Jun 25, 2008

27,000+ Homes on the Market

In the primary 4 county area we do our core business in (Placer, Sacramento, El Dorado, and Yolo).

These statistics just in...

Of those 27,000+ homes:

- Roughly 26% are "REO" (Bank Owned, foreclosed properties)
- Roughly 36% are Short Sales.


The remaining 38% are a combination of private party sales (the traditional home sale), relocation sales, and new construction (when the builder chooses to use MLS).

By comparison? In 2004 there were only two (2!) short sale transactions for the whole year in these same 4 counties! Now we're seeing months where more than 800 short sales are going on the market.

What is getting into escrow?

2 out of every 5 transactions are bank owned. This is a huge jump up in transaction rate, and a giant leap in their abilities from where they were 12 months ago.

Short Sales?

The rate of closure overall is still somewhere around 15% - 20%. What does that mean in how we generate offers for our Buyers? We still use the "shotgun" approach. Blast out offers on half a dozen properties and run with the first one that hits. Betting on just one property at a time will get you nowhere in this market.

Bottom Line?

Patience. If you can't wait for the delays caused by Short Sales or REOs... then call me and we will go look at new construction!

- Jim

Jun 16, 2008

RESPA Law and Paying Buyers

I had a question last week about paying Buyers back who use Neighborly Realty for their purchase. The question was basically, do we split our commissions with Buyers if they hire us?

We don't do that.

Commissions are always a touchy subject. What's most important to remember for those of us in the Real Estate business, is that commissions are our wages.

Although simply calling them "wages" may not be sufficient - as there are legal ramifications for how we use those earnings.

We are regulated on what we can do with those wages and how much we can do for clients. A big part of the regulation comes from something called RESPA - enacted in the 1970s and strengthened after the Savings & Loan failures in the late 1980s.

Here's what RESPA states:

In many states, Real Estate licenses are granted without close examination of an applicant's knowledge of RESPA guidelines. As a result, many Real Estate Agents go into business unaware that certain practices are prohibited via Federal statutes enacted by the US Department of Housing and Urban Development.

RESPA stands for the Real Estate Settlement Procedures Act. Introduced in 1974, RESPA law is designed to protect consumers in the process of purchasing a home. RESPA requires lenders to provide consumers with disclosures (Truth-in-Lending Disclosure Statement) at various stages throughout the loan process, and also prohibits kickbacks and referral fees that would increase the cost of settlement services for consumers.

There are two main points of the law that affect referral relationships between parties involved in the selling of a home:

Prohibition of kickbacks. RESPA states that no one can give any "thing of value" in exchange for referrals. According to RESPA, if a Real Estate Agent refers business to me, I cannot even send them a gift certificate as a way of saying thanks. This applies to any people involved in a Real Estate transaction. If a client of yours refers another person to you, you can't reward them with any "thing of value" in exchange for the referral.

Can you have a party and invite all your past clients and include referral sources? Yes. But you cannot exclusively invite referral sources, as this would constitute a provision of something of value in exchange for referrals according to RESPA.

Can you give a client a thank you gift after a transaction closes? Yes. Giving new homeowners a house-warming gift is great marketing tool to implement after the deal is closed. However, you cannot give them a thank you gift in exchange for referring additional business to you.

As the Broker for Neighborly Realty, I’ve taken several courses in Risk Management. I have too, as I hold an extra level of legal scrutiny by being a Broker.

RESPA is something we are very careful with. It isn’t entirely clear on some of the “gray areas” around gifts and sharing revenues.

I’ve been told that more legislation is coming – entirely due to the real estate market collapse that started in October of 2005.

Again, how we manage our wages is very important. We will never do anything illegal or unethical with those revenues. We hope our clients now have some insight as to why we do everything “by the book”.

- Jim

Jun 11, 2008

Latest DOM (Days on Market) Statistics

We're compiling some market data for a client.

They're house went live just a couple of weeks ago and they are thinking through some of our marketing strategies.

Part of this research includes keeping an eye on a very important variable - DOM. DOM means "Days on Market" and is a key indicator in how your area is doing.

Here are some of the averages for DOM in some key areas where we practice, for houses that are currently For Sale. When there are multiple numbers, it represents the average days on market in the different zip codes in that city (and surrounding areas):

Antelope 90
Auburn 101, 79, 144
Carmichael 83
Citrus Heights 95, 94
Colfax 103
Elk Grove 85, 90, 83, 73
Elverta 148
Fair Oaks 78, 87
Folsom 120
Foresthill 78
Freeport 89, 87
Gold River 90
Granite Bay 91
Land Park 95
Lincoln 126, 101, 95, 144, 83
Loomis 102
Mather 77
Natomas 68, 86
Newcastle 107
Orangevale 77
Penryn 110
Rocklin 89, 84, 103
Roseville 67, 70
Sacramento 76, 91, 80, 100, 84, 94, 93, 89, 141, 72, 86, 75, 99
South Land Park 71
Sun City Lincoln 104
Wilton 102

For those houses that are on the market now, the absolute average in all of Placer and Sacramento counties is 84 days.

Use this data in good health !!

Call me if you would like data on a specific zip code, neighborhood, or area. There are toooooooo many to type them all out by hand!

- Jim

"My Friend Told Me We Should....."

An important part of the home buying and selling experience is getting feedback. Validating assumptions is absolutely critical.

One thing you will find, is that everyone knows something about real estate. It's one of the joys and challenges of working in this industry. Everyone is willing to share their experiences, stories, and deep insight.

Be cautious.

Here are a few of my favorites:

* "My friend told me we should offer $xxx,xxx. He/she is an engineer and really smart".

* "My brother is in real estate in Pennsylvania. He told me we are missing the boat if we don't do X, Y, and especially Z. Please do them immediately"!

* "One of my co-workers lives in the neighborhood and tells me that prices are still doing pretty well. We should offer above list price".

* "My neighbor has a friend who's sister got a bank to drop 50% of their price on a foreclosed home, and I want the same"!

Please keep in mind that you've hired a professional in the Real Estate industry. Chances are pretty good that they know more about this business than those who aren't actually practicing in the profession.

Market drivers absolutely differ by state. What happens in Ohio has almost nothing to do with what happens in California. What happens in Southern California often has little impact to Northern California (did you know the processes for escrow are actually different within the same state?).

Differences between zip codes can be huge too - even neighborhoods across the street from each other?

Over the last couple of years, there are parts of Sacramento County that saw value decreases greater than 60%. Yet there are other locations in Sacramento County where the drop in value was less than 15%.

Placer County? An average drop of 23% last year. Yet there are places in Lincoln that dropped over 50%, while parts of Granite Bay actually appreciated!

Unless your friends, family, co-workers, etc.. are actually practicing Real Estate in your area, trust the professional that you are working with.

Chances are pretty good that that person is busy 7 days a week and works at least 12 hours a day. We have to. This market is changing so fast that daily participation is absolutely required, if we are to do the best job for our clients.

Operating models (placing offers, comp'ing for list price, etc) from just March are no longer valid! That's how quickly things are changing.

Pay attention to the professional you've hired. Listen to them. There will certainly be messages of good news and bad news. Ask questions. Dig deep. But make sure you are talking to the most knowledgeable person you can find.

Again, it is absolutely important to get feedback and to validate your assumptions. Just please do it with someone who is a professional and who is practicing on a daily basis. It will make your participation in these processes easier (and less emotional).

- Jim

Jun 2, 2008

Short Sales Getting Quicker

Hello Neighbors,

I think the lenders are starting to figure it out.

Last year (2007) we went for over 7 months "working" with one lender to get approval on one short sale. That lender (Wells Fargo) simply didn't have the process in place or expertise in their "asset manager" teams to handle Short Sales. When they did finally get back to us, they rejected our offer!

Put yourselves in the shoes of that Buyer. Would you have stuck around? Probably not - and neither did that Buyer.

Lenders can't do business this way. They need to figure out how to handle these "assets" (homes) quickly and efficiently.

Logically, it would seem like holding these assets is bad news for a lender or bank - and you are right! Financially, it isn't a good place to be if you are a bank. You aren't in the business of property management, and you should do everything in your power to sell these homes.

Well, logic need not apply.... in fact, forget logic completely. Lenders and banks aren't like you and me. Selling a home appears to be a 9 to 5 job for them, not an urgent situation that requires diligence and focus to get it done. Forget timelines too, as they ignore most offer contract timelines as they don't align with the paper pusher 9 to 5 timeline.

...However, that is changing. The last few short sales we offered on have had quick response times. In fact, we've had several that have been resolved within a week. That's great news. The pace of these transactions is picking up. A few of the Lender's real estate agents have even shared the lender's financial requirements (minimum net requirements) to get the houses sold. THIS IS HOW IT SHOULD BE DONE! Give us the information, give it quickly, and we will make it work. Families will get the housing they need, and Lenders will move back into the business they should be in!

Let's hope this trend continues.

Another important note: The smaller banks and Lenders (credit unions, local banks, regional banks) appear to be better at Short Sales than the big guys. Perhaps they have more to loose if they drag their feet? I'm not sure what it is, but our transactions that involve the big guys (see the Wells Fargo example above) are still going at a slower rate than the small lenders.

Watch this space for more real world updates,

- Jim