LA real estate

Doing Something Isn't The Same As Doing The Right Thing

Dire situations require that we do...something.  Our leaders need to show us that they can solve problems so they try their best to do...something.  But sometimes, something isn't enough.  And sometimes, if it's not the right thing, the problem actually grows.  And since this is a real estate blog, the something in question has to do with today's housing meltdown.

Right now there are competing bills in Congress that are designed to do something about the mortgage fiasco.  Two popular bills offer a bailout to homeowners by re-writing their current home loans at 85% of their homes' current appraised value.  That's certainly something.  Is it the right thing? 

Personally, I think the problem is more complex than either side makes it out to be.  And the first question we need to be asking about these questionable loans is, 'Can the homeowner even handle the reduced and re-written mortgage?'  Because the mortgage community was encouraged to give a loan to virtually anyone who chose to apply, we have lots of folks living in homes who should NEVER have been approved as home buyers.  Their credit scores tell the story -- they don't honor debts, don't pay on time and don't have the financial resources to recommend them as a good credit risk. 

We won't resolve much if we continue to try and create some sort of program for a large group of homeowners for whom any program will be the wrong program.  And that's where doing something could make everyone's problem worse.  Can you imagine coming through the other end of a $300 billion dollar bailout and still not seeing greater stability in the housing arena?   I guess I'm not convinced that changing the payment will turn someone who isn't a qualified homeowner into someone who is.  And we can ill afford to experiment here.  For the good of all the innocent bystanders, whatever is announced as "a solution" had better be one!

So what's the right thing?  Can you even imagine the government trying to go household by household, determining if the homeowners who are in trouble are otherwise well-positioned to be great homeowners?  That's not the answer...in fact, I'm not sure that there is an answer here, but it doesn't seem to me that it's going to be an easy answer.  Probably not reducable to a 15-second sound byte.  And so we'll probably end up doing something.  Here's hoping that none of it gets splashed on you.

No Love for Brokers

I had an opportunity to read a Future of Real Estate Marketing blog post from 2006 today.  The post was titled, Brokerate broken? and it talked about the fact that Brokerate.com, an online feedback system for real estate brokers in New York, had to disable the Comments feature on their site because of the amount of negative feedback being written about brokers.  Since that time, the web site has ceased to exist.  Unfortunately, the animosity aimed at real estate brokers by the general public has only grown stronger.

Think of how much has changed in the real estate market since 2006.  Yet the almost singular constant is that the public held real estate brokers in contempt (or worse) then...and they hold us in contempt (or wore) now.  Just a quick overview of comments posted to most any real estate blog indicates that this is the case.  And that's in spite of those spiffy NAR TV spots.

So what is a real estate broker to do?  It's a question I ask a lot lately, as I am about to join those ranks.  I've answered the question this way:

• Accept that parts of our industry are broken and in need of replacement. 
• Be willing to see things from our customers' point of view...and give them credit for somehow arriving at their conclusions in an appropriate manner (in other words, they aren't all on drugs!)
• Make change your friend.
• It's okay not to have all of the answers if you're at least asking the right questions.
• Recognize that today's market gives you the perfect opportunity to try almost anything to effect a new customer experience.
• Make technology important as an enabling agent and not as a solution.
• Get comfortable with transparency.
• Don't be afraid to fail, re-tool and try again.
• Learn to communicate clearly.
• Tell the truth.  No matter what.

I don't perceive a single complex concept here.  Hardly an original thought.  But something is standing in the way of so many brokers who aren't considering some of these ideas.  It can't be the safety of the status quo.  There is none.  In fact, the status quo is almost guaranteed to put you out of business.  So what is it?  I don't have the answer to that question...but I'd be lying if I said I wasn't grateful for it.  It's setting the stage for me and countless others to step up and get our own at-bat.

Numbers Don't Lie. But Some People Do.

L.A. Times blog LA Land carries a post about think-tank Center for Economic and Policy Reserach projecting the nationwide loss of $6 trillion in home equity, equating to a loss of $85,000 in wealth per homeowner over the coming year.

Getting past the sticker-shock of the amount of money we're talking about here, this projection, based upon the numbers released in yesterday's Case-Shiller home price index, strikes me as particularly ironic in light of the NAR's current TV spot.  You know the one, where the friendly announcer reminds us that home ownership still represents the biggest & bestest way to build wealth?

If you check the fine-print at the bottom of your TV screen the next time you catch the NAR spot, you will see that this sunny statement of pretty wonderful future events is based upon a survey conducted in 1995.  That's right.  As in 13 years ago. 

Almost every day, I come across a blog written by a well-meaning Realtor that reminds us how today's "market" is somehow the manifestation of our own mindset.  And those of us who are more cautious and less sure of its upside are just mucking things up for everyone else.  Well, here is where my frustration just runs a bit on the wild side.

On the one hand, we have the NAR speaking for our industry when it goes on television and quotes from a 13-year old survey as if things haven't changed since the days when that survey was relevant!  On the other hand, we have a Washington think-tank using statistical trends from (literally) yesterday.  And their conclusion is far different from the one being espoused by the NAR.

Now, this is the part of the post where I repeat what's becoming my constant plea.  At a time when the credibility of our industry is being called into question,  real estate professionals just have to respect themselves and their prospective clients enough to tell them the truth!  Even if it means said clients may wait a bit before jumping into the home-buying waters.  As an industry, we can gain so much in the long run by dealing honestly with the circumstances that create our market, rather than scurrying back to another decade to find facts that support our wishful thinking.   We can be better than this...and we must be better than this.  And if the leadership isn't going to come from the top, then it can come from how each of us chooses to deal with our clients.  Starting today.

And Now, Some Bad News from the Real Estate Sector

Sorry for that short-term disappearance...as I've hinted at before, I'm in the final hours of launching a new residential real estate brokerage in Los Angeles and the last mile to be plowed turns out to be toughest.  But you will be hearing quite a bit about our new business model when we finally get ourselves launched during the latter part of May.  The company is called homsho.  And that's today's hint.

On to more serious matters...Peter Viles at LA Land has posted a sobering report from investment bank Credit Suisse.  The report is titled Foreclosure trends: A sobering reality.  And they mean it.  Likening the foreclosure mess to a baseball game, the report indicates that, "We are at best in the third inning ... global real estate investors are in the early stages of meltdown."

The report goes on to project 5.3 million foreclosures on the horizon in the United States (to go along with the 1.2 foreclosures already on the books) with housing prices falling 10% this year and another 5% in 2009.  (And to reiterate, into this ongoing disaster I will be launching a new real estate company.  Needless to say, it's gonna be different!)

Of course, we can pile the coming Option ARM debacle onto the other known "situations" out there, and we have a real estate market that will have re-defined the term "disaster" when all is said and done.

And yet I consider myself an optimist.  I believe that out of chaos comes opportunity.  And we in the industry who survive this disaster of historic proportions will be faced with the opportunity of re-inventing a real estate marketplace that's, to quote the opening of the Six Million Dollar Man,"better...faster...stronger.  We have the technology..."  All we need is the business creativity, vision and passion to execute.  How many of you are ready?

What if the Bailout Lowered the Value of Your Home?

It seems as though once the Fed bailed out Bear Stearns, it became easy for our elected representatives on both sides of the aisle to say, "If the government bailed out Bear Stearns, how can we ignore all of those homeowners desperately hanging on...?"  And so, within a matter of days, a homeowner mortgage bailout went from being  hotly-debated to being acclaimed by all.

Since Congress is spending today considering the details of a bailout, I thought that we should take a closer look at just one of those details.  The plan being offered by Congressman Barney Frank, as well as a near-identical plan being backed by the White House, provides for $300 billion in home loan guarantees by the FHA for loans on homes purchased in 2006 and 2007 provided the monthly mortgage payment currently exceeds 40% of the homeowner's income (virtually every home on the Westside of Los Angeles purchased with a No Doc or Easy Doc loan). 

In order to qualify for the government guarantee, lenders would have to take large write-downs on these loans because the FHA is only guaranteeing up to 85% of the home's current appraised value and then charging the homeowner 90% of the value.  Here's an example:

New home buyer purchases a $400,000 home with a 100% mortgage in 2006.  The home has lost 10% of its value, so its current appraised value is $360,000.  The FHA guarantees the loan to the bank at 85% of its current value, or $306,000 and the current homeowners receive a new 30-year fixed loan for 90% of the home's current value, or $324,000.

Now, let's walk across the street.  To an identical home.  Same floor plan.  Same square footage.  Same lot size.  Same value.  The neighbors across the street?  The ones who are current with their mortgage payments and aren't considering moving or selling?  Their home now has an updated "comp" of $324,000.  Just like foreclosure sales become the new "comp" in a neighborhood, so will the estimated millions of these "bailut re-fi's".  Ouch.

Back to the Future?

Did someone in the real estate industry declare this past Saturday as "Throwback Saturday"?  That would at least explain a few things.  I started my Saturday morning by casually browsing through the L.A. Times real estate insert.  All 112 pages of it, 90% of the insert made up of agent-paid advertising.  Looking at page after page of the kind of ads that NAR statistics tell us haven't performed for years, you'd think it was 2004/2005 all over again and agents just had money to burn. 

And then I came across the 5 full pages congratulating Coldwell Banker's top producers, complete with a tiny mug shot of each agent.  I understand that agent recognition is an important part of agent retention, but I'm confident that if we devoted just a moment's thought to this, we could find a better way to recognize our successful agents without this type of accolade.  Didn't Coldwell Banker get the memo that when everyone claims to be "Top This or That" it all just loses its meaning?  And 5 full pages of Top Producers certainly proves that hypothesis.

Then I came to a full-page ad for Keller Williams Westside properties...and the folks at Keller Williams Westside felt compelled to feature their mission statement in their ad.  Here you go:

"To inspire individuals to lead and achieve world class results in business and life"

I'm guessing that the "individuals" referenced in their mission statement are their agents.  And, someone please remind me, they included this in their ad because why?  Are they so drunk on their own Kool-Aid that they think people outside of their company care about their mission statement?  And, by the way, if you're going to feature a mission statement in advertising to the public, wouldn't it be great if your customers were somehow included in it?

Directly after finishing the Times real estate insert, I went to check my email and saw that I had received my weekly REALTOR Magainze Online.  The featured article is entitled, "10 Giveaways Your Prospects Will Remember."  So for the majority of real estate agents in this country who have not closed a deal throughout 2007, and may not have closed one so far in 2008, the NAR wants you to know that giving away an emory board or perhaps a pie may turn your world around.

Are any of these things truly bad things?  I don't really think so.  What is bad is the wrong-minded timing and emphasis on these kinds of things.   I don't mean to sound like a broke record, but I don't understand how the smart folks at the NAR and the smart broker-owners throughout Los Angeles seem to think that the best way to work through today's real estate market is by total denial.  I don't understand how we can be in the midst of the most serious financial hiccup this country has faced in most people's lives -- a hiccup that is tied directly to real estate -- and the real estate industry still refuses to share in its burden.  Most of all, I don't understand how smart sales professionals, who know that the first step to a sale is creating rapport, seem to be doing everything possible to destroy both rapport and credibility with our customers.  Until that changes, most of us in the industry may actually deserve what we've been getting.