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.

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.

I’ve worked with some great buyers and sellers this year and the last few months saw many of my clients complete their real estate transactions so that they are now spending Thanksgiving in their new homes.  While the housing market has been difficult, this year will be my 2nd best year in sales and makes my last 3 years the best years in the business for me – no easy feat, believe me!

Have a great holiday and come back next week for some new content that I hope will knock your socks off!

Ok, so I doubt they’re sinking the housing market but retailers are likely having some influence in the housing market today:

• When the annual holiday season rolls around, home buyer activity falls sharply and home seller activity wanes too.
• In addition, retailers are also throwing out their holiday deals sooner as well – what once was left for the day after Thanksgiving is now becoming a month-long saleabration. When consumers spend money on “deals” they are less likely to be saving for a home.
• This year we have retailers putting out their holiday displays sooner than ever before.  When you start the holiday season early (retailers) then you shorten the “home selling season.”

So if the housing market slows to a crawl this Winter, just blame the retailers.  I know I will.

Betsy Soderlund wants the emotional roller coaster that is the Minneapolis real estate market to be less like the cork screw and more like the flume. – @betsysoderlund

This Twitter post last night sums up what many people in the real estate market are feeling right now.  Things seem to be going up, down, left, right and twisting all at the same time. This is a list of the items I currently see as affecting everyone’s psychological health in the real estate market today:

REO’s/REO Brokers

• I’ve talked at length about this here… ’nuff said

Appraisals/Appraisers

• Fewer appraisers today than in year’s past
• Large refinancing boom creating huge demand
• Appraisals can take 1-3 weeks to complete
• New appraisal rules add another layer of bureaucracy to the process
• Appraisers are required to be much more detailed and precise in their appraisals, causing them to take much longer.
• Some appraisals come in too low… often because the appraiser uses foreclosures and short sales as comps but makes very little adjustment for condition and sale distress, making apples and oranges look all like oranges on an appraisal.

Underwriters/Mortgage Companies

• Underwriters were also trimmed in recent years
• Underwriting guidelines continually are changing
• Underwriters look at everything with a fine toothed comb
• Underwriting can take a week longer than in the past
• Underwriters sometimes come up with more requests a few days (or hours) before the closing

Title Work/Title Companies

• Nearly all title companies reduced staff in the last 48 months to take into account the significantly lowered demand.  Now that closings are up 20% over last year, many find themselves overworked.
• Title companies that sprung up during the “boom years” didn’t always do a good job on the paperwork (filing payoffs, clearing title) and consequently the current title company has to clean up their mess.

Buyers/Sellers

• There seems to be more emotion on both sides of the table
• Buyers are stressed about rates & qualifying
• Buyers don’t want to “overpay” and are seeing/reading/hearing a lot of different things and can’t extract the gold from the ore

Competition

• On the sell side, there are so many different types of sellers with so many different motivations: traditional, short sale, foreclosure, relocation, investor, etc
• On the buy side, there’s increased competition for far fewer homes than last year
• The best priced houses get an offer in the first 60 days on market

Interest Rates

• Rates have been bouncing around like crazy in the last week or two.  I’ve seen quotes for 4.5% and 5.5% in the span of one week for the same loan type!

The Media

• We’ve got local numbers, national numbers, numbers tracking the same thing but reported differently by 2-3 groups
• Some say the bottom is here, some say the bottom is near, some say the bottom is far ahead… yet none of them agree on what a bottom is defined as.

It’s an interesting time in the real estate market today… don’t you think?

I try to behave myself, I try to keep my emotions tempered so that my opinions can be read and understood without coming off so harsh that people click away before they finish reading.  Well today I just don’t care.  This is a list (though not comprehensive) of the reasons that I’m sick and tired of what SOME agents are doing:

• “I haven’t seen the property so I cannot help you.”
  • If you haven’t seen the property, know nothing about it, and are not offering to help me find someone who has seen the house to help me, how can you possibly be representing the seller?
• “I have so many listings that I cannot do X, or Y, or Z”
  • Your lack of staffing to handle workload or your inability to say “no” to too many listings is not an excuse for being unprofessional and arrogant.
  • This means you are too busy to act professional, which means that you are not a professional, which means you shouldn’t be a REALTOR since we are a trade organization of professionals.  Try selling a house without being a REALTOR and see how it goes.
• Total lack of due diligence on anything related to the property
  • City inspections (that are required) are often forgotten or ignored till pressed by buyer’s agent
  • “Buyer and Buyer Agent to verify everything” – that’s code for I’m too damn lazy to do anything so a trained monkey would have done more checking on this property than I did.
  • The SMELL oh my god the SMELL. Why don’t you deodorize the home (or at least try) before you make me walk in and come out coughing and ready to vomit?
• Responses from REO agents during offer submission can take days (even to confirm that the offer was submitted)
  • Apparently since they get multiple offers on most everything, they can provide no customer service because someone will patient to stick around.
• Listing foreclosures at prices 15%+ under market value to garner multiple offers (10+ often)
  • This brings a lot of people through a house that they simply cannot afford because they can pay the list price but not the selling price.
  • Many times the agents do not respond to inquiries on status or questions regarding property/offer submission rules/etc. for days or sometimes they never respond at all.
  • An argument can be made that the listing is not a “true and accurate depiction of the property” as the list price is never intended to be honored.
• Only one photo of the property and often it is out of focus, at night, or shows very little of the property.
  • Some times there are more photos of the outside, but none of the inside.
  • Sometimes the photos of the inside are shot so all you see is a floor.
  • Sometimes the photos show a great upstairs only to find a mold-infested basement.
• House is a teardown or major renovation project but they say nothing of this is the MLS remarks.
  • It’s a total waste of time for my buyer and I to even see this house.
• House could qualify for an FHA or VA loan (appraisal would be fine) and the seller will consider an FHA or VA offer but it isn’t listed as an Acceptable Term under the MLS.
  • I would have shown your house had I known it would have worked for my buyer.
• FHA or VA is listed as an acceptable term but the house is so far beyond repair that it isn’t likely to work.
  • Thanks for wasting my buyer and my time (AGAIN) on a house we cannot purchase.
• An utter lack of information inputted into the MLS listing
  • Why would they bother giving me and my clients information on room descriptions & dimensions, finished square footage, condition, features, etc when they can let 1/2 the buyers skip the property completely and the other 1/2 waste their time seeing a house that doesn’t fit their needs.
• Little to no effort is made to check on the status of the title work before closing.
  • If there’s a problem with title work and the house doesn’t close on time a buyer may be homeless but there’s no concern shown from the listing agent.

Now this is not to say that all REO agents are doing this poor of a job and most of the time it is only a few of these issues on each house – still, the utter lack of professionalism and accountability of a few agents tarnishes the whole business since they represent a sizable portion of the total foreclosure MLS inventory.  I LOVE good competition and there are some GREAT foreclosure agents out there that do a fabulous job.

This past week I’ve been in many different foreclosures with my clients.  Some bank owned homes are in turn-key (aka mint) condition and are wonderful.  Others are…. how do I say this…. crap.  Many are simple run down and need repairs, cleaning and updating.  Many more though are safety hazards in their current form.  I’ve seen frozen houses (pipes burst creating icy stairs, floors, etc.) mold houses (where a wall of mold spores hits you when you step into a room) loose electrical wires, broken steps, rotted/loose flooring, and more.

From the moment I walk out of the car to the second I open the front door I am looking at general condition and evaluating the shoes on/shoes off policy… in houses in good condition with clean flooring we take shoes off, in houses where the condition and cleanliness are not good, we keep shoes on.  Often the house appears relatively clean but the stink is so bad that you are gagging through much of the house. Sometimes I’m tricked into thinking the house is good until we get part way into the home and I step on something nasty or we see something we need to get at in a dirty area and go back for the shoes.

I still do not understand why banks won’t do more basic repairs to the house.  I think that in some cases the banks don’t know enough about the condition or have not been counseled on making repairs.  In most cases the bank has not seen the property and is relying on the advice of others (or their fancy spreadsheets that give them all the answers using formulas that have nothing to do with reality). Often new carpet and paint will go a long way… and in other cases that isn’t nearly enough.

Today I’d say 90% of 1st time buyers are using FHA or VA financing, which both have higher property condition standards than Conventional, though the gap in requirements in continuing to decrease.  I estimate about 1/3 of the foreclosures out there are so bad that they either require Cash or Rehab Financing to purchase…. which dramatically reduces the potential buyer pool and in the case of Rehab Financing (FHA 203k is an example), it can substantially increase the borrowing costs due to the higher interest rate on these products.

Due to these issues, many foreclosures are selling for far less than they could with basic to moderate repairs… obviously the banks don’t want to start projects that could become a Money Pit but in many cases they are taking 2x – 3x the financial hit to sell it “as-is” versus making the repairs.  As my friend and fellow Realtor blogger Teresa Boardman says: “Banks can’t sell real estate.”

So if you are touring bank owned homes, PLEASE WATCH YOUR STEP!

America is in serious trouble and it will take many efforts to bring the country back from a recession/depression.  While most of the measures that the U.S. Government is taking are well beyond my understanding, their efforts on housing are something I believe I have a firm understanding and it is with these efforts which I have concerns.

Many have argued that the reason the economy stopped growing was that housing started falling and that the way to grow the economy again is to stop the fall in housing.  My argument is that housing was just one of the things that bubbled out of control (as did personal debt, corporate debt, derivatives markets, etc) and that until these are all back in line with historical levels we can’t put a firm footing to build upon.

While most housing data uses the Median Sales Price of all home sales to determine affordability, I believe that this metric is not a good representation of current housing prices.  If we look at the Twin Cities, the 2008 Median Sales Price was $195,000… a healthy 13.3% decline from 2007’s $225,000.  If we separate the sales data into “lender mediated sales” and “traditional sales” we find that the Traditional Seller Median Sales Price has only fallen 4.1% to $223,000 in 2008 from $232,500 in 2007.

The lender mediated sales we have today, the foreclosures and short sales, are a relative short-term phenomenon on the timeline of home ownership.  Even if these sales persist for a few more years, when these sales are gone the only homes and prices we’ll have are those of the Traditional Sellers.  With interest rates near all-time record lows, the current prices are still affordable but when interest rates climb to 6.5% – 7%, which are still historically good rates, home affordability will sink 20%+ and we’ll again be faced with housing prices above sustainable levels.

The problem with the $15,000 tax credit currently being proposed is that it will artificially put a near-term bottom in house prices but leave us with prices still too high when interest rates move up.  Further, while this might provide a large incentive to purchase homes, if buyers are unsure about their job security, will they feel comfortable with taking on more debt than they likely ever have before?  To me, the best way to spend this money is to get the job market growing again and let house prices settle at whatever level the market forces dictate versus at an artificially higher level.  While this may seem more painful in the near term, I believe it will leave us better off in the long run and will help prevent a potential double bottom in real estate prices.

Added 2/9/09 @ 6:30pm-I forgot to note that this credit is proposed to last 12 months so while we all agree we need economic stimulus NOW what we get instead is Congress offering housing stimulus with no urgency to buy now, but rather sometime in the next 12 months.  I hope we’re better off in 12 months than we are today and while I don’t think this is the best course of action to take, I think that if we do use it then we’d be far better off to make it only good till July 4th or September 1st or something much more limited in timeframe.

As of 11:15pm on Monday, January 5 2009, MAAR’s web site states that 22%, or more than 1 in 5 members, have not yet completed their training.  The class has been available literally dozens of times over the last 4 years and is also available FREE OF CHARGE online and yet 1500+ members have not yet completed their training.

To many Realtors this class is a burden but it is an important component of what makes our membership valuable.  Anyone licensed by the state can sell real estate but to be a Realtor you have to commit to hold yourself and your peers to a higher standard.  I certainly hope my peers will rise to that standard quickly… they have until March 1 to complete their class or they will lose their membership in the association, which means loss of MLS access, electronic lock boxes, etc… basically the lifeblood of any successful Realtor.

For Realtors that have procrastinated for the last 1,468 days, you have 53 days and counting… better hurry!

Update 1/21/09:  With 38 days remaining, now just less than 10% of Realtors still need to complete their ethics requirements… we’ll see who’s left without a chair (and a membership) when this song ends on March 1st.

In the last month or two Star Tribune has started employing annoying and invasive ads on their web site.  First it was “virus alert” popups that took hold of the web browser and required multiple clicks to get out of and you had to cancel a forced download as well.  Today I encountered Showtime popups as well.

I’m a loyal daily reader online and subscribe to the weekend paper as well.  If Star Tribune continues to waste my time and patience with these invasive ads I might have to take my reading elsewhere.

I will be calling their customer disservice line on Monday and encourage others to do the same.

Calls to their customer service department are being answered but when the decisionmakers are out of the office for nearly 2 weeks it is more like “the lights are on but nobody’s home.”

While we all need vacation time to spend with our friends and loved ones, there are many buyers and sellers out there waiting for responses on short sale offers that have waited weeks or months for a reply and apparently will need to wait weeks more.  Given that short sales recoup significantly more of the original equity than a foreclosure, you would think that Countrywide would have someone working on these files.

Here’s a summary:

• They send one kid to private school ($14,000/yr currently), the 2nd will be in kindergarten next year
• Mom stays at home
• Mom can start working 2 days a week next year when youngest goes to private school
• Their mortgage rate will adjust… in 2011
• Their house has no equity so they were thinking about doing a short sale to reduce their monthly expenses

While it isn’t 100% clear in the segment, it sounds like their original idea was to negotiate a short sale on the house to get rid of that expense.  Carmen explains that they have to live somewhere so that isn’t a good idea, but she misses the opportunity to make a great point.  A debt is a personal obligation and your inconvenience is not an excuse to walk away from that obligation.

These homeowners are not alone… I’ve heard many stories such as this.  People who took out loans and promised to pay them back with the terms provided are now deciding that if they cannot still live at the level of lifestyle they did before, that the best thing to do is screw the bank by doing a short sale or foreclosure.  While at the end of the segment the homeowners were discussing other options, I’m disappointed that Carmen didn’t take a second to give them and her viewers a reality check.

There are many people that simply have no other option than a short sale or foreclosure, but there are many more that do have an option and are simply using this as the least painful solution.  What this does to the rest of us is increase the costs of our future borrowing.  Banks have to make a profit over the long term, so if their profit is destroyed by people taking advantage of the situation, then they will simply increase their fees in the future to compensate or the federal government will come in and rescue them.  Either way it ends up costing the rest of us.

I wish there was a way to shame the people that are doing this as a matter of convenience while not shaming the people who do a short sale or go through foreclosure as a matter of necessity.  If your mortgage were still given by your local banker down the street, the guy you go to church with, see at the grocery store, and schedule play dates with your children, you wouldn’t see this nearly as much.  The fact that so many loans are made by faceless entities on the other side of the country or globe makes it a lot easier to take advantage of them and sleep with a clear conscience.

Over the 4th of July activity slows a little as buyers and sellers spend time with family, friends, and fireworks.  There’s still a lot of activity out there though so the quiet will be short-lived.

Now that lenders, banks, retirement funds, investment bankers, average investors and everyone else have all been bitten by the fallout from this housecological disaster (like my new word?) we find ourselves trying to change our ways, reduce our foreclosure footprint, and move forward to a more sustainable-housing-market future.

The problem is that while there seem to be a large number of borrowers ready to purchase houses in recent months, it is now these same lending institutions hobbling our housing market.

It starts with short sales: lenders were willing to give 100’s of thousands of dollars to anyone with a heartbeat at a moment’s notice but now take MONTHS to tell you if they’re willing to accept a buyer’s offer on a defaulted borrower’s house… which more times than not is a far better return on their investment than letting it go through foreclosure.  The buyers willing to sit on the housing market sidelines for MONTHS while they wait for an answer can wind up the owners of an excellent property at a great price, but few buyers (or their agents) have the stomach for it.

On REO, aka lender owned, homes we see banks still take a week or more to respond to many offers, sometimes haggling over unrealistic sales prices, and so many pages of disclosures and addendums that do everything possible to leave the buyer with an “I just got violated” feeling when they receive the counteroffer from the lender.  Some of these bank addendums are so ridiculous that you roll your eyes the whole time you read them.

Many of these lenders do not provide listing agents enough incentive (i.e. money) or oversight for them to do a good job marketing the house (i.e. some interior photos, a new picture when January snow becomes July grass, room dimensions, a phone number with a real live human person, timely responses, an MLS description that says something other than “bank owned,” ACCURATE association fees and tax information, etc.).  When buyers have 100’s of houses come up in their search, it is easy to ignore the listings that show nothing, tell nothing and mean nothing.

Assuming that the house is not a short sale or a foreclosure, lenders are still finding ways to get in the way of a good borrower buying a good home.  This is the area of the market that I’ve become the most frustrated and cynical about recently.  Here are some of my favorite lender fouls lately:

• Mortgage Insurance Company Changes Downpayment Ratios and Doesn’t Tell the Mortgage Company
  A BIG mortgage insurance company decided to stop insuring loans with down payment ratios over 90%, but it said that the special state-supported first time home buyer programs (many at 3% down payment) were not affected.  A day before closing the mortgage company calls the mortgage insurance company to get the mortgage insurance certificate (which seems way too last minute for my taste) and is told: “sorry, get your borrower to come up with another $14,000 by tomorrow.”  Apparently they decided not to give special consideration to the first time buyer programs and never told the mortgage company.
• Underwriters Didn’t Look at File Until 24 Hours Prior to Closing
  A loan officer had everything in a week prior to closing and the underwriter waited till the day before closing to review the file and came back with a ton of conditions that took days to fix.  Heaven forbid that we know these things in time to fix them without a delay in closing.
• Loan Packages Showing up Almost a Day Late
  File gets underwritten in time and for some reason the loan package sits on the processor’s desk for a day instead of being sent out as it should have.
• A Continually Moving Target for Loan Programs
  It seems that nearly every day the loan programs are tightening up with more requirements, tighter guidelines, and more downpayment needs.  Most conventional loans were still 5% down until just recently… now almost everything is 10% down (due to the tightening mortgage insurance issues) and I think it is quite likely we might see that get even worse given the continuing high number of defaults on bad loans from years ago.  The only “sure thing” right now is good ‘ol FHA… 3% down now, 3% down tomorrow, 3% down hopefully forever.  While you can sneak by with a 0-down FHA loan, I believe FHA will try to quash those options again this year… which would be fine if FHA could come up with a 1.5% down payment option @ a higher mortgage insurance premium.

You take all of these obstacles in the way of today’s home buyer and it is a wonder that our housing market has been doing as well as it has as of late.  These home buyers start out excited and optimistic about their upcoming home purchase and end up exhausted and jilted about the process when it is all over.  This week I had two buyers almost ready to give up entirely and walk away from great houses at awesome prices because of all the problems with their financing.  These were great human beings and qualified buyers that were being beaten up over things that were not of their doing.  I think we’ve come back from the edge of the cliff at this point but it is tough to watch your buyer suffer while you stand powerless to effect any real change on the situation.

Don’t get me wrong, there are still a lot of homes selling right now and many transactions never see these problems, but in my conversations with agents all around town, it seems that almost every transaction takes 2x-3x more work and pays far less than it did 3 years ago.  Some may call this paying our penance for the “good times” of prior years or a needed cleansing of a bloated industry.  Either way, this current housing market’s impact is becoming more pronounced every day.

Until we can get lenders to get their act together and be timely and consistent for a change, I see the current troubles only prolonging a difficult housing market.

Got a story?  Feel free to add it via the comment feature below.

While I appreciate that the Star Tribune is trying to get more interactive with their stories, I believe they need better oversight of their “Featured Comment” tool. Kinda makes them look stupid in my opinion. Click the screen capture below to get the full-size view.