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Archive for January, 2009

I should first disclose that I am not, nor have I been in the past, an REO Broker. I have purchased them myself and I have represented buyers in the transactions many times over the years. It is as different an area of real estate from typical transactions as Podiatry is from Opthamology in medicine.These are things consumers must know before they purchase a bank-owned REO property here in my home state of New York. Most of the principles apply universally.

  1. You should absolutely use an attorney who is FAMILIAR and EXPERIENCED with the purchase of bank-owned properties if you buy an REO (Real Estate Owned-by the lender) in the state of New York. Even if your employer or union is providing you with subsidized or free legal representation, use of the wrong attorney can negate whatever perceived savings you are getting in the purchase, add to your stress level, and still have you poorly represented. This is, of course, to say nothing of the needless time and energy the other attorney and agents will have to expend bringing your attorney up to speed.
  2. You are not being rushed-you are being given deadlines for efficiency. This is why you need an experienced attorney who won’t gasp or get the vapors about having to take shorter than a week to do anything. Lawyers typically operate at a casual pace in property transactions, but REO transactions have to go at a far faster pace, not because anyone is trying to bamboozle you, but because this is a NON PERFORMING ASSET and TIME IS OF THE ESSENCE. Not only that, there may be competing offers that they can go to if you or your attorney are going to dilly dally. So, a document that says “please sign and return tomorrow” really does need to be signed and faxed tomorrow.
  3. You are buying the house “AS IS.” Nobody will dissuade you from getting an inspection, but unless there is an environmental issue, it is for your volition only. The bank will not make repairs. The bank will not put GFCI outlets near the sinks. The bank will not put new batteries in the smoke detectors. Do your inspection BEFORE you make the offer, because once you make the offer the clock is ticking with deadlines (see #1 and #2). You are already being compensated for the physical issues of the property with a lower sales price, often far more of a discount than market value less repairs.
  4. You cannot speak with the bank. If you run into frustration or red tape, no, you cannot speak with the bank. I know it would be great to just have your lawyer and the bank iron the issue out, but “the bank” is not “the bank” as you know it. “The bank” is an overworked, underpaid asset manager in another state who will hang up on you so fast you won’t even know she answered. Why? For the same reason you’d be escorted out of surgery, a radio studio, an underwriter’s office, or court. People in those places are doing their jobs and do them better without your interference. Those are not settings for the public and your interference hurts the other people who, like you, are waiting.
  5. You have to pay the transfer tax the seller usually pays. This raises your closing costs a bit, but the lender is losing a ton of money on this deal and needs to economize where possible. Every lender does it. It is an established practice. It is part of the cost of doing business and worth the overall discount you are getting in your sales price for this property.
  6. Exceptions cannot be made. If you are buying an REO in 2009 you are participating in the largest liquidation of property in the history of the planet. It is a huge undertaking that will completely break down if systems, efficiency and deadlines are subordinated to individual exceptions and personal requests. All large organizations have to operate this way or they will cease to be large organizations. Think of it this way: You have a certain cell phone plan. You can’t change it on a temporary basis or get the phone company to make an exception unless you pay for another plan.

Many in the public are rightly intrigued by the prospect of buying an inexpensive, bank-owned property at a discount from the norm. That is the Rose. The Thorn is that the process is far less touchy feely and far more cold and automated. However, forewarned is forearmed, and knowing these things going in will enable you to be ahead of the process and not at the mercy of new, unwelcome discoveries. You should still enjoy that purchase, but you have to understand the rules going in.

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With the economy in decline and the housing market more so, real estate agents are leaving the industry. This is first and foremost a sad thing for anyone who loses a job or has a business fail; I never like to see anyone suffer or have financial problems. Overall, however, there is a silver lining to that cloud for the consumer and the licensees who remain active in the industry.

Not all, but a disconcertingly high percentage of the ex-agents should never have been agents in the first place. In the market run up from 2002-2005 we saw an unprecedented number of new and reactivated licensees enter the market to share the bounty. However, while the short term profit may have been favorable, we are still paying the price of the inexperience and, often, the negligence of practitioners who were able to outrun their mistakes in the irrational exuberance.

I remember well the calling cards of new agents who could hardly believe their good fortune at their involvement in a high-dollar transaction. Deals got screwed up left and right, but who cared? Another offer was a week away. And if you had a neophyte representing you in a purchase, it was never their fault your offer wasn’t accepted, you just lost a bidding war. We had people who never sold a house in their life collecting commissions on multimillion dollar sales like it was candy land. Just like the stock market spike of the late 90’s, many of people looked far smarter than they really were.

I know this because I am part of the cleanup crew. People listing their homes for sale today are horrified to discover that decks, finished basements or bathrooms they were told were legal at their purchase are, in fact not in compliance. Neither the last listing agent nor their buyer agent bothered to pull the property card, and the title company missed the detail in the rush of the time. I am in the midst of selling a property that last passed title in 2005 which has a submerged oil tank that would have failed a test in 1995, let alone now. It is costing my clients over $20,000. Twice in the past few months I have run across people who have excellent credit inexplicably stuck in high interest loans, most likely because a loan officer decided that profit superseded honesty. Where was their agent? Where was the advocacy? The list goes on, but I wish I had a dime for everyone who tells me that they regret using their newly licensed cousin or part-time aunt for their agent last time.

In each of these instances, an agent was paid handsomely. They did not earn that commission; it was monopoly money they used to buy homes and cars that they can no longer afford. In many cases they meant well, and their broker is responsible for the mistakes. We’ll never know in most cases, but our collective karma has caught up with the industry. Sadly, whatever price we bear is more than being shared by our clients who trusted us with their financial lives and were often hurt. We made our bed and now we are sleeping in it.

This brings us, of course, to today. One agent I know has his real estate website redirect to another endeavor. BMW’s have given way to Hyundai’s. An attorney told me recently that his biggest source of bankruptcy filings and short sales are real estate agents themselves. Enormous brokerage offices have rows of empty desks. And I am bombarded by solicitations for 2nd income opportunities from people who must know that agents are scrambling for income. Attorneys are actually thanking me for referrals.

But those of us who remain plying our trade have discovered a new environment: fresh air. It isn’t so noisy in here anymore. The overwhelming percentage of agents I am dealing with now are returning my phone calls and emails in a professional, timely manner. Oil tank tests, surveys and other due diligence are being handled in the beginning of transactions and not as part of a last minute scramble. Many agents are telling me how they remember the last decline in the late 80’s and how they coped. We are a profession again, not a pit stop for career nomads. We are conducting business, and even though the circumstances are worse, the process is civil and professional because the frosh and junior varsity are no longer clogging the field. And we know how to cope with the PR problems exacerbated by the “exes” because we always have.

Consumers now should have more confidence in the industry because by and large the pickers of low hanging fruit have left the market. Those who remain are survivors, fighters, and overall far more professional and experienced. They don’t pick apples with a broom and bucket; they know how to use a ladder. The drama may come from the outside, but far seldom from the agents themselves. It is for these reasons that I am glad the herd has thinned. I no longer have to sift through newbie’s to find a competent colleague. And these are people that know how to return a phone call, pull a property card, review a good faith estimate, and advocate for their clients. I’m not doing their work for them, or cleaning up their mess.

I salute the survivors, and I look forward to closing transactions with them. Together, we’ll help repair the damage done in the past decade and build the public’s confidence in the profession.

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I don’t know what the full story is, and we’ll perhaps never know, but Caroline Kennedy has withdrawn from consideration to replace Hillary Clinton as a New York Senator.  My money is on the idea that once Ms. Kennedy found out that she wasn’t Gov. Paterson’s choice for NY Senator, she took her ball and went home. Regardless, this ends a media circus that taxed my faith in my fellow New Yorkers who thought she’d be a great choice.

Appointing Caroline Kennedy as Senator would be extremely demoralizing to most New Yorkers. She would not have earned it save for her accident of birth, and it would be contrary to the spirit of upward mobility that the current administration seeks to champion. Simply put, nepotism sucks. Yes You Can unless there is a Kennedy who wants it. Sorry.

Enormous deficit aside, my faith in Albany was on the upswing before this spectacle. The Empire State Hypocrite was out of office in disgrace, replaced by a man who appears to be down to earth, honest, and pragmatic. He is visually impaired and a minority. Yes He Can.

But my favorite thing about Governor Paterson is that he signed the Commission Escrow Act, something George Pataki vetoed in spite of the huge legislative (and popular) support of the bill. This was a long time coming, and I am hoping that it is the first of many things that are positive coming out of Albany instead of the partisan gridlock we all put up with.

Frankly, I am disappointed that Ms. Kennedy wasn’t dismissed earlier. From my vantage point this was ego driven, and she got a rush from all the attention, at least while it was positive. If her name were Caroline Faranda she’s have gotten as much ink as a possible Senator as my dog. Her appointment would have rendered the Commission Escrow Act more of an anomaly than a trend.

Here’s to a trend of progress, and not slipping back into politics as usual. I wish Caroline Kennedy well and appreciate her philanthropy, but the delusion that she was qualified to be a Senator would have undermined us all. I hope the new Senator is the best choice for New York and the country and not the best political choice. I also hope that it continues what appears to be a movement to restore New York as the Empire State and not the Red Tape State.

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The chatter has has been for years that the rise of the Internet would have real estate agents suffer the same plight as that of travel agents and stock brokers and be passed over in favor of discount, do it yourself websites. If people can find a home on the Internet, the reasoning was, why would they need an agent? Certainly, non-traditional brokerage, for sale by owner websites and discount models have become prominent, but they have not supplanted brokers. In an efficient market, if the efficacy of those models were so strong, one would expect brokerage to suffer a mortal wound.

And yet real estate brokerage has not declined. One can even make a case that brokers themselves have harnessed the net enthusiastically, with blogs and  personal websites with home search functions. With apologies to Mikey and Life Cereal, they like it.  How can this be? I’ll offer my observations here.

  • You can’t click on a house and buy it. You have to see it, walk through it, smell it, and sit in it. And few do that without a licensee present.
  • Few do that without a licensee present because most buyers don’t want the seller around when they look.
  • Even when the seller is present, most of the time they are deplorable salespeople. I have an interest in a non-traditional company. Believe me, commission “savings” is more than counterbalanced by ineptitude, lack of objectivity, and absence of professional advice. Many a seller has lost tens of thousands in sales price in order to save a few thousand in fees. Penny wise, pound foolish.
  • A trip or a security can be purchased online in 5 minutes. Real estate takes weeks and sometimes months.
  • Travel and securities don’t require an appraisal, title search, certificates of occupancy or engineer inspections.
  • Travel and securities are cash transactions that can be done with a click; real estate is seldom a cash transaction and even when it is, it requires far more due diligence. See prior bullet point.
  • At the risk of sounding Darwinist, overall real estate professionals are a tough and resourceful sort. This is a hard business. Brokers and agents the world over embraced the new technology and made it an advantage. They adapted, survived, and many thrive, even in this down market.  
  • In the same vein, good agents sell more property than mediocre agents. Good agents won’t take a pay cut to work for a discounter. Better agents work where they’ll earn more.
  • Brokerage is more than bird-dogging for a house. Who saw the house first is immaterial, and handling the shifting landscape of the transaction requires representation. People know that a few percentage points is a bargain for what they get in return, anecdotal horror stories aside.

    Interestingly, some of the non-traditional enterprises such as Foxton’s and Iggy’s House that endeavored to harness the net and gain market share via discounting failed spectacularly. The market is efficient; these concerns should have thrived if the models were viable. They weren’t. If the Internet were going to kill our business, it would have years ago. Until people can buy real estate for $500 immediately without seeing it, consumers will need our services. And that is a good thing.

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    More and more people are buying foreclosures and short sales, and many agents are recommending they do so. Many of these homes are assessed at a far higher value than their last purchase price. If you bought a home for $500,000 and it is assessed for $625,000, then you are overpaying your taxes.

    Of course, municipalities aren’t bending over backwards to make the process terribly easy. Most places have a certain day devoted to property tax appeals, and if you don’t make it in that day you are out of luck for another year. These are the same people who raised taxes with impunity in the hot market period. They should make appealing taxes available on a rolling basis- January, April, October, whenever. But my local government has one day in June, period. So call your assessor, get that day put on your calender, and show up with all of your closing papers.

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    I have started a blog on short sales, focusing past success stories from the files we have closed. The link will be added to the sidebar.

    http://newyorkshortsaleblog.wordpress.com

    I have also created a website for my company devoted completely to our expertise in short sales and heping our clients avoid foreclosure. That link will also be added to the sidebar.

    http://www.NYShortSaleTeam.com

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