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!

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.

• 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

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:

Uh hi, my name is Aaron Dickinson and I am blogging about the aweful photos I see on the MLS every day and I’d like to feature one of your photos.  Do you mind?

I’m guessing that I’d be told to go do something to myself and promptly hung up on.

My biggest pet peeve is when there are no interior photos or the photos are so blurry that you cannot make out much.  This is especially annoying on high-end homes that are really set apart by their details and not simply: “here is a bedroom.”

I wonder how many sellers of these listings know how bad their house is being advertised…

If you want some examples, other agents have created blogs about this topic and included photos… to their potential peril someday in the future.

(Image courtesy

Houses for sale in the Minneapolis/St. Paul area have been dropping since May of this year; a sharp contrast to prior years where inventory stayed high until September.  New listings are down versus the same time last year and sales are so far ahead that inventory is dropping quickly.  This has lead to scarcity of inventory at certain price points, types and areas.

This time of year brings both colder weather and a cooler housing market.  Buyer activity is lower between Thanksgiving and mid-January and many sellers take their homes off the market during this time too.  If you are a buyer and are still looking, this means less for you to look at but also less competition from other buyers.  If you are a seller, you should consider staying on through the holidays as you will have far less competition than there has been in 3+ years!  You can always make your home “temporarily not available for showings (TNAS)” for the days surrounding the big holidays.

Given the changed dynamic in the housing market this year, I believe that 2010 may see inventory as high as it was in 2009 but I don’t see it going any higher than that.  In fact, I believe we may see inventory further contract in 2010 – a good sign for a stabilizing housing market.

This Winter is likely to remain far more active than last year’s but this activity is still going to be down substantially from its peaks this Summer and Fall.  This is normal.  This is ok.  This is what happens every. single. year.

The housing market takes a relative breather due to the myriad holidays, school schedules, and of course the change in the weather.  Not only are there fewer buyers out in the Winter months, there are fewer sellers too; many sellers simply do not want to keep their house “show ready” during all of the festivities between Thanksgiving and the New Year.

If you are selling your home during this time of year, things can get lonely.  When you listed your house a few months ago it wasn’t unusual to have 3-4 showings per week – now you may be struggling to get even 1!  One of the old “tricks of the trade” is to cancel your current listing and then immediately relist it with a change of photos that depict the current season, some new descriptions, and often a slightly revised (lower) price.

The mere act of relisting your home is likely to bring a quick “pop” of new attention to your house and often leads to several new showings in the first week and often spills into the 2nd or 3rd week as well.  The reason this works is that many buyers avoid “old” listings like they would expired milk in a store.  The difference is that while milk will go bad if it isn’t bought quickly, a house does not “spoil” just because it has been on the market for a few months.  Often the house is now listed for less (sometimes substantially less) than what it was when it was first listed… something that many buyers miss.  When you remove the stigma of the “old listing” you will find more buyers will stop to take a look.

This “trick” is not meant to deceive anyone – the full listing history of a property is available to all REALTORS and when asked, I always tell anyone the true length of time it has been listed for sale.  The truth is this trick works.  In fact, I recently did this with a listing and saw 3 new showings in the first 4 days it was relisted – two of those showings went very well, with buyers having placed the house on their “short list.”

Now if you are terribly overpriced, show horribly, or in a market with no activity this trick won’t do you any good but if you have addressed everything else you can and still haven’t seen results, this is just one more thing to try.

As anyone who works with data knows, the statistics you create are only as good as the data underlying it – also known as: “garbage in, garbage out.”

The RMLS has several different statuses for MLS listings like: Active, Pending, and Sold.  As anyone in the housing market today knows, many homes listed as “Active” are really “Pending” because they have an offer accepted subject to inspection or in the case of REO (bank owned) & short sale homes, they often have multiple offers on them already.  Because our MLS does not have a status for “Active with Offer,” Realtors and consumers have a hard time finding out what properties are truly available until the agent sets up a showing – a very frustrating and time consuming process.

Luckily, some Realtors have been adding to their MLS remarks fields information about listings being “sold subject inspection” or “short sale offer accepted- backup offers only.”

On Monday  I looked at these remarks fields and searched for terms used to describe accepted offers subject to inspection, multiple offers, and offers subject to bank approval.  What I found was that there are 884 listings that are currently marked Active but look to be “Pending.”  Of these 884 listings, 675 were short sale and an additional 50 were bank owned, making a total of 82% of these shadow pendings “lender mediated.”

In my experience, more listings are never updated with these kind of remarks than are, so it is quite possible that more than 2000 listings that we see as available inventory are really not.

While the data that MAAR is currently publishing is entirely accurate based on the data they are provided, this clearly shows that there’s more activity happening than is currently reported- which to any buyer or agent in the field right now matches perfectly with our experiences.

If we could do more successful loan modifications and short sales we would dramatically reduce the foreclosure problem in the future… more needs to be done at all levels to make this a reality.

http://www.cnbc.com/id/32569620

It is nice to see a little renewed interest in new construction lately… I have seen several developments with 10+ houses under construction at once… something that isn’t very notable compared to 2002-2006 but quite interesting compared last year.  This surge in activity is very spotty though and is found mostly where builders or developers lowered their prices to get the completed home down to a competitive level.