When a 2nd mortgage holder can only recover 3% of the loan or $3000, whichever is LESS, and they have to release the seller from all future liability, I can see why they will not be quick to take the deal.  In Minnesota, a foreclosure does not wipe out the 2nd lienholder’s rights and therefore it’s quite possible that they will seek future payments via collections – I could imagine them getting far more than 3% back that way.

While some 2nd mortgage companies have already been taking payments around this amount, many will not and I don’t see that changing – HAFA will help, but it will help far more on homes where there is only one mortgage vs two.

What I’m wondering is at what point do commissions get so lucrative that it can severely influence an agent’s actions in representing their buyer?  Since discussing “usual” or “typical” commissions in a public forum can lead to antitrust issues, I won’t discuss numbers but I will say that 5% is above any buyer cooperative commission (buy-side only) that I’ve ever received.

For as long as I’ve been in the business (on my 8th year now!) I’ve heard grumblings of suspicion that some agents working with buyers put a bias towards listings that pay them higher commissions.  In many ways it makes sense – most agents are paid on commission only so selling a higher-priced listing or one with a higher payout does directly affect what they earn.  While it may make sense, steering a client based off of compensation reasons is unethical and violates Agency laws in Minnesota (and likely most other states too).  Needless to say, the influence is there and I have no doubt that some agents practice this, though I truly believe that most agents are true to their clients and don’t let a fatter commission check affect their representation of their client.

What concerns me here is that at some point the commission dollars get to be big enough that it becomes a much bigger enticement and therefore the chances of agent influence become higher.  Even if there is no true influence, the mere appearance of a conflict of interest becomes apparent.

On the flip side, this is a great marketing tool by DR Horton – they attract lots of interested agents to see if DR Horton has a house that fits their buyer’s needs since it would be a big fat payout for the agent.  DR Horton only has to pay that commission on closed sales that meet their rules, so a penney isn’t spent unless there is a result.  Also, since this is only for inventory/spec homes, what they’re doing is putting them on a kind of clearance sales so that they don’t have to keep paying the carrying costs for a vacant completed home.  Smart.

There are two sides to this – I’m curious on what anyone else may think about this.  Please comment!

4 Bdrm 4 bath 4,400 sq./ft. hillside home on 4 plus acres, 7 min. from Middleton. Master suite with whirlpool and deck. Fieldstone fireplace, wraparound porch, storm/wine cellar, spectacular room to grow marijuana, open floor plan, elevator and handicap accessible with in-law suite. 2 1/2 car garage with lower level shop. Separate 40′ x 60′ commercial grade shop with loft, office and 3/4 bath. Perfect for toys or animals. Middleton-Cross Plains schools. $675,000

So say the MLS remarks of this listing.  Don’t believe me?  Here it is on the MLS itself, along with the contact info for the listing agent and the seller, who appears to be representing himself.

How on earth is this possible?  Well, based on what I can see, this broker seems to allow sellers to enter their own listings into the MLS, a horrifying thought.  The other option is that this was input by the listing agent… which seems more horrifying than the seller doing it.  In case the property details have been changed by the time you read this, here is a PDF of the marijuana house (2).

I occasionally see comments from the public saying things like: REALTORS are worthless, the MLS is a monopoly that needs to be forced to allow anyone to publish to it, MLS data should be public, and that Google/Trulia/Zillow/Craigslist make the MLS a thing of the past.  My counter to those comments is now clearer than ever: just look at this listing.

However this listing was posted to the MLS, the content of it is not permitted.  Because the MLS is controlled by a professional organization (the REALTORS), there will most certainly be a correction made and it is highly likely (hopefully) that some kind of penalty will be issued to the agent.  When it comes to accurate information about homes for sale or those that have sold, the MLS is in a field of its own.  While there are problems that do arise occasionally (this is an extreme example) this data is far more consistent and accurate than public options because it is a controlled system.

REALTORS are no longer the gatekeepers to the listings of homes for sale, but when it comes to ensuring the data is reliable, we still play the key role.  Most of the sites consumers use online to find homes for sale use data that originally came from the REALTOR and/or MLS.  I spend a lot of time helping buyers find the right house and helping sellers find a buyer, but I’d spend a whole lot more time if I didn’t have a reliable resource to use.

Because I have reliable information, even though finding the right house may take a lot of time, it is by far the easiest part of my job – its everything that happens after the right house is found that takes all of my skill, experience and knowledge.  Every day this job takes more to do right, something that runs counter to what you’d expect in an industry in the midst of a technology shift.  The problem is that no matter what new gadgets, software and web sites may be made, real estate is very complex and variable.  Though there are certainly both good and bad agents, this job would be practically impossible without the systems we REALTORS have in place.

If you need to get an even more detailed image than what you can get by clicking on the image above, see page 16 of the report.

Why do I find this graphic so interesting?  First of all, the trend this year is very similar to last year’s, which shows that portions of the inner-city, suburbs and exurbs are all experiencing both some of the best and worst of our market.  The common thread with all of them is that communities that have high levels of foreclosure and short sale activity also saw high sales volume when the market was at its frothiest.  While the news portrayed by this graphic is not good, it makes it very clear that this is a regional issue that affects us all.

There have been many steps forward made in the last 12 months to help address the issues surrounding our current housing crisis but there is still much work to be done.  This graphic didn’t change much from 2008 to 2009 and I don’t expect much change from 2009 to 2010.  The difference will be that we are better equipped than ever before to deal with these issues since we’ve been there already.

One thing that gets missed in all the reporting on foreclosures and short sales is that the neighborhoods that have suffered from the highest rate of lender-mediated sales are also the areas that have quite suddenly become affordable-housing havens – there is a great opportunity here for buyers to purchase homes at rock-bottom prices, near record-low interest rates, and with mortgages and qualification requirements that make them far less likely to default in the future.  Many households have been destroyed in the last few years but we do have an opportunity to create many new ones too.

With the data provided by RMLS that I used yesterday to comment about FHA transactions, I am also able to dig down deeper and look at the detail at the MLS-area level.  In Minneapolis-North, median sales prices have fallen from around $150,000 in 2006 to around $50,000 today – due almost entirely to the fact that this neighborhood has been one of the hardest hit by foreclosures.

A healthy ratio of rental to owner-occupied housing has long been advocated by the City of Minneapolis and in recent years they’ve made it clear (1,2) that they intend to do what they can to protect the housing stock.  Unfortunately the foreclosure activity is far higher than can be handled by any public or private entity.

While many foreclosures are in need of serious rehabilitation, prospective home buyers can take advantage of programs offered by the city and general rehab loans like the FHA 203(k) to finance the cost of needed repairs into the mortgage.  There are also a large number of foreclosures in generally ok shape and only need a few cosmetics to make them livable again.

Prospective home buyers of these foreclosures, the vast majority being first time buyers, see both good condition and fixer-upper foreclosures as an opportunity to purchase a home at prices not seen since at least the 1990’s.  Consider this a period where the market is providing an affordable housing explosion.  Unfortunately at these prices, these properties also become excellent investment opportunities for rentals, which creates competition with the prospective owner-occupant buyer.

These investors come in with cash offers and when presented with multiple offers where most terms are equal, many banks will take the speed and surety of the cash offer versus entrusting a successful sale to a buyer that needs financing to close.  In fact, cash can often mean double-digit percentage discounts on the list price vs. a financed offer.  These cash offers have succeeded so well in Minneapolis-North recently that while cash offers were only 5% of the transactions in 2005, they made up nearly 65% of the sales in 2009.

While many of these cash purchases may have been for owner-occupied purposes, it is impossible to quantify what percentage are investor vs. owner-occupant.  My experience and gut tell me that most of these cash sales were to investors.

Minneapolis-North is an exaggerated version of what we’re seeing all over the Twin Cities – I have heard stories of investor competition from agents around the metro and at price points up to around $250,000.  Metrowide, cash purchases in 2007 were only 5% of sales but zoomed 240% to 17% of sales two years later in 2009.  Having this strong demand has helped us dramatically reduce the inventory of foreclosures available today and has definitely provided support for the housing market, but this investor demand has also made it hard for many prospective buyers to take advantage of what may become an historic level housing affordability.

The other very interesting trend is the dramatic increase in cash transactions.  In 2007 and years prior, Cash purchases made up approximately 5% of total properties purchased.  In 2009, that number had soared to 17% – a 240% increase in just 2 years!  This substantial shift is largely related to the increase in foreclosure property sales – many of these properties are in such bad shape that they cannot be financed.  In other cases it is an investor buying for solid cash flow as a rental or to rehab the property and resell.

• Most roads look passable
• Many people are in the streets and lots of debris around
• Some buildings total losses, another right next door may be fine
• With the images you really get a feel for what are best described as shantytowns – it is depressing to see in the 21st century
• Google has many points of interest mapped with tagged photos.  You should look at the photos of the presidential mansion and the cathedral, look at the old arial photos, then look at the photos taken Wednesday.  The media is not kidding when they say these buildings are total losses.
• While sheets throughout many parts of the city – there certainly appears to be a high death toll

When you can see the whole picture from above and then zoom in to see how landmarks and simple things in life looked before and after the earthquake, it is much more clear to see the level of devastation that has hit them and I think much easier to understand what that means to them.

If you have any interest at all in understanding the impact of this quake, I highly recommend you take a look for yourself.  If you feel compelled to help, the Red Cross is always a good place to start.  You can even donate money by text message!

Since most sales have a Buyer’s Agent and a Seller’s Agent, we’re looking at a total of approximately 90,000 trasaction “sides.”

The Twin Cities associations have approximately 15,000 members between them.  When you divide 90,000 transaction sides by 15,000 agents you end up with an average 6 transaction sides per agent.  Taking into account commissions and average sales price, the “average” REALTOR in the Twin Cities makes somewhere between $30,000 and $40,000 per year in gross commissions.

From the $30,000 – $40,000 per year in gross commissions, they have to pay:

• Commission splits with their broker (often 10% – 50%)
• Gas & car maintenance (IRS says it is $.55 per mile – 5,000 to 15,000 miles/yr is easy to do)
• Technology (cell phones, computers, printers, etc – can easily be $500 – $1000 year)
• MLS & lock box fees (approx $540/yr)
• REALTOR membership fees ($350/yr)
• FICA taxes (15%, twice that of W2 employees)
• Healthcare costs (brokers don’t buy their agents health insurance)
• Marketing costs (typically 5% – 10% of income)

The ”average” REALTOR isn’t making much money at all!

If you get into it though, you’ll see a large number of REALTORS do not sell anything in a year – they hold onto their license for myriad reasons but don’t actively sell.  We also have many agents that are part-timers or semi-retired and only do a few sales a year, so these can also drag down the numbers substantially.

There are also agents that are making decent income and do this as their full-time job - in 2009 they had to sell more houses to make the same money but they are still earning a fair salary.

The last segment of REALTORS are the stars and superstars – these agents often sell dozens of houses per year or more - some agents are in teams that can sell 100+ per year – and these agents are financially very successful.

Regardless of how much a REALTOR makes, I believe nearly every one of them would say this job is far more difficult and time consuming now than at any time in the last decade.  It seems almost every sale has a speed bump or four and some have gigantic road blocks that take forever to get around or sometimes cannot be avoided.  If anyone questioned whether agents earn their commission, I’d say today that the ones that are working hard and doing right by their clients have earned every penny.

So many condos built from 2005-2008 in the last boom were purchased either at the top of the price curve and/or were bought with challenged loans or borrowers.  This has meant some buildings having 50% (or maybe more) of their units go back to the bank.  When that happens you have underfunded associations with expenses well above income, small or non-existent reserves and prices spiraling down.

In single family homes, if there are foreclosures around yours you will see some effect on your value but often it can be partially mitigated by your property’s unique characteristics and condition.  Additionally, an appraiser can also search the rest of the neighborhood for comparables to yours. 

When you are in a condo building, most of your comparables are the others in your building.  When you have only a few floor plans in a building and units that are only a few years old, it is very hard to argue that there is a huge difference between your “traditional seller” owned home and a bank owned REO.  With each additional sale prices fall further and more and more owners become upside down on their mortgages, which may lead some to simply walk away from their mortgage and lead to even more foreclosures.

Often these buildings become almost impossible to finance.  For many of these buildings, cash is the only way to buy them.  With FHA eliminating spot approvals for condos and further tightening lending guidelines, more buildings are about to become cash-only financing.  If you look at the financial landscape of buyers, most are taking out a loan to purchase.  Without a financing option, the pool of potential buyers shrinks even more and we see prices further decline and investors swooping in to pick these units up on the cheap.

I have seen quite a few condos that could be financed with payments well below equivalent rents – meaning these units are DEALS.  Unfortunately even though they’re good deals now (some down 40% – 60% from their peak) if they can’t be financed they aren’t an option for the majority of buyers.

Once these buildings have gone through foreclosure and are owner-occupied again, budgets and the overall health of the association will likely improve dramatically.  But until we can secure financing for owner-occupant buyers, what are we to do?

Just-before-print update:  Fannie Mae Relaxes Condo Funding Rules in Florida

What does 2010 hold in store for buyers, sellers and Realtors?  I predict that it will be much the same as what we saw in 2009 here in the Twin Cities:

• Foreclosures will continue to come on the market and many will be scooped up quickly with multiple offers.
• The “next wave” of foreclosures won’t show up till AT LEAST July – and likely later than that since there has been no uptick in sheriff sales yet.
• Short sales will also continue coming on the market but we’ll see more of them successfully close.  Some banks will learn how to get short sales done quickly but some will still take months to even reply.
• Mortgage rates will be in the 5% – 6%, with rates climbing as the year goes on.
• Mortgage underwriting standards will continue to tighten, meaning soon you will need to go through one of those airport naked-cam scanners to get approved for a loan, and then need to have your whole family go through one for a 2nd screening 2 days before closing.
• Median sales prices will remain flat or tick up slightly - foreclosure prices are at their bottom but short sales and traditional sellers will likely drop a little further but higher-priced homes will be selling in greater numbers, pushing the Median up.
• The $1M+ housing market will still be very slow and the $500k-$1M will only improve slightly – since jumbo mortgages are still tough to get these houses have fewer potential buyers.
• Total inventory on the market is likely to continue its 2009 fall (20% in 2009) – dropping to numbers we haven’t seen since 2005.

The chart below shows that January historically has a stronger showing activity than November and December and due to the 20% decrease in houses for sale in the last 12 months, there’s less competition in the market now.  Less competition makes it more likely that a buyer will find and select your house.  In fact, in January and February 2009, the houses that sold took 15% fewer appointments to do it.

The other reason you should consider listing now is that the home buyer tax credit is only good for purchase agreements accepted by April 30th, 2010.  That gives you less than 4 months to take advantage of what is effectively a subsidy.  If your buyer is a 1st time buyer or has owned their current home for more than 5 years, they’ll get a tax credit ($8000 and $6500, respectively).  If you have been in your house for more than 5 years and plan to buy again, you can get a tax credit too!

While showings pick up substantially in March, more listings historically come on the market during that time too and that only gives you 60 days to put a sale together to take advantage of the extended credit.

I’m a big proponent of the philosophy of “you make your own luck.”  If you want to take the greatest advantage, get moving now.

This is an intriguing question.  While I had my suspicions, I wasn’t sure what I would find so I put together this little image from Twin Cities MN Pending Sales and the 10 Year Treasury Note.  While the 10yr isn’t a direct mortgage interest rate gauge, it correlates very closely.  This chart is on a 5 year scale.

(Pending home sales data from MAAR, click image to see larger picture)

What we see from this chart is that the housing market is very cyclical but the influence of interest rates on the housing market isn’t all that clear.  While rates definitely play a role in housing demand, to me it doesn’t appear to be the dominant factor in housing sales activity.

There are lots of things that may impact housing in 2010 – anyone else want to share their thoughts?

Dear Owners & Listing Agents of vacant relocation properties, short sales and foreclosures:

Today I showed one house that was completely unshoveled and a 2nd that was partially shoveled but very icy.  In both cases I and my clients almost fell a couple times each.  This is not a good way to get people to buy your house.  The house that hadn’t been shoveled at all didn’t even have any tracks – a sure sign it hadn’t been looked at since before the Christmas snowstorm over a week ago.  How many buyers & agents pulled up, didn’t want to trudge through the snow and then drove off?  When buyers and their agents have cold wet feet from the snow outside they are not likely to be as happy when they make it inside… first impressions are everything and you have certainly made a bad one.

 As temperates outside drop, it is important to adjust indoor humidity as well to limit condensation.  In small homes or homes with many people living, the house can easily become overhumidified and may require the constant use of bath fans and/or a window cracked open 24/7.  If excessive moisture is building on the windows, it could also be condensing inside the walls, in closets, etc.  That moisture buildup can create damage, both seen and unseen, over time.  I have been in “wet” houses before and can tell you that window damage can just be the start of the problem.  Often I find homes with moisture issues have whole house humidifiers that were set way too high for the conditions.

In larger homes or homes with few people living, the house can get extremely underhumidified due to the dryness caused by the furnace.  In those cases, instead of wet windows you get static electricity shocks and woodwork that shrinks due to the loss of moisture.  A whole house humidifiercan help keep your humidity up in a comfortable range – I suggest the ones that connect to a furnace duct and permanent water supply for ease of use.  Additionally, manufacturers such as Aprilaire are now offering humidifiers with automatic controls that adjust humidity based on outdoor temperature automatically.

Below is the recommended humidity levels for different outdoor temperatures:

Solution: Make it a felony

A bank has lien rights against the property.  Items attached to a property (fixtures) are considered part of the property (real property vs. personal property).  Though a homeowner has a right to modify a property, by wholesale removal of fixtures in the house it becomes no different than a burglar stealing from a homeowner.  This is already criminal – it just isn’t technically a crime yet. This costs the neighborhood in terms of further depression of home values (stripped house becomes a comparable for future sales, when condition often unknown to appraisers/public).  It also costs banks big money, which impacts future mortgage rates & fees.  It is a hidden tax on the rest of us.