If tomorrow never comes

The real estate industry is changing.  Buzz words like “traditional broker”  and “brick and mortar office”  are creeping into discussions about what used to be.  New thoughts and theories abound regarding the direction the industry will take as recovery from our 5 year nightmare begins.

What will tomorrow bring?

I can only guess.  If you step back and look at other industries, you can see that change is inevitable. The economies of scale has been accused of creating a landscape that is hostile to “mom and pop” companies from coast to coast.  I am not an economist.  I do understand that in most cases, profit is king.  The entertainment industry underwent a transition over the last 10 to 15 years.  Vinyl was replaced with 8 track which was replaced with cassettes which was replaced with compact discs which are being replaced by mp3’s.  The distribution system used to be record label to distributor to warehouses to retail warehouses to retail stores to shelves and out the door.  Today there are few distributors left and shipments are made directly to stores.  Record labels shut down regional offices and everything became a small circle with only very large players.  Those living in the DC area will remember Super Music City, Kemp Mill Records and Tower Records.  They could not order enough product to get the attractive pricing enjoyed by national chains. They lost money. They are gone.  The same sort of shake out has occurred in many industries.

Sign of the times

I had the opportunity to see life on the other of the fence.  Long and Foster appointed me “acting” manager of their Olney office in the Spring of 2009.  I got to witness first hand the frantic in-fighting that occurs behind closed doors. Traditional brokers face a changing landscape that not only includes a market that is filled with uncertainty but direct assault from other players that want to get into the business.  Firms that own more buildings than they can afford to maintain find themselves in the same dilemma as their clients.  Values have plummeted.  The value of commercial property has taken the same sort of hit that residential property has suffered.  The resources to maintain multiple offices are directly related to sales and commission splits with agents.  Brokers are faced with mounting expenses and less income.  Something has to give.  The fall out from the situation is seen across the country as “mom and pop” brokerages shut down and larger firms close offices.  Buzzwords abound that attempt to paint an optimistic slant on the changes.  Firms that do not come up with new plans will either be sold or shut down.

Banks have visions of becoming brokers dancing in their heads

Real estate agents are independent contractors.  The sign agreements to work for a broker.  Some agents become brokers and work independent of anyone else.  Most agents prefer to “hang their license” with a broker.  The industry has been that way for years.  The agent agrees to share a portion of their commission with the broker and the broker agrees to supply the agent with support, etc.  There was a time, when all agents began with a 50-50 split with the broker.  As the agent sold more, the broker agreed to increase the amount of money the agent received by reconfiguring the split.  Agents began seeking higher splits.  Successful agents would shop their talents to competing brokers and many were successful in garnering a larger share of the commission.  This system led to the fact that most traditional firms needed new blood to make a profit.  Agents were put under contract if they passed the state exam and had a pulse. Most of them failed within the first two years but the broker kept a large portion of the commission on sales that were made. (It is no secret that many agents got a license just to buy or sell their own home).

Then firms like ReMax came along with a different plan

The traditional brokerages were faced with a new dilemma.  Firms, like ReMax, came along and offered franchises to brokers that wanted to run a different business.  The agents in this system would pay a monthly fee to the broker and the agents would keep all the commission earned.  This plan was later altered to allow the agents to keep 95% of all the money they earned.  The agents could work from home.  If they wanted to have office space, they would pay rent.  The agent was responsible for all their expenses.  This seemed like a great idea to many agents.  They could control their expenses and keep almost all of their commission dollars. The brokers could budget based on the number of agents they had working for them.  It seemed like a perfect plan.

Then bundled this and bundled that unraveled

The absolute collapse of the economy came on the heels of  Wall Street  scheming.  The mortgage industry began to fold.  The government had to step in and bail out almost every major financial institution.  Housing sales began to slow down.  Requirements for a mortgage began to tighten.  Fewer people could qualify.  Prices that had skyrocketed everywhere in the country began to recede.  A few years passed and interest rates on adjustable mortgages began to reset.  Home owners began to fall behind.  Home owners that had taken equity out of homes during the good times began to see the values drop and found themselves “upside down”.  Borrowers that took out risky adjustable rate loans could not pay the new payment and discovered the home was worth less than what they owed.  The market fell apart.

The facts indicate, what has occurred is only the tip of the iceberg

Home values have plummeted about 30% in many areas.  They may continue to fall.  The “shadow” inventory of bank owned property that is not on the market continues to grow.  The basic laws regarding supply and demand will probably force home prices lower before they begin to rise.  In average times, home values could be expected to increase about 3% per year.  Simply put, if you begin on January 1, 2011, it will take about 10 years for your home to reach the value it had before the collapse.  TEN YEARS.

This is not like any real estate market that has ever existed.  There are some comparisons to the time period after the Great Depression, but this is a market members of the industry today have never experienced.  It is not a market like when interest rates hit 14%.  It is not a market like the early 90’s. This is a market that is a mystery to everyone.

Some brokers will survive.  Some agents will survive.  The costs of staying in business will have to be shared.  Agents will have to accept that if they want to keep more than about 75% of their sales generated commission, the will have to get a broker’s license and operate on their own.  Broker’s will have to accept that they will need to offer basic services to all the agents under them in return for about 20% of sales generated commissions.  Agents have forever borne the risk of succeeding.  Brokers will have to become more judicial in their decisions of whom to bring on board.  The more prestigious the broker, the better the agents, the more successful they will become. Branding competence instead of yellow signs or balloons or pictures of antiquated founders will increase credibility with a skeptical public.

This logo should mean more than the correct spelling of Realtor

The larger players are going to win. It has happened in every other industry. The challenge will be whether the new face of real estate is based on actually performing according to the Code of Ethics or will real estate go down the road of Wal-mart and other national chains that have gobbled up the retail industry.  Brokers and agents today have the opportunity to shape tomorrow.  If they sit and continue doing business as usual, they will discover that they may have been replaced by the bank teller or some version of on-line agency.

If tomorrow never comes, we can keep going down the same road.  But tomorrow always comes.

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Wall Street Journal vs. Time Magazine … both wrong

The boys and girls on Wall Street answer back

to

Of course, Time was refuting it’s earlier entry

Note: This one seemed to support the boys and girls on Wall Street

Spin doctors are found everywhere.  Give someone (myself included) and they can pontificate ad nausea on any subject.  Give enough advertising money to a publication and benefactor and editor become one and the same.  This is nothing new.  Just as sure as the Bride’s family is paying the freight, the wedding will be planned by them.  The practice in publications occurs at the smallest level all the way to the top.  In your local paper, that interesting article by a local real estate agent is not news.  The article is bought and paid for by that same real estate agent.

The recent bout of dueling opinion makers in the housing industry is playing out for a national audience. We can overlook that in the past Time was a big proponent of home ownership.  There most recent entry authored by Barbara Kiviat offers her thesis on the down side of home ownership.  Babs offers that home ownership has been the ruin of the inner cities and lays the blame for the entire mess at the feet of FDR.  She points out that homeowners today have $6 trillion less in housing wealth than they did three years ago.  She doesn’t say where it went or explain. She just says it is gone.

Hmmmm, interesting.  Just gone? Here is the truth. It is not gone. It was either the result of  “paper gains” that were never realized or it was transfered from housing wealth to personal goods via home equity loans or cash out re-fi’s.  Home values have gone down.  Home values have gone up and down over the years. The value of everything has gone up and down. The overall gist of Bab’s piece seems to point to a government conspiracy to fool unwitting American’s into believing that buying a home was a good idea.  Or maybe Bab’s is a closet socialist that believes that no one other than the “state” should own homes.

The Wall Street Journal has come back with a repartee authored by Brett Arends.  Brett shares luke warm feel good arguments in favor of home ownership. One of his eureka moments is item number 4 in his top reason list…”It will be yours”.  I can only think that he had what he considered to be 9 good reasons and his editor told him that David Letterman made the big time with a top ten list and nine just wouldn’t do. Faced with this dilema, Brett came up with “It will be yours.”

One thing is readily apparent in both articles. Neither author has a clue about real estate or what is happening in the market today.  The Time magazine piece is mis-labeled and appropriately offered on September 11.  It seems that the editor’s at Time forgot the date and felt that a poorly written and horribly researched piece of drek deserved a cover rather than reflecting on what most American’s were thinking about that day.

Memo to Time editors…9/11 was a big deal and most American’s would prefer that it be recognized.  Ask any survivors from Pearl Harbor if they think a cover on December 7th should feature a story about the authenticity of Santa Claus.

Regarding the Wall Street Journal piece.  When most American’s consider real estate and the market, they do not factor in investors and corporate buyers.  They sort of feel that the real estate market for new homes is primarily made up of folks, just like them, that are looking for a new home.  They consider it a buyer’s market when there are less buyers than homes available.  They consider it a sellers market when there are less homes available than buyers.

Using less than empirical data to claim this is a buyers market is asinine and it goes on all the time.  It is a claim that indicates that the person or entity making the statement is far removed from the reality of the market today.  I will agree there are a lot of properties for sale.  If you look beyond the for sale status and did a little deeper, you will find the numbers are swelled by “short sales” and “REO sales” and “bank owned sales” and every kind of third party influenced sale imaginable.  (For a moment, let’s just overlook the fact that foreclosures are up in the air again.)

People that are looking to move, usually need to have access to their new home within 60 days of a ratified contract. They can not wait the 3,6,9 or 12 months necessary to complete a short sale (the contract may be ratified but the contingency period is deadly).  Most buyers require a clear title at closing. The problems that exist with over 75% of the homes “on the market” precludes them from being available with in that 60 day window.

The amount of “truly” available homes in every market in the country is minuscule compared to the number of people seeking to purchase a new home.

End of story.

It is not a buyer’s market.  The last buyer’s market was a paper tiger fueled by haphazard loan underwriting and minimal credit standards.  The current market’s buyers are qualified and seeking a home within a reasonable price range.  The number of available homes is disheartening.

Now, if you happen to be a buyer that is seeking to work with an agent that understands the true dynamics of this market, I would love to discuss your goals.  If you are a seller that wants an agent that understands you don’t have to give away your home today, I would welcome the chance to speak with you.

Please call 301-509-5111 and let me know what it is that you need.

 

Lourdes Tudela-MacArthur and John MacArthur

My name is John MacArthur and I work with Lourdes Tudela-MacArthur.  We offer pragmatic advice concerning the buying and selling of homes in Maryland and Washington, DC.  You can learn more about us at Hot Metro Homes

Real Estate is not now and never has been your greatest investment

What ever are they thinking ?

I posted a blog today.  It focused on John Paulson’s message that “now is the time to buy”.  My good friend Lenza poked fun at the industry in a recent blog about catch phrases.  One that is often bandied about is “Real Estate is the best investment you can make”.  People produce charts, graphs and statistics to back up their claim.  They pit real estate against the stock market.  It is all poppy cock.

The people that are urging you to accept the notion that real estate is your greatest investment have a vested interest in your buying into that thought.  They want to finance your purchase, they want to represent you in the purchase, they want you to buy their listing, they want to appraise your purchase, they want to settle your purchase and some of them are looking for your business after your purchase.  For these people, nothing happens until you decide to make a purchase.

They are patiently waiting for you to shake that money tree.

I am a real estate agent.  I don’t make a dime until I represent someone that either makes a purchase or sells a listing.  I do make nominal income with rentals, but I need someone to buy or sell to make a living.  I do not believe for one minute that real estate is your greatest investment. It never has been and it never will be.

The basic value in real estate is shelter.


Shelter is at the bottom rung of Maslow’s Hierarchy

If you look at the chart, the goal is self actualization.  Making money certainly may enable you to take care of the items on the bottom rung.  The government seems to be in charge of the the fourth level.  The third level is a challenge. It requires that you reel in your ego and self interests and learn to get along.  This lesson begins when sharing the sandbox with other children and is constantly being re-learned as you grow old.  The second level involves the ego.  Often, every accomplishment here requires that you return to the prior level and rework your people skills. Once you are able to achieve level two without rocking the boat on level three, you reach level one.

I am here to tell you that level three is the area of your greatest investment.  There is no immediate monetary reward for this level.  This level requires that you put the interest of others before your own. In doing so, you actually are putting yourself in position to grow.

This is not a bible thumping message.

I have lived a full life.  I have bounced back and forth between levels two and three more times than I can remember.  For every person that remembers me fondly, there must be three or four that remember me as a jerk.  I have learned through life experience.  I too chased the American Dream and made several attempts to put the right pieces in place for the picture to be complete.  I have made stupid mistakes and mistakes out of selfishness. I have failed in jobs and relationships.  I spent a lot of my adult life thinking self actualization was a state in which you had it all. I now know, that is not true.  When you have acceptance of your short comings and belief in your strengths, you are in position to be the best you can be.

Your greatest investment is in yourself.  Never accept less than you deserve and never offer more than you can give. Be the person you are. You can strengthen your weaknesses, but never do so at the expense of your strengths.

This is the United States of America.  It is not perfect.  The country has faults.  All countries have faults. The advantage you have in this country is that you have the first two rungs by default!  This is not a “pollyanish” belief. Yes, there are those that choose not to live in the same accommodations that others demand.  Yes, there are those in our society who suffer from one dementia or another.  I stand by my belief that in this country, you have the first two rungs.  You may get style points from your neighbors as you move up in status, but at the core, you have the first two rungs and nothing more.

The third rung is where you become an active part of the equation.  This is when you have to reel in your desire to be the most important person in your world and accept you can only be important if you fulfill the needs of others. As I have moved through personal challenges and work challenges, I have been thwarted by my personal demons.  I had to recognize them and conquer them, one at a time.  It is a work in progress.

The work would never have begun and my journey would have ended fruitless had I not recognized the importance of investing in myself.  There is no dollar figure on progress.  There is no monetary return on the investment.  There is no honor in the mis-steps.  When I have clung to the Waylon Jennings line ” I can’t say I’m proud of all of the things that I’ve done, but I can say I’ve never intentionally hurt anyone”,  I have overlooked that there is a reason that the proverbial road to hell is paved with good intentions.  At the core of such professed innocence is a lazy, self absorbed ego that can not see the needs of others and gently plows through where angels fear to tread.

There are a lot of lessons learned

What in the world does this have to do with real estate?  As I enjoy the twilight of my life, I become a bit frustrated with those that continue to hawk dirt.  I do not enjoy the subtle guilt trips included in messages from the NAR.  I disagree with the agents that continue to extol the virtues of buying a home.  As news of all the things that have gone on in this industry over the last 4 years becomes public, I am ashamed.  I am as guilty as the next one.

Things change

In late 2007, I had just completed another very successful year in real estate.  To quote Casey at the bat, “there was no joy in Mudville”.  My partner at the time cared very little about anything other than the bottom line.  The needs of clients were being set aside in favor of my partner’s thoughts, etc.  Homes were eliminated from review based on the amount of commission being offered.  Money was coming in and being spent quickly.  I quit.  I severed the relationship. I had to face friends and acquaintances admitting that yes, I had chosen that person and I had made a big mistake.

As soon as I began working with my current partner, my life changed. Our focus has always been on what our clients asked us to do for them.  We have enjoyed success personally and professionally. I found the balance between level three and level two.  It is no longer scary to walk that tightrope.  I have allowed myself to trust those holding the safety nets.  I learned that real estate is not now and never has been your greatest investment.

I am humbly as possible reaping the rewards of investing in myself.

I strongly encourage you to do the same.

 

Nobody’s perfect…but 67% ain’t bad

Babe Ruth’s Plaque in Cooperstown

Let me begin with a lot of generalizations (that one must accept to understand the point).  Babe Ruth is considered to be “the greatest baseball players of all-time”.  He began his career as a pitcher. He spent his first ten years and won 96 games while posting a 2.28 earned run average against him. Over that ten year span, opponents managed to hit only 10 home runs when he was pitching. He then became a position player and held the all-time home run record until Henry Aaron eclipsed him. (Personal note…Barry Bonds better hitting through modern medicine’s records are a sham).

So, this icon, revered by many, set marks that still amaze statisticians. There is another side to the coin. He lost 33% of the games he pitched.  That’s right, he failed one third of the time.  Over his last five years as a pitcher, he only struck out 35 batters. He gave up more than a walk or hit every inning he pitched over his career.  Anecdotally,  Babe was in the bull pen one day. The starting pitcher walked the first batter he faced and argued with the umpire about the call. The starting pitcher was tossed from the game.  Babe came on in relief, picked the runner off first and retired the next 26 batters in order.  It was never recorded as a perfect game.

As a hitter, there are many great stories about Ruth. There was the time when he “called his shot” , pointing to the center field seats while in the batter’s box. He took two strikes and deposited the third pitch beyond the center field wall.  He was hitting 30,40 or 50 home runs per season when his closest competitor was in the teens.  He was not just a home run hitter.  His lifetime batting average was .342.

But yes, there was a dark side.  He failed to reach base safely via a hit 66% of the time. He failed to put the ball in play 1,330 times because the mighty Babe struck out.  That’s right, Babe Ruth almost struck out twice as many times as he hit the ball over the wall.

Still, Babe Ruth is considered the greatest ball player of all time!

Today, reports are being revealed regarding all the home owners that have been approved for a loan re-modification.  It appears that those using the HAMP process are more successful than those going through their lender on their own.  89% of those using HAMP have been able to continue paying their new mortgage. 78% of those going through modification directly with their lender are staying current.  Roughly speaking, if you add the two together you can either determine that on average 83.5% of the folks are staying current or at worst, 67% per cent of those in this situation are staying in their home.

Wow…..67% of those that have their mortgage modified via HAMP or just through their lender are remaining current.  Common sense told us that everyone could not be saved. It is heart warming to see that well over half the people that have tried, have succeeded to this point.  Put this in perspective…if 100 homes were heading to foreclosure…67 will continue to be maintained.  Bravo to those that are still doing their best and to those that have failed…you tried and that is much more courageous than “just walking away”.

SO  WHY IS THIS BEING REPORTED IS SUCH A NEGATIVE LIGHT?

All we read about are the “strategic defaults”  and homes left abandoned and how people have no sense of personal responsibility. It is not true.  The media seizes sensational negative spin and forces it down our throat via t.v, newspaper, talking heads and what ever else might garner them a bigger rating.

My friend Richard Iarossi recently shared “Remember the news is not always the truth.”  Well, Richard, from my point of view, ” the truth is not always the news.”

Nobody’s perfect  …  but 67% ain’t bad

Baby Boomers Babies Backlash

There. I think that sums up the past few years of the real estate market in the Maryland suburbs outside the District of Columbia.  I originally posted this entry in January of 2007.  It was rather rough and I have tried to spruce it up a bit. The story remains the same.

Yes, I am pointing that collective finger at my peers.

The children of post World War II were labeled the baby boomers. Their history is still being written. They witnessed more change and turmoil than any other generation. They grew up in homes that were parented by adults that in many cases had lived through the great depression. They watched “Leave it to Beaver” and “Father knows best”. They rebelled against the status quo and gave the world Woodstock and political upheaval with anti-war demonstrations during the Viet Nam era. They became parents.

It is their parenting that led to the current group of young adults. Baby boomers reacted to the upbringing they endured. They went to great lengths to make sure that their children never had to suffer the indignity of hand me downs and non-name brand clothing. They made sure that their children had a safe automobile when they reached driving age. They made sure allowances were available.

Something got lost in the love that was shared.


The sense of understanding the value of the nicer things in life somehow morphed into a very strange sense of entitlement. The perception of earning and working for long term goals was replaced by the sense that “I want it now!” is justified.

Apparently, when the need to earn money is replaced by parental grants, the understanding of the value of money is lost. Price tags no longer have a relationship to hours worked to earn the cost of the item. Price tags have just become another number.

Our market saw incredible increases in home prices. Income did not go up at the same rate. There was a perceived reduction in inventory. The reduction in inventory did not create such a shortage that prices would increase as dramatically as they did. There were a few factors that fueled the fire.

You don’t need any cash, just a signature will do!

Traditional mortagages were cast aside in favor of newer non-traditional loans. The children of the baby boomers were presented with new options for financing their home. They would not be saddled with the old 20% down and finance 80% over 20 years. The new home buyer could now pick and chose from a plethora of programs.

100% financing became vogue and interest only loans came into favor. These changes increased the buying power of those entering the market. ( The changes probably decreased the chances of the loans ever being repaid according to terms)

What occured is history. The scenarios played out across the area were something like this. A young couple starts looking for a home. They meet a Realtor that advises them that they need to be pre-qualified in order to begin searching for a home. (This is normal. You have to know what you can afford to set your home search criteria? The new agents never learned the art of pre-qualifying clients.) The young couple calls a Mortgage Broker and finds out that they can qualify for a $600,000 loan.

They don’t stop and realize that they will have to make timely payments on that $600,000 loan. After all, if they could not afford it, the lender would never have qualified them for that amount. (This happens a lot. After all the lender doesn’t have to make the payments for them.)

Pre-qualification letter in hand, the young couple begins searching for a new home. They find many that meet their criteria. They decide on one and ask their Realtor to prepare an offer. Unbeknownst to them, a few other couples have been searching and they also selected that home. The seller receives multiple offers and the bidding war begins.

The home may have been listed for $450,000. Other similar homes have sold for $450,000. The home is actually worth $450,000 at the beginning of the bidding process. Our featured couple decides that they will pay up to $460,000 for the home. The home sells to another couple for $465,000. Our featured couple is crest fallen. The couple that bid $465,000 has an accepted offer (Now faced with hopes that the home will appraise. Hmmm, for some reason, they always seemed to appraise just a bit higher than the contract price).

Our couple strikes out again. They find another home and go through the same process. They lose again. They ask the Realtor “What can we do?” The Realtor explains that patience will win out and that they will find a home.

Unfortunately, the young couple decides that they will get the next home come hell or high water. They look and find another home to place an offer on. They instruct their Realtor to use an escalation clause that will go to the max that they are qualified to spend. (The Realtor explains the escalation clause. The Realtor probably does not explain that the escalation clause is not worth the paper it is written on.)

The place an offer on a $450,000 home and win with an offer that is $600,000. They somehow believe that the home is now worth $150,000 more because they were willing to pay that.

Today that couple is sitting in a home that could sell for maybe $500,000. They owe $600,000 on the property because they have been paying interest only. They got the house.

How did this happen?


Baby boomers tried to make sure that their children were never lacking anything. It seems that this focus was on material things. Somehow the baby boomers forgot to instill a sense of value in things. Somehow these children never learned that the monetary value of desire is like quicksilver or fool’s gold. There are practical rules regarding the value of real estate. Our prices are in the process of adjusting. The fancy non-traditional loans are resetting every year. As interest rates increase, the monthly cost of “I have to have that home” is increasing.

Now is the time for new buyers to learn from the mistakes of the past. Advice for them is quite similar to very old adages. Buy today what you can afford today. Plan for tomorrow based on fact and not emotion. Seek credit and financial counseling so that you truly understand the value of the dollars you earn and purchase accordingly.

Money never has and never will grow on trees. It really should be earned.

Oh, and before you buy your sixteen year old child a brand new car, think about the message you are sending and the lesson you are teaching. They only inherit the future and all the opportunities. Handing them everything before they learn life’s lessons only sets them up to fail. When they do, we all fail.

About the author: John MacArthur is a real estate agent working in the Maryland suburbs of Washington,DC. He and his partner, Lourdes Tudela have consistently been recognized in the top 1% of agents nationwide. If you would like to speak with John regarding real estate buying or selling, you can contact him at 301-509-5111.

They followed the rules … now where do they go?

We are working with clients that need a home.  There is nothing unusual about that fact. That is what we do for a living.  Usually, we gather the data…you know how many bedrooms and bathrooms they need…when they plan to move and why they are moving.

In the past, having the data was sufficient.  We could go to the MLS and begin searching for listings that met their criteria.  If they were buying, we would verify (as best as possible) that they could qualify or had been pre-approved for a loan.  If they were renting, we would ask directly about their credit history and rental history.

Something old in volumes quite new has changed the landscape

People that bought a home during the real estate boom have increasingly found themselves upside down or in a mortgage that has reset and become impossible to pay.  These are not all bad people. These are not people that were trying to take advantage of the market.  These are your neighbors and mine. These are the people you see in Starbucks and at the subway stop. These are a cross section of Americans in every walk and way of life.

“What to do?” has been the question that has had more than one answer.  The Federal Government has issued proclamation after proclamation that they are working on the problem.  The have offered incentives to banks that are willing to work with people in trouble.  The banks have their own set of rules, that appear from afar created only to maximize their gain and negate potential losses.  Banks will not work with customers in trouble until the customer falls behind. Banks will not begin working with a short sale, until there is a contract.  It is obvious to all of us that have to work in this quagmire that something is terribly wrong.

If you follow “the rules” , things will eventually work themselves out.  Really…. here is the truth.  The system does not work and everything being shared is essentially…

You see, if the family stays in the home and stops paying the mortgage and attempts a short sale…they are screwed.  It is their credit that takes the hit.  They remain in the home, while some half baked agent guesses at a sale price and hopes it is close to what the lien holder will accept.  While the process plods along, the homeowner thinks they are doing the right thing. They do not realize that once the house is sold, they will have few choices about where they can move.  Thoughts of schools, neighborhoods, commute time and any other consideration will have to fall by the wayside.  Their only hope will be to find someone willing to accept them as a tenant with the short sale ding on their credit.

We have had several of these clients.  We have shown homes and written applications and submitted paperwork with a letter explaining the situation. We have traversed one end of the county to another.  Applications submitted, applications denied.  We have notice that the co-op on rentals varies from 25% to 50% of one month’s rent. It explains why other agents are so ready to pass on showing rentals.

There is so much more to share about the seedy side of the housing crisis, but Lourdes and I have to go out and see if we can not find one more needle in a haystack.

If you are looking to rent or buy a home, we would love to help you as well. Contact us at 301-509-5111 or visit our website by clicking this link  Hot DC Homes

Wonder Why the home doesn’t rent?

Signs out front, but the home stays empty.

Empty rentals cost owners money.  This is not some great revelation. It is a fact.  People that own homes they rent, usually do not have never ending reserves to cover the cost of property not producing revenue for months on end. You need to have the home rented.  Some people try to rent on their own. They assume that a sign out front and an add in Craigs List will get the job done.  Some are successful. The rest are left to watch a reserve account slip away.

Some people believe that using a Realtor is the answer.  The Realtor will advertise the property and gather the necessary income needed to determine whether or not an applicant is a good choice.  There is a cost to this route.  Most companies ask that an owner pay one months rent in exchange for the services.  The agent smiles and says that they will offer a portion of the fee to an agent that brings a new tenant to the owner.  This seems like a good solution to the problem.

Still….it does not seem to rent. You read the papers. You know that the demand for rentals has increased.  What ever could be the problem.

Most agents do not want to handle renters.

Oh, you can argue that a good rental agent is building a pipeline of future buyers.  You can argue that in this economy any paycheck is better than no paycheck. You can say a lot of things, but most agents just don’t work with people looking to rent.

Now some might argue that the fair housing laws put the fear of God into agents.  I don’t think so. The fair housing laws only scare those that have less than fair housing motivation.  The law is there to protect, not hinder renters. No, the law is not the reason.  Some others might argue that showing rental property is very time consuming. It really is not.  It is no harder to show a home for rent than it is to show a home for sale.

No, I think one of the main factors that stop agents from showing rentals has to do with the listing agents.  You see, they may charge one month’s rent to the owner.  In the DC area, that can be anywhere from $1000 to $5000 dollars. The hidden secret is that they only “share”  a small portion with the agent bringing the renter.

There are more homes than anyone outside the real estate industry can imagine that are offering 20%, 25% or less as the amount shared with the renter’s agent.  In some cases, that equates to around $300 in pay for the time, effort and expertise used to accommodate the renter.  If you deduct the cost of driving them around, the time spent counseling, etc., the amount of hourly compensation is minuscule.  Faced with the paltry return, some agents determine that it is not cost effective to handle renters and make a business decision to turn down any requests.

Whether it is fair or not,  agents bristle when they perceive that they are receiving less than a fair share of the compensation in any transaction.  Blogs, message boards, water cooler conversations often share heated exchanges regarding commission splits on home sales that are less than 2.5% or 3%.  If the conversation turns to rentals, everyone chimes in on how little is earned for the effort used.

Now there will some “smug” agents that respond to these complaints with “You should guarantee your pay with your client and let what we offer offset what they have to pay.”  This is just a simple way of avoiding the truth.  Agents that pay less than 50%  value the buyer/renter agent at less than 50% in the transaction.  They are telling you in black and white that their efforts are more valuable than yours.

Folks renting ought to know, that smiling listing agent is hoping to pocket the majority of that fee you are paying.  They may offer many reasons why there is little traffic.  If fewer agents are working with renters, there will be less chance for you to stop the bleeding.

If you have property that you need to rent, we share 50% or more with cooperating agents. We share 50% or more with cooperating agents on sales as well.  We work with renters and we get it.  We believe that agents acting as buyer/renter agents are equally valuable in every transaction.

We just think home owners ought to know what goes on behind the scenes.

MacArthur – Tudela

Century 21 Redwood Realty

301-509-5111