not looking at the overall picture on a home I purchased for resale, and I simply looked at the purchase price not the overall deal. If I had followed my own advice I would likely have made another decision. I simply saw a home I could purchase at approximately 40% of the after repair value, and though how could I go wrong? Well after putting in an amount equal to the purchase price in repairs, I was left with a home that I had to rent instead of sell, because I had no room for profit when based on the comparable market. So that leaves me to my final point, and point that I feel is missing in today’s market. The idea that simply getting a home for a relative low price, no matter what that idea is based on hopefully more than the past purchase price that the potential buyers were using above, is not a good idea. They must look at the overall picture. Suppose they find a foreclosure or short sale that is 20% below the last purchase price and buy it. Is that a basis for a good deal? True they got it 20% below the last purchase price, but who is to say that the lat owner didn’t pay 40% too much? Not an unlikely scenario these days! Did they factor in the cost of getting this home in perfect condition? Carpet, paint, blinds, lighting, flooring, fence, roof, HVAC, .etc? Probably not. Well if not suddenly this great deal turns out to be a not so great deal.  

To illustrate that point I will offer one last real case scenario. A home that is 7 years old, in a great neighborhood, that is in the higher end of the first time buyer market price range. We spent significant time preparing the home to sell, and pricing the home in its actual value range. Move in ready perfect condition, and priced fairly. Two offers in 4 days, sold in 5. The buyers made an informed decision, their Realtor did a great job she knew the market, the true value, and they in turn made an informed decision, and a realistic offer was accepted and everyone got a fair good deal. That means everyone made some money, buyers, sellers, me, and their agent to. I would love to have more of those deals, so I am again posting my theory, this time it is the good side of the equation…. UUB / US = NGDA$ or Unrealistic Uneducated Buyers/Unrealistic Uneducated Sellers = No Good Deal for Anyone. (i.e. $)

IRB / IRS = RGDA$ or Informed Realistic Buyers + Informed Realistic Sellers = Really Good Deal for All. (i.e. $)

Most importantly, in the words of Waylon and Willie, Realtors Don’t Let Your Customers Grow up to Be undeucated, uninformed Buyers or Sellers….and people please be an educated buyer, not a bargain shopper, stick to the yard sales for that…there are plenty of good deals to be had that are not foreclosures, fixer uppers, or short sales.

Bernanke: Recession may end in ’09; Stocks climb

…..then, where did this come from? What world is this guy living in anyway?

….Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles, said the stock market’s rallies are likely to be based on hope or on rebounds from selloffs. He contends Wall Street still hasn’t seen the wrenching decline that is often needed to scare investors from the market and set the ground for a lasting recovery. “The underlying fundamentals just aren’t there to support anything that’s sustainable right now,” he said. “We haven’t seen the capitulation that you’d want to see before you’d get thoroughly enthused.”

WHAT!!? Decline, what the hell has the last 6 months been? The last 2 years? Is this guy for real? Capitulation? Where are the investors then if they are not scared off? Who knows what to think anymore….with articles like this no one ever will.

 —oh yeah the second phenomenon is that no one wants to buy or rent a house until you get a contract on it, then everyone all of a sudden wants it…..that and my rental story in the next post, if I make it through the next few days without being committed to a mental institution, or more likely the ski resort emergency hospital that is…..